<PAGE>
FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
(MARK ONE)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED AUGUST 31, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO ___________
COMMISSION FILE NUMBER 001-12837
PAMECO CORPORATION
(formerly known as
New Pameco Georgia Corp)
(Exact name of registrant as specified in its charter)
GEORGIA 51-0287654
(State or other jurisdiction (I.R.S. employer
of incorporation or identification
organization) number)
1000 CENTER PLACE
NORCROSS, GA 30093
(Address of principal executive offices) (Zip Code)
(770)-798-0700
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practical date. Class A Common Stock, $.01 par
value, 4,652,967 shares and Class B Common Stock, $.01 par value, 4,046,346
shares, both as of October 13, 1997.
<PAGE>
PAMECO CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets-August 31, 1997
and February 28, 1997................................. 3
Condensed Consolidated Statements of Income-Three
Months ended August 31, 1997 and 1996................. 4
Condensed Consolidated Statements of Income-Six
Months ended August 31, 1997 and 1996................. 4
Condensed Consolidated Statements of Cash Flows-Six
Months ended August 31, 1997 and 1996................. 5
Notes to Condensed Consolidated Financial Statements.. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................... 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..................................... 12
Item 2. Changes in Securities................................. 12
Item 6. Exhibits and Reports on Form 8-K...................... 14
SIGNATURES
2
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PART I. FINANCIAL INFORMATION
PAMECO CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
AUGUST 31, FEBRUARY 28,
1997 1997
---------- --------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 130 $ 145
Accounts receivable, less allowance of $3,175 at August 31, 1997
and $2,535 at February 28, 1997 32,434 17,811
Inventories 100,242 107,477
Prepaid expenses and other current assets 1,125 932
-------- --------
Total current assets 133,931 126,365
Property and equipment, net 7,522 5,647
Excess of cost over acquired net assets, net 15,684 8,411
Other assets 453 693
Deferred income tax assets 8,447 8,253
-------- --------
Total assets $166,037 $149,369
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 58,808 $ 57,024
Accrued expenses 20,411 20,717
Notes payable to affiliate -- 14,100
Current portion of capital lease obligations and other debt 149 375
-------- --------
Total current liabilities 79,368 92,216
Long-term liabilities:
Debt 11,681 29,800
Debt to affiliates -- 4,500
Capital lease obligations 221 79
Warranty reserves and other 2,403 1,920
-------- --------
Total long-term liabilities 14,305 36,299
Excess of acquired net assets over cost, net 5,611 6,223
Shareholders' equity:
Common stock, $.01 par value-authorized 60,000 shares; 8,680 and 6,358
shares issued and outstanding at August 31, 1997 and
February 28, 1997, respectively 87 64
Capital in excess of par value 37,051 1,841
Retained earnings 30,215 23,226
-------- --------
67,353 25,131
Note receivable from shareholder (600) --
Treasury stock at cost 1,250 shares at February 28, 1997 -- (10,500)
Total shareholders' equity 66,753 14,631
-------- --------
Total liabilities and shareholders' equity $166,037 $149,369
======== ========
See notes to condensed consolidated financial statements.
</TABLE>
3
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PAMECO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
AUGUST 31 AUGUST 31
-------------------- -------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $146,460 $118,126 $260,195 $212,454
Costs and expenses:
Cost of products sold 112,078 88,699 199,202 161,015
Warehousing, selling, and administrative expenses 24,159 20,642 47,674 40,389
Amortization of excess of acquired net assets over cost (306) (306) (612) (612)
-------- -------- -------- --------
135,931 109,035 246,264 200,792
-------- -------- -------- --------
Operating earnings 10,529 9,091 13,931 11,662
Other expense:
Interest expense, net (19) (501) (1,238) (1,400)
Other expense (912) (561) (1,608) (815)
-------- -------- -------- --------
Income before income taxes 9,598 8,029 11,085 9,447
Provision for income taxes 3,624 2,098 4,096 2,467
-------- -------- -------- --------
Net income 5,974 5,931 6,989 6,980
Redeemable preferred stock dividends -- 117 -- 242
-------- -------- -------- --------
Net income applicable to common shareholders $ 5,974 $ 5,814 $ 6,989 $ 6,738
======== ======== ======== ========
Net income per share $0.67 $0.88 $0.97 $1.02
======== ======== ======== ========
Weighted average number of common and common
equivalent shares outstanding 8,964 6,598 7,183 6,598
======== ======== ======== ========
See notes to condensed consolidated financial statements.
</TABLE>
4
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PAMECO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
AUGUST 31
-------------------------
1997 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities
Net income $ 6,989 $ 6,738
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Amortization of excess of acquired net assets over cost (612) (612)
Depreciation and other amortization 881 806
(Gain) /loss on sale of property and equipment 28 (11)
Changes in operating assets and liabilities net of assets
acquired and liabilities assumed:
Accounts receivable (8,047) 15,898
Inventories, prepaid expenses and other assets 16,155 (14,149)
Accounts payable and accrued liabilities (3,720) 12,696
--------- ---------
Net cash provided by operating activities 11,674 21,366
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (1,266) (1,162)
Proceeds from sale of property and equipment 70 38
Business acquisitions (18,341) (3,273)
--------- ---------
Net cash used in investing activities (19,537) (4,397)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on working capital facility 278,485 222,758
Repayments on working capital facility (296,935) (237,516)
Repayments on term loan (18,600) (2,000)
Payments on capital lease obligations (221) (278)
Payments on other debt (14) (17)
Issuance of common stock, net of expenses 45,214 --
Repurchase of treasury stock (1,207) --
Proceeds from exercise of stock options 1,126 --
--------- ---------
Net cash provided by (used in) financing activities 7,848 (17,053)
--------- ---------
Net (decrease) in cash and cash equivalents (15) (84)
Cash and cash equivalents at beginning of period 145 115
--------- ---------
Cash and cash equivalents at end of period $ 130 $ 31
========= =========
Issuance of common stock in exchange for note receivable $ 600 $
========= =========
See notes to condensed consolidated financial statements.
</TABLE>
5
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
AUGUST 31, 1997
1. BASIS OF PRESENTATION
The accompanying unaudited Condensed Consolidated Financial Statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the three month
period ended August 31, 1997 are not necessarily indicative of the results that
may be expected for the year ending February 28, 1998. The sale of products by
Pameco Corporation (the "Company") is seasonal with sales generally increasing
during the warmer months beginning in April and peaking in the months of June,
July, and August. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's Registration
Statement on Form S-1 (No. 333-24043) and final prospectus dated June 4, 1997
filed with the Securities and Exchange Commission.
The balance sheet at February 28, 1997 included herein has been derived
from the audited financial statements at that date but does not include all the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
2. INVENTORIES
Inventories consist of goods held for resale and are stated at the
lower of cost or market. Cost is determined by the first -in, first-out method.
3. INITIAL PUBLIC OFFERING
On June 4, 1997, the Company completed an initial public offering
("IPO") of its Class A Common Stock. A total of 4,115,441 shares were sold at
$14 per share, including 536,797 shares sold pursuant to the underwriters
overallotment option and 578,644 shares sold by certain selling shareholders.
The Company did not receive any of the proceeds from the sale of shares of
Class A Common Stock by the selling shareholders. The net proceeds to the
Company were approximately $45.2 million and were used to repay $11.1 million of
outstanding indebtedness to certain members and affiliates of a group of
investors in the Company, to repay approximately $33.1 million of the
outstanding balance of the Company's $100.0 million revolving credit line (the
"Working Capital Facility"), and to repurchase 206,847shares of Common Stock
from certain shareholders, including members of the aforementioned investor
group, for an aggregate purchase price of approximately $1.2 million.
On June 3, 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 to
the Company shares of Common Stock equal to the number of shares issued as
certain stock options were exercised at a price equal to the exercise price of
such stock options. The Company has repurchased all of the 206,847 shares still
subject to this arrangement at the time of the IPO from such investors, and such
shares have been retired. Upon exercise of these stock options, the Company
will issue its Class A Common Stock.
6
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4. 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 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
the IPO have been included in historical earnings per share as if outstanding
for all periods presented (using the treasury stock method at the IPO price).
Supplemental historical net income per share for the three months and
six months ended August 31, 1997 was $0.67 and $0.85, respectively. Supplemental
net income per common share was computed using the weighted average number of
common and common equivalent shares outstanding as described above, and also
considering the reduction in interest expense from the repayment of long term
debt of $44.2 million with proceeds of the IPO as if such shares had been issued
and repayment had occurred at the beginning of the fiscal period.
5. ACQUISITIONS
In July 1997, the Company purchased the heating, ventilating, and air
conditioning ("HVAC") operations and related assets of Heating Cooling
Distributors, Inc., a distributor of HVAC equipment in Indianapolis, IN, a new
market for the Company. The acquired business had revenues in excess of $2.0
million for the year ended December 31, 1996 and derived substantially all of
its revenues from the sale of HVAC products.
In August 1997, the Company purchased the HVAC operations and related
assets of Saez Refrigeration, Inc, and Saez Refrigeration of Hialeah, Inc. a
distributor of HVAC equipment in Miami, FL. The acquired business had revenues
in excess of $13.0 million for the year ended December 31, 1996 and derived
substantially all of its revenues from the sale of HVAC products.
In August 1997, the Company purchased the HVAC operations and related
assets of Superior Supply Company, a distributor of HVAC equipment in the
Midwest. Of the thirteen locations, ten are in new markets for the Company.
The acquired business had revenues in excess of $20.0 million for the year ended
January 31, 1997 and derived its revenues from the sale of HVAC and
refrigeration products.
6. RECENT PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards 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. Management believes the impact of the adoption of SFAS No. 128 will
not be material.
7. CONTINGENCIES
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 asserts
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
7
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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, plus punitive damages. 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 affect on the Company's
results of operations or financial condition.
8
<PAGE>
PAMECO CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following table sets forth the percentage relationship of certain statement
of operations data to net revenue for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
AUGUST 31 AUGUST 31
-----------------------------------------------------
1997 1996 1997 1996
----------------------- ------------------------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of products sold 76.5% 75.1% 76.6% 75.8%
----------------------- ------------------------
Gross profit 23.5% 24.9% 23.4% 24.2%
Warehousing, selling, and administrative expenses 16.5% 17.5% 18.3% 19.0%
Amortization of excess of acquired net assets over (0.2)% (0.3)% (0.3)% (0.3)%
cost
Operating earnings 7.2% 7.7% 5.4% 5.5%
Other expense:
Interest expense, net 0.0% (0.4)% (0.5)% (0.7)%
Other expense (0.6)% (0.5)% (0.6)% (0.4)%
----------------------- ------------------------
Income before income taxes 6.6% 6.8% 4.3% 4.4%
Provision for income taxes 2.5% 1.8% 1.6% 1.2%
----------------------- ------------------------
Net income 4.1% 5.0% 2.7% 3.2%
======================= ========================
</TABLE>
RESULTS OF OPERATIONS
Net sales of $146.5 million in the second quarter ended August 31,
1997 increased 24.0% from $118.1 million for the comparable period in 1996.
Same store daily sales increased 9.7% in the second quarter as compared to the
prior year. Net sales of $260.2 million in the six months ended August 31, 1997
increased 22.5% from $212.5 million for the comparable period in 1996. Same
store daily sales increased 8.6% in the six month period as compared to the
prior year.
Acquisitions played a significant role in the year to year growth;
however, on a same store basis, the net sales increase was a result of an 18.5%
increase in the sales of heating, ventilating, and air conditioning (HVAC)
products in the quarter ended August 31, 1997. For the six months ended August
31, 1997, HVAC sales on a same store basis increased 16.8%. This increase is
primarily attributable to sales increases in the Company's ThermalZone private
label equipment line. Sales of refrigeration equipment, parts, and supplies
increased 2.6% on a same store basis in the second quarter as compared to the
prior year. Sales of refrigeration equipment, parts, and supplies increased
2.0% on a same store basis in the six months ended August 31, 1997, as compared
to the prior year.
Gross profit in the quarter ended August 31, 1997 increased 16.8% to
$34.4 million from $29.4 million in the previous year. Gross profit in the six
months ended August 31, 1997 increased 18.6% to $61.0 million from $51.4 million
in the previous year. The increase in the gross profit in the second quarter
and six month period is primarily attributable to increased sales volume. The
gross profit percentage decreased to 23.5% during the quarter ended August 31,
1997 as compared to 24.9% during the same quarter in the previous year. The
gross profit percentage
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decreased to 23.4% during the six months ended August 31, 1997 as compared to
24.2% during the previous year. The decrease in gross profit percentage is
primarily attributable to three factors. First, the Company has experienced
significant growth in its ThermalZone product sales. The shift from higher
margin refrigeration sales to lower margin HVAC sales has put pressure on the
Company's overall margin percentage. Second, a one time sell-off of CFC-based
refrigerants in the second quarter of the prior year generated higher gross
margins for that period. Finally, due to the unseasonably mild weather in
certain markets in our second quarter, many smaller distributors lowered prices
to reduce their inventory levels, which also forced the Company to lower its
prices to compete in these markets.
Warehousing, selling, and administrative expenses during the second
quarter increased 17.0% to $24.2 million from $20.6 million in the previous
year. For the six months ended August 31, 1997, warehousing, selling, and
administrative expenses increased 18.0% to $47.7 million from $40.4 million in
the previous year. A significant portion of the year to year increase in these
expenses represents the normal operating expenses of the acquired branches.
Salaries and wages also increased as the Company added to its sales force at the
local and national account levels. As a percentage of net sales, warehousing,
selling, and administrative expenses decreased to 16.5% from 17.5% in the
previous year as the Company's sales volume increased at a greater rate than its
infrastructure costs. As a percentage of net sales, warehousing, selling, and
administrative expenses for the six months ended August 31, 1997 decreased to
18.3% from 19.0% in the previous year.
Interest expense during the quarter ended August 31, 1997 decreased to
$19,000 from $501,000 in the previous year. Interest expense during the six
months ended August 31, 1997 decreased to $1.2 million from $1.4 in the previous
year. The Company's average borrowings decreased by $5.1 million in the six
months ended August 31, 1997 over the previous year. The Company's average
borrowings decreased by $10.9 million in the three months ended August 31, 1997
over the previous year. In the past twelve months, the Company has incurred
additional borrowings for strategic acquisitions and the repurchase of common
and preferred stock in November 1996. The Company successfully completed a
refinancing of its Credit Facilities (as defined below), including the addition
of an accounts receivable program (the "Securitization Program"), 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 $49.8 million
of accounts receivable and debt are not reflected on the Company's balance sheet
at August 31, 1997. The discount on the sale of accounts receivable of $851,000
and $639,000 for the three months ended August 31, 1997 and August 31, 1996,
respectively, was recorded as other expense on the income statement. The
average rate of interest on all debt, including the Securitization Program, for
the quarter ended August 31, 1997 was 7.2% as compared to 7.2% for the previous
year.
Income taxes increased $1.5 million to $3.6 million for the quarter
ended August 31, 1997 due to greater income before taxes and the increase in the
effective tax rate. Income taxes increased $1.6 million to $4.1 million for the
six months ended August 31, 1997 for the same reasons. The Company's effective
rate of 38.0% and 37.0% for the three months ended August 31, 1997 and the six
months ending August 31, 1997, respectively, is lower than the statutory rate
due primarily to nontaxable amortization income.
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 six
10
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months ended August 31, 1997, cash from operating activities was $11.7 million
compared to cash from operating activities of $21.4 million for the six months
ended August 31, 1996. The decrease 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 $19.5 million for the six months ended August 31, 1997 as
compared to $4.4 million for the six months ended August 30, 1996. In the six
months ended August 31, 1997, the Company purchased the HVAC operations and
related assets of Bellows-Evans, Inc., Trigg Supply, Inc., Heating and Cooling
Distributors, Inc., Saez Refrigeration, Inc., and Superior Supply Company for an
aggregate cash price of $18.3 million. Net cash provided in financing activities
was $7.8 million for the six months ended August 31, 1997, as compared to the
use of $17.1 million for the six months ended August 31, 1996.
On June 4, 1997, the Company completed the IPO. A total of 4,115,441
shares of Class A Common Stock were sold at $14 per share, including 536,797
shares sold pursuant to the underwriters overallotment option and 578,644 shares
sold by certain selling shareholders. The Company did not receive any of the
proceeds from the sale of shares of Class A Common Stock by the selling
shareholders. The net proceeds to the Company were approximately $45.2 million
and were used to repay $11.1 million of outstanding indebtedness to certain
members and affiliates of a group of investors in the Company, to repay
approximately $33.1 million of the outstanding balance of the Company's Working
Capital Facility, and to repurchase 206,847 shares of Common Stock from certain
shareholders, including members of the aforementioned investor group, for an
aggregate purchase price of approximately $1.2 million.
The Company's working capital increased to $54.6 million at August 31,
1997 from $34.2 million at February 28, 1997.
At August 31, 1997, the Company had senior borrowings of $61.1 million
under its $100 million Credit Facilities, of which $37.7 million was unused and
available. The Company's senior indebtedness consists of $11.3 million under
the Working Capital Facility and $49.8 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 August 31, 1997 was 7.2%. 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 repaid a portion of the Working Capital Facility with the net proceeds
of the IPO.
The Company's capital expenditures, excluding acquisitions, for the six
months ended August 31, 1997, were $1.3 million as compared to $1.2 million for
the previous year. Such capital expenditures were primarily for branch and
distribution center leasehold improvements, equipment, and computer equipment
and software.
Management believes that the Company has adequate resources and
liquidity to meet its borrowing obligations, fund all required capital
expenditures, and pursue its business strategy for existing operations through
the end of this fiscal year. However, the Company will 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.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See Note 7 to the Condensed Consolidated Financial Statements
(Unaudited) contained in Part I of this Report.
11
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Item 2. Changes in Securities
In connection with the IPO, the Company issued shares of its Class A
Common Stock. 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 between
the Company and a Principal Shareholder (as defined in the Company's Articles of
Incorporation) and (iii) as otherwise provided by law. The holders of the Class
A Common Stock, voting as a separate class, are entitled to elect two of the
Company's directors, and the holders of the Class B Common Stock, voting as a
separate class, are entitled to elect the remaining directors.
The following use of proceeds information is being disclosed for the
Registration Statement on Form S-1 (No. 333-24043) effective on June 3, 1997.
The offering commenced on June 4, 1997. The offering has terminated and all
the registered securities were sold. Pursuant to the aforementioned registration
statement, the Company registered shares of Class A Common Stock, par value
$.01 per share.
The managing underwriters for the offering were:
(01) Donaldson, Lufkin, & Jenrette Securities Corporation
(02) The Robinson-Humphrey Company, Inc.
(03) Schroder Wertheim & Co.
The Company registered and subsequently sold 3,536,797 shares of Class
A Common Stock for an aggregate offering price of $49,515,158. The Company also
registered 578,644 shares sold by three shareholders of the Company for an
aggregate offering price of $8,101,016.
Expenses incurred in connection with the issuance and distribution of
the registered securities through August 31, 1997 were as follows:
Underwriting
discounts and
commissions $3,466,061
Other expenses 835,351
----------
Total Expenses $4,301,412
==========
None of these payments were made, directly or indirectly, to any
director, officer, general partner, or 10% shareholder of the Company. The net
offering proceeds to the Company after the total expenses above were
$45,213,746.
The net proceeds to the Company from the offering were used for the
following purposes:
Use of proceeds Amount
- --------------- ------
Repayment of indebtedness to third persons $32,906,886
Repayment of indebtedness to affiliates $11,100,000
Repurchase of treasury stock from affiliates $ 1,206,860
12
<PAGE>
As indicated above, approximately $12,306,860 of the net proceeds from
the offering were paid directly to certain investors in the Company and their
affiliates.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.24 Agreement for Purchase and Sale of Assets of Saez Refrigeration,
Inc., dated August 11, 1997
10.25 Agreement for Purchase and Sale of Capital Stock of Superior
Supply Company, dated August 25, 1997
11.1 Computation of Historical Net Income Per Share for the Quarters
Ended August 31, 1997 and 1996
11.2 Computation of Supplemental Historical Net Income Per Share
27. Financial Data Schedule (for SEC use only)
b). Reports on Form 8-K
Report on Form 8-K filed on June 3, 1997
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PAMECO CORPORATION
-----------------------------------
(Registrant)
By: /s/ THEODORE R. KALLGREN
---------------------------------------
Theodore R. Kallgren
Chief Financial Officer
October 14, 1997 (Mr. Kallgren has been duly authorized
to sign on behalf of the registrant)
13
<PAGE>
Exhibit Index
Exhibit No. Exhibit
----------- -------
10.24 Agreement for Purchase and Sale of Assets of Saez
Refrigeration Inc., dated August 11, 1997
10.25 Agreement for Purchase and Sale of Capital Stock of
Superior Supply Company, dated August 25, 1997
11.1 Computation of Historical Net Income Per Share for the
Three Months and Six Months Ended August 31, 1997 and 1996
11.2 Computation of Supplemental Historical Net Income Per
Share
27. Financial Data Schedule (for SEC use only)
14
<PAGE>
EXHIBIT 10.24
AGREEMENT FOR PURCHASE AND SALE
OF
ASSETS
OF
SAEZ REFRIGERATION, INC.
AND
SAEZ REFRIGERATION OF HIALEAH, INC.
BY AND AMONG
PAMECO CORPORATION
SAEZ REFRIGERATION, INC.
SAEZ REFRIGERATION OF HIALEAH, INC.
PEDRO J. SAEZ
CONSUELO C. SAEZ
AND
JORGE SAEZ
DATED AUGUST 11, 1997
<PAGE>
AGREEMENT FOR PURCHASE AND SALE OF ASSETS
OF SAEZ REFRIGERATION, INC.
AND SAEZ REFRIGERATION OF HIALEAH, INC.
THIS AGREEMENT is made and entered into on this 11th day of august,
1997, by and among PAMECO CORPORATION, a Georgia corporation ("PURCHASER"), SAEZ
REFRIGERATION, INC., a florida corporation ("REFRIGERATION"), SAEZ REFRIGERATION
OF HIALEAH, INC., a Florida corporation ("HIALEAH"; Hialeah and Refrigeration
each, a "SELLER" and collectively "SELLERS"), PEDRO J. SAEZ ("PEDRO SAEZ"),
CONSUELO C. SAEZ ("CONSUELO SAEZ") and JORGE SAEZ ("JORGE SAEZ"; and together
with pedro saez and consuelo saez, the "SAEZ SHAREHOLDERS").
