<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 26, 1997
REGISTRATION NO. 333-
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
NEW PAMECO GEORGIA CORPORATION
(TO BE KNOWN AS PAMECO CORPORATION UPON EFFECTIVENESS)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
GEORGIA 5075 51-0287654
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
1000 CENTER PLACE THEODORE R. KALLGREN
NORCROSS, GEORGIA 30093 CHIEF FINANCIAL OFFICER
(770) 798-0700 1000 CENTER PLACE
(ADDRESS, INCLUDING ZIP CODE, AND NORCROSS, GEORGIA 30093
TELEPHONE NUMBER, (770) 798-0700
INCLUDING AREA CODE, OF REGISTRANT'S (NAME, ADDRESS, INCLUDING ZIP CODE,
PRINCIPAL EXECUTIVE OFFICES) AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR
SERVICE)
--------------
COPIES TO:
DAVID A. STOCKTON, ESQ. MARK C. SMITH, ESQ.
KILPATRICK STOCKTON LLP SKADDEN, ARPS, SLATE, MEAGHER & FLOM
1100 PEACHTREE STREET LLP
ATLANTA, GEORGIA 30309 919 THIRD AVENUE
(404) 815-6500 NEW YORK, NEW YORK 10022
(212) 735-3000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities on this Form are being offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933 check
the following box: [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) SHARE(2) PRICE(2) REGISTRATION FEE(3)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Common Stock,
$.01 par value........ 3,536,872 shares $16.00 $56,589,952.00 $16,977.00
</TABLE>
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- -------------------------------------------------------------------------------
(1) Includes 461,331 shares that may be purchased pursuant to the over-
allotment option granted to the Underwriters.
(2) Estimated solely for the purpose of determining the registration fee in
accordance with Rule 457 under the Securities Act.
(3) Calculated pursuant to Rule 457(o) based upon an estimate of the maximum
aggregate offering price.
--------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED , 1997
PROSPECTUS
, 1997
3,075,541 SHARES
PAMECO CORPORATION
CLASS A COMMON STOCK
Of the 3,075,541 shares of Class A Common Stock, par value $0.01 per share
(the "Class A Common Stock"), of Pameco Corporation ("Pameco" or the "Company")
offered hereby (the "Offering"), 3,000,000 shares are being sold by Pameco and
75,541 shares are being sold by a shareholder of the Company (the "Selling
Shareholder"). The Class A Common Stock entitles its holders to one vote per
share, whereas the Class B Common Stock, par value $0.01 per share (the "Class
B Common Stock" and together with the Class A Common Stock, the "Common
Stock"), generally entitles its holder to ten votes per share. The holders of
Class A Common Stock, voting as a separate class, are entitled to elect two of
the Company's directors. See "Description of Capital Stock." After consummation
of the Offering, a group of investment vehicles (the "Investor Group") managed
by Three Cities Research, Inc., a private investment firm ("TCR"), will have
approximately 87.0% of the combined voting power (on a fully diluted basis)
with respect to substantially all matters submitted for the vote of all
shareholders. Substantially all of the net proceeds to the Company from the
Offering will be used to repay outstanding indebtedness. The Company will not
receive any of the proceeds from the sale of shares by the Selling Shareholder
pursuant to the Offering. See "Principal and Selling Shareholders."
Prior to the Offering, there has been no public market for the Class A Common
Stock. It is currently estimated that the initial public offering price of the
Class A Common Stock offered pursuant to the Offering will be between $14.00
and $16.00 per share. For information relating to the factors to be considered
in determining the initial offering price to the public of the Class A Common
Stock, see "Underwriting."
Application will be made to list the Class A Common Stock on the New York
Stock Exchange under the symbol "PCN."
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN MATTERS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
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<CAPTION>
PRICE UNDERWRITING PROCEEDS PROCEEDS TO
TO THE DISCOUNTS AND TO THE THE SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDER
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share.............. $ $ $ $
Total(3)............... $ $ $ $
</TABLE>
- --------------------------------------------------------------------------------
(1) The Company and the Selling Shareholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). See
"Underwriting."
(2) Before deducting expenses estimated at $ , which will be paid by the
Company.
(3) The Company has granted to the Underwriters an option, exercisable within
30 days of the date hereof, to purchase up to 461,331 additional shares of
Class A Common Stock at the Price to the Public less Underwriting Discounts
and Commissions, solely to cover over-allotments, if any. If such option is
exercised in full, the total Price to the Public, Underwriting Discounts
and Commissions, Proceeds to the Company and Proceeds to the Selling
Shareholder will be $ , $ , $ and $ , respectively. See
"Underwriting."
The shares of Class A Common Stock are being offered by the several
Underwriters when, as and if delivered to and accepted by the Underwriters
against payment therefor and subject to various prior conditions, including
their right to reject orders in whole or in part. It is expected that delivery
of share certificates representing the Class A Common Stock will be made in New
York, New York on or about , 1997.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
THE ROBINSON-HUMPHREY COMPANY, INC.
SCHRODER WERTHEIM & CO.
<PAGE>
[MAP OF THE CONTINENTAL UNITED STATES SHOWING THE LOCATION
OF EACH BRANCH AND DISTRIBUTION CENTER TO BE INCLUDED]
----------------
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE CLASS A COMMON
STOCK. SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE
OFFERING, AND MAY BID FOR, AND PURCHASE, SHARES OF CLASS A COMMON STOCK IN THE
OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and financial
statements, including the notes thereto, appearing elsewhere in this
Prospectus. Unless the context otherwise requires, references herein to the
"Company" or "Pameco" prior to the consummation of the Reincorporation Merger
(as defined herein) mean Pameco Holdings, Inc., a Delaware corporation, and its
subsidiaries, and references to the "Company" or "Pameco" after consummation of
the Reincorporation Merger mean New Pameco Georgia Corporation, a Georgia
corporation, and its subsidiary, whose name will be changed to Pameco
Corporation upon consummation of the Reincorporation Merger. See "--Company
History and Recent Acquisitions." All numbers of shares, per share amounts and
related information in this Prospectus reflect a 1.25-for-one split of the
Common Stock effected as part of the Reincorporation Merger, which will be
effected prior to the Offering. See "Description of Capital Stock." References
herein to fiscal year 1997 mean the fiscal year ended February 28, 1997 and to
fiscal year 1996 mean the fiscal year ended February 29, 1996. Unless otherwise
indicated, the information contained in this Prospectus assumes no exercise of
the Underwriters' over-allotment option.
THE COMPANY
Pameco is one of the largest distributors of heating, ventilation and air
conditioning ("HVAC") systems and equipment and refrigeration products in the
United States, with predecessor corporations dating back to 1931. The Company
stocks more than 65,000 SKUs to service more than 45,000 customers through a
national network of 297 branches in 44 states and Guam located in 76 of the top
100 standard metropolitan statistical areas ("SMSAs") in the country. The
Company's products include a complete range of central air conditioners, heat
pumps, furnaces and parts and supplies for the residential market, and
condensing units, compressors, evaporators, valves, walk-in coolers and ice
machines for the commercial market. In fiscal 1996, the Company's HVAC business
generated approximately 54.0% of its revenues, while the refrigeration business
generated the balance. In fiscal 1996, Pameco derived over 80.0% of its
revenues from the repair and replacement market, which is higher margin and
less cyclical than the new construction market due to end-users' needs for
immediate service and expert technical advice. The new construction market
generated the balance of Pameco's revenues. Management believes that Pameco is
the only company in the United States which offers a complete line of HVAC and
refrigeration products on a significant scale on a nationwide basis.
Pameco attributes its leadership position in the HVAC and refrigeration
industries primarily to its operating philosophy. The Company emphasizes
personalized customer service and convenient "one-stop" shopping to meet each
customer's total needs at the local and national level. The Company's technical
service representatives, who provide customers with expert technical advice in
diagnosing problems and recommending solutions, are an essential element of the
Company's customer service. Pameco operates under a centralized management
structure and offers substantial incentive compensation to its executive
officers and division and branch managers. Additionally, the Company believes
that its size, its financial resources and its position as a national
distributor of HVAC and refrigeration products allow it to provide superior
customer service by offering immediate access to a complete product line of
equipment, parts and supplies through its 297 branches and six regional
distribution centers.
The Company's strategic objective is to continue to grow profitably in both
existing and new markets through the acquisition of branches and the opening of
new branches, as well as through increasing sales and profitability at existing
branches. The Company began an active acquisition program in 1996 to capitalize
on consolidation opportunities presented by the substantial size and highly
fragmented ownership structure of the HVAC and refrigeration markets.
Management believes Pameco is well-positioned to take advantage of this
fragmentation given the Company's breadth of product offerings, its national
presence and its proven ability to acquire and integrate new branches, as
demonstrated by its recent acquisitions. The Company's acquisition strategy is
to acquire profitable distribution businesses with well-developed market
positions and desirable
3
<PAGE>
supplier franchises. The Company has focused and will continue to focus
principally on acquisitions in geographic areas not currently served by the
Company, with the goal of achieving greater geographic diversification and
adding product lines, customers and employees ("associates"). Pameco will also
pursue opportunities to strengthen its position in existing markets by
acquiring new branches within existing geographic markets.
For the nine months ended November 30, 1996, the Company's sales were $297.1
million compared to $267.7 million for the corresponding nine month period in
the prior year, which includes same store sales growth of 8.7%. On a pro forma
basis, assuming the completion of the acquisition of 52 branches from Sid
Harvey Industries, Inc. ("Sid Harvey") and six branches from Chase Supply
Company of Chicago ("Chase") as of March 1, 1995, sales would have been $314.9
million and $339.5 million for the nine month periods ending November 30, 1995
and 1996, respectively. Net income for the nine month period ended November 30,
1995 was $6.2 million compared to $7.3 million for the nine month period ended
November 30, 1996. On a pro forma basis, assuming the completion of the Sid
Harvey and Chase acquisitions as of March 1, 1995, net income would have been
$6.6 million and $6.8 million for the nine month periods ending November 30,
1995 and 1996, respectively.
THE INDUSTRY
Based upon an industry report, management estimates that sales in the
residential heating and cooling equipment and commercial refrigeration markets
(excluding product markets in which the Company does not compete) totaled
approximately $8.1 billion and $2.8 billion, respectively, in 1996. The
combined $10.9 billion industry includes equipment, parts and supplies
distributed by wholesalers and by original equipment manufacturers' ("OEMs")
captive distribution arms, but excludes HVAC systems sold for use in large
commercial projects and refrigeration products sold in the residential market.
Companies engaging in the HVAC and refrigeration repair and replacement markets
sell their products primarily through local branches for their customers'
convenience and timely access to products. Management estimates that there are
8,100 HVAC and refrigeration distributors in the United States operating from
approximately 11,000 locations nationwide. Management believes that a
significant percentage of these distributors are small, owner-operated
businesses operating in single geographic areas and providing a more limited
range of products and services. Based upon the industry report and the
Company's fiscal 1997 revenues, management estimates that Pameco's cumulative
U.S. market share in its industry sectors is between three and four percent and
that no independent distributor has a significantly greater share of this
combined market on a nationwide basis.
Given the fragmentation of the market, management believes that the Company's
industry is well-positioned for consolidation. In particular, management
believes that many of the smaller distributors in its industry are finding it
increasingly difficult to compete in the current market because they generally
lack the financial resources of larger entities and thus are unable to offer
broad product lines and multiple brands and may not possess sophisticated
inventory management and control systems necessary to operate multiple branches
effectively or the ability to invest significant resources in the information
technology necessary to improve inventory flow. In addition to the trend toward
consolidation, management believes other important trends within the industry
include: (i) an increased presence of large customer buying groups, forcing a
competitive bidding process, while creating opportunities to sell to new and
large national accounts; (ii) the increased importance of immediate
availability of products; (iii) the attempt by many of the smaller distributors
to identify exit strategies for their business and (iv) the proliferation of
products and parts.
4
<PAGE>
BUSINESS STRATEGY
The Company has invested considerable time and resources building its
national reputation and leveraging the goodwill of local branches that the
Company has developed or acquired. The Company has recently hired a new Chief
Executive Officer and four highly qualified senior managers in sales,
operations, logistics and management information systems to assist in the
implementation of the Company's operating strategy. The Company is pursuing the
following strategy to enhance growth and increase profitability:
Expansion by acquisition. The Company launched a targeted acquisition
strategy in 1996 as a consolidator in the HVAC and refrigeration distribution
industries. In the past 12 months, the Company has acquired 59 branches in ten
states, increasing its total number of branches by over 20.0%. Pameco is able
to maximize its return on investment in new branches and obtain incremental
revenues and operating income with minimal incremental administrative expenses,
due to economies of scale made possible by the Company's prior investment in
its sales, operations, logistics and management information systems
infrastructure. Further, by geographically diversifying its source of revenues,
management believes the Company is less susceptible to economic slowdowns or
adverse weather conditions which may occur in particular regions of the
country.
Emphasis on "one-stop" shopping and immediate product and service
availability. Management believes that Pameco provides added value to its
customers by providing superior customer service and immediate access to a
complete line of industry-recognized brand names and private label equipment,
parts and supplies from numerous manufacturers through its branches and
distribution centers. The Company stocks over 65,000 SKUs at its branches and
distribution centers and offers customers access to over two million SKUs. In
order to provide customers immediate access to products, the Company stocks
inventory representing over 75.0% of its sales at its branches. Pameco believes
its ability to provide immediate access to a wide range of products,
particularly in the refrigeration business, where equipment repair is often
time-sensitive, has helped the Company to establish a reputation as the "one-
stop" shop for HVAC and refrigeration products. In addition, Pameco provides
its customers with assistance in making intelligent purchases through the
Company's well-trained technical service representatives and counter personnel.
Management believes that its extensive product offerings and knowledgeable
associates help maintain an extensive and loyal customer base.
Pursue regional and national customers. The Company is focused on
opportunities to serve existing and prospective customers on a multi-regional
or national basis, which it believes represents a significant growth
opportunity. In particular, the Company believes that its nationwide coverage
and broad product lines enable it to provide multi-regional and national
accounts with consistent service, greater purchasing leverage, improved
inventory management and centralized billing. This strategy is designed to
complement the Company's established relationships with its local and regional
customers. Management believes the new ThermalZone(TM) private label line of
HVAC equipment and parts, which Pameco introduced in September 1996, will
further increase the Company's national account opportunities. The Company
believes that ThermalZone(TM), a nationally available, standardized HVAC
product line, will provide large accounts with greater consistency in price,
availability and quality.
Continued focus on higher margin repair and replacement market. The Company
continues to focus on the higher margin repair and replacement market, from
which Pameco derived over 80.0% of its revenues in fiscal 1996. The repair and
replacement market has increased substantially over the past ten years as a
result of the aging of the installed base of HVAC products, the introduction of
new energy-efficient models and the upgrading of many existing buildings and
homes to central heating and air-conditioning. This installed product base
represents a significant market in terms of recurring revenues, as customers
are continually replacing a percentage of the installed base of equipment each
year. In the refrigeration market, by focusing sales on products used for
repairs, which typically cannot be postponed, the Company's revenues tend to be
less dependent upon national economic cycles.
5
<PAGE>
Operating improvements through supply chain and cost structure
management. Pameco will continue to invest significant resources in its
management information systems. Management believes these systems will allow
the Company to achieve improvements in inventory control and cost management,
and, together with supply chain software to be acquired later this year, will
improve the Company's supply chain strategy, as decisions relating to
purchasing, inventory management and logistics will be more effectively
coordinated. All branches are equipped with computer systems that have the
ability to monitor inventory levels to ensure timely inventory orders and to
guard against unexpected stock shortages. Management believes that improved
distribution practices should reduce the Company's cost per SKU handled and,
over time, increase the Company's inventory turns and fill rate percentages.
Margin enhancement focus. The Company is currently implementing several
measures in an effort to enhance its margins and reduce transaction costs.
These measures include system-related pricing enhancements, such as pricing
discipline through the limitation of discounts at the point-of-sale, and
improved performance from underperforming branches through internal
benchmarking. Additionally, the Company believes it will realize efficiencies
in cost control through the Company's management information system and
logistics network, as well as through improved supply chain dynamics.
COMPANY HISTORY AND RECENT ACQUISITIONS
Pameco is a Georgia corporation which was formed in March 1997 and which will
merge with Pameco Holdings, Inc., a Delaware corporation, and Pameco
Corporation, a Delaware corporation, immediately prior to the Offering (the
"Reincorporation Merger"). While predecessor corporations of the Company date
back to 1931, Pameco was formed in the early 1980s, when the Hillman Company
acquired a number of regional HVAC and refrigeration product distributors.
During the early and mid 1990s, the Company's management focused on controlling
costs and consolidating a decentralized business. In March 1996, in an effort
to refocus the Company on sales growth, Pameco hired a new Chief Executive
Officer with extensive experience in directing sales growth and acquisitions.
The Company's current senior management team is focused on enhancing the
financial performance of the Company, motivated in part by an equity-based
incentive compensation system, and has made significant progress in realigning
the structure and culture of the Company to accelerate growth. During the past
year, the Company has successfully completed the acquisition of 59 branches in
ten states.
In May 1996, Pameco purchased six branches and related assets from Chase. The
Chase branches had revenues in excess of $9.0 million for all of fiscal 1996
and derived approximately 59.0% of their aggregate revenues in fiscal 1996 from
the sale of refrigeration products, with the balance of revenues from the sale
of HVAC products. This acquisition gave the Company a significant presence in
the Chicago, Illinois and Gary, Indiana markets.
In November 1996, the Company acquired 52 branches located in seven
southeastern states from Sid Harvey. These branches had aggregate revenues in
excess of $51.8 million for the year ended December 31, 1996 and derived
significant revenues from the sale of both HVAC and refrigeration products.
In March 1997, the Company purchased the HVAC operations and related assets
of Bellows-Evans, Inc., a distributor of HVAC equipment in Birmingham, Alabama,
a new market for the Company. The acquired business had revenues in excess of
$3.0 million for the year ended May 31, 1996 and derived substantially all of
its revenues from the sale of HVAC products.
* * *
The Company's executive offices are located at 1000 Center Place, Norcross,
Georgia 30093, and its telephone number is (770) 798-0700.
6
<PAGE>
THE OFFERING
Type of security offered.... Class A Common Stock
Number of shares to be
sold:
<TABLE>
<S> <C> <C>
By the Company................. 3,000,000
By the Selling Shareholder..... 75,541
Total....................... 3,075,541
</TABLE>
Shares to be outstanding
after the Offering(1)(2)...
7,858,680 shares of Common Stock, consisting
of 3,874,834 shares of Class A Common Stock
and 3,983,846 shares of Class B Common Stock.
Use of proceeds............. To repay existing indebtedness and repurchase
388,417 shares of Common Stock from certain
shareholders, including members of the
Investor Group. See "Use of Proceeds."
Voting rights............... The Class A Common Stock and the Class B
Common Stock will vote as a single class with
respect to all matters submitted to a vote of
the shareholders, with each share of Class A
Common Stock entitled to one vote and each
share of Class B Common Stock entitled to ten
votes, except that (i) the holders of the
Class A Common Stock will be entitled to
elect two directors and the holders of the
Class B Common Stock will be entitled to
elect all other directors; (ii) with respect
to any "going private" transaction between
the Company and a Principal Shareholder (as
defined herein), each share of Class A Common
Stock and Class B Common Stock will be
entitled to one vote and (iii) each class
will have such voting rights as otherwise
provided by law. Each share of Class B Common
Stock is convertible into one share of Class
A Common Stock at the option of the holder
thereof and is automatically convertible into
one share of Class A Common Stock upon
transfer to an unaffiliated party or upon the
date when the number of outstanding shares of
Class B Common Stock is less than ten percent
of all outstanding Common Stock.
Substantially all of the Class B Common Stock
is owned by the Investor Group. Each class of
Common Stock has identical rights, except
with respect to voting and conversion
privileges. See "Description of Capital
Stock" and "Principal and Selling
Shareholders."
Proposed New York Stock
Exchange symbol............
The Company intends to submit an application
to list the Class A Common Stock on the New
York Stock Exchange under the symbol "PCN."
- --------------------
(1) Excludes 388,417 shares to be repurchased with a portion of the net
proceeds of the Offering, 1,139,667 shares of Class A Common Stock reserved
for issuance under the Employee Stock Option Plans pursuant to which
options to purchase 833,813 shares will be outstanding upon the closing of
the Offering and 62,500 shares of Class A Common Stock reserved for
issuance under the Non-Employee Directors Stock Option Plan pursuant to
which options to purchase 50,000 shares will be outstanding upon the
closing of the Offering. See "Management--Stock Incentive Plans."
(2) Excludes 62,500 shares of Class B Common Stock subject to an option held by
Terfin International, Ltd. ("Terfin"). See "Certain Transactions."
7
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OTHER OPERATING DATA
The following table sets forth certain consolidated financial and other
operating data for the Company. This information should be read in conjunction
with the Consolidated Financial Statements and Notes thereto appearing
elsewhere in this Prospectus. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED YEAR ENDED FEBRUARY 28, YEAR ENDED NOVEMBER 30,
FEBRUARY 29, ---------------------------- FEBRUARY 29, ------------------
1992(1) 1993 1994 1995 1996(2) 1995 1996
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND OTHER OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $327,166 $300,140 $338,034 $323,152 $334,537 $267,726 $297,139
Cost of products sold... 245,319 226,894 259,028 243,887 255,301 205,535 225,120
-------- -------- -------- -------- -------- -------- --------
Gross profit........... 81,847 73,246 79,006 79,265 79,236 62,191 72,019
Warehousing, selling and
administrative ex-
penses................. 74,526 66,709 71,113 70,467 69,405 51,452 59,769
Amortization of goodwill
(negative
goodwill), net......... 2,467 (1,122) (1,224) (1,224) (1,224) (918) (918)
Severance............... -- -- -- -- 1,230 -- --
-------- -------- -------- -------- -------- -------- --------
Operating income........ 4,854 7,659 9,117 10,022 9,825 11,657 13,168
Interest expense, net... 16,853 3,570 4,593 4,818 4,732 3,550 3,519
Other income (expense).. (1,440) (898) 770 189 (482) (59) (20)
-------- -------- -------- -------- -------- -------- --------
Income (loss) before in-
come taxes............. (13,439) 3,191 5,294 5,393 4,611 8,048 9,629
Provision (benefit) for
income taxes........... 408 4,550 585 575 (1,403) 1,433 1,862
-------- -------- -------- -------- -------- -------- --------
Net income (loss)....... (13,847) (1,359) 4,709 4,818 6,014 6,615 7,767
Redeemable preferred
stock
dividends.............. -- -- 621 547 520 395 424
-------- -------- -------- -------- -------- -------- --------
Net income (loss)
applicable to common
shareholders(3)........ $(13,847) $(1,359) $4,088 $4,271 $5,494 $6,220 $7,343
======== ======== ======== ======== ======== ======== ========
Net income (loss) per
share(3)(4)............ $(0.21) $0.62 $0.65 $0.85 $0.94 $1.12
======== ======== ======== ======== ======== ========
Weighted average shares
outstanding(3)......... 6,608 6,608 6,608 6,487 6,608 6,535
======== ======== ======== ======== ======== ========
PRO FORMA
(UNAUDITED)(5):
Interest expense, net... $2,684 $903
======== ========
Net income.............. $8,178 $8,246
======== ========
Net income per
share(6)............... $0.87 $0.87
======== ========
Weighted average shares
outstanding(6)......... 9,379 9,427
======== ========
OTHER OPERATING DATA:
Same branch sales growth
percentage(7).......... 0.7% 2.6% 4.7% 2.3% 8.7%
Number of branches(8)... 265 245 241 242 250
Sales per associate(9).. $281,000 $295,000 $309,000 $247,000 $251,000
</TABLE>
See accompanying notes on following page.
8
<PAGE>
<TABLE>
<CAPTION>
NOVEMBER 30, 1996
-----------------------
HISTORICAL PRO FORMA(5)
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................... $ 119 $ 119
Total current assets.................................... 123,757 123,757
Total assets............................................ 136,497 136,497
Short-term debt:
Current portion of long-term debt..................... 528 528
Notes payable to affiliates........................... 22,500 --
-------- --------
Total short-term debt................................... 23,028 528
Long-term debt to affiliates ........................... 4,500 --
Long-term debt.......................................... 34,570 22,370
Total liabilities....................................... 126,160 86,960
Total shareholders' equity.............................. 10,337 49,537
</TABLE>
- --------------------
(1) Derived from the consolidated financial statements of MLX Corp. ("MLX"),
Pameco's former owner. MLX operated on a calendar year end, accordingly,
these amounts have been adjusted as if MLX's accounting year end was
February 29.
(2) Excluding the one time charge for severance, pro forma net income and net
income per share would have been $6.5 million and $1.00, respectively.
(3) Computed on the basis described in Note 2 to the Consolidated Financial
Statements of Pameco.
(4) If the acquisitions of Sid Harvey and Chase had occurred on March 1, 1995,
the pro forma net income and net income per share would have been
approximately $6.6 million and $6.8 million and $1.07 and $1.10 for the
nine month periods ended November 30, 1995 and 1996, respectively. The pro
forma adjustments for the acquisitions are based upon available information
and certain assumptions that management believes are reasonable. The
adjustments to the historical data reflect the following: (i) general and
administrative costs were increased to reflect the incremental amount of
general and administrative costs Pameco estimates it would have incurred
over the applicable time period; (ii) interest expense assuming Pameco
financed the acquisitions at a rate of 7.3%--Pameco's weighted average
borrowing rate; (iii) amortization of the excess of cost over acquired net
assets; (iv) income taxes on the earnings of the acquirees have been
adjusted to reflect Pameco's effective tax rate and (v) the income tax
effect of such pro forma adjustments.
(5) The pro forma amounts give effect to the sale of 3,000,000 shares of Class
A Common Stock by Pameco at an assumed initial public offering price of
$15.00 per share and the application of the net proceeds therefrom to repay
approximately $39.2 million in short-term and long-term debt as if such
issuance had occurred at the beginning of the period (or the date of
issuance, if later), the related reduction in interest expense and the
repurchase of 388,417 shares of the Company's common stock. See "Use of
Proceeds."
(6) Pro forma net income per share was computed using the weighted average
number of common and common equivalent shares outstanding as described
above, and takes into account the reduction in interest expense from the
repayment of short-term and long-term debt of $39.2 million with proceeds
of the Offering as if such shares had been issued and repayment had
occurred at the beginning of the fiscal period (or the date such debt was
incurred, if later), and the repurchase of 388,417 shares of the Company's
common stock. Pursuant to the Securities and Exchange Commission Staff
Accounting Bulletin No. 83, common stock and common stock equivalents
issued at prices below the assumed Offering price per share ("cheap stock")
during the 12 month period immediately preceding the initial filing date of
the Company's Registration Statement for its public offering have been
included as outstanding for all periods presented (using the treasury stock
method at the assumed initial public offering price).
(7) Same branch sales growth percentage was calculated based on sales for
locations open at least 24 consecutive months as of the end of each
reported period. The data for 1994 and 1995 is presented on a calendar year
basis, which is the only data available to the Company.
(8) The number of branches discloses the average number of branches open during
the period.
(9) Sales per associate have been calculated by dividing net sales by the
average number of associates employed during the period. The average number
of associates was determined by dividing the sum of the number of
associates at the end of each month in the period by the number of months
in the period.
9
<PAGE>
RISK FACTORS
This Prospectus contains certain forward-looking statements within the
meaning of the federal securities laws. Actual results in the timing of
certain events could differ materially from those projected in the forward-
looking statements due to a number of factors, including those set forth below
and elsewhere in this Prospectus. Prospective purchasers of the shares of
Class A Common Stock offered hereby should consider carefully the specific
factors set forth below as well as the other information contained in this
Prospectus in evaluating an investment in the Class A Common Stock.
RISK ASSOCIATED WITH ACQUISITION STRATEGY
The Company acquired the assets of three businesses during the past year.
The Company's growth strategy contemplates additional acquisitions, and
management is continually evaluating acquisition opportunities. As a result,
the Company's future success is dependent, in part, upon its ability to
identify, finance and acquire suitable acquisition candidates on favorable
terms and then to integrate or manage such acquired businesses successfully.
Acquisitions involve special risks, including risks associated with
unanticipated problems, liabilities and contingencies, diversion of management
attention and possible adverse effects on earnings resulting from increased
goodwill amortization, potential increased interest costs, the issuance of
additional securities and difficulties relating to the integration of the
acquired businesses. Although the Company believes that it can continue to
identify and consummate the acquisition of a sufficient number of businesses
to implement successfully its growth strategy, there can be no assurance that
the Company will be able to identify and complete or successfully integrate
such acquisitions. Further, there can be no assurance that future acquisitions
will not have an adverse effect upon the Company's operating results,
particularly during periods in which the operations of acquired businesses are
being integrated into the Company's operations. While management is
continually evaluating possible acquisitions, particularly in larger markets
in which the Company does not have a substantial presence, the Company has no
present agreements, commitments or understandings to acquire other businesses.
Existing or future competitors may also seek to compete with the Company for
acquisition candidates, which could have the effect of increasing the price
for acquisitions or reducing the number of suitable acquisition candidates. In
addition, such competitors may compete with the Company for start-up
locations, thereby limiting the number of attractive locations for expansion.
See "Prospectus Summary--Company History and Recent Acquisitions," "--
Competition" and "Business--Business Strategy."
In order to implement its acquisition strategy, the Company is likely to
require additional funding. Future acquisitions could be financed by incurring
additional indebtedness or by the issuance of additional equity securities,
which could result in dilution to the purchasers of the Class A Common Stock
offered hereby. See "--Shares Eligible for Future Sale." In addition,
significant acquisitions and the financing thereof will generally require the
consent of the Company's existing lenders, and there can be no assurance that
such consent will be granted. See "Business--Competition."
SEASONALITY AND CYCLICALITY OF SALES
The Company's operating results vary significantly from quarter to quarter.
Sales increase during the warmer months beginning in April and peak in the
months of June, July and August. Historically, the Company has recorded
approximately 33% of its sales, and greater than 80% of its annual operating
earnings, in the second fiscal quarter. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Quarterly Financial
Results." Sales of HVAC and refrigeration equipment and replacement components
are also affected by weather patterns throughout the country. Warmer than
normal summer temperatures or colder than normal winter temperatures cause
increased stress on cooling and heating equipment. Increased stress on
equipment produces higher failure rates and therefore increased sales volume
of replacement equipment. While Pameco manages its inventory on a national
scale to mirror seasonal demands for its products, a dramatic shift in weather
patterns (such as an especially mild winter or cool summer) in a particular
region of the country could have a material adverse effect on the Company's
business and results of operations. Further, end-users' demand
10
<PAGE>
for HVAC and refrigeration products is cyclical, and a significant percentage
of the overall demand is related to new construction. This demand is
influenced by many of the same national and regional economic and demographic
factors which affect demand for durable consumer goods, including consumer
confidence, interest rates, availability of financing, regional population,
employment trends and general economic conditions. While management believes
that the Company's national presence and focus on the repair and replacement
market (where end-users' needs are often immediate and less discretionary)
mitigate these risks, there can be no assurance that the Company will not
experience future declines in sales due to weather patterns or an economic
downturn or that such declines will not have a material adverse effect on the
Company's business and results of operations. See "Business--The Industry."
DEPENDENCE ON SUPPLIER RELATIONSHIPS
Pameco has been granted distribution rights for certain product lines in
several of its geographic markets. The Company depends upon these distribution
rights for a substantial portion of its business. However, a significant
percentage of the Company's distribution arrangements with its suppliers are
oral. Further, many of these distribution rights may be terminated by the
supplier immediately or upon short notice. While management believes the
Company maintains a close relationship with its supplier base, certain of
these suppliers compete with the Company for new construction business and
there can be no assurance that any or all suppliers will continue their
current relationship with the Company. The termination or limitation by any
key supplier of its relationship with the Company could have a material
adverse effect on the Company's business and results of operations. The
Company also relies upon its suppliers to provide quality products on a timely
basis. See "--Competition." The failure of a significant supplier to furnish
quality products on a timely basis for any reason could damage the Company's
relationship with its customers and have a material adverse effect on its
business and results of operations. See "Business--Suppliers and Customers."
COMPETITION
Both the HVAC and refrigeration businesses are highly fragmented and very
competitive. The Company's primary competitors include national and multi-
regional companies, regional competitors that operate in a small number of
states, OEMs and principally small, independent businesses with a limited
number of local branches. Certain of the Company's competitors may have
significantly greater financial resources than the Company. The primary areas
of competition in the HVAC and refrigeration businesses include breadth and
quality of product lines distributed, ability to fill orders promptly
(particularly in the refrigeration business), technical knowledge of sales
personnel, service and price. The Company believes that its ability to compete
effectively is dependent upon its ability to respond to the needs of its
customers through quality service and product availability. While home
centers, hardware stores and direct mail order companies do not currently
compete to a significant extent with the Company due to their limited ability
to supply a wide range of products and provide comparable expert technical
advice, the entrance of one or more of these companies into either of the
Company's businesses could have a material adverse effect on the Company's
business and results of operations. In the future, the Company may also face
competition from deregulated utility companies selling directly to their
customers, electrical/plumbing suppliers, organizations providing facility
maintenance services and others selling products directly to consumers via the
Internet. The entrance of any one or more of these types of entities into
either of the Company's markets could have a material adverse effect on the
Company's business and results of operations. See "Business--Competition."
INCREASED PRESENCE OF BUYING GROUPS
Management believes that a portion of the Company's customer base has begun
to consolidate into regional and national firms and buying groups in order to
gain increased purchasing power and greater product consistency. While
management believes this trend provides the Company with a significant
opportunity to leverage regional and national sales, the increased buying
power could create a competitive bidding process for the Company's products,
thereby reducing the Company's margins. A significant reduction in the
Company's margins could have a material adverse effect on the Company's
business and results of operations. See "Business--Competition."
11
<PAGE>
DEPENDENCE ON INFORMATION SYSTEMS
The Company believes that its computer systems are an integral part of its
business and growth strategies. The Company depends on its information systems
to process orders, manage inventory and accounts receivable collections,
purchase products, ship products among its branches on a timely basis,
maintain cost-effective operations and provide superior service to its
customers. The Company intends to purchase new supply chain software in fiscal
1998 in order to improve its inventory management. While the Company has taken
precautions against certain events that could disrupt the operation of its
information systems, there can be no assurance that such a disruption,
including the failure of the new supply chain software to function properly,
will not occur. Any such disruption could have a material adverse effect on
the Company's business and results of operations. See "Business--Management
Information Systems."
DEPENDENCE ON KEY ASSOCIATES; NEED FOR ADDITIONAL ASSOCIATES
The Company's future performance depends to a significant degree upon the
continued contributions of members of the Company's key management. While the
Company has had recent success in retaining its key management associates, the
loss of the service of any key management associates could have a material
adverse effect on the Company's business and results of operations. The
Company does not have employment agreements with any of its key management
associates except for its Chief Executive Officer. See "Business--Associates"
and "Management."
The Company's management believes that Pameco's future success also depends
upon its continuing ability to identify, attract, train and retain highly
skilled regional managers and technical service representatives to advise and
assist customers at its branches. Competition for such personnel is intense
and there can be no assurance that the Company will be successful in retaining
its existing regional managers and technical service representatives or
attracting and assimilating additional technical service representatives. The
inability of the Company to attract and retain such associates could have a
material adverse effect on the Company's business and results of operations.
VALUATION OF INVENTORY
At November 30, 1996, over 75% of the Company's assets (based on book value)
consisted of inventory held for sale. While the Company's financial statements
contain reserves for obsolescence and inventory shrinkage which management
believes to be adequate, the obsolescence of a significant amount of inventory
due to changes in customer preferences or technological improvements or the
loss of a significant amount of inventory due to shrinkage could have a
material adverse effect on the Company's business and results of operations.
RISKS OF BORROWING
Following the Offering, the Company will have substantial borrowings under
the Credit Facilities (as defined herein). In the future, the Company may
incur additional indebtedness under the Credit Facilities or under additional
facilities for working capital and to finance the acquisition of additional
branches. Leverage increases the risk to the Company of any variations in its
results of operations or any other factors affecting its cash flow or
liquidity. In addition, the Credit Facilities bear, and future indebtedness
may bear, interest at variable interest rates. Accordingly, increases in
applicable interest rates may adversely effect the Company's business and
results of operations.
CONTROL OF THE COMPANY BY INVESTOR GROUP
Holders of the Class A Common Stock are entitled to one vote per share,
while holders of the Class B Common Stock are generally entitled to ten votes
per share. In addition, holders of the Class B Common Stock are entitled to
elect all but two of the Company's directors. Immediately after consummation
of the Offering, the Investor Group will beneficially own 97.2% of the
outstanding shares of Class B Common Stock, and, together with the executive
officers and directors of the Company as a group, will own in the aggregate
88.9% of the combined voting power (on a fully diluted basis).
12
<PAGE>
Although the Investor Group is not currently involved in the day-to-day
operations of the Company, due to its ownership of substantially all the Class
B Common Stock, the Investor Group will, immediately after consummation of the
Offering, be able to elect a majority of the directors of the Company and
therefore control and direct the policies of the Board. In addition, the
Investor Group will be able to control the vote on almost all matters submitted
to a vote of the Company's shareholders, including most extraordinary
transactions such as mergers and sales of all or substantially all of the
Company's assets. Control by the Investor Group may also discourage certain
types of transactions involving an actual or potential change of control of the
Company, including transactions in which the holders of Class A Common Stock
might have received a premium for their shares over then prevailing market
prices.
Shares of Class B Common Stock will only convert to shares of Class A Common
Stock on election by the holder, transfer to a transferee who is not an
Affiliate (as herein defined) of the holder, or on the date when the issued and
outstanding shares of Class B Common Stock constitute less than ten percent of
all issued and outstanding Common Stock. See "Description of Capital Stock--
Common Stock" and "Principal and Selling Shareholders."
ANTI-TAKEOVER CONSIDERATIONS
The ownership positions of the Investor Group and the executive officers and
directors of the Company as a group, together with the anti-takeover effects of
certain provisions in the Company's Articles of Incorporation and Bylaws and
the Company's adoption of both the "fair price" and "business combinations with
interested stockholders" provisions of the Georgia Business Corporation Code
(the "Georgia Code"), may have the effect of delaying, deferring or preventing
a change of control of the Company, even if a change of control were in the
shareholders' best interests. See "Description of Capital Stock--Certain
Provisions of Georgia Law and the Company's Articles of Incorporation and
Bylaws."
GOVERNMENT REGULATIONS
HVAC and refrigeration systems are subject to various environmental statutes
and regulations, including but not limited to laws and regulations implementing
the Clean Air Act, relating to minimum energy efficiency standards of HVAC
systems and the production, servicing and disposal of certain ozone-depleting
refrigerants used in such systems. As the owner or lessee of a significant
amount of real property, the Company is subject to a number of environmental
statutes and regulations and could under certain circumstances be responsible
for the acts or omissions of the prior owners or lessees of such property. The
Company is also subject to regulations concerning the transport of hazardous
materials, including regulations adopted pursuant to the Motor Carrier Safety
Act of 1990. The Company may become subject to compliance with additional
regulations, and there can be no assurance that the regulatory environment in
which the Company operates will not change significantly in the future. See
"Business--Government Regulations and Environmental Matters."
ABSENCE OF PRIOR PUBLIC MARKET
Prior to the Offering, there has been no public market for the Company's
Class A Common Stock. The Company intends to apply for listing of the Class A
Common Stock on the New York Stock Exchange. Regardless of whether the Class A
Common Stock is listed on the New York Stock Exchange, there can be no
assurance as to the development or liquidity of any trading market for the
Class A Common Stock or that the purchasers of the Class A Common Stock will be
able to resell their shares at prices equal to or greater than the initial
public offering price. The initial public offering price of the Class A Common
Stock will be determined through negotiations with Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ"), The Robinson-Humphrey Company, Inc. ("Robinson-
Humphrey") and Schroder Wertheim & Co. Incorporated (the "Representatives").
See "Underwriting" for the factors to be considered in determining the initial
public offering price of the shares of Class A Common Stock.
13
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Immediately after completion of the Offering, the Company will have 7,858,680
shares of Common Stock outstanding, of which the 3,075,541 shares sold pursuant
to the Offering will be freely tradable without restriction or further
registration under the Securities Act, except those shares acquired by
"affiliates" of the Company as that term is defined under the Securities Act.
Holders of the remaining shares will be eligible to sell such shares pursuant
to Rule 144 ("Rule 144") under the Securities Act at prescribed times and
subject to the manner of sale, volume, notice and information restrictions of
Rule 144. The Company, its officers, directors and certain other shareholders
including the Selling Shareholder, who collectively are the beneficial owners
of an aggregate of 1,348,337 shares of Class A Common Stock and 3,983,846
shares of Class B Common Stock have agreed with the Underwriters, except with
the prior written consent of DLJ, not to offer, sell, pledge, contract to sell,
grant any option, right or warrant to purchase, or otherwise transfer or
dispose of directly or indirectly any shares of Common Stock of the Company or
any securities convertible into or exercisable or exchangeable for Common Stock
or in any other manner transfer all or a portion of the economic consequences
associated with the ownership of any Common Stock for a period of 180 days
after the date of this Prospectus. Upon the expiration of such 180 day period,
such holders will, in general, be entitled to dispose of their shares, although
the shares of Common Stock held by affiliates of the Company will continue to
be subject to the restrictions of Rule 144. In addition, the Company may issue
shares of Class A Common Stock (and may consider filing a registration
statement with respect to such shares) in connection with potential future
business acquisitions and resales of such shares by the recipients. Shares so
registered could be sold in the public market. No predictions can be made as to
the effect, if any, that market sales of such shares or the availability of
such shares for sale will have on the market price for shares of Class A Common
Stock prevailing from time to time. Sales of substantial amounts of shares of
Class A Common Stock in the public market following the Offering could
adversely affect the market price of the Class A Common Stock and could impair
the Company's future ability to raise capital through an offering of equity
securities. See "Shares Eligible for Future Sale."
VOLATILITY OF MARKET PRICE
After completion of the Offering, the market price of the Class A Common
Stock could be subject to significant fluctuations due to variations in
quarterly operating results and other factors, such as changes in general
conditions in the economy or the financial markets, natural disasters or other
developments affecting the Company or its competitors. In addition, the
securities markets have experienced significant price and volume fluctuations
from time to time in recent years. This volatility has had a significant effect
on the market prices of securities issued by many companies for reasons
unrelated to their operating performance, and these broad fluctuations may
adversely affect the market price of the Class A Common Stock.
IMMEDIATE AND SUBSTANTIAL DILUTION
The purchasers of the shares of Class A Common Stock offered hereby will
experience immediate and substantial dilution in the net tangible book value
per share of Class A Common Stock from the initial public offering price. Based
on an assumed initial offering price of $15.00 per share, as of November 30,
1996, such dilution, on a pro forma basis, would have been equal to $8.31 per
share with respect to shares purchased pursuant to the Offering. See
"Dilution."
ABSENCE OF DIVIDENDS
The Company intends to retain its earnings to finance its growth and for
general corporate purposes. Consequently, it does not anticipate paying any
cash dividends in the foreseeable future. In addition, the Company's existing
credit facilities, which will remain in place following consummation of the
Offering, contain, and future financing agreements may contain, limitations on
the payment of cash dividends and other distributions of assets. See "Dividend
Policy" and "Description of Certain Indebtedness."
14
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the Offering are estimated to be
approximately $40.9 million ($47.3 million if the Underwriters' over-allotment
option is exercised in full) assuming an initial public offering price of
$15.00 per share and after deduction of the estimated underwriting discount and
other estimated offering expenses. The Company intends to use such net proceeds
to repay all outstanding indebtedness to certain members and affiliates of the
Investor Group, to repay approximately $28.1 million of the outstanding balance
of its $100.0 million revolving credit line (the "Working Capital Facility"),
and to repurchase 388,417 shares of Common Stock from certain shareholders,
including members of the Investor Group, for an aggregate purchase price of
approximately $1.7 million. The current outstanding balance of indebtedness to
certain members and affiliates of the Investor Group is $16.1 million, and the
Company expects the outstanding balance of such indebtedness to be $11.1
million immediately prior to the Offering. See "Certain Transactions."
The indebtedness to be repaid to certain members and affiliates of the
Investor Group consists of two separate loans. The first, which bears interest
at the rate of 12.5%, matures on June 30, 1997, and was incurred in November
1996 for the purpose of redeeming all of the common and preferred stock of the
Company owned by a former shareholder. The Company expects the outstanding
balance of such indebtedness to be $6.6 million immediately prior to the
Offering. The other indebtedness to be repaid to certain members and affiliates
of the Investor Group bears interest at the prime rate (adjusted daily) and
matures at September 1, 2001, and November 1, 2001, and has a current
outstanding principal amount of $4.5 million. The Working Capital Facility
expires on November 22, 2001, unless extended, and bears interest at LIBOR plus
2.25%. At February 28, 1997, this rate was equal to 7.69%. Upon application of
the net proceeds from the Offering, the Company expects to have borrowings of
approximately $45.6 million under the Credit Facilities and approximately $47.0
million of unused and available credit. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources" and "Description of Certain Indebtedness."
The Company will not receive any of the proceeds from the sale of shares of
Class A Common Stock offered by the Selling Shareholder.
DIVIDEND POLICY
The Company has not paid dividends on its Class A Common Stock, and the Board
of Directors intends to continue a policy of retaining earnings to finance the
Company's growth and for general corporate purposes and, therefore, does not
anticipate paying any such dividends in the foreseeable future. In addition,
the Company's Working Capital Facility contains, and future financing
arrangements may contain, a minimum net worth covenant and limitations on the
payment of any cash dividends or other distributions of assets, which covenants
and limitations could restrict the Company's ability to pay dividends. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Description of Certain
Indebtedness."
15
<PAGE>
DILUTION
As of November 30, 1996, the net tangible book value of the Company was
approximately $11.7 million, or $2.34 per share of Common Stock. "Net tangible
book value per share" is defined as the book value of tangible assets of the
Company, less all liabilities (except the excess of acquired net assets over
cost), divided by the number of outstanding shares of Common Stock. After
giving effect to the Offering at an assumed initial public offering price of
$15.00 per share, net of offering expenses and the underwriting discount, and
the application of the net proceeds therefrom as described under "Use of
Proceeds", the pro forma net tangible book value of the Company at November
30, 1996, would have been approximately $50.9 million, or $6.69 per share.
This represents an immediate dilution of $8.31 per share to purchasers of
shares in the Offering. The following table illustrates the per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............... $15.00
Net tangible book value before the Offering................. $2.34
Increase per share attributable to new shareholders......... 4.35
-----
Pro forma net tangible book value per share after giving ef-
fect to the Offering......................................... 6.69
------
Dilution in net tangible book value per share to new share-
holders...................................................... $ 8.31
======
</TABLE>
The following table sets forth with respect to the existing shareholders and
the new shareholders in the Offering as of November 30, 1996, a comparison of
the number of shares of Common Stock acquired from the Company, the percentage
ownership of such shares, the total consideration paid, the percentage of
total cash consideration paid and the average price per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
<S> <C> <C> <C> <C> <C>
Existing shareholders(1).... 4,611,583 60.6% $ 1,000,000 2.2% $ .22
New shareholders............ 3,000,000 39.4 45,000,000 97.8 15.00
--------- ----- ----------- -----
Total................... 7,611,583 100.0% $46,000,000 100.0%
========= ===== =========== =====
</TABLE>
- ---------------------
(1) Shares are net of 1,638,417 shares of Common Stock held by the Company as
treasury stock.
The foregoing table excludes 388,417 shares to be repurchased with a portion
of the net proceeds of the Offering, 1,139,667 shares of Class A Common Stock
reserved for issuance under the Employee Stock Option Plans pursuant to which
options to purchase 833,813 shares will be outstanding upon the closing of the
Offering, and 62,500 shares of Class A Common Stock reserved for issuance
under the Non-Employee Directors Stock Option Plan pursuant to which options
to purchase 50,000 shares will be outstanding upon the closing of the
Offering. See "Management--Stock Incentive Plans." The table also excludes
62,500 shares of Class B Common Stock subject to an option held by Terfin. See
"Certain Transactions."
16
<PAGE>
CAPITALIZATION
The following table sets forth the short-term debt, long-term debt and
capitalization of the Company as of November 30, 1996, and as adjusted to give
pro forma effect to the Offering at an assumed initial public offering price
of $15.00 per share and the application of the net proceeds therefrom as
described under "Use of Proceeds." This table should be read in conjunction
with the selected financial data and Consolidated Financial Statements of the
Company and the related notes thereto contained elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NOVEMBER 30, 1996
------------------------------
HISTORICAL PRO FORMA
-------------- -------------
(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE AMOUNTS)
<S> <C> <C>
Short-term debt:
Current portion of capital lease obligations
and other debt.............................. $ 528 $ 528
Notes payable to affiliates.................. 22,500 --
------------- -------------
Total short-term debt...................... 23,028 528
Long-term notes payable to affiliates.......... 4,500 --
Long-term debt and capital lease obligations... 34,570 22,370
Shareholders' equity:
Preferred Stock, par value $1.00 per share,
5,000,000 shares authorized; no shares
issued and outstanding...................... -- --
Class A Common Stock, par value $0.01 per
share, 40,000,000 shares authorized;
6,250,000 shares issued and outstanding
(historical); 5,266,154 shares issued and
outstanding (pro forma)(1).................. 63 53
Class B Common Stock, par value $0.01 per
share, 20,000,000 shares authorized; no
shares issued and outstanding (historical);
3,983,846 shares issued and outstanding (pro
forma)(2)................................... -- 40
Additional paid-in capital................... 937 41,757
Retained earnings............................ 19,837 19,837
------------- -------------
20,837 61,687
Less: treasury stock, at cost (1,250,000
shares and 1,638,417 shares of Common Stock,
respectively)............................... (10,500) (12,150)
------------- -------------
Total shareholders' equity................. 10,337 49,537
------------- -------------
Total capitalization including short-term
debt...................................... $ 72,435 $ 72,435
============= =============
</TABLE>
- ---------------------
(1) Does not include 1,139,667 shares of Class A Common Stock reserved for
issuance under the Employee Stock Option Plans pursuant to which options
to purchase 833,813 shares will be outstanding upon the closing of the
Offering and 62,500 shares of Class A Common Stock reserved for issuance
under the Non-Employee Directors Stock Option Plan pursuant to which
options to purchase 50,000 shares will be outstanding upon the closing of
the Offering. See "Management--Stock Incentive Plans."
(2) Does not include 62,500 shares of Class B Common Stock subject to an
option held by Terfin. See "Certain Transactions."
17
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER OPERATING DATA
The following selected consolidated and other operating data of the Company
are qualified by reference to, and should be read in conjunction with, the
Consolidated Financial Statements and Notes thereto and other financial data
included elsewhere in this Prospectus. The financial data set forth below for
each of the three years in the period ended February 29, 1996 and as of
February 28, 1995 and February 29, 1996, have been derived from the audited
Consolidated Financial Statements of the Company included elsewhere in this
Prospectus. The financial data as of and for the year ended February 28, 1993
has been derived from audited consolidated financial statements of the Company
not included in this Prospectus. The financial data for the year ended
February 29, 1992 has been derived from the unaudited financial statements of
the Company's previous owner not included in this Prospectus. The information
at November 30, 1995 and 1996 and for the nine month periods then ended is
unaudited, but in the opinion of the Company reflects all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the results of operations for such periods. These historical
results are not necessarily indicative of the results that may be expected in
the future. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED YEAR ENDED FEBRUARY 28, YEAR ENDED NOVEMBER 30,
FEBRUARY 29, ---------------------------- FEBRUARY 29, ------------------
1992(1) 1993 1994 1995 1996(2) 1995 1996
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND OTHER OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $327,166 $300,140 $338,034 $323,152 $334,537 $267,726 $297,139
Cost of products sold... 245,319 226,894 259,028 243,887 255,301 205,535 225,120
-------- -------- -------- -------- -------- -------- --------
Gross profit........... 81,847 73,246 79,006 79,265 79,236 62,191 72,019
Warehousing, selling and
administrative ex-
penses................. 74,526 66,709 71,113 70,467 69,405 51,452 59,769
Amortization of goodwill
(negative
goodwill), net......... 2,467 (1,122) (1,224) (1,224) (1,224) (918) (918)
Severance............... -- -- -- -- 1,230 -- --
-------- -------- -------- -------- -------- -------- --------
Operating income........ 4,854 7,659 9,117 10,022 9,825 11,657 13,168
Interest expense, net... 16,853 3,570 4,593 4,818 4,732 3,550 3,519
Other income (expense).. (1,440) (898) 770 189 (482) (59) (20)
-------- -------- -------- -------- -------- -------- --------
Income (loss) before in-
come taxes............. (13,439) 3,191 5,294 5,393 4,611 8,048 9,629
Provision (benefit) for
income taxes........... 408 4,550 585 575 (1,403) 1,433 1,862
-------- -------- -------- -------- -------- -------- --------
Net income (loss)....... (13,847) (1,359) 4,709 4,818 6,014 6,615 7,767
Redeemable preferred
stock
dividends.............. -- -- 621 547 520 395 424
-------- -------- -------- -------- -------- -------- --------
Net income (loss)
applicable to common
shareholders(3)........ $(13,847) $(1,359) $4,088 $4,271 $5,494 $6,220 $7,343
======== ======== ======== ======== ======== ======== ========
Net income (loss) per
share(3)(4)............ $(0.21) $0.62 $0.65 $0.85 $0.94 $1.12
======== ======== ======== ======== ======== ========
Weighted average shares
outstanding(3)......... 6,608 6,608 6,608 6,487 6,608 6,535
======== ======== ======== ======== ======== ========
PRO FORMA
(UNAUDITED)(5):
Interest expense, net... $2,684 $903
======== ========
Net income.............. $8,178 $8,246
======== ========
Net income per
share(6)............... $0.87 $0.87
======== ========
Weighted average shares
outstanding(6)......... 9,379 9,427
======== ========
OTHER OPERATING DATA:
Same branch sales growth
percentage(7).......... 0.7% 2.6% 4.7% 2.3% 8.7%
Number of branches(8)... 265 245 241 242 250
Sales per associate(9).. $281,000 $295,000 $309,000 $247,000 $251,000
</TABLE>
See accompanying notes on following page.
18
<PAGE>
<TABLE>
<CAPTION>
FEBRUARY 28, NOVEMBER 30,
FEBRUARY 29, --------------------------- FEBRUARY 29, -----------------
1992(1) 1993 1994 1995 1996 1995 1996
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents............ $ 918 $ 258 $ 133 $ 120 $ 115 $ 108 $ 119
Total current assets.... 108,028 114,281 120,008 121,583 113,637 116,486 123,757
Total assets............ 218,878 115,951 122,512 124,964 119,167 120,582 136,497
Long-term debt,
including current
portion................ 159,323 27,415 31,051 31,212 34,428 40,235 35,098
Debt to affiliates...... -- 17,500 13,500 13,500 7,500 8,500 27,000
Redeemable preferred
stock.................. -- 4,000 4,000 4,000 4,000 4,000 --
Total liabilities....... 215,411 116,310 118,783 116,964 105,673 106,075 126,160
Total shareholders'
equity (deficit)....... 3,467 (359) 3,729 8,000 13,494 14,507 10,337
</TABLE>
- ---------------------
(1) Derived from the consolidated financial statements of MLX, Pameco's former
owner. MLX operated on a calendar year end, accordingly, these amounts
have been adjusted as if MLX's accounting year end was February 29.
(2) Excluding such charge for severance, pro forma net income and net income
per share would have been $6.5 million and $1.00, respectively.
(3) Computed on the basis described in Note 2 to the Consolidated Financial
Statements of Pameco.
(4) If the acquisitions of Sid Harvey and Chase had occurred on March 1, 1995,
the pro forma net income and net income per share would have been
approximately $6.6 million and $6.8 million and $1.07 and $1.10 for the
nine month periods ended November 30, 1995 and 1996, respectively. The pro
forma adjustments for the acquisitions are based upon available
information and certain assumptions that management believes are
reasonable. The adjustments to the historical data reflect the following:
(i) general and administrative costs were increased to reflect the
incremental amount of general and administrative costs Pameco estimates it
would have incurred over the applicable time period; (ii) interest expense
assuming Pameco financed the acquisitions at a rate of 7.3%--Pameco's
weighted average borrowing rate; (iii) amortization of the excess of cost
over acquired net assets; (iv) income taxes on the earnings of the
acquirees have been adjusted to reflect Pameco's effective tax rate and;
(v) the income tax effect of such pro forma adjustments.
(5) The pro forma interest expense (net), net income, net income per share and
weighted average shares outstanding gives effect to the sale of 3,000,000
shares of Class A Common Stock by Pameco at an assumed initial public
offering price of $15.00 per share and the application of the net proceeds
therefrom to repay approximately $39.2 million in short-term and long-term
debt as if such issuance had occurred at the beginning of the period (or
the date of issuance of, if later), the related reduction in interest
expense and the repurchase of 388,417 shares of the Company's common
stock. See "Use of Proceeds."
(6) Pro forma net income per share was computed using the weighted average
number of common and common equivalent shares outstanding as described
above, and takes into account the reduction in interest expense from the
repayment of short-term and long-term debt of $39.2 million with proceeds
of the Offering as if such shares had been issued and repayment had
occurred at the beginning of the fiscal period, (or the date such debt was
incurred, later), and the repurchase of 388,417 shares of the Company's
common stock. Pursuant to the Securities and Exchange Commission Staff
Accounting Bulletin No. 83, common stock and common stock equivalents
issued at prices below the assumed Offering price per share ("cheap
stock") during the twelve month period immediately preceding the initial
filing date of the Company's Registration Statement for its public
offering have been included as outstanding for all periods presented
(using the treasury stock method at the assumed initial public offering
price).
(7) Same branch sales growth percentage was calculated based on sales for
locations open at least 24 consecutive months as of the end of each
reported period. The data for 1994 and 1995 is presented on a calendar
year basis, which is the only data available to the Company.
(8) The number of branches discloses the average number of branches open
during the period.
(9) Sales per associate have been calculated by dividing net sales by the
average number of associates employed during the period. The average
number of associates was determined by dividing the sum of the number of
associates at the end of each month in the period by the number of months
in the period.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated
Financial Statements and notes thereto included elsewhere in this Prospectus.
GENERAL
Pameco is one of the largest distributors of HVAC and refrigeration products
in the United States, with predecessor corporations dating back to 1931. The
Company stocks more than 65,000 SKUs to service more than 45,000 customers
through a national network of 297 branches in 44 states and Guam located in 76
of the top 100 SMSAs in the country.
The Company derives its revenue primarily from two sources: (i) the sale of
HVAC parts and equipment and (ii) the sale of refrigeration parts and
equipment. In fiscal 1996, the Company's HVAC business generated approximately
54.0% of its revenues, while the refrigeration business generated the balance.
In fiscal 1996, the Company sold 80.0% of its products to the higher margin
repair and replacement market with the remaining 20.0% of its revenues
generated from the new construction and installation market. Growth in revenue
is dependent on several factors, including the life cycle and average use of
HVAC and refrigeration equipment, the number of suitable acquisition
candidates, fluctuations in weather and general economic conditions.
In March 1996, Pameco hired a new Chief Executive Officer with extensive
experience in directing sales growth and acquisitions. Since then, the Company
has achieved same store sales growth of 8.7% and has completed three
acquisitions pursuant to which it acquired 59 branches in ten states.
The Company has historically financed its acquisitions, new branch openings
and capital expenditures through internally generated cash flow and borrowings
under its credit facilities. During the initial phase of an acquisition or new
branch opening, the Company typically incurs expenses related to installing or
converting information systems, training employees and other reconfiguring
activities. In addition, in larger acquisitions, such as the Sid Harvey
transaction, the Company may incur additional expenses in connection with the
closure of redundant branches. The Company has accounted for its acquisitions
under the purchase method of accounting.
SEASONALITY
The Company's operating results vary significantly from quarter to quarter.
Sales increase during the warmer months beginning in April and peak in the
months of June, July and August. Historically, the Company has recorded
approximately 33% of its sales and greater than 80% of its annual operating
earnings in the second fiscal quarter. See "--Quarterly Financial Results."
Sales of HVAC and refrigeration equipment and replacement components are
also affected by weather patterns and seasonal equipment start-ups. Warmer
than normal summer temperatures or colder than normal winter temperatures
cause increased stress on cooling and heating equipment. Increased stress on
equipment produces higher failure rates and therefore increased sales volume
of replacement equipment. Start-up modes for inactive equipment also produce
higher failure rates and an increase in replacement business on a seasonal
basis. Management believes the Company's national branch coverage mitigates
much of the risk associated with regional or local weather patterns.
20
<PAGE>
SELECTED QUARTERLY OPERATING RESULTS
The following table sets forth certain unaudited consolidated financial data
for the seven fiscal quarters through November 30, 1996. This data has been
derived from the Consolidated Financial Statements of the Company and, in the
opinion of management, includes all adjustments necessary for a fair
presentation in accordance with generally accepted accounting principles. The
Company's revenues and operating results have historically fluctuated from
quarter to quarter, and the Company expects that they will continue to do so
in the future. These fluctuations have been caused by a number of factors,
including seasonal customer demand (principally due to the effects of
weather), general economic conditions in the Company's markets, the timing of
acquisitions and the effectiveness of integrating acquired businesses. The
Company's results of operations for a particular quarter are not necessarily
indicative of the results of operations for any future period.
<TABLE>
<CAPTION>
FISCAL 1996 FISCAL 1997
------------------------------------ ---------------------------
MAY 31, AUG. 31, NOV 30, FEB. 29, MAY 31, AUG. 31, NOV. 30,
1995 1995 1995 1996 1996 1996 1996
------- -------- ------- -------- ------- -------- --------
(IN THOUSANDS EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $80,160 $108,738 $78,828 $66,811 $94,327 $118,126 $84,686
Cost of products sold.. 61,754 83,446 60,335 49,766 72,314 88,698 64,108
------- -------- ------- ------- ------- -------- -------
Gross profit............ 18,406 25,292 18,493 17,045 22,013 29,428 20,578
Gross profit
percentage............ 23.0% 23.3% 23.5% 25.5% 23.3% 24.9% 24.3%
Warehousing, selling
and administrative
expenses.............. 16,494 16,888 17,152 17,647 19,440 20,336 19,075
Warehousing, selling
and administrative
expenses as a
percentage of net
sales................. 20.6% 15.5% 21.8% 26.4% 20.6% 17.2% 22.5%
Severance.............. -- -- -- 1,230 -- -- --
------- -------- ------- ------- ------- -------- -------
Operating income
(loss)................. 1,912 8,404 1,341 (1,832) 2,573 9,092 1,503
</TABLE>
Gross profit percentage for the first three quarters of fiscal 1997
increased from the comparable quarters in fiscal 1996 due to a shift to higher
margin products and less discounting at point-of-sale purchases. Warehousing,
selling and administrative expenses as a percentage of net sales, excluding a
charge for severance in the quarter ending February 29, 1996, increased in the
fiscal quarters ending August 31, 1996 and November 30, 1996 as compared to
the corresponding quarters in the previous year due to an increase in freight
costs and the addition of sales associates.
RESULTS OF OPERATIONS
The following table sets forth certain consolidated historical operating
information for the Company, as a percentage of total sales, for the periods
indicated:
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
FEBRUARY 28 OR 29, NOVEMBER 30,
---------------------- ------------------
1994 1995 1996 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales.......................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of products sold............. 76.6 75.5 76.3 76.8 75.8
------ ------ ------ -------- --------
Gross profit....................... 23.4 24.5 23.7 23.2 24.2
Warehousing, selling and adminis-
trative expenses................. 20.7 21.4 20.4 18.9 19.8
Severance.......................... 0.0 0.0 0.4 0.0 0.0
------ ------ ------ -------- --------
Operating income................... 2.7 3.1 2.9 4.3 4.4
Interest expense, net............. 1.3 1.5 1.4 1.3 1.2
Other income (expense)............ 0.2 0.1 (0.1) 0.0 0.0
------ ------ ------ -------- --------
Income before income taxes......... 1.6 1.7 1.4 3.0 3.2
Provision (benefit) for income tax-
es................................ 0.2 0.2 (0.4) 0.5 0.6
------ ------ ------ -------- --------
Net income......................... 1.4% 1.5% 1.8% 2.5% 2.6%
====== ====== ====== ======== ========
</TABLE>
21
<PAGE>
NINE MONTHS ENDED NOVEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED NOVEMBER 30,
1995
Net Sales. Net sales for the nine month period ended November 30, 1996
increased 11.0% to $297.1 million from $267.7 million during the same period
in the previous year. Excluding the effect of acquisitions, net sales in the
nine month period ended November 30, 1996 increased 8.3% to $289.9 million
from $267.7 million during the same period in the previous year. All product
lines shared in the sales increase with the exception of the refrigerant
product line. Refrigerant sales continued to decline during this period due to
the shift from higher priced chlorofluorocarbon ("CFC") refrigerants during
the same period in the previous year. All product lines shared in the sales
increase with the exception of the refrigerant product line. Refrigerant sales
continued to decline during this period due to the shift from CFC-based
refrigerants, the manufacture of which is banned by the Montreal Protocol, to
less expensive non-CFC refrigerants. Sales of all refrigerants decreased $1.5
million, or 3.9%, for the nine months ended November 30, 1996, compared to the
same period in the prior year, although the unit sales of refrigerant
increased.
Gross Profit. Gross profit during the nine months ended November 30, 1996
increased 15.8% to $72.0 million from $62.2 million during the same period in
the previous year. Excluding the effect of acquisitions, gross profit in the
nine month period ended November 30, 1996 increased 12.8% from the same period
in the previous year. The increase was due to a combination of the
aforementioned sales increases, a shift in sales from lower margin lines to
higher margin lines and less discounting to customers at the point-of-sale.
The gross profit percentage increased to 24.2% during the nine month period
ended November 30, 1996 as compared to 23.2% during the same period in the
previous year. The increase in gross profit percentage occurred due to a sales
shift from lower margin to higher margin lines, less discounting to customers
at the point-of-sale and improved terms from suppliers.
Warehousing, Selling and Administrative Expenses. Warehousing, selling and
administrative expenses during the nine month period ended November 30, 1996
increased 16.6% to $58.9 million from $50.5 million during the same period in
the previous year. Excluding the effect of acquisitions, warehousing, selling
and administrative expenses in the nine month period ended November 30, 1996
increased 13.4% from the same period in the previous year. This increase was
primarily due to increased distribution and selling costs related to increased
sales. Salaries and wages also increased as the Company added to its sales
force. Excluding the effect of acquisitions, the Company added 73 associates
from 1995 to 1996.
Operating Income. Operating income during the nine month period ended
November 30, 1996 increased 13.0% to $13.2 million from $11.7 million during
the same period in the previous year. Excluding the effect of acquisitions,
operating income in the nine month period ended November 30, 1996 increased
9.6% from the same period in the previous year. This increase was primarily
due to increased sales volume at higher gross profit percentages.
Interest Expense. Interest expense during the nine month period ended
November 30, 1996 decreased to $3.5 million as compared to $3.6 million for
the same period in the previous year. The Company successfully completed a
refinancing of the Credit Facilities, including the addition of the
Securitization Program (as defined herein), in early 1996, lowering the rate
of interest that it pays on its debt. See "Description of Certain
Indebtedness." The Securitization Program involved a sale of assets;
therefore, approximately $28.0 million of accounts receivable and related debt
are not reflected on the Company's balance sheet at November 30, 1996. The
Company also refinanced its subordinated debt in early 1996, achieving lower
rates of interest in the process. Interest expense, which includes interest
incurred under the Securitization Program, decreased despite a $12.3 million
increase in average borrowings, which includes amounts borrowed under the
Securitization Program that are not reflected on the balance sheet. The
average rate of interest on all debt for the nine months ended November 30,
1996 was 8.2% as compared to 10.6% for the same period in the previous year.
Income Taxes. The effective tax rate during the nine months ended November
30, 1996 was 19.3% compared to 17.8% during the same period in the previous
year. This rate is the result of the Company's use of alternative minimum tax
("AMT") credits and negative goodwill amortization, which is not taxable.
22
<PAGE>
YEAR ENDED FEBRUARY 29, 1996 COMPARED TO YEAR ENDED FEBRUARY 28, 1995
Net Sales. Net sales during the year ended February 29, 1996 increased 3.5%
to $334.5 million from $323.2 million during the previous year. In 1996 the
Company completed the closure of its unprofitable branches and turned its
focus to increasing Company revenues. Net sales for branches that were open at
the beginning and end of both years increased 4.7%.
A net sales increase of 8.7% was generated in the HVAC equipment segment
which offset flat revenue growth in the refrigeration segment and a continued
decline in refrigerant revenues of 7.3%. Net sales of supplementary parts and
components increased 7.3% as the Company increased the level of this type of
product stocked at the branches in 1996.
Gross Profit. Gross profit during the year ended February 29, 1996 decreased
to $79.2 million from $79.3 million during the previous year. The shift of net
sales into a higher mix of HVAC equipment, which typically has lower gross
profit margins than refrigeration equipment, put pressure on gross profits.
The gross profit percentage declined to 23.7% during the year ended February
29, 1996 as compared to 24.5% during the previous year.
Warehousing, Selling and Administrative Expenses. Warehousing, selling and
administrative expenses during the year ended February 29, 1996 increased 0.2%
to $69.4 million from $69.2 million during the previous year. In 1996, such
expenses included a non-recurring charge of $1.2 million for severance related
to the replacement of the former Chief Executive Officer of the Company. Net
of the non-recurring charge, expenses decreased $1.0 million. The decrease was
primarily due to efficiencies realized through the consolidation of management
information systems and centralization of administrative functions completed
in May, 1995.
Operating Income. Operating income during the year ended February 29, 1996
decreased to $9.8 million from $10.0 million during the same period in the
previous fiscal year. In 1996, operating income included a non-recurring
charge of $1.2 million as discussed above. Excluding the effect of such
charge, operating income increased 10.3% to $11.1 million during fiscal 1996,
and the Company's operating margin increased to 3.3% as compared to 3.1%
during the previous year.
Interest Expense. Interest expense during the year ended February 29, 1996
decreased to $4.7 million from $4.8 million during the same period in the
previous year. Average borrowings declined by $2.2 million during that period.
In March 1995, the Company negotiated a reduction in the interest rate on the
Credit Facilities and achieved lower rates of interest to offset the 1.2%
increase in the prime rate during this period. The Credit Facilities were used
to pay down some of the higher rate subordinated debt.
Income Taxes. The income tax provision for the year ended February 29, 1996
was a benefit of $1.4 million compared to a provision of $575,000 during the
same period in the previous year. The Company recorded a $1.8 million deferred
tax asset in 1996 in accordance with Statement of Financial Accounting
Standards No. 109, "Accounting For Income Taxes."
YEAR ENDED FEBRUARY 28, 1995 COMPARED TO YEAR ENDED FEBRUARY 28, 1994
Net Sales. Net sales during the year ended February 28, 1995 decreased 4.4%
to $323.2 million from $338.0 million during the previous year. The Company
closed 24 branches during 1994 and seven branches in 1995. The strategic focus
was directed towards cost reduction and profitability, resulting in a
reduction in the size of the Company's sales force and closure of unprofitable
branches.
Gross Profit. Gross profit during the year ended February 28, 1995 increased
to $79.3 million from $79.0 million during the previous year. Gross profit
percentage increased to 24.5% during the year ended February 28, 1995 from
23.4% during the previous year. The increase in gross profit percentage was
attributable, in part, to the Company's focus on more profitable sales and the
move away from large, low profit percentage bid jobs.
23
<PAGE>
Gross profit percentage also increased due to enhancements to the Company's
systems for controlling inventory, which resulted in a reduction of inventory
shrinkage.
Warehousing, Selling and Administrative Expenses. Warehousing, selling and
administrative expenses during the year ended February 28, 1995 decreased
$600,000 to $70.5 million from $71.1 million during the previous year. This
decrease was due to the elimination of costs associated with the closure of 24
branches in 1994. The Company also completed most of the consolidation of its
administrative functions, historically located in several offices throughout
the country, into one central location. Through the combination of branch
reductions, sales force reductions and administrative centralization, the
Company eliminated 110 associates from 1994 to 1995.
Operating Income. Operating income during the year ended February 28, 1995
increased 9.9% to $10.0 million from $9.1 million during the previous year.
This increase was a result of the sale of higher margin products and a
decrease in warehousing, selling and administrative expenses. The Company's
operating margin increased to 3.1% during the fiscal year ended February 28,
1995 as compared to 2.7% during the previous year.
Interest Expense. Interest expense during the year ended February 28, 1995
increased to $4.8 million from $4.6 million during the previous year. The
Company's average borrowings decreased $1.3 million during this period. The
increase in interest expense was attributable to a 1.5% increase in the
average prime rate in 1995 from 1994.
Income Taxes. The income tax provision during the year ended February 28,
1995 decreased to $575,000 from $585,000 in the same period in 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity needs arise from seasonal working capital
requirements, capital expenditures, interest and principal payments on debt
obligations and acquisitions. The Company has historically met its liquidity
and capital investment needs with internally generated funds and borrowings
under the Credit Facilities. For the nine months ended November 30, 1996, cash
from operating activities was $23.3 million compared to $2.7 million of cash
used in operating activities for the nine months ended November 30, 1995. The
increase in cash flows from operating activities was primarily due to the sale
of a substantial portion of the Company's accounts receivable under the
Securitization Program. See "Description of Certain Indebtedness." Net cash
used in investing activities was $28.9 million for the nine months ended
November 30, 1996, compared to $840,000 for the nine month period ended
November 30, 1995. The increase in cash used in investing activities was
primarily due to the acquisition of the net assets of Sid Harvey and Chase
and, to a lesser extent, increases in capital expenditures. For the nine
months ended November 30, 1996, cash provided by financing activities was $5.7
million ($3.5 million for the nine months ended November 30, 1995), reflecting
the net cash effect of the financing required for the Sid Harvey and Chase
acquisitions, as well as the repurchase of common stock and preferred stock
held by Generale Frigorifique SA ("GFF").
The Company's working capital decreased to $45.4 million at November 30,
1996 from $62.4 million at February 29, 1996, due principally to the sale of
the Company's accounts receivable as part of the Securitization Program (such
decrease being partially offset by an increase in working capital of $20.7
million due to the Sid Harvey and Chase acquisitions).
At November 30, 1996, the Company had borrowings of $62.3 million under the
Credit Facilities, of which $13.8 million was unused and available. The
Company's senior indebtedness consists of the Working Capital Facility and 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
that issues commercial paper on the Company's behalf. The weighted average
interest rate on the Credit Facilities at November 30, 1996 was 7.3%. This
rate fluctuates with the commercial paper and LIBOR rates. The Credit
Facilities expire in November 2001 and have no principal payment requirements
prior to that
24
<PAGE>
date. The Company intends to repay a portion of the Working Capital Facility
with the net proceeds of the Offering. See "Use of Proceeds." Following
consummation of the Offering, the Company expects to have available
approximately $47.0 million of unused credit under the Credit Facilities. See
"Description of Certain Indebtedness."
In addition to the Credit Facilities, at November 30, 1996, the Company had
$27.0 million of indebtedness to certain members and an affiliate of the
Investor Group, all of which will be repaid from the proceeds of the Offering.
See "Use of Proceeds."
The Company's capital expenditures, excluding acquisitions, for the nine
months ended November 30, 1996 were $1.5 million as compared to $875,000 for
the nine months ended November 30, 1995. Such capital expenditures were
primarily for branch and distribution center leasehold improvements, forklifts
and delivery vehicles and computer equipment and software. Prior to fiscal
1997, the Company limited capital expenditures while it closed certain
branches. The increase in such expenditures reflects the necessary investments
in fixed assets to position the Company for its growth plans. Capital
expenditures for fiscal 1998 are expected to total approximately $2.6 million.
Substantially all of the increase over fiscal 1997 is due to the Company's
planned investment in supply chain software and capital expenditures for newly
acquired branches.
Management believes that, following the Offering, the Company will have
adequate resources and liquidity to meet its borrowing obligations, fund all
required capital expenditures and pursue its business strategy for existing
operations. However, the Company may require additional funding in order to
pursue significant acquisition opportunities. Future acquisitions may be
financed by bank borrowings, public offerings or private placements of equity
or debt securities or a combination of the foregoing. Such financings may
require the consent of the Company's existing lenders. There can be no
assurance that the Company will be able to obtain such funds to finance
significant future acquisitions or that the consent of its lenders to obtain
such funding will be forthcoming. Acquisitions funded by the issuance of
equity securities could result in substantial dilution to the Company's then
existing shareholders.
INFLATION
The rate of inflation as measured by changes in the average consumer price
index has not had a material effect on the sales or operating results of the
Company. However, inflation in the future could affect the Company's operating
costs.
25
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BUSINESS
OVERVIEW
Pameco is one of the largest distributors of heating, ventilation and air
conditioning ("HVAC") systems and equipment and refrigeration products in the
United States, with predecessor corporations dating back to 1931. The Company
stocks more than 65,000 SKUs to service more than 45,000 customers through a
national network of 297 branches in 44 states and Guam located in 76 of the
top 100 SMSAs in the country. The Company's products include a complete range
of central air conditioners, heat pumps, furnaces and parts and supplies for
the residential market, and condensing units, compressors, evaporators,
valves, walk-in coolers and ice machines for the commercial market. In fiscal
1996, the Company's HVAC business generated approximately 54.0% of its
revenues, while the refrigeration business generated the balance. In fiscal
1996, Pameco derived over 80.0% of its revenues from the repair and
replacement market, which is higher margin and less cyclical than the new
construction market due to end-users' needs for immediate service and expert
technical advice. The new construction market generated the balance of
Pameco's revenues. Management believes that Pameco is the only company in the
United States which offers a complete line of HVAC and refrigeration products
on a significant scale on a nationwide basis.
Pameco attributes its leadership position in the HVAC and refrigeration
industries primarily to its operating philosophy. The Company emphasizes
personalized customer service and convenient "one-stop" shopping to meet each
customer's total needs at the local and national level. The Company's
technical service representatives, who provide customers with expert technical
advice in diagnosing problems and recommending solutions, are an essential
element of the Company's customer service. Pameco operates under a centralized
management structure and offers substantial incentive compensation to its
executive officers and division and branch managers. Additionally, the Company
believes that its size, its financial resources and its position as a national
distributor of HVAC and refrigeration products allow it to provide superior
customer service by offering immediate access to a complete product line of
equipment, parts and supplies through its 297 branches and six regional
distribution centers.
The Company's strategic objective is to continue to grow profitably in both
existing and new markets through the acquisition of branches and the opening
of new branches, as well as through increasing sales and profitability at
existing branches. The Company began an active acquisition program in 1996 to
capitalize on consolidation opportunities presented by the substantial size
and highly fragmented ownership structure of the HVAC and refrigeration
markets. Management believes Pameco is well-positioned to take advantage of
this fragmentation given the Company's breadth of product offerings, its
national presence and its proven ability to acquire and integrate new
branches, as demonstrated by its recent acquisitions. The Company's
acquisition strategy is to acquire profitable distribution businesses with
well-developed market positions and desirable supplier franchises. The Company
has focused and will continue to focus principally on acquisitions in
geographic areas not currently served by the Company, with the goal of
achieving greater geographic diversification and adding product lines,
customers and associates. Pameco will also pursue opportunities to strengthen
its position in existing markets by acquiring new branches within existing
geographic markets.
THE INDUSTRY
Based upon an industry report, management estimates that sales in the
residential heating and cooling equipment and commercial refrigeration markets
(excluding product markets in which the Company does not compete) totaled
approximately $8.1 billion and $2.8 billion, respectively, in 1996. The
combined $10.9 billion industry includes equipment, parts and supplies
distributed by wholesalers and by OEMs' captive distribution arms, but
excludes HVAC systems sold for use in large commercial projects and
refrigeration products sold in the residential market. Companies engaging in
the HVAC and refrigeration repair and replacement markets sell their products
primarily through local branches for their customers' convenience and timely
access to products. Management estimates that there are 8,100 HVAC and
refrigeration distributors in the United States operating from approximately
11,000 locations nationwide. Management believes that a significant percentage
of these distributors are small, owner-operated businesses operating in single
geographic areas and providing a more limited range of products and services.
Based upon the industry report and the Company's fiscal 1997 revenues,
management estimates that Pameco's cumulative U.S. market share in its
industry sectors is between three and four percent and that no independent
distributor has a significantly greater share of this combined market on a
nationwide basis.
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Given the fragmentation of the market, management believes that the
Company's industry is well-positioned for consolidation. In particular,
management believes that many of the smaller distributors in its industry are
finding it increasingly difficult to compete in the current market because
they generally lack the financial resources of larger entities and thus are
unable to offer broad product lines and multiple brands and may not possess
sophisticated inventory management and control systems necessary to operate
multiple branches effectively or the ability to invest significant resources
in the information technology necessary to improve inventory flow. In addition
to the trend toward consolidation, management believes other important trends
within the industry include: (i) an increased presence of large customer
buying groups, forcing a competitive bidding process, while creating
opportunities to sell to new and large national accounts; (ii) the increased
importance of immediate availability of products; (iii) the attempt by many of
the smaller distributors to identify exit strategies for their business and
(iv) the proliferation of products and parts.
HVAC and refrigeration systems share many of the same characteristics,
including related markets, similar service requirements, including the need
for immediate availability of parts and supplies, common parts (such as
compressors) and often the same customers. According to Pameco's customer
surveys, most of the Company's customers provide both HVAC and refrigeration
repair and replacement services. Both HVAC and refrigeration customers also
require expert technical assistance in diagnosing problems and conceiving
solutions.
HEATING, VENTILATION AND AIR CONDITIONING
Based upon an industry report, management estimates that sales in the
residential heating and cooling equipment industry totaled approximately $8.1
billion in 1996 (excluding product markets in which the Company does not
compete) and have been growing at an annual rate of approximately seven to
eight percent. This growth was driven primarily by accelerated replacement
demand, due to an aging stock of existing homes which have antiquated heating
and cooling systems, aftermarket growth stimulated by federal efficiency
standards, increasing export demand, improved pricing stability for energy
sources and increased demand for integrated comfort air conditioning systems.
The HVAC product distribution industry is highly fragmented. Management
estimates that there are approximately 5,300 HVAC distributors in the United
States operating from 7,600 locations, most of which are smaller, local
distributors. As a result of their smaller size, many of the local or regional
distributors generally lack the purchasing power of larger entities, may lack
the resources to offer broad product lines and multiple brands, may not
possess sophisticated inventory management and control systems necessary to
operate multiple branches effectively and may not be able to invest
significant resources in technology which is necessary to improve inventory
flow. Further, the Company believes that a majority of independent
distributors focus on a particular size or type of customer or a particular
product line. The Company believes that the growing recognition of the high
costs and operational inefficiencies associated with purchasing HVAC products
from these smaller distributors has increased market demand for alternative
methods of distribution. As one of the largest independent HVAC wholesalers,
and a leader in the movement toward industry consolidation, management
believes that Pameco is well positioned to take advantage of these trends.
Residential and light commercial HVAC products are sold to the repair and
replacement and new construction markets. The repair and replacement market
has increased substantially over the past ten years as a result of the aging
of the installed base of HVAC products, the introduction of new energy-
efficient models and the upgrading of many existing buildings and homes to
central heating and air-conditioning. The Company anticipates the repair and
replacement market for HVAC parts and equipment will continue to expand even
further, as a large number of heating and cooling products installed in the
housing booms of the 1970s and 1980s become outdated or reach the end of their
useful lives. The typical service life for equipment such as that marketed by
the Company ranges from eight to 15 years, depending upon the type of
equipment, the volatility of local weather patterns and installation location.
In addition, management believes the growth of the repair and replacement
market for HVAC products may be spurred further by consumers' desire to
replace older systems with more technologically advanced, efficient models in
order to conserve energy and take advantage of the increasing number of
utility companies offering incentive programs to replace older equipment.
27
<PAGE>
In certain markets, some manufacturers compete directly with wholesale
distributors for HVAC equipment sales. These manufacturers maintain their own
branches and a dedicated sales force to distribute HVAC equipment and parts
directly to contractors and service technicians. Manufacturer-owned branches
typically feature product offerings centered around the manufacturers'
equipment and target a particular customer base.
REFRIGERATION
Based upon an industry report, management estimates that the U.S. market for
commercial refrigeration products (excluding product markets in which the
Company does not compete) totaled approximately $2.8 billion in 1996. The same
report estimates that nationwide demand for commercial refrigeration equipment
will increase approximately five to six percent annually through the year 2001.
Although the commercial refrigeration equipment industry is growing at a slower
rate than the HVAC market, refrigeration products generate higher margins due
to the frequent immediate need for repair and the technical expertise required
in this sector. The refrigeration equipment distribution industry is a mature
market, consisting of a large number of repeat purchases, little product
differentiation, limited technological innovation and heavy reliance upon
suppliers and distributors. Demand for commercial refrigeration equipment
derives from a variety of sources, including food and beverage services and
various medical storage operations.
Sales of new refrigeration equipment are typically made by OEMs through their
dedicated sales forces. Sales in the repair and replacement market are
typically made by wholesalers and distributors, which have the ability to
deliver a wide variety of products on an immediate basis. In certain
situations, OEMs have determined that independent distributors can better
service the needs of their small and local customer base. In these instances,
OEMs have worked with wholesalers to establish programs that enable wholesalers
to profitably address the needs of these customers. Other manufacturers
continue to maintain their own sales force.
While normal replacement of aging equipment and new commercial construction
activity principally determine the sales of new refrigeration equipment,
increased demand for refrigeration products could also be driven by end-users'
desire to replace equipment containing CFCs, remodeling due to upgrades and the
sale of new specialty applications. Regulations established at the Montreal
Protocol in 1992 required the phase-out of CFC refrigerant products by 1995.
Accordingly, management believes that a significant portion of the installed
commercial refrigeration systems in the United States are CFC-based and will
have to be replaced or retrofitted by systems which use non-CFC refrigerants
over the next two decades. Thus, management believes demand for replacement
parts and supplies should remain strong for the near- to medium-term,
regardless of economic conditions.
Repair, replacement and maintenance of refrigeration systems depends to a
large extent on their use and the systems' "mean time between failures"
("MTBF"). As a result of improvements in design and production, the MTBF for
many new models has been extended by one to two years. However, the large
installed base in the United States requires extensive service and repair. Many
of the systems currently in place were installed during the construction booms
of the 1970s and 1980s; consequently, these systems are not likely to be
completely replaced for some period. Instead, these systems will require
regularly scheduled maintenance and repair, where margins are higher. Unlike
the demand for HVAC systems, which is seasonal in nature, sales of
refrigeration replacement parts and equipment tend not to be influenced
significantly by seasonal fluctuations, due to the perishable nature of the
goods being stored.
While the commercial refrigeration equipment market is expected to grow at a
five percent annual rate, the market for refrigerants is expected to remain
flat in volume terms and to decline in dollar terms, due to recent
environmental initiatives regarding the production and use of CFCs. See "--
Government Regulations and Environmental Matters." Nevertheless, as discussed
above, the broad decline in CFC-based product demand is expected to be
partially offset by an expansion of the market for non-chlorine based
fluorochemicals as manufacturers and customers replace older, CFC-based
equipment and refrigerants with new non-CFC alternatives.
28
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BUSINESS STRATEGY
The Company has invested considerable time and resources building its
national reputation and leveraging the goodwill of local branches that the
Company has developed or acquired. The Company has recently hired a new Chief
Executive Officer and four highly qualified senior managers in sales,
operations, logistics and management information systems to assist in the
implementation of the Company's operating strategy. The Company is pursuing the
following strategy to enhance growth and increase profitability:
Expansion by acquisition. The Company launched a targeted acquisition
strategy in 1996 as a consolidator in the HVAC and refrigeration distribution
industries. In the past 12 months, the Company has acquired 59 branches in ten
states, increasing the total number of its branches by over 20.0%. Pameco is
able to maximize its return on investment in new branches and obtain
incremental revenues and operating income with minimal incremental
administrative expenses, due to economies of scale made possible by the
Company's prior investment in its sales, operations, logistics and management
information systems infrastructure. Further, by geographically diversifying its
source of revenues, management believes the Company is less susceptible to
economic slowdowns or adverse weather conditions which may occur in particular
regions of the country.
The Company's specific consolidation strategy is to acquire profitable
distribution businesses with well-developed market positions and supplier
franchises. Acquisitions can generally be categorized as new market
acquisitions or fill-in acquisitions. New market acquisitions represent the
entry into new geographic markets for the Company or the addition of new
product lines, or both. Fill-in acquisitions generally represent new branches
within the Company's geographic markets. The Company has focused primarily on
new market acquisitions, with the goal of achieving greater geographic
diversification, adding product lines, increasing sales to the repair and
replacement market (which tends to be less cyclical than the new construction
market), adding customers and associates and developing additional
opportunities for fill-in acquisitions and new branch openings. In particular,
the Company intends to expand geographically within the top 100 SMSAs.
The Company believes acquisitions increase its earnings more effectively than
expansion by opening new branches due to the acquisition of existing customers
and trained associates. The Company believes it can increase the sales,
profitability and asset productivity of acquired branches by converting them to
its business model. Following consummation of acquisitions, the Company
generally begins to eliminate redundant product lines, conform inventory
practices to the Company's strategy, centralize administrative functions and
install the Company's management information systems. In this regard, the
Company's senior management has significant experience in integrating acquired
businesses into a nationwide business.
Emphasis on "one-stop" shopping and immediate product and service
availability. Management believes that Pameco provides added value to its
customers by providing superior customer service and immediate access to a
complete line of industry-recognized brand names and private label equipment,
parts and supplies from numerous manufacturers through its branches and
distribution centers. The Company stocks over 65,000 SKUs at its branches and
distribution centers and offers customers access to over two million SKUs. In
order to provide customers immediate access to products, the Company stocks
inventory representing over 75.0% of its sales at its branches. Pameco believes
its ability to provide immediate access to a wide range of products,
particularly in the refrigeration business, where equipment repair is often
time-sensitive, has helped the Company to establish a reputation as the "one-
stop" shop for HVAC and refrigeration products. In addition, Pameco provides
its customers with assistance in making intelligent purchases through the
Company's well-trained technical service representatives and counter personnel.
Management believes that its extensive product offerings and knowledgeable
associates help maintain an extensive and loyal customer base.
Pursue regional and national customers. The Company is focused on
opportunities to serve existing and prospective customers on a multi-regional
or national basis, which it believes represents a significant growth
opportunity. In particular, the Company believes that its nationwide coverage
and broad product lines enable it to provide multi-regional and national
accounts with consistent service, greater purchasing leverage, improved
inventory management and centralized billing. This strategy is designed to
complement the Company's established relationships with its local and regional
customers. Management believes the new ThermalZone(TM)
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<PAGE>
private label line of HVAC equipment and parts, which Pameco introduced in
September 1996, will further increase the Company's national account
opportunities. The Company believes that ThermalZone(TM), a nationally
available, standardized HVAC product line, will provide large accounts with
greater consistency in price, availability and quality.
The Company has also focused on customer awareness as part of its operating
strategy to better serve customers at the local, regional and national levels.
By improving its knowledge of customer needs, the Company is better positioned
to anticipate product demands at specific times. Moreover, most customers
historically have not focused on consolidating their own purchasing efforts
until presented with specific proposals. By educating its customers on the
benefits of consolidation, Pameco has been able to expand the scope of many of
its accounts to a regional or national level. These initiatives, combined with
the Company's national sales capability, differentiate the Company from most of
its competitors, many of which are unprepared to service large regional or
national accounts.
Continued focus on higher margin repair and replacement market. The Company
continues to focus on the higher margin repair and replacement market, from
which Pameco derived over 80.0% of its revenues in fiscal 1996. The repair and
replacement market has increased substantially over the past ten years as a
result of the aging of the installed base of HVAC products, the introduction of
new energy-efficient models and the upgrading of many existing buildings and
homes to central heating and air-conditioning. This installed product base
represents a significant market in terms of recurring revenues, as customers
are continually replacing a percentage of the installed base of equipment each
year. In the refrigeration market, by focusing sales on products used for
repairs, which typically cannot be postponed, the Company's revenues tend to be
less dependent upon national economic cycles.
Operating improvements through supply chain and cost structure
management. Pameco will continue to invest significant resources in its
management information systems. Management believes these systems will allow
the Company to achieve improvements in inventory control and cost management,
and, together with supply chain software to be acquired later this year, will
improve the Company's supply chain strategy, as decisions relating to
purchasing, inventory management and logistics will be more effectively
coordinated. All branches are equipped with computer systems that have the
ability to monitor inventory levels to ensure timely inventory orders and to
guard against unexpected stock shortages. Management believes that improved
distribution practices should reduce the Company's cost per SKU handled and,
over time, increase the Company's inventory turns and fill rate percentages.
Margin enhancement focus. The Company is currently implementing several
measures in an effort to enhance its margins and reduce transaction costs.
These measures include system-related pricing enhancements, such as pricing
discipline through the limitation of discounts at the point-of-sale, and
improved performance from underperforming branches through internal
benchmarking. Additionally, the Company believes it will realize efficiencies
in cost control through the Company's management information system and
logistics network, as well as through improved supply chain dynamics.
PRODUCTS
HEATING, VENTILATION AND AIR CONDITIONING
Pameco generated approximately 54.0% of its revenues in fiscal 1996 from
distributing and wholesaling HVAC equipment, parts and supplies. The Company
distributes a complete range of central air conditioners, heat pumps,
combination gas and electric units, packaged terminal air conditioners and gas,
electric and oil furnaces for the residential and light commercial markets.
Pameco's HVAC systems are suitable for use in multi-family residences, single
family homes, hotels, hospitals, schools, stores and other residential and
light commercial buildings. The Company seeks to provide every product a
contractor generally would require in order to install or repair a residential
or light commercial HVAC system. In fiscal 1996, more than 80.0% of the
Company's HVAC revenues were derived from sales of replacement, repair and
maintenance parts and supplies. The Company also intends to expand sales of its
new ThermalZone(TM) private label line of HVAC equipment and parts, which it
introduced in September 1996. Management believes the ThermalZone(TM) line will
further increase
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national account opportunities, because it provides large accounts with greater
consistency in product, price, availability and quality.
In fiscal 1996, the Company generated over 70.0% of its HVAC revenues from
sales of products to contractors working on residences. Due to the similarity
of heating and cooling systems for houses and small commercial enterprises,
such as convenience and other strip center stores, restaurants and selected
office buildings, the Company has been able to diversify its end-user base. The
Company currently faces little competition from home centers, hardware stores
or direct mail order catalogue businesses which cater to this market, due to
the extensive number of required parts, licensing requirements for installers
of HVAC equipment and the limited ability of these entities to provide
technical service assistance with more complex systems.
REFRIGERATION
Pameco generated approximately 46.0% of its revenues in fiscal 1996 from
selling parts, systems and supplies for use in commercial refrigeration
systems. Pameco offers all of the necessary components of a new system,
including condensing units, compressors, evaporators, valves, regulators,
tubing, copper pipes, walk-in coolers and refrigerant. The Company also
provides valuable technical advice to customers through its technical service
representatives. This expertise is especially important in the refrigeration
industry, where specialized knowledge is more significant to the customer. In
addition, products may spoil if repairs are not performed quickly and properly.
More than 80.0% of the Company's refrigeration revenues in fiscal 1996 were
generated from repair and replacement applications. Slightly more than half of
the Company's revenues in this segment are generated from distribution of
replacement compressors for use by grocery stores, convenience stores,
restaurants and other similar commercial enterprises. Given the change in
refrigeration products, new technology and installed product obsolescence, much
of this demand results from replacement of existing systems, and therefore it
remains fairly constant. However, Pameco has also experienced some additional
growth in other segments, as grocery and convenience stores remodel to address
the phase-out of CFC-based refrigerant products mandated by recent government
regulations. See "--Government Regulations and Environmental Matters."
DISTRIBUTION CENTERS AND BRANCH OPERATIONS
The Company currently operates six regional distribution centers located in
Denver, Colorado; Houston, Texas; Louisville, Kentucky; Orlando, Florida;
Pennsauken, New Jersey and Stockton, California. The Louisville, Kentucky
center, which is located in close proximity to United Parcel Service's main
distribution hub, also serves as a national distribution center for slower
moving SKUs. The strategic location of these centers was determined based upon
an extensive analysis of sales and branch concentrations, transportation
routes, supplier locations and personnel considerations. The Company's
distribution centers contain an aggregate of 600,000 square feet of storage
space.
Substantially all of the Company's sales originate from its 297 branches,
which are located in 44 states and Guam. The following table lists the number
of branches within each region of the country and the major SMSAs served within
that region as of March 1, 1997:
<TABLE>
<CAPTION>
REGION MAJOR SMSAS BRANCHES
<S> <C> <C>
Southern................ Atlanta, Miami, Orlando, Tampa 111
Northcentral............ Boston, Chicago, Detroit, New York, Philadelphia, Washington, D.C. 72
Southwestern............ Austin, Houston, Phoenix, San Antonio 59
Western................. Los Angeles, San Francisco, Seattle 55
</TABLE>
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Operations and distribution personnel monitor each distribution center and
branch's inventory levels and mix based upon historical and estimated sales
patterns and work closely with Pameco's sales personnel to determine which
types of products and corresponding brands are most likely to sell in a
particular area. Each branch typically maintains an inventory of between 3,000
and 6,000 of the most frequently purchased SKUs in that region of the country,
known in the industry as "A" items. In addition, the Company stocks up to
65,000 SKUs at its central or regional distribution centers, which can be
delivered on a next-day basis. Further, Pameco has access to over two million
slower moving or infrequently purchased SKUs which generally are not required
on an immediate basis.
Pameco manages its inventory to mirror the seasonal demand for its products.
Given the nature of HVAC systems, the sale and distribution of products tends
to be dependent upon seasonal conditions. Also, while a particular region may
have the need for both air conditioning and heating systems, the use of each
will vary dramatically by area of the country, with different failure rates and
average periods for repair. The stress that many of these systems undergo
during periods of temperature extremes and volatile weather causes failures and
leads to increased repair and replacements. In addition, the types of heating
used (gas, electric or oil) also varies considerably by region. The Company
caters to multiple systems across the country through its distribution
management systems.
Each branch is operated under the Pameco tradename, although many acquired
branches use the Pameco name in conjunction with their original name in order
to maintain customer relationships and local name recognition. Each branch has
between 3,000 and 20,000 square feet of space, with approximately 80% of that
space used for inventory storage. The remaining square footage is used to
merchandise the products distributed through the branch. The Company typically
locates its branches with convenient access to highways servicing a large
number of contractors and other suppliers.
SUPPLIERS AND CUSTOMERS
SUPPLIERS
The Company's size and stature in the HVAC and refrigeration industries, as
well as its strong and long-standing supplier relationships, enable the Company
to obtain favorable terms from its suppliers. Additionally, while suppliers
have traditionally resisted granting distribution rights on a national level,
due to the Company's size and growth through recent acquisitions, Pameco has
recently been granted nationwide distribution rights for certain product lines.
Management believes that as the Company continues to grow additional suppliers
may grant the Company broader distribution rights.
The Company believes that it has good relationships with its suppliers and
that these relationships have been strengthened by the Company's recent
acquisitions. However, a significant portion of the Company's distribution
arrangements with its suppliers are oral. Further, many of these distribution
rights may be terminated by the supplier immediately or upon short notice.
During fiscal 1997, the Company purchased approximately $305.0 million of
equipment for resale, of which approximately 59.0% was obtained from its top
five suppliers, while the 25 largest suppliers accounted for approximately
87.0% of total purchases. No single supplier accounted for more than 19.0% of
the Company's total purchases.
CUSTOMERS
The Company currently serves over 45,000 customers, with no single customer
accounting for more than two percent of the Company's total sales and with the
top ten customers representing less than seven percent of total sales in fiscal
1997. Management believes that Pameco's close relationship with its customers
is as critical to its success as parts availability and competitive pricing.
Consequently, Pameco has gone to great lengths to maintain and enhance these
relationships. A customer survey conducted by Pameco in the spring of 1996
identified the needs of the current customer base. Based on this survey, in
addition to parts availability and
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selection, customers ranked trustworthiness, relationship with store staff and
the staff's technical knowledge as key determinants in where they conduct
business. Price often may be of secondary importance.
MARKETING AND SALES
Historically, Pameco had not employed a consistent marketing and sales
strategy. Since the spring of 1996, however, the Company has employed a
proactive approach to customer relationships in order to facilitate growth at
the local, regional and national level. Management believes this new approach
is responsible in part for the increase in revenues in fiscal 1997 over fiscal
1996. The Company's focused marketing and sales approach includes the following
strategies:
The Company attempts to build on its long-lasting relationships with
customers at the local and regional levels in order to expand existing business
relationships. The Company's national account sales personnel call on the
corporate headquarters of multi-regional and national firms that are already
customers on the local level. The Company believes this approach is attractive
to national accounts because it provides these customers with simplified
billing and pricing, while allowing their local representatives to continue to
receive a high level of service at the Company's local branches.
The Company recently began placing specific emphasis on expanding to a
national level its sales to large local and/or multi-branch customers that have
minimum annual purchases of $100,000, a segment representing approximately
14.0% of Pameco's annual revenues, through development of the Company's "Key
Account" program. In calendar 1996, Key Accounts generated $45.6 million of
revenue for the Company. While these Key Accounts, such as certain national
supermarket chains, tend to place greater emphasis on service, consistency and
price considerations than do local customers, most historically had not focused
on consolidating their own purchasing efforts until the Company presented them
with specific proposals. The Company's representatives market the benefits of
consistent service, greater purchasing leverage, improved inventory management
and centralized billing through the expansion of existing accounts. The Company
believes that these initiatives, combined with the Company's national sales
capability, differentiate the Company from most of its competitors, many of
which do not have the national presence to service large multi-regional and
national accounts.
The Company believes that ThermalZone(TM), a nationally available
standardized HVAC product line, provides an additional method for Pameco to
target national accounts and provide them with uniform price, availability and
quality. As a result of the Company's ThermalZone(TM) arrangement, management
believes that Pameco is the only independent distributor with effective
national rights to sell a particular branded product of air conditioning
equipment. Since its introduction in September 1996, the Company has seen
considerable volume in ThermalZone(TM) products, with little reduction in sales
of its other product offerings. Management believes that this development, in
conjunction with the Company's recent branch acquisitions, solidifies Pameco's
position as a leading distributor in the HVAC industry. The Company is
exploring opportunities for a similar private label arrangement for
refrigeration products.
On the local level, the Company employs approximately 1,000 sales and
service-related associates in order to market and sell effectively to its
45,000 customers. Pameco supports these selling efforts with external
advertising and promotional expenditures of approximately $5.0 million per
year. For example, in March 1997, Pameco began a telemarketing program, which
includes pre-approved credit lines, promotional discounts and a follow-up
contact with existing and potential customers, to enhance its relationship with
its existing customers and attract new customers. The Company also promotes its
services at the local level primarily in telephone directories, as well as by
direct mail and advertising in newspapers and on local television and radio.
Each branch manager determines the frequency and type of advertising in the
local market. In addition to its principal marketing methods, the Company is
producing an Internet web page that is expected to describe the Company's
branches, product lines and equipment available for sale and allow customers to
order products without visiting a branch.
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<PAGE>
MANAGEMENT INFORMATION SYSTEMS
The Company's management information systems are instrumental in allowing
Pameco to lower costs, accelerate growth, increase market share and otherwise
position the Company as a leader in its HVAC and refrigeration businesses. The
Company's systems support its three main types of operations: headquarters,
distribution centers and branches. Each of these operations are linked together
through a combination of wide and local area networks.
Headquarters systems support the information processing needs of senior
management, the corporate office staff and regional managers, and provide
enterprise-wide consolidated information at the branch, regional, divisional
and Company levels. These systems include financial applications such as
general ledger, accounts payable, accounts receivable, inventory management and
materials management, as well as nonfinancial applications such as sales and
service support, pricing, telemarketing, electronic data interchange and
database. These systems generate daily operating control reports that provide
concise and timely measurement of key aspects of the business, enabling
management to achieve cost savings, deliver superior customer service and
manage the Company's operations centrally.
Distribution centers are connected to the Company's headquarters' information
systems through dedicated telephone lines and are on-line to key applications
systems such as materials management and inventory. Real-time connectivity to
this information enables each distribution center access to the most timely
management and control information for purchasing, inventory, distribution,
stock balancing, order fulfillment and other measurements of performance.
Branches utilize a point-of-sale ("POS") system that operates on a local area
network in each facility. The POS system includes sales/order processing,
customer management, accounts receivable, inventory management, distribution
and pricing support. The POS system communicates daily with headquarters'
systems to transfer customer, sales and inventory transactions and receive file
and data updates from headquarters and distribution centers.
To support the Company's acquisition strategy, the Company has developed a
methodology to facilitate the timely integration of acquired branches into its
MIS environment and communications network. For MIS, the acquisition process
begins with planning at the time the acquisition target is identified,
assessing and determining the requirements for conversion to the POS and other
financial systems. The result of this process is the timely, complete and
accurate conversion of the acquired branches' data, and the speedy
implementation of store/POS information systems and applications.
The Company intends to implement major improvements to its headquarters
systems and communications networks. The Company also intends to purchase new
supply chain software that will upgrade current inventory and materials
management software, provide greater connectivity with suppliers and customers,
and further automate inventory, warehouse and materials management functions.
Additionally, certain improvements in telecommunications are being implemented
that will enable faster and less expensive communications between headquarters,
distribution centers and branches. See "Risk Factors--Dependence on Information
Systems."
COMPETITION
The Company's business is highly competitive and fragmented. The Company
competes with a wide variety of traditional HVAC and refrigeration product
distributors in each of the Company's geographic markets. Most such
distributors are small enterprises maintaining between one and ten branches and
selling to customers in a limited geographic area. The Company also competes to
some extent with the manufacturers of HVAC and refrigeration products, although
management believes these manufacturers cannot compete effectively with the
broad product lines and additional services offered by distributors, such as
the Company. The primary factors of competition within the Company's industries
include breadth and quality of product lines distributed, ability to fill
orders promptly, technical knowledge of sales personnel and, in certain product
lines, service capability and price. In general, the Company believes that
national and multi-regional wholesalers, such as the Company, enjoy
34
<PAGE>
substantial competitive advantages over small, independent wholesalers that
cannot afford to maintain Pameco's comprehensive product offerings. The Company
believes that its ability to compete effectively is dependent upon its ability
to respond to the needs of its customers through quality service and product
availability.
Management believes the Company's geographic diversity, service capabilities,
marketing focus, product availability and national scale compare favorably to
those of its significant competitors. However, competitive pressures or other
factors could cause the Company's products or services to lose market
acceptance or result in significant price erosion, all of which would have a
material adverse effect on the Company's business and results of operations.
See "Risk Factors--Competition."
GOVERNMENT REGULATIONS AND ENVIRONMENTAL MATTERS
The Company's operations are subject to federal, state and local laws and
regulations relating to the generation, storage, handling, emission,
transportation and discharge of materials into the environment. These include
laws and regulations implementing the Clean Air Act, relating to minimum energy
efficiency standards of HVAC systems and the production, servicing and disposal
of certain ozone depleting refrigerants used in such systems, including those
established at the Montreal Protocol in 1992 concerning the phase-out of CFC-
based refrigerants. Management believes that the Company is in substantial
compliance with all applicable federal, state and local provisions relating to
the protection of the environment. The Company is also subject to regulations
concerning the transport of hazardous materials, including regulations adopted
pursuant to the Motor Carrier Safety Act of 1990.
HEADQUARTERS AND PROPERTIES
The Company's corporate headquarters are located in Norcross, Georgia and are
occupied pursuant to a lease that expires in July 2003. The Company believes
that its current office space is sufficient to meet its present needs and does
not anticipate any difficulty securing additional space, as needed, on terms
acceptable to the Company.
Pameco leases all six of its distribution centers pursuant to agreements
expiring from five to 15 years. See "--Distribution Centers and Branch
Operations." The Company operates 297 branches in 44 states and Guam. Pameco
owns five of its branches and leases the other 292. The Company's branch leases
have terms expiring from one to seven years, with its leases typically having
renewal options. Management believes that none of Pameco's leased facilities,
individually, is material to the Company's operations.
TRADEMARKS
The tradenames "Pameco," "ThermalZone" and "Gift of Warmth" and related
design logos are actively used and are significant to the Company's business.
All of these marks have been registered on the Principal Register of the United
States Patent and Trademark Office.
INSURANCE
Pameco currently maintains the types and amounts of insurance coverage that
it considers appropriate for a company in its business. While management
believes that the Company's insurance coverage is adequate, if the Company were
held liable for amounts exceeding the limits of its insurance coverage or for
claims outside of the scope of its insurance coverage, the Company's business
and results of operations could be materially and adversely affected.
ASSOCIATES
As of February 28, 1997, Pameco employed approximately 1,300 associates, 170
of whom were employed primarily in management and administration, 90 in
regional distribution centers and 1,040 in sales and field operations. Pameco
expects that it will increase the number of its associates as it opens
additional branches and otherwise expands its business. The Company's
associates are not subject to any material collective bargaining agreements,
and management believes that its relationship with its associates is good.
35
<PAGE>
LEGAL PROCEEDINGS
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 oral contract to purchase Sid Harvey's
southeastern business operations (the "Southeastern Assets"). United asserted
that beginning on or about August 23, 1996, it met with Sid Harvey and
thereafter negotiated an agreement (allegedly finalized on or about October 24,
1996) to purchase the Southeastern Assets for approximately $26 million and
that Pameco tortiously interfered with this alleged oral contract by offering
"substantial inducements" to Sid Harvey and by itself purchasing the
Southeastern Assets. In the alternative, United claims that, should the oral
agreement be deemed unenforceable, Pameco tortiously interfered with United's
prospective contractual relations with Sid Harvey.
On February 18, 1997, United filed an amended complaint adding Sid Harvey as
a defendant. In the amended complaint, United claims that Sid Harvey (i)
breached its oral agreement to sell the Southeastern Assets to United; (ii)
committed fraud in the inducement of that alleged oral 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 exceed $3.0 million annually for an
unspecified number of years. On March 17, 1997, Sid Harvey filed a motion to
dismiss each of these new claims or, in the alternative, for summary judgement
on the breach of contract claim. Upon consummation of the Southeastern Assets
acquisition, Pameco agreed, based on certain written representations made by
Sid Harvey about the status of its discussions with United, to indemnify Sid
Harvey against all liabilities arising out of any action filed by United in
connection with the purchase of the Southeastern Assets. The Company believes
that United's claims lack merit and intends to defend itself vigorously in this
litigation.
On July 5, 1996, three former employees filed suit against Pameco and a
Company supervisor in the Superior Court of the State of California, County of
Stanislaus, alleging various tortious acts and that the Company maintained a
hostile work environment. The suit also asserts that in permitting the alleged
harassment of the plaintiffs by its supervisor, Pameco violated the California
Fair Employment Housing Act by failing to provide a harassment free work place.
The plaintiffs have cumulatively sought $1.8 million in damages, including $1.5
million in punitive damages, from Pameco. The Company believes that these
claims lack merit and intends to defend itself vigorously in this litigation.
In addition, the Company is, from time to time, a party to other litigation
arising in the normal course of its business. Management believes that none of
these actions, individually or in the aggregate, will have a material adverse
effect on the Company's business and results of operations.
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Certain information regarding the directors and key employees of the Company
is set forth in the table below.
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
James R. Balkcom, Jr. .. 52 Chairman of the Board
Gerald V. Gurbacki...... 51 Chief Executive Officer and Director
Charles A. Sorrentino... 52 President and Chief Operating Officer
Theodore R. Kallgren.... 35 Chief Financial Officer, Vice President and Secretary
Jeffrey S. Ruege........ 42 Vice President and General Manager--HVAC
J. Christopher van Ee... 44 Vice President and General Manager--Refrigeration
Mark L. Davison......... 37 Chief Information Officer
G. Thomas Braswell, 55 Director
Jr.....................
Michael H. Bulkin....... 58 Director
Earl Dolive............. 79 Director
H. Whitney Wagner....... 41 Director
Thomas G. Weld.......... 34 Director
</TABLE>
JAMES R. BALKCOM, JR. has been Chairman of the Board since February 1996.
Mr. Balkcom also is self-employed with J.R. Balkcom Associates, Inc., a
strategic planning consulting firm. Prior to joining Pameco, he served from
1976 until 1995 as Chairman, President and CEO of Techsonic Industries, Inc.,
a manufacturer of consumer marine electronics. Mr. Balkcom currently serves as
the Chairman of Techsonic Industries, Inc.
GERALD V. GURBACKI has been Chief Executive Officer of the Company since
March, 1996. He has also served as a director since March 1996. Prior to
joining Pameco, Mr. Gurbacki was President of National Linen Service, a
subsidiary of National Service Industries, from 1987 to 1995. Prior to serving
as President, Mr. Gurbacki held several executive and managerial positions
with National Linen Service.
CHARLES A. SORRENTINO has been President and Chief Operating Officer of the
Company since June 1994. Prior to joining the Company, Mr. Sorrentino served
as a senior vice president of Nationwise Automotive Corp. from January 1993 to
October 1993. From 1983 to 1993, he was employed by PepsiCo as a Subsidiary
President and a Division Vice President. During his employment with PepsiCo,
Mr. Sorrentino also held a variety of other positions, including Region Vice
President. Prior to joining PepsiCo, Mr. Sorrentino was in the HVAC industry
for fourteen years with Sundstrand/Bristol Compressors.
THEODORE R. KALLGREN joined the Company in May 1988, and has been Vice
President and Chief Financial Officer of Pameco since March 1994. Mr. Kallgren
also served as Vice President of Finance of MLX, an affiliate of the Company,
from March 1991 to March 1994, and as Secretary of MLX from March 1994 to
April 1997. Prior to joining Pameco, Mr. Kallgren was employed by Ernst &
Whinney from 1984 to 1988.
JEFFREY S. RUEGE joined the Company in March 1988, and has served as Vice
President and General Manager of HVAC Operations of Pameco since September
1996. Before assuming his current position, Mr. Ruege supervised the
development of sales, marketing, and key accounts. Prior to joining Pameco,
Mr. Ruege was employed by Rockwell International from 1979 to 1988.
37
<PAGE>
J. CHRISTOPHER VAN EE joined the Company in April 1991 as Vice President of
Materials and has served as Vice President and General Manager of
Refrigeration Operations of Pameco since September 1996. Before assuming his
current position, Mr. van Ee supervised the development of Pameco's materials
procurement and distribution systems. From 1976 to 1991, Mr. Van Ee had a
variety of professional experience in production and materials management,
including positions with Trimblehouse Corporation, Ford Motor Company, Mars
Inc. and Timex.
MARK L. DAVISON has been Chief Information Officer of the Company since July
1996. Prior to joining Pameco, Mr. Davison was employed as a senior manager
with International Systems Services from March 1996 to June 1996, and as the
Vice President-Information Systems of National Linen Service from 1990 to
1996.
G. THOMAS BRASWELL, JR. has been a Director of the Company since October
1995. Mr. Braswell is currently Vice President of Information Systems for
Genuine Parts Company, a national distributor of automotive parts, a position
he has held since 1982. Mr. Braswell has been employed by Genuine Parts
Company for 31 years.
MICHAEL H. BULKIN has been a Director of the Company since February 1996.
From 1965 to 1993, Mr. Bulkin was a Principal and Director with McKinsey &
Company, Inc.
EARL DOLIVE has been a Director of the Company since 1993. Mr. Dolive
retired as Vice-Chairman of Genuine Parts Company in 1989 after 52 years of
service. Mr. Dolive was President of the National Automotive Parts Association
(NAPA) in 1970 and 1971. Mr. Dolive is also a director of Aaron Rents and
Exide Corporation and Director Emeritus of Genuine Parts Company.
H. WHITNEY WAGNER has been a Director of the Company since 1993, and has
been a Managing Director of TCR since 1983. Mr. Wagner was employed as a
Corporate Banking Officer with Chemical Bank prior to joining TCR in 1983. Mr.
Wagner is also a director of MLX, Family Bargain Corporation and Garden Ridge
Corporation.
THOMAS G. WELD has been a Director of the Company since 1994, and is
currently employed by TCR as a Managing Director, a position he has held since
June 1993. Prior to joining TCR in 1993, Mr. Weld was employed by McKinsey &
Company, Inc. Mr. Weld is also a director of Family Bargain Corporation.
COMMITTEES OF THE BOARD OF DIRECTORS
Audit Committee. The Audit Committee consists of Messrs. Braswell, Dolive
and Wagner. The Audit Committee makes recommendations concerning the
engagement of independent public accountants, reviews with the independent
public accountants the plans and results of the audit engagement, approves
professional services provided by the independent public accountants, reviews
the independence of the independent public accountants, considers the range of
audit and non-audit fees and reviews the adequacy of the Company's internal
accounting controls.
Compensation Committee. The Compensation Committee consists of Messrs.
Bulkin, Dolive and Wagner. The Compensation Committee recommends compensation
for the Company's executive officers and administers the Company's Employee
Stock Option Plans.
Strategic Planning Committee. The Strategic Planning Committee consists of
Messrs. Balkcom, Braswell, Bulkin, Gurbacki and Weld. The Strategic Planning
Committee reviews and makes recommendations regarding the Company's stated
strategic objectives.
The Company may from time to time form other committees as circumstances
warrant. Such committees will have authority and responsibility as delegated
by the Board of Directors.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding the annual
compensation for services in all capacities to the Company for the fiscal year
ended February 28, 1997, with respect to the Company's Chief
38
<PAGE>
Executive Officer and each of the Company's four other most highly compensated
executive officers (collectively, the "Named Executive Officers").
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------------------------------------------
LONG TERM
COMPENSATION AWARDS;
NAME AND SECURITIES UNDERLYING ALL OTHER
PRINCIPAL POSITION SALARY BONUS OPTIONS (#) COMPENSATION
<S> <C> <C> <C> <C>
Gerald V. Gurbacki...... $310,512 $1,250,000(1) 515,625 $369(2)
Chief Executive Officer
and Director
Charles A. Sorrentino... 187,200 313,298(1) 6,250 --
President and Chief
Operating Officer
Theodore R. Kallgren.... 121,385 187,411(1) 9,375 --
Chief Financial
Officer, Vice President
and Secretary
J. Christopher van Ee... 129,626 117,519(1) 3,125 --
Vice President and
General Manager--
Refrigeration
Jeffrey S. Ruege........ 122,714 174,326(1) 9,375 29(2)
Vice President and
General Manager--HVAC
</TABLE>
- ---------------------
(1) Includes bonuses granted pursuant to the Company's bonus plan and a one-
time special cash bonus, which accrued in fiscal 1997, although a
percentage of the bonus may not be paid until subsequent fiscal years. See
"--Bonus Plan" and "--Special Bonuses."
(2) Represents life insurance premiums paid by the Company.
OPTIONS GRANTED IN LAST FISCAL YEAR
The following table summarizes certain information regarding stock options
to purchase Class A Common Stock issued to the Named Executive Officers during
fiscal 1997.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------------------------------------
POTENTIAL REALIZABLE VALUE AT
NUMBER OF ASSUMED ANNUAL RATES OF
SECURITIES PERCENT OF TOTAL STOCK PRICE APPRECIATION
UNDERLYING OPTIONS GRANTED EXERCISE OR FOR OPTION TERM(1)
OPTIONS TO EMPLOYEES IN BASE PRICE EXPIRATION ------------------------------
NAME GRANTED FISCAL YEAR ($/SH) DATE 5% 10%
<S> <C> <C> <C> <C> <C> <C>
Gerald V. Gurbacki...... 468,750(2) 80.3% $6.40 04/15/02 $4,991,884 $6,123,484
46,875(3) 8.0 6.40 05/05/02 501,230 617,266
Charles A. Sorrentino... 6,250(4) 1.1 8.00 08/04/01 54,951 68,324
Theodore R. Kallgren.... 9,375(4) 1.6 8.00 08/04/01 82,426 102,487
J. Christopher van Ee... 3,125(4) 0.5 8.00 08/04/01 27,475 34,162
Jeffrey S. Ruege........ 9,375(4) 1.6 8.00 08/04/01 82,426 102,487
</TABLE>
- ---------------------
(1) The dollar amounts under these columns represent the potential tangible
value, before income taxes, of each option assuming that the market price
of the Class A Common Stock appreciates in value from the fair market
value at the date of grant to the end of the option term at five percent
and ten percent annual rates and therefore are not intended to forecast
possible future appreciation, if any, of the price of the Class A Common
Stock. All grants of options have been made with exercise prices equal to
the fair market value on the date of grant.
(2) Pursuant to the terms of his Employment Agreement, Mr. Gurbacki has been
granted options under one of the Employee Stock Option Plans to purchase
468,750 shares of Class A Common Stock at a price of $6.40
Notes continued on following page.
39
<PAGE>
per share. These options vest periodically beginning in April 1996 through
March 1, 2001, although all of these options will vest immediately upon
consummation of the Offering.
(3) Mr. Gurbacki received a separate grant of options to purchase 46,875
shares of Class A Common Stock at a price of $6.40 per share. These
options vest periodically beginning in May 1996 through March 1999,
although all of these options will vest immediately upon consummation of
the Offering.
(4) Granted pursuant to the Employee Stock Option Plan. Options have a term of
five years and vest in one-third increments annually beginning August 5,
1996.
OPTIONS EXERCISED IN LAST FISCAL YEAR; FISCAL YEAR END OPTION VALUES
No options were exercised in the fiscal year ended February 28, 1997. The
following table summarizes certain information regarding year end option
values of the Named Executive Officers.
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FEBRUARY 28, 1997 IN-THE-MONEY OPTIONS
(NO. OF SHARES) AT FEBRUARY 28, 1997
------------------------------------ -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C>
Gerald V. Gurbacki...... 515,625(1) -- $4,434,375 $ --
Charles A. Sorrentino... 33,333 4,167 283,331 29,169
Theodore R. Kallgren.... 25,000 6,250 289,100 43,750
J. Christopher van Ee... 22,917 2,083 291,669 14,581
Jeffrey S. Ruege........ 25,000 6,250 301,350 43,750
</TABLE>
- --------------------
(1) All of Mr. Gurbacki's options will become exercisable upon consummation of
the Offering.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1997, the Compensation Committee consisted of Messrs. Balkcom,
Dolive and Wagner. In March 1997, Mr. Balkcom obtained a $600,000 loan from
the Company in connection with his purchase of an aggregate of 62,500 shares
of Common Stock at a purchase price of $9.60 per share. Mr. Wagner is a
Managing Director of TCR, an affiliate of the Company, which serves as the
Company's financial advisor. See "Certain Transactions." Commencing on March
24, 1997, Mr. Bulkin replaced Mr. Balkcom on the Compensation Committee.
COMPENSATION OF DIRECTORS
Each non-employee director, other than the directors employed by TCR,
receives an annual retainer of $10,000 as well as director's fees of $2,500
per board meeting or committee meeting attended in person, or $250 per meeting
in which they participate by telephone, and all Directors are reimbursed for
their out-of-pocket expenses incurred in connection with their service on the
Board of Directors. In addition, in fiscal 1997 the Company paid Mr. Balkcom
$50,000 to serve as the Chairman of the Board of Directors and recently agreed
to pay him $175,000 in fiscal 1998 in exchange for his agreement to devote 75%
of his time to the Company's business. For a description of the non-cash
compensation to be paid to the non-employee Directors for their service on the
Board, see "--Stock Incentive Plans--Non-Employee Directors Stock Option
Plan." Mr. Gurbacki will receive no compensation for his service on the Board
of Directors other than reimbursement for his out-of-pocket expenses incurred
in connection with such service.
INDEMNIFICATION AGREEMENTS
The Company has entered into Indemnification Agreements with certain of its
directors and officers (the "Indemnified Parties"). Under the terms of the
Indemnification Agreements, the Company is required to indemnify the
Indemnified Parties against certain liabilities arising out of their services
for the Company. The
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<PAGE>
Indemnification Agreements require the Company (i) to indemnify each
Indemnified Party to the fullest extent permitted by law; (ii) to provide
coverage for each Indemnified Party under the Company's directors and officers
liability insurance policy and (iii) to advance certain expenses incurred by
an Indemnified Party. The Indemnification Agreements provide limitations on
the Indemnified Parties' rights to indemnification in certain circumstances.
To the extent that indemnification provisions contained in the Indemnification
Agreements purport to include indemnification for liabilities arising under
the Securities Act, the Company has been informed that in the opinion of the
Securities and Exchange Commission (the "Commission"), such indemnification is
contrary to public policy and therefore unenforceable.
EMPLOYMENT AGREEMENT
The Company entered into an employment agreement with Mr. Gurbacki as of
March 1, 1996. The employment agreement provides for a three-year term, which
is automatically extended for successive one-year terms unless either party
elects to terminate the agreement by giving written notice thereof to the
other party at least 180 days prior to the expiration of the then-current
term. The agreement provides for a base salary of $315,000 (subject to annual
review by the Board of Directors), a targeted annual bonus equal to 50% of
Mr. Gurbacki's annual salary, payable in shares of Class A Common Stock at the
discretion of the Board of Directors, and Company benefits of the type
generally provided to key executives. Effective March 1, 1997, Mr. Gurbacki's
annual base salary has been increased to $400,000 and his targeted annual
bonus for fiscal 1998 is $250,000. In addition, Mr. Gurbacki may participate
in the Company's health benefit plan, at his own expense, until age 65. The
Company can terminate Mr. Gurbacki for Cause (as defined in the employment
agreement) or for his inability to carry out his duties effectively. If
Mr. Gurbacki is terminated without Cause, then the Company must pay him
severance in an amount equal to his then current annual salary plus a pro rata
amount of his targeted bonus for the year in which he is terminated. If Mr.
Gurbacki is terminated due to a change in control of the Company, then he is
entitled to severance in an amount equal to two times his then current annual
salary plus his targeted bonus for the year in which he is terminated.
BONUS PLAN
The Company offers incentive bonuses to its executive officers, division
presidents, regional and branch managers and sales associates. These
associates may earn predetermined annual bonuses equal to a substantial
percentage of their base salary, based upon meeting certain performance goals
with respect to profitability, revenue growth and asset management. In fiscal
1997, the Company accrued approximately $2.1 million for bonus payments to its
associates pursuant to its bonus plan. Management believes that this program
assists the Company in attracting, retaining and motivating associates with
experience and ability.
SPECIAL BONUSES
In February 1997, the Company declared and accrued a one-time special cash
bonus to 14 of its associates in order to reward these associates for their
past efforts on behalf of the Company. The amount of the bonus is equal to the
aggregate exercise price of the stock options previously granted to each such
associate, and the bonus is payable as each associate's options become
exercisable. The aggregate amount of the special bonuses is approximately $2.1
million.
STOCK INCENTIVE PLANS
The Company has adopted two separate but virtually identical Stock Option
Plans and entered into a separate agreement for the grant of stock options to
the Chief Executive Officer (collectively, the "Plans" or individually with
respect to the stock option plans, "Plan I" and "Plan II") for the purpose of
(i) attracting and retaining senior management personnel with ability and
initiative; (ii) providing incentives to those deemed important to the success
of the Company and (iii) associating the interests of these individuals with
the interests of the Company and its shareholders through opportunities for
increased ownership of Class A Common Stock. The summaries of the Plans set
forth below are qualified in their entirety by reference to the text of the
Plans, which have been filed as exhibits to the Registration Statement of
which this Prospectus is a part.
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<PAGE>
THE EMPLOYEE STOCK OPTION PLANS
Administration. Each Plan is administered by the Compensation Committee.
Eligibility. Each officer and other key employee of the Company, including an
employee who is a member of the Board, is eligible to participate in the Plans.
The Compensation Committee will select the individuals who will participate in
the Plans ("Participants"); provided, however that the Company's chief
executive officer has the right to grant awards under Plan I involving up to
1,000 shares of Class A Common Stock, and shall have the same authority and
discretion as the Compensation Committee with respect to such options.
Stock Options. Options granted under the Plans may be incentive stock options
("ISOs") or nonqualified stock options. A stock option entitles a Participant
to purchase shares of Class A Common Stock from the Company at the option
price. Subject to certain exceptions, the option price must be paid upon
exercise in cash or cash equivalent. The option price will be fixed by the
Compensation Committee at the time the option is granted, but the price cannot
be less than the fair market value of a share of Class A Common Stock on the
date of grant in the case of an ISO. The exercise price of an ISO granted to
any Participant who is a Ten Percent Shareholder (as defined below) may not be
less than 110% of the fair market value of a share of Class A Common Stock on
the date of grant. A Participant is a Ten Percent Shareholder if he owns, or is
deemed to own, more than ten percent of the total combined voting power of all
classes of stock of the Company or a related entity. A Participant is deemed to
own any voting stock owned (directly or indirectly) by the Participant's
spouse, brothers, sisters, ancestors and lineal descendants. A Participant and
such persons are also considered to own proportionately any voting stock owned
(directly or indirectly) by or for a corporation, partnership, estate or trust
of which the Participant or any such person is a shareholder, partner or
beneficiary. All options under Plan I expire upon the earlier of (i) the date
specified by the Compensation Committee in any award agreement, which may not
exceed five years from the date of grant and (ii) the date of termination of
the Participant's employment. All options under Plan II expire upon the date
specified by the Compensation Committee in an award agreement, which may not
exceed ten years from the date of grant, except that options held by a Ten
Percent Shareholder may not be exercised after five years from the date of
grant. If the employment of a Participant under Plan II is terminated by the
Company for Cause (as defined in Plan II), all nonexercised options granted to
the Participant, whether vested or nonvested, shall be immediately forfeited to
the Company, and if such termination is voluntary or is by action of the
Company (except for Cause), then vested options then held which are then
exercisable shall continue to be exercisable until the earlier of one month
after the termination date or the expiration of such options, and all options
which are not then exercisable shall automatically terminate. Notwithstanding
the foregoing, upon the dissolution or liquidation of the Company, or a merger
or consolidation in which the Company is not the surviving corporation (unless
new options are substituted for the options granted hereunder or the options
granted hereunder are assumed by the surviving corporation), each outstanding
option under both Plans shall terminate, provided that each Participant shall,
in such event, have the right immediately prior to such dissolution or
liquidation, or merger or consolidation, to exercise his or her option in whole
or in part. No Participant may be granted ISOs (under all incentive stock
option plans of the Company) which are first exercisable in any calendar year
for stock having an aggregate fair market value (determined as of the date the
ISO was granted) that exceeds $100,000.
Share Authorization. All awards made under the Plans will be evidenced by
written agreements between the Company and the Participant. A maximum of
750,000 shares of Class A Common Stock may be issued under Plan I and a maximum
of 468,750 shares of Class A Common Stock may be issued under Plan II. The
share limitation and the terms of outstanding awards shall be adjusted, as the
Compensation Committee deems appropriate, in the event of a stock dividend,
stock split, combination, reclassification, recapitalization or other similar
event.
Nontransferability. Each option granted under the Plans is nontransferable
except (i) by will or by the laws of descent and distribution or (ii) under
Plan II for non-ISOs, if permitted under an Award Agreement (as defined
therein), to a member of a Participant's immediate family or to any trust,
partnership or similar vehicle for the benefit of such immediate family member.
During the lifetime of a Participant, options may only be exercised by such
Participant, other than in the case of the disability or incompetency of a
Participant.
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<PAGE>
Termination and Amendment. No option may be granted under Plan I after June
23, 2002, and under Plan II after April 1, 2006. The Compensation Committee may
amend or terminate each Plan at any time, but an amendment will not become
effective without shareholder approval if the amendment increases the number of
shares of Class A Common Stock which may be issued under the Plan, changes the
eligibility requirements or materially increases the benefits accruing to
Participants in the Plans.
If all the Investors (as defined in the Stockholders' Agreement dated March
19, 1992, among Pameco, the Investor Group, The Bank of Nova Scotia, Brian R.
Esher and certain employees of the Company, as amended (the "Stockholders'
Agreement") propose to sell all of their shares to a third party (other than an
affiliate) in an arms-length transaction, then the Investors may, at their
option, require Participants under the Plans to sell all, but not part, of the
shares owned by them to such third party on the same terms and conditions upon
which the Investors are selling their shares, subject to certain terms of the
Stockholders' Agreement. See "Certain Transactions."
In the event of the termination of a Participant's employment for any reason
(a "Termination Event"), such Participant shall be deemed to have offered for
sale to the Company all of the shares owned by such Participant at the time of
such Termination Event. The Company shall have thirty (30) days after the date
of such Termination Event to provide such Participant with written acceptance
of such offer. The Company shall also have the right to designate a third party
to purchase shares which it would otherwise be entitled to purchase, and such
third party shall be entitled to purchase any such shares on the same terms and
conditions as the Company. The purchase price for such shares under Plan I
shall be, in the case of a vested share, the Appraised Value of such share (as
defined in the Plan), and in the case of an unvested share, the lesser of the
Base Price of such share (as defined in the Plans) or the Appraised Value of
such share. The Purchase Price for such shares under Plan II shall be the
Appraised Value (as defined in the Plan).
Outstanding Awards. Pursuant to the terms of his Employment Agreement, Mr.
Gurbacki has been granted Options under Plan II to purchase 468,750 shares of
Class A Common Stock at a price of $6.40 per share. These options vest
periodically beginning in March 1996 through March 1, 2001, although all of
these options will vest immediately upon consummation of the Offering. In
addition, in May 1996, Mr. Gurbacki received a separate grant of options to
purchase 46,875 shares of Class A Common Stock at a price of $6.40 per share.
These options vest periodically beginning in May 1996 through March 1999,
although all of these options will also vest immediately upon consummation of
the Offering. On August 5, 1996, Messrs. Kallgren, Ruege, Sorrentino and van Ee
received options to purchase 9,375, 9,375, 6,250 and 3,125 shares of Class A
Common Stock, respectively, under Plan I. These options vest in one-third
increments annually beginning on August 5, 1996, and are exercisable for a
period of five years from the date of grant at a price of $8.00 per share. In
addition, since March 1, 1996, the Company has granted options under Plan I to
14 other associates covering 32,250 shares of Class A Common Stock, at exercise
prices ranging from $8.00 to $9.60 per share.
Shareholder Rights. A Participant will have no rights as a shareholder with
respect to the shares subject to his or her option until the option is
exercised.
Federal Income Taxes. No income is recognized by a Participant at the time an
option is granted. If the option is an ISO, no income will be recognized upon
the Participant's exercise of the option. Income is recognized by a Participant
when he disposes of shares acquired under an ISO. The exercise of a
nonqualified stock option generally is a taxable event that requires the
Participant to recognize, as ordinary income, the difference between the
share's fair market value and the option price.
The Company will be entitled to claim a federal income tax deduction on
account of the exercise of a nonqualified option. The amount of the deduction
is equal to the ordinary income recognized by the Participant. The Company will
not be entitled to a federal income tax deduction on account of the grant or
the exercise of an ISO. The employer may claim a federal income tax deduction
on account of certain dispositions of Class A Common Stock acquired upon the
exercise of an ISO.
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<PAGE>
THE NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
Administration and Eligibility. The Non-Employee Directors' Stock Option
Plan (the "Directors' Plan") is administered by the Compensation Committee.
Each director of the Company who is not an employee of the Company or any of
its subsidiaries and who does not own any of the outstanding capital stock of
the Company or have the right or option to acquire any such stock, other than
under the Directors' Plan (a "Qualifying Director"), is eligible to
participate in the Directors' Plan. Any person who is a Qualifying Director as
of the date of grant of an option under the Directors' Plan shall continue to
be a Qualifying Director notwithstanding that after such date such person no
longer meets the foregoing eligibility requirements.
Stock Options. Options granted under the Directors' Plan will be non-
qualified stock options. A stock option granted under the plan entitles an
eligible director to purchase shares of Class A Common Stock from the Company
at the option price. The option price must be paid upon exercise in cash or a
cash equivalent. The option price will be fixed by the Compensation Committee
at the time the option is granted, but the price cannot be less than the fair
market value of a share of Class A Common Stock on the date of grant. All
options granted under the plan shall be immediately vested, and all options
will expire upon the date specified in any award agreement by the Compensation
Committee, which may not exceed five years from the date of grant.
Notwithstanding the foregoing, upon the dissolution or liquidation of the
Company, or a merger or consolidation in which the Company is not the
surviving corporation (unless new options are substituted for the options
granted hereunder or the options granted hereunder are assumed by the
surviving corporation), each outstanding option shall terminate, provided that
each grantee shall, in such event, have the right immediately prior to such
dissolution or liquidation, or merger or consolidation, to exercise his or her
option in whole or in part.
Share Authorization. All awards made under the Directors' Plan will be
evidenced by a written agreement between the Company and an eligible director.
A maximum of 62,500 shares of Class A Common Stock may be issued under the
Directors' Plan. The share limitation and the terms of outstanding awards
shall be adjusted, as the Compensation Committee deems appropriate, in the
event of a stock dividend, stock split, combination, reclassification,
recapitalization or other similar event.
Nontransferability. Any option granted under the Directors' Plan is
nontransferable except (i) by will or by the laws of descent and distribution
or (ii) if permitted under an Award Agreement (as defined therein), to a
member of a Participant's immediate family or to any trust, partnership or
similar vehicle for the benefit of such immediate family member. During the
lifetime of a grantee, options may only be exercised by such grantee, other
than in the case of the disability or incompetency of a grantee.
Termination and Amendment. No shares of Class A Common Stock will be awarded
under the Directors' Plan after June 1, 2006. The Directors' Plan provides
that the Compensation Committee may amend or terminate the Directors' Plan at
any time, but an amendment will not become effective without shareholder
approval if the amendment increases the number of shares subject to the plan,
materially increases the benefits accruing to grantees under the plan or
changes the eligibility requirements.
If all the Investors (as defined in the Stockholders' Agreement) propose to
sell all of their shares to a third party (other than an affiliate) in an
arms-length transaction, then the Investors may, at their option, require
Participants under the Plans to sell all, but not part, of the shares owned by
them to such third party on the same terms and conditions upon which the
Investors are selling their shares, subject to certain terms of the
Stockholders' Agreement. See "Certain Transactions."
Outstanding Awards. On May 20, 1996, Messrs. Balkcom, Braswell, Bulkin and
Dolive each received options to purchase 6,250 shares of Class A Common Stock.
These options were immediately exercisable for a period of five years from the
date of grant at a price of $6.40 per share. In addition, on January 28, 1997,
Messrs. Balkcom, Braswell, Bulkin and Dolive each received options to purchase
an additional 6,250 shares of Class A Common Stock. These options were
immediately exercisable for a period of five years from the date of grant at a
price of $9.60 per share.
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<PAGE>
Federal Income Taxes. No income is recognized by an eligible director at the
time an option is granted. The exercise of a nonqualified stock option
generally is a taxable event that requires the eligible director to recognize,
as ordinary income, the difference between the share's fair market value and
option price. The Company will be entitled to a federal income tax deduction on
account of the exercise of a nonqualified option. The amount of the deduction
is equal to the ordinary income recognized by the eligible director.
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<PAGE>
CERTAIN TRANSACTIONS
In November 1996, the Company repurchased 1,250,000 shares of Class A Common
Stock and 4,000 shares of Preferred Stock held by GFF, a minority shareholder.
The purchase price for the Class A Common Stock was $8.40 per share ($10.5
million total), and the purchase price for the Preferred Stock was $1,000 per
share ($4.0 million total). The cumulative purchase price for the GFF shares
was financed by the Company's issuance of a $15.0 million subordinated note to
Terfin, an affiliate of one of the members of the Investor Group, of which
$11.6 million was outstanding as of March 25, 1997, and which will be repaid in
full with a portion of the net proceeds of the Offering. See "Use of Proceeds."
In connection with the issuance of the subordinated note to Terfin, the Company
granted Terfin an option to purchase up to 62,500 shares of Class B Common
Stock at a purchase price of $8.40 per share. This option is currently
exercisable and terminates two months after the Company's payment in full of
the subordinated note.
In March 1997, Mr. Balkcom, a director of the Company, purchased 62,500
shares of Class A Common Stock from the Company at a purchase price of $9.60
per share for an aggregate purchase price of $600,000, which was financed by
Mr. Balkcom's issuance of a $600,000 promissory note to the Company. The
promissory note bears interest at the applicable federal rate (6.23% at March
11, 1997), is payable in full on March 10, 2002, is secured by the Class A
Common Stock purchased and is a full recourse note. In December 1996, Mr.
Balkcom and his wife and daughters also purchased an aggregate of 95,237 shares
of Class A Common Stock from the Company at a purchase price of $8.40 per share
for an aggregate purchase price of $800,000. In December 1996, Mr. Bulkin, a
director of the Company, and his wife purchased 12,500 shares of Class A Common
Stock from the Company at a purchase price of $8.40 per share for an aggregate
purchase price of $105,000.
Pursuant to the terms of a letter agreement dated March 1, 1997, Pameco
engaged TCR as the Company's financial advisor. Pursuant to the agreement, TCR
will provide advisory services to the Company and make certain of its employees
available to advise the Company on financial matters. Under the agreement, the
Company pays TCR an annual fee of $50,000 and reimburses TCR for its out-of-
pocket expenses. The Company has also agreed to indemnify TCR against
liabilities arising out of TCR's engagement. Messrs. Wagner and Weld, both of
whom are directors of the Company, are each Managing Directors of TCR, and Mr.
Wagner is also a director of MLX. The letter agreement extends to February
2002, unless terminated by the Company under certain circumstances.
The parties to the Stockholders' Agreement made certain agreements and gave
certain undertakings with respect to their holdings of shares in the Company.
Provisions of the Stockholders' Agreement include: (i) certain "tag along" and
"drag along" rights with respect to sales of the Investor Group's stock in the
Company; (ii) restrictions on the right of sale of certain employee-held shares
and an option in favor of the Company to purchase such employee-held shares on
termination of the employee's employment by the Company; (iii) certain
preemptive rights and rights of first refusal; (iv) the right of appointment of
a director of the Company by The Bank of Nova Scotia and (v) an irrevocable
proxy in favor of the Investor Group to vote all other parties' shares. All of
the provisions of the Stockholders' Agreement (other than those referred to in
(ii) above) terminate upon the effectiveness of the Registration Statement of
which this Prospectus is a part.
Also, pursuant to the Stockholders' Agreement, the Investor Group and certain
other shareholders agreed to sell shares of Class A Common Stock to the Company
so that the Company could fulfill its obligations under Plan I upon the
exercise of options granted thereunder. The purchase price for the shares from
these shareholders is the exercise price per share paid by the option holder,
with exercise prices ranging from $0.88 to $9.60 per share (comprising an
aggregate of $1.7 million). Upon the consummation of the Offering, the Company
will use a portion of the net proceeds of the Offering to purchase all 388,417
shares of Common Stock still subject to the repurchase obligations under the
Stockholders' Agreement for an aggregate purchase price of $1.7 million.
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<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Common Stock by (i) each director of the Company; (ii) each
executive officer of the Company; (iii) all directors and executive officers of
the Company as a group; (iv) each person known to the Company to beneficially
own more than five percent of any class of the outstanding Common Stock and (v)
the Selling Shareholder. Unless otherwise indicated, all shares are owned
directly and the indicated person has sole voting and investment power. The
number of shares represents the whole number of shares beneficially owned as of
March 24, 1997.
<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON STOCK COMMON STOCK TOTAL
--------------------------------------------- --------------------- ----------------------
SHARES
BENEFICIALLY PERCENT SHARES
OWNED OWNED BENEFICIALLY SHARES PERCENT OF PERCENT OF
NAME OF PRIOR TO PRIOR TO SHARES TO OWNED AFTER BENEFICIALLY PERCENT VOTING SHARES
BENEFICIAL OWNER(1) OFFERING OFFERING BE SOLD(2) OFFERING OWNED OF CLASS POWER OUTSTANDING
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TCR Investors(3)(4)..... 578,644 11.0% 0 0 4,046,346 100.0% 88.7% 49.7%
Gerald V. Gurbacki(5)... 515,625 9.1 0 515,625 0 * 1.2 6.2
James R. Balkcom,
Jr.(6)................. 170,235 3.2 0 170,235 0 * * 2.2
Michael H. Bulkin(7).... 25,000 * 0 25,000 0 * * *
G. Thomas Braswell,
Jr.(8)................. 12,500 * 0 12,500 0 * * *
Earl Dolive(8).......... 18,750 * 0 18,750 0 * * *
Brian Esher(9).......... 503,103 9.6 0 503,103 0 * 1.2 6.4
Charles A.
Sorrentino(8).......... 27,083 * 0 27,083 0 * * *
Theodore R.
Kallgren(8)............ 25,000 * 0 25,000 0 * * *
Jeffrey S. Ruege(8)..... 25,000 * 0 25,000 0 * * *
J. Christopher van
Ee(8).................. 22,916 * 0 22,916 0 * * *
Mark L. Davison(8)...... 3,125 * 0 3,125 0 * * *
The Bank of Nova
Scotia(10)............. 75,541 1.6 75,541 0 0 * * *
All directors and
executive officers as a
group (ten persons).... 845,234 17.4 0 845,234 0 * 1.9 10.8
</TABLE>
- ---------------------
(*) Represents less than one percent of the outstanding Class A Common Stock or
Class B Common Stock, as applicable.
(1) Unless otherwise indicated, the address of the persons named above is care
of Pameco Corporation, 1000 Center Place, Norcross, Georgia 30093.
(2) No shares of Class B Common Stock will be sold in the Offering.
(3) TCR has sole and irrevocable power to vote and dispose of 3,872,210 shares
of Class B Common Stock that are owned of record by the following members
of the Investor Group: Terbem Limited (1,644,223 shares--40.6% of the Class
B Common Stock), Mitvest Limited (219,918 shares--8.4% of the Class B
Common Stock), Tinvest Limited (939,663 shares--23.2% of the Class B Common
Stock), Bobst Investment Corp. (279,901 shares--6.9% of the Class B Common
Stock) and TCR International Partners, LP (788,505 shares--19.5% of the
Class B Common Stock). Each member of the Investor Group is an investment
vehicle established for the purpose of investing in securities of other
enterprises in various parts of the world, and the Investor Group acquired
the shares of Class B Common Stock as participants in an equity portfolio
fund managed by TCR. Excludes 386,434 shares owned by the Investor Group to
be repurchased by the Company with a portion of the net proceeds of the
Offering. See "Certain Transactions."
Notes continued on following page.
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<PAGE>
(4) Includes all 503,103 shares of Class A Common Stock beneficially owned by
Brian Esher, 75,541 of Class A Common Stock shares owned of record by The
Bank of Nova Scotia, 55,818 shares of Class B Common Stock owned of record
by K Investment Partners LP, 34,111 shares of Class B Common Stock owned of
record by Klingenstein Charitable Partners and 21,707 shares of Class B
Common Stock owned of record by TG Partners. TCR has voting power over
these shares pursuant to the Stockholders' Agreement. See "Certain
Transactions." The applicable provisions of the Stockholders' Agreement
will terminate upon effectiveness of the Registration Statement of which
this Prospectus is a part. Includes Terfin's option to purchase up to
62,500 shares of Class B Common Stock. See "Certain Transactions."
(5) These shares include stock options to purchase 438,750 shares of Class A
Common Stock which Mr. Gurbacki may exercise upon completion of the
Offering.
(6) Includes 35,713 shares held by Mr. Balkcom's wife and 11,954 shares held by
his daughters. Mr. Balkcom disclaims beneficial ownership of the shares
owned by his wife and daughters. Includes currently exercisable stock
options to purchase 12,500 shares of Class A Common Stock
(7) Includes 12,500 shares held in joint tenancy with Mr. Bulkin's wife and
12,500 stock options which are currently exercisable.
(8) Consists of stock options which are currently exercisable.
(9) Includes 149,375 shares held by the Esher Children's Trust. Excludes 1,983
shares to be repurchased by the Company with a portion of the net proceeds
of the Offering. Mr. Esher's address is 9185 Old Southwick Pass,
Alpharetta, Georgia 30202.
(10) The Bank of Nova Scotia's address is One Liberty Plaza, New York, New York
10006.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 60,000,000 shares of
Class A Common Stock, par value $0.01 per share, 20,000,000 shares of Class B
Common Stock, par value $0.01 per share, and 5,000,000 shares of Preferred
Stock, par value $1.00 per share (the "Preferred Stock"). As of the date of
this Prospectus, there were 25 holders of record of Common Stock and 116
holders of options to acquire Class A Common Stock and one holder of options to
acquire Class B Common Stock. All outstanding shares of Common Stock are, and
the shares of Class A Common Stock offered hereby will be, upon payment
therefor, fully paid and nonassessable.
COMMON STOCK
The rights of holders of the Class A Common Stock and the Class B Common
Stock are identical in all respects except for voting rights and conversion
features.
Dividends. Subject to the rights of the holders of any class of Preferred
Stock, holders of record of shares of Common Stock on the record date fixed by
the Company's Board of Directors are entitled to receive such dividends as may
be declared by the Board of Directors out of funds legally available for such
purpose. No dividends may be declared or paid in cash or property on any share
of either class of Common Stock, however, unless simultaneously the same
dividend is declared or paid on each share of the other class of Common Stock.
In the case of any stock dividend, holders of Class A Common Stock are entitled
to receive the same percentage dividend (payable in shares of Class A Common
Stock) as the holders of Class B Common Stock receive (payable in shares of
Class B Common Stock). The payment of dividends is currently restricted by the
terms of the Credit Facilities. See "Description of Certain Indebtedness."
Voting Rights. Holders of shares of Class A Common Stock and Class B Common
Stock vote as a single class on all matters submitted to a vote of the
shareholders, with each share of Class A Common Stock entitled to one vote and
each share of Class B Common Stock entitled to ten votes, except (i) for the
election of directors, (ii) with respect to any proposed "going private"
transaction (as defined below) between the Company and a Principal Shareholder
and (iii) as otherwise provided by law. In the election of directors, the
holders of Class A Common Stock, voting as a separate class, are entitled to
elect two of the Company's directors. The holders of Class B Common Stock,
voting as a separate class, are entitled to elect the remaining directors.
Holders of Common Stock are not entitled to cumulate votes in the election of
directors. A "Principal Shareholder" means any holder of record of Class B
Common Stock upon the date of this Prospectus.
The holders of Class A Common Stock and Class B Common Stock vote as a single
class with respect to any proposed "going private" transaction, with each share
of Class A Common Stock and Class B Common entitled to one vote per share. A
"going private" transaction is any "Rule 13e-3 Transaction", as such term is
defined in Rule 13e-3 promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") between the Company and (i) a Principal
Shareholder, (ii) any Affiliate (as defined below) of a Principal Shareholder
or (iii) any group consisting of a Principal Shareholder or any Affiliate of a
Principal Shareholder. An Affiliate of a Principal Shareholder is (w) any
individual or entity who or that, directly or indirectly, controls, is
controlled by, or is under common control with, a Principal Shareholder, (x)
any corporation or organization (other than the Company or a majority-owned
subsidiary of the Company) of which any Principal Shareholder is a partner or
is, directly or indirectly, the beneficial owner of ten percent or more of any
class of voting securities, (y) any trust or other estate in which a Principal
Shareholder has a substantial beneficial interest or (z) any individual or
entity that directly or indirectly owns any equity interest in a Principal
Shareholder.
Under Georgia law, the affirmative vote of the holders of a majority of the
outstanding shares of any class of stock is required to approve, among other
things, a change in the designations, rights, preferences or limitations of all
or part of the shares of such class of stock.
Liquidation Rights. Upon liquidation, dissolution or winding-up of the
Company, the holders of the Common Stock are entitled to share ratably in all
assets available for distribution after payment in full of
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<PAGE>
creditors and payment in full to any holders of Preferred Stock then
outstanding of any amount required to be paid under the terms of such Preferred
Stock.
Other Provisions. Each share of Class B Common Stock is convertible, at the
option of its holder, into one share of Class A Common Stock at any time. Each
share of Class B Common Stock converts automatically and without the
requirement of any further action into one share of Class A Common Stock upon
its sale or other transfer to a party unaffiliated with a Principal
Shareholder, and each share of Class B Common Stock converts automatically and
without the requirement of any further action into one share of Class A Common
Stock from and after the first date on which the issued and outstanding shares
of Class B Common Stock constitute less than ten percent of the aggregate
number of issued and outstanding shares of Class A Common Stock and Class B
Common Stock. The holders of Common Stock are not entitled to preemptive or
subscription rights. No class of Common Stock may be subdivided, consolidated,
reclassified or otherwise changed unless concurrently the other class of Common
Stock is subdivided, consolidated, reclassified or otherwise changed in the
same proportion and in the same manner.
PREFERRED STOCK
The authorized and unissued capital stock of the Company includes 5,000,000
shares of Preferred Stock, par value $1.00 per share. The Board of Directors
generally has the power to issue shares of capital stock without shareholder
approval. The Board of Directors is authorized to establish the rights,
preferences and limitations of any or all shares of Preferred Stock and to
divide such shares into classes, with or without voting rights, as the Board
may determine. No shares of Preferred Stock are currently designated, and there
is no current plan to designate or issue any such securities. However, the
ability of the Board of Directors to issue shares of Preferred Stock could
impede or deter an unsolicited tender offer or takeover proposal regarding the
Company. Shares of capital stock also could be issued with such terms,
provisions and rights which would make a takeover of the Company more difficult
and, therefore, less likely to occur. In addition, the issuance of Preferred
Stock could decrease the amount of earnings and assets available for
distribution to holders of Common Stock and could have the effect of making
removal of management more difficult. In certain circumstances, this could have
the effect of decreasing the market value of the Common Stock.
CERTAIN PROVISIONS OF GEORGIA LAW AND THE COMPANY'S ARTICLES OF INCORPORATION
AND BYLAWS
The following summary of certain provisions of Georgia law and the Articles
of Incorporation and Bylaws of the Company does not purport to be complete and
is subject to and qualified in its entirety by reference to Georgia law and the
text of the Articles of Incorporation and Bylaws of the Company, which have
been filed as exhibits to the Registration Statement of which this Prospectus
is a part. Certain provisions of Georgia law and the Articles of Incorporation
and Bylaws are described elsewhere in this Prospectus.
ANTI-TAKEOVER PROTECTION
The Company has elected to be covered by two provisions of the Georgia Code
that restrict business combinations with interested shareholders. These
provisions do not apply to a Georgia corporation unless its bylaws specifically
make the statute applicable, and once adopted, such a bylaw may be repealed
only by the affirmative vote of at least two-thirds of the continuing directors
and two-thirds of the votes entitled to be cast by the voting shares of the
Company, other than shares beneficially owned by an interested shareholder and
its associates and affiliates.
Interested Stockholders Transactions. The "business combination with
interested stockholders" statute of the Georgia Code regulates business
combinations, such as mergers, consolidations, share exchanges and asset
purchases, where the acquired business has at least 100 shareholders residing
in Georgia and has its principal office in Georgia, as the Company does, and
where the acquiror became an "interested shareholder" of the corporation,
unless either (i) the transaction resulting in such acquiror becoming an
"interested shareholder" or the business combination received the approval of
the corporation's Board of Directors prior to the date on which
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<PAGE>
the acquiror became an interested shareholder or (ii) the acquiror became the
owner of at least 90% of the outstanding voting stock of the corporation
(excluding shares held by directors, officers and affiliates of the corporation
and shares held by certain other persons) in the same transaction in which the
acquiror became an interested shareholder. For purposes of this statute, an
"interested shareholder" generally is any person who directly or indirectly,
alone or in concert with others, beneficially owns or controls ten percent or
more of the voting power of the outstanding voting shares of the corporation.
The statute prohibits business combinations with an unapproved interested
shareholder for a period of five years after the date on which such person
became an interested shareholder. The statute restricting business combinations
is broad in its scope and is designed to deter unfriendly acquisitions. The
restrictions contained in this statute do not apply to any person who was an
"interested shareholder" prior to the Company's adoption of this statute (such
as the Investor Group).
Fair Price Requirements. The "fair price" statute of the Georgia Code
prohibits certain business combinations between a Georgia business corporation
and an interested shareholder. The fair price statute would permit the business
combination to be effected if (i) certain "fair price" criteria are satisfied;
(ii) the business combination is unanimously approved by the continuing
directors; (iii) the business combination is recommended by at least two-thirds
of the continuing directors and approved by a majority of the votes entitled to
be cast by holders of voting shares, other than voting shares beneficially
owned by the interested shareholder or (iv) the interested shareholder has been
such for at least three years and has not increased his ownership position in
such three-year period by more than one percent in any 12-month period. The
fair price statute is designed to deter unfriendly acquisitions that do not
satisfy the specified "fair price" requirement. In general, the fair-price
requirement provides that in a two-step acquisition transaction, the interested
shareholder must pay the shareholders in the second step either the same amount
of cash or the same amount and type of consideration paid to acquire the
corporation's shares in the first step. The restrictions contained in this
statute will not apply to any person who is a shareholder prior to the
consummation of the Offering (such as the Investor Group).
ARTICLES OF INCORPORATION AND BYLAWS.
Board of Directors; Removal; Filling Vacancies. The Articles of Incorporation
and Bylaws provide that, subject to any rights of holders of Preferred Stock to
elect additional directors under specified circumstances, the Board of
Directors will consist of seven directors, three of whom will be independent.
The number of directors may be increased or decreased by resolution adopted by
a majority of the Board of Directors. The shareholders shall be entitled to
vote on the election or removal of directors, with each share entitled to one
vote, although a director elected by a particular class of Common Stock may
only be removed by the holders of such class of Common Stock. See "--Common
Stock."
The Bylaws provide that, subject to any rights of the Preferred Stock, and
unless the Board of Directors otherwise determines, any vacancies will be
filled by the affirmative vote of a majority of the remaining directors, even
if less than a quorum. Accordingly, the Board of Directors could temporarily
prevent any shareholder from enlarging the Board of Directors and from filling
the new directorships with such shareholder's own nominees. A vacancy resulting
from an increase in the number of directors also must be filled by action of a
majority of the entire Board of Directors.
Amendment. In general, the Articles of Incorporation may be amended by a vote
of two-thirds of the votes entitled to vote on the amendment at a properly
called shareholder meeting, although the Articles of Incorporation may be
amended to increase the number of authorized shares of Common Stock by a
majority of the votes entitled to be cast on the amendment by each voting group
entitled to vote on the amendment. Further, neither the Articles of
Incorporation nor the Bylaws may be amended to alter the voting provisions with
respect to the Class A Common Stock and the Class B Common Stock in any manner
that would adversely affect the voting rights of the holders of such shares
without the consent of a majority of the holders of the potentially affected
class of Common Stock voting as a single voting group. The Company's Bylaws may
be amended by a majority of the Board of Directors or by the vote of the
holders of at least two-thirds of the votes entitled to be cast on the
amendment by each voting group entitled to vote on the amendment.
51
<PAGE>
Directors and Officers Indemnification. The Company's Articles of
Incorporation provide for indemnification of directors to the fullest extent
permitted by Georgia law and, to the extent permitted by such law, eliminate or
limit the personal liability of directors to the Company and its shareholders
for monetary damages for certain breaches of fiduciary duty and the duty of
care. Such indemnification may be available for liabilities arising in
connection with this Offering. Insofar as indemnification for liabilities under
the Securities Act may be permitted to directors, officers or persons
controlling the Company pursuant to the foregoing provisions, the Company has
been informed that, in the opinion of the Commission, such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable. Pursuant to its Articles of Incorporation, the Company may
indemnify its officers, employees, agents and other persons to the fullest
extent permitted by Georgia law. The Company's Bylaws obligate the Company,
under certain circumstances, to advance expenses to its directors and officers
in defending an action, suit or proceeding for which indemnification may be
sought. The Company has entered into Indemnification Agreements with certain of
its directors and officers. See "Management--Indemnification Agreements."
The Company's Bylaws also provide that the Company shall have the power to
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Company, or who, while a director,
officer, employee or agent, is or was serving as a director, officer, trustee,
general partner, employee or agent of one of the Company's subsidiaries or, at
the request of the Company, of any other organization, against any liability
asserted against such person or incurred by such person in any such capacity,
where the Company would have the power to indemnify such person against such
liability under Georgia law. The Company intends to purchase and maintain such
insurance on behalf of all of its directors and executive officers.
Ability to Consider Other Constituencies. The Articles of Incorporation
permit the Board of Directors, in determining what is believed to be in the
best interests of the Company, to consider the interests of the employees,
customers, suppliers and creditors of the Company, the communities in which
offices or other establishments of the Company are located and all other
factors the directors consider pertinent, in addition to considering the
effects of any actions on the Company and its shareholders.
OTHER MATTERS
The transfer agent and registrar for the Company's Class A Common Stock is
SunTrust Bank, Atlanta, Georgia.
52
<PAGE>
DESCRIPTION OF CERTAIN INDEBTEDNESS
Set forth below is a description of the Credit Facilities, which will remain
outstanding following consummation of the Offering. The summaries set forth
below are qualified in their entirety by reference to the text of the
agreements relating to the Credit Facilities, which have been filed as exhibits
to the Registration Statement of which this Prospectus is a part.
WORKING CAPITAL FACILITY
The Company has established the Working Capital Facility with General
Electric Capital Corporation (the "Lender") under which the Company may obtain
up to $100.0 million in loans and letters of credit subject to, among other
conditions, the Company's having adequate eligible inventory and unsold
accounts receivable to support such credit extensions and the absence of any
defaults. The Company's obligations under the Working Capital Facility are
secured by all of the inventory, equipment and other personal property of the
Company. The Working Capital Facility is provided under a credit agreement
between the Company and the Lender (the "Credit Agreement") which obligates the
Company, among other things, to comply with certain affirmative, negative and
financial covenants.
The Working Capital Facility terminates on November 21, 2001, and all
borrowings thereunder mature on that date, subject to earlier termination and
acceleration by the Lender upon the occurrence by any event of default
specified in the Credit Agreement. The Company may prepay in full all
borrowings under the Working Capital Facility and terminate the Working Capital
Facility at any time, but a prepayment fee may be owing by the Company to the
Lender if the Working Capital Facility is prepaid in full and terminated prior
to April 29, 1999, subject to certain exceptions.
The Company is obligated to pay a monthly unused line fee for the Working
Capital Facility. Borrowings under the Working Capital Facility bear interest
at a monthly-adjustable rate (based on LIBOR), plus a margin, which margin may
decrease depending upon the Company's financial performance for its most
recently completed fiscal period and is subject to increase during any default.
The Company may also fix the interest rate for periods of one to three months
as provided in the Credit Agreement.
At February 28, 1997, borrowings under the Working Capital Facility were
$29.8 million, and the interest rate was 7.69%.
ACCOUNTS RECEIVABLE SECURITIZATION PROGRAM
In April 1996, the Company commenced an accounts receivable securitization
program (the "Securitization Program") that provides the Company with up to
$50.0 million of funding from the sale of trade accounts receivable generated
by the Company; however, the sum of its outstanding borrowings and letters of
credit under the Working Capital Facility, including outstanding fundings under
the Securitization Program, may not exceed $100.0 million at any one time.
In connection with the Securitization Program, the Company formed a special-
purpose, wholly-owned subsidiary, Pameco Securitization Corporation ("PSC"), to
serve as the purchaser of accounts receivable of the Company. The Company and
PSC, in turn, entered into a receivables purchase and servicing agreement (the
"Purchase Agreement") with Redwood Receivables Corporation (the "Purchaser")
and the Lender as operating agent, both of which are unaffiliated with the
Company.
Under the Securitization Program, PSC purchases from the Company and pools,
on at least a weekly basis, accounts receivable and related rights (the "Pool")
for a cash purchase price equal to the outstanding balance of such receivables
at the time of such sale (less PSC's anticipated financing costs and less the
amount of certain doubtful or delinquent accounts). The Purchaser, in turn,
purchases each Pool from PSC by investing cash in PSC, up to a maximum
outstanding investment of $50.0 million at any one time for all such purchases,
which
53
<PAGE>
entitles the Purchaser to an agreed upon investment yield (based on the
Purchaser's cost of funds plus a margin) and to the repayment of its investment
if it ceases purchasing additional Pools of receivables from PSC. PSC, in turn,
uses the proceeds of its sale of Pools to the Purchaser to finance its purchase
of such Pools from the Company as well as to make periodic loans to the
Company. Daily collections on the sold receivables are controlled and
administered by the Company acting as servicer for PSC and the Purchaser, and
after reservation of the Purchaser's accrued investment yield, are
automatically reinvested and used to pay for the purchase of new Pools of
receivables from the Company. PSC is obligated to pay a monthly unused facility
fee to the Purchaser for the Securitization Program.
As of February 28, 1997, the Purchaser's aggregate outstanding investment
under the Securitization Program was $30.5 million, and the interest rate was
6.89%.
The Purchase Agreement specifies several events of termination that would
permit the Purchaser to cease purchasing additional Pools of receivables from
PSC. The Purchase Agreement also specifies certain events of servicer
termination that would permit the Purchaser to take control of collections on
the sold receivables. Moreover, the Purchaser's obligation to continue to
purchase additional Pools of receivables terminates on November 21, 2001. PSC
may also terminate its sale of additional Pools of receivables to the Purchaser
on not less than 90 days' prior written notice to the Purchaser. Upon the
termination of Purchaser's purchase of additional Pools of receivables from
PSC, Purchaser's investment in the Pools will be repaid from future collections
on the sold receivables in such Pools.
If the Purchaser ceases purchasing additional Pools of receivables from PSC,
so that its outstanding investment was reduced by collections on previously
sold receivables, the Company expects that it would seek to borrow a sufficient
sum under its Working Capital Facility to permit PSC to repay all amounts owing
to the Purchaser with respect to its investment under the Securitization
Program. However, the occurrence of certain events of termination or events of
servicer termination under the Purchase Agreement may also constitute events of
default under the Working Capital Facility, which would permit the Lender to
withhold future loans to the Company. If the Company were not able to borrow
sufficient sums under the Working Capital Facility (or otherwise obtain the
funding necessary) to refinance the Purchaser's investment in the Pools of
receivables previously sold to it under the Securitization Program, then
control of collections on the receivables in such Pools could remain with the
Purchaser until it recovered its investment in such Pools.
54
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Immediately after completion of the Offering, the Company will have 7,858,680
shares of Common Stock outstanding, of which the 3,075,541 shares of Class A
Common Stock sold pursuant to the Offering will be freely tradeable without
restriction or further registration under the Securities Act, except those
shares acquired by "affiliates" of the Company as that term is defined under
the Securities Act. Holders of the remaining shares will be eligible to sell
such shares pursuant to Rule 144 ("Rule 144") under the Securities Act at
prescribed times and subject to the manner of sale, volume, notice and
information restrictions of Rule 144.
The Company, its officers, directors and certain other shareholders including
the Selling Shareholder, who collectively are the beneficial owners of an
aggregate of 1,348,337 shares of Class A Common Stock and 4,046,346 shares of
Class B Common Stock have agreed with the Underwriters, except with the prior
written consent of DLJ, not to offer, sell, pledge, contract to sell, grant any
option, right or warrant to purchase, or otherwise transfer or dispose of
directly or indirectly any shares of Common Stock of the Company or any
securities convertible into or exercisable or exchangeable for Common Stock or
in any other manner transfer all or a portion of the economic consequences
associated with the ownership of any Common Stock for a period of 180 days
after the date of this Prospectus. Upon the expiration of such 180 day period,
such holders will in general be entitled to dispose of their shares, although
the shares of Common Stock held by affiliates of the Company will continue to
be subject to the restrictions of Rule 144.
In addition, the Company may issue shares of Class A Common Stock (and may
consider filing a registration statement with respect to such shares) in
connection with potential future business acquisitions and resales of such
shares by the recipients. Shares so registered could be sold in the public
market. No predictions can be made as to the effect, if any, that market sales
of such shares or the availability of such shares for sale will have on the
market price for shares of Class A Common Stock prevailing from time to time.
Sales of substantial amounts of shares of Common Stock in the public market
following the Offering could adversely affect the market price of the Class A
Common Stock and could impair the Company's future ability to raise capital
through an offering of equity securities.
55
<PAGE>
UNDERWRITING
Subject to the terms and conditions contained in the Underwriting Agreement,
a syndicate of underwriters named below (the "Underwriters"), for whom DLJ,
Robinson-Humphrey and Schroder Wertheim & Co. Incorporated ("Schroder
Wertheim") are acting as representatives, have severally agreed to purchase
from the Company and the Selling Shareholder an aggregate of 3,075,541 shares
of Class A Common Stock. The number of shares of Class A Common Stock that each
Underwriter has agreed to purchase is set forth opposite its name below.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation.............
The Robinson-Humphrey Company, Inc..............................
Schroder Wertheim & Co. Incorporated............................
---
Total.......................................................
===
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase and accept delivery of the shares of Class A Common
Stock offered hereby are subject to approval of certain legal matters by
counsel and to certain other conditions. If any of the shares of Class A Common
Stock are purchased by the Underwriters pursuant to the Underwriting Agreement,
all such shares (other than those covered by the over-allotment option
described below) must be so purchased. The offering price and underwriting
discounts and commissions per share for shares of Class A Common Stock offered
by the Company and the Selling Shareholder are identical.
The Company and the Selling Shareholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that the Underwriters may be
required to make in respect hereof.
The Representatives have advised the Company that the Underwriters propose to
offer the shares of Class A Common Stock to the public initially at the price
to the public set forth on the cover page of this Prospectus and to certain
dealers (who may include the Underwriters) at such price, less a concession not
in excess of $ per share. The Underwriters may allow, and such dealers may
re-allow, discounts not in excess of $ per share to any other Underwriter
and certain other dealers. After the Offering, the offering price and other
selling terms may be changed by the Underwriters.
The Company has granted to the Underwriters an option to purchase up to an
aggregate of 461,331 additional shares of Class A Common Stock, at the initial
public offering price less underwriting discounts and commissions, solely to
cover over-allotments. Such option may be exercised at any time until 30 days
after the date of this Prospectus. To the extent that the Representatives
exercise such option, each of the Underwriters will be committed, subject to
certain conditions, to purchase a number of shares proportionate to such
Underwriter's initial commitment as indicated in the preceding tables.
The Company, its officers, directors and certain other shareholders,
including the Selling Shareholder, who collectively are the beneficial owners
of an aggregate of 1,348,337 shares of Class A Common Stock and 4,046,346
shares of Class B Common Stock have agreed with the Underwriters, except with
the prior written consent of DLJ, not to offer, sell, pledge, contract to sell,
grant any option, right or warrant to purchase, or otherwise transfer or
dispose of directly or indirectly any shares of Common Stock of the Company or
any securities convertible into or exercisable or exchangeable for Common Stock
or in any other manner transfer all or a portion of the economic consequences
associated with the ownership of any Common Stock for a period of 180 days
after the date of this Prospectus. See "Shares Eligible for Future Sale."
No action has been taken in any jurisdiction by the Company, the Selling
Shareholder or the Underwriters that would permit a public offering of the
Class A Common Stock offered pursuant to the Offering in any
56
<PAGE>
jurisdiction where action for that purpose is required, other than the United
States. The distribution of this Prospectus and the offering or sale of the
shares of Class A Common Stock offered hereby in certain jurisdictions may be
restricted by law. Accordingly, the shares of Class A Common Stock offered
hereby may not be offered or sold, directly or indirectly, and neither this
Prospectus nor any other offering material or advertisements in connection with
the Class A Common Stock may be distributed or published, in or from any
jurisdiction, except under circumstances that will result in compliance with
applicable rules and regulations of any such jurisdiction. Such restrictions
may be set out in applicable Prospectus supplements. Persons into whose
possession this Prospectus comes are required by the Company, the Selling
Shareholder and the Underwriters to inform themselves about and to observe any
applicable restrictions. This Prospectus does not constitute an offer of, or an
invitation to subscribe for purchase of, any shares of Class A Common Stock and
may not be used for the purpose of an offer to, or solicitation by, anyone in
any jurisdiction or in any circumstances in which such offer or solicitation is
not authorized or is unlawful.
The Representatives have informed the Company that the Underwriters do not
expect sales to discretionary accounts to exceed five percent of the total
number of shares of Class A Common Stock offered by them and the sales to
discretionary accounts by the Representatives will be less than one percent of
the total number of shares of Class A Common Stock offered by them.
A portion of the shares offered hereby will be reserved for sale to certain
employees, suppliers and customers of the Company and its subsidiaries, and
other persons designated by the Company, and the number of shares offered to
the public hereby will be reduced to the extent those persons purchased such
shares. The price per share of the shares to be sold to these persons will be
the same as the price to the public in the Offering. The maximum investment of
any such person may be limited by the Company in its sole discretion. This
program will be administered by Robinson-Humphrey. The number of shares to be
sold under this program shall not exceed five percent of the number of shares
of Class A Common Stock offered in connection with the Offering.
Prior to the Offering, there has been no public market for the shares of
Class A Common Stock. The initial public offering price has been negotiated
among the Company, the Selling Shareholder and the Representatives. Among the
factors considered in determining the initial public offering price of the
Class A Common Stock, in addition to prevailing market conditions, were the
Company's historical performance, estimates of the business potential and
earnings prospects of the Company, an assessment of the Company's management
and the consideration of the above factors in relation to market valuation of
companies in related businesses.
In connection with the Offering, the Underwriters may engage in transactions
that stabilize, maintain or otherwise affect the price of the Class A Common
Stock. Specifically, the Underwriters may overallot the offering, creating a
syndicate short position. In addition, the Underwriters may bid for, and
purchase, shares of Class A Common Stock in the open market to cover syndicate
shorts or to stabilize the price of the Class A Common Stock. Finally, the
underwriting syndicate may reclaim selling concessions allowed for distributing
the Class A Common Stock in the Offering, if the syndicate repurchases
previously distributed Class A Common Stock in syndicate covering transactions,
in stabilization transactions or otherwise. Any of these activities may
stabilize or maintain the market price of the Class A Common Stock above
independent market levels. The Underwriters are not required to engage in these
activities, and may end any of these activities at any time.
The Representatives have informed the Company and the Selling Shareholder
that the Underwriters do not intend to confirm sales of shares of Class A
Common Stock offered hereby to accounts over which they exercise discretionary
authority.
Pameco has applied to list the Class A Common Stock on The New York Stock
Exchange under the symbol "PCN."
Each of DLJ and Robinson-Humphrey from time to time perform investment
banking and other financial services for the Company and its affiliates for
which DLJ and Robinson-Humphrey receive advisory or transaction fees, as
applicable, plus out-of-pocket expenses, of the nature and in amounts customary
in the industry for such services.
57
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Balance Sheet as of November 30, 1996.................................... F-2
Statements of Income for the nine months ended November 30, 1995 and
1996.................................................................... F-3
Statement of Shareholders' Equity for the nine months ended November 30,
1996.................................................................... F-4
Statements of Cash Flows for the nine months ended November 30, 1995 and
1996.................................................................... F-5
Notes to Condensed Consolidated Financial Statements..................... F-6
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Auditors........................................... F-11
Balance Sheets as of February 28, 1995 and February 29, 1996............. F-12
Statements of Income for the years ended February 28, 1994, February 28,
1995 and February 29, 1996.............................................. F-13
Statements of Shareholders' Equity for the years ended February 28, 1994,
February 28, 1995 and February 29, 1996................................. F-14
Statements of Cash Flows for the years ended February 28, 1994, February
28, 1995 and February 29, 1996.......................................... F-15
Notes to Consolidated Financial Statements............................... F-16
</TABLE>
F-1
<PAGE>
PAMECO CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
NOVEMBER 30,
1996
------------
(UNAUDITED)
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents....................................... $ 119
Accounts receivable, less allowance of $2,368 .................. 20,146
Inventories..................................................... 102,937
Prepaid expenses and other current assets....................... 555
--------
Total current assets.......................................... 123,757
Property, plant and equipment, net................................ 5,200
Excess of cost over acquired net assets, net...................... 5,167
Other assets...................................................... 620
Deferred tax asset................................................ 1,753
--------
Total assets.................................................. $136,497
========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................ $ 36,760
Accrued compensation and withholdings........................... 5,267
Other accrued liabilities and expenses.......................... 13,338
Current portion of capital lease obligations and other debt..... 528
Notes payable to affiliate...................................... 22,500
--------
Total current liabilities..................................... 78,393
Long-term liabilities:
Debt............................................................ 34,510
Debt to shareholders............................................ 4,500
Capital lease obligations....................................... 60
Warranty reserves and other..................................... 2,168
--------
Total long-term liabilities................................... 41,238
Excess of acquired net assets over cost, net...................... 6,529
Shareholders' equity:
Common stock, $.01 par value--authorized 6,875,000; 6,250,000
shares issued and outstanding.................................. 63
Capital in excess of par value.................................. 937
Retained earnings............................................... 19,837
--------
20,837
Less treasury stock at cost--1,250,000 shares................... (10,500)
--------
Total shareholders' equity.................................... 10,337
--------
Total liabilities and shareholders' equity.................... $136,497
========
</TABLE>
See accompanying notes.
F-2
<PAGE>
PAMECO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
NOVEMBER 30, NOVEMBER 30,
1995 1996
------------ ------------
(UNAUDITED)
<S> <C> <C>
Net sales........................................... $267,726 $297,139
Cost of products sold............................... 205,535 225,120
-------- --------
Gross profit...................................... 62,191 72,019
Warehousing, selling, and administrative expenses... 51,452 59,769
Amortization of excess of acquired net assets over
cost............................................... (918) (918)
-------- --------
Operating income.................................... 11,657 13,168
Other expenses:
Interest expense, net............................. (3,550) (3,519)
Other expense, net................................ (59) (20)
-------- --------
Income before income taxes.......................... 8,048 9,629
Provision for income taxes.......................... 1,433 1,862
-------- --------
Net income.......................................... 6,615 7,767
Redeemable preferred stock dividends................ 395 424
-------- --------
Net income applicable to common shareholders........ $ 6,220 $ 7,343
======== ========
Net income per share................................ $ .94 $ 1.12
======== ========
Weighted average common and common equivalent shares
outstanding........................................ 6,608 6,535
======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE>
PAMECO CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
NINE MONTHS ENDED NOVEMBER 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK CAPITAL IN
-------------- EXCESS OF RETAINED TREASURY
SHARES AMOUNT PAR VALUE EARNINGS STOCK TOTAL
------ ------ ---------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Balances at February 29,
1996................... 6,250 $ 63 $937 $12,494 $ -- $ 13,494
Purchase of 1,250,000
treasury shares...... (1,250) -- -- -- (10,500) (10,500)
Net income............ -- -- -- 7,343 -- 7,343
------ ---- ---- ------- -------- --------
Balances at November 30,
1996................... 5,000 $ 63 $937 $19,837 $(10,500) $ 10,337
====== ==== ==== ======= ======== ========
</TABLE>
See accompanying notes.
F-4
<PAGE>
PAMECO CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
NOVEMBER 30, NOVEMBER 30,
1995 1996
------------ ------------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.......................................... $ 6,220 $ 7,343
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Amortization of excess of acquired net assets over
cost............................................. (918) (918)
Depreciation and other amortization............... 675 860
Loss (gain) on sale of property, plant and
equipment........................................ 387 (17)
Changes in operating assets and liabilities, net
of assets acquired:
Accounts receivable............................. (7,963) 21,352
Inventories, prepaid expenses and other assets.. 8,783 (8,179)
Accounts payable and accrued liabilities........ (9,865) 2,840
--------- ---------
Net cash (used in) provided by operating
activities......................................... (2,681) 23,281
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment.......... (875) (1,504)
Proceeds from sale of property, plant and
equipment.......................................... 35 34
Business acquisitions............................... -- (27,477)
--------- ---------
Net cash used in investing activities............... (840) (28,947)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on working capital facility.............. 278,725 297,457
Repayments of working capital facility.............. (269,829) (296,377)
Borrowings of long-term debt........................ -- 22,500
Repayment of subordinated notes..................... (5,000) (3,000)
Repayments of other debt............................ (373) (410)
Redemption of preferred stock....................... -- (4,000)
Purchase of treasury stock.......................... -- (10,500)
--------- ---------
Net cash provided by financing activities........... 3,523 5,670
--------- ---------
Net increase in cash and cash equivalents........... 2 4
Cash and cash equivalents at beginning of period.... 120 115
--------- ---------
Cash and cash equivalents at end of period.......... $ 122 $ 119
========= =========
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING
ACTIVITIES
Acquisition of equipment under capital lease
obligations........................................ $ 255 $ --
========= =========
</TABLE>
See accompanying notes.
F-5
<PAGE>
PAMECO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1996
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 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 nine month period ended November 30, 1996 are not
necessarily indicative of the results that may be expected for the year ended
February 28, 1997.
The Company's operating results vary significantly from quarter to quarter.
Sales increase during the warmer months beginning in April and peak in the
months of June, July and August. Historically, the Company's second fiscal
quarter has accounted for 33% of its sales and greater than 80% of its annual
operating earnings.
Sales of heating, ventilation and air conditioning ("HVAC") and
refrigeration equipment and replacement components are also affected by
national weather patterns and seasonal equipment start-ups. Warmer than normal
summer temperatures or colder than normal winter temperatures cause increased
stress on cooling and heating equipment. Increased stress on equipment
produces higher failure rates and therefore increased sales volume of
replacement equipment. Start-up modes for inactive equipment also produce
higher failure rates and an increase in replacement business on a seasonal
basis. Management believes the Company's national branch coverage mitigates
much of the risk associated with regional or local weather patterns.
In February 1997, the Company commenced plans to offer up to 3.0 million
newly issued shares of Class A Common Stock in an initial public offering
("IPO").
2. 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 equal to or below the assumed initial
public offering price per share ("cheap stock") during the twelve month period
immediately preceding the initial filing date of the Company's Registration
Statement for its public offering (March 26, 1997) have been included in
historical earnings per share as if outstanding for all periods presented
(using the treasury stock method at the assumed initial public offering
price).
Retroactive restatement has been made to all disclosures of shares, weighted
average shares and net income per share for the one share for two shares
reverse stock split effected on October 16, 1996 and the 1.25 shares for one
share stock split effected on May , 1997. (See Note 6)
3. ACQUISITIONS
On May 2, 1996, the Company acquired Chase Supply Company ("Chase") for
approximately $3.2 million in cash in an asset purchase transaction. Chase is
a six branch wholesale distributor of refrigeration and HVAC equipment and
supplies in the greater Chicago area.
On November 22, 1996, the Company acquired certain assets of Sid Harvey
Industries, Inc. ("Sid Harvey") for $23.3 million in cash. The Sid Harvey
acquisition consisted of 52 branches which sell refrigeration and HVAC
equipment and supplies throughout the southeastern United States.
Both acquisitions were accounted for under the purchase method of
accounting. The results of the operations of the acquired companies are
included in the consolidated statement of income as of the acquisition date.
The
F-6
<PAGE>
PAMECO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOVEMBER 30, 1996
3. ACQUISITIONS--(CONTINUED)
assets and liabilities of the acquired companies are included in the Company's
consolidated balance sheet based on a preliminary allocation of their estimated
fair values on the date of acquisition.
Summary unaudited pro forma results of operations for the acquisition of the
Sid Harvey and Chase branches are as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
---------------------------------------
NOVEMBER 30, NOVEMBER 30,
1995 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
Net sales........................ $ 314,850 $ 339,513
================== ==================
Net income applicable to Common
shareholders.................... $ 6,566 $ 6,842
================== ==================
Net income per common share...... $ .99 $ 1.05
================== ==================
Weighted average common and
common equivalent shares
outstanding..................... 6,608 6,535
================== ==================
</TABLE>
The above unaudited pro forma results of operations give effect to the
acquisitions as if they had occurred on March 1, 1995. The pro forma
adjustments for the acquisitions are based upon available information and
certain assumptions that management believes reasonable. The adjustments to the
historical data reflect the following: (i) increasing general and
administrative costs to reflect the incremental amount of costs the Company
estimates it would have incurred over the applicable time period; (ii) interest
expense assuming the Company financed the transaction at a rate of 7.3%, the
Company's weighted average borrowing rate; (iii) amortizing the excess of cost
over acquired net assets; (iv) adjusting income taxes on the earnings of the
acquirees to reflect the Company's effective income tax rate; and (v) recording
the income tax effect of the pro forma adjustments.
These unaudited pro forma results of operations do not purport to represent
what the Company's actual results of operations would have been if the
acquisition had occurred on March 1, 1995, and should not serve as a forecast
of the Company's operating results for any future periods. The pro forma
adjustments are based solely upon certain assumptions that management believes
are reasonable under the circumstances at this time. However, the full impact
of potential cost savings has not been reflected in the pro forma results
presented above, although there can be no assurances such cost savings will be
achieved. Subsequent adjustments are expected upon final determination of the
allocation of the purchase price.
4. DEBT
The components of debt are as follows:
<TABLE>
<CAPTION>
NOVEMBER 30,
1996
------------
(IN THOUSANDS)
<S> <C> <C>
Working capital facility.................................. $ 34,510
Junior subordinated notes................................. 4,500
Notes payable to affiliates............................... 22,500
Other..................................................... 31
--------
61,541
Less current portion of debt.............................. (22,531)
--------
$ 39,010
========
</TABLE>
F-7
<PAGE>
PAMECO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOVEMBER 30, 1996
4. DEBT--(CONTINUED)
On April 29, 1996, the Company entered into an asset securitization lending
arrangement (the "Securitization Program") with General Electric Capital
Corporation, Redwood Receivables Corporation ("Redwood"), and Pameco
Securitization Corporation. The capital commitment for the program was $40
million and the borrowing rate was the Redwood Receivables Commercial Paper
rate plus 1.50%. At November 30, 1996, this rate was 6.885%. The
Securitization Program is an off-balance sheet arrangement that provides for
the transfer and sale of accounts receivable to a special-purpose wholly-owned
subsidiary that issues commercial paper on the Company's behalf.
On January 24, 1997, the Company amended the Securitization Program to
increase the commitment to $50 million, increase the availability under the
program, and permit the transfer and sale of receivables generated by the
branches acquired from Sid Harvey. In accordance with the credit agreement, if
certain conditions are met, the Company can reduce the rate of interest
incrementally down to Redwood's Commercial Paper rate plus 1.25%.
On April 29, 1996, the Company amended its existing collateral-based
revolving line of credit (the "Working Capital Facility") to increase the
commitment to $30 million and to extend the expiration date to April 29, 2001.
Interest is computed using the 30-day LIBOR rate plus 2.25%, with an option
for the Company to fix up to five tranches of debt using the 60-day LIBOR or
90-day LIBOR rate plus 2.25%. At November 30, 1996, this rate was 7.625%.
On November 21, 1996, the Company amended the Working Capital Facility to
increase the commitment to $50 million and extend the expiration date of both
the Securitization Program and the Revolving Credit Line until November 21,
2001.
The junior subordinated notes and subordinated notes pay interest quarterly
at the prime rate and mature on September 1, 2001 and November 1, 2001,
respectively. During the nine month period ended November 30, 1996, the
Company repaid $3 million of such debt.
On November 7, 1996, the Company borrowed $15 million from Terfin
International, Ltd. ("Terfin"), an affiliate of a shareholder of the Company,
and in exchange issued a promissory note to Terfin in the same amount (the
"Note"). The Note pays interest at a rate of 12.5% per annum and is
subordinate to the Securitization Program and the Working Capital Facility.
The maturity date on the Note was December 31, 1996. On November 21, 1996, the
Note was amended to extend the maturity date to February 28, 1997. At the
Company's option, the maturity date of the Note may be further extended to
June 30, 1997. On January 13, 1997, the Company repaid $900,000 of principal
on the Note with the proceeds from sales of Common stock to certain members of
the Board of Directors. On February 28, 1997, the Company exercised its option
to extend the maturity of the Note to June 30, 1997.
The Note includes the issuance of 62,500 detachable stock purchase warrants
to purchase 62,500 shares of the Company's Common stock at $8.40 per share,
all of which are currently vested. The amount assigned to the warrants and to
the related debt discount was not material.
On November 21, 1996, the Company borrowed $7.5 million from Terfin. The
note accrues interest at a rate of 12.5% per annum and is subordinate to the
senior indebtedness. The maturity date on the note is March 31, 1997. On
February 3, 1997, the Company paid the entire principal and interest due on
the note.
F-8
<PAGE>
PAMECO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOVEMBER 30, 1996
5. PREFERRED STOCK
On November 14, 1996, the Company redeemed all outstanding shares of its
Preferred stock for $4 million. Accrued and unpaid dividends of $424,000 were
paid during the nine months ended November 30, 1996.
6. SHAREHOLDER'S EQUITY
COMMON STOCK
On May 6, 1996, the Company adopted a stock option plan for outside
directors which provides for the granting of 62,500 stock options to outside
members of the Company's Board of Directors. All options under this plan vest
upon grant. At November 30, 1996, 25,000 options were outstanding under the
plan at $6.40 per option.
On October 16, 1996, the Company amended its certificate of incorporation to
increase the authorized Common stock to 13,750,000 shares, retain the par
value of $.01 per share, and to provide a one share for two shares reverse
Common Stock split.
On November 14, 1996, the Company acquired 1,250,000 shares of its
outstanding common stock for $8.40 per share for an aggregate cost of $10.5
million.
On February 4, 1997, the Company amended its employee stock option plan to
increase the number of options under such plan from 437,500 to 750,000. The
stock options, when issued, vest incrementally over a three year period and
expire five years from the date of grant. At November 30, 1996, 383,501
options were outstanding under the plan to purchase shares of Class A Common
stock at prices ranging from $.88 to $8 per share.
On April 16, 1996, the Company's Board of Directors ratified the Company's
stock option grants to the Company's Chief Executive Officer ("CEO") on April
16, 1996. In addition, on May 5, 1996, the Company granted its CEO options to
purchase an additional 46,875 shares at a price of $6.40 per share. The Plan
covers 468,750 stock options at a price of $6.40 per option which vest over a
five year period and are subject to the Company's stock attaining specified
prices before certain shares vest. At November 30, 1996, 68,750 stock options
were vested. However, any unvested stock options vest immediately upon the
consummation of an initial public offering of the Company.
The Company was formed in March 1997. On May , 1997, Pameco Holdings, Inc.
("PHI") and Pameco Corporation, both Delaware corporations, were merged with
and into the Company, and in connection therewith the shareholders of PHI
received 1.25 shares of the Company's Class A Common stock or Class B Common
stock, as agreed upon among themselves, for each share of Class A Common stock
and Class B Common stock of PHI held by them immediately prior to the merger.
The Company's Class A Common stock entitles its holder to one vote per share,
whereas the Class B Common stock generally entitles its holder to ten votes
per share.
Retroactive restatement has been made to all disclosures of shares, weighted
average shares and net income per share disclosures for the reverse split
effected on October 16, 1996 and the stock split effected on May , 1997.
STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS
No. 123). The Company has elected to continue following Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB No. 25)
and related interpretations in accounting for its employee stock options. The
Company will adopt the disclosure requirements of SFAS No. 123 in the year
ended February 28, 1997. Under APB No. 25, when the exercise price of the
Company's stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
F-9
<PAGE>
PAMECO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOVEMBER 30, 1996
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 oral contract to purchase Sid Harvey's
southeastern business operations (the "Southeastern Assets"). United asserted
that beginning on or about August 23, 1996, it met with Sid Harvey and
thereafter negotiated an agreement (allegedly finalized on or about October
24, 1996) to purchase the Southeastern Assets for approximately $26 million
and that Pameco tortiously interfered with this alleged oral contract by
offering "substantial inducements" to Sid Harvey and by itself purchasing the
Southeastern Assets. In the alternative, United claims that, should the oral
agreement be deemed unenforceable, Pameco tortiously interfered with United's
prospective contractual relations with Sid Harvey. On February 18, 1997,
United filed an amended complaint adding Sid Harvey as a defendant. In the
amended complaint, United claims that Sid Harvey (i) breached its oral
agreement to sell the Southeastern Assets to United; (ii) committed fraud in
the inducement of that alleged oral 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 exceed $3 million annually for an unspecified number of years. 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, 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.
In addition, the Company is, from time to time, a party to other litigation
arising in the normal course of its business.
Management believes that none of these actions, individually or in the
aggregate, will have a material adverse effect on the Company's business and
results of operations.
F-10
<PAGE>
The following report is in the form that will be signed upon the completion
of the restatement of capital accounts and the merger described in the last
paragraph of Note 9 to the financial statements.
Ernst & Young LLP
Atlanta, Georgia
March 26, 1997
REPORT OF INDEPENDENT AUDITORS
Board of Directors Pameco Corporation
We have audited the accompanying consolidated balance sheets of Pameco
Corporation (formerly Pameco Holdings, Inc.) as of February 28, 1995 and
February 29, 1996, and the related statements of income, shareholder's equity
and cash flows for each of the three years in the period ended February 29,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Pameco
Corporation at February 28, 1995 and February 29, 1996, and the consolidated
results of its operations and its cash flows for each of the three years in
the period ended February 29, 1996.
Ernst & Young LLP
Atlanta, Georgia
April 26, 1996, except for
Note 8 as to which the date
is May 2, 1996 and the last
paragraph of Note 9 as to
which the date is ,
1997
F-11
<PAGE>
PAMECO CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 29,
1995 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 120 $ 115
Accounts receivable, less allowance of $2,125 at
February 28, 1995 and $1,878 at February 29,
1996.............................................. 33,002 36,273
Inventories........................................ 87,267 76,352
Prepaid expenses and other current assets.......... 1,194 897
-------- --------
Total current assets............................. 121,583 113,637
Property, plant and equipment, net................... 2,957 3,333
Other assets......................................... 424 444
Deferred tax asset................................... -- 1,753
-------- --------
Total assets..................................... $124,964 $119,167
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................... $ 41,338 $ 32,660
Accrued compensation and withholdings.............. 4,292 6,205
Other accrued liabilities and expenses............. 12,327 11,808
Current portion of capital lease obligations and
other debt........................................ 494 581
-------- --------
Total current liabilities........................ 58,451 51,254
Long-term liabilities:
Debt............................................... 29,974 33,438
Debt to shareholders............................... 13,500 7,500
Capital lease obligations.......................... 744 409
Warranty reserves and other........................ 1,624 1,625
-------- --------
Total long-term liabilities...................... 45,842 42,972
Excess of acquired net assets over cost, net......... 8,671 7,447
Preferred stock, $1 par value--authorized 25,000
shares; 4,000 shares issued and outstanding
(liquidation preference $1,000 per share)........... 4,000 4,000
Shareholders' equity:
Common stock, $.01 par value--authorized shares;
6,250,000 shares issued and outstanding........... 63 63
Capital in excess of par value..................... 937 937
Retained earnings.................................. 7,000 12,494
-------- --------
Total shareholders' equity....................... 8,000 13,494
-------- --------
Total liabilities and shareholders' equity....... $124,964 $119,167
======== ========
</TABLE>
See accompanying notes.
F-12
<PAGE>
PAMECO CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Net sales.............................. $338,034 $323,152 $334,537
Cost of products sold.................. 259,028 243,887 255,301
-------- -------- --------
Gross profit.......................... 79,006 79,265 79,236
Warehousing, selling, and
administrative expenses............... 71,113 70,467 69,405
Amortization of excess of acquired net
assets over cost...................... (1,224) (1,224) (1,224)
Severance.............................. -- -- 1,230
-------- -------- --------
Operating income....................... 9,117 10,022 9,825
Other income (expense):
Interest expense, net................ (4,593) (4,818) (4,732)
Other income (expense)............... 770 189 (482)
-------- -------- --------
Income before income taxes............. 5,294 5,393 4,611
Provision (benefit) for income taxes... 585 575 (1,403)
-------- -------- --------
Net income............................. 4,709 4,818 6,014
Redeemable preferred stock dividends... 621 547 520
-------- -------- --------
Net income applicable to common
shareholders.......................... $ 4,088 $ 4,271 $ 5,494
======== ======== ========
Net income per share................... $ .62 $ .65 $ .85
======== ======== ========
Weighted average number of common and
common equivalent shares outstanding.. 6,608 6,608 6,487
======== ======== ========
</TABLE>
See accompanying notes.
F-13
<PAGE>
PAMECO CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK CAPITAL IN EARNINGS
-------------- EXCESS OF (ACCUMULATED
SHARES AMOUNT PAR VALUE DEFICIT) TOTAL
------ ------ ---------- ------------ -------
<S> <C> <C> <C> <C> <C>
Balances at February 28, 1993.. 10,000 $100 $900 $(1,359) $ (359)
Reverse Common stock split--1
share for 2 shares.......... (5,000) (50) 50 -- --
Common stock split--1.25
shares for 1 share.......... 1,250 13 (13) -- --
------ ---- ---- ------- -------
Balances at February 28, 1993.. 6,250 63 937 (1,359) (359)
Net income..................... -- -- -- 4,088 4,088
------ ---- ---- ------- -------
Balances at February 28, 1994.. 6,250 63 937 2,729 3,729
Net income..................... -- -- -- 4,271 4,271
------ ---- ---- ------- -------
Balances at February 28, 1995.. 6,250 63 937 7,000 8,000
Net income..................... -- -- -- 5,494 5,494
------ ---- ---- ------- -------
Balances at February 29, 1996.. 6,250 $ 63 $937 $12,494 $13,494
====== ==== ==== ======= =======
</TABLE>
See accompanying notes.
F-14
<PAGE>
PAMECO CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................. $ 4,088 $ 4,271 $ 5,494
Adjustments to reconcile net income to
net cash provided by operating
activities:
Amortization of excess of acquired
net assets over cost................ (1,224) (1,224) (1,224)
Depreciation and other amortization.. 509 735 994
(Gain) loss on sale of property,
plant and equipment................. (863) 38 332
Changes in operating assets and
liabilities:
Accounts receivable................ (2,544) 2,231 (3,271)
Inventories, prepaid expenses and
other assets...................... (3,245) (3,977) 9,458
Accounts payable and accrued
liabilities....................... 4,062 (756) (7,283)
-------- -------- --------
Net cash provided by operating
activities............................ 783 1,318 4,500
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and
equipment............................. (626) (779) (1,398)
Proceeds from sale of property, plant
and equipment......................... 863 167 182
-------- -------- --------
Net cash provided by (used in)
investing activities.................. 237 (612) (1,216)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on working capital
facility.............................. 356,271 339,817 342,729
Repayments on working capital
facility.............................. (353,116) (340,169) (339,490)
Repayment on subordinated notes........ (4,000) -- (6,000)
Repayments on other debt............... (241) (367) (528)
Payment for other assets............... (59) -- --
-------- -------- --------
Net cash used in financing activities.. (1,145) (719) (3,289)
-------- -------- --------
Net decrease in cash and cash
equivalents........................... (125) (13) (5)
Cash and cash equivalents at beginning
of year............................... 258 133 120
-------- -------- --------
Cash and cash equivalents at end of
year.................................. $ 133 $ 120 $ 115
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF NONCASH
FINANCING ACTIVITIES
Acquisition of equipment under capital
lease obligations..................... $ 722 $ 880 $ 255
======== ======== ========
</TABLE>
See accompanying notes.
F-15
<PAGE>
PAMECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 29, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Pameco
Corporation (formerly Pameco Holdings, Inc. and Pameco Corporation, both
Delaware corporations) and its wholly-owned subsidiary (collectively the
"Company"). All significant intercompany accounts and transactions have been
eliminated.
DESCRIPTION OF BUSINESS
The Company is a nationwide wholesale distributor of heating, ventilation
and air conditioning ("HVAC") and refrigeration equipment, with approximately
240 branches located in 43 states and Guam. The principal components of the
Company's business are sales of heating, air conditioning, and refrigeration
parts and equipment to the commercial and residential markets.
The Company's operating results vary significantly from quarter to quarter.
Sales increase during the warmer months beginning in April and peak in the
months of June, July and August. Historically, the Company's second fiscal
quarter has accounted for 33% of its sales and greater than 80% of its annual
operating earnings.
Sales of HVAC and refrigeration equipment and replacement components are
also affected by national weather patterns and seasonal equipment start-ups.
Warmer than normal summer temperatures or colder than normal winter
temperatures cause increased stress on cooling and heating equipment.
Increased stress on equipment produces higher failure rates and therefore
increased sales volume of replacement equipment. Start-up modes for inactive
equipment also produce higher failure rates and an increase in replacement
business on a seasonal basis. Management believes the Company's national
branch coverage mitigates much of the risk associated with regional or local
weather patterns.
CASH EQUIVALENTS
For purposes of the accompanying statements of cash flows, the Company
considers all highly liquid investments purchased with a maturity of three
months or less to be cash equivalents.
INVENTORIES
Inventories consist of finished goods held for resale and are stated at the
lower of cost or market. Cost is determined by the first-in, first-out (FIFO)
method. During 1996, approximately 54% of all inventory purchases were made
from eleven primary vendors. To help ensure adequate future inventory supply
sources, the Company maintains supply relationships with several other
vendors.
The Company provided reserves for excess and idle inventory aggregating $3.0
million and $2.6 million as of February 28, 1995, and February 29, 1996,
respectively.
PROPERTY, PLANT AND EQUIPMENT
Properties are recorded at cost and include expenditures for additions and
major improvements. Expenditures for repairs and maintenance are charged to
operations as incurred. Depreciation is computed using the straight-line
method over the estimated useful lives of the respective assets. The estimated
useful lives for property, plant and equipment range from three to ten years.
EXCESS OF ACQUIRED NET ASSETS OVER COST
Excess of the acquired net assets over cost is being amortized on a
straight-line basis over 10 years. Accumulated amortization of the excess of
acquired net assets over cost was approximately $3.6 and $4.8 million at
February 28, 1995 and February 29, 1996, respectively.
F-16
<PAGE>
PAMECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FEBRUARY 29, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS--(CONTINUED)
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results inevitably will differ from those
estimates, and such differences could be material to the financial statements.
CREDIT POLICY
The Company performs periodic credit evaluations of its customers' financial
condition and in some instances places liens on certain projects. Receivables
are generally due within 30 days. Credit losses have been within management's
expectations.
INCOME TAXES
The Company uses the liability method of accounting for income taxes. Under
this method, deferred tax assets and liabilities are determined based on
differences between the financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
RECENT PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board issued Financial
Accounting Standards Number 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," which established
accounting standards for the impairment of long-lived assets, certain
identifiable intangibles and goodwill related to those assets to be held and
used, as well as for long-lived assets and certain identifiable intangibles to
be disposed of. The Company will be required to adopt the new Standard in
fiscal year 1997. Based on a preliminary evaluation of this Standard's
requirements, management does not expect its effect to be material to the
Company's financial position.
In October 1995, the Financial Accounting Standards Board issued Financial
Accounting Standards Number 123, "Accounting for Stock-Based Compensation"
(SFAS No. 123). The Company has elected to continue following Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
(APB No. 25) and related interpretations in accounting for its employee stock
options. The Company will adopt the disclosure requirements of SFAS No. 123 in
the year ending February 28, 1997. Under APB No. 25, when the exercise price
of the Company's stock options equals the market price of the underlying stock
on the date of grant, no compensation expense is recognized.
EARNINGS PER SHARE
Pursuant to the Securities and Exchange Commission Staff Accounting Bulletin
No. 83, common stock and common stock equivalents issued at prices equal to or
below the assumed initial public offering price per share ("cheap stock")
during the twelve month period immediately preceding the initial filing date
of the Company's Registration Statement for its public offering (March 26,
1997) have been included in historical earnings per share as if outstanding
for all periods presented (using the treasury stock method at the assumed
initial public offering price).
F-17
<PAGE>
PAMECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FEBRUARY 29, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS--(CONTINUED)
The amounts computed for primary and fully diluted historical net income per
share of common stock are the same in 1994, 1995 and 1996.
Retroactive restatement has been made to all disclosures of shares, weighted
average shares and net income per share disclosures for the one share for two
shares reverse Common Stock split effected on October 16, 1996 and the 1.25
shares for one share stock split effected on May , 1997. (See Note 6)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the consolidated balance sheets for cash,
accounts receivable, and accounts payable approximate their fair values. The
fair values of the Company's debt approximate the reported amounts in the
consolidated balance sheets as their respective interest rates approximate the
market rates for similar debt instruments.
MANAGEMENT ADVISORY SERVICES
The Company receives certain advisory services from Three Cities Research,
Inc. Three Cities Research, Inc. is the investment advisor for certain
investors who owned 71% and 68% of the stock of the Company at February 28,
1995 and February 29, 1996, respectively. Three Cities Research, Inc. is paid
an annual fee of $50,000 for advisory services.
2. PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment are as follows:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 29,
1995 1996
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Buildings and leasehold improvements............... $ 238 $ 341
Machinery and equipment............................ 786 846
Furniture, office, and computer equipment.......... 3,220 3,834
------- -------
4,244 5,021
Accumulated depreciation........................... (1,287) (1,688)
------- -------
$ 2,957 $ 3,333
======= =======
</TABLE>
3. DEBT
The components of debt are as follows:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 29,
1995 1996
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Working capital facility........................... $29,940 $33,430
Junior subordinated notes.......................... 5,000 5,000
Subordinated notes................................. 8,500 2,500
Other.............................................. 74 36
------- -------
43,514 40,966
Less current portion of debt....................... (40) (28)
------- -------
$43,474 $40,938
======= =======
</TABLE>
F-18
<PAGE>
PAMECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FEBRUARY 29, 1996
3. DEBT--(CONTINUED)
On March 23, 1995 the Company expanded its collateral based revolving line
of credit (the "Working Capital Facility") to $60 million and extended the
expiration date to March 1, 1999. The Company has a monthly option for
computing interest using the prime rate (prime + .25%) or LIBOR rate (LIBOR +
3%). Interest is paid monthly on amounts outstanding under this facility
(10.0% and 8.5% at February 28, 1995 and February 29, 1996, respectively). In
accordance with the credit agreement, if certain conditions are met the
Company can reduce the rate of interest incrementally down to the prime rate
or the LIBOR rate plus 2.75%.
The Working Capital Facility is secured by a pledge of the Common Stock and
Preferred Stock of the Company and a lien on substantially all of the
Company's assets.
The Working Capital Facility requires the Company to comply with certain
covenants regarding the maintenance of specified levels of net worth,
operating earnings, working capital and cash interest coverage, and, among
other restrictions, limit additional borrowings, the incurrence of liens on
assets, the acquisition and disposition of assets, capital expenditures and
distributions to shareholders. During the past year, the Company complied with
all covenants contained in the loan agreements or obtained waivers with
respect to any violations.
The junior subordinated and subordinated notes pay interest quarterly at the
prime rate and mature on September 1, 1999.
Aggregate maturities and other required reductions of debt for the next five
fiscal years are: 1997--$28,000; 1998--$8,000; 1999--$-0-; and 2000--
$40,930,000.
Interest paid was approximately $4.4, $4.6 and $4.8 million for the years
ended February 28, 1994, February 28, 1995 and February 29, 1996,
respectively.
4. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred income tax assets as of February 28, 1995 and
February 29, 1996 are as follows:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 29,
1995 1996
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Deferred income tax assets:
Accounts receivable reserves................... $ 972 $ 878
Inventory reserves............................. 3,274 2,884
Property, plant and equipment.................. 548 319
Extended product warranties.................... 1,116 1,064
Other.......................................... 1,461 1,746
Alternative minimum tax credit................. 3,708 3,418
------- ------
Total deferred income tax assets................. 11,079 10,309
Valuation allowance for deferred income tax
assets.......................................... (11,079) (8,556)
------- ------
Net deferred income tax assets................... $ -- $1,753
======= ======
</TABLE>
F-19
<PAGE>
PAMECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FEBRUARY 29, 1996
4. INCOME TAXES--(CONTINUED)
The cumulative alternative minimum tax credit, generated in prior years, was
approximately $3.7 million and $3.4 million at February 28, 1995 and February
29, 1996, respectively, and can be utilized to offset regular federal tax in
future periods. For financial reporting purposes, a valuation allowance was
recognized at February 28, 1995 to offset deferred income tax assets including
the alternative minimum tax credit carryforward. This valuation allowance was
reduced during the year ended February 29, 1996 resulting in a net deferred
income tax asset totaling $1,753,000. Future realization of such asset was
determined by management to be "more likely than not" in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes."
The components of the provision (benefit) for income taxes for the years
ended February 28, 1994, February 28, 1995, and February 29, 1996 are as
follows:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
1994 1995 1996
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal income taxes.............. $280 $225 $ 70
State, local, and foreign income
and franchise taxes.............. 305 350 280
---- ---- -------
585 575 350
Deferred:
Federal income taxes.............. -- -- (1,753)
---- ---- -------
$585 $575 $(1,403)
==== ==== =======
</TABLE>
A reconciliation of the expected income tax expense at the statutory federal
rate to the Company's actual income tax provision (benefit) follows:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
1994 1995 1996
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Statutory expense.................... $1,800 $1,834 $ 1,568
State expense--net of federal
benefit............................. 201 231 192
Change in valuation allowance........ (1,067) (1,280) (2,735)
Nondeductible items, primarily
amortization of excess of acquired
net assets over cost................ (377) (407) (381)
Other, net........................... 28 197 (47)
------ ------ -------
$ 585 $ 575 $(1,403)
====== ====== =======
</TABLE>
The Company paid approximately $3.0 million, $528,000 and $542,000 of income
taxes during the years ended February 28, 1994, February 28, 1995, and
February 29, 1996, respectively.
F-20
<PAGE>
PAMECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FEBRUARY 29, 1996
5. COMMITMENTS AND CONTINGENCIES
CAPITAL LEASES
The Company leases certain computer equipment under long-term capital
leases. The cost of computer equipment under capital leases included in
property and equipment was $1,418,007 and $1,672,522 at February 28, 1995 and
February 29, 1996, respectively.
Future minimum lease payments under capital leases at February 29, 1996 were
as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Years ending February 28,
1997........................................................ $ 609
1998........................................................ 412
1999........................................................ 35
------
Total minimum lease payments.............................. 1,056
Less amounts representing interest............................ (94)
------
Present value of net minimum lease payments................... 962
Current portion of capital leases............................. (553)
------
Total non-current portion of capital leases............... $ 409
======
</TABLE>
OPERATING LEASES
The Company leases office and warehouse facilities and equipment under
operating leases. Rental expense for the years ended February 28, 1994,
February 28, 1995 and February 29, 1996 approximated $10.1, $9.5 and $9.3
million, respectively. Future minimum lease commitments under these agreements
as of February 29, 1996 are as follows: 1997--$6.1 million; 1998--$4.0
million, 1999--$2.8 million; 2000--$1.8 million; 2001--$895,000, and $1.3
million thereafter.
LEGAL PROCEEDINGS
The Company is involved in various claims and legal proceedings which have
arisen in the ordinary course of its business. The Company does not believe
any such matters will have a material adverse effect on the Company's results
of operations or financial condition.
6. SHAREHOLDERS' EQUITY
PREFERRED STOCK
In 1994, the Board of Directors of the Company designated 4,000 shares of
Preferred stock as Series A, non-voting, Preferred stock. On June 17, 1994,
the Certificate of Incorporation was amended to provide that Pameco
Corporation redeem 1,000 shares of the Series A Preferred stock on each of
June 30, 1999, June 30, 2000 and June 30, 2002 at a price equal to $1,000 per
share plus accrued and unpaid dividends. The amendment also provides that the
holders of the Series A Preferred stock are entitled to receive cash dividends
quarterly based upon the prime rate plus 4%, with a maximum rate of 14% and a
minimum rate of 10%. Prior to the amendment, the holders of Series A Preferred
stock were entitled to receive cash dividends of $25 per share quarterly.
Dividends are payable on a calendar year basis and are cumulative in the event
of any failure of the Board to declare or pay such dividends. During the years
ended February 28, 1994, February 28, 1995 and February 29, 1996, $-0-,
$547,000 and $520,000 of dividends were declared and paid respectively.
Accumulated unpaid dividends were approximately $77,000 and $76,000 at
February 28, 1995 and February 29, 1996, respectively.
F-21
<PAGE>
PAMECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FEBRUARY 29, 1996
6. SHAREHOLDERS' EQUITY--(CONTINUED)
STOCK-OPTION PLAN
The Company has a stock option plan (the "Plan") which provides that 437,500
stock options may be granted to key employees, including officers and
directors, to purchase common stock at fair market value. Certain shareholders
of the Company have agreed to sell to the Company an equal number of shares of
Common stock as these stock options are exercised at an amount equal to the
exercise price. The stock options vest incrementally over a three year period
and expire five years from the date granted.
A summary of transactions under the Plan is as follows (in thousands, except
per share data):
<TABLE>
<CAPTION>
FEBRUARY 28, 1994 FEBRUARY 28, 1995 FEBRUARY 29, 1996
-------------------- --------------------- --------------------
NUMBER OF PRICE PER NUMBER OF PRICE PER NUMBER OF PRICE PER
SHARES SHARE SHARES SHARE SHARES SHARE
--------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ 357,917 $0.88-1.20 344,229 $0.88-4.80 300,250 $0.88-6.40
Granted............... 83,000 1.20-4.80 97,563 4.80-6.40 87,125 6.40
Exercised............. -- -- (9,583) 0.88 (30,417) 0.88-4.80
Canceled.............. (96,688) 0.88-1.20 (131,959) 0.88-4.80 (7,833) 4.80-6.40
------- --------
Outstanding at end of
year................... 344,229 0.88-4.80 300,250 0.88-6.40 349,125 0.88-6.40
======= ========== ======== ========== ======= ==========
Exercisable............. 87,284 235,021 265,133
======= ======== =======
Reserved for future
grant.................. 62,021 127,667 48,735
======= ======== =======
</TABLE>
7. EMPLOYEE BENEFIT PLAN
The Company has a defined contribution plan which covers a majority of its
employees. This plan provides for voluntary employee contributions. Employer
contributions under plan provisions are discretionary. The Company did not
contribute to the Plan in 1994 and contributed $58,000 and $104,000 for the
years ended, February 28, 1995 and February 29, 1996, respectively.
8. SUBSEQUENT EVENTS
LENDING ARRANGEMENT
On April 29, 1996, the Company entered into an Asset Securitization Program
with General Electric Capital Corporation, Redwood Receivables Corporation
("Redwood"), and Pameco Securitization Corporation ("PSC") which expires on
April 29, 2001. PSC is a special purpose company formed for this transaction
and is a wholly-owned subsidiary of the Company. The borrowing rate on the $40
million asset securitization portion of the facility is equal to Redwood's
Commercial Paper rate plus 1.50%. At April 30, 1996 this rate was equal to
6.9%.
In addition, the Company's Working Capital Facility was amended to increase
the size of the facility, to extend the agreement until April 29, 2001 and to
lower the borrowing rate to LIBOR plus 2.25%. The two facilities total a
maximum borrowing of $70 million.
F-22
<PAGE>
PAMECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FEBRUARY 29, 1996
8. SUBSEQUENT EVENTS--(CONTINUED)
ACQUISITION
On May 2, 1996, the Company acquired Chase Supply Company ("Chase") for
approximately $3 million. Chase is a six branch wholesale distributor of HVAC
and refrigeration equipment and supplies in the greater Chicago, Illinois
area.
9. EVENTS SUBSEQUENT TO THE INDEPENDENT AUDITOR'S REPORT DATE
ACQUISITION
On November 22, 1996, the Company acquired certain assets of Sid Harvey
Industries, Inc. ("Sid Harvey") for $23.3 million in cash. The Sid Harvey
acquisition consisted of 52 branches which sell refrigeration and HVAC
equipment and supplies throughout the southeastern United States.
DEBT
On January 24, 1997, the Company amended the Securitization Program to
increase the commitment to $50 million, increase availability under the
Securitization Program, and permit the transfer and sale of receivables
generated by the branches acquired from Sid Harvey. In accordance with the
Credit Agreement for the Securitization Program, if certain conditions are
met, the Company can reduce the rate of interest incrementally down to
Redwood's Commercial Paper rate plus 1.25%.
On November 21, 1996, the Company amended the Working Capital Facility to
increase the commitment to $50 million and extend the expiration date of both
the Securitization Program and the Working Capital Facility until November 21,
2001.
On November 7, 1996, the Company borrowed $15 million from Terfin
International, Ltd. ("Terfin"), an affiliate of a shareholder of the Company,
and in exchange issued a promissory note to Terfin in the same amount (the
"Note"). The Note pays interest at a rate of 12.5% per annum and is
subordinate to the Securitization Program and the Working Capital Facility.
The maturity date on the Note was December 31, 1996. On November 21, 1996, the
Note was amended to extend the maturity date to February 28, 1997. At the
Company's option, the maturity date of the Note may be further extended to
June 30, 1997. On January 13, 1997, the Company repaid $900,000 of principal
on the Note with the proceeds from the sales of common stock to certain
members of the Board of Directors. On February 28, 1997, the Company exercised
its option to extend the maturity of the Note to June 30, 1997.
The Note includes the issuance of detachable warrants to purchase 62,500
shares of the Company's common stock at $8.40 per share, all of which are
currently vested. The value assigned to the warrants and to the related debt
discount was not material.
On November 21, 1996, the Company borrowed $7.5 million from Terfin. The
note accrues interest at a rate of 12.5% per annum and is subordinate to the
senior indebtedness. The maturity date on the note is March 31, 1997. On
February 3, 1997, the Company paid the entire principal and interest due on
the note.
PREFERRED STOCK
On November 14, 1996, the Company redeemed all outstanding shares of its
preferred stock for $4 million. Accrued and unpaid dividends of $424,000 were
paid during the nine months ended November 30, 1996.
F-23
<PAGE>
PAMECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FEBRUARY 29, 1996
9. EVENTS SUBSEQUENT TO THE INDEPENDENT AUDITOR'S REPORT DATE--(CONTINUED)
LEGAL PROCEEDINGS
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 oral contract to purchase Sid Harvey's
southeastern business operations (the "Southeastern Assets"). United asserted
that beginning on or about August 23, 1996, it met with Sid Harvey and
thereafter negotiated an agreement (allegedly finalized on or about October
24, 1996) to purchase the Southeastern Assets for approximately $26 million
and that Pameco tortiously interfered with this alleged oral contract by
offering "substantial inducements" to Sid Harvey and by itself purchasing the
Southeastern Assets. In the alternative, United claims that, should the oral
agreement be deemed unenforceable, Pameco tortiously interfered with United's
prospective contractual relations with Sid Harvey. On February 18, 1997,
United filed an amended complaint adding Sid Harvey as a defendant. In the
amended complaint, United claims that Sid Harvey (i) breached its oral
agreement to sell the Southeastern Assets to United; (ii) committed fraud in
the inducement of that alleged oral 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 exceed $3 million annually for an unspecified number of years. 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, 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.
Management believes that none of these actions, individually or in the
aggregate, will have a material adverse effect on the Company's business and
results of operations.
SHAREHOLDERS' EQUITY
On October 16, 1996, the Company amended its certificate of incorporation to
increase the authorized Common Stock to 13,750,000 shares, retain the par
value of $.01 per share, and to provide for a one share for two shares reverse
Common Stock split. All share and earnings per share amounts have been
adjusted to reflect the reverse stock split.
The Company was formed in March 1997. On May , 1997, Pameco Holdings, Inc.
("PHI") and Pameco Corporation, both Delaware corporations, were merged with
and into the Company, and in connection therewith the holders 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. Retroactive restatement has been made to all disclosures of shares,
weighted average shares and net income per share disclosures for the reverse
split effected on October 16, 1996 and the stock split effected on May ,
1997.
F-24
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALES PERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PRO-
SPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY THE SHARES BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITA-
TION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING THE OFFER OR SOLICITA-
TION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 10
Use of Proceeds.......................................................... 14
Dividend Policy.......................................................... 15
Dilution................................................................. 16
Capitalization........................................................... 17
Selected Consolidated Financial and Other Operating Data ................ 18
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 20
Business................................................................. 26
Management............................................................... 37
Certain Transactions..................................................... 45
Principal and Selling Shareholders....................................... 46
Description of Capital Stock............................................. 48
Description of Certain Indebtedness...................................... 52
Shares Eligible for Future Sale.......................................... 54
Underwriting............................................................. 55
Experts.................................................................. 57
Legal Matters............................................................ 57
Available Information.................................................... 57
Index to Consolidated Financial Statements............................... F-1
</TABLE>
------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE CLASS A COMMON STOCK, WHETHER OR NOT PARTICIPAT-
ING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
3,075,541 SHARES
PAMECO CORPORATION
CLASS A COMMON STOCK
----------------
PROSPECTUS
----------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
THE ROBINSON-HUMPHREY COMPANY, INC.
SCHRODER WERTHEIM & CO.
, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below is an estimate of the approximate amount of the fees and
expenses (other than underwriting commissions and discounts) payable by the
Registrant in connection with the issuance and distribution of the shares of
Class A Common Stock.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee................. $16,977
NASD Filing Fee..................................................... $ 6,000
NYSE listing fee.................................................... $81,100
Printing and Mailing................................................ $ *
Accounting Fees and Expenses........................................ $ *
Blue Sky Fees and Expenses.......................................... $ *
Counsel Fees and Expenses........................................... $ *
Miscellaneous....................................................... $ *
-------
Total............................................................. $ *
=======
</TABLE>
- ---------------------
* To be supplied by amendment.
The Selling Shareholder will pay all underwriting discounts and commissions
and transfer taxes, if any, relating to the sale of the Selling Shareholder's
shares in the Offering.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The underwriting agreement provides for indemnification by the Underwriters
of the Company and the Selling Shareholder and by the Company and the Selling
Shareholder of the Underwriters, for certain liabilities, including
liabilities arising under the Securities Act of 1933 (the "Securities Act"),
and affords certain rights of contribution with respect thereto.
As provided under Georgia law, the Company's Articles of Incorporation
provide that a director shall not be personally liable to the Company or its
shareholders for monetary damages for breach of duty of care or any other duty
owed to the Company as a director, except that such provisions shall not limit
the liability of a director (a) for any appropriation, in violation of his
duties, of any business opportunity of the Company; (b) for acts or omissions
which involve intentional misconduct or a knowing violation of law; (c) for
unlawful corporate distributions or (d) for any transactions from which the
director receives an improper benefit.
Under Article V of the Company's Bylaws, the Registrant is required to
indemnify its directors and officers to the fullest extent permitted by
Georgia law. The Georgia Business Corporation Code provides that a corporation
may indemnify its directors, officers and agents against judgments, fines,
penalties, amounts paid in settlement and expenses, including attorneys' fees,
resulting from various types of legal actions or proceedings if the actions of
the party being indemnified meet the standards of conduct specified therein.
Determinations concerning whether the applicable standard of conduct has been
met can be made by (a) a majority of the disinterested directors; (b) a
majority of a committee of disinterested directors; (c) independent legal
counsel or (d) an affirmative vote of a majority of shares held by the
disinterested shareholders. No indemnification may be made to or on behalf of
a corporate director, officer, employee or agent (i) in connection with a
proceeding by or in right of the Company in which such person was adjudged
liable to the Company or (ii) in connection with any other proceeding in which
said person was adjudged liable on the basis that personal benefit was
improperly received by him.
The Company has entered into Indemnification Agreements with certain of its
directors and officers (the "Indemnified Parties"). Under the terms of the
Indemnification Agreements, the Company is required to indemnify the
Indemnified Parties against certain liabilities arising out of their service
for the Company. The
II-1
<PAGE>
Indemnification Agreements require the Company (i) to indemnify each
Indemnified Party to the fullest extent permitted by law; (ii) to provide
coverage for each Indemnified Party under the Company's directors and officers
liability insurance policy and (iii) to advance certain expenses incurred by
an Indemnified Party. The Indemnification Agreements provide limitations on
the Indemnified Party's rights to indemnification in certain circumstances.
The Company's directors and officers are insured against losses arising from
any claim against them as such for wrongful acts or omissions, subject to
certain limitations.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The Registrant was incorporated in March 1997.
During the past three years, the following persons were issued Class A
Common Stock of the Registrant's predecessor in reliance upon the exemption
contained in Section 4(2) of the Securities Act, in the number of shares, on
the date and for the consideration referenced below:
<TABLE>
<CAPTION>
NAME NO. SHARES DATE OF ISSUANCE CONSIDERATION
---- ---------- ---------------- -------------
<S> <C> <C> <C>
*Gerald V. Gurbacki ................. 76,875 03/20/97 $492,000.00
James R. Balkcom, Jr. .............. 62,500 03/10/97 $600,000.00
*James Giolas ....................... 5,000 03/10/97 $ 4,400.00
*Steve Pavlichek..................... 416 01/22/97 $ 2,664.00
*Patricia Fowler..................... 541 12/31/96 $ 1,394.00
Michael Bulkin and Rosemary E.
Bulkin, as joint tenants with the
right of survivorship............... 12,500 12/09/96 $105,000.00
James R. Balkcom, Jr. .............. 47,618 12/03/96 $399,997.50
Linda P. Balkcom.................... 35,713 11/28/96 $299,995.50
Mary Kathryn Balkcom................ 5,952 11/28/96 $ 50,001.00
Julie Balkcom Green................. 5,952 11/28/96 $ 50,001.00
*Ben Dacke........................... 3,125 07/09/96 $ 2,750.00
*Jill Lange.......................... 2,291 10/12/95 $ 8,551.00
*Thomas Totte........................ 6,250 08/01/95 $ 5,500.00
*Stuart Rogers....................... 21,875 04/14/95 $ 19,250.00
*James D. Askren, II ................ 9,582 12/07/94 $ 8,433.15
</TABLE>
- ---------------------
* Pursuant to the exercise of stock options.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
**1.1 Form of Underwriting Agreement
**3.1 Amended and Restated Articles of Incorporation of the Registrant
**3.2 Amended and Restated Bylaws of the Registrant
**3.3 Agreement and Plan of Merger by and among Pameco Holdings, Inc., a
Delaware corporation, Pameco Corporation, a Delaware corporation, and
the Registrant, dated April , 1997
**4.1 Form of Class A Common Stock Certificate of the Registrant
**5.1 Opinion of Kilpatrick Stockton LLP
*10.1 Asset Purchase Agreement between the Registrant and Sid Harvey
Industries, Inc., dated November 1, 1996
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
*10.2 Letter Agreement between the Registrant and Sid Harvey Industries,
Inc., dated November 1, 1996
*10.3 Agreement for Purchase and Sale of Certain Assets between the
Registrant and Chase Supply Company of Chicago, dated May 1, 1996
**10.4 Form of Indemnification Agreement between the Registrant and its
directors and officers
*10.5 Employee Stock Option Plan I
*10.6 Employee Stock Option Plan II
*10.7 Stock Option Agreement between the Registrant and Gerald V. Gurbacki,
dated May 6, 1996
*10.8 Non-Employee Directors Stock Option Plan
*10.9 Credit Agreement among the Registrant, General Electric Capital
Corporation and the Lenders named therein, dated March 19, 1992
*10.10 Amendment Agreement No. 6 to Credit Agreement, dated April 29, 1996
*10.11 Pledge Agreement between the Registrant and General Electric Capital
Corporation dated
April 29, 1992
*10.12 Waiver and Seventh Amendment to Credit Agreement, dated November 1,
1996
*10.13 Eighth Amendment to Credit Agreement, dated January 24, 1997
*10.14 Waiver and Ninth Amendment to Credit Agreement, dated February ,
1997
*10.15 Receivables Purchase and Servicing Agreement among Pameco
Securitization Corporation, Redwood Receivables Corporation, the
Registrant and General Electric Capital Corporation, dated April 29,
1996
*10.16 Receivables Transfer Agreement between the Registrant and Pameco
Securitization Corporation, dated April 29, 1996
*10.17 Annex X to Receivables Transfer Agreement and Receivables Purchase
and Servicing Agreement, Definitions and Interpretations, dated April
29, 1996
*10.18 Amendment No. 1 to Securitization Agreements among Pameco
Securitization Corporation, the Registrant, Redwood Receivables
Corporation and General Electric Capital Corporation, dated January
24, 1997
*10.19 Employment Agreement between the Registrant and Gerald V. Gurbacki,
dated March 1, 1996
*10.20 Letter Agreement between the Registrant and Three Cities Research,
Inc., dated March 1, 1997
*10.21 Agreement for Purchase of Shares of Pameco Holdings, Inc. between the
Registrant and Sofitam S.A., dated November 14, 1996
*10.22 Stockholders' Agreement among the Registrant, the Investor Group, The
Bank of Nova Scotia, Brian R. Esher and certain employees of the
Registrant, dated March 19, 1992, as amended
*11.1 Computation of Historical Net Income Per Share
*21.1 Subsidiaries of the Registrant
**23.1 Consent of Kilpatrick Stockton LLP (See Exhibit 5.1)
*23.2 Consent of Ernst & Young LLP
*24.1 Powers of Attorney (see Signature Page)
</TABLE>
- ---------------------
* Filed herewith
** To be filed by amendment
(b) Financial Statement Schedules
Schedule II: Valuation and Qualifying Accounts
All other schedules are omitted as the required information is inapplicable
or is presented in the financial statements or related notes.
II-3
<PAGE>
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide the underwriters at
the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit, or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question as to
whether such indemnification by it is against public policy as expressed in
the Securities Act, and will be governed by the final adjudication of such
issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY OF ATLANTA, STATE OF
GEORGIA, ON THE 26TH DAY OF MARCH, 1997.
New Pameco Georgia Corporation
/s/ Gerald V. Gurbacki
By: _________________________________
GERALD V. GURBACKICHIEF EXECUTIVE
OFFICER
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Gerald V. Gurbacki and Theodore R. Kallgren and either of them, his true and
lawful attorneys-in-fact with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign
any and all amendments (including post-effective amendments) to this
Registration Statement as well as any new registration statement filed to
register additional securities pursuant to Rule 462(b) under the Securities Act
of 1933, as amended, and to cause the same to be filed, with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby granting to said attorneys-in-fact and agent, full
power and authority to do and perform each and every act and thing whatsoever
requisite or desirable to be done in and about the premises, as fully to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and confirming all acts and things that said attorneys-in-fact and
agents, or their substitutes or substitute, may lawfully do or cause to be done
by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS ON THE 26TH DAY OF MARCH,
1997, IN THE CAPACITIES INDICATED.
SIGNATURE POSITION
/s/ Gerald V. Gurbacki Chief Executive Officer and Director
- ------------------------------------- (Principal Executive Officer)
GERALD V. GURBACKI
/s/ Theodore R. Kallgren Chief Financial Officer (Principal
- ------------------------------------- Financial and Accounting Officer)
THEODORE R. KALLGREN
/s/ James R. Balkcom, Jr. Chairman of the Board
- -------------------------------------
JAMES R. BALKCOM, JR.
/s/ G. Thomas Braswell, Jr. Director
- -------------------------------------
G. THOMAS BRASWELL, JR.
II-5
<PAGE>
SIGNATURE POSITION
/s/ Michael H. Bulkin Director
- -------------------------------------
MICHAEL H. BULKIN
/s/ Earl Dolive Director
- -------------------------------------
EARL DOLIVE
/s/ H. Whitney Wagner Director
- -------------------------------------
H. WHITNEY WAGNER
/s/ Thomas G. Weld Director
- -------------------------------------
THOMAS G. WELD
II-6
<PAGE>
The following report is in the form that will be signed upon completion of the
restatement of capital accounts and the Merger described in the last
paragraph of Note 9 to the financial statements.
ERNST & YOUNG LLP
Atlanta, Georgia
March 26, 1997
REPORT OF INDEPENDENT AUDITORS
We have audited the consolidated financial statements of Pameco Corporation as
of February 28, 1995 and February 29, 1996, and for each of the three years in
the period ended February 29, 1996, and have issued our report thereon dated
April 26, 1996 (except for Note 8 as to which the date is May 2, 1996, and
except for the last paragraph of Note 9 as to which the date is ______, 1997),
included elsewhere in this Registration Statement. Our audits also included the
financial statement schedule listed in Item 16(a) of this Registration
Statement. This schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Atlanta, Georgia
April ______, 1997
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT PAGE
------- ---------------------- ----
<C> <S> <C>
**1.1 Form of Underwriting Agreement
**3.1 Amended and Restated Articles of Incorporation of the
Registrant
**3.2 Amended and Restated Bylaws of the Registrant
**3.3 Agreement and Plan of Merger by and among Pameco Holdings,
Inc., a Delaware corporation, Pameco Corporation, a Delaware
corporation, and the Registrant, dated April , 1997
**4.1 Form of Class A Common Stock Certificate of the Registrant
**5.1 Opinion of Kilpatrick Stockton LLP
*10.1 Asset Purchase Agreement between the Registrant and Sid Harvey
Industries, Inc., dated November 1, 1996
*10.2 Letter Agreement between the Registrant and Sid Harvey
Industries, Inc., dated November 1, 1996
*10.3 Agreement for Purchase and Sale of Certain Assets between the
Registrant and Chase Supply Company of Chicago, dated May 1,
1996
**10.4 Form of Indemnification Agreement between the Registrant and
its directors and officers
*10.5 Employee Stock Option Plan I
*10.6 Employee Stock Option Plan II
*10.7 Stock Option Agreement between the Registrant and Gerald V.
Gurbacki, dated May 6, 1996
*10.8 Non-Employee Directors Stock Option Plan
*10.9 Credit Agreement among the Registrant, General Electric
Capital Corporation and the Lenders named therein, dated March
19, 1992
*10.10 Amendment Agreement No. 6 to Credit Agreement, dated April 29,
1996
*10.11 Pledge Agreement between the Registrant and General Electric
Capital Corporation dated
April 29, 1992
*10.12 Waiver and Seventh Amendment to Credit Agreement, dated
November 1, 1996
*10.13 Eighth Amendment to Credit Agreement, dated January 24, 1997
*10.14 Waiver and Ninth Amendment to Credit Agreement, dated February
, 1997
*10.15 Receivables Purchase and Servicing Agreement among Pameco
Securitization Corporation, Redwood Receivables Corporation,
the Registrant and General Electric Capital Corporation, dated
April 29, 1996
*10.16 Receivables Transfer Agreement between the Registrant and
Pameco Securitization Corporation, dated April 29, 1996
*10.17 Annex X to Receivables Transfer Agreement and Receivables
Purchase and Servicing Agreement, Definitions and
Interpretations, dated April 29, 1996
*10.18 Amendment No. 1 to Securitization Agreements among Pameco
Securitization Corporation, the Registrant, Redwood
Receivables Corporation and General Electric Capital
Corporation, dated January 24, 1997
*10.19 Employment Agreement between the Registrant and Gerald V.
Gurbacki, dated March 1, 1996
*10.20 Letter Agreement between the Registrant and Three Cities
Research, Inc., dated March 1, 1997
*10.21 Agreement for Purchase of Shares of Pameco Holdings, Inc.
between the Registrant and Sofitam S.A., dated November 14,
1996
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT PAGE
------- ---------------------- ----
<C> <S> <C>
*10.22 Stockholders' Agreement among the Registrant, the Investor
Group, The Bank of Nova Scotia, Brian R. Esher and certain
employees of the Registrant, dated March 19, 1992, as amended
*11.1 Computation of Historical Net Income Per Share
*21.1 Subsidiaries of the Registrant
**23.1 Consent of Kilpatrick Stockton LLP (See Exhibit 5.1)
*23.2 Consent of Ernst & Young LLP
*24.1 Powers of Attorney (see Signature Page)
</TABLE>
<PAGE>
EXHIBIT 10.1
ASSET PURCHASE AGREEMENT
------------------------
AGREEMENT made this 1st day of November, 1996, by and between SID HARVEY
INDUSTRIES, INC., a New York corporation with its principal office at 605 Locust
Street, Garden City, New York 11530 (hereinafter "SELLER"), and PAMECO
CORPORATION, a Delaware corporation with its principal office at 1000 Center
Place, Norcross, Georgia 30093 (hereinafter "BUYER"), collectively the
"PARTIES".
WITNESSETH:
WHEREAS, SELLER, in addition to conducting other business operations in
other geographic regions of the United States, has acquired certain assets,
including but not limited to, inventory, equipment, and an on-going business
value, with fifty-three (53) business locations, at fifty-two (52) separate
facilities in the States of North Carolina, South Carolina, Georgia, Florida,
Mississippi, Louisiana and Tennessee, which facilities are specifically
identified in Exhibit "A", hereto (the "S.E. USA BUSINESS").
WHEREAS, SELLER desires to sell substantially all of its assets (other
than Excluded Assets, as hereinafter defined in Section 1.2) now owned and held
by it and used in connection with the operation of the S.E. USA BUSINESS.
WHEREAS, BUYER, desires to purchase substantially all of such assets
owned and held by SELLER and used in connection with the operation of the S.E.
USA BUSINESS, upon the terms and conditions hereinafter set forth, and to
continue the operation of the S.E. USA BUSINESS in BUYER'S own name.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements hereinafter contained and other good and valuable
consideration, the receipt and sufficiency of which is acknowledged, the PARTIES
hereto, intending to be legally bound, agree as follows:
<PAGE>
1. SALE AND PURCHASE OF ASSETS
1.1. ASSETS TO BE SOLD AND PURCHASED.
On the Closing Date (hereafter defined in Section 13), subject to the terms and
conditions set forth, SELLER agrees to sell, assign, transfer, convey and
deliver, and BUYER agrees to purchase, acquire, assume and accept, all of the
SELLER'S right title and interest, as exists on the close of business on the
Closing Date, in and to the following assets of the SELLER, which shall be free
and clear of any and all claims, liens and encumbrances whatsoever (all which
are collectively referred to herein as the "ACQUISITION ASSETS"):
A. THE ACCOUNTS RECEIVABLE.
All rights to the proceeds from the collection of the outstanding amount
due from the SELLER'S customers who purchased items from any of the locations
included on Exhibit "A". SELLER has the sole right to exclude certain
customers' receivables. SELLER agrees that prior to Closing, it will permit
BUYER'S lenders and their authorized agents and representatives reasonable
access to such records and documents that may be necessary to conduct a field
examination of the accounts receivable listed in Preliminary Schedule 1.lA. To
the extent that such field examination results in BUYER'S lenders refusing to
recognize any of the accounts receivable contained in Preliminary Schedule 1.1A
as qualified accounts receivable for lending purposes based on the criteria of
the validity of the customer/receivable rather than on the age of the
receivable, SELLER shall retain said non-qualified accounts receivable, and said
nonqualified accounts receivable shall not be listed as transferred accounts
receivable on the Updated Schedule 1.1A.
B. THE EQUIPMENT.
All equipment, machinery, leasehold improvements, fixtures, furniture,
office and store supplies, motor vehicles, telecommunications equipment and all
other miscellaneous tangible personal property of the S.E. USA BUSINESS located
at the facilities identified in Exhibit "A"' (the "Equipment"), including, but
not limited to, those items detailed in Schedule 1.1B, hereto. With regard to
each motor vehicle, whether acquired by purchase or assignment of lease, the
2
<PAGE>
BUYER will have a thirty (30) day period in which to effect the transfer, as
necessary, of new license tags. During this thirty day period, or any extension
thereof agreed to by SELLER, BUYER shall maintain required automotive liability
insurance on each vehicle, which insurance shall name SELLER as an additional
insured. BUYER shall deliver to SELLER at Closing a Certificate of Insurance
evidencing compliance with this obligation. BUYER further agrees to use its
best efforts to effect an assignment to BUYER of any leases of motor vehicles
during this thirty (30) day period, and in the absence of said assignment for a
leased vehicle, BUYER will purchase, at the expiration of said thirty (30) day
period, the vehicle from Lessor, if permitted under the Lease.
C. THE INVENTORY.
All inventory of merchandise, supplies, products, and materials,
including raw materials, work-in-progress, and finished goods of the S.E. USA
BUSINESS (the "Inventory"), including those inventory items detailed in Schedule
"1.1C", hereto. Inventory shall also be defined to include merchandise and
products which are at any of the locations included on Exhibit "A" on the
Closing Date and are in the process of being returned to suppliers under the
terms and conditions of applicable warranties. To the extent that such inventory
to be returned is subject to warranties issued by suppliers with whom BUYER has
no ongoing relationship, SELLER agrees to assist BUYER in processing such
warranty claims.
D. OTHER ASSETS. All rights, interests and privileges of SELLER in all
other operating assets of the S.E. USA BUSINESS owned or held by SELLER,
including (collectively referred to herein as the "Other Assets"):
i) any and all contracts and open purchase orders for facilities
identified in Exhibit "A" with suppliers and customers of the S.E. USA BUSINESS;
ii) any and all right to use telephone numbers presently held by
SELLER, for facilities identified in Exhibit "A";
iii) any and all supplier lists, customer lists, customer account
histories, inventory parts lists, and compressor warranty cards;
3
<PAGE>
iv) an assignment of all of SELLER'S right, title and interest in
all third party real estate leases for locations used in the S.E. USA BUSINESS,
which leases are identified in Schedule 1.1D(iv), hereto;
v) leases for SELLER or SELLER-affiliate owned real estate for
locations used in the S. E. USA BUSINESS, which leases are identified in
Schedule 1.1D(v), hereto; and shall be in a form substantially similar to the
model lease with option to purchase attached as Exhibit "B" hereto;
vi) any and all of SELLER'S warranties received from others (to the
extent the same can be assigned) respecting any and all real property and
personal property;
vii) any and all of SELLER'S contracts or other rights, if any, not
listed in this Section 1.1, including, without limitation, leases of personal
property, and all other contracts, agreements and arrangements of the SELLER
that benefit the S.E. USA BUSINESS, and all amendments, extensions, renewals,
substitutions and replacements of, and additions to, such other contracts and
other rights as may be entered into from the date hereof to the Closing Date;
viii) to the extent transferable with de minimus cost to SELLER, any
and all permits, approvals, orders, authorizations, consents, licenses,
certificates, franchises, exemptions of, or filings or registrations with, any
court or governmental authority in any jurisdiction, which have been issued or
granted to or are owned by the SELLER in connection with the S.E. USA BUSINESS
and ownership of the ACQUISITION ASSETS, and all pending applications therefor;
and
ix) all goodwill attributable to the S.E. USA BUSINESS.
1.2. EXCLUDED ASSETS.
BUYER is acquiring only those assets specifically included in the
definition of ACQUISITION ASSETS in Section 1.1 hereof, and SELLER is not
selling, and BUYER is not purchasing, pursuant to this Agreement or otherwise,
any of the other assets of SELLER including,
4
<PAGE>
without limitation, the following, all of which shall be retained by the SELLER
(hereinafter referred to collectively as the "Excluded Assets"):
A. Cash on hand as of the date of closing, which shall be defined to
include, without limitation, any and all bank accounts, checks held or in the
process of deposit, and credits outstanding on bank cards.
B. Assets constituting any pension or other fund for the benefit of
SELLER'S employees, including without limitation, any employee stock ownership
plan(s).
C. Corporate minute books and stock ledgers;
D. All stationary, forms, etc. of SELLER.
E. All signs or similar designations ("Signs") containing SELLER'S
corporate or tradenames. BUYER further agrees to replace signs: (i) on acquired
motor vehicles within thirty (30) days of closing; and (ii) on any Exhibit "A"
facilities within sixty (60) days of closing.
F. SELLER'S rights under the insurance policies applicable to the S.E.
USA BUSINESS in respect of all occurrences insured thereunder;
G. SELLER'S remanufactured heating inventory and heating products
not sold in the normal course of BUYER'S business; and
H. SELLER'S computer hardware/software currently on the premises
identified in Exhibit "A".
I. All right title, interest and use of and by SELLER in its
corporate name and derivations thereof.
1.3. CLOSING.
The Closing and consummation of all transactions provided for in this
Agreement, including, without limitation, the payment of the Purchase Price and
the execution and delivery of other documents referred to herein, shall take
place at 10:00 a.m. on Friday, November 22, 1996, at the office of BUYER'S
counsel (the "Closing" or "Closing Date") or at such other time and place as the
parties hereto may mutually agree. Upon satisfaction of the conditions to
closing and
5
<PAGE>
the disbursement of cash or equivalent funds, all closing documents required of
SELLER shall be delivered to BUYER, and those required of BUYER, to SELLER.
1.4. TERMINATION.
This Agreement may be terminated at any time prior to the Closing Date:
A. by the mutual consent of the BUYER and the SELLER;
B. by either the BUYER or the SELLER if the Closing has not occurred on
or before November 22, 1996, or such other date as the parties may agree to as
provided in Section 1.3 hereof, provided that this provision shall not be
available (i) to the party who fails or refuses to consummate the transactions
contemplated hereby or to take any other action referred to herein necessary to
consummate the transactions contemplated hereby in breach of such party's
obligations contained herein or (ii) if the parties are then unable to close
because the applicable waiting period (if any) under Hart-Scott (as hereinafter
defined in Section 6.9) has not then expired (in which case the date set forth
above shall be changed to the first business day following the date on which
such waiting period shall expire);
C. by either the BUYER or the SELLER if there has been a material
breach on the part of the other party in any material representation, warranty
or covenant set forth in this Agreement which is not cured within ten business
days after such other party has been notified of the intent to terminate this
Agreement pursuant to this Section 1.4; or
D. by the BUYER or the SELLER, by providing the other with written
notice thereof, if the Closing shall not have occurred by November 22, 1996, or
such later date as the parties may agree to as provided in Section 1.3 hereof,
if such notifying party is ready, willing and able to consummate the
transactions contemplated by this Agreement and all of the conditions to the
other party's obligation to close as set forth herein, as applicable, shall have
been satisfied and the other party fails to consummate the transactions
contemplated by this Agreement by November 22, 1996, or such later date as the
parties may agree to as provided in Section 1.3 hereof, for any reason
whatsoever.
1.5. EFFECT OF TERMINATION.
6
<PAGE>
In the event of termination of this Agreement as permitted under this
Section 1.4, this Agreement shall forthwith become void (except for Sections
1.4, 1.5, 2.2.A, 6.1 and 10.4), and there shall be no liability on the part of
either the SELLER or the BUYER; provided, that if such termination occurs
--------
pursuant to Section 1.4(C) or (D), the non-terminating party shall be fully
liable for any and all damages (including reasonable attorneys' fees), at law or
in equity, sustained or incurred by the terminating party. In addition to, and
without limiting the foregoing, the following shall apply with respect to the
Down Payment as defined in Section 2.2A below.
i) If this Agreement is terminated by the SELLER pursuant to
Section 1.4(B), (C) or (D), then the parties agree that the Down Payment shall
be paid, in accordance with the provisions of the Escrow Agreement, to the
SELLER.
ii) If this Agreement is terminated by the BUYER pursuant to
Section 1.4(B), (C) or (D), then the parties agree that the Down Payment shall
be paid, in accordance with the provisions of the Escrow Agreement, to the
BUYER.
iii) [INTENTIONALLY DELETED]
iv) If this Agreement is terminated due to the inability of the
parties to obtain approval pursuant to Hart-Scott, then the Down Payment shall
be paid, in accordance with the provisions of the Escrow Agreement, to the
BUYER.
In the event of termination, hereunder prior to the Closing, the BUYER
shall return promptly to the SELLER all documents, work papers and other
materials of the SELLER furnished or made available to the BUYER or its
representatives or agents, and all copies thereof, and no information received
by the SELLER shall be revealed to any third party nor used, directly or
indirectly, for the advantage of the BUYER or any other party.
2. CONSIDERATION TO BE PAID BY THE BUYER
2.1. PURCHASE PRICE.
Subject to later defined closing and post-closing adjustments, the purchase
price of the ACQUISITION ASSETS to be sold and assigned hereunder shall be
determined as follows:
7
<PAGE>
A. (i) The BUYER shall purchase the Accounts Receivable for 100 % of
the total of the net balance of the unpaid Accounts Receivable transferred
("TAR") to the BUYER as of the Closing Date. Net balance represents all unpaid
invoices, net of credits or unapplied payments. One Hundred Twenty (120) days
after the Closing Date the BUYER shall have the right to return any unpaid TAR
to the SELLER. SELLER shall purchase these unpaid net balances at 100% of the
net unpaid balance that is returned.
ii) BUYER shall not disclose to any customer of either the SELLER
or the BUYER or any of its employees other than those who need to have knowledge
of this Agreement that the BUYER has the right to return any uncollected
balances to the SELLER. BUYER must use its good faith effort to collect the TAR
in a manner consistent with BUYER'S collection of its own accounts receivable,
but shall not be required to institute litigation or to retain the services of a
collection agency or attorney.
All payments received from any of the customers included in the TAR shall
first, be applied to the invoices the customer has indicated they are paying.
If the customer does not indicate the items they are paying, the oldest unpaid
invoices from either the SELLER or BUYER shall be paid first.
SELLER shall remit to BUYER any amounts received by SELLER relating to
the TAR. SELLER shall endorse all checks or other instruments tendered in its
name with regard to the TAR to the order of BUYER, in order to permit
administration of the collection of the TAR in accordance with this Agreement.
SELLER shall have the right to audit the BUYER'S application of the
payments from any customers included in the TAR received after the Closing Date.
This. includes but is not limited to the use of the SELLER'S employees or the
use of an accounting firm to verify the BUYER'S application of payment and good
faith efforts of the BUYER in the collection of the TAR. SELLER shall have the
right to assist or make recommendations in the collection of any of the TAR as
long as it does not interfere with the BUYER'S business and normal collection
efforts.
8
<PAGE>
The BUYER must designate on their records and computer files the items
included in the TAR. Each Friday during the 120 days after the Closing Date the
BUYER will provide the SELLER with a list of all amounts collected from the TAR.
(iii) Promptly following the expiration of 120 days after the
Closing Date, BUYER and SELLER shall meet to determine what amount of the TAR
were collected. To the extent that less than 70% of the TAR were collected, then
the full amount reserved in the Closing Date Escrow for TAR shall be paid by the
Escrow Agent to the BUYER and the remaining difference between the amount
collected and 70% shall promptly be paid by SELLER to BUYER. To the extent that
more than 70%, but an amount equal to or less than 90 %, of the TAR has been
collected by the BUYER, then the amount in the Closing Date Escrow for TAR shall
be divided between BUYER and SELLER so that the BUYER will be paid out of the
Closing Date Escrow for TAR an amount equal to the TAR in excess of 10% of the
TAR which it did not collect and the remainder shall be paid to the SELLER. If
the BUYER collects an amount in excess of 90% of the TAR it shall promptly pay
the excess to the SELLER. When BUYER has been reimbursed for all of the TAR
which it did not collect, but paid for pursuant to this Agreement, BUYER shall
assign the right to receive payment of all uncollected TAR to SELLER for
collection thereafter by SELLER or, if the parties so agree, BUYER may continue
to collect such TAR on SELLER'S behalf.
(iv) If during the 120 days after the Closing Date the BUYER
collects an amount in excess of 70% of the TAR, the SELLER has the right, from
time to time, to receive payment from the Closing Date Escrow and BUYER pursuant
to paragraph 2.1A(iii).
(v) At Closing Date an Estimated Transferred Accounts Receivable
("ETAR") shall be provided by the SELLER based on the most recent available
information prior to the Closing Date. This amount shall be adjusted to the
final TAR amount within ten business days of the Closing Date.
B. The "Equipment" at a dollar value equal to book net asset value on
SELLER'S books and records as of the last day of the month prior to the month of
the Closing Date, if the
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Closing Date is on or after the fifteenth (15th) day of the month. If the
closing date is before the fifteenth (15th) day of the month the book net asset
value of the last day of the month two months prior to the month of the Closing
Date will be used.
C. The "Inventory" at an aggregate dollar value equal to the sum of
actual inventory quantities at the locations included on Exhibit A determined by
physical count multiplied by item cost ("Item Cost"). Item Cost shall be based
upon the latest published vendor's price sheet dated before September 30, 1996
less all applicable purchase discounts (other than discounts for prompt payment)
granted to SELLER that is included on the invoices from the respective vendor to
the SELLER.
In determining the value of the Inventory, the parties agree as follows:
i) All inventory which is damaged but saleable at the same price
which such item would be sold if not damaged shall be valued as if undamaged.
ii) All damaged Inventory items which are not saleable at the same
price as it would be sold if it were not damaged shall be valued at a price to
be agreed upon by the BUYER'S and SELLER'S representatives at the time of the
physical count that is provided in Section 2.2D.
iii) All Inventory items which are damaged and are not saleable
shall be valued at $0.
iv) Inventory items which are no longer sold in the industry based
upon the knowledge of BUYER and SELLER shall be valued at $0.
If there is any inventory item for which a vendor price sheet is not
available the BUYER and SELLER will attempt to agree upon a cost. SELLER is
only responsible to provide vendor price sheets where the aggregate inventory
value for a respective vendor exceeds $1,000. For items with an aggregate
inventory value less than or equal to $1,000.00, SELLER shall provide BUYER with
additional documentation, upon BUYER'S reasonable request, to support the
determination of value.
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Any disputes as to cost, extent of damage, or whether the items are no
longer used in the industry shall first be attempted to be resolved between the
BUYER and SELLER. If no agreement can be reached the dispute shall be resolved
pursuant to Section 2.2D.
For purposes of calculating the purchase price to be paid at the Closing
Date, the BUYER and SELLER agree to use a Closing Date inventory value which
shall be based on the SELLER'S accounting records as of a date which is most
practical that precedes the Closing Date.
D. The "Other Assets" - Four Million Dollars ($4,000,000).
2.2. PAYMENT OF PURCHASE PRICE.
The aggregate purchase price of the ACQUISITION ASSETS as determined in
accordance with the provisions of Section 2.1 above, shall be paid by BUYER as
follows:
A. One Million Dollars ($1,000,000) (the "Down Payment") to be
delivered concurrently with the execution and delivery of this Agreement to
SELLER'S counsel as Escrow Agent, in accordance with the escrow agreement
attached hereto as Exhibit "C" (the "Escrow Agreement") said sum to be delivered
by the Escrow Agent to SELLER on the Closing Date;
B. (INTENTIONALLY DELETED)
C. The balance by wire transfer of immediately available funds at
Closing; provided however that BUYER, in calculating the balance of wired funds:
(i) agrees to value inventory at one hundred five percent (105%) of the closing
date inventory value set forth in Section 2.1.C. It is understood and agreed
that at Closing ninety percent (90%) of the Closing Date inventory value will be
paid to SELLER, and that the fifteen percent (15 %) balance of the Closing Date
inventory value will be delivered to SELLER'S counsel as Escrow Agent, in
accordance with the Escrow Agreement attached hereto as Exhibit "E" (the
"Closing Date Escrow") pending a determination of final inventory value; and
(ii) will use the ETAR and the SELLER will transfer to the Escrow Agent, in
accordance with the Closing Date Escrow, 20% of the ETAR and 10% will be held
back by the BUYER and 70% of the ETAR will be paid to the SELLER. Within 10
business days of the Closing Date payment of the purchase price will be adjusted
for the actual TAR. Both the
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amount received by the Closing Date Escrow Agent and SELLER will -be adjusted to
reflect the actual TAR.
D. The physical count of the Inventory for purposes of determining the
purchase price set forth in Section 2.1.C shall be conducted by SELLER on
November 22, 1996 (or such other date as the parties shall agree) and shall be
observed by representatives of BUYER. As soon as practicable following the
Closing Date, SELLER shall prepare and deliver to BUYER a report calculating the
Inventory value prepared in accordance with Section 2.1.C (the "Inventory
Report"). SELLER shall use its best efforts to complete the Inventory Report
required by this Section within 30 days following the Closing Date.
SELLER shall provide to BUYER access to all records necessary for BUYER
to review the Inventory Report. If, as soon as reasonably practical following
the SELLER'S delivery of the Inventory Report (but in no event later than 30
calendar days following such delivery), BUYER shall have any disagreement with
respect thereto, BUYER shall so notify SELLER within such 30 calendar day
period, specifying such disagreement and BUYER'S basis therefor. If BUYER does
not express its disagreement within such 30 calendar day period, such failure
will constitute BUYER'S acceptance of the Inventory Report. If BUYER and SELLER
are unable to resolve any disagreement between them within 15 calendar days
after BUYER notifies SELLER of such disagreement, the items in dispute
(collectively, the "Disputed Items") will promptly be referred for determination
to one representative of both SELLER'S and BUYER'S accounting firm, and an
industry expert who is selected by both the BUYER and the SELLER (the
"Arbitrators"). The Arbitrators shall, within 30 calendar days of the date on
which a Disputed Item has been referred to them for determination, (a) make a
determination only as to each of the Disputed Items and shall have no authority
to review and make a determination with respect to any item which has not been
submitted by the parties hereto for determination by the Arbitrators, and (b)
based on the items not in dispute and on the Arbitrators' determination of the
Disputed Items, calculate any adjustment to the Inventory Report, which
determination and calculation will be (i) in writing, (ii) promptly fumished to
each of the parties hereto after the Disputed Items have been referred to the
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Arbitrators (but in any event within 30 calendar days), (iii) made in accordance
with this Agreement, and (iv) conclusive and binding upon each of the parties
hereto. In connection with their determination of the disputed items, the
Arbitrators will be entitled to review all books and records related thereto.
The fees and expenses of the Arbitrators will be shared equally by BUYER and
SELLER.
2.3. PRORATIONS.
The SELLER shall be entitled to all income earned or accrued, and shall
be responsible for all liabilities and obligations incurred or payable, in
connection with the operation of the S. E. USA BUSINESS through the close of
business on the Closing Date. The BUYER shall be entitled to all income earned
or accrued, and shall be responsible for all liabilities incurred or payable, in
connection with the S.E. USA BUSINESS after the close of business on the Closing
Date. All items of expense shall be apportioned between the SELLER and the BUYER
as of the close of business on the Closing Date in accordance with generally
accepted accounting principles ("GAAP"), unless otherwise specifically stated.
Items to be apportioned include, but are not limited to, the following:
A. General and special real and personal property taxes and assessments
imposed on real or personal property under any leases assigned to the BUYER
which are either not yet payable at the Closing Date or which have been prepaid
at the Closing Date; and special district or other levies which are a lien but
not due or which have been prepaid at the Closing Date;
B. Any power charges, utility charges, telephone charges or other
communication charges either due or paid at the Closing Date;
C. Any prepaid rent or real estate or equipment or other prepaid
expenses;
D. Any business or license fee, sale or service charge, commission,
special assessment, rental payment or personal tax or assessment associated with
the ACQUISITION ASSETS;
E. Any deposits, reserves and prepaid expenses; and
F. All sales commissions.
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G. Any other items customarily prorated in transactions of this nature
in the jurisdiction which governs the construction for this Agreement pursuant
to Section 10.11, unless otherwise agree to by the parties.
SELLER shall determine all apportionment's pursuant to the provisions
hereof and shall deliver a statement of them to BUYER together with the
supporting documentation and information (the "Proration Adjustment") at
Closing. In the event that BUYER disputes any such apportionment's or otherwise
disagrees with the Proration Adjustment, it will notify the SELLER in writing,
specifying each dispute or disagreement, within ten (10) business days following
Closing. The parties shall negotiate in good faith to resolve any disputes or
disagreements for a period of thirty (30) days following Closing. In the event
that the parties cannot come to a resolution during such thirty (30) days
period, either party shall have the right to elect to submit such dispute to an
accounting firm designated jointly by counsel to BUYER and SELLER or, if they
cannot agree on such an accounting firm, then to the American Arbitration
Association to act as an arbitrator to resolve all points of disagreement with
respect to the Proration Adjustment. All determinations made by the arbitrator
shall be final, conclusive and binding on the SELLER and the BUYER with respect
to the Proration Adjustment. The costs of the accountant and/or arbitration
shall be shared equally between the parties. Within fifteen (15) days after the
later of (i) delivery of the Proration Adjustment to the SELLER or (ii)
resolution of any dispute or disagreement with respect to the Proration
Adjustment, the BUYER shall pay the SELLER, or the SELLER shall pay the BUYER,
as the case may be, the net amount due as a result of the apportionment's, plus
interest at the rate of eight percent (8%) per annum from the Closing Date.
2.4. ALLOCATION OF PURCHASE PRICE.
The Purchase Price shall be allocated among the ACQUISITION ASSETS in accordance
with an allocation prepared by BUYER, subject to the consent of SELLER, not to
be unreasonably withheld. The allocation shall be set forth in Schedule 2.4
hereof. The SELLER and the BUYER agree to file all elections and returns
required or desirable under applicable federal, state and local tax laws in
accordance with the foregoing allocations, including without limitation the
filing of the
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Asset Acquisition Statement on Form 8594 required under Section 10-60 of the
Internal Revenue Code of 1986, as amended.
3. ASSUMPTION OF EXECUTORY AND OTHER LIABILITIES
3.1. LIABILITIES ASSUMED BY THE BUYER.
As further consideration for consummation of the transactions contemplated
hereby, notwithstanding Section 2.2 hereof, at the Closing the BUYER shall
assume and agree to thereafter pay when due and discharge and indemnify the
SELLER and hold the SELLER harmless with respect to the liabilities and
obligations of the SELLER specified in, and for services and benefits receivable
after the Closing Date under each contract and agreement described in Sections
1.1D(i), (iv), (v) and (vii) (individually, a "Contract" and collectively the
"Contracts"). BUYER shall not assume or be deemed to assume any liabilities or
obligations of the SELLER except as specified in this Section (the "Assumed
Liabilities").
3.2. Liabilities Not Assumed by the BUYER.
Except as provided in Section 3.1, BUYER shall not be deemed by anything
contained in this Agreement to have assumed, and the SELLER shall pay and
discharge and indemnify the BUYER and hold the BUYER harmless for any
responsibility for any liabilities or obligations of any kind or description,
including, without limitation:
A. Any past due expenses of SELLER;
B. Any responsibility for any employee plan of the SELLER or any
accrued or other liability for contribution or payments to be made in respect of
service to employees of SELLER during periods through the Closing Date under any
employee pension benefit plan or any other employee benefits provided to the
employees of the SELLER who are participants therein up to the Closing Date; and
C. All accounts payable, claims, requirements, penalties, fines or
costs, liabilities and obligations of the SELLER with respect to the S.E. USA
BUSINESS arising or accruing from the operation of the S.E. USA BUSINESS by the
SELLER prior to the Closing ("Payables") and the salaries, wages, severance
payments and other compensation and benefits payable to any of the
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SELLER'S current former or retired employees, as well as accrued taxes,
employment insurance premiums, dainages resulting from employment practices and
decisions and other amounts due with respect to said employees.
4. REPRESENTATIONS AND WARRANTIES OF SELLER.
SELLER represents and warrants to the BUYER as follows:
4.1. GOOD STANDING.
SELLER is a corporation duly organized, validly existing and in good standing
under the laws of the State of New York, and has full power and lawful authority
to own and lease its assets and carry on its business, as and where such
businesses are now being conducted.
4.2. CORPORATE AUTHORITY.
The SELLER has full corporate power and authority to execute and deliver this
Agreement, and the other agreements and instruments to be executed and delivered
by it pursuant hereto and to consummate the transactions contemplated hereby and
thereby. All corporate acts and other proceedings required to be taken by or on
the part of the SELLER to authorize it to carry out this Agreement and
instruments and the transactions contemplated hereby and thereby have been duly
and properly taken. This Agreement has been duly executed and delivered by the
SELLER and constitutes, and such other agreements and instruments when duly
executed and delivered by SELLER will constitute, legal, valid and binding
obligations of the SELLER enforceable in accordance with their respective terms,
subject to the effect of applicable bankruptcy, insolvency, reorganization,
moratorium, or other similar laws affecting creditors' rights generally and to
the application of general equitable principles by a court of competent
jurisdiction.
4.3. TITLE.
SELLER will transfer to BUYER good, marketable and indefeasible title or a valid
leasehold interest to all of the ACQUISITION ASSETS, free and clear of any and
all security interests, liens, encumbrances, mortgages, deeds of trust, pledges,
leases, equities, charges, condition of sale or other title retention
agreements, commitments, obligations, liabilities or other burdens of every
nature and kind.
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4.4. TAX RETURNS.
The SELLER has filed all tax returns and forms required to be filed, or has
filed timely requests for extensions -of time to file (and has filed or will
file within the period set by such extension), and has paid in full all taxes,
estimated taxes, interest, penalties, assessments and deficiencies which have
become due pursuant to such returns or without returns or pursuant to any
assessments received by the SELLER.
4.5. LEASES.
Each of the leases for the S.E USA BUSINESS set forth in Schedule 1.1D(iv) is in
full force and effect, and, to SELLER'S knowledge, constitutes the legal, valid
and binding obligation of the lessor thereunder.
4.6. PERMITS.
SELLER, to SELLER'S knowledge has all material permits, licenses, registrations,
orders and approvals of federal, state or local government or regulatory
authorities required to operate the S.E. USA BUSINESS, and is in compliance with
the material terms of same. To SELLER'S knowledge, no suspension or
cancellation of any of the permits, etc. is threatened and no cause exists for
such suspension or cancellation.
4.7. FINANCIAL INFORMATION.
SELLER has delivered to BUYER true and complete copies of the unaudited and
internally prepared profit & loss statements for each of the stores which
constitute the S.E. USA BUSINESS for the fiscal years ending March 31, 1995 and
March 31, 1996 prepared in accordance with SELLER'S internal accounting methods.
The BUYER acknowledges and agrees that the SELLER is not making any
representation as to the present or future revenues, financial condition, and/or
profits and losses of SELLER or the S.E. USA BUSINESS.
4.8. CONTRACTUAL LIMITATIONS.
SELLER is not a party to or bound by any contracts, commitments, leases,
guarantees, licenses, purchase orders, or agreements, oral or written, express
or implied, which by their terms may reasonably be expected to materially
adversely affect the S.E. USA BUSINESS, the
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ACQUISITION ASSETS or the continuation of the S.E. USA BUSINESS by BUYER,
including without limitation:
A. any collective bargaining agreement or any continent to a labor
union or association, unless identified in Schedule 4.8A, hereto;
B. any pension, profit sharing, bonus, deferred compensation,
retirement, incentive, stock purchase, stock option, termination, severance,
hospitalization, insurance, or other plan or arrangement providing benefits to
any present or prior employee of SELLER, or his heirs and dependents, which
requires BUYER, as the purchaser of substantially all of the ACQUISITION ASSETS
of the SELLER, to assume or become obligated to pay any of the obligations or
liabilities of the SELLER under such plans, unless identified in Schedule 4.8B,
hereto;
C. any contract for employment of any employee which is not immediately
terminable without penalty, on or at any time after the date of Closing;
D. any license or royalty agreement;
E. distributor, dealer, sales agency, manufacturer's representative,
consignment, advertising or public relations contract;
F. contract with any government or any instrumentality or agency
thereof; and
G. contract or other arrangement in or pursuant to which any present or
former officer, director, shareholder, employee or consultant of SELLER, or any
relative or associate of any thereof has a material interest.
4.9. EMPLOYEES.
Schedule 4.9 sets forth a true and correct list of all individuals employed by
the SELLER in the conduct of the S.E. USA BUSINESS at the facilities identified
in Exhibit "A" and their present position and rate of compensation. It is
agreed that Schedule 4.9 will be held by SELLER'S counsel and not released to
BUYER until November 12, 1996, or such earlier date as SELLER may permit such
release.
4.10. EMPLOYMENT DISPUTES
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Except as described in Schedule 4.10 hereto, to SELLER'S knowledge, there are no
material discrimination complaints nor any other kind of employment or labor
related disputes against SELLER in connection with the S.E. USA BUSINESS pending
before or, to SELLER'S knowledge, threatened before any federal, state or local
court or agency, and no material dispute respecting minimum wage or overtime
claims or other conditions or terms of employment exists. The S.E. USA BUSINESS
has not experienced any material labor disputes or any material work stoppage
due to labor disagreements within the past three years; there is no unfair labor
practice charge or complaint against SELLER pending or threatened before the
National Labor Relations Board; there is no labor strike, slowdown or stoppage,
to SELLER'S knowledge pending or threatened against or affecting SELLER; and, to
SELLER'S knowledge, no question concerning representation has been raised within
the past three years or is threatened respecting the SELLER.
4.11. ENVIRONMENTAL COMPLIANCE.
Except as set forth in Schedule 4.11 hereto, SELLER has not received any notice
subsequent to January 1, 1990 relating to the S.E. USA BUSINESS, or to SELLER'S
other business operations, alleging any violation of any environmental law or
regulation or any written request for information from any governmental agency
pursuant to any environmental law or regulation. With respect to the S.E. USA
BUSINESS, and with respect to SELLER'S other business operations, SELLER, to
SELLER'S knowledge is in compliance in all material respects with all applicable
environmental laws and regulations. To SELLER'S knowledge and except as
disclosed on Schedule 4.11, all hazardous or toxic waste, materials and
substances on, in, under or offsite from the facilities identified in Exhibit A,
have been properly removed or disposed of, and no past or present disposal,
spill or other release of, or treatment, transportation or other handling of,
hazardous waste, materials or substances on, in, under or offsite from any of
the facilities identified on Exhibit A, or adjacent property, will subject the
BUYER to corrective or compliance action or any other liability.
4.12. LITIGATION.
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Except as set forth in Schedule 4.12 or other schedules hereto, there is no
suit, action or legal, administrative or arbitration or similar proceeding
pending or, to SELLER'S knowledge, threatened, which materially affects the
ACQUISITION ASSETS, the conduct of the S.E. USA BUSINESS, or SELLER'S ability to
consummate this Agreement; and to the best of SELLER'S knowledge, SELLER has not
failed to comply with and SELLER has not been notified of or threatened with a
charge or violation of, nor is under investigation with respect to a possible
material violation of, any law, regulation, or order of any government or
governmental agency or authority (including, without limitation, all
environmental, energy, safety, health, zoning, antidiscrimination, anti-trust
and wage and hour laws, ordinances, orders, rules or regulations) which
materially affects the ACQUISITION ASSETS, the conduct of the S.E. USA BUSINESS,
or SELLER'S ability to consummate this Agreement.