W I T N E S S E T H:
- - - - - - - - - --
WHEREAS, sellers are engaged in the business of wholesale distribution
of heating, ventilating, air conditioning and refrigeration systems and
equipment at the respective business locations identified in EXHIBIT A attached
hereto (the "SELLERS' BUSINESS"); and
WHEREAS, upon the terms and subject to the conditions contained in
this Agreement, each seller desires to sell, convey, transfer and assign to
purchaser, and purchaser desires to purchase and acquire from each seller,
substantially all of such Seller's assets;
NOW, THEREFORE, for and in consideration of the premises and the
mutual covenants and agreements contained herein, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. PURCHASE AND SALE
-----------------
1.1. PURCHASE AND SALE OF ASSETS. Subject to the terms and
---------------------------
conditions contained herein, each Seller hereby sells, conveys, transfers and
assigns to Purchaser, and in reliance on and subject to the representations,
warranties, covenants and agreements contained herein, Purchaser hereby
purchases and acquires from each Seller, all of such Seller's right, title and
interest in and to all of the assets and properties of such Seller, free and
clear of all Liens (such term and certain other capitalized terms being defined
in ARTICLE 7), other than the Permitted Exceptions (as defined in SECTION 3.8)
(all of such assets and properties of Sellers collectively, the "TRANSFERRED
ASSETS"), including, without limitation,
(i) all of such Seller's fixed assets, including, without limitation,
those described and identified in SCHEDULE 1.1(A) (collectively, the "FIXED
ASSETS");
(ii) all of such Seller's inventories, including those described and
identified in SCHEDULE 1.1(B) (collectively, the "INVENTORIES");
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<PAGE>
(iii) all of such Seller's trade accounts receivables, including
those identified in SCHEDULE 1.1(C) (collectively, the "RECEIVABLES");
(iv) all of such Seller's right, title and interest under the material
contracts and agreements identified in SCHEDULE 1.1(d) and any personal or other
guarantees made in favor of such Seller (or both Sellers) to secure the
obligations of any customer (the "ASSIGNED CONTRACTS"); and
(v) all of the trade names under which any location of such Seller
has been or is operated, as set forth in EXHIBIT A; and
(vi) all of such Seller's right, title and interest in and to all
other operating assets of such Seller (collectively, the "OTHER ASSETS"),
including:
A. all of such Seller's business, proprietary or
confidential information;
B. all of such Seller's telephone and facsimile numbers;
C. all rights in and to insurance and indemnity claims
relating to the Transferred Assets;
D. all rights, choses in action and claims (known or
unknown, matured or unmatured, accrued or contingent) against third Persons (as
defined in ARTICLE 7) arising out of or related to the other Transferred Assets;
and
E. all goodwill and going concern rights of such Seller.
1.2. EXCLUDED ASSETS. Notwithstanding anything in this Agreement
---------------
to the contrary, the Transferred Assets shall not include the following assets
and properties (the "EXCLUDED ASSETS"): (a) any right, title and interest of
either Seller under or related to this Agreement and the agreements, instruments
and documents contemplated to be executed in connection herewith; and (b) the
items listed on SCHEDULE 1.2.
1.3. ASSUMPTION OF CERTAIN LIABILITIES. Purchaser hereby assumes
---------------------------------
and agrees to pay or perform, in accordance with their terms, (a) each of the
trade payables of Sellers reflected in the Reference Date Balance Sheet (as
defined in SECTION 3.6) and updated through the Closing and reflected on the
Estimated Closing Date Balance Sheet, (b) all obligations under the Assigned
Contracts, and (c) the liabilities and obligations identified on SCHEDULE 1.3
(collectively, the "ASSUMED LIABILITIES"). Following the Closing, and as a
convenience for Sellers, Purchaser will, upon receipt of documentation
acceptable to Purchaser, satisfy up to $200,000 of trade accounts payable
arising prior to the Closing which were not reflected on the Estimated Closing
Date Balance Sheet, and Sellers and the Saez Shareholders shall reimburse
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<PAGE>
Purchaser for all such payments, first from the Escrow Fund to the extent
thereof, and thereafter from Sellers and the Saez Shareholders, jointly and
severally.
1.4. OBLIGATIONS NOT ASSUMED. Except for the Assumed Liabilities
-----------------------
(which shall not include any obligation or Liability (as defined in ARTICLE 7)
arising from any default, breach, misfeasance, malfeasance or nonfeasance by
Sellers), Purchaser shall not assume any Liability of either Seller of any kind,
and each Seller shall pay, satisfy and perform all of its respective Liabilities
when lawfully due (other than the Assumed Liabilities), which may affect in any
way the Transferred Assets or Purchaser's ownership or operation thereof after
the Closing (as defined in SECTION 1.8) (collectively, the "EXCLUDED
LIABILITIES"). Without limiting the generality of the foregoing, the Excluded
Liabilities shall include, and under no circumstances shall Purchaser be deemed
to assume any Liability of either Seller arising out of or relating to: (a) any
actual or alleged tortious conduct of such Seller or any of its employees or
agents (other than post-Closing conduct by Purchaser's employees, including
former employees of Sellers); (b) any product liability claim arising out of a
product sold by either Seller prior to the Closing; (c) any claim for breach of
warranty or contract by such Seller; (d) any claim predicated on strict
liability or any similar legal theory based on acts, omissions, events or
circumstances prior to the Closing; (e) any actual or alleged violation of any
Law (as defined in ARTICLE 7) occurring prior to the Closing; (f) any business
or business activities of such Seller which are not part of the operation of the
Sellers' Business; (g) any Liability for Taxes (as defined in ARTICLE 7) of any
kind or character of Sellers; (h) any Liability relating to an Excluded Asset;
(i) any Liability relating to such Seller's ERISA Plans (as defined in SECTION
3.17); or (j) any Liability of such Seller under or arising by reason of this
Agreement, or incurred in connection with the transactions contemplated by this
Agreement, including, without limitation, legal and accounting fees and
expenses. Notwithstanding any other provision of this Agreement, the
obligations of each Seller with respect to all Liabilities other than the
Assumed Liabilities shall survive the Closing and the transactions contemplated
by this Agreement.
1.5. SALES TAXES. Purchaser shall be responsible for the payment
-----------
of all sales, use, excise, transfer, value added and similar taxes imposed by
any Government (as defined in ARTICLE 7) in any jurisdiction in connection with
the transactions contemplated by this Agreement.
1.6. PRORATION. There shall be prorated between Purchaser and each
---------
Seller as of the close of business on the date hereof, the following accrued or
prepaid items relating to such Seller's operations: rents, utilities and other
payments due under the Assigned Contracts. Such proration shall be determined
by the parties within thirty (30) days after the date hereof.
1.7. ALLOCATION. The Purchase Price shall be allocated among the
----------
Transferred Assets as set forth in SECTION 1.9 in conformity with Section
1060(b) of the Internal Revenue Code of 1986, as amended (the "CODE"), and the
regulations promulgated thereunder. After the date hereof, Purchaser's
accountants in consultation with Sellers' accountant shall make any adjustments
required to such allocations, and Sellers agree to cooperate in filing all
information required by Section 1060(b) of the Code and the regulations
thereunder, and to take no position on or with
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<PAGE>
respect to any income tax return, report or filing (including, without
limitation, amendments thereto) inconsistent with such allocation.
1.8. CLOSING. (a) Consummation of the transactions contemplated in
-------
this Agreement (the "CLOSING") shall take place at the offices of Kilpatrick
Stockton LLP, 1100 Peachtree Street, Suite 2800, Atlanta, Georgia, at 10:00 a.m.
Atlanta, Georgia time, on August 11, 1997 (the "CLOSING DATE").
(b) Promptly following the close of business on the last business day
preceding the Closing Date, each Seller and Purchaser shall have jointly
conducted a physical count of all of such Seller's inventory, equipment, and
other tangible personal property to be transferred hereunder, and each Seller
shall have marked all such property in any reasonable manner requested by
Purchaser for the purpose of identifying such property as Transferred Assets
subject to the interest of Purchaser hereunder.
(c) At the Closing:
(i) Each Seller shall convey to Purchaser all of such Seller's right,
title and interest in and to the Transferred Assets, free and clear of any and
all Liens (other than the Permitted Exceptions), and in furtherance thereof
shall deliver to Purchaser an Assignment and Bill of Sale in substantially the
form of EXHIBIT B attached hereto, and such other deeds, bills of sale,
assignments, certificates of title, documents and other instruments of transfer
and conveyance as Purchaser and its legal counsel shall reasonably request.
(ii) Upon such delivery by each Seller, Purchaser shall pay the
Preliminary Purchase Price in accordance with SECTION 1.10, and Purchaser shall
assume the Assumed Liabilities by delivering to each Seller an Assumption
Agreement in substantially the form of EXHIBIT C attached hereto.
(iii) The parties shall mutually agree upon an estimated consolidated
balance sheet reflecting the assets and liabilities of Sellers as of the Closing
Date (the "ESTIMATED CLOSING DATE BALANCE SHEET"). Except as expressly provided
herein, the Estimated Closing Date Balance Sheet shall have been prepared in
accordance with GAAP (as defined in ARTICLE 7), and the estimated figure for
inventory, equipment and other tangible personal property shall be based on the
physical count conducted pursuant to SECTION 1.8(B), provided that inventory
shall be valued at the lower of the relevant Seller's cost or fair market value
on the Closing Date, and tangible fixed assets shall be included on the
Estimated Closing Date Balance Sheet only if they are identifiable, and those
which are identifiable shall be reflected at their book value (net of
depreciation).
(d) All deliveries, payments and other transactions and documents
relating to the Closing shall be interdependent and none shall be effective
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<PAGE>
unless and until all are effective (except to the extent that the party entitled
to the benefit thereof has waived satisfaction or performance thereof as a
condition precedent to the Closing).
(e) (i) From time to time and at any time, at Purchaser's request,
whether on or after the Closing, and without further consideration, each Seller
shall, at its own expense, execute and deliver such further documents and
instruments of sale, transfer, conveyance and assignment, and shall take such
further reasonable actions as may be necessary or desirable, in the opinion of
Purchaser, to transfer and convey to Purchaser all right, title and interest in
and to the Transferred Assets, free and clear of all Liens (other than the
Permitted Exceptions) or as may otherwise be necessary or desirable to carry out
the intent of this Agreement.
(ii) From time to time and at any time, at either Seller's request,
whether on or after the Closing, and without further consideration, Purchaser
shall, at its own expense, execute and deliver such further documents and
instruments of assumption and shall take such further reasonable actions as may
be necessary or desirable, in the reasonable opinion of Seller, to evidence the
assumption of the Assumed Liabilities as contemplated hereby, or as may
otherwise be necessary or desirable to consummate the transactions contemplated
hereunder at the Closing or to carry out the intent of this Agreement.
1.9. PURCHASE PRICE. The aggregate consideration (the "PURCHASE
--------------
PRICE") for the Transferred Assets shall be equal to the sum of (a) $4,500,000,
adjusted on a dollar for dollar basis, by the amount of any changes in the net
assets of Sellers, as reflected on the Estimated Closing Date Balance Sheet,
from that reflected on the Reference Date Balance Sheet, plus (b) the assumption
of the Assumed Liabilities. The Purchase Price will be calculated, paid, and
subject to adjustment as set forth in the remainder of this ARTICLE. In all
cases, unless otherwise provided herein or agreed by the parties, 70% of the
Purchase Price payable to the Sellers shall be payable to Refrigeration and 30%
shall be payable to Hialeah.
1.10. PRELIMINARY PURCHASE PRICE. At the Closing, (a) the parties
--------------------------
will estimate the amount payable pursuant to SECTION 1.9(A) (the "PRELIMINARY
PURCHASE PRICE") based upon the Estimated Closing Date Balance Sheet, (b)
Purchaser shall pay to Sellers in cash an amount equal to the Preliminary
Purchase Price less $400,000, and (c) Purchaser shall deposit with First Union
National Bank ("ESCROW AGENT") the sum of $400,000, to be invested, held and
disbursed in accordance with that certain Escrow Agreement, of even date
herewith, among Purchaser, Sellers and Escrow Agent in substantially the form
attached hereto as EXHIBIT D (such sum, together with all interest thereon and
other accretions thereto, the "ESCROW FUND").
1.11. PREPARATION OF CLOSING DATE BALANCE SHEET. (a) Within 180
-----------------------------------------
days after the Closing Date, Purchaser, at its sole cost and expense, will
prepare and deliver to Sellers a consolidated balance sheet with respect to the
Sellers (the "DRAFT BALANCE SHEET") as of the start of business on the Closing
Date, and a written calculation of the net assets of Sellers therefrom (the
"CALCULATION"). Purchaser will prepare the Draft Balance Sheet in accordance
with GAAP, with the exceptions noted in SECTION 1.8(C)(III).
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<PAGE>
(b) Sellers shall have thirty (30) days after receiving the Draft
Balance Sheet and the Calculation in which to deliver written notice of
objection thereto to Purchaser. Failure to object in writing within such thirty
(30) day period shall constitute Sellers' final and binding acceptance of the
Draft Balance Sheet and the Calculation. If Purchaser and Sellers cannot agree
upon the Draft Balance Sheet and the Calculation within thirty (30) days after
Purchaser receives Sellers' written notice of objection, if any, they shall
retain the accounting firm of Deloitte & Touche LLP to resolve the remaining
issues. Sellers and Purchaser shall each pay 50% of such accounting firm's fees
and expenses.
(c) The determination of such accounting firm will be conclusive and
binding upon the parties and shall be reflected in a final consolidated balance
sheet with respect to Sellers approved or prepared by such accountants in
accordance with the principles set forth in SECTION 1.8(C)(III). The
consolidated balance sheet of Sellers as at the start of business on the Closing
Date and the Calculation, whether determined by agreement of the parties or by
such accountants as the case may be, shall be referred to herein as the "CLOSING
DATE BALANCE SHEET."
1.12. POST-CLOSING SETTLEMENT. (a) If the net assets of Sellers as
-----------------------
reflected on the Closing Date Balance Sheet:
(i) exceed their net assets as reflected on the Estimated Closing Date
Balance Sheet, the Purchaser shall pay to Sellers in cash an amount equal to
such excess.
(ii) is less than their net assets as reflected on the Estimated
Closing Date Balance Sheet, then Sellers shall reimburse Purchaser in cash an
amount equal to such difference, provided that such reimbursement shall be made
first, from the Escrow Fund to the extent thereof, and thereafter by Sellers and
the Saez Shareholders, jointly and severally.
(b) Any payment or reimbursement required to be made pursuant to
SECTION 1.12(A) shall be made no later than fifteen (15) days after the date the
Closing Date Balance Sheet is adopted.
1.13. RECEIVABLES. (a) Sellers hereby grant to Purchaser the
-----------
power, right and authority, coupled with an interest, to receive, endorse, cash,
deposit, and otherwise deal with, in the name of either Seller and in a manner
consistent with this SECTION 1.13, any checks, drafts, documents, and
instruments evidencing payment of the Receivables which are payable to, payable
to the order of, or endorsed in favor of, either Seller.
(b) Each Seller shall provide Purchaser prior to the Closing a
schedule describing in reasonable detail each of the Receivables which are being
transferred hereby. Purchaser shall have the right during the period beginning
on the Closing Date and ending on the date which is one hundred eighty (180)
days after the Closing Date (such date, the "SETTLEMENT DATE"; such period, the
"COLLECTION PERIOD") to notify the account debtors of the Receivables to
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<PAGE>
direct payment to such place as Purchaser shall from time to time designate.
Sellers shall indemnify Purchaser and its Affiliates (as defined in ARTICLE 7)
from and against any and all claims, demands, actions, damages, losses,
Liabilities and expenses (including reasonable attorneys' fees and amounts paid
in settlement) suffered or incurred by Purchaser or its Affiliates by reason of
or arising out of any defense, setoff, counterclaim, recoupment, or reduction of
liability of any account debtors under the Receivables and which are
attributable to any act or omission on the part of Sellers that occurred prior
to the Closing. Sellers hereby ratify, to the extent permitted by law, all acts
that Purchaser lawfully does or causes to be done pursuant to the powers granted
pursuant to this SECTION 1.13, and neither Purchaser, its Affiliates nor their
respective officers, directors, employees, agents or representatives shall be
responsible to either Seller for any act or failure to act under this SECTION
1.13, except for their own gross negligence or willful misconduct.
Notwithstanding anything in this SECTION 1.13 to the contrary, Purchaser shall
not compromise any Receivable without the prior written consent of the Seller
that transferred such Receivable to Purchaser (the "TRANSFERRING SELLER").
(c) During the Collection Period, Purchaser shall have the exclusive
right to collect the Receivables and neither Seller shall, directly or
indirectly, engage in any collection efforts with respect to the Receivables
other than with respect to Receivables the collection of which has been
relinquished by Purchaser to such Seller in writing.
(d) Any Receivables which were ninety (90) days past due as of the
Closing Date and which are not collected by Purchaser within the Collection
Period using commercially reasonable collection efforts (which shall include
sending invoices and other notices of amounts due, but shall not include the use
of outside collection services) shall be re-transferred to the Transferring
Seller within five days after the expiration of the Collection Period.
Thereafter, the Transferring Seller shall be authorized to attempt to collect
such Receivables for such Transferring Seller's own account. Sellers shall pay
to Purchaser in cash an amount equal to the amount of such re-transferred
Receivables, provided that such amount shall be paid from the Escrow Fund to the
extent thereof, and thereafter by Sellers and the Saez Shareholders, jointly and
severally.
(e) If, within the Collection Period, after using commercially
reasonable collection efforts, Purchaser collects with respect to the
Receivables that were less than 90 days past due as of the Closing Date (the
"RECENT RECEIVABLES") less than the amount of the Recent Receivables reflected
on the Estimated Closing Date Balance Sheet (less the reserve for bad debts
applicable thereto), then Sellers and the Saez Shareholders shall promptly pay
the Purchaser in cash an amount equal to the difference between the amount
collected by Purchaser with respect to the Recent Receivables during the
Collection Period and the amount of such Receivables reflected on the Estimated
Closing Date Balance Sheet (less the reserve for bad debts applicable thereto).
Such payment shall be made first from the Escrow Fund, to the extent thereof,
and thereafter from Sellers and the Saez Shareholders, jointly and severally.
If, within the Collection Period, Purchaser collects with respect to the Recent
Receivables more than the amount reflected on the Estimated Closing Date Balance
Sheet with respect thereto (less the
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<PAGE>
applicable reserve for bad debts), then the excess of such collections shall be
applied on a dollar for dollar basis to offset any amount otherwise payable to
Purchaser pursuant to SECTION 1.13(D).
2. ADDITIONAL AGREEMENTS
---------------------
2.1. EXPENSES. All expenses incurred by Purchaser in connection
--------
with the negotiations among the parties, and the authorization, preparation,
execution and performance of this Agreement and the transactions contemplated
hereby, including, without limitation, all fees and expenses of agents, counsel
and accountants for Purchaser, shall be paid by Purchaser. All expenses incurred
by Sellers or the Saez Shareholders in connection with the negotiations among
the parties, and the authorization, preparation, execution and performance of
this Agreement and the transactions contemplated hereby, including, without
limitation, all fees and expenses of agents, counsel and accountants for Sellers
or the Saez Shareholders shall be paid by Sellers or the Saez Shareholders.
2.2. BROKERS. Sellers and the Saez Shareholders hereby represent
-------
and warrant that no broker or finder has acted on their behalf in connection
with this Agreement or the transactions contemplated herein. Purchaser hereby
represents and warrants that no broker or finder has acted on its behalf in
connection with this Agreement or the transactions contemplated herein.
2.3. COVENANT AGAINST COMPETITION. (a) In order to induce
----------------------------
Purchaser to enter into and perform this Agreement, each Seller and each Saez
Shareholder covenants and agrees that, for a period of five years beginning on
the Closing Date, it will not, without the prior written consent of Purchaser,
for its own account or jointly with another, directly or indirectly, for or on
behalf of any Person, as principal, agent, shareholder, participant, partner,
promoter, manager, consultant, sales representative, employee or otherwise,
except on behalf of Purchaser:
(i) engage or invest in, consult with, or own, control, manage, assist
or otherwise participate in the ownership, control or management of, or render
services or advice to, or lend its name to, any business engaged in the purchase
for resale, sale or distribution within the Territory (as defined in ARTICLE 7)
(which is the territorial extent of the Sellers' Businesses on the date hereof)
of heating, ventilating, air conditioning and refrigeration systems and
equipment ("PRODUCTS");
(ii) solicit or assist in the solicitation of any Person having an
office or place of business within the Territory and to whom either Seller sold
or provided any Products on, or during the two year period prior to, the Closing
Date, for the purpose of obtaining the patronage of such Person for the purchase
of any Products;
(iii) solicit or induce, or in any manner assist in the solicitation
or inducement of, any Person employed by either Seller (as an employee,
independent contractor or
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<PAGE>
otherwise) to leave such employment, whether or not such employment is pursuant
to a contract and whether or not such employment is at will; or
(iv) use, disclose or reveal to any Person, any Confidential
Information (as defined below); provided, however, that this SECTION 2.3(A)(IV)
shall cease to apply after the second anniversary of the Closing Date with
respect to Confidential Information that does not constitute a trade secret
under applicable Law; provided, further, that the obligations imposed by this
SECTION 2.3(A)(IV) shall continue indefinitely with respect to Confidential
Information that constitutes a trade secret under applicable Law.
(b) Notwithstanding anything herein to the contrary, it shall not be
a breach of the covenants contained in SECTION 2.3(A) for Sellers and the Saez
Shareholders, in the aggregate, to own up to three percent of any class of
publicly traded securities of any Person.
(c) Although the parties have, in good faith, used their best efforts
to make the provisions of this SECTION 2.3 reasonable in both geographic area
and in duration in light of the financial aspects of the transaction, and it is
not anticipated, nor is it intended, by any party hereto that a Tribunal (as
defined in ARTICLE 7) of competent jurisdiction would find it necessary to
reform the provisions hereof to make it reasonable in both geographic area or in
duration, the parties understand and agree that if a Tribunal of competent
jurisdiction determines it necessary to reform the scope of this SECTION 2.3 in
order to make it reasonable in either geographic area or duration, or otherwise,
then damages, if any, for a breach hereof, as so reformed, would be deemed to
accrue to Purchaser as of and from the date of such a breach only in so far as
the damages for such breach relate to an action which occurred within the scope
of the geographic area or duration as so reformed.