4.13. TAX LIENS.
No state, federal or municipal tax lien has been filed against the ACQUISITION
ASSETS, and SELLER has not been notified nor threatened with any such lien.
4.14. BROKER.
SELLER has not engaged or retained any broker in connection with this
transaction. SELLER agrees to pay any and all brokerage fees associated with
any broker retained by SELLER in connection with the transaction contemplated
hereby and to hold BUYER harmless from such claims.
4.15. COMPLETENESS OF REPRESENTATIONS AND WARRANTIES.
No representations or warranty by the SELLER in this Agreement or in any
certificate, Schedule or other document fumished to BUYER as provided herein or
in connection with the transaction contemplated hereby contains any untrue
statement of material fact or omits to state a material fact necessary to make
the statements herein or therein not misleading.
4.16. SURVIVAL.
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The representations and warranties by SELLER pursuant to this Section 4 shall be
true and accurate in all material respects at Closing, and shall survive the
Closing for a period of two (2) years commencing as of the date of Closing.
5. REPRESENTATIONS AND WARRANTIES OF BUYER.
BUYER represents and warrants to SELLER as follows:
5.1. GOOD STANDING.
The BUYER is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware, is duly qualified, or at the Closing
Date will be duly qualified, to do business in the States where SELLER presently
conducts the S.E. USA Business and has full corporate power to own its
properties and conduct business currently being conducted by it.
5.2. CORPORATE AUTHORITY.
The BUYER has full corporate power and authority to execute and deliver this
Agreement, and the other agreements and instruments to be executed and delivered
by it pursuant hereto and to consummate the transactions contemplated hereby and
thereby. All corporate acts and, other proceedings required to be taken by or
on the part of the BUYER to authorize it to carry out this Agreement and
instruments and the transactions contemplated hereby and thereby have been duly
and properly taken. This Agreement has been duly executed and delivered by the
BUYER and constitutes, and such other agreements and instruments when duly
executed and delivered by BUYER will constitute, legal, valid and binding
obligations of the BUYER enforceable in accordance with their respective terms,
subject to the effect of applicable bankruptcy, insolvency, reorganization,
moratorium, or other similar laws affecting creditors' rights generally and to
the application of general equitable principles by a court of competent
jurisdiction.
5.3. THIRD PARTY APPROVAL.
With the specific exception that BUYER requires Hart-Scott approval or waiver,
prior to being, able to consummate this transaction, no approval, authorization,
consent or other order or action of or filing with any court, administrative
agency or other governmental authority is required for the execution and
delivery by BUYER of this Agreement or any of the other agreements and
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instruments to be executed and delivered by the BUYER pursuant hereto or the
consummation of the transactions contemplated hereby or thereby. BUYER is not
subject to any charter, bylaw, mortgage, agreement, instrument, or other
restriction of any kind or character which would prevent consummation of this
Agreement and the transactions contemplated hereby.
5.4. BROKER.
BUYER has not engaged nor retained any broker in connection with this
transaction. BUYER agrees to pay any and all brokerage fees associated with any
broker retained by BUYER in connection with the transaction contemplated hereby
and to hold SELLER harmless from such claims.
5.5. LITIGATION.
There is no suit, action or legal, administrative or arbitration or similar
proceeding pending, or to BUYER'S knowledge, threatened, which materially
affects BUYERS ability to consummate this Agreement.
5.6. COMPLETENESS OF REPRESENTATIONS AND WARRANTIES.
No representation or warranty by the BUYER in this Agreement or in any
certificate, schedule or other document furnished to SELLER as provided herein
or in connection with the transaction contemplated hereby contains any untrue
statement of any material fact or omits to state any material fact necessary to
make such statement, not misleading.
6. CERTAIN UNDERSTANDINGS AND AGREEMENTS OF THE PARTIES
6.1. CONFIDENTIALITY.
Until the Closing or for a period of five (5) years from the date hereof if the
Closing does not take place, all information relating to the S.E. USA BUSINESS
obtained by the BUYER and its authorized representatives shall be kept
confidential by the BUYER and shall not be used by it or by its affiliates,
directly or indirectly for any purpose other than in connection with the
transactions contemplated hereby; provided, however, that the foregoing shall
not apply to (i) any information generally available to the public on the date
hereof or which becomes generally available to the public through no fault of
the BUYER, but only from and after the date such
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information becomes so available; and (ii) any information obtained by the BUYER
from a third party having the right to disclose such information.
Notwithstanding the foregoing provisions of this Section 6. 1, the BUYER may
disclose such confidential information (a) to the extent required to comply with
applicable laws; (b) to its lenders, investors, legal and accounting advisors,
and any other potential sources of financing with respect to the transactions
contemplated hereby (so long as such parties agree to maintain the
confidentiality of such information); and to any governmental authority that
requires such disclosure upon reasonable notice to SELLER before such
disclosure. In the event of an improper disclosure by BUYER, BUYER acknowledges
that it would be extremely impracticable to measure the resulting damages to
SELLER; accordingly, SELLER may sue in equity for specific performance; and
BUYER waives the defense that a remedy in damages will be adequate.
6.2. CONDUCT OF S.E. USA BUSINESS.
From the date hereof through the Closing Date the SELLER shall not (except with
the prior written consent of the BUYER): (i) enter into any material
transaction not in the ordinary course of the S. E. USA BUSINESS (including,
without limitation, merge or consolidate with or into any other entity); (ii)
sell or transfer any material portion of the ACQUISITION ASSETS; (iii) mortgage,
pledge, or encumber any of the ACQUISITION ASSETS, except liens for taxes not
yet due; (iv) enter into any agreements, contracts, leases, commitments, or
understandings which would have a material adverse effect upon the ACQUISITION
ASSETS or upon SELLER'S ability to fulfill its obligations hereunder; (v) enter
into or become subject to any employment, labor, union, or professional service
contract or agreement not terminable at will, (vi) materially alter the manner
of keeping the books, accounts, or records of SELLER or the accounting practices
therein reflected; (vii) change or modify any of the SELLER'S accounting
principles or practices or any method of applying such principles or practices:
or (viii) take any action or fail to take any action that would cause any of the
representations, warranties or covenants contained herein to be untrue,
incorrect or incapable of being satisfied on the Closing Date.
6.3. PRESERVATION OF ORGANIZATION.
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The SELLER shall use its best efforts to (i) preserve the Acquisition
Assets and business organization intact; (ii) maintain and preserve its
goodwill, business relationships, licenses and franchises; and (iii) maintain in
full force and effect all of its existing casualty, liability, and other
insurance through the Closing Date in amounts not less than those in effect on
the date hereof.
6.4. ACCESS.
After the Closing Date, each party will retain and preserve for five (5) years
and, upon either party's request and cost, make available to the other during
normal business hours for any proper purpose, any records relating to the S. E.
USA BUSINESS prior to Closing. Additionally, each party will permit the party
requesting access to make copies and extracts therefrom and will provide
originals to the party requesting access where reasonably required for any
lawful purpose. At all reasonable times upon reasonable notice the parties
hereto shall make available to each other, their employees, agents,
representatives and engineers, the books, records, assets, properties,
facilities, premises and equipment of each of them relating to the S.E. USA
BUSINESS, including meeting with its employees, accountants and other agents and
representatives who shall furnish information with respect to such matters as
they may reasonably request.
6.5. CONDITION TO TRANSFER OF CERTAIN CONTRACTS.
A. (INTENTIONALLY DELETED)
B. At the Closing, the BUYER shall close the transactions contemplated
hereby notwithstanding the fact that the SELLER may have failed to obtain
consents to the transfer of one or more contracts which by their terms require
the consent of any other contracting party thereto to the assignment thereof to
BUYER. The terms of this Section 6.5B shall govern the transfer of the benefits
of each such contract. Notwithstanding anything herein to the contrary, the
parties hereto acknowledge and agree that at the Closing the SELLER will not
assign to the BUYER any such contract which by its terms requires the consent of
any other contracting party thereto, unless each such consent has been obtained
prior to the Closing Date. With respect to each such unassigned contract, after
the Closing Date the SELLER shall continue to deal with the other contracting
party(ies) to such contract as the prime contracting party and shall use all
reasonable efforts to
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obtain the consent of all required parties to the assignment of such contract,
but the BUYER shall be entitled to the benefits of such contract accruing after
the Closing Date to the extent that SELLER may provide the BUYER with such
benefits without violating the terms of such contract, and the BUYER agrees to
perform at its sole expense all of the obligations of the SELLER to be performed
under such contract, the benefits of which the BUYER is receiving after the
Closing Date.
6.6. COOPERATION IN LITIGATION.
Each party will fully cooperate with the other in the defense or prosecution of
any litigation or proceeding already instituted or which may be instituted
hereafter against or by such party relating to or arising out of the operation
of the S.E. USA BUSINESS prior to or after the Closing Date (other than
litigation arising out of the transactions contemplated by this Agreement). The
party requesting such cooperation shall pay the out-of-pocket expenses
(including legal fees and disbursements) of the party providing such cooperation
and of its officers, directors, employees and agents reasonably incurred in
connection with providing such cooperation, but shall not be responsible to
reimburse the party providing such cooperation for such party's time spent in
such cooperation or the salaries or costs of fringe benefits or other similar
expenses paid by the party providing such cooperation to its officers,
directors, employees and agents while assisting in the defense or prosecution of
any such litigation or proceeding.
6.7. ACTIONS WITH RESPECT TO CLOSING.
Each party will use all reasonable efforts to bring about the satisfaction of
the conditions precedent to the Closing and to cause the covenants and
agreements contained in this Agreement to be satisfied and performed by each of
them.
6.8. EMPLOYEES.
A. The SELLER shall be solely responsible and liable for any severance
claims, costs or causes of action of employees of the SELLER to whom the BUYER
does not offer employment. Nothing herein shall restrict the BUYER'S ability to
change or terminate the benefits or benefit plans provided to any employees
(including former employees of the SELLER),
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nor shall the BUYER be required to provide any employee any of the terms and
conditions of employment provided by the SELLER. This Section 6.8A shall operate
exclusively for the benefit of the parties to this Agreement (and their
permitted assigns) and not for the benefit of any other person or entity,
including without limitation any employee or former employee of the SELLER or
the BUYER.
B. The SELLER agrees that it shall be solely responsible and liable for
any medical, disability or other benefits owed under the SELLER'S benefit plans
to its employees, including, without limitation, (i) expenses for health or
dental benefits incurred but not submitted for reimbursement prior to the
Closing that are covered under the SELLER'S benefit plans and (ii) any incentive
bonuses offered to employees of the SELLER. The SELLER will be solely
responsible for providing, at SELLER'S cost, all medical, life and other
insurance coverage and benefits, and disability benefits to which any employee
of the SELLER who retired or was terminated from service with the SELLER prior
to the Closing Date, or who was disabled prior to the Closing Date, is entitled
under the SELLER'S benefit plans.
C. For a period commencing upon the execution of this Agreement and
ending, twelve (12) months following the Closing Date, the SELLER and its
affiliates will not solicit the employment of employees hired by the BUYER
without the prior written approval of the BUYER.
6.9. HART-SCOTT-RODINO.
The BUYER shall within ten (10) business days after the execution of this
Agreement, prepare any notifications required to be submitted to the United
States Department of Justice and the United States Federal Trade Commission
pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, 15 U.S.C.
18a ("Hart-Scott"). The filing fees associated with such notifications shall be
paid one-half each by BUYER and SELLER.
6.10. LIMITED COMPRESSOR WARRANTY SERVICE AGREEMENTS.
The SELLER has certain Limited Compressor Warranty Service Agreements (the
"Service Agreements") with its customers, a form of which is annexed hereto as
Schedule 6.10. If, after the Closing Date, customers should present a claim (in
accordance with the terms of the applicable
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Service Agreement) to BUYER, prior to the expiration of the applicable Service
Agreement, for any of the compressors covered by the Service Agreement and sold
by SELLER and, if the BUYER is required, pursuant to the applicable Service
Agreement, to honor such claim and replace the customer's defective compressor,
the SELLER shall reimburse the BUYER for the then current replacement cost of
the compressor, provided the BUYER submits to the SELLER a copy of the
applicable Service Agreement along with the defective compressor's serial number
plate and SELLER has determined that such defective compressor was required to
be replaced pursuant to the applicable Service Agreement. BUYER shall keep the
defective compressor for a period of forty-five (45) days to allow SELLER'S
representatives to verify if the compressor was required to be replaced under
the Service Agreement.
7. INDEMNIFICATION
7.1. INDEMNIFICATION BY SELLER.
Notwithstanding the Closing, SELLER hereby agrees to indemnify, defend and hold
BUYER harmless against and with respect to, and shall reimburse BUYER for:
A. Any and all losses, direct or indirect, liabilities, or damages
resulting from a breach in any material respect of any representation, warranty,
or nonfulfilment of any covenant or obligation by SELLER contained herein or in
any certificate, document, or instrument delivered to BUYER hereunder or
attached hereto.
B. Any and all obligations of SELLER not assumed by BUYER pursuant to
the terms of this Agreement (except for any such obligation for which BUYER has
agreed to indemnify SELLER pursuant to a separate agreement dated October 31,
1996).
C. Any and all losses, liabilities, or damages resulting from the
operation or ownership of the S.E. USA BUSINESS prior to the Closing Date,
including but not limited to any and all liabilities arising under the assumed
contracts which relate to events occurring prior to the Closing Date;
D. Any and all losses, liabilities or damages resulting from any
failure to comply with any "bulk sales" laws applicable to the transactions
contemplated by this Agreement;
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E. Any and all actions, suits, proceedings, claims, demands,
assessments, judgments, costs, and expenses, including reasonable legal 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 indemnity, subject to the notice and opportunity to remedy
requirements of Section 7.3 hereof, and
F. Interest at the Delaware statutory rate for interest on judgments on
any reimbursable expense or loss incurred by BUYER from the date of BUYER'S
payment of expense or incurrence of loss until the date of reimbursement by
SELLER.
7.2. INDEMNIFICATION BY BUYER.
Notwithstanding the Closing, BUYER hereby agrees to indemnify and hold the
SELLER harmless against and with respect to, and shall reimburse the SELLER for:
A. Any and all losses, direct or indirect, liabilities, or damages
resulting from a breach in any material respect of any representation, warranty,
or nonfulfilment of any covenant or obligation by BUYER contained herein or in
any certificate, document, or instrument delivered to SELLER hereunder or
attached hereto;
B. Any and all losses, liabilities, or damages resulting from the
operation or ownership of the S.E. USA BUSINESS by BUYER on and after the
Closing Date, including but not limited to any and all liabilities arising under
the assumed contracts assigned to BUYER which relate to events occurring after
the Closing Date;
C. Any and all actions, suits, proceedings, claims, demands,
assessments, judgments, costs and expenses, including reasonable legal 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 indemnity, subject to the notice and opportunity to remedy
requirements of Section 7.3 hereof, and
D. Interest at the Delaware statutory, rate for interest on judgments
on any reimbursable expense or loss incurred by SELLER from the date of SELLER'S
payment of expense or incurrence of loss until the date of reimbursement by
BUYER.
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7.3. PROCEDURE FOR INDEMNIFICATION.
The procedure for indemnification shall be as follows:
A. The party seeking indemnification under this Section 7 (the
"Claimant") shall give notice to the party from whom indemnification is sought
(the "Indemnitor") of any claim, whether solely between the parties or brought
by a third party, specifying (i) the factual basis for the claim, and (ii) the
amount of the claim. If the claim relates to an action, suit, or proceeding
filed by a third party against Claimant, notice shall be given by Claimant
within fifteen (15) business days after written notice of the action, suit, or
proceeding was given to Claimant. In all other circumstances, notice shall be
given by Claimant within thirty (30) business days after Claimant becomes, or
should have become, aware of the facts giving rise to the claim. Notwithstanding
the foregoing, Claimant's failure to give Indemnitor timely notice shall not
preclude Claimant from seeking indemnification from Indemnitor, except to the
extent that Claimant's failure has materially prejudiced Indemnitor's ability to
defend the claim or litigation.
B. With respect to claims between the parties, following receipt of
notice from the Claimant of a claim, the Indemnitor shall have thirty (30)
business days to make any investigation of the claim that the Indemnitor deems
necessary or desirable. For the purposes of this investigation, the Claimant
agrees to make available to the Indemnitor and/or its authorized
representatives, the information relied upon by the Claimant to substantiate the
claim. If the Claimant and the Indemnitor cannot agree as to the validity and
amount of the claim within the 30-day period (or any mutually agreed upon
extension thereof), the Claimant may seek appropriate legal remedy.
C. With respect to any claim by a third party as to which the Claimant
is entitled to indemnification hereunder, the Indemnitor shall have the right at
its own expense to participate in or assume control of the defense of the claim,
and the Claimant shall cooperate fully with the Indemnitor, subject to
reimbursement for actual out-of-pocket expenses incurred by the Claimant as the
result of a request by the Indemnitor. If the Indemnitor elects to assume
control of the defense of any third-party claim, the Claimant shall have the
right to participate in the defense of
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the claim at its own expense. If the Indemnitor does not elect to assume control
or otherwise participate in the defense of any third party claim, Claimant may,
but shall have no obligation to defend or to settle such claim or litigation in
such manner as it deems appropriate, and in any event, Indemnitor shall be bound
by the results obtained by the Claimant with respect to the claim (by default or
otherwise) and shall promptly reimburse Claimant for the amount of all expenses
(including the amount of any judgment rendered), legal or otherwise, incurred in
connection with such claim or litigation. The Indeminitor shall be surrogated to
all rights of the Claimant against any third party with respect to any claim for
which indemnity was gain. Notwithstanding anything contained herein to the
contrary, Claimant shall not consent to the entry of any judgment or enter into
any settlement with respect to any claim without, as an unconditional term
thereof, obtaining a release of the Indemnitor from all liability in connection
with such claim.
7.4. LIMITATIONS.
Neither SELLER nor BUYER shall have any obligation to the other party for any
matter described in Section 7.1 or Section 7.2, as the case may be, except upon
compliance by the other party with the provisions of this Section, particularly
Section 7.3. Indemnity shall be due only to the extent of the loss or damage
actually suffered, reduced by any offsetting or related asset or service
received and by any recovery from any insurer or other third party. Neither
party shall be required to indemnify the other party under this Section 7 for
any breach of any representation or warranty contained in this agreement unless
written notice of a claim under this Section 7 was received by the party within
the pertinent survival period specified in Section 4.16 of this Agreement, and
unless and to the extent that the aggregate amount of all claims against the
party for breaches of its representations and warranties exceeds Twenty Five
Thousand Dollars ($25,000.00); provided, however, that the foregoing $25,000.00
"basket" amount shall not be applicable to any claims made by third parties
against which BUYER is indemnified pursuant to Section 7.1 hereof. It is
further agreed that the total aggregate liability of SELLER hereunder shall be
limited to the total Purchase Price paid pursuant to this Agreement.
8. CONDITIONS TO CLOSING.
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8.1. CONDITIONS TO BUYER'S OBLIGATIONS.
The obligations of BUYER under this Agreement are, at the option of BUYER,
subject to the following conditions:
A. All the terms, covenants, and conditions of this Agreement to be
complied with and performed by the SELLER at or before the Closing Date shall
have been duly complied with and performed on all material respects, and the
representations and warranties made by the SELLER in this Agreement shall be
correct as of the Closing Date in all material respects with the same force and
effect as though such representations and warranties had been made as of the
Closing Date, except insofar as SELLER may have been given notice to the
contrary as provided herein and BUYER shall have received a Certificate duly
executed by the President of SELLER dated the Closing Date, as to the foregoing.
B. The S.E. USA BUSINESS and ACQUISITION ASSETS shall not have been
materially or adversely affected as a result of any transaction or event
occurring from the date hereof to the Closing Date.
C. The BUYER shall receive an opinion letter of counsel for the SELLER,
dated as of the Closing Date in form and substance satisfactory to the BUYER to
the effect that:
i) SELLER is a corporation duly organized, validly existing and in
good standing under the laws of the State of New York, and has full power and
lawful authority to own and lease its assets and carry on the S.E. USA Business
as and where such BUSINESS is now being conducted.
ii) The SELLER has all necessary corporate power and authority to
enter into and consummate the transaction provided and contemplated in this
Agreement and all related agreements and documents described herein or attached
hereto and has taken all action required by law, its certificate of
incorporation and by-laws, to authorize the execution and delivery of this
Agreement and the sale of ACQUISITION ASSETS provided herein.
iii) The execution, delivery and performance by the SELLER of this
Agreement, and each instrument delivered or to be delivered by the SELLER
pursuant hereto have
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been duly authorized by all necessary corporate action and each document or
instrument is a valid and binding obligation of the SELLER enforceable In
accordance with its terms, subject to the effect of applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws effecting
creditors' rights generally and to the application of general equitable
principles by a court of competent jurisdiction.
D. BUYER'S obligations under this Agreement are farther expressly
conditioned on the transfer of clear title to BUYER of all the ACQUISITION
ASSETS specified in Section 1 at Closing.
E. BUYER'S obligations under this Agreement are further expressly
conditioned on the receipt of approval of HART-SCOTT compliance, or formal
waiver of a need for such compliance, from the United States Department of
Justice and the United States Federal Trade Commission.
F. BUYER, SELLER and the Escrow Agent shall have executed and delivered
the Closing Date Escrow in the form annexed hereto as Exhibit "E".
G. The delivery of such instruments and documents of transfer as may be
necessary or appropriate to sell and transfer the ACQUISITION ASSETS being sold
hereunder, including a Bill of Sale with warranty of title covering all of the
personal property described in Section 1 hereof.
H. The BUYER shall have received a certified copy of the action of the
Board of Directors of the SELLER authorizing the SELLER to execute, deliver and
perform this Agreement. Such certificate shall be dated the Closing Date and
signed by the secretary or an assistant secretary of the SELLER.
I. Delivery of all of the SELLER'S records referred to in Section
1.1D(iii).
J. Delivery of the Certificate of Good Standing for SID HARVEY
INDUSTRIES, INC., from the Secretary of State of the State of New York.
K. Delivery of the assignment of all current third party real estate
leases for SELLER'S business locations as set forth in Schedule 1.1D(iv), to the
extent same can be obtained on a best efforts basis by SELLER prior to Closing.
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L. Delivery of the Leases for SELLER'S business locations for real
estate owned by SELLER or its affiliate, as set forth in Schedule 1.1D(v).
8.2. CONDITIONS TO SELLER'S OBLIGATIONS.
The obligations of the SELLER under this Agreement are, at the option of SELLER,
subject to the following conditions:
A. All the terms, covenants, and conditions of this Agreement to be
complied with and performed by the BUYER at or before the Closing Date shall
have been duly complied with and performed in all material respects, and the
representations and warranties made by the BUYER in this Agreement shall be
correct as of the Closing Date in all material respects with the same force and
effect as though such representations and warranties had been made as of the
Closing Date, except insofar as BUYER may have been given notice to the contrary
as provided herein and SELLER shall have received a Certificate duly executed by
the President of BUYER dated the Closing Date, as to the foregoing.
B. The SELLER shall have received a certified copy of the action of the
Board of Directors of the BUYER authorizing the BUYER to execute, deliver and
perform this Agreement. Such certificate shall be dated the Closing Date and
signed by the secretary or an assistant secretary of the BUYER.
C. The SELLER shall have received an opinion of Kilpatrick & Cody,
counsel for the BUYER, dated as of the Closing Date, in form and substance
reasonably satisfactory to the SELLER and its counsel to the effect that:
i) BUYER is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of Delaware, is duly qualified to
do business in the States of North Carolina, South Carolina, Georgia, Florida,
Mississippi, Louisiana and Tennessee.
ii) The execution, delivery and performance by the.-BUYER of this
Agreement, and each instrument delivered or to be delivered by the BUYER
pursuant hereto have been duly authorized by all necessary corporate action and
each document or instrument is a valid and binding obligation of the BUYER
enforceable in accordance with its terms, subject to the
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effect of applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws effecting creditors' rights generally and to the application of
general equitable principals by a court of competent jurisdiction.
iii) Counsel has no actual knowledge that would indicate that the
representation- and warranties which the BUYER has made in this Agreement are
not true and correct, in any material respect.
D. Delivery of the Purchase Price by (1) wire funds immediately
available; and (2) release of escrowed deposit in accordance with Section 2.2A.
E. BUYER, SELLER and the Escrow Agent shall have executed and delivered
the Closing Date Escrow in the form annexed hereto as Exhibit "E".
F. The SELLER and BUYER shall have executed the Assignment and
Assumption Agreement in the form annexed hereto as Exhibit "F".
8.3. TIME DEEMED TO BE OF THE ESSENCE.
BUYER and SELLER each deem that time is of the utmost essence in closing this
transaction. Thus, BUYER'S and SELLER'S obligations under this Agreement are
expressly conditioned upon closing on or about November 22, 1996.
9. COVENANT NOT TO COMPETE
9.1. COVENANT NOT-TO-COMPETE.
SELLER shall not directly or indirectly, on behalf of SELLER or on behalf of any
other person, firm, corporation, partnership, or other entity, (i) operate a
store engaged in any manner in the air-conditioning, heating, ventilation and
refrigeration equipment and parts distribution business, in a geographic area
which is defined as the States of North Carolina, South Carolina, Georgia,
Florida, Mississippi, Louisiana and Tennessee (the "Territory"); or (ii) solicit
customers within the Territory for purposes of selling air conditioning,
heating, ventilation and refrigeration equipment and parts, in any case, as to
(i) and (ii) for a period of two (2) years from the Closing Date.
Notwithstanding the foregoing, it is agreed that the SELLER may respond to, and
service,
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unsolicited customer orders and requests, from. within the Territory, for the
SELLER'S products and catalogs.
10. MISCELLANEOUS PROVISIONS
10.1. TELEPHONE NUMBERS.
As of the Closing Date, SELLER shall assign to BUYER all its rights and interest
in and to its telephone numbers used in the S.E. USA BUSINESS.
10.2. PAYMENT OF TRANSFER AND RELATED TAXES.
SELLER shall pay and discharge any and all documentary stamp taxes, surtaxes,
sales or use taxes, if any, attributable to the transfer, conveyance, and sale
by SELLER to BUYER of any of the ACQUISITION ASSETS.
10.3. PAYMENT OF SALES TAXES.
BUYER shall pay and discharge any and all sales taxes, if any, attributable to
the sale by SELLER to BUYER of any of the Acquisition Assets.
10.4. EXPENSES.
Unless otherwise specifically provided elsewhere herein, each party shall pay
its or their own expenses arising from this Agreement and the transactions
contemplated hereby, including, without limitation, all legal and accounting
fees and disbursements and broker's and finder's fees.
10.5. ACCOUNTS RECEIVABLE RECONCILIATION.
BUYER and SELLER will cooperate with each other to identify future payments and
assist in reconciling disputes with customers. Payments mistakenly made to
SELLER for post-Closing receivables generated by BUYER should be held in trust
for BUYER and immediately forwarded. Payments mistakenly made to BUYER with
respect to any TAR retumed to SELLER hereunder shall be held in trust for the
SELLER and immediately forwarded to the SELLER.
10.6. COOPERATION CLAUSE.
The parties mutually agree to assist each other in effectuating the transfer of
titles, possessory interests, and business operation privileges which are
related to this transaction, and shall, upon reasonable request, execute such
documents as are necessary to provide this assistance.
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10.7. PUBLICITY.
The SELLER and the BUYER agree that press releases and other announcements to be
made by either of them with respect to the transactions contemplated hereby
shall be subject to mutual agreement.
10.8. SURVIVAL.
All of the representations, warranties, covenants, agreements, conditions,
provisions and terms contained in this Agreement or in any Schedules, agreements
or documents attached hereto shall survive the Closing Date and the consummation
of the transactions provided for herein without limitation, unless a period of
limitation is otherwise specifically provided.
10.9. EFFECTIVE AGREEMENT.
This Agreement sets forth the entire understanding of the parties on the subject
hereof, is deemed to be a completely integrated agreement, and supersedes all
prior agreements and understandings relating to this transaction. It shall not
be changed or terminated orally. All of the terms and provisions of this
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the successors and assigns of the parties.
10.10. NOTICES.
(a) All notices, demands or other communications required or permitted
to be given or made hereunder shall be in writing and (i) delivered personally,
or (ii) sent by pre-paid, first class, certified or registered air mail (or the
functional equivalent in any foreign country), return receipt requested, or
(iii) by an international express counter service, or (iv) by facsimile
transmission to the intended recipient thereof at its address or facsimile
number set out below. Any such notice, demand or communication shall be deemed
to have been duly given immediately (if given or made by confirmed facsimile),
or three days after mailing (if addressed to a location within the country of
posting) or seven days after mailing (if addressed to a location outside the
country of posting) or the second day after delivery to an international express
courier service, and in proving same it shall be sufficient to show that the
envelope containing the same was duly addressed, stamped and posted (or that the
envelope was delivered to the international express courier service), or that
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receipt of a facsimile was confirmed by the recipient. The addresses and
facsimile numbers of the parties for purposes of this Agreement are:
(i) If to BUYER: Pameco Corporation
1000 Center Place
Norcross, Georgia 30093
Facsimile No.: 770-798-0621
Attn: Ted Kallgen
With a copy to: Kilpatrick & Cody
Suite 2800
1100 Peachtree Street
Atlanta, Georgia 30309-4530
Facsimile No.: 404-815-6555
Attn: Marc K. Ritzmann, Esq.
(ii) If to SELLER: Sid Harvey Industries, Inc.
Paul S. Harvey, President
605 Locust Street
Garden City, New York 11530
Facsimile No.: (516) 745-1508
Copy to: Barry R. Shapiro, Esquire
Rivkin, Radler & Kremer
EAB Plaza
Uniondale, New York 11556-0111
Facsimile No.: (5 16) 357-3333
Attn.: Barry R. Shapiro
10.11. GOVERNING LAW.
Regardless of the place of contracting, place of performance or otherwise,
this. Agreement and all amendments, modifications, alterations or supplements
hereto, and the rights of the parties hereunder shall be construed and enforced
in accordance with the laws of the State of New York, U.S.A.
10.12. REMEDIES; SPECIFIC PERFORMANCE.
The SELLER'S obligations under this Agreement are unique. If the SELLER should
default in its obligations under this Agreement, the SELLER acknowledges that it
would be extremely impracticable to measure the resulting damages to the BUYER;
accordingly, the BUYER, in
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addition to any other available rights and remedies, at law or in equity, may
sue in equity for specific performance or injunctive relief, and the SELLER
expressly waives the defense that a remedy in damages will be adequate.
10.13. DEFINITION OF KNOWLEDGE.
For purposes of this Agreement, the phrase "to the best knowledge of the SELLER"
or the like, and any statement that the SELLER "knows" shall refer to the actual
knowledge of all officers of the SELLER. The SELLER shall not be deemed to have
knowledge solely by reason of the actual knowledge of the persons employed by
SELLER other than the persons described in the preceding sentence.
10.14. SCHEDULES.
Disclosure of any fact or item in any Schedule hereto referenced by a particular
paragraph or section in this Agreement shall, should the existence of the fact
or item or its contents be relevant to any other paragraph or section, be deemed
to be disclosed with respect to that other paragraph or section whether or not
an explicit cross reference appears.
10.15. COUNTERPART EXECUTION.
This Agreement may be executed in two or more counterparts, including
execution by facsimile transmission, each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Parties hereto, intending to be legally bound hereby,
have set forth their hands and seals as of the date first written above.
SELLER:
SID HARVEY INDUSTRIES, INC.
BY:___________________________________
Paul S. Harvey, President
WITNESSES:
___________________________________________________
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___________________________________________________
BUYER:
PAMECO CORPORATION
BY:_____________________________________
Gerald V. Gurbacki
Chairman and Chief Executive Officer
WITNESSES:
___________________________________________________
___________________________________________________
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Exhibit 10.2
October 31, 1996
Sid Harvey Industries, Inc.
605 Locust Street
Garden City, New York 11530
Attention: Paul S. Harvey
Dear Paul:
Pameco Corporation agrees to indemnify and hold Sid Harvey Industries, Inc.
("Sid Harvey"), its officers, directors, shareholders, employees, agents,
successors and assigns (collectively with Sid Harvey, the "Indemnified Parties")
harmless from and against all liabilities, losses, actions, demands, damages,
costs and expenses whatsoever (including reasonable attorneys' fees), whether
equitable or legal, matured or unmatured, known or unknown, direct or indirect,
arising out of any action or proceeding, equitable or legal, commenced against
the Indemnified Parties, or any of them, by United Refrigeration, Inc. or its
affiliates, successors or assigns, in connection with the proposed sale of Sid
Harvey's assets to Pameco Corporation. This indemnity is given based on the
representation of Sid Harvey that (i) United Refrigeration, Inc. was not willing
to enter into a definitive agreement for the sale of the assets unless it first
obtained permission from its lenders and that such permission has not, to Sid
Harvey's knowledge, yet been obtained; (ii) Sid Harvey has not executed a
definitive agreement with United for the sale of the assets; and (iii) Sid
Harvey did not agree with United that Sid Harvey would not negotiate with others
with respect to the sale of assets.
This will survive the execution and delivery of any agreement between Sid
Harvey and the undersigned or the termination of negotiations in contemplation
of the execution of any such agreement.
Pameco and Sid Harvey agree not to disclose to United any of the details
relating to the Purchase Price contained in the Agreement for the sale of the
assets to Pameco.
Very truly yours,
PAMECO CORPORATION
Gerald V. Gurbacki
Chairman & Chief Executive Officer
ACCEPTED
SID HARVEY INDUSTRIES, INC.
By:_________________________
Paul S. Harvey
Title: President
<PAGE>
Exhibit 10.3
AGREEMENT FOR PURCHASE AND SALE OF CERTAIN ASSETS
OF
CHASE SUPPLY COMPANY
BY AND AMONG
PAMECO CORPORATION
CHASE SUPPLY COMPANY
RICHARD SWANSON
AND
KEN SWANSON
MAY 1, 1996
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. PURCHASE AND SALE OF ASSETS............................................... 1
1.1 Purchase And Sale........................................................ 1
1.2 Excluded Assets.......................................................... 2
1.3 Purchase Price........................................................... 3
1.4 Assumption of Certain Liabilities........................................ 3
1.5 Obligations Not Assumed.................................................. 4
1.6 Sales Taxes.............................................................. 4
1.7 Allocation............................................................... 4
1.8 Closing.................................................................. 4
1.9 Transactions and Documents at Closing.................................... 5
1.10 Post-Closing Adjustments................................................ 6
2. ADDITIONAL AGREEMENTS..................................................... 7
2.1 Expenses................................................................. 7
2.2 Brokers.................................................................. 8
2.3 Consulting/Noncompetition Agreement...................................... 8
2.4 Covenant Against Competition............................................. 8
2.5 Waiver of Bulk Sales Law Compliance...................................... 9
2.6 Pension Plan............................................................. 9
2.7 Sale of IBM RS 6000 Company.............................................. 10
2.8 Lease of Certain Properties.............................................. 10
2.9 Employees................................................................ 10
2.10 Labor Agreement......................................................... 10
2.11 Records................................................................. 11
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER AND THE SHAREHOLDERS.. 11
3.1 Disclosure Memorandum.................................................... 11
3.2 Organization and Compliance.............................................. 12
3.3 Ownership of Shares...................................................... 12
3.4 Enforceability of Agreement.............................................. 12
3.5 No Inconsistent Obligations.............................................. 13
3.6 Consents................................................................. 13
3.7 No Violation............................................................. 13
3.8 Possession of Franchises, Licenses, Etc.................................. 13
3.9 Financial Statements..................................................... 13
3.10 Liabilities............................................................. 14
3.11 Title to Properties..................................................... 14
3.12 Returns and Consignments................................................ 14
3.13 Personal Property....................................................... 14
3.14 Real Property........................................................... 15
3.15 Authority to Conduct Business and Intellectual Property Rights.......... 16
3.16 Material Contracts...................................................... 16
3.17 Insurance............................................................... 17
3.18 Customers and Suppliers................................................. 17
3.19 Contingencies........................................................... 17
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
3.20 Taxes................................................................... 18
3.21 Employment and Labor Matters............................................ 18
3.22 Employee Benefit Matters................................................ 19
3.23 Environmental Matters................................................... 20
3.24 Absence of Certain Business Practices................................... 20
3.25 Agreements and Transactions with Related Parties........................ 21
3.26 Absence of Changes...................................................... 21
3.27 Bank Accounts; Safety Deposit Boxes..................................... 23
3.28 Performance Bonds....................................................... 23
3.29 Full Disclosure......................................................... 23
4. REPRESENTATIONS AND WARRANTIES OF PURCHASER............................... 24
4.1 Organization............................................................. 24
4.2 Authorization; No Inconsistent Agreements................................ 24
4.3 Full Disclosure.......................................................... 24
5. INDEMNITIES............................................................... 24
5.1 Indemnification of Purchaser............................................. 24
5.2 Indemnification of Seller and Shareholders............................... 25
5.3 Payment.................................................................. 25
5.4 Defense of Claims........................................................ 26
6. SURVIVAL OF REPRESENTATIONS AND OTHER PROVISIONS.......................... 27
6.1 Survival................................................................. 27
6.2 Liabilities not Assumed.................................................. 28
6.3 Limitation on Indemnification............................................ 28
6.4 Purchaser's Right to Set-Off............................................. 28
7. MISCELLANEOUS............................................................. 29
7.1 Notices.................................................................. 29
7.2 Counterparts............................................................. 30
7.3 Entire Agreement......................................................... 30
7.4 Governing Law............................................................ 30
7.5 Successors and Assigns................................................... 30
7.6 Partial Invalidity and Severability...................................... 30
7.7 Waiver................................................................... 30
7.8 Headings................................................................. 31
7.9 Number and Gender........................................................ 31
7.10 Time of Performance..................................................... 31
7.11 Certain Definitions..................................................... 31
</TABLE>
-ii-
<PAGE>
APPENDIX AND EXHIBIT INDEX
Appendix Description
- -------- -----------
Appendix 1.1(a) Real Property
Appendix 1.1(b) Personal Property
Appendix 1.1(h) Assigned Contracts
Appendix 1.2 Excluded Assets
Appendix 1.4(a)(i) Liabilities Excluded
Appendix 1.4(a)(iii) Assumed Liabilities
Exhibit Description
- ------- -----------
Exhibit A Opinion of Counsel to Seller and Shareholders
Exhibit B Opinion of Counsel to Purchaser
Exhibit C General Assignment and Bill of Sale
Exhibit D Assumption Agreement
Exhibit E-1 First Consulting Agreement
Exhibit E-2 Second Consulting Agreement
Exhibit F-1 Form of Lease, Alsip
Exhibit F-2 Form of Lease, Lincolnwood
Exhibit F-3 Form of Lease, Gary
-iii-
<PAGE>
AGREEMENT FOR PURCHASE AND SALE OF
CERTAIN ASSETS OF
CHASE SUPPLY COMPANY
THIS AGREEMENT is made and entered into as of the 1st day of May 1996,
by and among Pameco Corporation, a Delaware corporation ("PURCHASER"), Chase
---------
Supply Company, an Illinois corporation ("SELLER"), Ken Swanson and Richard
------
Swanson (collectively the "SHAREHOLDERS").
------------
W I T N E S S E T H:
-------------------
WHEREAS, Seller is engaged in the business ("SELLER'S BUSINESS") of
-----------------
distributing refrigeration and HVAC equipment; and
WHEREAS, Seller desires to sell and transfer to Purchaser, and
Purchaser desires to acquire from Seller, all the assets of Seller which are
used or usable in the conduct and operation of Seller's Business (except for the
Excluded Assets, as defined in Paragraph 1.2 hereof), upon the terms and
conditions contained herein; and
WHEREAS, the Shareholders are the record and beneficial owners of 100%
of the issued and outstanding shares of Seller and are joining in the
representations, warranties, covenants and agreements of Seller contained
herein;
NOW, THEREFORE, for and in consideration of the premises and the
mutual covenants and agreements herein contained, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. PURCHASE AND SALE OF ASSETS.
---------------------------
1.1. PURCHASE AND SALE. Subject to the terms and conditions
-----------------
contained herein, Seller agrees to sell, transfer, convey and assign to
Purchaser, and Purchaser agrees to purchase and acquire from Seller, all of
Seller's right, title and interest in and to all of the assets and properties of
Seller which are used or usable in Seller's Business (the "TRANSFERRED ASSETS"),
------------------
including, without limitation, the following:
(a) all of Seller's leasehold and other interests in real
property and all Improvements (as defined in Paragraph 7.11(h) below) thereof or
located thereon that are reflected on Seller's Interim Statements (as defined in
Paragraph 3.9 below), including, without limitation: (i) all leasehold and other
interests in real property and Improvements shown as "Property, Plant and
Equipment" on Seller's Interim Statements, and (ii) all other leaseholds,
easements, rights of way, licenses and other interests in real property,
described on Appendix 1.1(a) attached hereto;
<PAGE>
(b) all of Seller's machinery, equipment, computers, tools,
vehicles, furniture, office equipment and other tangible personal property,
including, without limitation, all of such assets shown as "Property, Plant and
Equipment" on Seller's Interim Statements (other than non-material machinery,
equipment, tools, furniture, or office equipment shown on the Interim Statements
and sold or disposed of in the ordinary course of business prior to the Closing
Date), and all of such assets described and identified in Appendix 1.1(b)
attached hereto (collectively, the "PERSONAL PROPERTY");
-----------------
(c) all of Seller's inventories of finished goods or
products (collectively, the "INVENTORIES");
-----------
(d) all of Seller's notes and accounts receivable arising
from or as a result of Seller's Business (collectively, the "RECEIVABLES");
-----------
(e) all cash and cash equivalents, bank deposits and other
securities owned or held by Seller (collectively, the "OPERATING RESERVES").
------------------
(f) all of Seller's proprietary and confidential
information, including, without limitation: (i) trade secrets, technical
information, know-how, ideas, designs, processes, procedures, algorithms,
discoveries, patents, patent applications, and copyrights, and all improvements
thereof, (ii) all data, files, books and records, customer lists, and order
information, and (iii) all of Seller's other information and intangible property
rights relating to the operation of the other Transferred Assets or Seller's
Business;
(g) all of Seller's trademarks, service marks, and trade
names (including, without limitation, Seller's corporate name), all
registrations and pending applications therefor, and all goodwill associated
therewith;
(h) all of Seller's right, title and interest under the
contracts, leases, licenses, franchises and agreements which relate to Seller's
Business and which are identified in Appendix 1.1(h) attached hereto
(collectively the "ASSIGNED CONTRACTS");
------------------
(i) all rights, chooses in action, and claims, known or
unknown, matured or unmatured, accrued or contingent, against third parties; and
(j) all of Seller's right, title and interest in and to all
prepaid expenses, deposits, promotional discounts, rebates, refunds and all
similar rights and claims.
1.2. EXCLUDED ASSETS. Notwithstanding anything in this Agreement to
---------------
the contrary, the Transferred Assets shall not include the assets and property
described in Appendix 1.2 attached hereto (the "EXCLUDED ASSETS").
---------------
-2-
<PAGE>
1.3. PURCHASE PRICE. The purchase price for the Transferred Assets
--------------
(the "PURCHASE PRICE"), subject to adjustment as provided in Paragraph 1.10
--------------
hereof, shall be equal to THREE MILLION ONE HUNDRED FOUR THOUSAND ONE HUNDRED
TWENTY-FIVE AND 17/100 ($3,104,125.17) of which:
(i) ONE MILLION SIX HUNDRED TWENTY-SEVEN THOUSAND ONE
HUNDRED SIX DOLLARS ($1,627,106.00) shall be payable to Seller in cash
(the "CASH PORTION") at Closing (as defined in Paragraph 1.8 hereof);
------------
and
(ii) ONE MILLION FOUR HUNDRED SEVENTY-SEVEN THOUSAND AND
NINETEEN and 17/100 DOLLARS ($1,476,019.17), representing the
outstanding balance of Seller's outstanding indebtedness to American
National Bank and Trust Company of Chicago (the "BANK") through
----
payment by Purchaser to Bank of such amount in cash at Closing (the
"BANK PORTION").
------------
1.4. ASSUMPTION OF CERTAIN LIABILITIES. At the Closing, Purchaser
---------------------------------
agrees to assume, and to pay or perform, in accordance with their terms, certain
of the fixed and determinable obligations and liabilities of Seller relating to
Seller's Business or the Transferred Assets (collectively the "ASSUMED
-------
LIABILITIES"), as follows:
- -----------
(i) all accounts payable and accrued liabilities of
Seller relating to Seller's Business, incurred in the ordinary course
of Seller's Business and reported on the liability side of Seller's
Audited Financials (as defined in Paragraph 3.9 hereof) as (A)
"Accounts Payable", (B) "Accrued Expenses" or "Accrued Expenditures",
and (C) "Loans Payable - Equipment", excluding the liabilities
identified on Appendix 1.4(a)(i) attached hereto;
(ii) all accounts payable and accrued liabilities of
Seller relating to Seller's Business incurred in the ordinary course
of Seller's Business since the Reference Date (as defined in Paragraph
3.10 hereof) and of the type or nature such that they would be
included within one of the categories specified in subparagraph (i)
hereof in a financial statement prepared with respect to such period,
but excluding liabilities discharged by Seller prior to Closing;
(iii) the obligations, liabilities, agreements, contracts
and commitments relating solely to the conduct of Seller's Business or
the operation of the Transferred Assets which are identified in
Appendix 1.4(a)(iii) attached hereto, and specifically including all
obligations under the Assigned Contracts; provided that Purchaser will
not assume any obligation or liability resulting from or arising out
of any default, performance or non-performance by Seller prior to the
date hereof under or with respect to any of the Assigned Contracts;
and
-3-
<PAGE>
(iv) liabilities and obligations of Seller under the
Labor Agreement (as defined in Paragraph 2.10 hereof), to the extent
provided in Paragraph 2.10 of this Agreement.
1.5. OBLIGATIONS NOT ASSUMED. Except for the Assumed Liabilities
-----------------------
(which shall not include any obligation or Liability (as defined in Paragraph
7.11(k) hereof) arising from any default, breach, misfeasance, malfeasance or
nonfeasance by Seller prior to the date hereof), Purchaser shall not assume any
obligation or Liability of Seller of any kind, and Seller shall pay, satisfy and
perform all of its obligations (other than the Assumed Liabilities), whether
fixed, contingent, known or unknown and whether existing as of the date hereof
or arising thereafter, which may affect in any way the Transferred Assets or the
operation of Seller's Business. Without limiting the generality of the
foregoing, under no circumstances shall Purchaser be deemed to assume any
Liability or obligation of Seller arising out of or relating to (a) any actual
or alleged tortious conduct of Seller or any of its employees or agents, (b) any
product liability claim (with respect to any product sold prior to Closing), (c)
any claim for breach of warranty (other than for certain Copeland Compressors
and other supplier warranties described on Schedule 1.4(a)(iii) hereof) or
contract by Seller, (d) any claim predicated on strict liability or any similar
legal theory, (e) the violation by Seller of any law, ordinance or regulation in
effect prior to the date hereof, (f) any business or business activities of
Seller which are not part of Seller's Business, (g) any Liability for expenses
or taxes, if any, in connection with, resulting from or arising out of this
Agreement or the transactions contemplated hereby, (h) any Liability of Seller
for any federal, state or local Taxes (as defined in Paragraph 7.11(p) hereof)
of any kind or character, except to the extent included in the Assumed
Liabilities, (i) any Liability of Seller arising out of or relating to Seller's
defined benefit plans, including, without limitation, all ERISA Plans (as
defined in Paragraph 3.22(b) hereof), or (j) any Liability of Seller under or
arising by reason of this Agreement. Notwithstanding any other provision of
this Agreement, the obligations of Seller pursuant to this Paragraph shall
survive the Closing and the transactions contemplated by this Agreement.
1.6. SALES TAXES. Seller shall be responsible for the payment of all
-----------
sales, use, excise, transfer, value added and similar Taxes imposed by any
governmental authority in any jurisdiction in connection with the transactions
contemplated herein.
1.7. ALLOCATION. Within forty-five (45) days following the Closing
----------
Date the parties shall agree in good faith to an allocation of the Purchase
Price among the Transferred Assets and noncompetition covenant in conformity
with Section 1060(b) of the Internal Revenue Code of 1986, as amended (the
"CODE"), and the regulations promulgated thereunder. Each party agrees to
----
cooperate in filing all information required by Section 1060(b) of the Code and
the regulations thereunder, and to take no position on any income tax return,
report or filing inconsistent with such allocation.
1.8. CLOSING. The consummation of the transactions contemplated
-------
in this Agreement (the "CLOSING") shall take place at 10:00 a.m. on May __, 1996
-------
at the offices of Keck, Mahin & Cate, 77 W. Wacker Drive, Suite 4900, Chicago,
Illinois, or such other place, date and time
-4-
<PAGE>
as the parties may designate. All actions taken on the date of the Closing shall
be deemed effective as of 12:01 a.m. on the date thereof (the "CLOSING DATE").
------------
1.9. TRANSACTIONS AND DOCUMENTS AT CLOSING.
-------------------------------------
(a) At the Closing:
(i) Seller shall deliver to Purchaser: (A) duly
adopted resolutions of the Board of Directors and Shareholders of
Seller, certified by the Secretary or Assistant Secretary of the
Seller, dated as of the Closing Date, authorizing and approving the
execution of this Agreement and all other action necessary to enable
Seller to comply with the terms hereof; (B) an opinion from Keck,
Mahin & Cate, counsel to Seller and the Shareholders, dated as of the
Closing Date, in substantially the form attached hereto as Exhibit A;
(C) such consents, authorizations and approvals as are necessary for
the consummation of the transactions contemplated herein from any and
all Governments having jurisdiction over the transactions contemplated
by this Agreement, or any part hereof; (D) such consents and approvals
from any other Persons having business relations with the Seller as
are necessary in Purchaser's reasonable opinion for the assignment to
and assumption by Purchaser, and the continuation in full force and
effect after the Closing, of the Assigned Contracts and Seller's
Business in the same manner as conducted prior to Closing; and (E)
such estoppel certificates or other instruments from such of Seller's
lessors and lenders, in form and substance reasonably satisfactory to
Purchaser, regarding the status of all Assigned Contracts, as
Purchaser shall reasonably designate; and
(ii) Purchaser shall deliver to Seller (A) duly adopted
resolutions of the Board of Directors of Purchaser, certified by the
Secretary or Assistant Secretary of the Purchaser, dated as of the
Closing Date, authorizing and approving the execution of this
Agreement and all other action necessary to enable Purchaser to comply
with the terms hereof; (B) an opinion from Kilpatrick & Cody, counsel
to Purchaser, dated as of the Closing Date, in substantially the form
attached hereto as Exhibit B attached hereto.
(b) At the Closing:
(i) Seller shall convey to Purchaser all of Seller's
right, title and interest in and to the Transferred Assets, free and
clear of any and all Liens (as defined in Paragraph 7.11(l) hereof),
except Permitted Liens (as defined in Paragraph 3.11 hereof), and in
furtherance thereof shall deliver to Purchaser a General Assignment
and Bill of Sale in substantially the form attached hereto as Exhibit
C, together with such
-5-
<PAGE>
other bills of sale, assignments, certificates of title, documents and
other instruments of transfer and conveyance as Purchaser and its
legal counsel shall reasonably request; and
(ii) upon such delivery by Seller, Purchaser shall (A)
pay the Cash Portion of the Purchase Price to Seller, in immediately
available funds, (B) assume the Assumed Liabilities by delivering to
Seller an Assumption Agreement in substantially the form attached
hereto as Exhibit D, and (C) pay the Bank Portion of the Purchase
Price to the Bank in immediately available funds;
(iii) following such actions, Purchaser and Ken Swanson
shall each deliver to the other a fully executed copy of the First
Consulting Agreement (as defined in Paragraph 2.3 hereof) and
Purchaser and Richard Swanson shall each deliver to the other a fully
executed copy of the Second Consulting Agreement (as defined in
Paragraph 2.3 hereof); and
(iv) following such actions, Purchaser and Ken Swanson
shall each deliver to the other a fully executed copy of the
Lincolnwood Lease, the Alsip Lease, and the Gary Lease (each as
defined in Paragraph 2.8 hereof).
(c) All deliveries, payments and other transactions and
documents relating to the 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) Each party shall, at the request of any other party from
time to time and at any time, whether on or after the date hereof, and without
further consideration, execute and deliver such assignments, transfers,
assumptions, conveyances, powers of attorney, receipts, acknowledgments,
acceptances and assurances as may be reasonably necessary to procure for the
party so requesting, and its successors and assigns, or for aiding and assisting
in collecting and reducing to possession, any and all of the Transferred Assets
or the Assumed Liabilities, or otherwise to satisfy and perform the obligations
of the parties hereunder.
1.10. POST-CLOSING ADJUSTMENTS.
------------------------
(a) Inventory. Within thirty (30) days following the Closing
---------
Date, Purchaser may conduct a physical count of the number of units of Inventory
(the "POST CLOSING AUDIT") for the purpose of determining whether the number of
------------------
units of Inventory reflected on Seller's perpetual inventory records (the
"INVENTORY COUNT") exceeds the actual number of units of Inventory as of such
---------------
date (the "ACTUAL INVENTORY COUNT"). The Post Closing Audit shall be conducted
----------------------
in accordance with the prior audit procedures of Seller, as disclosed to
Purchaser by Seller prior to the date hereof. Purchaser will give Seller at
least five (5) days written notice of its election to conduct the
-6-
<PAGE>
Post Closing Audit and Seller or its representatives will have the right to be
present during such Post Closing Audit. In the event Purchaser conducts the Post
Closing Audit within the time period specified above and it is determined as a
result of such Post Closing Audit that the value of Inventory Count exceeds the
value of the Actual Inventory Count by more than $50,000, determined on a
replacement cost basis, then the Purchase Price shall be reduced by the amount
of the difference in the value of the Inventory Count and the Actual Inventory
Count in excess of $50,000 (the "INVENTORY ADJUSTMENT").
--------------------
(b) Accounts Receivable. Purchaser agrees that after the
-------------------
Closing Date it will use its reasonable best efforts, consistent with Seller's
past practices as disclosed to Purchaser by Seller prior to the date hereof, to
collect all of the outstanding accounts receivable included in the Transferred
Assets. Payments received from customers and credit returns shall be applied to
the specific invoice designated by the customer paying or returning the same.
Upon Purchaser's written request, Seller agrees to purchase from Purchaser any
and all accounts receivable included in the Transferred Assets (the "CLOSING
-------
RECEIVABLES") which have not been collected during the 180 days immediately
- -----------
following the Closing Date, to the extent that the uncollected amount of the
Closing Receivables exceeds an amount equal to (i) $25,000, plus (ii) Seller's
reserves for bad debts reflected on the Interim Statements, plus (iii) supplier
credits, whether or not reserved, arising in the ordinary course of Seller's
Business for warranty related claims from sales prior to the Closing Date (the
"RECEIVABLES ADJUSTMENT") in exchange for a purchase price equal to the
----------------------
Receivables Adjustment (such purchase price being referred to herein as the
"Receivables Adjustment Price"). Such notice shall include a statement
indicating the amount of the Closing Receivables collected and an itemized list
of the uncollected Closing Receivables as of such date. Upon Seller's payment
of the Receivables Adjustment Price, Purchaser shall assign all of its rights to
the uncollected Closing Receivables to Seller and Seller shall be entitled to
all subsequent collections with respect to such receivables.
(c) Seller and each Shareholder shall be jointly and severally
liable for payment of the full amount of any Inventory Adjustment and
Receivables Adjustment Price, and hereby agree to pay Purchaser the same in
immediately available funds at Purchaser's principal place of business within
ten (10) days of Purchaser's written demand for payment thereof.
2. ADDITIONAL AGREEMENTS.
---------------------
2.1. EXPENSES. All expenses incurred by Purchaser in connection with
--------
the authorization, preparation, execution and performance of this Agreement,
and consummation of the transactions contemplated hereby including, without
limitation, all fees and expenses of agents, representatives, counsel and
accountants for Purchaser, shall be paid by Purchaser. All expenses incurred by
Seller and the Shareholders in connection with the authorization, preparation,
execution and performance of this Agreement, and consummation of the
transactions contemplated hereby including, without limitation, all fees and
expenses of agents, representatives, counsel and accountants for Seller and the
Shareholders, shall be paid by Seller and the Shareholders, provided that up to
-7-
<PAGE>
$35,000 of such expenses incurred by Seller and the Shareholders may be charged
against or paid out of the Transferred Assets.
2.2. BROKERS. Each party hereto represents and warrants that, except
-------
for Terry King, the fees and expenses of whom shall be paid by Purchaser, no
broker or finder has acted on its behalf in connection with this Agreement or
the transactions contemplated herein. Each party shall indemnify the other
parties and hold them harmless from and against any and all claims or demands
for commissions or other compensation by any broker, finder or similar agent
claiming to have been employed by or on behalf of such party.
2.3. CONSULTING/NONCOMPETITION AGREEMENT. At the Closing, Purchaser
-----------------------------------
and Ken Swanson agree to execute a consulting and non-competition agreement (the
"FIRST CONSULTING AGREEMENT") in the form attached hereto as Exhibit E-1, and
--------------------------
Purchaser and Richard Swanson agree to execute a consulting and non-competition
agreement (the "SECOND CONSULTING AGREEMENT") in the form attached hereto as
---------------------------
Exhibit E-2.
2.4. COVENANT AGAINST COMPETITION.
----------------------------
(a) In order to induce Purchaser to enter into this Agreement
and purchase the Transferred Assets as provided herein, Seller and each
Shareholder agrees that, for a period of five (5) years beginning on the Closing
Date and ending on the fifth anniversary of the Closing Date, they will not,
without the prior written consent of Purchaser, individually or collectively,
for their own account or jointly with another, directly or indirectly, for or on
behalf of any individual, partnership, corporation or other legal entity, as
principal, agent or otherwise:
(i) engage in, consult with, or own, control, manage
or otherwise participate in the ownership, control or management of a
business engaged in the manufacture, assembly, purchase for resale,
sale, or distribution within any part of the Trade Area (as defined in
subparagraph (c) below) of refrigeration or HVAC equipment
("PRODUCTS") which are competitive with those assembled, sold or
--------
distributed by Seller during the 12-month period immediately preceding
the Closing Date, except as an employee and on behalf of Purchaser.
For purposes of this Paragraph 2.4(a)(i), the delivery of Products
from a location outside the Trade Area to a location within the Trade
Area shall be deemed to constitute a violation of the provisions
hereof; or
(ii) solicit, call upon, or attempt to solicit the
patronage of any Person having an office or place of business within
the Trade Area and to whom Seller sold any Products during the 12-
month period immediately preceding the Closing Date, for the purpose
of obtaining the patronage of any such Person, for the purchase of any
Products from anyone other than Purchaser, except as an employee and
on behalf of
-8-
<PAGE>
Purchaser. For purposes of this Paragraph 2.4(a)(ii), the solicitation
of the patronage of any Person having an office or trade or business
within the Trade Area by telephonic, telegraphic or other means of
communication initiated from outside the Trade Area shall be deemed to
constitute a violation of the provisions hereof; or
(iii) solicit or induce, or in any manner attempt to
solicit or induce, any person who is employed by Purchaser to leave
such employment, whether or not such employment is pursuant to a
written contract with Purchaser or otherwise.
Notwithstanding the foregoing, the provisions of this Agreement shall in no way
restrict the business activities of Spot Coolers, Inc., as presently conducted,
or otherwise restrict the ability of Ken Swanson to act as an owner, director,
officer, employee, agent or otherwise on behalf of Spot Coolers, Inc.
(b) Seller and each Shareholder agrees that each of them will
not, without the prior written consent of Purchaser, for their own account or
jointly with another, directly or indirectly, for or on behalf of any
individual, partnership, corporation or other legal entity, as principal, agent
or otherwise, use or authorize any other Person to use the name "Chase" or
"Chase Supply Company", or any name similar thereto, in connection with the
manufacture, assembly, purchase for resale, sale, or distribution of any
Products. Immediately following the Closing, Seller shall, and the Shareholders
shall cause, Seller to change its name so as not to incorporate the name "Chase"
or "Chase Supply" or any other confusingly similar name.
(c) For the purposes of this Paragraph 2.4 the term "Trade Area"
means the territory encompassed within a 150-mile radius of each of Seller's
locations listed on Schedule 3.2 of the Disclosure Memorandum (as defined in
Paragraph 3.1 hereof), which is the territory within which the Seller's
customers and accounts are located and where Seller solicits substantially all
of its patronage.
2.5. WAIVER OF BULK SALES LAW COMPLIANCE. Compliance with the bulk
-----------------------------------
sales laws of the States of Illinois and Indiana and of any other jurisdiction
where Seller conducts its business is hereby waived by Purchaser, and Seller and
the Shareholders hereby agree to jointly and severally defend, indemnify and
hold harmless Purchaser and its affiliates from and against any claims by any
Person arising out of or due to the failure to comply with such bulk sales laws,
including, without limitation, any claims by any Person against all or any part
of the Transferred Assets. The obligations of Seller and the Shareholders under
this Paragraph shall not be subject to any limitations set forth in Section 6 of
this Agreement.
2.6. PENSION PLAN. After the Closing, Seller will discharge all of
------------
its obligations under the Chase Supply Company Pension Plan & Trust (the
"PENSION PLAN") in accordance with its terms and applicable Law. Seller and
------------
each Shareholder acknowledge that Purchaser shall not assume
-9-
<PAGE>
any liability with respect to the Pension Plan and agree to jointly and
severally indemnify and hold Purchaser harmless from and against all liability
relating to, or arising out of, the Pension Plan.
2.7. SALE OF IBM RS 6000 COMPANY. Ken Swanson agrees to purchase
---------------------------
from Purchaser the IBM RS 6000 Computer hardware and all associated hardware
(the "COMPUTER HARDWARE") included among the Transferred Assets on the earlier
-----------------
to occur of the date that Purchaser completes the conversion of all data
currently stored on the Computer, or October 31, 1996 (the "COMPUTER PURCHASE
-----------------
DATE"), at a purchase price of $____________. Purchaser shall provide Ken
- ----
Swanson notice of the date, place and time of such sale at least fifteen (15)
days prior to the Computer Purchase Date. On the Computer Purchase Date Ken
Swanson shall pay the purchase price of the Computer to Purchaser, in
immediately available funds, and Purchaser shall deliver the Computer to Ken
Swanson F.O.B. shipping point. Purchaser agrees to provide Spot Coolers, Inc.
with reasonable access to the computer hardware and software included in the
Transferred Assets for its use during the period from the Closing through the
Computer Purchase Date, provided that such access does not interfere with
Purchaser's use of such computer.
2.8. LEASE OF CERTAIN PROPERTIES. Purchaser agrees to lease from Ken
---------------------------
Swanson, and Ken Swanson agrees to lease to Purchaser, immediately following
consummation of the transactions contemplated hereby, the premises currently
occupied by Seller in Alsip, Illinois, according to terms and conditions
reflected in the form of lease attached hereto as Exhibit F-1 (the "ALSIP
-----
LEASE"), the premises currently occupied by Seller in Lincolnwood, Illinois,
- -----
according to the terms and conditions reflected in the form of lease attached
hereto as Exhibit F-2 (the "LINCOLNWOOD LEASE") and the premises currently
-----------------
occupied by Seller in Gary, Indiana, according to the terms and conditions
reflected in the form of lease attached hereto as Exhibit F-3 (the "GARY
----
LEASE").
- -----
2.9. EMPLOYEES. Purchaser shall offer employment as employees at
---------
will to substantially all of Seller's employees (other than the Shareholders)
effective immediately after the Closing with salaries and hourly compensation
substantially the same as that provided by Seller to its employees immediately
prior to the Closing and subject to such other terms and conditions as are
applicable to Purchaser's employees generally. Payment of Seller's severance
obligations, if any, to its employees by reason of the termination of their
employment by Seller in connection with the consummation of the transactions
contemplated by this Agreement shall be Purchaser's responsibility up to the
amount of severance benefits to which such employees would have been entitled as
employees of Purchaser under Purchaser's severance policy. In the event that
any of Seller's employees are entitled to severance benefits by reason of their
employment with Seller in excess of the severance benefits payable by Purchaser
as provided above, such excess shall be the responsibility of Seller.
2.10. LABOR AGREEMENT. Effective as of the Closing, Purchaser
---------------
agrees to assume and be bound by all of the terms, responsibilities and
obligations of the Collective Bargaining Agreement between Seller and the
Chicago Truck Drivers, Helpers and Warehouse Workers Union
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<PAGE>
(Independent) (the "UNION") which is effective as of May 1, 1994 (the "LABOR
----- -----
AGREEMENT") and will offer employment to all of the bargaining unit employees.
- ---------
Seller and Purchaser shall jointly inform the Union prior to the Closing of
Purchaser's agreement to assume and be bound by the terms of the Labor Agreement
and that Purchaser will offer employment to all of the bargaining unit
employees. Seller and the Shareholders agree that Purchaser is only assuming
liabilities under the Labor Agreement which accrue and are based upon acts or
occurrences which take place on or after the Closing Date and liabilities
accrued in the ordinary course of business prior to the Closing Date and
included in the Assumed Liabilities pursuant to Section 1.4(i) or (ii) hereof.
2.11. RECORDS. After the Closing Date, Purchaser shall grant Seller,
-------
and its representatives, access to and the right to make copies of, those
records and documents included in the Transferred Assets which may be necessary
or useful to Seller in connection with its business affairs after the Closing.
Purchaser agrees to maintain the books and records of Seller's Business
transferred to Purchaser hereunder for a period of not less than seven (7) years
after the Closing Date.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER AND THE
-----------------------------------------------------------
SHAREHOLDERS.
------------
To induce Purchaser to enter into this Agreement and to purchase the
Transferred Assets, Seller and the Shareholders jointly and severally represent,
warrant and covenant to Purchaser as follows:
3.1. DISCLOSURE MEMORANDUM. Seller and the Shareholders have
---------------------
heretofore delivered to Purchaser a memorandum (the "DISCLOSURE MEMORANDUM")
---------------------
containing certain information regarding Seller and the Transferred Assets as
indicated at various places in this Agreement. All information set forth in the
Disclosure Memorandum is true, correct, complete and set forth in a manner that
is not misleading. The information contained in the Disclosure Memorandum shall
be deemed to be part of and qualify only those representations and warranties
contained in this Section 3 which make specific reference to the Disclosure
Memorandum. Unless otherwise indicated, all capitalized terms used in the
Disclosure Memorandum shall have the same meanings as in this Agreement. Copies
of all documents and other writings referenced in the Disclosure Memorandum have
been furnished to Purchaser or to its representatives and all documents and
other writings furnished to Purchaser pursuant to this Agreement or the
Disclosure Memorandum are true, correct and complete as of the date furnished
and any and all modifications or amendments of the same have been delivered to
Purchaser on or prior to the date hereof. At all times prior to and including
the date hereof, Seller and the Shareholders shall promptly provide Purchaser
with written notification of any event, occurrence or other information of any
kind whatsoever which affects, or may affect in any material respect, the
continued truth, correctness or completeness of any representation, warranty or
covenant made in this Agreement, the Disclosure Memorandum or any other document
or writing
-11-
<PAGE>
furnished to Purchaser pursuant to this Agreement. No such notification or other
disclosure shall be deemed to amend or supplement the Disclosure Memorandum or
this Agreement.
3.2. ORGANIZATION AND COMPLIANCE. Seller is a corporation duly
---------------------------
organized, validly existing and in good standing under the laws of the State of
Illinois with its principal office and place of business at the location
specified in Schedule 3.2 of the Disclosure Memorandum. Seller has no interest,
direct or indirect, and has no commitment to purchase or otherwise acquire any
interest, direct or indirect, in any other corporation, partnership, joint
venture or other business enterprise. Seller has full corporate power and
authority to own or lease the Transferred Assets and to carry on Seller's
Business as and in all places where such business is now conducted and such
properties are owned or leased. Except as provided in Item 5 of Schedule 3.25
of the Disclosure Memorandum, the Transferred Assets constitute all of the
tangible and intangible assets necessary to sell, license, and use the items and
perform the services presently being sold, licensed, used or performed by Seller
in connection with Seller's Business. Seller's Business and operations have
been conducted, in all material respects, in accordance with all applicable Laws
(as defined in Paragraph 7.11(j) hereof). Seller is duly licensed, qualified or
domesticated as a foreign corporation in the jurisdictions listed in Schedule
3.2 of the Disclosure Memorandum, which are all jurisdictions where the
character of the property owned by it or the nature of the business transacted
by it makes such licensure, qualification or domestication necessary, except
where the failure to obtain such license, qualification or domestication does
not have a material adverse effect on the Seller's Business or the Transferred
Assets. Schedule 3.2 of the Disclosure Memorandum lists (a) all locations where
any Transferred Assets are located, or where Seller has an office or place of
business or maintains any Inventory, and (b) all names under which Seller has
operated during the past five years, if different from its present corporate
name.
3.3. OWNERSHIP OF SHARES. The Shareholders are the record and
-------------------
beneficial owners of all of the issued and outstanding shares of Seller.
3.4. ENFORCEABILITY OF AGREEMENT. Seller has the full corporate power
---------------------------
and authority, and the Shareholders have the full right, power and capacity, to
enter into and execute this Agreement and to carry out the transactions
contemplated hereby in accordance with its terms. There are no outstanding
contracts, demands, commitments or other agreements or arrangements under which
Seller is or may become obligated to sell, transfer or assign any of the
Transferred Assets other than in the ordinary course of business. This
Agreement and all transactions required hereunder to be performed by Seller have
been duly and validly authorized and approved by Seller by all necessary
corporate action. This Agreement has been duly and validly executed and
delivered on behalf of Seller by its duly authorized officers, and has been duly
and validly executed and delivered by each Shareholder. This Agreement
constitutes the valid and legally binding obligation, subject to general equity
principles, of Seller and each Shareholder, 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.
-12-
<PAGE>
3.5. NO INCONSISTENT OBLIGATIONS. Except as disclosed in Schedule 3.5
---------------------------
of the Disclosure Memorandum, neither the execution and delivery of this
Agreement, nor the consummation of the transactions contemplated herein will
result in a violation or breach of, or constitute a default under (a) the
articles of incorporation or bylaws of Seller, (b) any term or provision of any
indenture, note, mortgage, bond, security agreement, loan agreement, guaranty,
pledge, or other instrument, contract, agreement or commitment, to which Seller
or any Shareholder is a party or which any of them or any of the Transferred
Assets is subject or bound, (c) any Order (as defined in Paragraph 7.11(m)
hereof), or (d) any other commitment or restriction, to which Seller or any
Shareholder is a party or by which any of them or any of the Transferred Assets
is subject or bound; nor will such actions result in (i) the creation of any
Lien on any of the Transferred Assets, (ii) the acceleration or creation of any
obligation of Seller (other than Seller's obligation to the Bank), (iii) the
forfeiture of any material right or privilege of Seller, or (iv) the forfeiture
of any material right or privilege of any Shareholder which may affect the
Shareholder's ability to perform under this Agreement.
3.6. CONSENTS. The execution and delivery of this Agreement by Seller
--------
and each Shareholder and the consummation of the transactions contemplated by
this Agreement (a) do not require the consent, approval or action of, or any
filing with or notice to, any Government or other Person, except as specified in
Schedule 3.6 of the Disclosure Memorandum, (b) do not require the consent or
approval of members of Seller's board of directors pursuant to any business
combination, takeover or other similar law, rule, regulation or ordinance, and
(c) do not impose any other term, condition or restriction on Purchaser or the
Transferred Assets pursuant to any business combination, takeover or other
similar statute, rule or regulation.
3.7. NO VIOLATION. Seller is not in default under or in violation of
------------
(a) its articles of incorporation or bylaws, or (b) any Order.
3.8. POSSESSION OF FRANCHISES, LICENSES, ETC. Seller possesses all
---------------------------------------
franchises, certificates, licenses, permits and other authorizations from
Governments and self regulatory authorities that are necessary for the
ownership, maintenance and operation of its properties, assets, and Business and
Seller is not in violation of any thereof in any material respect.
3.9. FINANCIAL STATEMENTS. Schedule 3.9 of the Disclosure Memorandum
--------------------
contains copies of Seller's Balance Sheet as at January 28, 1995, and January
28, 1996, and Statements of Income, Retained Earnings and Cash Flows for the
fiscal years then ended, together with the report thereon of Greenman, Haas &
Gerstein, independent certified public accountants. Except as disclosed in
Schedule 3.9 of the Disclosure Memorandum, all of such financial statements
(including any related notes and schedules thereto) (the "AUDITED FINANCIAL
-----------------
STATEMENTS") are true and correct and have been prepared in accordance with
- ----------
generally accepted accounting principles applied on a basis consistent with
prior years and present fairly the financial condition of Seller as at the
respective dates thereof and
-13-
<PAGE>
the results of its operations and its cash flows for the periods then ended.
Seller has also delivered to Purchaser copies of Seller's Unaudited Balance
Sheet as at February 29, 1996 (the "UNAUDITED BALANCE SHEET"), and Unaudited
-----------------------
Statements of Income, for the one-month period then ended (such Unaudited
Statements of Income, together with the Unaudited Balance Sheet are referred to
collectively herein as the "INTERIM STATEMENTS"). Except as disclosed in
------------------
Schedule 3.9 of the Disclosure Memorandum, the Interim Statements are true and
correct, have been prepared from the books and records of Seller in accordance
with generally accepted accounting principles applied on a basis consistent with
prior years (except for the absence of notes or schedules thereto), and present
fairly the financial condition of Seller as at the date thereof and the results
of its operations for the one-month period then ended.
3.10. LIABILITIES. Seller has no Liability except (i) those
-----------
reflected on the Balance Sheet as at January 28, 1996 referred to in Paragraph
3.9 above (the "AUDITED BALANCE SHEET"), and (ii) liabilities incurred in the
---------------------
ordinary course of business since January 28, 1996 (the "REFERENCE DATE"), and
--------------
(iii) liabilities which are specifically disclosed in Schedule 3.10 of the
Disclosure Memorandum or the Interim Statements. None of the goods sold or
otherwise distributed by Seller or its predecessors prior to the date hereof
shall have been, nor has Seller or its predecessors received any notice claiming
the same to be, hazardous or unsafe in design, specification, material, content,
function or otherwise. Except as disclosed in Schedule 3.10 of the Disclosure
Memorandum, Seller has not given any express warranty with respect to any goods
or products sold or services performed prior to the date hereof.
3.11. TITLE TO PROPERTIES. Seller has, and upon consummation of the
-------------------
transactions contemplated by this Agreement at the Closing, Purchaser will have,
good and marketable title to all of the Transferred Assets, real and personal,
moveable and immovable, tangible and intangible, free and clear of any and all
Liens, except (a) as expressly set forth in the Audited Balance Sheet as
securing specific liabilities (with respect to which no default exists), (b) as
disclosed in Schedule 3.11 of the Disclosure Memorandum, and (c) minor
imperfections of title and encumbrances, if any, which (i) are not substantial
in amount, (ii) do not detract from the value of the property subject thereto or
impair the operations of Seller's Business or the use of the Transferred Assets,
and (iii) have arisen only in the ordinary course of business ("PERMITTED
---------
LIENS").
- -----
3.12. RETURNS AND CONSIGNMENTS. Except as set forth in Schedule 3.12
------------------------
of the Disclosure Memorandum, no customer of Seller has any right to return any
goods for credit or refund pursuant to any agreement, understanding or practice
that Seller will take back goods which are unsold. Without limiting the
generality of the foregoing, Seller does not presently have any goods in the
possession of its customers on consignment or on a similar basis.
3.13. PERSONAL PROPERTY. Except as set forth in Schedule 3.13 of the
-----------------
Disclosure Memorandum, all of the machinery, equipment, vehicles and all other
tangible personal property, which constitute part of the Transferred Assets, or
which are leased by Seller pursuant to an Assigned
-14-
<PAGE>
Contract, are in good condition and repair, subject to normal wear and tear,
suited for the use intended and operated in conformity with all applicable Laws.
Neither Seller nor the Shareholders have any knowledge of any defects or
conditions which would cause such tangible personal property to be or become
inoperable or unsafe.
3.14. REAL PROPERTY.
-------------
(a) Seller does not own any real property and none is
reflected on the Audited Financial Statements or Interim Statements as owned by
Seller.
(b) Each parcel or tract of real property which is used by
Seller in its business ("REAL PROPERTY") is subject to a lease or sublease to
-------------
which Seller is a party (individually, a "REAL PROPERTY LEASE"). All Real
-------------------
Property Leases are valid and in full force and effect in accordance with their
terms. Shareholders have furnished Purchaser with true, correct and complete
copies of all written Real Property Leases, all of which are identified on
Schedule 3.14(b) of the Disclosure Memorandum, and Schedule 3.14(b) of the
Disclosure Memorandum summarizes the terms of all verbal Real Property Leases.
There is not under any Real Property Lease (a) any default by Seller, or any
event of default or event which with notice or lapse of time, or both, would
constitute a default by Seller and in respect of which Seller has not taken
adequate steps to prevent a default from occurring or (b) to Seller's or
Shareholders' knowledge, 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.
(c) To Seller's and each Shareholder's knowledge, all Real
Property is free from development, use or occupancy restriction, except those
imposed by applicable Law, and from special taxes or assessments, except those
generally applicable to other properties in the tax districts in which Real
Property is located. To Seller's and each Shareholder's knowledge, no options
have been granted to others to purchase, lease or otherwise acquire any interest
in Real Property. Seller has the exclusive right of possession of each tract or
parcel comprising Real Property.
(d) To Seller's and each Shareholder's knowledge, the present
use, occupancy and operation of Real Property, and all aspects of Improvements
to Real Property, are in compliance in all material respects with all, and not
in violation of any, Laws, and with all private restrictive covenants of record,
and to Seller's and each Shareholder's knowledge there has not been any proposed
change therein that would affect any Real Property or its use, occupancy or
operation. To Seller's knowledge, there exists no conflict or dispute with any
Government or other person relating to any Real Property or the activities
thereon. All Improvements are in good condition and repair, subject to normal
wear and tear, and suited for the operation of Seller's Business.
(e) To Seller and each Shareholders' knowledge, neither
Seller nor any other Person has caused any work or Improvements to be performed
upon or made to any Real
-15-
<PAGE>
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.
(f) All requisite certificates of occupancy and other permits
and approvals required with respect to Improvements and the use, occupancy and
operation thereof have been obtained and paid for and are currently in effect
and free of restrictions.
3.15. AUTHORITY TO CONDUCT BUSINESS AND INTELLECTUAL PROPERTY RIGHTS.
--------------------------------------------------------------
To Seller's knowledge, Seller has the means, rights and information required to
offer and sell the products now being offered and sold by Seller and to perform
the services that are presently being performed by Seller, including, without
limitation, the means, rights and information required to offer and sell such
products, and perform all such services, without incurring any liability for
license fees or royalties or any claims of infringement of patents, trade
secrets, copyrights, trademark, service mark, or other proprietary rights.
Schedule 3.15 of the Disclosure Memorandum describes all proprietary inventions,
designs, ideas, processes, methods and other know-how of Seller used in the
operation of Seller's Business and, with respect to each such item, indicates
whether Seller holds any patent or patent application therefor (in each such
case, identifying the date(s) and jurisdiction(s) in which the patent was
granted or applied for and the number of such patent or application) or has
sought any advice as to the patentability of the same (in each such case,
summarizing such advice) or believes it has trade secret protection therefor (in
each such case, providing a description of the measures which have been taken to
protect the secrecy of the item). Seller is not a party to, either as licensor
or licensee, and is not bound by or subject to, any license agreement for any
patent, process, trademark, service mark, trade name or copyright, except as
described in Schedule 3.15 of the Disclosure Memorandum. All patents,
copyrights, trademarks, service marks, trade names, and applications therefor or
registrations thereof, owned or used by Seller are listed in Schedule 3.15 of
the Disclosure Memorandum, and, to the extent indicated thereon, have been duly
registered in, filed in or issued by the U.S. Patent and Trademark Office or the
corresponding agency or office of the states of the United States or foreign
countries indicated. To Seller's and the Shareholders' knowledge there are no
rights of third parties with respect to any trademark, service mark, trade
secrets, trade name, patent, patent application, invention or device which would
have a material adverse effect on the operations of Seller. Seller has complied
with all applicable Laws relating to the filing or registration of "fictitious
names" or trade names, and all such filings are identified in Schedule 3.15 of
the Disclosure Memorandum.
3.16. MATERIAL CONTRACTS. Except as provided in Item 5 of Schedule
------------------
3.25 of the Disclosure Memorandum, the Assigned Contracts include all existing
contracts and commitments of Seller (a) which are necessary to conduct Seller's
Business in the same manner as currently conducted by Seller, (b) by which the
Transferred Assets may be bound or affected, or (c) which relate to or effect
the Transferred Assets, in each case whether written or oral. Seller has
heretofore 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. All of the Assigned Contracts
have been entered into in the ordinary course of Seller's Business, and are
valid and effective
-16-
<PAGE>
in accordance with their terms. Seller has performed all obligations to be
performed by it as of the date of this Agreement under all Assigned Contracts,
and Seller is not in default or in arrears under any of the terms thereof. No
condition exists or has occurred which, with the giving of notice or the lapse
of time, or both, would constitute a default or accelerate the maturity of, or
otherwise modify, any Assigned Contract; and all Assigned Contracts are in full
force and effect. To the knowledge of each Shareholder and Seller, no default by
any other party to any Assigned Contract is known or claimed by Seller to exist.
3.17. INSURANCE. Schedule 3.17 of the Disclosure Memorandum contains
---------
a complete list and description of all fire, theft, casualty, life, automobile,
liability and other policies of insurance maintained by Seller, all of which are
in full force and effect. Seller has delivered to Purchaser a true, correct and
complete copy of each such insurance policy. All premiums due thereon have been
paid and Seller has not received any notice of cancellation with respect
thereto. All such policies taken together provide adequate coverage to insure
the properties and business of Seller against such risks and in such amounts as
are customary for the operation of a business engaged in the distribution of
refrigeration and HVAC equipment; and without limiting the foregoing, subject to
any specified deductibles as set forth in Schedule 3.17 of the Disclosure
Memorandum, Seller's insurance coverage as in effect as of the date hereof and
for periods prior thereto will insure Seller from and against any and all
losses, damages, costs and expenses which Purchaser may suffer or incur as a
result of any claim (as to which the applicable statute of limitations permits
an Action) that products sold by Seller (or any of its predecessors for whose
acts and omissions Seller is legally responsible) in connection with Seller's
Business were defective in any respect. Seller will not as of the Closing have
any liability for premiums or for retrospective premium adjustments for any
period prior to the Closing, except as set forth in Schedule 3.17 of the
Disclosure Memorandum. Schedule 3.17 of the Disclosure Memorandum also lists
and describes all occurrences during the immediately preceding five (5) years
which may form the basis for a claim in excess of $10,000 by or on behalf of
Seller under any such policy; and Seller has timely given notice of all such
occurrences to the appropriate insurer and has not waived (either intentionally
or inadvertently) its right to make the related claim under any such policy.
3.18. CUSTOMERS AND SUPPLIERS. Schedule 3.18 of the Disclosure
-----------------------
Memorandum sets forth the names of any sole source suppliers of significant
goods, equipment or services to Seller (other than public utilities) with
respect to which practical alternative sources of supply are not available, and
the names of the top twenty-five customers of Seller, measured in terms of the
dollar value of their aggregate annual purchases of products from Seller
("SIGNIFICANT CUSTOMERS"). Neither Seller nor the Shareholders are aware,
- -----------------------
except as disclosed in Schedule 3.18 of the Disclosure Memorandum that any
product supplier or Significant Customer of Seller intends to discontinue or
substantially diminish or change its relationship with Seller or the terms
thereof.
3.19. CONTINGENCIES. Except as set forth in Schedule 3.19 of the
-------------
Disclosure Memorandum, there are no Actions, pending or threatened against, by
or affecting Seller or the Transferred Assets, nor do there exist any other
"loss contingencies" (as such term is defined in
-17-
<PAGE>
Statement of Financial Standards No. 5 of the Financial Accounting Standards
Board), the eventual outcome of which might have a material adverse effect on
Seller, the Transferred Assets, the operation of Seller's Business after the
Closing, or which would prevent or impede the transactions contemplated by this
Agreement. Except as set forth in Schedule 3.19 of the Disclosure Memorandum,
Seller has not been charged with, nor to Seller's and the Shareholders'
knowledge is it under investigation with respect to any charge concerning, any
violation of any provision of any applicable Law with respect to Seller's
Business. There are no unsatisfied judgments against Seller or any other Orders
to which Seller or any of the Transferred Assets are subject.
3.20. TAXES. Seller has duly filed all federal, state, local and
-----
foreign, if any, Tax returns and reports (including, without limitation, returns
for estimated tax), and all returns and reports of all other Governments having
jurisdiction with respect to all Taxes, all such returns and reports show the
correct and proper amount due, and all Taxes shown on such returns or reports
and all assessments received by Seller have been paid to the extent that such
Taxes, or any estimates thereon, have become due. All Taxes and all deposits in
connection therewith required by applicable Law, imposed by any Government, and
all interest and penalties thereon, which are due and payable by Seller for all
periods through the Closing Date have been paid in full. There is not now any
proposed assessment against Seller of additional Taxes of any kind. There is no
dispute or Action concerning any Tax Liability of Seller claimed or raised by
any Government in writing.
3.21. EMPLOYMENT AND LABOR MATTERS.
----------------------------
(a) Schedule 3.21(a) of the Disclosure Memorandum lists all
employees and agents who on the date hereof perform services on a regular basis
in the business operations of or for Seller and whose annualized rate of
compensation exceeds $50,000 per year. No such employee or agent has terminated
his or her employment, nor, to the knowledge and belief of each Shareholder and
Seller, plans not to accept employment with Purchaser after the date hereof. To
the knowledge of each Shareholder and Seller, except as shown on Schedule
3.21(a) of the Disclosure Memorandum, no employee or agent shown on such list
has suffered major illness or hospitalization, the cost of which equaled or
exceeded $100,000, within the past three years, or is currently undergoing
treatment for any life threatening condition.
(b) Except as set forth in Schedule 3.21(b) of the Disclosure
Memorandum, (i) Seller is not a party to any collective bargaining agreement or
agreement of any kind with any union or labor organization, (ii) no union or
other collective bargaining unit has been certified or recognized by Seller as
representing any employee nor, to the knowledge of Seller or either Shareholder,
is a union or other collective bargaining unit seeking recognition for such
purpose, (iii) there are no controversies pending, or to the knowledge of either
Shareholder or Seller threatened, between Seller and any labor union or
collective bargaining unit representing, or seeking to represent, any of its
employees, and (iv) to Seller's knowledge, there has been no attempt by any
union or other labor organization to organize any of Seller's employees at any
time in the past five years. Seller has
-18-
<PAGE>
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.
3.22. EMPLOYEE BENEFIT MATTERS.
------------------------
(a) Except as set forth on Schedule 3.22(a) of the Disclosure
Memorandum, Seller is not obligated to provide, directly or indirectly, any
benefits for employees, including pension, bonus, medical, insurance, profit
sharing or any other employee benefits, under any practice, commitment,
arrangement, agreement or Law. Except as set forth on Schedule 3.22(a) of the
Disclosure Memorandum, the Seller does not, and has never, sponsored, maintained
or contributed 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"). With respect to each employee pension benefit plan listed on
-----
Schedule 3.22(a) of the Disclosure Memorandum, (i) such plan has been
administered and operated in all material respects in compliance with all
applicable Laws, including, without limitation, ERISA, the Code, and regulations
issued under ERISA and the Code, and (ii) Seller and its predecessor, if any,
have made and as of the Closing Date will have made all payments and
contributions required, or reasonably expected to be required, to be made under
the provisions of such plan or applicable Laws. Except as set forth on Schedule
3.22(a) of the Disclosure Memorandum, Seller is not required to contribute, and
has never been required to contribute, to any multi-employer plan within the
meaning of Section 3(37)(A) of ERISA.
(b) Except as described on Schedule 3.22(b) of the Disclosure
Memorandum, Seller does not sponsor or contribute to any employee welfare
benefit plan within the meaning of Section 3(1) of ERISA. Schedule 3.22(b) of
the Disclosure Memorandum lists each employee welfare benefit plan maintained by
Seller or to which Seller contributes or is required to contribute (the "ERISA
-----
PLANS"). Each of the ERISA Plans has been operated and administered in all
- -----
material respects in accordance with applicable Laws, including but not limited
to, ERISA and the Code. Neither Seller nor the Shareholders nor any of the
directors, officers, employees or agents of Seller, nor to the knowledge of
Seller or either Shareholder, 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" with
respect to the Plans as such term is defined in Section 406 of ERISA or Section
4975 of the Code. Any 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 Code. There are no pending or, to the knowledge of Seller or the
Shareholders, threatened claims by or on behalf of any of the ERISA Plans, by
any employee or beneficiary covered under such ERISA Plan or by any agency or
governmental entity or otherwise involving any such ERISA Plan or any of its
fiduciaries (other than for routine claims for benefits). Seller has not
entered into any pay arrangements, plans or programs which are ERISA Plans.
True copies of all ERISA Plans together with related trusts have been delivered
to Purchaser.
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<PAGE>
(c) Except as provided in Schedule 3.22 of the Disclosure
Memorandum, no ERISA or non-ERISA Plan provides benefits, including without
limitation, death, health or medical benefits (whether or not insured), with
respect to current or former employees of Seller beyond their retirement or
other termination of service with Seller other than (i) coverage mandated by
applicable Law, (ii) deferred compensation benefits accrued as liabilities on
the books of Seller, or (iii) benefits, the full cost of which is borne by the
current or former employee or his beneficiary.
(d) Except as provided in Schedule 3.22(d) of the Disclosure
Memorandum, the consummation of the transactions described in this Agreement
will not (i) entitle any current or former employee or officer of Seller to
severance pay, unemployment compensation or any other payment, or (ii)
accelerate the time of payment or vesting, or increase the amount of
compensation or benefits due any such employee or officer.
3.23. ENVIRONMENTAL MATTERS. Seller holds all Environmental Permits
---------------------
necessary for conducting its business and operations and has conducted, and is
presently conducting, its business and operations in substantial compliance in
all material respects with all applicable Environmental Laws (as defined in
Paragraph 7.11(c) hereof), and Environmental Permits (as defined in Paragraph
7.11(d) hereof). To Seller's knowledge, there are no existing or pending
Environmental Laws with a future compliance date that will require operational
changes, business practice modifications or capital expenditures at the Real
Property (or any other property presently or formerly owned, operated or
controlled by Seller or as to which Seller may bear responsibility or
Liability), or any of the Improvements thereon. All Hazardous Materials (as
defined in Paragraph 7.11 (g) hereof), and Solid Waste (as defined in Paragraph
7.11 (o) hereof), on, in, under or off-site from the Real Property, 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 Real
Property, or adjacent property, will subject Seller or any subsequent owner,
occupant or operator of such Real Property to corrective or compliance action or
any other Liability. There are no presently pending, or to the best of each
Shareholder's knowledge, threatened Actions or Orders against or involving
Seller (including any other persons or entitles for whose acts or omissions
Seller is responsible) relating to any alleged past or ongoing violation of any
Environmental Laws or Environmental Permits, nor is Seller subject to any
Liability for any such past or ongoing violation. Seller has kept all records
and made all filings required by applicable Laws with respect to emissions or
potential emissions into the environment of solids, liquids, gases, heat, light,
noise, radiation and other forms of matter or energy and the proper disposal of
materials, including Solid Waste.
3.24. ABSENCE OF CERTAIN BUSINESS PRACTICES. Neither Seller nor any
-------------------------------------
officer, employee or agent of Seller, nor any other Person acting on its behalf,
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 the business of Seller (or assist Seller in connection with any actual
or
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<PAGE>
proposed transaction) which (a) might subject Seller to any damage or penalty in
any civil, criminal or governmental litigation or proceeding or which might have
a material adverse effect on the Transferred Assets, (b) if not given in the
past, might have had a material adverse effect on the Transferred Assets or
Seller's Business, or (c) if not continued in the future, might materially and
adversely affect the Transferred Assets or Seller's Business or which might
subject Seller to suit or penalty in any Action.
3.25. AGREEMENTS AND TRANSACTIONS WITH RELATED PARTIES. Except as
------------------------------------------------
set forth in Schedule 3.25 of the Disclosure Memorandum, Seller is not directly
or indirectly a party to any contract or agreement, or lease with, or any other
commitment to, (a) any party owning, or formerly owning, beneficially or of
record, directly or indirectly, any of the shares of or other equity interest in
Seller, (b) any person related by blood, adoption or marriage to any such party,
(c) any director or officer of Seller, (d) any corporation or other entity in
which any of the foregoing parties has, directly or indirectly, at least a five
percent (5.0%) beneficial interest in the share capital or other type of equity
interest in such corporation, or (e) any partnership in which any such party is
a general partner (any or all of the foregoing being herein referred to as
"RELATED PARTIES"). Without limiting the generality of the foregoing, except as
---------------
disclosed in Schedule 3.25 of the Disclosure Memorandum, (i) no Related Party,
directly or indirectly, owns or controls any assets or properties which are or
have been used in Seller's Business, and (ii) no Related Party, directly or
indirectly, engages in or has any significant interest in or connection with any
business (X) which is or which within the last three years has been a
competitor, customer or supplier of Seller or has done business with Seller, or
(Y) which as of the date hereof sells or distributes products or services which
are similar or related to Seller's products or services.
3.26. ABSENCE OF CHANGES. Except as expressly provided for in this
------------------
Agreement or as may be set forth in Schedule 3.26 of the Disclosure Memorandum,
since the Reference Date:
(a) there has been no change in the business, assets,
Liabilities, results of operations or financial condition of Seller or in its
relationships with suppliers, customers, employees, lessors or others, other
than changes in the ordinary course of business, none of which have been or will
be, in the aggregate, materially adverse to the Transferred Assets or the
business or condition (financial or otherwise) of Seller;
(b) there has been no material damage, destruction or loss to
the properties or business of Seller, whether or not covered by insurance;
(c) the business of Seller has been operated in the ordinary
course and consistent with its prior practices;
(d) the Transferred Assets of Seller have been maintained in
good order, repair and condition, ordinary wear and tear excepted;
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<PAGE>
(e) the books, accounts and records of Seller have been
maintained in the usual, regular and ordinary manner on a basis consistent with
prior years;
(f) there has been no declaration, setting aside or payment
of any dividend or other distribution on or in respect of the share capital of
Seller, nor has there been any direct or indirect redemption, retirement,
purchase or other acquisition of any of the share capital or other securities of
Seller;
(g) except as set forth in Schedule 3.26 of the Disclosure
Memorandum, there has been no (i) increase in the compensation or in the rate of
compensation or commissions payable or to become payable by Seller to any
director, officer, manager, or to any other employee or agent of Seller earning
$50,000 or more per annum, (ii) general increase in the compensation or in the
rate of compensation payable or to become payable to hourly or salaried
employees earning less than $50,000 per annum ("general increase" for the
purpose hereof shall mean any increase generally applicable to a class or group
of employees and shall not include increases granted to individual employees for
merit, length of service, change in position or responsibility or other reasons
applicable to specific employees and not generally applicable to a class or
group thereof), (iii) employee hired at a salary in excess of $50,000 per annum,
or (iv) payment of or commitment to pay any bonus, profit share or other
extraordinary compensation to any employee;
(h) there has been no Lien (other than Liens for current
Taxes which are not past due) created on or in any of the Transferred Assets or
assumed by Seller with respect to any Transferred Assets;
(i) no Liability has been incurred by Seller, except in the
ordinary course of business and consistent with its prior practice, except as
listed on Schedule 3.26 of the Disclosure Memorandum;
(j) no Liability has been discharged or satisfied, waived or
released, other than in the ordinary course of business and consistent with its
prior practice;
(k) there has been no sale, transfer, lease or other
disposition of any material asset or assets of Seller, except in the ordinary
course of Seller's Business, and no material debt to, or claim or right of,
Seller has been canceled, compromised, waived or released;
(l) there has been no amendment, termination or waiver of, or
any notice of any amendment, termination or waiver of, any material right of
Seller under any contract, agreement or lease, or governmental license, permit
or permission;
(m) Seller has not (i) paid any judgment resulting from any
Action, or (ii) made any payment to any party of more than $1,000 in settlement
of any Action;
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<PAGE>
(n) Seller has not discontinued or determined to discontinue
the sale of any products previously produced or sold by Seller representing more
than one percent (1.0%) of Seller's annual sales during the period covered by
the Audited Financial Statements;
(o) Seller has not entered into any agreement, lease or
license outside the ordinary course of business;
(p) Seller has not acquired any capital shares or other
securities of any corporation or any interest in any business enterprise, or
otherwise made any loan or advance to or investment in any person, firm, or
corporation;
(q) Seller has not failed to replenish its Inventories and
supplies in a normal and customary manner consistent with its prior practice or
made any change in its selling, pricing, advertising or personnel practices
inconsistent with its prior practice; and
(r) Seller has not delayed or postponed the payment of any
accounts payable and other Liabilities outside the ordinary course of business.
3.27. BANK ACCOUNTS; SAFETY DEPOSIT BOXES. Schedule 3.27 of the
-----------------------------------
Disclosure Memorandum sets forth a list of each and every bank in which Seller
maintains an account or safety deposit box and the account numbers of such
accounts.
3.28. PERFORMANCE BONDS. There are no contracts, work orders and
-----------------
jobs, oral or written, for which Seller has, or is required to provide,
performance or similar bonds, the amount of such bonds and the Person issuing
the bonds. Schedule 3.28 of the Disclosure Memorandum further identifies all
payments, if any, which have been made during the preceding five years under any
performance or similar bonds issued on Company's behalf.
3.29. FULL DISCLOSURE. No representation, warranty or covenant of
---------------
Seller or the Shareholders contained in this Agreement or in the Disclosure
Memorandum or in any other written statement or certificate delivered by the
Seller and the Shareholders, or any of them, 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. There is no past or
present fact known to Seller or either Shareholder which materially and
adversely affects, or in the future may materially and adversely affect Seller's
Business which has not been disclosed in this Agreement, the Disclosure
Memorandum or in the documents, certificates and written statements furnished to
Purchaser for use in connection with the transactions contemplated hereby,
except for facts affecting the refrigeration and HVAC equipment industry
generally and general economic conditions.
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<PAGE>
4. REPRESENTATIONS AND WARRANTIES OF PURCHASER.
--------------------------------------------
As an inducement to the Shareholders and Seller to enter into this
Agreement and to sell the Transferred Assets to Purchaser, Purchaser hereby
represents, warrants and covenants as follows:
4.1. ORGANIZATION. Purchaser is a corporation duly organized,
------------
validly existing and in good standing under the laws of the State of Delaware
and has full corporate power and authority to own or lease its properties and to
carry on its business as presently conducted. Purchaser is qualified to do
business and is in good standing as a foreign corporation under the laws of the
States of Illinois and Indiana.
4.2. AUTHORIZATION; NO INCONSISTENT AGREEMENTS. Purchaser has full
-----------------------------------------
corporate power and authority to make, execute and perform this Agreement, and
the transactions contemplated hereby. This Agreement and all transactions
required hereunder to be performed by Purchaser have been duly and validly
authorized and approved by all necessary corporate action on the part of
Purchaser. This Agreement has been duly and validly executed and delivered on
behalf of Purchaser by its duly authorized officers, and this Agreement
constitutes the valid and legally binding obligation of Purchaser enforceable,
subject to general equity principles, in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization or
similar laws affecting the rights of creditors generally. Neither the execution
and delivery of this Agreement nor the consummation of the transactions hereby
contemplated will constitute a violation or breach of the articles of
incorporation or the bylaws of Purchaser or any provision of any contract or
other instrument to which Purchaser is a party or by which any of the assets of
Purchaser may be affected or secured, or any order, writ, injunction, decree,
statute, rule or regulation to which Purchaser is subject, or will result in the
creation of any lien, charge, or encumbrance on any of the assets of Purchaser
or acceleration of any debt.
4.3. FULL DISCLOSURE. No representation, warranty or covenant of
---------------
Purchaser contained in this Agreement, or in any other written statement or
certificate delivered by Purchaser pursuant to this Agreement or in connection
with the transactions contemplated herein, contains or will contain any untrue
statement of a material fact or omits or will omit to state a material fact
necessary to make the statements contained herein or therein not misleading.
5. INDEMNITIES.
-----------
5.1. INDEMNIFICATION OF PURCHASER. Subject to the provisions of
----------------------------
Section 6 hereof, Seller and the Shareholders shall, jointly and severally,
indemnify and hold harmless Purchaser, and its direct and indirect parent
corporations and affiliates, their officers and directors (hereafter
collectively "INDEMNITEES") from and against and in respect of any and all loss,
-----------
damage, liability, cost and expense,
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<PAGE>
including reasonable attorneys' fees and amounts paid in settlement pursuant to
Paragraph 5.4(b) below ("INDEMNIFIED LOSSES"), suffered or incurred by any
------------------
Indemnitee by reason of, or arising out of:
(a) any misrepresentation, breach of warranty or breach or
nonfulfillment of any agreement of Seller or any of the Shareholders contained
in this Agreement or in any certificate, schedule, instrument or document
delivered to Purchaser by or on behalf of Seller or any of the Shareholders
pursuant to the provisions of this Agreement, including, without limitation, the
Disclosure Memorandum;
(b) all obligations and liabilities of Seller other than the
Assumed Liabilities, 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
Seller prior to the Closing under or with respect to any Assigned Contract; and
(c) any claims, liabilities, obligations, damages, costs, and
expenses, known or unknown, fixed or contingent, claimed or demanded by third
parties against Purchaser arising out of or resulting from Seller's operation of
its business (including Seller's Business) or the Transferred Assets prior to
and including the date hereof, including, without limitation, any liability or
obligation described in Paragraph 5.1(b) above, other than the Assumed
Liabilities.
5.2. INDEMNIFICATION OF SELLER AND SHAREHOLDERS. Purchaser shall
------------------------------------------
indemnify and hold harmless Seller and its directors and officers, the
Shareholders and their respective affiliates (collectively, the "SELLER
------
INDEMNITEES") from and against and in respect of any and all loss, damage,
- -----------
liability, cost and expense, including reasonable attorneys' fees and amounts
paid in settlement pursuant to Paragraph 5.4(b) below (collectively, the "SELLER
------
INDEMNIFIED LOSSES"), suffered or incurred by any Seller Indemnitee by reason
- ------------------
of, or arising out of:
(a) any misrepresentation or breach of warranty by Purchaser
contained in this Agreement or in any certificate, schedule, instrument or
document delivered to Seller or the Shareholders by or on behalf of Purchaser
pursuant to the provisions of this Agreement;
(b) any claims, liabilities, obligations, damages, costs and
expenses, known or unknown, fixed or contingent, claimed or demanded against
Seller or the Shareholders arising out of or resulting from Purchaser's
operation of its business (including the Seller's Business) or the Transferred
Assets on or after the Closing Date; and
(c) the failure of Purchaser to discharge when and as due any of
the Assumed Liabilities.
5.3. PAYMENT. Any Person obligated to pay or reimburse any
-------
Indemnified Losses or Seller Indemnified Losses hereunder (whether one or more,
an "INDEMNIFYING PARTY") shall,
------------------
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<PAGE>
subject to the provisions of Paragraph 5.4 below, reimburse the party entitled
to recover Indemnified Losses or Seller Indemnified Losses, as the case may be
(whether one or more, an "INDEMNIFIED PARTY"), within 10 days of written demand
-----------------
on the Indemnifying Party therefor. If the Indemnifying Party objects to any
claim made by an Indemnified Party hereunder and the Indemnified Party initiates
legal action with respect thereto, the Indemnified Party 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.
5.4. DEFENSE OF CLAIMS.
-----------------
(a) If any claim or Action by a third party arises after the
date hereof for which an Indemnifying Party may be liable under the terms of
this Agreement, then the Indemnified Party shall notify the Indemnifying Party
(with Seller acting as agent for each Shareholder for purposes of any such claim
or Action) within a reasonable time after such claim or Action arises and is
known to the Indemnified Party, and shall give the Indemnifying Party a
reasonable opportunity:
(i) to conduct any proceedings or negotiations in
connection therewith and necessary or appropriate to defend the
Indemnified Party;
(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 Indemnified Party or otherwise.
The expenses of all proceedings, contests or lawsuits with respect to such
claims or Actions shall be borne by the Indemnifying Party. If the Indemnifying
Party wishes to assume the defense of such claim or Action, then the
Indemnifying Party shall give written notice to the Indemnified Party within 30
days after notice from the Indemnified Party 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 Indemnifying Party, in which event the Indemnifying Party
shall notify the Indemnified Party at least 10 days prior to such reasonably
required response date), and the Indemnifying Party shall thereafter assume the
defense of any such claim or liability, through counsel reasonably satisfactory
to the Indemnified Party; provided that the Indemnified Party may participate in
such defense at its own expense. The Indemnified Party shall have the right to
control the defense of the claim or Action unless and until the Indemnifying
Party shall (i) assume the defense of such claim or Action, and (ii) acknowledge
in writing to the Indemnified Party that the Indemnifying Party shall be
obligated under the terms of its indemnity hereunder to the Indemnified Party in
connection with such claim or Action.
(b) If the Indemnifying Party does not assume the defense of, or
if after so assuming the Indemnifying Party fails to defend, any such claim or
Action, then the Indemnified Party
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<PAGE>
may defend against such claim or Action in such manner as such Indemnified Party
may deem appropriate (provided that the Indemnifying Party may participate in
such defense at its own expense) provided that the Indemnified Party may not
settle such claim or Action without the Indemnifying Party's prior written
consent, which will not be unreasonably withheld, and the Indemnifying Party
shall promptly reimburse the Indemnified Party for the amount of all expenses,
legal and otherwise, reasonably and necessarily incurred by the Indemnified
Party in connection with the defense against and settlement of such claim or
Action. If no settlement of such claim or Action is made, the Indemnifying Party
shall satisfy any judgment rendered with respect to such claim or in such
Action, before the Indemnified Party is required to do so, and pay all expenses,
legal or otherwise, reasonably and necessarily incurred by the Indemnified Party
in the defense of such claim or Action.
(c) If an Order is rendered against the Indemnified Party in any
Action covered by the indemnification hereunder, or any Lien in respect of such
Order attaches to any of the assets of the Indemnified Party, the Indemnifying
Party 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 Indemnifying Party, 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 Indemnifying Party shall forthwith pay any
amount required by such Order or discharge such Lien before the Indemnified
Party is compelled to do so.
(d) If any claim for Indemnified Losses or Seller Indemnified
Losses that does not relate to claim or Action by a third party arises after the
date hereof, the Indemnified Party shall provide written notice thereof to the
Indemnifying Party. The amount and liability for such claim shall be deemed
final unless the Indemnifying Party notifies the Indemnified Party in writing
within forty-five (45) days of its receipt of such written notice that it
disputes such claim. Until such claim becomes final or is resolved, Purchaser
shall have the right to withhold the amount of such claim from any payments due
to either Shareholder under the First Consulting Agreement or the Second
Consulting Agreement, as the case may be. The Indemnifying Party shall pay or
reimburse the Indemnified Party for any such Indemnified Loss or Seller
Indemnified Losses, as the case may be, within thirty (30) days after such loss
is deemed final.
6. SURVIVAL OF REPRESENTATIONS AND OTHER PROVISIONS.
------------------------------------------------
6.1. SURVIVAL. The representations, warranties and related
--------
indemnifications of the parties contained in this Agreement or in any writing
delivered pursuant to the provisions of this Agreement shall survive any
investigation heretofore made by Purchaser and the consummation of the
transactions contemplated herein and shall continue in full force and effect for
the period (the "SURVIVAL PERIOD") beginning on the Closing Date and continuing
---------------
until the second anniversary thereof; provided, however, that the Survival
Period with respect to the representations and warranties made by Seller and the
Shareholders pursuant to Paragraphs 3.20 (Taxes) and 3.23 (Environmental
Matters) hereof shall begin on the Closing Date and continue until the fifth
anniversary thereof; and provided
-27-
<PAGE>
further, that the Survival Period shall be extended automatically to include any
time period necessary to resolve a specific claim for indemnification which was
made before expiration of the Survival Period but not resolved prior to its
expiration.
6.2. LIABILITIES NOT ASSUMED. Notwithstanding the provisions of
-----------------------
Paragraph 6.1 above, Seller shall remain liable, during the Survival Period and
thereafter, for all liabilities and obligations of Seller not assumed pursuant
to Paragraph 1.4 above, including, without limitation, the liabilities and
obligations specified in Paragraph 1.5 above.
6.3. LIMITATION ON INDEMNIFICATION. Notwithstanding the above:
-----------------------------
(a) No claim for indemnification shall be payable by Seller or
the Shareholders under Paragraph 5.1(a) of this Agreement unless and until the
amount of such claim(s) exceeds $25,000 in the aggregate and no indemnification
for such claim(s) shall be payable in excess of Three Million One Hundred Four
Thousand One Hundred Twenty-Five and 17/100 Dollars ($3,104,125.17) in the
aggregate.
(b) No claim for indemnification shall be payable by Purchaser
under Paragraph 5.2(a) of this Agreement unless and until the amount of such
claim(s) exceeds $25,000 in the aggregate, and no indemnification for such
claim(s) shall be payable in excess of Three Million One Hundred Four Thousand
One Hundred Twenty-Five and 17/100 Dollars ($3,104,125.17) in the aggregate.
(c) For the avoidance of doubt, Purchaser's rights, if any, to
collect Inventory Adjustment or the Receivables Adjustment Price are not subject
to the provisions of this Paragraph 6.3.
6.4. PURCHASER'S RIGHT OF SET-OFF. Seller and Shareholders
----------------------------
acknowledge and agree that Purchaser is entitled to set-off any amounts payable
by it to either Shareholder under the First Consulting Agreement and Second
Consulting Agreement, as the case may be, or to the Seller and Shareholders
under the terms of this Agreement, against any amounts due Purchaser from Seller
or either Shareholder under the terms of this Agreement (whether such amount is
due and payable by Seller or either Shareholder under the adjustments to the
Purchase Price described in Paragraph 1.10 hereof, the right to indemnification
described in Sections 2 and 5 hereof, or otherwise); provided, however, that
prior to exercising its rights hereunder Purchaser shall provide Seller written
notice of its intent to do so and an opportunity, reasonable under the
circumstances, to protest the same.
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<PAGE>
7. MISCELLANEOUS.
-------------
7.1. NOTICES.
-------
(a) All notices, demands or 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 air mail
(or the functional equivalent in any foreign country), return receipt requested,
or by facsimile transmission to the intended recipient thereof at its address,
or facsimile number set out below. Any such notice, demand or communication
shall be deemed to have been duly given immediately (if given or made by
confirmed facsimile), or five (5) days after mailing (if given or made by letter
addressed to a location within the country in which it is posted) or seven days
after mailing (if made or given by letter addressed to a location outside the
country in which it is posted), and in proving same it shall be sufficient to
show that the envelope containing the same was duly addressed, stamped and
posted, or that receipt of a facsimile was confirmed by the recipient. 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
Facsimile No. (770) 798-0621
Attn: Theodore R. Kallgren
With a copy to: Kilpatrick & Cody
1100 Peachtree Street, Ste. 2800
Atlanta, Georgia 30309
Facsimile No. (404) 815-6555
Attn: Marc K. Ritzmann, Esq.
(ii) If to Seller or
the Shareholders: Mr. Ken Swanson
1370 Royal Palm Way
Boca Raton, Florida 33432
Facsimile No. (407) 750-5082
With copies to: Keck, Mahin & Cate
77 W. Wacker Drive, Ste. 490
Chicago, Illinois 60601
Facsimile No. (312) 634-5000
Attn: David M. Seghetti, Esq.
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<PAGE>
(b) Any party may change the address to which notices, requests,
demands or other communications to such parties shall be delivered or mailed by
giving notice thereof to the other parties hereto in the manner provided herein.
7.2. COUNTERPARTS. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original, and all of which shall
constitute one and the same instrument.
7.3. 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 among
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.
7.4. 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 Illinois, without regard to conflicts rules.
7.5. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
----------------------
and shall inure to the benefit of the parties hereto and their respective heirs,
executors, legal representatives, successors and assigns.
7.6. 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 applicable Laws 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 shall be held to be
illegal, invalid or unenforceable by a court of competent jurisdiction, it is
the intention of the parties that the remaining terms hereof, or part thereof
shall constitute their agreement 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.
7.7. 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 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 any 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 to 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.
-30-
<PAGE>
7.8. HEADINGS. The headings of particular provisions of this
--------
Agreement are inserted for convenience only and shall not be construed as a part
of this Agreement or serve as a limitation or expansion on the scope of any term
or provision of this Agreement.
7.9. NUMBER AND GENDER. Where the context requires, 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 any and all
genders.
7.10.TIME OF PERFORMANCE. Time is of the essence.
-------------------
7.11.CERTAIN DEFINITIONS. For purposes of this Agreement, the
-------------------
following capitalized terms shall have the meanings specified below:
(a) "ACTION" shall mean any action, suit, litigation, complaint,
------
counterclaim, claim, petition, mediation contest, or administrative proceeding,
whether at Law, in equity, in arbitration or otherwise, and whether conducted by
or before any Government or other Person.
(b) "BUSINESS DAY" shall mean any day other than a Saturday, a
------------
Sunday or a day on which commercial banks in the United States are required or
authorized to be closed.
(c) "ENVIRONMENTAL LAWS" shall mean all federal, national,
------------------
state, provincial, municipal, and local Laws, statutes, norms, ordinances,
rules, regulations, general or particular conditions, conventions, requirements,
decrees, covenants and common Law principles relating to health, safety and the
environment, including without limitation, Laws, statutes, ordinances, rules,
regulations, conventions, decrees, covenants and common Law principles relating
to emissions, discharges, releases or threatened releases of pollutants,
contaminants, chemicals, or industrial, toxic or Hazardous Materials or wastes
of every kind and nature into the environment (including without limitation
ambient air, surface water, ground water, soil and subsoil), or otherwise
relating to the manufacture, generation, processing, distribution, application,
use, treatment, storage, disposal, transport or handling of pollutants,
contaminants, chemicals, or industrial, toxic or hazardous substances or wastes,
or to occupational or work safety and health, and any and all Laws, rules,
regulations, codes, directives, guidelines, policies, plans, orders, decrees,
judgments, injunctions, consent agreements, stipulations, provisions and
conditions of Environmental Permits, licenses, injunctions, consent agreements,
stipulations, certificates of authorization, and other operating authorizations,
notices or demand letters issued, entered, promulgated or approved thereunder.
(d) "ENVIRONMENTAL PERMITS" shall mean all permits, licenses,
---------------------
certificates, approvals, authorizations, regulatory plans or compliance
schedules required by applicable environmental Laws, or issued by a Government
pursuant to applicable Environmental Laws, or
-31-
<PAGE>
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, pesticide and
herbicide or other agricultural chemical storage, use or application, and
Hazardous Material or Solid Waste generation, use, storage, treatment and
disposal.
(e) "FORUM" shall mean any federal, national, state, local,
-----
municipal or foreign court, governmental agency administrative body or agency,
tribunal, private alternative dispute resolution system, or arbitration panel.
(f) "GOVERNMENT" shall mean any federal, national, state,
----------
provincial, local, municipal, or foreign government or any department,
commission, board, bureau, agency, instrumentality, unit, or taxing authority
thereof.
(g) "HAZARDOUS MATERIAL" shall mean any substance or material,
------------------
including without limitation raw materials, commercial products and wastes or
waste products 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.
(h) "IMPROVEMENTS" shall mean all buildings, structures and
------------
other improvements of any and every nature located on the Real Property and all
fixtures attached or affixed, actually or constructively, to the Real Property
or to any such buildings, structures of other improvements.
(i) "KNOWN," "TO THE KNOWLEDGE OF," "TO THE BEST 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 person
or entity has made reasonable and diligent efforts under the circumstances to
become knowledgeable; in the case of Seller, "knowledge" shall be deemed to be
the individual and collective knowledge (as defined above) of its directors and
senior officers and managers.
(j) "LAW" shall mean all federal, national, state, provincial,
---
local, municipal or foreign constitutions, statutes, rules, regulations,
ordinances, acts, codes, legislation, treaties, conventions, judicial decisions
and similar laws and legal requirements, whether of the United States of America
or any other jurisdiction as in effect from time to time.
(k) "LIABILITY" shall mean 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.
-32-
<PAGE>
(l) "LIEN" shall mean 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 or other
similar legislation of any jurisdiction).
(m) "ORDERS" shall mean all applicable orders, writs, judgments,
------
decrees, rulings, consent agreements, and awards of or by any Forum or entered
by consent of the party to be bound.
(n) "PERSON" shall include an individual, a partnership, a joint
------
venture, a corporation, a limited liability company, a trust, an unincorporated
organization and a Government.
(o) "SOLID WASTE" shall mean any garbage, refuse, sludge from a
-----------
waste treatment plant, water supply treatment plant, or air pollution control
facility and other discharged material, including solid, liquid, semisolid, or
contained gaseous material resulting from industrial, commercial, mining and
agricultural operations, and from community activities.
(p) "TAXES" shall mean 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 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.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
PURCHASER:
PAMECO CORPORATION
By:___________________________
Name:______________________
Title:_____________________
SELLER:
CHASE SUPPLY COMPANY
By:___________________________
Name: Ken Swanson
Title: President
SHAREHOLDERS:
______________________________
RICHARD SWANSON
______________________________
KEN SWANSON
<PAGE>
EXHIBIT 10.5
PAMECO HOLDINGS INC.
STOCK OPTION PLAN
1. Purpose. The Pameco Holdings, Inc. ("Pameco") Stock Option Plan (the
--------
"Plan") is intended as an incentive and to encourage stock ownership by certain
key employees of Pameco (the "Company") so that they may acquire or increase
their proprietary interest in the success of the Company, and to encourage them
to remain in the employ of the Company. Employment includes borrowed employees
pursuant to the MLX Management Agreement. It is further intended that the
options issued pursuant to the Plan shall constitute incentive stock options
within the meaning of Section 422A of the Internal Revenue Code of 1986, as
amended except as expressly provided to the contrary herein.
2. Administration. The Plan shall be administered by the Compensation
---------------
Committee ("Committee") of the Board of Directors of the Company. The Committee
may make such rules and regulations and establish such procedures for the
administration of the Plan as it deems appropriate. The interpretation and
application of the Plan or of any term or condition of an option granted under
the Plan or of any rule, regulation or procedure, and any other matter relating
to or necessary to the administration of the Plan, shall be determined by the
Committee, and any such determinations shall be final and binding upon all
persons.
3. Stock. Shares of stock to be optioned or issued under the Plan shall be
------
shares of the Company's authorized common stock (the "Stock"), provided that the
total amount of Stock on which options may be granted or which may be issued
under the Plan shall not exceed 600,000 shares. Such number of shares is subject
to adjustment in accordance with the provisions of Section 6 hereof. In the
event that any outstanding option or portion thereof expires or is terminated
for any reason, the shares of Stock allocable to the unexercised portion of such
option may again be subjected to an option and be issued under the Plan.
4. Award of Options. The Committee may grant incentive stock options to
-----------------
purchase stock to officers and other key employees of the Company, including
directors who are employees. The Committee shall have the discretion, in
accordance with the provisions of the Plan, to determine to whom an option is
granted, the number of shares of Stock optioned, the terms and conditions of the
option. Provided, however, that the Chief Executive Officer of the Company shall
be entitled to make awards of options involving 1,000 or less shares of Stock
and shall have all authority and discretion with respect to such options which
would normally be reserved for the Committee under the preceding sentence. In
making its determinations, the Committee shall consider the position and
responsibilities of the employee, the nature and value to the Company of his or
her services and accomplishments, the present and potential contribution of the
employee to the success of the Company, and such other factors as the Committee
may deem relevant
Options granted under the Plan shall be subject to and governed by the
provisions of the Plan and by the terms and conditions set forth in Section 5
hereof and by such other terms and conditions, not inconsistent with the Plan,
as shall be determined by the Committee.
The date on which an option shall be granted shall be the date that the
optionee, the number of shares of Stock optioned and the terms and conditions of
the option are determined by the Committee, provided, however, that if an option
or any term or condition of an option is rejected or not accepted by an optionee
or if an option is not granted in accordance with the provisions of the Plan,
such option shall be deemed to have not been granted and shall be of no effect.
Each option shall be evidenced by an Incentive Stock Option Agreement in such
form as the Board of Directors may from time to time approve.
5. Terms and Conditions of Options.
--------------------------------
A. Option Price. In the case of each incentive stock option granted
-------------
under the Plan, the option price shall not be less than the Fair Market Value of
the Stock on the date of grant of such option as determined by the Committee.
Notwithstanding the foregoing, in the case of an incentive stock option granted
to an employee who owns more than ten percent (10%) of the Company's outstanding
Stock, the option price shall be not less than one hundred ten percent (110%) of
the Fair Market Value per share determined as aforesaid.
B. Period of Option and When Exercisable.
--------------------------------------
(i) An option granted under the Plan may not be exercised after
the earlier of (a) the date specified by the Committee, which shall be a maximum
of five years from date of grant, or (b) the applicable time limit specified in
paragraph (ii) of this Section 5B. Any option not exercised within the
aforementioned time periods shall automatically terminate at the expiration of
such period. Notwithstanding the foregoing, a dissolution or liquidation of the
Company, or a merger or consolidation in which the Company is not the surviving
corporation (unless new options are substituted for the options granted
hereunder or the options granted hereunder are assumed by the surviving
<PAGE>
corporation), shall cause each outstanding option to terminate, provided that
each optionee shall, in such event, have the right immediately prior to such
dissolution or liquidation, or merger or consolidation in which the Company is
not the surviving corporation, to exercise his or her option in whole or in
part.
(ii) An option may be exercised by an optionee only while such
optionee is in the employ of the Company. The shares owned by each optionee
shall be deemed "Vested shares" for the purposes of this Plan at such time as
such shares shall be deemed to be vested pursuant to option agreements to be
entered into by such optionee and the Company. Any shares which shall not have
vested pursuant to the Option Agreements entered into by an optionee shall be
deemed "Unvested shares" for the purposes of this Plan.
If all the Investors (as defined in the original
"Stockholder's Agreement") propose to sell all of their shares to a third party
(other than an Affiliate) in an arms-length transaction, then (in addition to
the rights to participate in such sale pursuant to Section 3 of the
Stockholder's Agreement) the Investors may, at their option, require all the
other Stockholders to sell all, but not part, of the shares owned by them (the
"Designated Shares") to such third party. If such option is exercised, each of
such other Stockholders hereby agrees to sell all of its Designated Shares to
such third party for the same consideration per share and otherwise on the same
terms and conditions upon which the Investors are selling their shares subject
to the terms of Section 4 "Rights to Compel Sale" in the Stockholder's
Agreement.
If the employment of an optionee terminates for any reason
(such termination of employment to be referred to, for the purposes of this
Plan, as a "Termination Event" as to such optionee), then such optionee shall be
deemed to have offered for sale to the Company, at a purchase price determined
in accordance with this Section 5, all of the shares owned by such optionee at
the time of such Termination Event. The Company shall have a period or thirty
(30) days after the date of such Termination Event to provide such optionee with
written acceptance of his offer to sell his shares, which acceptance, subject to
this Section 5, need not be for all of his shares offered to the Company.
The Company shall have the right to designate a third party
to purchase any shares which it would otherwise be entitled to purchase
hereunder, and such third party shall be entitled to any such shares on the same
terms and conditions provided for herein; provided, however, that the Company
shall first designate any of the Investors before designating any other third
party purchaser.
The per Share purchase price of the optionee shares to be
sold by an optionee pursuant to this Section 5 shall be determined as follows:
a) In the case of a Vested Share, the Appraised Value (as
hereinafter defined) of such Share.
b) In the case of an Unvested Share, the lesser of
(A) the Base Price (as hereinafter defined) of such Share or (B) the Appraised
Value of such Share.
For the purposes of this Section 5:
"Base Price" shall mean the sum of (A) the amount
equal to the average purchase price per share paid by such optionee for the
shares and (B) an amount equal to the interest that would accrue on the amount
referred to in clause A above, at the rate per annum offered from time to time
by Citibank, N. A. for 90 day certificates of deposit in the amount of
$1,000,000, had such amount been borrowed on the date of purchase of such
optionee shares and repaid on the date of the Termination Event.
"Appraised Value" shall mean, in respect of any
optionee Share, the fair market value of such Share, on the date of the
Termination Event, based on the value of the Company, as determined by a
nationally recognized independent investment banking firm selected by the
Company, divided by the number of outstanding shares (on a fully diluted basis);
provided, however, that if an Appraised Value shall have been determined
pursuant to this Agreement at any time during the six month period immediately
preceding the date of the Termination Event, the Company may in its sole
discretion elect to utilize such prior determination.
Subject to any financing agreements or any other
instruments or agreements of the Company and/or any of its subsidiaries from
time to time in effect restricting the repurchase or retirement of shares
including but not limited to (i) the Guarantee, dated March 19, 1992, (as
amended from time to time, the "Guarantee"), by the Company of the repayment of
funds by Pameco Corp. ("P. C.") to General Electric Capital Corporation ('GECC")
pursuant to that certain Credit Agreement, Dated as of March 19, 1992, by and
among P. C. and GECC (the "Credit Agreement"), and (ii) the Credit Agreement,
the purchase price of optionee shares purchased upon then exercise of any option
granted under this Section 5 shall be payable in cash (from sources legally
available therefor). If any optionee shares purchased pursuant to this Section 5
may not be repurchased for all cash under applicable law or as a result of
restrictions contained in the Guarantee or the Credit
<PAGE>
Agreement (the "Restrictions"), such portion shall be purchased by the issuance
and delivery of a promissory note (the "Take-Back Note") which shall bear
interest at a rate per annum equal to the prime rate as publicly announced by
Citibank, N. A. from time to time and which shall have such other terms as the
Company may deem necessary or appropriate and (ii) thereafter shall have a five
year maturity., in addition, the Take-Back Notes shall be subordinated to the
rights of such creditors of the Company as may be required by law, the Guarantee
or the Credit Agreement. The principal amount of the Take-Back Note shall be
payable in equal annual installments but shall accelerate on the first date of
the month following such date as such Restrictions shall have terminated in
their entirety., In addition, if funds are unavailable for the payment when due
of principal of or interest on the Take-Back Note as a result of the
Restrictions, the holder of the Take-Back Note shall not be entitled to
accelerate or demand payment of outstanding principal of and interest accrued on
the Take-Back Note, but if and to the extent permitted by law, such accrued
interest shall be included as the principal portion of a separate promissory
note having terms otherwise identical to the Take-Back Note. Any payment of
principal or interest deferred as a result of such restrictions shall be due and
payable on the next date on which payment of principal on the Take-Back Note is
due following the termination of such Restrictions. The Take-Back Notes shall in
all instances have such terms as shall comply with any applicable requirements
of the Guarantee and the Credit Agreement.
Notwithstanding anything in this Agreement to the contrary,
the closing of any sale hereunder may be delayed in any case in which the
Company has determined (based upon the advice of counsel) that it cannot, in
compliance with applicable law, the Guarantee or the Credit Agreement, purchase
any shares that it is otherwise obligated to purchase. In such case the closing
of such sale shall be delayed until the earliest practicable date on which such
closing may be effected in compliance with applicable law, the Guarantee and the
Credit Agreement.
Subject to this Section 5, the optionee and the Company shall
mutually determine a closing date (the "Closing Date") for the purchase and sale
of shares deemed offered hereunder, which shall be not more than 20 business
days, subject to any applicable regulatory waiting periods, after the expiration
of the notice period described in the subsection pursuant to which such optionee
shares may be purchased in accordance with this Agreement, or if any such day is
not a business day, then the first business day thereafter; provided, however,
that if the purchase price is to be based upon Appraised Value, such 20 business
day period shall commence upon the final determination of Appraised Value.
The closing shall be held at 11:00 a.m., local time, at the
offices of the Company or at such other time or place as the parties may agree.
on the Closing Date, the optionee shall deliver certificates, with appropriate
transfer tax stamps affixed and with stock powers endorsed in blank,
representing the shares of Stock to be purchased hereunder and shall represent
and warrant that such optionee has all necessary authority to effect the
transfer of the subject shares, that such optionee is the sole record and
beneficial owner of such optionee shares and has good and valid title to such
shares, free and clear of any and all liens, claims, pledges, options and
restrictions of any kind whatsoever.
If the Company elects to exercise its right to purchase
shares for fewer than all the optionee shares held by an optionee, the Company
shall purchase from such optionee at least the number of optionee shares
necessary to qualify such purchase as a substantially disproportionate
redemption pursuant to Section 302 (b) (2) of the Internal Revenue Code of 1986,
as amended.
(iii) In the event of the disability or incompetency of an
optionee, an option which is otherwise exercisable may be exercised by the
optionee's legal representative or guardian.
C. Exercise and Payment. Subject to the provisions of Section 5B
---------------------
hereof, an option may be exercised by notice to the Company specifying the
number of shares to be purchased, which notice shall be accompanied by payment
for the number of shares of Stock to be purchased. Such payment shall be made in
cash, or by certified check, bank draft, or money order payable to the order of
the Company.
D. Successive Options. If the aggregate fair market value of Common
-------------------
Stock with respect to which Options under the Plan and options under all stock
option plans of the Corporation and its subsidiaries are exercisable for the
first time by the Employee (or person then entitled to exercise this Option)
during any calendar year exceeds $100,000, this Option shall be an Incentive
Stock Option (up to the $100,000 limit and a Supplemental Stock Option for the
remaining shares. Any exercise of this option shall be deemed first to be the
exercise of Incentive Stock Options, with the excess treated as the exercise of
Supplemental Stock Options. For purposes of determining the $100,000 limit, the
fair market value of the Common Stock shall be determined at the time the
Options are granted.
E. Nontransferability. No option or any right with respect thereto
-------------------
shall be subject to any debts or liabilities of an optionee, not be assignable
or transferable except by Will or the laws of descent and distribution, nor be
exercisable during the optionee's lifetime other than by the optionee, nor shall
Stock be issued to or in the name of one other than the optionee.
<PAGE>
F. Employment. No provision of the Plan, nor any term or condition of
-----------
any option, nor any action taken by the Committee or the Company pursuant to the
Plan, shall give or be construed as giving an optionee any right to be retained
in the employ of the Company, or affect or limit in any way the right of the
Company to terminate the employment of any optionee.
6. Term of Plan. No Stock option shall be granted under the Plan after June
-------------
23, 2002. Options granted prior thereto, however, may extend beyond such date
and the provisions of the Plan shall continue to apply thereto.
7. Application of Funds. The proceeds received by the Company from the sale
---------------------
of Stock pursuant to options granted under the Plan will be used to reimburse
investors providing the shares or for general corporate purposes as may be
appropriate under any agreements with the investors.
8. No Obligation to Exercise Option. The granting of an option shall impose
---------------------------------
no obligation upon the optionee to exercise such option.
9. Rights as a Shareholder. An optionee shall have no rights as a
-------------------------
shareholder with respect to shares of Stock covered by an option until the date
of issuance to the optionee of a certificate evidencing such shares of Stock
after the exercise of such option and payment in full of the purchase price. No
adjustment will be made for dividends or other rights for which the record date
is prior to the date such certificate is issued. Optionee agrees to abide by the
terms of the "Shareholders Agreement."
10. Amendments. The Committee may from time to time alter, amend, suspend or
-----------
discontinue the Plan, except that shareholder approval is required with respect
to any amendment which would (i) increase the number of shares of Stock on which
options may be granted or which may be issued under the Plan, (ii) materially
increase the benefits accruing to optionees under the Plan, or (iii) materially
modify the provisions of the Plan relating to eligibility to be granted an
option. However, no alteration, amendment, suspension or discontinuance of the
Plan shall adversely affect the rights of an optionee under any option granted
prior to such alteration, amendment, suspension or discontinuance, without the
consent of such optionee.
The Plan, each option under the Plan, and the grant and exercise thereof, and
the obligation of the Company to sell and issue shares under the Plan shall be
subject to all applicable laws, rules, regulations and governmental and
shareholder approvals, and the Committee may make such amendment or modification
thereto as it shall deem necessary to comply with any such laws, rules and
regulations or to obtain any such approvals.
11. Effectiveness of Plan. The Plan will be adopted by the Board of Directors
----------------------
within twelve months of the date the Plan is adopted by the holders of a
majority of the Stock.
12. Severability. If any provision of the Plan, or any term or condition of
-------------
any Incentive Stock Option Agreement or form executed or to be executed
thereunder, or any application thereof to any person or circumstances is invalid
or would result in an incentive stock option failing to meet the requirements of
Section 422A of the Internal Revenue Code, such provision, term, condition or
application shall to that extent be void (or, in the discretion of the
Committee, such provision, term or condition may be amended so as to avoid such
invalidity or failure), and shall not affect other provisions, terms or
conditions or applications thereof, and to this extent such provisions, terms
and conditions are severable.
13. Investment Purpose. At the time of any exercise of any option, the
-------------------
Company may, if it shall deem it necessary or desirable for any reason connected
with any law or regulation of any governmental authority relating to the
regulation of securities, require the optionee and/or any transferee of the
optionee's rights to represent in writing to the Company that it is such
person's then intention to acquire the Stock for investment and not with a view
to the distribution thereof. In such event, no shares shall be issued to such
person unless and until the Company is satisfied with the correctness of such
representation.
Amended 2/4/97
<PAGE>
EXHIBIT 10.6
PAMECO HOLDINGS, INC.
STOCK OPTION PLAN
1. PURPOSE. The Pameco Holdings, Inc. (the "COMPANY") Stock Option Plan
-------
(the "PLAN") is intended as an incentive and to encourage stock ownership by
certain key employees of the Company so that they may acquire or increase their
proprietary interest in Company, and to encourage them to remain in the employ
of the Company. It is further intended that certain of the options issued
pursuant to the Plan shall constitute incentive stock options within the meaning
of Section 422 of the Internal Revenue Code of 1986, as amended, except as
expressly provided to the contrary in the Plan or in an optionee's Stock Option
Agreement.