(d) For purposes of this Agreement, "CONFIDENTIAL INFORMATION" means
any and all technical, business and other information of either Seller (which
information is being acquired by Purchaser under this Agreement) which derives
economic value, actual or potential, from not being generally known to the
public, including, without limitation, technical or nontechnical data,
compositions, devices, methods, techniques, drawings, inventions, processes,
financial data, financial plans, product plans, lists or information concerning
actual or potential customers or suppliers, information regarding business plans
and operations, methods and plans of operation, marketing strategies, sales and
distribution plans or strategies, cost information, pricing strategies, and
acquisition and investment plans.
2.4. GOVERNMENT FILINGS. The parties shall make, or cause to be
------------------
made, all filings and submissions required to be made to any Government in
connection with the transactions contemplated by this Agreement. Each party
shall furnish to the other parties such necessary information and reasonable
assistance as such other party may reasonably request in connection with its
preparation of necessary filings or submissions to any Government.
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2.5. EMPLOYEES. (a) Pedro Saez and Jorge Saez will enter into
---------
employment agreements with Purchaser in the forms attached hereto as EXHIBIT E-1
and E-2, respectively.
(b) Purchaser agrees to offer employment at will to those employees of
Sellers, listed on SCHEDULE 2.5, subject to the terms, conditions and policies
applicable to Purchaser's employees generally, including acceptance of non-
competition, non-disclosure and non-solicitation covenants satisfactory to
Purchaser. Prior to the Closing, Sellers shall have provided all employees of
Sellers not listed on SCHEDULE 2.5 with notice of termination and severance
benefits in accordance with Seller's policies and practices. Notwithstanding
anything to the contrary herein, Purchaser agrees to offer employment, subject
to the other terms, conditions and policies applicable to Purchaser's employees
generally, to Cesar Sordo for a period of not less than six (6) months after the
Closing Date, and to provide Mr. Sordo with six (6) months severance pay upon
any termination of his employment by Purchaser without cause, provided that the
amount of such severance pay shall have been accrued on Sellers' books prior to
the Closing Date and reflected on the Estimated Closing Date Balance Sheet and
the Closing Date Balance Sheet. Notwithstanding the foregoing, no employee of
Sellers shall be deemed a third party beneficiary of this Agreement.
2.6. LEASES. The Saez Shareholders shall cause Cope Investment,
------
Inc., a Florida corporation and Affiliate of Pedro Saez ("COPE"), as landlord,
to execute and deliver to Purchaser, as tenant, a lease with respect to the
Leased Real Property at 8290 N.W. 25th Street, Miami, Florida, 33122, which
Leased Real Property is owned by Cope and currently used, occupied or operated
by a branch of Sellers, and such lease agreement shall be mutually agreeable to
Cope and Purchaser. Leases on real property occupied by other branches of
Sellers have been assigned to Purchaser contemporaneously with the execution
hereof.
2.7. EQUIPMENT LEASES AND SERVICE AGREEMENTS. Sellers shall obtain,
---------------------------------------
as soon as practicable after the Closing and, at no cost, expense or liability
(other than any Assumed Liability) to Purchaser, the written consent, in form
and substance reasonably satisfactory to Purchaser, of each of the other parties
to those Assigned Contracts identified on SCHEDULE 2.7 to the assignment of such
Assigned Contracts to the Purchaser, with effect from the Closing and without
change in the respective terms and conditions thereof.
3. REPRESENTATIONS AND WARRANTIES OF SELLER AND THE SAEZ SHAREHOLDERS
------------------------------------------------------------------
To induce Purchaser to enter into and perform this Agreement, Seller
and the Saez Shareholders hereby jointly and severally represent, warrant and
covenant to Purchaser as follows:
3.1. ORGANIZATION, AUTHORITY AND QUALIFICATION. Each Seller is a
-----------------------------------------
corporation duly organized and validly existing under the Laws of Florida. Each
Seller has full corporate power and authority and is entitled to own or lease
its respective properties and to carry on its business as and in all places
where such business is conducted and such properties are owned or
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leased. Neither Seller is required to be qualified as a foreign corporation in
any jurisdiction. Each Seller has previously furnished to Purchaser true,
correct and complete copies of its articles of incorporation and bylaws. There
are no outstanding contracts, demands, commitments or other agreements or
arrangements under which either Seller is obliged to sell, convey, transfer or
assign any of the Transferred Assets (other than items of inventory in the
ordinary course of the Sellers' Business).
3.2. CAPACITY; INCONSISTENT OBLIGATIONS. (a) Each Seller has the
----------------------------------
full corporate power and authority to execute, deliver and perform its
obligations under this Agreement and any other agreements contemplated hereby to
which it is a party (the "OTHER AGREEMENTS"). Each Saez Shareholder has the
full legal capacity to execute, deliver and perform his obligations under this
Agreement and the Other Agreements to which he is a party. This Agreement and
each of the Other Agreements has been duly and validly executed and delivered by
each Seller and each Saez Shareholder and constitutes the valid and legally
binding obligation of each such Seller and Saez Shareholder, subject to general
equity principles, enforceable in accordance with its terms, except as the same
may be limited by bankruptcy, insolvency or similar Laws affecting the rights of
creditors generally.
(b) The execution, delivery and performance of this Agreement and each
Other Agreement by Sellers and the Saez Shareholders, as applicable, will not
(i) result in a violation of either Seller's articles of incorporation or bylaws
or any Law or (ii) result in a breach of, conflict with or default under any
term or provision of any indenture, note, mortgage, bond, security agreement,
loan agreement, guaranty, pledge, or other instrument, contract, agreement or
commitment, or any Order, to which either Seller or any Saez Shareholder is a
party or by which it or any of its respective assets and properties, including,
without limitation, the Transferred Assets, is subject or bound; nor will such
actions result in (w) the creation of any Lien on any of the Transferred Assets,
(x) the acceleration or creation of any Liability or obligation of either Seller
or any Saez Shareholder, or (y) the forfeiture of any right or privilege of
either Seller or any Saez Shareholder.
(c) All of the issued and outstanding shares of capital stock of each
Seller are owned of record and beneficially by the Saez Shareholders and other
individuals as set forth on SCHEDULE 3.2, free and clear of any and all Liens,
including any adverse claim of any former shareholder of either Seller. Except
as set forth on SCHEDULE 3.2, there are no outstanding contracts, demands,
commitments or other agreements or arrangements under which any of the Saez
Shareholders or either Seller are or may become obligated to sell, transfer or
assign any such shares.
3.3. CONSENTS. The execution, delivery and performance by each
--------
Seller and each Saez Shareholder of this Agreement and any Other Agreement to
which each of them is a party do not (a) require the consent, approval or action
of, or any filing with or notice to, any Government or other Person, or (b)
impose any other term, condition or restriction on Purchaser or either Seller
pursuant to any business combination or takeover Law.
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3.4. LEGAL COMPLIANCE. Neither Seller is in default under or in
----------------
violation of (a) its respective articles of incorporation or bylaws or (b) any
Order. The operations of each Seller and its predecessors have been conducted
in all material respects in compliance with all applicable Laws. (For purposes
of this Section, any violation of applicable Law that could result in imposition
of a fine or other monetary penalty upon either Seller or any Saez Shareholder
shall be deemed to be a material non-compliance.) Neither Seller has received
any notification of any asserted past or present failure by either Seller to
comply with any applicable Law in connection with such Seller's operations.
3.5. POSSESSION OF LICENSES. Each Seller possesses all franchises,
----------------------
certificates, licenses, permits and other authorizations from Governments and
other Persons that are necessary for the ownership, maintenance and operation of
its properties and assets and the conduct of its business (except where failure
to so possess would not have a material adverse effect on such Seller or its
business), and neither Seller is in violation of any thereof.
3.6. FINANCIAL STATEMENTS. Prior to the date hereof, Sellers have
--------------------
delivered to Purchaser copies of their consolidated financial statements and
related documents, as identified in SCHEDULE 3.6 (collectively, the "FINANCIAL
STATEMENTS"). The Financial Statements include a Consolidated Balance Sheet of
Sellers (the "REFERENCE DATE BALANCE SHEET") as of December 31, 1996 (the
"REFERENCE DATE"), which is the most recent balance sheet with respect to
Sellers. The Financial Statements are true and correct in all material
respects, have been prepared in accordance with GAAP, present fairly the
financial condition of the Sellers as of the respective dates thereof and the
results of operations and cash flows of the Sellers for the periods then ended,
and are consistent with the books and records of Sellers. The books and records
of the Sellers are currently maintained in accordance with GAAP and are true,
correct and complete in all material respects.
3.7. LIABILITIES. Neither Seller has any Liability relating to any
-----------
Transferred Asset or the operations of such Seller, except (i) those reflected
on the Reference Date Balance Sheet, (ii) Liabilities incurred in the ordinary
course of business since the Reference Date consistent with such Seller's past
experience during the periods covered by the Financial Statements (none of which
results from, arises out of, relates to, is in the nature of, or was caused by
any breach of contract, breach of representation or warranty, tort, product
liability, infringement or violation of any Law or Order), and (iii) as may be
set forth on SCHEDULE 3.7.
3.8. TITLE TO PROPERTIES. Except for any leased items of personal
-------------------
property set forth in SCHEDULE 3.8(I) and any Liens identified on SCHEDULE
3.8(II) (the "PERMITTED EXCEPTIONS"), Sellers have good, valid and complete
title to all of the Transferred Assets, free and clear of all Liens. Each
Seller holds a valid and enforceable leasehold interest, free and clear of any
other Liens, with respect to each item of personal property identified under
such Seller's name in SCHEDULE 3.8(I).
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3.9. INVENTORIES. (a) The Inventories of each Seller are
-----------
merchantable and conform in all material respects to all orders, contracts or
commitments for such goods and customary trade standards for merchantable goods.
None of the items included in the Inventories is below standard quality. Each
item included in the Inventories reflected on the Reference Date Balance Sheet
and the books and records of Sellers has been valued at the lower of cost or
market in accordance with GAAP.
(b) All products held by Sellers for sale to their customers meet the
standards of (i) all applicable Laws and (ii) all contractual commitments and
warranties of such Seller to its customers. Neither Seller has any Liability,
and there is no basis for any Action (as defined in ARTICLE 7), for repair or
replacement of any products sold by such Seller or other damages in connection
therewith, except for Liabilities and Actions fully covered by manufacturers'
warranties.
(c) No customer of either Seller has any right to return any goods for
credit or refund pursuant to any oral or written agreement, understanding or
practice which individually or in the aggregate is material, and neither Seller
presently has any goods in the possession of any customer on consignment or a
similar basis.
3.10. PERSONAL PROPERTY. (a) All machinery, equipment, vehicles,
-----------------
and other items of tangible personal property included in the Transferred Assets
which are owned or leased by either Seller are in good condition and repair,
subject to normal wear and tear, suited for the use intended and are and have
been operated in conformity with all applicable Laws.
(b) To the knowledge of Sellers and the Saez Shareholders, all lessors
of machinery, equipment or other tangible personal property included in the
Transferred Assets leased by either Seller have performed and satisfied their
respective duties and obligations under such leases. Neither Seller has brought
or threatened any Action against any such lessor for failure to perform and
satisfy its duties and obligations thereunder.
3.11. REAL PROPERTY. (a) Neither Seller owns or has any interest
-------------
in any parcel or tract of real property. Each parcel or tract of real property
used by either Seller is subject to a written lease or sublease to which such
Seller is a party as lessee or sublessee (individually a "REAL PROPERTY LEASE").
All such Real Property Leases are valid and in full force and effect in
accordance with their terms. Each Seller has previously furnished Purchaser
with true, correct and complete copies of all its Real Property Leases. There
is not, with respect to any Real Property Lease (i) any default by either
Seller, or any event of default or event which with notice or lapse of time, or
both, would constitute a default by either Seller or (ii) to the knowledge of
Sellers and the Saez Shareholders, any existing default by any other party to
any Real Property Lease, or event of default or event which with notice or lapse
of time, or both, would constitute a default by any other party to any Real
Property Lease.
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<PAGE>
(b) The present use, occupancy and operation of the Leased Real
Property (as defined in ARTICLE 7), and all Improvements (as defined in ARTICLE
7) to the Leased Real Property, by each Seller are in compliance with all Laws
and private restrictive covenants, and to Sellers' and the Saez Shareholders'
knowledge there has not been any proposed change thereto that would affect any
of the Leased Real Property or its use, occupancy or operation. There exists no
conflict or dispute involving either Seller (or to the knowledge of either
Seller or the Saez Shareholders, any other Person) with any Government or other
Person relating to any Leased Real Property or the activities thereon. No
portion of the Leased Real Property is subject to any classification,
designation or preliminary determination of any Government or pursuant to any
Law which would restrict its use, development, occupancy or operation in
connection with either Seller; provided, however, that to the extent any of the
Leased Real Property is owned by a Person other than one or more of the Saez
Shareholders or their Affiliates, this representation and warranty shall be made
to the knowledge of the Sellers and the Saez Shareholders.
(c) Neither Seller nor, to the knowledge of Sellers and the Saez
Shareholders, any other Person, has caused any work or improvements to be
performed upon or made to any of the Leased Real Property for which there
remains outstanding any payment obligation that would or might serve as the
basis for any Lien in favor of the Person who performed the work.
(d) To the knowledge of Sellers or the Saez Shareholders, all
requisite certificates of occupancy and other permits and approvals required of
either Seller with respect to the Leased Real Property or the Improvements and
the use, occupancy and operation thereof by each Seller have been obtained and
paid for and are currently in effect and free of restrictions.
(e) Cope: (i) is an Affiliate of Pedro Saez; (ii) is a corporation
duly organized and validly existing under the Laws of Florida; and (iii) has the
full corporate power and authority to execute, deliver and perform its
obligations under the lease contemplated by SECTION 2.6 hereof. The lease
contemplated by SECTION 2.6 has been duly and validly executed and delivered by
Cope and constitutes the valid and legally binding obligation of Cope, subject
to general equity principles, enforceable in accordance with its terms, except
as the same may be limited by bankruptcy, insolvency or similar Laws affecting
the rights of creditors generally. The execution, delivery and performance of
such lease by Cope will not (i) result in a violation of Cope's articles of
incorporation or bylaws or any Law or (ii) result in a breach of, conflict with
or default under any term or provision of any indenture, note, mortgage, bond,
security agreement, loan agreement, guaranty, pledge, or other instrument,
contract, agreement or commitment, or any Order, to which Cope, either Seller or
any Saez Shareholder is a party or by which it or any of its respective assets
and properties, including, without limitation, the Transferred Assets, is
subject or bound; nor will such actions result in (w) the creation of any Lien
on any of the Transferred Assets, (x) the acceleration or creation of any
Liability or obligation of Cope, either Seller or any Saez Shareholder, or (y)
the forfeiture of any right or privilege of Cope, either Seller or any Saez
Shareholder. Except as set forth on SCHEDULE 3.11(E), such execution, delivery
and performance do not require the consent, approval or action of, or any filing
with or notice to, any Government or other Person.
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3.12. CONTRACTS. (a) All of the Assigned Contracts have been
---------
entered into in the ordinary course of business on commercially reasonable
terms, are valid and enforceable in all material respects in accordance with
their terms, are in full force and effect, and will continue to be valid and
enforceable and in full force and effect on identical terms following the
Closing and their assignment to Purchaser. All Assigned Contracts can be
fulfilled or performed by the respective Seller in accordance with their
respective terms without undue or unusual expenditures of money or effort. Each
Seller has delivered to Purchaser a true, correct and complete copy of each of
the written Assigned Contracts and a complete and accurate summary of the
material terms of each oral Assigned Contract.
(b) Each Seller has performed all obligations to be performed by it as
of the date of this Agreement under all Assigned Contracts. Except as set forth
in SCHEDULE 1.1(D), there are no existing material defaults, events of default
or events which, with the giving of notice or lapse of time or both, would
constitute a material default by either Seller under any Assigned Contract. To
the knowledge of Sellers and the Saez Shareholders, no event has occurred which
may hereafter give rise to any right of termination, acceleration, damages or
any other remedy by either Seller under any Assigned Contract against any other
party thereto.
(c) To the knowledge and Sellers and the Saez Shareholders, neither
the Closing nor the relationship between Sellers and Purchaser has caused or is
likely to cause the termination or nonrenewal of any Assigned Contract.
3.13. CUSTOMERS AND SUPPLIERS. SCHEDULE 3.13 sets forth the names
-----------------------
of the top twenty-five customers of each Seller ("SIGNIFICANT CUSTOMERS").
Neither Seller is aware, except as disclosed in SCHEDULE 3.13, that any
Significant Customer intends to discontinue or substantially diminish or change
its relationship with Purchaser after the date hereof.
3.14. LITIGATION; CONTINGENCIES. No Action is pending or, to the
-------------------------
knowledge of Sellers and the Saez Shareholders, threatened against, by or
affecting Sellers or the Transferred Assets. There are no unsatisfied judgments
or Orders against Sellers, or any of their respective predecessors that
constitute a Lien on any Transferred Asset.
3.15. TAXES. Sellers have duly and timely filed all federal,
-----
state, municipal, local and foreign, if any, Tax returns and reports (including
returns for estimated tax), and all reports and returns of all other Governments
having jurisdiction (collectively, "RETURNS") with respect to all Taxes; all
such Returns show the correct and proper amount due; and the Taxes shown on all
Returns and all Tax assessments received by either Seller have been paid to the
extent that such Taxes or estimates are due. Sellers have previously provided
true, correct and complete copies of all Returns filed with respect to the two
(2) tax years ending December 31, 1994 and 1995. All Taxes imposed on Sellers
by any Government (including all deposits in connection therewith required by
applicable Law, and all interest and penalties thereon) which have become due
and payable for all periods through the date hereof have been paid in full, and
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adequate reserves for all other Taxes, whether or not due and payable, and
whether or not disputed, have been set up on the books of each Seller, and such
reserves will be adequate to pay all Taxes of such Seller for all periods
through Closing. There is not now any proposed assessment against either Seller
of additional Taxes of any kind. Neither Seller is a party to any Tax sharing
or Tax allocation agreement, understanding, arrangement or commitment. There is
no dispute or Action concerning any Tax Liability of Sellers raised by a
Government in writing. Each Seller has duly, validly and timely elected to be
taxed as an S corporation under Subchapter S of the Code. Such elections have
never been revoked or terminated and remain in full force and effect as of the
date hereof. Except as set forth in SCHEDULE 3.15, such elections were made at
a time and in such a manner as not to subject either Seller to any tax on built-
in gains in respect of its assets.
3.16. EMPLOYMENT AND LABOR MATTERS. (a) To the knowledge of
----------------------------
Sellers and the Saez Shareholders, no employee, agent, consultant or independent
contractor who performs services on a regular basis for either Seller plans to
discontinue such relationship with Purchaser after the date hereof.
(b) Neither Seller is a party to any agreement of any kind which deals
with wages, conditions of employment, benefits or other matters affecting the
employer/employee relationship with any union, labor organization or employee
group. There are no controversies pending, or to the knowledge of Sellers and
the Saez Shareholders, threatened, between either Seller and any union, labor
organization or employee group representing, or seeking to represent, any of its
employees, and there has been no attempt by any union, labor organization or
employee group to organize any of either Seller's employees at any time in the
past five years. Each Seller has complied in all material respects with all
applicable Laws relating to wages, hours, health and safety, payment of social
security, withholding and other taxes, maintenance of workers' compensation
insurance, labor and employment relations and employment discrimination.
(c) SCHEDULE 3.16 lists all contracts, agreements or arrangements
(written or oral) concerning the employment of any individual employed by
Sellers.
3.17. EMPLOYEE BENEFIT MATTERS. (a) SCHEDULE 3.17(A) lists all
------------------------
practices, commitments, arrangements and agreements pursuant to which either
Seller provides, directly or indirectly, any benefits for employees of each
Seller, including pension, bonus, medical, insurance, profit sharing or any
other employee benefits, under any agreements or Laws. Except as set forth on
SCHEDULE 3.17(A), neither Seller, either now or at any time in the past,
sponsors, maintains or contributes to any employee pension benefit plan, within
the meaning of Section 3(2) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"). Neither Seller is required to contribute, or has
ever been required to contribute, to any multi-employer plan within the meaning
of Section 3(37)(A) of ERISA.
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(b) SCHEDULE 3.17(B) lists separately all employee benefit plans
within the meaning of Section 3(3) of ERISA maintained by each Seller or to
which either Seller contributes or is required to contribute (collectively,
"ERISA PLANS") for the benefit of any employees of such Seller. True, correct
and complete copies of all ERISA Plans, together with related trusts, insurance
contracts, summary plan descriptions, annual reports and Form 5500 filings for
the past three years, have been delivered to Purchaser.
(c) Each ERISA Plan has been operated and administered in all material
respects in accordance with all applicable Laws, including, without limitation,
ERISA and the Code. Neither Sellers nor any of their respective directors,
officers, employees or agents, nor to the knowledge of Sellers or the Saez
Shareholders, any "party in interest" or "disqualified person" (as such terms
are defined in Section 3(14) of ERISA and Section 4975 of the Code) have been
engaged in or been a party to any "prohibited transaction" (as such term is
defined in Section 406 of ERISA or Section 4975 of the Code). Each ERISA Plan
that is a group health plan within the meaning of Section 607(1) of ERISA and
Section 4980B of the Code is in compliance with the continuation coverage
requirements of Section 601 of ERISA and Section 4980B of the Code. There are
no pending claims or, to the knowledge of Sellers and the Saez Shareholders,
threatened claims by or on behalf of any ERISA Plan, by any employee or
beneficiary covered under such ERISA Plan or by any Government or otherwise
involving such ERISA Plan or any of its fiduciaries (other than for routine
claims for benefits).
(d) Neither Seller is bound to provide, and neither provides,
benefits, including, without limitation, death, health or medical benefits
(whether or not insured), with respect to current or former employees of either
Seller beyond their retirement or other termination of service with such Seller
other than (i) coverage mandated by applicable Law, (ii) deferred compensation
benefits accrued as Liabilities, or (iii) benefits, the full cost of which is
borne by the current or former employee or his beneficiary.
(e) Neither this Agreement nor any transaction contemplated hereby
will (i) entitle any current or former employee, officer or director of either
Seller to severance pay, unemployment compensation or any similar or other
payment, except as provided in SECTION 2.5 hereof, or (ii) accelerate the time
of payment or vesting, or increase the amount of compensation or benefits due
any such employee, officer or director.
3.18. ENVIRONMENTAL MATTERS. Each Seller holds all Environmental
---------------------
Permits (as defined in ARTICLE 7) necessary for conducting the business and
operations of such Seller and has conducted, and is presently conducting, its
business and operations in full compliance with all applicable Environmental
Laws (as defined in ARTICLE 7) and Environmental Permits, including, without
limitation, all record keeping and filing requirements. Sellers and the Saez
Shareholders are not aware of any existing or pending Environmental Law or
Environmental Permit requirement with a future compliance date that will require
operational changes, business practice modifications or capital expenditures at
any Leased Real Property (or any other property presently or formerly owned,
operated or controlled by either Seller or as to which either Seller
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may bear responsibility or Liability), or any Improvements thereon. All
Hazardous Materials (as defined in ARTICLE 7) and Solid Waste (as defined in
ARTICLE 7), on, in, or under the Leased Real Property, or owned by either
Seller, wherever located, have been properly removed and disposed of, and no
past or present disposal, discharge, spill or other release of, or treatment,
transportation or other handling of Hazardous Materials or Solid Waste on, in,
under or off-site from any Leased Real Property, or to the knowledge of Sellers
and the Saez Shareholders, adjacent property, will subject either Seller or any
subsequent owner, occupant or operator of such Leased Real Property to
corrective or compliance action or any other Liability. There are no presently
pending, or to the knowledge of Sellers and the Saez Shareholders, threatened,
inquiries, Actions or Orders against or involving Seller (including any other
Person for whose acts or omissions either Seller is responsible) relating to any
alleged past or ongoing violation of any Environmental Laws or Environmental
Permits, nor do Sellers or the Saez Shareholders have any basis to expect any
such Action or Order to be threatened, issued or commenced, nor is either Seller
subject to any Liability for any such past or ongoing violation.
3.19. ABSENCE OF MATERIAL ADVERSE CHANGE. Since the date of the
----------------------------------
Reference Balance Sheet, Sellers have conducted their businesses only in the
ordinary course and consistent with their prior practices, and there have been
no events or occurrences that, individually or in the aggregate, have had, or
with the passage of time are reasonably likely to have, a material adverse
effect on either Seller or its business, operations, condition (financial or
otherwise), or prospects.
3.20. FULL DISCLOSURE. No representation or warranty of Sellers or
---------------
the Saez Shareholders contained in this Agreement or any instrument,
certificate, agreement or other writing delivered by or on behalf of Sellers or
the Saez Shareholders pursuant to this Agreement, or in connection with the
transactions contemplated herein contains any untrue or incomplete statement of
a material fact or omits to state a material fact necessary to make the
statements contained herein not misleading. To the knowledge of Sellers and the
Saez Shareholders, there is no fact which adversely affects, or in the future
may adversely affect, the business, assets, properties, liabilities, affairs,
actual or anticipated results of operations, condition (financial or otherwise),
cash flows or prospects of either Seller which has not been or is not disclosed
in this Agreement or in the other instruments, certificates, agreements and
writings furnished to Purchaser by or on behalf of Sellers or the Saez
Shareholders pursuant to this Agreement or in connection with the transactions
contemplated herein.
4. REPRESENTATIONS AND WARRANTIES OF PURCHASER
-------------------------------------------
As an inducement to Sellers to enter into and perform this Agreement,
Purchaser hereby represents, warrants and covenants to Sellers as follows:
4.1. ORGANIZATION. Purchaser is a corporation duly organized and
------------
validly existing under the Laws of the State of Georgia.
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4.2. AUTHORIZATION; NO INCONSISTENT AGREEMENTS. Purchaser has full
-----------------------------------------
corporate power and authority to execute, deliver and perform this Agreement.
This Agreement has been duly and validly executed and delivered by Purchaser and
constitutes its valid and legally binding obligation, subject to general equity
principles, enforceable in accordance with its terms, except as the same may be
limited by bankruptcy, insolvency, reorganization or similar laws affecting the
rights of creditors generally.
4.3. INCONSISTENT OBLIGATIONS. The execution, delivery and
------------------------
performance of this Agreement, and the consummation of the transactions
contemplated herein will not result in a violation of Purchaser's articles of
incorporation or bylaws or any Law, or in a breach of, conflict with or default
under any indenture, note, mortgage, bond, security agreement, loan agreement,
guaranty, pledge, or other instrument, contract, agreement or commitment, or any
Order, to which Purchaser is a party or by which any of Purchaser's assets or
properties are subject or bound; nor will such actions result in the creation of
any Lien on any of Purchaser's assets or properties, or the acceleration or
creation of any debt of Purchaser.
4.4. FULL DISCLOSURE. No representation or warranty of Purchaser
---------------
contained in this Agreement, or in any schedule, instrument, certificate,
agreement or other writing delivered by Purchaser pursuant to this Agreement or
in connection with the transactions contemplated herein, contains any untrue
statement of a material fact or omits to state a material fact necessary to make
the statements contained herein or therein not misleading.
5. INDEMNITIES
5.1. INDEMNIFICATION OF PURCHASER. In accordance with and subject
----------------------------
to the provisions of this ARTICLE 5, Sellers and the Saez Shareholders shall
jointly and severally indemnify and hold harmless Purchaser, its Affiliates and
their respective officers, directors, agents and employees (collectively, the
"PURCHASER INDEMNITEES") from and against and in respect of any loss, damage,
Liability, cost and expense, including reasonable attorneys' fees and amounts
paid in settlement (collectively, "INDEMNIFIED LOSSES"), suffered or incurred by
any Purchaser Indemnitee by reason of, or arising out of:
(a) any misrepresentation or breach of representation or warranty
contained in this Agreement, or in any instrument, certificate, agreement or
other writing delivered by or on behalf of either Seller or any Saez Shareholder
pursuant to this Agreement or in connection with the transactions contemplated
herein, or the breach of any covenant or agreement of either Seller or any Saez
Shareholder contained in this Agreement;
(b) notwithstanding anything to the contrary in any instrument of
assignment that may be executed by either Seller and Purchaser, all obligations
and Liabilities of Sellers other than the Assumed Liabilities, including,
without limitation, all obligations and Liabilities resulting from or arising
out of any default, performance or non-performance by either Seller prior to the
Closing under or with respect to any Assigned Contract or any of the
Receivables;
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(c) any claims, Liabilities, obligations, damages, costs, and
expenses, known or unknown, fixed or contingent, claimed or demanded by third
Persons arising out of or resulting from Sellers' ownership or operation of
their businesses or the Transferred Assets prior to and including the Closing
Date;
(d) any and all losses, Liabilities or damages resulting from or
arising out of any failure to comply with any "bulk sales" laws applicable to
the transactions contemplated by this Agreement; and
(e) all Actions, Orders, assessments, fees and expenses incident to
any of the foregoing or incurred in investigating or attempting to avoid the
same or to oppose the imposition thereof, or in enforcing this indemnification.
5.2. INDEMNIFICATION BY PURCHASER. Purchaser shall indemnify and
----------------------------
hold harmless Sellers from, against and in respect of any Indemnified Losses
suffered or incurred by either of them by reason of or arising out of (a)
Purchaser's failure to pay or perform any of the Assumed Liabilities, (b) any
Liability that arises after the Closing Date from Purchaser's ownership or
operation of the Transferred Assets; (c) breach of any representation or
warranty of Purchaser contained in this Agreement; and (d) breach of any
covenant or agreement of Purchaser contained in this Agreement, provided,
however, that nothing contained in this SECTION 5.2 shall obligate Purchaser to
indemnify Sellers with respect to any matter as to which Sellers or the Saez
Shareholders are obligated to indemnify any Purchaser Indemnitee pursuant to
SECTION 5.1.
5.3. PAYMENT. Any party having an indemnification obligation
-------
pursuant to this ARTICLE 5 (an "INDEMNITOR") shall, subject to the provisions of
SECTION 5.4, reimburse any other party entitled to recover Indemnified Losses
(an "INDEMNITEE") in accordance with this Section. If the Indemnitor objects to
any claim made by an Indemnitee hereunder and the Indemnitee initiates legal
action with respect thereto, the Indemnitee agrees to join all affected parties
in such action so that the rights and liabilities of the parties under this
Agreement with respect to such claim may be resolved in one action. If any
claim for Indemnified Losses that does not relate to a claim or Action by a
third party arises after the date hereof, the Indemnitee shall provide written
notice thereof to the applicable Indemnitor. The amount and liability for such
claim shall be deemed final unless the Indemnitor notifies the Indemnitee in
writing within 15 days of its receipt of such written notice that it disputes
such claim. The Indemnitor shall pay or reimburse the Indemnitee for any such
Indemnified Loss within 30 days after such loss is deemed final. Any
indemnification claims by Purchaser shall be satisfied first from the Escrow
Fund, to the extent thereof, and thereafter by Sellers and the Saez
Shareholders, jointly and severally.
5.4. DEFENSE OF CLAIMS. (a) If any claim or Action by a third
-----------------
party arises after the date hereof for which any party may be liable to
indemnify another party under the terms of this
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Agreement, then the Indemnitee shall notify the Indemnitor within a reasonable
time after such claim or Action arises and is known to the Indemnitee, and shall
give the Indemnitor a reasonable opportunity: (i) to conduct any proceedings or
negotiations in connection therewith and necessary or appropriate to defend the
Indemnitee; (ii) to take all other required steps or proceedings to settle or
defend any such claim or Action; and (iii) to employ counsel to contest any such
claim or Action in the name of the Indemnitee or otherwise.
(b) The expenses of all proceedings, contests or lawsuits with respect
to such claims or Actions shall be borne by the Indemnitor. If the Indemnitor
wishes to assume the defense of such claim or Action, then the Indemnitor shall
give written notice to the Indemnitee within 30 days after notice from the
Indemnitee of such claim or Action (unless the claim or action reasonably
requires a response in less than 30 days after the notice is given to the
Indemnitor, in which event the Indemnitor shall notify the Indemnitee at least
10 days prior to such reasonably required response date), and the Indemnitor
shall thereafter assume the defense of any such claim or liability, through
counsel reasonably satisfactory to the Indemnitee; provided that the Indemnitee
may participate in such defense at its own expense. The Indemnitee shall have
the right to control the defense of the claim or Action unless and until the
Indemnitor shall (i) assume the defense of such claim or Action, and (ii)
acknowledge in writing to the Indemnitee that the Indemnitor shall be obligated
under the terms of its indemnity hereunder to the Indemnitees in connection with
such claim or Action.
(c) If the Indemnitor does not assume the defense of, or if after so
assuming the Indemnitor fails to defend, any such claim or Action, then
Indemnitee may defend against such claim or Action in such manner as the
Indemnitee may deem appropriate (provided that the Indemnitor may participate in
such defense at its own expense) provided that the Indemnitee may not settle
such claim or Action without the Indemnitor's prior written consent, which will
not be unreasonably withheld, and the Indemnitor shall promptly reimburse the
Indemnitee for the amount of all expenses, legal and otherwise, reasonably and
necessarily incurred by the Indemnitee in connection with the defense against
and settlement of such claim or Action. If no settlement of such claim or
Action is made, the Indemnitor shall satisfy any judgment rendered with respect
to such claim or in such Action, before the Indemnitee is required to do so, and
pay all expenses, legal or otherwise, reasonably and necessarily incurred by the
Indemnitee in the defense of such claim or Action.
(d) If an Order is rendered against the Indemnitee in any Action
covered by the indemnification hereunder, or any Lien in respect of such Order
attaches to any of the assets of the Indemnitee, the Indemnitor shall
immediately upon such entry or attachment pay any amount required by such Order
in full, or discharge such Lien unless, at the expense and request of the
Indemnitor, an appeal is taken under which the execution of the Order or
satisfaction of the Lien is stayed. If and when a final Order is rendered in
any such Action, the Indemnitor shall forthwith pay any amount required by such
Order or discharge such Lien before the Indemnitee is compelled to do so.
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<PAGE>
(e) Sellers and the Saez Shareholders hereby irrevocably appoint Pedro
J. Saez ("AGENT") as their agent and attorney-in-fact, with full power to
negotiate and settle claims for indemnification under ARTICLE 5 hereof, and to
perform any other act arising under or pertaining to this Agreement, and the
transactions contemplated hereby. The appointment of Agent being coupled with
an interest, it shall be irrevocable and shall be binding upon Sellers and the
Saez Shareholders and their respective heirs, personal representatives,
successors and assigns, and shall not be revoked by the dissolution, death or
incapacity of any thereof, provided that Sellers and the Saez Shareholders may,
by written notice to Purchaser and duly executed by each Seller and Saez
Shareholder, designate a new Agent, any such notice to become effective two (2)
business days after the actual receipt thereof by Purchaser. Any notice to the
Agent provided in accordance with this Agreement shall be effective as notice
upon each Seller and Saez Shareholder.
5.5. SURVIVAL. (a) No investigation made heretofore by Purchaser
--------
shall limit or affect the representations, warranties, covenants and indemnities
of Sellers and the Saez Shareholders hereunder, each of which shall survive any
such investigation. For purposes of the indemnification provided in this
ARTICLE 5, the representations and warranties of Sellers and the Saez
Shareholders contained in this Agreement, and all certificates, instruments,
agreements or other writings delivered by or on behalf of either Seller or any
Saez Shareholder pursuant to this Agreement or in connection with the
transactions contemplated herein shall survive any investigation heretofore or
hereafter made by Purchaser and the Closing, and shall continue in full force
and effect for the periods specified below (the "SURVIVAL PERIOD"):
(i) the representations and warranties relating to the reporting,
payment or liability for Taxes shall survive until the expiration of
any applicable statute or period of limitations, and any extensions
thereof;
(ii) the representations and warranties relating to environmental
matters shall be of no further force and effect upon the fourth
anniversary of the Closing; and
(iii) all other representations and warranties of Sellers and the
Saez Shareholders (other than those contained in SECTIONS 3.1, 3.2,
3.3 AND 3.8, which shall survive indefinitely) shall be of no further
force and effect upon the date that is twenty-four (24) months after
the Closing.
(b) Anything herein to the contrary notwithstanding, the Survival
Period shall be extended automatically to include any time period necessary to
resolve a claim for indemnification which was made prior to the expiration of
the Survival Period but not resolved prior to its expiration, but any such
extension shall apply only as to the claims asserted and not so resolved within
the Survival Period. Liability for any such item shall continue until such
claim shall have been finally settled, decided or adjudicated.
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<PAGE>
5.6. LIMITATIONS. (a) Seller shall not be obligated under this
-----------
ARTICLE 5, other than pursuant to SECTIONS 5.1(B) and 5.1(E) or for breaches of
any representation and warranty contained in SECTIONS 3.1, 3.2, 3.3 OR 3.8
hereof, to indemnify the Purchaser Indemnitees with respect to any Indemnified
Losses unless, until, and only to the extent that, the Indemnified Losses exceed
$25,000.00.
(b) The maximum liability of Sellers and the Saez Shareholders in the
aggregate under this Agreement for a breach of the representations and
warranties contained in ARTICLE 3 shall be limited to the Preliminary Purchase
Price, as adjusted pursuant to SECTION 1.12.
6. MISCELLANEOUS
-------------
6.1. NOTICES. All notices and other communications required or
-------
permitted to be given or made hereunder shall be in writing and delivered
personally or sent by pre-paid, first class certified or registered mail, return
receipt requested, or by facsimile transmission, to the intended recipient
thereof at its address or facsimile number set out below. Any such notice or
communication shall be deemed to have been duly given immediately (if given or
made in person or by facsimile confirmed by mailing a copy thereof to the
recipient in accordance with this SECTION 6.1 on the date of such facsimile), or
three days after mailing (if given or made by mail), and in proving same it
shall be sufficient to show that the envelope containing the same was delivered
to the delivery or postal service and duly addressed, or that receipt of a
facsimile was confirmed by mailing as provided above. The addresses and
facsimile numbers of the parties for purposes of this Agreement are:
(i) If to Purchaser: Pameco Corporation
1000 Center Place
Norcross, Georgia 30093
Attn: Mark Graham
Telephone No.: (770) 798-0695
Facsimile No.: (770) 798-0681
With copies to: Kilpatrick Stockton LLP
Suite 2800
1100 Peachtree Street
Atlanta, Georgia 30309-4530
Attn: James Steinberg, Esq.
Telephone No.: (404) 815-6500
Facsimile No.: (404) 815-6555
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<PAGE>
(ii) If to the Sellers/: Saez Refrigeration, Inc.
Saez Shareholders Saez Refrigeration of Hialeah, Inc.
8290 N.W. 25th Street
Miami, Florida 33122
Attn: Pedro J. Saez
Telephone No.: (305) 592-2330
Facsimile No.: (305) 477-0709
With copies to: Shutts & Bowen LLP
1500 Miami Center
201 South Biscayne Boulevard
Miami, Florida 33131
Attn: Raul J. Salas, Esq.
Telephone No.: (305) 379-9146
Facsimile No.: (305) 381-9982
(b) Any party may change the address(es) or facsimile number(s) to
which notices or other communications to such party shall be delivered, mailed
or transmitted by giving notice thereof to the other parties hereto in the
manner provided herein.
6.2. COUNTERPARTS. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
6.3. GOVERNING LAW. The validity and effect of 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.
6.4. SUCCESSORS AND ASSIGNS AND SUBSTITUTE PURCHASER. This
-----------------------------------------------
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and permitted assigns. Sellers and the
Saez Shareholders may not assign, delegate or otherwise transfer any of their
respective rights or obligations under this Agreement without the prior written
consent of Purchaser. This Agreement may be assigned by Purchaser to any
Affiliate of Purchaser, but no such assignment shall relieve Purchaser of its
obligations hereunder.
6.5. PARTIAL INVALIDITY AND SEVERABILITY. All rights and
-----------------------------------
restrictions contained herein may be exercised and shall be applicable and
binding only to the extent that they do not violate any Law and are intended to
be limited to the extent necessary to render this Agreement legal, valid and
enforceable. If any term of this Agreement, or part thereof, not essential to
the commercial purpose of this Agreement is held to be illegal, invalid or
unenforceable by a Tribunal of competent jurisdiction, then the remaining terms
hereof, or part thereof, shall constitute the agreement of the parties with
respect to the subject matter hereof and all such
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<PAGE>
remaining terms, or parts thereof, shall remain in full force and effect. To the
extent legally permissible, any illegal, invalid or unenforceable provision of
this Agreement shall be replaced by a valid provision which will implement the
commercial purpose of the illegal, invalid or unenforceable provision.
6.6. WAIVER. Any term or condition of this Agreement may be waived
------
at any time by the party which is entitled to the benefit thereof, but only if
such waiver is evidenced by a writing expressly referring to this Agreement and
signed by such party. No failure on the part of any party hereto to exercise,
and no delay in exercising any right, power or remedy created hereunder, shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, power or remedy by such party preclude any other or further exercise
thereof or the exercise of any other right, power or remedy. No waiver by any
party hereto of any breach of or default in any term or condition of this
Agreement shall constitute a waiver of or assent to any succeeding breach of or
default in the same or any other term or condition hereof.
6.7. CONSTRUCTION. As used herein, unless the context otherwise
------------
requires: (i) references to "Article" or "Section" are to an article or section
hereof; (ii) references to "Exhibits" and "Schedules" are to Exhibits and
Schedules attached hereto, which are incorporated herein by reference and made a
part hereof; (iii) "include", "includes" and "including" are deemed to be
followed by "without limitation" whether or not they are in fact followed by
such words or words of like import; (iv) the headings of the various articles,
sections and other subdivisions hereof are for convenience of reference only and
shall not modify, define or limit any of the terms or provisions hereof; (v) the
use of the singular form herein shall include the plural, the use of the plural
shall include the singular, and the use of any gender shall include all genders,
and (vi) references to "Sellers" or "the Saez Shareholders" (or to "either
Seller" or "any Saez Shareholder") are deemed to apply to them both individually
and collectively.
6.8. INTERPRETATION. The parties are equally responsible for the
--------------
content of this Agreement. In any Action which involves the interpretation of
an alleged ambiguity, the language herein shall not be more strictly construed
against one party (as the drafter) than the other.
6.9. ENTIRE AGREEMENT. This Agreement supersedes all prior
----------------
discussions and agreements between the parties with respect to the subject
matter hereof, and this Agreement (together with the Exhibits and Schedules
hereto) contains the sole and entire agreement between the parties with respect
to the matters covered hereby. This Agreement shall not be altered or amended
except by an instrument in writing signed by or on behalf of the party entitled
to the benefit of the provision against whom enforcement is sought.
6.10. DISPUTE RESOLUTION. (a) Any and all disputes arising out of
------------------
or in connection with the negotiation, execution, interpretation, performance or
nonperformance of this Agreement and the transactions contemplated herein (other
than the payment of monies) shall be solely and finally settled by arbitration
which shall be conducted in Atlanta, Georgia, in
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<PAGE>
accordance with the Rules for Non-Administered Arbitration of Business Disputes
(the "RULES") as promulgated from time to time by the CPR Institute for Dispute
Resolution in New York, New York (the "CPR"), by a panel of three arbitrators
selected by the CPR in accordance with the Rules (the "ARBITRATORS"). The
Arbitrators shall be lawyers experienced in corporate acquisition transactions
and shall not have been employed by or affiliated with any of the parties or
their Affiliates. The parties hereby renounce all recourse to litigation and
agree that the award of the Arbitrators shall be final and subject to no
judicial review. The Arbitrators shall decide the issues submitted to them, in
writing, and in accordance with: (i) the provisions and commercial purposes of
this Agreement; and (ii) the laws of the State of Georgia (without regard to its
conflicts of laws rules).
(b) The parties agree to facilitate the arbitration by: (i) making
available to one another and to the Arbitrators for examination, inspection and
extraction all documents, books, records and personnel under their control if
determined by the Arbitrators to be relevant to the dispute; (ii) conducting
arbitration hearings to the greatest extent possible on successive days; and
(iii) observing strictly the time periods established by the Rules or by the
Arbitrators for submission of evidence or briefs.