2. ADMINISTRATION. The Plan shall be administered by the Compensation
--------------
Committee ("COMMITTEE") of the Board of Directors of the Company. The Committee
may make such rules and regulations and establish such procedures for the
administration of the Plan as it deems appropriate. The interpretation and
application of the Plan or of any term or condition of an option granted under
the Plan or of any rule, regulation or procedure, and any other matter relating
to or necessary to the administration of the Plan, shall be determined by the
Committee, and any such determinations shall be final and binding upon all
persons.
3. STOCK. Shares of stock to be issued under the Plan shall be shares of
-----
the Company's authorized common stock (the "STOCK"), provided that the total
amount of Stock on which options may be granted or which may be issued under the
Plan shall not exceed 750,000 shares. Such number of shares is subject to
adjustment in accordance with the provisions of SECTION 11 hereof. In the event
that any outstanding option or portion thereof expires or is terminated for any
reason, the shares of Stock allocable to the unexercised portion of such option
may be subjected to an option and be reissued under the Plan.
4. AWARD OF OPTIONS. (a) The Committee may grant stock options to
----------------
purchase stock to officers and other key employees of the Company, including
directors who are employees. The Committee shall have the discretion, in
accordance with the provisions of the Plan, to determine to whom an option is
granted, the number of shares of Stock subject to an option, and the terms and
conditions of the option. In making its determinations, the Committee shall
consider the position and responsibilities of the employee, the nature and value
to the Company of his or her services and accomplishments, the present and
potential contribution of the employee to the success of the Company, and such
other factors as the Committee may deem relevant.
(b) Options granted under the Plan shall be subject to and governed
by the provisions of the Plan and by the terms and conditions set forth in
SECTION 5 hereof and by such other terms and conditions, not inconsistent with
the Plan, as shall be determined by the Committee.
(c) The date on which an option shall be granted shall be the date
that the optionee, the number of shares of Stock subject to the option and the
terms and conditions of the option are determined by the Committee; provided,
however, that if an option or any term or
<PAGE>
condition of an option is rejected or not accepted by an optionee or if an
option is not granted in accordance with the provisions of the Plan, such option
shall be deemed to have not been granted and shall be of no effect. Each option
shall be evidenced by a Stock Option Agreement in such form as the Board of
Directors may from time to time approve.
5. TERMS AND CONDITIONS OF OPTIONS.
-------------------------------
(a) Option Price. In the case of each incentive stock option
------------
granted under the Plan, the option price shall not be less than the Fair Market
Value of the Stock on the date of grant of such option as determined by the
Committee. Notwithstanding the foregoing, in the case of an incentive stock
option granted to an employee who owns more than ten percent (10%) of the
Company's outstanding Stock, the option price shall be not less than one hundred
ten percent (110%) of the Fair Market Value per share determined as aforesaid.
(b) Period of Option and When Exercisable. An option granted
-------------------------------------
under the Plan may not be exercised after the date specified by the Committee,
which shall be a maximum of ten years from the date of grant; notwithstanding
the foregoing, in the case of an incentive stock option granted to an employee
who owns more than ten percent (10%) of the Company's outstanding Stock, the
option may not be exercised after the expiration of five years from the date of
grant. Any option not exercised within the aforementioned time period shall
automatically terminate at the expiration of such period. Notwithstanding the
foregoing, a dissolution or liquidation of the Company, or a merger or
consolidation in which the Company is not the surviving corporation (unless new
options are substituted for the options granted hereunder or the options granted
herewith are assumed by the surviving corporation), shall cause each outstanding
option to terminate, provided that each optionee shall, in such event, have the
right immediately prior to such dissolution or liquidation, or merger or
consolidation in which the Company is not the surviving corporation, to exercise
his or her option in whole or in part.
(c) Exercise and Payment. Subject to the provisions of this
--------------------
SECTION 5, an option may be exercised by notice to the Company specifying the
number of shares to be purchased, which notice shall be accompanied by payment
for the number of shares of Stock to be purchased. Such payment shall be made in
cash, or by certified check, bank draft, or money order payable to the order of
the Company.
(d) Effect of Termination of Employment, Death, Disability or
---------------------------------------------------------
Retirement. If the employment of an optionee terminates for any reason other
- ----------
than death, disability or retirement (such termination of employment to be
referred to, for the purposes of this Plan, as a "TERMINATION EVENT" as to such
optionee), then all options held by an optionee which are not vested as of the
effective date of the Termination Event shall be immediately forfeited to the
Company. If the optionee's employment is terminated by the Company for Cause
(as defined below), or the optionee voluntarily terminates his employment, the
option rights under any then vested outstanding options shall immediately
terminate. If optionee's employment is terminated by the Company without Cause,
any options vested as of such optionee's date of termination shall remain
exercisable at any time prior to their expiration date or for one (1) month
after such optionee's date of termination of employment, whichever period is
shorter. For the purposes of
2
<PAGE>
this Plan, "CAUSE" shall mean: (i) willful misconduct on the part of the
optionee that is materially detrimental to the Company; or (ii) the conviction
of the optionee for the commission of a felony. The existence of "Cause" under
either (i) or (ii) shall be determined by the Compensation Committee of the
Board of Directors. Notwithstanding the foregoing, if the optionee has entered
into an employment agreement that is binding as of the date of employment
termination, and if such employment agreement defines "Cause," and/or provides a
means of determining whether "Cause" exists, such definition of "Cause" and
means of determining its existence shall apply to the optionee.
(e) Certain Restrictions on Exercise. An option granted under
--------------------------------
the Plan and any shares of Stock purchased thereunder, shall be subject to the
following restrictions:
(i) If all the Investors (as defined in the original
"Stockholders' Agreement") propose to sell all of their shares to a third party
(other than an Affiliate) in an arm's-length transaction, then (in addition to
the rights to participate in such sale pursuant to SECTION 3 of the
Stockholder's Agreement) the Investors may, at their option, require an optionee
to sell all, but not part, of the shares acquired upon exercise of his/her
option (the "DESIGNATED SHARES") to such third party. If such option is
exercised, each optionee hereby agrees to sell all of his/her Designated Shares
to such third party for the same consideration per share and otherwise on the
same terms and conditions upon which the Investors are selling their shares
subject to the terms of SECTION 4 "Rights to Compel Sale" in the Stockholder's
Agreement.
(ii) In addition, if an optionee incurs a Termination Event
(as defined in SECTION 5(C) above) the optionee shall be deemed to have offered
for sale to the Company, at a purchase price determined in accordance with this
SECTION 5(E), the Designated Shares at the time of such Termination Event. The
Company shall have a period of thirty (30) days after the date of such
Termination Event to provide optionee with written acceptance of such offer to
sell the Designated Shares, which acceptance need not be for all of the
Designated Shares. The Company shall have the right to designate a third party
to purchase any Designated Shares which it would otherwise be entitled to
purchase hereunder, and such third party shall be entitled to any such shares on
the same terms and conditions provided for herein; provided, however, that the
Company shall first designate any of the Investors before designating any other
third party purchaser.
(iii) The per share purchase price of the Designated Shares
to be sold by an optionee pursuant to this Section shall be an amount equal to
the Appraised Value (as hereinafter defined) of each such share. For purposes of
this Plan, "APPRAISED VALUE" shall mean, in respect of any Designated Shares,
the fair market value of such share on the date of the Termination Event, based
on the value of the Company, as determined by a nationally recognized
independent banking firm selected by the Company, divided by the number of
outstanding shares (on a fully diluted basis); provided, however, that if an
Appraised Value share have been determined pursuant to this Agreement at any
time during the six month period immediately preceding the date of the
Termination Event, the Company may in its sole discretion elect to utilize such
prior determination.
3
<PAGE>
(iv) Subject to any financing agreements or any other
instruments or agreements of the Company and/or any of its subsidiaries from
time to time in effect restricting the repurchase or retirement of shares
including but not limited to (A) the Guarantee, dated March 19, 1992 (as amended
from time to time, the "GUARANTEE"), by the Company of the repayment of funds by
Pameco Corp. ("P.C.") to General Electric Capital Corporation ("GECC") pursuant
to that certain Credit Agreement, dated as of March 19, 1992, by and among P.C.
and GECC (the "CREDIT AGREEMENT"), and (B) the Credit Agreement, the purchase
price of Designated Shares purchased upon the exercise of any option granted
under this SECTION 5 shall be payable in cash (from sources legally available
therefor). If any Designated Shares purchased pursuant to this SECTION 5 may not
be repurchased for all cash under applicable law or as a result of restrictions
contained in the Guarantee or the Credit Agreement (the "RESTRICTIONS"), such
portion shall be purchased by the issuance and delivery of a promissory note
(the "TAKE-BACK NOTE"), which shall bear interest at a rate per annum equal to
the prime rate as publicly announced by Citibank, N.A. from time to time and
shall have such other terms as the Company may deem necessary or appropriate,
and (ii) thereafter shall have a five year maturity; in addition, the Take-Back
Note shall be subordinated to the rights of such creditors of the Company as may
be required by law, the Guarantee or the Credit Agreement. The principal amount
of the Take-Back Note shall be payable in equal annual installments but shall
accelerate on the first of the month following such date as such Restrictions
shall have terminated in their entirety. In addition, if funds are unavailable
for payment when due of principal of or interest on the Take-Back Note as a
result of the Restrictions, the holder of the Take-Back Note shall not be
entitled to accelerate or demand payment of outstanding principal of and
interest accrued on the Take-Back Note, but, if and to the extent permitted by
law, such accrued interest shall be included as the principal portion of a
separate promissory note having terms otherwise identical to the Take-Back Note.
Any payment of principal or interest deferred as a result of such restrictions
shall be due and payable on the next date on which payment of principal on the
Take-Back Note is due following the termination of such Restrictions. The Take-
Back Notes shall in all instances have such terms as shall comply with any
applicable requirements of the Guarantee and the Credit Agreement.
(v) If the Company (or other third party purchaser) elects
to purchase the Designated Shares, the optionee and the Company shall mutually
determine a closing date (the "CLOSING") for the purchase and sale of shares
deemed offered hereunder, which shall be not more than 20 business days, subject
to any applicable regulatory waiting periods, after the expiration of the notice
period described in the subsection pursuant to which such optionee shares may be
purchased in accordance with this Agreement, or if any such day is not a
business day, then the first business day thereafter; provided, however, that if
the purchase price is to be based upon Appraised Value, such 20 business day
period shall commence upon the final determination of Appraised Value. The
closing shall be held at 11:00 a.m., local time, at the offices of the Company
or at such other time or place as the parties may agree. Notwithstanding
anything to the contrary, the closing of any sale hereunder may be delayed in
any case in which the Company has determined (based upon the advice of counsel)
that it cannot, in compliance with applicable law, the Guarantee or the Credit
Agreement, purchase any shares that it is otherwise obligated to purchase. In
such case, the closing of such sale shall be delayed until the earliest
practicable date on which such closing may be effected in compliance with
applicable law, the Guarantee and the Credit Agreement. On the Closing Date, the
optionee shall deliver certificates, with appropriate
4
<PAGE>
transfer tax stamps affixed and with stock powers endorsed in blank,
representing the Designated Shares to be purchased herewith and shall represent
and warrant that such optionee has all necessary authority to effect the
transfer of the subject shares, that such optionee is the sole record and
beneficial owner of such Designated Shares and has good and valid title to such
shares, free and clear of any and all liens, claims, pledges, options and
restrictions of any kind whatsoever. If the Company elects to exercise its right
to purchase less than all of the Designated Shares held by an optionee, the
Company shall purchase from such optionee at least the number of Designated
Shares necessary to qualify such purchase as a substantially disproportionate
redemption pursuant to Section 302(b)(2) of the Internal Revenue Code of 1986,
as amended.
(f) Successive Options. If the aggregate fair market value of
------------------
Stock with respect to which options under the Plan and options under all stock
option plans of the Company and its subsidiaries are exercisable for the first
time by an optionee (or person then entitled to exercise such option) during any
calendar year exceeds $100,000, then the options granted hereunder shall be
incentive stock options (up to the $100,000 limit) and supplemental stock
options for the remaining shares. Any exercise of options granted hereunder
shall be deemed first to be the exercise of incentive stock options, with the
excess treated as the exercise of supplemental stock options. For proposes of
determining the $100,000 limit, the fair market value of the Stock shall be
determined at the time the options are granted.
(g) Nontransferability. No option or any right with respect
------------------
thereto shall be subject to any debts or liabilities of an optionee. No option
shall be assignable or transferable except (i) by will or the laws of descent
and distribution, or (ii) if permitted by the optionee's stock option agreement,
in whole or part, without consideration, by written instrument signed by an
optionee, to any member(s) of his/her immediate family or to any trust,
partnership, or similar vehicle for the benefit of such immediate family
member(s) (the "PERMITTED TRANSFEREES"). No option shall be exercisable during
the optionee's lifetime other than by the optionee, or if applicable, Permitted
Transferees, or if an optionee is disabled, by his duly appointed guardian or
legal representative. No stock shall be issued to or in the name of anyone other
than the optionee or a Permitted Transferee.
(h) Employment. No provision of the Plan, nor any term or
----------
conditions of any option, nor any action taken by the Committee or the Company
pursuant to the Plan, shall give or be construed as giving an optionee any right
to be retained in the employ of the Company, or affect or limit in any way the
right of the Company to terminate the employment of any optionee.
6. TERM OF PLAN. No Stock option shall be granted under the Plan after
------------
April 1, 2006. Options granted prior thereto, however, may extend beyond such
date and the provisions of the Plan shall continue to apply thereto.
7. APPLICATION OF FUNDS. The proceeds received by the Company from the
--------------------
sale of Stock pursuant to options granted under the Plan will be used for
general corporate purposes.
8. NO OBLIGATION TO EXERCISE OPTION. The granting of an option shall
--------------------------------
impose no obligation upon the optionee to exercise such option.
5
<PAGE>
9. RIGHTS AS A SHAREHOLDER. An optionee shall have no rights as a
-----------------------
shareholder with respect to shares of Stock covered by an option until the date
of issuance to the optionee of a certificate evidencing such shares of Stock
after the exercise of such option and payment in full of the purchase price. No
adjustment will be made for dividends or other rights for which the record date
is prior to the date such certificate is issued. An optionee, or if applicable,
a Permitted Transferee, must become a signatory to the current Stockholders'
Agreement prior to the issuance of any shares granted under this Plan.
10. AMENDMENTS. (a) The Committee may from time to time alter, amend,
----------
suspend or discontinue the Plan, except that shareholder approval is required
with respect to any amendment which would (i) increase the number of shares of
Stock on which options may be granted or which may be issued under the Plan,
(ii) materially increase the benefits accruing to optionees under the Plan, or
(iii) materially modify the provisions of the Plan relating to eligibility to be
granted an option. However, no alteration, amendment, suspension or
discontinuance of the Plan shall adversely affect the rights of an optionee
under any option granted prior to such alteration, amendment, suspension or
continuance, without the consent of such optionee.
(b) The Plan, each option under the Plan, and the grant and exercise
thereof, and the obligation of the Company to sell and issue shares under the
Plan shall be subject to all applicable laws, rules, regulations and
governmental and shareholder approvals, and the Committee may make amendment or
modification thereto as it shall deem necessary to comply with any such laws,
rules and regulations or to obtain any such approvals.
11. ADJUSTMENT FOR CHANGE IN SHARES SUBJECT TO PLAN. In the event of any
-----------------------------------------------
change in the outstanding Shares by reason of any stock split, stock dividend,
recapitalization, merger, consolidation, combination or exchange of shares or
other similar corporate change ("CHANGE IN CAPITALIZATION"), such equitable
adjustments may be made in the Plan and the options granted hereunder as the
Committee determines are necessary or appropriate, including if necessary, an
adjustment in the number of shares and option exercise prices per share
applicable to options then outstanding and in the number of Shares which are
reserved for issuance under the Plan. Any such adjustment shall be conclusive
and binding, for all purposes of the Plan.
12. LEGAL RESTRICTIONS. If in the opinion of legal counsel for the
------------------
Company the issuance or sale of any shares of Stock pursuant to the exercise of
any option granted hereunder would not be lawful for any reason, including,
without limitation, the inability of the Company to obtain from any governmental
authority or regulatory body having jurisdiction the authority deemed by such
counsel to be necessary to such issuance or sale, the Company shall not be
obligated to issue or sell any Common Stock pursuant to the exercise of such
option to the optionee or any other authorized person until such legal
impediment has, to the satisfaction of counsel, been removed. The Company shall
not be obligated to issue or sell any shares of Stock pursuant to the exercise
of any option granted under this Plan, if in the opinion of legal counsel, such
shares cannot be issued or sold in the absence of an effective registration
statement under any applicable state or federal securities laws, including
without limitation the Georgia Securities Act of 1973 and the Securities
6
<PAGE>
Act of 1933, as amended, or that an exemption from any such registration
requirement is then available.
13. TAX WITHHOLDING. The Company shall have the power and the right to
---------------
deduct or withhold, or require an optionee to remit to the Company, an amount
sufficient to satisfy Federal, state and local taxes (including the optionee's
FICA obligation) required by law to be withheld with respect to any taxable
event arising in connection with an option under this Plan.
14. EFFECTIVENESS OF PLAN. The Plan will be adopted by the Board of
---------------------
Directors within twelve months of the date the Plan is adopted by the holders of
a majority of the Stock.
15. SEVERABILITY. If any provision of the Plan, or any term or condition
------------
of any incentive stock option agreement or form executed or to be executed
thereunder, or any application thereof to any person or circumstances is invalid
or would result in an incentive stock option failing to meet the requirements of
Section 422 of the Internal Revenue Code, such provision, term, condition or
application shall to that extent be void (or, in the discretion of the
Committee, such provision, term or condition may be amended so as to avoid such
invalidity or failure), and shall not affect other provisions, terms or
conditions or applications thereof, and to this extent such provisions, terms
and conditions are severable.
16. INVESTMENT PURPOSE. At the time of any exercise of any option, the
------------------
Company may, if it shall deem it necessary or desirable for any reason connected
with any law or regulation of any governmental authority relating to the
regulation of securities, require the optionee and/or transferee of the
optionee's rights to represent in writing to the Company that it is such
person's then intention to acquire the Stock for investment and not with a view
to the distribution thereof. In such event, no shares shall be issued to such
person until the Company is satisfied with the correctness of such
representation.
AS APPROVED BY THE BOARD OF DIRECTORS OF PAMECO HOLDINGS, INC. ON APRIL 16,
1996.
PAMECO HOLDINGS, INC.
By: _________________________________
7
<PAGE>
EXHIBIT 10.7
[LOGO OF PAMECO HOLDINGS, INC. APPEARS HERE]
STOCK OPTION AGREEMENT
IN ACCORDANCE WITH, the resolutions of the Compensation Committee of the
Board of Directors of Pameco Holdings, Inc. (the "Company"), but subject to the
approval of the full Board of Directors, this Stock Option (this "Option")
evidences the grant by the Company to Gerald V. Gurbacki (the "Optionee") of the
right and option to purchase up to 75,000 shares of Common Stock of the Company
(the "Common Stock"), subject to the following terms and conditions:
1. Option Price. The purchase price of each share of Common Stock
------------
subject to this Option shall be $4.00, which the parties acknowledge and agree
to be equal to the fair market value thereof as of the date of grant.
2. Vesting of Shares of Common Stock. Shares of Common Stock subject to
---------------------------------
the option shall vest, and become exercisable, as follows: 22,500 shares of
Common Stock shall vest as of May 6, 1996, 17,500 shares of Common Stock shall
vest as of March 1, 1997, 17,500 shares of Common Stock shall vest as of March
1, 1998, and 17,500 shares of Common Stock shall vest as of March 1, 1999.
In the event of the sale or other disposition of all or substantially all
of the assets of the Company (or Pameco Corporation) or of all of the Common
Stock of the Company (or all of the stock of Pameco Corporation) or an IPO where
shares of the common stock of the Company (or shares of Pameco Corporation) are
offered to the public at a price equal to or greater than $4.00 per share, all
options granted hereunder will immediately vest and become exercisable.
3. Designation of Option. All of the options covered by this Option shall
---------------------
be treated as Supplemental Stock Options.
4. Exercise of Option. The Optionee may exercise this Option to purchase
------------------
shares of Common Stock that have vested in accordance with Section 2 hereof, by
following the procedure set forth in Section 5 hereof, at any time and from time
to time, during the period commencing on the date hereof and ending at 5:00
p.m., Atlanta, Georgia time, on the date which immediately precedes the sixth
anniversary of the option date hereof. Notwithstanding the foregoing, a
dissolution or liquidation of the Company, or a merger or consolidation in which
the Company is not the surviving corporation (unless an option is substituted
for this Option or this Option is assumed by the surviving corporation), shall
cause this Option to terminate, provided that Optionee shall, in such event,
have the right immediately prior to such dissolution or liquidation, or merger
or consolidation in which the Company is not the surviving corporation, to
exercise this Option in whole or in part.
5. Manner of Exercise. The Optionee may exercise this Option by
------------------
delivering written notice of exercise to the Secretary of the Company, in
person, or by certified mail, return receipt requested, postage prepaid,
addressed to the attention of the Secretary of the Company at the location at
which the Company then maintains its principal office, and if so mailed, the
date of mailing will be considered the date of exercise. Such notice shall be
in substantially the form attached hereto and shall be accompanied by payment in
full, in immediately available funds, of the total purchase price for the shares
being purchased. The Company, in the event of exercise by an authorized person
other than the Optionee, may require proof of the right of such person to
exercise this Option. As promptly as practicable after receipt by the Company
of the aforementioned notice to purchase and the full purchase price, the
Company shall cause to be issued to the person entitled to purchase the shares
for which this Option is exercised, stock certificate(s) for the number of
shares of Common Stock being purchased, which shall evidence fully paid and
nonassessable shares.
1
<PAGE>
6. Transferability. This Option shall not be transferable other than by
---------------
will or by laws of descent and distribution; provided that options which are not
designated as incentive stock options may be transferred, in whole or in part,
without consideration, by written instrument signed by the Optionee, to any
member(s) of the immediate family of Optionee or to any trust, partnership, or
similar vehicle for the benefit of such immediate family member(s) (the
"Permitted Transferees"). Evidence of transfer to Permitted Transferees shall
be delivered to the Company at its principal executive office.
7. Persons Who May Exercise Option. This Option shall be exercisable
-------------------------------
only by Optionee, or, if applicable Permitted Transferees, or if Optionee is
disabled, by his duly appointed guardian or legal representative on Optionee's
behalf.
8. Certain Restrictions. This Option, and any shares of Common Stock
--------------------
purchased hereunder, are subject to the following restrictions:
(a) If all the Investors, as defined in that certain Pameco Holdings, Inc.
Stockholders' Agreement, dated March 19, 1992 and as may be amended from time to
time, a copy of which is available to the Optionee upon request to the Company,
(the "Stockholders' Agreement"), propose to sell all of their shares of Common
Stock to a third party (other than an Affiliate, as defined in the Stockholders'
Agreement) in an arms-length transaction, then the investors may, at their
option, require Optionee to sell all, but not part, of the shares acquired by
Optionee upon exercise of this option (the "Designated Shares") to such third
party. If such option is exercised, Optionee hereby agrees to sell all of its
Designated Shares to such third party for the same consideration per share and
otherwise on the same terms and conditions upon which the Investors are selling
their shares, subject to the terms of Section 4 "Rights to Compel Sale" of the
Stockholders' Agreement, which terms are incorporated herein by reference.
(b) If the Optionee ceases to be an employee for any reason other than
death, disability, or retirement (such cessation to be referred to herein as a
"Termination Event"), all Options held by Optionee which are not vested as of
the effective date of the Termination Event shall be immediately forfeited to
the Company. In the event Optionee's employment is terminated by the Company
for Cause (as defined below), or Optionee voluntarily terminates his employment,
the Option rights under any then vested outstanding Options shall immediately
terminate. If Optionee's employment is terminated by the Company without Cause,
any Options vested as of such Optionee's date of termination shall remain
exercisable at any time prior to their expiration date or for one (1) month
after such Optionee's date of termination of employment, whichever period is
shorter.
In addition, the Optionee shall be deemed to have offered for sale to the
Company, at a purchase price determined in accordance with this subsection 8(b),
the Designated Shares at the time of such Termination Event. The Company shall
have a period of thirty (30) days after the date of such Termination Event to
provide Optionee with written acceptance of such offer to sell the Designated
Shares, which acceptance need not be for all of the Designated Shares. The
Company shall have the right to designate a third party to purchase any
Designated Shares which it would otherwise be entitled to purchase hereunder,
and such third party shall be entitled to any such shares on the same terms and
conditions provided for herein; provided , however, that the Company shall
first designate any of the Investors before designating any other third party
purchaser.
The per share purchase price of the Designated Shares shall be an
amount equal to the Appraised Value (as hereinafter defined) of each such share.
"Appraised Value" shall mean, in respect of each Designated Share, the fair
market value of such share, on the date of the Termination Event, based on the
value of the Company, as determined by a nationally recognized independent
investment banking firm selected by the Company, divided by the number of
outstanding shares (on a fully diluted
2
<PAGE>
basis); provided, however, that if an Appraised Value shall have been determined
pursuant to the Stockholders' Agreement at any time during the six month period
immediately preceding the date of the Termination Event, the Company may in its
sole discretion elect to utilize such prior determination.
Subject to any financing agreements or any other instruments or
agreements of the Company and/or any of its subsidiaries from time to time in
effect restricting the repurchase or retirement of shares, including but not
limited to (i) the Guarantee, dated March 19, 1992 (as amended from time to
time, the "Guarantee") by the Company of the repayment of funds by Pameco Corp.
("P.C.") to General Electric Capital Corporation ("GECC") pursuant to that
certain credit agreement, dated as of March 19, 1992 (as amended from time to
time), by and among P.C. and GECC (the "Credit Agreement"), and (ii) the Credit
Agreement, the purchase price of any Designated Shares to be purchased pursuant
to this subsection 8(b) shall be payable in cash (from sources legally
available therefore). If any Designated Shares to the purchased pursuant to
this subsection 8(b) may not be purchased for all cash under applicable law or
as a result of restrictions contained in the Guarantee or the Credit Agreement
(the "Restrictions"), such portion shall be purchased by the issuance and
delivery of a promissory note (the "Take-Back Note") which shall bear interest
at a rate per annum equal to the prime rate as publicly announced by Citibank,
N.A. from time to time, shall have a five year maturity, and shall have such
other terms as the Company may deem necessary or appropriate. In addition, the
Take-Back Note shall be subordinated to the rights of such creditors of the
Company as may be required by law, the Guarantee or the Credit Agreement. The
principal amount of the Take-Back Note shall be payable in equal annual
installments but shall accelerate on the first day of the month following the
date upon which such Restrictions shall have terminated in their entirety. In
addition, if funds are unavailable for the payment when due of principal of or
interest on the Take-Back Note as a result of the Restrictions, the holder of
the Take-Back Note shall not be entitled to accelerate or demand payment of
outstanding principal of and interest accrued on the Take-Back Note, but, if and
to the extent permitted by law, such accrued interest shall be included as the
principal portion of a separate promissory note having terms otherwise identical
to the Take-Back Note. Any payment of principal or interest deferred as a
result of such Restrictions shall be due and payable on the next date on which
payment of principal on the Take-Back Note is due following the termination of
such Restrictions. The Take-Back Notes shall in all instances have such terms
as shall comply with any applicable requirements of the Guarantee and the Credit
Agreement.
Notwithstanding anything in this Agreement to the contrary, the closing of
any sale hereunder may be delayed in any case in which the Company has
determined (based upon the advise of counsel) that it cannot, in compliance with
applicable law, the Guarantee or the Credit Agreement, purchase any shares that
it is otherwise obligated to purchase. In such case, the closing of such sale
shall be delayed until the earliest practicable date on which such closing may
be effected in compliance with applicable law, the Guarantee and the Credit
Agreement.
If the Company (or other third party purchaser) elects to purchase the
Designated Shares pursuant to this subsection 8(b), Optionee (or other third
party purchaser) and the Company shall mutually determine a closing date (the
"Closing Date" for the purchase and sale of such shares, which shall be not more
than 20 business days, subject to any applicable regulatory waiting periods,
after the expiration of the notice period described herein, or if any such day
is not a business day, then the first business day thereafter; provided,
however, that if the purchase price is to be based upon Appraised Value, and
Appraised Value shall not have been determined during the six month period
immediately preceding such purchase, such 20 business day period shall commence
upon the final determination of Appraised Value. The closing of any sale
pursuant to this subsection 8(b) shall be held at 11:00 a.m., local time, at the
offices of the Company or at such other time or place as the parties agree. On
the Closing Date Optionee shall deliver certificates, with appropriate transfer
tax stamps affixed and with stock powers endorsed in blank, representing the
Designated Shares and shall represent and warrant that Optionee has all
necessary authority to effect the transfer of such shares, that Optionee is the
sole record
3
<PAGE>
and beneficial owner of such shares and has good and valid title to such shares,
free and clear of any and all liens, claims, pledges, options, and restrictions
of any kind whatsoever. If the Company elects to exercise its right to purchase
shares for fewer than all the Designated Shares, the Company shall purchase from
Optionee at least the number of Designated Shares necessary to qualify such
purchase a substantially disproportionate redemption pursuant to Section
302(b)(2) of the Internal Revenue Code of 1986, as amended.
c) The Optionee, or if applicable, the Permitted Transferee, must become
a signatory to the current Stockholders' Agreement prior to the purchase of any
shares granted under this Option Agreement.
d) For purposes of this Agreement, "Cause" shall have the meaning set
forth below: (i) willful misconduct on the part of the Optionee that is
materially detrimental to the Company; or (ii) the conviction of the Optionee
for the commission of a felony. The existence of "Cause" under either (i) or
(ii) shall be determined by the Compensation Committee of the Board of
Directors. Notwithstanding the foregoing, if the Optionee has entered into an
employment agreement that is binding as of the date of employment termination,
and if such employment agreement defines "Cause", and/or provides a means of
determining whether "Cause" exists, such definition of "Cause" and means of
determining its existence shall apply to the Optionee.
9. Investment Representation. The Optionee hereby represents, warrants
-------------------------
and agrees if the shares then to be issued are not included in an effective
Registration Statement under the Securities Act of 1933, as amended (the "Act"):
(a) That the shares that shall be purchased under this Option will be
purchased for Optionee's own account for investment purposes only and not with a
view to resale or distribution thereof;
(b) That Optionee understands the offer of shares under this Option may be
made pursuant to a claim of exemption from the registration provisions of the
Act and any applicable state securities laws;
(c) That the shares subject to this Option may be unregistered and, if so,
will be required to be held indefinitely, unless such shares are subsequently
registered or an exemption from registration is then available;
(d) That the Company is under no obligation to register such shares, to
comply with any such exemption or to supply the Optionee with any information
necessary to enable him to make routine sales of such shares under Rule 144 or
any other rule or regulation of the Securities and Exchange Commission; and
(e) That the transfer agent for the Company may be instructed not to
transfer ownership of the stock certificate(s) representing shares acquired upon
any exercise of this Option, unless in the prior written opinion of counsel
reasonably acceptable to the Company, such transfer is lawful under the Act and
applicable state securities laws.
In regard to the foregoing, the Optionee understands and agrees that the
certificate(s) evidencing any shares that may be purchased pursuant to the
exercise of this Option which have not been registered under the Act or any
applicable state securities law, may bear an appropriate restrictive legend in a
form determined in the sole discretion of the Company.
4
<PAGE>
10. Legal Restrictions. If in the opinion of legal counsel for the
------------------
Company the issuance or sale of any shares of Common Stock pursuant to the
exercise of this Option would not be lawful for any reason, including without
limitation the inability of the Company to obtain from any governmental
authority or regulatory body having jurisdiction the authority deemed by such
counsel to be necessary to such issuance or sale, the Company shall not be
obligated to issue or sell any Common Stock pursuant to the exercise of this
Option to Optionee or any other authorized person until such legal impediment
has, to the satisfaction of counsel, been removed. The Company shall not be
obligated to issue or sell any shares of Common Stock pursuant to the exercise
of this option, if in the opinion of legal counsel, such shares cannot be issued
or sold in the absence of an effective registration statement under any
applicable state or federal securities laws, including without limitation the
Georgia Securities Act of 1973 and the Securities Act of 1933, as amended, or
that an exemption from any such registration requirement is then available. The
Company is in no event obligated to register any such shares, to comply with any
exemption from registration requirements or to take any other action which may
be required in order to permit, or to remedy or remove any prohibition or
limitation on, the issuance or sale of such shares to the Optionee or other
authorized person.
11. No Rights As Shareholder. Neither the Optionee nor any other person
------------------------
authorized to purchase Common Stock upon exercise of this Option shall have any
interest in or shareholder rights with respect to any shares of the Common Stock
which are subject to this Option until such shares have been issued and
delivered to the Optionee or any such person pursuant to the exercise of this
Option.
IN WITNESS WHEREOF, the Company has caused this Option to be executed by
its duly authorized officer and its corporate seal to be affixed hereto, as of
this 6th day of May, 1996.
PAMECO HOLDINGS, INC.
By:______________________________________
Name: James R. Balkcom, Jr.
Title: Chairman
Date: May 6, 1996
ATTEST:
By: ____________________________________
Name: Mary M. McCulley
Title: Treasurer / Asst. Secretary
(CORPORATE SEAL)
5
<PAGE>
ADDENDUM: The options evidenced by this Stock Option Agreement have been
effected by a Reverse One-for-Two Stock Split that occurred on October 16, 1996.
The total number of shares evidenced by this grant is now 37,500 and the
purchase price is now $8.00 per share. The vesting schedule in Section 2 has
been modified accordingly. Further, the Optionee hereby consents to the
modification of the Option so that it now constitutes the right to purchase
37,500 shares of the Company's Class B Common Stock.
By:___________________________________
Name: James R. Balkcom, Jr.
Title: Chairman
Date: October 16, 1996
Optionee:
______________________________________
Gerald V. Gurbacki
ATTEST:
____________________________________
Mary M. McCulley
(CORPORATE SEAL)
6
<PAGE>
EXHIBIT 10.8
PAMECO HOLDINGS, INC.
DIRECTOR STOCK OPTION PLAN
1. PURPOSE. The Pameco Holdings, Inc. ("PAMECO") Qualifying
------- ------
Director Stock Option Plan (the "PLAN") is intended as an incentive to
----
qualifying directors of Pameco so that they may acquire a proprietary interest
in the success of Pameco and its wholly-owned subsidiary, Pameco Corporation
(the "COMPANY").
-------
2. ADMINISTRATION. The Plan shall be administered by the
--------------
Compensation Committee (the "COMMITTEE") of the Board of Directors of Pameco.
---------
The Committee may make such rules and regulations and establish such procedures
for the administration of the Plan as it deems appropriate. The interpretation
and application of the Plan, or of any term or condition of an option granted
under the Plan or of any rule, regulation or procedure, and any other matter
relating to, or necessary or incidental to, the administration of the Plan,
shall be determined by the Committee, and any such determinations shall be final
and binding upon all persons.
3. STOCK. The total number of shares of stock available for the
-----
grant of options under the Plan shall be an aggregate of 100,000 shares of
Pameco's authorized common stock (the "STOCK"). Such number of shares is
-----
subject to adjustment in accordance with the provisions of Section 6 hereof. In
---------
the event that any outstanding option or portion thereof expires or is
terminated for any reason, the shares of Stock allocable to the unexercised
portion of such option may again be subjected to an option and be issued under
the Plan.
4. AWARD OF OPTIONS. The Committee may grant stock options to
----------------
purchase stock to Qualifying Directors, as hereinafter defined. The Committee
shall have the discretion, in accordance with the provisions of the Plan, to
determine to whom an option is granted, the number of shares of Stock optioned,
and the terms and conditions of the option.
Options granted under the Plan shall be subject to and governed by the
provisions of the Plan, by the terms and conditions set forth in Section 5
---------
hereof, and by such other terms and conditions, not inconsistent with the Plan,
as shall be determined by the Committee.
The date on which an option shall be granted shall be the date that
the optionee, the number of shares of Stock optioned, and the terms and
conditions of the option are determined by the Committee; provided, however,
-------- -------
that if an option or any term or condition of an option is rejected or not
accepted by an optionee or if an option is not granted in accordance with the
provisions of the Plan, such option shall be deemed to have not been granted and
shall be void ab initio. Each option shall be evidenced by a Director Stock
Option Agreement in such form as the Board of Directors may from time to time
approve.
For purposes of the Plan and any options granted pursuant to the Plan,
a person is a "DIRECTOR" if (i) such person is a director of Pameco, (ii) such
--------
person is not an employee of
<PAGE>
either Pameco or the Company, and (iii) such person does not own, beneficially
or of record, any of the authorized capital stock of Pameco, or have the right
or option to acquire any of the authorized capital stock of Pameco, other than
for capital stock (or rights or options to so acquire any such capital stock)
acquired pursuant to the grant and issue of options under and pursuant to the
Plan. Any person who is, as of the date of the grant and issuance of an option
under the Plan, a Qualifying Director, shall continue to be a Qualifying
Director notwithstanding that after the date of the grant and issuance of an
option under the Plan such person shall (i) cease to be a director of Pameco, or
(ii) become an employee of Pameco or the Company, or (iii) become the beneficial
or record owner of any of the authorized capital stock of Pameco, or acquire the
right or option (other than pursuant to the Plan) to acquire any of the
authorized capital stock of Pameco.
5. TERMS AND CONDITIONS OF OPTIONS.
-------------------------------
A. Option Price. In the case of each stock option granted
------------
under the Plan, the option price shall not be less than the Fair Market Value of
the Stock on the date of grant of such option as determined by the Committee.
B. Period of Option and When Exercisable.
-------------------------------------
(i) An option granted under the Plan may not be exercised
after the date specified by the Committee, which shall be a
maximum of five years from date of grant. Any option not
exercised within the aforementioned time period shall
automatically terminate at the expiration of such period.
Notwithstanding the foregoing, a dissolution or liquidation of
Pameco or a merger or consolidation in which Pameco is not the
surviving corporation (unless new options are substituted for the
options granted hereunder or the options granted hereunder are
assumed by the surviving corporation), shall cause each
outstanding option to terminate, provided that each optionee
shall, in such event, have the right immediately prior to such
dissolution or liquidation, or merger or consolidation in which
Pameco is not the surviving corporation, to exercise his or her
option in whole or in part.
(ii) All options granted under the Plan shall be
immediately vested in the optionee and the optionee shall have
the immediate right to exercise the option consistent with and
subject to the terms and conditions of the Plan.
If all the Investors (as defined in the Stockholder's
Agreement) propose to sell all of their shares to a third party
(other than an Affiliate) in an arms-length transaction, then (in
addition to the rights to participate in such sale pursuant to
Section 3 of the Stockholder's Agreement) the Investors may, at
their option, require all the other Stockholders to sell all, but
not part, of the shares owned by them (the "DESIGNATED SHARES")
-----------------
to
2
<PAGE>
such third party. If any option granted pursuant to the Plan is
exercised, each optionee shall be, and shall be deemed to be, a
"Stockholder", as defined in the Stockholder's Agreement, and by
virtue of the exercise of any option so granted hereby agrees to
sell all of its Designated Shares to such third party for the
same consideration per share and otherwise on the same terms and
conditions upon which the Investors are selling their shares
subject to the terms of Section 4 "Rights to Compel Sale" in the
Stockholder's Agreement.
(iii) In the event of the disability or incompetency of an
optionee, an option which is otherwise exercisable may be
exercised by the optionee's legal representative or guardian.
C. Exercise and Payment. Subject to the provisions of Section
-------------------- -------
5B hereof, an option may be exercised by notice to Pameco specifying the number
- ---------
of shares to be purchased, which notice shall be accompanied by payment for the
number of shares of Stock to be purchased. Such payment shall be made in cash,
or by certified check, bank draft, or money order to the order of Pameco.
D. Nontransferability. No option or any right with respect
------------------
thereto shall be subject to any debts or liabilities of an optionee, nor be
assignable or transferable except by will or the laws of descent and
distribution, nor be exercisable during the optionee's lifetime other than by
the optionee or as provided in Section 5B(iii), nor shall Stock be issued to or
---------------
in the name of one other than the optionee.
C. Employment. No provision of the Plan, nor any term or
----------
condition of any option, nor any action taken by the Committee or Pameco
pursuant to the Plan, shall give or be construed as giving an optionee any right
to be employed by Pameco or the Company, or affect or limit in any way the right
of Pameco or the Company, if optionee is subsequently retained or employed by
either Pameco or the Company to terminate the employment of an optionee.
6. TERM OF PLAN. No option shall be granted under the Plan after
------------
June 1, 2006. Options granted prior thereto, however, may extend beyond such
date and the provisions of the Plan shall continue to apply thereto.
7. APPLICATION OF FUNDS. The proceeds received by Pameco from the
--------------------
sale of Stock pursuant to options granted under the Plan will be used for
general corporate purposes or as Pameco may otherwise deem appropriate.
8. NO OBLIGATION TO EXERCISE OPTION. The granting of an option
--------------------------------
shall impose no obligation upon the optionee to exercise such option.
9. RIGHTS AS A SHAREHOLDER. An optionee shall have no rights as a
-----------------------
shareholder with respect to shares of Stock covered by an option until the date
of issuance to the
3
<PAGE>
optionee of a certificate evidencing such shares of Stock after the exercise of
such option and payment in full of the purchase price. No adjustment will be
made for dividends or other rights for which the record date is prior to the
date such certificate is issued. Optionee agrees to abide by the terms of the
Stockholders Agreement and acknowledges receipt of a true and complete copy of
same.
10. AMENDMENTS. The Committee may from time to time alter, amend,
----------
suspend or discontinue the Plan, except that shareholder approval is required
with respect to any amendment which would (i) increase the number of shares of
Stock on which options may be granted or which may be issued under the Plan,
(ii) materially increase the benefits accruing to optionees under the Plan, or
(iii) materially modify the provisions of the Plan relating to eligibility to be
granted an option. However, no alteration, amendment, suspension or
discontinuance of the Plan shall adversely affect the rights of an optionee
under any option granted prior to such alteration, amendment, suspension or
discontinuance, without the consent of such optionee.
The Plan, each option under the plan, and the grant and exercise
thereof, and the obligation of Pameco to sell and issue shares under the Plan
shall be subject to all applicable laws, rules, regulations and governmental and
shareholder approvals, and the Committee may make such amendment or modification
thereto as it shall deem necessary to comply with any such laws, rules and
regulations or to obtain any such approvals.
11. EFFECTIVENESS OF PLAN. The Plan shall be effective from and
---------------------
after the date of its adoption by the Pameco Board of Directors.
12. SEVERABILITY. If any provision of the Plan, or any term or
------------
condition of any Director Stock Option Agreement or form executed or to be
executed thereunder, or any application thereof to any person or circumstances
is invalid, such provision, term, condition or application shall to that extent
be void (or, in the discretion of the Committee, such provision, term or
condition may be amended so as to avoid such invalidity or failure), and shall
not affect other provisions, terms or conditions or applications thereof, and to
this extent such provisions, terms and conditions are severable.
13. INVESTMENT PURPOSE. At the time of any exercise of any option,
------------------
Pameco may, if it shall deem it necessary or desirable for any reason connected
with any law or regulation of any governmental authority relating to the
regulation of securities, require the optionee and/or any transferee of the
optionee's rights to represent in writing to Pameco that it is such person's
then intention to acquire the Stock for investment and not with a view to the
distribution thereof. In such event, no shares shall be issued to such person
unless and until Pameco is satisfied with the correctness of such
representation.
4
<PAGE>
Exhibit 10.9
----
APPENDIX 1 TO
FIFTH AMENDMENT
---------------
================================================================================
PAMECO CORPORATION
(formerly named
MLX Refrigeration & Air Conditioning Group, Inc.)
______________________________
$60,000,000
CREDIT AGREEMENT
DATED AS OF MARCH 19, 1992
_______________________________
GENERAL ELECTRIC CAPITAL CORPORATION,
AS AGENT
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1. DEFINITIONS.................................................................... 2
1.1 Defined Terms.................................................................. 2
1.2 Other Definitional Provisions.................................................. 28
SECTION 2. THE LOANS AND OTHER EXTENSIONS OF CREDIT....................................... 29
2.1 Loan Commitments............................................................... 29
2.2 Notes.......................................................................... 29
2.3 Procedure for Loan Borrowings.................................................. 30
2.4 Interest on Loans.............................................................. 31
2.5 Repayments of Notes............................................................ 31
2.6 Mandatory and Optional Prepayments;
Termination of Commitment; Prepayment Fee.................................... 31
2.7 Conversion and Continuation Options............................................ 32
2.8 Minimum Amounts and Maximum Number of
Tranches..................................................................... 33
2.9 Indemnification in Respect of Eurodollar
Loans........................................................................ 33
2.10 Lock Box Account............................................................... 34
2.11 Letters of Credit.............................................................. 34
2.12 Fees, Expenses and Indemnification in Respect
of Letter of Credit Obligations
2.13 Unused Line Fee................................................................ 38
2.14 Closing Fee.................................................................... 38
2.15 Computation of Interest and Fees............................................... 38
2.16 Inability to Determine Interest Rate........................................... 39
2.17 Effective Date................................................................. 39
2.18 Use of Proceeds................................................................ 39
2.19 Pro Rata Treatment and Payments................................................ 40
2.20 Illegality..................................................................... 40
2.21 Requirements of Law............................................................ 41
2.22 Taxes.......................................................................... 42
2.23 Application of Payments........................................................ 44
2.24 Adjustments; Set-off........................................................... 44
2.25 Single Loan.................................................................... 45
SECTION 3. REPRESENTATIONS AND WARRANTIES................................................. 45
3.1 Financial Condition............................................................ 45
3.2 Corporate Existence; Compliance with Law....................................... 46
3.3 Corporate Power; Authorization................................................. 47
3.4 Enforceable Obligations........................................................ 47
3.5 No Legal Bar................................................................... 48
3.6 No Material Litigation......................................................... 48
3.7 Federal Regulation............................................................. 48
3.8 Investment Company Act......................................................... 49
3.9 Disclosure..................................................................... 49
3.10 No Default..................................................................... 49
3.11 Ownership of Property; Liens................................................... 49
3.12 Taxes.......................................................................... 50
</TABLE>
-i-
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<TABLE>
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<S> <C>
3.13 No Burdensome Restrictions....................................................... 51
3.14 ERISA............................................................................ 51
3.15 Capital Stock.................................................................... 51
3.16 Subsidiaries; Executive Offices.................................................. 51
3.17 Security Documents............................................................... 52
3.18 Solvency and Equivalent Value.................................................... 53
3.19 Projections...................................................................... 53
3.20 Labor Matters.................................................................... 54
3.21 Other Ventures................................................................... 54
3.22 Purchase Agreement and Other Documents.......................................... 54
3.23 Acquisition...................................................................... 55
3.24 Employment and Labor Agreements.................................................. 55
3.25 Intellectual Property............................................................ 55
3.26 No Material Adverse Effect....................................................... 55
3.27 Environmental Matters............................................................ 55
3.28 Public Warehouses................................................................ 56
3.29 Merger........................................................................... 56
3.30 Management Services Agreement.................................................... 57
3.31 Assets of the Company............................................................ 57
3.32 Melco Division................................................................... 57
3.33 Inventory Concentrations......................................................... 57
SECTION 4. CONDITIONS PRECEDENT............................................................. 57
4.1 Conditions to the Initial Extension of
Credit........................................................................ 57
4.2 Conditions to Each Extension of Credit........................................... 65
SECTION 5. AFFIRMATIVE COVENANTS............................................................ 66
5.1 Financial Statements............................................................. 66
5.2 Certificates; Other Information.................................................. 69
5.3 Payment of Obligations........................................................... 72
5.4 Conduct of Business and Maintenance of
Existence..................................................................... 72
5.5 Maintenance of Property and Accounts; Cash
Management.................................................................... 72
5.6 Maintenance of Insurance......................................................... 72
5.7 Inspection of Property; Books and Records;
Discussions................................................................... 74
5.8 Notices.......................................................................... 74
5.9 Communication with Accountants................................................... 75
5.10 Lenders' Fees.................................................................... 75
5.11 Payment of Taxes................................................................. 76
5.12 Environmental Laws; Environmental Indemnity...................................... 76
5.13 Leases........................................................................... 77
5.14 Additional Collateral............................................................ 77
5.15 Inventory........................................................................ 79
5.16 Installation of MIS/POS System................................................... 79
5.17 Delivery of Comprehensive MIS Plan............................................... 79
5.18 Bank Accounts.................................................................... 80
5.19 Post-Effectiveness Lien Searches................................................. 80
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
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----
<S> <C>
SECTION 6. NEGATIVE COVENANTS............................................................. 80
6.1 Limitation on Indebtedness...................................................... 81
6.2 Limitation on Liens............................................................. 81
6.3 Prohibition of Fundamental Changes.............................................. 82
6.4 Limitation on Dividends and Restricted Payments................................. 82
6.5 Limitation on Investments, Acquisitions, Loans and Advances..................... 83
6.6 Limitation on Contingent Obligations............................................ 84
6.7 Limitation on Sale of Assets.................................................... 84
6.8 Financial Condition Covenants................................................... 85
6.9 Capital Expenditures............................................................ 87
6.10 Operating Leases................................................................ 88
6.11 Fiscal Year..................................................................... 89
6.12 Limitation on Prepayments, Amendments,
Payments and Refinancings in respect of
the Subordinated Bridge Notes................................................. 89
6.13 Amendments to Ancillary Documents............................................... 91
6.14 Limitation on Affiliate Transactions............................................ 91
6.15 No Subsidiaries................................................................. 91
6.16 Accounting Treatment............................................................ 91
6.17 Compensation.................................................................... 91
6.18 Maintenance of Business......................................................... 91
6.19 Cancellation of Claims or Indebtedness.......................................... 92
6.20 Environmental Matters........................................................... 92
6.21 Payments in Respect of Accounts................................................. 92
6.22 Bank Accounts................................................................... 93
6.23 Store Openings.................................................................. 93
SECTION 7. EVENTS OF DEFAULT.............................................................. 93
SECTION 8. THE AGENT...................................................................... 99
8.1 Appointment..................................................................... 99
8.2 Delegation of Duties............................................................ 100
8.3 Exculpatory Provisions.......................................................... 100
8.4 Reliance by Agent............................................................... 100
8.5 Notice of Default............................................................... 101
8.6 Non-Reliance on Agent and Other Lenders......................................... 101
8.7 Indemnification................................................................. 102
8.8 Agent in Its Individual Capacity................................................ 102
8.9 Successor Agent................................................................. 102
8.10 No Effect on any Loan Party..................................................... 102
SECTION 9. MISCELLANEOUS.................................................................. 103
9.1 Complete Agreement; Amendments and Waivers...................................... 103
9.2 Successors and Assigns; Participations; Purchasers.............................. 104
9.3 Notices......................................................................... 107
9.4 No Waiver; Cumulative Remedies.................................................. 107
</TABLE>
-iii-
<PAGE>
<TABLE>
<CAPTION>
Page
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<S> <C>
9.5 Survival of Representations and Warranties..................................... 107
9.6 Payment of Expenses and Taxes; Indemnities..................................... 108
9.7 MUTUAL WAIVER OF JURY TRIAL.................................................... 108
9.8 SUBMISSION TO JURISDICTION; WAIVERS............................................ 109
9.9 Further Assurances............................................................. 109
9.10 Acknowledgements............................................................... 110
9.11 Severability................................................................... 110
9.12 Counterparts................................................................... 110
9.13 GOVERNING LAW.................................................................. 110
</TABLE>
SCHEDULES
Schedule I - Lending Offices and Commitments
Schedule II - Loan Party Offices
Schedule III - Filing Jurisdictions
Schedule IV - Leases
Schedule V - Investments
Schedule VI - Contingent Obligations
Schedule VII - Material Adverse Changes
Schedule VIII - Local Counsel Opinions
Schedule IX - Unobtained Landlord and Vendor Consents
Schedule X - Tax Matters
Schedule XI - Subsidiaries
Schedule XII - Collective Bargaining and Labor Agreements
Schedule XIII - Intellectual Property Matters
Schedule XIV - Environmental Matters
Schedule XV - Locations of Inventory Concentrations
Schedule XVI - Pre-Closing Lien Search Jurisdictions
Schedule XVII - Permitted Store Dispositions
Schedule XVIII - Material Litigation
Schedule XIX - Material Adverse Effects
EXHIBITS
Exhibit A - Form of Note
Exhibit B - Form of Borrowing Base Certificate
Exhibit C - Form of Holdings Guarantee
Exhibit D - Form of Holdings Pledge Agreement
Exhibit E-1 - Form of Holdings Security Agreement and Form of Holdings
Patent and Trademark Assignment
Exhibit E-2 - Form of Company Security Agreement and Form of Company Patent
and Trademark Assignment
Exhibit F - Form of Lock-Box Agreement
Exhibit G Intentionally Omitted
Exhibit H - Form of Closing Certificate
Exhibit I-1 - Form of Opinion of Weil, Gotshal & Manges
Exhibit I-2 - Form of Opinion of Kilpatrick & Cody
Exhibit I-3 - Form of Opinion of Amster, Rothstein & Ebenstein
Exhibit I-4 - Opinion of James D. Askren, II
Exhibit I-5 - Opinion of Paul Hastings Janofsky & Walker
-iv-
<PAGE>
Exhibit J - Form of Commitment Transfer Supplement
Exhibit K - Form of Warehousemen Notice
Exhibit L - Form of Notice of Borrowing Request
-v-
<PAGE>
CREDIT AGREEMENT, dated as of March 19, 1992, among PAMECO CORPORATION
(formerly named MLX Refrigeration & Air Conditioning Group, Inc.), a Delaware
corporation (the "Company"), the lenders listed on the signature pages hereof
-------
(together with their respective successors and permitted assigns, the "Lenders")
-------
and GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation ("GE Capital"),
----------
as agent for the Lenders (in such capacity, together with its successors and
permitted assigns, the "Agent").
-----
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, Pameco Holdings, Inc., a Delaware corporation ("Holdings"),
--------
MLX Delaware Corporation, a Delaware corporation (formerly named Pameco
Corporation; the "Seller"), and MLX Corp., a Michigan corporation and the parent
------
of the Seller ("MLX"), have entered into the Purchase Agreement, dated as of
---
March 19, 1992 (the "Purchase Agreement"), pursuant to which Holdings has agreed
------------------
to purchase, and the Seller has agreed to sell, (a) all of the issued and
outstanding capital stock of each of (i) the Company, which owns, without
limitation, all of the assets of the Melco division of the Seller, and (ii)
Thermal Company, Inc., a Michigan corporation ("Thermal"; the Company and
-------
Thermal collectively, the "Acquired Companies"), and (b) a promissory note in
------------------
the amount of approximately $30,000,000 owing from the Company to the Seller
(the "Purchased Note"), all upon the terms and subject to the conditions set
--------------
forth in the Purchase Agreement (the "Acquisition");
-----------
WHEREAS, immediately following the consummation of the Acquisition,
Thermal will be merged with and into the Company, with the Company being the
surviving corporation of such merger (the "Merger");
------
WHEREAS, a source of funds is required to finance a portion of the
purchase price of the Acquisition and to finance the working capital and other
financial requirements of the Company after the Acquisition and the Merger, with
all fees and expenses relating to the Acquisition being paid by the Company out
of cash from operations;
WHEREAS, a portion of such funds is being provided by (a) the sale of
approximately $865,000 of common stock of Holdings, (b) the sale of
approximately $4,000,000 of Class A preferred stock of Holdings having an
aggregate liquidation preference of $4,000,000 (the "Holdings Preferred Stock"),
------------------------
(c) the placement of the Junior Subordinated Notes (as hereafter defined) by
Holdings for approximately $5,000,000 and (d) the placement of the Subordinated
Bridge Notes (as hereafter defined) by the Company for approximately
$22,500,000;
<PAGE>
2
WHEREAS, simultaneously with the Acquisition, the Company will utilize
(i) the proceeds of a portion of the initial Loans hereunder and the proceeds of
each of the Subordinated Bridge Notes and the Junior Subordinated Notes (each
such term as hereinafter defined) to repay in full the Purchased Note, as a
consequence of which the Purchased Note shall be cancelled, and (ii) the balance
of the proceeds of the initial Loans hereunder to indirectly repay and cancel
all of the Morgan Debt and to directly repay in full and cancel all of the NBD
Debt;
WHEREAS, the Company has requested that the Agent and the Banks enter
into this Credit Agreement and that the Banks make the Extensions of Credit (as
hereafter defined) provided for herein in order to provide the remaining portion
of the purchase price of the Acquisition and for the other purposes permitted
pursuant to this Agreement;
WHEREAS, such Lenders have agreed to make such Extensions of Credit
available to the Company, but only upon the terms, and subject to the
conditions, contained herein;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties to this Agreement hereby agree as
follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the following terms
-------------
shall have the following respective meanings (such definitions to be equally
applicable to the singular and plural forms thereof):
"Accounts" shall have the meaning ascribed thereto in the definition
--------
of "Eligible Receivables" contained herein.
"Acquired Companies" shall have the meaning ascribed thereto in the
------------------
recitals hereto.
"Acquisition" shall have the meaning ascribed thereto in the recitals
-----------
hereto.
"Adjustment Date" shall mean the Business Day upon which the Agent
---------------
receives both (i) the financial statements required to be delivered
pursuant to subsection 5.1(a), 5.1(b) or 5.1(c), as the case may be, for
the most recently completed fiscal period and (ii) the compliance
certificate required pursuant to subsection 5.2(a) with respect to such
financial statements. Notwithstanding the foregoing, if such financial
statements are received after 3:00 P.M., then each such Adjustment Date
shall instead be the first Business Day after such receipt.
<PAGE>
3
"Adjusted Interest Coverage Ratio" shall mean, for any period of four
--------------------------------
consecutive fiscal quarters, the ratio of (a) Company EBITDA for such
period to (b) Holdings Interest Expense for such period.
"Affiliate" of any Person shall mean (a) any Person (other than a
---------
Subsidiary of such Person) that, directly or indirectly, is in control of,
is controlled by, or is under common control with, such Person or (b) any
Person who is a director or officer of (i) such Person, (ii) any Subsidiary
of such Person or (iii) any Person described in clause (a) above. For
purposes of this definition, control of a Person shall mean the power,
direct or indirect, (A) to vote 5% or more of the securities having
ordinary voting power for the election of directors of such Person or (B)
to direct or cause the direction of the management and policies of such
Person whether by contract or otherwise.
"Agent" shall have the meaning ascribed thereto in the preamble
-----
hereto.
"Agreement" shall mean this Credit Agreement, as the same may be
---------
amended, supplemented or otherwise modified from time to time.
"Ancillary Documents" shall mean the Loan Documents, the Stockholders'
-------------------
Agreements, the Option Agreement, the Purchase Agreement, the Management
Services Agreement, the Indemnity Agreement, the Merger Documents, the
Subordinated Notes, each other document delivered to the Agent or any
Lender pursuant to Section 4 of this Agreement and all amendments,
supplements or other modifications thereto.
"Applicable Margin" for each Type of Loan shall mean for the period
-----------------
commencing with the Effective Date and each subsequent Adjustment Date and
ending on the day immediately preceding the next succeeding Adjustment
Date, the rate per annum set forth under the relevant column heading below
opposite the Adjusted Interest Coverage Ratio for such period:
<TABLE>
<CAPTION>
Index Eurodollar
Period Rate Loans Loans
------ ---------- ----------
<S> <C> <C>
Adjusted Interest Coverage
Ratio less than 1.9 to 1.0 1% 3.75%
Adjusted Interest Coverage
Ratio equal to or
greater than 1.9 to 1.0
but less than 2.15 to 1.0 0.5% 3.25%
Adjusted Interest Coverage
</TABLE>
<PAGE>
4
<TABLE>
<S> <C> <C>
Ratio equal to or
greater than 2.15 to 1.0
but less than 2.4 to 1.0 0.25% 3%
Adjusted Interest Coverage
Ratio equal to or
greater than 2.4 to 1.0 0% 2.75%;
</TABLE>
provided that at all times during the period from the Effective Date
--------
through and including the Fifth Amendment Effective Date, the Applicable
Margin for Index Rate Loans shall be 1.25% per annum; and further provided
------- --------
that, for the purposes of calculating the Applicable Margin for any Type of
Loan, the Adjusted Interest Coverage Ratio for any period shall be deemed
to be the highest of (a) the Adjusted Interest Coverage Ratio for such
period and (b) the highest Adjusted Interest Coverage Ratio among all
previous periods (not including the period from the Effective Date through
and including the Fifth Amendment Effective Date).
"Asbestos" shall have all the meanings therefor provided under any
--------
Environmental Laws and shall include, without limitation, asbestos fibers
and friable asbestos, as such terms are defined under Environmental Laws.
"Asset Sale" means (a) any sale, sale-leaseback or other disposition
----------
to a Person by the Company or any of its Subsidiaries of any of its
property or assets (other than as described in subsections 6.7(a)-(c)) and
(b) the sale or issuance to a Person (other than to the Company or any of
its Subsidiaries, in connection with a capital contribution or otherwise)
of capital stock or other equity securities of the Company or any
Subsidiary thereof.
"Borrowing Base" shall mean, at any date, the amount equal to 80% of
--------------
Eligible Receivables plus 55% of Eligible Warehouse Inventory plus 30% of
---- ----
Eligible Branch Inventory; provided, however, that in no event shall (a)
-------- -------
the portion of the Borrowing Base which is based upon Eligible Warehouse
Inventory and Eligible Branch Inventory exceed $32,000,000 at any time, or
(b) the sum of the Loans and the Reimbursement Obligations (without
duplication of the Reimbursement Obligations deemed to have become Loans)
exceed the Borrowing Base; provided, further, that the Borrowing Base on
-------- -------
each date shall be reduced by the amount of liabilities of the Company and
its Subsidiaries in respect of (i) audited assessments by taxing
authorities for Charges then outstanding for which the Company or the
Subsidiary liable in respect thereof is not maintaining adequate reserves,
in the sole judgment of the Agent, on its books in accordance with GAAP and
(ii) claims by any Governmental Authority against Holdings or the Company
in respect of any alternative minimum tax attributable to the
<PAGE>
5
consolidated group of which the Acquired Companies were members prior to
the Acquisition; and provided, further, that the Agent at all times shall
-------- -------
be entitled to reduce any and all of the percentages used in determining
the Borrowing Base at any time in its sole discretion on ten days' prior
written notice to the Company and with the consent of the Lenders.
"Borrowing Base Certificate" shall mean a certificate, substantially
--------------------------
in the form of Exhibit B, delivered pursuant to subsection 5.2(c).
"Business Day" shall mean a day other than a Saturday, Sunday or other
------------
day on which GE Capital or commercial banks in New York, New York, or
Stamford, Connecticut are authorized or required by law to close.
"Capital Expenditures" shall mean all amounts that would, in
--------------------
accordance with GAAP, be set forth as capital expenditures on the
consolidated statement of cash flows or other similar statement of Holdings
and its Consolidated Subsidiaries.
"Capital Lease" shall mean, with respect to any Person, any lease of
-------------
any property (whether real, personal or mixed) by such Person as lessee
that, in accordance with GAAP, either would be required to be classified
and accounted for as a capital lease on a balance sheet of such Person or
otherwise be disclosed as such in a note to such balance sheet.
"Cash Equivalents" shall mean (a) securities issued or directly and
----------------
fully guaranteed or insured by the United States Government or any agency
or instrumentality thereof having maturities of not more than 3 months from
the date of acquisition thereof, (b) time deposits and certificates of
deposit having maturities of not more than 3 months from the date of
acquisition thereof issued by any domestic commercial bank having capital
and surplus in excess of $500,000,000 that has, or the holding company of
which has, a commercial paper rating meeting the requirements specified in
clause (d) below, (c) repurchase obligations with a term of not more than
30 days for underlying securities of the types described in clauses (a) and
(b) above entered into with any bank meeting the qualifications specified
in clause (b) above, (d) commercial paper rated at least A-3 or the
equivalent thereof by Standard & Poor's Corporation or P-3 or the
equivalent thereof by Moody's Investor Services, Inc. and in either case
maturing within 3 months after the date of acquisition thereof, (e) money
market funds that (i) invest exclusively in interest bearing, short-term
money market instruments (A) having an average remaining maturity of not
more than 90 days and (B) (1) having a rating of at
<PAGE>
6
least A-3 or the equivalent thereof by Standard & Poor's Corporation or P-3
or the equivalent thereof by Moody's Investors Service, Inc. or (2) which
are issued or directly and fully guaranteed or insured by the United States
Government or any agency or instrumentality thereof and (ii) have a
constant net asset redemption value and (f) variable rate municipal
securities (A) for which the pricing period in effect is not more than 3
months long and (B) that have a rating of at least A-3 or the equivalent
thereof by Standard & Poor's Corporation or P-3 or the equivalent thereof
by Moody's Investor Services, Inc.
"Change in Working Capital" for any period, shall mean (a)
-------------------------
Consolidated Current Assets at the end of such period less Consolidated
----
Current Liabilities at the end of such period minus (b) Consolidated
-----
Current Assets at the beginning of such period less Consolidated Current
----
Liabilities at the beginning of such period, and may be either a positive
or negative number.
"Charges" shall mean all Federal, state, county, city, municipal,
-------
local, foreign or other governmental (including, without limitation, PBGC)
taxes at the time due and payable, levies, assessments, charges, liens,
claims or encumbrances upon or relating to (a) the Collateral, (b) the
Loans and other Extensions of Credit hereunder, (c) the employees of the
Company or any of its Subsidiaries, payroll, income or gross receipts, (d)
the Company's or any of its Subsidiaries' ownership or use of any of its
assets or (e) any other aspect of the business of the Company or any of its
Subsidiaries.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
----
time to time.
"Collateral" shall mean (a) the collateral covered by the Security
----------
Agreements, the Patent and Trademark Assignments, the Lock Box Agreement,
the Pledge Agreements and the Guarantees, (b) any collateral pledged to the
Agent, for the benefit of the Lenders, pursuant to subsection 5.14 and (c)
any other property, real or personal, tangible or intangible, now existing
or hereafter acquired, that may be or become subject to a security interest
or Lien in favor of the Agent, for the benefit of the Lenders, to secure
the Loans and other Extensions of Credit hereunder and other amounts
payable hereunder or any guarantees thereof.
"Collateral Documents" shall be the collective reference to the
--------------------
Guarantees, the Pledge Agreements, the Security Agreements, the Patent and
Trademark Assignments, the Lock Box Agreement and any guarantee or security
document hereafter delivered to the Agent, for the benefit of the Lenders
(whether pursuant to subsection 5.14 or
<PAGE>
7
otherwise), granting in the case of any such other security document to the
Agent, for the benefit of the Lenders, a security interest to secure the
obligations of the Company hereunder or to secure any guarantee thereof.
"Commitment" shall mean, as to any Lender, the obligation of such
----------
Lender to make Loans pursuant to subsection 2.1 and to incur Letter of
Credit Obligations pursuant to subsection 2.8, in an aggregate amount not
to exceed the amount set forth opposite such Lender's name on Schedule I,
as the same may be reduced from time to time pursuant to subsection 2.6;
collectively, as to all the Lenders, the "Commitments".
-----------
"Commitment Percentage" shall mean, as to any Lender, the percentage
---------------------
of the aggregate Commitments constituted by such Lender's Commitment.
"Commitment Period" shall mean the period from and including the
-----------------
Effective Date to the Termination Date.
"Commitment Transfer Supplement" shall have the meaning ascribed
------------------------------
thereto in subsection 9.2(c).
"Common Stockholders' Agreement" shall mean the Common Stockholders'
------------------------------
Agreement, dated as of March 19, 1992, by and among TCR International
Partners, L.P., Terbem Ltd., Tinvest Ltd., Mitvest Ltd., Bobst Investment
Corp., K Investment Partners L.P., Klingenstein Charitable Partners,
Holdings, Brian R. Esher, certain employees of Holdings and/or certain of
its direct or indirect wholly-owned subsidiaries that may from time to time
enter into an option agreement with the Investors and the Lenders (as
defined therein) and other Persons becoming a party thereto in accordance
therewith (including, without limitation GE Capital), as the same may be
amended, supplemented or otherwise modified from time to time.
"Commonly Controlled Entity" an entity, whether or not incorporated,
--------------------------
which is under common control with the Company within the meaning of
Section 4001 of ERISA or is part of a group which includes the Company and
which is treated as a single employer under Section 414 of the Code.
"Company" shall have the meaning ascribed thereto in the preamble
-------
hereto.
"Company Current Assets" at any date, shall mean the total
----------------------
consolidated current assets (net of any cash and Cash Equivalents) of the
Company and its Subsidiaries which would, in conformity with GAAP, be
included under current assets on a consolidated balance sheet of the
Company and its Subsidiaries at such date.
<PAGE>
8
"Company Current Liabilities" at any date, shall mean the total
---------------------------
consolidated current liabilities (net of any current liabilities on account
of Loans and Letter of Credit Obligations) of the Company and its
Subsidiaries which would, in conformity with GAAP, be included under
current liabilities on a consolidated balance sheet of the Company and its
Subsidiaries at such date.
"Company EBITA" for any period, shall mean the sum of (a) Company Net
-------------
Income plus (b) income tax expense plus (c) Company Interest Expense plus
---- ---- ----
(d) amortization expense, in each case with respect to the Company and its
Subsidiaries for such period and determined on a consolidated basis in
accordance with GAAP.
"Company EBITDA" for any period, shall mean the sum of (a) Company Net
--------------
Income plus (b) income tax expense plus (c) Company Interest Expense plus
---- ---- ----
(d) depreciation expense plus (e) amortization expense, in each case with
----
respect to the Company and its Subsidiaries for such period and determined
on a consolidated basis in accordance with GAAP.
"Company Fixed Charges" for any period, shall mean the aggregate
---------------------
amount (determined in accordance with GAAP on a consolidated basis) of
principal and interest required to be paid during such period by the
Company and its Subsidiaries in respect of federal and state income and
alternative minimum taxes, Capital Leases, Capital Expenditures, Contingent
Obligations and Indebtedness (including, without limitation, in respect of
the Loans and Letter of Credit Obligations).
"Company Interest Expense" for any period, shall mean the interest
------------------------
expense (including non-cash interest) of the Company and its Subsidiaries
for such period, determined on a consolidated basis in accordance with
GAAP.
"Company Net Income" for any period, shall mean the consolidated net
------------------
income or loss of the Company and its Subsidiaries as it would appear on a
consolidated statement of income of the Company and its Subsidiaries for
such period prepared in accordance with GAAP (such consolidated net income
or loss shall (a) be net of extraordinary items and (b) include, to the
extent the inclusion thereof is in accordance with GAAP, the equity of the
Company or any of its Subsidiaries in the net income or loss of any other
Person).
"Company Net Worth" at a particular date, shall mean all amounts which
-----------------
would be included under shareholders' equity on a consolidated balance
sheet of the Company and its Subsidiaries determined on a consolidated
basis in accordance with GAAP as at such date.
<PAGE>
9
"Company Patent and Trademark Assignment" shall mean the Company
---------------------------------------
Security Agreement to be made by the Company in favor of the Agent, for the
benefit of the Agent and the Lenders, substantially in the form of Exhibit
E-2 hereto, as the same may be amended, supplemented or otherwise modified
from time to time.
"Company Security Agreement" shall mean the Security Agreement to be
--------------------------
made by the Company in favor of the Agent, for the benefit of the Agent and
the Lenders, substantially in the form of Exhibit E-2 hereto, as the same
may be amended, supplemented or otherwise modified from time to time.
"Concentration Account" shall have the meaning ascribed thereto in
---------------------
subsection 2.7.
"Consolidated Current Assets" at any date, shall mean the total
---------------------------
consolidated current assets (net of any cash and Cash Equivalents) of
Holdings and its Consolidated Subsidiaries which would, in conformity with
GAAP, be included under current assets on a consolidated balance sheet of
Holdings and its Consolidated Subsidiaries at such date.
"Consolidated Current Liabilities" at any date, shall mean the total
--------------------------------
consolidated current liabilities (net of any current liabilities on account
of Loans and Letter of Credit Obligations) of Holdings and its Consolidated
Subsidiaries which would, in conformity with GAAP, be included under
current liabilities on a consolidated balance sheet of Holdings and its
Consolidated Subsidiaries at such date.
"Consolidated EBITDA" for any period, shall mean the sum of (a)
-------------------
Consolidated Net Income plus (b) income tax expense plus (c) Consolidated
---- ----
Interest Expense plus (d) depreciation expense plus (e) amortization
---- ----
expense, in each case with respect to Holdings and its Consolidated
Subsidiaries for such period and determined on a consolidated basis in
accordance with GAAP.
"Consolidated Fixed Charges" for any period, shall mean the aggregate
--------------------------
amount (determined in accordance with GAAP on a consolidated basis) of
principal and interest required to be paid during such period by Holdings
and its Consolidated Subsidiaries in respect of tax liabilities, Capital
Leases, Capital Expenditures, Contingent Obligations and Indebtedness
(including, without limitation, in respect of the Loans, but not including
the Letter of Credit Obligations).
"Consolidated Interest Expense" for any period, shall mean the
-----------------------------
interest expense (including non-cash interest) of
<PAGE>
10
Holdings and its Consolidated Subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP.
"Consolidated Net Income" for any period, shall mean the consolidated
-----------------------
net income or loss of Holdings and its Consolidated Subsidiaries as it
would appear on a consolidated statement of income of Holdings and its
Consolidated Subsidiaries for such period prepared in accordance with GAAP
(such consolidated net income or loss shall (a) be net of extraordinary
items and (b) include, to the extent the inclusion thereof is in accordance
with GAAP, the equity of Holdings or any of its Consolidated Subsidiaries
in the net income or loss of any other Person).
"Consolidated Subsidiary" shall mean a Subsidiary of Holdings whose
-----------------------
accounts are consolidated with those of Holdings for financial reporting
purposes in accordance with GAAP.
"Contingent Obligation" as to any Person (the "guaranteeing Person"),
--------------------- -------------------
shall mean any obligation of (a) the guaranteeing Person or (b) another
Person (including without limitation, any bank under any letter of credit)
to induce the creation of which the guaranteeing Person has issued a
guarantee, reimbursement, counterindemnity or similar obligation, in either
case guaranteeing or in effect guaranteeing any Indebtedness, leases,
dividends or other obligations (the "primary obligations") of any other
-------------------
third Person (the "primary obligor") in any manner, whether directly or
---------------
indirectly, including, without limitation, any obligation of the
guaranteeing Person, whether or not contingent, (a) to purchase any such
primary obligation or any property constituting direct or indirect security
therefor, (b) to advance or supply funds (i) for the purchase or payment of
any such primary obligation or (ii) to maintain working capital or equity
capital of the primary obligor or otherwise to maintain the net worth or
solvency of the primary obligor, (c) to purchase property, securities or
services primarily for the purpose of assuring the owner of any such
primary obligation of the ability of the primary obligor to make payment of
such primary obligation or (d) otherwise to assure or hold harmless the
owner of any such primary obligation against loss in respect thereof;
provided, however, that the term Contingent Obligation shall not include
-------- -------
endorsements of instruments for deposit or collection in the ordinary
course of business. The amount of any Contingent Obligation of any
guaranteeing Person shall be deemed to be the lower of (a) an amount equal
to the stated or determinable amount of the primary obligation in respect
of which such Contingent Obligation is made and (b) the maximum amount for
which such guaranteeing Person may be liable pursuant to the terms of the
instrument embodying such Contingent Obligation, unless such primary
<PAGE>
11
obligation and the maximum amount for which such guaranteeing Person may be
liable are not stated or determinable, in which case the amount of such
Contingent Obligation shall be such guaranteeing Person's maximum
reasonably anticipated liability in respect thereof as determined by
Company in good faith.
"Contractual Obligation" of any Person, shall mean any provision of
----------------------
any security issued by such Person or of any agreement, instrument or
undertaking to which such Person is a party or by which it or any of its
property is bound.
"Default" shall mean any of the events specified in Section 7 hereof,
-------
whether or not any requirement for the giving of notice, the lapse of time,
or both, or any other condition, has been satisfied.
"Dollars" and "$" shall mean dollars in lawful currency of the United
------- -
States of America.
"Effective Date" shall have the meaning ascribed thereto in subsection
--------------
4.1.
"Eligible Branch" shall mean any branch, sales outlet or other
---------------
location leased or owned by the Company which (a) is located in the United
States of America and (b) is not an Eligible Warehouse.
"Eligible Branch Inventory" shall mean any Eligible Inventory held in
-------------------------
an Eligible Branch.
"Eligible Inventory" shall mean the amount equal to (x) the value of
------------------
all inventory of the Company and its Subsidiaries held for sale or lease in
the ordinary course of business ("Inventory") which is held in any private
---------
warehouse, branch, master branch, hub branch, sales outlet or distribution
center, valued at the lower of cost (determined on a first-in, first-out
basis) or market value (determined by reference to the most recent report
of Inventory provided to the Agent pursuant to subsection 5.2(g)) times (y)
-----
the percentage of such Inventory that the Agent, in its sole discretion,
shall deem eligible after review of the most recent Borrowing Base
Certificate provided to the Agent pursuant to subsection 5.2(c), and less
such reserves as the Agent, in its sole discretion, shall deem appropriate.
Without in any way limiting the discretion of the Agent to deem an item of
Inventory eligible or ineligible, the Agent does not currently intend to
treat any item of Inventory as eligible if:
(a) any representation or warranty contained in this Agreement or
in any other Loan Document applicable to either Inventory in general
or to any such specific
<PAGE>
12
item of Inventory has been breached with respect to such item of
Inventory;
(b) such item of Inventory is owned by the Company or any of its
Subsidiaries and consigned to other Persons or is owned by other
Persons and consigned to the Company or any of its Subsidiaries;
(c) such item of Inventory is raw material (other than any raw
material, such as chemical refrigerants and copper pipe, which the
Company and its Subsidiaries sell in its raw state in the ordinary
course of business), work-in-process, returned, defective or
unmerchantable;
(d) such item of Inventory is not assignable or a first priority
security interest in such item of Inventory in favor of the Agent for
the benefit of the Agent and the Lenders has not been obtained or a
first priority security interest in such item of Inventory in favor of
the Agent for the benefit of the Agent and the Lenders can not be
fully perfected by possession or by filing Uniform Commercial Code
financing statements against the Company and its Subsidiaries; or
(e) such item of Inventory is subject to any Lien whatsoever
(including, without limitation, all Inventory then located at a Public
Warehouse with respect to which (i) the Agent has not received a duly
executed Warehousemen Notice which is then in full force and effect or
(ii) the Company is in arrears on its rental and other payments),
other than (without prejudice to the reductions made pursuant to
Paragraph (d) above), Liens permitted pursuant to subsections 6.2(a),
(b) and (c).
The Agent shall have discretion to classify any item of Inventory into any
of the foregoing categories or such other categories as the Agent, in its
sole discretion, deems appropriate in determining the eligibility of such
item of Inventory.
"Eligible Receivables" shall mean the amount equal to (x) the gross
--------------------
outstanding balance, less all finance charges, late fees, other fees that
are unearned and unpaid and extended warranty charges, of accounts
receivable of the Company arising out of sales of goods or services made by
the Company and its Subsidiaries in the ordinary course of business
("Accounts") (determined by reference to the most recent report of Accounts
---------
provided to the Agent pursuant to subsection 5.2(c)) times (y) the
-----
percentage of such Accounts that the Agent, in its sole discretion,
<PAGE>
13
shall deem eligible, and less such reserves as the Agent, in its sole
discretion, shall deem appropriate. Without in any way limiting the
discretion of the Agent to deem an Account eligible or ineligible, the
Agent does not currently intend to treat an Account as eligible if:
(a) any representation or warranty contained in this Agreement or
in any other Loan Documents applicable either to Accounts in general
or to any such specific Account has been breached with respect to such
Account;
(b) 50% or more of the outstanding Accounts from the Account
debtor that constituted Eligible Receivables at the time they arose
have become, or have been determined by the Agent to be, ineligible;
(c) the Account debtor has filed a petition for relief under the
United States Bankruptcy Code (or similar action under any successor
law), made a general assignment for the benefit of creditors, had
filed against it any petition or other application for relief under
the United States Bankruptcy Code (or similar action under any
successor law), failed, suspended business operations, become
insolvent, called a meeting of its creditors for the purpose of
obtaining any financial concession or accommodation, or had or
suffered a receiver or a trustee to be appointed for all or a
significant portion of its assets or affairs;
(d) such Account has remained unpaid for a period exceeding 90
days from invoice date or the Company or any of its Subsidiaries has
reason to believe such Account to be uncollectible;
(e) the sale represented by such Account is to an Account debtor
outside the United States (except to the extent payment thereof is
supported by a letter of credit in form and substance, and issued by a
bank, satisfactory to the Agent);
(f) the Account debtor is an Affiliate, Subsidiary, director,
officer or employee of the Company or any of its Subsidiaries;
(g) the Account debtor is a supplier or creditor of the Company
or any of its Subsidiaries;
(h) such Account is denominated in other than Dollars or payable
outside the United States;
<PAGE>
14
(i) the sale represented by such Account is on a bill-and-hold,
undelivered sale, guaranteed sale, sale or return, consignment, or
sale on approval basis;
(j) the Agent believes, in its sole discretion, that the
collection of such Account is insecure or that such Account may not be
paid;
(k) such Account is subject to any material claim or dispute by
the Account debtor;
(l) such Account does not constitute a valid and binding
obligation of the Account debtor to pay the balance thereof in
accordance with its terms or is subject to any defense, set-off,
recoupment or counterclaim;
(m) such Account is not assignable or a first priority security
interest in such Account in favor of the Agent for the benefit of the
Agent and the Lenders has not been obtained or a first priority
security interest in favor of the Agent for the benefit of the Agent
and the Lenders can not be fully perfected by possession or by filing
Uniform Commercial Code financing statements against the Company and
its Subsidiaries;
(n) such Account is subject to any Lien whatsoever, other than
Liens permitted pursuant to subsections 6.2(a) and (b);
(o) such Account is not evidenced by an invoice or other writing
in form acceptable to the Agent in its sole discretion;
(p) the Company or such Subsidiary, in order to be entitled to
collect such Account, is required to perform any additional service
for, or perform or incur any additional obligation to, the Account
debtor; or
(q) such Account is an account of the United States government,
the government of any state of the United States or any political
subdivision thereof, or any agency or instrumentality of any of the
foregoing, and the Agent does not perfect a first priority security
interest in such Account.
The Agent shall have discretion to classify any Account into any of the
foregoing categories or such other categories as the Agent, in its sole
discretion, deems appropriate in determining the eligibility of such
Account.
<PAGE>
15
"Eligible Warehouse" shall mean any distribution center, master
------------------
branches and hub branches leased or owned by the Company which is located
in the United States of America.
"Eligible Warehouse Inventory" shall mean any Eligible Inventory held
----------------------------
in an Eligible Warehouse.
"Enforceability Exceptions" shall have the meaning ascribed to such
-------------------------
term in subsection 3.17(a).
"Environmental Laws" shall mean any and all Federal, state, local or
------------------
municipal laws, rules, orders, regulations, statutes, ordinances, codes,
decrees or requirements of any Governmental Authority regulating, relating
to or imposing liability standards of conduct concerning any Hazardous
Materials or environmental protections, as now or may at any time hereafter
be in effect, including, without limitation, the Clean Water Act, the
Comprehensive Environmental Response, Compensation and Liability Act, the
Superfund Amendment and Reauthorization Act of 1986, the Emergency Planning
and Community Right to Know Act, the Resource Conservation and Recovery
Act, the Safe Drinking Water Act, the Toxic Substances Control Act,
together, in each case, with each amendment, supplement or other
modification thereto, and the regulations adopted and publications
promulgated thereunder and all substitutions therefor.
"ERISA" shall mean the Employee Retirement Income Security Act of
-----
1974, as amended from time to time.
"Eurocurrency Reserve Requirements" for any day as applied to a
---------------------------------
Eurodollar Loan shall mean the aggregate (without duplication) of the rates
(expressed as a decimal fraction) of reserve requirements in effect on such
day (including, with limitation, basic, supplemental, marginal and
emergency reserves under any regulations of the Board of Governors of the
Federal Reserve System or other Governmental Authority having jurisdiction
with respect thereto) dealing with reserve requirements prescribed for
eurocurrency funding (currently referred to as "Eurocurrency Liabilities"
in Regulation D of such Board) maintained by a member bank of such System.
"Eurodollar Assessment Rate" with respect to any date on which such
--------------------------
rate is to be determined shall mean the rate per annum most recently
determined by the Agent to be the then current net annual assessment rate
payable by the Lenders to the FDIC or any successor thereof for the
insurance of deposits in Dollars in the London interbank market.
<PAGE>
16
"Eurodollar Base Rate" with respect to any Interest Period shall mean
--------------------
the rate per annum equal to the offered rate for deposits in Dollars for
such Interest Period which appears on page 3750 of the Telerate News
Service as of 11:00 a.m., London time, on the day that is two Business Days
prior to the beginning of such Interest Period; provided that if such rate
--------
is unavailable, "Eurodollar Base Rate" shall mean the rate per annum equal
to the offered rate for deposits in Dollars for such Interest Period which
appears on the Reuters Screen LIBO Page as of 11:00 a.m., London time, on
the day that is two Business Days prior to the beginning of such Interest
Period; provided, further, that if two or more such offered rates appear on
-------- -------
page 3750 of the Telerate News Service or on the Reuters Screen LIBO Page,
as the case may be, "Eurodollar Base Rate" shall mean the rate per annum
equal to the arithmetic mean of such offered rates (rounded upward to the
nearest 1/16th of 1%).
"Eurodollar Loans" shall mean Loans the rate of interest applicable to
----------------
which is based upon the Eurodollar Rate.
"Eurodollar Rate" with respect to each day during each Interest
---------------
Period pertaining to a Eurodollar Loan shall mean, a rate per annum
determined for such day equal to the sum of (a) the Eurodollar Assessment
Rate at such time and (b) the quotient of the Eurodollar Base Rate for such
Interest Period divided by (x) one hundred percent minus (y) the
------- -- -----
Eurocurrency Reserve Requirements (rounded upward to the nearest 1/16th of
1%).
"Event of Default" shall mean any of the events specified in Section
----------------
7, provided that any requirement for the giving of notice, the lapse of
time, or both, or any other condition, has been satisfied.
"Existing Bank Debt" shall have the meaning ascribed to such term in
------------------
subsection 3.18(b).
"Existing Bank Release Agreement" shall mean the Release Agreement,
-------------------------------
dated as of March 19, 1992, among the Seller, MLX, the Company and the
financial institutions parties thereto, as amended, supplemented or
otherwise modified from time to time in accordance with the terms thereof
and of this Agreement.
"Extension of Credit" shall mean (i) all Loans made to the Company
-------------------
under this Agreement and (ii) all Letter of Credit Obligations issued or
incurred pursuant to this Agreement.
"Fifth Amendment Effective Date" shall mean the date upon which the
------------------------------
Fifth Amendment, dated as of March 23, 1995,
<PAGE>
17
to this Agreement becomes effective in accordance with its terms.
"GAAP" shall mean generally accepted accounting principles in the
----
United States of America as in effect from time to time; provided that in
--------
determining compliance with the covenants contained in Section 6, "GAAP"
----
shall mean generally accepted accounting principles in the United States of
America as in effect, and as applied by the Acquired Companies, on December
31, 1991.
"GE Capital" shall have the meaning ascribed thereto in the preamble
----------
hereto.
"GE Guarantee" shall mean any guarantee or similar accommodation
------------
issued in support of a Letter of Credit issued pursuant to subsection 2.11
for the account or benefit of the Company in any form customarily used at
the relevant time by GE Capital for similar extensions of credit to other
borrowers.
"Governmental Authority" shall mean any nation or government, any
----------------------
State or other political subdivision thereof or any entity exercising
executive, legislative, judicial, regulatory or administrative functions of
or pertaining to government.
"Guarantees" shall mean the Holdings Guarantee.
----------
"Hazardous Materials" shall mean any hazardous materials, hazardous
-------------------
wastes and hazardous or toxic substances, defined or regulated as such in
or under any Environmental Law, including, without limitation, Asbestos,
gasoline and any other petroleum products (including crude oil or any
fraction thereof), and materials exhibiting the characteristics of
ignitability, corrosivity, reactivity or extraction procedure toxicity, as
such terms are defined in connection with hazardous materials or hazardous
wastes or hazardous or toxic substances in any Environmental Law.
"Holdings" shall have the meaning ascribed thereto in the recitals
--------
hereto.
"Holdings Guarantee" shall mean the Guarantee to be made by Holdings
------------------
in favor of the Agent, for the benefit of the Agent and the Lenders,
substantially in the form of Exhibit C-1 hereto, as the same may be
amended, supplemented or otherwise modified from time to time.
"Holdings Interest Expense" for any period shall mean the interest
-------------------------
expense on the Loans and the Subordinated Notes (including non-cash
interest) for such period, determined on a consolidated basis in accordance
with GAAP.
<PAGE>
18
"Holdings Patent and Trademark Assignment" shall mean the Holdings
----------------------------------------
Security Agreement to be made by Holdings in favor of the Agent, for the
benefit of the Agent and the Lenders, substantially in the form of Exhibit
E-1 hereto, as the same may be amended, supplemented or otherwise modified
from time to time.
"Holdings Pledge Agreement" shall mean the Pledge Agreement to be made
-------------------------
by Holdings in favor of the Agent, for the benefit of the Agent and the
Lenders, substantially in the form of Exhibit D-1 hereto, as the same may
be amended, supplemented or otherwise modified from time to time.
"Holdings Preferred Stock" shall have the meaning ascribed to such
------------------------
term in the recitals hereto.
"Holdings Security Agreement" shall mean the Security Agreement to be
---------------------------
made by Holdings in favor of the Agent, for the benefit of the Agent and
the Lenders, substantially in the form of Exhibit E-1 hereto, as the same
may be amended, supplemented or otherwise modified from time to time.
"Indebtedness" of a Person, shall mean, without duplication, (a) all
------------
indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services (other than current liabilities incurred in
the ordinary course of business and payable in accordance with customary
trade practices) or which is evidenced by a note, bond, debenture or
similar instrument, (b) all obligations of such Person under Capital
Leases, (c) all obligations of such Person in respect of acceptances issued
or created for the account of such Person, (d) all liabilities secured by
any Lien on any property owned by such Person even though such Person has
not assumed or otherwise become liable for the payment thereof and (e)
indebtedness consisting of unpaid reimbursement obligations in respect of
all letters of credit issued for the account of such Person, whether
contingent or matured; for purposes hereof, "Indebtedness" shall, in any
event, include the Loans, Reimbursement Obligations and Letter of Credit
Obligations.
"Indemnity Agreement" (a) shall mean collectively, the MLX Limited
-------------------
Guarantee, dated as of the date hereof, made by MLX in favor of the Agent
and (b) the Letter Agreement, dated as of the date hereof, made by Holdings
in favor of the Agent, as each of the foregoing may be amended,
supplemented or otherwise modified from time to time.
"Index Rate" shall mean, with respect to any day, the highest prime,
----------
base, reference or other analogous rate of interest then in effect publicly
announced by any of Citibank, N.A., Chemical Bank, Manufacturers Hanover
Trust
<PAGE>
19
Company, Morgan Guaranty Trust Company of New York and The Chase Manhattan
Bank, N.A. (whether or not such rate is the lowest rate actually charged by
any such bank). The Index Rate is not intended to be the lowest rate of
interest charged by any Lender for extensions of credit to debtors.
"Index Rate Loans" shall mean loans the rate of interest applicable to
----------------
which is based upon the Index Rate.
"Insolvency" with respect to any Multiemployer Plan, shall mean the
----------
condition that such Plan is insolvent within the meaning of Section 4245 of
ERISA.
"Insolvent" shall mean a condition of Insolvency.
---------
"Intellectual Property" shall have the meaning ascribed thereto in
---------------------
subsection 3.25.
"Intentional Default" shall mean any action taken by any Loan Party or
-------------------
omission by any of them to take any action, with the intent to create, and
that shall have resulted in, a Default.
"Interest Coverage Ratio" shall mean, for any period of four
-----------------------
consecutive fiscal quarters, the ratio of (a) Company EBITDA for such
period to (b) Company Interest Expense for such period.
"Interest Payment Date" shall mean (a) as to any Index Rate Loan, the
---------------------
first day of each calendar month, commencing on April 1, 1992 and (b) as to
any Eurodollar Loan, the last day of the Interest Period for such Loan.
"Interest Period" for any Eurodollar Loan shall mean (a) initially,
---------------
the period commencing on the borrowing or conversion date, as the case may
be, with respect to such Eurodollar Loan and ending one, two or three
months thereafter, as selected by the Company in its notice of borrowing or
notice of conversion, as the case may be, given with respect thereto; and
(b) thereafter, each period commencing on the last day of the next
preceding Interest Period applicable to such Eurodollar Loan and ending
one, two or three months thereafter, as selected by the Company by
irrevocable notice to the Agent not less than three Business Days prior to
the last day of the then current Interest Period with respect thereto
provided that, all of the foregoing provisions relating to Interest Periods
--------
are subject to the following:
(1) if any Interest Period pertaining to a Eurodollar Loan would
otherwise end on a day that is not a Business Day, such Interest
Period shall be extended to the next succeeding Business Day unless
the
<PAGE>
20
result of such extension would be to carry such Interest Period into
another calendar month in which event such Interest Period shall end
on the immediately preceding Business Day;
(2) any Interest Period that would otherwise extend beyond the
Termination Date or beyond the date final payment is due on the Loans
shall (other than for purposes of subsection 2.9) end on the
Termination Date or such date of final payment, as the case may be;
(3) any Interest Period pertaining to a Eurodollar Loan that
begins on the last Business Day of a calendar month (or on a day for
which there is no numerically corresponding day in the calendar month
at the end of such Interest Period) shall end on the last Business Day
of a calendar month; and
(4) the Borrower shall select Interest Periods so as not to
require a payment or prepayment of any Eurodollar Loan during an
Interest Period for such Loan.
"Inventory" shall have the meaning ascribed thereto in the definition
---------
of "Eligible Inventory" contained herein.
"Investors" shall mean the Persons parties to the Series A Preferred
---------
Stockholders' Agreement on the date hereof; each, an "Investor".
--------
"Junior Subordinated Debt" shall mean the Indebtedness incurred
------------------------
pursuant to the Junior Subordinated Notes, in an aggregate principal amount
as to all Junior Subordinated Notes not to exceed $5,000,000, as such
principal amount may be increased in accordance with Section 1 of the
Junior Subordinated Notes by the amount of any interest which is due and
payable thereon and is not paid in cash.
"Junior Subordinated Note" shall mean each Junior Subordinated
------------------------
Promissory Note, dated March 19, 1992, made by Holdings to an Investor, as
the same may be amended, supplemented, renewed, restated, refinanced or
replaced or otherwise modified from time to time in accordance with the
terms thereof and this Agreement; collectively, the "Junior Subordinated
-------------------
Notes".
-----
"Lease" shall mean any leasehold estate in real property, which
-----
leasehold estate is now owned or hereafter acquired by any Loan Party, as
lessee.
"Lenders" shall have the meaning ascribed thereto in the preamble
-------
hereto; individually, a "Lender".
------
<PAGE>
21
"Lending Office" of any Lender, shall mean (a) initially, the office
--------------
of such Lender designated as such on Schedule I hereto and (b) thereafter,
such other office of such Lender, if any, that shall be making and/or
participating in Loans and incurring and/or participating in the Letter of
Credit Obligations.
"Letter of Credit Obligations" shall mean all obligations, liabilities
----------------------------
and indebtedness incurred or issued by GE Capital at the request of the
Company, whether direct or indirect, contingent or otherwise, due or not
due, in connection with the issuance or guarantee, by GE Capital or another
Person, of letters of credit or guarantees or similar assurances,
including, without limitation, Letters of Credit and GE Guarantees. The
amount of such Letter of Credit Obligations shall equal the maximum amount
which may be payable by GE Capital thereupon or pursuant thereto, and shall
include the amount of any letter of credit or guarantee which has
previously been drawn upon and not reimbursed by the Company and the amount
of any letter of credit or guarantee which is outstanding and not drawn
upon.
"Letters of Credit" shall mean Trade Letters of Credit or Standby
-----------------
Letters of Credit, as the context shall require.
"Lien" shall mean any mortgage, deed of trust, pledge, hypothecation,
----
assignment, deposit arrangement, encumbrance, lien (statutory or other) or
preference, priority or other security agreement or preferential
arrangement of any kind or nature whatsoever (including, without
limitation, any conditional sale or other title retention agreement, any
financing lease having substantially the same legal effect as any of the
foregoing, and the filing of any financing statement under the Uniform
Commercial Code or comparable law of any jurisdiction to evidence any of
the foregoing).
"Loan Documents" shall mean this Agreement, the Notes and the
--------------
Collateral Documents.
"Loan Parties" shall mean Holdings, the Company and each other Person
------------
who from time to time shall be a guarantor of the Loans and/or other
Extensions of Credit hereunder except that MLX shall not be deemed a Loan
Party under the MLX Limited Guaranty dated as of March 17, 1992 made by MLX
in favor of the Agent for the Lenders (the "MLX Guarantee").
"Loans" shall mean the loans made by the Lenders to the Company
-----
pursuant to subsection 2.1 and all obligations of the Company deemed to be
Loans pursuant to subsection 2.11(b); individually, a "Loan".
----
"Lock Box Agreement" shall mean the Lock Box Agreement among the
------------------
Company, the Agent for the benefit of the Agent
<PAGE>
22
and the Lenders, and National Bank of Detroit (or such other bank or other
financial institution as shall reasonably be acceptable to the Agent),
substantially in the form of Exhibit F hereto, as the same may be amended,
supplemented or otherwise modified from time to time in accordance with the
terms thereof and of this Agreement.
"Management Services Agreement" shall mean the Management Services
-----------------------------
Agreement, dated as of March 19, 1992, between Seller and Holdings, as the
same may be amended, supplemented or otherwise modified from time to time
in accordance with the terms thereof and of this Agreement.
"Material Adverse Effect" shall mean a material adverse effect on (a)
-----------------------
the business, assets, operations, prospects or condition (financial or
otherwise) of the Company and its Subsidiaries taken as a whole, (b) the
ability of any Loan Party to perform its obligations under the Loan
Documents in accordance with their respective terms or (c) the Collateral
or the Agent's Liens on the Collateral or the priority of any such Lien on
the Collateral, other than, in each case, immaterial Collateral.
"Merger" shall have the meaning ascribed thereto in the recitals
------
hereto.
"Merger Documents" shall mean all documents, instruments, agreements
----------------
and filings relating to the Merger, including, without limitation, the
Certificate of Merger to be filed by the Company in the State of Delaware.
"MLX" shall have the meaning ascribed thereto in the preamble hereto.
---
"Morgan Debt" shall mean the Indebtedness and other obligations
-----------
(including, without limitation, Liens and security interests) owing by the
Company pursuant to (a) the Credit Agreement, dated as of October 10, 1986
(as amended and restated as of April 13, 1990 and as further amended,
supplemented or otherwise modified from time to time), among the Seller,
MLX, the Company, the lenders parties thereto and Morgan Guaranty Trust
Company of New York, as agent, and (b) the Credit Agreement, dated as of
June 29, 1990 (as amended and restated as of the date hereof and as further
amended, supplemented or otherwise modified from time to time), between MLX
and Morgan Guaranty Trust Company of New York, (c) the Reimbursement
Agreement, dated as of April 2, 1990 (as amended and restated as of April
13, 1990 and as further amended, supplemented or otherwise modified from
time to time), between MLX and Morgan Guaranty Trust Company of New York
and (d) each other agreement, document and instrument delivered in
connection with any thereof.
<PAGE>
23
"Morgan Group" shall mean each bank and other financial institution to
------------
which any portion of the Morgan Debt is owing.
"Multiemployer Plan" shall mean any Plan that is a "multiemployer
------------------
plan" as defined in Section 4001(a)(3) of ERISA.
"NBD Debt" shall mean all Indebtedness and other obligations
--------
(including, without limitation, Liens and security interests) owing by
Thermal to National Bank of Detroit Business Finance, Inc. pursuant to the
Secured Credit Agreement, dated June 28, 1990, as the same has been
amended, supplemented or otherwise modified from time to time.
"NBD Release Agreement" shall mean the Release Agreement, dated as of
---------------------
March 19, 1992, between the Company and National Bank of Detroit Business
Finance, Inc., as amended, supplemented or otherwise modified from time to
time in accordance with the terms thereof and of this Agreement.
"Net Cash Proceeds" of any Asset Sale, shall mean the cash proceeds
-----------------
(including, without limitation, cash proceeds of non-cash consideration) of
such sale net of (a) reasonable attorneys' fees, accountants' fees,
brokerage, consultant and other customary fees and out-of-pocket expenses
actually incurred in connection with such sale, (b) taxes paid or payable
by the Company or any of its Subsidiaries as a result thereof and (c) the
amount of any Indebtedness that is related to any or all of the assets
being disposed of and is required to be paid in connection with the
disposition thereof (other than the Obligations).
"Note" and "Notes" shall have the meaning ascribed thereto in
---- -----
subsection 2.2.
"Obligations" shall mean the unpaid principal amount of, and interest
-----------
on, the Loans and all other obligations, indebtedness and liabilities of
the Company to the Agent and the Lenders (including, without limitation,
Reimbursement Obligations), whether direct or indirect, absolute or
contingent, due or to become due, or now existing or hereafter incurred,
which may arise under, out of, or in connection with this Agreement or the
other Loan Documents and any other document executed and delivered in
connection therewith or herewith, whether on account of principal,
interest, fees, indemnities, costs, expenses (including, without
limitation, all fees and disbursements of counsel to the Agent) or
otherwise. "Obligations" shall include, without limitation, interest
accruing after the maturity of the Loans or Reimbursement Obligations and
interest accruing
<PAGE>
24
after the filing of any petition in bankruptcy or the commencement of any
insolvency, reorganization or like proceeding relating to the Company,
whether or not a claim for post-filing or post-petition interest is allowed
in such proceeding.
"Operating Lease" shall mean, as at any date, any lease of property
---------------
(whether real, personal or mixed) other than a Capital Lease.
"Option Agreement" shall mean the Option Agreement, dated as of the
----------------
date hereof, among GE Capital and the Investors, as the same may be
amended, supplemented or otherwise modified from time to time.
"Participant" shall have the meaning ascribed thereto in subsection
-----------
9.2(b).
"Patent and Trademark Assignments" shall mean the Holdings Patent and
--------------------------------
Trademark Assignment and the Company Patent and Trademark Assignment.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
----
pursuant to Subtitle A of Title IV of ERISA.
"Permitted Dividends" shall mean all Restricted Payments made by the
-------------------
Company in reliance upon the provisions of Section 3(d) of Waiver Number
Two and Second Amendment, dated as of February 25, 1993, to this Agreement.
"Person" shall mean an individual, a partnership, a corporation, a
------
business trust, a joint stock company, a trust, an unincorporated
association, a joint venture, a Governmental Authority or any other entity
of whatever nature.
"Plan" shall mean, at any particular time, any employee benefit plan
----
which is covered by Title IV of ERISA and in respect of which the Company
or any Commonly Controlled Entity is (or, if such plan were terminated at
such time, would under Section 4069 of ERISA be deemed to be) an "employer"
as defined in Section 3(5) of ERISA.
"Pledge Agreements" shall mean the Holdings Pledge Agreement.
-----------------
"Principal Ancillary Documents" shall mean the Loan Documents, the
-----------------------------
Stockholders' Agreements, the Option Agreement, the Purchase Agreement, the
Management Services Agreement, the Indemnity Agreement, the Merger
Documents and the Subordinated Notes.
<PAGE>
25
"Public Warehouse" shall mean any warehouse other than a warehouse
----------------
which is (a) owned or leased by the Company or any of its Subsidiaries or
(b) under the control and management of the Company or such Subsidiary, as
the case may be.
"Purchase Agreement" shall have the meaning ascribed thereto in the
------------------
preamble hereto.
"Purchased Note" shall have the meaning ascribed thereto in the
--------------
preamble hereto.
"Purchasing Institution" shall have the meaning ascribed thereto in
----------------------
subsection 9.2(c).
"Register" shall have the meaning ascribed thereto in subsection
--------
9.2(d).
"Reimbursement Obligations" shall mean all obligations, liabilities
-------------------------
and indebtedness of the Company, whether direct or indirect, guaranteed or
assumed, contingent or otherwise, due or not due, under this Agreement and
the other Loan Documents, to reimburse, indemnify and pay GE Capital and
the other Lenders in connection with the issuance or guarantee, by GE
Capital or another Person, of letters of credit or guarantees or similar
assurances, including, without limitation, the issuance of Letters of
Credit and GE Guarantees and the incurrence of the Letter of Credit
Obligations. Reimbursement Obligations in respect of which GE Capital or
any other Lender has made a payment shall be deemed to be Loans made to the
Company as provided in subsection 2.11(b) (whether or not the conditions
precedent to the making of a Loan are satisfied).
"Reorganization" with respect to any Multiemployer Plan, shall mean
--------------
the condition that such Plan is in reorganization within the meaning of
Section 4241 of ERISA.
"Reportable Event" shall mean any of the events set forth in Section
----------------
4043(b) of ERISA, other than those events as to which the thirty-day notice
period is waived under subsections .13, .14, .16, .18, .19 or .20 of PBGC
Reg. (S) 2615.
"Required Lenders" shall mean, at any particular time, Lenders holding
----------------
more than a majority of the aggregate unpaid principal amount of the Notes
and the Reimbursement Obligations (or if no amount is outstanding under the
Notes and there are no outstanding Reimbursement Obligations, Lenders
having a majority of the Commitments).
"Requirement of Law" for any Person, shall mean the Certificate of
------------------
Incorporation and By-Laws or other
<PAGE>
26
organizational or governing documents of such Person, and any law, treaty,
rule or regulation, or determination of an arbitrator or a court or other
Governmental Authority, in each case applicable to or binding upon such
Person or any of its property or to which such Person or any of its
property is subject.
"Responsible Officer" of any Person, shall mean the chief executive
-------------------
officer and the president of such Person or, with respect to financial
matters, the chief financial officer of such Person; provided, however,
-------- -------
that for all documents and certifications delivered by the Company on the
Effective Date, "Responsible Officer" shall mean the chief financial
officer of the Company or any other duly authorized officer of the Company
reasonably acceptable to the Agent.
"Restricted Payments" shall have the meaning ascribed to such term in
-------------------
subsection 6.4 hereof.
"Security Agreements" shall mean the Holdings Security Agreement and
-------------------
the Company Security Agreement.
"Seller" shall have the meaning ascribed thereto in the preamble
------
hereto.
"Series A Preferred Stockholders' Agreement" shall mean the Series A
------------------------------------------
Preferred Stockholders' Agreement, dated as of March 19, 1992, by and among
TCR International Partners L.P., Terbem Ltd., Tinvest Ltd., Mitvest Ltd.,
Bobst Investment Corp., K Investment Partners L.P., Klingenstein Charitable
Partners, Brian R. Esher and Holdings, as the same may be amended,
supplemented or otherwise modified from time to time in accordance with the
terms thereof and hereof.
"Single Employer Plan" shall mean any Plan which is covered by Title
--------------------
IV of ERISA, but which is not a Multiemployer Plan.
"Solvent" when used with respect to any Person, shall mean that:
-------
(a) the present fair saleable value of such Person's assets is in
excess of the total amount of such Person's liabilities;
(b) such Person is able to pay its debts as they become due; and
(c) such Person does not have unreasonably small capital to carry
on such Person's business as
<PAGE>
27
theretofore operated and all businesses in which such Person is about
to engage.
"Standby Letter of Credit" shall mean a standby letter of credit
------------------------
issued to support the obligations of the Company or any of its
Subsidiaries, contingent or otherwise.
"Stockholders' Agreements" shall mean the Series A Preferred
------------------------
Stockholders' Agreement and the Common Stockholders' Agreement.
"Subordinated Bridge Loan" shall mean the Indebtedness incurred
------------------------
pursuant to the Subordinated Bridge Notes and any refinancing thereof in
accordance with the provisions of subsection 6.12(b).
"Subordinated Bridge Note" shall mean (a) prior to February 28, 1995,
------------------------
each Subordinated Promissory Note, dated March 19, 1992, made by the
Company to an Investor, as the same may be amended, supplemented, renewed,
restated, refinanced or replaced or otherwise modified from time to time in
accordance with the terms thereof and this Agreement; and (b) from and
after February 28, 1995, each Subordinated Promissory Note, dated February
28, 1995, issued by Holdings pursuant to each Exchange Agreement, dated as
of February 28, 1995, among the Company, Holdings and the Noteholder named
therein; collectively, the "Subordinated Bridge Notes".
-------------------------
"Subordinated Notes" shall be the collective reference to the
------------------
Subordinated Bridge Notes and the Junior Subordinated Notes.
"Subsidiary" of any Person, shall mean a corporation or other entity
----------
of which shares of stock or other ownership interests having ordinary
voting power (other than stock or other ownership interests having such
power only by reason of the happening of a contingency) to elect a majority
of the directors of such corporation, or other Persons performing similar
functions for such entity, are owned, directly or indirectly, by such
Person. For purposes of this Agreement and the other Loan Documents,
references to Subsidiaries of the Company shall be deemed to be references
to Subsidiaries, if any, of the Company.
"Taxes" shall have the meaning ascribed thereto in subsection 2.22.
-----
"Termination Date" shall mean March 1, 1999 or such earlier date as
----------------
the Commitments shall terminate pursuant to the terms hereof (including,
without limitation, pursuant to Section 7 hereof).
<PAGE>
28
"Thermal" shall have the meaning ascribed thereto in the preamble
-------
hereto.
"Trade Letters of Credit" shall mean each documentary letter of credit
-----------------------
in respect of the purchase of goods and services by the Company or any of
its Subsidiaries in the ordinary course of business.
"Tranche" shall mean the collective reference to Eurodollar Loans
-------
whose Interest Periods begin on the same date and end on the same later
date (whether or not such Loans originally were made on the same day.)
"Transferee" shall have the meaning ascribed thereto in subsection
----------
9.2(f).
"Type" shall mean as to any Loan, its nature as an Index Rate Loan or
----
a Eurodollar Loan.
"Uniform Commercial Code" shall mean the Uniform Commercial Code from
-----------------------
time to time in effect in the relevant State.
"Unqualified Opinion" in respect of any financial statements, shall
-------------------
mean an unqualified opinion (as such term is generally defined or used in
accordance with GAAP) in respect of such financial statements, together
with any opinion in respect of such financial statements not meeting the
foregoing standard that is qualified solely as a result of a consistency
exception relating to a change in accounting principles with which the
independent public accountants examining such financial statements have
concurred.
"Warehousemen Notice" shall mean a Warehousemen Notice, substantially
-------------------
in the form of Exhibit K (with appropriate insertions), executed and
delivered by a duly authorized officer of the Public Warehouse party
thereto.
"Wholly Owned Subsidiary" with respect to any Person, shall mean any
-----------------------
Subsidiary of such Person of which such Person directly or indirectly owns
100% of the capital stock (excluding directors' qualifying shares, if any).
1.2 Other Definitional Provisions. (a) All terms defined in this
-----------------------------
Agreement shall have their defined meanings when used in the Notes or any of the
other Loan Documents or any certificate or other document made or delivered
pursuant hereto or thereto unless otherwise defined therein.
(b) As used herein, in the Notes or in any of the other Loan
Documents, and in any certificate or other document made or delivered pursuant
hereto or thereto, accounting terms
<PAGE>
29
not defined in subsection 1.1, and accounting terms partly defined in subsection
1.1 to the extent not defined, shall have the respective meanings given to them
under GAAP. To the extent that the definitions of accounting terms herein are
inconsistent with the meanings of such terms under GAAP, the definitions
contained herein shall control.
(c) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement or in any of the other Loan Documents shall
refer to this Agreement or such other Loan Document as a whole and not to any
particular provision of this Agreement or such other Loan Document; and Section,
subsection, Schedule and Exhibit references contained in this Agreement are
references to Sections, subsections, Schedules and Exhibits in or to this
Agreement unless otherwise specified.
SECTION 2. THE LOANS AND OTHER EXTENSIONS OF CREDIT
2.1 Loan Commitments. (a) Subject to the terms and conditions of
----------------
this Agreement, each Lender, severally and not jointly, agrees to make loans to
the Company from time to time during the Commitment Period in an aggregate
principal amount at any one time outstanding not to exceed the amount equal to
(i) the lesser of such Lender's Commitment Percentage of (x) $60,000,000 and (y)
the Borrowing Base then in effect minus (ii) such Lender's Commitment Percentage
-----
of the then outstanding Reimbursement Obligations. During the Commitment
Period, the Company may use the Commitments by borrowing, prepaying and
reborrowing, all in accordance with the terms and conditions hereof.
(b) The Loans may from time to time be (i) Eurodollar Loans, (ii)
Index Rate Loans or (iii) a combination thereof, as determined by the Company
and notified to the Agent in accordance with subsection 2.3, provided that no
--------
Loan shall be made as a Eurodollar Loan after the day that is one month prior to
the Termination Date.
2.2 Notes. The Loans to be made by each Lender to the Company
-----
pursuant hereto shall be evidenced by a promissory note of the Company,
substantially in the form of Exhibit A hereto (the "Note"; collectively, the
----
"Notes"), payable to the order of such Lender and representing the obligation of
- ------
the Company to pay a principal amount equal to such Lender's Commitment
Percentage of the aggregate Commitments or, if less, the aggregate unpaid
principal amount of all Loans made by such Lender. Each Lender is hereby
authorized to record the date and amount of each Loan made by such Lender, and
the date and amount of each payment or prepayment of principal thereof, on the
schedule annexed to and constituting a part of its Note (or any continuation
thereof), and any such recordation shall constitute prima facie evidence of the
----- -----
accuracy of the information so recorded; provided that the
--------
<PAGE>
30
failure to make any such recordation or any error in such recordation shall not
affect the Company's obligation to repay the Loans. Each Note shall (i) be dated
the Effective Date, (ii) be stated to mature on the Termination Date and (iii)
bear interest for the period from and including the date thereof on the unpaid
principal amount thereof from time to time outstanding at the interest rate per
annum determined as provided in subsection 2.4.
2.3 Procedure for Loan Borrowings. The Company may request a
-----------------------------
borrowing under the Commitments during the Commitment Period on any Business Day
by giving irrevocable telephonic notice to the Agent, promptly confirmed in
writing (which telephonic notice must be received by the Agent prior to 12:00
Noon, New York City time, (a) three Business Days prior to the requested
borrowing date, if all or any part of the Loans are to be initially Eurodollar
Loans, or (b) on the requested borrowing date, otherwise), specifying (i) the
aggregate principal amount to be borrowed and (ii) whether the borrowing is to
be of Eurodollar Loans, Index Rate Loans or a combination thereof and (iii) if
the borrowing is to be entirely or partly of Eurodollar Loans, the amount of
each such Loan and the length of the initial Interest Period therefor, and (iv)
the requested borrowing date; provided that the procedures for the initial
--------
borrowing of Loans to be made on the Effective Date may be such other procedures
as are mutually satisfactory to the Company, the Agent and the Lenders. Any
written confirmation of a telephonic notice of borrowing of Eurodollar Loans
shall be given in the form of Exhibit L. Each borrowing under the Commitments
shall be in an amount equal to (x) in the case of Index Rate Loans, $100,000 or
a whole multiple thereof (or, if the then available Commitments are less than
$100,000, such lesser amount) and (y) in the case of Eurodollar Loans, $500,000
or a whole multiple of $100,000 in excess thereof; provided that the aggregate
--------
principal amount of the Loans to be made on the Effective Date, and the maximum
amount of Extensions of Credit which may be utilized to repay the Purchased Note
or pay any portion of the purchase price of the Acquisition, shall not exceed
$5,635,000 (plus an additional $700,000 to be used to repay in full the NBD
Debt). Upon receipt of any such notice from the Company, the Agent shall
promptly notify each Lender thereof. Each Lender will make the amount of its
pro rata share of each such borrowing available to the Agent for the account of
the Company prior to 12:00 Noon, New York City time, on the borrowing date
requested by the Company, at the Agent's depositary bank as designated by the
Agent from time to time for deposit in the Agent's depositary account, in
immediately available funds. The Agent shall then make such borrowing available
to the Company by wiring to a financial institution designated by the Company
the aggregate of the amounts made available to the Agent by the Lenders and in
like funds as received by the Agent.
<PAGE>
2.4 Interest on Loans. (a) Each Eurodollar Loan shall bear interest
-----------------
for each day during each Interest Period with respect thereto at a rate per
annum equal to the Eurodollar Rate determined for such day plus the Applicable
Margin.
(b) Each Index Rate Loan shall bear interest at a rate per annum
equal to the Index Rate plus the Applicable Margin.
(c) During such time as any Default or Event of Default shall have
occurred and be continuing, amounts owing hereunder (including, without
limitation, interest and other amounts) shall bear interest at a rate per annum
equal to the rate that would otherwise be applicable thereto pursuant to the
foregoing provisions of this subsection 2.4 plus 2% from the date of such non-
----
payment until such amount is paid in full (as well after as before judgment).
(d) Interest on the Loans shall be due and payable by the Company in
arrears on each Interest Payment Date and on the Termination Date, respectively;
provided, that interest accruing pursuant to subsection 2.4(c) shall be payable
- --------
on demand. The Company hereby authorizes the Agent to borrow on behalf of the
Company under this Agreement at any time and from time to time (without any
prior notice to or demand upon the Company) in order to pay interest, fees and
expenses owing under this Agreement.
2.5 Repayments of Notes. The Company shall repay the outstanding
-------------------
principal amount of the Loans made to it in full, together with accrued interest
thereon, on the Termination Date.
2.6 Mandatory and Optional Prepayments; Termination of Commitment;
--------------------------------------------------------------
Prepayment Fee. (a) If, at any time and from time to time, the Company and its
- --------------
Subsidiaries shall have cash or Cash Equivalents on deposit in bank accounts or
other deposit accounts (including, without limitation, securities accounts, but
not including the Concentration Account) with an aggregate value in excess of
$500,000 (net of any amounts on deposit to cover (x) checks and other debits
previously drawn and tendered by the Company and its Subsidiaries but not yet
cleared and (y) wire transfers which have been irrevocably authorized to be paid
at opening of business on the next Business Day), the Company shall promptly
(and, in any event, within one Business Day) cause such excess amounts to be
paid to the Agent to be applied in accordance with the provisions of subsection
2.23.
(b) Promptly (and, in any event, within one Business Day) following
the consummation of any Asset Sale by the Company or any of its Subsidiaries,
the Company or the relevant Subsidiary, as the case may be, shall cause the
purchaser to pay directly to the Agent 100% of the Net Cash Proceeds of such
Asset Sale, which amount shall be applied in accordance with the provisions of
subsection 2.23. Concurrently with the making of any such prepayments, the
Company shall deliver to the Agent a
<PAGE>
certificate of the Company's chief financial officer demonstrating in reasonable
detail its calculation of the amount required to be prepaid.
(c) In the event that the aggregate amount of the Loans and
Reimbursement Obligations (without duplication of Reimbursement Obligations
deemed to have become Loans) at any time outstanding exceeds the then applicable
Borrowing Base, then, without notice or demand, the Company shall, on such date,
pay such excess amount to the Agent for application in accordance with the
provisions of subsection 2.23 (including, without limitation, to cash
collateralize any outstanding Reimbursement Obligations in accordance with the
provisions of subsection 2.11(c)). The Company may, subject to the terms and
conditions of this Agreement, reborrow the amount of any prepayment made under
this subsection 2.6(c).
(d) The Company may, at any time upon at least five Business Days'
prior irrevocable notice to the Agent, without premium or penalty (except as
provided below in this subsection 2.6(d)), prepay in full all but not less than
all of the Loans then outstanding and cash collateralize any outstanding
Reimbursement Obligations (after giving effect to any Reimbursement Obligations
terminated in a manner acceptable to the Agent) in accordance with the
provisions of subsection 2.11(c) and, simultaneously therewith, terminate the
Commitments, in whole but not in part, which notice shall specify the date of
such prepayment, cash collateralization and Commitment termination. Upon
receipt of such notice, the Agent shall promptly notify each Lender thereof. If
any such notice is given, such prepayment of the entire outstanding principal
amount of all Loans and cash collateralization of all Reimbursement Obligations
(or termination of Reimbursement Obligations) shall be due and payable on the
date specified therein. In no event shall the Company have the right to reduce
the Commitments, other than in accordance with the provisions of this subsection
2.6(d).
(e) In the event that the Commitments shall terminate pursuant to
this subsection 2.6 or by virtue of actions taken by the Agent and/or the
Lenders pursuant to Section 7 as a result of any Intentional Default (but not by
virtue of any other Default or Event of Default) on any date prior to March 31,
1996, the Company shall pay to the Agent, for the account of the Lenders, a
prepayment fee in an amount equal to $300,000.
(f) Any prepayment of a Eurodollar Loan on a day other than the last
day of the Interest Period for such Loan shall be subject to the provisions of
subsection 2.9.
2.7 Conversion and Continuation Options. (a) The Company may elect
-----------------------------------
from time to time to convert Eurodollar Loans to Index Rate Loans by giving the
Agent at least two Business Days' prior irrevocable notice of such election,
provided that
- --------
<PAGE>
any such conversion of Eurodollar Loans may only be made on the last day of an
Interest Period with respect thereto. The Company may elect from time to time to
convert Index Rate Loans to Eurodollar Loans by giving the Agent at least three
Business Days' prior irrevocable notice of such election. Any such notice of
conversion to Eurodollar Loans shall specify the length of the initial Interest
Period or Interest Periods therefor. Upon receipt of any such notice the Agent
shall promptly notify each Lender thereof. All or any part of outstanding
Eurodollar Loans and Index Rate Loans may be converted as provided herein,
provided that (i) no Loan may be converted into a Eurodollar Loan when any Event
- --------
of Default has occurred and is continuing and the Agent has or the Required
Lenders have determined that such a conversion is not appropriate, (ii) no Loan
may be converted into a Eurodollar Loan after the date that is one month prior
to the Termination Date and (iii) no Loan may be converted into a Eurodollar
Loan prior to the Fifth Amendment Effective Date.
(b) Any Eurodollar Loans may be continued as such upon the expiration
of the then current Interest Period with respect thereto by the Company giving
notice to the Agent, in accordance with the applicable provisions of the term
"Interest Period" set forth in subsection 1.1, of the length of the next
Interest Period to be applicable to such Loans, provided that no Eurodollar Loan
--------
may be continued as such (i) when any Event of Default has occurred and is
continuing and the Agent has or the Required Lenders have determined that such a
continuation is not appropriate or (ii) after the date that is one month prior
to the Termination Date, and provided, further, that if the Company shall fail
-------- -------
to give such notice or if such continuation is not permitted such Loans shall be
automatically converted to Index Rate Loans on the last day of such then
expiring Interest Period.
2.8 Minimum Amounts and Maximum Number of Tranches. All borrowings,
----------------------------------------------
conversions and continuations of Loans hereunder and all selections of Interest
Periods hereunder shall be in such amounts and be made pursuant to such
elections so that, after giving effect thereto, the aggregate principal amount
of the Loans comprising each Eurodollar Tranche shall be equal to $500,000 or a
whole multiple of $100,000 in excess thereof. In no event shall there be more
than five Eurodollar Tranches outstanding at any time.
2.9 Indemnification in Respect of Eurodollar Loans. The Company
----------------------------------------------
agrees to indemnify each Lender and to hold each Lender harmless from any loss
or expense which such Lender may sustain or incur as a consequence of (a)
default by the Company in making a borrowing of, conversion into or continuation
of Eurodollar Loans after the Company has given a notice requesting the same in
accordance with the provisions of this Agreement, (b) default by the Company in
making any prepayment after the Company has given a notice thereof in accordance
with the provisions of this Agreement or (c) the making of a prepayment of
Eurodollar
<PAGE>
Loans on a day which is not the last day of an Interest Period with respect
thereto. Such indemnification may include an amount equal to the excess, if any,
of (i) the amount of interest which would have accrued on the amount so prepaid,
or not so borrowed, converted or continued, for the period from the date of such
prepayment or of such failure to borrow, convert or continue to the last day of
such Interest Period (or, in the case of a failure to borrow, convert or
continue, the Interest Period that would have commenced on the date of such
failure) in each case at the applicable rate of interest for such Loans provided
for herein (excluding, however, the Applicable Margin included therein, if any)
over (ii) the amount of interest (as reasonably determined by such Lender) which
would have accrued to such Bank on such amount by placing such amount on deposit
for a comparable period with leading banks in the interbank eurodollar market.
This covenant shall survive the termination of this Agreement and the payment of
the Loans and all other amounts payable hereunder.
2.10 Lock Box Account. So long as the Commitments or Obligations
----------------
shall remain outstanding, all payments (including, without limitation, payments
received from the collection of Accounts (as defined in the Security Agreements)
or otherwise from the sale of Inventory (as defined in the Security Agreement))
constituting Collateral shall be made through a lock box established pursuant to
the Lock Box Agreement in form and substance satisfactory to the Agent. The
Agent and the Company hereby further agree that the Agent shall maintain with a
financial institution reasonably acceptable to the Agent an account (the
"Concentration Account") into which the Lock Box Bank (as defined in the Lock
- ----------------------
Box Agreement) shall deliver and deposit all amounts received by it in the lock
box maintained by it; the Company hereby agrees that the Concentration Account
shall at all times be under the sole dominion and control of the Agent, which
shall have a Lien on and security interest in all amounts from time to time on
deposit therein and all earnings thereon and proceeds thereof. The Company and
the Agent hereby agree that the Agent shall direct the application, on a daily
basis, of all amounts deposited in such Concentration Account to repay then
outstanding Loans, to pay fees and expenses in respect of amounts owing
hereunder and to cash collateralize Reimbursement Obligations in accordance with
the provisions of subsection 2.11(c), as provided in subsection 2.23. The
Company hereby agrees that it shall not, and shall not permit any of its
Subsidiaries to, cause or permit any amounts which are not Collateral to be
deposited in the Lock Box Account (as defined in the Lock-Box Agreement). The
Company hereby acknowledges and agrees that all fees and expenses incurred by
the Agent, any Lender or the Company with regard to the Lock Box Agreement, the
lock box established pursuant thereto and the Concentration Account shall be the
obligation of the Company.
2.11 Letters of Credit. (a) GE Capital agrees, subject to the terms
-----------------
and conditions hereinafter set forth, to
<PAGE>
incur, from time to time on written request of the Company, Letter of Credit
Obligations in respect of Letters of Credit and GE Guarantees; provided,
--------
however, that (i) the amount of all Letter of Credit Obligations incurred by GE
- -------
Capital at any one time outstanding (whether or not then due and payable) shall
not exceed $3,000,000 in the aggregate and (ii) after giving effect to the
incurrence of any Letter of Credit Obligations, the sum of the outstanding
Reimbursement Obligations at such time and the then outstanding Loans (without
duplication of Reimbursement Obligations deemed to have become Loans) shall not
exceed the Borrowing Base then in effect; and further provided, however, that
------- -------- -------
(i) no Letter of Credit or GE Guarantee shall have an expiration date which is
more than one year following the date of issuance thereof and (ii) GE Capital
shall be under no obligation to incur Letter of Credit Obligations in respect of
any Letter of Credit or GE Guarantee having an expiration date which is later
than the Termination Date. The determination by GE Capital of the bank or other
legally authorized Person (including GE Capital) which shall issue any letter of
credit contemplated by this subsection 2.11(a) shall be made by GE Capital, in
its sole discretion. Upon the date of the issue of a Letter of Credit or GE
Guarantee hereunder, GE Capital shall be deemed, without further action by any
party hereto, to have sold to each Lender, and each Lender shall be deemed,
without further action by any party hereto, to have irrevocably purchased from
GE Capital, a participation in such Letter of Credit or GE Guarantee and the
related Letter of Credit Obligations and Reimbursement Obligations in an amount
equal to such Lender's Commitment Percentage thereof, and each Lender (other
than GE Capital) shall absolutely, unconditionally and irrevocably assume, as
primary obligor and not as surety, and shall be unconditionally obligated to GE
Capital to pay and discharge when due, such Lender's participating interest in
GE Capital's liability under such Letter of Credit Obligations, provided that no
--------
such Lender shall be liable for payment of any amount hereunder in respect of
such Letter of Credit or GE Guarantee resulting from GE Capital's gross
negligence or willful misconduct.
(b) In the event that GE Capital or any Lender shall make any payment
on or pursuant to a Letter of Credit Obligation, the amount of such payment
shall reduce the amount of the Letter of Credit Obligations outstanding
immediately preceding such payment, but such payment thereupon shall be deemed
to constitute a Loan hereunder made to the Company on the date of such payment
(whether or not the conditions precedent to the making of a Loan are satisfied)
bearing interest at the rates set forth in subsection 2.4 payable in arrears on
each Interest Payment Date. Without limiting the obligation of the Company to
reimburse GE Capital and the other Lenders for such payment, each Lender agrees
that immediately following notice from GE Capital or any other Lender that GE
Capital or such other Lender, as the case may be, has made any such payment,
such Lender shall pay to the Agent, for the account of GE Capital or such other
Lender, an
<PAGE>
amount equal to such Lender's Commitment Percentage of such payment. If such
Lender fails to make any such payment to the Agent in accordance with the
preceding sentence, such Lender shall pay to the Agent interest in respect of
such overdue amount for each day thereafter at the rate equal to the applicable
Index Rate.
(c) In the event that (i) any Loan or Reimbursement Obligation,
whether or not then due and payable, shall for any reason be outstanding on the
Termination Date (including, without limitation, any occurrence of the
Termination Date as a result of the occurrence of an Event of Default) or (ii)
the Borrowing Base shall be reduced to an amount which is less than the amount
of outstanding Reimbursement Obligations and outstanding Loans (without
duplication of Reimbursement Obligations deemed to have become Loans) after
giving effect to such reduction, the Company will pay to the Agent, for the
account of the Lenders, cash or Cash Equivalents in an amount equal to the
amount by which the sum of such Reimbursement Obligations and Loans exceeds the
Borrowing Base. Such cash and Cash Equivalents shall be held by the Agent, for
the account of the Lenders, in a cash collateral account (the "Cash Collateral
---------------
Account"). The Cash Collateral Account shall be maintained at a bank designated
- -------
by the Agent in the name of the Agent (as a cash collateral account), and shall
be under the sole dominion and control of Agent and subject to the terms of this
subsection 2.11. The Company hereby pledges, and grants to the Agent for the
benefit of the Lenders a security interest in, all such Cash and Cash
Equivalents and other amounts held in the Cash Collateral Account from time to
time and all earnings thereof and proceeds thereon, as security for the payment
of all Obligations.
(d) From time to time after funds are deposited in the Cash
Collateral Account, the Agent shall apply such funds or Cash Equivalents then
held in the Cash Collateral Account and proceeds thereof and earnings thereon to
the payment or cash collateralization of the Obligations.
(e) Neither the Company nor any Person claiming on behalf of or
through the Company shall have any right to withdraw any of the funds or Cash
Equivalents held in the Cash Collateral Account, except that the Agent shall
release from the Cash Collateral Account and return to the Company the amounts
described below under the circumstances described below:
(i) upon the termination of any Letter of Credit Obligations in
accordance with their terms and the payment of all amounts payable by the
Company to the Lenders and GE Capital in respect thereof, any funds
remaining in the Cash Collateral Account in excess of the then remaining
Loans and Reimbursement Obligations (without duplication of Reimbursement
Obligations deemed to have become Loans) shall be returned to the Company;
and
<PAGE>
(ii) in the event that the Borrowing Base then in effect and the
amounts then remaining in the Cash Collateral Account exceed the amount of
Loans and Reimbursement Obligations then outstanding (without duplication
of Reimbursement Obligations deemed to have become Loans) for a period of
five consecutive Business Days, such excess amount in the Cash Collateral
Account shall be returned to the Company.
(f) The Agent shall invest or cause to be invested the funds in
the Cash Collateral Account in such Cash Equivalents as the Company may direct.
Interest and earnings on the Cash Equivalents in the Cash Collateral Account
shall be the property of the Company but shall be held in the Cash Collateral
Account as Collateral (subject to release by the Agent in accordance with
subsection 2.11(e)). The Company agrees that it shall include such interest and
earnings in income of the Company for U.S. income tax purposes.
2.12 Fees, Expenses and Indemnification in Respect of Letter of
----------------------------------------------------------
Credit Obligations. (a) In the event that the Lenders shall incur any Letter of
- ------------------
Credit Obligations pursuant hereto at the request or on behalf of the Company
hereunder, the Company agrees to pay to the Agent (i) all incidental fees and
charges paid by GE Capital on account of the issuance or amendments of such
Letter of Credit Obligations to the issuer, beneficiary or like party and (ii)
with respect to issued but undrawn Letter of Credit Obligations only, commencing
with the month in which such Letter of Credit Obligations are incurred and
monthly thereafter for each month during which such Letter of Credit Obligations
shall remain outstanding, a fee in an amount equal to the quotient of (A) an
amount equal to (1) the sum of the daily outstanding undrawn amount of such
Letter of Credit Obligations on each day during the previous month multiplied by
(2) a rate equal to 2%, divided by (B) 360. Fees payable in respect of Letter of
Credit Obligations shall be payable to the Agent monthly in arrears on each
Interest Payment Date. The Agent will pay to each Lender, promptly after
receiving any payment in respect of letter of credit fees referred to in this
paragraph (a), such Lender's ratable share of such fees, other than fees payable
under clause (i) above which shall be payable to GE Capital.
(b) The Company hereby indemnifies and holds harmless each
Lender and the Agent (which for purposes of this subsection 2.12(b) shall
include a reference to GE Capital acting in its individual capacity hereunder as
issuer of Letters of Credit and GE Guarantees) from and against, and guarantees
payment of and assumes as a primary obligor, any and all claims and damages,
losses, liabilities, costs or expenses which such Lender or the Agent may incur
(or which may be claimed against such Lender or the Agent by any Person
whatsoever) by reason of or in connection with the execution and delivery or
transfer of or payment or
<PAGE>
failure to pay under any Letter of Credit or GE Guarantee, including, without
limitation, any claims, damages, losses, liabilities, costs or expenses which GE
Capital or any other Lender may incur by reason of or in connection with the
failure of any Lender to fulfill or comply with its obligations to GE Capital or
such Lender hereunder (but nothing herein contained shall affect any rights
which the Company may have against such defaulting Lender); provided that the
--------
Company shall not be required to indemnify any Lender or the Agent for any
claims, damages, losses, liabilities, costs or expenses to the extent, but only
to the extent, caused by the willful misconduct or gross negligence of such
Lender or the Agent in determining whether a request presented under any Letter
of Credit or a demand for payment under a GE Guarantee complied with the terms
of such Letter of Credit or GE Guarantee after the presentation to it of a
request strictly complying with the terms and conditions of the Letter of Credit
or GE Guarantee. Nothing in this subsection 2.12(b) is intended to limit the
obligations of the Company under any other provision of this Agreement.