(c) Judgment on the award of the Arbitrators may be entered in any
court having jurisdiction over the party against which enforcement of the award
is being sought. The Arbitrators shall divide all costs (other than fees of
counsel) incurred in conducting the arbitration in their final award in
accordance with what they deem just and equitable under the circumstances.
7. DEFINITIONS
-----------
For purposes of this Agreement, the following terms have the meanings
specified in this ARTICLE 7. All accounting terms not specifically defined
herein shall be construed in accordance with GAAP.
"ACTION" means any action, suit, litigation, complaint, counterclaim,
claim, petition, investigation, mediation contest, set-off or administrative
proceeding, whether at law, in equity, in arbitration or otherwise, and whether
conducted by or before any Government, any Tribunal or any other Person.
"AFFILIATE" of any Person means any other Person directly or
indirectly controlling, controlled by, or under direct or indirect common
control with the former person, where "control" means the power, directly or
indirectly, to direct or cause the direction of the management and policies of
another Person, whether through the ownership of voting securities, by contract
or otherwise.
"ENVIRONMENTAL LAW" means a Law relating to health, safety or the
environment, including, without limitation, a Law relating to the manufacture,
generation, processing,
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<PAGE>
distribution, application, use, treatment, transport or handling, storage
(whether alone or below ground) of, or emissions, discharges, releases or
threatened releases into the environment (including ambient air, surface water,
ground water, soil and subsoil) of, pollutants, contaminants, petroleum
products, chemicals, or industrial waste, Hazardous Materials, other solids,
liquids, gases or wastes (including Solid Waste), heat, light, noise, radiation,
electro-magnetic fields and other forms of matter or energy of every kind and
nature and the proper containment and disposal of the same, or to occupational
or worker safety and health.
"ENVIRONMENTAL PERMITS" means all permits, licenses, certificates,
approvals, authorizations, regulatory plans and compliance schedules required by
applicable Environmental Laws, or issued by a Government pursuant to applicable
Environmental Law, or entered into by agreement of the party to be bound,
relating to activities that affect health, safety or the environment, including
without limitation, permits, licenses, certificates, approvals, authorizations,
regulatory plans and compliance schedules for air emissions, water discharges,
pesticide and herbicide or other agricultural chemical storage, use or
application, and Hazardous Material or Solid Waste generation, use, storage,
treatment and disposal.
"GAAP" means generally accepted accounting principles, consistently
applied.
"GOVERNMENT" means any federal, national, state, provincial, local,
municipal, or foreign government or any department, commission, board, bureau,
agency, instrumentality, unit, or taxing authority thereof.
"HAZARDOUS MATERIAL" means any substance or material, including,
without limitation, any raw material, commercial product, waste or waste product
that, because of its quantity, concentration, or physical, chemical or
infectious characteristics may cause or significantly contribute to an increase
in mortality or an increase in serious, irreversible or incapacitating illness,
or pose a substantial hazard to human health or the environment, including
without limitation all substances and materials designated as hazardous or toxic
under any applicable Environmental Law and including, without limitation,
gasoline, fuel oil and other petroleum products.
"IMPROVEMENTS" means all buildings, structures and other improvements
of any and every nature located on the Leased Real Property and all fixtures
attached or affixed, actually or constructively, to the Leased Real Property or
to any such buildings, structures or other improvements.
"KNOWN," "TO THE KNOWLEDGE OF," "AWARE" or words of similar import
employed in this Agreement with reference to any individual or entity shall be
conclusively presumed to mean that the individual or entity has made reasonable
and diligent efforts under the circumstances to become knowledgeable; in the
case of each Seller, "knowledge" shall be deemed to be the individual and
collective knowledge (as defined above) of its directors and senior officers and
managers, and the "knowledge" of either Seller shall be deemed the
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"knowledge" of both; the knowledge of the Saez Shareholders shall be deemed to
be their individual and collective knowledge (as defined above). Notwithstanding
the foregoing, for purposes of SECTIONS 3.13 AND 3.16(A) only, "known," "to the
knowledge of," "aware" and any words of similar import shall mean actual
knowledge without any obligation to investigate.
"LAWS" mean all federal, national, international, state, provincial,
local, municipal or foreign constitutions, statutes, rules, regulations,
ordinances, acts, codes, legislation, treaties, conventions, judicial decisions,
common law, equity or similar laws or legal requirements as in effect from time
to time.
"LEASED REAL PROPERTY" means all leasehold and similar interests in
real property leased from third parties by either Seller, and all of Sellers'
rights, title and interest in and to all Improvements thereon, together with all
easements, rights of way, licenses and other interests therein.
"LIABILITY" means any liability or obligation whether known or
unknown, asserted or unasserted, absolute or contingent, accrued or unaccrued,
liquidated or unliquidated and whether due or to become due.
"LIEN" means any mortgage, pledge, hypothecation, security interest,
encumbrance, claim, restriction on use, lien or charge of any kind, or any
rights of others, however evidenced or created (including any agreement to give
any of the foregoing, any conditional sale or other title retention agreement,
any lease in the nature thereof, and the filing of or agreement to give any
financing statement under the lien notice records, Uniform Commercial Code
indices or other similar public records of any jurisdiction.
"ORDERS" means any order, writ, judgment, decree, ruling, citation,
summons, directive, consent agreement, or award of or by any Tribunal or entered
by consent of the party to be bound.
"PERSON" means an individual, partnership, joint venture, corporation,
limited liability company, trust, unincorporated organization, or Government.
"TAXES" means any present or future taxes, levies, imposts, duties,
fees, assessments, deductions, withholdings or other charges of whatever nature,
including without limitation income, gross receipts, excise, property, sales,
use, customs, value added, consumption, transfer, license, payroll, employee
income, withholding, social security, and franchise taxes, now or hereafter
imposed or levied by the United States of America, any state, or any Government
or by any department, agency or other political subdivision or taxing authority
thereof or therein, all deposits required in connection therewith, and all
interests, penalties, additions to tax, and other similar liabilities with
respect thereto.
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<PAGE>
"TERRITORY" means the State of Florida and the countries identified on
SCHEDULE F attached hereto.
"TRIBUNAL" means any federal, national, state, local, municipal or
foreign court, governmental agency, administrative body or agency, tribunal,
private alternative dispute resolution system, or arbitration panel.
[Remainder of Page Intentionally Blank]
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement or caused
it to be executed by their duly authorized officers and agents as of the day and
year first above written. Signatures of the parties transmitted by facsimile
shall be valid and binding for all purposes.
PURCHASER: PAMECO CORPORATION
(CORPORATE SEAL) By:
-----------------------------
Name:
-----------------------
Title:
----------------------
SELLERS: SAEZ REFRIGERATION, INC.
(CORPORATE SEAL) By:
-----------------------------
Name:
-----------------------
Title:
----------------------
SAEZ REFRIGERATION OF HIALEAH, INC.
(CORPORATE SEAL) By:
-----------------------------
Name:
-----------------------
Title:
----------------------
SAEZ
SHAREHOLDERS: --------------------------------
PEDRO J. SAEZ
--------------------------------
CONSUELO C. SAEZ
--------------------------------
JORGE SAEZ
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<PAGE>
EXHIBIT 10.25
AGREEMENT FOR PURCHASE AND SALE
OF
CAPITAL STOCK
OF
SUPERIOR SUPPLY COMPANY
AMONG
PAMECO CORPORATION
DON L. MILLER
AND
CHARLES P. SCHLEICHER
DATED AUGUST 25, 1997
<PAGE>
AGREEMENT FOR PURCHASE AND SALE OF CAPITAL STOCK
OF SUPERIOR SUPPLY COMPANY
THIS AGREEMENT is made and entered into on this 25th day of August,
1997, by and among PAMECO CORPORATION, a Georgia corporation ("PURCHASER"), DON
L. MILLER ("MILLER") and CHARLES P. SCHLEICHER ("SCHLEICHER") (Miller and
Schleicher are referred to herein collectively as the "SHAREHOLDERS" and
individually as a "SHAREHOLDER").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Superior Supply Company, a Missouri corporation ("COMPANY"),
and the Subsidiaries (as defined in SECTION 3.1) are engaged in the business of
wholesale distribution of heating, ventilating, air conditioning and
refrigeration equipment, parts and supplies (the "COMPANY'S BUSINESS"); and
WHEREAS, the Shareholders collectively own of record and beneficially
100% of the issued and outstanding capital stock of Company (collectively, the
"SHARES"); and
WHEREAS, upon the terms and subject to the conditions contained in
this Agreement, Purchaser desires to purchase the Shares from the Shareholders,
and the Shareholders desire to sell the Shares to Purchaser;
NOW, THEREFORE, for and in consideration of the premises and the
mutual covenants and agreements contained herein, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. PURCHASE AND SALE
-----------------
1.1 AGREEMENT TO PURCHASE AND SELL THE SHARES. Subject to the
-----------------------------------------
terms and conditions contained herein, the Shareholders hereby sell, assign,
transfer and convey to Purchaser, and in reliance on and subject to the
representations, warranties, covenants and agreements contained herein,
Purchaser hereby purchases and acquires from the Shareholders the Shares, free
and clear of all Liens (such term and certain other capitalized terms being
defined in ARTICLE 7).
1.2 PURCHASE PRICE. Subject to adjustment as provided in SECTIONS
--------------
1.5 AND 1.6, the aggregate purchase price (the "PURCHASE PRICE") to be paid for
the Shares shall be $7,000,000.
1.3 CLOSING. (a) Consummation of the transactions contemplated in
-------
this Agreement (the "CLOSING") shall take place at the offices of Kilpatrick
Stockton LLP, 1100 Peachtree Street, Suite 2800, Atlanta, Georgia, at 10:00 a.m.
Atlanta, Georgia time, on August 25, 1997 (the "CLOSING DATE").
1
<PAGE>
(b) At Closing:
(i) The Shareholders shall deliver to Purchaser certificates
representing the Shares, duly endorsed for transfer, with all required
stock transfer stamps, if any, affixed.
(ii) Upon delivery of the certificates representing the Shares by the
Shareholders, Purchaser shall pay the Purchase Price as follows:
(A) Purchaser shall deposit $525,000 with First Union
National Bank ("ESCROW AGENT") to be invested, held and disbursed
in accordance with that certain Escrow Agreement, of even date
herewith, among Purchaser, the Shareholders and Escrow Agent, a
copy of which is attached hereto as EXHIBIT A (such sum, together
with all interest thereon and other accretions thereto, the
"ESCROW FUND");
(B) Purchaser and the Shareholders shall instruct UMB Bank,
N.A., to deliver the Earnest Money (as defined in that certain
Good Faith Escrow Agreement, dated July 28, 1997, among
Purchaser, the Shareholders, and UMB Bank, N.A.) to the
Shareholders; and
(C) Subject to adjustment as provided in the next
paragraph, Purchaser shall pay to the Shareholders by wire
transfer to bank accounts designated by the Shareholders, the
amount of $6,475,000, less the Earnest Money.
(D) The purchase price to be paid to the Shareholders
pursuant to this SECTION 1.3 shall be adjusted as follows: (i)
if Company's net book value as reflected on the Estimated Closing
Date Balance Sheet (as defined in the following paragraph)
exceeds Company's net book value as reflected on Company's
consolidated balance sheet as of January 31, 1997 (the "JANUARY
31 BALANCE SHEET"), such excess shall be added to the cash
purchase price to be paid at the Closing; or (ii) if Company's
net book value as reflected on the Estimated Closing Date Balance
Sheet is less than Company's net book value as reflected on the
January 31 Balance Sheet, such difference shall be subtracted
from the cash purchase price to be paid at the Closing.
(iii) The parties shall mutually agree upon a consolidated balance
sheet reflecting the assets and liabilities of Company as of the
Closing Date (the "ESTIMATED CLOSING DATE BALANCE SHEET"). Except as
expressly provided in this SECTION 1.3(B), the Estimated Closing Date
Balance Sheet shall be prepared in accordance with GAAP (as defined in
ARTICLE 7). Obsolete Inventory (as defined in ARTICLE 7) of Company
and the Subsidiaries shall not be included on the Estimated Closing
2
<PAGE>
Date Balance Sheet. Inventory included on the Estimated Closing Date
Balance Sheet shall be valued at the lower of Company's or
Subsidiaries' cost or fair market value on the Closing Date. Tangible
fixed assets shall be included on the Estimated Closing Date Balance
Sheet only if they are identifiable, and those which are identifiable
shall be reflected at their book value (net of depreciation). A
reserve for warranty claims shall be established on the Estimated
Closing Date Balance Sheet in accordance with GAAP, net of an
adjustment for deferred tax assets. No additional reserve will be
established on the Estimated Closing Date Balance Sheet for the
amortization of Company's existing asset "Excess of purchase price
over net assets" which is reflected on the January 31 Balance Sheet.
There will be no adjustment to equity on the Estimated and Closing
Date Balance Sheet, and no income tax reserve will be established on
the Estimated and Closing Date Balance Sheet, with respect to
Company's LIFO reserve. Rebates that Company and the Subsidiaries
expect to receive from manufacturers after the Closing Date with
respect to purchases occurring prior to the Closing Date will be
recorded on the Estimated and Closing Date Balance Sheet as
receivables in accordance with GAAP (the "REBATE RECEIVABLES").
(iv) Purchaser and Miller shall execute an employment agreement in
the form of EXHIBIT B attached hereto.
(v) Purchaser shall cause Company to pay in full all of the debt of
Company identified on EXHIBIT C and shall cause any personal
guarantees of such debt by the Shareholders to be cancelled.
(vi) Company and the Subsidiaries shall have entered into leases with
the Shareholders with respect to the branches identified on EXHIBIT D,
and the obligations of Company and the Subsidiaries under such leases
shall be guaranteed by Pameco.
(c) All deliveries, payments and other transactions and documents
relating to Closing shall be interdependent and none shall be effective unless
and until all are effective (except to the extent that the party entitled to the
benefit thereof has waived satisfaction or performance thereof as a condition
precedent to Closing).
(d) From time to time and at any time, at Purchaser's reasonable
request, after Closing, and without further consideration, the Shareholders
shall, at their own expense, execute and deliver such further documents and
instruments of conveyance, assignment, and transfer and shall take such further
reasonable actions as may be necessary or desirable, in the opinion of
Purchaser, to transfer and convey to Purchaser all right, title and interest in
and to the Shares, free and clear of all Liens or as may otherwise be necessary
or desirable to carry out the intent of this Agreement.
1.4 PREPARATION OF CLOSING DATE BALANCE SHEET. (a) Within 60 days after
-----------------------------------------
the Closing Date, Purchaser will prepare and deliver to the Shareholders a
consolidated balance sheet with respect to Company (the "DRAFT BALANCE SHEET")
as of the start of business on the Closing Date, and a written calculation of
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the change in assets and liabilities from the Estimated Closing Date Balance
Sheet (the "CALCULATION"). Purchaser will prepare the Draft Balance Sheet in
accordance with GAAP, with the exceptions noted in SECTION 1.3(B)(III);
provided, however, that the parties acknowledge and agree that (i) the reserve
for warranty claims established on the Estimated Closing Date Balance Sheet
shall not be adjusted, either up or down, on the Closing Date Balance Sheet (as
defined in SECTION 1.4(C)), and (ii) the figure reflected on the Estimated
Closing Date Balance Sheet for reserves for damaged inventory, obsolete
inventory, shrinkage, excess and idle inventory, and discontinued lines shall
not be adjusted, either up or down, on the Closing Date Balance Sheet, although
the inventory figure on the Closing Date Balance Sheet may be adjusted for
purchases and sales through August 22, 1997, and for returned goods.
(b) The Shareholders shall have 15 days after receiving the Draft
Balance Sheet and the Calculation in which to deliver written notice of
objection thereto to Purchaser. Failure to object in writing within such 15 day
period shall constitute the Shareholders' final and binding acceptance of the
Draft Balance Sheet and the Calculation. If Purchaser and the Shareholders
cannot agree upon the Draft Balance Sheet and the Calculation within 15 days
after Purchaser receives the Shareholders' written notice of objection, if any,
they shall retain a nationally recognized accounting firm (other than Ernst &
Young, LLP) to resolve the remaining issues. Such accounting firm's fees and
expenses shall be paid one-half by Purchaser and one-half by the Shareholders.
(c) The determination of such accounting firm will be conclusive and
binding upon the parties and shall be reflected in a final consolidated balance
sheet with respect to Company approved or prepared by such accountants in
accordance with the principles set forth in SECTION 1.3(B)(III). The
consolidated balance sheet of Company as at the start of business on the Closing
Date and the Calculation, whether determined by agreement of the parties or by
such accountants as the case may be, shall be referred to herein as the "CLOSING
DATE BALANCE SHEET."
1.5 PURCHASE PRICE ADJUSTMENTS. (a) Upon final determination of
--------------------------
the Closing Date Balance Sheet, the Purchase Price shall be adjusted as follows:
(i) if Company's net book value as reflected on the Closing Date Balance Sheet
exceeds Company's net book value as reflected on the Estimated Closing Date
Balance Sheet, Purchaser shall pay to the Shareholders in cash an amount equal
to such excess within five calendar days following the date of the final
determination of the Closing Date Balance Sheet; or (ii) if Company's net book
value as reflected on the Closing Date Balance Sheet is less than Company's net
book value as reflected on the Estimated Closing Date Balance Sheet, the
Shareholders will reimburse Purchaser in cash the amount of such difference
within five calendar days following the date of the final determination of the
Closing Date Balance Sheet, provided that such amount shall be paid first from
the Escrow Fund to the extent thereof, and thereafter by the Shareholders.
(b) Anything herein to the contrary notwithstanding, there shall be no
Purchase Price adjustment, either up or down, pursuant to this SECTION 1.5
unless such adjustment exceeds $25,000, and the maximum Purchase Price
adjustment pursuant to this SECTION 1.5 shall be $200,000.
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1.6 RECEIVABLES. (a) The parties acknowledge and agree that any
-----------
accounts and notes receivables existing on the Closing Date (other than the
Rebate Receivables) which are not collected by Purchaser using commercially
reasonable collection efforts (which shall include sending invoices and other
notices of amounts due, but shall not include the use of outside collection
services) within 90 days after Closing may be deemed uncollectible, and
Purchaser may, upon written notice to the Shareholders, assign such
uncollectible accounts and notes receivables (the "ASSIGNED RECEIVABLES") to the
Shareholders prior to 120 days after Closing, and the Shareholders shall be
entitled to all subsequent collections with respect to such Assigned
Receivables. If Purchaser assigns any accounts and notes receivables to the
Shareholders, the Shareholders shall promptly pay to Purchaser in cash the book
value of such Assigned Receivables as reflected on the Closing Date Balance
Sheet.
(b) If Purchaser has not collected the Rebate Receivables by March
30, 1998, using commercially reasonable collection efforts, Purchaser may, upon
written notice to the Shareholders, assign such uncollectible Rebate Receivables
to the Shareholders, and the Shareholders shall be entitled to all subsequent
collections with respect to such assigned Rebate Receivables. If Purchaser
assigns any Rebate Receivables to the Shareholders, the Shareholders shall
promptly pay to Purchaser in cash the book value of such assigned Rebate
Receivables as reflected on the Closing Date Balance Sheet. If Purchaser's
collection of Rebate Receivables by March 30, 1998, exceeds the amount of Rebate
Receivables reflected on Closing Date Balance Sheet, then Purchaser shall
promptly pay to the Shareholders such excess; provided, however, that in
ascertaining whether rebates received from suppliers relate to periods prior to
or following the Closing, such rebates shall be allocated based upon the volume
of purchases from the applicable supplier between February 1, 1997 and January
31, 1998.
2. ADDITIONAL AGREEMENTS
---------------------
2.1 EXPENSES. All expenses incurred by Purchaser in connection
--------
with the negotiations among the parties, and the authorization, preparation,
execution and performance of this Agreement and the transactions contemplated
hereby, including, without limitation, all fees and expenses of agents, counsel
and accountants for Purchaser, shall be paid by Purchaser. All expenses incurred
by Company and the Shareholders in connection with the negotiations among the
parties, and the authorization, preparation, execution and performance of this
Agreement and the transactions contemplated hereby, including, without
limitation, all fees and expenses of agents, counsel and accountants for Company
and the Shareholders, shall be paid by the Shareholders.
2.2 BROKERS. The Shareholders hereby represent and warrant that no
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broker or finder has acted on their behalf in connection with this Agreement or
the transactions contemplated herein. Purchaser hereby represents and warrants
that no broker (other than Copley Browne Inc., whose fee shall be paid by
Purchaser) has acted on its behalf in connection with this Agreement or the
transactions contemplated herein.
2.3 COVENANT AGAINST COMPETITION. (a) In order to induce Purchaser
----------------------------
to enter into and perform this Agreement, each Shareholder covenants and agrees
that, for a period of five years beginning on the Closing Date, he will not,
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<PAGE>
without the prior written consent of Purchaser, for his own account or jointly
with another, directly or indirectly, for or on behalf of any Person (as defined
in ARTICLE 7), as principal, agent, shareholder, participant, partner, promoter,
director, officer, manager, employee, consultant, sales representative or
otherwise, except as an employee or on behalf of Purchaser:
(i) engage or invest in, consult with, or own, control, manage, assist
or otherwise participate in the ownership, control or management of,
or render services or advise to, or lend his name to, any business
engaged in the purchase for resale, sale or distribution within the
Territory (as defined in ARTICLE 7) of heating, ventilating, air
conditioning and refrigeration equipment, parts and supplies
("PRODUCTS");
(ii) solicit or assist in the solicitation of any Person having an
office or place of business within the Territory and to whom Company
or any Subsidiary sold or provided any Products on, or during the two
year period prior to, the date of the Closing Date, for the purpose of
obtaining the patronage of such Person for the purchase of any
Products;
(iii) solicit or induce, or in any manner assist in the solicitation
or inducement of, any Person employed by Company or any Subsidiary (as
defined in SECTION 3.1), as an employee, independent contractor or
otherwise, to leave such employment, whether or not such employment is
pursuant to a contract and whether or not such employment is at will;
or
(iv) use, disclose or reveal to any Person, any Confidential
Information (as defined below) of Company and the Subsidiaries;
provided, however, that for purposes of this SECTION 2.3, with respect
to each Shareholder, Confidential Information shall not include
confidential business information that does not constitute a trade
secret under applicable Law (as defined in ARTICLE 7) upon the
expiration of the fifth anniversary of the Closing Date.
(b) Notwithstanding anything herein to the contrary, it shall not be a
breach of the covenants contained in SECTION 2.3(A) for (i) either Shareholder
to own up to 2% of any class of publicly traded securities of any Person or (ii)
Schleicher Latz, P.C. to serve solely as legal counsel to any Person engaged in
the activities described in SECTION 2.3(A).
(c) Although the parties have, in good faith, used their best efforts
to make the provisions of this SECTION 2.3 reasonable in both geographic area
and in duration in light of the financial aspects of the transaction, and it is
not anticipated, nor is it intended, by any party hereto that a Tribunal (as
defined in ARTICLE 7) of competent jurisdiction would find it necessary to
reform the provisions hereof to make it reasonable in both geographic area or in
duration, the parties understand and agree that if a Tribunal of competent
jurisdiction determines it necessary to reform the scope of this SECTION 2.3 in
order to make it reasonable in either geographic area or duration, or otherwise,
then damages, if any, for a breach hereof, as so reformed, would be deemed to
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<PAGE>
accrue to Purchaser as of and from the date of such a breach only in so far as
the damages for such breach relate to an action which occurred within the scope
of the geographic area or duration as so reformed.
(d) For purposes of this Agreement, "CONFIDENTIAL INFORMATION" means
any and all technical, business and other information which derives economic
value, actual or potential, from not being generally known to the public,
including, without limitation, technical or nontechnical data, compositions,
devices, methods, techniques, drawings, inventions, processes, financial data,
financial plans, product plans, lists or information concerning actual or
potential customers or suppliers, information regarding business plans and
operations, methods and plans of operation, marketing strategies, sales and
distribution plans or strategies, cost information, pricing strategies, and
acquisition and investment plans of Company and the Subsidiaries.
Notwithstanding any other provision herein, Confidential Information shall not
include any information (i) which is independently developed by a Shareholder
without the use of any Confidential Information; (ii) which was in the public
domain prior to the disclosure thereof; (iii) any information which comes into
the public domain through no fault of a Shareholder; (iv) any information which
is disclosed without restriction to a Shareholder by a third Person having the
legal right to make such disclosure; or (v) any information which is required to
be disclosed by Law or by Order (as defined in ARTICLE 7) of any Tribunal.
2.4 GOVERNMENT FILINGS. The parties shall make, or cause to be
------------------
made, all filings and submissions required to be made to any Government in
connection with the transactions contemplated by this Agreement. Each party
shall furnish to the other parties such necessary information and reasonable
assistance as such other party may reasonably request in connection with its
preparation of necessary filings or submissions to any Government.
2.5 EMPLOYEES. Purchaser agrees to offer continued employment to
---------
the employees of Company and the Subsidiaries listed on SCHEDULE 2.5, in
accordance with the form of employment agreement attached hereto as EXHIBIT E.
In all other instances, employees of Company and the Subsidiaries will be
offered employment "at will" and will be subject to the terms, conditions and
policies applicable to Pameco's employees generally. Purchaser shall provide
all employees of Company and the Subsidiaries not listed on SCHEDULE 2.5 with
notice of termination and severance benefits, if applicable, in accordance with
Purchaser's policies and practices applicable to its own employees generally;
provided, that to the extent severance benefits are based upon years of service,
an employee will be given credit for years of service with Company and the
Subsidiaries.
2.6 FILING TAX RETURNS; COOPERATION ON TAX MATTERS. (a) Purchaser
----------------------------------------------
shall prepare or cause to be prepared and file or cause to be filed all Returns
(as defined in SECTION 3.20) for Company and the Subsidiaries for all periods
ending on or prior to the Closing Date which are required or permitted to be
filed after the Closing Date. Purchaser shall permit the Shareholders to review
and comment on each such Return prior to filing. The Shareholders shall
reimburse Purchaser for Taxes of Company and the Subsidiaries with respect to
such periods within fifteen (15) days after payment by Purchaser or Company and
the Subsidiaries of such Taxes to the extent such Taxes are not reflected in the
reserve for Tax Liability (rather than any reserve for deferred Taxes
established to reflect timing differences between book and Tax income) shown on
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<PAGE>
the face of the Closing Date Balance Sheet. If Purchaser has not delivered
copies of the Returns described in this SECTION 2.6(A) to the Shareholders prior
to the final date on which they are required to be filed, subject to applicable
extensions, the Shareholders may, upon ten days advance written notice to
Purchaser, prepare and file such Returns; provided that they shall permit
Purchaser to review and comment on each such Return prior to filing.
(b) Purchaser shall prepare or cause to be prepared and file or cause
to be filed any Returns of Company and the Subsidiaries for Tax periods which
begin before the Closing Date and end after the Closing Date. The Shareholders
shall pay to Purchaser within fifteen (15) days after the date on which Taxes
are paid with respect to such periods an amount equal to the portion of such
Taxes which relates to the portion of such Taxable period ending on the Closing
Date to the extent such Taxes are not reflected in the reserve for Tax Liability
(rather than any reserve for deferred Taxes established to reflect timing
differences between book and Tax income) shown on the face of the Closing Date
Balance Sheet. The reserve established on the Estimated Closing Date Balance
Sheet with respect to income taxes shall be calculated as if Superior Supply
Company of Topeka, Inc. and Superior Supply Company of Joplin, Inc. filed
separate federal income tax returns, and consequently, benefit separately from
the graduated rates in the Code applicable to corporations. For purposes of
this SECTION 2.6, in the case of any Taxes that are imposed on a periodic basis
and are payable for a Taxable period that includes (but does not end on) the
Closing Date, the portion of such Tax which relates to the portion of such
Taxable period ending on the Closing Date shall (x) in the case of any Taxes
other than Taxes based upon or related to income or receipts, be deemed to be
the amount of such Tax for the entire Taxable period multiplied by a fraction
the numerator of which is the number of days in the Taxable period ending on the
Closing Date and the denominator of which is the number of days in the entire
Taxable period, and (y) in the case of any Tax based upon or related to income
or receipts be deemed equal to the amount which would be payable if the relevant
Taxable period ended on the Closing Date. Any credits relating to a Taxable
period that begins before and ends after the Closing Date shall be taken into
account as though the relevant Taxable period ended on the Closing Date. All
determinations necessary to give effect to the foregoing allocations shall be
made in a manner consistent with prior practice of Company and the Subsidiaries.
(c) (i) Purchaser and the Shareholders shall cooperate fully, as and
to the extent reasonably requested by the other party, in connection with the
filing of Returns pursuant to this SECTION 2.6 and any audit, litigation or
other proceeding with respect to Taxes. Such cooperation shall include the
retention and (upon the other party's request) the provision of records and
information which are reasonably relevant to any such audit, litigation or other
proceeding and making employees available on a mutually convenient basis to
provide additional information and explanation of any material provided
hereunder. Purchaser and the Shareholders agree (A) to retain all books and
records with respect to Tax matters pertinent to Company and the Subsidiaries
relating to any Taxable period beginning before the Closing Date until the
expiration of the statute of limitations (and, to the extent notified by
Purchaser or the Shareholders, any extensions thereof) of the respective Taxable
periods, and to abide by all record retention agreements entered into with any
taxing authority, and (B) to give the other party reasonable written notice
8
<PAGE>
prior to transferring, destroying or discarding any such books and records, and
if the other party so requests, Purchaser or the Shareholders, as the case may
be, shall allow the other party to take possession of such books and records.
(ii) Purchaser and the Shareholders further agree, upon request, to
use their best efforts to obtain any certificate or other document from any
governmental authority or any other Person as may be necessary to mitigate,
reduce or eliminate any Tax that could be imposed (including, but not limited
to, with respect to the transactions contemplated hereby).
3. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
--------------------------------------------------
To induce Purchaser to enter into and perform this Agreement, the
Shareholders severally represent, warrant and covenant to Purchaser as follows:
3.1 OWNERSHIP OF SHARES; SUBSIDIARIES. (a) The total authorized
---------------------------------
capital stock of Company consists of 500,000 shares of common stock, par value
$1.00 per share, and 5,000 shares of preferred stock, par value $100 per share.
The Shareholders are the record and beneficial owners of the Shares, free and
clear of all Liens, and upon consummation of the purchase and sale of the Shares
to Purchaser, Purchaser shall be the sole owner of the Shares, free and clear of
all Liens (including, without limitation, free and clear of any adverse claims
of any Persons shown as former shareholders of Company in Company's stock
transfer records). There are no outstanding contracts, demands, commitments or
other agreements or arrangements under which the Shareholders (or either of
them) or Company are or may become obliged to sell, transfer or assign any of
the Shares.
(b) Except as set forth on SCHEDULE 3.1, Company owns beneficially and
of record 100% of the issued and outstanding capital stock (the "SUBSIDIARY
SHARES") of each of the corporations listed on SCHEDULE 3.1 attached hereto
(individually, a "SUBSIDIARY" and collectively, the "SUBSIDIARIES"), free and
clear of all Liens. There are no outstanding contracts, demands, commitments or
other agreements or arrangements under which the Shareholders (or either of
them) or Company are or may become obligated to sell, transfer or assign any of
the Subsidiary Shares. Except for the Subsidiary Shares, neither Company nor
any Subsidiary owns or has an interest, direct or indirect, or any commitment to
purchase or otherwise acquire, any capital stock or other equity interest,
direct or indirect, in any other Person.
(c) The Shares and the Subsidiary Shares are duly authorized, validly
issued, fully paid and nonassessable and were authorized, offered, issued and
sold in accordance with all applicable securities and other Laws and all rights
of the Shareholders and other Persons. No Person has any preemptive rights or
other rights to acquire, or adverse claims, with respect to the capital stock of
Company or any Subsidiary, whether issued and outstanding or otherwise. There
are no outstanding securities convertible into the capital stock or rights to
subscribe for or to purchase, or any options for the purchase of, or any
agreements or arrangements providing for the issuance (contingent or otherwise)
of, or any Actions (as defined in ARTICLE 7) relating to, the capital stock of
Company or any Subsidiary. There are no voting trusts, proxies or other
agreements or understandings with respect to the voting of the Shares or any of
the Subsidiary Shares. Company is not, nor is any Subsidiary, subject to any
9
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obligation to repurchase or otherwise acquire or retire any of the Shares or any
Subsidiary Shares, and neither Company nor any Subsidiary has any liability for
dividends declared or accrued, but unpaid, with respect to the Shares and the
Subsidiary Shares, respectively. All repurchases or redemptions of Company's
and each Subsidiary's capital stock have been made in accordance with all
applicable Laws, and neither Company nor any Subsidiary has paid any dividend or
made any other distribution or payment in respect of its capital stock to any
Shareholder or other Person within the past year.
3.2 ORGANIZATION, AUTHORITY AND QUALIFICATION. Company and the
-----------------------------------------
Subsidiaries are corporations duly organized, validly existing and in good
standing under the Laws of the jurisdictions indicated on SCHEDULE 3.2. Company
and the Subsidiaries have offices and places of business at the locations listed
on SCHEDULE 3.2. Company and the Subsidiaries have full corporate power and
authority and are entitled to own or lease their respective properties and to
carry on their businesses as and in all places where such businesses are
conducted and such properties are owned or leased. Except as set forth in
SCHEDULE 3.2, Company and the Subsidiaries are not required to be qualified as
foreign corporations in any jurisdiction. The Shareholders have previously
furnished or made available to Purchaser true, correct and complete copies of
(i) the articles of incorporation and bylaws of Company and the Subsidiaries,
(ii) the minutes and other similar records of meetings of the shareholders of
Company and the Subsidiaries and each of their board of directors, which contain
all records of meetings of, and actions taken in lieu thereof by their
shareholders, and show all corporate actions taken by their shareholders, each
of their board of directors, or any committees thereof, and (iii) Company's and
the Subsidiaries' share transfer records, which reflect fully all issuances,
transfers and redemptions of their shares since the date of their incorporation.
3.3 CAPACITY; INCONSISTENT OBLIGATIONS. (a) Each Shareholder has
----------------------------------
the full right, power, and legal capacity to execute, deliver and perform his
obligations under this Agreement. This Agreement has been duly and validly
executed and delivered by each Shareholder and constitutes the valid and legally
binding obligations of each Shareholder, subject to general equity principles,
enforceable in accordance with its terms, except as the same may be limited by
bankruptcy, insolvency or similar Laws affecting the rights of creditors
generally.
(b) The execution, delivery and performance of this Agreement will not
(i) result in a violation of Company's or any Subsidiaries' articles of
incorporation or bylaws or any Law or (ii) result in a breach of, conflict with
or default under any term or provision of any indenture, note, mortgage, bond,
security agreement, loan agreement, guaranty, pledge, or other instrument,
contract, agreement or commitment, or any Order, to which Company, any
Shareholder or any Subsidiary is a party or by which any of them or any of their
respective assets and properties, including, without limitation, the Shares and
the Subsidiary Shares, is subject or bound; nor will such actions result in (w)
the creation of any Lien on any Share or any of Company's or the Subsidiaries'
assets or properties, (x) the acceleration or creation of any Liability (as
defined in ARTICLE 7) or obligation of Company or any Subsidiary, (y) the
forfeiture of any right or privilege of Company or any Subsidiary, or (z) the
forfeiture of any right or privilege of any Shareholder which may affect such
Shareholder's ability to perform under this Agreement.
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3.4 CONSENTS. The execution, delivery and performance by each
--------
Shareholder of this Agreement and the consummation of the transactions
contemplated herein does not (a) require the consent, approval or action of, or
any filing with or notice to, any Government or other Person, or (b) impose any
other term, condition or restriction on Purchaser, Company or the Subsidiaries
pursuant to any business combination or takeover Law.
3.5 LEGAL COMPLIANCE. Neither Company nor any Subsidiary is in
----------------
default under or in violation of (a) its articles of incorporation or bylaws or
(b) any Order. The operations of Company and the Subsidiaries and their
respective predecessors have been conducted in all material respects in
compliance with all applicable Laws. (For purposes of this Section, any
violation of applicable Law that could result in imposition of a fine or other
monetary penalty upon Company or any Subsidiary shall be deemed to be a material
non-compliance.) Company, the Subsidiaries and the Shareholders have not
received any notification of any asserted past or present failure by Company or
any Subsidiary to comply with any applicable Law.
3.6 POSSESSION OF LICENSES. Company and the Subsidiaries possess
----------------------
all franchises, certificates, licenses, permits and other authorizations from
Governments and other Persons, free from burdensome restrictions, that are
necessary for the ownership, maintenance and operation of their properties and
assets and the conduct of their businesses, except where the failure to obtain
such franchises, certificates, licenses, permits and authorizations, would not,
individually or in the aggregate, have a material adverse effect on the
business, assets, properties, Liabilities, affairs, results of operations,
conditions (financial or otherwise), cash flows or prospects of Company or any
Subsidiary, and neither Company nor any Subsidiary is in violation thereof.
3.7 FINANCIAL STATEMENTS. (a) Prior to the date hereof, the
--------------------
Shareholders have delivered to Purchaser copies of Company's consolidated
financial statements and related documents, as identified in SCHEDULE 3.7,
including the audit report thereon of Donnelly Meiners Jordan Kline, independent
certified public accountants, for all financial statements relating to the last
three complete fiscal years (collectively, the "FINANCIAL STATEMENTS"),
including, without limitation, for the fiscal year ended January 31, 1997 (the
"REFERENCE DATE"). Except as set forth in SECTION 3.7(B), the Financial
Statements are true and correct in all material respects, have been prepared in
accordance with GAAP consistently applied, present fairly the financial
condition of Company and the Subsidiaries as at the respective dates thereof and
the results of Company's and the Subsidiaries' operations and cash flows for the
periods then ended, and are consistent with the books and records of Company and
the Subsidiaries. The books and records of Company and the Subsidiaries are
currently maintained in accordance with GAAP and are true, correct and complete
in all material respects.
(b) The parties acknowledge and agree that the Financial Statements
have not been prepared in accordance with GAAP in the following respects: (i)
Company has not established a reserve for warranty claims on its balance sheets,
(ii) Company has not amortized an existing asset which is reflected on the
Reference Date Balance Sheet (as defined in SECTION 3.9) as "Excess of purchase
price over net assets", and (iii) the Estimated Closing Date Balance Sheet and
the Closing Date Balance Sheet will include an entry for the Rebate Receivables.
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3.8 LIABILITIES. Neither Company nor any Subsidiary has any
-----------
Liability, except (a) those reflected on the Estimated Closing Date Balance
Sheet in the amounts reflected thereon (none of which results from, arises out
of, relates to, is in the nature of, or was caused by any breach of contract,
breach of representation or warranty, tort, product liability, infringement or
violation of any Law or Order), and (b) as may be set forth on SCHEDULE 3.8.
3.9 TITLE TO PROPERTIES. Company and the Subsidiaries have good
-------------------
and complete title to all properties and assets reflected on Company's
consolidated balance sheet as of the Reference Date (the "REFERENCE DATE BALANCE
SHEET"), except inventories and other immaterial assets which have been disposed
of in the ordinary course of business since the Reference Date, and on the
Estimated Closing Date Balance Sheet, and all other properties and assets
necessary to conduct their business as currently being conducted and as
conducted during the periods covered by the Financial Statements (other than any
leased property), free and clear of Liens, except as may be set forth in the
notes to the Reference Date Balance Sheet or on SCHEDULE 3.9.
3.10 RECEIVABLES. All notes and accounts receivable shown on the
-----------
Reference Date Balance Sheet and all such receivables shown on the Estimated
Closing Date Balance Sheet are valid and collectible obligations and were not
and are not subject to any offset or counterclaim, except for amounts reserved
against such receivables which are reflected on the Reference Date Balance Sheet
and the Estimated Closing Date Balance Sheet, as applicable.
3.11 INVENTORIES. (a) The inventory of the Company and the
-----------
Subsidiaries is merchantable and conforms in all material respects to all
orders, contracts or commitments for such goods and customary trade standards
for merchantable goods. Each item of inventory reflected on the Reference Date
Balance Sheet and the books and records of Company and the Subsidiaries has been
valued at the lower of cost or market in accordance with GAAP consistently
applied.
(b) All products held by Company and the Subsidiaries for sale to
their customers meet the standards of (i) all applicable Laws and (ii) all
contractual commitments and warranties of Company and the Subsidiaries to their
customers. Neither Company nor any Subsidiary has any Liability, and there is
no basis for any Action, for repair or replacement of any products sold by
Company or the Subsidiaries or other damages in connection therewith, except for
Liabilities and Actions fully covered by manufacturers' warranties. No product
sold or otherwise distributed by Company, the Subsidiaries or their respective
predecessors prior to the date hereof was, nor has Company, the Subsidiaries or
their respective predecessors received any notice claiming the same to be,
hazardous or unsafe in design, specification, material, content, function or
otherwise.
(c) No customer of Company or any Subsidiary has any right to return
any goods for credit or refund pursuant to any oral or written agreement,
understanding or practice which individually or in the aggregate is material,
and neither Company nor any Subsidiary presently has any goods in the possession
of its customers on consignment or a similar basis.
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3.12 PERSONAL PROPERTY. (a) All machinery, equipment, vehicles,
-----------------
and other items of tangible personal property which are owned or leased by
Company or the Subsidiaries are in good condition and repair, subject to normal
wear and tear, suited for the use intended and are and have been operated in
conformity with all applicable Laws. Except as set forth on SCHEDULE 3.12, there
are no defects or conditions which would cause such tangible personal property
to be or become inoperable or unsafe.
(b) To the Shareholders' knowledge, all lessors of machinery,
equipment or other tangible personal property leased by Company and the
Subsidiaries have performed and satisfied their respective duties and
obligations under such leases. Neither Company nor any Subsidiary has brought
or threatened any Action against any such lessor for failure to perform and
satisfy its duties and obligations thereunder.
3.13 BANK ACCOUNTS AND DEPOSIT BOXES. SCHEDULE 3.13 lists each bank
-------------------------------
in which Company or a Subsidiary maintains an account or safety deposit box, the
account numbers, and the names of all persons authorized to draw thereon or have
access thereto.
3.14 REAL PROPERTY. (a) Neither Company nor any Subsidiary
-------------
currently owns, or previously owned, any parcel of real property. Each parcel
or tract of real property used in connection with the Company's Business is
subject to a written lease or sublease to which Company or a Subsidiary is a
party as lessee or sublessee (individually a "REAL PROPERTY LEASE"). All such
Real Property Leases are valid and in full force and effect in accordance with
their terms. The Shareholders have previously furnished Purchaser with true,
correct and complete copies of all Real Property Leases. There is not, with
respect to any Real Property Lease (i) any default by Company or any Subsidiary,
or any event of default or event which with notice or lapse of time, or both,
would constitute a default by Company or any Subsidiary, or (ii) to the
knowledge of the Shareholders, any existing default by any other party to any
Real Property Lease, or event of default or event which with notice or lapse of
time, or both, would constitute a default by any other party to any Real
Property Lease.
(b) The present use, occupancy and operation of the Leased Real
Property (as defined in ARTICLE 7), and all Improvements (as defined in ARTICLE
7) to the Leased Real Property, by Company and the Subsidiaries are in
compliance with all Laws and private restrictive covenants, and to the
Shareholders' knowledge there has not been any proposed change thereto that
would affect any of the Leased Real Property or its use, occupancy or operation.
There exists no conflict or dispute involving Company or any Subsidiary (or to
the knowledge of the Shareholders, any other Person) with any Government or
other Person relating to any Leased Real Property or the activities thereon. No
portion of the Leased Real Property is subject to any classification,
designation or preliminary determination of any Government or pursuant to any
Law which would restrict its use, development, occupancy or operation in
connection with the Company's Business.
(c) Neither Company, the Subsidiaries or, to the knowledge of the
Shareholders, any other Person, has caused any work or improvements to be
performed upon or made to any of the Leased Real Property for which there
13
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remains outstanding any payment obligation that would or might serve as the
basis for any Lien in favor of the Person who performed the work.