2.13 Unused Line Fee. The Company shall pay to the Agent for the
---------------
ratable account of the Lenders an unused line fee for the period from and
including the Effective Date to and including the Termination Date and computed
at the rate of 0.5% per annum on the average daily unused portion of the
Commitments (as reduced pursuant to subsection 2.6) during the period for which
payment is made. Payments of such unused line fee shall be made (a) monthly in
arrears on each Interest Payment Date and (b) on the Termination Date.
2.14 Closing Fee. The Company shall pay to GE Capital, for its own
-----------
account, a closing fee equal to 1% of the Commitments in effect on the Effective
Date. Such fee shall be earned by GE Capital on the date upon which it executes
and delivers this Agreement and shall be payable by the Company on the earlier
of (a) the Effective Date and (b) March 31, 1992.
2.15 Computation of Interest and Fees.(a) Unused line fees and
--------------------------------
interest shall be calculated on the basis of a 360-day year for the actual days
elapsed. The Agent shall as soon as practicable notify the Company and Lenders
of each determination of a Eurodollar Rate. Any change in the interest rate on
a Loan resulting from a change in the Index Rate or the Eurocurrency Reserve
Requirements shall become effective as of the opening of business on the day on
which such change becomes effective. Any change in the interest rate on a Loan
resulting from a change in the Applicable Margin shall become effective on the
relevant Adjustment Date. The Agent shall as soon as practicable notify the
Company and the Lenders of the effective date and the amount of each such change
in interest rate.
(b) Each determination of an interest rate by the Agent pursuant to
any provision of this Agreement shall be
<PAGE>
conclusive and binding on the Company and the Lenders in the absence of manifest
error.
2.16 Inability to Determine Interest Rate. If prior to the first day
------------------------------------
of any Interest Period:
(a) the Agent shall have determined (which determination shall be
conclusive and binding upon the Company) that, by reason of circumstances
affecting the relevant market, adequate and reasonable means do not exist
for ascertaining the Eurodollar Rate for such Interest Period; or
(b) the Agent shall have received notice from the Majority Lenders
that the Eurodollar Rate determined or to be determined for such Interest
Period will not adequately and fairly reflect the cost to such Lenders (as
conclusively certified by such Lenders) of making or maintaining their
affected Loans during such Interest Period,
then the Agent shall give telecopy or telephonic notice thereof to the Company
and the Lenders as soon as practicable thereafter. If such notice is given (x)
any Eurodollar Loans requested to be made on the first day of such Interest
period shall be made as Index Rate Loans, (y) any Loans that were to have been
converted on the first day of such Interest Period to Eurodollar Loans shall be
converted to or continued as Index Rate Loans and (z) any outstanding Eurodollar
Loans shall be converted, on the first day of such Interest Period, to Index
Rate Loans. Until the circumstances giving rise to such notice have ended, no
further Eurodollar Loans shall be made or continued as such, nor shall the
Company have the right to convert Loans to Eurodollar Loans.
2.17 Effective Date. If the Effective Date has not occurred on or
--------------
prior to March 31, 1992, the Commitments shall terminate, in which case this
Agreement shall be of no further force and effect, except as expressly provided
herein. Unless the Lenders waive or amend the provisions of the preceding
sentence, promptly after such date the Company shall reimburse GE Capital (to
the extent not previously reimbursed) for all of its reasonable out-of-pocket
expenses, including, without limitation, legal fees and disbursements, incurred
in connection with the proposal letter, dated February 7, 1992, from GE Capital
and countersigned by Three Cities Research, Inc., the Loan Documents or any of
the transactions contemplated thereby.
2.18 Use of Proceeds. The proceeds of the Loans shall be used by the
---------------
Company to (a) repay and, as a consequence thereof, cancel the Purchased Note
and the Morgan Debt by financing a portion of the consideration paid to the
Seller in connection with the Acquisition, (b) repay and cancel the NBD Debt,
(c) finance the working capital and capital expenditure requirements of the
Company and its Subsidiaries following the
<PAGE>
Acquisition in the ordinary course of business, (d) to pay interest on and up to
$5,000,000 in aggregate principal of the Subordinated Bridge Notes to the extent
permitted pursuant to subsection 6.12 and (e) pay dividends to Holdings to the
extent permitted pursuant to this Agreement.
2.19 Pro Rata Treatment and Payments. Each borrowing of Loans from
-------------------------------
the Lenders hereunder, each payment by the Company on account of the unused line
fee hereunder and any reduction of the Commitments shall be made pro rata
--- ----
according to the respective Commitment Percentages of the Lenders. Each payment
(including prepayments) by the Company on account of principal of and interest
on the Loans and the principal and interest components of the Reimbursement
Obligations shall be made pro rata according to the respective outstanding
--- ----
principal amounts of the Loans and Reimbursement Obligations held by each
Lender; provided that appropriate adjustments shall be made in the application
--------
of payment of Reimbursement Obligations with respect to which any Lender has not
paid for its participating interest in accordance with subsection 2.11. All
payments (including prepayments) to be made by the Company hereunder and under
the Notes, whether on account of principal, interest, fees, Reimbursement
Obligations or otherwise, shall be made without set-off or counterclaim and
shall be made prior to 12:00 Noon, New York City time, on the due date thereof
to the Agent, for the account of the Lenders, at the Agent's depositary bank as
designated by the Agent from time to time for deposit in the Agent's depositary
account, in immediately available funds. The Agent shall distribute such
payments to the Lenders promptly upon receipt in like funds as received. If any
payment hereunder becomes due and payable on a day other than a Business Day,
such payment shall be extended to the next succeeding Business Day, and, with
respect to payments of principal, interest thereon shall be payable at the then
applicable rate during such extension. The Agent is hereby authorized to, and
at its option may, make advances on behalf of the Company for payment of all
fees, expenses, charges, costs, principal, interest and Reimbursement
Obligations incurred by the Company hereunder; provided that (a) the Agent shall
--------
have no obligation to make such advances and (b) if the Agent makes any such
advances in respect of the Loans (or interest or premium thereon), Reimbursement
Obligations or expenses, charges or costs to which any Lender is entitled, the
Agent shall pay each Lender within ten days the portion thereof to which it is
entitled in accordance with this subsection 2.19. Such advances may be made
when and as the Company fails to promptly pay such fees, expenses, charges,
costs, principal, interest and Reimbursement Obligations and, at the Agent's
option and to the extent permitted by law, shall be deemed Loans hereunder.
2.20 Illegality. Notwithstanding any other provision herein, if the
----------
adoption of or any change in any Requirement of Law or in the interpretation or
application thereof shall make it
<PAGE>
unlawful for any Lender to make or maintain Eurodollar Loans as contemplated by
this Agreement, (a) the commitment of such Lender hereunder to make Eurodollar
Loans, continue Eurodollar Loans as such and convert Index Rate Loans to
Eurodollar Loans shall forthwith be cancelled and (b) such Lender's Loans then
outstanding as Eurodollar Loans, if any, shall be converted automatically to
Index Rate Loans on the respective last days of the then current Interest
Periods with respect to such Loans or within such earlier period as required by
law. If any such conversion of a Eurodollar Loan occurs on a day which is not
the last day of the then current Interest Period with respect thereto, the
Company shall pay to such Lender such amounts, if any, as may be required
pursuant to subsection 2.9.
2.21 Requirements of Law. (a) If the adoption of or any change in
-------------------
any Requirement of Law or in the interpretation or application thereof or
compliance by any Lender with any request or directive (whether or not having
the force of law) from any central bank or other Governmental Authority made
subsequent to the date hereof:
(i) shall subject any Lender to any tax of any kind
whatsoever with respect to this Agreement, any Note or any Eurodollar Loan
made by it, or change the basis of taxation of payments to such Lender in
respect thereof (except for Taxes covered by subsection 2.22 and changes in
the rate of tax on the overall net income of such Lender);
(ii) shall impose, modify or hold applicable any reserve,
special deposit, compulsory loan or similar requirement against assets held
by, deposits or other liabilities in or for the account of, advances, loans
or other extensions of credit by, or any other acquisition of funds by, any
office of such Lender which is not otherwise included in the determination
of the Eurodollar Rate hereunder; or
(iii) shall impose on such Lender any other condition; and
the result of any of the foregoing is to increase the cost to such Lender, by an
amount which such Lender deems to be material, of making, converting into,
continuing or maintaining Eurodollar Loans or to reduce any amount receivable
hereunder in respect thereof, then, in any such case, the Company shall promptly
pay such Lender such additional amount or amounts as will compensate such Lender
for such increased cost or reduced amount receivable.
(b) If any Lender shall have determined that the adoption
of or any change in any Requirement of Law regarding capital adequacy or in the
interpretation or application thereof or compliance by such Lender or any
corporation controlling such Lender with any request or directive regarding
capital adequacy
<PAGE>
(whether or not having the force of law) from any Governmental Authority made
subsequent to the date hereof shall have the effect of reducing the rate of
return on such Lender's or such corporation's capital as a consequence of its
obligations hereunder to a level below that which such Lender or such
corporation could have achieved but for such adoption, change or compliance
(taking into consideration such Lender's or such corporation's policies with
respect to capital adequacy) by an amount deemed by such Lender to be material,
then from time to time, the Company shall promptly pay to such Lender such
additional amount or amounts as will compensate such Lender for such reduction.
(c) If any Lender becomes entitled to claim any additional amounts
pursuant to this subsection, it shall promptly notify the Company (with a copy
to the Agent) of the event by reason of which it has become so entitled. A
certificate as to any additional amounts payable pursuant to this subsection
submitted by such Lender to the Borrower (with a copy to the Agent) shall be
conclusive in the absence of manifest error. The agreements in this subsection
shall survive the termination of this Agreement and the payment of the Loans and
all other amounts payable hereunder.
2.22 Taxes. (a) All payments made by the Company under this
-----
Agreement and the Notes shall be made free and clear of, and without deduction
or withholding for or on account of, any present or future income, stamp or
other taxes, levies, imposts, duties, charges, fees, deductions or withholdings,
now or hereafter imposed, levied, collected, withheld or assessed by any
Governmental Authority, excluding, in the case of the Agent and each Lender, net
income taxes and franchise taxes (imposed in lieu of net income taxes) imposed
on the Agent or such Lender, as the case may be, as a result of a present or
former connection between the jurisdiction of the government or taxing authority
imposing such tax and the Agent or such Lender (excluding a connection arising
solely from the Agent or such Lender having executed, delivered, performed its
obligations or received a payment under, or enforced, this Agreement or the
Notes) or any political subdivision or taxing authority thereof (such non-
excluded taxes, levies, imposts, duties, charges, fees, deductions and
withholdings being hereinafter called "Taxes"). If any Taxes are required to be
-----
withheld from any amounts payable to the Agent or any Lender (or Transferee)
hereunder or under the Notes, the amounts so payable to the Agent or such Lender
(or Transferee) shall be increased to the extent necessary to yield to the Agent
or such Lender (or Transferee) (after payment of all Taxes) interest or any such
other amounts payable hereunder and under the Notes at the rates or in the
amounts specified in this Agreement and the Notes; provided, however, that no
-------- -------
such additional amount shall be paid to any Lender (or Transferee) if the
information contained in any form which such Lender (or Transferee) has agreed
to provide pursuant to subsection 2.22(b)
<PAGE>
ceases to be accurate in any relevant respect or if such Lender (or Transferee)
is unable to provide any additional form required to be provided upon the
expiration or obsolescence of such previously delivered form, in either case as
the result of any action taken by such Lender (or Transferee) that is not
related to, or caused by, any change in any treaty, law, regulation or
interpretation thereof. Whenever any Taxes are payable by the Company, as
promptly as possible thereafter the Company shall send to the Agent for its own
account or for the account of a Lender, as the case may be, a certified copy of
an original official receipt received by the Company showing payment thereof. If
the Company fails to pay any Taxes when due to the appropriate taxing authority
or fails to remit to the Agent the required receipts or other required
documentary evidence, the Company shall indemnify the Agent and the Lenders for
any incremental taxes, interest or penalties that may become payable to the
Agent or any Lender as a result of any such failure. The agreements in this
subsection 2.22 shall survive the termination of this Agreement and the payment
of the Notes and all other amounts payable hereunder.
(b) Each Lender (or Transferee) that is not incorporated under the
laws of the United States of America or a state thereof agrees that prior to the
Effective Date (or prior to the date of assignment or transfer in the case of
any Transferee), it will deliver to the Company and the Agent (i) two duly
completed copies of the United States Internal Revenue Service Form 1001 or 4224
or successor form, as the case may be, and (ii) an Internal Revenue Service Form
W-8 or W-9 or successor applicable form. Each such Lender (or Transferee) also
agrees to deliver to the Company and the Agent two further copies of the said
Form 1001 or 4224 and Form W-8 or W-9, or successor applicable forms or other
manner of certification, as the case may be, on or before the date that any such
form expires or becomes obsolete or after the occurrence of any event requiring
a change in the most recent form previously delivered by it to the Company, and
such extensions or renewals thereof as may reasonably be requested by the
Company or the Agent, unless in any such case an event (including, without
limitation, any change in treaty, law or regulation) has occurred prior to the
date on which any such delivery would otherwise be required which renders all
such forms inapplicable or which would prevent such Lender from duly completing
and delivering any such form with respect to it and such Lender so advises the
Company and the Agent. Such Lender shall certify (i) in the case of a Form 1001
or 4224, that it is entitled to receive payments under this Agreement without
deduction or withholding of any United States federal income taxes and (ii) in
the case of a Form W-8 or W-9, that it is entitled to an exemption from United
States backup withholding tax. Any Lender (or Transferee) claiming any
additional amounts payable pursuant to this subsection 2.22 shall use reasonable
efforts (consistent with legal and regulatory restrictions) to file any
certificate or documents reasonably requested by the
<PAGE>
Company or to change the jurisdiction of its applicable lending office if the
making of such a filing or change would avoid the need for or reduce the amount
of any such additional amounts which may thereafter accrue and would not, as
determined in the sole discretion of such Lender (or Transferee) be otherwise
disadvantageous to such Lender (or Transferee).
2.23 Application of Payments. Except as set forth in the proviso
-----------------------
clause below, all payments made to the Agent hereunder shall be applied by the
Agent in the following order: (i) due and payable fees and expenses, (ii) then
due and payable interest payments on the Loans, (iii) then due and payable
principal payments on the Loans and (iv) the cash collateralization of any
outstanding Reimbursement Obligations to the extent required pursuant to
subsection 2.11(c); provided, that if an Event of Default has occurred and is
--------
continuing, such payments (in the absence of a determination by the Agent and/or
the Lenders, in their sole discretion, to apply such payments in a different
manner) shall be applied by the Agent in the following order: (i) due and
payable fees and expenses and (ii) then due and payable principal and interest
payments on the Loans and cash collateralization of any Reimbursement
Obligations to the extent required pursuant to subsection 2.11(c) in such order
as the Agent shall determine.
2.24 Adjustments; Set-off. (a) If any Lender (a "benefitted Lender")
-------------------- -----------------
shall at any time receive any payment of all or part of its Loans, or interest
thereon, or Reimbursement Obligations owed to it or receive any collateral in
respect thereof (whether voluntarily or involuntarily, by set-off, pursuant to
events or proceedings of the nature referred to in Section 7(j), or otherwise),
in a greater proportion (as determined pursuant to and in accordance with
subsection 2.19) than any such payment to or collateral received by any other
Lender, if any, in respect of such other Lender's Loans, or interest thereon, or
Reimbursement Obligations owed to it, such benefitted Lender shall purchase for
cash from the other Lenders such portion of each such other Lender's Loans and
Reimbursement Obligations, or shall provide such other Lenders with the benefits
of any such collateral, or the proceeds thereof, as shall be necessary to cause
such benefitted Lender to share the excess payment or benefits of such
collateral or proceeds ratably with each of the Lenders in accordance with the
provisions of subsection 2.19; provided, however, that if all or any portion of
-------- -------
such excess payment or benefits is thereafter recovered from such benefitted
Lender, such purchase shall be rescinded, and the purchase price and benefits
returned, to the extent of such recovery, but without interest. The Company
agrees that each Lender so purchasing a portion of another Lender's Loans or
Reimbursement Obligations owed to it may exercise all rights of payment
(including, without limitation, rights of set-off) with respect to such portion
as fully as if such Lender were the direct holder of such portion.
<PAGE>
45
(b) In addition to any rights and remedies of the Lenders provided by
law, each Lender shall have the right, without prior notice to the Company, any
such notice being expressly waived by the Company to the extent permitted by
applicable law, upon any amount becoming due and payable by the Company
hereunder (including, without limitation, pursuant to Section 7) or under the
Notes (whether at the stated maturity, by acceleration or otherwise) to set-off
and appropriate and apply against such amount any and all deposits (general or
special, time or demand, provisional or final), in any currency, and any other
credits, indebtedness or claims, in any currency, in each case whether direct or
indirect, absolute or contingent, matured or unmatured, at any time held or
owing by such Lender to or for the credit or the account of the Company. Each
Lender agrees promptly to notify the Company and the Agent after any such set-
off and application made by such Lender, provided that the failure to give such
--------
notice shall not affect the validity of such set-off and application.
2.25 Single Loan. The Loans and all of the other obligations of the
-----------
Company arising under this Agreement and the other Loan Documents shall
constitute one general obligation of the Company secured by all of the
Collateral.
SECTION 3. REPRESENTATIONS AND WARRANTIES
In order to induce the Agent and the Lenders to enter into this
Agreement and to make the Loans (and to participate in the Letters of Credit and
Letter of Credit Obligations) hereunder, the Company hereby represents and
warrants to each Lender that:
3.1 Financial Condition. (a) The unaudited consolidated and
-------------------
consolidating balance sheets of each of Seller and its Consolidated
Subsidiaries, the Company and its Consolidated Subsidiaries and Thermal and its
Consolidated Subsidiaries, in each case as at December 31, 1991 and the related
unaudited consolidated and consolidating statements of earnings and cash flows
(by division, in the case of statements of cash flows) for the year then ended,
copies of which have heretofore been furnished to each Lender, are complete and
correct and present fairly the consolidated financial condition of each such
Person as at such date and the consolidated results of its operations and its
consolidated cash flows for the fiscal period then ended. All such financial
statements have been prepared in accordance with GAAP (except that, in lieu of
footnotes, the Company has provided to the Agent such supporting information as
was reasonably available) applied consistently through the periods involved. The
Acquired Companies have no material Contingent Obligation, contingent liability
or liability for taxes or long-term lease or unusual forward or long-term
commitment likely (individually or in the aggregate) to result in
<PAGE>
46
a Material Adverse Effect that is not reflected in said financial statements or
in the notes thereto. During the period from December 31, 1991 to and including
the date hereof there has been no sale, transfer or other disposition by any of
the Acquired Companies or any of their Consolidated Subsidiaries of any material
part of its business or property and no purchase or other acquisition of any
business or property (including any capital stock of any other Person) material
in relation to the consolidated financial condition of the Acquired Companies
and their Consolidated Subsidiaries at December 31, 1991.
(b) Except as set forth on Schedule VII, there has been no material
adverse change in the business, operations, property or condition (financial or
otherwise) of the Acquired Companies and their Subsidiaries taken as a whole
since December 31, 1991 (it being understood that, subsequent to the Effective
Date, this representation and warranty shall be subject to the fact that the
Merger shall have been consummated and that the Company and its Subsidiaries
shall have incurred obligations hereunder and under the other Ancillary
Documents).
(c) No dividends or other distributions have been declared, paid or
made upon any shares of capital stock of any of the Acquired Companies or any of
its Subsidiaries, nor have any shares of capital stock of any of the Acquired
Companies or any of its Subsidiaries been redeemed, retired, purchased or
otherwise acquired for value by any of the Acquired Companies or any of its
Subsidiaries since December 31, 1991, except as permitted hereunder.
(d) The pro forma consolidated balance sheets of each of the Company
--- -----
and Holdings and its Consolidated Subsidiaries as of December 31, 1991, copies
of which have been furnished to each Lender, have been prepared in accordance
with GAAP (except that, in lieu of footnotes, the Company shall provide to the
Agent such supporting information as it shall have reasonably available) and
based on the unaudited consolidated balance sheets of the Acquired Companies and
their Consolidated Subsidiaries as of December 31, 1991, adjusted as if the
Acquisition, the Merger and the financing transactions contemplated by the Loan
Documents, the Subordinated Notes and the Holdings Preferred Stock had occurred
as at the date of such balance sheets, and present fairly on a pro forma basis
--- -----
the consolidated financial position of each of the Company and its Consolidated
Subsidiaries and Holdings and its Consolidated Subsidiaries at such date
assuming that the events described in this sentence had actually occurred on
such date.
3.2 Corporate Existence; Compliance with Law. Each of the Company
----------------------------------------
and each of its Subsidiaries is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation and
has the corporate power and authority and the legal right to own its property,
to
<PAGE>
47
lease the property it operates as lessee and to conduct the business in which it
is currently engaged. The Company and each of its Subsidiaries is duly qualified
as a foreign corporation and in good standing under the laws of each
jurisdiction where its ownership, lease or operation of property or the conduct
of business requires such qualification and is and, after giving effect to the
Acquisition, the Merger and the transactions contemplated hereby, will be in
compliance with all Requirements of Law, except to the extent that the failure
to be so qualified or to so comply could not (individually or in the aggregate)
reasonably be expected to have a Material Adverse Effect.
3.3 Corporate Power; Authorization. Each of the Company and each
------------------------------
of its Subsidiaries has the corporate power and authority, and the legal right,
to make, deliver and perform this Agreement, the Notes and each Loan Document
and each other Principal Ancillary Document to which it is a party. The Company
and each of its Subsidiaries has the corporate power and authority to perform
and consummate the Acquisition and the Merger. Each of the Company and each of
its Subsidiaries has taken all necessary corporate action on its part to be
taken to authorize the execution, delivery and performance of this Agreement,
the Notes, each Loan Document and each other Principal Ancillary Document to
which it is a party, the borrowings contemplated by this Agreement, the creation
of the Liens contemplated by each Collateral Document to which it is a party and
the consummation of the Acquisition and the Merger. No consent or authorization
of, or filing with, any Person (including, without limitation, any Governmental
Authority) is required in connection with the execution, delivery, performance,
validity or enforceability of this Agreement, the Notes, any Loan Document, any
other Principal Ancillary Document to which Holdings or the Company's is a
party, the borrowings contemplated by this Agreement, the creation of the Liens
contemplated by the Collateral Documents or the consummation of the Acquisition
or the Merger, except for (a) routine filings to be made with Governmental
Authorities (b) filing of New York State and New York City Real Property
Transfer Gain Tax Returns and related documentation and (c) filings necessary to
create or perfect the security interests created by the Collateral Documents,
all of which consents and filings will be obtained or made prior to or on the
Effective Date and will be in full force and effect on the Effective Date, other
than (x) those set forth on Schedule IX with respect to consents of lessors of
real property to the Company, (y) certain vendor contracts set forth on Schedule
IX and (z) filings necessary to perfect the security interests granted pursuant
to the Security Agreements and the Patent and Trademark Assignments (which
filings have been delivered to the Agent on the date hereof).
3.4 Enforceable Obligations. This Agreement has been, and each of
-----------------------
the Notes, the Loan Documents and the other Principal Ancillary Documents to
which it is a party will be, duly executed
<PAGE>
48
and delivered on behalf of the Company and each of its Subsidiaries, and this
Agreement constitutes, and each of the Notes, the Loan Documents and the other
Principal Ancillary Documents to which it is a party when duly executed and
delivered by the Company or such Subsidiary, as the case may be, will
constitute, legal, valid and binding obligations of the Company and such
Subsidiaries, enforceable against it in accordance with their respective terms,
except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity (whether
enforcement is sought in a proceeding in equity or at law).
3.5 No Legal Bar. The execution and delivery of this Agreement,
------------
the Notes, the Loan Documents and the other Principal Ancillary Documents, the
Existing Bank Release Agreement and the NBD Release Agreement do not and will
not violate any Requirement of Law or any Contractual Obligation applicable to
the Company or any of its Subsidiaries and the performance of this Agreement,
the Notes, the Loan Documents and the other Principal Ancillary Documents, the
Existing Bank Release Agreement, the NBD Release Agreement, the borrowings
contemplated by this Agreement, the creation of the Liens contemplated by the
Collateral Documents and the consummation of the Acquisition and the Merger do
not and will not violate any Requirement of Law or any Contractual Obligation
(other than Contractual Obligations which individually or in the aggregate would
not have a Material Adverse Effect, including, without limitation Contractual
Obligations with wholesale vendors to the Company as set forth on Schedule IX)
applicable to the Company or any of its Subsidiaries and will not result in, or
require, the creation or imposition of any Lien (other than Liens created
pursuant to the Collateral Documents) on any of their respective properties or
revenues pursuant to any Requirement of Law applicable thereto or Contractual
Obligation thereof.
3.6 No Material Litigation. Except as set forth on Schedule XVIII,
----------------------
no litigation, investigation or proceeding of or before any arbitrator or
Governmental Authority is pending or, to the knowledge of the Company
threatened, by or against the Company or any of its Subsidiaries or against any
of their respective properties or revenues (a) with respect to this Agreement,
the Notes, any Loan Document or any of the transactions contemplated hereby or
thereby, (b) with respect to the Merger, the Acquisition or the Ancillary
Documents, the Existing Bank Release Agreement, the NBD Release Agreement, or
any of the transactions contemplated thereby or (c) with respect to any other
matter that could reasonably be expected (individually or in the aggregate) to
have a Material Adverse Effect.
3.7 Federal Regulation. No part of the proceeds of any of the
------------------
Loans and no Letter of Credit or GE Guarantee will be
<PAGE>
49
used for any purpose that violates the provisions of Regulation G, T, U or X of
the Board of Governors of the Federal Reserve System as in effect on the date of
making of such Loans.
3.8 Investment Company Act. Neither the Company nor any of its
----------------------
Subsidiaries is an "investment company" or a company "controlled" by an
"investment company" (as each of the quoted terms is defined or used in the
Investment Company Act of 1940, as amended).
3.9 Disclosure. Except as set forth on Schedule XIX, no
----------
representation or warranty of the Company or any of its Subsidiaries contained
in this Agreement, any other Ancillary Document or any other document,
certificate or written statement furnished to the Agent or the Lenders or any of
them by or on behalf of the Company or any of its Subsidiaries for use in
connection with the transactions contemplated by this Agreement or the other
Ancillary Documents contains any untrue statement of a material fact or omits to
state a material fact (known to the Company or such Subsidiary in the case of
any document not furnished by it) necessary in order to make the statements
contained herein or therein not misleading. The projections and pro forma
--- -----
financial information contained in the materials referenced above are based upon
good faith estimates and assumptions believed by management of the Company to be
reasonable at the time made. There is no fact known to the Company or any of its
Subsidiaries that could reasonably be expected to have a Material Adverse Effect
that has not been expressly disclosed herein or in such other documents,
certificates and statements furnished to the Agent and the Lenders for use in
connection with the transactions contemplated hereby and by the other Ancillary
Documents.
3.10 No Default. Neither the Company nor any of its Subsidiaries is
----------
in default under or with respect to any Contractual Obligation in any respect
that (individually or in the aggregate) could reasonably be expected to have a
Material Adverse Effect.
3.11 Ownership of Property; Liens. The Company and each of its
----------------------------
Subsidiaries has good record and marketable title in fee simple to, or a valid
leasehold interest in, all its real property, except as set forth in Schedule IX
with respect to consents of lessors of real property to the Company. The Company
and each of its Subsidiaries has good title to all its other property. None of
such real or other property is subject to any Lien, except as permitted by
subsection 6.2. No amount owing by the Company or any of its Subsidiaries on
account of any leasehold interest held by it is past due (after giving effect to
any applicable grace period), except to the extent that the failure to pay such
amount, including interest and penalties, could not reasonably be expected to
have a Material Adverse
<PAGE>
50
Effect and with respect to which reserves in conformity with GAAP have been
provided on the books of the Company.
3.12 Taxes. The Company and each of its Subsidiaries has filed or
-----
caused to be filed all tax returns that to the knowledge of the Company are
required to be filed (whether by the Company, any of its Subsidiaries or by any
consolidated corporate group of which the Company or any of its Subsidiaries is
a member), and has paid all taxes shown to be due and payable on said returns,
except where the failure to so file (taking into account all the consequences of
such failure and the taxes to be paid in connection with such filing) could not
reasonably be expected to have a Material Adverse Effect. The Company and each
of its Subsidiaries has paid all assessments made against the Company or any of
its Subsidiaries or any of its or their property, except as set forth on
Schedule X hereto. The Company and each of its Subsidiaries has paid all other
taxes, fees or other charges imposed on the Company or any of its Subsidiaries
or any of its or their property by any Governmental Authority, and no tax liens
have been filed and, to the knowledge of the Company, no claims are being
asserted with respect to any such taxes, fees or other charges, except for (a)
taxes not yet due, (b) those the amount or validity of which are currently being
contested in good faith by appropriate proceedings and with respect to which
reserves in conformity with GAAP have been provided on the books of the Company
and (c) those set forth on Schedule X hereto. Proper and accurate amounts have
been withheld by the Company and each of its Subsidiaries from its employees for
all periods in full and complete compliance with the tax, social security and
unemployment withholding provisions of applicable federal, state, local and
foreign law and such withholdings have been timely paid to the respective
governmental agencies. No tax returns of the Company or any of its Subsidiaries
are currently being audited by the Internal Revenue Service (the "IRS") or any
---
other applicable Governmental Authority, except as set forth on Schedule X.
Neither the Company nor any of its Subsidiaries has executed or filed with the
IRS or any other Governmental Authority any agreement or other document
extending, or having the effect of extending, the period for assessment or
collection of any Charges. Neither the Company nor any of its Subsidiaries has
filed a consent pursuant to Section 341(f) of the Code or agreed to have Section
341(f)(2) of the Code apply to any dispositions of "subsection (f) assets" (as
defined in Section 341(f)(4) of the Code). None of the property owned by the
Company or any of its Subsidiaries is property that the Company or such
Subsidiary is required to treat as being owned by any other Person pursuant to
the provisions of Section 168(f)(8) of the Internal Revenue Code of 1954 or is
"tax-exempt use property" within the meaning of Section 168(h) of the Code.
Neither the Company nor any of its Subsidiaries has agreed or has been requested
to make any adjustment under Section 481(a) of the Code by reason of a change in
accounting method or otherwise. Except as set forth on Schedule X, neither the
<PAGE>
51
Company nor any of its Subsidiaries has any obligation under any written tax
sharing agreement.
3.13 No Burdensome Restrictions. No Contractual Obligation or
--------------------------
Requirement of Law applicable to the Company or any of its Subsidiaries could
reasonably be expected to have a Material Adverse Effect.
3.14 ERISA. Except for the Retirement Plan for Salaried Employees of
-----
National Temperature Control Centers, Inc. (the "NT Plan") which was terminated
-------
during 1990, no Reportable Event has occurred during the five-year period prior
to the date on which this representation is made or deemed made with respect to
any Plan, and each Plan has complied in all material respects with the
applicable provisions of ERISA and the Code. The liability remaining with
respect to the NT Plan is not an amount which could reasonably be expected to
have a Material Adverse Effect. The present value of all accrued benefits under
each Single Employer Plan maintained by the Company or any Commonly Controlled
Entity (based on those assumptions used to fund the Plans) did not, as of the
last annual valuation date prior to the date on which this representation is
made or deemed made, exceed the value of the assets of such Plan allocable to
such accrued benefits. Neither the Company nor any Commonly Controlled Entity
has had a complete or partial withdrawal from any Multiemployer Plan, and
neither the Company nor any Commonly Controlled Entity would become subject to
any material liability under ERISA if the Company or any such Commonly
Controlled Entity were to withdraw completely from all Multiemployer Plans as of
the valuation date most closely preceding the date on which this representation
is made or deemed made. No such Multiemployer Plan is in Reorganization or
Insolvent. The present value (determined using actuarial and other assumptions
which are reasonable in respect of the benefits provided and the employees
participating) of the liability of the Company and each Commonly Controlled
Entity for post-retirement benefits to be provided to their current and former
employees under Plans which are welfare benefit plans (as defined in Section
3(1) of ERISA) does not, in the aggregate, exceed the assets under all such
Plans allocable to which such benefits by an amount which could reasonably be
expected to have a Material Adverse Effect.
3.15 Capital Stock. All of the shares of the capital stock of the
-------------
Company and each of its Subsidiaries have been duly and validly issued, are
fully paid and are non-assessable.
3.16 Subsidiaries; Executive Offices. The Company does not have any
-------------------------------
direct or indirect Subsidiary as of the date hereof, other than those set forth
on Schedule XI. No Subsidiary of the Company has any meaningful assets, capital
or liabilities or conducts any meaningful business.
<PAGE>
52
(b) The current location of each Loan Party's executive offices and
principal places of business is set forth on Schedule II, except to the extent
that such Loan Party has complied with Section 5(p) of the Security Agreement to
which it is a party in respect of any change in such location.
3.17 Security Documents. The provisions of each Guarantee are
------------------
effective to create a legal, valid, binding and enforceable guarantee of the
obligations described therein, except as such enforceability may be limited by
bankruptcy, moratorium, reorganization or other similar laws affecting
creditors' rights generally and by general principles of equity (whether
considered in a proceeding at law or in equity) (the "Enforceability
--------------
Exceptions").
- ----------
(b) Each of the Pledge Agreements is effective to create in favor of
the Agent, for the ratable benefit of the Agent and the Lenders, a legal, valid
and enforceable security interest in the pledged securities described therein
and the proceeds thereof, subject to the Enforceability Exceptions, and, the
stock certificates representing or constituting the Collateral described in such
Pledge Agreement having been delivered to the Agent, such Pledge Agreement
constitutes a perfected first Lien on, and security interest in, all right,
title and interest of the pledgor party thereto in the pledged securities
described therein and the proceeds thereof.
(c) Each of the Security Agreements is effective to create in favor
of the Agent, for the ratable benefit of the Agent and the Lenders, a legal,
valid and enforceable security interest in the Collateral described therein and
the proceeds thereof, subject to the Enforceability Exceptions, and, upon the
filing of Uniform Commercial Code financing statements in each of the
jurisdictions listed on Schedule III hereto and each Patent and Trademark
Assignment having been filed in the United States Patent and Trademark Office,
each such Security Agreement constitutes a perfected first lien on, and security
interest in, all right, title and interest of the debtor party thereto in the
Collateral described therein which is located in the jurisdiction listed on
Schedule III and the proceeds thereof, other than any Collateral thereunder
which is subject to perfection only by possession (in which event the Agent has
possession of such Collateral and therefore possesses a perfected first lien on,
and security interest in, all right, title and interest of the debtor party
thereto in such Collateral).
(d) Each Lock-Box Agreement and the Concentration Account are
effective to create in favor of the Agent, for the ratable benefit of the Agent
and the Lenders, a perfected first Lien on, and security interest in, all right,
title and interest of the Loan Party party thereto in the proceeds of accounts
receivable and in all other monies received in any lock box established pursuant
to any Lock Box Agreement and in all such
<PAGE>
53
proceeds and other monies deposited in the Concentration Account. The Company
and each of its Subsidiaries and, to the best knowledge of the Company, each
other Loan Party has notified the account debtors in respect of each Account (as
defined in the Security Agreements) to make all payments in respect of such
Accounts through the lock box established pursuant to the Lock Box Agreement.
3.18 Solvency and Equivalent Value. After giving effect to the
-----------------------------
Loans and other Extensions of Credit to be made on the Effective Date, the
Acquisition, the Merger, the issuance of the Subordinated Notes and the Holdings
Preferred Stock and the transactions contemplated by the Ancillary Documents,
the Existing Bank Release Agreement and the NBD Release Agreement, and the
payment of all legal, investment banking, accounting and other fees and expenses
related hereto and thereto, each of Holdings, the Company and each of the
Company's Subsidiaries (if any) will be Solvent as of and on the Effective Date.
(b) On the Effective Date (i) the Lenders will make approximately
$5,500,000 of Loans to the Company and the Company will issue the Subordinated
Bridge Notes for $22,500,000, (ii) Holdings will issue its common stock for
$865,000, the Holdings Preferred Stock for $4,000,000 and the Junior
Subordinated Notes for $5,000,000 and (iii) (A) $5,635,000 of the proceeds of
the Loans and all of the proceeds of the Subordinated Notes will be utilized by
the Company to repay the Purchased Note, (B) the proceeds of the Loans received
by Holdings as a result of the repayment of the Purchased Note will then be used
by Holdings to pay, cancel and discharge the Morgan Debt and any other
Indebtedness and Contingent Obligations owing by the Company (whether contingent
or matured) to the lenders parties to the Existing Bank Release Agreement
(together with the Morgan Debt, the "Existing Bank Debt") and (C) $700,000 of
------------------
the proceeds of the Loans will be used to pay, cancel and discharge the NBD
Debt. The Company hereby agrees, acknowledges, represents and warrants that its
use of the proceeds of the Loans to directly or indirectly pay, cancel and
discharge the Existing Bank Debt, the Purchased Note and the NBD Debt
constitutes receipt of reasonably equivalent and fair value (within the meaning
of applicable bankruptcy and solvency laws) from the proceeds of such Loans and
the Collateral granted to secure the Obligations.
3.19 Projections. The projections of the Company's annual operating
-----------
budgets on a consolidated basis, balance sheets and cash flow statements for its
fiscal year ending on December 31, 1992, copies of which have been delivered to
each Lender, disclose all material assumptions used in formulating such
projections. The Company is not aware of any facts that (individually or in the
aggregate) would result in any material change in any of such projections. The
projections are based upon good faith estimates and assumptions, all of which
are believed to be reasonable, have been prepared on the basis of the
<PAGE>
54
assumptions stated therein, and reflect the reasonable estimates of the Company
of the results of operations and other information projected therein.
3.20 Labor Matters. There are no strikes or other labor disputes
-------------
against the Company or any of its Subsidiaries pending or, to the knowledge of
the Company, threatened that (individually or in the aggregate) would have a
Material Adverse Effect. Hours worked by and payment made to employees of the
Company and its Subsidiaries have not been in violation of the Fair Labor
Standards Act or any other applicable Requirement of Law dealing with such
matters that (individually or in the aggregate) would have a Material Adverse
Effect. Payments due from the Company or any of its Subsidiaries on account of
employee health and welfare insurance that (individually or in the aggregate)
would have a Material Adverse Effect if not paid have been paid or accrued as a
liability on the books of the Company or such Subsidiary.
3.21 Other Ventures. Neither the Company nor any of its Subsidiaries
--------------
is engaged in any joint venture or partnership with any other Person.
3.22 Purchase Agreement and Other Documents. A true and complete copy
--------------------------------------
of the form of the Purchase Agreement, the Stockholders' Agreements, the
Subordinated Notes, the Existing Bank Debt Release, the NBD Release, the
Management Services Agreement and the certificate of designations governing the
Holdings Preferred Stock (including all exhibits, schedules and amendments to
any thereof) has been delivered to each Lender. Each of the Purchase Agreement,
the Stockholders' Agreements, the Subordinated Notes, the Existing Bank Debt
Release, the NBD Release, the Management Services Agreement and the certificate
of designations governing the Holdings Preferred Stock have been duly executed
and delivered by the parties thereto and is in full force and effect in
accordance with its terms. As of the Effective Date, the representations and
warranties of Holdings and the Company contained in the Purchase Agreement and
such other agreements and certificates are true and correct in all material
respects as if made as of such date (unless stated to relate to a specific
earlier date, in which case such representations and warranties shall be true
and correct in all material respects as of such earlier date); the Agent and the
Lenders are entitled to rely upon such representations and warranties to the
same extent as though the same were set forth in full herein. To the best
knowledge of the Company after due inquiry, no event or condition exists which
could give the Seller the right to terminate the Purchase Agreement or to fail
to consummate the transactions contemplated thereby. Neither Holdings, the
Company nor any of their respective Subsidiaries is in default under Purchase
Agreement or under any instrument or document to be delivered in connection
therewith.
<PAGE>
55
3.23 Acquisition. All actions necessary for the consummation of the
-----------
Acquisition (other than the payment of the purchase price) in accordance with
the terms and conditions of the Purchase Agreement have been duly taken. Upon
the making of the initial Loans hereunder and the repayment of the Purchased
Note, the Acquisition shall be duly consummated without any further act on the
part of any Person.
3.24 Employment and Labor Agreements. (a) Except with regard to
-------------------------------
Brian R. Esher and Thomas Twells, there are no employment agreements covering
the executive officers of the Company or any of its Subsidiaries. Each such
employment agreement is in full force and effect in accordance with its terms
and a true and correct copy of each such employment agreement has been delivered
to the Agent prior to the date hereof.
(b) Except as set forth on Schedule XII, there are no collective
bargaining agreements or other labor agreements covering any employees of the
Company or any of its Subsidiaries.
3.25 Intellectual Property. The Company and each of its Subsidiaries
---------------------
owns, or is licensed to use, all trademarks, tradenames, copyrights, patents,
technology, know-how and processes necessary for the conduct of its business as
currently conducted (the "Intellectual Property"), except for those the failure
--------------------
to own or license which could reasonably be expected to have a Material Adverse
Effect. No claim has been asserted and is pending by any Person challenging or
questioning the use of any such Intellectual Property or the validity or
effectiveness of any such Intellectual Property, and except as set forth on
Schedule XIII the Company does not know of any valid basis for any such claim.
To the best knowledge of the Company, the use of such Intellectual Property by
the Company and its Subsidiaries does not infringe on the rights of any Person,
except for such claims and infringements that, in the aggregate, do not have a
Material Adverse Effect.
3.26 No Material Adverse Effect. No event has occurred since December
--------------------------
31, 1991 and is continuing that (individually or in the aggregate) has had or
could reasonably be expected to have a Material Adverse Effect.
3.27 Environmental Matters. To the best knowledge of the Company,
---------------------
each of the representations and warranties set forth in (a) through (e) of this
subsection is true and correct with respect to each parcel of real property
owned or operated by the Company (the "Properties"), except (a) as set forth on
-----------
Schedule XIV and (b) to the extent that the facts and circumstances giving rise
to any such failure to be so true and correct would not have any reasonable
likelihood of having a Material Adverse Effect:
<PAGE>
56
(a) The Properties do not contain, and have not previously contained,
any Hazardous Materials in concentrations which violate Environmental Laws.
(b) The Properties are in compliance with all Environmental Laws,
including, without limitation, all applicable Federal, state and local
standards and requirements regarding the generation, treatment, storage,
handling, use or disposal of Hazardous Materials at the Properties, and
there is no Hazardous Materials contamination which could materially
interfere with the continued operation of the Properties or materially
impair the fair saleable value thereof.
(c) Neither the Company nor any of its Subsidiaries has received any
notice of violation or advisory action by any Governmental Authority
regarding environmental control matters or permit compliance with regard to
the Properties, nor is the Company aware that any Governmental Authority is
contemplating delivering to the Company or any of its Subsidiaries any such
notice.
(d) Hazardous Materials have not been transferred from the Properties
to any other location.
(e) There are no governmental administrative actions or judicial
proceedings pending or, to the knowledge of the Company, contemplated under
any Environmental Laws to which the Company or any of its Subsidiaries is
or is expected to be named as a party with respect to the Properties.
3.28 Public Warehouses. No Inventory of the Company or any of its
-----------------
Subsidiaries is located at any Public Warehouse on the date hereof. No Inventory
of the Company or any of its Subsidiaries is located at any Public Warehouse
other than a Public Warehouse in respect of which the Agent has received a duly
executed and delivered Warehousemen Notice which is in full force and effect. No
amount owing to any Public Warehouse by the Company or any of its Subsidiaries
is past due (after giving effect to any applicable grace period) and neither the
Company nor any of its Subsidiaries is in default under any Contractual
Obligation owing in respect of any Public Warehouse which holds Inventory of the
Company or any of its Subsidiaries.
3.29 Merger. All actions necessary for the consummation of the Merger
------
have been duly taken in accordance with the laws of the States of Delaware and
Michigan, other than the filing of the Merger Certificates, which shall be filed
on the Effective Date. Subsequent to the Acquisition and on the Effective Date,
the Merger shall be duly consummated without any further act on the part of any
Person.
<PAGE>
57
3.30 Management Services Agreement. The Management Services Agreement
-----------------------------
has been duly executed and delivered by the parties thereto and is in full force
and effect on the date hereof in accordance with its terms.
3.31 Assets of the Company. To the best knowledge of the Company,
---------------------
after giving effect to the Merger, the Company will not possess any material
assets other than assets of Thermal, such assets as were, immediately prior to
the Acquisition, the property of the Seller and such assets as were, immediately
prior to the Acquisition and the Merger, the property of the Company (including,
without limitation, assets of the Melco division of the Seller).
3.32 Melco Division. The Seller has transferred the business formerly
--------------
conducted by its Melco division and all assets and properties formerly used by
such division to the Company, and the Company possesses and has good and
marketable title to all of the assets, tangible and intangible, and property
used in the conduct of the business formerly conducted by Seller's Melco
division.
3.33 Inventory Concentrations. The locations at which the Company
------------------------
maintains its fifteen largest concentrations of Inventory (based upon the market
value of such Inventory) on the date hereof are set forth on Schedule XV.
SECTION 4. CONDITIONS PRECEDENT
4.1 Conditions to the Initial Extension of Credit. The agreement of
---------------------------------------------
each Lender to make the initial Extension of Credit requested to be made on the
Effective Date is subject to the satisfaction or waiver by each Lender,
immediately prior to or concurrently with the making of such Loans or incurrence
of such Letter of Credit Obligations, of the following conditions precedent (the
date on which each of such conditions precedent is satisfied or waived being
herein called the "Effective Date"):
--------------
(a) Conditions to the Acquisition. The structure of the Acquisition
-----------------------------
(including, without limitation, the federal income tax consequences
thereof) shall be satisfactory to each Lender, and the Agent shall have
received (i) a conformed copy of the Purchase Agreement as in effect on the
Effective Date and each other document and instrument (including, without
limitation, the legal opinions of each of counsel to the Seller, MLX and
Holdings delivered in connection therewith and the closing certificates of
the Seller, MLX and Holdings delivered in connection therewith, which
opinions and certificates shall be addressed to the Lenders (or contain a
statement or be accompanied by letters addressed to each Lender) and dated
the Effective Date, to the effect that such Lender may rely upon such
opinions and
<PAGE>
58
certificates to the same extent as if they were originally addressed to
them) delivered in connection therewith (each of which documents,
instruments and opinions shall be in form and substance satisfactory in all
respects to each Lender), (ii) satisfactory evidence that the Acquisition
and all other transactions contemplated by the Purchase Agreement to be
consummated on or prior to the Effective Date shall have been consummated
in compliance in all material respects with (A) the conditions thereto set
forth in the Purchase Agreement and (B) all applicable Requirements of Law
and Contractual Obligations applicable to Holdings or, to the best
knowledge of the Company, any other party thereto and (iii) a certificate
of a Responsible Officer of Holdings to the effect of clauses (i) and (ii)
above.
(b) Capitalization of Holdings. The Agent shall have received
--------------------------
evidence satisfactory to it that (i) Holdings shall have received in cash
not less than (A) $865,000 in consideration from the issuance of common
stock, (B) $4,000,000 in consideration from the issuance of Holdings
Preferred Stock and (C) $5,000,000 in consideration from the issuance of
the Junior Subordinated Notes and (ii) the Company shall have received in
cash not less than $22,500,000 in consideration from the issuance of the
Subordinated Bridge Notes, and all documents, instruments and other matters
relating to such equity and debt issuance by Holdings and the Company shall
be reasonably satisfactory in form and substance to the Agent.
(c) Discharge of Liens and Indebtedness. The Agent shall have
-----------------------------------
received evidence satisfactory to it that all Indebtedness and other
obligations (including, without limitation, in respect of guarantees and on
account of fees and expenses) owing by Holdings or any of its Subsidiaries
(after giving effect to the Acquisition) on account of the Morgan Debt and
the NBD Debt have been discharged and that all Liens in respect thereof or
otherwise in favor of the Morgan Group and National Bank of Detroit have
been terminated.
(d) Notes. The Agent shall have received, for the account of each
-----
relevant Lender, the Notes, executed and delivered by a duly authorized
officer of the Company.
(e) Guarantee. The Agent shall have received, with a counterpart for
---------
each Lender, the Holdings Guarantee, executed and delivered by a duly
authorized officer of Holdings.
(f) Pledge Agreements; Stock Powers and Stock Certificates. The
------------------------------------------------------
Agent shall have received, with a counterpart for each Lender, each Pledge
Agreement, executed
<PAGE>
59
and delivered by a duly authorized officer of the Loan Party party thereto,
and the Agent, for the benefit of the Lenders, shall have received the
stock certificates evidencing the Pledged Stock (as defined in each such
Pledge Agreement) pledged pursuant to thereto, together with related
undated stock powers, in blank, executed and delivered by a duly authorized
officer of the Loan Party party to the relevant Pledge Agreement.
(g) Security Agreements. The Agent shall have received, with a
-------------------
counterpart for each Lender, each of the Holdings Security Agreement and
the Company Security Agreement, executed and delivered by a duly authorized
officer of the Loan Party party thereto.
(h) Filings, Registrations and Recordings. Each document (including,
-------------------------------------
without limitation, any Uniform Commercial Code financing statement and the
filing of the Patent and Trademark Assignments in the United States Patent
and Trademark Office) required by the Collateral Documents or under law or
reasonably requested by the Lenders to be filed, registered or recorded in
order to create in favor of the Agent, for the benefit of the Agent and the
Lenders, a perfected first Lien on the Collateral described therein shall
have been delivered to the Lender for filing, registry or recordation in
each jurisdiction in which the filing, registration or recordation thereof
is so required or requested.
(i) Patent and Trademark Assignments. The Agent shall have
--------------------------------
received, with a counterpart for each Lender, each Patent and Trademark
Assignment, executed and delivered by a duly authorized officer of the Loan
Party party thereto.
(j) Lock-Box Agreement. The Agent shall have received, with a
------------------
counterpart for each Lender, the Lock Box Agreement, which shall be in form
and substance satisfactory to the Agent and which shall be in full force
and effect. The Concentration Account shall have been established in a
manner satisfactory to the Agent and the Agent shall be satisfied with the
Company's cash management system and controls. The Company shall have
delivered to each financial institution which provides lock box services to
it a Notification Letter.
(k) Management Services Agreement. The Agent shall have received,
-----------------------------
with a counterpart for each Lender, the Management Services Agreement,
executed and delivered by a duly authorized officer of each of the Seller
and Holdings, and the rights of Holdings under the Management Services
Agreement shall have been duly assigned to the Agent pursuant to
documentation reasonably satisfactory to the Agent.
<PAGE>
60
(l) Closing Certificates. The Agent shall have received, with a
--------------------
counterpart for each Lender, a certificate of each Loan Party substantially
in the form of Exhibit H hereto, dated the Effective Date, executed and
delivered by a duly authorized officer of such Loan Party and attaching and
certifying the relevant documents referred to in subsections 4.1(m), (n)
and (s).
(m) Corporate Proceedings. The Agent shall have received, with a
---------------------
copy for each Lender, a copy of the resolutions in form and substance
reasonably satisfactory to each Lender, of the board of directors of each
Loan Party authorizing, as applicable, (i) the execution, delivery and
performance of this Agreement, the Notes and the other Ancillary Documents
to which it is a party, (ii) the granting by it of the pledges and security
interests granted by it pursuant to the Collateral Documents to which it is
a party and (iii) the consummation of the Acquisition, in each case
certified by the Secretary or an Assistant Secretary of such Loan Party as
of the Effective Date. Such certificate shall state that the resolutions
thereby certified have not been amended, modified, revoked or rescinded as
of the date of such certificate.
(n) Corporate Documents. The Agent shall have received, with a copy
-------------------
for each Lender, true and complete copies of the certificate of
incorporation and by-laws of each Loan Party, certified as of the Effective
Date as complete and correct copies thereof by the Secretary or an
Assistant Secretary of such Credit Party.
(o) Legal Opinions. The Agent shall have received, with a
--------------
counterpart for each Lender, the following executed legal opinions:
(i) the executed legal opinion of Weil, Gotshal & Manges,
special counsel to the Credit Parties, substantially in the form of
Exhibit I-1 hereto;
(ii) the executed legal opinion of Kilpatrick & Cody, counsel to
the Credit Parties, substantially in the form of Exhibit I-2 hereto;
(iii) the executed legal opinion of Amster, Rothstein and
Ebenstein, special intellectual property counsel to the Agent,
substantially in the form of Exhibit I-3 hereto;
(iv) the executed legal opinion of James D. Askren, II, general
counsel of the Company, substantially in the form of Exhibit I-4
hereto; and
<PAGE>
61
(v) the executed legal opinion of Paul Hastings Janofsky &
Walker, special Georgia counsel to the Company and Holdings,
substantially in the form of Exhibit I-5 hereto.
Each such legal opinion shall cover such matters incident to the
transactions contemplated by the Ancillary Documents as the Agent may
reasonably require.
(p) No Litigation. (i) No litigation, investigation or proceeding
-------------
before or by any arbitrator or Governmental Authority shall be continuing
or, to the knowledge of the Company or any of its Subsidiaries, threatened
against any Loan Party or against the officers or directors of any thereof
(A) in connection with this Agreement, the Notes, the other Ancillary
Documents, the Acquisition or any of the transactions contemplated hereby
or thereby or (B) that could reasonably be expected to have a Material
Adverse Effect; (ii) no injunction, writ, restraining order or other order
of any nature materially adverse to any Loan Party or the conduct of its
business or inconsistent with the due consummation of transactions
contemplated hereby shall have been issued by any Governmental Authority;
and (iii) the Agent shall have received a certificate of an officer of the
Company to the effect of clauses (i) and (ii) above.
(q) Closing Fee. GE Capital shall have received the closing fee
-----------
payable to GE Capital on the Effective Date pursuant to subsection 2.14.
(r) No Violation. The consummation of the transactions contemplated
------------
hereby, by the other Ancillary Documents, by the Existing Bank Release
Agreement and the NBD Release Agreement, and by the Purchase Agreement
shall not contravene, violate or conflict with, or involve the Agent or any
Lender in a violation of, any Requirement of Law.
(s) Consents, Authorizations and Filings, etc. The Agent shall
------------------------------------------
have received, with copies for each Lender, copies of all consents,
authorizations and filings, if any, required (i) in connection with the
execution, delivery and performance by each Loan Party, and the validity
and enforceability against each Loan Party, of the Loan Documents to which
it is a party and (ii) in connection with the consummation of the
Acquisition and the transactions contemplated thereby, and all such
consents, authorizations and filings shall be in full force and effect.
(t) Projections; Accountant's Letter. Each Lender shall have
--------------------------------
received (i) the projections referred to in subsection 3.19, certified by
the chief financial officer of the Company in accordance with said
subsection 3.19 and (ii)
<PAGE>
62
the letters from the Company to its accountants referred to in subsection
5.9.
(u) Material Adverse Change. (i) During the period from December
-----------------------
31, 1991 through and including the Effective Date, (A) no material adverse
change shall have occurred in the business, assets, operations, prospects,
or condition (financial or otherwise) of the Acquired Companies and their
Subsidiaries taken as a whole (it being understood that changes in the
consolidated balance sheets of the Acquired Companies and their
Consolidated Subsidiaries reflecting the consummation of the Acquisition
and the Merger shall not be deemed to be such a material adverse change in
the financial condition of the Acquired Companies and their Subsidiaries
taken as a whole), (B) no material increase in the liabilities of the
Acquired Companies or any of their Subsidiaries shall have occurred (other
than any liabilities incurred by the Company to finance the Acquisition in
the manner and in the amounts contemplated by the Purchase Agreement and
this Agreement) and all material liabilities shall have been reserved for
in all material respects, (C) no material decrease in the assets of any
Acquired Company or any of its Subsidiaries shall have occurred and (D) no
material adverse change shall have occurred in any Acquired Company's
industry which could reasonably be expected to have a Material Adverse
Effect and (ii) the Agent shall have received a certificate of a
Responsible Officer of the Company to the effect of clause (i) above.
(v) Insurance. The Agent shall have received evidence satisfactory
---------
to it that the insurance policies provided for in subsection 5.6 and
subsection 5(m) of the Security Agreements are in full force and effect,
certified by the insurer thereof, together with appropriate evidence
showing the Agent, for the benefit of the Agent and the Lenders, as an
additional named insured or loss payee to the extent required pursuant to
subsection 5.6.
(w) Employment and Labor Agreements. The Agent shall have received
-------------------------------
a copy of (i) each agreement or plan or, if not available, a summary
thereof, providing for employment, compensation, severance, deferred
payments, bonus payments or accruals, profit sharing arrangements, stock
option or stock appreciation rights, incentive payments, pension or
employment benefit contributions or similar payments or arrangements
(either individually or in the aggregate material to the Company and its
Subsidiaries taken as a whole) for the benefit of any Loan Party's
executive officers and (ii) each collective bargaining agreement or other
labor agreement covering the Company or any of its Subsidiaries, in each
case in form and substance as has been approved by each Lender.
<PAGE>
63
(x) Labor Matters. There shall be (i) no strikes or other labor
-------------
disputes pending or threatened against any Company or any of its
Subsidiaries, (ii) no violation by the Company or any of its Subsidiaries
of the Fair Labor Standards Act or any other applicable Requirement of Law
dealing with labor or employment matters that (individually or in the
aggregate) would have a Material Adverse Effect and (iii) no amounts owing
by the Company or any of its Subsidiaries on account of employee health and
welfare insurance that (individually or in the aggregate) would have a
Material Adverse Effect if not paid have been paid or accrued as a
liability on the books of the Company or such Subsidiary.
(y) Legal and Other Fees. The Agent shall have received evidence
--------------------
satisfactory to it that the Company has paid all reasonable fees and
expenses then billed of (i) the Agent's outside counsel, Simpson Thacher &
Bartlett, and (ii) all special counsel retained by the Agent in connection
with any of the Loan Documents and the transactions contemplated thereby.
(z) Stockholders' Agreements. The Agent shall have received a copy
------------------------
of each of the Stockholders' Agreements, certified as true and complete and
as being in full force and effect by an officer of Holdings, which shall be
in form and substance satisfactory to the Agent.
(aa) Option Agreement. The Agent shall have received a copy of the
----------------
Option Agreement, certified as true and complete and as being in full force
and effect by an officer of Holdings, which shall be in form and substance
satisfactory to the Agent.
(ab) Board of Directors; Management. (i) The composition of the board
------------------------------
of directors of Holdings and the Company shall be satisfactory to the
Lenders and (ii) the Lenders shall be satisfied that senior managers
acceptable to them will be available to manage the Company and its
Subsidiaries after the Effective Date.
(ac) Lien Searches. The Agent shall have received the results of a
-------------
recent search by a Person satisfactory to the Lenders of the Uniform
Commercial Code filings which may have been filed in the jurisdictions set
forth on Schedule XVI with respect to the Accounts and Inventory (each such
term, as defined in the Security Agreements) of MLX, the Seller and the
Acquired Companies.
(ad) Material Agreements. The Agent shall have received, with a copy
-------------------
for each Lender, true and correct copies of such documents or instruments
(including, without limitation, a copy of any debt instrument, security
<PAGE>
64
agreement or other material contract to which Holdings or the Company or
any of its Subsidiaries may be a party) as may be requested by the Agent or
the Lenders, which shall each be in form and substance satisfactory to the
Lenders.
(ae) Cancellation of Note. Simultaneously with the making of the
--------------------
initial Loans hereunder, the Purchased Note shall be paid in full and, as a
consequence thereof, shall be cancelled (and, simultaneously with the
making of the initial Loans hereunder, the Agent shall receive a true and
correct copy of a receipt from Holdings acknowledging receipt of payment
and cancellation of the Purchased Note).
(af) Availability. The Agent shall have received evidence
------------
satisfactory to it that, after giving effect to the Acquisition and the
Merger, the payment of all fees and expenses incurred in connection with
the Acquisition and the prepayment of all existing Indebtedness of the
Acquired Companies, the Company shall have cash on hand and availability
under the Borrowing Base of at least $5,000,000 in the aggregate.
(ag) Borrowing Base Certificate. The Agent shall have received a
--------------------------
Borrowing Base Certificate, dated the Effective Date, showing that the
aggregate principal amount of the Extensions of Credit to be made on the
Effective Date shall not exceed the Borrowing Base as set forth in such
Certificate.
(ah) Fees and Expenses. The Agent shall have received a list of the
-----------------
estimated material closing expenses and related fees incurred by the
Company in connection with the Acquisition, certified as true and complete
by the chief financial officer of the Company, which list shall be in form
and substance satisfactory to the Agent. The aggregate amount of all
closing expenses and related fees (including the fee referred to in
subsection 2.14 and the fees of Holdings referred to in subsection 6.4(c)),
regardless of whether set forth on such list, shall not exceed $2,000,000.
No portion of such fees and expenses shall be paid with the proceeds of
Extensions of Credit hereunder.
(ai) Closing of Acquisition. The closing of each transaction
----------------------
contemplated by the Purchase Agreement shall have occurred (except to the
extent that the Purchase Agreement specifically provides that such
transaction shall occur at a later date) in the chronological order set
forth in the Purchase Agreement, and neither Holdings nor the Company shall
have waived or amended, nor shall it waive or in any way amend, without the
prior written consent of each Lender, any condition to the obligations to
close as set forth in the Purchase Agreement.
<PAGE>
65
(aj) Merger. All actions necessary for the consummation of the
------
Merger, other than the consummation of the Acquisition, shall have been
duly taken in accordance with the laws of the States of Delaware and
Michigan, such that, subsequent to the Acquisition and on the Effective
Date, the Merger shall be duly consummated without any further act on the
part of any Person.
(ak) Esher Contract. The Agent shall have received a true and correct
--------------
copy of the employment agreements between MLX and each of Brian R. Esher
and Thomas Twells and a copy of any employment agreements between the
Company and Brian R. Esher, each of which shall be in form and substance
satisfactory to the Agent.
(al) Indemnity Agreement. The Agent shall have received the Indemnity
-------------------
Agreement, duly executed by MLX, which agreement shall be in form and substance
satisfactory to the Agent.
(am) Pro Forma Balance Sheet. The Agent shall have received the pro
----------------------- ---
forma consolidated balance sheet of the Company and its Consolidated
-----
Subsidiaries as of December 31, 1991 (prepared in accordance with GAAP,
except that, in lieu of footnotes, the Company shall have provided to the
Agent such supporting information as was reasonably available), which shall
be based upon the unaudited consolidated balance sheets of the Acquired
Companies and their Subsidiaries as of December 31, 1991, adjusted as if
the Acquisition, the Merger and the financing transactions contemplated by
the Loan Documents had occurred as at the date of such balance sheet and
which shall present fairly, on a pro forma basis, the consolidated
--- -----
financial position of the Company and its Consolidated Subsidiaries at such
date assuming that such events had actually occurred on such date.
(an) Subsection 4.2 Conditions. The conditions set forth in
-------------------------
subsection 4.2 shall have been satisfied.
4.2 Conditions to Each Extension of Credit. The agreement of each
--------------------------------------
Lender to make any Extension of Credit requested to be made by such Lender
on any date (including, without limitation, the initial Extension of
Credit) is subject to the satisfaction of the following conditions
precedent as of the date a Loan is made or a Letter of Credit Obligation is
incurred, as the case may be:
(a) Representations and Warranties. Each of the representations and
------------------------------
warranties made by the Company in or pursuant to this Agreement (other than the
representation and warranty made in subsection 3.23, in the case of the initial
Extension of Credit hereunder only) and the other Loan Documents to which it is
a party, and each of the
<PAGE>
66
representations and warranties made by each other Loan Party in or pursuant to
each Loan Document to which it is a party, and each of the representations and
warranties contained in any certificate, document or financial or other
statement furnished at any time under or in connection with this Agreement or
any other Loan Document, shall be true and correct in all material respects on
and as of such date as if made on and as of such date.
(b) No Default. No Default or Event of Default shall have occurred and
----------
be continuing on such date or after giving effect to the Extensions of
Credit requested to be made on such date and, in the case of the initial
Extension of Credit, after giving effect to the consummation of the
Acquisition.
(c) Additional Matters. All corporate and other proceedings, and all
------------------
documents, instruments and other legal matters in connection with the
transactions contemplated by the Acquisition, the Merger, the Ancillary
Documents, the Existing Bank Release Agreement and the NBD Release
Agreement, and the financings contemplated hereby and thereby shall be
satisfactory in form and substance to the Agent and the Lenders and their
respective counsel.
(d) Borrowing Base. The aggregate principal amount of the Extensions
--------------
of Credit then outstanding, after giving effect to the Extensions of Credit
to be made on the date of the proposed Extension of Credit, shall not
exceed the Borrowing Base set forth in the most recent Borrowing Base
Certificate furnished by the Company pursuant to subsection 5.2(c).
Each Extension of Credit hereunder shall constitute a representation and
warranty by the Company as of the date of such Extension of Credit that the
conditions contained in this subsection 4.2 have been satisfied.
SECTION 5. AFFIRMATIVE COVENANTS
From the date hereof and so long as any amount remains owing
hereunder, under any Note or any Collateral Document, or the Commitments remain
in effect, the Company covenants and agrees that:
5.1 Financial Statements. The Company shall furnish to each Lender:
--------------------
(a) as soon as available, but in any event within 90 days after the
end of each fiscal year of Holdings, copies of the audited consolidated
balance sheet of Holdings and its consolidated Subsidiaries as at the end
of such fiscal year, and the related consolidated statements of earnings
<PAGE>
67
and cash flows for the fiscal year then ended, certified with an
Unqualified Opinion by Ernst & Young (or other accountants of nationally
recognized standing selected by Holdings which are reasonably acceptable to
the Agent), with such financial statements being prepared in accordance
with GAAP applied consistently throughout the period involved (except as
approved by such accountants and disclosed therein);
(b) as soon as available, but in any event within 45 days after the
end of each fiscal quarter of Holdings (other than the fourth quarter of
Holdings' fiscal year), (i) copies of the unaudited consolidated balance
sheet of Holdings and its Consolidated Subsidiaries, in each case as at the
end of such quarter and the related unaudited consolidated statements of
earnings and cash flows for such quarter, and the portion of the fiscal
year through such quarter, certified by the chief financial officer of
Holdings as presenting fairly the financial condition and results of
operations of Holdings and its Consolidated Subsidiaries (subject to normal
year-end audit adjustments), and (ii) copies of the unaudited consolidating
financial statements of Holdings and its Consolidated Subsidiaries
including therein (A) the consolidating balance sheets of each of Holdings
and its Consolidated Subsidiaries, as at the end of such fiscal quarter,
and (B) the related consolidating statements of earnings for such fiscal
quarter and the portion of the fiscal year of Holdings through such fiscal
quarter, in each case showing inter-company eliminations;
(c) as soon as available, but in any event within 30 days after the
end of each month (other than May, August, November and February) (i)
copies of the unaudited consolidated balance sheet of Holdings and its
Consolidated Subsidiaries, in each case as at the end of such month, and
the related unaudited consolidated statement of earnings and cash flows for
such month and the portion of the calendar year through such month,
certified by the chief financial officer of Holdings as presenting fairly
the financial condition and results of operations of Holdings and its
Consolidated Subsidiaries (subject to normal year-end and quarterly audit
adjustments) and (ii) copies of the unaudited consolidating financial
statements of Holdings and its Consolidated Subsidiaries including therein
(A) the consolidating balance sheets of each of Holdings and its
Consolidated Subsidiaries, as at the end of such month and (B) the related
consolidating statements of earnings for such month and the portion of the
calendar year through such month, and in each case showing inter-company
eliminations;
(d) not later than November 30, 1992 and, thereafter, not later than
30 days prior to the last day of each fiscal
<PAGE>
68
year of Holdings, a copy of the projections (on a monthly basis) by
Holdings of the operating budget and cash flow budget of Holdings and its
Subsidiaries for the succeeding calendar year (together with disclosure of
all material assumptions used in the formulation thereof), such projections
to be accompanied by a certificate of the chief financial officer of
Holdings to the effect that such projections are based upon good faith
estimates and assumptions, all of which are believed to be reasonable, have
been prepared on the basis of the assumptions stated therein, and reflect
the reasonable estimates of the Company of the results of operations and
other information projected therein;
(e) as soon as available, but in any event within 90 days after the
end of each fiscal year of the Company, copies of the audited consolidated
balance sheet of the Company and its Subsidiaries as at the end of such
fiscal year, and the related consolidated statements of earnings and cash
flows for the fiscal year then ended, certified with an Unqualified Opinion
by Ernst & Young (or other accountants of nationally recognized standing
selected by the Company which are reasonably acceptable to the Agent), with
such financial statements being prepared in accordance with GAAP applied
consistently throughout the period involved (except as approved by such
accountants and disclosed therein);
(f) as soon as available, but in any event within 45 days after the
end of each fiscal quarter of the Company (other than the fourth quarter of
the Company's fiscal year), (i) copies of the unaudited consolidated
balance sheet of the Company and its Subsidiaries, in each case as at the
end of such quarter and the related unaudited consolidated statements of
earnings and cash flows for such quarter, and the portion of the fiscal
year through such quarter, certified by the chief financial officer of the
Company as presenting fairly the financial condition and results of
operations of the Company and its Subsidiaries (subject to normal year-end
audit adjustments) and (ii) copies of the unaudited consolidating financial
statements of the Company and its Subsidiaries including therein (A) the
consolidating balance sheets of each of the Company and its Subsidiaries,
as at the end of such fiscal quarter, and (B) the related consolidating
statements of earnings for such fiscal quarter and the portion of the
fiscal year of the Company through such fiscal quarter, in each case
showing inter-company eliminations; and
(g) as soon as available, but in any event within 30 days after the
end of each month (other than May, August, November and February), (i)
copies of the unaudited consolidated balance sheet of the Company and its
<PAGE>
69
Subsidiaries, in each case as at the end of such month, and the related
unaudited consolidated statement of earnings and cash flows for such month
and the portion of the calendar year through such month, certified by the
chief financial officer of the Company as presenting fairly the financial
condition and results of operations of the Company and its Subsidiaries
(subject to normal year-end audit adjustments) and (ii) copies of the
unaudited consolidating balance sheets of each of the Company and its
Subsidiaries including therein (A) the consolidating balance sheets of each
of the Company and its Subsidiaries, as at the end of such month, and (B)
the related consolidating statements of earnings for such month and the
portion of the calendar year through such month, and in each case showing
inter-company eliminations;
all such financial statements to be complete and correct in all material
respects and prepared in reasonable detail and in accordance with GAAP applied
consistently throughout the periods reflected therein (except as approved by
such accountants or officer, as the case may be, and disclosed therein).
5.2 Certificates; Other Information. The Company shall furnish to
-------------------------------
each Lender:
(a) concurrently with the delivery of each set of the financial
statements referred to in subsections 5.1(b) and 5.1(c), a certificate of
the chief financial officer of Holdings (i) stating that, to the best of
such officer's knowledge, during the period covered by such set of
financial statements, each Loan Party has observed or performed all of its
covenants and other agreements, and satisfied every condition, contained in
the Loan Documents to be observed, performed or satisfied by it, and that
such officer has obtained no knowledge of any Default or Event of Default
(except as specified in such certificate, in which case such certificate
shall set forth in reasonable detail the steps that Holdings and/or the
Company plans to take in respect thereof), (ii) showing in reasonable
detail the calculations supporting such statement in respect of subsection
6.8 and (iii) certifying that such consolidating financial statements are
fairly stated in all material respects when considered in relation to the
consolidated financial statements of Holdings and its Consolidated
Subsidiaries (subject to normal year-end audit adjustments and quarterly
adjustments);
(b) within 20 days after the end of each month, (i) a Borrowing Base
Certificate, which certificate shall be true and accurate as of the date
thereof and (ii) a certificate disclosing the amount of accounts payable
due, as of the last day of such month, to vendors of inventory sold by the
Company and its Subsidiaries on a consignment basis;
<PAGE>
70
(c) within 20 days after the end of each month, (i) a summary page,
showing the aging of Accounts, by division of the Company, as at the last
day of such month, (ii) a schedule of Inventory (other than any inventory
held by the Company on a consignment basis), by product segment and by
location, supported by the perpetual reporting of Inventory (with consigned
inventory being segregated and separately identified by vendor, warehouse
and product segment on such perpetual report), (iii) a reconciliation of
the aging of Accounts and the reported Inventory to the Accounts and
Inventory shown on the most recent financial statements delivered by the
Company to the Agent, and (iv) a working capital model for the next
succeeding month, each of which reports shall be in form and substance
reasonably satisfactory to the Agent;
(d) upon request of the Agent on a monthly basis, an aged trial
balance for a division of the Company selected by the Agent, and the
Company agrees to render such assistance and to provide such materials as
the Agent reasonably may request in order to enable the Agent to review
such balance;
(e) on Wednesday of each calendar week, (i) a schedule of adjusting
entries (including, without limitation, Accounts which are not proceeds
from the sale of Inventory) as of the end of the prior week and (ii) a
schedule of sales of each division of the Company (net of credits and
similar offsetting amounts) as of the end of the prior week, with
supporting detail to be provided promptly upon request of the Agent, each
of which schedules shall be in form and substance reasonably satisfactory
to the Agent;
(f) every fourteen days (commencing on April 1, 1992), a schedule (in
form and substance reasonably satisfactory to the Agent) of the Inventory
balance of the Company, with the valuation of Inventory on such schedule
being adjusted for purchases and cost of sales (as valued at the lower of
cost or market value on a first-in, first-out basis), together with a
reconciliation of the balance indicated on such schedule to the aged trial
balance provided to the Agent. The Company hereby acknowledges and agrees
that the Agent intends to deduct any unfavorable variances disclosed by
such reconciliation from the calculation of Eligible Inventory;
(g) within five days after the same are sent, copies of all financial
statements and reports which Holdings sends to its stockholders, and within
five days after the same are filed, copies of all financial statements and
reports which any Loan Party may make to, or file with, the Securities and
Exchange Commission or any successor or analogous Governmental Authority;
<PAGE>
71
(h) concurrently with the delivery of the financial statements
referred to in each of subsections 5.1(a) and 5.1(b), a brief narrative by
the chief financial officer of Holdings (i) describing significant
developments regarding Holdings' and its Subsidiaries' results of operation
and marketing activities and (ii) certifying that, to the best of such
officer's knowledge after due inquiry, (A) no Material Adverse Effect has
occurred since the date of such officer's previous report or (B) a Material
Adverse Effect has occurred since such date and setting forth in reasonable
detail the steps that Holdings and/or the Company plans to take in respect
thereof;
(i) promptly, a true and correct conformed copy of each waiver,
amendment, supplement or other modification to each of the Ancillary
Documents to which the Agent is not a party;
(j) weekly, a report of (i) the value of Inventory, valued at the
lower of cost (determined on a first-in, first-out basis) or market value
of the Company and its Subsidiaries, and (ii) the amount of Accounts of the
Company and its Subsidiaries, in each case as of the opening of business on
the first day of such week;
(k) promptly, such additional financial and other information as any
Lender may from time to time reasonably request (including, without
limitation, such supporting detail regarding the Collateral as the Agent
reasonably may request); and
(l) concurrently with the delivery of each set of the financial
statements referred to in subsections 5.1(f) and 5.1(g), a certificate of
the chief financial officer of the Company (i) stating that, to the best of
such officer's knowledge, during the period covered by such set of
financial statements, each Loan Party has observed or performed all of its
covenants and other agreements, and satisfied every condition, contained in
the Loan Documents to be observed, performed or satisfied by it, and that
such officer has obtained no knowledge of any Default or Event of Default
(except as specified in such certificate, in which case such certificate
shall set forth in reasonable detail the steps that the Company plans to
take in respect thereof), (ii) showing in reasonable detail the
calculations supporting such statement in respect of subsection 6.8 and
(iii) certifying that the consolidating financial statements are fairly
stated in all material respects when considered in relation to the
consolidated financial statements of the Company and its Subsidiaries
(subject to normal year-end audit adjustments).
<PAGE>
72
5.3 Payment of Obligations. The Company shall, and shall cause each
----------------------
of its Subsidiaries to, pay, discharge or otherwise satisfy at or before
maturity or before they become delinquent, as the case may be, all of its
Indebtedness and other material obligations of whatever nature (including any
obligations for taxes), except, without prejudice to the effectiveness of
subsection 7(i), where the amount or validity thereof is being contested in good
faith by appropriate proceedings and with respect to which adequate reserves in
conformity with GAAP shall have been provided on the books of the Company and
its Subsidiaries.
5.4 Conduct of Business and Maintenance of Existence. The Company
------------------------------------------------
shall, and shall cause each of its Subsidiaries to, (a) preserve, renew and keep
in full force and effect its corporate existence and take all reasonable action
to maintain all its material rights, licenses, privileges and franchises
necessary or desirable in the normal conduct of its business, except as
permitted by subsection 6.3, (b) continue to engage in the same general type of
business in which it is engaged on the Effective Date and (c) comply with all
Contractual Obligations and Requirements of Law applicable to it, except to the
extent that the failure to comply therewith would not, individually or in the
aggregate, have a Material Adverse Effect.
5.5 Maintenance of Property and Accounts; Cash Management. (a) The
-----------------------------------------------------
Company shall, and shall cause each of its Subsidiaries to, keep all of its
property necessary for the continued operation of its business in good working
order and condition, ordinary wear and tear excepted.
(b) The Company shall, and shall cause each of its Subsidiaries to,
maintain (i) all data and records necessary for the conduct of its business,
(ii) duplicate data and records, in a different location, sufficient to protect
its business against material interruption or loss in the event of damage, loss
or destruction of its basic data and records and (iii) adequate disaster
recovery systems and back-up computer and other information management systems,
in a different location, sufficient to protect its business against material
interruption or loss in the event of damage, loss or destruction of its primary
computer and other information management systems.
(c) The Company shall, and shall cause each of its Subsidiaries to,
(i) maintain a cash management system and controls substantially similar to that
in effect on the Effective Date, and (ii) obtain the approval of each Lender in
advance with regard to any material change to be made or proposed to be made
with respect to such cash management system and controls.
5.6 Maintenance of Insurance. (a) The Company shall, and shall cause
------------------------
each of its Subsidiaries to, at its sole cost and expense, maintain "All Risk"
physical damage insurance on all
<PAGE>
73
real and personal property including, without limitation, fire and extended
coverage, boiler and machinery coverage, flood, earthquake, liquids, theft,
explosion, collapse, and all other hazards and risks ordinarily insured against
by owners or users of such properties in similar businesses. All policies of
insurance on such real and personal property shall contain an endorsement, in
form and substance satisfactory to the Agent, showing loss payable to the Agent
as its interests appear.
(b) The Company shall, at its sole cost and expense, maintain
commercial general liability insurance on an "occurrence basis" (unless such
insurance cannot be reasonably obtained at commercially reasonable rates, in
which case such insurance shall be on a "claims made" basis) against claims for
personal injury, bodily injury and property damage with a minimum limit of
$10,000,000 per occurrence and $10,000,000 in the aggregate. Such coverage shall
include, but not be limited to, premises/operations, broad form contractual
liability, underground, explosion and collapse hazard, independent contractors,
broad form property coverage, products and completed operations liability. The
Company shall, at its sole cost and expense, maintain workers' compensation
insurance including employer's liability in the amount of $500,000 for each
accident, $500,000 disease-policy limit, and $500,000 disease-each employee.
(c) The Company shall, at its sole cost and expense, maintain
automobile liability insurance for all owned, non-owned or hired automobiles
against claims for personal injury, bodily injury and property damage with a
minimum combined single limit of $10,000,000 per occurrence.
(d) All policies of insurance required to be maintained under this
Agreement shall (i) include the Agent as an additional insured, (ii) contain a
30-day advance notice of alteration or cancellation, (iii) provide that no act
or default by the Company or any other Person shall affect the right of the
Agent to recover under such policy or policies of insurance in case of loss or
damage, (iv) be in form substantially similar to those in effect on the date
hereof and be with insurers rated at least A by A.M. Best and (v) be in not less
than the amounts set forth herein. The Company shall deliver to the Agent
certificates of insurance evidencing coverage, the naming of the Agent as
additional insured and the 30-day advance notice of cancellation provision. The
original (or certified copies) of each policy of insurance shall be maintained
by the Company and made available to the Agent from time to time at the Agent's
request. In addition, the Company shall notify the Agent promptly of any
occurrence causing a material loss or decline in value of any real or personal
property and the estimated (or actual, if available) amount of such loss or
decline. The Company hereby directs all insurers under such policies of
insurance to pay all proceeds payable thereunder directly to the
<PAGE>
74
Agent, as its interest may appear. For the purpose of making, settling and
adjusting claims under such policies of insurance, the Company shall not,
without the Agent's prior written consent, agree to the making, settling or
adjusting of claims in excess of $50,000 made under such policies of insurance
or endorsing any check, draft, instrument or other item of payment in excess of
$50,000 for the proceeds of such policies of insurance. In the event that the
Company at any time or times hereafter shall fail to obtain or maintain any of
the policies of insurance required above or to pay any premium in whole or in
part relating thereto, the Agent, without waiving or releasing any obligations
or Default or Event of Default by the Company hereunder, may at any time or
times thereafter (but shall not be obligated to) obtain and maintain such
policies of insurance and pay such premium and take any other action with
respect thereto which the Agent deems advisable. All sums to disbursed by the
Agent (including, without limitation, reasonable attorneys' fees, court costs,
expenses and other charges relating thereto) shall be payable, on demand, by the
Company to the Agent and shall be additional Obligations (as defined in the
Collateral Documents) hereunder secured by the Collateral.
5.7 Inspection of Property; Books and Records; Discussions. The
------------------------------------------------------
Company shall, and shall cause each of its Subsidiaries to, (a) keep proper
books of record and account in which full, true and correct entries in
conformity with GAAP and all material Requirements of Law shall be made of all
dealings and transactions in relation to its business and activities and (b)
permit representatives of the Agent or any Lender to visit and inspect any of
its properties and to examine and make abstracts from any of its books and
records at their customary location during normal business hours or at such
other times as the Agent or any Lender may reasonably request, and as often as
may reasonably be desired for use by the Lenders, in making continuing credit
decisions hereunder, and (c) permit representatives of the Agent to discuss the
affairs, accounts, business, operations, properties and financial and other
condition of the Company and its Subsidiaries with officers, directors,
employees, customers, suppliers (following the Agent's reasonable best efforts
to give the Company advance oral notice) of the Company and its Subsidiaries and
with its independent certified public accountants. The Agent and the Lenders
hereby agree that, unless a Default or Event of Default has occurred and is
continuing, they will provide the Company with oral notice which is reasonable
under the circumstances prior to exercising their rights under clause (b) of
this subsection 5.7.
5.8 Notices. The Company shall promptly give notice to the Agent
-------
and each Lender of:
(a) the occurrence of any Default or Event of Default;
<PAGE>
75
(b) any default or event of default under any Contractual Obligation
of the Company or any of its Subsidiaries that, in the reasonable judgment
of the Company, could reasonably be expected to have a Material Adverse
Effect;
(c) any litigation, investigation or proceeding affecting the Company
or any of its Subsidiaries and that, in the reasonable judgment of the
Company, if adversely determined, could reasonably be expected to have a
Material Adverse Effect;
(d) the following events, as soon as possible and in any event within
30 days after the Company knows or has reason to know thereof: (i) the
occurrence or expected occurrence of any Reportable Event with respect to
any Plan, or any withdrawal from, or the termination, Reorganization or
Insolvency of any Multiemployer Plan or (ii) the institution of proceedings
or the taking of any other action by the PBGC or the Company or any
Commonly Controlled Entity or any Multiemployer Plan with respect to the
withdrawal from, or the terminating, Reorganization or Insolvency of, any
Plan; and
(e) any material change or event that, in the reasonable judgment of
the Company, could reasonably be expected to have a Material Adverse
Effect.
Each notice pursuant to this subsection 5.8 shall be accompanied by a statement
of a Responsible Officer of the Company setting forth details of the occurrence
referred to therein and stating what action the Company proposes to take with
respect thereto.
5.9 Communication with Accountants. The Company authorizes the Agent
------------------------------
and, if accompanied by the Agent, each Lender and each Transferee, to
communicate directly with its independent certified public accountants and
hereby authorizes such accountants to disclose to the Agent, each Lender and
each Transferee any and all financial statements and other supporting financial
documents and schedules including copies of any management letter with respect
to the business, financial condition and other affairs of the Company or any of
its Subsidiaries. At or before the Effective Date, the Company shall deliver a
letter addressed to such accountants instructing them to comply with the
provisions of this subsection 5.9.
5.10 Lenders' Fees. The Company shall pay to each Lender, on demand,
-------------
any and all fees, costs or expenses that such Lender shall pay to a bank or
other similar institution arising out of or in connection with the forwarding by
such Lender to the Company or any other Person designated by the Company of
proceeds of the Loans.
<PAGE>
76
5.11 Payment of Taxes. The Company shall pay all transfer, excise,
----------------
mortgage recording or similar taxes (but excluding income or franchise taxes) in
connection with the issuance, sale, delivery or transfer by the Company to the
Lenders of the Notes, and the execution and delivery of the Loan Documents and
any other agreements and instruments contemplated thereby, and shall save the
Lenders harmless, without limitation as to time, against any and all liabilities
with respect to such taxes, provided, that the Company shall not be responsible
--------
for any taxes in connection with the transfer of any Note by the holder thereof.
The obligations of the Company under this subsection 5.11 shall survive the
payment of the Notes and all other amounts owing hereunder and the termination
of this Agreement.
5.12 Environmental Laws; Environmental Indemnity. The Company shall,
-------------------------------------------
and shall cause each of its Subsidiaries to:
(a) Comply with, and insure compliance by all tenants and subtenants,
if any, with, all Environmental Laws and obtain and comply in all material
respects with and maintain, and insure that all tenants and subtenants
obtain and comply with and maintain, any and all licenses, approvals,
registrations or permits required by Environmental Laws, except to the
extent that failure to do so would not have any reasonable likelihood of
having a Material Adverse Effect;
(b) Conduct and complete all investigations, studies, sampling and
testing, and all remedial, removal and other actions required under
Environmental Laws and promptly comply in all material respects with all
lawful orders and directives of all Governmental Authorities respecting
Environmental Laws, except to the extent that the same are being contested
in good faith by appropriate proceedings and the pendency of such
proceedings would not have any reasonable likelihood of having a Material
Adverse Effect; and
(c) Defend, indemnify and hold harmless the Agent and the Banks, and
their respective employees, agents, officers and directors, from and
against any claims, demands, penalties, fines, liabilities, settlements,
damages, costs and expenses of whatever kind or nature known or unknown,
contingent or otherwise, arising out of, or in any way relating to, the
violation of or noncompliance with any Environmental Laws applicable to the
Properties, or any orders, requirements or demands of Governmental
Authorities related thereto, including, without limitation, attorney's and
consultant's fees, investigation and laboratory fees, court costs and
litigation expenses, except to the extent that any of the foregoing arise
out of the gross negligence
<PAGE>
77
or willful misconduct of the party seeking indemnification therefor.
5.13 Leases. The Company shall, and shall cause each of its
------
Subsidiaries to, comply in all material respects with all of its and their
obligations under all Leases now existing or hereafter entered into by it or
them with respect to real property, including all Leases listed on Schedule IV
hereto. The Company shall, or shall cause the appropriate Subsidiary to (a)
provide the Agent and each Lender with a copy of each notice of default or
termination received by the Company or such Subsidiary under any Lease
immediately upon receipt of any such notice, and deliver to the Agent and each
Lender a copy of each notice of default or termination sent by the Company or
such Subsidiary under any Lease simultaneously with its delivery of such notice
under such Lease, (b) use its commercially reasonable efforts to not permit any
new Lease to contain any provision that would cause such Lease to terminate (or
would give the lessor thereunder the right to terminate such Lease) upon a sale
or other change in control of any Loan Party and (c) provide to the Agent, no
less frequently than quarterly, a schedule of all properties then being leased
by the Company and its Subsidiaries as lessee, (i) describing the material terms
of each such lease, (ii) indicating the expiration date of each such lease and
(iii) setting forth, in comparative form, any changes from the schedule
delivered to the Agent for the immediately preceding quarter.
5.14 Additional Collateral. (a) If, after the Effective Date, the
---------------------
Company or any of its Subsidiaries shall acquire any assets on which the Agent,
for the benefit of the Agent and the Lenders, does not have a perfected Lien,
other than any stock of any corporation, the Company (i) shall execute and
deliver, or shall cause the appropriate Subsidiary to execute and deliver, to
the Agent such amendments to this Agreement, the Collateral Documents or such
other documents as the Agent or the Required Lenders deem necessary or advisable
in order to grant to the Agent, for the benefit of the Agent and the Lenders, a
security interest in such assets, (ii) shall take, or shall cause the
appropriate Subsidiary to take, all actions necessary or advisable to grant to
the Agent, for the benefit of the Agent and the Lenders, a perfected first
priority security interest in such assets, including without limitation, the
filing of Uniform Commercial Code financing statements in such jurisdictions as
may be required by the appropriate Security Agreement or by law or as may be
requested by the Agent and (iii) shall, upon the request of the Agent, deliver
to the Agent legal opinions relating to the matters described in the preceding
clauses (i) and (ii), which opinions shall be in form and substance, and from
counsel, reasonably satisfactory to the Agent and the Required Lenders.
(b) The Company shall, and shall cause each of its Subsidiaries to,
at any time and from time to time upon the request of the Agent (in its sole
discretion), (i) execute a
<PAGE>
78
first priority mortgage or deed of trust, as the case may be (subordinate only
to such mortgages or deeds of trust as are necessary to permit the Company or
such Subsidiary, as the case may be, to purchase such real estate), in favor of
the Agent, for the benefit of the Agent and the Lenders, covering such real
estate, in form and substance reasonably satisfactory to the Required Lenders,
(ii) provide the Lenders with title and extended coverage insurance covering
such real estate in an amount equal to the purchase price of such real estate as
well as a current ALTA survey thereof, together with a surveyor's certificate in
form and substance reasonably satisfactory to the Required Lenders and (iii)
provide the Lenders with environmental audits from environmental consultants
reasonably acceptable to the Agent with respect to each such parcel of real
estate.
(c) If, after the Effective Date, the Company or any of its
Subsidiaries shall acquire any stock of any corporation, the Company (i) shall
(or, if such stock is acquired by a Subsidiary of the Company, the Company shall
cause such Subsidiary to) execute and deliver to the Agent such pledge
agreements and other documents and instruments as the Agent or the Required
Lenders deem necessary or advisable in order to grant to the Agent, for the
benefit of the Agent and the Lenders, a perfected first priority security
interest in such stock and shall deliver to the Agent the certificates
representing such stock, together with undated stock powers, in blank, executed
and delivered by a duly authorized officer of the Company (or such Subsidiary,
as the case may be), (ii) shall, if such stock is all or substantially all of
the stock of such corporation, cause such corporation (A) to guarantee the
Extensions of Credit and other obligations hereunder, (B) to execute and deliver
to the Agent such security agreements and other documents and instruments as the
Agent or the Required Lenders reasonably deem necessary or advisable in order to
grant to the Agent, for the benefit of the Agent and the Lenders, a perfected
first priority security interest in all assets of such corporation, (C) to take
such additional actions as are necessary or advisable to grant to the Agent for
the benefit of the Agent and the Lenders a perfected first priority security
interest in the Collateral described in such security agreement and other
documents and instruments with respect to such corporation, including, without
limitation, the filing of Uniform Commercial Code financing statements in such
jurisdictions as may be required by such security agreement or other documents
and instruments or by law or as may be requested by the Agent and (D) in the
event that such corporation has Subsidiaries of its own, to cause such
Subsidiaries to execute and deliver such documents, instruments and agreements
as may be necessary to cause such Subsidiaries to guarantee the Extensions of
Credit and other obligations of the Company hereunder and to grant to the Agent,
for the benefit of the Agent and the Lenders, a perfected first priority
security instruments in all assets of such Subsidiaries and take the other
relevant actions described above and (iii) shall, upon the request of the Agent,
deliver to
<PAGE>
79
the Agent legal opinions relating to the matters described in the preceding
clauses (i) and (ii), which opinions shall be in form and substance, and from
counsel, reasonably satisfactory to the Agent and the Required Lenders.
(d) Notwithstanding the foregoing provisions of this subsection 5.14,
the Agent and the Lenders hereby agree that the Company and its Subsidiaries
shall not be required to grant to the Agent, for the benefit of the Agent and
the Lenders, a security interest in the assets or in more than 66% of the
capital stock of any Subsidiary of the Company which is incorporated under the
laws of a jurisdiction which is not within the United States of America, and no
such non-United States Subsidiary shall be required to guarantee the obligations
of the Company hereunder.
5.15 Inventory. The Company shall, and shall cause each of its
---------
Subsidiaries to:
(a) provide that at all time all inventory of the Company and its
Subsidiaries which is located in Public Warehouses shall be covered by non-
negotiable warehouse receipts and shall instruct all such warehouses not to
issue any negotiable warehouse receipts or other negotiable documents of
title in respect thereof;
(b) use its best efforts to cause each Public Warehouse in which
Inventory of the Company or any of its Subsidiaries is located to deliver
to the Agent an acknowledgement copy of a Warehousemen Notice; and
(c) permit the Agent at any time and from time to time at the sole
expense of the Company (including, without limitation, any out-of-pocket
expenses of such auditors and a per diem fee equal to $200 per auditor per
day) to conduct a field analysis of the Inventory of the Company to the
extent necessary to permit the Agent to determine that (i) the inventory
reports of the Company (including, without limitation, each Borrowing Base
Certificate) are true and correct in all material respects, (ii) the
Inventory listed thereon is in saleable condition and (iii) the Inventory
control systems of the Company are adequate to properly monitor such
inventory.
5.16 Installation of MIS/POS System. The Company shall complete the
------------------------------
installation of a computerized invoicing and inventory control system at each of
its branches and sales outlets by no later than December 31, 1993, and such
system shall have been audited by the Agent and determined by the Agent to be
fully and accurately functioning.
5.17 Delivery of Comprehensive MIS Plan. The Company shall deliver
----------------------------------
to the Agent, prior to or on December 31, 1992, a
<PAGE>
80
comprehensive management information systems proposal (which proposal may be an
updated version of the relevant portions of the August 1991 strategic plan of
the Company), prepared by the Company's MIS director, with regard to the
computer and other management information needs of the Company, the costs of
implementing the proposals contained therein and the proposed means of financing
such implementation. The Company shall deliver to the Agent, within 15 days
prior to the end of each fiscal quarter of the Company, a comprehensive report
on the status of the installation of such comprehensive management information
systems, including information concerning progress, schedule, costs and
personnel requirements (including reductions or additions) and any other
information as the Agent may request, each of which reports shall otherwise be
in form and substance satisfactory to the Agent.
5.18 Bank Accounts. The Company shall, and shall cause each of its
-------------
Subsidiaries to, notify the Agent and each Lender promptly of each bank account
or other deposit account (including, without limitation, securities accounts)
opened by the Company or such Subsidiary, as the case many be, and provide to
the Agent and each Lender the account number, financial institution and location
of each such bank or other deposit account. The Company shall, and shall cause
each of its Subsidiaries to, notify each financial institution at which the
Company and each of its Subsidiaries has a bank or other deposit account that
such financial institution is irrevocably authorized to provide the Agent with
all information which the Agent may from time to time request concerning each
such account (including, without limitation, the amount on deposit therein).
5.19 Post-Effectiveness Lien Searches. The Company shall, and shall
--------------------------------
cause each of its Subsidiaries to, commission (at the expense of the Company and
its Subsidiaries for the first set of such searches in each jurisdiction
described below and, for any searches thereafter, at the expense of the Agent) a
search by a Person satisfactory to the Lenders of the Uniform Commercial Code,
judgment and tax lien filings on record against Holdings, the Acquired
Companies, any of their Subsidiaries or any Affiliate of any Acquired Company
which Affiliate held any substantial part of the assets of any Acquired Company
within five years prior to the Effective Date. Such searches shall be conducted
in the appropriate filing offices in each of the jurisdictions in which is
located any of the Collateral for which the perfection of a security interest is
governed by the Uniform Commercial Code.
SECTION 6. NEGATIVE COVENANTS
From the date hereof and so long as any amount remains owing
hereunder, under any Note or any Collateral Document, or
<PAGE>
81
the Commitments remain in effect, the Company covenants and agrees that:
6.1 Limitation on Indebtedness. The Company shall not, and shall not
--------------------------
permit any of its Subsidiaries to, create, incur, assume or suffer to exist any
Indebtedness, except:
(a) Indebtedness in respect of the Loans, the Notes, and other
obligations of the Company under this Agreement;
(b) Indebtedness of the Company in respect of the Subordinated Bridge
Notes;
(c) Indebtedness of the Company and its Subsidiaries in respect of
the deferred purchase price of fixed or capital assets or in the nature of
Capital Leases in an aggregate principal amount (including the imputed
principal amount of Capital Leases) not to exceed $1,500,000 at any one
time outstanding;
(d) Indebtedness of the Company and its Subsidiaries to each other to
the extent permitted by subsection 6.5(e); and
(e) Indebtedness not otherwise described in clauses (a) through (d)
above not to exceed $100,000 in principal amount in the aggregate at any
time outstanding.
6.2 Limitation on Liens. The Company shall not, and shall not permit
-------------------
any of its Subsidiaries to, create, incur, assume or suffer to exist any Lien
upon any of its property, assets or revenues, whether now owned or hereafter
acquired, except for:
(a) Liens in favor of the Agent, for the benefit of the Agent and the
Lenders, created pursuant to the Collateral Documents;
(b) Liens for taxes not yet due or that are being contested in good
faith by appropriate proceedings; provided that adequate reserves with
--------
respect thereto are maintained on the books of the Company or its
Subsidiaries, as the case may be, in conformity with GAAP;
(c) carriers', warehousemen's, mechanics', materialmen's, repairmen's
or other like Liens arising in the ordinary course of business which are
not overdue for a period of more than 60 days or which are being contested
in good faith by appropriate proceedings in a manner which will not
jeopardize or diminish the interest of the Agent, for the benefit of the
Agent and the Lenders, in any of the Collateral;
<PAGE>
82
(d) pledges or deposits in connection with workers' compensation,
unemployment insurance and other social security legislation and deposits
securing liability to insurance carriers under insurance or self-insurance
arrangements;
(e) deposits to secure the performance of bids, trade contracts
(other than for borrowed money), leases, statutory obligations, surety and
appeal bonds, performance bonds and other obligations of a like nature
incurred in the ordinary course of business;
(f) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business that, in the
aggregate, are not substantial in amount and which do not in any case
materially detract from the value of the property subject thereto or
interfere with the ordinary conduct of the business of the Company or any
of its Subsidiaries; and
(g) Liens securing Indebtedness of the Company and its Subsidiaries
permitted by subsection 6.1(c) in respect of the deferred purchase price of
fixed or capital assets or in the nature of Capital Leases; provided that
--------
such Liens do not at any time encumber any property other than the property
financed by such Indebtedness and the amount of Indebtedness secured
thereby is not increased.
6.3 Prohibition of Fundamental Changes. Except as permitted in
----------------------------------
subsections 6.5 and 6.7 and except for the Merger, the Company shall not, and
shall not permit any of its Subsidiaries to, enter into any transaction of
merger or consolidation, or liquidate, wind up or dissolve itself (or suffer any
liquidation or dissolution), or convey, sell, lease, transfer or otherwise
dispose of, in one transaction or a series of transactions, all or substantially
all of its business, property or tangible or intangible assets, whether now
owned or hereafter acquired, or acquire by purchase or otherwise all or
substantially all of the business property or fixed assets of, or stock or other
evidence of beneficial ownership of, any Person.
6.4 Limitation on Dividends and Restricted Payments. The Company
-----------------------------------------------
shall not, and shall not permit any of its Subsidiaries to, declare or pay any
dividend (other than dividends payable solely in common stock of the Company)
on, or make any payment on account of, or set apart assets for a sinking or
other analogous fund for, the purchase, redemption, defeasance, retirement or
other acquisition of, any shares of any class of capital stock of Holdings or
the Company or any of the Company's Subsidiaries, or any warrants or options to
purchase such stock, whether now or hereafter outstanding, or make any other
distribution in respect thereof, either directly or indirectly, whether in cash
or property or in obligations of the
<PAGE>
83
Company or any of its Subsidiaries (collectively, "Restricted Payments"), except
-------------------
that:
(a) any Subsidiary of the Company may pay dividends to the Company;
(b) the Company may pay dividends to Holdings in the amount equal to
the liability attributable to the Company and its Subsidiaries on a stand-
alone basis (after giving effect to deductions, credits and similar
reductions of taxes attributable to the Company and its Subsidiaries) in
respect of any consolidated income tax return (for purposes of which the
Company is a member of the consolidated taxpaying group) filed by Holdings;
provided that (i) any such payment is made no sooner than one Business Day
--------
prior to the date upon which Holdings files such return and (ii) all such
payments shall not exceed $2,000,000 in the aggregate prior to the
Termination Date;
(c) the Company may pay dividends on the Effective Date to Holdings
in the amount equal to $135,000 plus such amounts as may be necessary in
order to enable Holdings to pay transaction costs incurred by it in
connection with the Acquisition and the Merger, to the extent that such
expenses are listed on the list of material closing expenses and fees
delivered to the Agent pursuant to subsection 4.1(ah); and
(d) the Company may make payments to Holdings in order to pay
interest on the Junior Subordinated Notes and to pay dividends on the Holdings
Preferred Stock, provided, that the aggregate amount of such payments for any
--------
fiscal year of the Company, beginning with the fiscal year ended February 28,
1994, shall not exceed the unpaid, or unused, portion of the aggregate amount
which the Company is permitted to use pursuant to subsection 6.12(b) to pay and
prepay the Subordinated Bridge Notes during such fiscal year; provided that the
--------
payments to Holdings described in this subsection 6.4(d) and the payments of
interest on the Junior Subordinated Notes and the payments of dividends on the
Holdings Preferred Stock described in this subsection 6.4(d) may only be made or
paid if at the time thereof no default or Event of Default has occurred and is
continuing or would result therefrom.
6.5 Limitation on Investments, Acquisitions, Loans and Advances. The
-----------------------------------------------------------
Company shall not, and shall not permit any of its Subsidiaries to, make any
advance, loan, extension of credit or capital contribution to, or purchase or
otherwise acquire any stock, bonds, notes, debentures or other securities of, or
acquire by purchase or otherwise all or substantially all of the business,
properties or assets of, or make any other investment in, any Person, except:
<PAGE>
84
(a) investments existing as of the Effective Date and described on
Schedule V hereto;
(b) extensions of trade credit in the ordinary course of business;
(c) temporary investments in Cash Equivalents;
(d) loans and advances to employees of the Company or its
Subsidiaries for travel, entertainment, relocation and other expenses in
the ordinary course of business (provided that such loans and advances
--------
shall not exceed $100,000 in the aggregate at any time outstanding);
(e) loans, advances, extensions of credit, capital contributions and
investments by the Company to or in its Wholly Owned Subsidiaries in an
aggregate amount not to exceed $50,000 made in the ordinary course of
business and loans, advances, extensions of credit, capital contributions
and investments by Subsidiaries of the Company in the Company;
(f) investments that are Capital Expenditures permitted under
subsection 6.9; and
(g) the acquisition by purchase or otherwise of the capital stock of
or all or substantially all of the business, properties or assets of any
one or more Persons for aggregate consideration not to exceed $1,000,000
since the Fifth Amendment Effective Date.
6.6 Limitation on Contingent Obligations. The Company shall not, and
------------------------------------
shall not permit any of its Subsidiaries to, agree to, or assume, guarantee,
indorse or otherwise in any way be or become responsible or liable, directly or
indirectly, for any Contingent Obligation, except (a) Contingent Obligations in
respect of which the Company and its Subsidiaries are liable on the Effective
Date and which are listed on Schedule VI hereto and the primary obligations in
respect of which are reflected on the financial statements of the Company
described in subsection 3.1 and (b) any guarantee made by a Subsidiary of the
Company in favor of the Agent, for the benefit of the Agent and the Lenders, on
account of obligations owing by the Company to the Agent and the Lenders
hereunder.
6.7 Limitation on Sale of Assets. The Company shall not, nor shall
----------------------------
it permit any of its Subsidiaries to, sell, lease, assign, transfer or otherwise
dispose of any of its property, business or assets (including, without
limitation, receivables and leasehold interests), whether now owned or hereafter
acquired, except for:
<PAGE>
85
(a) sales of obsolete or worn out property, or other property in the
ordinary course of business in connection with the acquisition of a
replacement therefor;
(b) sales of assets by the Company to any of its Subsidiaries or by
any of the Company's Subsidiaries to the Company or another of its
Subsidiaries made in the ordinary course of business and on an arm's-length
basis;
(c) the sale of inventory in the ordinary course of business; and
(d) sales of stores and branches set forth on Schedule XVII, to the
extent that the Net Cash Proceeds thereof are applied to prepay the Loans
and cash collateralize Reimbursement Obligations in accordance with the
provisions of subsection 2.6(b).
6.8 Financial Condition Covenants.
-----------------------------
(a) Company EBITDA. Company EBITDA for:
--------------
(i) each period commencing on the first day of the fiscal quarter
beginning on or about March 1, 1993 and ending on the last day of each
fiscal quarter ending on or about each date set forth below shall not be
less than the amount set forth opposite such date:
<TABLE>
<CAPTION>
Date Amount
---- ------
<S> <C>
May 31, 1993 $750,000
August 31, 1993 6,875,000
November 30, 1993 7,878,000;
</TABLE>
(ii) each period of twelve consecutive fiscal months ending on or
about each date set forth below shall not be less than the amount set forth
opposite such date:
<TABLE>
<CAPTION>
Date Amount
---- ------
<S> <C>
February 28, 1993 $6,800,000
February 28, 1994 7,042,000
May 31, 1994 8,060,000
August 31, 1994 9,275,000; and
</TABLE>
(iii) thereafter, each period of twelve consecutive fiscal months
shall not be less than $7,800,000.
(b) Interest Coverage Ratio. The Interest Coverage Ratio for:
-----------------------
(A) each period commencing on the first day of the fiscal quarter
beginning on or about March 1, 1993 and
<PAGE>
86
ending on the last day of each fiscal quarter ending on or about each date
set forth below shall not be less than the ratio set forth opposite such
date:
Date Ratio
---- -----
May 31, 1993 0.46 to 1.0
August 31, 1993 3.00 to 1.0
November 30, 1993 2.15 to 1.0;
(B) each period of twelve consecutive fiscal months ending on or about
each date set forth below shall not be less than the ratio set forth
opposite such date:
Date Ratio
---- -----
February 28, 1993 1.75 to 1.0
February 28, 1994 1.40 to 1.0
May 31, 1994 1.58 to 1.0
August 31, 1994 1.84 to 1.0; and
(C) thereafter, for each period of twelve consecutive fiscal months
shall not be less than 1.7 to 1.0.
(c) Fixed Charge Coverage Ratio. The ratio of (i) Company EBITDA
---------------------------
(net of Reimbursement Obligations which have not been converted into Loans)
to (ii) Company Fixed Charges (net of alternative minimum tax liability,
not to exceed $4,000,000 incurred in connection with the Acquisition), for:
(A) each period commencing on the first day of the fiscal quarter
beginning on or about March 1, 1993 and ending on the last day of each
fiscal quarter ending on or about each date set forth below shall not be
less than the ratio set forth opposite such date:
Date Ratio
---- -----
May 31, 1993 0.40 to 1.0
August 31, 1993 1.36 to 1.0
November 30, 1993 1.27 to 1.0;
(B) each period of twelve consecutive fiscal months ending on or about
each date set forth below shall not be less than the ratio set forth
opposite such date:
Date Ratio
---- -----
February 28, 1993 1.24 to 1.0
February 28, 1994 1.03 to 1.0
May 31, 1994 1.24 to 1.0
August 31, 1994 1.30 to 1.0; and
<PAGE>
87
(C) thereafter, each period of twelve consecutive fiscal months shall
not be less than 1.05 to 1.0.
(d) Current Ratio. Prior to November 29, 1994, the ratio of (i)
-------------
Company Current Assets to (ii) Company Current Liabilities on any day shall
be not less than 1.25 to 1.0.
(e) Maintenance of Net Worth. (i) The Company Net Worth on the last
------------------------
day of each fiscal quarter ending on or about each date set forth below
shall not be less than the amount set forth opposite such date:
Date Amount
---- ------
May 31, 1993 $ 9,290,000
August 31, 1993 12,400,000
November 30, 1993 12,600,000
February 28, 1994 11,400,000
May 31, 1994 11,600,000
August 31, 1994 15,300,000; and
(ii) the sum of (x) Company Net Worth on the last day of any fiscal quarter
ending during a fiscal year set forth below and (y) the aggregate amount of
Permitted Dividends made prior to or on such date shall not be less than
the amount set forth opposite such fiscal year:
Fiscal Year Ending Amount
------------------ ------
February 28, 1996 $ 20,000,000
February 28, 1997 21,000,000
February 28, 1998 22,500,000
February 28, 1999 24,500,000.
6.9 Capital Expenditures . (a) Prior to November 29, 1994 the
--------------------
Company shall not, and shall not permit any of its Subsidiaries to, directly or
indirectly (by way of the acquisition of the securities of a Person or
otherwise), make or commit to make any Capital Expenditure, except for:
(i) Capital Expenditures in the ordinary course of business and in
respect of facilities improvements and point of sale and other management
information systems in an amount not exceeding, in the aggregate for the
Company and its Subsidiaries, $1,500,000 in each fiscal year of the
Company; and
(ii) additional Capital Expenditures in respect of the four (4) AS400
computers and related equipment in any amount not exceeding, in the
aggregate for the Company (x) $1,000,000 for the period from the Closing
Date through June 30, 1993 and (y) $2,000,000 for the period from July 1,
1993 through March 31, 1994;
<PAGE>
88
provided, that the amounts available for Capital Expenditure for any period
- --------
pursuant to this subsection 6.9 shall be reduced by any amounts included in the
calculation of compliance with subsection 6.10 for such period on account of the
four (4) AS400 computers and related equipment;
(b) From and after November 29, 1994, the Company shall not, and shall
not permit any of its Subsidiaries to, directly or indirectly (by way of the
acquisition of the securities of a Person or otherwise), make or commit to make
any Capital Expenditures in an amount exceeding, in the aggregate for the
Company and its Subsidiaries, $3,500,000 in each fiscal year of the Company;
provided that up to $1,000,000 in the aggregate of investments made pursuant to
- --------
subsection 6.5(g) shall not be deemed to constitute Capital Expenditures for the
purpose of this subsection 6.9(b).
6.10 Operating Leases. (a) The Company shall not, and shall not
----------------
permit any of its Subsidiaries to, enter into, incur or assume (whether directly
or contingently) any Operating Lease (excluding the Operating Leases, up to
$2,000,000, incurred for the procurement of four (4) AS400 computers and related
equipment if the minimum rental commitment under all non-cancelable Operating
Leases of the Company and its Subsidiaries (as noted in the notes to Holdings'
financial statements)) for:
(i) each period commencing on the first day of the fiscal quarter
beginning on or about March 1, 1993 and ending on the last day of each
fiscal quarter ending on or about each date set forth below if, after
giving effect thereto, the aggregate obligations in respect of such
Operating Leases would exceed the amount set forth opposite such date:
Date Rental Obligations
---- ------------------
May 31, 1993 $3,000,000
August 31, 1993 6,000,000
November 30, 1993 9,000,000; and
(ii) each period of twelve consecutive months ending on or about each
date set forth below if, after giving effect thereto, the aggregate
obligations in respect of such Operating Leases would exceed the amount set
forth opposite such date:
Date Rental Obligations
---- ------------------
February 28, 1994 $12,000,000
May 31, 1994 12,500,000
August 31, 1994 12,500,000;
<PAGE>
89
provided, that the amounts available for Operating Leases for any period
- --------
pursuant to this subsection 6.10(a) shall be reduced by any amounts included in
the calculation of compliance with subsection 6.9 for such period on account of
the four (4) AS400 computers and related equipment.
(b) From and after November 29, 1994, the Company shall not, and
shall not permit any of its Subsidiaries to, enter into, incur or assume
(whether directly or contingently) any Operating Lease if the minimum rental
commitment under all non-cancelable Operating Leases of the Company and its
Subsidiaries (as noted in the notes to Holdings' financial statements) for any
period of four consecutive fiscal quarters of the Company would exceed
$16,000,000.
6.11 Fiscal Year . The Company shall not, and shall not permit any of its
-----------
Subsidiaries to, have a fiscal year which ends on a date other than February 28.
6.12 Limitation on Prepayments, Amendments, Payments and Refinancings in
-------------------------------------------------------------------
respect of the Subordinated Bridge Notes. (a) With the exception of the
- ----------------------------------------
prepayments permitted by subsection 6.12(b), the Company shall not, and shall
not permit any of its Subsidiaries to, directly or indirectly, prepay, purchase,
redeem, retire, defease or otherwise acquire all or any portion of the
Subordinated Bridge Notes, or make any payment on account of any principal of,
interest on (except interest paid by an increase in the principal amount of the
Subordinated Bridge Notes as provided in Section 1 thereof), or premium or other
amount payable in connection with or evidenced by the Subordinated Bridge Notes,
or agree to the modification or amendment of any of the terms of payment of, or
amortization or sinking fund requirements applicable to, or the terms of
subordination of, the Subordinated Bridge Notes, or agree to any modification of
any instrument under which the Subordinated Bridge Notes are outstanding.
Notwithstanding the foregoing, the Company may pay cash interest on account of
the Subordinated Bridge Notes when:
(i) the financial statements referred to in subsection 5.1(a) or
(b), as the case may be, for the most recently completed fiscal quarter of
Holdings have been delivered to the Agent and the Lenders;
(ii) no Default or Event of Default shall have occurred and be
continuing immediately prior to and immediately after giving effect to such
interest payment; and
(iii) after giving effect to such interest payment, the Borrowing Base
on each of the immediately preceding thirty days shall have exceeded, and
on the date of such interest payment shall exceed, the amount of the Loans
and
<PAGE>
90
Reimbursement Obligations then outstanding by not less than $4,000,000.00.
(b) Notwithstanding the provisions of subsection 6.12(a), after
delivery to the Agent of the audited financial statements required by Section
5.1(a) of the Credit Agreement for any fiscal year of the Company, beginning
with the fiscal year ended February 28, 1994, the Company may prepay the
Subordinated Bridge Notes in a principal amount not to exceed 75% of the
Consolidated Net Income of Holdings for such fiscal year (less amounts used to
make payments to Holdings to enable Holdings to pay interest on the Junior
Subordinated Notes and to pay dividends on the Holdings Preferred Stock, as
permitted by subsection 6.4 (d)), as set forth on the consolidated statements of
earnings and cash flows for such fiscal year, certified with an Unqualified
Opinion by an accountant of nationally recognized standing selected by the
Company and acceptable to the Agent, with such financial statements being
prepared in accordance with GAAP applied consistently throughout such fiscal
year. The prepayments on the Subordinated Bridge Notes described in this
subsection 6.15(b) may only be made if at the time thereof no Default or Event
of Default has occurred and is continuing or would result therefrom.
(c) The Company shall not, and shall not permit any of its
Subsidiaries to, refinance the Subordinated Bridge Notes in any manner which
would (i) amend or modify the subordination provisions contained therein, (ii)
shorten the fixed maturity or increase the principal amount of the Subordinated
Bridge Notes, (iii) increase the rate or shorten the time of payment of any
principal or premium payable (whether at maturity, at a date fixed for
prepayment or by declaration or otherwise) on account of the Subordinated Bredge
Notes, (iv) cause the affirmative or negative covenants, events of default or
remedies under the indentures or other agreements pursuant to which the
Subordinated Bridge Notes were issued to be more onerous or more restrictive
with respect to the Company or any of its Subsidiaries, (v) adversely affect the
interests of the Lenders as senior, secured creditors with respect to such
Subordinated Bridge Notes or the interests of the Agent or the Lenders under
this Agreement or any other Loan Document in any respect or (vi) otherwise not
reasonably be acceptable to the Agent and the Required Lenders; provided that in
--------
the event of any such proposed refinancing, the Company shall, and shall cause
each of its Subsidiaries to, provide to GE Capital thirty days to review all
material terms and conditions of the proposed refinancing and grant to GE
Capital a right of first refusal (which may be exercised at any time during such
thirty day period) to provide such financing upon terms and subject to
conditions substantially similar to those provided to GE Capital for review.
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91
6.13 Amendments to Ancillary Documents. The Company shall not waive
---------------------------------
or otherwise relinquish any of its rights or causes of action arising out of any
Ancillary Document (other than the Loan Documents) to which it is a party, or
out of the Existing Bank Release Agreement or the NBD Release Agreement, or
agree to the amendment or modification of any of the provisions thereof without
the prior written consent of the Agent and the Required Lenders. The Company
will not permit the amendment or modification of its Certificate of
Incorporation without the prior written consent of the Agent and the Required
Lenders.
6.14 Limitation on Affiliate Transactions. The Company shall not,
------------------------------------
nor shall it permit any of its Subsidiaries to, enter into any transaction,
including, without limitation, any purchase, sale or exchange of property or the
rendering of any services, with any Subsidiary (other than a Wholly Owned
Subsidiary of the Company) or Affiliate of the Company, unless such a
transaction is otherwise permitted under this Agreement, is in the ordinary
course of the Company's or such Subsidiary's business and is upon fair and
reasonable terms no less favorable to the Company or such Subsidiary than it
would obtain in a comparable arm's-length transaction with a Person not a
Subsidiary or an Affiliate.
6.15 No Subsidiaries. The Company shall not at any time acquire,
---------------
establish or otherwise suffer to exist any Subsidiaries, other than the
Subsidiaries listed on Schedule XI, which Subsidiaries shall not, in any event,
have any meaningful assets, capital or liabilities or conduct any meaningful
business.
6.16 Accounting Treatment. The Company shall not fail to take
--------------------
necessary actions including, without limitation, making appropriate entries in
its accounting records, so that all amounts outstanding under this Agreement,
whether principal, interest, fees, costs, expenses, reimbursement obligations or
otherwise, constitute "Senior Indebtedness" (or the equivalent term) within the
meaning of the indentures or other instruments under which any subordinated
indebtedness (including, without limitation, the Subordinated Bridge Notes)
shall be outstanding.
6.17 Compensation. The Company shall not, and shall not permit any
------------
of its Subsidiaries to, amend, supplement or otherwise modify its executive cash
compensation policies if as a result of such amendment, modification or
supplement such executive cash compensation policies would materially differ
from the Company's or such Subsidiary's existing policies or past practices.
6.18 Maintenance of Business. The Company shall not, and shall not
-----------------------
permit any of its Subsidiaries to, engage in any business other than the
distribution of refrigeration, air conditioning and heating equipment.
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92
6.19 Cancellation of Claims or Indebtedness. The Company shall not,
--------------------------------------
and shall not permit any of its Subsidiaries to, cancel any claim or
Indebtedness owing to it, except for reasonable consideration (which, under the
circumstances, may be no consideration) and in the ordinary course of business.
6.20 Environmental Matters. (a) The Company shall not, nor shall it
---------------------
permit any of its Subsidiaries to, use or permit or suffer use of any property
owned, operated or leased by the Company or any of its Subsidiaries, or conduct
any activity or operations thereon in any manner which:
(i) would involve or result in generation, manufacture, discharge,
release, disposal, transportation, treatment, transmission, storage, usage
or handling of Hazardous Materials or other toxic material at, upon, under,
across or within any such property or any other property owned, operated or
leased by the Company or any of its Subsidiaries or any part thereof, if
such action is reasonably likely to (x) result in the violation of any
Environmental Law, (y) subject the Company or any of its Subsidiaries to
direct or indirect costs (including, without limitation, fines, penalties,
costs of remediation and costs incidental to interruption of operations
resulting from any violation of Environmental Laws) material, in the
judgment of the Required Lenders, to the Company or any of its Subsidiaries
or (z) subject the Company or any of its Subsidiaries to a Lien or an
injunction against its operations; or
(ii) would result in the discharge of pollutants or effluents into any
water source or system or the discharge into the air of any emissions for
which a permit would be required under any Requirement of Law or would
result in groundwater contamination or soil contamination.
(b) From and after the Effective Date, the Company shall not install
or permit to be installed any Asbestos in any other property owned, operated or
leased by the Company or any of its Subsidiaries or any part thereof.
(c) The Company shall not, nor shall it permit any of its
Subsidiaries to, install or suffer or permit installation or existence on, in or
under any property owned, operated or leased by the Company or any of its
Subsidiaries, of any underground or above-ground tanks for the storage of fuel
oil, gasoline or other petroleum products or by-products or Hazardous Materials.
6.21 Payments in Respect of Accounts. The Company shall not, nor
-------------------------------
shall it permit any of its Subsidiaries to, instruct or otherwise permit any
Person obligated under any of the Accounts (as defined in the Security
Agreements) to remit any payment (whether by check, wire transfer or otherwise)
to any
<PAGE>
93
account other than the Lock Box Account (as defined in the Lock Box Agreement)
established by the Agent pursuant to the Lock Box Agreement.
6.22 Bank Accounts. The Company shall not, nor shall it permit any
-------------
of its Subsidiaries to, establish or maintain, or permit to be established or
maintained, any bank accounts in the name of, or for the benefit of, Holdings or
any of its Subsidiaries, except such bank accounts of which the Agent has been
notified in writing.
6.23 Store Openings. The Company shall not, nor shall it permit any
--------------
of its Subsidiaries to, maintain more than 308 stores or branches at any one
time.
SECTION 7. EVENTS OF DEFAULT
Upon the occurrence and during the continuance of any of the following
events:
(a) Payments. Failure by the Company to pay any principal of or
--------
interest on any Note or to pay any fee or other amount payable hereunder
(including, without limitation, any Reimbursement Obligation) when due, in
accordance with the terms thereof or hereof; or
(b) Representations and Warranties. Any representation or warranty
------------------------------
made or deemed made by the Company in this Agreement or any other Loan
Document to which it is a party or by any other Loan Party in any Loan
Document to which it is a party, or made or deemed made or in any
certificate, document or financial or other statement furnished at any time
in connection herewith or therewith, shall prove to have been incorrect or
misleading in any material respect on or as of the date made or deemed
made; or
(c) Representations and Warranties in Purchase Agreement. Any
----------------------------------------------------
representation or warranty made or deemed made by any party to the Purchase
Agreement, or made or deemed made or in any certificate, document or
financial or other statement furnished at any time in connection therewith,
shall prove to have been incorrect or misleading in any material respect on
or as of the date made or deemed made; or
(d) Certain Covenants. Default by the Company in the observance or
-----------------
performance of any agreement contained in Section 6; or
(e) Collateral Document Covenants. Default by any Loan Party in the
-----------------------------
observance or performance of any agreement
<PAGE>
94
in the Collateral Documents to which it is a party if the effect of such
default would be to impair in any material respect the value of, or impair
the Lien of the Agent, for the ratable benefit of the Agent and the
Lenders, on, the Collateral covered thereby, other than immaterial
Collateral; or
(f) Other Covenants. Default by any Loan Party in the observance or
---------------
performance of any other agreement contained in this Agreement or any other
Loan Document to which it is a party (other than as provided in paragraphs
(a) through (e) of this Section 7) and the continuance of such default
unremedied for a period of 30 days; or
(g) Effectiveness of Loan Documents. If for any reason (other than
-------------------------------
any act on the part of the Agent or the Lenders) any Loan Document ceases
to be in full force and effect or any Loan Party shall so assert or any of
the Liens intended to be created by any Collateral Document (except in
respect of immaterial Collateral) ceases to be or is not a valid and
perfected Lien having the priority contemplated thereby; or
(h) Removal of Collateral. Any of the assets of any Loan Party shall
---------------------
be attached, seized, levied upon or subjected to a writ or distress
warrant; or any Loan Party shall have concealed, removed or permitted to be
concealed or removed, any part of its property, with intent to hinder,
delay or defraud its creditors or any of them or made or suffered a
transfer of any of its property or the incurring of an obligation which may
be fraudulent under any bankruptcy, fraudulent conveyance or other similar
law; or
(i) Cross-Default. Any Loan Party shall (i) default in any payment
-------------
of principal of or interest on any Indebtedness (other than the Notes and
the Letter of Credit Obligations) or in the payment of any Contingent
Obligation, beyond the period of grace (not to exceed 30 days), if any,
provided in the instrument or agreement under which such Indebtedness or
Contingent Obligation was created; or (ii) default in the observance or
performance of any other agreement or condition relating to any such
Indebtedness or Contingent Obligation or contained in any instrument or
agreement evidencing, securing or relating thereto, or any other event
shall occur or condition exist, the effect of which default or other event
or condition is to cause, or to permit the holder or holders of such
Indebtedness or beneficiary or beneficiaries of such Contingent Obligation
(or a trustee or agent on behalf of such holder or holders or beneficiary
or beneficiaries) to cause, with the giving of notice or the lapse of time
(or both) such Indebtedness to become due prior to its stated maturity or
such Contingent Obligation to become payable; provided, however,
-------- -------
<PAGE>
95
that a default, event or condition described in clause (i) or (ii) of this
paragraph (i) shall not constitute an Event of Default under this Agreement
unless, at the time of such default, defaults, events or conditions of the
type described in clauses (i) and (ii) of this paragraph (i) shall have
occurred and be continuing with respect to Indebtedness and/or Contingent
Obligations the outstanding principal amount of which exceeds in the
aggregate $250,000; or
(j) Commencement of Bankruptcy or Reorganization Proceeding. (i) Any
-------------------------------------------------------
Loan Party shall commence any case, proceeding or other action (A) under
any existing or future law of any jurisdiction, domestic or foreign,
relating to bankruptcy, insolvency, reorganization or relief of debtors,
seeking to have an order for relief entered with respect to it, or seeking
to adjudicate it as bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, winding-up, liquidation, dissolution, composition
or other relief with respect to it or its debts, or (B) seeking appointment
of a receiver, trustee, custodian or other similar official for it or for
all or any substantial part of its assets, or any Loan Party shall make a
general assignment for the benefit of its creditors; or (ii) there shall be
commenced against any Loan Party any case, proceeding or other action of a
nature referred to in clause (i) above which (A) results in the entry of an
order for relief or any such adjudication or appointment or (B) remains
undismissed, undischarged or unbonded for a period of 60 days; or (iii)
there shall be commenced against any Loan Party any case, proceeding or
other action seeking issuance of a warrant of attachment, execution,
distraint or similar process against all or any substantial part of its
assets that results in the entry of an order for any such relief that shall
not have been vacated, discharged, or stayed or bonded pending appeal
within 60 days from the entry thereof; or (iv) any Loan Party shall take
any action authorizing, or in furtherance of, or indicating its consent to,
approval of, or acquiescence in, any of the acts set forth in clauses (i),
(ii) or (iii) above; or (v) any Loan Party shall generally not, or shall be
unable to, or shall admit in writing its inability to, pay its debts as
they become due; or
(k) ERISA. (i) Any Person shall engage in any "prohibited
-----
transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code)
involving any Plan, (ii) any "accumulated funding deficiency" (as defined in
Section 302 of ERISA), whether or not waived, shall exist with respect to any
Plan, (iii) a Reportable Event shall occur with respect to, or proceedings shall
commence to have a trustee appointed, or a trustee shall be appointed, to
administer or to terminate, any Single Employer Plan, which Reportable Event or
commencement of proceedings or appointment of a
<PAGE>
96
trustee is, in the reasonable opinion of the Required Lenders, likely to result
in the termination of such Plan for purposes of Title IV of ERISA, (iv) any
Single Employer Plan shall terminate for purposes of Title IV of ERISA, (v) the
Company or any Commonly Controlled Entity shall, or in the reasonable opinion of
the Required Lenders is likely to, incur liability in connection with a
withdrawal from, or the Insolvency or Reorganization of, all Multiemployer Plans
or (vi) any other similar event or condition shall occur or exist, with respect
to a Plan; and in each case with respect to clauses (i) through (vi) above, such
event or condition, together with all other such events or conditions, if any,
could reasonably be expected to subject the Company or any of its Subsidiaries
to any tax, penalty or other liabilities in the aggregate in excess of $250,000;
or
(l) Judgments. One or more judgments or decrees shall be entered
---------
against Holdings or any of its Subsidiaries involving in the aggregate a
liability (not paid or fully covered by insurance) of $250,000 or more and
all such judgments or decrees shall not have been vacated, discharged,
stayed or bonded pending appeal within 30 days from the entry thereof; or
(m) Environmental Liabilities. If at any time the Company and its
-------------------------
Subsidiaries shall become liable for remediation and/or environmental
compliance expenses and/or fines, penalties or other charges which, in the
aggregate, are in excess of $250,000; or
(n) Change of Control. The Investors on the date hereof, management
-----------------
stockholders of Holdings and GE Capital, collectively, shall cease to own,
directly or indirectly, at least 80% of the issued and outstanding capital
stock of Holdings or at least 80% of the capital stock of Holdings on a
fully diluted basis, or Holdings shall cease to own 100% of the capital
stock of the Company on a fully diluted basis, in each case free and clear
of all Liens (other than the Liens created by the Holdings Pledge
Agreement); or
(o) Holdings Operations. Holdings shall (i) conduct, transact or
-------------------
otherwise engage in any business or operations, incur, create, assume or
suffer to exist any Indebtedness in excess of $25,000, Lien, Contingent
Obligations or other liabilities or obligations (other than as created in
the Ancillary Documents to which it is a party and any activities directly
relating to the consummation of the transactions contemplated hereby or by
the Acquisition), or (ii) own, lease, manage or otherwise operate any
properties or assets (including, without limitation, the capital stock of
any direct Subsidiaries, but not including the capital stock of the
Company), in either case other than such activities which are incidental to
the function of Holdings
<PAGE>
97
as a holding company for the Company and its Subsidiaries; or
(p) Holdings Stock Issuances. Holdings shall issue any capital stock
------------------------
(other than any capital stock issued as dividends paid in-kind on existing
capital stock of Holdings) and shall fail to immediately contribute the
proceeds thereof (net of underwriting commissions) to the capital of the
Company, or the Company shall fail to promptly prepay the Loans and cash
collateralize the Reimbursement Obligations in accordance with the
provisions of subsection 2.11(c) in the amount equal to such capital
contribution; or
(q) Holdings Board of Directors. (i) During any 12-month period,
---------------------------
individuals who at the beginning of such period constituted Holdings' board
of directors, plus any new directors whose election by Holdings' board of
directors or nomination for election by Holdings' stockholders was approved
by a vote of at least two-thirds of the directors then still in office who
either were directors at the beginning of such period or whose election or
nomination for election had been so approved, cease for any reason (other
than death, disability or retirement in accordance with Holdings' existing
policies) to constitute at least a majority of Holdings' board of
directors; or
(r) Departure of Chief Executive Officer. Brian Esher shall cease to
------------------------------------
be actively involved in the capacity of chief executive officer of the
Company, other than as a result of his death or disability; or
(s) Appointment of Chief Executive Officer. The Company shall fail
--------------------------------------
to adopt a succession plan on or prior to August 1, 1993 in the event of
the death, disability or departure of Brian Esher as Chief Executive
Officer which plan is reasonably acceptable to the Agent; or
(t) Amendment of Stockholders' Agreements. The Stockholders'
-------------------------------------
Agreements shall be amended by the parties thereto, or shall terminate,
without the prior written consent of GE Capital and the Required Lenders;
or
(u) Amendment of Rights of Preferred Stock. Holdings shall amend,
--------------------------------------
supplement or otherwise modify the certificate of designation or other
terms applicable to the Holdings Preferred Stock; or
(v) Amendment of Management Services Agreement. Holdings shall
------------------------------------------
amend, supplement or otherwise modify the Management Services Agreement in
any material respect, or such agreement shall terminate, without the prior
written consent of GE Capital and the Required Lenders or the
<PAGE>
98
Management Services Agreement shall, for any reason, fail to be in full
force and effect; or
(w) Dividends. Holdings shall declare or pay any dividend (other
---------
than dividends payable solely in common stock of Holdings) on, or make any
payment on account of, or set apart assets for a sinking or other analogous
fund for, the purchase, redemption, defeasance, retirement or other
acquisition of, any shares of any class of capital stock of Holdings or any
of its Subsidiaries, or any warrants or options to purchase such stock,
whether now or hereafter outstanding, or make any other distribution in
respect thereof, either directly or indirectly, whether in cash or property
or in obligations of Holdings or any of its Subsidiaries; or
(x) Material Adverse Effect. Any other event, condition or change
-----------------------
shall have occurred with respect to the business, operations, properties,
assets, management or condition (financial or otherwise) of Holdings or any of
its Subsidiaries that could reasonably be expected to have a Material Adverse
Effect and such event, condition or change shall have continued unremedied for a
period of 10 days after notice to the Company by the Agent; or
(y) Holdings' Certificate of Incorporation. Holdings shall amend its
--------------------------------------
Certificate of Incorporation in any manner other than to increase the
number of authorized shares of its common stock or other administrative
changes which could not have an adverse effect on the rights and interests
of the Agent or any Lender; or
(z) Holdings' Fiscal Year. The fiscal year of Holdings shall end on
---------------------
a date other than the date which is the last day of the Company's fiscal
year; or
(aa) Junior Subordinated Notes. Holdings shall amend the terms and
-------------------------
provisions of the Junior Subordinated Notes or repay the Junior
Subordinated Debt, in whole or in part, prior to the scheduled maturity
thereof; or
(ab) Tax Liabilities. Holdings or the Company shall be held liable by
---------------
any Governmental Authority for, or shall pay any amount to any Person in
respect of, alternative minimum tax attributable to the consolidated group
of which the Acquired Companies were members prior to the Acquisition, or
any Governmental Authority shall take any remedial or enforcement action
against Holdings or the Company in respect of any such tax; or
(ac) MLX Indemnity. MLX shall exercise any rights against Holdings
-------------
pursuant to, or make any claim under, the Indemnity Agreement, dated as of
the date hereof, made by
<PAGE>
99
Holdings in favor of MLX or otherwise seek reimbursement for amounts
delivered pursuant to the MLX Limited Guarantee referenced in the
definition of the term "Indemnity Agreement" in subsection 1.1 of this
Agreement;
then, and in any such event, (1) if such event is an Event of Default specified
in clause (i), (ii), (iii) or (iv) of paragraph (j) above with respect to the
Company, automatically the Commitments shall immediately terminate and the Loans
hereunder (with accrued interest thereon) and all other amounts owing under this
Agreement (including, without limitation, all amounts of Letter of Credit
Obligations, whether or not the beneficiaries of the then outstanding Letters of
Credit shall have presented the documents required thereunder) and the Notes
shall immediately become due and payable, and (2) if such event is any other
Event of Default, either or both of the following actions may be taken: (x) with
the consent of the Required Lenders, the Agent may, or upon request of the
Required Lenders, the Agent shall, by notice to the Company, declare the
Commitments to be terminated forthwith, whereupon the Commitments hereunder
shall immediately terminate; and (y) with the consent of the Required Lenders,
the Agent may, or upon request of the Required Lenders, the Agent shall, by
notice to the Company, declare all or a portion of the Loans hereunder (with
accrued interest thereon) and all other amounts owing under this Agreement
(including, without limitation, all amounts of Letter of Credit Obligations,
whether or not the beneficiaries of the then outstanding Letters of Credit shall
have presented the documents required thereunder) and the Notes to be due and
payable forthwith, whereupon the same shall immediately become due and payable.
With respect to all Letters of Credit and GE Guarantees that shall not have
matured or with respect to which presentment for honor or demand for payment
shall not have occurred, upon the termination of the Commitments and/or
acceleration of the Loans, the Company shall cash collateralize such Letters of
Credit and GE Guarantees in the manner set forth in subsection 2.11(c). Except
as expressly provided above in this Section 7, presentment, demand, protest and
all other notices of any kind are hereby expressly waived.
SECTION 8. THE AGENT
8.1 Appointment. Each Lender hereby irrevocably designates and
-----------
appoints General Electric Capital Corporation as the Agent of such Lender under
this Agreement and the other Loan Documents, and each such Lender irrevocably
authorizes General Electric Capital Corporation, as the Agent for such Lender,
to take such action on its behalf under the provisions of the Loan Documents and
to exercise such power and perform such duties as are expressly delegated to the
Agent by the terms of this Agreement and the other Loan Documents, together with
such other powers as are reasonably incidental thereto. Notwithstanding any
provision to the contrary elsewhere in any Loan Document, the
<PAGE>
100
Agent shall not have any duties or responsibilities, except those expressly set
forth herein, or any fiduciary relationship with any Lender, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities shall
be read into the Loan Documents or otherwise exist against the Agent.
8.2 Delegation of Duties. The Agent may execute any of its duties
--------------------
under this Agreement and the other Loan Documents by or through agents or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Agent shall not be responsible for the
negligence or misconduct of any agents or attorneys-in-fact selected by it with
reasonable care.
8.3 Exculpatory Provisions. Neither the Agent nor any of its
----------------------
officers, directors, employees, agents, attorneys-in-fact or Affiliates shall be
(a) liable to any of the Lenders for any action lawfully taken or omitted to be
taken by it or such Person under or in connection with the Loan Documents
(except for its or such Person's own gross negligence or willful misconduct) or
(b) responsible in any manner to any of the Lenders for any recitals,
statements, representations or warranties made by any Loan Party or any officer
thereof contained in the Loan Documents or in any certificate, report, statement
or other document referred to or provided for in, or received by the Agent under
or in connection with, any Loan Document or for the value, validity,
effectiveness, genuineness, enforceability or sufficiency of the Loan Documents
or for any failure of any Loan Party to perform its obligations hereunder or
thereunder. The Agent shall not be under any obligation to any Lender to
ascertain or to inquire as to the observance or performance of any of the
agreements contained in, or conditions of, the Loan Documents, or to inspect the
properties, books or records of any Loan Party.
8.4 Reliance by Agent. The Agent shall be entitled to rely, and
-----------------
shall be fully protected in relying, upon any Note, writing, resolution, notice,
consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or
teletype message, statement, order or other document or conversation believed by
it to be genuine and correct and to have been signed, sent or made by the proper
Person or Persons and upon advice and statements of legal counsel (including,
without limitation, counsel to the Company), independent accountants and other
experts selected by the Agent. The Agent may deem and treat the payee of any
Note as the owner thereof for all purposes unless a written notice of
assignment, negotiation or transfer thereof shall have been filed with the
Agent. The Agent shall be fully justified in failing or refusing to take any
action under the Loan Documents unless it shall first receive such advice or
concurrence of those Lenders required by subsection 9.1 or it shall first be
indemnified to its satisfaction by the Lenders against any and all liability and
expense that may be incurred by it by reason of taking or
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101
continuing to take any such action. The Agent shall in all cases be fully
protected in acting, or in refraining from acting, under the Loan Documents in
accordance with a request of the Required Lenders, and such request and any
action taken or failure to act pursuant thereto shall be binding upon all the
Lenders.
8.5 Notice of Default. The Agent shall not be deemed to have
-----------------
knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless the Agent has received notice from a Lender or the Company
referring to this Agreement, describing such Default or Event of Default and
stating that such notice is a "notice of default". In the event that the Agent
receives such a notice, the Agent shall give notice thereof to the Lenders. The
Agent shall take such action with respect to such Default or Event of Default as
shall be reasonably directed by the Required Lenders; provided that unless and
--------
until the Agent shall have received such directions, the Agent may (but shall
not be obligated to) take such action, or refrain from taking such action, with
respect to such Default or Event of Default as it shall deem advisable in the
best interests of the Lenders.
8.6 Non-Reliance on Agent and Other Lenders. Each Lender expressly
---------------------------------------
acknowledges that neither the Agent nor any of its officers, directors,
employees, agents, attorneys-in-fact or Affiliates has made any representations
or warranties to it and that no act by the Agent hereafter taken, including any
review of the affairs of any Loan Party, shall be deemed to constitute any
representation or warranty by the Agent to any Lender. Each Lender represents
to the Agent that it has, independently and without reliance upon the Agent or
any other Lender, and based on such documents and information as it has deemed
appropriate, made its own appraisal of and investigation into the business,
operations, property, financial and other condition and creditworthiness of the
Loan Parties and made its own decision to hold the Notes held by it and make its
Loans hereunder and participate in the Reimbursement Obligations and the Letters
of Credit Obligations. Each Lender also represents that it will, independently
and without reliance upon the Agent or any other Lender, and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit analysis, appraisals and decisions in taking or not taking
action under the Loan Documents, and make such investigations as it deems
necessary to inform itself as to the business, operations, property, financial
and other condition and creditworthiness of the Loan Parties. Except for
notices, reports and other documents expressly required to be furnished to the
Lenders by the Agent hereunder and under the other Loan Documents, the Agent
shall not have any duty or responsibility to provide any Lender with any credit
or other information concerning the business, operations, property, financial
and other condition or creditworthiness of the Loan Parties that may come into
the possession of the Agent or any of its officers, directors, employees,
agents, attorneys-in-fact or Affiliates.
<PAGE>
102
8.7 Indemnification. The Lenders agree to indemnify the Agent in
---------------
its capacity as such (to the extent not reimbursed by the Company and without
limiting the obligation of the Company to do so), ratably according to their pro
---
rata share of the outstanding principal amount of Loans and the Reimbursement
- ----
Obligations, from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind whatsoever that may at any time (including without limitation at any
time following the payment of the Obligations) be imposed on, incurred by or
asserted against the Agent in any way relating to or arising out of the Loan
Documents, or any documents contemplated by or referred to therein or the
transactions contemplated thereby or any action taken or omitted by the Agent
under or in connection with any of the foregoing; provided that no Lender shall
--------
be liable for the payment of any portion of such liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements resulting solely from the Agent's gross negligence or willful
misconduct. The agreements in this subsection 8.7 shall survive the payment of
the Obligations.
8.8 Agent in Its Individual Capacity. The Agent and its Affiliates
--------------------------------
may make loans to, and generally engage in any kind of business with, any Loan
Party as though the Agent were not the Agent hereunder and under the other Loan
Documents. With respect to its Loans and other Extensions of Credit made or
renewed by it and any Note held by it, the Agent shall have the same rights and
powers under this Agreement and under the other Loan Documents as any Lender and
may exercise the same as though it were not the Agent, and the terms "Lender"
and "Lenders" shall include the Agent in its individual capacity.
8.9 Successor Agent. The Agent may resign as Agent upon 30 days'
---------------
notice to the Lenders. If the Agent shall resign as Agent under this Agreement
and the other Loan Documents, then the Required Lenders shall (with the approval
of the Company, which shall not be unreasonably withheld) appoint from among the
Lenders a successor agent for the Lenders, whereupon such successor agent shall
succeed to the rights, powers and duties of the Agent, and the term "Agent"
shall mean such successor agent effective upon its appointment, and the former
Agent's rights, powers and duties as Agent shall be terminated, without any
other or further act or deed on the part of such former Agent or any of the
parties to this Agreement or any holders of the Notes. After any retiring
Agent's resignation hereunder as Agent, the provisions of this subsection 8.9
shall inure to its benefit as to any actions taken or omitted to be taken by it
while it was Agent under this Agreement and the other Loan Documents.
8.10 No Effect on any Loan Party. The Lenders and the Agent agree
---------------------------
that this Section 8 outlines the rights and responsibilities of the Agent and
the Lenders as among themselves
<PAGE>
103
and is not intended to affect the rights or obligations of any Loan Party under
the Loan Documents.
SECTION 9. MISCELLANEOUS
9.1 Complete Agreement; Amendments and Waivers. (a) The Loan
------------------------------------------
Documents constitute the complete agreement among the Loan Parties, the Agent
and the Lenders with respect to the subject matter hereof.
(b) Except as provided in subsection 9.2(c) hereof, no amendment or
supplement to or waiver of any provision of this Agreement, the Notes or any
other Loan Document, nor consent to any departure by any Loan Party therefrom,
shall in any event be effective unless the same shall be in writing and signed
by the Required Lenders and such Loan Party, and then such amendment,
supplement, waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given; provided that no amendment,
--------
supplement, waiver or consent shall, unless in writing and signed by all of the
Lenders and all Purchasing Institutions affected thereby, do any of the
following: (i) increase any of the Commitments or subject any Lender or any
Purchasing Institution to any additional financial obligations pursuant thereto,
except that any Commitment of GE Capital may be changed by GE Capital and the
Company; (ii) except pursuant to amendments, waivers or consents relating to
subsections 2.6(a) and (b) or any definition used therein, reduce the principal
of, or interest on, the Notes or other amounts payable hereunder (including,
without limitation, the Reimbursement Obligations), except that amounts payable
only to GE Capital may be reduced by GE Capital unilaterally; (iii) except
pursuant to amendments, waivers or consents relating to subsections 2.6(a) and
(b) or any definition used therein, postpone any date fixed for any payment of
principal of, or interest on, the Notes or other amounts payable hereunder
(including, without limitation, the Reimbursement Obligations), except that
amounts payable only to GE Capital may be postponed by GE Capital unilaterally;
(iv) change the number of Lenders and Purchasing Institutions or the aggregate
unpaid principal amount of the Notes or the Letter of Credit Obligations that,
in either case, shall be required for the Lenders and the Purchasing
Institutions or any of them to take any action hereunder; (v) release or
discharge any Loan Party from the performance of its obligations under any of
the Loan Documents to which it is a party; (vi) release all or substantially all
of the Collateral from the Liens created by the Collateral Documents; or (vii)
amend subsection 2.19 or this subsection 9.1; and provided, further, that any
-------- -------
amendment or supplement to, or modification of, this Agreement or waiver of a
Default or an Event of Default hereunder that would have the effect of (w)
reinstating the obligations of the Lenders to make Loans or incur Letter of
Credit Obligations from and after the date such obligations have
<PAGE>
104
been terminated or (x) changing the terms of or obligation to make Loans or
incur Letter of Credit Obligations, shall require the affirmative consent
thereto of holders of Notes evidencing at least 66-2/3% of the aggregate unpaid
principal amount of the Loans then outstanding and Reimbursement Obligations
then outstanding or, in the event that at such date there are no Loans then
outstanding or Reimbursement Obligations then outstanding, then Lenders having
at least 66-2/3% of the Commitments; and provided, further, that (y) no
-------- -------
amendment, supplement, waiver or consent shall, unless in writing and signed by
the Agent in addition to the Lenders and Purchasing Institutions required above
to take such action, affect the rights or duties of the Agent under this
Agreement, any Note or any Loan Document and (z) no amendment, waiver or consent
shall, unless in writing and signed by GE Capital in addition to the Lenders and
Purchasing Institutions required above to take such action, affect the rights or
duties of GE Capital as the Person incurring the Letter of Credit Obligations or
amend, supplement or otherwise modify the provisions of subsection 2.11 or
subsection 2.12.
9.2 Successors and Assigns; Participations; Purchasers. (a) This
--------------------------------------------------
Agreement shall be binding upon and inure to the benefit of the Company, the
Agent, the Lenders, all future holders of the Notes and their respective
successors and assigns. No Loan Party may sell, assign or transfer any of the
Loan Documents or any portion thereof including, without limitation, such Loan
Party's rights, title, interests, remedies, powers and duties hereunder or
thereunder, except in connection with transactions permitted by subsection 6.3.
(b) Any Lender may, in accordance with applicable law, at any time
sell to one or more banks or other entities (each, a "Participant")
-----------
participating interests in any Loan owing to such Lender, any Note held by such
Lender, any Commitment of such Lender, any Reimbursement Obligation owing to
such Lender, any Letter of Credit Obligation or any other interest of such
Lender hereunder. In the event of any such sale by a Lender to a Participant,
such Lender's obligations hereunder to the other parties hereto shall remain
unchanged, such Lender shall remain solely responsible for the performance
thereof, such Lender shall remain the holder of any such Note for all purposes
hereunder and each Loan Party shall continue to deal solely and directly with
such Lender in connection with such Lender's rights and obligations hereunder.
(c) Any Lender may, in accordance with applicable law, at any time
and from time to time sell, assign and transfer to one or more banks or
financial institutions (each, a "Purchasing Institution") all or any part of its
----------------------
rights and obligations under this Agreement or any of the Notes or Reimbursement
Obligation owed to it or its Letter of Credit Obligations pursuant to a
Commitment Transfer Supplement, substantially in the form of Exhibit J hereto
(each, a "Commitment Transfer Supplement"),
------------------------------
<PAGE>
105
executed by such Purchasing Institution and the Agent and delivered to the Agent
for its acceptance and recording in the Register; provided, however, that each
-------- -------
such Commitment Transfer Supplement between GE Capital and a Purchasing
Institution that is not then a Lender or an Affiliate thereof which, after
giving effect to the transfer contemplated thereby, would result in GE Capital
holding less than 60% of the Commitments also shall be subject to the consent
(which consent shall not be unreasonably withheld) of, and shall be executed by,
the Company. Upon such execution, delivery, acceptance and recording, from and
after the Transfer Effective Date specified in such Commitment Transfer
Supplement, (i) the Purchasing Institution thereunder shall be a party hereto
and, to the extent provided in such Commitment Transfer Supplement, have the
rights and obligations of a Lender hereunder with respect to the Loans and other
Extensions of Credit as set forth therein and (ii) such transferor Lender shall,
to the extent provided in such Commitment Transfer Supplement, be released from
its obligations hereunder. Such Commitment Transfer Supplement shall be deemed
to amend this Agreement to the extent, and only to the extent, necessary to
reflect the addition of such Purchasing Institution and any resulting adjustment
of the Commitment Percentages arising from the purchase by such Purchasing
Institution of all or a portion of the rights and obligations of such transferor
Lender under this Agreement and the Notes. On or prior to the Transfer Effective
Date specified in such Commitment Transfer Supplement, the Company shall execute
and deliver to the Agent, in exchange for the surrendered Note or Notes, a new
Note or Notes to the order of such Purchasing Institution in an amount equal to
the Commitment or Commitments assumed by it pursuant to such Commitment Transfer
Supplement and a new Note or Notes to the order of such transferor Lender in an
amount equal to the Commitment or Commitments retained by it hereunder. Such new
Notes shall be in an aggregate principal amount equal to the principal amount of
such surrendered Note or Notes, shall be dated the Effective Date and shall
otherwise be in the form of the Note or Notes replaced thereby. The Note or
Notes surrendered by such transferor Lender shall be delivered by such
transferor Lender to the Agent and returned by the Agent to the Company marked
"cancelled".
(d) The Agent shall maintain at its address referred to in subsection
9.3 a copy of each Commitment Transfer Supplement delivered to it and a register
(the "Register" ) for the recordation of the names and addresses of the Lenders
--------
and the Commitment of and principal amount of the Loans and Reimbursement
Obligations owing to each Lender from time to time. The entries in the Register
shall be conclusive, in the absence of manifest error, and the Company, the
Agent and the Lenders may treat each Person whose name is recorded in the
Register as the owner of the Loan recorded therein for all purposes of this
Agreement. The Register shall be available for inspection by the Company or any
<PAGE>
106
Lender at any reasonable time and from time to time upon reasonable prior
notice.
(e) Upon its receipt of a Commitment Transfer Supplement executed by
a transferor Lender and a Purchasing Institution (and, to the extent required
pursuant to subsection 9.2(c), by the Company) together with payment to the
Agent of a registration and processing fee of $5,000, and the Notes subject to
such Commitment Transfer Supplement, the Agent shall (i) accept such Commitment
Transfer Supplement, (ii) record the information contained therein in the
Register and (iii) give prompt notice of such acceptance and recordation to the
Lenders and the Company.
(f) The Company authorizes each Lender to disclose to any Participant
or Purchasing Institution (each, a "Transferee") and any prospective Transferee
----------
any and all financial information in such Lender's possession concerning the
Loan Parties and their Affiliates that has been delivered to the Agent or such
Lender by or on behalf of the Company pursuant hereto or that has been delivered
to the Agent or such Lender by or on behalf of the Company in connection with
the Agent's or such Lender's credit evaluation of the Company and its Affiliates
prior to becoming a party hereto.
(g) If, pursuant to this subsection 9.2, any interest in this
Agreement or any Note is transferred to any Transferee that is organized under
the laws of any jurisdiction other than the United States or any State or other
political subdivision thereof, the transferor Lender shall cause such
Transferee, concurrently with the effectiveness of such transfer, (i) to
represent to the transferor Lender (for the benefit of the transferor Lender,
the Agent and the Company) that under applicable law and treaties, no taxes will
be required to be withheld by the Agent, the Company or the transferor Lender
with respect to any payments to be made to such Transferee in respect of the
Loans and other Extensions of Credit, (ii) to furnish to the transferor Lender,
the Agent and the Company either U.S. Internal Revenue Service Form 4224 or U.S.
Internal Revenue Service Form 1001 (wherein such Transferee claims entitlement
to complete exemption from U.S. federal withholding tax on all interest payments
hereunder) and (iii) to agree (for the benefit of the transferor Lender, the
Agent and the Company) to provide the transferor Lender, the Agent and the
Company a new Form 4224 or Form 1001 upon the expiration or obsolescence of any
previously delivered form and comparable statements in accordance with
applicable U.S. laws and regulations and amendments duly executed and completed
by such Transferee, and to comply from time to time with all applicable U.S.
laws and regulations with regard to such withholding tax exemption.
(h) The Company shall use its best efforts to assist and cooperate
with each Lender in any manner reasonably requested
<PAGE>
107
by such Lender to effect the sale of permitted participations in or permitted
assignments of any of the Loan Documents or of any portion thereof or interest
therein, including, without limitation, assistance in the preparation of
appropriate disclosure documents or placement memoranda.
9.3 Notices. All notices, consents, requests and demands to or upon
-------
the respective parties hereto to be effective shall be in writing or by
telegraph, telecopy or telex and, unless otherwise expressly provided herein,
shall be deemed to have been duly given or made when received, addressed as
follows to the Company, the Agent and the Lenders or to such other address as
may be hereafter notified by any of the respective parties hereto or any future
holders of the Notes:
The Company: Pameco Corporation
1000 Center Place
Norcross, Georgia 30093
Telecopy: (404) 798-0633
Attn: Chief Financial Officer
The Agent General Electric Capital
and GE Capital: Corporation
501 Merritt Seven, Third Floor
Norwalk, Connecticut 06851
Telecopy: (203) 840-4560
Attn: Vice President - Portfolio
Commercial Finance
with a copy to: Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Telecopy: (212) 455-2502
Attn: Michael D. Nathan, Esq.
The other Lenders: To the address set forth
with its signature below.
9.4 No Waiver; Cumulative Remedies. No failure to exercise and no
------------------------------
delay in exercising, on the part of the Agent or any Lender, any right, remedy,
power or privilege hereunder, shall operate as a waiver thereof; nor shall any
single or partial exercise of any right, remedy, power or privilege hereunder
preclude any other or further exercise thereof or the exercise of any other
right, remedy, power or privilege. The rights, remedies, powers and privileges
herein provided are cumulative and not exclusive of any rights, remedies, powers
and privileges provided by law.
9.5 Survival of Representations and Warranties. All representations
------------------------------------------
and warranties made hereunder and in any document, certificate or statement
delivered pursuant hereto or
<PAGE>
108
in connection herewith shall survive the execution and delivery of this
Agreement and the Notes.
9.6 Payment of Expenses and Taxes; Indemnities. The Company hereby
------------------------------------------
agrees (a) to pay or reimburse the Agent for all reasonable out-of-pocket costs
and expenses incurred in connection with the preparation, execution and delivery
of, and any amendment, supplement or modification to, the Loan Documents and any
other documents prepared in connection herewith, and the consummation of the
transactions contemplated hereby and thereby, including, without limitation, the
fees and disbursements of counsel to the Agent, (b) to pay or reimburse GE
Capital for its out-of-pocket expenses incurred in connection with the
monitoring of Accounts, (c) to pay or reimburse the Agent, each Lender and each
Transferee for all reasonable costs and expenses incurred in connection with the
enforcement or preservation of any rights under the Loan Documents and any such
other documents, including, without limitation, fees and disbursements of
counsel and consultants to the Agent, each Lender and each Transferee, (d) to
pay, indemnify, and hold each Lender and each Transferee harmless from, any and
all recording and filing fees and any and all liabilities with respect to, or
resulting from any delay in paying, stamp, excise and other taxes, if any, that
may be payable or determined to be payable in connection with the execution and
delivery of, or consummation of any of the transactions contemplated by, or any
amendment, supplement or modification of, or any waiver or consent under or in
respect of, the Loan Documents and any such other documents (other than any such
taxes relating to the transfer of any Note by the holder thereof), and (e) to
pay, indemnify, and hold the Agent, each Lender and each Transferee harmless
from and against any and all other liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever with respect to the execution, delivery, enforcement
and performance of the Loan Documents and any such other documents or in any way
relating to the Acquisition (all the foregoing, collectively, the "indemnified
-----------
liabilities"); provided that the Company shall have no obligation hereunder to
- ----------- --------
the Agent, any Lender or any Transferee with respect to indemnified liabilities
arising from the gross negligence or willful misconduct of such Person. The
agreements in this subsection 9.6 shall survive repayment of the Obligations.
9.7 MUTUAL WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN
---------------------------
CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS (SUCH AS THE ACQUISITION AND THE
TRANSACTIONS CONTEMPLATED BY THE LOAN DOCUMENTS) ARE MOST QUICKLY AND
ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES HERETO
DESIRE APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION
RULES), THE AGENT, THE LENDERS, THE TRANSFEREES AND THE COMPANY INTEND THAT
THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE,
TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF
<PAGE>
109
ARBITRATION, THE AGENT, THE LENDERS, THE TRANSFEREES AND THE COMPANY WAIVE ALL
RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO ENFORCE OR
DEFEND ANY RIGHTS OR REMEDIES UNDER THIS AGREEMENT OR ANY OF THE OTHER LOAN
DOCUMENTS.
9.8 SUBMISSION TO JURISDICTION; WAIVERS. THE COMPANY HEREBY
-----------------------------------
IRREVOCABLY AND UNCONDITIONALLY:
(A) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS AGREEMENT, THE NOTES AND THE OTHER LOAN
DOCUMENTS TO WHICH IT IS A PARTY, OR FOR RECOGNITION AND ENFORCEMENT OF ANY
JUDGMENT IN RESPECT THEREOF, TO THE NON-EXCLUSIVE GENERAL JURISDICTION OF
THE COURTS OF THE STATE OF NEW YORK, THE COURTS OF THE UNITED STATES OF
AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK, AND APPELLATE COURTS FROM
ANY THEREOF;
(B) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT IN
SUCH COURTS AND WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO
THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT OR THAT SUCH
ACTION OR PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT TO
PLEAD OR CLAIM THE SAME;
(C) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR PROCEEDING
MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR CERTIFIED MAIL
(OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PREPAID, TO THE
COMPANY AT ITS ADDRESS SET FORTH IN SUBSECTION 9.3 OR AT SUCH OTHER ADDRESS
OF WHICH THE AGENT SHALL HAVE BEEN NOTIFIED PURSUANT THERETO;
(D) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT
SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE
RIGHT TO SUE IN ANY OTHER JURISDICTION; AND
(E) WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT
MAY HAVE TO CLAIM OR RECOVER IN ANY LEGAL ACTION OR PROCEEDING REFERRED TO
IN THIS SUBSECTION 9.8 ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL
DAMAGES.
9.9 Further Assurances. The Company agrees that at any time and from
------------------
time to time upon the written request of the Agent, the Company shall, and shall
cause its Subsidiaries to, execute and deliver such further documents and do
such further acts and things as the Agent or the Lenders may reasonably request
in order to effect the purposes of this Agreement and the other Loan Documents.
<PAGE>
110
9.10 Acknowledgements. The Company hereby acknowledges that:
----------------
(a) it has been advised by counsel in the negotiation, execution and
delivery of this Agreement and the Notes and the other Loan Documents and
Ancillary Documents;
(b) neither the Agent nor any Lender has any fiduciary relationship
to any Loan Party, and the relationship between Agent and Lenders, on one
hand, and the Company and the other Loan Parties, on the other hand, is
solely that of debtor and creditor; and
(c) no joint venture exists among the Lenders or among the Company or
any other Loan Party and the Lenders.
9.11 Severability. Any provision of this Agreement that is prohibited
------------
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
9.12 Counterparts. This Agreement may be executed on any number of
------------
separate counterparts and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.
9.13 GOVERNING LAW. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS AND
-------------
THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT AND THE OTHER
LOAN DOCUMENTS SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH, THE LAW OF THE STATE OF NEW YORK EXCEPT, IN THE CASE OF THE COLLATERAL
DOCUMENTS, TO THE EXTENT OTHERWISE PROVIDED THEREIN.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered in New York, New York by their proper and duly
authorized officers as of the day and year first above written.
PAMECO CORPORATION (formerly named
MLX Refrigeration & Air
Conditioning Group, Inc.)
By ________________________________
Title:
GENERAL ELECTRIC CAPITAL
CORPORATION, as Agent
and as a Lender
By ________________________________
Title:
<PAGE>
SCHEDULE I
----------
LENDING OFFICES AND COMMITMENTS
-------------------------------
Lender and Commitment
Lending Office Commitment Percentage
- -------------- ---------------- ----------
General Electric $60,000,000 100%
Capital Corporation
501 Merritt Seven,
Third Floor
Norwalk, CT 06851
<PAGE>
EXHIBIT A TO
CREDIT AGREEMENT
----------------
PROMISSORY NOTE
---------------
$60,000,000.00 New York, New York
March 19, 1992
FOR VALUE RECEIVED, the undersigned, PAMECO CORPORATION, a Delaware
corporation (the "Company"), hereby unconditionally promises to pay on the
-------
Termination Date, to the order of GENERAL ELECTRIC CAPITAL CORPORATION, a New
York corporation (the "Lender") at the office of General Electric Capital
------
Corporation, as agent for the lenders parties to the Credit Agreement referred
to below (in such capacity, the "Agent"), located at 260 Long Ridge Road,
-----
Stamford, CT 06902, in lawful money of the United States of America and in
immediately available funds, the principal amount equal to the lesser of (a)
SIXTY MILLION AND 00/100 DOLLARS ($60,000,000.00) and (b) the aggregate unpaid
principal amount of all Loans made by the Lender to the undersigned pursuant to
subsection 2.1 of said Credit Agreement and all other Loans made or deemed made
by the Company under the Credit Agreement.
The undersigned further agrees to pay interest in like money at such
office on the unpaid principal amount hereof from time to time the date hereof
at the applicable rate per annum as specified in subsection 2.4 of said Credit
Agreement until any such amount shall become due and payable (whether at the
stated maturity, by acceleration or otherwise), and thereafter on such overdue
amount at the rate per annum set forth in subsection 2.4(c) of said Credit
Agreement until paid in full (both before and after judgment). Interest shall be
due and payable in arrears on each Interest Payment Date, as such term is
defined in the Credit Agreement, provided that interest accruing pursuant to
subsection 2.4(c) shall be payable on demand.
The holder of this Note is authorized to record the date, Type and
amount of each Loan is made by such Lender, each continuation thereof, each
conversion of all or a portion thereof to another Type, the date and amount of
each payment or prepayment of principal thereof and the length of each Interest
Period with respect thereto, and any such recordation shall constitute prima
-----
facie evidence of the accuracy of the information so recorded in the absence of
- -----
manifest error, provided that failure by the Lender to make such recordation on
--------
this Note shall not affect any of the obligations of the Company under this Note
or said Credit Agreement.
This Note is one of the Notes referred to in the Credit Agreement,
dated as of March 19, 1992 (as amended, supplemented or otherwise modified from
time to time, the "Credit Agreement"), among the undersigned, the Lender, the
----------------
other lenders and financial institutions parties thereto and General Electric
Capital Corporation, as Agent, is entitled to the benefits
<PAGE>
2
thereof, is secured as provided therein and is subject to optional and mandatory
prepayment in whole or in part as provided therein. Terms used herein which are
defined in the Credit Agreement shall have such defined meanings unless
otherwise defined herein or unless the context otherwise requires.
Upon the occurrence of any one or more of the Events of Default
specified in such Credit Agreement, all amounts then remaining unpaid on this
Note shall become, or may be declared to be, immediately due and payable all as
provided therein.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
PAMECO CORPORATION
By _________________________
Title:
<PAGE>
3
SCHEDULE I
TO NOTE
----------
BASE RATE LOANS AND CONVERSIONS
AND REPAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
AMOUNT OF AMOUNT OF
BASE RATE EURODOLLAR
LOANS CON- LOANS
AMOUNT OF VERTED INTO CONVERTED AMOUNT OF UNPAID
INTEREST BASE RATE EURODOLLAR INTO BASE PRINCIPAL PRINCIPAL NOTATION
DATE PERIOD LOANS LOANS RATE LOANS REPAID BALANCE MADE BY
- ---- ------ ----- ----- ---------- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
_____ ________ ________ ________ ________ ________ ________ ________
_____ ________ ________ ________ ________ ________ ________ ________
_____ ________ ________ ________ ________ ________ ________ ________
_____ ________ ________ ________ ________ ________ ________ ________
_____ ________ ________ ________ ________ ________ ________ ________
_____ ________ ________ ________ ________ ________ ________ ________
_____ ________ ________ ________ ________ ________ ________ ________
_____ ________ ________ ________ ________ ________ ________ ________
_____ ________ ________ ________ ________ ________ ________ ________
_____ ________ ________ ________ ________ ________ ________ ________
_____ ________ ________ ________ ________ ________ ________ ________
_____ ________ ________ ________ ________ ________ ________ ________
_____ ________ ________ ________ ________ ________ ________ ________
_____ ________ ________ ________ ________ ________ ________ ________
_____ ________ ________ ________ ________ ________ ________ ________
_____ ________ ________ ________ ________ ________ ________ ________
_____ ________ ________ ________ ________ ________ ________ ________
_____ ________ ________ ________ ________ ________ ________ ________
_____ ________ ________ ________ ________ ________ ________ ________
_____ ________ ________ ________ ________ ________ ________ ________
_____ ________ ________ ________ ________ ________ ________ ________
_____ ________ ________ ________ ________ ________ ________ ________
_____ ________ ________ ________ ________ ________ ________ ________
</TABLE>
<PAGE>
SCHEDULE II
TO NOTE
-----------
EURODOLLAR LOANS AND CONVERSIONS
AND REPAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
AMOUNT OF AMOUNT OF
BASE RATE EURODOLLAR
LOANS CON- LOANS
AMOUNT OF VERTED INTO CONVERTED AMOUNT OF UNPAID
EURODOLLAR INTEREST EURODOLLAR INTO BASE PRINCIPAL PRINCIPAL NOTATION
DATE LOAN PERIOD LOANS RATE LOANS REPAID BALANCE MADE BY
- ---- ---- ------ ----- ---------- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
_____ ________ ________ ________ ________ ________ ________ ________
_____ ________ ________ ________ ________ ________ ________ ________
_____ ________ ________ ________ ________ ________ ________ ________
_____ ________ ________ ________ ________ ________ ________ ________
_____ ________ ________ ________ ________ ________ ________ ________
_____ ________ ________ ________ ________ ________ ________ ________
_____ ________ ________ ________ ________ ________ ________ ________
_____ ________ ________ ________ ________ ________ ________ ________
_____ ________ ________ ________ ________ ________ ________ ________
_____ ________ ________ ________ ________ ________ ________ ________
_____ ________ ________ ________ ________ ________ ________ ________
_____ ________ ________ ________ ________ ________ ________ ________
_____ ________ ________ ________ ________ ________ ________ ________
_____ ________ ________ ________ ________ ________ ________ ________
_____ ________ ________ ________ ________ ________ ________ ________
_____ ________ ________ ________ ________ ________ ________ ________
_____ ________ ________ ________ ________ ________ ________ ________
_____ ________ ________ ________ ________ ________ ________ ________
_____ ________ ________ ________ ________ ________ ________ ________
_____ ________ ________ ________ ________ ________ ________ ________
_____ ________ ________ ________ ________ ________ ________ ________
_____ ________ ________ ________ ________ ________ ________ ________
_____ ________ ________ ________ ________ ________ ________ ________
</TABLE>
<PAGE>
EXHIBIT L TO
CREDIT AGREEMENT
----------------
[FORM OF NOTICE OF BORROWING REQUEST]
____________, 199__
General Electric Capital Corporation, as Agent
Commercial Finance Group
501 Merritt Seven, Third Floor
Norwalk, CT 06851
Telecopy: (203) 840-4540
Attention: Account Manager
Ladies and Gentlemen:
Reference is made to the Credit Agreement, dated as of March 19, 1992,
among Pameco Corporation, the Lenders parties thereto, and General Electric
Capital Corporation, as Agent (as the same may be amended, supplemented or
otherwise modified from time to time, the "Credit Agreement"). Terms defined in
----------------
the Credit Agreement and used herein shall have the meanings given to them in
the Credit Agreement.
This is a Eurodollar Loan borrowing request pursuant to subsection 2.3
of the Credit Agreement requesting the following Eurodollar Loan:
Interest Period: _______ months
Eurodollar Loan amount: $________
Date to begin Interest Period: ___________
The Company hereby represents and warrants that the conditions in
subsection 4.2 of the Credit Agreement have been satisfied and hereby confirms
the granting of liens to the Agent, on behalf of the Lenders, pursuant to the
Collateral Documents.
Yours truly,
PAMECO CORPORATION
By: ______________________________
Title:
cc: General Electric Capital Corporation
Attention: Collateral Analyst (Pameco)
<PAGE>
Exhibit 10.10
AMENDMENT AGREEMENT NO. 6
AMENDMENT NO. 6, dated as of April 29, 1996, among Pameco Corporation
(the "Borrower"), the lenders party hereto (the "Lenders") and General Electric
Capital Corporation, as Agent (the "Agent").
WHEREAS, the Borrower, the Lenders and the Agent are parties to a
Credit Agreement dated as of March 19, 1992 (as amended, and as the same may be
further amended, supplemented or modified from time to time in accordance with
its terms, the "Credit Agreement") and such parties desire to amend the Credit
Agreement.
THE PARTIES AGREE AS FOLLOWS:
SECTION 1. Definitions. All capitalized terms used herein, unless
-----------
otherwise defined, are used as defined in the Credit Agreement.
SECTION 2. Amendment to Credit Agreement. Subject to the
-----------------------------
satisfaction of the conditions set forth in Section 3 below, the Credit
Agreement is amended effective as of the date hereof as follows:
(a) Section 1 of the Credit Agreement is hereby amended by adding the
following definitions in the proper order:
"Collections" shall have the meaning ascribed thereto in Annex X to
-----------
the Transfer Agreement and the Receivables Purchase Agreement.
"Company Pledge Agreement" means that certain Pledge Agreement, dated
------------------------
as of April 29, 1996, by the Company in favor of the Agent pledging the stock of
PSC.
"Fixed Rate" shall have the meaning ascribed thereto in Section 2.4(c)
----------
hereof.
"Fixed Rate Tranche" shall have the meaning ascribed thereto in
------------------
Section 2.4(c) hereof.
"Notice of Fixed Rate Election" shall have the meaning ascribed
-----------------------------
thereto in Section 2.4(d) hereof.
"One Month Eurodollar Rate" with respect to each day during each
-------------------------
Interest Period of one calendar month (as adjusted in accordance with Section
2.4(a) hereof) pertaining to a Eurodollar Loan shall mean, a rate per annum
determined for such day equal to the sum of (a) the Eurodollar Assessment Rate
at such time and (b) the quotient of the Eurodollar Base Rate for
<PAGE>
such Interest Period divided by (x) one hundred percent minus (y) the
------- -- -----
Eurocurrency Reserve Requirements (rounded upward to the nearest 1/16th of 1%).
"PSC" shall mean Pameco Securitization Corporation, a Delaware
---
corporation.
"Receivable" shall have the meaning ascribed thereto in Annex X to the
----------
Transfer Agreement and the Receivables Purchase Agreement.
"Receivables Purchase Agreement" means the Receivables Purchase and
------------------------------
Servicing Agreement, dated as of April 29, 1996 among PSC, as Seller, Redwood
Receivables Corporation, as Purchaser, Pameco Corporation, as Servicer and
General Electric Capital Corporation, as Operating Agent and Collateral Agent.
"Transfer Agreement" means the Receivables Transfer Agreement, dated
------------------
as of April 29, 1996 between Pameco Corporation and PSC.
(b) The chart contained in the definition of "Applicable Margin" in
Section 1 of the Credit Agreement is amended in its entirety to read as follows:
<TABLE>
<CAPTION>
Period Index Rate Loans Eurodollar Loans
------ ---------------- ----------------
<S> <C> <C>
Adjusted Interest Rate Coverage 0.00 2.25
Ratio less than 2.75 to 1.0
Adjusted Interest Rate Coverage 0.00 2.00
Ratio equal to or greater than
2.75 to 1.0
</TABLE>
(c) The definition of "Loan Documents" in Section 1 of the Credit
Agreement is hereby amended by inserting the words "Company Pledge Agreement,"
immediately after the word "Notes" therein.
(d) The definition of "Subsidiary" in Section 1 of the Credit
Agreement is hereby amended by adding the following sentence to the end thereof:
"Notwithstanding the foregoing, solely for purposes of compliance with
the covenants contained in the second sentence of Section 3.16(a) and
in Sections 5.14, 6.1, 6.2, 6.5, 6.7, 6.14, 6.15 and 6.18 hereof, the
term "Subsidiary" shall not be deemed to include PSC".
(e) The definition of "Termination Date" in Section 1 of the Credit
Agreement is amended by deleting the date "March 1, 1999" in the first line
thereof, and substituting in its place the date "April 29, 2001".
2
<PAGE>
(f) Section 2.1(a) of the Credit Agreement is hereby amended in its
entirety to read as follows:
Subject to the terms and conditions of this Agreement, each
Lender, severally and not jointly, agrees to make loans to the Company
from time to time during the Commitment Period in an aggregate
principal amount at any one time outstanding not to exceed the amount
equal to (i) the lesser of such Lender's Commitment Percentage of (x)
$70,000,000 and (y) the Borrowing Base then in effect minus (ii) such
-----
Lender's Commitment Percentage of the then outstanding Reimbursement
Obligations; provided that at no time during the Commitment Period may
(i) the aggregate principal amount of loans at any one time
outstanding and advanced against Eligible Inventory exceed $30,000,000
and (ii) the aggregate principal amount of loans outstanding hereunder
plus the aggregate "Capital Investment" outstanding under the
Receivables Purchase Agreement exceed $70,000,000. During the
Commitment Period, the Company may use the Commitments by borrowing,
prepaying and reborrowing, all in accordance with the terms and
conditions hereof.
(f) Section 2.1(b) of the Credit Agreement is hereby deleted in its
entirety.
(h) Section 2.4 of the Credit Agreement is hereby amended in its
entirety to read as follows:
"Section 2.4 Interest on Loans. Notwithstanding anything
-----------------
contained herein to the contrary including, without limitation, Sections
2.3, 2.7 and 2.8, the following shall govern with respect to interest on
Loans:
(a) The Company shall pay to the Agent for the account of each
Lender interest on the Loans at the following times: (i) with respect
to Loans bearing interest based upon the One Month Eurodollar Rate, in
arrears for the preceding calendar month, on the first day of each
calendar month and, with respect to each Fixed Rate Tranche, on the
last day of the relevant Interest Period therefor and such earlier
date that the Fixed Rate therefor in effect on the first day of such
Interest Period is no longer applicable to all or a portion of such
Fixed Rate Tranche but only for that portion of the Fixed Rate Tranche
for which such Fixed Rate is no longer applicable; (ii) if not
otherwise paid in full pursuant to clause (i) above, on the
Termination Date; and (iii) if any interest accrues or remains payable
after the Termination Date, upon demand. Whenever any payment to be
made hereunder or under any other Loan Document or on any Loan shall
be stated to be due and payable, or whenever the last day of any
Interest Period would otherwise occur, on a day which is not a
Business Day, such payment shall be made and the last day of such
Interest Period shall occur on the next succeeding Business Day and
such extension of time shall in such case be
3
<PAGE>
included in computing interest on such payment; provided, however,
-------- -------
that if such extension would cause a payment of a Fixed Rate Tranche
to be made, or the last day of such Interest Period for a Fixed Rate
Tranche to occur, in the next following calendar month, such payment
shall be made and the last day of such Interest Period shall occur on
the next preceding Business Day. Interest shall be calculated by the
Agent on a daily basis and on the basis of a three hundred sixty (360)
day year, in each case for the actual number of days occurring in the
period for which such interest is payable. Each determination by the
Agent of an interest rate hereunder and each calculation of interest
hereunder shall be conclusive and binding for all purposes, absent
manifest error or bad faith.
(b) Except as provided in paragraph (c) below and Section 2.16
hereof, the Company shall be obligated to pay interest to the Agent
for the account of each Lender on the aggregate outstanding balance of
the Loans from the date made until paid in full at the One Month
Eurodollar Rate in effect for the relevant calendar month, plus the
----
Applicable Margin therefor. The One Month Eurodollar Rate shall be
calculated for such calendar month in the manner determined in the
definition thereof and in the definition of Eurodollar Base Rate and
shall, except as provided in paragraph (c) below and Section 2.16
hereof, be applicable to the aggregate outstanding balance of the
Loans for each day in the calendar month for which such rate is
calculated.
(c) Provided that no Default or Event of Default has occurred and
is continuing, and subject to the terms and conditions set forth
herein, the Company may elect in the manner provided in paragraph (d)
below that the entire principal amount of the Loans, or a part thereof
(any such entire principal amount or part thereof, a "Fixed Rate
Tranche"), bear interest at a fixed rate (each such rate, a "Fixed
-----
Rate") for such one, two or three calendar month Interest Period as
----
the Company shall select equal to the Eurodollar Rate (as in effect
for such one, two or three month Interest Period) plus the Applicable
----
Margin therefor; provided that (i) each Fixed Rate Tranche for any
specific Interest Period of one, two or three calendar months at a
specific Fixed Rate, shall be in a minimum principal amount of
$1,000,000 or a whole multiple of $100,000 in excess thereof; (ii) no
Interest Period shall extend beyond the Termination Date; (iii) Fixed
Rate Tranches shall be in amounts that the Company reasonably
anticipates will not exceed the outstanding principal amount of the
Loans owing by the Company at any time during the Interest Period
selected by the Company; (iv) the principal amount of the Fixed Rate
Tranche to which any one, two or three month Interest Period relates
shall not be reduced, by payment, prepayment or otherwise, prior to
the last day of such Interest Period, unless such payment or
prepayment is accompanied by payment of the amounts specified in
Section 2.9 hereof; and (v) no more than 5 Interest Periods of two or
three calendar months shall be in effect at any time.
4
<PAGE>
(d) Subject to the requirements set forth in paragraph (c) above
and except as provided in Section 2.16 hereof, the Company may, by
written notice to the Agent delivered not later than the second
Business Day preceding the first day of which commences an Interest
Period selected by the Company for one, two or three calendar months
in respect of a Fixed Rate, elect that a Fixed Rate Tranche with
respect to any or all of the Loans bear interest at a Fixed Rate. Each
such notice (a "Notice of Fixed Rate Election") shall be substantially
in the form of Exhibit 2.4 hereto and shall specify (i) the amount of
-----------
the Fixed Rate Tranche as to which such election is made and (ii) the
duration of the Interest Period with respect to such Fixed Rate
Tranche. The Agent and Lenders shall be entitled to rely upon and
shall be fully protected under this Agreement in relying upon any
Notice of Fixed Rate Election believed by the Agent to be genuine and
to assume that the persons executing and delivering the same were duly
authorized unless the responsible individual acting thereon for the
Agent shall have actual notice to the contrary. In the event that the
Company shall fail to give a new Notice of Fixed Rate Election with
respect to any Fixed Rate Tranche in accordance with this paragraph
(d) the entire principal amount of such Fixed Rate Tranche shall
thereafter bear interest based upon the One Month Eurodollar Rate as
provided in paragraph (b) above, commencing with the last day of the
Interest Period applicable to such Fixed Rate Tranche, unless and
until the Company shall thereafter give a new Notice of Fixed Rate
Election in accordance with this paragraph (d).
(e) During such time as any Default or Event of Default shall
have occurred and be continuing, amounts owing hereunder (including,
without limitation, interest and other amounts) shall bear interest at
a rate per annum equal to the rate that would otherwise be applicable
thereto pursuant to the foregoing provisions of this subsection 2.4
plus 2% from the date of such Default or Event of Default until such
----
amount is paid in full (after as well as before judgment).
(f) The Company hereby authorizes the Agent to borrow on behalf
of the Company under this Agreement at any time and from time to time
(without any prior notice to or demand upon the Company) in order to
pay interest, fees and expenses owing under this Agreement."
(g) Loans which bear interest based upon the One Month
Eurodollar Rate shall not be subject to the indemnification provisions
contained in Section 2.9 hereof.
(i) Section 2.6(e) of the Credit Agreement is hereby amended by (i)
replacing the date "March 31, 1996" in the fifth line thereof with the date
"April 29, 1999", (ii) replacing the amount "$300,000" in the last line thereof
with the amount "$150,000" and (iii) adding the following sentence at the end
thereof:
5
<PAGE>
"The foregoing prepayment fee shall not be applicable if the
Commitments are terminated and the Loans are prepaid in full (i) as a
result of a refinancing from the proceeds of an initial public
offering by the Company of its stock or (ii) after an increase of two
percent (2%) or more in the effective rate of interest payable by the
Company hereunder which increase is attributable solely to the
requirement to pay increased costs pursuant to Section 2.22 hereof."
(j) Section 2.8 of the Credit Agreement is amended in its entirety to
read as follows: "[INTENTIONALLY OMITTED]"
(k) Section 2.13 of the Credit Agreement is hereby amended in its
entirety to read as follows:
"The Company shall pay to the Agent an unused line fee as set forth in
that certain Fee Letter, dated as of April 29, 1996, from General
Electric Capital Corporation and Redwood Receivables Corporation to
the Company and Pameco Securitization Corporation."
(l) Section 6.1 of the Credit Agreement is hereby amended, by adding
the phrase "and under the Transfer Agreement" at the end of clause (a) thereof.
(m) Section 6.2 of the Credit Agreement is hereby amended by (i)
deleting the word "and" at the end of clause (f) thereof and inserting the
following at the end of clause (g) thereof: "and (h) Liens created pursuant to
the Transfer Agreement or the Purchase Agreement".
(n) Section 6.3 of the Credit Agreement is hereby amended by adding
the following phrase after the term "6.7" in the second line thereof:
", except for the transactions described in the Transfer Agreement."
(o) Section 6.4(d) of the Credit Agreement is hereby amended by (i)
deleting the word "and" in the fourth line thereof and (ii) adding the following
after the word "Notes" in the fifth line thereof:
"(v) on the maturity date thereof, principal and interest on the
Subordinated Promissory Note, dated February 28, 1995 by Holdings in
favor of Brian R. Esther, in the original principal amount of $43,449
and (vi) on the maturity date thereof, principal and interest on the
Junior Subordinated Promissory Note, dated March 19, 1992, by Holdings
in favor of Brian R. Esther, in the original principal amount of
$28,558 as amended to date."
(p) Section 6.6 of the Credit Agreement is hereby amended by (i)
deleting the word "and" in the tenth line thereof and (ii) adding the following
clause at the end thereof: "and (c) pursuant to the terms of the Transfer
Agreement or the Purchase Agreement".
6
<PAGE>
(q) Section 6.7 of the Credit Agreement is hereby amended by deleting
the word "and" at the end of clause (c) thereof, and inserting the following
prior to the period at the end of clause (d) thereof:
"; and (e) the sale of Receivables pursuant to the Transfer Agreement
and the Receivables Purchase Agreement"
(r) Section 6.9 of the Credit Agreement is hereby amended in its
entirety to read as follows: "[INTENTIONALLY OMITTED]".
(s) Section 6.14 of the Credit Agreement is hereby amended by adding
the following proviso at the end thereof:
"; provided, however, that nothing in this Section 6.14 shall be
deemed to prohibit the transactions described in the Transfer
Agreement"
(t) Section 6.18 of the Credit Agreement is hereby amended by adding
the phrase "and the transactions described in the Transfer Agreement" at the end
thereof.
(u) Section 6.21 of the Credit Agreement is hereby amended by
deleting the word "The" at the beginning thereof, and substituting the following
clause in its place:
"Except in connection with Accounts transferred pursuant to the
Transfer Agreement, the"
(v) Subsection 7(r) of the Credit Agreement is hereby amended in its
entirety to read as follows: "[INTENTIONALLY OMITTED]".
(w) Section 9.3 of the Credit Agreement is hereby amended by deleting
the address of General Electric Capital Corporation where it appears therein and
replacing it with the following:
"General Electric Capital Corporation
201 High Ridge Road
Stamford, Connecticut 06927-5100
Telecopy: (203) 316-7821
Attention: Vice President -
Portfolio Commercial Finance"
(x) Schedule 1 to the Credit Agreement is hereby amended by deleting
the amount "$60,000,000" where it appears therein, and substituting in its place
the amount "$30,000,000".
7
<PAGE>
(y) Exhibit B (form of Borrowing Base Certificate) to the Credit
Agreement is hereby amended in its entirety to read as Exhibit B attached
hereto.
SECTION Conditions Precedent.
--------------------
(a) The effectiveness of this Amendment is subject to the conditions
precedent that the Agent shall have received each of the following:
(i) This Amendment delivered by the Borrower, the Lenders and
the Agent.
(ii) A certificate of an officer of the Borrower dated the date
of this Amendment, and certifying (A) that attached thereto is a true and
complete copy of a resolution of the Board of Directors of the Borrower
authorizing the execution, delivery and performance of this Amendment, the
Borrower Pledge Agreement (as defined below) and all other documents
required or necessary to be delivered hereunder and that such resolution
has not been modified, rescinded or amended and is in full force and
effect, and (B) as to the incumbency and specimen signature of each
Person's officers executing this Amendment and all other documents required
or necessary to be delivered hereunder.
(iii) A Pledge Agreement (the "Company Pledge Agreement"), duly
executed by the Borrower, in the form of Exhibit A hereto.
(iv) A Confirmation of Guarantee, duly executed by the Parent,
in the form of Exhibit C hereto.
(v) Such other approvals, opinions or documents, in form and
substance satisfactory to the Agent, as the Agent may reasonably request.
SECTION 4. Confirmation of Agreement and Loan Documents. Except as
--------------------------------------------
herein expressly amended, the Credit Agreement and each of the other documents
executed in connection therewith are ratified and confirmed in all respects and
shall remain in full force and effect in accordance with its terms. Each
reference in the Credit Agreement to "this Agreement" and in each of the other
documents executed in connection therewith to the "Credit Agreement" shall mean
the Credit Agreement as amended by this Amendment, and as hereinafter amended or
restated.
SECTION 5. Borrower's Representations and Warranties. The Borrower
-----------------------------------------
represents and warrants that:
(a) this Amendment and the Company Pledge Agreement have been duly
authorized, executed and delivered by the Borrower pursuant to its corporate
power;
8
<PAGE>
(b) this Amendment and the Company Pledge Agreement constitute the
legal, valid and binding obligation of the Borrower; and
(c) after giving effect to the amendments referred to herein, there
does not exist any Default or Event of Default.
SECTION 6. Expenses. The Borrower agrees to pay on demand all
reasonable fees and out-of-pocket expenses of the Lenders and the Agent incurred
in connection with the preparation, execution and delivery of this Amendment and
any documents referred to herein.
SECTION 7. Counterparts. Delivery of an executed counterpart of a
signature page to this Amendment by facsimile shall be effective as delivery of
a manually executed counterpart of this Amendment. This Amendment may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement.
IN WITNESS WHEREOF, the Borrower, the Lenders and Agent have caused
this Agreement to be duly executed by their respective authorized officers as of
the day and year first above written.
PAMECO CORPORATION,
as Borrower
By:____________________________
Name: Theodore R. Kallgren
Title: Vice President
GENERAL ELECTRIC CAPITAL CORPORATION,
Individually and as Agent
By:_______________________________
Name: Denis M. Creeden
Title: Duly Authorized Signatory
9
<PAGE>
EXHIBIT A
CONFIRMATION OF GUARANTEE
Reference is made to the Guarantee (the "Guarantee"), dated as of
March 19, 1992 made by Pameco Holdings, Inc., a Delaware corporation (the
"Guarantor") in favor of General Electric Capital Corporation, a New York
corporation, as agent for the Lenders (in such capacity, the "Agent"), in which
the Guarantor unconditionally and irrevocably guaranteed to the Agent and
Lenders the prompt and complete payment and performance of the "Obligations" as
such term is defined in the Credit Agreement, dated as of March 19, 1992 (the
"Credit Agreement"), among Pameco Corporation, the Lenders and the Agent;
capitalized terms used but not defined herein shall have the meanings given such
terms in the Credit Agreement.
Notwithstanding Amendment No. 6, dated as of the date hereof, among
Pameco Corporation, the Lenders and the Agent, the Guarantor hereby irrevocably
and unconditionally confirms to the Agent that the Guarantee remains in full
force and effect and that the Guarantor continues to irrevocably guarantee
payment, when due, of the Obligations.
Dated: As of April 29, 1996
PAMECO HOLDINGS, INC.
By:_____________________________
Name:
Title:
<PAGE>
Exhibit 10.11
PLEDGE AGREEMENT
PLEDGE AGREEMENT, dated as of April 29, 1996, between PAMECO
CORPORATION, a Delaware corporation (the "Pledgor"), and GENERAL ELECTRIC
-------
CAPITAL CORPORATION, a New York corporation, as agent (in such capacity, the
"Agent") for the lenders (together with their successors and permitted assigns,
- ------
the "Lenders") that are parties to the Credit Agreement described below.
----------
W I T N E S S E T H:
- - - - - - - - - --
WHEREAS, the Pledgor has requested that the Agent and the Lenders
enter into that certain Amendment Agreement No. 6, dated as of April 29, 1996
(the "Amendment") to the Credit Agreement, dated as of March 19, 1992 (as
amended to date, and as the same may be further amended, supplemented or
otherwise modified from time to time, the "Credit Agreement"), among the
----------------
Pledgor, the Lenders and the Agent, pursuant to which the Lenders make certain
revolving credit loans (the "Loans") and other extensions of credit to the
-----
Pledgor upon the terms and subject to the conditions set forth therein;
WHEREAS, the Pledgor owns directly all of the issued and outstanding
stock of Pameco Securitization Corporation, a Delaware corporation (the
"Issuer"); and
WHEREAS, it is a condition precedent to the effectiveness of the
Amendment that the Pledgor shall have executed and delivered this Agreement.
NOW, THEREFORE, in consideration of the premises and to induce the
Lenders to enter into the Amendment, the Pledgor hereby agrees as follows:
1. Defined Terms. Unless otherwise defined herein, terms which are
-------------
defined in the Credit Agreement are so used as so defined, and the following
terms shall have the following meanings:
"Code" means the Uniform Commercial Code from time to time in effect
----
in the State of New York.
"Collateral" means the Pledged Stock and all Proceeds.
----------
"Issuer" shall have the meaning ascribed to such term in the recitals
------
hereto.
"Pledge Agreement" means this Pledge Agreement, as amended,
----------------
supplemented or otherwise modified from time to time.
<PAGE>
"Pledged Stock" means the shares of capital stock of the Issuer listed
-------------
on Schedule I hereto, together with all stock certificates, options or rights of
any nature whatsoever which may be issued or granted by any Issuer to the
Pledgor while this Pledge Agreement is in effect.
"Proceeds" means all "proceeds" as such terms is defined in Section 9-
--------
306(1) of the Uniform Commercial Code in effect in the State of New York on the
date hereof and, in any event, shall include, without limitation, all dividends
or other income from the Pledged Stock, collections thereon or distributions
with respect thereto.
"Secured Obligations" means all liabilities, indebtedness and
-------------------
obligations, whether contingent or matured, of the Pledgor to the Agent on
behalf of the Lenders, whether in respect of principal, interest, Reimbursement
Obligations, fees, expenses, indemnities or otherwise.
2. Pledge; Grant of Security Interest. The Pledgor hereby delivers
----------------------------------
to the Agent, for the ratable benefit of the Lenders, all the Pledged Stock and
hereby grants to the Agent, for the ratable benefit of the Lenders, a first
security interest in the Collateral, as collateral security for the prompt and
complete payment and performance when due (whether at the stated maturity, by
acceleration or otherwise) of the Secured Obligations.
3. Stock Powers. Concurrently with the delivery to the Agent of
------------
each certificate representing one or more shares of the Pledged Stock, the
Pledgor shall deliver an undated stock power covering such certificate, duly
executed in blank with, if the Agent so requests, signature guaranteed.
4. Representations and Warranties. The Pledgor represents and
------------------------------
warrants that:
(a) the Pledgor has the corporate power and authority and the legal
right to execute and deliver, to perform its obligations under, and to grant
the Lien on the Collateral pursuant to, this Pledge Agreement and has taken
all necessary corporate action to authorize its execution, delivery and
performance of, and grant of the Lien on the Collateral pursuant to, this
Pledge Agreement;
(b) this Pledge Agreement constitutes a legal, valid and binding
obligation of the Pledgor enforceable in accordance with its terms, except
as enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforcement of creditors' rights
generally;
(c) the execution, delivery and performance of this Pledge Agreement
will not violate any provision of any Requirement of Law or Contractual
Obligation of the Pledgor and will not result in the creation or imposition
of any Lien on any of the properties or revenues of the Pledgor pursuant to
any Requirement of Law or Contractual Obligation of the Pledgor, except as
contemplated hereby;
2
<PAGE>
(d) no consent or authorization of, filing with, or other act by or
in respect of, any arbitrator or Governmental Authority and no consent of
any other Person (including, without limitation, any stockholder or creditor
of the Pledgor or the Issuer), is required in connection with the execution,
delivery, performance, validity or enforceability of this Pledge Agreement;
(e) no litigation, investigation or proceeding of or before any
arbitrator or Governmental Authority is pending or, to the knowledge of the
Pledgor, threatened by or against the Pledgor or against any of its
properties or revenues with respect to this Pledge Agreement or any of the
transactions contemplated hereby;
(f) the shares of Pledged Stock listed on Schedule I constitute all
the issued and outstanding shares of all classes of the capital stock of the
Issuer;
(g) all the shares of the Pledged Stock have been duly and validly
issued and are fully paid and nonassessable;
(h) the Pledgor is the record and beneficial owner of, and has good
and marketable title to, the Pledged Stock listed on Schedule 1, free of any
and all Liens or options in favor of, or claims of, any other Person, except
the Lien created by this Pledge Agreement; and
(i) upon delivery to the Lender of the stock certificates evidencing
the Pledged Stock, the Lien granted pursuant to this Pledge Agreement will
constitute a valid, perfected first priority Lien on the Collateral,
enforceable as such against all creditors of the Pledgor and any Persons
purporting to purchase any Collateral from the Pledgor.
5. Covenants. The Pledgor covenants and agrees with the Agent and
---------
the Lenders that, from and after the date of this Pledge Agreement until the
Obligations are paid in full and the Commitments are terminated:
(a) If the Pledgor shall, as a result of its ownership of the Pledged
Stock, become entitled to receive or shall receive any stock certificate
(including, without limitation, any certificate representing a stock
dividend or a distribution in connection with any reclassification, increase
or reduction of capital or any certificate issued in connection with any
reorganization), option or rights, whether in addition to, in substitution
of, as a conversion of, or in exchange for any shares of the Pledged Stock,
or otherwise in respect, thereof, the Pledgor shall accept the same as the
agent of the Agent and the Lenders, hold the same in trust for the Agent and
the Lenders and deliver the same forthwith to the Agent in the exact form
received, duly indorsed by the Pledgor to the Agent, if required, together
with an undated stock power covering such certificate duly executed in blank
and with, if the Agent so requests, signature guaranteed, to be held by the
Agent hereunder as additional collateral security for the Secured
Obligations. Any sums paid upon or in respect of the Pledged Stock upon the
liquidation or dissolution of the Issuer shall be paid over to the Agent to
be held by it hereunder as additional collateral security for the Secured
Obligations, and in case any distribution of capital shall be made on or in
respect of the Pledged Stock or
3
<PAGE>
any property shall be distributed upon or with respect to the Pledged Stock
pursuant to the recapitalization or reclassification of the capital of the
Issuer or pursuant to the reorganization thereof, the property so
distributed shall be delivered to the Agent to be held by it, subject to the
terms hereof, as additional collateral security for the Secured Obligations.
If any sums of money or property so paid or distributed in respect of the
Pledged Stock shall be received by the Pledgor, the Pledgor shall, until
such money or property is paid or delivered to the Agent, hold such money or
property in trust for the Lenders, segregated from other funds of the
Pledgor, as additional collateral security for the Secured Obligations.
(b) Without the prior written consent of the Agent, the Pledgor will
not (i) vote to enable, or take any other action to permit, the Issuer to
issue any stock or other equity securities of any nature or to issue any
other securities convertible into or granting the right to purchase or
exchange for any stock or other equity securities of the Issuer, or (ii)
sell, assign, transfer, exchange or otherwise dispose of, or grant any
option with respect to, the Collateral, or (iii) create, incur or permit to
exist any Lien or option in favor of, or any claim of any Person with
respect to, any of the Collateral, or any interest therein, except for the
Lien provided for by this Pledge Agreement. The Pledgor will defend the
right, title and interest of the Agent and the Lenders in and to the
Collateral against the claims and demands of all Persons whomsoever.
(c) At any time and from time to time, upon the written request of
the Agent, and at the sole expense of the Pledgor, the Pledgor will promptly
and duly execute and deliver such further instruments and documents and take
such further actions as the Agent may reasonably request for the purposes of
obtaining or preserving the full benefits of this Pledge Agreement and of
the rights and powers herein granted. If any amount payable under or in
connection with any of the Collateral shall be or become evidenced by any
promissory note, other instrument or chattel paper, such note, instrument or
chattel paper shall be immediately delivered to the Agent, duly endorsed in
a manner satisfactory to the Agent, to be held as Collateral pursuant to
this Pledge Agreement.
(d) The Pledgor agrees to pay, and to save the Agent and the Lenders
harmless from, any and all liabilities with respect to, or resulting from
any delay in paying, any and all stamp, excise, sales or other taxes which
may be payable or determined to be payable with respect to any of the
Collateral or in connection with any of the transactions contemplated by
this Pledge Agreement.
6. Cash Dividends; Voting Rights. Unless an Event of Default shall
-----------------------------
have occurred and be continuing and the Agent shall have given notice to the
Pledgor of the Agent's intent to exercise its corresponding rights pursuant to
paragraph 7 below, the Pledgor shall be permitted to receive all cash dividends
paid in the normal course of business of the Issuer, to the extent not
prohibited by any document to which the Pledgor or Issuer is party, in respect
of the Pledged Stock and to exercise all voting and corporate rights with
respect to the Pledged Stock, provided, however, that no vote shall be cast or
-------- -------
corporate right exercised or other action taken which, in the Agent's reasonable
judgment, would impair the Collateral or which would be
4
<PAGE>
inconsistent with or result in any violation of any provision of the Credit
Agreement, the Notes, any other Loan Document or this Pledge Agreement.
7. Rights of the Lenders and the Agent. (a) If an Event of Default
-----------------------------------
shall occur and be continuing and the Agent shall give notice of its intent to
exercise such rights to the Pledgor: (i) the Agent shall have the right to
receive any and all cash dividends paid in respect of the Pledged Stock and make
application thereof to the Secured Obligations in such order as it may
determine, and (ii) all shares of the Pledged Stock shall be registered in the
name of the Agent or its nominee, and the Agent or its nominee may thereafter
exercise (A) all voting, corporate and other rights pertaining to such shares of
the Pledged Stock at any meeting of shareholders of the relevant Issuer or
otherwise and (B) any and all rights of conversion, exchange, subscription and
any other rights, privileges or options pertaining to such shares of the Pledged
Stock as if it were the absolute owner thereof (including, without limitation,
the right to exchange at its discretion any and all of the Pledged Stock upon
the merger, consolidation, reorganization, recapitalization or other fundamental
change in the corporate structure of the Issuer, or upon the exercise by the
Pledgor or the Agent of any right, privilege or option pertaining to such shares
of the Pledged Stock, and in connection therewith, the right to deposit and
deliver any and all of the Pledged Stock with any committee, depositary,
transfer agent, registrar or other designated agency upon such terms and
conditions as it may determine), all without liability except to account for
property actually received by it, but the Agent shall have no duty to exercise
any such right, privilege or option and shall not be responsible for any failure
to do so or delay in so doing.
(b) The rights of the Agent and the Lenders hereunder shall not be
conditioned or contingent upon the pursuit by the Agent or any Lender of any
right or remedy against the Issuer or against any other Person which may be or
become liable in respect of all or any part of the Obligations or the Secured
Obligations or against any other collateral security therefor, guarantee thereof
or right of offset with respect thereto. Neither the Agent nor any Lender shall
be liable for any failure to demand, collect or realize upon all or any part of
the Collateral or for any delay in doing so, nor shall it be under any
obligation to sell or otherwise dispose of any Collateral upon the request of
the Pledgor or any other Person or to take any other action whatsoever with
regard to the Collateral or any part thereof.
8. Remedies. If an Event of Default shall occur and be continuing,
--------
the Agent, on behalf of the Banks, may exercise, in addition to all other rights
and remedies granted in this Pledge Agreement and in any other instrument or
agreement securing, evidencing or relating to the Obligations or the Secured
Obligations, all rights and remedies of a secured party under the Code. Without
limiting the generality of the foregoing, the Agent, without demand of
performance or other demand, presentment, protest, advertisement or notice of
any kind (except any notice required by law referred to below) to or upon the
Pledgor, the Issuer or any other Person (all and each of which demands,
defenses, advertisements and notices are hereby waived), may in such
circumstances forthwith collect, receive, appropriate and realize upon the
Collateral, or any part thereof, and/or may forthwith sell, assign, give option
or options to purchase or otherwise dispose of and deliver the Collateral or any
part thereof (or contract to do any of the foregoing), in one or more parcels at
public or private sale or sales, in the over-the-counter market, at any
exchange, broker's board or office of the Agent or any Lender or elsewhere upon
such terms and conditions as
5
<PAGE>
it may deem advisable and at such prices as it may deem best, for cash or on
credit or for future delivery without assumption of any credit risk. The Agent
or any Lender shall have the right upon any such public sale or sales, and, to
the extent permitted by law, upon any such private sale or sales, to purchase
the whole or any part of the Collateral so sold, free of any right or equity of
redemption in the Pledgor, which right or equity is hereby waived or released.
The Agent shall apply any Proceeds from time to time held by it and the net
proceeds of any such collection, recovery, receipt, appropriation, realization
or sale, after deducting all reasonable costs and expenses of every kind
incurred therein or incidental to the care or safekeeping of any of the
Collateral or in any way relating to the Collateral or the rights of the Agent
and the Lenders hereunder, including, without limitation, reasonable attorneys'
fees and disbursements, to the payment in whole or in part of the Secured
Obligations, in such order (subject to the terms and provisions of the Credit
Agreement) as the Agent or the Lenders may elect, and only after such
application and after the payment by the Agent on behalf of the Lenders of any
other amount required by any provision of law, including, without limitation,
Section 9-504(l)(c) of the Code, need the Agent account for the surplus, if any,
to the Pledgor. To the extent permitted by applicable law, the Pledgor waives
all claims, damages and demands it may acquire against the Agent or any Lender
arising out of the exercise by the Agent or any Lender of any of its rights
hereunder. If any notice of a proposed sale or other disposition of Collateral
shall be required by law, such notice shall be deemed reasonable and proper if
given at least 10 days before such sale or other disposition. The Pledgor shall
remain liable for any deficiency if the proceeds of any sale or other
disposition of Collateral are insufficient to pay the Secured Obligations and
the fees and disbursements of any attorneys employed by the Agent or any Lender
to collect such deficiency. The Pledgor further waives and agrees not to assert
any rights or privileges which it may acquire under Section 9-112 of the Code.
9. Registration Right: Private Sales. (a) If the Agent shall determine
---------------------------------
to exercise its right to sell any or all of the Pledged Stock pursuant to
paragraph 8 hereof, and if in the opinion of the Agent it is necessary or
advisable to have the Pledged Stock, or that portion thereof to be sold,
registered under the provisions of the Securities Act of 1933, as amended (the
"Securities Act"), the Pledgor will cause the Issuer to (i) execute and deliver,
--------------
and cause the directors and officers of the Issuer to execute and deliver, all
such instruments and documents, and do or cause to be done all such other acts,
as maybe, in the opinion of the Agent, necessary or advisable to register the
Pledged Stock, or that portion thereof to be sold, under the provisions of the
Securities Act, (ii) use its best efforts to cause the registration statement
relating thereto to become effective and to remain effective for a period of one
year from the date of the first public offering of the Pledged Stock, or that
portion thereof to be sold, and (iii) make all amendments thereto and/or to the
related prospectus which, in the opinion of the Agent, are necessary or
advisable, all in conformity with the requirements of the Securities Act and the
rules and regulations of the Securities and Exchange Commission applicable
thereto. The Pledgor agrees to cause the Issuer to comply with the provisions of
the securities or "Blue Sky" laws of any and all jurisdictions which the Agent
shall designate and to make available to its security holders, as soon as
practicable, an eamings statement (which need not be audited) which will satisfy
the provisions of Section 11(a) of the Securities Act.
6
<PAGE>
(b) The Pledgor recognizes that the Agent may be unable to effect a
public sale of any or all the Pledged Stock, by reason of certain prohibitions
contained in the Securities Act and applicable state securities laws or
otherwise, and may be compelled to resort to one or more private sales thereof
to a restricted group of purchasers which will be obliged to agree, among other
things, to acquire such securities for their own account for investment and not
with a view to the distribution or resale thereof. The Pledgor acknowledges and
agrees that any such private sale may result in prices and other terms less
favorable to the Agent than if such sale were a public sale and agrees that such
circumstances shall not, in and of themselves, result in a determination that
such sale was not made in a commercially reasonable manner. The Agent shall be
under no obligation to delay a sale of any of the Pledged Stock for the period
of time necessary to permit the Issuer to register such securities for public
sale under the Securities Act, or under applicable state securities laws, even
if the Issuer would agree to do so.
(c) The Pledgor further agrees to use its best efforts to do or cause
to be done all such other acts as may be necessary to make any sale or sales of
all or any portion of the Pledged Stock pursuant to this paragraph 9 valid and
binding and in compliance with any and all other applicable Requirements of Law.
The Pledgor further agrees that a breach of any of the covenants contained in
this paragraph 9 will cause irreparable injury to the Agent and the Lenders,
that the Agent and the Lenders have no adequate remedy at law in respect of such
breach and, as a consequence, that each and every covenant contained in this
paragraph 9 shall be specifically enforceable against the Pledgor, and the
Pledgor hereby waives and agrees not to assert any defenses against an action
for specific performance of such covenants except for a defense that no Event of
Default has occurred under the Credit Agreement.
10. No Subrogation, Contribution, Reimbursement or Indemnity.
--------------------------------------------------------
Notwithstanding anything to the contrary in this Pledge Agreement, the Pledgor
hereby irrevocably waives all rights which may have arisen in connection with
this Pledge Agreement to be subrogated to any of the rights (whether
contractual, under the Bankruptcy Code, including Section 509 thereof, under
common law or otherwise) of the Agent or any Lender against the Issuer or
against any Lender for the payment of the Obligations or the Secured
Obligations. The Pledgor hereby further irrevocably waives all contractual,
common law, statutory or other rights of reimbursement, contribution,
exoneration or indemnity (or any similar right) from or against the Issuer or
any other Person which may have arisen in connection with this Pledge Agreement.
So long as the Obligations or the Secured Obligations remain outstanding, if any
amount shall be paid by or on behalf of the Issuer to the Pledgor on account of
any of the rights waived in this paragraph, such amount shall be held by the
Pledgor in trust, segregated from other funds of such Pledgor, and shall,
forthwith upon receipt by such Pledgor, be turned over to the Agent in the exact
form received by the Pledgor (duly indorsed by the Pledgor to the Agent, if
required), to be applied against the Secured Obligations, whether matured or
unmatured, in such order (subject to the terms and provisions of the Credit
Agreement) as the Agent may determine. The provisions of this paragraph shall
survive the term of this Pledge Agreement and the payment in full of the Secured
Obligations and the termination of the Commitments.
7
<PAGE>
11. Amendments, etc. with respect to the Obligations and the Secured
----------------------------------------------------------------
Obligations. The Pledgor shall remain obligated hereunder notwithstanding that,
- -----------
without any reservation of rights against the Pledgor, and without notice to or
further assent by the Pledgor, any demand for payment of any of the Obligations
or the Secured Obligations made by the Agent or any Lender may be rescinded by
the Agent or such Lender, and any of the Obligations or the Secured Obligations
continued, and the Obligations and the Secured Obligations, or the liability of
any other Person upon or for any part thereof, or any collateral security or
guarantee therefor or right of offset with respect thereto, may, from time to
time, in whole or in part, be renewed, extended, amended, modified, accelerated,
compromised, waived, surrendered or released by the Agent or such Lender, and
the Credit Agreement, any Note, any Collateral Document and any other collateral
security document or other guarantee or document in connection therewith may be
amended, modified, supplemented or terminated, in whole or in part, as the Agent
or any Lender may deem advisable from time to time, and any collateral security
or guarantee or right of offset at any time held by the Agent or any Lender for
the payment of the Obligations or the Secured Obligations may be sold,
exchanged, waived, surrendered or released, all without the necessity of any
reservations of rights against the Pledgor and without notice to or further
assent by the Pledgor (in respect of this Pledge Agreement). Neither the Agent
nor any Lender shall have any obligation to protect, secure, perfect or insure
any other Lien at any time held as security for the Obligations or the Secured
Obligations or the property subject thereto. The Pledgor waives any and all
notice of the creation, renewal, extension or accrual of any of the Obligations
and Secured Obligations and notice of or proof of reliance by the Agent or any
Lender upon this Pledge Agreement; the Obligations and the Secured Obligations,
and any of them, shall conclusively be deemed to have been created, contracted
or incurred in reliance upon this Pledge Agreement; and all dealings between the
Issuer and the Pledgor, on the one hand, and the Agent and the Lenders, on the
other, shall likewise be conclusively presumed to have been had or consummated
in reliance upon this Pledge Agreement. The Pledgor waives diligence,
presentment, protest, demand for payment and notice of default or nonpayment to
or upon the Issuer or the Pledgor with respect to the Obligations and the
Secured Obligations.
12. Limitation on Duties Regarding Collateral. The Agent's sole duty
-----------------------------------------
with respect to the custody, safekeeping and physical preservation of the
Collateral in its possession, under Section 9-207 of the Code or otherwise,
shall be to deal with it in the same manner as the Agent deals with similar
securities and property for its own account. Subject to the immediately
preceding sentence, neither the Agent, any Lender nor any of its directors,
officers, employees or agents shall be liable for failure to demand, collect or
realize upon any of the Collateral or for any delay in doing so or shall be
under any obligation to sell or otherwise dispose of any Collateral upon the
request of the Pledgor or otherwise.
13. Powers Coupled with an Interest. All authorizations and agencies
-------------------------------
herein contained with respect to the Collateral are irrevocable and powers
coupled with an interest.
14. Severability. Any provision of this Pledge Agreement which is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such
8
<PAGE>
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
15. Paragraph Headings. The paragraph headings used in this Pledge
------------------
Agreement are for convenience of reference only and are not to affect the
construction hereof or be taken into consideration in the interpretation hereof.
16. No Waiver; Cumulative Remedies. Neither the Agent nor any Lender
------------------------------
shall by any act (except by a written instrument pursuant to paragraph 17
hereof), delay, indulgence, omission or otherwise be deemed to have waived any
right or remedy hereunder or to have acquiesced in any Default or Event of
Default or in any breach of any of the terms and conditions hereof. No failure
to exercise, nor any delay in exercising, on the part of the Agent or any
Lender, any right, power or privilege hereunder shall operate as a waiver
thereof. No single or partial exercise of any right, power or privilege
hereunder shall preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. A waiver by the Agent or any Lender of
any right or remedy hereunder on any one occasion shall not be construed as a
bar to any right or remedy which the Agent or such Lender would otherwise have
on any future occasion. The rights and remedies herein provided are cumulative,
may be exercised singly or concurrently and are not exclusive of any rights or
remedies provided by law.
17. Waivers and Amendments; Successors and Assigns; Governing Law.
-------------------------------------------------------------
None of the terms or provisions of this Pledge Agreement may be waived, amended,
supplemented or otherwise modified except by a written instrument executed by
the Pledgor and the Agent, provided that any provision of this Pledge Agreement
--------
may be waived by the Agent in a letter or agreement executed by the Agent or by
telex or facsimile transmission from the Agent. This Pledge Agreement shall be
binding upon the successors and assigns of the Pledgor and shall inure to the
benefit of the Agent and the Lenders and their respective successors and
assigns. This Pledge Agreement shall be governed by, and construed and
interpreted in accordance with, the laws of the State of New York.
18. Notices. Notices by the Agent to the Pledgor or the Issuer may
-------
be given by mail, by telex or by facsimile transmission, addressed or
transmitted to the Pledgor at its address or transmission number set forth in
the Credit Agreement and to the Issuer at 1000 Center Place, Suite A, Norcross,
Georgia 30093, Telecopy No. (770) 7980618 and shall be effective (a) in the case
of mail, 2 days after deposit in the postal system, first class postage pre-paid
and (b) in the case of telex or facsimile notices, when sent. The Pledgor and
the Issuer may change their respective address and transmission numbers by
written notice to the Agent.
19. Irrevocable Authorization and Instruction to Issuers. The Pledgor
----------------------------------------------------
hereby authorizes and instructs the Issuer to comply with any instruction
received by it from the Agent in writing that (a) states that an Event of
Default has occurred and (b) is otherwise in accordance with the terms of this
Pledge Agreement, without any other or further instructions from the Pledgor,
and the Pledgor agrees that the Issuer shall be fully protected in so complying.
9
<PAGE>
20. Authority of Agent. The Pledgor acknowledges that the rights and
------------------
responsibilities of the Agent under this Pledge Agreement with respect to any
action taken by the Agent or the exercise or non-exercise by the Agent of any
option, voting right, request, judgment or other right or remedy provided for
herein or resulting or arising out of this Pledge Agreement shall, as between
the Agent and the Lenders, be governed by the Credit Agreement and by such other
agreements with respect thereto as may exist from time to time among them, but,
as between the Agent and the Pledgor, the Agent shall be conclusively presumed
to be acting as agent for the Lenders with full and valid authority so to act or
refrain from acting, and the Pledgor shall not be under any obligation, or
entitlement, to make any inquiry respecting such authority.
IN WITNESS WHEREOF, the undersigned has caused this Pledge Agreement
to be duly executed and delivered as of the date first above written.
PAMECO CORPORATION
By:_______________________
Title:
10
<PAGE>
ACKNOWLEDGMENT AND CONSENT
The Issuer referred to in the foregoing Pledge Agreement hereby
acknowledges receipt of a copy thereof and agrees to be bound thereby and to
comply with the terms thereof insofar as such terms are applicable to it. The
Issuer agrees to notify the Agent promptly in writing of the occurrence of any
of the events described in paragraph 5(a) of the Pledge Agreement. The Issuer
further agrees that the terms of paragraph 9(c) of the Pledge Agreement shall
apply to it, mutatis mutandis, with respect to all actions that may be required
------- --------
of it under or pursuant to or arising out of paragraph 9 of the Pledge
Agreement.
PAMECO SECURITIZATION CORPORATION
By: __________________________________
Title:
11
<PAGE>
SCHEDULE 1
To Pledge
Agreement
DESCRIPTION OF PLEDGED STOCK
Stock
Class of Certificate Number of
Issuer Stock Number Shares
- ------ -------- ----------- ---------
Pameco Common
Securitization
Corporation
12
<PAGE>
Exhibit 10.12
EXECUTION COPY
--------------
WAIVER AND SEVENTH AMENDMENT
WAIVER AND SEVENTH AMENDMENT (this "Seventh Amendment"), dated as of
-----------------
November 21, 1996, to the Credit Agreement, dated as of March 19, 1992 (as
amended prior to the date hereof and as the same is being and may be further
amended, supplemented or otherwise modified from time to time, the "Credit
------
Agreement"), among PAMECO CORPORATION (formerly named MLX Refrigeration & Air
- ---------
Conditioning Group, Inc.), a Delaware corporation (the "Company"), the lenders
-------
parties thereto (together with their respective successors and permitted
assigns, the "Lenders") and GENERAL ELECTRIC CAPITAL CORPORATION, a New York
-------
corporation, as agent for the Lenders (in such capacity, together with its
successors and permitted assigns, the "Agent").
-----
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Company has requested that the Lenders agree to waive
compliance with certain provisions of the Credit Agreement and amend certain
provisions of the Credit Agreement upon the terms and subject to the conditions
set forth herein; and
WHEREAS, the Lenders have agreed to such waivers and amendments only
upon the terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties hereto hereby agree as follows:
1. Defined Terms. (a) Terms defined in the Credit Agreement are
-------------
used herein with the meanings set forth in the Credit Agreement unless otherwise
defined herein.
(b) For the avoidance of doubt, the term "Accounts" as used in the
Credit Agreement shall include such accounts receivable of Sid Harvey
Industries, Inc. acquired by the Company pursuant to the Asset Purchase
Agreement dated November 1, 1996 (the "Asset Purchase Agreement") by and between
------------------------
Sid Harvey Industries, Inc. and the Company.
2. Waiver of Sections 6.3 and 6.5. The Agent and the Banks hereby
------------------------------
waive compliance with the provisions of Sections 6.3 and 6.5 of the Credit
Agreement to the extent and only to the extent necessary to permit the Company
to purchase the S.E. USA Business (as defined in the Asset Purchase Agreement)
in accordance with the terms of the Asset Purchase Agreement.
<PAGE>
2
3. Amendment of Section 1.1. Section 1.1 of the Credit Agreement is
------------------------
hereby amended by:
(a) deleting therefrom the definition of the term "Borrowing Base" in its
entirety and by substituting therefor the following:
'"Borrowing Base" shall mean, at any date, the amount equal to
--------------
85% of Eligible Receivables and 50% of Eligible Inventory; provided,
--------
however, that in no event shall (a) the portion of the Borrowing Base
which is based upon Eligible Inventory exceed $50,000,000 or (b) the
sum of the Loans and the Reimbursement Obligations (without
duplication of the Reimbursement Obligations deemed to have become
Loans) exceed the Borrowing Base and, provided, further, that the
-------- -------
Borrowing Base on each date shall be reduced by the amount of
liabilities of the Company and its Subsidiaries in respect of (i)
audited assessments by taxing authorities for Charges then outstanding
for which the Company or the Subsidiary liable in respect thereof is
not maintaining adequate reserves, in the sole judgment of the Agent,
on its books in accordance with GAAP and (ii) claims by any
Governmental Authority against Holdings or the Company in respect of
any alternative minimum tax attributable to the consolidated group of
which the Acquired Companies were members prior to the Acquisition.
The Agent, at any and all times, shall be entitled to reduce any and
all of the percentages used in determining the Borrowing Base at any
time in its sole discretion with the consent of the Lenders.'
(c) deleting from the definition of "Termination Date" the date "April 29,
2001" and substituting therefor the date "November 21, 2001"; and
(c) adding thereto the following definitions in the proper alphabetical order:
"New Subordinated Bridge Note" shall mean the unsecured
----------------------------
Subordinated Promissory Note, dated on or about November 25, 1996,
made by the Company to Terfin International Limited in a principal
amount of $7,500,000 bearing interest at an annual rate not to exceed
12.5% per year with a stated maturity of March 31, 1997 on terms
satisfactory to the Agent .
"New Subordinated Debt" shall mean the unsecured Indebtedness
---------------------
incurred pursuant to the New Subordinated Note, in the principal
amount not to exceed $20,000,000 bearing interest at an annual rate
not to exceed 13%.
<PAGE>
3
"New Subordinated Note" shall mean the New Subordinated Note,
---------------------
dated November 6, 1996, in the principal amount of $15,000,000 and
made by Holdings to Terfin International Limited and which is stated
to mature on December 31, 1996, as the same may be amended,
supplemented, renewed, restated, refinanced or replaced or otherwise
modified from time to time; provided that Indebtedness evidenced
--------
thereby (i) shall not (A) exceed $20,000,000 in aggregate principal
amount or (B) bear interest at an annual rate in excess of 13% and
(ii) shall be on terms satisfactory to the Agent.
"Supplemental Borrowing Base Certificate" shall mean a
---------------------------------------
certificate substantially in the form of Exhibit M, delivered pursuant
to subsection 5.2(b).
4. Amendment of Section 2.1(a). Section 2.1(a) of the Credit
---------------------------
Agreement is hereby amended by deleting therefrom the amount "$70,000,000" as it
appears in two places in such Section and substituting therefor the amount
"$100,000,000", and by deleting therefrom the amount of "$30,000,000" as it
appears and substituting therefor the amount "$50,000,000".
5. Amendment of Section 2.13. Section 2.13 of the Credit Agreement
-------------------------
is hereby amended by deleting therefrom the date "April 29, 1996" as it appears
and substituting therefor the date "November 21, 1996".
6. Amendment of Section 5.2(b). Section 5.2(b) of the Credit
---------------------------
Agreement is hereby amended by deleting therefrom clause (i) and substituting
therefor the following:
"(i) a Borrowing Base Certificate and, until notified in writing by
the Agent that such Supplemental Borrowing Base Certificate is no
longer required to be provided under this Section 5.2(b), a
Supplemental Borrowing Base Certificate, each of which certificates
shall be true and accurate as of the date thereof and".
7. Amendment of Section 5.13. Section 5.13 of the Credit
-------------------------
Agreement is hereby amended by deleting from clause (c) of such section the
words "no less frequently than quarterly" and substituting therefor the words
"at the request of the Agent" .
8. Amendment of Section 6.1(b). Section 6.1(b) of the Credit
---------------------------
Agreement is hereby amended by adding after the words "Subordinated Bridge
Notes" at the end thereof the words "and the New Subordinated Bridge Note".
9. Amendment of Section 6.1(c). Section 6.1(c) of the Credit
---------------------------
Agreement is hereby amended by deleting therefrom the amount "$1,500,000" as it
appears and substituting therefor the amount "$3,000,000".
<PAGE>
4
10. Amendment of Section 6.4(b). Section 6.4(b) of the Credit
---------------------------
Agreement is hereby amended by deleting therefrom the proviso in its entirety
and by substituting therefor the following:
"provided that (i) any such payment is made no sooner than one
--------
Business Day prior to the date upon which Holdings files such return
or upon which estimated taxes are due or any extension for payment of
taxes expires and (ii) all such payments shall be made in accordance
with applicable law;".
11. Amendment of Section 6.4(d). Section 6.4(d) of the Credit
---------------------------
Agreement is hereby amended by deleting that Section in its entirety and by
substituting therefor the following:
"(d) the Company may pay dividends to Holdings in order to pay (i)
interest on the Junior Subordinated Notes, (ii) dividends on the Holdings
Preferred Stock, (iii) principal on the Junior Subordinated Notes, (iv)
principal on the Subordinated Bridge Notes, (v) on the maturity date
thereof, principal and interest on the Subordinated Promissory Note, dated
February 28, 1995 by Holdings in favor of Brian R. Esher, in the original
principal amount of $43,449, (vi) on the maturity date thereof, principal
and interest on the Junior Subordinated Promissory Note, dated March 19,
1992 by Holdings in favor of Brian R. Esher, in the original principal
amount of $28,558 as amended to date, and (vii) on the maturity date
thereof, principal and interest on the New Subordinated Note; provided,
--------
that the aggregate amount of such payments for any fiscal year of the
Company, beginning with the fiscal year ended February 28, 1996, shall not
exceed (i) 75% of the Consolidated Net Income of Holdings for the
immediately preceding fiscal year (as reflected in the audited financial
statements required by subsection 5.1(a) of the Credit Agreement for such
prior fiscal year of the Company, which financial statements must have been
prepared in accordance with GAAP applied consistently throughout such
fiscal year and certified with an Unqualified Opinion by an accountant of
nationally recognized standing selected by the Company and acceptable to
the Agent) plus (ii) with respect to the immediately preceding fiscal year,
----
any dividends permitted to be paid to Holdings pursuant to clause (i) of
this proviso but not paid in such immediately preceding fiscal year; and,
provided, further, that no such payments shall be made pursuant to this
-------- -------
clause (d) when a Default or an Event of Default has occurred and is
continuing;"
12. Amendment of Section 6.7. Section 6.7 of the Credit Agreement is
------------------------
amended by deleting the word "and" at the end of clause (d) thereof and
inserting the following prior to the period at the end of clause (e):
<PAGE>
5
"; and (f) the sale of Receivables to Sid Harvey Industries, Inc. pursuant
to Section 2 of the Asset Purchase Agreement dated November 1, 1996 by and
between Sid Harvey Industries, Inc. and the Company"
13. Amendment of Section 6.23. Section 6.23 of the Credit Agreement
-------------------------
is amended in its entirety to read as follows: "Intentionally omitted."
14. Amendment of Section 7(n). Section 7(n) of the Credit Agreement
-------------------------
is amended in its entirety to read as follows: "Intentionally omitted."
15. Amendment of Section 7(aa). Section 7(aa) of the Credit
--------------------------
Agreement is amended in its entirety to read as follows:
"Junior Subordinated Notes and New Subordinated Note. Holdings shall
---------------------------------------------------
(i) amend the terms and provisions of the Junior Subordinated Notes or
repay the Junior Subordinated Debt, in whole or in part, prior to the
scheduled maturity thereof or (ii) amend the terms and provisions of the
New Subordinated Note or the Indebtedness evidenced thereby in a manner
inconsistent with the definition of the "New Subordinated Note" contained
in this Agreement or on terms (including, without limitation, maturity date
and applicable covenants) not otherwise acceptable to the Agent; or"
16. Amendment of Schedule I. Schedule I to the Credit Agreement is
-----------------------
hereby amended by deleting the amount "$30,000,000" where it appears and
substituting therefor the amount "50,000,000".
17. Addition of Exhibit M. The Credit Agreement is hereby amended by
---------------------
adding thereto a new "Exhibit M" in the form of Annex A to this Seventh
Amendment.
18. New Promissory Note. On the Seventh Amendment Effective Date,
-------------------
the Company shall execute and delivery to the Agent a Promissory Note (the "New
---
Promissory Note") substantially in the form of Annex B to this Seventh
- ---------------
Amendment, in substitution and exchange for, but not in payment of, that certain
promissory note of the Company made in favor of GE Capital in the principal
amount of $70,000,000.
19. Company Agreement. The Company hereby agrees that it shall, as
-----------------
soon as practicable but in any event no later than 60 days after the date
hereof, cease to do business as "Sid Harvey" or "Sid Harvey Industries, Inc." at
all of the stores and locations where it is acquiring assets pursuant to the
Asset Purchase Agreement.
20. Conditions to Effectiveness. This Seventh Amendment shall become
---------------------------
effective (the actual date of such
<PAGE>
6
effectiveness, the "Seventh Amendment Effective Date") as of the date first
--------------------------------
above written when:
(a) counterparts hereof shall have been duly executed and delivered by
each of the parties hereto and acknowledged by Pameco Holdings, Inc.;
(b) the Agent shall have received a Promissory Note, executed and
delivered by a duly authorized officer of the Company, which conforms to
the requirements of the Credit Agreement and Section 16 of this Seventh
Amendment;
(c) the Remittance Agreement dated as of November 21, 1996 among Sid
Harvey Industries, Inc., the Company and GE Capital shall have been duly
executed and delivered by each of the parties thereto;
(d) the Consent and Acknowledgment dated as of November 21, 1996 among GE
Capital, the Company, PSC and Redwood Receivables Corporation shall have
been duly executed and delivered by each of the parties thereto;
(e) the Agent shall have received, with a copy for each Lender, a
certificate of the Secretary or an Assistant Secretary of each Loan Party,
dated as of the Seventh Amendment Effective Date, and certifying (i) that
attached thereto is a true and complete copy of the resolutions (which
resolutions are in form and substance reasonably satisfactory to each
Lender) of the board of directors of such Loan Party authorizing, as
applicable, (A) the execution, delivery and performance of this Seventh
Amendment, the Consent and Acknowledgment attached hereto, the New
Promissory Note, the New Fee Letter (as defined below) and related matters
and (B) the granting by the Company of the pledges and security interests
granted by it in the S.E. USA Business, in each case certified by the
Secretary or an Assistant Secretary of such Loan Party as of the Seventh
Amendment Effective Date and (ii) as to the incumbency and specimen
signature of such Loan Party's officers executing this Seventh Amendment
and all other documents require or necessary to be delivered hereunder or
in connection herewith. Such certificate shall state that the resolutions
thereby certified have not been amended, modified, revoked or rescinded as
of the date of such certificate.
(f) the Agent shall have received, with a copy for each Lender, true and
complete copies of the certificate of incorporation and by-laws of each
Loan Party, certified as of the Seventh Amendment Effective Date as
complete and correct copies thereof by the Secretary or an Assistant
Secretary of such Loan Party.
<PAGE>
7
(g) the Agent shall have received from the Company an executed
Supplemental Borrowing Base Certificate in the form of Annex A attached
hereto.
(h) the Agent shall have received with a counterpart for each Lender the
executed legal opinion of Kilpatrick & Cody. L.L.P., counsel to the Loan
Parties, in form and substance satisfactory to the Agent;
(i) the Company shall have filed such Uniform Commercial Code financing
statements as the Agent has requested in connection with the acquisition by
the Company of S.E. USA Business;
(j) substantially concurrent with the Seventh Amendment Effective Date,
the Company acquires the S.E. USA Business and enters into related
transactions on terms satisfactory to the Agent;
(k) GE Capital shall have received fees as required in the Fee Letter
dated November 21, 1996 from GE Capital and Redwood Receivables Corporation
to the Company and PSC (the "New Fee Letter"); and
(l) the Agent shall have received copies of all lien searches that it
deems appropriate, and none of such searches shall have revealed any
existing liens or encumbrances on the assets being acquired pursuant to the
Asset Purchase Agreement other than those liens or encumbrances that are
permitted under Section 6.2 of the Credit Agreement.
21. Company Representations. The Company represents and warrants
-----------------------
that:
(a) each of this Seventh Amendment and the New Promissory Note has been
duly authorized, executed and delivered by the Company;
(b) each of this Seventh Amendment, and the Credit Agreement as amended by
this Seventh Amendment and the New Promissory Note constitutes the legal,
valid and binding obligation of the Company;
(c) each of the representations and warranties set forth in Section 3 of
the Credit Agreement are true and correct as of the Seventh Amendment
Effective Date; provided that references in the Credit Agreement to this
"Agreement" shall be deemed references to the Credit Agreement as amended
to date and by this Seventh Amendment and references to the "Note" in the
Credit Agreement shall be deemed references to the New Promissory Note; and
<PAGE>
8
(d) after giving effect to this Seventh Amendment, there does not exist
any Default or Event of Default.
22. Continuing Effects. Except as expressly waived hereby, the
------------------
Credit Agreement shall continue to be and shall remain in full force and effect
in accordance with its terms.
23. Expenses. The Company agrees to pay and reimburse the Agent for
--------
all of its out-of-pocket costs and expenses incurred in connection with (a) any
and all periodic field examinations relating to the Credit Agreement which have
been undertaken by General Electric Capital Corporation through and after the
date hereof and (b) the negotiation, preparation, execution, and delivery of
this Seventh Amendment, including the reasonable fees and expenses of counsel to
the Agent.
24. Counterparts. This Seventh Amendment may be executed on any
------------
number of separate counterparts and all of said counterparts taken together
shall be deemed to constitute one and the same instrument.
<PAGE>
9
25. GOVERNING LAW. THIS SEVENTH AMENDMENT SHALL BE GOVERNED BY, AND
-------------
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the parties hereto have caused this Seventh
Amendment to be duly executed and delivered by their proper and duly authorized
officers as of the day and year first above written.
PAMECO CORPORATION (formerly named
MLX Refrigeration & Air
Conditioning Group, Inc.)
By ______________________________
Title:
GENERAL ELECTRIC CAPITAL
CORPORATION, as Agent
and as a Lender
By _____________________________
Title:
<PAGE>
10
ACKNOWLEDGEMENT AND CONSENT
The undersigned does hereby acknowledge and consent to the foregoing
Seventh Amendment. The undersigned does hereby confirm and agree that, after
giving effect to such Seventh Amendment, the Guarantees and other Collateral
Documents in favor of the Agent to which it is a party are and shall continue to
be in full force and effect and are hereby confirmed and ratified in all
respects.
PAMECO HOLDINGS, INC.
By _____________________________
Title:
<PAGE>
ANNEX A
[to come]
<PAGE>
ANNEX B
PROMISSORY NOTE
---------------
$100,000,000./00/ New York, New York
March 19, 1992
Amended and Restated
November 21, 1996
FOR VALUE RECEIVED, the undersigned, PAMECO CORPORATION, a Delaware
corporation (the "Company"), hereby unconditionally promises to pay on the
-------
Termination Date, to the order of GENERAL ELECTRIC CAPITAL CORPORATION, a New
York corporation (the "Lender") at the office of General Electric Capital
------
Corporation, as agent for the lenders parties to the Credit Agreement referred
to below (in such capacity, the "Agent"), located at 201 High Ridge Road,
-----
Stamford, CT 06927, in lawful money of the United States of America and in
immediately available funds, the principal amount equal to the lesser of (a) ONE
HUNDRED MILLION AND 00/100 DOLLARS ($100,000,000.00) and (b) the aggregate
unpaid principal amount of all Loans made by the Lender to the undersigned
pursuant to subsection 2.1 of said Credit Agreement and all other Loans made or
deemed made by the Company under the Credit Agreement.
The undersigned further agrees to pay interest in like money at such
office on the unpaid principal amount hereof from time to time from the date
hereof at the applicable rate per annum as specified in subsection 2.4 of said
Credit Agreement until any such amount shall become due and payable (whether at
the stated maturity, by acceleration or otherwise), and thereafter on such
overdue amount at the rate per annum set forth in subsection 2.4(c) of said
Credit Agreement until paid in full (both before and after judgment). Interest
shall be due and payable in arrears on each Interest Payment Date, as such term
is defined in the Credit Agreement, provided that interest accruing pursuant to
subsection 2.4(c) shall be payable on demand.
The holder of this Note is authorized to record the date, Type and
amount of each Loan made by such Lender, each continuation thereof, each
conversion of all or a portion thereof to another Type, the date and amount of
each payment or prepayment of principal thereof and the length of each Interest
Period with respect thereto, and any such recordation shall constitute prima
-----
facie evidence of the accuracy of the information so recorded in the absence of
- -----
manifest error, provided that failure by the Lender to make such recordation on
--------
this Note shall not affect any of the obligations of the Company under this Note
or said Credit Agreement.
This Note is one of the Notes referred to in the Credit Agreement,
dated as of March 19, 1992 (as amended, supplemented or otherwise modified from
time to time, the "Credit Agreement"), among the undersigned, the Lender, the
----------------
other lenders and financial institutions parties thereto and General Electric
Capital Corporation, as Agent, is entitled to the benefits thereof, is secured
as provided therein and is subject to
<PAGE>
2
optional and mandatory prepayment in whole or in part as provided therein. Terms
used herein which are defined in the Credit Agreement shall have such defined
meanings unless otherwise defined herein or unless the context otherwise
requires.
This Note is being issued in replacement of and substitution for that
certain Amended and Restated Promissory Note dated May 1, 1996 by the Company to
the order of the Lender in the principal amount of $70,000,000, which was issued
in replacement of and substitution for that certain Promissory Note dated March
19, 1992 (the "Original Note") by the Company to the order of the Lender in the
original principal amount of $60,000,000. In addition to the indebtedness
evidenced by this Note, this Note shall also evidence any accrued and unpaid
interest on such preceding notes.
Upon the occurrence of any one or more of the Events of Default
specified in such Credit Agreement, all amounts then remaining unpaid on this
Note shall become, or may be declared to be, immediately due and payable all as
provided therein.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
PAMECO CORPORATION
By_________________________
Title:
<PAGE>
SCHEDULE I
TO NOTE
---------------
BASE RATE LOANS AND CONVERSIONS
AND REPAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
Amount of Amount of
Base Rate Eurodollar
Loans Con- Loans
Amount of verted into Converted Amount of Unpaid
of Base Rate Eurodollar into Base Principal Principal Notation Made
----
Date Interest Period Loans Loans Rate Loans Repaid Balance By
- ---- ------ ----- ----- ---------- ------ ------- --
<S> <C> <C> <C> <C> <C> <C> <C>
____ _________ _____ ________ _________ _______ ________ ________
____ _________ _____ ________ _________ _______ ________ ________
____ _________ _____ ________ _________ _______ ________ ________
____ _________ _____ ________ _________ _______ ________ ________
____ _________ _____ ________ _________ _______ ________ ________
____ _________ _____ ________ _________ _______ ________ ________
____ _________ _____ ________ _________ _______ ________ ________
____ _________ _____ ________ _________ _______ ________ ________
____ _________ _____ ________ _________ _______ ________ ________
____ _________ _____ ________ _________ _______ ________ ________
____ _________ _____ ________ _________ _______ ________ ________
____ _________ _____ ________ _________ _______ ________ ________
____ _________ _____ ________ _________ _______ ________ ________
____ _________ _____ ________ _________ _______ ________ ________
____ _________ _____ ________ _________ _______ ________ ________
____ _________ _____ ________ _________ _______ ________ ________
____ _________ _____ ________ _________ _______ ________ ________
____ _________ _____ ________ _________ _______ ________ ________
____ _________ _____ ________ _________ _______ ________ ________
____ _________ _____ ________ _________ _______ ________ ________
____ _________ _____ ________ _________ _______ ________ ________
____ _________ _____ ________ _________ _______ ________ ________
____ _________ _____ ________ _________ _______ ________ ________
____ _________ _____ ________ _________ _______ ________ ________
</TABLE>
<PAGE>
SCHEDULE II
TO NOTE
-----------------
EURODOLLAR LOANS AND CONVERSIONS
AND REPAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
Amount of Amount of
Base Rate Eurodollar
Loans Con- Loans
Amount of verted into Converted Amount of Unpaid
of Base Rate Eurodollar into Base Principal Principal Notation Made
----
Date Interest Period Loans Loans Rate Loans Repaid Balance By
- ---- ------ ----- ----- ---------- ------ ------- --
<S> <C> <C> <C> <C> <C> <C> <C>
____ _________ _____ ________ _________ _______ ________ ________
____ _________ _____ ________ _________ _______ ________ ________
____ _________ _____ ________ _________ _______ ________ ________
____ _________ _____ ________ _________ _______ ________ ________
____ _________ _____ ________ _________ _______ ________ ________
____ _________ _____ ________ _________ _______ ________ ________
____ _________ _____ ________ _________ _______ ________ ________
____ _________ _____ ________ _________ _______ ________ ________
____ _________ _____ ________ _________ _______ ________ ________
____ _________ _____ ________ _________ _______ ________ ________
____ _________ _____ ________ _________ _______ ________ ________
____ _________ _____ ________ _________ _______ ________ ________
____ _________ _____ ________ _________ _______ ________ ________
____ _________ _____ ________ _________ _______ ________ ________
____ _________ _____ ________ _________ _______ ________ ________
____ _________ _____ ________ _________ _______ ________ ________
____ _________ _____ ________ _________ _______ ________ ________
____ _________ _____ ________ _________ _______ ________ ________
____ _________ _____ ________ _________ _______ ________ ________
____ _________ _____ ________ _________ _______ ________ ________
____ _________ _____ ________ _________ _______ ________ ________
____ _________ _____ ________ _________ _______ ________ ________
____ _________ _____ ________ _________ _______ ________ ________
____ _________ _____ ________ _________ _______ ________ ________
</TABLE>
<PAGE>
Exhibit 10.13
EXECUTION COPY
--------------
EIGHTH AMENDMENT
----------------
EIGHTH AMENDMENT (this "Eighth Amendment"), dated as of January 24,
----------------
1997, to the Credit Agreement, dated as of March 19, 1992 (as amended prior to
the date hereof and as the same is being and may be further amended,
supplemented or otherwise modified from time to time, the "Credit Agreement"),
----------------
among PAMECO CORPORATION (formerly named MLX Refrigeration & Air Conditioning
Group, Inc.), a Delaware corporation (the "Company"), the lenders parties
-------
thereto (together with their respective successors and permitted assigns, the
"Lenders") and GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation, as
- --------
agent for the Lenders (in such capacity, together with its successors and
permitted assigns, the "Agent").
-----
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Company has requested that the Lender amend certain
provisions of the Credit Agreement upon the terms and subject to the conditions
set forth herein; and
WHEREAS, the Lenders have agreed to such waivers and amendments only
upon the terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties hereto hereby agree as follows:
1. Defined Terms. Terms defined in the Credit Agreement are used herein with
-------------
the meanings set forth in the Credit Agreement unless otherwise defined herein.
2. Amendment of Section 1.1. Section 1.1 of the Credit Agreement is
------------------------
hereby amended by:
(a) effective as of March 1, 1997, deleting from the definition
of "Applicable Margin" the number "2.75" as it appears in two places in
such definition and substituting in lieu thereof the number "2.40"; and
(b) deleting the definition of "Holdings Interest Expense" in its
entirety and substituting therefor the following:
'"Holdings Interest Expense" for any period shall mean the
-------------------------
interest expense on the Loans, the Subordinated Notes, the New Subordinated
Debt, the New Subordinated Bridge Notes and the Capital Investment (as
defined in the Receivables Purchase Agreement) (including non-cash
interest) for such period, determined on a consolidated basis in accordance
with GAAP.'
<PAGE>
2
3. Amendment of Section 6.8(e)(ii). Section 6.8(e)(ii) of the
-------------------------------
Credit Agreement is hereby amended by deleting the chart appearing therein and
substituting in lieu thereof the following chart:
<TABLE>
<CAPTION>
Fiscal Year Ending Amount
------------------ ------
<S> <C>
February 28, 1996 $20,000,000
February 28, 1997 12,500,000
February 28, 1998 17,500,000
February 28, 1999 21,000,000
Each Fiscal Year
ending thereafter 24,500,000
</TABLE>
4. Company Representations and Warranties. The Company represents
--------------------------------------
and warrants that:
(a) this Eighth Amendment has been duly authorized, executed and delivered
by the Company;
(b) each of this Eighth Amendment and the Credit Agreement as amended by
this Eighth Amendment constitutes the legal, valid and binding obligation
of the Company;
(c) each of the representations and warranties set forth in Section 3 of
the Credit Agreement are true and correct as of the Eighth Amendment
Effective Date; provided that references in the Credit Agreement to this
"Agreement" shall be deemed references to the Credit Agreement as amended
to date and by this Eighth Amendment and references to the "Note" in the
Credit Agreement shall be deemed references to the Promissory Note dated
November 21, 1996 made by the Company in favor of General Electric Capital
Corporation; and
(d) after giving effect to this Eighth Amendment, there does not exist any
Default or Event of Default.
5. Conditions to Effectiveness. This Eighth Amendment shall become
---------------------------
effective (the actual date of such effectiveness, the "Eighth Amendment
----------------
Effective Date") as of the date first above written when (a) counterparts hereof
- --------------
shall have been duly executed and delivered by each of the parties hereto and
acknowledged by Pameco Holdings, Inc. and (b) General Electric Capital
Corporation shall have received such fees as set forth in the new Fee Letter
dated the date hereof from General Electric Capital Corporation and Redwood
Receivables Corporation to the Company and PSC.
6. Continuing Effects. Except as expressly waived hereby, the
------------------
Credit Agreement shall continue to be and shall remain in full force and effect
in accordance with its terms.
7. Expenses. The Company agrees to pay and reimburse the Agent
--------
for all of its out-of-pocket costs and expenses incurred in connection with the
negotiation, preparation, execution, and delivery of this Eighth Amendment,
including the fees and expenses of counsel to the Agent.
<PAGE>
3
8. Counterparts. This Eighth Amendment may be executed on any
------------
number of separate counterparts and all of said counterparts taken together
shall be deemed to constitute one and the same instrument.
9. GOVERNING LAW. THIS EIGHTH AMENDMENT SHALL BE GOVERNED BY, AND
-------------
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
<PAGE>
4
IN WITNESS WHEREOF, the parties hereto have caused this Eighth
Amendment to be duly executed and delivered in New York, New York by their
proper and duly authorized officers as of the day and year first above written.
PAMECO CORPORATION (formerly named MLX
Refrigeration & Air
Conditioning Group, Inc.)
By ________________________
Title:
GENERAL ELECTRIC CAPITAL
CORPORATION, as Agent
and as a Lender
By _______________________
Title:
<PAGE>
5
ACKNOWLEDGEMENT AND CONSENT
The undersigned does hereby acknowledge and consent to the foregoing
Eighth Amendment and does hereby confirm and agree that, after giving effect to
such Eighth Amendment, the guarantee in favor of the Agent to which it is a
party is and shall continue to be in full force and effect and is hereby
confirmed and ratified in all respects.
PAMECO HOLDINGS, INC.
By ___________
Title:
<PAGE>
Exhibit 10.14
EXECUTION COPY
--------------
WAIVER AND NINTH AMENDMENT
WAIVER AND NINTH AMENDMENT (this "Ninth Amendment"), dated as of
---------------
February __, 1997, to the Credit Agreement, dated as of March 19, 1992 (as
amended prior to the date hereof and as the same is being and may be further
amended, supplemented or otherwise modified from time to time, the "Credit
------
Agreement"), among PAMECO CORPORATION (formerly named MLX Refrigeration & Air
- ---------
Conditioning Group, Inc.), a Delaware corporation (the "Company"), the lenders
-------
parties thereto (together with their respective successors and permitted
assigns, the "Lenders") and GENERAL ELECTRIC CAPITAL CORPORATION, a New York
-------
corporation, as agent for the Lenders (in such capacity, together with its
successors and permitted assigns, the "Agent").
-----
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Company has requested that the Lenders agree to waive
compliance with certain provisions of the Credit Agreement and amend certain
provisions of the Credit Agreement upon the terms and subject to the conditions
set forth herein; and
WHEREAS, the Lenders have agreed to such waivers and amendments only
upon the terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties hereto hereby agree as follows:
1. Defined Terms. Terms defined in the Credit Agreement are used
-------------
herein with the meanings set forth in the Credit Agreement unless otherwise
defined herein.
2. Waiver of Section 6.4. The Agent and the Lenders hereby waive
---------------------
compliance with the provisions of Section 6.4 of the Credit Agreement with
respect to the payment of dividends by the Company to Holdings to the extent and
only to the extent necessary to permit Holdings to pay principal on the New
Subordinated Note in the amount of up to $2,500,000 (plus accrued interest
thereon) in each of the months ended March 31, 1997, April 30, 1997 and May 31,
1997; provided, that after giving effect to such payment, the Borrowing Base on
--------
each of the immediately preceding thirty days shall have exceeded, and on the
date of such payment shall exceed, the amount of the Loans and Reimbursement
Obligations then outstanding by not less than $4,000,000; and, provided,
--------
further, that no Default or Event of Default has occurred and is continuing at
- -------
the time such payment
<PAGE>
2
is made or will occur as a result of such dividend payment being made.
3. Waiver of Section 7(aa). To the extent repayment by Holdings of
-----------------------
up to $2,500,000 in principal amount on the New Subordinated Note in each of
March, April and May of 1997 would be deemed to be an Event of Default pursuant
to Section 7(aa) of the Credit Agreement, the Agent and the Lenders hereby waive
such Event of Default.
4. Amendment of Section 1.1. Section 1.1 of the Credit Agreement is
------------------------
hereby amended by deleting from the definition of "New Subordinated Note" the
date "December 31, 1996" and substituting therefor the date "June 30, 1997".
5. Company Representations and Warranties. The Company represents
--------------------------------------
and warrants that:
(a) this Ninth Amendment has been duly authorized, executed and delivered
by the Company;
(b) each of this Ninth Amendment and the Credit Agreement as amended by
this Ninth Amendment constitutes the legal, valid and binding obligation of
the Company;
(c) each of the representations and warranties set forth in Section 3 of
the Credit Agreement are true and correct as of the Ninth Amendment
Effective Date; provided that references in the Credit Agreement to this
"Agreement" shall be deemed references to the Credit Agreement as amended
to date and by this Ninth Amendment and references to the "Note" in the
Credit Agreement shall be deemed references to the Promissory Note dated
November 21, 1996 made by the Company in favor of General Electric Capital
Corporation; and
(d) after giving effect to this Ninth Amendment, there does not exist any
Default or Event of Default.
6. Conditions to Effectiveness. This Ninth Amendment shall become
---------------------------
effective (the actual date of such effectiveness, the "Ninth Amendment Effective
-------------------------
Date") as of the date first above written when counterparts hereof shall have
- ----
been duly executed and delivered by each of the parties hereto and acknowledged
by Pameco Holdings, Inc.
7. Continuing Effects. Except as expressly waived hereby, the
------------------
Credit Agreement shall continue to be and shall remain in full force and effect
in accordance with its terms.
8. Expenses. The Company agrees to pay and reimburse the Agent for
--------
all of its out-of-pocket costs and expenses incurred in connection with the
negotiation, preparation, execution, and delivery of this Ninth Amendment,
including the fees and expenses of counsel to the Agent.
<PAGE>
3
9. Counterparts. This Ninth Amendment may be executed on any number
------------
of separate counterparts and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.
10. GOVERNING LAW. THIS NINTH AMENDMENT SHALL BE GOVERNED BY, AND
-------------
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the parties hereto have caused this Ninth
Amendment to be duly executed and delivered in New York, New York by their
proper and duly authorized officers as of the day and year first above written.
PAMECO CORPORATION (formerly named
MLX Refrigeration & Air
Conditioning Group, Inc.)
By ________________________
Title:
GENERAL ELECTRIC CAPITAL
CORPORATION, as Agent
and as a Lender
By _______________________
Title:
<PAGE>
4
ACKNOWLEDGEMENT AND CONSENT
The undersigned does hereby acknowledge and consent to the foregoing
Ninth Amendment and does hereby confirm and agree that, after giving effect to
such Ninth Amendment, the guarantee in favor of the Agent to which it is a party
is and shall continue to be in full force and effect and is hereby confirmed and
ratified in all respects.
PAMECO HOLDINGS, INC.
By ________________________
Title:
<PAGE>
EXHIBIT 10.15
RECEIVABLES PURCHASE AND SERVICING AGREEMENT
Dated as of April 29, 1996
by and among
PAMECO SECURITIZATION CORPORATION,
as Seller,
REDWOOD RECEIVABLES CORPORATION,
as Purchaser,
PAMECO CORPORATION,
as Servicer,
and
GENERAL ELECTRIC CAPITAL CORPORATION,
as Operating Agent and Collateral Agent
<PAGE>
TABLE OF CONTENTS
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ARTICLE I.
DEFINITIONS AND INTERPRETATION
Section 1.01. Definitions.................................................... 2
Section 1.02. Other Terms and Interpretation................................. 2
ARTICLE II.
AMOUNTS AND TERMS OF THE PURCHASES
Section 2.01. Purchases...................................................... 2
Section 2.02. Optional Changes in Purchase Limit............................. 2
Section 2.03. Notices Relating to Purchases.................................. 3
Section 2.04. Conveyance of Receivables...................................... 3
Section 2.05. Facility Termination Date...................................... 4
Section 2.06. Repayment of Capital Investment................................ 4
Section 2.07. Daily Yield.................................................... 4
Section 2.08. Fees........................................................... 4
Section 2.09. Time and Method of Payments.................................... 5
Section 2.10. Further Action Evidencing Purchases............................ 5
Section 2.11. Additional Costs; Capital Requirements......................... 6
Section 2.12. Breakage Costs................................................. 7
Section 2.13. Purchase Excess................................................ 8
ARTICLE III.
CONDITIONS TO PURCHASE
Section 3.01. Conditions Precedent to Effectiveness of Agreement............. 8
Section 3.02. Conditions Precedent to All Purchases..........................11
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
Section 4.01. Representations and Warranties of the Seller...................12
Section 4.02. Representations and Warranties of the Servicer.................17
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ARTICLE V.
GENERAL COVENANTS OF THE SELLER
Section 5.01. Affirmative Covenants of the Seller............................19
Section 5.02. Reporting Requirements of the Seller...........................21
Section 5.03. Negative Covenants of the Seller...............................22
ARTICLE VI.
COLLECTIONS AND DISBURSEMENTS
Section 6.01. Establishment of Accounts......................................24
Section 6.02. Funding of Collection Account..................................26
Section 6.03. Daily Disbursements From the Collection Account -
Revolving Period...............................................27
Section 6.04. Disbursements From the Retention Account - Settlement
Date Procedures - Revolving Period.............................29
Section 6.05. Liquidation Settlement Procedures..............................30
Section 6.06. Investment of Accounts.........................................33
Section 6.07. Termination Procedure..........................................33
ARTICLE VII.
APPOINTMENT OF THE SERVICER
Section 7.01. Appointment of the Servicer....................................34
Section 7.02. Duties and Responsibilities of the Servicer....................34
Section 7.03. Collections on Receivables.....................................34
Section 7.04. Authorization of the Servicer..................................35
Section 7.05. Servicing Fees.................................................35
Section 7.06. Covenants of the Servicer......................................36
Section 7.07. Reporting......................................................37
Section 7.08. Annual Statement as to Compliance..............................37
Section 7.09. Annual Independent Public Accountants' Servicing and
Compliance Report..............................................38
ARTICLE VIII.
GRANT OF SECURITY INTERESTS
Section 8.01. Seller's Grant of Security Interest............................38
Section 8.02. Seller's Certification.........................................40
Section 8.03. Consent to Assignment..........................................40
Section 8.04. Delivery of Collateral.........................................40
Section 8.05. Seller Remains Liable..........................................41
Section 8.06. Covenants of the Seller and Servicer Regarding the Collateral..41
</TABLE>
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ARTICLE IX.
TERMINATION EVENTS
Section 9.01. Termination Events.............................................44
Section 9.02. Events of Servicer Termination.................................47
ARTICLE X.
REMEDIES
Section 10.01. Actions Upon Termination Event.................................49
Section 10.02. Exercise of Remedies...........................................50
Section 10.03. Severability of Remedies.......................................50
Section 10.04. Power of Attorney..............................................50
Section 10.05. Continuing Security Interest...................................51
ARTICLE XI.
SUCCESSOR SERVICER
Section 11.01. Servicer Not to Resign.........................................51
Section 11.02. Appointment of the Successor Servicer..........................51
Section 11.03. Duties of the Servicer.........................................52
Section 11.04. Effect of Termination or Resignation...........................52
ARTICLE XII.
INDEMNIFICATION
Section 12.01. Indemnities by the Seller......................................52
Section 12.02. Indemnities by the Servicer....................................53
ARTICLE XIII.
OPERATING AGENT
Section 13.01. Authorization and Action.......................................54
Section 13.02. Reliance, etc..................................................54
Section 13.03. GE Capital and Affiliates......................................55
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iii
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ARTICLE XIV.
MISCELLANEOUS
Section 14.01. Notices, Etc...................................................55
Section 14.02. Binding Effect; Assignability..................................55
Section 14.03. Costs, Expenses and Taxes......................................56
Section 14.04. Confidentiality................................................57
Section 14.05. No Proceedings.................................................57
Section 14.06. Amendments; Waivers; Consents..................................58
Section 14.07. GOVERNING LAW; CONSENT TO JURISDICTION;
WAIVER OF JURY TRIAL...........................................58
Section 14.08. Execution in Counterparts; Severability........................59
Section 14.09. Descriptive Headings...........................................59
Section 14.10. Limited Recourse...............................................59
</TABLE>
Schedule 1 - Concentration Limits
Schedule 2 - Excluded Obligors
Annex A to
Schedule 2 - Form of Amending Letter
Schedule 3 - Determination of "Daily Yield"
Schedule 4 - Yield Discount Amount
Schedule 5 - Addresses of the Seller
Schedule 6 - List of Lockboxes and Lockbox Accounts
Schedule 7 - List of Seller Agreements
Schedule 8 - List of Originator/Servicer Trade, Fictitious, Assumed and
"Doing Business as" Names
Schedule 9 - States for Which Good Standing Certificates are Required
Exhibit A-1 - Form of Notice (Request for Purchase)
Exhibit A-2 - Form of Notice (Reduction of Commitment)
Exhibit A-3 - Form of Notice (Termination of Commitment)
Exhibit A-4 - Form of Notice (Repayment of Capital Investment)
Exhibit B - Form of Purchase Assignment
Exhibit C - Form of Investment Base Certificate
Exhibit D - Form of Officer's Certificate as to Solvency
Exhibit E - Form of Officer's Certificate of Seller
(Bringdown Certificate)
Exhibit F - Form of Officer's Certificate of Servicer
Exhibit G - Form of Monthly Report
Exhibit H - Financial Covenants - Servicer
Exhibit I - Financial Covenants - Seller
iv
<PAGE>
RECEIVABLES PURCHASE AND SERVICING AGREEMENT, dated as of April 29,
1996 (the "AGREEMENT") by and among PAMECO SECURITIZATION CORPORATION, a
Delaware corporation (the "SELLER"), REDWOOD RECEIVABLES CORPORATION, a Delaware
corporation, as Purchaser (as such, together with its successors and assigns,
the "PURCHASER"), GENERAL ELECTRIC CAPITAL CORPORATION, in its capacity as
operating agent hereunder (as such, together with its successors and assigns,
the "OPERATING AGENT") and in its capacity as Collateral Agent for the Purchaser
Secured Parties (as such, together with its successors and assigns, the
"COLLATERAL AGENT"), and PAMECO CORPORATION, a Delaware corporation, as servicer
hereunder (as such, together with its successors and permitted assigns, the
"SERVICER").
RECITALS
A. The Seller is a wholly-owned bankruptcy remote Subsidiary of the
Originator.
B. The Seller has been formed for the sole purpose of purchasing or
otherwise acquiring certain Receivables originated by the Originator.
C. The Seller intends that such Receivables shall be purchased by or
contributed to the Seller pursuant to the Transfer Agreement.
D. The Seller and the Purchaser intend that the Purchaser purchase
the Receivables.
E. The Operating Agent has been requested and is willing to act as
operating agent on behalf of the Purchaser in connection with the making and
financing of such advances.
F. In order to effectuate the purposes of this Agreement, the
Purchaser and the Operating Agent desire that a servicer be appointed to perform
certain servicing, administrative and collection functions in respect of the
receivables acquired by the Purchaser under this Agreement.
G. The Originator has been requested and is willing to act as the
Servicer.
NOW, THEREFORE, the parties agree as follows:
<PAGE>
ARTICLE I.
DEFINITIONS AND INTERPRETATION
Section 1.01. Definitions. Except as otherwise expressly provided herein
-----------
or unless the context otherwise requires, capitalized terms not otherwise
defined herein shall have meanings assigned to such terms in Annex X hereto,
which is incorporated by reference herein. All other capitalized terms used
herein shall have the meanings specified herein.
Section 1.02. Other Terms and Interpretation. All other terms and the
------------------------------
interpretation of this Agreement shall be as set out in Annex X hereto.
ARTICLE II.
AMOUNTS AND TERMS OF THE PURCHASES
Section 2.01. Purchases. On the terms and conditions hereinafter set
---------
forth, the Purchaser shall purchase Transferred Receivables (each, a "PURCHASE")
from the Seller from time to time during the Revolving Period. Under no
circumstances shall the Purchaser make any Purchase if, after giving effect to
such Purchase, the aggregate outstanding Capital Investment would exceed the
Availability. The aggregate price for each such Purchase shall consist of the
Cash Purchase Price and the Deferred Purchase Price.
Section 2.02. Optional Changes in Purchase Limit.
----------------------------------
(a) The Seller may, not more than twice during each calendar year,
reduce the Maximum Purchase Limit permanently; provided that (i) the Seller
--------
shall give notice of such reduction to the Purchaser in the form of Exhibit A-2,
(ii) any partial reduction of the Maximum Purchase Limit shall be in an amount
equal to Five Million Dollars ($5,000,000) or an integral multiple thereof, and
(iii) no such reduction shall reduce the Maximum Purchase Limit below Capital
Investment.
(b) The Seller shall be entitled at its option to terminate the
Maximum Purchase Limit, provided that the Purchaser shall be given no less than
90 days' prior notice by the Seller of such termination in the form of Exhibit
A-3. Any such termination shall be permanent and irrevocable.
(c) Each written notice required to be delivered pursuant to clauses
(a) and (b) above shall be irrevocable and shall be effective only if received
by the Purchaser and the Operating Agent not later than 5:00 p.m., New York City
time on the
2
<PAGE>
Business Day prior to the date of the related termination or reduction. Each
such notice of termination or reduction shall specify the amount thereof.
Section 2.03. Notices Relating to Purchases.
-----------------------------
(a) On the third Business Day of each week, the Seller shall file
with the Operating Agent an Investment Base Certificate and, upon request,
copies of all applicable Request Notices under the Transfer Agreement delivered
since the date of the most recent Investment Base Certificate filed with the
Operating Agent. Availability will be calculated based on the most recent
Investment Base Certificate delivered to the Purchaser and the Operating Agent.
(b) The Seller shall give the Purchaser and the Operating Agent
written notice of each Purchase resulting in an increase in Capital Investment
(in each case, a "SELLER NOTICE"). Each such written notice shall be
substantially in the form of Exhibit A-1, shall be irrevocable and shall be
effective only if received by the Purchaser and the Operating Agent not later
than 12:00 p.m., New York City time on the Business Day prior to the date of the
related Purchase. Each such notice requesting a Purchase shall specify the
amount by which the Seller wishes the Capital Investment of the Purchaser to be
increased and the Purchase Date (which shall be a Business Day).
Section 2.04. Conveyance of Receivables.
-------------------------
(a) On the Effective Date, the Seller will complete, execute and
deliver a Purchase Assignment in the form of Exhibit B to the Purchaser.
(b) (i) Following receipt of a Seller Notice, subject to the
satisfaction of the conditions set forth in Section 3.02, the Purchaser shall
make available to or on behalf of the Seller, in same day funds, in accordance
with the Seller's instructions (after taking into account amounts on deposit in
the Collection Account which may be applied to any Capital Investment pursuant
to Section 6.03(a)(iii)) the lesser of the amount specified in such Seller
Notice and Capital Investment Available.
(ii) On each Business Day during the Revolving Period, subject to
the terms of Section 6.03, the Purchaser shall make available to or on behalf of
the Seller, in same day funds, amounts on deposit in the Collection Account
which may be disbursed to the Seller as payment for the Transferred Receivables.
(c) Effective on the date of each Purchase, the ownership of all
Transferred Receivables (including Transferred Receivables transferred prior to
the Purchase Date) will be vested in the Purchaser. The Seller shall not take
any action inconsistent with such ownership and shall not claim any ownership
interest in any such Transferred Receivable. The Seller shall indicate in its
Records that ownership of
3
<PAGE>
the Transferred Receivable is held by the Purchaser. In addition, the Seller
shall respond to any inquiries with respect to ownership of a Transferred
Receivable by stating that it is no longer the owner of such Transferred
Receivable and that ownership of such Transferred Receivable is held by the
Purchaser. Documents relating to the Transferred Receivables shall be held in
trust by the Seller and the Servicer, for the benefit of the Purchaser as the
owner thereof, and possession of any incident relating to the Transferred
Receivables so retained is for the sole purpose of facilitating the servicing of
the Transferred Receivables. Such retention and possession is at the will of
the Purchaser and in a custodial capacity for the benefit of the Purchaser only.
(d) If the Originator is required to repurchase Transferred
Receivables from the Seller pursuant to Section 4.04 of the Transfer Agreement,
the Purchaser shall sell such Transferred Receivables to the Seller (i) for cash
or (ii) in exchange for a new Eligible Receivable or new Eligible Receivables,
in either case in an amount equal to the Outstanding Balance of such Transferred
Receivables.
Section 2.05. Facility Termination Date. Notwithstanding anything to the
-------------------------
contrary herein, on and after the Facility Termination Date, the Purchaser shall
have no obligation to purchase any additional Receivables.
Section 2.06. Repayment of Capital Investment. The Capital Investment may
-------------------------------
be repaid at any time and from time to time, in whole or in part, upon prior
written notice to the Purchaser and Operating Agent substantially in the form of
Exhibit A-4 provided, however, that all repayments of Capital Investment or any
portion thereof shall be made together with payment of (i) all Daily Yield
accrued on the amount repaid to (but excluding) the date of such repayment, and
(ii) any and all Breakage Costs payable under Section 2.12.
Section 2.07. Daily Yield.
-----------
(a) The Seller shall pay to the Purchaser, as set forth in Sections
6.03, 6.04 and 6.05, Daily Yield on the Capital Investment of the Purchaser.
(b) Notwithstanding the foregoing, the Seller shall pay interest on
unpaid Daily Yield and on any other amount payable by the Seller hereunder (to
the extent permitted by law) that shall not be paid in full when due (whether at
stated maturity, by acceleration or otherwise) for the period commencing on the
due date thereof to (but excluding) the date the same is paid in full at the
applicable Daily Yield Rate.
4
<PAGE>
Section 2.08. Fees.
----
(a) The Seller shall pay to the Purchaser the fees set forth in the
Fee Letter.
(b) On each Settlement Date, the Seller shall pay to the Servicer,
the Servicing Fee, or to the Successor Servicer, the Successor Servicing Fees
and Expenses.
Section 2.09. Time and Method of Payments. Subject to the provisions of
---------------------------
Sections 6.02, 6.03, 6.04 and 6.05, all payments of Capital Investment, yield,
fees and other amounts payable by the Seller hereunder shall be made in dollars,
in immediately available funds, to the Purchaser not later than 2:00 p.m., New
York City time, on the date on which such payment shall become due. Any such
payment made on such date but after such time shall be deemed to have been made
on, and Daily Yield shall continue to accrue and be payable thereon until, the
next succeeding Business Day. If any payment becomes due on a day other than a
Business Day, such payment may be made on the next succeeding Business Day and
such extension shall be included in computing Daily Yield in connection with
such payment. All payments hereunder shall be made without setoff or
counterclaim and in such amounts as may be necessary in order that all such
payments shall not be less than the amounts otherwise specified to be paid under
this Agreement. If any payment hereunder to any Affected Party is subject to
withholding for or on account of any present or future taxes, levies, imposts,
duties or other similar charges of whatever nature imposed upon an Affected
Party by any Governmental Authority (other than any tax on or measured by the
net income of the Affected Party to which any such payment is due pursuant to
applicable foreign, federal, state and local income tax laws), such payment
shall be grossed up by an amount such that the Affected Party receives the same
amount that would have been received had such payment not been subject to
withholding.
Section 2.10. Further Action Evidencing Purchases.
-----------------------------------
(a) The Seller agrees that, from time to time, at its expense, it
will promptly execute and deliver all further instruments and documents, and
take all further action, that may be necessary or appropriate, in the opinion of
the Purchaser, or that the Purchaser or the Operating Agent may request, in
order to perfect, protect or more fully evidence the transfer of ownership of
Transferred Receivables or to enable the Purchaser to exercise or enforce any of
its rights hereunder or under any Purchase Assignment. Without limiting the
generality of the foregoing, the Seller will, upon the request of the Purchaser,
(i) execute and file such financing or continuation statements, or amendments
thereto or assignments thereof, and such other instruments or notices, as may be
necessary or appropriate, or as the Purchaser may request, (ii) after the
occurrence of an Incipient Event, mark, or cause the Servicer to mark,
conspicuously each invoice evidencing each Transferred Receivable with a legend,
acceptable to the
5
<PAGE>
Purchaser, evidencing that the Purchaser has purchased all right and title
thereto and interest therein as provided in the Transfer Agreement, (iii) after
the occurrence of an Incipient Event, send notification to Obligors as to the
transfer of Transferred Receivables, and (iv) mark, or cause the Servicer to
mark, its master data processing records evidencing such Transferred Receivables
with such legend.
(b) The Seller hereby authorizes the Purchaser to file one or more
financing or continuation statements, and amendments thereto and assignments
thereof, relating to all or any of the Transferred Receivables and Collections
with respect thereto without the signature of the Seller where permitted by law.
A carbon, photographic or other reproduction of this Agreement or any notice or
financing statement covering the Transferred Receivables or any part thereof
shall be sufficient as a notice or financing statement where permitted by law.
The Purchaser will promptly send to the Seller after receipt of any
acknowledgment copies from the appropriate governmental agency any financing or
continuation statements thereto which it files without the signature of the
Seller except, in the case of filings of copies of this Agreement as financing
statements, the Purchaser will promptly send the Seller after receipt from the
appropriate governmental agency the filing or recordation information with
respect thereto.
Section 2.11. Additional Costs; Capital Requirements.