(d) To the knowledge of the Shareholders, all requisite certificates
of occupancy and other permits and approvals required of Company and the
Subsidiaries with respect to the Leased Real Property or the Improvements and
the use, occupancy and operation thereof by Company and the Subsidiaries have
been obtained and paid for and are currently in effect and free of restrictions.
3.15 ABILITY TO CONDUCT BUSINESS AND INTELLECTUAL PROPERTY RIGHTS.
------------------------------------------------------------
(a) Company and the Subsidiaries have the means, rights and information
required to offer and sell the products now being offered and sold by them and
to perform the services that are presently being performed by them. Neither
Company nor any Subsidiary is a party to, either as a licensor or licensee, nor
are any of them bound by or subject to, any license agreement for any patent,
process, trademark, service mark, trade name, copyright, trade secret or
confidential information. Except as set forth on SCHEDULE 3.15, Company and the
Subsidiaries do not own or use any patents, copyrights, trademarks, service
marks, trade names and applications therefor or registrations thereof. There
are no rights of third parties with respect to any trademark, service mark,
trade secret, trade name, patent, patent application, copyright, invention,
device or process which has or could have an adverse effect on the operations of
Company or the Subsidiaries. Company and the Subsidiaries have complied with
all applicable Laws relating to the filing or registration of "fictitious names"
or trade names.
(b) Company and the Subsidiaries have not interfered with, infringed,
misappropriated or otherwise come into conflict with any intellectual property
rights of any other Person, and neither Company, the Subsidiaries or any of
their officers and directors has ever received any charge, complaint, claim,
demand or notice alleging any such interference, infringement, misappropriation
or violation. To the Shareholders' knowledge, no Person has interfered with,
infringed upon, misappropriated, or otherwise come into conflict with the
proprietary inventions, designs, ideas, processes, methods and other know-how or
other intellectual property of Company and the Subsidiaries which are owned or
used in the operation of their business.
3.16 CONTRACTS. (a) All Company Contracts (as defined in ARTICLE
---------
7) have been entered into in the ordinary course of the Company's Business on
commercially reasonable terms, are valid and enforceable in all material
respects in accordance with their terms, are in full force and effect, and will
continue to be valid and enforceable and in full force and effect on identical
terms following the Closing. No Company Contract is likely to result in a loss
to Company or any Subsidiary upon completion of performance, and all Company
Contracts can be fulfilled or performed by Company and the Subsidiaries in
accordance with their respective terms without undue or unusual expenditures of
money or effort. Company and the Subsidiaries have delivered or made available
to Purchaser a true, correct and complete copy of each written Company Contract
and a complete and accurate summary of the material terms of each oral Company
Contract.
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<PAGE>
(b) Company and the Subsidiaries have performed all obligations to be
performed by them as of the date of this Agreement under all Company Contracts.
There are no existing material defaults, events of default or events which, with
the giving of notice or lapse of time or both, would constitute a material
default by Company or any Subsidiary under any Company Contract. No event has
occurred which may hereafter give rise to any right of termination,
acceleration, damages or any other remedy under any Company Contract.
(c) Neither this Agreement, the Closing or the relationship among
Company, the Subsidiaries and Purchaser has caused or is likely to cause the
termination or nonrenewal of any Company Contract.
3.17 INSURANCE. Company and the Subsidiaries have obtained and
---------
maintain insurance policies which provide coverage to insure their assets,
properties and business against such risks and in such amounts as are prudent
and customary in the industry in which they operate, and all such policies are
in full force and effect. Except as set forth on SCHEDULE 3.17, all premiums
due on such policies have been paid, and neither Company nor any Subsidiary has
received any notice of cancellation with respect thereto. Company and the
Subsidiaries do not have any Liability for premiums or for retrospective premium
adjustments for any period through the date hereof. SCHEDULE 3.17 lists the
types, amounts of coverage and deductibles of all such insurance policies, and
true, correct and complete copies thereof have been delivered or made available
to Purchaser.
3.18 CUSTOMERS AND SUPPLIERS. SCHEDULE 3.18 sets forth the names
-----------------------
of any sole source suppliers of significant goods, equipment or services to
Company and the Subsidiaries with respect to which practical alternative sources
of supply are not available, and the names of the top twenty-five customers of
Company and each Subsidiary ("SIGNIFICANT CUSTOMERS"). Neither Company, the
Subsidiaries or the Shareholders are aware, except as disclosed in SCHEDULE 3.18
that: (i) any supplier or Significant Customer of Company or any Subsidiary
intends to discontinue or substantially diminish or change its relationship with
Company or such Subsidiary or the terms thereof, or (ii) any supplier of Company
or any Subsidiary intends to increase prices or charges for goods or services
presently supplied.
3.19 LITIGATION; CONTINGENCIES. No Action is pending or, to the
-------------------------
knowledge of the Shareholders, threatened against, by or affecting Company, the
Subsidiaries, the Shares or the Subsidiary Shares. There are no unsatisfied
judgments or Orders against Company, the Subsidiaries or any Shareholder or any
of their predecessors or to which any of them or their assets and properties are
subject.
3.20 TAXES. Company and the Subsidiaries have, either separately
-----
or as a member of a group of corporations eligible or required to file a
consolidated Tax return, duly and timely filed all federal, state, municipal,
local and foreign, if any, Tax returns and reports (including returns for
estimated tax), and all reports and returns of all other Governments having
jurisdiction with respect to all Taxes (collectively, "RETURNS"); all Returns
show the correct and proper amount due; and the Taxes shown on all Returns and
all Tax assessments received by Company and the Subsidiaries have been paid to
15
<PAGE>
the extent that such Taxes or estimates are due. Company and the Subsidiaries
have previously provided true, correct and complete copies of all Returns filed
with respect to the three (3) tax years preceding the date hereof. All Taxes
imposed on Company and the Subsidiaries by any Government (including all
deposits in connection therewith required by applicable Law, and all interest
and penalties thereon) which have become due and payable for all periods through
the date hereof have been paid in full, and adequate reserves for all other
Taxes, whether or not due and payable, and whether or not disputed, have been
set up on the books of Company and the Subsidiaries, and such reserves will be
adequate to pay all Taxes of Company and the Subsidiaries for all periods
through Closing. Except as set forth in SCHEDULE 3.20, there is not now any
proposed assessment against Company or any Subsidiary of additional Taxes of any
kind. Neither Company nor any Subsidiary is a party to any Tax sharing or Tax
allocation agreement, understanding, arrangement or commitment. There is no
dispute or Action concerning any Tax Liability of Company or any Subsidiary
raised by a Government in writing.
3.21 EMPLOYMENT AND LABOR MATTERS. (a) To the Shareholders'
----------------------------
knowledge, no employee, agent, consultant or independent contractor who performs
services on a regular basis for Company or any Subsidiary plans to discontinue
such relationship with Company or such Subsidiary after Closing.
(b) Neither Company nor any Subsidiary is a party to any agreement of
any kind which deals with wages, conditions of employment, benefits or other
matters affecting the employer/employee relationship with any union, labor
organization or employee group. There are no controversies pending, or to the
Shareholders' knowledge, threatened, between Company or any Subsidiary and any
union, labor organization or employee group representing, or seeking to
represent, any of their employees, and there has been no attempt by any union,
labor organization or employee group to organize any employees of Company or the
Subsidiaries at any time in the past five years. Company and the Subsidiaries
have substantially complied with all applicable Laws relating to wages, hours,
health and safety, payment of social security, withholding and other taxes,
maintenance of workers' compensation insurance, labor and employment relations
and employment discrimination.
(c) SCHEDULE 3.21 lists all contracts, agreements or arrangements
(written or oral) concerning the employment of any individual by Company or any
of the Subsidiaries.
3.22 EMPLOYEE BENEFIT MATTERS. (a) SCHEDULE 3.22(A) lists all
------------------------
practices, commitments, arrangements and agreements pursuant to which Company or
any Subsidiary provides, directly or indirectly, any benefits for employees,
including pension, bonus, medical, insurance, profit sharing or any other
employee benefits, under any agreements or Laws. Company and the Subsidiaries
do not now, and did not at any time in the past, sponsor, maintain or contribute
to any employee pension benefit plan, within the meaning of Section 3(2) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"). Company
and the Subsidiaries are not required to contribute, and have never been
required to contribute, to any multi-employer plan within the meaning of Section
3(37)(A) of ERISA.
(b) SCHEDULE 3.22(B) lists separately all employee welfare benefit
plans within the meaning of Section 3(3) of ERISA maintained by Company or any
16
<PAGE>
Subsidiary or to which Company or any Subsidiary contributes or is required to
contribute (collectively, "ERISA PLANS"). True, correct and complete copies of
all ERISA Plans, together with related trusts, insurance contracts, summary plan
descriptions, annual reports and Form 5500 filings for the past three years,
have been delivered or made available to Purchaser.
(c) Each ERISA Plan has been operated and administered in all material
respects in accordance with all applicable Laws, including, without limitation,
ERISA and the Code. Neither Company, the Subsidiaries or the Shareholders or
any of their directors, officers, employees or agents, or to the Shareholders'
knowledge, any "party in interest" or "disqualified person" (as such terms are
defined in Section 3(14) of ERISA and Section 4975 of the Code) has been engaged
in or been a party to any "prohibited transaction" (as such term is defined in
Section 406 of ERISA or Section 4975 of the Code). Each ERISA Plan that is a
group health plan within the meaning of Section 607(1) of ERISA and Section
4980B of the Code is in compliance with the continuation coverage requirements
of Section 601 of ERISA and Section 4980B of the Code. There are no pending
claims or, to the Shareholders' knowledge, threatened claims by or on behalf of
any ERISA Plan, by any employee or beneficiary covered under such ERISA Plan or
by any Government or otherwise involving such ERISA Plan or any of its
fiduciaries (other than for routine claims for benefits).
(d) Neither Company nor any Subsidiary is bound to provide, and none
of them do provide, benefits, including, without limitation, death, health or
medical benefits (whether or not insured), with respect to current or former
employees of Company or such Subsidiary beyond their retirement or other
termination of service with Company or such Subsidiary other than (i) coverage
mandated by applicable Law, (ii) deferred compensation benefits accrued as
Liabilities, or (iii) benefits, the full cost of which is borne by the current
or former employee or his beneficiary.
(e) Except as provided in SECTION 2.5, neither this Agreement nor any
transaction contemplated hereby will (i) entitle any current or former employee,
officer or director of Company or any Subsidiary to severance pay, unemployment
compensation or any similar or other payment, or (ii) accelerate the time of
payment or vesting, or increase the amount of compensation or benefits due any
such employee, officer or director.
3.23 ENVIRONMENTAL MATTERS. Company and the Subsidiaries hold all
---------------------
Environmental Permits (as defined in ARTICLE 7) necessary for conducting their
business and operations and have conducted, and are presently conducting, their
respective businesses and operations in full compliance with all applicable
Environmental Laws (as defined in ARTICLE 7) and Environmental Permits,
including, without limitation, all record keeping and filing requirements.
There is no existing or pending Environmental Law with a future compliance date
that will require operational changes, business practice modifications or
capital expenditures at any Leased Real Property (or any other property
presently or formerly owned, operated or controlled by Company or any Subsidiary
or as to which Company or any Subsidiary may bear responsibility or Liability),
or any Improvements thereon. All Hazardous Materials and Solid Waste (as
defined in ARTICLE 7), on, in, or under the Leased Real Property, or owned by
Company or any Subsidiary, wherever located, have been properly removed and
disposed of, and no past or present disposal, discharge, spill or other release
17
<PAGE>
of, or treatment, transportation or other handling of Hazardous Materials or
Solid Waste on, in, under or off-site from any Leased Real Property, or adjacent
property, will subject Company, the Subsidiaries or any subsequent owner,
occupant or operator of such Leased Real Property to corrective or compliance
action or any other Liability. There are no presently pending, or to the
Shareholders' knowledge, threatened Actions or Orders against or involving
Company or any Subsidiary (including any other Person for whose acts or
omissions Company or such Subsidiary is responsible) relating to any alleged
past or ongoing violation of any Environmental Laws or Environmental Permits,
nor is Company or any Subsidiary subject to any Liability for any such past or
ongoing violation.
3.24 ABSENCE OF CERTAIN BUSINESS PRACTICES. Neither Company, the
-------------------------------------
Subsidiaries or any officer, employee or agent of Company or any Subsidiary, nor
any other person acting on behalf of Company or any Subsidiary, has, directly or
indirectly, within the past five years, given or agreed to give any gift or
similar benefit to any person who is or may be in a position to help or hinder
Company's Business (or assist Company or any Subsidiary in connection with any
actual or proposed transaction) which (a) might subject Company or any
Subsidiary to any material damage or penalty in any Action or which might have a
material adverse effect on Company or such Subsidiary or either of their assets
and properties, (b) if not given in the past, might have had a material adverse
effect on Company's Business or the assets and properties of Company or any
Subsidiary, or (c) if not continued in the future, might have a material adverse
effect on Company or any Subsidiary or which might subject Company or such
Subsidiary to material damage or penalty in any Action.
3.25 AGREEMENTS AND TRANSACTIONS WITH RELATED PARTIES. Except as
------------------------------------------------
set forth in SCHEDULE 3.25, neither Company nor any Subsidiary is directly or
indirectly a party to any contract, agreement or lease with, or any other
commitment to, (a) any Person owning, or formerly owning, beneficially or of
record, directly or indirectly, any of the shares of or other equity interest in
Company or any Subsidiary, (b) any Affiliate (as defined in ARTICLE 7) of such a
Person, (c) any director or officer of Company or any Subsidiary, (d) any Person
in which any of the foregoing Persons has, directly or indirectly, at least a 5%
beneficial interest in the capital stock or other type of equity interest of
such Person, or (e) any partnership in which any of the foregoing Persons is a
general partner or has at least a 5% beneficial interest (any or all of the
foregoing being referred to herein as "RELATED PARTIES"). Without limiting the
generality of the foregoing, except as set forth on SCHEDULE 3.25, (x) no
Related Party, directly or indirectly, owns or controls any assets or properties
which are or have been used in Company's Business, and (y) no Related Party,
directly or indirectly, engages in or has any significant interest in or in
connection with any business (i) which is or which within the last three years
has been a competitor, customer or supplier of Company or any Subsidiary or has
done business with Company or any Subsidiary, or (ii) which as of the date
hereof sells or distributes products or services which are similar or related to
the products or services of Company or the Subsidiaries.
3.26 ABSENCE OF CHANGES. Except as expressly provided for in this
------------------
Agreement or as set forth on SCHEDULE 3.26, since the Reference Date:
18
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(a) there has been no change in the business, assets, properties,
Liabilities, affairs, results of operations, conditions (financial or
otherwise), cash flows or prospects of Company or any Subsidiary or in their
relationships with suppliers, customers, employees, lessors or others, other
than changes in the ordinary course of business, none of which have had or will
have a material adverse effect on Company or the Subsidiaries in the aggregate
or individually;
(b) there has been no damage, destruction or loss to the assets,
properties, or business of Company or any Subsidiary, whether or not covered by
insurance;
(c) the business of Company and the Subsidiaries has been operated in
the ordinary course and consistent with its prior practices;
(d) the books, accounts and records of Company and the Subsidiaries
have been maintained in the usual, regular and ordinary manner on a basis
consistent with prior years and in accordance with GAAP (except as otherwise
noted herein), and there has been no amendment to the articles of incorporation
or bylaws of Company or any Subsidiary;
(e) there has been no declaration, setting aside or payment of any
dividend or other distribution on or in respect of the capital stock of Company
or any Subsidiary, nor has there been any direct or indirect redemption,
retirement, purchase or other acquisition of any of the capital stock or other
securities of Company or any Subsidiary, other than the redemption of 8,800
shares of common stock of Superior Supply Company of Topeka and 2,500 shares of
common stock of Superior Supply Company of Joplin;
(f) no Liability of Company or any Subsidiary has been discharged or
satisfied, other than in the ordinary course of business and consistent with
prior practice;
(g) there has been no Lien (other than Liens for current Taxes which
are not yet due and payable) created on or in the assets of Company or any
Subsidiary;
(h) there has been no sale, transfer, lease or other disposition of
any asset of Company or any Subsidiary to any Related Party or, except in the
ordinary course of the Company's Business, to any other Person, and no debt to,
or claim or right of, Company or any Subsidiary has been canceled, compromised,
waived or released;
(i) no Liability has been incurred by Company or any Subsidiary,
except in the ordinary course of business and consistent with its prior
practice;
(j) there has been no amendment, termination or waiver of, or any
notice of any amendment, termination or waiver of, any right of Company or any
Subsidiary under any Company Contract or under any franchise, certificate,
license, permit or authorization from any Government;
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(k) Company and the Subsidiaries have not entered into any agreement,
contract, lease or license outside the ordinary course of business;
(l) Company and the Subsidiaries have not delayed or postponed the
payment of any accounts payable or other Liabilities outside the ordinary course
of business; and
(m) there has been no change in the authorized, issued or outstanding
shares or other securities of Company or any Subsidiary.
3.27 FULL DISCLOSURE. No representation or warranty of the
---------------
Shareholders contained in this Agreement or any instrument, certificate,
agreement or other writing delivered by or on behalf of any Shareholder pursuant
to this Agreement, or in connection with the transactions contemplated herein
contains any untrue or incomplete statement of a material fact or omits to state
a material fact necessary to make the statements contained herein and therein
not misleading. To the Shareholders' knowledge, there is no fact which
adversely affects, or in the future may adversely affect, the business, assets,
properties, liabilities, affairs, actual or anticipated results of operations,
condition (financial or otherwise), cash flows or prospects of Company or the
Subsidiaries which has not been or is not disclosed in this Agreement or in the
other instruments, certificates, agreements and writings furnished to Purchaser
by or on behalf of the Shareholders pursuant to this Agreement or in connection
with the transactions contemplated herein.
4. REPRESENTATIONS AND WARRANTIES OF PURCHASER
-------------------------------------------
As an inducement to the Shareholders to enter into and perform this
Agreement, Purchaser hereby represents, warrants and covenants to the
Shareholders as follows:
4.1 ORGANIZATION. Purchaser is a corporation duly organized and
------------
validly existing under the Laws of the State of Georgia.
4.2 AUTHORIZATION; NO INCONSISTENT AGREEMENTS. Purchaser has full
-----------------------------------------
corporate power and authority to execute, deliver and perform this Agreement.
This Agreement has been duly and validly executed and delivered by Purchaser and
constitutes its valid and legally binding obligation, subject to general equity
principles, enforceable in accordance with its terms, except as the same may be
limited by bankruptcy, insolvency, reorganization or similar laws affecting the
rights of creditors generally.
4.3 INCONSISTENT OBLIGATIONS. The execution, delivery and
------------------------
performance of this Agreement and the consummation of the transactions
contemplated herein will not result in a violation of Purchaser's articles of
incorporation or bylaws or any Law, or in a breach of, conflict with or default
under any indenture, note, mortgage, bond, security agreement, loan agreement,
guaranty, pledge, or other instrument, contract, agreement or commitment, or any
Order, to which Purchaser is a party or by which any of Purchaser's assets or
properties is subject or bound; nor will such actions result in the creation of
any Lien on any of Purchaser's assets or properties, or the acceleration or
creation of any debt of Purchaser.
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4.4 FULL DISCLOSURE. No representation or warranty of Purchaser
---------------
contained in this Agreement, or in any schedule, instrument, certificate,
agreement or other writing delivered by Purchaser pursuant to this Agreement or
in connection with the transactions contemplated herein contains any untrue
statement of a material fact or omits to state a material fact necessary to make
the statements contained herein or therein not misleading.
5. INDEMNITIES
5.1 INDEMNIFICATION OF PURCHASER. In accordance with and subject
----------------------------
to the provisions of this ARTICLE 5, the Shareholders (collectively, the
"INDEMNITORS") shall, severally, indemnify and hold harmless Purchaser, its
Affiliates and their officers, directors, agents and employees (collectively,
"INDEMNITEES") from and against and in respect of any loss, damage, Liability,
cost and expense, including reasonable attorneys' fees and amounts paid in
settlement (collectively, "INDEMNIFIED LOSSES"), suffered or incurred by any
Indemnitee by reason of, or arising out of:
(a) any misrepresentation or breach of representation or warranty
contained in this Agreement, or any instrument, certificate, agreement or other
writing delivered by or on behalf of any Shareholder pursuant to this Agreement,
or in connection with the transactions contemplated herein, or the breach of any
covenant or agreement of Company, any Subsidiary or any Shareholder contained in
this Agreement, or any instrument, certificate, agreement or other writing
delivered to Purchaser by or on behalf of any Shareholder pursuant to this
Agreement or in connection with the transactions contemplated herein;
(b) all obligations and Liabilities of Company and the Subsidiaries
other than those reflected on the Closing Date Balance Sheet, whether direct or
indirect, fixed or contingent, known or unknown, including, without limitation,
all obligations and Liabilities resulting from or arising out of any default,
performance or non-performance by Company or any Subsidiary under or with
respect to any Company Contract;
(c) all obligations and Liabilities of Company and the Subsidiaries
arising out of the audits disclosed on SCHEDULE 3.20;
(d) all obligations, Liabilities and expenses of Company, the
Subsidiaries and Pameco arising out of the action by Gladstone Management
Services against Superior Supply Company and others (including, without
limitation, any Orders entered therein and any appeals thereof) and the facts
and circumstances giving rise to such claim; and
(e) all Actions, Orders, assessments, fees and expenses incident to
any of the foregoing or incurred in investigating or attempting to avoid the
same or to oppose the imposition thereof, or in enforcing this indemnification.
5.2 PAYMENT. The Indemnitors shall, subject to the provisions of
-------
this SECTION 5.2, reimburse the Indemnitees entitled to recover Indemnified
Losses within 10 days of written demand on the Indemnitors therefor. If the
21
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Indemnitors object to any claim made by an Indemnitee hereunder and the
Indemnitee initiates legal action with respect thereto, the Indemnitee agrees to
join all affected parties in such action so that the rights and liabilities of
the parties under this Agreement with respect to such claim may be resolved in
one action. If any claim for Indemnified Losses that does not relate to a claim
or Action by a third party arises after the date hereof, the Indemnitee Agent
(as defined in SECTION 5.3) shall provide written notice thereof to the
Shareholders. The amount and liability for such claim shall be deemed final
unless the Shareholders notify the Indemnitee Agent in writing within 45 days of
their receipt of such written notice that they dispute such claim. The
Indemnitors shall pay or reimburse the Indemnitees, on a pro-rata basis, for any
such Indemnified Loss within 30 days after such loss is deemed final.
5.3 DEFENSE OF CLAIMS . (a) If any claim or Action by a third
-----------------
party arises after the date hereof for which an Indemnitor may be liable under
the terms of this Agreement, then Purchaser, as the agent for Indemnitees (the
"INDEMNITEE AGENT"), shall notify the Shareholders, within a reasonable time
after such claim or Action arises and is known to Purchaser, and shall give the
Indemnitors a reasonable opportunity: (i) to conduct any proceedings or
negotiations in connection therewith and necessary or appropriate to defend the
Indemnitees; (ii) to take all other required steps or proceedings to settle or
defend any such claim or Action; and (iii) to employ counsel to contest any such
claim or Action in the name of the Indemnitees or otherwise.
(b) The expenses of all proceedings, contests or lawsuits with respect
to such claims or Actions shall be borne by the Indemnitors. If the Indemnitors
wish to assume the defense of such claim or Action, then the Shareholders shall
give written notice to the Indemnitee Agent within 30 days after notice from the
Indemnitee Agent of such claim or Action (unless the claim or action reasonably
requires a response in less than 30 days after the notice is given to the
Shareholders, in which event the Shareholders shall notify the Indemnitee Agent
at least 10 days prior to such reasonably required response date), and the
Shareholders shall thereafter assume the defense of any such claim or liability,
through counsel reasonably satisfactory to the Indemnitees; provided that the
Indemnitees may participate in such defense at their own expense. The
Indemnitees shall have the right to control the defense of the claim or Action
unless and until the Indemnitors shall (i) assume the defense of such claim or
Action, and (ii) acknowledge in writing to the Indemnitee Agent that the
Indemnitors shall be obligated under the terms of their indemnity hereunder to
the Indemnitees in connection with such claim or Action.
(c) If the Indemnitors do not assume the defense of, or if after so
assuming the Indemnitors fail to defend, any such claim or Action, then the
Indemnitees may defend against such claim or Action in such manner as the
Indemnitees may deem appropriate; provided, however, that the Indemnitors may
participate in such defense at their own expense; and provided further that the
Indemnitees may not settle such claim or Action without the Indemnitors' prior
written consent, which will not be unreasonably withheld. The Indemnitors shall
promptly reimburse the Indemnitees for the amount of all expenses, legal and
otherwise, reasonably and necessarily incurred by the Indemnitees in connection
with the defense against and settlement of such claim or Action. If no
settlement of such claim or Action is made, the Indemnitors shall satisfy any
22
<PAGE>
judgment rendered with respect to such claim or in such Action, before the
Indemnitees are required to do so, and pay all expenses, legal or otherwise,
reasonably and necessarily incurred by the Indemnitee in the defense of such
claim or Action.
(d) If a final non-appealable Order is rendered against the
Indemnitees in any Action covered by the indemnification hereunder, or any Lien
in respect of such Order attaches to any of the assets of the Indemnitees, the
Indemnitors shall immediately upon such entry or attachment pay any amount
required by such Order in full, or discharge such Lien unless, at the expense
and request of the Indemnitors, an appeal is taken under which the execution of
the Order or satisfaction of the Lien is stayed. If and when a final Order is
rendered in any such Action, the Indemnitors shall forthwith pay any amount
required by such Order or discharge such Lien before the Indemnitees are
compelled to do so.
5.4 SURVIVAL. (a) No investigation made heretofore by Purchaser
--------
shall limit or affect the representations, warranties, covenants and indemnities
of the Shareholders hereunder, each of which shall survive any such
investigation. For purposes of the indemnification provided in this ARTICLE 5,
the representations and warranties of the Shareholders contained in this
Agreement, and all certificates, instruments, agreements or other writings
delivered by or on behalf of any Shareholder pursuant to this Agreement or in
connection with the transactions contemplated herein shall survive any
investigation heretofore or hereafter made by Purchaser and the Closing, and
shall continue in full force and effect for the periods specified below (the
"SURVIVAL PERIOD"):
(i) the representations and warranties relating to the reporting,
payment or liability for Taxes or environmental matters shall survive
until the expiration of any applicable statute or period of
limitations, and any extensions thereof; and
(ii) all other representations and warranties of the Shareholders
(other than those contained in SECTIONS 3.1, 3.2, 3.3, AND 3.4, which
shall survive indefinitely) shall be of no further force and effect
upon the third anniversary of the Closing.
(b) Anything herein to the contrary notwithstanding, the Survival
Period shall be extended automatically to include any time period necessary to
resolve a claim for indemnification which was made prior to the expiration of
the Survival Period but not resolved prior to its expiration, but any such
extension shall apply only as to the claims asserted and not so resolved within
the Survival Period. Liability for any such item shall continue until such
claim shall have been finally settled, decided or adjudicated.
5.5 NO LIABILITY OR CONTRIBUTION BY COMPANY. Neither Company nor
---------------------------------------
any Subsidiary shall have any Liability to any Shareholder as a result of any
misrepresentation or breach of representation or warranty contained in this
Agreement, any other agreement or in any schedule or the breach of any covenant
or agreement of any Shareholder contained in this Agreement, any other agreement
or the schedules, and no Shareholder shall have any right of indemnification or
23
<PAGE>
contribution against Company or the Subsidiaries on account of any event or
condition occurring or existing prior to or on the date hereof.
5.6 LIMITATION. The maximum liability of the Shareholders in the
----------
aggregate under this Agreement for a breach of the representations and
warranties contained in ARTICLE 3 shall be limited to fifty percent of the
Purchase Price, as adjusted pursuant to SECTIONS 1.5 AND 1.6; provided, however,
that with respect to a breach of the representations and warranties contained in
SECTION 3.20, the maximum liability of the Shareholders shall be limited to the
Purchase Price.
5.7 INDEMNIFICATION OF THE SHAREHOLDERS. Purchaser shall indemnify
-----------------------------------
and hold harmless the Shareholders and their heirs and executors from and
against and in respect of any loss, damage, Liability, cost and expense,
including reasonable attorneys' fees and amounts paid in settlement, suffered or
incurred by either Shareholder or their respective heirs and executors by reason
of, or arising out of: (a) any misrepresentation or breach of representation or
warranty of Purchaser contained in this Agreement, or any instrument,
certificate, agreement or other writing delivered by or on behalf of Purchaser
pursuant to this Agreement, or in connection with the transactions contemplated
herein, or the breach of any covenant or agreement of Purchaser contained in
this Agreement, or any instrument, certificate, agreement or other writing
delivered to either Shareholder by or on behalf of Purchaser pursuant to this
Agreement or in connection with the transactions contemplated herein; and (b)
all Actions, Orders, assessments, fees and expenses incident to any of the
foregoing or incurred in investigating or attempting to avoid the same or to
oppose the imposition thereof, or in enforcing this indemnification. The
maximum liability of Purchaser in the aggregate under this Agreement for a
breach of the representations and warranties contained in ARTICLE 4 shall be
limited to 50% of the Purchase Price, as adjusted pursuant to SECTIONS 1.5 AND
1.6.
6. MISCELLANEOUS
-------------
6.1 NOTICES. All notices and other communications required or
-------
permitted to be given or made hereunder shall be in writing and delivered
personally or sent by pre-paid, first class certified or registered mail, return
receipt requested, or by facsimile transmission, to the intended recipient
thereof at its address or facsimile number set out below. Any such notice or
communication shall be deemed to have been duly given immediately (if given or
made in person or by facsimile confirmed by mailing a copy thereof to the
recipient in accordance with this SECTION 6.1 on the date of such facsimile), or
three days after mailing (if given or made by mail), and in proving same it
shall be sufficient to show that the envelope containing the same was delivered
to the delivery or postal service and duly addressed, or that receipt of a
facsimile was confirmed by the recipient as provided above. The addresses and
facsimile numbers of the parties for purposes of this Agreement are:
24
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
(i) If to Purchaser: Pameco Corporation
1000 Center Place
Norcross, Georgia 30093
Attn: Mark Graham
Telephone No.: (770) 798-0700
Facsimile No.: (770) 798-0681
With copies to: Kilpatrick Stockton LLP
Suite 2800
1100 Peachtree Street
Atlanta, Georgia 30309-4530
Attn: James Steinberg.
Telephone No.: (404) 815-6500
Facsimile No.: (404) 815-6555
(ii) If to the Shareholders: Don L. Miller
6205 North Mattox Road
Kansas City, Missouri 64151
Charles P. Schleicher
800 West 47th Street
Kansas City, Missouri 64112
Telephone No.: (816) 756-0800
Facsimile No.: (816) 561-3185
With copies to: Schleicher Latz, P.C.
418 Plaza Center Building
800 West 47th Street
Kansas City, Missouri 64112
Attn: Steven Schleicher
Telephone No.: (816) 756-0800
Facsimile No.: (816) 561-3185
</TABLE>
(b) Any party may change the address(es) or facsimile number(s) to
which notices or other communications to such party shall be delivered, mailed
or transmitted by giving notice thereof to the other parties hereto in the
manner provided herein.
6.2 COUNTERPARTS. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
6.3 GOVERNING LAW. The validity and effect of 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.
25
<PAGE>
6.4 SUCCESSORS AND ASSIGNS AND SUBSTITUTE PURCHASER. This
-----------------------------------------------
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective heirs, personal representatives, successors and
permitted assigns. The Shareholders may not assign, delegate or otherwise
transfer any of their rights or obligations under this Agreement without the
prior written consent of Purchaser. This Agreement may be assigned by Purchaser
to any Affiliate of Purchaser, including any Affiliate of Purchaser formed now
or in the future for the purpose of acquiring the Shares, but no such assignment
shall relieve Purchaser of its obligations hereunder.
6.5 PARTIAL INVALIDITY AND SEVERABILITY. All rights and
-----------------------------------
restrictions contained herein may be exercised and shall be applicable and
binding only to the extent that they do not violate any Law and are intended to
be limited to the extent necessary to render this Agreement legal, valid and
enforceable. If any term of this Agreement, or part thereof, not essential to
the commercial purpose of this Agreement is held to be illegal, invalid or
unenforceable by a Tribunal of competent jurisdiction, then the remaining terms
hereof, or part thereof, shall constitute the agreement of the parties with
respect to the subject matter hereof and all such remaining terms, or parts
thereof, shall remain in full force and effect. To the extent legally
permissible, any illegal, invalid or unenforceable provision of this Agreement
shall be replaced by a valid provision which will implement the commercial
purpose of the illegal, invalid or unenforceable provision.
6.6 WAIVER. Any term or condition of this Agreement may be waived
------
at any time by the party which is entitled to the benefit thereof, but only if
such waiver is evidenced by a writing expressly referring to this Agreement and
signed by such party. No failure on the part of any party hereto to exercise,
and no delay in exercising any right, power or remedy created hereunder, shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, power or remedy by such party preclude any other or further exercise
thereof or the exercise of any other right, power or remedy. No waiver by any
party hereto of any breach of or default in any term or condition of this
Agreement shall constitute a waiver of or assent to any succeeding breach of or
default in the same or any other term or condition hereof.
6.7 INTERPRETATION. The parties are equally responsible for the
--------------
content of this Agreement. In any Action which involves the interpretation of
an alleged ambiguity, the language herein shall not be more strictly construed
against one party (as the drafter) than the other.
6.8 ENTIRE AGREEMENT. This Agreement supersedes all prior
----------------
discussions and agreements between the parties with respect to the subject
matter hereof, and this Agreement contains the sole and entire agreement between
the parties with respect to the matters covered hereby. This Agreement shall
not be altered or amended except by an instrument in writing signed by or on
behalf of the party entitled to the benefit of the provision against whom
enforcement is sought.
26
<PAGE>
7. DEFINITIONS
7.1 DEFINITIONS. For purposes of this Agreement, the following
-----------
terms have the meanings specified with respect thereto below:
"ACTION" means any action, suit, litigation, complaint, counterclaim,
------
claim, petition, investigation, mediation contest, set-off or administrative
proceeding, whether at law, in equity, in arbitration or otherwise, and whether
conducted by or before any Government, any Tribunal or any other Person.
"AFFILIATE" of any Person means any other Person directly or
---------
indirectly controlling, controlled by, or under direct or indirect common
control with the former person, where "control" means the power, directly or
indirectly, to direct or cause the direction of the management and policies of
another person, whether through the ownership of voting securities, by contract
or otherwise.
"COMPANY CONTRACTS" means all existing written and oral material
-----------------
agreements and commitments of Company and the Subsidiaries, including, without
limitation, all employment and consulting contracts, union contracts,
distributorship agreements, agreements with suppliers and customers, leases,
licenses, employee benefit plans, deferred compensation agreements, indentures,
notes, bonds, mortgages, security agreements, loan agreements, guarantees,
franchise agreements, agreements in respect of the issuance, sale, repurchase or
transfer of the Shares, bonds or other securities, powers of attorney, and any
contract which involves aggregate payments of more than $10,000 or has a term or
requires performance over a period of more than one year, provided that Company
Contracts do not include any purchase or sale order arising in the ordinary
course of business that involves aggregate purchases or sales of less then
$10,000.
"ENVIRONMENTAL LAW" means a Law relating to health, safety or the
-----------------
environment, including, without limitation, a Law relating to the manufacture,
generation, processing, distribution, application, use, treatment, transport or
handling, storage (whether alone or below ground) of, or emissions, discharges,
releases or threatened releases into the environment (including, without
limitation, ambient air, surface water, ground water, soil and subsoil) of,
pollutants, contaminants, petroleum products, chemicals, or industrial waste,
Hazardous Materials, other solids, liquids, gases or wastes (including Solid
Waste), heat, light, noise, radiation, electro-magnetic fields and other forms
of matter or energy of every kind and nature and the proper containment and
disposal of the same, or to occupational or worker safety and health.
"ENVIRONMENTAL PERMITS" means all permits, licenses, certificates,
---------------------
approvals, authorizations, regulatory plans and compliance schedules required by
applicable Environmental Laws, or issued by a Government pursuant to applicable
Environmental Law, or entered into by agreement of the party to be bound,
relating to activities that affect human health or the environment, including,
without limitation, permits, licenses, certificates, approvals, authorizations,
regulatory plans and compliance schedules for air emissions, water discharges,
27
<PAGE>
pesticide and herbicide or other agricultural chemical storage, use or
application, and Hazardous Material or Solid Waste generation, use, storage,
treatment and disposal.
"GAAP" means generally accepted accounting principles, consistently
----
applied.
"GOVERNMENT" means any federal, national, state, provincial, local,
----------
municipal, or foreign government or any department, commission, board, bureau,
agency, instrumentality, unit, or taxing authority thereof.
"HAZARDOUS MATERIAL" means any substance or material, including,
------------------
without limitation, any raw material, commercial product, waste or waste product
that, because of its quantity, concentration, or physical, chemical or
infectious characteristics may cause or significantly contribute to an increase
in mortality or an increase in serious, irreversible or incapacitating illness,
or pose a substantial hazard to human health or the environment, including,
without limitation, all substances and materials designated as hazardous or
toxic under any applicable Environmental Law and including, without limitation,
gasoline, fuel oil and other petroleum products.
"IMPROVEMENTS" means all buildings, structures and other improvements
------------
of any and every nature located on the Leased Real Property and all fixtures
attached or affixed, actually or constructively, to the Leased Real Property or
to any such buildings, structures or other improvements.
"KNOWN," "TO THE KNOWLEDGE OF," "AWARE" or words of similar import
----- ------------------- -----
employed in this Agreement with reference to any individual or entity shall be
conclusively presumed to mean that the individual or entity has made reasonable
and diligent efforts under the circumstances to become knowledgeable; the
knowledge of the Shareholders shall be deemed to be their individual and
collective knowledge (as defined above).
"LAWS" mean all federal, national, international, state, provincial,
----
local, municipal or foreign constitutions, statutes, rules, regulations,
ordinances, acts, codes, legislation, treaties, conventions, judicial decisions,
common law, equity or similar laws or legal requirements as in effect from time
to time.
"LEASED REAL PROPERTY" means all leasehold and similar interests in
--------------------
real property leased from third parties by Company and the Subsidiaries for use
in operation of the Company's Business, and all of Company's and the
Subsidiaries' rights, title and interest in and to all Improvements thereon,
together with all easements, rights-of-way, licenses and other interests
therein.
"LIABILITY" means any liability or obligation whether known or
---------
unknown, asserted or unasserted, absolute or contingent, accrued or unaccrued,
liquidated or unliquidated and whether due or to become due.
28
<PAGE>
"LIEN" means any mortgage, pledge, hypothecation, security interest,
----
encumbrance, claim, restriction on use, lien or charge of any kind, or any
rights of others, however evidenced or created (including any agreement to give
any of the foregoing, any conditional sale or other title retention agreement,
any lease in the nature thereof, and the filing of or agreement to give any
financing statement under the lien notice records, Uniform Commercial Code
indices or other similar public records of any jurisdiction).
"OBSOLETE INVENTORY" means $51,000.
------------------
"ORDERS" means any order, writ, judgment, decree, ruling, consent
------
agreement, or award of or by any Tribunal or entered by consent of the party to
be bound.
"PERSON" means an individual, partnership, joint venture, corporation,
------
limited liability company, trust, unincorporated organization, or Government.
"TAXES" means any present or future taxes, levies, imposts, duties,
-----
fees, assessments, deductions, withholdings or other charges of whatever nature,
including, without limitation, income, gross receipts, excise, property, sales,
use, customs, value added, consumption, transfer, license, payroll, employee
income, withholding, social security, and franchise taxes, now or hereafter
imposed or levied by the United States of America, any state, or any Government
or by any department, agency or other political subdivision or taxing authority
thereof or therein, all deposits required in connection therewith, and all
interests, penalties, additions to tax, and other similar liabilities with
respect thereto.
"TERRITORY" means the following states: Arkansas, Kansas, Missouri,
---------
and Oklahoma.
"TRIBUNAL" means any federal, national, state, local, municipal or
--------
foreign court, governmental agency, administrative body or agency, tribunal,
private alternative dispute resolution system, or arbitration panel.
7.2 CONSTRUCTION. As used in this Agreement, unless the context
------------
otherwise requires: (i) references to "article" or "section" are to an article
or section of this Agreement; (ii) references to "exhibits" and "schedules" are
to exhibits and schedules attached hereto, which are incorporated herein by
reference and made a part of this Agreement; (iii) "include", "includes" and
"including" are deemed to be followed by "without limitation" whether or not
they are in fact followed by such words or words of like import; and (iv) the
headings of the various articles, sections and other subdivisions hereof are for
convenience of reference only and shall not modify, define, or limit any of the
terms or provisions hereof.
29
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement or caused
it to be executed by their duly authorized officers and agents as of the day and
year first above written. Signatures of the parties transmitted by facsimile
shall be valid and binding for all purposes.
PURCHASER:
PAMECO CORPORATION
By:
--------------------------------------
Name:
--------------------------------
Title:
-------------------------------
THE SHAREHOLDERS:
-----------------------------------------
DON L. MILLER
-----------------------------------------
CHARLES P. SCHLEICHER
30
<PAGE>
EXHIBIT 11.1
PAMECO CORPORATION
COMPUTATION OF HISTORICAL NET INCOME PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
AUGUST 31 AUGUST 31
----------------------- ------------------------
1997 1996 1997 1996
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Primary and fully diluted:
Weighted average common stock and common
stock equivalents outstanding
during the period.................................... 8,634 6,250 6,853 6,250
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)........................... 330 348 330 348
---------- --------- ---------- ---------
Total 8,964 6,598 7,183 6,598
========== ========= ========== =========
Net income applicable to common stockholders $ 5,974 $ 5,814 $ 6,989 $ 6,738
========== ========= ========== =========
Net income per share $ 0.67 $ 0.88 $ 0.97 $ 1.02
========== ========= ========== =========
</TABLE>
(1) Pursuant to Securities and Exchange Commission Staff Accounting Bulletin
No. 83, Common stock equivalents issued at prices below the Initial Public
Offering price per share of $14 ("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
as outstanding for all periods.
<PAGE>
EXHIBIT 11.2
PAMECO CORPORATION
COMPUTATION OF HISTORICAL SUPPLEMENTAL NET INCOME PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
AUGUST 31 AUGUST 31
1997 1997
------------------ ----------------
<S> <C> <C>
Primary and fully diluted:
Weighted average common stock and common
stock equivalents outstanding during the
during the period.................................... 8,636 8,660
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).......................... 330 330
--------- ---------
Total 8,966 8,990
========= =========
Net income $5,974 $6,989
Plus: Reduction in interest expense from repayment
of long-term notes payable, net of income 50 671
taxes(2)
--------- ---------
Net income $6,024 $7,660
========= =========
Net income per share of common stock $0.67 $0.85
========= =========
</TABLE>
(1) Pursuant to Securities and Exchange Commission Staff Accounting Bulletin
No. 83, Common stock equivalents issued at prices below the Initial Public
Offering price per share of $14 ("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
as outstanding for all periods presented.
(2) Historical supplemental net income per share reflects the number of shares
of common stock issued upon consummation of the Initial Public Offering
used to repay $44.2 million in current and long term debt as if the
issuance had occurred at the beginning of the period (or date of issuance
of notes payable, if later) and the related reduction in interest expense.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF PAMECO CORPORATION FOR THE THREE MONTHS ENDED AUGUST 31,
1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> AUG-31-1997
<CASH> 130
<SECURITIES> 0
<RECEIVABLES> 35,609
<ALLOWANCES> 3,175
<INVENTORY> 100,242
<CURRENT-ASSETS> 133,931
<PP&E> 10,574
<DEPRECIATION> 3,052
<TOTAL-ASSETS> 166,037
<CURRENT-LIABILITIES> 79,368
<BONDS> 0
0
0
<COMMON> 87
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 166,037
<SALES> 146,460
<TOTAL-REVENUES> 146,460
<CGS> 112,078
<TOTAL-COSTS> 135,931
<OTHER-EXPENSES> 912
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19
<INCOME-PRETAX> 9,598
<INCOME-TAX> 3,624
<INCOME-CONTINUING> 5,974
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,974
<EPS-PRIMARY> 0.67
<EPS-DILUTED> 0.67
</TABLE>