--------------------------------------
(a) In the event that any existing or future law, regulation or
guideline, or interpretation thereof, by any court or administrative or
governmental authority charged with the administration thereof, or compliance by
any Affected Party with any request or directive (whether or not having the
force of law) of any such authority shall impose, modify or deem applicable or
result in the application of, any capital maintenance, capital ratio or similar
requirement against commitments made by any Affected Party under this Agreement
or a Program Document, and the result of any event referred to above is to
impose upon any Affected Party or increase any capital requirement applicable as
a result of the making or maintenance of, such Affected Party's commitment
(which imposition of capital requirements may be determined by each Affected
Party's allocation of the aggregate of such capital increases or impositions),
then, upon demand made by the Operating Agent on behalf of such Affected Party
as promptly as practicable after it obtains knowledge that such law, regulation,
guideline, interpretation, request or directive exists and determines to make
such demand, the Seller shall immediately pay to the Collateral Agent on behalf
of such Affected Party from time to time as specified by the Operating Agent,
additional amounts which shall be sufficient to compensate such Affected Party
for the Seller's Share of such imposition of or increase in capital requirements
together with interest on each such amount from the date demanded until payment
in full thereof at the Daily Yield Rate. A certificate setting forth in
reasonable detail the amount necessary to compensate such Affected Party as a
result of an imposition of or increase in capital
6
<PAGE>
requirements submitted by the Operating Agent to the Seller shall be conclusive,
absent manifest error, as to the amount thereof.
(b) In the event that any Regulatory Change shall: (i) change the
basis of taxation of any amounts payable to any Affected Party in respect of any
Purchases, Capital Investment, LOC Draws, Liquidity Loans or Transaction
Liquidity Loans (other than taxes imposed on the overall net income of such
Affected Party for any such Purchases, Capital Investment, LOC Draws or
Liquidity Loans by the United States of America or the jurisdiction in which
such Affected Party has its principal office); (ii) impose or modify any
reserve, Federal Deposit Insurance Corporation premium or assessment, special
deposit or similar requirements relating to any extensions of credit or other
assets of, or any deposits with or other liabilities of, such Affected Party; or
(iii) impose any other conditions affecting this Agreement in respect of
Purchases, Capital Investment, LOC Draws, Liquidity Loans, and Transaction
Liquidity Loans (or any of such extensions of credit, assets, deposits or
liabilities); and the result of any event referred to in clause (i), (ii) or
(iii) above shall be to increase such Affected Party's costs of making or
maintaining any Purchases, Capital Investment, LOC Draws, Liquidity Loans, and
Transaction Liquidity Loans or its commitment under a Program Document, or to
reduce any amount receivable by such Affected Party hereunder in respect of any
of its Purchases, Capital Investment, LOC Draws and Liquidity Loans or its
commitment (such increases in costs and reductions in amounts receivable are
hereinafter referred to as "ADDITIONAL COSTS") then, upon demand made by the
Operating Agent on behalf of such Affected Party, as promptly as practicable
after it obtains knowledge that such a Regulatory Change exists and determines
to make such demand, the Seller shall pay to the Collateral Agent on behalf of
such Affected Party, from time to time as specified by the Operating Agent,
additional commitment fees or other amounts which shall be sufficient to
compensate such Affected Party for the Seller's Share of such increased cost or
reduction in amounts receivable by such Affected Party from the date of such
change, together with interest on each such amount from the date demanded until
payment in full thereof at the Daily Yield Rate.
(c) Determinations by any Affected Party for purposes of this Section
2.11 of the effect of any Regulatory Change on its costs of making or
maintaining Purchases, Capital Investment, LOC Draws or Liquidity Loans or on
amounts receivable by it in respect of Purchases, Capital Investment, LOC Draws,
Liquidity Loans or Transaction Liquidity Loans and of the additional amounts
required to compensate such Affected Party in respect of any Additional Costs,
shall be set forth in a written notice to the Seller in reasonable detail and
shall be conclusive, absent manifest error.
Section 2.12. Breakage Costs. The Seller shall pay to the Collateral
--------------
Agent for the account of the Purchaser, upon the request of the Purchaser, such
amount or amounts as shall compensate the Purchaser for any loss (including loss
of profit), cost
7
<PAGE>
or expense incurred by the Purchaser (as determined by the Purchaser) as a
result of any repayment of a Purchase (and interest thereon) other than on the
maturity date of the Commercial Paper funding such Purchase, such compensation
to include, without limitation, an amount equal to any loss or expense suffered
by the Purchaser during the period from the date of receipt of such repayment to
(but excluding) the maturity date of such Commercial Paper, if the rate of
interest obtainable by the Purchaser upon the redeployment of an amount of funds
equal to the amount of such repayment is less than the rate of interest
applicable to such Commercial Paper (such expense to be referred to as "BREAKAGE
COSTS"). The determination by the Purchaser of the amount of any such loss or
expense shall be set forth in a written notice to the Seller in reasonable
detail and shall be conclusive, absent manifest error.
Section 2.13. Purchase Excess. After completion of the disbursements
---------------
specified in Subsections 6.03(a), (b) and (c), the Operating Agent shall notify
the Seller of any remaining Purchase Excess and the Seller shall deposit the
amount of any Purchase Excess in the Collection Account by 11:00 a.m. on the
Business Day following the date of such Purchase Excess.
ARTICLE III.
CONDITIONS TO PURCHASE
Section 3.01. Conditions Precedent to Effectiveness of Agreement. The
--------------------------------------------------
effectiveness of this Agreement is subject to the condition precedent that the
Purchaser, the Operating Agent and the Collateral Agent shall each have received
on or before the Effective Date the following, in form and substance
satisfactory to the Operating Agent:
(a) An executed copy of the Transfer Agreement.
(b) A certificate from an officer of the Originator in the form of
Exhibit D (Solvency Certificate as to Seller).
(c) With respect to the Seller:
(i) the certificate or articles of incorporation of the Seller
certified, as of a date no more than ten (10) days prior to the Effective
Date, by the Secretary of State of its state of incorporation;
(ii) a good standing certificate, dated no more than ten (10)
days prior to the Effective Date, from the respective Secretary of State of
its state of incorporation and each state in which the Seller is required
to qualify, or represents that it is qualified, to do business;
8
<PAGE>
(iii) a certificate of the Secretary or Assistant Secretary of
the Seller certifying as of the Effective Date: (A) the names and true
signatures of the officers authorized on its behalf to sign this Agreement,
(B) a copy of the Seller's by-laws, and (C) a copy of the resolutions of
the board of directors of the Seller approving this Agreement, the Related
Documents to which it is a party and the transactions contemplated hereby
and thereby; and
(iv) an Officer's Certificate in the form of Exhibit E
(Bringdown Certificate).
(d) With respect to the Servicer:
(i) the certificate or articles of incorporation of the
Servicer certified, as of a date no more than ten (10) days prior to the
Effective Date, by the Secretary of State of its state of incorporation;
(ii) a good standing certificate, dated no more than ten (10)
days prior to the Effective Date, from the respective Secretary of State of
its state of incorporation and each state listed on Schedule 9 hereto;
(iii) a certificate of the Secretary or Assistant Secretary of
the Servicer certifying as of the Effective Date: (A) the names and true
signatures of the officers authorized on its behalf to sign this Agreement,
(B) a copy of the Servicer's by-laws, and (C) a copy of the resolutions of
the board of directors of the Servicer approving this Agreement, the
Related Documents to which it is a party and the transactions contemplated
thereby and hereby; and
(iv) an Officer's Certificate in the form of Exhibit F
(Servicer's Certificate).
(e) Certified copies of requests for information or copies on form
UCC-11 (or a similar search report certified by a party acceptable to the
Operating Agent), dated a date no more than fourteen (14) days prior to the
Effective Date listing all effective financing statements and other similar
instruments and documents which name the Originator and the Seller (under their
present names and any previous names) as debtor, together with copies of such
financing statements none of which shall cover any Transferred Receivables
unless termination statements or statements of release are provided with respect
thereto pursuant to subsection (f) below.
(f) Executed termination statements (form UCC-3), if any, necessary
to release all security interests and other rights of any Person in Transferred
Receivables previously granted by the Originator including, without limitation,
all such releases specified by the Originator prior to the date hereof.
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(g) Any necessary third party consents to the closing of the
transactions contemplated hereby.
(h) Executed financing statements (form UCC-1), in respect of
Transferred Receivables, (i) pursuant to the Transfer Agreement, naming each
Originator as the assignor and the Seller as the assignee, and (ii) pursuant to
Article VIII, naming the Seller as the debtor/seller, the Purchaser as secured
party/purchaser and the Collateral Agent as the assignee, or other, similar
instruments or documents, as may be necessary or, in the opinion of the
Operating Agent, desirable under the UCC of all appropriate jurisdictions or any
other applicable law (including the Assignment of Claims Act) to perfect the
Purchaser's and the Collateral Agent's interests in all Transferred Receivables
in which an interest may be assigned hereunder.
(i) Fully executed copies of each Lockbox Agreement.
(j) The favorable opinion of counsel to the Seller and the Originator
as to (i) corporate and security interest/perfection matters, (ii) the true sale
of the Transferred Receivables from the Originator to the Seller, (iii) the
nonconsolidation of the Seller's assets into the bankruptcy estate of the
Originator, and (iv) such other matters as the Operating Agent may require.
(k) Payment of all fees due hereunder or under the Fee Letter.
(l) Payment or satisfactory provisions for payment of the legal and
documentation costs of the Purchaser and Operating Agent.
(m) (i) Consolidated balance sheets, statements of income and
statements of cash flow of the Parent and its Subsidiaries for each of the
years in the three year period ended February 28, 1995, audited by a
nationally recognized accounting firm (accompanied by consolidating
financial information reviewed by such accounting firm and a satisfactory
management letter, together with management's response thereto); and
(ii) Unaudited consolidated and consolidating balance sheets
and statements of income and statements of cash flow of the Parent and its
Subsidiaries for the 13 month period ended March 31, 1996.
(n) Confirmation of the ratings of the Commercial Paper as A-1+ by
S&P and P-1 by Moody's.
(o) A copy of the Servicer's Credit and Collection Policies.
(p) An Investment Base Certificate as of the Effective Date.
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(q) All taxes (other than income taxes) including without limitation,
any stamp duty, imposed on any party hereto as a result of this transaction,
shall have been paid by the Originator.
(r) Such other approvals, consents, opinions, documents and
instruments, as the Operating Agent may request.
Section 3.02. Conditions Precedent to All Purchases. Each Purchase
-------------------------------------
(including the initial Purchase) shall be subject to the further conditions
precedent as follows:
(a) On the related Purchase Date, the Seller shall have certified in
the related Investment Base Certificate that, except as specifically disclosed
in writing to the Purchaser, and specifically consented to by the Purchaser in
its sole discretion:
(i) the representations and warranties of the Seller, the
Originator and the Servicer set forth in Sections 4.01 and 4.02 are true
and correct on and as of such date, before and after giving effect to such
Purchase and to the application of the proceeds therefrom, as though made
on and as of such date;
(ii) no event has occurred, or would result from such Purchase
or from the application of the proceeds therefrom, which is continuing and
constitutes a Termination Event or would constitute a Termination Event but
for the requirement that notice be given or time elapse or both;
(iii) the Seller is in compliance with each of its covenants set
forth herein; and
(iv) no event has occurred which constitutes an Event of
Servicer Termination or would constitute an Event of Servicer Termination
but for the requirement that notice be given or time elapse or both.
(b) The Facility Termination Date has not occurred.
(c) Before and after giving effect to such purchase and to the
application of proceeds therefrom, there exists no Purchase Excess.
(d) The Originator and Seller shall have taken such other action,
including delivery of approvals, consents, opinions, documents and instruments
to the Purchaser and the Operating Agent, as the Operating Agent may request.
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ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
Section 4.01. Representations and Warranties of the Seller. The Seller
--------------------------------------------
represents and warrants to the Purchaser, the Operating Agent and the Collateral
Agent as of the date hereof, as of the Effective Date and on each subsequent
Purchase Date as follows:
(a) The Seller is a corporation duly organized, validly existing and
in good standing under the laws of its jurisdiction of incorporation and is duly
qualified to do business, and is in good standing, in each jurisdiction in which
the nature of its business requires it to be so qualified.
(b) The Seller has the power and authority to own, pledge, mortgage,
operate and convey all of its properties, to conduct its business as now or
proposed to be conducted and to execute and deliver this Agreement and the
Related Documents and to perform the transactions contemplated hereby and
thereby.
(c) The Seller is and has been a wholly-owned subsidiary of Pameco
Corporation, a Delaware corporation.
(d) The Seller is operated is such a manner that the separate
corporate existence of the Seller and the Originator would not be disregarded in
the event of a bankruptcy or insolvency of the Originator and in such regard:
(i) the Seller is and has been a limited purpose corporation
whose activities are restricted in its certificate or articles of
incorporation;
(ii) no Originator nor any Affiliate of the Originator is nor
has been involved in the day-to-day management of the Seller;
(iii) other than the purchase and contribution of Receivables,
the payment of dividends and the return of capital to the Originator, any
lease or sub-lease of office space or equipment and the payment of
Servicing Fees to the Servicer under this Agreement, the Seller engages or
has engaged in no intercorporate transactions with the Originator or any
Affiliate of the Originator;
(iv) the Seller maintains separate corporate records and books
of account from each Originator, holds regular corporate meetings and
otherwise observes corporate formalities and has a separate business office
from each Originator;
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(v) the financial statements and books and records of the
Seller and each Originator prepared after the Effective Date reflect the
separate corporate existence of the Seller;
(vi) the Seller maintains its assets separately from the assets
of each Originator and any other Affiliate of each Originator (including
through the maintenance of separate bank accounts and except for any
Records to the extent necessary for the servicing of the Transferred
Receivables), the Seller's funds and assets, and records relating thereto,
have not been and are not commingled with those of the Originator or any
other Affiliate of the Originator and the separate creditors of the Seller
will be entitled to be satisfied out of the Seller's assets prior to any
value in the Seller becoming available to the Seller's equityholders;
(vii) except as permitted under this Agreement and the Related
Documents and those associated with the creation and organization of the
Seller, neither the Originator nor any Affiliate of the Originator (A) pays
the Seller's expenses; (B) guarantees the Seller's obligations, or (C)
advances funds to the Seller for the payment of expenses or otherwise;
(viii) all business correspondence of the Seller and other
communications are conducted in the Seller's own name, on its own
stationery and through a separately-listed telephone number;
(ix) the Seller does not act as agent for the Originator or any
Affiliates of the Originator, but instead presents itself to the public as
a corporation separate from each Originator, independently engaged in the
business of purchasing and financing Receivables;
(x) the Seller maintains at least two independent directors
each of whom, at all times after the Effective Date, shall not be a
shareholder, director, officer, employee or associate, or any relative of
any of the foregoing, of the Originator or any Affiliate of the Originator
(other than the Seller) as provided in its certificate or articles of
incorporation; and
(xi) the bylaws or Certificate of Incorporation of the Seller
require it to maintain (A) correct and complete books and records of
account, and (B) minutes of the meetings and other proceedings of its
shareholders and board of directors.
(e) The Seller has not engaged, and does not presently engage, in any
activity other than the activities undertaken pursuant to this Agreement and the
Related Documents, nor has the Seller entered into any agreement other than this
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Agreement and the Related Documents, and any agreement necessary to undertake
any activity pursuant to this Agreement or the Related Documents.
(f) The execution, delivery and performance by the Seller of this
Agreement, the Related Documents and the transactions contemplated hereby and
thereby (i) have been duly authorized by all necessary corporate or other action
on the part of the Seller, (ii) do not contravene or cause the Seller to be in
default under (A) the Seller's certificate or articles of incorporation or
by-laws, (B) any contractual restriction contained in any indenture, loan or
credit agreement, lease, mortgage, security agreement, bond, note, or other
agreement or instrument binding on or affecting the Seller or its property or
the Originator or its property, or (C) any law, rule, regulation, order, license
requirement, writ, judgment, award, injunction, or decree applicable to, binding
on or affecting the Seller or its property or the Originator or its property,
and (iii) do not result in or require the creation of any Adverse Claim upon or
with respect to any of the property of the Seller or the Originator (other than
in favor of the Purchaser and the Collateral Agent as contemplated hereunder).
(g) This Agreement and the Related Documents have each been duly
executed and delivered by the Seller.
(h) No consent of, notice to, filing with or permits, qualifications
or other action by any Governmental Authority or any other party is required (i)
for the due execution, delivery and performance by the Seller of this Agreement
or any of the Related Documents, (ii) for the perfection of or the exercise by
each of the Purchaser, the Operating Agent or the Collateral Agent of any of its
rights or remedies hereunder or thereunder, (iii) for the grant by the Seller of
the security interests granted under Section 8.01 of this Agreement, (iv) for
the perfection of or the exercise by each of the Purchaser or the Collateral
Agent of its rights and remedies provided for in this Agreement, or (v) to
ensure the legality, validity, enforceability or admissibility into evidence of
this Agreement in any jurisdiction in which any of the Collateral is located, in
each case other than consents, notices, filings and other actions which have
been obtained or made and complete copies of which have been provided to the
Purchaser, the Operating Agent or the Collateral Agent and continuation
statements in respect of any such filings.
(i) No transaction contemplated by this Agreement requires compliance
with any bulk sales act or similar law.
(j) This Agreement and each Related Document is the legal, valid and
binding obligation of the Seller enforceable against the Seller in accordance
with its respective terms. Each of the Seller Assigned Agreements to which the
Originator or the Seller is a party constitutes the legal, valid and binding
obligation of such Person, enforceable against such Person in accordance with
its terms, subject to any applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or
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hereafter in effect relating to or affecting the enforceability of creditors'
rights generally and general equitable principles, whether applied in a
proceeding at law or in equity.
(k) There is no pending or threatened, nor any reasonable basis for
any, action, suit or proceeding against or affecting the Seller, its officers or
directors, or the property of the Seller, in any court or tribunal, before any
arbitrator of any kind or before or by any Governmental Authority.
(l) No injunction, writ, restraining order or other order of any
nature adverse to the Seller or the conduct of its business or which is
inconsistent with the due consummation of the transactions contemplated by this
Agreement or the Related Documents has been issued by a Governmental Authority
nor been sought by any Person.
(m) The principal place of business and chief executive office of the
Seller, and the offices where the Seller keeps its Records and the original
copies of the Seller Assigned Agreements are located at the address of the
Seller for notices under Section 14.01 and as set forth on Schedule 5 and there
are currently no, and during the past four months (or such shorter time as the
Seller has been in existence) there have not been, any other locations where the
Seller is located (as that term is used in the UCC of the jurisdiction where
such principal place of business is located) or keeps Records.
(n) The Seller does not have and has never conducted business using
tradenames, fictitious names, assumed names or "doing business as" names and has
not changed its name during the last five years.
(o) The Seller does not have any Subsidiaries.
(p) The Seller is solvent and will not become insolvent after giving
effect to the transactions contemplated by this Agreement and the Related
Documents. The Seller has no Debts to any Person other than pursuant to this
Agreement and the Related Documents. The Seller, after giving effect to the
transactions contemplated by this Agreement and the Related Documents, will have
an adequate amount of capital to conduct its business in the foreseeable future.
(q) For federal income tax, reporting and accounting purposes (except
in any consolidated financial statements and consolidated tax returns), the
Seller will treat the purchase or assignment of each Transferred Receivable
pursuant to the Transfer Agreement as a purchase or absolute assignment of each
Originator's full right, title and ownership interest in such Transferred
Receivable to the Seller (and Contributed Receivables shall be accounted for as
an increase in the stated capital of the Seller) and the Seller has not in any
other manner accounted for or treated the transactions in Transferred
Receivables.
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(r) The Seller has complied and will comply in all respects with all
applicable laws, rules, regulations, judgments, agreements, decrees and orders
with respect to its business and properties and all Collateral.
(s) The Seller has filed on a timely basis all tax returns (federal,
state and local) required to be filed, is not liable for taxes payable by any
other Person (except for the payment of such amounts as a result of the filing
of a consolidated tax return) and has paid or made adequate provisions for the
payment of all taxes, assessments and other governmental charges due from the
Seller. No tax lien or similar Adverse Claim has been filed, and no claim is
being asserted, with respect to any such tax, assessment or other governmental
charge. Any taxes, fees and other governmental charges payable by the
Originator in connection with the execution and delivery of this Agreement and
the Related Documents and the transactions contemplated hereby or thereby have
been paid or shall have been paid if and when due at or prior to such Transfer
Date.
(t) Each Investment Base Certificate and Request Notice is accurate
in all material respects and the Investment Base as of the Effective Date is not
materially different than the Investment Base as reported in the Investment Base
Certificate delivered pursuant to 3.01(p).
(u) Each Transferred Receivable is owned by the Seller free and clear
of any Adverse Claim and the Seller has the full right, corporate power and
lawful authority to assign, transfer and pledge the same and interests therein
and all substitutions therefor and additions thereto pursuant to Section 8.01,
and upon making each Purchase, the Purchaser will have acquired a perfected,
first priority and valid security interest in such Transferred Receivables, free
and clear of any Adverse Claim or restriction on transferability. No effective
financing statement or other instrument similar in effect covering all or any
part of the Seller Collateral is on file in any recording office, except such as
may have been filed in favor of the Purchaser as "Secured Party/Purchaser" and
the Collateral Agent as "Assignee" pursuant to Article VIII of this Agreement
or, with respect to the Transferred Receivables, in favor of the Seller pursuant
to the Transfer Agreement unless termination statements or statements of release
are provided thereto with respect to Section 3.01(f).
(v) Each Transferred Receivable was purchased by or contributed to
the Seller on the relevant Transfer Date pursuant to the Transfer Agreement.
(w) Each purchase of Receivables under the Transfer Agreement will
constitute (i) a "current transaction" within the meaning of Section 3(a)(3) of
the Securities Act of 1933, as amended, and (ii) a purchase or other acquisition
of notes, drafts, acceptances, open accounts receivable or other obligations
representing part or all of the sales price of merchandise, insurance or
services within the meaning of Section 3(c)(5) of the Investment Company Act of
1940, as amended.
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(x) All information heretofore or hereafter furnished by or on behalf
of the Seller to the Collateral Agent, the Operating Agent or the Purchaser in
connection with this Agreement or any transaction contemplated hereby is and
will be true and complete in all material respects and does not and will not
omit to state a material fact necessary to make the statements contained therein
not misleading.
(y) The Seller is in compliance with ERISA and has not incurred and
does not expect to incur any liabilities (except for premium payments arising in
the ordinary course of business) payable to the PBGC (or any successor thereto)
under ERISA.
(z) (i) The Seller is not a party to any indenture, loan or credit
agreement or any lease or other agreement or instrument or subject to any
charter or corporation restriction that could have, and no provision of
applicable law or governmental regulation is reasonably likely to have, a
material adverse effect on the condition (financial or otherwise), business,
operations or properties of the Seller, or could have such an effect on the
ability of the Seller to carry out its obligations under this Agreement and the
other Related Documents to which the Seller is a party, (ii) the Seller is not
in default under or with respect to any contract, agreement, lease or other
instrument to which the Seller is a party and which is material to the Seller's
condition (financial or otherwise), business, operations or properties, and the
Seller has not delivered or received any notice of default thereunder, and (iii)
each contract, agreement, lease or other instrument to which the Seller is a
party is listed on Schedule 7.
(aa) The Seller is not an "investment company" or an "affiliated
person" of, or "promoter" or "principal underwriter" for, an "investment
company," as such terms are defined in the Investment Company Act of 1940, as
amended. The making of the Purchases by the Purchaser, the application of the
proceeds and repayment thereof by the Seller and the consummation of the
transactions contemplated by this Agreement and the other Related Documents to
which the Seller is a party will not violate any provision of such Act or any
rule, regulation or order issued by the Securities and Exchange Commission
thereunder.
(bb) There is not now, nor will there be at any time in the future,
any agreement or understanding between the Originator or any other Affiliate of
the Originator and the Seller (other than as expressly set forth herein)
providing for the allocation or sharing of obligations to make payments or
otherwise in respect of any taxes, fees, assessments or other governmental
charges (except for the payment of such amounts as a result of the filing of a
consolidated tax return).
(cc) Each of the representations and warranties of the Seller
contained in the Related Documents (other than this Agreement) is true and
correct in all material respects and the Seller hereby makes each such
representation and warranty to, and
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for the benefit of, the Collateral Agent, the Operating Agent and the Purchaser
as if the same were set forth in full herein.
Section 4.02. Representations and Warranties of the Servicer. The
----------------------------------------------
Servicer represents and warrants to the Purchaser, the Operating Agent and the
Collateral Agent as follows as of the date hereof:
(a) The Servicer is a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction of incorporation and is
duly qualified to do business, and is in good standing, in every jurisdiction in
which the nature of its business requires it to be so qualified.
(b) The Servicer has the power and authority to execute and deliver
this Agreement and to perform the transactions contemplated hereby.
(c) The execution, delivery and performance by the Servicer of this
Agreement, each other Related Document to which it is a party and all other
agreements, instruments and documents which may be delivered by it pursuant
hereto and thereto and the transactions contemplated hereby and thereby (i) have
been duly authorized by all necessary corporate or other action on the part of
the Servicer, (ii) do not contravene or cause the Servicer to be in default
under (A) its charter or by-laws, (B) any contractual restriction with respect
to any Debt of the Servicer or contained in any indenture, loan or credit
agreement, lease, mortgage, security agreement, bond, note or other agreement or
instrument binding on or affecting it or its property, or (C) any law, rule,
regulation, order, writ, judgment, award, injunction or decree binding on or
affecting it or its property, and (iii) do not result in or require the creation
of any Adverse Claim upon or with respect to any of its properties (other than
in favor of the Seller, Redwood and the Collateral Agent).
(d) This Agreement and each other Related Document to which it is a
party has been duly executed and delivered by the Servicer.
(e) No consent of, notice to, filing with or permits, qualifications
or other action by any Governmental Authority or any other party is required for
the due execution, delivery and performance by the Servicer of this Agreement,
any Related Document to which it is a party or any other agreement, document or
instrument to be delivered hereunder other than any consents, notices, permits,
qualifications, filings or other actions which have been obtained or made and
complete copies of which have been provided to the Purchaser, the Operating
Agent and the Collateral Agent.
(f) This Agreement and each other Related Document to which it is a
party is the legal, valid and binding obligation of the Servicer enforceable
against the Servicer in accordance with its terms subject to any applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to or
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affecting the enforceability of creditors' rights generally and general
equitable principles, whether applied in a proceeding at law or in equity.
(g) There is no pending or threatened, nor any reasonable basis for
any, action, suit, investigation or proceeding of a material nature against or
affecting the Servicer, its officers or directors, or the property of the
Servicer, in any court or tribunal, before any arbitrator of any kind or before
or by any Governmental Authority (i) asserting the invalidity of this Agreement,
any other Related Document or any document to be delivered by the Servicer
hereunder or thereunder, or (ii) seeking any determination or ruling that might
materially and adversely affect (A) the performance by the Servicer of its
obligations under this Agreement or other Related Document, or (B) the validity
or enforceability of this Agreement or any Related Document or any document to
be delivered by the Servicer hereunder or thereunder.
(h) No injunction, writ, restraining order or other order of any
material nature adverse to the Servicer or the conduct of its business or which
is inconsistent with the due consummation of the transactions contemplated by
this Agreement and the Related Documents has been issued by a Governmental
Authority or, to the knowledge of the Servicer, has been sought by any other
Person.
(i) The Servicer has filed all tax returns (federal, state and local)
required to be filed by it and has paid or has made adequate provision for the
payment of all taxes, fees, assessments and other governmental charges due from
the Servicer, no tax lien or other similar Adverse Claim has been filed, and no
claim has been filed, and no claim is being asserted, with respect to any such
tax, fee, assessment or other governmental charge. Any taxes, fees and other
governmental charges payable by the Servicer in connection with the transactions
contemplated by this Agreement and the Related Documents and the execution and
delivery of this Agreement and the Related Documents have been paid or shall
have been paid at or prior to the Effective Date.
(j) The Servicer is not required to be registered as an "investment
company" under the Investment Company Act of 1940.
(k) Each of the representations and warranties of the Servicer
contained in this Agreement and the Related Documents is true and correct in all
material respects and the Servicer hereby makes each such representation and
warranty contained in the Related Documents to, and for the benefit of, the
Purchaser, the Operating Agent and the Collateral Agent.
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ARTICLE V.
GENERAL COVENANTS OF THE SELLER
Section 5.01. Affirmative Covenants of the Seller. The Seller shall,
-----------------------------------
unless the Operating Agent shall otherwise consent in writing:
(a) perform each of its obligations under this Agreement and the
Related Documents and comply in all respects with all of its obligations under
this Agreement and the Related Documents and comply with all applicable law,
rules, regulations and orders with respect to this Agreement, the Related
Documents, to its business and properties and all Transferred Receivables,
related Contracts and Collections with respect thereto;
(b) preserve and maintain its corporate existence, rights, franchises
and privileges in the jurisdiction of its incorporation and shall conduct its
business in accordance with the terms of its certificate of incorporation and
bylaws;
(c) continue to operate its business in the manner set forth in
Sections 4.01(d) and (e);
(d) deposit all Collections it may receive in respect of Transferred
Receivables into the Lockbox Account within one Business Day of receipt;
(e) use the proceeds of the Purchases made hereunder solely for (i)
the purchase of Receivables from the Originator, (ii) payment of dividends to
its shareholder or (iii) payment of administrative fees or Servicing Fees or
expenses to the Originator or routine administrative expenses pursuant to this
Agreement or the Related Documents;
(f) permit the Purchaser, the Operating Agent and the Collateral
Agent to make or cause to be made (and, after the occurrence of and during the
continuance of a Termination Event, at the Seller's expense) inspections and
audits of any books, records and papers of the Seller and the Servicer and to
make extracts therefrom and copies thereof, or to make inspections and
examinations of any properties and facilities of the Seller and the Servicer, on
reasonable notice, at all such reasonable times and as often as required in
order to assure that the Seller is and will be in compliance with its
obligations under this Agreement and the Related Documents;
(g) pay, perform and discharge all of its obligations and
liabilities, including, without limitation, all taxes, assessments and
governmental charges upon its income and properties when due, unless and to the
extent only that such obligations, liabilities, taxes, assessments and
governmental charges shall be contested in good faith and by appropriate
proceedings and that, to the extent required by GAAP, proper
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and adequate book reserves relating thereto are established by the Seller and
then only to the extent that a bond is filed in cases where the filing of a bond
is necessary to avoid the creation of an Adverse Claim against any of its
properties;
(h) upon request of the Purchaser, the Collateral Agent or the
Operating Agent, mark its Records to show the interests of the Purchaser and
Collateral Agent; and
(i) pursuant to Section 14.03, pay the Purchaser's attorney's fees
and disbursements and rating agency fees.
Section 5.02. Reporting Requirements of the Seller. The Seller shall
------------------------------------
furnish, or cause to be furnished, to the Purchaser, the Operating Agent, the
Collateral Agent and (in the case of Section 5.02(f) only) the Rating Agencies:
(a) no less frequently than the third Business Day of each week, an
Investment Base Certificate in the form of Exhibit C;
(b) monthly, as soon as available, and in any event, within fifteen
days after the end of each fiscal month, a Monthly Report in the form of Exhibit
G;
(c) as soon as available and in any event within 90 days after the
end of each fiscal year, a copy of the audited consolidated financial statements
for such year for the Parent and its consolidated Subsidiaries, certified, in a
manner acceptable to the Operating Agent and the Collateral Agent, by Ernst &
Young or other nationally recognized independent public accountants acceptable
to the Operating Agent and the Collateral Agent with such financial statements
being prepared in accordance with GAAP applied consistently throughout the
period involved (except as approved by such accountants and disclosed therein);
(d) as soon as available and in any event within (i) 30 days after
the end of each fiscal month of each fiscal year of the Parent (other than any
month which constitutes the end of any fiscal quarter) or (ii) 45 days after the
end of each of the first three quarters of each fiscal year of the Parent, in
each case, an unaudited consolidated balance sheet of the Parent and its
consolidated Subsidiaries as of the end of such month or quarter and including
the prior comparable period, and the unaudited consolidated statements of income
and retained earnings, and of cash flow, of the Parent and its consolidated
Subsidiaries for such month or quarter and for the period commencing at the end
of the previous fiscal year and ending with the end of such month or quarter,
certified by the chief financial officer, chief accounting officer or treasurer
of the Parent identifying such documents as being the documents described in
this paragraph (d) and stating that the information set forth therein fairly
presents the financial condition of the Parent and its consolidated Subsidiaries
as of and for the periods then ended, subject to year-end adjustments consisting
only of normal,
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recurring accruals and confirming that the Servicer is in compliance with all
financial covenants in this Agreement;
(e) as soon as possible and in any event within five days after the
occurrence of a Termination Event or an Incipient Event, the statement of the
chief executive officer of the Seller setting forth complete details of such
Termination Event or Incipient Event and the action which the Seller has taken,
is taking and proposes to take with respect thereto;
(f) as soon as available and in any event within 90 days after the
end of each fiscal year, a report from Ernst & Young or other nationally
recognized independent public accountants (upon which report, the Operating
Agent and the Collateral Agent may rely) to the Collateral Agent and the
Operating Agent to the effect that such firm has applied the agreed upon
procedures agreed to by the Seller and the Operating Agent with respect to (a)
the Seller's compliance with the Seller's financial covenants in this Agreement
and (b) the substantial compliance with this Agreement in the preparation of the
Monthly Reports (including the Investment Base Certificates attached thereto)
delivered during the previous fiscal year, and that, on the basis of such
procedures, such firm has reported that there are no exceptions, except as set
forth in such statement;
(g) promptly, from time to time, such other information, documents,
records or reports respecting the Transferred Receivables or the Contracts or
the condition or operations, financial or otherwise, of the Seller, or the
Originator or any of its Subsidiaries, as the Purchaser, the Operating Agent or
the Collateral Agent may request from time to time;
(h) upon any request from the Operating Agent and in any event, on or
before 90 days after the end of each fiscal year, (i) an Officer's Certificate
of the Seller, dated the date of such delivery, bringing down to such date the
matters set forth in the Officer's Certificate in the form of Exhibit E, and
(ii) an Officer's Certificate of the Servicer, dated the date of such delivery,
bringing down to such date the matters set forth in the Officer's Certificate in
the form of Exhibit F; and
(i) promptly, notification in writing of any litigation, legal
proceeding or dispute, whether or not in the ordinary course of business,
affecting the Seller, whether or not fully covered by insurance, and regardless
of the subject matter thereof.
Section 5.03. Negative Covenants of the Seller. The Seller shall not,
--------------------------------
without the written consent of the Purchaser, the Operating Agent and the
Collateral Agent:
(a) sell, assign (by operation of law or otherwise) or otherwise
dispose of, or create or suffer to exist any Adverse Claim upon or with respect
to, or assign any right to receive income in respect of, (i) any Transferred
Receivable or related Contract
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with respect thereto, or upon or with respect to any Lockbox Account, any
Lockbox, the Collection Account, the Retention Account or other account in
which any Collections of any Transferred Receivable are deposited, or (ii) any
of the Seller's property;
(b) extend, amend, forgive, discharge, compromise, waive, cancel or
otherwise modify the terms of the Transfer Agreement, any Related Document, the
Credit and Collection Policies or of any Transferred Receivable, or amend,
modify or waive any term or condition of any Contract related thereto provided
that the foregoing shall not prohibit the Seller from authorizing the Servicer
to take such actions to the extent permitted hereunder, under the Transfer
Agreement or by the Credit and Collection Policy;
(c) make any change in its instructions to Obligors regarding
payments to be made to the Seller or payments to be deposited to the Lockbox
Account or any Lockbox;
(d) amend its articles or certificate of incorporation, its by-laws
or any Related Document or the Transfer Agreement;
(e) merge with or into, consolidate with or into, convey, transfer,
lease or otherwise dispose of all or substantially all of its assets (whether
now owned or hereafter acquired) to, or acquire all or substantially all of the
assets of, or any capital stock or other ownership interest of, any Person
(whether in one transaction or in a series of transactions), or own any
Subsidiary;
(f) prepare any financial statements which shall account for the
transactions contemplated by the Transfer Agreement in any manner other than as
a true sale or absolute assignment of the Transferred Receivables to the Seller
from the Originator, or in any other respect account for or treat the
transactions contemplated hereby (including but not limited to, for accounting,
tax and reporting purposes) in any manner other than as a true sale or absolute
assignment of the Transferred Receivables to the Seller from the Originator;
(g) at any time (i) advance credit to any Person, or (ii) declare any
dividends, repurchase any stock, return any capital, or otherwise make any
distribution of cash or any other property, if after giving effect to such
distribution, there would be a Purchase Excess;
(h) create, incur, permit to exist or have outstanding any Debt,
except:
(i) Debt of the Seller to the Purchaser, any Affected Party,
any Indemnified Party, the Servicer, the Originator or any other Person
under the Transfer Agreement and this Agreement;
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(ii) taxes, assessments and governmental charges; and
(iii) the endorsement of negotiable instruments for deposit or
collection in the ordinary course of business;
(i) issue any additional shares or any right or option to acquire any
shares, or any security convertible into any shares, of the capital stock of the
Seller to any Person other than the Parent;
(j) enter into, or be a party to, any transaction with any Person,
other than pursuant to this Agreement or the Transfer Agreement;
(k) make or suffer to exist any purchases of assets or investments in
any Person, including, without limitation, any shareholder, director, officer or
employee of the Seller or any of the Parent's other Subsidiaries, except
Transferred Receivables; or
(l) deposit or permit the deposit of any Collections on Unapproved
Receivables into any Lockbox Account.
ARTICLE VI.
COLLECTIONS AND DISBURSEMENTS
Section 6.01. Establishment of Accounts.
-------------------------
(a) The Lockbox Account.
-------------------
(i) The Seller has established with a Lockbox Bank each
Lockbox Account, into which the Servicer shall deposit from time to time
all monies, instruments and other property received by it as Proceeds of
the Transferred Receivables. The Seller agrees that prior to a Termination
Event the Operating Agent, and upon the occurrence and during the
continuation of a Termination Event the Collateral Agent, shall have
exclusive dominion and control of each Lockbox Account and all monies,
instruments and other property from time to time in each Lockbox Account.
The Seller will not make or cause to be made, or have any ability to make
or cause to be made any withdrawals from any Lockbox Account, except as
provided in Section 6.01(b)(ii).
(ii) The Seller and the Servicer have instructed all existing
Obligors of Transferred Receivables, and will instruct all future Obligors,
to make payments in respect of Transferred Receivables only (A) by check or
money order mailed to one or more lockboxes or post office boxes under the
control of
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the Operating Agent (each such box being a "LOCKBOX"), or (B) by wire
transfer or moneygram directly to a Lockbox Account, or (C) by direct debit
from such Obligor's account to the Lockbox Account. The Lockboxes and
Lockbox Accounts to which mail payments are made as of the date hereof are
listed on the attached Schedule 6. The Seller and the Servicer shall
endorse, to the extent necessary, all checks or other instruments received
in any Lockbox so that the same can be deposited in the Lockbox Account, in
the form so received (with all necessary endorsements), on the next
Business Day after the Business Day on which such check or other
instruments are received. In addition, the Seller and Servicer shall
deposit or cause to be deposited in the Lockbox Account all cash, checks,
money orders or other Proceeds of Collateral received other than in a
Lockbox or by wire payments, in the form so received (with all necessary
endorsements), not later than the close of business on the Business Day
following the date of such receipt, and until so deposited all such items
or other Proceeds shall be held in trust for the Collateral Agent. Neither
the Seller nor the Servicer shall deposit any moneys not required or
permitted under this Agreement or the Related Documents into the Lockboxes
or Lockbox Accounts.
(iii) If a Lockbox Agreement terminates for any reason or any
Lockbox Bank fails to comply with its obligations under the related Lockbox
Agreement for any reason, then the Seller shall promptly notify all
Obligors to make all future wire payments to a new Lockbox Account with
another Lockbox Bank. The Seller shall not close the Lockbox Account
unless it shall have (1) received the prior written consent of the
Operating Agent and the Collateral Agent, (2) established a new account
with the same Lockbox Bank or with a new depositary institution
satisfactory to the Operating Agent and the Collateral Agent, (3) entered
into an agreement covering such new account with the Lockbox Bank or with
such new depositary institution substantially in the form of the Lockbox
Agreement or which is otherwise satisfactory in all respects to the
Operating Agent and the Collateral Agent (whereupon, for all purposes of
this Agreement and the Related Documents, such new account shall become the
Lockbox Account, such new agreement shall become the Lockbox Agreement and
any new depositary institution shall become the Lockbox Bank), and (4)
taken all such action as the Collateral Agent shall require to grant and
perfect a first priority security interest in such new Lockbox Account to
the Collateral Agent under Section 8.01 of this Agreement. Other than
pursuant to this Section 6.01(a), the Seller or Servicer shall not open any
new Lockbox or Lockbox Account without the consent of the Operating Agent,
the Collateral Agent and the Purchaser.
(iv) Notwithstanding anything contained herein to the contrary,
payments made by any Obligor to a branch of the Servicer located in any
location described in Schedule 3 to the Transfer Agreement (as such
Schedule is modified from time to time) shall be deposited in a Blocked
Account.
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(b) Collection Account.
------------------
(i) The Purchaser has established and shall maintain a
segregated deposit account with the Depositary titled "Redwood Receivables
Corporation- Collection Account (Pameco Securitization Corporation) (the
"COLLECTION ACCOUNT"). The Seller agrees that the Operating Agent shall
have exclusive dominion and control of the Collection Account and all
monies, instruments and other property from time to time in the Collection
Account.
(ii) Pursuant to Section 6.02, the Seller shall instruct the
Lockbox Bank to transfer, and the Seller hereby grants each of the
Operating Agent and the Collateral Agent the authority to instruct each
Lockbox Bank to transfer, on each Business Day in same day funds, all
available funds deposited in the Lockbox Account before such Business Day
to the Collection Account. The Purchaser, the Operating Agent and the
Collateral Agent may deposit into the Collection Account from time to time
all monies, instruments and other property received by any of them as
Proceeds of the Transferred Receivables. On each Business Day before the
Facility Termination Date, so long as no Termination Event shall have
occurred and be continuing, the Operating Agent shall instruct and cause
the Depositary (which instruction may be in writing or by telephone
confirmed promptly thereafter in writing) to release funds on deposit in
the Collection Account in the order of priority set forth in Section 6.03.
On each Business Day on and after the Facility Termination Date and on each
Business Day during any period while a Termination Event has occurred and
is continuing, the Collateral Agent may and the Operating Agent shall apply
all amounts when received in the Collection Account in the order of
priority set forth in Section 6.05.
(iii) If the Depositary wishes to resign as depositary of the
Collection Account for any reason or fails to carry out the instructions of
the Operating Agent or the Collateral Agent for any reason, then the
Purchaser or the Operating Agent shall promptly notify the Purchaser
Secured Parties. The Purchaser shall not close the Collection Account
unless it shall have (1) received the prior written consent of the
Operating Agent and the Collateral Agent, (2) established a new account
with the Depositary or with a new depositary institution satisfactory to
the Operating Agent and the Collateral Agent, (3) entered into an agreement
covering such new account with such new depositary institution satisfactory
in all respects to the Operating Agent and the Collateral Agent (whereupon
such new account shall become the Collection Account for all purposes of
this Agreement and the Related Documents), and (4) taken all such action as
the Collateral Agent shall require to grant and perfect a first priority
security interest in such new Collection Account to the Collateral Agent
under this Agreement.
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(c) Retention Account. The Purchaser has established and shall
-----------------
maintain a segregated deposit account with the Depositary and controlled by the
Operating Agent titled "Redwood Receivables Corporation - Retention Account
(Pameco Securitization Corporation)" (the "RETENTION ACCOUNT").
(d) Collateral Account. The Purchaser has established and shall
------------------
maintain a segregated deposit account with the Depositary and controlled by the
Operating Agent titled "Redwood Receivables Corporation - Collateral Account"
(the "COLLATERAL ACCOUNT").
Section 6.02. Funding of Collection Account.
-----------------------------
(a) As soon as practicable and in any event, no later than 10:00
a.m., on each Business Day:
(i) the Operating Agent shall transfer all Collections
deposited in any Lockbox Account prior to such Business Day to the
Collection Account;
(ii) the Purchaser shall, or shall cause the Collateral Agent
to, deposit in the Collection Account the amount required, pursuant to
Section 2.04(b)(i);
(iii) the Purchaser shall, or shall cause the Collateral Agent
to, deposit any Seller LOC Draws made on such Business Day to the
Collection Account;
(iv) if, pursuant to a Seller Notice, the Seller has requested
to reduce the Capital Investment of the Purchaser, the Seller shall deposit
cash into the Collection Account in an amount equal to the amount specified
in such Seller Notice,
(v) if, on the prior Business Day, the Operating Agent has
notified the Seller of any Purchase Excess, the Seller shall deposit cash
in the amount of such Purchase Excess in the Collection Account;
(vi) if on such Business Day the Seller is required to make
other payments under this Agreement not previously retained out of
Collections (including Indemnified Amounts not previously paid), the Seller
shall deposit an amount equal to such payments in the Collection Account;
(vii) if, on the prior Business Day, the Originator made a
capital contribution of a Rejected Amount or repurchased a Transferred
Receivable, pursuant to the Transfer Agreement, the Seller shall deposit
cash in the amount
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received from the Originator for such contribution or repurchase in the
Collection Account; and
(viii) the Servicer shall deposit into the Collection Account
the Outstanding Balance of any Transferred Receivable it elects to pay
pursuant to Section 7.04.
(b) If, two Business Days prior to any Settlement Date, the Operating
Agent notifies the Seller of any Retention Account Deficiency pursuant to
Section 6.04(b), the Seller shall deposit cash in the amount of such deficiency
into the Collection Account no later than 10:00 a.m. on such Settlement Date.
(c) On and after the Facility Termination Date, the Operating Agent
shall transfer all amounts held in the Retention Account as of that date to the
Collection Account.
Section 6.03. Daily Disbursements From the Collection Account - Revolving
-----------------------------------------------------------
Period. On each Business Day, as soon as practicable and in any event no later
- ------
than 12:00 p.m., during the Revolving Period, following the transfers made in
accordance with Section 6.02, the Operating Agent shall disburse all amounts in
the Collection Account in the following priority:
(a) transfer all amounts in the Collection Account in the following
priority:
(i) to the Retention Account for the account of the Purchaser,
the amount of any Retention Account Deficiency deposited pursuant to
Section 6.02(b);
(ii) to the Deferred Purchase Price Sub-Account, all Deferred
Purchase Price Collections;
(iii) to the Capital Investment Sub-Account, the balance;
(b) transfer all amounts in the Deferred Purchase Price Sub-Account,
in the following priority:
(i) to the Retention Account for the account of the Purchaser,
an amount equal to the sum of
(A) Daily Yield;
(B) the Yield Shortfall for the prior Business Day;
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(C) the Servicing Fee;
(D) the Servicing Fee Shortfall for the prior Business
Day;
(E) the Unused Commitment Fee; and
(F) the Unused Commitment Fee Shortfall for the prior
Business Day;
(ii) to the Capital Investment Sub-Account, an amount equal to
the Dilution Funded Amount;
(iii) if the Deferred Purchase Price Adjustment is less than
zero, to the Capital Investment Sub-Account an amount equal to the absolute
value of the Deferred Purchase Price Adjustment; and
(iv) to an account previously designated by the Seller, in
partial payment of the Deferred Purchase Price, the balance, if any; and
(c) transfer all amounts in the Capital Investment Sub-Account, in
the following priority:
(i) to the Retention Account for the account of the Purchaser,
the Yield Shortfall, the Servicing Fee Shortfall and the Unused Commitment
Fee Shortfall, if any, following the transfer made pursuant to Section
6.03(b)(i);
(ii) to the Collateral Account for the account of the Purchaser
(or in the case of Indemnified Amounts, for the account of the Indemnified
Party), amounts deposited into the Collection Account pursuant to Section
6.02(a)(vi);
(iii) to the Collateral Account for the account of the
Purchaser, in reduction of its Capital Investment if, as disclosed in the
most recently submitted Investment Base Certificate, there is a Purchase
Excess, by transfer of such Purchase Excess;
(iv) if, pursuant to a Seller Notice, the Seller has requested
to reduce the Capital Investment of the Purchaser, to the Collateral
Account for the account of the Seller, the lesser of (A) the amount of such
request, in reduction of Capital Investment and the (B) the balance;
(v) if the Deferred Purchase Price Adjustment is greater than
zero, to the Seller an amount equal to the Deferred Purchase Price
Adjustment, as partial payment of the Deferred Purchase Price;
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(vi) the balance, to an account previously designated by the
Seller, as payment of the Cash Purchase Price for Purchases made on such
day.
Section 6.04. Disbursements From the Retention Account - Settlement Date
----------------------------------------------------------
Procedures - Revolving Period.
- -----------------------------
(a) As soon as practicable and in any event no later than 1:00 p.m.
on each Settlement Date during the Revolving Period, the amounts held in the
Retention Account shall be disbursed or retained by the Operating Agent in the
following priority:
(i) to the Collateral Account for the account of the Purchaser
(or, if applicable, any Indemnified Party), in an amount equal to:
(A) an amount equal to the accrued and unpaid Daily Yield
to the end of the preceding Settlement Period;
(B) all Additional Amounts incurred and payable to any
Affected Party through the end of the preceding Settlement Period;
(C) all other amounts accrued and payable under this
Agreement (including Indemnified Amounts incurred and payable to any
Indemnified Party) through the end of the preceding Settlement Period
to the extent not already transferred pursuant to Section
6.03(c)(iii); and
(D) if there is a Purchase Excess, an amount equal to
such excess, in reduction of Capital Investment;
(ii) to the Servicer on behalf of the Seller, in an amount
equal to its accrued and unpaid Servicing Fee to the end of the preceding
Settlement Period;
(iii) retained in the Retention Account, the Accrued Monthly
Yield, Accrued Unused Commitment Fee and Accrued Servicing Fee as of that
date; and
(iv) to the extent that the balance in the Retention Account
exceeds the amount to be retained or disbursed under Sections 6.04(a)(i)
through (iii), the excess to an account previously designated by the
Seller.
(b) No later than two Business Days prior to each Settlement Date,
the Operating Agent shall determine and notify the Seller of any Retention
Account Deficiency for the preceding Settlement Period, and the Seller shall
deposit funds in the
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amount of such Retention Account Deficiency to the Collection Account pursuant
to Section 6.02(b).
Section 6.05. Liquidation Settlement Procedures. On each Business Day on
---------------------------------
and after the Facility Termination Date, the Collateral Agent shall:
(a) transfer all amounts in the Collection Account in the following
priority:
(i) to the Deferred Purchase Price Sub-Account, all Deferred
Purchase Price Collections; and
(ii) to the Capital Investment Sub-Account, the balance;
(b) transfer all amounts in the Deferred Purchase Price Sub-Account,
in the following priority:
(i) if an Event of Servicer Termination has occurred and a
Successor Servicer has been appointed, to the Successor Servicer in an
amount equal to its accrued and unpaid Successor Servicing Fees and
Expenses;
(ii) to the Collateral Account for the account of the
Purchaser, in an amount equal to, on any such Business Day on which Capital
Investment is being maintained through the issuance of Commercial Paper (to
the extent such Capital Investment exceeds Transaction Liquidity Loans then
outstanding), accrued and unpaid CP Interest through and including the date
of maturity of the Commercial Paper maintaining such Capital Investment;
(iii) if there are Transaction Liquidity Loans then outstanding,
to the Transaction Liquidity Agent on behalf of the Transaction Liquidity
Providers, in an amount equal to accrued and unpaid interest on the
Transaction Liquidity Loans;
(iv) to the Capital Investment Sub-Account:
(A) an amount equal to the Dilution Funded Amount; and
(B) if there are Transaction Liquidity Loans then
outstanding or Capital Investment exceeds the Transaction Liquidity Loans
then outstanding, all amounts remaining in the Deferred Purchase Price Sub-
Account, if any;
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(v) to the Letter of Credit Agent, if there are any
outstanding LOC Draws in respect of the Seller, in an amount equal to
accrued and unpaid interest on such outstanding LOC Draws;
(vi) to the Collateral Account, an amount equal to (A) accrued
and unpaid Daily Yield minus (B) the sum of (i) amounts paid pursuant to
Sec tion 6.05(b)(ii), (ii) amounts paid pursuant to Section 6.05(b)(iii),
and (iii) amounts paid under Section 6.05(b)(v);
(vii) if an Event of Servicer Termination has not occurred, to
the Servicer in an amount equal to its accrued and unpaid Servicing Fee;
(viii) upon payment in full of all amounts set forth in clauses
(c)(i)-(c)(v) below, to an account previously designated by the Seller, in
partial payment of the Deferred Purchase Price, the balance, if any; and
(c) transfer all amounts in the Capital Investment Sub-Account, in
the following priority:
(i) to the Collateral Account for the account of the
Purchaser, in an amount equal to,
(A) on any such Business Day on which Capital Investment
is being maintained through the issuance of Commercial Paper (to the
extent such Capital Investment exceeds Transaction Liquidity Loans
then outstanding), accrued and unpaid CP Interest through and
including such date, to the extent not paid pursuant to Sections
6.05(b)(ii) and 6.05(b)(vi); and
(B) on any such Business Day on which Capital Investment
is being maintained through the issuance of Commercial Paper (to the
extent such Capital Investment exceeds Transaction Liquidity Loans
then outstanding), the principal of all Capital Investment in excess
of such Transaction Liquidity Loans;
(ii) if there are Transaction Liquidity Loans outstanding, to
the Transaction Liquidity Agent on behalf of the Transaction Liquidity
Providers, in an amount equal to:
(A) accrued and unpaid interest on the Transaction
Liquidity Loans to the extent not paid pursuant to Section
6.05(b)(iii);
(B) the principal of outstanding Transaction Liquidity
Loans; and
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(C) any other amounts, including any fees, owing to the
Transaction Liquidity Agent or Transaction Liquidity Providers in
connection with the Transaction Liquidity Loans;
(iii) to the Collateral Account for the account of the
Purchaser, in an amount equal to:
(A) all Additional Amounts incurred and payable to any
Affected Party; and
(B) all Indemnified Amounts incurred and payable to any
Indemnified Party;
(iv) to the Letter of Credit Agent, if there are any
outstanding LOC Draws in respect of the Seller, in an amount equal to:
(A) accrued and unpaid interest on such outstanding LOC
Draws;
(B) the principal of such outstanding LOC Draws; and
(C) any other amounts, including fees, owing to the Letter
of Credit Agent in connection with such outstanding LOC Draws; and
(v) to the Collateral Account, an amount equal to (A) accrued
and unpaid Daily Yield minus (B) the sum of (i) amounts paid pursuant to
Section 6.05(c)(i)(A), (ii) amounts paid pursuant to Section
6.05(c)(ii)(A), and (iii) amounts paid under Section 6.05(c)(iv)(A);
(vi) if an Event of Servicer Termination has not occurred, to
the Servicer in an amount equal to its accrued and unpaid Servicing Fee;
and
(vii) upon payment in full of all amounts set forth in clauses
(c)(i)-(c)(vi) above, to an account previously designated by the Seller,
the balance, if any.
(d) after the Facility Termination Date, on each day by no later than
11:00 a.m. the Operating Agent shall transfer all amounts then on deposit in the
Retention Account to the Collateral Account;
Section 6.06. Investment of Accounts. During the Revolving Period, to the
----------------------
extent there are uninvested amounts deposited in the Collateral Account or the
Retention Account, the Operating Agent shall invest all such amounts in
Permitted Investments selected by the Operating Agent that mature no later than
the immediately
33
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succeeding Business Day, in the case of the Collateral Account, and the
immediately succeeding Settlement Date, in the case of the Retention Account.
On or after the Facility Termination Date, any investment of such amounts shall
be solely at the discretion of the Operating Agent, subject to the restrictions
described above.
Section 6.07. Termination Procedure.
---------------------
(a) On the earlier of (i) the first Business Day after the Facility
Termination Date on which the Capital Investment has been reduced to zero or
(ii) the Final Purchase Date, if the payments required to be made pursuant to
Sections 6.05(a), (b), (c) and (d) have not been made in full, the Seller shall
immediately deposit into the Collection Account an amount sufficient to make
such payments in full.
(b) On the first Business Day after the Facility Termination Date on
which the payments required pursuant to Subsections 6.05(a), (b), (c) and (d)
have been made in full, all amounts held in the Collection Account and the
Retention Account, if any, shall be disbursed in immediately available funds to
the Seller and all security interests of the Purchaser and the Collateral Agent
in all Transferred Receivables owned by the Seller or other Seller Collateral
shall be released by the Purchaser and the Collateral Agent. Such disbursement
shall constitute the final payment to which the Seller is entitled pursuant to
the terms of this Agreement.
ARTICLE VII.
APPOINTMENT OF THE SERVICER
Section 7.01. Appointment of the Servicer. The Purchaser hereby appoints
---------------------------
the Servicer as its agent to service the Transferred Receivables and enforce its
rights and interests in and under each Transferred Receivable and each related
Contract and to serve in such capacity until the termination of its
responsibilities pursuant to Sections 9.02 or 11.01. The Servicer hereby agrees
to perform the duties and obligations with respect thereto set forth herein.
The Servicer may, with the prior consent of the Purchaser, the Operating Agent,
and the Collateral Agent subcontract with a Sub-Servicer for collection,
servicing or administration of the Transferred Receivables, provided, that (a)
--------
the Servicer shall remain liable for the performance of the duties and
obligations of the Sub-Servicer pursuant to the terms hereof, and (b) any Sub-
Servicing Agreement that may be entered into and any other transactions or
services relating to the Transferred Receivables involving a Sub-Servicer shall
be deemed to be between the Sub-Servicer and the Servicer alone and the
Purchaser, Operating Agent and the Collateral Agent shall not be deemed parties
thereto and shall have no obligations, duties or liabilities with respect to the
Sub-Servicer.
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Section 7.02. Duties and Responsibilities of the Servicer.
-------------------------------------------
(a) The Servicer shall conduct the servicing, administration and
collection of the Transferred Receivables and shall take, or cause to be taken,
all such actions (i) as may be necessary or advisable to service, administer and
collect each Transferred Receivable from time to time; (ii) as the Servicer
would take if the Transferred Receivables were owned and serviced by the
Servicer, and (iii) as are consistent with industry practice for the servicing
of such Transferred Receivables.
(b) The Purchaser, the Operating Agent and the Collateral Agent shall
not have any obligation or liability with respect to any Transferred Receivables
or related Contracts, nor shall any of them be obligated to perform any of the
obligations of the Servicer hereunder.
Section 7.03. Collections on Receivables. (a) In the event that the
--------------------------
Servicer is unable to determine the specific Receivables on which Collections
have been received from an Obligor, for the purposes of this Agreement only, the
parties agree that such Collections shall be deemed to have been received on the
Receivables in the order in which they were originated with respect to such
Obligor. In the event that the Servicer is unable to determine the specific
Receivables on which discounts, offsets or other non-cash reductions have been
granted or made with respect to an Obligor, the parties agree that such
reductions shall be deemed to have been granted or made (i) prior to a
Termination Event, in the discretion of the Servicer, and (ii) after a
Termination Event, in the reverse order in which they were originated with
respect to such Obligor.
(b) If the Servicer determines that amounts unrelated to Purchased
Receivables (the "Unrelated Amounts") have been deposited in the Collection
Account, the Servicer shall provide evidence of same to the Operating Agent, the
Collateral Agent and Redwood, no later than the opening of business on the
Business Day following the day on which the Servicer became aware that such
Unrelated Amounts were deposited in the Collection Account which evidence may
take the form of written notice if requested by any of the foregoing and shall
be satisfactory to each of the foregoing. Upon receipt of proper notice, the
Operating Agent shall segregate the Unrelated Amounts and such Unrelated Amounts
shall not be deemed to be part of Collections and shall not be subject to the
provisions of Article VI hereof.
Section 7.04. Authorization of the Servicer. Each of the Seller and the
-----------------------------
Purchaser hereby authorizes the Servicer (including any successor thereto) to
take any and all steps in its name and on its behalf necessary or desirable and
not inconsistent with the ownership of the Transferred Receivables by the
Purchaser and the pledge to the Collateral Agent, in the determination of the
Servicer, to collect all amounts due under any and all such Transferred
Receivables, including, without limitation, endorsing any of their names on
checks and other instruments representing Collections, executing and delivering
any and all instruments of satisfaction or
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cancellation, or of partial or full release or discharge, and all other
comparable instruments, with respect to such Transferred Receivables and, after
the delinquency of any such Transferred Receivable and to the extent permitted
under and in compliance with applicable law and regulations, to commence
proceedings with respect to enforcing payment of such Transferred Receivables
and the related Contracts, and adjusting, settling or compromising the account
or payment thereof, to the same extent as the Originator could have done if it
had continued to own such Receivable. Each Originator, the Seller and the
Purchaser shall furnish the Servicer (and any successors thereto) with any
powers of attorney and other documents necessary or appropriate to enable the
Servicer to carry out its servicing and administrative duties hereunder, and
shall cooperate with the Servicer to the fullest extent in order to ensure the
collectibility of the Transferred Receivables. Notwithstanding anything to the
contrary contained herein, the Purchaser, the Collateral Agent and the Operating
Agent shall have the absolute and unlimited right to direct the Servicer
(whether the Servicer is the Originator or otherwise) to commence or settle any
legal action to enforce collection of any such Transferred Receivable or to
foreclose upon, repossess or take any other action which the Collateral Agent or
the Operating Agent deems necessary or advisable with respect thereto; provided,
that the Servicer may, rather than commencing such action or taking other
enforcement action, at its option elect to pay the Purchaser the Outstanding
Balance of such Transferred Receivable. In no event shall the Servicer be
entitled to make the Purchaser, the Collateral Agent or the Operating Agent a
party to any litigation without such party's express prior written consent, or
to make the Seller a party to any litigation without the Operating Agent's
consent.
Section 7.05. Servicing Fees. As compensation for its servicing
--------------
activities and as reimbursement for its expenses in connection therewith, the
Servicer shall be entitled to receive the Servicing Fees in the manner set forth
in Sections 6.04 and 6.05, payable monthly in arrears on each Settlement Date
with respect to the preceding Settlement Period. The Servicer shall be required
to pay for all expenses incurred by the Servicer in connection with its
activities hereunder (including any payments to accountants, counsel or any
other Person) and shall not be entitled to any payment therefor other than the
Servicing Fees.
Section 7.06. Covenants of the Servicer. The Servicer shall (unless
-------------------------
having previously received the prior written consent of the Operating Agent and
the Collateral Agent):
(a) not sell, assign (by operation of law or otherwise) or otherwise
dispose of, or create or suffer to exist any Adverse Claim upon or with respect
to (and any such purported disposition shall be null and void), any Transferred
Receivable or related Contract with respect thereto, or upon or with respect to
the Lockbox Account, the Lockboxes, the Collection Account, the Retention
Account or any other account to
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which any Collections of any Transferred Receivable are deposited, or assign any
right to receive income in respect thereof;
(b) not extend, amend or otherwise modify the terms of any
Transferred Receivable (other than adjusting, settling or compromising the
account or payment of a Transferred Receivable pursuant to Section 7.04 and
except for deferments in the ordinary course of business which are consistent
with the Credit and Collection Policies), or amend, modify or waive any term or
condition of any Contract related thereto;
(c) not, and shall not permit any of its Subsidiaries to, engage in
any business other than the distribution of refrigeration, air conditioning and
heating equipment and its duties and obligations as Servicer set forth herein;
(d) not make any change in its instructions to Obligors to make
payments to the Lockboxes or Lockbox Accounts, provided that no Collections on
Unapproved Receivables shall be deposited into the Lockbox Accounts;
(e) not merge with or into (unless the Servicer is the surviving
corporation), consolidate with or into, or convey, transfer, lease or otherwise
dispose of all or substantially all of its assets (whether now owned or
hereafter acquired) (whether in one transaction or in a series of transactions);
(f) not make any change to its corporate name or use any tradenames,
fictitious names, assumed names or "doing business as" names except those
disclosed on Schedule 1 to the Transfer Agreement and after at least thirty
days' prior written notice to the Operating Agent, Collateral Agent and Redwood;
(g) identify the Transferred Receivables clearly and unambiguously in
its Servicing Records to reflect that such Transferred Receivables are owned by
the Seller;
(h) comply in all respects with the Credit and Collection Policies in
regard to each Transferred Receivable and the related Contracts; and
(i) comply in all material respects with all applicable laws, rules,
regulations and orders with respect to it, its business and properties and all
Transferred Receivables, related Contracts and Collections with respect thereto.
Section 7.07. Reporting. During the term of this Agreement, solely with
---------
respect to clauses (a) and (b) below, if Pameco Corporation is not the Servicer,
the Servicer shall furnish to the Collateral Agent, the Operating Agent and the
Purchaser:
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(a) as soon as available and in any event within 90 days after the
end of each fiscal year of the Servicer, a copy of the audited consolidated
financial statement of the Servicer and its consolidated Subsidiaries as of the
end of such year and the related consolidated statements of income and retained
earnings, and of cash flow, of the Servicer and its consolidated Subsidiaries
for such year, in each case reported on by Ernst & Young or other firm of
nationally recognized independent public accountants acceptable to the Operating
Agent (accompanied by consolidating financial information received by such
accounting firm and a satisfactory management letter) and each other report or
statement sent to shareholders or publicly filed by the Servicer;
(b) on or before the 45th day after each quarter, an Officer's
Certificate stating, as to each signer thereof, that (i) a review of the
activities of the Servicer during the preceding calendar quarter and of its
performance under this Agreement has been made under such officer's supervision,
(ii) to the best of such officer's knowledge, based on such review, the Servicer
has fulfilled all its obligations under this Agreement throughout such quarter,
or, if there has been a default in the fulfillment of any such obligation,
specifying each such default known to such officer and the nature and status
thereof, (iii) the Servicer has complied with the covenants set forth in Section
7.06 and Exhibit H, and (iv) the representations and warranties of the Servicer
in Section 4.02 are true and correct as if made on the date of such Officer's
Certificate;
(c) written notification of the occurrence of a Termination Event
(including, without limitation, a material adverse change in the financial
condition of the Originator) or an Incipient Event;
(d) written notification of any action, suit, proceeding, dispute,
offset deduction, defense or counterclaim that is or may be asserted by an
Obligor with respect to any Transferred Receivable; and
(e) such other periodic, special or other reports or information as
the Purchaser, the Operating Agent or the Collateral Agent may reasonably
require.
Section 7.08. Annual Statement as to Compliance. The Servicer shall
---------------------------------
deliver to the Collateral Agent, the Operating Agent and the Purchaser on or
before 90 days after the end of each fiscal year, an Officer's Certificate
stating, as to each signer thereof, that (a) a review of the activities of the
Servicer during the preceding calendar year and of its performance under this
Agreement has been made under such officer's supervision, (b) to the best of
such officer's knowledge, based on such review, the Servicer has fulfilled all
its obligations under this Agreement throughout such year or, if there has been
a default in the fulfillment of any such obligation, specifying each such
default known to such officer and the nature and status thereof, (c) the
Servicer has complied with the covenants set forth in Section 7.06 and Exhibit
H, and (d) the
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representations and warranties of the Servicer in Section 4.02 are true and
correct as if made on the date of such Officer's Certificate.
Section 7.09. Annual Independent Public Accountants' Servicing and
----------------------------------------------------
Compliance Report. Without duplication of Section 5.02(f), as soon as
- -----------------
available, and in any event within 90 days after the end of each fiscal year,
the Servicer at its expense shall cause a firm of nationally recognized
independent public accountants to furnish a statement (on which the Purchaser,
the Operating Agent and the Collateral Agent may rely) to the Collateral Agent
and the Operating Agent to the effect that such firm has applied the agreed upon
procedures referred to in Section 5.02(f) with respect to (a) the Servicer's
compliance with the Servicer's financial covenants in this Agreement and (b) the
Servicer's substantial compliance with this Agreement (including the Credit and
Collection Policies), and that, on the basis of such procedures, such firm has
reported that there are no exceptions, except as set forth in such statement.
ARTICLE VIII.
GRANT OF SECURITY INTERESTS
Section 8.01. Seller's Grant of Security Interest. It is the intention of
-----------------------------------
the parties hereto that each payment by the Purchaser to the Seller with respect
to Transferred Receivables to be made hereunder shall constitute a purchase and
sale of such Transferred Receivables and not a loan. If, however, a court of
competent jurisdiction holds that the transaction evidenced hereby constitutes a
loan and not a purchase and sale, it is the intention of the parties hereto that
this Agreement shall constitute a security agreement under applicable law. In
such regard and, in any event, as security for the prompt payment or performance
in full when due, whether at stated maturity, by acceleration or otherwise, of
all Seller Secured Obligations, the Seller hereby assigns and pledges to the
Purchaser, and grants to the Purchaser a security interest in and lien upon, all
of the Seller's right, title and interest in and to the following, in each case
whether now or hereafter existing or in which Seller now has or hereafter
acquires an interest and wherever the same may be located (collectively, the
"SELLER COLLATERAL"):
(a) all Transferred Receivables, Contracts and Collections;
(b) the Transfer Agreement, all Lockbox Agreements and all other
Related Documents now or hereafter in effect relating to the purchase, servicing
or processing of such Transferred Receivables (the "SELLER ASSIGNED
AGREEMENTS"), including (i) all rights of the Seller to receive moneys due and
to become due under or pursuant to the Seller Assigned Agreements, (ii) all
rights of the Seller to receive proceeds of any insurance, indemnity, warranty
or guaranty with respect to the Seller Assigned Agreements, (iii) claims of the
Seller for damages arising out of or for breach of or default under the Seller
Assigned Agreements, and (iv) the right of the Seller to
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amend, waive or terminate the Seller Assigned Agreements, to perform under the
Seller Assigned Agreements and to compel performance and otherwise exercise all
remedies under the Seller Assigned Agreements;
(c) all of the following (the "SELLER ACCOUNT COLLATERAL"):
(i) the Lockbox Account, the Lockboxes, the Blocked Accounts
and all funds held in the Lockbox Account, the Blocked Accounts and the
Lockboxes and all certificates and instruments, if any, from time to time
representing or evidencing the Lockbox Account, the Blocked Accounts, the
Lockboxes, or such funds,
(ii) the Collection Account and the Retention Account, all
funds held in the Collection Account and the Retention Account, and all
certificates and instruments, if any, from time to time representing or
evidencing the Collection Account, the Retention Account or such funds,
(iii) all Investments from time to time of amounts in the
Collection Account and the Retention Account, and all certificates and
instruments, if any, from time to time representing or evidencing such
Investments,
(iv) all notes, certificates of deposit and other instruments
related to the Receivables or the Related Documents from time to time
delivered to or otherwise possessed by the Purchaser or any assignee or
agent on behalf of the Purchaser in substitution for or in addition to any
of the then existing Seller Account Collateral, and
(v) all interest, dividends, cash, instruments and other
property from time to time received, receivable or otherwise distributed in
respect of or in exchange for any and all of the then existing Seller
Account Collateral;
(d) all additional property related to the Receivables and the
Related Documents that may from time to time hereafter be granted and pledged by
the Seller or by anyone on its behalf under this Agreement, including the
deposit with the Purchaser, the Operating Agent or the Collateral Agent of
additional moneys by the Seller; and
(e) all Proceeds, accessions, substitutions, rents and profits of any
and all of the foregoing Seller Collateral (including Proceeds that constitute
property of the types described in Sections 8.01(a) through (d) above) and, to
the extent not otherwise included, all payments under insurance (whether or not
the Purchaser or any assignee or agent on behalf of the Purchaser is the loss
payee thereof) or any
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indemnity, warranty or guaranty payable by reason of loss or damage to or
otherwise with respect to any of the foregoing Seller Collateral.
Section 8.02. Seller's Certification. The Seller hereby certifies that
----------------------
(a) the benefits of the representations and warranties of each Originator made
under the Transfer Agreement have been assigned to the Purchaser and the
Collateral Agent; (b) the rights of the Seller under the Transfer Agreement to
require a capital contribution or payment of a Rejected Amount from an
Originator may be enforced by the Purchaser and the Collateral Agent; and (c)
the Transfer Agreement provides that the representations, warranties and
covenants described in Sections 4.01 and 4.02 shall survive the sale of the
Transferred Receivables and the termination of the Transfer Agreement and this
Agreement.
Section 8.03. Consent to Assignment. Each of the Seller, each Originator
---------------------
and the Servicer acknowledges and consents to the security interest over the
Seller Collateral created pursuant to the Collateral Agent Agreement and
acknowledges the rights of the Collateral Agent and the covenants given by the
Purchaser in favor of the Collateral Agent set forth in the Collateral Agent
Agreement, and further acknowledges and consents that the Collateral Agent shall
be entitled to enforce the provisions of the Seller Assigned Agreements to which
the Seller, the Originator or the Servicer is a party and shall be entitled to
all the rights and remedies of the Purchaser thereunder. In addition, each of
the Seller, each Originator and the Servicer hereby authorizes the Collateral
Agent to rely on the representations and warranties of the Seller, each
Originator or the Servicer, respectively, contained in the Seller Assigned
Agreements to which the Seller, the Originator or the Servicer is a party and in
any other certificates and documents furnished by the Seller, the Originator or
the Servicer to any party in connection therewith.
Section 8.04. Delivery of Collateral. All certificates or instruments
----------------------
representing or evidencing Collateral shall be delivered to and held by or on
behalf of the Collateral Agent pursuant to the Collateral Agent Agreement and
shall be in suitable form for transfer by delivery or shall be accompanied by
duly executed instruments of transfer or assignment in blank, all in form and
substance satisfactory to the Collateral Agent, and to the extent not
constituting an assignment shall be irrevocable powers of attorney coupled with
an interest. The Collateral Agent shall have the right, at any time in its
discretion following the occurrence of and during the continuation of a
Termination Event and without prior notice to the Seller or the Purchaser, to
transfer to or to register in the name of the Collateral Agent or any of its
nominees any or all of the Collateral. In addition, the Collateral Agent shall
have the right at any time to exchange certificates or instruments representing
or evidencing Collateral for certificates or instruments of smaller or larger
denominations.
Section 8.05. Seller Remains Liable. Notwithstanding anything in this
---------------------
Agreement, (a) each of the Seller and the Originator shall remain liable under
the
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Transferred Receivables, Contracts, Seller Assigned Agreements and other
agreements included in the Collateral to perform all of its duties and
obligations thereunder to the same extent as if this Agreement had not been
executed, (b) the exercise by the Purchaser or the Collateral Agent of any of
its rights under this Agreement or the Collateral Agent Agreement shall not
release the Seller or the Servicer from any of their respective duties or
obligations under the Transferred Receivables, Contracts, Seller Assigned
Agreements or other agreements included in the Collateral, (c) the Purchaser,
the Collateral Agent and the Purchaser Secured Parties shall not have any
obligation or liability under the Transferred Receivables, Contracts, Seller
Assigned Agreements or other agreements included in the Collateral by reason of
this Agreement or the Collateral Agent Agreement, and (d) neither the Collateral
Agent nor any of the other Secured Parties shall be obligated to perform any of
the obligations or duties of the Seller or the Servicer under the Transferred
Receivables, Contracts, Seller Assigned Agreements or other agreements included
in the Collateral or to take any action to collect or enforce any claim for
payment assigned under this Agreement or the Collateral Agent Agreement.
Section 8.06. Covenants of the Seller and Servicer Regarding the
--------------------------------------------------
Collateral.
- ----------
(a) Offices and Records. The Seller shall keep its chief place of
-------------------
business and chief executive offices and the office where it keeps its Records
at the respective locations specified in Schedule 5 or, upon at least 30 days
prior written notice to the Collateral Agent, at such other location in a
jurisdiction where all action required by Section 8.06(f) shall have been taken
with respect to the Collateral. The Seller and the Servicer shall, for not less
than three years or for such longer period as may be required by law, from the
date on which any Transferred Receivable arose, maintain the Records with
respect to each Transferred Receivable, including records of all payments
received, credits granted and merchandise returned. The Seller and the Servicer
will permit representatives of the Operating Agent and the Collateral Agent at
any time and from time to time during normal business hours, and at such times
outside of normal business hours as the Operating Agent and the Collateral Agent
shall request, (i) to inspect and make copies of and abstracts from such
records, and (ii) to visit the properties of the Seller or the Servicer utilized
in connection with the collection, processing or servicing of the Transferred
Receivables for the purpose of examining such Records, and to discuss matters
relating to the Receivables or the Seller's or Servicer's performance under this
Agreement with any officer or employee of the Seller or Servicer having
knowledge of such matters. In connection therewith, the Operating Agent or the
Collateral Agent may institute procedures to permit it to confirm the Obligor
balances in respect of any Transferred Receivables. Each of the Seller and the
Servicer agrees to render to the Operating Agent and the Collateral Agent such
clerical and other assistance as may be requested with regard to the foregoing.
If a Termination Event shall have occurred and be continuing, promptly upon
request therefor, the Seller or the Servicer shall deliver to the Collateral
Agent records
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reflecting activity through the close of business on the immediately preceding
Business Day.
(b) Collection of Transferred Receivables. Except as otherwise
-------------------------------------
provided in this Section 8.06(b), the Seller shall continue to collect or cause
to be collected, at its own expense, all amounts due or to become due to the
Seller under the Transferred Receivables, the Seller Assigned Agreements and any
other Seller Collateral. In connection with such collections, the Seller may
take (and at the Collateral Agent's direction after a Termination Event has
occurred and is continuing, shall take) such action as the Seller or the
Collateral Agent may deem necessary or advisable to enforce collection of the
Transferred Receivables and the Seller Assigned Agreements; provided, however,
that the Collateral Agent may, at any time that a Termination Event has occurred
and is continuing, notify any Obligor with respect to any Transferred
Receivables or obligors under the Seller Assigned Agreements of the assignment
of such Transferred Receivables or Seller Assigned Agreements, as the case may
be, to the Collateral Agent and direct that payments of all amounts due or to
become due to the Seller thereunder be made directly to the Collateral Agent or
any servicer, collection agent or lockbox or other account designated by the
Collateral Agent and, upon such notification and at the expense of the Seller,
the Collateral Agent may enforce collection of any such Transferred Receivables
or the Seller Assigned Agreements and adjust, settle or compromise the amount or
payment thereof, provided that the Seller may, rather than commencing such
action or taking other enforcement action, at its option, elect to pay the
Purchaser the Outstanding Balance of such Transferred Receivable.
(c) Maintain Records of Transferred Receivables. The Seller and the
-------------------------------------------
Servicer shall, at their own cost and expense, maintain satisfactory and
complete records of the Collateral, including a record of all payments received
and all credits granted with respect to the Collateral and all other dealings
with the Collateral. Each of the Seller and the Servicer will mark
conspicuously with a legend, in form and substance satisfactory to the
Collateral Agent, its records, computer tapes, computer disks and credit files
pertaining to the Collateral and the Related Contracts, and its file cabinets or
other storage facilities where it maintains information pertaining to the
Collateral, to evidence this Agreement and the assignment and security interest
granted by this Article VIII. Upon the occurrence and during the continuation
of a Termination Event, the Seller and Servicer shall (i) deliver and turn over
to the Collateral Agent or to its representatives, or at the option of the
Collateral Agent shall provide the Collateral Agent or its representatives with
access to, after the occurrence of a Termination Event, at any time, and during
all other times, during ordinary business hours, on demand of the Collateral
Agent, all of the Seller's and Servicer's facilities, personnel, books and
records pertaining to the Collateral, including all Records, and (ii) allow the
Collateral Agent to occupy the premises of the Seller and the Servicer where
such books, records and Records are maintained, and utilize such premises, the
equipment thereon and any personnel of the Seller or the Servicer that
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the Collateral Agent may wish to employ to administer, service and collect the
Transferred Receivables.
(d) Performance of Seller Assigned Agreements. The Seller or the
-----------------------------------------
Servicer, as applicable, shall (i) perform and observe all the terms and
provisions of the Seller Assigned Agreements to be performed or observed by it,
maintain the Seller Assigned Agreements in full force and effect, enforce the
Seller Assigned Agreements in accordance with their terms and take all such
action to such end as may be from time to time requested by the Collateral
Agent, and (ii) upon request of the Operating Agent or the Collateral Agent,
make to any other party to the Seller Assigned Agreements such demands and
requests for information and reports or for action as the Seller is entitled to
make under the Seller Assigned Agreements.
(e) Notice of Adverse Claim. Each of the Seller and the Servicer
-----------------------
shall advise the Purchaser, the Operating Agent and the Collateral Agent
promptly, in reasonable detail, (i) of any Adverse Claim known to it made or
asserted against any of the Seller Collateral, (ii) of the occurrence of any
event which would have a material adverse effect on the aggregate value of the
Seller Collateral or on the assignments and security interests granted by the
Seller in this Agreement and (iii) of the occurrence of any event described in
Section 4.02(h)(iii), (iv) or (v) of the Transfer Agreement with respect to any
Obligor with an Outstanding Balance of Transferred Receivables of $100,000 or
more at any one time.
(f) Further Assurances; Financing Statements.
----------------------------------------
(i) Each of the Seller and the Servicer severally agrees that
at any time and from time to time, at its expense, it shall promptly
execute and deliver all further instruments and documents, and take all
further action, that may be necessary or desirable or that the Purchaser,
the Operating Agent or the Collateral Agent may request to perfect and
protect the assignments and security interests granted or purported to be
granted by this Article VIII or to enable the Purchaser, the Operating
Agent or the Collateral Agent to exercise and enforce its rights and
remedies under this Agreement and the Collateral Agent Agreement with
respect to any Collateral. Without limiting the generality of the
foregoing, the Seller shall execute and file such financing or continuation
statements, or amendments thereto, and such other instruments or notices as
may be necessary, desirable or that the Purchaser, the Operating Agent or
the Collateral Agent may request to protect and preserve the assignments
and security interests granted by this Agreement and the Collateral Agent
Agreement.
(ii) The Seller and the Purchaser hereby severally authorize
the Collateral Agent to file one or more financing or continuation
statements, and amendments thereto, relating to all or any part of the
Collateral without the
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signature of the Seller or the Purchaser where permitted by law. A carbon,
photographic or other reproduction of this Agreement or any financing
statement covering the Collateral or any part thereof shall be sufficient
as a financing statement where permitted by law. The Collateral Agent will
promptly send to the Seller any financing or continuation statements
thereto which it files without the signature of the Seller and will
promptly send to the Purchaser any financing or continuation statements
thereto which it files without the signature of the Purchaser except, in
the case of filings of copies of this Agreement as financing statements,
the Collateral Agent will promptly send the Seller or the Purchaser, as the
case may be, the filing or recordation information with respect thereto.
(iii) Each of the Seller and the Servicer shall furnish to the
Collateral Agent from time to time such statements and schedules further
identifying and describing the Collateral and such other reports in
connection with the Collateral as the Collateral Agent may request, all in
reasonable detail.
ARTICLE IX.
TERMINATION EVENTS
Section 9.01. Termination Events. If any of the following events
------------------
(each, a "TERMINATION EVENT") shall occur and be continuing:
(a) (i) the Seller shall default in the payment of any amount owed by
it hereunder and such failure shall remain unremedied for one Business Day, or
(ii) the Seller shall fail to perform or observe any other term, covenant or
agreement contained in this Agreement or the Related Documents and such failure
shall remain unremedied for five Business Days after written notice of any such
failure described in this clause (ii) shall have been given by the Operating
Agent or the Collateral Agent to the Seller; or
(b) a default has occurred (and any applicable grace period has
elapsed) and be continuing under any instrument or agreement evidencing,
securing or providing for the issuance of Debt of the Parent, the Originator or
the Seller and such default has not been waived by the non-defaulting party; or
(c) the Originator or the Seller shall generally not pay any of its
respective Debts as such Debts become due, or shall admit in writing its
inability to pay its Debts generally, or shall make a general assignment for the
benefit of creditors, or any proceeding shall be instituted by or against the
Originator or the Seller seeking to adjudicate it bankrupt or insolvent, or
seeking liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief or composition of it or any of its Debts under any law
relating to bankruptcy, insolvency, reorganization or relief of debtors, or
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seeking the entry of an order for relief or the appointment of a receiver,
trustee, custodian or other similar official for it or for any substantial part
of its property, or any of the actions sought in such proceeding (including,
without limitation, the entry of an order for relief against, or the appointment
of a receiver, trustee, custodian or other similar official for, it or for any
substantial part of its property) shall occur, or the Originator or the Seller
shall take any corporate action to authorize any of the actions set forth in
this subsection; or
(d) judgments or orders for the payment of money (other than such
judgments or orders in respect of which adequate insurance is maintained for the
payment thereof) in excess of $250,000 in the aggregate against the Originator
or any Affiliate of the Originator shall remain unpaid, unstayed on appeal,
undischarged, unbonded or undismissed for a period of 30 days or more; or
(e) a judgment or order for the payment of money is rendered against
the Seller; or
(f) there is a material breach of any of the representations and
warranties of the Seller set forth in Section 4.01; or
(g) any Governmental Authority (including the Internal Revenue
Service or the PBGC) shall file notice of a lien with regard to any assets of
the Originator (other than lien (i) limited by its terms to assets other than
Receivables and (ii) not materially adversely affecting the financial condition
of the Servicer or the Servicer's ability to perform as Servicer hereunder); or
(h) any Governmental Authority (including the Internal Revenue
Service or the PBGC) shall file notice of a lien with regard to any of the
assets of the Seller; or
(i) the Operating Agent or the Collateral Agent has determined that
any event or condition which materially adversely affects the collectibility of
the Receivables has occurred, or that any other event or condition which
materially adversely affects the financial condition of the Seller or the Seller
and its Subsidiaries as a whole, the ability of the Originator or the Seller to
collect Receivables or the ability of the Seller to perform hereunder has
occurred; or
(j) there shall occur a failure of the Originator to make any
payment, repurchase any Transferred Receivables or substitute any Transferred
Receivables with Eligible Receivables as required under Section 4.04 of the
Transfer Agreement, or if the Transfer Agreement shall for any reason cease to
evidence the transfer to the Seller (or its assignees or transferees) of the
legal and equitable title to, and ownership of, the Transferred Receivables; or
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(k) any Lockbox Agreement or the Transfer Agreement have been amended
or terminated without the written consent of the Purchaser, the Operating Agent
and the Collateral Agent; or
(l) an Event of Servicer Termination has occurred; or
(m) the Operating Agent has determined that the funding of
Receivables hereunder is impracticable due to (i) a drop in or withdrawal of any
of the ratings assigned to the Purchaser's Commercial Paper, (ii) the imposition
of Additional Amounts, (iii) restrictions on the amount of Transferred
Receivables it may finance, (iv) the inability of the Purchaser to issue
Commercial Paper or (v) for any other reason whatsoever; or
(n) the Purchaser and the Collateral Agent cease to hold a first
priority, perfected ownership interest in the Transferred Receivables; or
(o) a Seller LOC Draw has occurred; or
(p) the obligations of the Transaction Liquidity Providers to make
Transaction Liquidity Loans, the proceeds of which may be used by the Purchaser
to make Purchases to the Seller, have terminated; or
(q) a breach of the covenants in Exhibit I has occurred; or
(r) a breach of a provision contained in Section 4.04 of the Transfer
Agreement has occurred that is not remedied within 1 Business Day of the
occurrence thereof, or a breach of any other provision of the Transfer Agreement
has occurred that is not remedied within 5 Business Days after notice thereof
shall have been given by the Operating Agent or the Collateral Agent to the
Seller;
(s) an Event of Default under the Collateral Agent Agreement has
occurred; or
(t) the short term debt rating of a Transaction Liquidity Provider
has been downgraded by a Rating Agency and such Transaction Liquidity Provider
has not been replaced in accordance with the Transaction Liquidity Agreement
within 30 days; or
(u) the Purchase Discount Rate shall be less than 50% for two
consecutive Settlement Periods;
then and in any such event, the Operating Agent shall, at the request, or may
with the consent, of the Purchaser or the Collateral Agent, by notice to the
Seller declare the Facility Termination Date to have occurred, whereupon the
Facility Termination Date
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shall forthwith occur, without demand, protest or further notice of any kind,
all of which are hereby expressly waived by the Seller; provided, that in the
--------
event that any of the Termination Events described in subsections (b), (c), (o),
(p), (s) or (t) have occurred, or the Termination Event described in subsection
(a)(i) has occurred and remained unremedied for four days, the Facility
Termination Date shall automatically occur, without demand, protest or any
notice of any kind, all of which are hereby expressly waived by the Seller.
Section 9.02. Events of Servicer Termination. If any of the following
------------------------------
events (each, an "EVENT OF SERVICER TERMINATION") shall occur and be continuing:
(a) the Servicer shall fail to perform or observe any term, covenant
or agreement contained in this Agreement and such failure shall remain
unremedied for five Business Days after written notice thereof shall have been
given by the Purchaser, the Collateral Agent or the Operating Agent to the
Servicer; or
(b) (i) a default has occurred and is continuing under any instrument
or agreement to which GE Capital or any of its Affiliates is a party,
evidencing, securing or providing for the issuance of Debt of the Servicer, or
(ii) a default has occurred and is continuing entitling a party to accelerate
any payment of Debt under any instrument or agreement evidencing, securing or
providing for the issuance of Debt of the Servicer in an amount exceeding
$250,000; or
(c) the Servicer shall generally not pay any of its Debts as such
Debts become due, or shall admit in writing its inability to pay its Debts
generally, or shall make a general assignment for the benefit of creditors, or
any proceeding shall be instituted by or against the Servicer seeking to
adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief or composition of it
or any of its Debts under any law relating to bankruptcy, insolvency,
reorganization or relief of debtors, or seeking the entry of an order for relief
or the appointment of a receiver, trustee, custodian or other similar official
for it or for any substantial part of its property, or any of the actions sought
in such proceeding (including, without limitation, the entry of an order for
relief against, or the appointment of a receiver, trustee, custodian or other
similar official for, it or for any substantial part of its property) shall
occur, or the Servicer shall take any corporate action to authorize any of the
actions set forth in this subsection; or
(d) judgments or orders for the payment of money (other than such
judgments or orders in respect of which adequate insurance is maintained for the
payment thereof) in excess of $250,000 in the aggregate against the Servicer or
any of its Affiliates shall remain unpaid, unstayed on appeal, undischarged,
unbonded or undismissed for a period of 30 days or more; or
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(e) there is a breach of any of the representations and warranties of
the Servicer set forth in Section 4.02; or
(f) a breach of the covenants in Exhibit H has occurred; or
(g) the Operating Agent or the Collateral Agent shall have determined
that any event or condition which materially adversely affects the ability of
the Servicer to collect Receivables or to otherwise perform hereunder has
occurred; or
(h) a Termination Event shall have occurred or this Agreement shall
have been terminated; or
(i) a deterioration has taken place in the quality of servicing of
Transferred Receivables or other Receivables serviced by the Servicer which
either the Operating Agent or the Collateral Agent, each in its sole discretion,
determines to be material, and such material deterioration has not been
eliminated within thirty (30) days of Purchaser's written notice to Servicer of
such deterioration; or
(j) the Servicer shall assign or purport to assign any of its
obligations hereunder or under the Transfer Agreement without the prior written
consent of the Operating Agent and the Collateral Agent; or
(k) the Seller's board of directors has determined that it is in the
best interests of the Seller to terminate the Servicer and shall have given the
Servicer, the Operating Agent, the Purchaser and the Collateral Agent at least
30 days written notice thereof,
then, and in any such event, the Operating Agent shall (on behalf of the
Seller), at the request, or may with the consent, of the Purchaser or the
Collateral Agent, by delivery of a Servicer Termination Notice to the Seller and
the Servicer, terminate the servicing responsibilities of the Servicer
hereunder, without demand, protest or further notice of any kind, all of which
are hereby waived by the Servicer. Upon any such declaration, all authority and
power of the Servicer under this Agreement and the Transfer Agreement shall pass
to and be vested in the Successor Servicer appointed pursuant to Section 11.02;
provided, that notwithstanding anything to the contrary herein, the Seller
- --------
agrees that it will continue to follow the procedures set forth in Section
7.02(a) with respect to Collections on Transferred Receivables.
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ARTICLE X.
REMEDIES
Section 10.01. Actions Upon Termination Event. If any Termination Event
------------------------------
shall have occurred and be continuing and the Operating Agent shall have
declared the Facility Termination Date to have occurred or the Facility
Termination Date shall have been deemed to have occurred pursuant to Section
9.01, then the Collateral Agent may exercise in respect of the Seller
Collateral, in addition to any and all other rights and remedies otherwise
available to it, all of the rights and remedies of a secured party upon default
under the UCC (such rights and remedies to be cumulative and nonexclusive), and,
in addition, may take the following remedial actions:
(a) The Collateral Agent may, without notice to the Seller except as
required by law and at any time or from time to time, charge, set-off and
otherwise apply all or any part of the Seller Secured Obligations against
amounts payable to the Seller from the Collection Account, the Lockbox Account,
the Retention Account or any part of such accounts in accordance with the
priorities required by Sections 6.05 and 6.07.
(b) The Collateral Agent may, without notice except as specified
below, solicit and accept bids for and sell the Seller Collateral or any part of
the Seller Collateral in one or more parcels at public or private sale, at any
exchange, broker's board or at any of the Purchaser's, Operating Agent's or
Collateral Agent's offices or elsewhere, for cash, on credit or for future
delivery, and upon such other terms as the Collateral Agent may deem
commercially reasonable. The Seller agrees that, to the extent notice of sale
shall be required by law, at least ten Business Days' notice to the Seller of
the time and place of any public sale or the time after which any private sale
is to be made shall constitute reasonable notification. The Collateral Agent
shall not be obligated to make any sale of Seller Collateral regardless of
notice of sale having been given. The Collateral Agent may adjourn any public
or private sale from time to time by announcement at the time and place fixed
for such sale, and such sale may, without further notice, be made at the time
and place to which it was so adjourned. Every such sale shall operate to divest
all right, title, interest, claim and demand whatsoever of the Seller in and to
the Seller Collateral so sold, and shall be a perpetual bar, both at law and in
equity, against the Seller, the Originator, any Person claiming the Seller
Collateral sold through the Seller, the Originator and their respective
successors or assigns.
(c) Upon the completion of any sale under Section 10.01(b), the
Seller or the Servicer will deliver or cause to be delivered all of the Seller
Collateral sold to the purchaser or purchasers at such sale on the date of sale,
or within a reasonable time thereafter if it shall be impractical to make
immediate delivery, but in any event full title and right of possession to such
property shall pass to such purchaser or
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purchasers forthwith upon the completion of such sale. Nevertheless, if so
requested by the Collateral Agent or by any purchaser, the Seller shall confirm
any such sale or transfer by executing and delivering to such purchaser all
proper instruments of conveyance and transfer and releases as may be designated
in any such request.
(d) At any sale under Section 10.01(b), the Purchaser, the Collateral
Agent or any Purchaser Secured Party may bid for and purchase the property
offered for sale and, upon compliance with the terms of sale, may hold, retain
and dispose of such property without further accountability therefor.
(e) The Collateral Agent may exercise at the Seller's expense any and
all rights and remedies of the Seller under or in connection with the Seller
Assigned Agreements or the other Seller Collateral, including any and all rights
of the Seller to demand or otherwise require payment of any amount under, or
performance of any provisions of, the Seller Assigned Agreements.
Section 10.02. Exercise of Remedies. No failure or delay on the part of
--------------------
the Collateral Agent to exercise any right, power or privilege under this
Agreement and no course of dealing between the Seller, the Servicer, the
Originator or the Operating Agent, on the one hand, and the Collateral Agent, on
the other hand, shall operate as a waiver of such right, power or privilege, nor
shall any single or partial exercise of any right, power or privilege under this
Agreement preclude any other or further exercise of such right, power or
privilege or the exercise of any other right, power or privilege. The rights
and remedies expressly provided in this Agreement are cumulative and not
exclusive of any rights or remedies which the Collateral Agent or the Secured
Parties would otherwise have pursuant to law or equity. No notice to or demand
on any party in any case shall entitle such party to any other or further notice
or demand in similar or other circumstances, or constitute a waiver of the right
of the other party to any other or further action in any circumstances without
notice or demand.
Section 10.03. Severability of Remedies. The invalidity of any remedy in
------------------------
any jurisdiction shall not invalidate such remedy in any other jurisdiction.
The invalidity or unenforceability of the remedies herein provided in any
jurisdiction shall not in any way affect the right of the enforcement in such
jurisdiction or elsewhere of any of the other remedies herein provided.
Section 10.04. Power of Attorney. Each of the Seller and the Servicer
-----------------
hereby irrevocably appoints the Collateral Agent its true and lawful attorney
(with full power of substitution) in its name, place and stead and at its
expense, in connection with the enforcement of the rights and remedies provided
for in this Article X, including with the following powers: (a) to give any
necessary receipts or acquittance for amounts collected or received hereunder,
(b) to make all necessary transfers of the Seller Collateral in connection with
any sale or other disposition made pursuant hereto, (c) to execute and deliver
for value all necessary or appropriate bills of sale, assignments
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and other instruments in connection with any such sale or other disposition, the
Seller and the Servicer hereby ratifying and confirming all that such attorney
(or any substitute) shall lawfully do hereunder and pursuant hereto, and (d) to
sign any agreements, orders or other documents in connection with or pursuant to
this Agreement and any Related Document. Nevertheless, if so requested by the
Collateral Agent or a purchaser of Seller Collateral, the Seller shall ratify
and confirm any such sale or other disposition by executing and delivering to
the Collateral Agent or such purchaser all proper bills of sale, assignments,
releases and other instruments as may be designated in any such request.
Section 10.05. Continuing Security Interest. This Agreement shall create
----------------------------
a continuing security interest in the Collateral until the satisfaction of
Section 6.07(b).
ARTICLE XI.
SUCCESSOR SERVICER
Section 11.01. Servicer Not to Resign. The Servicer shall not resign from
----------------------
the obligations and duties hereby imposed on it except upon determination that
(a) the performance of its duties hereunder has become impermissible under
applicable law or regulation, and (b) there is no reasonable action which the
Servicer could take to make the performance of its duties hereunder become
permissible under applicable law. Any such determination permitting the
resignation of the Servicer shall be evidenced as to clause (a) above by an
opinion of counsel to such effect delivered to the Purchaser, the Collateral
Agent and the Operating Agent. No such resignation shall become effective until
a successor servicer shall have assumed the responsibilities and obligations of
the Servicer in accordance with Section 11.02.
Section 11.02. Appointment of the Successor Servicer. In connection with
-------------------------------------
the termination of the Servicer's responsibilities under this Agreement pursuant
to Section 9.02 or 11.01, the Operating Agent shall (a) succeed to and assume
all of the Servicer's responsibilities, rights, duties and obligations as
Servicer (but not in any other capacity, including specifically not its
obligations under Section 12.02) under this Agreement (and except that the
Operating Agent makes no representations and warranties pursuant to Section
4.02), or (b) appoint a successor servicer to the Servicer which shall be
acceptable to the Collateral Agent and shall succeed to all rights and assume
all of the responsibilities, duties and liabilities of the Servicer under this
Agreement (the Operating Agent, in such capacity, or such successor servicer
being referred to as the "SUCCESSOR SERVICER"); provided, that the Successor
Servicer shall have no responsibility for any actions of the Servicer prior to
the date of its appointment as Successor Servicer. In selecting a Successor
Servicer, the Operating Agent may obtain bids from any potential Successor
Servicer and may agree to any bid it deems appropriate. The Successor Servicer
shall accept its appointment by executing,
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acknowledging and delivering to the Operating Agent and the Collateral Agent an
instrument in form and substance acceptable to the Operating Agent and the
Collateral Agent.
Section 11.03. Duties of the Servicer. At any time following the
----------------------
appointment of a Successor Servicer:
(a) The Servicer agrees that it will terminate its activities as
Servicer hereunder in a manner acceptable to the Collateral Agent so as to
facilitate the transfer of servicing to the Successor Servicer including,
without limitation, timely delivery (i) to the Collateral Agent of any funds
that were required to be remitted to the Collateral Agent for deposit in the
Collection Account, and (ii) to the Successor Servicer, at a place selected by
the Successor Servicer, of all Servicing Records and other information with
respect to the Transferred Receivables. The Servicer shall account for all funds
and shall execute and deliver such instruments and do such other things as may
be required to more fully and definitely vest and confirm in the Successor
Servicer all rights, powers, duties, responsibilities, obligations and
liabilities of the Servicer.
(b) The Servicer shall terminate each Sub-Servicing Agreement that
may have been entered into and the Successor Servicer shall not be deemed to
have assumed any of the Servicer's interest therein or to have replaced the
Servicer as a party to any such Sub-Servicing Agreement.
Section 11.04. Effect of Termination or Resignation. Any termination or
------------------------------------
resignation of the Servicer under this Agreement shall not affect any claims
that the Originator, the Collateral Agent, the Purchaser or the Operating Agent
may have against the Servicer for events or actions taken or not taken by the
Servicer arising prior to any such termination or resignation.
ARTICLE XII.
INDEMNIFICATION
Section 12.01. Indemnities by the Seller.
-------------------------
(a) Without limiting any other rights that the Collateral Agent, the
Purchaser, the Operating Agent, the Transaction Liquidity Agent, any Transaction
Liquidity Provider, the Letter of Credit Agent or any Letter of Credit Provider
or any director, officer, employee, agent or incorporator of such party (each an
"INDEMNIFIED PARTY") may have hereunder or under applicable law, the Seller
hereby agrees to indemnify each Indemnified Party from and against any and all
claims, losses, liabilities, obligations, damages, penalties, actions,
judgments, suits, and costs and expenses of any nature whatsoever related
thereto, including attorneys' fees and
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disbursements (all of the foregoing being collectively referred to as
"INDEMNIFIED AMOUNTS"), which may be imposed on, incurred by or asserted against
an Indemnified Party in any way arising out of or relating to (i) any breach of
the Seller's obligations under this Agreement or any Related Document, (ii) the
sale or the pledge of the Transferred Receivables, or (iii) any Receivable or
any Contract, excluding, however Indemnified Amounts to the extent resulting
solely from gross negligence or willful misconduct on the part of such
Indemnified Party. Without limiting or being limited by the foregoing, the
Seller shall pay on demand to each Indemnified Party any and all amounts
necessary to indemnify such Indemnified Party from and against any and all
Indemnified Amounts relating to or resulting from:
(A) reliance on any representation or warranty made or deemed made by
the Seller (or any of its officers) under or in connection with this
Agreement, any Related Document or any report or other information
delivered by the Seller pursuant hereto which shall have been incorrect in
any material respect when made or deemed made or delivered;
(B) the failure by the Seller to comply with any term, provision or
covenant contained in this Agreement, any Related Document or any agreement
executed by it in connection with this Agreement or with any applicable
law, rule or regulation with respect to any Transferred Receivable or its
related Contract, or the nonconformity of any Transferred Receivable or its
related Contract with any such applicable law, rule or regulation; or
(C) the failure to vest and maintain vested in the Purchaser legal
and equitable title to and ownership of the Receivables which are, or are
purported to be, Transferred Receivables, together with all Collections in
respect thereof, free and clear of any Adverse Claim (except as permitted
hereunder) whether existing at the time of the purchase of such Receivable
or at any time thereafter, and to maintain or transfer to the Collateral
Agent a first priority, perfected security interest therein.
(b) Any Indemnified Amounts subject to the indemnification provisions
of this Section 12.01 not paid in accordance with Article VI, to the extent that
funds are available therefor in accordance with the provisions of Article VI,
shall be paid to the Indemnified Party within five Business Days following
demand therefor.
Section 12.02. Indemnities by the Servicer.
---------------------------
(a) Without limiting any other rights that an Indemnified Party may
have hereunder or under applicable law, the Servicer hereby agrees to indemnify
each Indemnified Party from and against any and all Indemnified Amounts which
may be imposed on, incurred by or asserted against an Indemnified Party in any
way arising out of or relating to any breach of the Servicer's obligations under
this Agreement,
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excluding, however, (A) Indemnified Amounts to the extent resulting from gross
negligence or willful misconduct on the part of such Indemnified Party and (B)
recourse solely for uncollectible and uncollected Transferred Receivables.
Without limiting or being limited by the foregoing, the Servicer shall pay on
demand to each Indemnified Party any and all amounts necessary to indemnify such
Indemnified Party from and against any and all Indemnified Amounts relating to
or resulting from:
(i) reliance on any representation or warranty made or deemed
made by the Servicer (or any of its officers) under or in connection with
this Agreement, any Related Document or any report or other information
delivered by the Servicer pursuant hereto which shall have been incorrect
in any material respect when made or deemed made or delivered; or
(ii) the failure by the Servicer to comply with any term,
provision or covenant contained in this Agreement, any Related Document or
any agreement executed by it in connection with this Agreement or with any
applicable law, rule or regulation with respect to any Transferred
Receivable or its related Contract, or the imposition of any Adverse Claim
(except as permitted hereunder) with respect to a Transferred Receivable as
a result of the Servicer's actions hereunder.
(b) Any Indemnified Amounts subject to the indemnification provisions
of this Section 12.02 shall be paid to the Indemnified Party within five
Business Days following demand therefor.
ARTICLE XIII.
OPERATING AGENT
Section 13.01. Authorization and Action. The Operating Agent may take
------------------------
such action and carry out such functions under this Agreement as are delegated
to it by the terms hereof, pursuant to the Operating Agent Agreement or
otherwise contemplated hereby or thereby or are reasonably incidental thereto;
provided, that the duties of the Operating Agent shall be determined solely by
- --------
the express provisions of this Agreement and other than the duties set forth in
Section 13.02 any permissive right of the Operating Agent hereunder shall not be
construed as a duty.
Section 13.02. Reliance, etc. None of the Operating Agent, any Affiliate
-------------
thereof nor any of their respective directors, officers, agents or employees
will be liable for any action taken or omitted to be taken by any of them under
or in connection with this Agreement, the Program Documents or the Related
Documents, except when caused solely by their own gross negligence or willful
misconduct. Without limiting the generality of the foregoing, and
notwithstanding any term or provision hereof to the
55
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contrary, the Seller, the Servicer and the Purchaser hereby acknowledge and
agree that the Operating Agent (a) acts as agent hereunder for the Purchaser and
has no duties or obligations to, will incur no liabilities or obligations to,
and does not act as an agent in any capacity for, the Seller or the Originator,
(b) may consult with legal counsel, independent public accountants and other
experts selected by it and shall not be liable for any action taken or omitted
to be taken in good faith by it in accordance with the advice of such counsel,
accountants or experts, (c) makes no warranty or representation hereunder and
shall not be responsible for any statements, warranties or representations made
in or in connection with this Agreement, the Program Documents or the Related
Documents, (d) shall not have any duty to ascertain or to inquire as to the
performance or observance of any of the terms, covenants or conditions of this
Agreement, the Program Documents or Related Documents on the part of the Seller,
the Servicer or the Purchaser or to inspect the property (including the books
and records) of the Seller, the Servicer or the Purchaser, (e) shall not be
responsible to the Seller, the Servicer or the Purchaser for the due execution,
legality, validity, enforceability, genuineness, sufficiency or value of this
Agreement or any other instrument or document furnished pursuant hereto
(including the Related Documents), (f) shall incur no liability under or in
respect of this Agreement, the Program Documents or the Related Documents by
acting upon any notice or communication (including a communication by
telephone), consent, certificate or other instrument or writing believed by it
to be genuine and signed, sent or communicated by the proper party or parties
and (g) shall not be bound to make any investigation into the facts or matters
stated in any notice or other communication hereunder and may rely on the
accuracy of such facts or matters.
Section 13.03. GE Capital and Affiliates. GE Capital and its Affiliates
-------------------------
may generally engage in any kind of business with the Seller, the Originator,
the Servicer, the Purchaser or any Obligor, any of their respective Affiliates
and any Person who may do business with or own securities of such parties or any
of their respective Affiliates, all as if GE Capital were not the Operating
Agent, and without the duty to account therefor to the Seller, the Originator,
the Servicer, the Purchaser or any other Person.
ARTICLE XIV.
MISCELLANEOUS
Section 14.01. Notices, Etc.. All notices and other communications
-------------
provided for hereunder, unless otherwise stated herein, shall be in writing and
mailed or telecommunicated, or delivered as to each party hereto, at its address
set forth below or at such other address as shall be designated by such party in
a written notice to the other parties hereto. All such notices and
communications shall not be effective until received by the party to whom such
notice or communication is addressed.
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Section 14.02. Binding Effect; Assignability. This Agreement shall be
-----------------------------
binding upon and inure to the benefit of the Seller, the Servicer, the
Purchaser, the Operating Agent and their respective permitted successors and
assigns. Neither the Seller nor the Servicer may assign any of their rights and
obligations hereunder or any interest herein without the prior written consent
of the Purchaser, the Collateral Agent and the Operating Agent and unless the
Rating Agency Condition has been fulfilled. The Purchaser, the Collateral Agent
and the Operating Agent may, at any time, without the consent of the Seller, the
Originator or the Servicer, assign any of their respective rights and
obligations hereunder or interest herein to any Affiliate of GE Capital or any
party to any Program Document. Any such assignee may further assign at any time
its rights and obligations hereunder or interests herein to any other Affiliate
of GE Capital or any party to any Program Document without the consent of the
Seller, any Originator or the Servicer. Otherwise, the Purchaser, the
Collateral Agent and the Operating Agent may not assign any of their rights
hereunder or their interests herein without the prior written consent of the
Seller. This Agreement shall create and constitute the continuing obligations
of the parties hereto in accordance with its terms, and shall remain in full
force and effect until its termination; provided, that the rights and remedies
--------
with respect to any breach of any representation and warranty made by the Seller
or the Servicer pursuant to Article IV and the indemnification and payment
provisions of Article XII shall be continuing and shall survive any termination
of this Agreement.
Section 14.03. Costs, Expenses and Taxes.
-------------------------
(a) In addition to the rights of indemnification under Article XII
hereof, the Seller agrees to pay upon demand all costs and expenses and taxes
(excluding income taxes) incurred by the Purchaser, the Operating Agent or the
Collateral Agent in connection with the administration (including periodic
auditing, Rating Agency requirements, modification and amendment) of this
Agreement, the Related Documents and the other documents to be delivered
hereunder. The Seller further agrees to pay on demand fees and out-of-pocket
expenses of counsel for the Purchaser, the Operating Agent and the Collateral
Agent whether incurred before or after the Effective Date with respect thereto
and with respect to advising the Purchaser, the Operating Agent or the
Collateral Agent as to its rights and remedies under this Agreement, the Related
Documents and the other agreements executed pursuant hereto. The Seller further
agrees to pay on demand all costs, counsel fees and expenses in connection with
the enforcement (whether through negotiation, legal proceedings or otherwise) of
this Agreement, the Related Documents and the other agreements and documents to
be delivered hereunder, including, without limitation, counsel fees and expenses
in connection with the enforcement of rights under this Section 14.03 in
accordance with the provisions of Article VI to the extent that funds are
available therefor in accordance therewith.
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(b) In addition, the Seller shall pay on demand any and all stamp,
sales, excise and other taxes (other than income taxes) and fees payable or
determined to be payable in connection with the execution, delivery, filing or
recording of this Agreement, the Related Documents or the other agreements and
documents to be delivered hereunder, and agrees to indemnify and save each
Indemnified Party from and against any and all liabilities with respect to or
resulting from any delay in paying or omission to pay such taxes and fees.
(c) In the event that the Operating Agent determines that any of the
costs referred to in paragraphs (a) or (b) above were in any part incurred on
behalf of, or are attributable to the actions of, borrowers or sellers under
Other Purchase Agreements, the Seller shall have no liability hereunder in
excess of the Seller's Share of such costs.
(d) If the Seller or the Servicer fails to perform any agreement or
obligation contained herein, the Purchaser, the Collateral Agent or the
Operating Agent may (but shall not be required to) itself perform, or cause
performance of, such agreement or obligation, and the expenses of such party
incurred in connection therewith shall be payable by the party which has failed
to so perform upon such party's demand therefor.
Section 14.04. Confidentiality.
---------------
(a) Except to the extent otherwise required by applicable law or
unless the Operating Agent shall otherwise consent in writing, the Seller and
the Servicer agree to maintain the confidentiality of this Agreement (and all
drafts hereof and documents ancillary thereto) in its communications with third
parties and otherwise and not to disclose, deliver or otherwise make available
to any third party (other than its directors, officers, employees, accountants
or counsel) the original or any copy of all or any part of this Agreement (or
any draft hereof and documents ancillary thereto).
(b) The Seller and the Servicer each agrees that it shall not issue
any news release or make any public announcement pertaining to the transactions
contemplated by this Agreement and the Related Documents without the prior
written consent of the Purchaser (which consent shall not be unreasonably
withheld) unless such news release or public announcement is required by law, in
which case the Seller shall consult with the Operating Agent prior to the
issuance of such news release or public announcement. The Seller may, however,
disclose the general terms of this Agreement and the Related Documents to trade
creditors, suppliers and other similarly situated Persons so long as such
disclosure is not in the form of a news release or public announcement.
Section 14.05. No Proceedings. The Seller and the Servicer each hereby
--------------
agrees that it will not, directly or indirectly, institute, or cause to be
instituted, against
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the Purchaser any proceeding of the type referred to in Section 9.01(c) so long
as there shall not have elapsed one year plus one day since the latest maturing
Commercial Paper has been paid in full in cash.
Section 14.06. Amendments; Waivers; Consents. No modification, amendment
-----------------------------
or waiver of or with respect to any provision of this Agreement, the Related
Documents or any other agreements, instruments and documents delivered pursuant
hereto or thereto, nor consent to any departure by the Seller or the Servicer
from any of the terms or conditions hereof or thereof, shall be effective unless
it shall be in writing and signed by each of the parties hereto and with respect
to any material modification, amendment or waiver, satisfies the Rating Agency
Condition. Any waiver or consent shall be effective only in the specific
instance and for the purpose for which given. No consent to or demand on the
Seller, the Originator or the Servicer in any case shall, in itself, entitle it
to any other consent or further notice or demand in similar or other
circumstances. This Agreement, the Related Documents and the documents referred
to therein embody the entire agreement among the Seller, the Purchaser, the
Operating Agent, the Collateral Agent and the Servicer and supersede all prior
agreements and understandings relating to the subject hereof.
Section 14.07. GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER OF JURY
------------------------------------------------------
TRIAL.
- -----
(a) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAW OF THE STATE OF NEW YORK (WITHOUT REGARD TO THE CONFLICT OF LAW
PROVISIONS THEREOF).
(b) EACH OF THE PARTIES TO THIS AGREEMENT HEREBY SUBMITS TO THE NON-
EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND THE UNITED
STATES DISTRICT COURT LOCATED IN THE BOROUGH OF MANHATTAN IN NEW YORK CITY, AND
EACH WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT
ALL SUCH SERVICE OF PROCESS BE MADE BY REGISTERED MAIL DIRECTED TO THE ADDRESSES
SET FORTH BELOW, AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED FIVE DAYS
AFTER THE SAME SHALL HAVE BEEN DEPOSITED IN THE U.S. MAILS, POSTAGE PREPAID.
EACH OF THE PARTIES TO THIS AGREEMENT HEREBY WAIVES ANY OBJECTION BASED ON FORUM
-----
NON CONVENIENS AND ANY OBJECTION TO VENUE OF ANY ACTION INSTITUTED HEREUNDER,
- --------------
AND CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED
APPROPRIATE BY THE COURT. NOTHING IN THIS SECTION 14.07(b) SHALL AFFECT THE
RIGHT OF ANY PARTY TO THIS AGREEMENT TO SERVE LEGAL PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW.
59
<PAGE>
(c) EACH OF THE PARTIES TO THIS AGREEMENT HEREBY WAIVES ANY RIGHT TO
HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT,
TORT OR OTHERWISE ARISING OUT OF, CONNECTED WITH, RELATED TO OR IN CONNECTION
WITH THIS AGREEMENT. INSTEAD, ANY DISPUTE RESOLVED IN COURT WILL BE RESOLVED IN
A BENCH TRIAL WITHOUT A JURY.
Section 14.08. Execution in Counterparts; Severability. This Agreement
---------------------------------------
may be executed by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which when taken
together shall constitute one and the same agreement. In case any provision in
or obligation under this Agreement shall be invalid, illegal or unenforceable in
any jurisdiction, the validity, legality and enforceability of the remaining
provisions or obligations, or of such provision or obligation shall not in any
way be affected or impaired thereby in such jurisdiction and the validity,
legality and enforceability of the remaining provisions or obligations, or of
such provision or obligation shall not be impaired thereby in any other
jurisdiction.
Section 14.09. Descriptive Headings. The descriptive headings of the
--------------------
various sections of this Agreement are inserted for convenience of reference
only and shall not be deemed to affect the meaning or construction of any of the
provisions hereof.
Section 14.10. Limited Recourse. The obligations of the Purchaser under
----------------
this Agreement and all Related Documents are solely the corporate obligations of
the Purchaser. No recourse shall be had for the payment of any amount owing in
respect of Purchases or for the payment of any fee hereunder or any other
obligation or claim arising out of or based upon this Agreement or any other
Related Document against any shareholder, employee, officer, director, agent or
incorporator of the Purchaser. Any accrued obligations owing by the Purchaser
under this Agreement shall be payable by the Purchaser solely to the extent that
funds are available therefor from time to time in accordance with the provisions
of Article VI of the Collateral Agent Agreement and Article VI of this Agreement
(and such accrued obligations shall not be extinguished until paid in full).
60
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Receivables Purchase and
Servicing Agreement to be executed by their respective officers thereunto duly
authorized, as of the date first above written.
PAMECO CORPORATION, as Servicer
By_______________________________
Name: Theodore R. Kallgren
Title: Vice President
Address: 1000 Center Place
Norcross, Georgia 30093
Attention: Ms. Mary M. McCulley
Phone number: (770) 798-0685
Telecopier number:(770) 798-0618
REDWOOD RECEIVABLES CORPORATION, as Purchaser
By_______________________________
Name: Catharine L. Midkiff
Title: Assistant Secretary
Address: c/o General Electric Capital
Corporation
260 Long Ridge Road
Stamford, Connecticut 06927
Attention: Redwood Administrator
Phone number: (203) 961-5488
Telecopier number: (203) 357-6330
or (203) 961-2953
<PAGE>
PAMECO SECURITIZATION CORPORATION,
as Seller
By______________________________
Name: Theodore R. Kallgren
Title: President
Address: 1000 Center Place, Suite A
Norcross, Georgia 30093
Attention: Ms. Mary M. McCulley
Phone number: (770) 798-0617
Telecopier number:(770) 798-0618
GENERAL ELECTRIC CAPITAL CORPORATION,
as Operating Agent and Collateral Agent
By______________________________
Name: Denis M. Creeden
Title: Duly Authorized Signatory
Address: 201 High Ridge Road
Stamford, Connecticut 06927
Attention: Vice President, Portfolio/Pameco
Phone number: (203) 316-7606
Telecopier number:(203) 316-7821
<PAGE>
Schedule 1
----------
CONCENTRATION LIMITS
--------------------
Concentration Limit
Percentage
----------
All other Obligors 4%
All Canadian Obligors in the aggregate 10%
All Terms over 90 days in the aggregate 2%
S-1
<PAGE>
Schedule 2
----------
EXCLUDED OBLIGORS
-----------------
NONE
S-2
<PAGE>
Annex A
-------
to
--
Schedule 2
----------
FORM OF AMENDING LETTER
-----------------------
[Insert Date]
Pameco Securitization Corporation
___________________
___________________
Attention: ________
Redwood Receivables Corporation
c/o General Electric Capital Corporation
260 Long Ridge Road
Stamford, CT 06927
Attention: Redwood Administrator
Pameco Corporation
1000 Center Place
Norcross, Georgia 30093
Attention: Treasurer
Re: Receivables Purchase and Servicing Agreement,
dated as of April 29, 1996
Ladies and Gentlemen:
This notice is given pursuant to the Receivables Purchase and
Servicing Agreement, dated as of April 29, 1996 (the "Purchase Agreement"),
between Redwood Receivables Corporation, General Electric Capital Corporation as
agent for the Company (in such capacity, the "Operating Agent") and as
collateral agent for the Purchaser Secured Parties, Pameco Securitization
Corporation and Pameco Corporation. Capitalized terms used but not defined in
this notice have the meanings ascribed to such terms in the Purchase Agreement.
The Operating Agent hereby amends Schedule 2 to the Purchase Agreement
as follows:
S-2-A-1
<PAGE>
[The following Obligors are added to Schedule 2 as "Excluded
Obligors":]
[The following Obligors are removed from Schedule 2:]
The effective date of this amendment to Schedule 2 is ____________,
199__.
Very truly yours,
GENERAL ELECTRIC CAPITAL
CORPORATION
By:________________________________________
Name:
Title:
S-2-A-2
<PAGE>
Schedule 3
----------
DETERMINATION OF "DAILY YIELD"
------------------------------
<TABLE>
<CAPTION>
MONTHLY INTEREST SUM OF DAILY YIELD FOR THE SETTLEMENT
EXPENSE PERIOD
<S> <C> <C> <C>
#1) DAILY YIELD = CP Interest Amount + Liquidity Interest + LOC Interest + Margin
Amount Amount Amount
#2) DAILY YIELD RATE = (Daily Yield/Capital Investment Outstanding) x 360
#3) CP INTEREST AMOUNT = PSC x Daily Weighted x Redwood Funding
CP Net Amount Average CP Rate Factor
#3a) PSC = Capital Investment - PSC Liquidity Loans Outstanding + PSC
CP NET AMOUNT Liquidity Deposits -PSC LOC Draws Outstanding + PSC LOC
Deposits
#3b) WEIGHTED AVERAGE = Average of the rate of interest for all tranches of CP
CP RATE Outstanding issued by the Purchaser, weighted by CP
Outstanding in each tranche
#3c) DAILY WEIGHTED = Weighted Average CP Rate / 360
AVERAGE CP RATE
#3d) REDWOOD FUNDING = Net Proceeds Amount / Aggregate CP Net Amount
FACTOR
#4) LIQUIDITY INTEREST = PSC Outstanding x (Liquidity Interest
AMOUNT Liquidity Loans Rate/360)
#5) LOC INTEREST = PSC LOC Draws Outstanding x PSC Daily LOC Rate
AMOUNT
#5a) PSC DAILY LOC RATE = ((CP Interest Amount + Liquidity Interest Amount) /PSC
Senior Debt)
#6) MARGIN AMOUNT = Prior to the Facility Termination Date:
Capital Investment x Daily Margin
Facility Termination Date:
Capital Investment x Daily Default Margin
</TABLE>
S-3-1
<PAGE>
Definitions
- -----------
Where otherwise not defined below, capitalized terms shall have the meaning
assigned to those terms in Annex X.
"Aggregate CP Net Amount" means the sum of the CP Net Amounts for all
-----------------------
Borrowers and Sellers.
"Borrower" has the meaning specified in the Pameco Liquidity Agreement.
--------
"CP Net Amount" means, for any Borrower or Seller, an amount equal to (i)
-------------
Advances Outstanding or Capital Investment, as the case may be, minus (ii)
Liquidity Loans Outstanding , plus (iii) Liquidity Deposits, minus (iv) LOC
Draws Outstanding, plus (v) LOC Deposits, each of (ii), (iii), (iv) and (v) with
respect to such Borrower or Seller.
"Daily Margin" and "Daily Default Margin" mean the following percentages
------------ --------------------
divided by 360:
<TABLE>
<CAPTION>
Daily Margin Daily Default Margin Financial Covenants
- ------------ -------------------- -------------------
<S> <C> <C>
1.50 3.50 Adjusted Interest Coverage Ratio
less than 2.75 to 1.0
1.25 3.25 Adjusted Interest Coverage Ratio
equal to or greater than
2.75 to 1.0
</TABLE>
provided that, for the purposes of calculating the Daily Margin and Daily
Default Margin, the Adjusted Interest Coverage Ratio for any period shall be
deemed to be the highest of (a) the Adjusted Interest Coverage for such period
and (b) the highest Adjusted Interest Coverage Ratio among all previous periods.
"Liquidity Interest Rate" has the meaning specified in the Pameco Liquidity
-----------------------
Agreement.
"Net Proceeds Amount" has the meaning specified in the Pameco Liquidity
-------------------
Agreement.
"Pameco Liquidity Agreement" means the Liquidity Loan Agreement dated as of
--------------------------
April 29, 1996 between Redwood and GE Capital executed in connection with this
Agreement.
S-3-2
<PAGE>
"PSC CP Net Amount" means, an amount equal to (i) Capital Investment, minus
-----------------
(ii) Liquidity Loans Outstanding, plus (iii) Liquidity Deposits, minus (iv) LOC
Draws Outstanding, plus (v) LOC Deposits.
"PSC Liquidity Deposits" has the meaning specified in the Pameco Liquidity
----------------------
Agreement.
"PSC Liquidity Loans Outstanding" has the meaning specified in the Pameco
-------------------------------
Liquidity Agreement.
"PSC LOC Deposits" has the meaning specified in the Pameco Liquidity
----------------
Agreement.
"PSC LOC Draws Outstanding" has the meaning specified in the Pameco
-------------------------
Liquidity Agreement.
"PSC Senior Debt" means the sum of PSC CP Net Amount and PSC Liquidity
---------------
Loans Outstanding.
"Seller" has the meaning specified in the Pameco Liquidity Agreement.
------
S-3-3
<PAGE>
Schedule 4
----------
YIELD DISCOUNT AMOUNT
---------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Yield Discount Amount = Purchase Rate Discount Amount
+ Yield Volatility Discount Amount
+ Unused Commitment Fee Discount Amount
+ Servicing Fee Discount Amount
#1 Purchase Rate = Capital Investment
Discount Amount x Daily Yield Rate (see Schedule 3)
x Liquidation Term Factor
x 360
#2 Yield Volatility = Capital Investment
Discount Amount x Yield Volatility Percentage
x Liquidation Term Factor
#3 Unused Commitment Fee = Capital Investment Available
Discount Amount x Unused Commitment Fee Rate
x Liquidation Term Factor
#4 Servicing Fee = Outstanding Balances of Transferred
Discount Amount Receivables
x Servicing Fee Rate
x Liquidation Term Factor
#5 Liquidation Term = Expected Liquidation Period/360
Factor
#6 Unused Purchase = Maximum Purchase Limit
Amount - Capital Investment Outstanding
</TABLE>
"Expected Liquidation Period" means the weighted average number of
---------------------------
days from the date of the Investment Base Certificate to the invoice due date
for the Outstanding Balance of Transferred Receivables.
"Yield Volatility Percentage" means the maximum increase in interest
---------------------------
rates anticipated over the Expected Liquidation Period, as determined from time
to time by the Collateral Agent.
S-4
<PAGE>
Schedule 5
----------
ADDRESSES OF THE SELLER
-----------------------
1000 Center Place, Suite A
Norcross, Georgia 30093
S-5
<PAGE>
Schedule 6
----------
LOCKBOXES AND LOCKBOX ACCOUNTS
------------------------------
<TABLE>
<CAPTION>
Lockbox Lockbox
------- -------
Bank ABA Number Number Address Street Address
- ---- ---------- ------- ------- --------------
<S> <C> <C> <C> <C>
NBD Bank 072-000-326 77102 07423-13 611 Woodward
Avenue
Detroit,
Michigan
48226
</TABLE>
S-6
<PAGE>
Schedule 7
----------
LIST OF SELLER AGREEMENTS
-------------------------
Sublease between Seller as lessee and Pameco Corporation
as lessor, dated as of April 29, 1996
S-7
<PAGE>
Schedule 8
----------
LIST OF ORIGINATOR/SERVICER TRADE,
FICTITIOUS, ASSUMED AND "DOING BUSINESS
AS" NAMES
-----------------------------------------
Trade Names
-----------
Pameco Corp. Knoxville Refrigeration
National Temperature Control Centers R &R Supply
NTCC Thermal Company
Melchoir, Armstrong, Dessau Thermal Supply
Melco Westbrook Distribution
Graves Refrigeration Pameco-Aire
Graves Brothers Gulf Coast Air Conditioning
J & P Supply Rick's Supply
S-8
<PAGE>
Schedule 9
----------
LIST OF STATES FOR WHICH GOOD STANDING
CERTIFICATES ARE REQUIRED
-------------------------
1. California
2. Colorado
3. Florida
4. Georgia
5. Louisiana
6. Minnesota
7. New Jersey
8. New York
9. Tennessee
10. Texas
11. North Carolina
12. Utah
S-9
<PAGE>
Exhibit A-1
to
Purchase Agreement
FORM OF NOTICE - Request for Purchase
-------------------------------------
[Insert Date]
Redwood Receivables Corporation
C/o General Electric Capital Corporation
260 Long Ridge Road
Stamford, CT 06927
Attention: Redwood Administrator
General Electric Capital Corporation,
as Operating Agent
C/o General Electric Capital Corporation
201 High Ridge Road
Stamford, CT 06927
Attention: Vice President - Portfolio/Pameco
Re: Receivables Purchase and Servicing Agreement,
dated as of April 29,1996
Ladies and Gentlemen:
This notice is given pursuant to Section 2.03(b) of the Receivables
Purchase and Servicing Agreement, dated as of April 29, 1996 (the "Purchase
Agreement"), between Redwood Receivables Corporation (the "Purchaser"), General
Electric Capital Corporation, as agent for the Company (in such capacity, the
"Operating Agent") and as collateral agent for the Purchaser Secured Parties,
Pameco Securitization Corporation (the "Seller") and Pameco Corporation.
Capitalized terms used but not defined in this notice have the meanings ascribed
to such terms in the Purchase Agreement.
The Seller hereby requests that the Purchaser make a Purchase from the
Seller on ___________, 19__ pursuant to Section 2.01 of the Purchase Agreement
in the amount of $____________ to be disbursed to the Seller in accordance with
A-1-1
<PAGE>
Section 2.04 of the Purchase Agreement. The Company hereby confirms that the
conditions set forth in Section 3.02 of the Purchase Agreement for the making of
such Purchase have been met.
Very truly yours,
PAMECO SECURITIZATION CORPORATION
By:____________________________
Name:
Title:
A-1-2
<PAGE>
Exhibit A-2
to
Purchase Agreement
FORM OF NOTICE - Reduction of Commitment
----------------------------------------
[Insert Date]
Redwood Receivables Corporation
C/o General Electric Capital Corporation
260 Long Ridge Road
Stamford, CT 06927
Attention: Redwood Administrator
General Electric Capital Corporation,
as Operating Agent
C/o General Electric Capital Corporation
201 High Ridge Road
Stamford, CT 06927
Attention: Vice President - Portfolio/Pameco
Re: Receivables Purchase and Servicing Agreement,
dated as of April 29, 1996
Ladies and Gentlemen:
This notice is given pursuant to Section 2.02(a) of the Receivables
Purchase and Servicing Agreement, dated as of April 29, 1996 (the "Purchase
Agreement"), between Redwood Receivables Corporation (the "Purchaser"), General
Electric Capital Corporation, as agent for the Company (in such capacity, the
"Operating Agent") and as collateral agent for the Purchaser Secured Parties,
Pameco Securitization Corporation (the "Seller") and Pameco Corporation.
Capitalized terms used but not defined in this notice have the meanings ascribed
to such terms in the Purchase Agreement.
The Seller hereby irrevocably notifies the Purchaser and the Operating
Agent pursuant to Section 2.02(a) of the Purchase Agreement that on
____________, 19__ (which is a Business Day) the Maximum Purchase Limit shall be
reduced to $_________ This reduction is the [first] [second] reduction permitted
by Section 2.02(a)
A-2-1
<PAGE>
of the Purchase Agreement. After such reduction, the Maximum Purchase Limit
will not be less than the Capital Investment [after giving effect to, and
conditioned upon, the repayment of Purchases set forth in the attached notice].
Very truly yours,
PAMECO SECURITIZATION CORPORATION
By:____________________________
Name:
Title:
A-2-2
<PAGE>
Exhibit A-3
to
Purchase Agreement
FORM OF NOTICE - Termination of Commitment
------------------------------------------
[Insert Date]
Redwood Receivables Corporation
C/o General Electric Capital Corporation
260 Long Ridge Road
Stamford, CT 06927
Attention: Redwood Administrator
General Electric Capital Corporation,
as Operating Agent
C/o General Electric Capital Corporation
201 High Ridge Road
Stamford, CT 06927
Attention: Vice President - Portfolio/Pameco
Re: Receivables Purchase and Servicing Agreement,
dated as of April 29, 1996
Ladies and Gentlemen:
This notice is given pursuant to Section 2.02(b) of the Receivables
Purchase and Servicing Agreement, dated as of April 29, 1996 (the "Purchase
Agreement"), between Redwood Receivables Corporation (the "Purchaser"), General
Electric Capital Corporation, as agent for the Company (in such capacity, the
"Operating Agent") and as collateral agent for the Purchaser Secured Parties,
Pameco Securitization Corporation (the "Seller") and Pameco Corporation.
Capitalized terms used but not defined in this notice have the meanings ascribed
to such terms in the Purchase Agreement.
A-3-1
<PAGE>
The Seller hereby irrevocably notifies the Purchaser and the Operating
Agent pursuant to Section 2.02(b) of the Purchase Agreement that on
____________, 19__ (which is a Business Day at least 90 days after the date this
notice is given) the Maximum Purchase Limit shall be terminated.
Very truly yours,
PAMECO SECURITIZATION CORPORATION
By:____________________________
Name:
Title:
A-3-2
<PAGE>
Exhibit A-4
to
Purchase Agreement
FORM OF NOTICE - Repayment of Capital Investment
------------------------------------------------
[Insert Date]
Redwood Receivables Corporation
C/o General Electric Capital Corporation
260 Long Ridge Road
Stamford, CT 06927
Attention: Redwood Administrator
General Electric Capital Corporation,
as Operating Agent
C/o General Electric Capital Corporation
201 High Ridge Road
Stamford, CT 06927
Attention: Vice President - Portfolio/Pameco
Re: Receivables Purchase and Servicing Agreement,
dated as of April 29, 1996
Ladies and Gentlemen:
This notice is given pursuant to Section 2.06 of the Receivables
Purchase and Servicing Agreement, dated as of April 29, 1996 (the "Purchase
Agreement"), between Redwood Receivables Corporation (the "Purchaser"), General
Electric Capital Corporation, as agent for the Company (in such capacity, the
"Operating Agent") and as collateral agent for the Purchaser Secured Parties,
Pameco Securitization Corporation (the "Seller") and Pameco Corporation.
Capitalized terms used but not defined in this notice have the meanings ascribed
to such terms in the Purchase Agreement.
The Seller hereby notifies the Purchaser and the Operating Agent that
on ___________, 19__ (which is a Business Day) the Seller intends to repay from
[Collections] [borrowings under the Credit Agreement] [other sources - specify]
$__________ of Purchases currently outstanding to the Seller pursuant to Section
2.06
A-4-1
<PAGE>
of the Purchase Agreement, including (i) all Daily Yield accrued on the
principal amount of Purchases being repaid to (but excluding) the date of
repayment, and (ii) any and all Breakage Costs payable under Section 2.12 of the
Purchase Agreement.
Very truly yours,
PAMECO SECURITIZATION CORPORATION
By:____________________________
Name:
Title:
A-4-2
<PAGE>
Exhibit B
to
Purchase Agreement
FORM OF PURCHASE ASSIGNMENT
---------------------------
ASSIGNMENT, dated as of April 29, 1996 between Pameco Securitization
Corporation (the "Seller") and REDWOOD RECEIVABLES CORPORATION (the
"Purchaser").
1. We refer to the Receivables Purchase and Servicing Agreement (the
"PURCHASE AGREEMENT") dated as of April 29, 1996 among the Seller, the
Purchaser, Pameco Corporation and General Electric Capital Corporation. All
provisions of such Purchase Agreement are incorporated herein by reference. All
capitalized terms shall have the meanings set forth in the Purchase Agreement.
2. The Seller does hereby sell to the Purchaser all right, title and
interest of the Seller in and to all Transferred Receivables transferred to the
Seller from time to time pursuant to the Receivables Transfer Agreement dated as
of April 29, 1996 between Pameco Corporation and the Seller.
3. THIS CERTIFICATE OF ASSIGNMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
PAMECO SECURITIZATION REDWOOD RECEIVABLES
CORPORATION CORPORATION
By: ________________________ By: _________________________
Name: Name:
Title: Title:
B-1
<PAGE>
Exhibit C
to
Purchase Agreement
FORM OF INVESTMENT BASE CERTIFICATE
-----------------------------------
C-1
<PAGE>
Exhibit D
to
Purchase Agreement
FORM OF OFFICER'S CERTIFICATE AS TO SOLVENCY
--------------------------------------------
Pameco Corporation
Officer's Certificate
I, [Name of Officer], the duly elected [Insert Title] of Pameco
Corporation (the "Originator"), hereby certify in connection with the
Receivables Purchase and Servicing Agreement, dated as of April 29, 1996 (the
"Purchase Agreement"; capitalized terms used but not defined in this Officer's
Certificate having the meaning set forth in the Purchase Agreement), between
Pameco Securitization Corporation (the "Seller"), the Originator, Redwood
Receivables Corporation (the "Purchaser") and General Electric Capital
Corporation, as agent for the Purchaser (in such capacity, the "Operating
Agent") and as collateral agent for the Purchaser Secured Parties (in such
capacity, the "Collateral Agent"), and for the benefit of the Purchaser, the
Operating Agent and the Collateral Agent, as follows:
(1) the performance of the Transfer Agreement, dated as of April 29,
1996, between the Originator, as seller, and the Seller, as buyer, will not
render the Seller insolvent; and
(2) the Seller will be able to remain economically viable without
further investments by the Originator for the foreseeable future.
IN WITNESS WHEREOF, I have signed and delivered this Officer's
Certificate this _____ day of ___________, 1996;
Pameco Corporation
By:____________________________
Name:
Title:
D-1
<PAGE>
Exhibit E
to
Purchase Agreement
FORM OF OFFICER'S CERTIFICATE OF SELLER
---------------------------------------
Pameco Securitization Corporation
Officer's Certificate
I, [Name of Officer], the duly elected [Insert Title] of Pameco
Securitization Corporation (the "Seller"), hereby certify pursuant to Section
3.01(c)(iv) of the Receivables Purchase and Servicing Agreement, dated as
of April 29, 1996 (the "Purchase Agreement"; capitalized terms used but not
defined in this Officer's Certificate having the meaning set forth in the
Purchase Agreement), between the Seller, Pameco Corporation, Redwood Receivables
Corporation (the "Purchaser") and General Electric Capital Corporation, as agent
for the Purchaser (in such capacity, the "Operating Agent") and as collateral
agent (in such capacity, the "Collateral Agent") for the Purchaser Secured
Parties (as defined in the Purchase Agreement), and for the benefit of the
Purchaser, the Operating Agent and the Collateral Agent, as follows:
(1) after giving effect to the effectiveness of the Purchase
Agreement, no Termination Event or Incipient Event will have occurred and
be continuing; and
(2) the representations and warranties of the Seller contained in
Section 4.01 of the Purchase Agreement, in the Transfer Agreement and in
any other document, certificate or financial or other statement delivered
by the Seller in connection with the Purchase Agreement or the Transfer
Agreement are true and correct in all material respects and with the same
force and effect as though such representations and warranties had been
made as of such date, except to the extent any such representations and
warranties relate solely to an earlier date.
IN WITNESS WHEREOF, I have signed and delivered this Officer's
Certificate this _____ day of ___________, 1996.
PAMECO SECURITIZATION CORPORATION
By:____________________________
Name:
Title:
E-1
<PAGE>
Exhibit F
to
Purchase Agreement
FORM OF OFFICER'S CERTIFICATE OF SERVICER
-----------------------------------------
Pameco Corporation
Officer's Certificate
I, [Name of Officer], the duly elected [Insert Title] of Pameco
Corporation (the "Servicer"), hereby certify pursuant to Section 3.01(d)(iv) of
the Receivables Purchase and Servicing Agreement, dated as of April 29, 1996
(the "Purchase Agreement"; capitalized terms used but not defined in this
Officer's Certificate having the meaning set forth in the Purchase Agreement),
between Pameco Securitization Corporation (the "Seller"), the Servicer, Redwood
Receivables Corporation (the "Purchaser") and General Electric Capital
Corporation, as agent for the Purchaser (in such capacity, the "Operating
Agent") and as collateral agent (in such capacity, the "Collateral Agent") for
the Purchaser Secured Parties (as defined in the Purchase Agreement), and for
the benefit of the Purchaser, the Operating Agent and the Collateral Agent, as
follows:
(1) after giving effect to the effectiveness of the Purchase
Agreement, no Event of Servicer Termination or event which, with the giving
of notice or lapse of time, or both, will have occurred and be continuing;
and
(2) the representations and warranties of the Servicer contained in
Section 4.02 of the Purchase Agreement and in any other document,
certificate or financial or other statement delivered by the Servicer in
connection with the Purchase Agreement are true and correct in all material
respects and with the same force and effect as though such representations
and warranties had been made as of such date, except to the extent any such
representations and warranties relate solely to an earlier date.
IN WITNESS WHEREOF, I have signed and delivered this Officer's
Certificate this _____ day of _____________, 1996.
PAMECO CORPORATION
By:____________________________
Name:
Title:
F-1
<PAGE>
Exhibit G
to
Purchase Agreement
FORM OF MONTHLY REPORT
----------------------
PAMECO SECURITIZATION CORPORATION
G-1
<PAGE>
Exhibit H
to
Purchase Agreement
FINANCIAL COVENANTS
-------------------
1. The Servicer shall not breach or fail to comply with any of the
following financial covenants, each of which shall be calculated in accordance
with GAAP, consistently applied:
(a) Servicer EBITDA. As of any date of determination, the Servicer
---------------
EBITDA for the preceding twelve consecutive fiscal months shall not be less than
$7,800,000.
(b) Interest Coverage Ratio. As of any date of determination, the
-----------------------
Interest Coverage Ratio for the preceding twelve consecutive fiscal months shall
not be less than 1.7 to 1.0.
(c) Fixed Charge Coverage Ratio. As of any date of determination,
---------------------------
the ratio of (i) Servicer EBITDA to (ii) Servicer Fixed Charges for the
preceding twelve consecutive fiscal months shall not be less than 1.05 to 1.0.
(d) Maintenance of Net Worth. The sum of (x) Servicer Net Worth on
------------------------
the last day of each fiscal quarter ending on the last day of any fiscal year
set forth below and (y) the aggregate amount of Permitted Dividends made prior
to or on such date shall not be less than the amount set forth opposite such
fiscal year:
<TABLE>
<CAPTION>
Fiscal Year Ending Amount
------------------ ------
<S> <C>
February 28, 1997 $21,000,000
February 28, 1998 $22,500,000
February 28, 1999 and thereafter $24,500,000
</TABLE>
(e) Operating Leases. The Servicer shall not, and shall not permit
----------------
any of its Subsidiaries to, enter into, incur or assume (whether directly or
contingently) any Operating Lease if the minimum rental commitment under all
non-cancelable Operating Leases of the Servicer and its Subsidiaries (as noted
in the notes to the Parent's financial statements) for any period of four
consecutive fiscal quarters of the Servicer would exceed $16,000,000.
2. Capitalized terms used in this Exhibit H and not defined in Annex
X shall have the meaning ascribed to such terms in the Credit Agreement;
provided that all
H-1
<PAGE>
references to (i) the "Company" shall mean the Servicer, (ii) "this Agreement"
shall mean the Credit Agreement and (iii) "Holdings" shall mean the Parent.
H-2
<PAGE>
Exhibit I
to
Purchase Agreement
The Seller shall not breach or fail to comply with any of the
following financial covenants as of any Settlement Date:
(i) Default Ratio less than 7.5% for all Settlement Dates other
than Settlement Dates occurring during November, December or
January of any year for which the Default Ratio shall be 8.0%;
(ii) Delinquency Ratio less than 11.0% for all Settlement Dates
other than Settlement Dates occurring during November, December
or January of any year for which the Delinquency Ratio shall be
12.0%;
(iii) Dilution Ratio less than 7.5%;
(iv) Receivable Collection Turnover less than 58 days;
(v) Seller Net Worth Percentage less than 5%.
I-1
<PAGE>
Exhibit 10.16
RECEIVABLES TRANSFER AGREEMENT
Dated as of April 29, 1996
by and between
PAMECO CORPORATION
and
PAMECO SECURITIZATION CORPORATION
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I DEFINITIONS AND INTERPRETATION
SECTION 1.01. Definitions.......................................... 1
SECTION 1.02. Other Terms and Interpretation....................... 1
ARTICLE II TRANSFERS OF RECEIVABLES
SECTION 2.01. Agreement to Transfer................................ 1
SECTION 2.02. Grant of Security Interest........................... 2
SECTION 2.03. Addition of Originator............................... 3
SECTION 2.04. Termination of Status as an Originator............... 3
ARTICLE III CONDITIONS OF SALE
SECTION 3.01. Conditions Precedent to the Initial Sale............. 4
SECTION 3.02. Conditions Precedent to All Sales.................... 6
ARTICLE IV REPRESENTATIONS, WARRANTIES AND COVENANTS
SECTION 4.01. Representations and Warranties of the Originator..... 7
SECTION 4.02. Covenants of the Originator.......................... 15
SECTION 4.03. Negative Covenants of the Originator................. 20
SECTION 4.04. Breach of Representations, Warranties or Covenants... 22
ARTICLE V INDEMNIFICATION
SECTION 5.01. Indemnification...................................... 23
SECTION 5.02. Assignment of Indemnities............................ 24
ARTICLE VI MISCELLANEOUS
SECTION 6.01. Notices, Etc......................................... 24
SECTION 6.02. No Waiver; Remedies.................................. 24
SECTION 6.03. Binding Effect; Assignability........................ 25
SECTION 6.04. No Proceedings....................................... 25
SECTION 6.05. Amendments; Consents and Waivers..................... 25
SECTION 6.06. GOVERNING LAW; CONSENT TO JURISDICTION;
WAIVER OF JURY TRIAL................................. 25
SECTION 6.07. Execution in Counterparts; Severability.............. 26
SECTION 6.08. Descriptive Headings................................. 26
SECTION 6.09. No Setoff............................................ 26
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 6.10. Further Assurances................................... 26
SECTION 6.11. Confidentiality...................................... 27
SECTION 6.12. Assignment of Agreement.............................. 27
ARTICLE VII PSC LOANS TO PAMECO CORPORATION
SECTION 7.01. PSC Loans............................................ 28
SECTION 7.02. Notices Relating to Loans............................ 28
SECTION 7.03. Disbursement of Loan Proceeds........................ 28
SECTION 7.04. Pameco Note.......................................... 28
SECTION 7.05. Principal Repayments................................. 29
SECTION 7.06. Interest............................................. 29
SECTION 7.07. Time and Method of Payments.......................... 29
</TABLE>
SCHEDULE 1 LIST OF CHIEF EXECUTIVE OFFICES OF ORIGINATOR AND OTHER OFFICES
WHERE RECORDS ARE KEPT AND NAMES OF THE ORIGINATOR
SCHEDULE 2 PRIOR NAMES OF ORIGINATOR
SCHEDULE 3 LOCATIONS FOR WHICH LOCKBOXES ARE NOT IN USE
EXHIBIT A FORM OF ASSIGNMENT
EXHIBIT B FORM OF PAMECO NOTE
ANNEX X DEFINITIONS AND INTERPRETATION
ii
<PAGE>
Receivables Transfer Agreement, dated as of April 29, 1996 (this
"AGREEMENT"), between PAMECO CORPORATION, a Delaware corporation (the
"ORIGINATOR") and Pameco Securitization Corporation, a Delaware corporation
("PSC").
R E C I T A L S
- - - - - - - -
A. PSC is a wholly owned subsidiary of the Originator.
B. PSC has been formed for the sole purpose of purchasing or
otherwise acquiring certain trade receivables originated by the Originator
and/or its subsidiaries.
C. The Originator intends to sell, and PSC intends to purchase, such
trade receivables, from time to time, as described herein.
D. The Originator may, from time to time, contribute capital to PSC
in the form of Contributed Receivables or cash.
The parties agree as follows:
ARTICLE I
DEFINITIONS AND INTERPRETATION
SECTION 1.01. Definitions. Except as otherwise expressly provided
-----------
herein or unless the context otherwise requires, capitalized terms not otherwise
defined herein shall have the meanings assigned to such terms in Annex X hereto,
which is incorporated by reference herein. All other capitalized terms used
herein shall have the meanings specified herein.
SECTION 1.02. Other Terms and Interpretation. All other terms and
------------------------------
the interpretation of this Agreement shall be as set out in Annex X hereto.
ARTICLE II
TRANSFERS OF RECEIVABLES
SECTION 2.01. Agreement to Transfer. (a) On and after the date of
---------------------
this Agreement, the Originator agrees to sell or contribute without recourse,
except as specifically provided herein, to PSC all Receivables originated by the
Originator. On or before the Effective Date, the Originator and PSC shall enter
into a separate Certificate of Assignment substantially in the form of Exhibit A
hereto (the "ASSIGNMENT").
<PAGE>
(b) The Originator shall, on the Effective Date and on a date
occurring no less frequently than weekly thereafter, deliver to PSC a Request
Notice identifying (i) the amount of outstanding Receivables originated and
owned by the Originator through such date, (ii) at its option, a certain number
of such Receivables to be contributed to PSC (the "CONTRIBUTED RECEIVABLES"),
and (iii) the amount of all other Receivables not previously identified as
purchased and sold or contributed, to be purchased and sold (the "SOLD
RECEIVABLES"), in each case in accordance with the procedures described in this
Section 2.01(b). No later than the following Business Day (the "TRANSFER
DATE"), the Originator shall transfer the Receivables designated in such Request
Notice which are to be purchased, sold and, if applicable, contributed. Each
such identification shall be made as of the opening of business of the
Originator on each Transfer Date.
(c) The price paid for such Sold Receivables shall be the Sale Price.
Such Sale Price shall be paid by means of an immediate cash payment to the
Originator. On each Transfer Date the Sold Receivables and Contributed
Receivables shall be assigned, and PSC shall pay the Sale Price for such Sold
Receivables. The portion of the Sale Price payable in cash shall be payable in
immediately available funds on the applicable Transfer Date to an account
designated by the Originator (and approved by the Operating Agent) on or before
such Transfer Date.
(d) On and after each applicable Transfer Date hereunder, PSC shall
own the Sold Receivables and the Contributed Receivables which have been
(assuming compliance with the terms hereof) identified as being transferred to
PSC under this Section 2.01 and the Originator shall not take any action
inconsistent with such ownership, nor shall the Originator claim any ownership
interest in any such Transferred Receivables.
(e) Until the occurrence of an Event of Servicer Termination or a
resignation of the Servicer pursuant to the Purchase Agreement, (i) the
Originator, as Servicer, shall conduct the servicing, administration and
collection of such Transferred Receivables and shall take, or cause to be taken,
all such actions as may be necessary or advisable to service, administer and
collect such Transferred Receivables, from time to time, all in accordance with
(A) the terms of the Purchase Agreement, (B) customary and prudent servicing
procedures for trade receivables of a similar type and (C) all applicable laws,
rules and regulations, and (ii) documents relating to Transferred Receivables
shall be held in trust by the Originator, as Servicer, for the benefit of PSC
and its assignees as the owners thereof, and possession of any incident relating
to the Transferred Receivables and Contracts so retained is for the sole purpose
of facilitating the servicing of the Transferred Receivables. Such retention and
possession thereof is at the will of PSC and its assignees and in a custodial
capacity for their benefit only.
SECTION 2.02. Grant of Security Interest. It is the intention of the
--------------------------
parties hereto that each transfer of Transferred Receivables to be made
hereunder shall constitute a purchase and sale or capital contribution, as the
case may be, and not a loan. In the
2
<PAGE>
event, however, that a court of competent jurisdiction were to hold that any
transaction provided for hereby constitutes a loan and not a purchase and sale
or capital contribution, it is the intention of the parties hereto that this
Agreement shall constitute a security agreement under applicable law and that
the Originator shall be deemed to have granted to PSC a first priority security
interest in all of the Originator's right, title and interest in, to and under
the Transferred Receivables, all payments of principal, interest, fees, charges
and indemnities on or under such Transferred Receivables and all Proceeds of any
such Transferred Receivables.
SECTION 2.03. Addition of Originator. Any Subsidiary or Affiliate of
----------------------
the Parent may become an Originator hereunder if the Rating Agency Condition is
satisfied with respect to such addition. The Originator and any Subsidiary or
Affiliate of the Parent that is proposed to be added as an Originator shall give
to PSC and its assigns prior written notice of its desire to add or be added, as
the case may be, as an Originator. Once the notice has been given, any addition
of a Subsidiary or Affiliate of the Parent as an Originator pursuant to this
section shall become effective on the first Business Day following the date on
which (i) the Rating Agency Condition has been satisfied, (ii) the Subsidiary or
Affiliate and the parties hereto shall have executed and delivered the
agreements, instruments and other documents and the amendments or other
modifications to the Related Documents, in form and substance reasonably
satisfactory to PSC and the Operating Agent, that PSC or the Operating Agent
reasonably determine are necessary or appropriate to effect the addition and
(iii) the Operating Agent shall have given written notice of its approval of
such addition. Upon such effectiveness, any reference to "Originator" in this
Agreement shall refer to the Originator and the Subsidiary or Affiliate of the
Parent added as an Originator pursuant to this Section collectively or
individually as the context shall require.
SECTION 2.04. Termination of Status as an Originator. (a) At any
--------------------------------------
time when more than one Person is an Originator, an Originator may terminate its
obligations as an Originator hereunder if:
(i) the Originator (a "TERMINATING ORIGINATOR") shall have given
PSC and its assigns not less than 60 days' prior written notice of its
intention to terminate,
(ii) an Authorized Officer of the Terminating Originator shall have
certified that the termination by the Terminating Originator of its status
as an Originator will not have a material adverse effect on the business,
financial condition or operations or assets of PSC, and
(iii) both immediately before and after giving effect to the
termination by the Terminating Originator, no Termination Event shall have
occurred and be continuing or shall reasonably be expected to occur as a
result of such termination.
3
<PAGE>
Any termination by an Originator shall become effective on the first
Business Day that follows the day on which the requirements of clauses (i)
through (iii) shall have been satisfied (or such later date specified in the
notice or certificate referred to in the clauses). Any termination by an
Originator shall terminate its rights and obligations hereunder; provided,
--------
however, that the termination shall not relieve the Terminating Originator of
- -------
obligations which relate to Transferred Receivables originated by or obligations
of the Terminating Originator prior to the effective date of the termination.
(b) An Originator's right and obligation to sell its Receivables to
PSC shall terminate immediately if the Originator ceases to be a Subsidiary or
Affiliate of the Parent; provided, however, that the termination shall not
-------- -------
relieve the Originator of obligations which relate to Transferred Receivables
originated by or obligations of the Originator prior to the effective date of
the termination.
ARTICLE III
CONDITIONS OF SALE
SECTION 3.01. Conditions Precedent to the Initial Sale. The initial
----------------------------------------
Sale hereunder is subject to the conditions precedent that PSC shall have
received on or before the Effective Date, each dated such date (unless otherwise
indicated), in form and substance satisfactory to PSC:
(i) an Assignment executed by the Originator;
(ii) a copy of resolutions duly adopted by the Board of
Directors of the Originator approving this Agreement, the Assignment and
the other documents to be delivered by it hereunder and the transactions
and matters contemplated hereby, certified by its Secretary or Assistant
Secretary;
(iii) the charter, as amended, of the Originator, certified by
the Secretary of State of the Originator's state of incorporation, dated
not earlier than 10 days prior to the Effective Date;
(iv) a good standing certificate for the Originator issued by
the Secretary of State of the Originator's state of incorporation, dated
not earlier than 10 days prior to the Effective Date;
(v) a copy of the Originator's by-laws, as Amended, certified
by the Originator's Secretary or Assistant Secretary;
4
<PAGE>
(vi) a certificate of the Secretary or Assistant Secretary of
the Originator certifying the names and true signatures of the officers
authorized on behalf of the Originator to sign this Agreement, the
Assignment, and the other documents to be delivered by the Originator
hereunder (on which certificate PSC may conclusively rely until such time
as PSC shall receive from the Originator a revised certificate meeting the
requirements of this Subsection (vi)) and certifying that (A) the charter
of the Originator has not changed since the date of the certificate
referred to in Section 3.01(iii), (B) the Originator is still in good
standing in all jurisdictions where it is qualified to do business,
including, without limitation, that referred to in Section 3.01(iv), (C)
all representations and warranties made by the Originator in this Agreement
are true and correct in all respects and (D) no financing statements or
other similar instruments relating to the Receivables have been filed in
any jurisdiction, other than those financing statements, other similar
instruments and documents shown on the certified copies of the requests for
information or copies (Form UCC-11)(or a similar search report certified by
a party acceptable to the Operating Agent) provided pursuant to clause
(ix);
(vii) copies of proper financing statements (Form UCC-1), dated
on or prior to the Effective Date, naming the Originator as the assignor of
the Transferred Receivables and PSC as assignee, or other similar
instruments or documents, in form and substance sufficient for filing under
the UCC or any comparable law of any and all jurisdictions as may be
necessary or, in the reasonable opinion of the Operating Agent desirable to
perfect PSC's ownership interest in all Transferred Receivables, in each
case in which an interest may be assigned hereunder;
(viii) copies of properly executed termination statements or
statements of release (Forms UCC-2 or UCC-3) or other similar instruments
or documents, if any, in form and substance satisfactory for filing under
the UCC or any comparable law of any and all jurisdictions as may be
necessary or, in the reasonable opinion of the Operating Agent, desirable
to release all security interests and similar rights of any Person in the
Transferred Receivables previously granted by the Originator;
(ix) certified copies of requests for information or copies
(Form UCC-11) (or a similar search report certified by a party acceptable
to the Operating Agent), dated a date reasonably near and prior to the
Effective Date, listing all effective financing statements and other
similar instruments and documents, which name the Originator (under its
present name and any previous name) as debtor and which are filed in the
jurisdictions in which filings are to be made pursuant to such Subsections
(vii) and (viii) above, together with copies of such financing statements,
none of which shall cover any Transferred Receivables unless termination
5
<PAGE>
statements or statements of release are provided with respect thereto
pursuant to Subsection (viii) above;
(x) any necessary third party consents to the closing of the
transactions contemplated hereby, in the form and substance reasonably
satisfactory to the Operating Agent; and
(xi) the Lockbox Agreements in respect of each Lockbox
Account, in each case duly executed by the parties thereto and acknowledged
and agreed to by the applicable Lockbox Bank.
SECTION 3.02. Conditions Precedent to All Sales. The obligation of
---------------------------------
PSC to pay for each Sold Receivable on each Transfer Date (including the initial
Transfer Date) shall be subject to the further conditions precedent that on such
Transfer Date:
(a) The following statements shall be true (and delivery by the
Originator of a Request Notice and the acceptance by the Originator of the Sale
Price for any Receivables on any Transfer Date shall constitute a representation
and warranty by the Originator that on such Transfer Date such statements are
true):
(i) the representations and warranties of the Originator
contained in Section 4.01 shall be correct on and as of such Transfer Date
in all material respects (except with respect to Section 4.01(b) and those
already so qualified which are true and correct in all respects), before
and after giving effect to the Sale of Receivables on such Transfer Date
and to the application of proceeds therefrom, as though made on and as of
such date; and
(ii) the Originator is in compliance with each of its covenants
and other agreements set forth herein.
(b) The Originator shall have taken such other action, including
delivery of approvals, consents, opinions, documents and instruments as PSC may
reasonably request.
ARTICLE IV
REPRESENTATIONS, WARRANTIES AND COVENANTS
SECTION 4.01. Representations and Warranties of the Originator. The
------------------------------------------------
Originator represents and warrants to PSC as of each Transfer Date, that:
(a) With respect to the Originator:
6
<PAGE>
(i) the Originator is a corporation duly organized, validly
existing and in good standing under the laws of its respective jurisdiction
of incorporation and is duly qualified to do business and is in good
standing in every jurisdiction in which the nature of its business requires
it to be so qualified;
(ii) the Originator has the corporate power and authority to
own, pledge, mortgage, operate and convey all of its properties and assets,
to execute and deliver this Agreement and the Related Documents and to
perform the transactions contemplated hereby and thereby;
(iii) the execution, delivery and performance by the
Originator of this Agreement and the Related Documents and the transactions
contemplated hereby and thereby (A) have been duly authorized by all
necessary corporate or other action on the part of the Originator, (B) do
not contravene or cause the Originator to be in default under (1) the
Originator's certificate or articles of incorporation or by-laws, (2) any
contractual restriction with respect to any Debt of the Originator or
contained in any material indenture, loan or credit agreement, lease,
mortgage, security agreement, bond, note, or other material agreement or
instrument binding on or affecting the Originator, its affiliates or their
or its respective property or (3) any law, rule, regulation, order, writ,
judgment, award, injunction or decree applicable to, binding on or
affecting the Originator, or its property and (C) do not result in or
require the creation of any Adverse Claim upon or with respect to any of
its properties (other than in favor of PSC with respect to this Agreement
and Redwood and the Collateral Agent under the Purchase Agreement);
(iv) this Agreement and the Related Documents have each been
duly executed and delivered by the Originator;
(v) no approval or consent of, notice to, filing with or
licenses, permits, qualifications or other action by any Governmental
Authority or any other party, is required or necessary for the conduct of
the Originator's business as currently conducted and for the due execution,
delivery and performance by the Originator of this Agreement or any of the
Related Documents or for the perfection of or the exercise by PSC, Redwood,
the Operating Agent or the Collateral Agent of any of their rights or
remedies thereunder or hereunder, other than approvals, consents, notices,
filings and other actions which have been obtained or made and complete
copies of which have been provided to Redwood, the Operating Agent and the
Collateral Agent;
(vi) this Agreement and the other Related Documents
delivered by the Originator are the legal, valid and binding obligations of
the Originator enforceable against the Originator in accordance with their
respective terms subject
7
<PAGE>
to (A) any applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws now or hereafter in effect relating to or affecting the
enforceability of creditors' rights generally and (B) general equitable
principles, whether applied in a proceeding at law or in equity;
(vii) there is no pending, threatened, nor any reasonable
basis for, any action, suit or proceeding against or affecting the
Originator, its officers or directors, or the property of the Originator,
in any court or tribunal, or before any arbitrator of any kind or before or
by any Governmental Authority (A) asserting the invalidity of this
Agreement or any of the Related Documents, (B) seeking to prevent the
transfer, sale, pledge or contribution of any Receivable or the
consummation of any of the transactions contemplated hereby or thereby, (C)
seeking any determination or ruling that might materially and adversely
affect (1) the performance by PSC or the Originator of its obligations
under this Agreement or any of the Related Documents, (2) the validity or
enforceability of this Agreement or any of the Related Documents, or (3)
the Transferred Receivables, the Contracts or the interests of PSC or its
assigns therein, or (D) reasonably likely to result in damages or penalties
in an uninsured amount in excess of $250,000;
(viii) no injunction, writ, restraining order or other order
(collectively, "Orders") of any nature adverse to the Originator or the
conduct of its business or which is inconsistent with the due consummation
of the transactions contemplated by this Agreement or the Purchase
Agreement or any of the other Related Documents has been issued by a
Governmental Authority nor been sought by any Person;
(ix) the principal place of business, the chief executive
office and all other places of business of the Originator are located at
the addresses of the Originator referred to in Schedule 1 and there are now
no, and during the past four months there have not been any, other
locations where the Originator is located (as that term is used in the UCC
of the jurisdiction where such principal place of business is located) or
keeps Records;
(x) the legal name of the Originator is as set forth at the
beginning of this Agreement and, except as set forth on Schedule 3, the
Originator has not changed its name in the last six years, and during such
period the Originator did not use, nor does the Originator now use, any
trade names, fictitious names, assumed names or "doing business as" names
other than as set forth in Schedule 1;
(xi) the Originator is solvent and will not become insolvent
after giving effect to the transactions contemplated by this Agreement and
the Related Documents; the Originator is paying its Debts as they mature;
the Originator has not incurred Debts beyond its ability to pay as they
mature; and the Originator, after
8
<PAGE>
giving effect to the transactions contemplated by this Agreement and the
Related Documents, will have an adequate amount of capital to conduct its
business in the foreseeable future;
(xii) for federal income tax, reporting and accounting
purposes (except in any consolidated financial statements and consolidated
tax returns), the Originator will treat the sale of each Transferred
Receivable sold or assigned pursuant to this Agreement as a sale of, or
absolute assignment of, its full right, title and ownership interest in
such Receivable to PSC and all Contributed Receivables shall be accounted
for as an increase in the stated capital of PSC, and the Originator has not
in any other respect accounted for or treated the transactions contemplated
by this Agreement or the Related Documents.
(xiii) the Originator has complied in all material respects
with all applicable laws, rules, regulations, and orders with respect to
it, its business and properties and all Transferred Receivables and related
Contracts (including without limitation, all applicable environmental,
health and safety requirements) and all restrictions contained in any
indenture, loan or credit agreement, mortgage, security agreement, bond,
note or other agreement or instrument binding on or affecting the
Originator or its property;
(xiv) without limiting the generality of the prior
representation, no condition exists or event has occurred which, in itself
or with the giving of notice or lapse of time or both, would result in the
suspension, revocation, impairment, forfeiture or non-renewal of any
Governmental Consent applicable to the Originator or any Subsidiary except
where such conditions or events would not, separately or in the aggregate,
have a material adverse effect on (A) the performance by PSC or the
Originator of its obligations under this Agreement or any of the Related
Documents, (B) the validity or enforceability of this Agreement or any of
the Related Documents, or (C) the Transferred Receivables or the
Contracts or the interests of PSC or Redwood therein;
(xv) the Originator has filed on a timely basis all tax
returns (federal, state and local) required to be filed and has paid or
made adequate provisions for the payment of all taxes, fees, assessments
and other governmental charges due from the Originator (other than taxes,
fees, amendments or governmental charges which the Originator is contesting
in good faith with such taxing authority and in respect of which no final
unappealable order has been made against the Originator), no tax lien or
similar Adverse Claim has been filed, and no claim is being asserted, with
respect to any such tax, fee, assessment, or other governmental charge. Any
taxes, fees, assessments and other governmental charges payable by the
Originator in connection with the execution and delivery of this Agreement
and the Related Documents and the transactions contemplated
9
<PAGE>
hereby or thereby have been paid or shall have been paid when due, at or
prior to such Transfer Date;
(xvi) the Originator is licensed or otherwise has the lawful
right to use all patents, trademarks, servicemarks, tradenames, copyrights,
technology, know-how and processes used in or necessary for the conduct of
its business as currently conducted which are material to its financial
condition, business, operations, assets and prospects, individually or
taken as a whole;
(xvii) as of the date of each Request Notice delivered by the
Originator, such Request Notice contains an accurate list of the aggregate
amount of all Transferred Receivables contributed or sold by the Originator
to PSC as of the relevant Transfer Date;
(xviii) each Obligor of a Transferred Receivable has been
directed, and is required to, remit all payments with respect to such
Receivable for deposit in a Lockbox Account or a Lockbox except with
respect to any Obligors serviced by branches of the Servicer in the
locations set forth on Schedule 4 hereto (as such schedule may be amended
or modified upon written notice from the Operating Agent to the Seller or
Servicer), as to which all payments shall be deposited in a Blocked Account
and subsequently transferred to a Lockbox Account or a Lockbox;
(xix) no Obligor of an Eligible Receivable has any claim of a
material nature against or affecting the Originator or the property of the
Originator.
(xx) the Originator is in compliance with ERISA and has not
incurred and does not expect to incur any liabilities (except for premium
payments arising in the ordinary course of business) payable to the PBGC
(or any successor thereof) under ERISA or the Internal Revenue Code;
(xxi) each pension plan or profit sharing plan to which the
Originator or any Affiliate is a party has been administered and fully
funded in accordance with the obligations of the Originator under law and
as set forth in such plan, and the Originator has complied with the
applicable provisions of ERISA or the Internal Revenue Code in effect as of
such Transfer Date;
(xxii) the Originator has not agreed to pay any fee or
commission to any agent, broker, finder or other person for or on account
of services rendered as a broker or finder in connection with this
Agreement or the Related Documents or the transactions contemplated hereby
or thereby which would give rise to any valid claim against PSC for any
brokerage commission or finder's fee or like payment;
10
<PAGE>
(xxiii) all information heretofore or hereafter furnished with
respect to the Originator to PSC in connection with any transaction
contemplated by this Agreement or the Related Documents is and will be true
and complete in all material respects and does not and will not omit to
state a material fact necessary to make the statements contained herein or
therein not misleading;
(xxiv) no part of the proceeds received by the Originator or
any Affiliate from the Sale Price will be used directly or indirectly for
the purpose of purchasing or carrying, or for payment in full or in part
of, Debt that was incurred for the purposes of purchasing or carrying any
"margin stock," as such term is defined in Regulations G and U of the Board
of Governors of the Federal Reserve System;
(xxv) there are not now, nor will there be at any time in the
future, any agreement or understanding between the Originator and PSC
(other than as expressly set forth herein) providing for the allocation or
sharing of obligations to make payments or otherwise in respect of any
taxes, fees, assessments or other governmental charges;
(xxvi) no transaction contemplated by this Agreement or any of
the Related Documents requires compliance with any bulk sales act or
similar law;
(xxvii) the Request Notice with respect to such Transfer Date
is accurate in all material respects;
(xxviii) each purchase of Receivables under this Agreement will
constitute (A) a "current transaction" within the meaning of Section
3(a)(3) of the Securities Act of 1933, as amended, and (B) a purchase or
other acquisition of notes, drafts, acceptances, open accounts receivable
or other obligations representing part or all of the sales price of
merchandise, insurance or services within the meaning of Section 3(c)(5) of
the Investment Company Act of 1940, as amended;
(xxvix) (A) the Originator is not a party to any indenture,
loan or credit agreement or any lease or other agreement or instrument or
subject to any charter or corporation restriction that is reasonably likely
to have, and no provision of applicable law or governmental regulation is
reasonably likely to have, a material adverse effect on the ability of the
Originator to carry out its obligations under this Agreement and the other
Related Documents to which the Originator is a party and (B) the Originator
is not in default under or with respect to any contract, agreement, lease
or other instrument to which the Originator is a party and which is
material to the Originator's ability to perform its obligations hereunder
or to the quality or collectibility of the receivables, and the Originator
has not delivered or received any notice of default thereunder;
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(xxx) the Originator is not an "investment company" or an
"affiliated person" of, or "promoter" or "principal underwriter" for, an
"investment company," as such terms are defined in the Investment Company
Act of 1940, as amended. The purchase or acquisition of the Transferred
Receivables by PSC, the application of the proceeds and the consummation of
the transactions contemplated by this Agreement and the other Related
Documents to which the Originator is a party will not violate any provision
of such Act or any rule, regulation or order issued by the Securities and
Exchange Commission thereunder;
(xxxi) the bylaws or the articles of incorporation of the
Originator require it to maintain (A) books and records of account, and (B)
minutes of the meetings and other proceedings of its shareholders and board
of directors;
(xxxii) the Lockboxes, the Lockbox Accounts and the Blocked
Accounts are the only lockboxes and accounts maintained by the Originator
into which Collections of any Transferred Receivables are deposited; and
(xxxiii) each of the representations and warranties of the
Originator contained in the Related Documents (other than this Agreement)
is true and correct in all material respects and the Originator hereby
makes each such representation and warranty to, and for the benefit of, the
Collateral Agent, the Operating Agent and Redwood as if the same were set
forth in full herein.
(b) On each Transfer Date and as of the date of each Investment Base
Certificate delivered under the Purchase Agreement with respect to each
Transferred Receivable designated as an Eligible Receivable:
(i) such Receivable is an Eligible Receivable and is a
receivable created through the provision of merchandise, goods or services
by the Originator in the ordinary course of its business;
(ii) such Receivable was created in accordance with and
satisfies in all material respects all applicable requirements of the
Credit and Collection Policies ;
(iii) such Receivable represents the genuine, legal, valid and
binding obligation in writing of the Obligor enforceable by the holder
thereof in accordance with its terms, subject to (A) any applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
now or hereafter in effect relating to or affecting the enforceability of
creditors' rights generally and (B) general equitable principles, whether
applied in a proceeding at law or in equity and neither such Receivable nor
its related Contract has been satisfied, subordinated, rescinded or amended
in any manner which would impair the collectibility of such
12
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Receivable, adjust the value of such Receivable, or modify the payment
terms of such Receivable after its creation;
(iv) such Receivable is not and will not be subject to any
exercise of any right of rescission, set-off, recoupment, counterclaim or
defense;
(v) prior to its sale or contribution to PSC such Receivable
was owned by the Originator free and clear of any Adverse Claim, and the
Originator had the right to contribute, sell, assign and transfer the same
and interests therein as contemplated under this Agreement, upon such sale
or contribution, PSC will have acquired good and marketable title to and
the sole record and beneficial ownership interest in such Receivable, free
and clear of any Adverse Claim and, after such sale or contribution, such
Receivable did not become subject to any Adverse Claim as a result of any
action or inaction of the Originator;
(vi) this Agreement and the Assignment constitute a valid
sale, contribution, transfer, assignment, setover and conveyance to PSC of
all right, title and interest of the Originator in and to such Receivable;
(vii) such Receivable is entitled to be paid pursuant to the
terms of the related Contract, has not been paid in full or been
compromised, adjusted, extended, satisfied, subordinated, rescinded or
modified, and is not subject to compromise, adjustment, extension,
satisfaction, subordination, rescission, or modification by the Originator
except in accordance with any applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to or affecting the enforceability of creditors' rights generally;
(viii) the Originator has submitted all necessary documentation
for payment of such Receivable to the Obligor and has fulfilled all its
other obligations in respect thereof;
(ix) the stated term of such Receivable, if any, is not
greater than 120 days;
(x) such Receivable is an "account" within the meaning of
the UCC of the jurisdiction where the Originator's chief executive office
is located;
(xi) neither such Receivable nor its related Contract
contravenes in any material respect any laws, rules or regulations
applicable thereto (including, without limitation, laws, rules and
regulations relating to usury, consumer protection, truth in lending, fair
credit billing, fair credit reporting, equal credit opportunity, fair debt
collection practices and privacy) and no party to such related Contract is
in violation of any such law, rule or regulation which could have a
material adverse
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effect on the collectibility of such Receivable, the value of such
Receivable or the payment terms of such Receivable;
(xii) such Receivable does not represent "billed but not yet
shipped" goods or merchandise, unperformed services, consigned goods or
"sale or return" goods; nor does such Receivable arise from a transaction
for which any additional performance by the Originator or acceptance or
other act of the Obligor remains to be performed as a condition to any
payments on such Receivable;
(xiii) there are no proceedings or investigations pending or to
the Originator's knowledge threatened before any Governmental Authority (A)
asserting the invalidity of such Receivable or such Contract, (B) asserting
the bankruptcy or insolvency of the related Obligor, (C) seeking the
payment of such Receivable or payment and performance of such Contract, or
(D) seeking any determination or ruling that might materially and adversely
affect the validity or enforceability of such Receivable or such Contract;
(xiv) as of the relevant Transfer Date hereunder, no Obligor
on such Receivable is bankrupt or insolvent, is unable to make payment of
its obligations when due, is the debtor in a voluntary or involuntary
bankruptcy proceeding, or is the subject of a comparable receivership or
insolvency proceeding, other than Obligors under the protection of a
bankruptcy court or receivership which has approved payment by any such
Obligor of such Receivable; and
(xv) the Originator has no knowledge of any fact (including
any defaults by the Obligor on any other accounts) which leads it or should
have led it to expect that any payments on such Receivable will not be paid
in full when due or to expect any other material adverse effect on (A) the
performance by PSC or the Originator of its obligations under this
Agreement or any of the Related Documents, (B) the validity or
enforceability of this Agreement or any of the Related Documents, or (C)
the Transferred Receivables or the Contracts or the interests of PSC or
Redwood therein.
It is understood and agreed that the representations and warranties described in
this Section 4.01 shall survive the sale or contribution of the Transferred
Receivables to PSC, any subsequent assignment of the Transferred Receivables by
PSC, and the termination of this Agreement and the other Related Documents and
shall continue so long as any Transferred Receivable shall remain outstanding.
SECTION 4.02. Covenants of the Originator.
---------------------------
(a) Offices and Records. The Originator shall keep its chief place of
-------------------
business and chief executive offices and the office where it keeps its Records
at the
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respective locations specified in Schedule 1 hereto or, upon at least 30 days
prior written notice to PSC and the Collateral Agent, at such other location in
a jurisdiction where all action required by Section 4.02(d) shall have been
taken with respect to the Transferred Receivables. The Originator shall, for
not less than three years or for such longer period as may be required by law,
from the date on which any Transferred Receivable arose, maintain adequate
Records with respect to each Transferred Receivable, including records of all
payments received, credits granted and merchandise returned. Upon prior notice
to the Originator, except after the occurrence of any Termination Event, the
Originator will permit representatives of PSC, the Servicer, the Operating Agent
or the Collateral Agent at any time and from time to time during normal business
hours, and at such times outside of normal business hours as PSC, the Servicer,
the Operating Agent or the Collateral Agent shall reasonably request, (i) to
inspect and make copies of and abstracts from such Records, (ii) to visit the
properties of the Originator utilized in connection with the collection,
processing or servicing of the Transferred Receivables for the purpose of
examining such Records, and (iii) to discuss matters relating to the Transferred
Receivables or the Originator's performance under this Agreement or the affairs,
finances and accounts of the Originator with any of its officers, directors,
employees, representatives or agents and with its independent certified
accountants. The Originator will advise its independent certified accountants
that PSC, the Operating Agent, the Servicer and the Collateral Agent have been
authorized to review and discuss with such accountants any and all financial
statements and other information of any kind that they may have with respect to
the Originator. The Originator shall be given prior notice of any discussions
with its accountants and the opportunity to participate; provided that the
Originator's failure or inability to participate shall not prevent any of PSC,
the Operating Agent, the Servicer and the Collateral Agent from engaging in such
discussions. In connection with the foregoing, in the event any of the
Operating Agent or the Collateral Agent determines that a deterioration has or
is reasonably likely to occur in the quality of servicing of the Transferred
Receivables, any of them, individually or collectively, may institute procedures
to permit it to confirm the Obligor's outstanding balances in respect of any
Transferred Receivables. The Originator agrees to render to PSC, the Operating
Agent and the Collateral Agent, at the Originator's own cost and expense, such
clerical and other assistance as may be reasonably requested with regard to the
foregoing. If a Termination Event under the Purchase Agreement shall have
occurred and be continuing, promptly upon request therefor, the Originator shall
assist PSC in delivering to the Operating Agent records reflecting activity
through the close of business on the immediately preceding Business Day.
(b) Compliance With Credit and Collection Policies. The Originator
----------------------------------------------
shall comply in all material respects with the Credit and Collection Policies
with regard to each Transferred Receivable and the related Contracts, and with
the terms of such Receivables and Contracts.
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(c) Notice of Adverse Claim. The Originator shall advise PSC and any
-----------------------
assignees, promptly, in reasonable detail, (i) of any Adverse Claim known to it
made or asserted against any of the Transferred Receivables, (ii) of any
determination that a Transferred Receivable, or any other Receivable designated
as an Eligible Receivable in a Request Notice or otherwise, was not an Eligible
Receivable at such time and (iii) of the occurrence of any event which would
have a material adverse effect on the aggregate value of the Transferred
Receivables or on the validity of the transfers in this Agreement.
(d) Further Assurances; Financing Statements.
----------------------------------------
(i) The Originator agrees that at any time and from time to
time, at its expense, upon the request of PSC or PSC's assignees it shall
promptly execute and deliver all further instruments and documents, and
take all further action, that may be necessary or, in the reasonable
opinion of PSC or any assignee, desirable or that PSC or any assignee may
reasonably request to perfect, preserve, continue and maintain fully and
protect the transfers made and the right, title and interests (including
any security interests) granted to PSC by this Agreement or to enable PSC
or any assignee to exercise and enforce its rights and remedies under this
Agreement or any of the Related Documents with respect to any Transferred
Receivables. Without limiting the generality of the foregoing, the
Originator shall execute and file such financing or continuation
statements, or amendments thereto, and such other instruments or notices as
may be necessary or in the reasonable opinion of PSC or any assignee
desirable or that PSC or any assignee may reasonably request to protect and
preserve and perfect the transfers and security interests granted by this
Agreement, free and clear of all Adverse Claims.
(ii) The Originator hereby authorizes PSC and its assignees to
file one or more financing or continuation statements, and amendments
thereto, relating to all or any part of the Transferred Receivables without
the signature of the Originator where permitted by law. A carbon,
photographic or other reproduction of this Agreement or any notice or
financing statement covering the Transferred Receivables or any part
thereof shall be sufficient as a notice or financing statement where
permitted by law. PSC will promptly send to the Originator any financing or
continuation statements thereto which it files without the signature of the
Originator except, in the case of filings of copies of this Agreement as
financing statements, PSC will promptly send the Originator the filing or
recordation information with respect thereto.
(e) Assignment. The Originator acknowledges and agrees that, to the
----------
extent permitted under the Purchase Agreement, PSC may assign all of its right,
title and interest in, to and under the Transferred Receivables and its right,
title and interest under this Agreement, including its right to exercise the
remedies created by Section 4.04. The
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Originator agrees that, upon such assignment, the assignee under the Purchase
Agreement may enforce directly, without joinder of PSC, the repurchase
obligations of the Originator set forth in Section 4.04 with respect to breaches
of the representations and warranties or covenants set forth in Section 4.01 and
4.02.
(f) Compliance With Agreements and Applicable Laws. The Originator
----------------------------------------------
shall perform each of its obligations under this Agreement and the Related
Documents and comply with all material requirements of any law, rule or
regulation applicable to it.
(g) Corporate Existence. The Originator shall maintain its corporate
-------------------
existence and shall at all times continue to be duly organized under the laws of
the state of its incorporation and duly qualified and duly authorized (as
described in Section 4.01) and shall conduct its business in accordance with the
terms of its certificate of incorporation and bylaws.
(h) Notice of Material Event. The Originator shall promptly inform
------------------------
PSC and any assignee (except in respect of clause (i), in which event the
Originator shall immediately inform PSC and any assignee) in writing of the
occurrence of any of the following which shall set forth the details thereof and
what action the Originator proposes to take with respect thereto:
(i) the submission of any claim or the initiation of any legal
process, litigation or administrative or judicial investigation against the
Originator or with respect to or in connection with all or any portion of
the Transferred Receivables, which, if adversely determined, could
reasonably be expected to have a material adverse effect on the Originator;
(ii) any change in the location of the Originator's principal
office or any change in the location of the Originator's books and records;
(iii) the commencement or threat of any rule making or
disciplinary proceedings or any proceedings instituted by or against the
Originator in any federal, state or local court or before any governmental
body or agency, or before any arbitration board, or the promulgation of any
proceeding or any proposed or final rule which, if adversely determined,
would have a material adverse effect with respect to the Originator;
(iv) the commencement of any proceedings by or against the
Originator under any applicable bankruptcy, reorganization, liquidation,
rehabilitation, insolvency or other similar law now or hereafter in effect
or of any proceeding in which a receiver, liquidator, conservator, trustee
or similar official shall have been, or may be, appointed or requested for
the Originator or any of its assets;
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(v) the receipt of notice that (A) the Originator is being
placed under regulatory supervision, (B) any license, permit, charter,
registration or approval necessary for the conduct of the Originator's
business is to be, or may be, suspended or revoked, or (C) the Originator
is to cease and desist any practice, procedure or policy employed by the
Originator in the conduct of its business, and such cessation may have a
material adverse effect with respect to the Originator; or
(vi) any other event, circumstance or condition that has had,
or has a material possibility of having, a material adverse effect in
respect of the Originator.
(i) Maintenance of Licenses. The Originator shall maintain all
-----------------------
licenses, permits, charters and registrations which are material to the conduct
of its business.
(j) Use of Proceeds. The Originator shall apply its funds towards
---------------
general corporate purposes (including the retirement or repayment of third party
debt) and towards the other sums payable by the Originator under this Agreement
and the Related Documents in connection with the transactions contemplated
hereby and by the Related Documents and for no other purpose.
(k) Separate Identity.
-----------------
(i) The Originator shall maintain corporate records and books
of account separate from those of PSC.
(ii) The financial statements of the Parent and its
consolidated Subsidiaries shall (i) disclose the effects of the
Originator's transactions in accordance with GAAP and (ii) either (a)
disclose that the assets of PSC are not available to pay creditors of the
Originator or any other Affiliate of the Originator or (b) contain the
language set forth in Section 4.02(k)(iii)(b).
(iii) The annual financial statements of the Parent and its
consolidated Subsidiaries (including PSC) will contain footnotes or other
information to the effect that with respect to PSC: (a) PSC's business
consists of the purchase of the Receivables from the Originator and (b) PSC
is a separate corporate entity with its own separate creditors, which upon
its liquidation will be entitled to be satisfied out of PSC's assets prior
to any value in PSC becoming available to PSC's equityholders.
(iv) The resolutions and other instruments underlying the
transactions described in this Agreement shall be continuously maintained
by the Originator as official records.
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(v) The Originator shall use its best efforts to maintain an
arm's-length relationship with PSC and will not hold itself out as being
liable for the debts of PSC.
(vi) The Originator shall use its best efforts to keep its
assets (except with respect to any Records necessary for the servicing of
the Transferred Receivables) and its liabilities wholly separate from those
of PSC.
(vii) The Originator will conduct its business solely in its own
name (including any trade or fictitious name) through its duly authorized
officers or agents so as not to mislead others as to the identity of the
Originator.
(viii) The Originator will use its best efforts to avoid the
appearance of conducting business on behalf of PSC or that the assets of
the Originator are available to pay the creditors of PSC.
(ix) The Originator will cause operating expenses and
liabilities of PSC to be paid from PSC's funds.
(l) ERISA. The Originator shall give the Operating Agent prompt
-----
notice of each of the following events (but in no event more than 30 days after
the occurrence of the event): (i) an Accumulated Funding Deficiency, (ii) the
failure to make a material required contribution to a Plan or Multiemployer Plan
(but in no event will a contribution failure sufficient to give rise to a lien
under (S)302(f) of ERISA be considered immaterial), (iii) a Reportable Event,
(iv) any action by a Commonly Controlled Entity to terminate any Plan or
withdraw from any Multiemployer Plan, (v) any action by the PBGC to terminate or
appoint a trustee to administer a Plan, (vi) the reorganization or insolvency of
any Multiemployer Plan and (vii) an aggregate Underfunding for all Underfunded
Plans in excess of $250,000.
(m) Cooperation With Requests for Information or Documents. The
------------------------------------------------------
Originator will cooperate fully with all reasonable requests of PSC or any
assignee regarding the provision of any information or documents, necessary,
including the provision of such information or documents in electronic or
machine-readable format, or desirable to allow PSC and each assignee to carry
out its responsibilities under the Related Documents.
(n) Payment, Performance and Discharge of Obligations. The
-------------------------------------------------
Originator will pay, perform and discharge all of its obligations and
liabilities, including, without limitation, all taxes, assessments and
governmental charges upon its income and properties when due the non-payment,
performance or discharge of which would materially and adversely affect (1) the
performance of PSC or the Originator of its obligations under this Agreement or
any of the Related Documents, (2) the validity or enforceability of this
19
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Agreement or any of the Related Documents, (3) the Transferred Receivables or
the Contracts or the interests of PSC or its assigns therein, or (4) the
business, operations, financial condition or prospects of PSC or the Originator,
unless and to the extent only that such obligations, liabilities, taxes,
assessments and governmental charges shall be contested in good faith and by
appropriate proceedings and that, to the extent required by GAAP, proper and
adequate book reserves relating thereto are established by the Originator and
then only to the extent that a bond is filed in cases where the filing of a bond
is necessary to avoid the creation of an Adverse Claim against any of its
properties.
SECTION 4.03. Negative Covenants of the Originator. The Originator
------------------------------------
shall not, without the written consent of PSC and each assignee of PSC's rights:
(a) sell, assign (by operation of law or otherwise) or otherwise
dispose of, or create or suffer to exist any Adverse Claim upon or with respect
to, or assign any right to receive income in respect of any Transferred
Receivable or related Contract with respect thereto, or upon or with respect to
any Lockbox, any Lockbox Account or any Blocked Account;
(b) extend, amend, forgive, discharge, compromise, cancel or
otherwise modify the terms of any Transferred Receivable, or amend, modify or
waive any term or condition of any Contract related thereto (except as to the
Originator in its capacity as the Servicer under the Purchase Agreement);
(c) make any change in its instructions to Obligors regarding
payments to be made to PSC or payments to be deposited to a Lockbox or a Lockbox
Account other than changes redirecting payments from one Lockbox or Lockbox
Account to another Lockbox Account in respect of which all actions required
under Section 6.01 of the Purchase Agreement have been taken;
(d) merge with or into, consolidate with or into, convey, transfer,
lease or otherwise dispose of all or substantially all of its assets (whether
now owned or hereafter acquired) to, or acquire all or substantially all of the
assets or capital stock or other ownership interest of, any Person (whether in
one transaction or in a series of transactions) other than the acquisition by
purchase or otherwise of the capital stock of all or substantially all of the
business, properties or assets of any one or more Persons for aggregate
consideration not to exceed $1,000,000;
(e) make statements or disclosures or prepare any financial
statements which shall account for the transactions contemplated by this
Agreement in any manner other than as a sale or absolute assignment of the
Transferred Receivables to PSC, or in any other respect account for or treat the
transactions contemplated hereby (including but not limited to, for accounting,
tax and reporting purposes) in any manner other than as a
20
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sale or absolute assignment of the Transferred Receivables (except in any
consolidated financial statements or consolidated tax returns);
(f) amend, supplement or otherwise modify its certificate of
incorporation or bylaws (or permit any of the foregoing) in any manner which may
(x) adversely affect the Purchaser or its assigns, the Transferred Receivables
or the ability of such Originator to perform its obligations under the Related
Documents or (y) violate (or authorize or permit acts or events which may
violate) any of the provisions of the Related Documents;
(g) (i) take any action, or fail to take any action, with respect to
the Transferred Receivables, if such action or failure to take action may
materially interfere with the enforcement of any rights under this Agreement or
the Related Documents (ii) waive or alter any rights with respect to the
Transferred Receivables, (or any agreement or instrument relating thereto; (iii)
take any action, or fail to take any action, if such action or failure to take
action may materially interfere with the enforcement of any rights with respect
to the Transferred Receivables; or (iv) fail to pay any tax, assessment, charge,
fee or other obligation of the Originator with respect to the Transferred
Receivables, or fail to defend any action, if such failure to pay or defend may
adversely affect the priority or enforceability of the first priority perfected
interest of PSC in the Transferred Receivables or the Originator's right, title
or interest in the Transferred Receivables;
(h) neither the Originator nor any Commonly Controlled Entity will:
(i) terminate any Plan so as to incur any material liability to
the PBGC;
(ii) knowingly participate in any "prohibited transaction" (as
defined in ERISA) involving any Plan or Multiemployer Plan or any trust
created thereunder which would subject any of them to a material tax or
penalty on prohibited transactions imposed under Section 4975 of the
Internal Revenue Code or ERISA;
(iii) fail to pay to any Plan or Multiemployer Plan any
contribution which it is obligated to pay under the terms of such Plan or
Multiemployer Plan, if such failure would cause such plan to have any
material Accumulated Funding Deficiency, whether or not waived; or
(iv) allow or suffer to exist any occurrence of a Reportable
Event, or any other event or condition, which presents a material risk of
termination by the PBGC on any Plan or Multiemployer Plan, to the extent
that the occurrence or nonoccurrence of such Reportable Event or other
event or condition is within the control of it or any Commonly Controlled
Entity;
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(i) make any material change to the Credit and Collection
Policies without the prior written consent of PSC and each assignee; or
(j) take or permit (other than with respect to actions taken or to be
taken solely by a Government Authority) to be taken any action which would have
the effect directly or indirectly of subjecting interest on any of the Purchases
or the Commercial Paper to withholding taxation in the hands of, respectively,
PSC, Redwood or holders of the Commercial Paper generally who are residents of
the United States, and will perform all of the Originator's obligations under
this Agreement and the Related Documents to prevent or cure any default by the
Originator which would have the effect, directly or indirectly, of subjecting
interest on any of the Purchases or the Commercial Paper to withholding
taxation.
SECTION 4.04. Breach of Representations, Warranties or Covenants.
--------------------------------------------------
Upon discovery by the Originator, PSC, or any assignee of PSC's rights
hereunder, that any of the representations, warranties or covenants described in
Sections 4.01(b), 4.02(b) or (c) or 4.03(a), (b), (c) or (g) have been breached
such that they are or were untrue or incorrect in any respect, which breach is
reasonably likely to have a material adverse effect on the value of a
Transferred Receivable or the interests of PSC or any assignee therein, the
party discovering the same shall give prompt written notice to the other
parties. Thereafter, if requested by notice from PSC or any assignee, or if the
Originator so desires, the Originator shall, on the next succeeding Business
Day, either (i) repurchase such Transferred Receivable from PSC in consideration
of cash, (ii) transfer ownership of a new Eligible Receivable or new Eligible
Receivables on such Business Day; or (iii) make a capital contribution of the
Rejected Amount in cash to PSC by remitting the amount of such capital
contribution to the Collection Account in accordance with the terms of the
Purchase Agreement, in the case of clauses (i), (ii) and (iii) in an amount
equal to the Billed Amount of the Transferred Receivable materially adversely
affected by the breach less Collections received in respect thereof.
Notwithstanding the foregoing, if any Receivable is not paid in full on account
of any Dilution Factors, the Originator's repurchase obligation under this
Section 4.04 shall be reduced by the amount of any such Dilution Factors taken
into account in the Sale Price.
ARTICLE V
INDEMNIFICATION
SECTION 5.01. Indemnification.
---------------
Without limiting any other rights that PSC, any of its shareholders,
officers or agents, or any assignee of PSC's rights hereunder or such assignee's
shareholders, officers, employees or agents (each, an "INDEMNIFIED PARTY") may
have hereunder or
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under applicable law, the Originator hereby agrees to indemnify each Indemnified
Party from and against any and all claims, losses, liabilities, obligations,
damages, penalties, actions, judgments, suits, and costs and expenses of any
nature whatsoever related thereto, including reasonable attorneys' fees and
disbursements (all of the foregoing being collectively referred to as
"INDEMNIFIED AMOUNTS") which may be imposed on, incurred by or asserted against
an Indemnified Party in any way arising out of or resulting from this Agreement
or any Related Documents or the use by the Originator of proceeds of any
purchase or assignment hereunder or in respect of any Transferred Receivable or
any Contract, excluding, however, (a) Indemnified Amounts to the extent
resulting solely from gross negligence, acts of bad faith or willful misconduct
on the part of such Indemnified Party or (b) recourse for uncollectible or
uncollected Transferred Receivables. Without limiting or being limited by the
foregoing, the Originator shall pay on demand to each Indemnified Party any and
all Indemnified Amounts necessary to indemnify such Indemnified Party from and
against any and all Indemnified Amounts relating to or resulting from:
(a) reliance on any representation or warranty made or deemed
made by the Originator (or any of its officers) under or in connection with
this Agreement or any Related Document, any report or any other information
delivered by the Originator pursuant hereto, which shall have been
incorrect in any material respect when made or deemed made or delivered;
(b) the failure by the Originator to comply with any term,
provision or covenant contained in this Agreement, any Related Document or
any agreement executed in connection with this Agreement, with any
applicable law, rule or regulation with respect to any Transferred
Receivable or the related Contract, or the nonconformity of any Transferred
Receivable or the related Contract with any such applicable law, rule or
regulation; or
(c) the failure to vest and maintain vested in PSC, or to
transfer to PSC, legal and equitable title to and ownership of the
Receivables which are, or are purported to be, Transferred Receivables,
together with all Collections and Proceeds in respect thereof, free and
clear of any Adverse Claim (except as permitted hereunder) whether existing
at the time of the proposed sale of such Receivable or at any time
thereafter.
SECTION 5.02. Assignment of Indemnities. The Originator acknowledges
-------------------------
that, to the extent permitted under the Purchase Agreement, PSC may assign its
rights of indemnity granted hereunder and upon such assignment, such assignee
shall have all rights of PSC hereunder and may in turn assign such rights. The
Originator agrees that, upon such assignment, such assignee may enforce
directly, without joinder of PSC, the indemnities set forth in this Article V.
23
<PAGE>
ARTICLE VI
MISCELLANEOUS
SECTION 6.01. Notices, Etc. All notices and other communications
-------------
provided for hereunder shall, unless otherwise stated herein, be in writing
(including facsimile, telex and express mail) and mailed or telecommunicated, or
delivered as to each party hereto, at its address set forth under its name on
the signature page hereof or at such other address as shall be designated by
such party in a written notice to the other parties hereto. All such notices
and communications shall not be effective until received by the party to whom
such notice or communication is addressed.
SECTION 6.02. No Waiver; Remedies. No failure on the part of an
-------------------
Originator or PSC or any assignee of PSC to exercise, and no delay in
exercising, any right hereunder or under any Assignment shall operate as a
waiver thereof; nor shall any single or partial exercise of any right hereunder
preclude any other or further exercise thereof or the exercise of any other
right. The remedies herein provided are cumulative and not exclusive of any
other remedies provided by law.
SECTION 6.03. Binding Effect; Assignability. This Agreement shall be
-----------------------------
binding upon and inure to the benefit of the Originator and PSC, and their
respective successors and permitted assigns. Except as contemplated herein, none
of the parties may assign any of its rights and obligations hereunder or any
interest herein without the prior written consent of the other parties. This
Agreement shall create and constitute the continuing obligations of the parties
hereto in accordance with its terms, and shall remain in full force and effect
until its termination; provided, that the rights and remedies pursuant to
--------
Section 4.04 and the indemnification and payment provisions of Article V shall
be continuing and shall survive any termination of this Agreement.
SECTION 6.04. No Proceedings. The Originator hereby agrees that it
--------------
will not, directly or indirectly, institute, or cause to be instituted, against
PSC any proceeding of the type referred to in Section 9.01(c) of the Purchase
Agreement so long as there shall not have elapsed one year plus one day since
the latest maturing commercial paper issued by Redwood and allocated to PSC has
been paid in full in cash.
SECTION 6.05. Amendments; Consents and Waivers. No modification,
--------------------------------
amendment or waiver of, or with respect to, any provision of this Agreement, the
Purchase Agreement and any exhibits or schedules hereto or thereto, nor consent
to any departure by the Originator or PSC from any of the terms or conditions
hereof or thereof, shall be effective unless it shall be in writing and signed
by each of the parties hereto, and prior written consent is given by Redwood and
the Collateral Agent. Any waiver or consent shall be effective only in the
specific instance and for the purpose for which given. No
24
<PAGE>
consent or demand in any case shall, in itself, entitle any party to any other
consent or further notice or demand in similar or other circumstances. This
Agreement and the documents referred to herein embody the entire agreement of
the Originator and PSC with respect to the Transferred Receivables and supersede
all prior agreements and understandings relating to the subject hereof.
SECTION 6.06. GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER OF JURY
------------------------------------------------------
TRIAL. (a) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
- -----
WITH, THE INTERNAL LAWS (AS OPPOSED TO CONFLICT OF LAWS PROVISIONS) OF THE STATE
OF NEW YORK.
(b) THE ORIGINATOR AND PSC HEREBY SUBMIT TO THE NON-EXCLUSIVE
JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND THE UNITED STATES
DISTRICT COURT LOCATED IN THE BOROUGH OF MANHATTAN IN NEW YORK CITY, AND EACH
WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL
SUCH SERVICE OF PROCESS BE MADE BY REGISTERED MAIL DIRECTED TO THE ADDRESS SET
FORTH ON THE SIGNATURE PAGE HEREOF AND SERVICE SO MADE SHALL BE DEEMED TO BE
COMPLETED FIVE DAYS AFTER THE SAME SHALL HAVE BEEN DEPOSITED IN THE U.S. MAILS,
POSTAGE PREPAID. THE ORIGINATOR AND PSC HEREBY WAIVE ANY OBJECTION BASED ON
FORUM NON CONVENIENS, AND ANY OBJECTION TO VENUE OF ANY ACTION INSTITUTED
- --------------------
HEREUNDER AND CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS
DEEMED APPROPRIATE BY THE COURT. NOTHING IN THIS SECTION SHALL AFFECT THE RIGHT
OF THE ORIGINATOR OR PSC TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY
LAW.
(c) THE ORIGINATOR AND PSC HEREBY WAIVE ANY RIGHT TO HAVE A JURY
PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR
OTHERWISE ARISING OUT OF, CONNECTED WITH, RELATED TO, OR IN CONNECTION WITH THIS
AGREEMENT. INSTEAD, ANY DISPUTE RESOLVED IN COURT WILL BE RESOLVED IN A BENCH
TRIAL WITHOUT A JURY.
SECTION 6.07. Execution in Counterparts; Severability. This
---------------------------------------
Agreement may be executed by the parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and both of which
when taken together shall constitute one and the same agreement. In case any
provision in or obligation under this Agreement shall be invalid, illegal or
unenforceable in any jurisdiction, the validity, legality and enforceability of
the remaining provisions or obligations in any jurisdiction, or of such
provision or obligation in any jurisdiction, shall not in any way be affected or
impaired thereby.
25
<PAGE>
SECTION 6.08. Descriptive Headings. The descriptive headings of the
--------------------
various sections of this Agreement are inserted for convenience of reference
only and shall not be deemed to affect the meaning or construction of any of the
provisions hereof.
SECTION 6.09. No Setoff. The Originator's obligations under this
---------
Agreement shall not be affected by any right of setoff, counterclaim,
recoupment, defense or other right the Originator might have against PSC,
Redwood, the Operating Agent, the Collateral Agent or any assignee, all of which
rights are hereby waived by the Originator.
SECTION 6.10. Further Assurances. The Originator agrees to do such
------------------
further acts and things and to execute and deliver to PSC, Redwood, the
Operating Agent or any assignee such additional assignments, agreements, powers
and instruments as PSC, Redwood, the Operating Agent or any assignee may require
or deem advisable to carry into effect the purposes of this Agreement or to
better assure and confirm unto any such party its respective rights, powers and
remedies hereunder.
SECTION 6.11. Confidentiality. (a) The Originator and PSC agree to
---------------
maintain the confidentiality of this Agreement (and all drafts of this agreement
and documents ancillary to this Agreement) in their communications with third
parties other than any Affected Party or any Indemnified Party and otherwise and
not to disclose, deliver or otherwise make available to any third party (other
than its directors, officers, employees, accountants or counsel) the original or
any copy of all or any part of this Agreement (or any draft of this Agreement
and documents ancillary to this Agreement) except to an Affected Party or an
Indemnified Party.
(b) Notwithstanding Section 6.11(a), (i) the general terms of the
transactions contemplated by this Agreement and the Related Documents may be
disclosed to any existing lender to or potential investor in the Parent that has
agreed in writing not to disclose such terms, and (ii) this Agreement and the
Related Documents may be disclosed (A) if required to be filed publicly with the
Securities and Exchange Commission, (B) to the certified public accountants of
the Parent to the extent necessary, (C) to the extent otherwise required by
applicable law, rule or regulation, (D) to the extent required under a valid and
appropriately limited subpoena or equivalent legal process or (E) if the
Affected Party otherwise consents in writing.
(c) The Originator agrees that it shall not (and shall not permit any
of its Subsidiaries to) issue any news release or make any public announcement
pertaining to the transactions contemplated by this Agreement and the Related
Documents without the prior written consent of PSC and its assignees (which
consent shall not be unreasonably withheld) unless such news release or public
announcement is required by law, in which case the Originator shall consult with
PSC and its assignees prior to the issuance of such news release or public
announcement.
26
<PAGE>
SECTION 6.12. Assignment of Agreement. The Originator acknowledges
-----------------------
that PSC may assign its rights granted hereunder, including, without
limitation, any rights in the Collateral granted under Article VII, and upon
such assignment, such assignee shall have all rights of PSC hereunder and may in
turn assign such rights. The Originator agrees that, upon such assignment, such
assignee may enforce directly, without joinder of PSC, the rights set forth in
this Agreement.
ARTICLE VII
PSC LOANS TO PAMECO CORPORATION
SECTION 7.01. PSC Loans. From time to time, PSC may, on the terms
---------
and subject to the conditions of this Agreement upon request of Pameco
Corporation, make advances (each, a "PSC LOAN") to Pameco Corporation to the
extent of its available funds during the term of this Agreement in an aggregate
principal amount at any one time outstanding up to, but not exceeding, the
Maximum Purchase Limit. Subject to the terms of this Agreement, Pameco
Corporation may borrow, repay and reborrow; provided that no such PSC Loans may
--------
be made if, after giving effect thereto, a Termination Event or an Event of
Servicer Termination, or an event which, upon the giving of notice or the
passage of time, or both would become a Termination Event or an Event of
Servicer Termination has occurred and is continuing or there would be a Purchase
Excess.
SECTION 7.02. Notices Relating to Loans. Pameco Corporation shall
-------------------------
give PSC and each assignee one Business Day prior written notice of each
borrowing and repayment of each PSC Loan. Each such notice of borrowing or
repayment shall specify the amount of PSC Loans to be borrowed or repaid and the
date of such action (which shall be a Business Day).
SECTION 7.03. Disbursement of Loan Proceeds. Not later than 11:00
-----------------------------
a.m., New York City time, on the date specified for each PSC Loan hereunder, PSC
shall transfer, by wire transfer or otherwise, but in any event in immediately
available funds, the amount of PSC Loan to be made on such date, to the account
designated by Pameco Corporation, in accordance with instructions previously
supplied to PSC.
SECTION 7.04. Pameco Note.
-----------
(a) PSC Loans made by PSC hereunder shall be evidenced by a single
promissory note of Pameco Corporation in substantially the form of Exhibit B
hereto (the "PAMECO NOTE"). The Pameco Note shall be dated the date of this
Agreement, shall be payable to the order of PSC in a principal amount equal to
$40,000,000 and shall otherwise be duly completed.
27
<PAGE>
(b) PSC shall enter on a schedule attached to the Pameco Note a
notation (which may be computer generated) with respect to each PSC Loan made
hereunder of: (i) the date and principal amount thereof and (ii) each payment
and repayment of principal thereof. The failure of PSC to make a notation on the
schedule to the Pameco Note as aforesaid shall not limit or otherwise affect the
obligation of Pameco Corporation to repay PSC Loans in accordance with their
respective terms as set forth herein.
SECTION 7.05. Principal Repayments. PSC Loans may be repaid by
--------------------
Pameco Corporation at any time and from time to time, in whole or in part, upon
prior written notice to PSC and each assignee as provided in Section 7.02. In
addition, PSC Loans shall be payable immediately on demand of PSC. Any amount so
repaid may, subject to the terms and conditions hereof, be reborrowed hereunder;
provided, however, that all repayments of PSC Loans or any portion thereof shall
be made together with payment of all interest accrued on the amount repaid to
(but excluding) the date of such repayment.
SECTION 7.06. Interest.
--------
(a) On each monthly anniversary of the date hereof, Pameco
Corporation shall pay to PSC interest at the rate shown in the Wall Street
Journal as the "Prime Rate" on such date (the "PAMECO INTEREST RATE") on the
unpaid principal amount of each PSC Loan for the period commencing on and
including the date of such PSC Loan until but excluding the date such PSC Loan
shall be paid in full.
(b) Notwithstanding the foregoing, Pameco Corporation shall pay
interest on unpaid interest, on any PSC Loan or any installment thereof, and on
any other amount payable by Pameco Corporation hereunder (to the extent
permitted by law) that shall not be paid in full when due (whether at stated
maturity, by acceleration or otherwise) for the period commencing on the due
date thereof to (but excluding) the date the same is paid in full at the
applicable Pameco Interest Rate.
SECTION 7.07. Time and Method of Payments. All payments of
---------------------------
principal, interest and other amounts (including indemnities) payable by Pameco
Corporation under this Article VII shall be made in Dollars, in immediately
available funds, to PSC not later than 11:00 a.m., New York City time, on the
date on which such payment shall become due. Any such payment made on such date
but after such time shall, if the amount paid bears interest, be deemed to have
been made on, and interest shall continue to accrue and be payable thereon
until, the next succeeding Business Day. If any payment of principal or interest
becomes due on a day other than a Business Day, such payment may be made on the
next succeeding Business Day and such extension shall be included in computing
interest in connection with such payment. All payments under this Article VII
and under the Pameco Note shall be made without set-off or counterclaim and in
such
28
<PAGE>
amounts as may be necessary in order that all such payments shall not be less
than the amounts otherwise specified to be paid under this Agreement and the
Pameco Note. Upon payment in full of the Pameco Note, following the end of the
term of this Agreement, PSC shall mark the Pameco Note "Paid" and return it to
Pameco Corporation.
29
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Receivables Transfer
Agreement to be executed by their respective officers thereunto duly authorized,
as of the date first above written.
Pameco Corporation
By: _____________________________
Name: Theodore R. Kallgren
Title: Vice President
Address: 1000 Center Place
Norcross, Georgia 30093
Attention: Ms. Mary M. McCulley
Phone number: (770) 798-0685
Telecopier number: (770) 798-0618
Pameco Securitization Corporation
By: _____________________________
Name: Theodore R. Kallgren
Title: President
Address: 1000 Center Place, Suite A
Norcross, Georgia 30093
Attention: Ms. Mary M. McCulley
Phone number: (770) 798-0685
Telecopier number: (770) 798-0618
<PAGE>
Schedule 1 to
Transfer Agreement
LIST OF CHIEF EXECUTIVE
OFFICES OF THE ORIGINATOR
-------------------------
1000 Center Place
Norcross, Georgia 30093
LIST OF OTHER OFFICES OF THE
ORIGINATOR WHERE RECORDS ARE KEPT
---------------------------------
1000 Center Place
Norcross, Georgia 30093
TRADE NAMES, FICTITIOUS NAMES, ASSUMED NAMES
AND "DOING BUSINESS AS" NAMES OF THE ORIGINATOR
-----------------------------------------------
Trade Names
-----------
Pameco Corp. Knoxville Refrigeration
National Temperature Control Centers R &R Supply
NTCC Thermal Company
Melchoir, Armstrong, Dessau Thermal Supply
Melco Westbrook Distribution
Graves Refrigeration Pameco-Aire
Graves Brothers Gulf Coast Air Conditioning
J & P Supply Rick's Supply
<PAGE>
Schedule 2 to
Transfer Agreement
PRIOR NAMES OF ORIGINATOR
-------------------------
MARCH 19, 1992 - Name changed from MLX Refrigeration & Air Conditioning
Group, Inc. To Pameco Corp.
MARCH 1, 1989 - Name changed from National Temperature Control Centers, Inc.
to MLX Refrigeration & Air Conditioning Group, Inc.
JANUARY 16, 1986 - Name changed from NTCC Acquisition Company to National
Temperature Control Centers, Inc.
OCTOBER 1, 1985 - Incorporated as NTCC Acquisition Company
<PAGE>
Schedule 3 to
Transfer Agreement
LOCATIONS FOR WHICH
LOCKBOXES ARE NOT IN USE
------------------------
1. Queens, New York
2. Guam
3. Hawaii
<PAGE>
EXHIBIT A
---------
FORM OF ASSIGNMENT
ASSIGNMENT, dated as of April 29, 1996 between Pameco Corporation (the
"ORIGINATOR") and Pameco Securitization Corporation ("PSC").
1. We refer to the Receivables Transfer Agreement (the "TRANSFER
AGREEMENT") dated as of April 29, 1996 between the Originator and PSC. All
provisions of such Transfer Agreement are incorporated herein by reference. All
capitalized terms shall have the meanings set forth in the Transfer Agreement.
2. The Originator does hereby sell or contribute, to PSC, without
recourse, except as provided in Section 4.04 of the Transfer Agreement, all
right, title and interest of the Originator in and to all Transferred
Receivables transferred from time to time from the Originator under the Transfer
Agreement.
3. THIS CERTIFICATE OF ASSIGNMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
PAMECO CORPORATION PAMECO SECURITIZATION
CORPORATION
By: ________________________ By: _________________________
Name: Name:
Title: Title:
<PAGE>
EXHIBIT B
---------
FORM OF PAMECO NOTE
$40,000,000.00 April 29, 1996
FOR VALUE RECEIVED, PAMECO CORPORATION, a Delaware corporation
("PAMECO"), hereby promises to pay to PAMECO SECURITIZATION CORPORATION (the
"LENDER"), for its account, the principal sum of Forty Million Dollars
$40,000,000 (or such lesser amount as shall equal the aggregate unpaid principal
amount of the PSC Loans made by the Lender to Pameco under the Transfer
Agreement referred to below), in lawful money of the United States of America
and in immediately available funds immediately on the demand of the Lender.
The date, amount and interest rate, of each PSC Loan made by the
Lender to Pameco, and each payment made on account of the principal thereof,
shall be recorded by the Lender on its books and, prior to any transfer of this
Note, endorsed by the Lender on the schedule attached hereto or any continuation
thereof.
This Note is the Pameco Note referred to in the Receivables Transfer
Agreement (as modified and supplemented and in effect from time to time, the
"TRANSFER AGREEMENT") dated as of the date hereof by and among the Pameco and
the Lender and evidences PSC Loans made by the Lender thereunder. Capitalized
terms used in this Note and not defined herein have the respective meanings
assigned to them in the Transfer Agreement.
The Transfer Agreement provides for prepayments of PSC Loans upon the
terms and conditions specified therein.
Notwithstanding any other provisions contained in this Note, if at any
time the rate of interest payable by Pameco under this Note, when combined with
any and all other charges provided for in this Note, in the Purchase Agreement
or in any other document (to the extent such other charges would constitute
interest for the purpose of any applicable law limiting interest that may be
charged on this Note), exceeds the highest rate of interest permissible under
applicable law (the "MAXIMUM LAWFUL RATE"), then so long as the Maximum Lawful
Rate would be exceeded the rate of interest under this Note shall be equal to
the Maximum Lawful Rate. If at any time thereafter the rate of interest payable
under this Note is less than the Maximum Lawful Rate, Pameco shall continue to
pay interest under this Note at the Maximum Lawful Rate until such time as the
total interest paid by Pameco is equal to the total interest that would have
been paid had such
<PAGE>
applicable law not limited the interest rate payable under this Note. In no
event shall the total interest received by the Lender under this Note exceed the
amount which the Lender could lawfully have received had the interest due under
this Note been calculated since the date of this Note at the Maximum Lawful
Rate.
If any payment under this Note falls due on a day which is not a
Business Day, then such due date shall be extended to the next succeeding
Business Day and interest (calculated at the Pameco Interest Rate for each day
during the period then ending) shall be payable on any principal so extended.
Pameco expressly waives presentment, demand, diligence, protest and
all notices of any kind whatsoever with respect to this Note.
This Note is made and delivered in New York, New York and shall be
governed by, and construed in accordance with, the internal laws (without
application of its conflict of laws provisions) of the State of New York.
IN WITNESS WHEREOF, Pameco has caused this Note to be signed and
delivered by its duly authorized officer as of the date set forth above.
Very truly yours,
PAMECO CORPORATION
By:____________________________
Name:
Title:
<PAGE>
SCHEDULE OF LOANS
-----------------
This Note evidences PSC Loans made under the within-described Transfer
Agreement to Pameco Corporation, on the date, at the interest rate, and in the
principal amounts set forth below, subject to the payments and prepayments of
principal set forth below:
<TABLE>
<CAPTION>
================================================================================
Principal Unpaid
Amount of Amount Principal Notation
Date Loan Interest Paid or Amount Made By
Rate Prepaid
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
</TABLE>
<PAGE>
Exhibit 10.17
ANNEX X
TO
RECEIVABLES TRANSFER AGREEMENT
AND
RECEIVABLES PURCHASE AND SERVICING AGREEMENT
Dated as of
April 29, 1996
Definitions and Interpretation
<PAGE>
SECTION 1. Definitions and Conventions. As used in the Transfer
---------------------------
Agreement and the Purchase Agreement, the following terms shall have the
following meanings:
"Accession Agreement" means an Accession Agreement substantially in
-------------------
the form of Exhibit A to the Collateral Agent Agreement.
"Accountants' Letter" has the meaning specified in Section 4.02(a) of
-------------------
the Transfer Agreement.
"Accrued Monthly Yield" means for any day within a Settlement Period,
---------------------
the Daily Yield calculated for each day from and including the first day of the
Settlement Period through and including the day for which the calculation is
being made.
"Accrued Servicing Fee" means for any day within a Settlement Period,
---------------------
the Servicing Fee calculated for each day from and including the first day of
the Settlement Period through and including the day for which the calculation is
being made.
"Accrued Unused Commitment Fee" means for any day within a Settlement
-----------------------------
Period, the Unused Commitment Fee calculated for each day from and including the
first day of the Settlement Period through and including the day for which the
calculation is being made.
"Accumulated Funding Deficiency" has the meaning provided in Section
------------------------------
412 of the Internal Revenue Code and Section 302 of ERISA, whether or not
waived.
"Additional Amounts" means any amounts payable to any Affected Party
------------------
under Sections 2.10 and 2.11 of the Purchase Agreement.
"Additional Costs" has the meaning specified in Section 2.11(b) of the
----------------
Purchase Agreement.
"Adjusted Dilution Ratio" means, on any date of determination, the
-----------------------
ratio (expressed as a percentage) computed by dividing:
(a) an amount equal to (i) the aggregate amount of Dilution Factors,
minus (ii) manufacturer warranty returns each of (i) and (ii) as reflected on
the books of the Originator during the Settlement Period preceding such day
by
--
<PAGE>
(b) Adjusted Generated Receivables for the Settlement Period
preceding such day.
"Adjusted Generated Receivables" means the Outstanding Balance of all
------------------------------
Transferred Receivables generated during the Settlement Period minus the
manufacturer warranty returns recorded on the books of the Originator during
such Settlement Period.
"Adverse Claim" means any claim of ownership or any lien, security
-------------
interest, title retention, trust or other charge or encumbrance, or other type
of preferential arrangement having the effect or purpose of creating a lien or
security interest, other than the ownership or security interest created under
the Purchase Agreement or under the Collateral Agent Agreement.
"Affected Party" means the Purchaser, any of the Liquidity Lenders,
--------------
the Operating Agent, any of the Letter of Credit Providers, the Collateral
Agent, or any Affiliate of the foregoing persons.
"Affiliate" means, as to any Person, any other Person that, directly
---------
or indirectly, is in control of, is controlled by, or is under common control
with, such Person within the meaning of control under Section 15 of the
Securities Act of 1933, as amended.
"Agreement" means the Transfer Agreement or the Purchase Agreement, as
---------
the case may be.
"Assignment" has the meaning specified in Section 2.01(a) of the
----------
Transfer Agreement.
"Authorized Officer" means, with respect to any corporation, each
------------------
officer of such corporation specifically authorized in resolutions of the Board
of Directors of such corporation to sign agreements, instruments or other
documents in connection with the Transfer Agreement or the Purchase Agreement.
"Availability" means, as of any date, the lesser of:
------------
(a) an amount equal to:
(i) the Investment Base
times
-----
(ii) the Purchase Discount Rate
2
<PAGE>
minus
-----
(iii) the Yield Discount Amount,
and
---
(b) the Maximum Purchase Limit then in effect.
"Billed Amount" means, with respect to any Receivable, the amount
-------------
billed on the Billing Date to the related Obligor with respect thereto.
"Billing Date" means the date on which the invoice with respect to a
------------
Receivable was generated.
"Blocked Account" means each deposit account of the Originator located
---------------
in the jurisdictions listed on Schedule 3 to the Transfer Agreement (as such
Schedule may be modified from time to time) and which is (or within ten days of
the date of the Purchase Agreement will be) subject to a Blocked Account
Agreement in form and substance satisfactory to the Operating Agent.
"Breakage Costs" has the meaning specified in Section 2.12 of the
--------------
Purchase Agreement.
"Business Day" means any day of the year other than a Saturday, Sunday
------------
or any day on which banks generally are required, or authorized, to close in New
York, New York.
"Canadian Obligor" means an Obligor organized under the laws of any
----------------
jurisdiction in Canada and having its principal office in Canada.
"Capital Investment" means, as of the date of any calculation, an
------------------
amount equal to (a) the aggregate deposits made in the Collection Account
pursuant to Section 2.04(b)(i) of the Purchase Agreement on or before such date
minus (b) any amount disbursed to the Purchaser in reduction of Capital
- -----
Investment pursuant to Section 6.02, 6.03 or 6.05 of the Purchase Agreement on
or before such date.
"Capital Investment Available" means, as of the date of any
----------------------------
calculation, the excess, if any, of Availability over Capital Investment at the
opening of business on such date.
"Capital Investment Shortfall" means, for any day with respect to
----------------------------
which the Deferred Purchase Price Adjustment for the prior day was greater than
zero and was not satisfied, the amount, if any, by which the Deferred Purchase
Price Adjustment
3
<PAGE>
calculated as of such prior day exceeded the amount of Collections on deposit in
the Capital Investment Sub-Account of the Collection Account as of such prior
day after disbursement of amounts set forth in Sections 6.03(c)(i) and (ii) of
the Purchase Agreement.
"Capital Investment Sub-Account" means a sub-account of the Collection
------------------------------
Account designated as such.
"Cash Purchase Price" means, as of any date of Purchase, the amount
-------------------
distributable to the Seller pursuant to Section 6.03(c)(vi) of the Purchase
Agreement.
"Collateral" means the Seller Collateral assigned and pledged by the
----------
Seller in Section 8.01 of the Purchase Agreement.
"Collateral Account" means the account maintained with the Depositary
------------------
described in Section 6.01(d) of the Purchase Agreement.
"Collateral Agent" means GE Capital or such other party designated as
----------------
agent for the secured parties under the Collateral Agent Agreement.
"Collateral Agent Agreement" means the Second Amended and Restated
--------------------------
Collateral Agent and Security Agreement, dated as of June 29, 1995, among the
Redwood, the Collateral Agent, the Letter of Credit Agent, the Liquidity Agent
and the Depositary.
"Collection Account" means the account maintained with the Depositary
------------------
described in Section 6.01(b) of the Purchase Agreement.
"Collections" means, with respect to any Receivable, all cash
-----------
collections and other Proceeds of such Receivable (including late charges, fees
and interest arising thereon, and all recoveries with respect to Receivables
that have been written off as uncollectible).
"Commercial Paper" means promissory notes issued by the Purchaser.
----------------
"Commonly Controlled Entity" means the Originators and any entity,
--------------------------
whether or not incorporated, affiliated with the Originators pursuant to Section
414(b), (c), (m) or (o) of the Internal Revenue Code.
"Concentration Discount Amount" means, with respect to any Obligor, on
-----------------------------
any date after giving effect to all Eligible Receivables to be purchased on such
date, the amount by which the Outstanding Balance of Eligible Receivables
payable by such Obligor exceeds the lesser of either (a) the dollar amount (if
any) set forth on Schedule
4
<PAGE>
1 to the Purchase Agreement, or (b) the product of (i) such Obligor's percentage
set forth on Schedule 1 to the Purchase Agreement and (ii) the Outstanding
Balance of all Transferred Receivables that are Eligible Receivables on such
date. The Concentration Discount Amount may be changed at any time at the sole
discretion of the Operating Agent and upon satisfaction of the Rating Agency
Condition.
"Contract" means an agreement (including an invoice) pursuant to, or
--------
under which, an Obligor shall be obligated to pay for Receivables of such
Obligor to any Originator from time to time.
"Contributed Receivable" has the meaning specified in Section 2.01(b)
----------------------
of the Transfer Agreement.
"CP Holder" means any Person holding record or beneficial ownership of
---------
Commercial Paper.
"CP Interest" has the meaning specified in Schedule 3 to the Purchase
-----------
Agreement.
"Credit Agreement" means the Credit Agreement, as amended, among
----------------
Pameco Corporation, as Borrower, the lenders listed on the signature pages
thereto, and General Electric Capital Corporation, as Agent and Lender.
"Credit and Collection Policies" means the credit and collection
------------------------------
policies of the Originator in effect on the Effective Date as such policies may
hereafter be amended, modified or supplemented from time to time with the
written consent of the Operating Agent.
"Daily Yield" has the meaning specified in Schedule 3 to the Purchase
-----------
Agreement.
"Daily Yield Rate" has the meaning specified in Schedule 3 to the
----------------
Purchase Agreement.
"Dealer" means any dealer under a Dealer Agreement.
------
"Dealer Agreement" means any dealer agreement entered into by the
----------------
Purchaser for the distribution of Commercial Paper.
"Debt" of any Person means indebtedness, obligations and liabilities
----
of such Person (a) for borrowed money, (b) evidenced by bonds, debentures, notes
or other similar instruments (excluding accrued interest), (c) to pay the
deferred purchase price of property or services (it being understood that Debt
shall not include obligations
5
<PAGE>
(i) classified as accounts payable, accrued liabilities or income taxes payable
under GAAP, (ii) incurred in the ordinary course of business and (iii) not
delinquent or otherwise past due), (d) principal obligations as lessee under
leases which have been or should be, in accordance with GAAP, recorded as
capital leases, (e) secured by any lien or other charge upon property or assets
owned by such Person, even though such Person has not assumed or become liable
for the payment of such obligations (but only to the extent of the fair market
value of such property or assets), (f) under any interest rate, swap, "cap",
"collar" or other hedging agreement, (g) under reimbursement agreements or
similar agreements with respect to the issuance of letters of credit (other than
obligations in respect of letters of credit opened to provide for payment of
goods and services purchased in the ordinary course of business), (h) under
direct or indirect guaranties in respect of, and obligations (contingent or
otherwise) to purchase or otherwise acquire, or otherwise to assure a creditor
against loss in respect of, indebtedness or obligations of others of the kinds
referred to in clauses (a) through (h) above, and (i) liabilities in respect of
unfunded vested benefits under plans covered by ERISA, provided that no
-------- ----
obligation, indebtedness or liability included in Debt shall be included in more
than one of clauses (a) through (i). For the purposes hereof, the term
"guarantee" shall include any agreement, whether such agreement is on a
contingency or otherwise, to purchase, repurchase or otherwise acquire Debt of
any other Person, or to purchase, sell or lease, as lessee or lessor, property
or services, in any such case primarily for the purpose of enabling another
person to make payment of Debt, or to make any payment (whether as an advance,
capital contribution, purchase of an equity interest or otherwise) to assure a
minimum equity, asset base, working capital or other balance sheet or financial
condition, in connection with the Debt of another Person, or to supply funds to
or in any manner invest in another Person in connection with Debt of such
Person.
"Deemed Defaults" means for any Settlement Period, the sum of (i) the
---------------
aggregate Outstanding Balance of Transferred Receivables which were from 61 to
90 days past Maturity Date as of the last day of such Settlement Period, plus
(ii) the aggregate Outstanding Balances of Transferred Receivables which were
(A) written off as uncollectible during such Settlement Period and (B) not more
than 60 days past Maturity Date of the time of such write-off.
"Default Ratio" means, as of any date, the ratio (expressed as a
-------------
percentage) computed by dividing:
(a) the sum of (i) the Outstanding Balance of Transferred Receivables
which were more than 90 days past Maturity Date on the last day of each of the
three Settlement Periods preceding such date plus (ii) the Outstanding Balance
of Transferred Receivables written off as uncollectible during the three
Settlement Periods preceding such date
6
<PAGE>
by
--
(b) the sum of the Outstanding Balance of all Transferred Receivables
on the last day of each of the three Settlement Periods preceding such day.
"Defaulted Receivable" means a Receivable (a) as to which any payment,
--------------------
or part thereof, remains unpaid for more than 90 days after the Maturity Date of
such Receivable, or (b) as to which the Obligor thereof has taken any action, or
suffered any event to occur, of the type described in Section 9.01(c) of the
Purchase Agreement in respect of the Obligor, or (c) which otherwise would be
determined to be uncollectible and written off in accordance with the Credit and
Collection Policies.
"Deferred Purchase Price" means, as of any date of Purchase, an amount
-----------------------
equal to the product of (a) the Outstanding Balance of Receivables to be sold
and (b) the Deferred Purchase Price Rate, in each case as of such date.
"Deferred Purchase Price Adjustment" means, as of the end of any date
----------------------------------
during the Revolving Period, an amount (positive or negative) equal to (a) the
product of (i)(A) the Deferred Purchase Price Rate calculated as of the end of
the previous date on which a Deferred Purchase Price Adjustment was calculated
minus (B) the Deferred Purchase Price Rate as of the end of such date; and (ii)
- -----
(A) the aggregate Outstanding Balance of Transferred Receivables as of the end
of the previous date on which a Deferred Purchase Price Adjustment was
calculated, minus (B) Collections received since the end of the previous date on
which a Deferred Purchase Price Adjustment was calculated minus (C) defaults and
other non-cash dilutions since the end of the previous date on which a Deferred
Purchase Price Adjustment was calculated, minus (b) the Deferred Purchase Price
Shortfall, if any, plus (c) the Capital Investment Shortfall, if any.
"Deferred Purchase Price Collections" means, as of the end of the
-----------------------------------
previous date, an amount equal to the product of (a) Collections and (b) the
Deferred Purchase Price Rate, in each case as of such date.
"Deferred Purchase Price Outstanding" means, as of the end of any
-----------------------------------
date, an amount equal to the product of (a) the Outstanding Balance of
Transferred Receivables and (b) the Deferred Purchase Price Rate, in each case
of such date.
"Deferred Purchase Price Rate" means:
----------------------------
(a) as of the end of any date during the Revolving Period, a fraction
(expressed as a percentage) (i) the numerator of which equals the Outstanding
Balance of Transferred Receivables minus Availability, in each case on such
-----
date, and
7
<PAGE>
(ii) the denominator of which is the Outstanding Balance of Transferred
Receivables on such date; and
(b) on any date after the Facility Termination Date, the Deferred
Purchase Price Rate calculated according to clause (a) immediately prior to the
Facility Termination Date.
"Deferred Purchase Price Shortfall" means, for any day with respect to
---------------------------------
which the Deferred Purchase Price Adjustment for the prior day was less than
zero and was not satisfied, the amount, if any, by which the Deferred Purchase
Price Adjustment calculated as of such prior day exceeded the amount of
Collections on deposit in the Deferred Purchase Price Sub-Account of the
Collection Account as of such prior day after disbursement of amounts set forth
in Sections 6.03(b)(i) and (ii) of the Purchase Agreement.
"Deferred Purchase Price Sub-Account" means a sub-account of the
-----------------------------------
Collection Account designated as such.
"Delinquency Ratio" means, on any date of determination, the ratio
-----------------
(expressed as a percentage) computed by dividing:
(a) the Outstanding Balance of all Transferred Receivables that were
outstanding more than 30 days but less than 61 days past their Maturity Date on
the last day of each of the last three Settlement Periods preceding such day
by
--
(b) the sum of the Outstanding Balance of all Transferred Receivables
on the last day of each of the three such Settlement Periods preceding such day.
"Delinquent Receivable" means any Receivable, other than a Defaulted
---------------------
Receivable, as to which any payment, or part thereof, remains unpaid for more
than 60 days past its Maturity Date.
"Depositary" means Bankers Trust Company, or any other Person
----------
designated as the successor Depositary from time to time in its capacity as
issuing and paying agent or trustee in connection with the issuance of
Commercial Paper by Redwood.
"Dilution Factors" means, with respect to the Transferred Receivables,
----------------
any net credits, rebates, freight charges, cash discounts, volume discounts,
cooperative advertising expenses, royalty payments, warranties, cost of parts
required to be maintained by agreement (whether express or implied), warehouse
and other
8
<PAGE>
allowances, disputes, chargebacks, defective returns, other returned or
repossessed goods, inventory transfers, allowances for early payments and other
similar allowances that are made or coordinated with an Originator's usual
practices, in each case after, in the case of any Receivable, such Receivable
first became a "Receivable" hereunder; provided that any allowances or
adjustments in accordance with the Credit and Collection Policies made on
account of an Obligor's insolvency or inability to pay shall not constitute a
Dilution Factor.
"Dilution Funded Amount" means, for any date, an amount equal to (a)
----------------------
(i) (A) the Outstanding Balance of previously Transferred Receivables which have
become Defaulted Receivables plus (B) other non-cash reductions of the
Outstanding Balance of Transferred Receivables since the preceding Business Day,
times (ii) 1 minus the Deferred Purchase Price Rate as of the end of the
- -----
preceding Business Day, plus (b) the Dilution Funded Amount Shortfall, if any,
----
outstanding at the end of the preceding Business Day.
"Dilution Funded Amount Shortfall" means, for any date, an amount
--------------------------------
equal to the amount, if any, by which (a) the Dilution Funded Amount exceeds (b)
the amount, if any, by which Deferred Purchase Price Collections exceed the sum
of the amounts set forth in Section 6.03(b)(ii) of the Purchase Agreement.
"Dilution Ratio" means, as of any date, the ratio (expressed as a
--------------
percentage) computed by dividing:
(a) an amount equal to the aggregate amount of Dilution Factors
recorded on the books of the Originator during the three Settlement
Periods preceding such date minus manufacturer warranty returns
recorded on the books of the Originator during the three Settlement
Periods preceding such date
by
--
(b) the sum of the Adjusted Generated Receivables during the
three Settlement Periods preceding such date.
"Dilution Reserve Ratio" means, on any date of determination, an
----------------------
amount (expressed as a percentage) calculated in accordance with the following
formula:
[(ADR x 2.00) + [(HDR - ADR) x HDR]] x DILHOR
--- ------
ADR NRPB
9
<PAGE>
where:
ADR = the ratio (expressed as a percentage) computed by dividing:
(a) an amount equal to (i) the aggregate amount of
Dilution Factors minus (ii) manufacturer warranty returns,
each of (i) and (ii) as reflected on the books of the
Originator during the prior twelve Settlement Periods
by
--
(b) Adjusted Generated Receivables during the prior
twelve Settlement Periods prior to such day.
HDR = the highest Adjusted Dilution Ratio within the last twelve
Settlement Periods
DILHOR = Adjusted Generated Receivables recorded during the prior two
Settlement Periods
NRPB = the Outstanding Balance of Eligible Receivables on the last
day of the preceding Settlement Period.
The Dilution Reserve Ratio from the closing until the first Settlement Period
shall be established by the Operating Agent at closing and the underlying
calculations for each of the twelve months preceding the first month after
closing to be used in future calculations of the Dilution Reserve Ratio shall be
established by the Operating Agent at closing in accordance with Schedule 1
attached to this Annex X.
"Effective Date" means May 1, 1996.
--------------
"Eligible Receivable" means, at any time, a Transferred Receivable:
-------------------
(a) which is not the liability of an Excluded Obligor;
(b) which is a liability of an Obligor organized under the laws of
any jurisdiction in the United States or Guam and having its principal office in
the United States and, upon the written consent of the Operating Agent, which is
a liability of a Canadian Obligor;
(c) which is denominated and payable in United States dollars;
10
<PAGE>
(d) which is not a Delinquent Receivable or a Defaulted Receivable;
(e) as to which the representations and warranties of Section 4.01(b)
of the Transfer Agreement are true and correct in all respects as of the related
Transfer Date; and
(f) which complies with such other criteria and requirements as the
Operating Agent may from time to time specify to the Seller following 30 days'
notice or, if so required by either Rating Agency, upon the number of days
notice specified by such Rating Agency.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
it may be amended from time to time, and the regulations promulgated thereunder.
"Event of Servicer Termination" has the meaning specified in Section
-----------------------------
9.02 of the Purchase Agreement.
"Excluded Obligor" means an Obligor which is (a) an Affiliate of any
----------------
Originator or the Seller, (b) a Governmental Authority other than any state,
local or other political subdivision of the United States of America, (c) an
Obligor of which more than 50% of its Receivables are Delinquent Receivables or
Defaulted Receivables or (d) an Obligor listed on Schedule 2 to the Purchase
Agreement as revised from time to time pursuant to a letter in the form of Annex
A thereto.
"Facility Termination Date" means the earlier of (a) the date so
-------------------------
designated pursuant to Section 9.01 of the Purchase Agreement as a result of a
Termination Event, (b) 90 days prior to the Final Purchase Date and (c) 90 days
prior to the date specified in a notice from the Seller delivered pursuant to
Section 2.02(b) of the Purchase Agreement.
"Fee Letter" means the letter dated April 29, 1996 between the Seller
----------
and the Purchaser.
"Final Purchase Date" means April 30, 2001.
-------------------
"GAAP" means generally accepted accounting principles as in effect in
----
the United States, consistently applied, as of the date of such application.
"GE Capital" means General Electric Capital Corporation.
----------
"General Trial Balance" of the Originator on any date means the
---------------------
Originator's accounts receivable trial balance (whether in the form of a
computer printout, magnetic tape or diskette) on such date, listing Obligors and
the Receivables
11
<PAGE>
respectively owed by such Obligors on such date together with the aged
Outstanding Balances of such Receivables, in form and substance satisfactory to
RSC.
"Generated Receivables" means the amount of all Transferred
---------------------
Receivables generated during the Settlement Period.
"Generated Warranty Receivables" means the amount of all Transferred
------------------------------
Receivables in respect of the sale of any extended warranty by the Originator
generated during the applicable Settlement Period.
"Governmental Authority" means the United States of America, any
----------------------
state, local or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions thereof
or pertaining thereto.
"Incipient Event" means an event which, upon the giving of notice or
---------------
the passage of time, or both, may become a Termination Event.
"Indemnified Amounts" has the meaning specified in Section 12.01(a) of
-------------------
the Purchase Agreement.
"Indemnified Party" has the meaning specified in Section 12.01(a) of
-----------------
the Purchase Agreement.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
---------------------
amended from time to time.
"Investment Base" means, for any date, as disclosed in the most
---------------
recently submitted Investment Base Certificate, an amount equal to the
Outstanding Balance of Transferred Receivables that are Eligible Receivables
minus the Reserves in respect of such Eligible Receivables.
"Investment Base Certificate" means an Officer's Certificate in the
---------------------------
form of Exhibit C to the Purchase Agreement.
"Investments" means, with respect to any Seller Account Collateral,
-----------
the certificates, instruments or other Permitted Investments in which amounts in
such account are invested from time to time.
"Letter of Credit" means the letter of credit, dated June 29, 1995,
----------------
provided by the Letter of Credit Providers pursuant to the Letter of Credit
Agreement.
12
<PAGE>
"Letter of Credit Agent" means GE Capital, in its capacity as agent
----------------------
for the Letter of Credit Providers under the Letter of Credit Agreement, and its
successors and permitted assigns in such capacity.
"Letter of Credit Agreement" means the Second Amended and Restated
--------------------------
Letter of Credit Reimbursement Agreement, dated as of June 29, 1995, among the
Redwood, the Letter of Credit Agent and the Letter of Credit Providers.
"Letter of Credit Providers" means, initially, GE Capital, as provider
--------------------------
of the Letter of Credit under the Letter of Credit Agreement, and thereafter its
successors and any permitted assigns in such capacity.
"Liquidity Agent" means GE Capital and its successors and assigns as
---------------
agent for the Liquidity Lenders pursuant to the Liquidity Loan Agreement.
"Liquidity Lenders" means, collectively, GE Capital and any other
-----------------
provider of Liquidity Loans under the Liquidity Loan Agreement.
"Liquidity Loan Agreement" means the Second Amended and Restated
------------------------
Liquidity Loan Agreement, dated as of June 29, 1995 among Redwood, the Liquidity
Lenders and the Liquidity Agent in connection with the provision of liquidity
support for Redwood.
"Liquidity Loans" means borrowings by Redwood under the Liquidity Loan
---------------
Agreement.
"LOC Draw" means a draw under the Letter of Credit Agreement.
--------
"Lockbox" has the meaning specified in Section 6.01(a)(ii) of the
-------
Purchase Agreement.
"Lockbox Account" means one or more segregated deposit accounts
---------------
described in Section 6.01(a) of the Purchase Agreement in the name of the
Operating Agent, into which all Collections in respect of Transferred
Receivables shall be deposited.
"Lockbox Agreement" means one or more agreements among an Originator,
-----------------
the Seller, the Operating Agent, the Purchaser and a Lockbox Bank with respect
to a Lockbox Account, (a) providing that all Collections therein shall be
remitted directly to the Collection Account within one Business Day of receipt,
(b) providing that such depositary institution waives its rights of set-off with
respect to such Lockbox Account, and (c) otherwise reasonably satisfactory to
the Operating Agent.
13
<PAGE>
"Lockbox Bank" means any of the banks or other financial institutions
------------
holding one or more Lockbox Accounts.
"Loss Reserve Ratio" means, on any date of determination, an amount
------------------
(expressed as a percentage) calculated in accordance with the following formula:
2.00 x ARR x DEFHOR
------
NRPB
where:
ARR = the highest Three Month Aged Receivables Ratio that occurred
during the last twelve Settlement Periods.
DEFHOR = Adjusted Generated Receivables recorded during the prior
three Settlement Periods.
NRPB = the Outstanding Balance of Eligible Receivables on the last
day of the preceding Settlement Period.
The underlying calculations for the Loss Reserve Ratio for each of the twelve
months preceding the first Settlement Period after closing to be used in future
calculations of the Loss Reserve Ratio shall be established by the Operating
Agent at closing in accordance with Schedule 1 attached to this Annex X.
"Manufacturer Warranty Reserve" means, for any day, an amount equal to
-----------------------------
the product of the highest AWR during the twelve Settlement Periods prior to the
date of determination multiplied by Generated Receivables for the Settlement
Period immediately prior to the date of determination where "AWR" equals (i) the
fraction (expressed as a percentage) the numerator of which is the aggregate
amount of warranty returns shown on the books and records of the Servicer for
the Settlement Period immediately prior to the date of determination and the
denominator of which is the Generated Receivable for such Settlement Period
divided by (ii) four.
"Margin" means, for any period, the sum of the "Daily Margin Amounts"
------
for each day in such period, where the "Daily Margin Amount" equals the Daily
Margin (as specified in Schedule 3 to the Purchase Agreement) for each such day
multiplied by the Capital Investment on each such day.
"Maturity Date", for any Receivable, means the due date for payment
-------------
specified in the related Contract, or, if no date is specified, 30 days from the
Billing Date.
14
<PAGE>
"Maximum Purchase Limit" means $40,000,000, as such amount may be
----------------------
subject to reduction in accordance with Section 2.02(a) of the Purchase
Agreement.
"Monthly Report" means the Monthly Report in the form of Exhibit G to
--------------
the Purchase Agreement.
"Moody's" means Moody's Investors Service, Inc. or any successor
-------
thereto.
"Multiemployer Plan" means a multiemployer plan (within the meaning of
------------------
Section 4001(a)(3) of ERISA) in respect of which a Commonly Controlled Entity
makes contributions or has liability.
"Net Proceeds Amount" means the face amount of Commercial Paper minus
-------------------
the discount on the price to the public and Dealer fees for such Commercial
Paper.
"Obligor" means a Person (other than the Seller or the Originator)
-------
which is obligated to make payments pursuant to a Contract.
"Officer's Certificate" means, with respect to any Person, a
---------------------
certificate signed by and Authorized Officer.
"Operating Agent" means GE Capital, as Operating Agent under the
---------------
Purchase Agreement, together with its successors and assigns.
"Operating Agent Agreement" means the Operating Agent Agreement, dated
-------------------------
as of March 15, 1994, between Redwood and the Operating Agent.
"Orders" has the meaning specified in Section 4.01(a)(viii) of the
------
Transfer Agreement.
"Originator" means individually or collectively, as the case may be
----------
(i) initially, Pameco Corp., a Delaware corporation, and (ii) if any other
Affiliate of the Parent becomes an Originator under Section 2.03 of the Transfer
Agreement, such other Affiliate.
"Other Purchase Agreements" means other agreements for the purchase or
-------------------------
funding of receivables entered into from time to time by the Purchaser in which
it is contemplated that such purchases or fundings will be financed in a similar
manner as contemplated hereunder.
15
<PAGE>
"Outstanding Balance" of any Receivable at any time means an amount
-------------------
(not less than zero) equal to (a) its Billed Amount, minus (b) all payments
received from the Obligor with respect thereto, minus (c) all discounts to or
any other modifications that reduce the Billed Amount; provided, that if the
--------
Operating Agent or the Servicer reasonably makes a determination that all
payments by the Obligor with respect to such Billed Amount have been made, the
Outstanding Balance shall be zero.
"Pameco Interest Rate" has the meaning specified in Section 7.06 of
--------------------
the Transfer Agreement.
"Pameco Note" has the meaning specified in Section 7.04 of the
-----------
Transfer Agreement.
"Pameco Warranty Reserve" means, for any day, an amount equal to the
-----------------------
sum of the product of (i) 13.8% and the amount of Generated Warranty Receivables
generated during the 1991 calendar year, (ii) 11.4% and the amount of Generated
Warranty Receivables generated during the 1992 calendar year, (iii) 14.3% and
the amount of Generated Warranty Receivables generated during the 1993 calendar
year, (iv) 16.5% and the amount of Generated Warranty Receivables generated
during the 1994 calendar year and (v) 6.2% and the amount of Generated Warranty
Receivables generated during the 1995 calendar year; provided that for each year
after the 1995 calendar year, the Pameco Warranty Reserve shall be recalculated
by reference to the prior five calendar years. For any day after the 1996
calendar year, the Pameco Warranty Reserve shall be determined by the Operating
Agent, in its sole discretion, utilizing the methodology applied in determining
the percentages established in clauses (i) through (v) above, and as more fully
set forth on Schedule II to this Annex X.
"Parent" means Pameco Holdings, Inc., a Delaware corporation.
------
"PBGC" means the Pension Benefit Guaranty Corporation or any successor
----
agency, corporation or instrumentality of the United States to which the duties
and powers of the Pension Benefit Guaranty Corporation are transferred.
"Permitted Investments" means one or more of the following:
---------------------
(a) obligations of, or guaranteed as to the full and timely payment
of principal and interest by, the United States or obligations of any agency or
instrumentality thereof, when such obligations are backed by the full faith and
credit of the United States;
16
<PAGE>
(b) repurchase agreements on obligations specified in clause (a);
provided, that the short-term debt obligations of the party agreeing to
repurchase are rated at least A-1+ by S&P and P-1 by Moody's;
(c) federal funds, certificates of deposit, time deposits and
bankers' acceptances (which shall each have an original maturity of not more
than 90 days or, in the case of bankers' acceptances, shall in no event have an
original maturity of more than 365 days) of any United States depository
institution or trust company incorporated under the laws of the United States or
any state; provided, that the short-term obligations of such depository
institution or trust company are rated at least A-1+ by S&P and P-1 by Moody's;
(d) commercial paper (having original maturities of not more than 30
days) of any corporation incorporated under the laws of the United States or any
state thereof which on the date of acquisition are rated at least A-1+ by S&P
and P-1 by Moody's;
(e) securities of money market funds rated at least Aam by S&P and
P-1 by Moody's; and
(f) such other investments with respect to which each Rating Agency
shall have confirmed in writing to the Purchaser and Collateral Agent that such
investments shall not result in a withdrawal or reduction of the then current
rating by such Rating Agency of the Commercial Paper.
"Person" means an individual, partnership, corporation (including a
------
business trust), joint stock company, trust, association, joint venture,
Governmental Authority or any other entity of whatever nature.
"Plan" means any pension plan (other than a Multiemployer Plan)
----
covered by Title IV of ERISA, which is maintained by a Commonly Controlled
Entity or in respect of which a Commonly Controlled Entity has liability.
"Proceeds" means, with respect to any Collateral, whatever is
--------
receivable or received when such Collateral is sold, collected, exchanged or
otherwise disposed of, whether such disposition is voluntary or involuntary, and
includes all rights to payment, including returned premiums, with respect to any
insurance relating to such Collateral.
"Program Documents" means the Letter of Credit Agreement, the
-----------------
Liquidity Loan Agreement, the Collateral Agent Agreement, the Depositary
Agreement, Commercial Paper Notes, the Operating Agent Agreement, each Accession
Agreement and the Dealer Agreements.
17
<PAGE>
"PSC Loan" has the meaning specified in Section 7.01 of the Transfer
--------
Agreement.
"Purchase" means a purchase of Receivables (or interests therein) by
--------
the Purchaser from the Seller pursuant to Section 2.01 of the Purchase
Agreement.
"Purchase Agreement" means the Receivables Purchase and Servicing
------------------
Agreement, dated as of April 29, 1996 among the Seller, Redwood (as the
Purchaser), the Operating Agent, the Collateral Agent and the Originator, as
Servicer.
"Purchase Assignment" means the Assignment entered into by the Seller
-------------------
and the Purchaser in the form attached as Exhibit B to the Purchase Agreement.
"Purchase Date" means each day on which a Purchase is made.
-------------
"Purchase Discount Rate" means a rate, as of any date, equal to 100%
----------------------
minus the greater of (a) (i) the sum of the Loss Reserve Ratio and the Dilution
Reserve Ratio minus (ii) 30% on any date prior to April 29, 1997 and 25% on any
date thereafter, or (b) 20% on any date prior to April 29, 1997 and 15% on any
date thereafter.
"Purchase Excess" means, for any date, as disclosed in the most
---------------
recently submitted Investment Base Certificate, the extent to which the then
Capital Investment exceeds the Availability as of such date.
"Purchaser" means Redwood Receivables Corporation, a Delaware
---------
corporation.
"Purchaser Secured Parties" means the CP Holders, the Depositary, the
-------------------------
Transaction Liquidity Agent, the Transaction Liquidity Lenders, the Letter of
Credit Agent and the Letter of Credit Providers.
"Rating Agency" means each of Moody's and S&P.
-------------
"Rating Agency Condition" means, with respect to any action, that each
-----------------------
Rating Agency has notified the Operating Agent and the Purchaser in writing that
such action will not result in a reduction or withdrawal of the rating of any
outstanding Commercial Paper.
"Receivable" means:
----------
(a) indebtedness of an Obligor (whether constituting an account,
chattel paper, instrument or general intangible) arising from the provision of
18
<PAGE>
merchandise, goods or services by an Originator to such Obligor, including the
right to payment of any interest or finance charges and other obligations of
such Obligor with respect thereto;
(b) all security interests or liens and property subject thereto from
time to time securing or purporting to secure payment by the Obligor;
(c) all guarantees, indemnities and warranties and proceeds thereof,
proceeds of insurance policies, financing statements and other agreements or
arrangements of whatever character, in each case from time to time supporting or
securing payment of such Receivable whether pursuant to the Contract related to
such Receivable or otherwise;
(d) all Collections with respect to any of the foregoing;
(e) all Records with respect to any of the foregoing; and
(f) all Proceeds of any of the foregoing.
"Receivable Collection Turnover" means, on any date of determination,
------------------------------
a number of days equal to:
(a) a fraction, the numerator of which is equal to the average of the
Outstanding Balance of Transferred Receivables on the first day of each
Settlement Period during the prior three Settlement Periods and the denominator
of which is equal to aggregate Collections received during such three Settlement
Periods with respect to all Receivables originated by the Originators,
multiplied by
-------------
(b) the number of days in such three month period.
"Records" means all Contracts and other documents, books, records and
-------
other information (including, without limitation, computer programs, tapes,
disks, data processing software and related property and rights) prepared and
maintained by any Originator, the Servicer or the Seller with respect to
Receivables and the related Obligors.
"Redwood" means Redwood Receivables Corporation, a Delaware
-------
corporation.
"Redwood Yield" for any period means the sum of the Daily Yield for
-------------
each day in such period, as more fully specified in Schedule 3 of the Purchase
Agreement.
19
<PAGE>
"Regulatory Change" means any change after the Effective Date in
-----------------
federal, state or foreign law or regulations (including, without limitation,
Regulation D of the Federal Reserve Board) or the adoption or making after such
date of any interpretation, directive or request applying to any Affected Party
of or under any federal, state or foreign law or regulations (whether or not
having the force of law) by any Governmental Authority charged with the
interpretation or administration thereof.
"Rejected Amount" means the amount of the capital contribution which
---------------
the Originator is required to make to the Seller (as determined by the Operating
Agent) as a result of breaches of representations and warranties with respect to
Receivables transferred to the Seller by the Originator pursuant to Section 4.04
of the Transfer Agreement.
"Related Documents" means each Lockbox Agreement, the Transfer
-----------------
Agreement, the Purchase Agreement, the Pameco Note, the Assignment and all
agreements, instruments, certificates, financing statements or other documents
required to be delivered thereunder.
"Reportable Event" means any of the events set forth in Section
----------------
4043(c) of ERISA or the regulations thereunder.
"Requested Amount" means the amount which an Originator wishes to
----------------
receive from the sale of Receivables on any Transfer Date.
"Request Notice" means, as more fully described in Section 2.01(b) of
--------------
the Transfer Agreement, a notice in the form of a computer print-out, tape or
other form of communication acceptable to the Operating Agent, which (a) enables
identification of the amount of Receivables sold and contributed on a Transfer
Date by an Originator to the Seller, (b) sets forth the amount of payments
received on the Transferred Receivables since the prior Transfer Date, and (c)
sets forth the Requested Amount for the following Transfer Date.
"Reserves" means, for any day, the sum of the Concentration Discount
--------
Amount, the Manufacturer Warranty Reserve and the Pameco Warranty Reserve.
"Retained Monthly Yield" means, for any day within a Settlement
----------------------
Period, the sum of all amounts transferred to or retained in the Retention
Account with respect to Daily Yield calculated as of the previous day in
accordance with Section 6.03(b)(i)(A) of the Purchase Agreement.
"Retained Servicing Fee" means, for any day within a Settlement
----------------------
Period, the sum of all amounts transferred to or retained in the Retention
Account with respect
20
<PAGE>
to the Servicing Fee calculated as of the previous day in accordance with
Section 6.03(b)(i)(C) of the Purchase Agreement.
"Retained Unused Commitment Fee" means, for any day within a
------------------------------
Settlement Period, the sum of all amounts transferred to or retained in the
Retention Account with respect to the Unused Commitment Fee calculated as of the
previous day in accordance with Section 6.03(b)(i)(E) of the Purchase Agreement.
"Retention Account" means the account maintained with the Depositary
-----------------
described in Section 6.01(c) of the Purchase Agreement.
"Retention Account Deficiency" means, for any Settlement Date, any
----------------------------
deficiency in the amounts on deposit in the Retention Account necessary to make
the payments required under Sections 6.04(a)(i), (ii) and (iii) of the Purchase
Agreement.
"Revolving Period" means the period commencing on the Effective Date
----------------
and ending on the day prior to the Facility Termination Date.
"S&P" means Standard & Poor's Ratings Services, a division of The
---
McGraw-Hill Companies, Inc. or any successor thereto.
"Sale" means a sale of Receivables by an Originator to the Seller
----
under the Transfer Agreement.
"Sale Price" means with respect to the Receivables to be sold by any
----------
Originator to the Seller on any Transfer Date, the price calculated by the
Seller and approved from time to time by the Operating Agent, equal to:
(a) the Outstanding Balance of Receivables to be sold by such
Originator to the Seller on such date, minus
-----
(b) the expected costs to be incurred by the Seller of financing such
purchase of such Sold Receivables until the Outstanding Balance of such Sold
Receivable is paid in full, minus
-----
(c) the portion of such Sold Receivables that are reasonably expected
by such Originator to become Defaulted Receivables, minus
-----
(d) the portion of such Sold Receivables that are reasonably expected
by such Originator to be reduced by means other than receipt of Collections on
such Sold Receivables or pursuant to (c) above,
in each of (b), (c) and (d) determined based on historical experience of such
Originator.
21
<PAGE>
"Seller" means Pameco Securitization Corporation, a wholly owned
------
Subsidiary of the Originator.
"Seller Account Collateral" has the meaning specified in Section
-------------------------
8.01(c) of the Purchase Agreement.
"Seller Assigned Agreements" has the meaning specified in Section
--------------------------
8.01(b) of the Purchase Agreement.
"Seller Collateral" has the meaning specified in Section 8.01 of the
-----------------
Purchase Agreement.
"Seller LOC Draws" means any payments made to the Purchaser in
----------------
connection with the Letter of Credit and allocated to the Seller.
"Seller Net Worth Percentage" means the fraction (expressed as a
---------------------------
percentage) (i) the numerator of which is the excess of Seller's assets over its
liabilities, each determined in accordance with GAAP or a basis consistent with
the last audited financial statements and (ii) the denominator of which is the
Outstanding Balance of Transferred Receivables.
"Seller Notice" means a notice in the form of Exhibit A-1, setting
-------------
forth the information required by Section 2.03(b) of the Purchase Agreement.
"Seller Secured Obligations" means all obligations of every nature of
--------------------------
the Seller (other than to the Originator or Servicer), now or hereafter
existing, under the Purchase Agreement and any promissory note or other document
or instrument delivered pursuant to such documents, and all amendments,
extensions or renewals thereof, whether for principal, interest, fees, expenses
or otherwise, whether now existing or hereafter arising, voluntary or
involuntary, whether or not jointly owed with others, direct or indirect,
absolute or contingent, liquidated or unliquidated, and whether or not from time
to time decreased or extinguished and later increased, created or incurred and
all or any portion of such obligations that are paid, to the extent all or any
part of such payment is avoided or recovered directly or indirectly from
Redwood, the Operating Agent or the Collateral Agent as a preference, fraudulent
transfer or otherwise.
"Seller's Share" means the ratio of the Maximum Purchase Limit under
--------------
the Purchase Agreement to the aggregate maximum purchase limits or commitments
under the Purchase Agreement and all Other Purchase Agreements.
"Servicer" means the Originator, or any Person designated as Successor
--------
Servicer, and its successors and assigns from time to time hereunder.
22
<PAGE>
"Servicer Termination Notice" means notice by the Operating Agent to
---------------------------
the Servicer that an Event of Servicer Termination has occurred and that the
Servicer's appointment hereunder has been terminated.
"Servicing Fee" means a fee payable by the Seller to the Servicer on
-------------
each Settlement Date equal to the product of (i) the Servicing Fee Rate, (ii)
the Outstanding Balance of all Transferred Receivables on such Settlement Date,
and (iii) the actual number of days in such period divided by 360.
"Servicing Fee Rate" means 1%.
------------------
"Servicing Fee Shortfall" means, for any day within a Settlement
-----------------------
Period, the amount, if any, by which the Accrued Servicing Fee calculated as of
that day exceeds the Retained Servicing Fee as of that same day.
"Servicing Officer" means any officer of the Servicer involved in, or
-----------------
responsible for, the administration and servicing of the Transferred Receivables
whose name appears on an Officer's Certificate listing servicing officers
furnished to the Operating Agent by the Servicer, as amended from time to time.
"Servicing Records" means all documents, books, records and other
-----------------
information (including, without limitation, computer programs, tapes, disks,
data processing software and related property and rights) prepared and
maintained by the Servicer with respect to the Transferred Receivables and the
related Obligors.
"Settlement Date" means the fifth Business Day following the end of
---------------
each Settlement Period.
"Settlement Period" means, in the case of the initial Settlement
-----------------
Period, the period beginning with the Effective Date to and including the last
day of the fiscal month in which such Effective Date occurs; with respect to the
final Settlement Period, the period ending on the Final Purchase Date and
beginning with the first day of the fiscal month in which the Final Purchase
Date occurs; and with respect to all other Settlement Periods, each fiscal
month.
"Sold Receivable" has the meaning specified in Section 2.01(b) of the
---------------
Transfer Agreement.
"Sub-Servicer" means any Person with whom the Servicer enters into a
------------
Sub-Servicing Agreement.
23
<PAGE>
"Sub-Servicing Agreement" means any written contract between the
-----------------------
Servicer and any Sub-Servicer, relating to servicing, administration or
collection of Transferred Receivables as provided in Section 7.01 of the
Purchase Agreement.
"Subsidiary" means, as to any Person, any corporation or other entity
----------
(a) of which securities or other ownership interests having ordinary voting
power to elect a majority of the board of directors or other Persons performing
similar functions are at the time directly or indirectly owned by such Person,
or (b) is directly or indirectly controlled by such Person within the meaning of
control under Section 15 of the Securities Act of 1933, as amended.
"Successor Servicer" has the meaning specified in Section 11.02 of the
------------------
Purchase Agreement.
"Successor Servicing Fees and Expenses" means the fees and expenses
-------------------------------------
payable by the Seller to the Purchaser, as agreed to by the Seller, the
Purchaser, the Operating Agent, the Liquidity Agent and the Letter of Credit
Agent.
"Terminating Originator" has the meaning specified in Section
----------------------
2.04(a)(i) of the Transfer Agreement.
"Termination Event" has the meaning specified in Section 9.01 of the
-----------------
Purchase Agreement.
"Three Month Aged Receivables Ratio" means, on any date of
----------------------------------
determination, the ratio (expressed as a percentage) equal to a fraction,
(a) the numerator of which equals the sum of the Deemed Defaults for
the three Settlement Periods preceding such day;
(b) the denominator of which equals sum of the Adjusted Generated
Receivables for the fourth, fifth and sixth Settlement Periods immediately
preceding such day.
The underlying calculations for the Three Month Aged Receivables Ratio for each
of the twelve Settlement Periods preceding the first Settlement Period after
closing to be used in future calculations of the Three Month Aged Receivables
Ratio shall be established by the Operating Agent at closing in accordance with
Schedule 1 attached to this Annex X.
"Transaction Liquidity Agent" means the agent for the Transaction
---------------------------
Liquidity Providers appointed under the Transaction Liquidity Agreement.
24
<PAGE>
"Transaction Liquidity Agreement" means the agreement executed by
-------------------------------
Transaction Liquidity Providers, the Operating Agent, the Transaction Liquidity
Agent and Redwood for the provision of Transaction Liquidity with respect to the
Purchase Agreement.
"Transaction Liquidity Loans" means the obligations of the Purchaser
---------------------------
to pay principal, interest, fees and other amounts in respect of any liquidity
support by whatever means given by a Transaction Liquidity Provider pursuant to
a Transaction Liquidity Agreement.
"Transaction Liquidity Provider" means any party that has executed an
------------------------------
Accession Agreement to the Collateral Agent Agreement as a transaction liquidity
provider with respect to the Transaction Liquidity Agreement.
"Transfer Agreement" means the Receivables Transfer Agreement, dated
------------------
April 29, 1996, between the Originator and the Seller.
"Transfer Date" has the meaning specified in Section 2.01(b) of the
-------------
Transfer Agreement.
"Transferred Receivable" means any Sold Receivable or Contributed
----------------------
Receivable provided that (i) any Receivable repurchased by the Originator
pursuant to Section 4.04(i) of the Transfer Agreement shall not be deemed a
Transferred Receivable from and after the date of repurchase unless such
Receivable has been repurchased by or recontributed to the Seller and (ii) any
Unapproved Receivable, shall not be deemed a Transferred Receivable.
"UCC" means, for any jurisdiction, the Uniform Commercial Code as from
---
time to time in effect in such jurisdiction.
"Unapproved Receivable" means any Receivable (i) the Obligor of which
---------------------
is not an Obligor on any Transferred Receivable and whose customer relationship
with an Originator arise as a result of the acquisition by such Originator of
another Person or (ii) which was originated in accordance with standards
established by another Person acquired by an Originator, which acquisition, in
each case, has not been approved in writing by (and solely during the period
prior to receipt of such approval from) the Operating Agent.
"Underfunded Plan" means any Plan that has an Underfunding.
----------------
"Underfunding" means, with respect to any Plan, the excess, if any, of
------------
(a) the present value of all benefits under the Plan (based on the assumptions
used to fund
25
<PAGE>
the Plan pursuant to Section 412 of the Code) as of the most recent valuation
date over (b) the fair market value of the assets of such Plan as of such
valuation date.
"Unused Commitment Fee" has the meaning set forth in the Fee Letter.
---------------------
"Unused Commitment Fee Shortfall" means, for any day within a
-------------------------------
Settlement Period, the amount, if any, by which the Accrued Unused Commitment
Fee calculated as of that day exceeds the Retained Unused Commitment Fee as of
that same day.
"Yield Discount Amount" means the amount calculated by the Operating
---------------------
Agent, from time to time at its discretion, as set forth on Schedule 4 of the
Purchase Agreement.
"Yield Shortfall" means, for any day within a Settlement Period, the
---------------
amount, if any, by which the Accrued Monthly Yield calculated as of that day
exceeds the Retained Monthly Yield as of that same day.
SECTION 2. Other Terms. All accounting terms not specifically defined
-----------
herein shall be construed in accordance with GAAP. All terms used in Article 9
of the UCC of the State of New York, and not specifically defined herein, are
used herein as defined in such Article 9. All hourly references herein shall
refer to New York City time. All references to "dollar" or "$" are to the lawful
currency of the United States of America.
SECTION 3. Interpretation. Unless the context otherwise requires:
--------------
(a) All references to agreements and acts refer to the same as from
time to time amended or supplemented or as the terms of such agreements are
waived or modified in accordance with their terms.
(b) The words "hereof", "herein" and "hereunder" and words of similar
import when used in the Transfer Agreement or the Purchase Agreement shall refer
to such Agreement as a whole and not to any particular provision of such
Agreement.
(c) References to any Section, Schedule or Exhibit are references to
Sections, Schedules and Exhibits in or to the Agreement in which the reference
is made.
(d) The term "including" means "including without limitation."
(e) Definitions of terms are applicable to the singular forms of such
terms as well as the plural forms and vice versa.
26
<PAGE>
(f) References to a gender include references to each other gender.
27
<PAGE>
Exhibit 10.18
EXECUTION COPY
AMENDMENT NO. 1
TO SECURITIZATION AGREEMENTS
AMENDMENT NO. 1, dated as of January 24, 1997, among PAMECO
SECURITIZATION CORPORATION ("PSC"), PAMECO CORPORATION ("Pameco"), REDWOOD
RECEIVABLES CORPORATION ("Redwood") and GENERAL ELECTRIC CAPITAL CORPORATION
("GECC").
WHEREAS, Pameco, as originator (in such capacity, the "Originator")
and PSC are parties to a Receivables Transfer Agreement, dated as of April 29,
1996 (as heretofore amended, supplemented or otherwise modified, the "Transfer
Agreement");
WHEREAS, PSC, as seller (in such capacity, the "Seller"), Redwood, as
purchaser (in such capacity, the "Purchaser"), GECC, as operating agent (in such
capacity, the "Operating Agent") and collateral agent (in such capacity, the
"Collateral Agent") and Pameco, as servicer (in such capacity, the "Servicer")
are parties to a Receivables Purchase and Servicing Agreement, dated as of April
29, 1996 (as heretofore amended, supplemented or otherwise modified, the
"Purchase Agreement");
WHEREAS, Redwood and GECC are parties to a Liquidity Loan Agreement,
dated as of April 29, 1996 (as heretofore amended, supplemented or otherwise
modified, the "Liquidity Agreement"; together with the Transfer Agreement and
the Purchase Agreement, the "Securitization Agreements"); and
WHEREAS, the parties hereto desire to amend the Securitization
Agreements and certain ancillary documents and agreements referred to therein in
the manner set forth in this Amendment.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 DEFINITIONS. All capitalized terms used herein, unless
-----------
otherwise defined, are used as defined in the Purchase Agreement.
ARTICLE II
AMENDMENTS TO TRANSFER AGREEMENT
SECTION 2.1 AMENDMENTS TO SECTION 2.01. (a) Section 2.01(a) of the
--------------------------
Transfer Agreement is amended by deleting the phrase "without recourse, except
as specifically provided herein" which appears in the second and third lines
therein.
<PAGE>
(b) Section 2.01(c) of the Transfer Agreement is amended by deleting
the word "such" which appears in the first line thereof, and substituting in
lieu thereof the word "the", and deleting the phrase "on or before such Transfer
Date" which appears at the end of such Section 2.01(c).
(c) Section 2.01(d) of the Transfer Agreement is amended by deleting
such provision in its entirety and substituting in lieu thereof the following:
"(d) On and after each Transfer Date hereunder, PSC
shall, upon payment by PSC in accordance with Section 2.01(c)
hereof in the case of Sold Receivable, own the Transferred
Receivables and the Originator shall not take any action
inconsistent with such ownership, nor shall the Originator claim
any ownership interest in any such Transferred Receivables."
(d) Section 2.01(e) of the Transfer Agreement is amended by adding at
the end thereof the following sentence: "Each sale and contribution by the
Originator to PSC is made without recourse to the Originator, except as set
forth in Section 4.404 hereof."
SECTION 2.2 AMENDMENTS TO SECTION 2.03. (a) Section 2.03 of the
--------------------------
Transer Agreement is amended by:
(i) adding at the end of the first sentence of such Section
the following phrase:
"and there is no event that has occurred and is continuing which
constitutes a Termination Event or would constitute a Termination Event but for
the requirement that notice be given or time elapse or both":
(ii) deleting from the second sentence of such Section the
phrase "or be added, as the case may be," and adding the phrase "such
Subsidiary or Affiliate" after the word "add" as it appears therein; and
(iii) deleting from the third sentence of such Section the word
"section" and substituting in lieu thereof the words "Section 2.03".
SECTION 2.3 AMENDMENT TO SECTION 4.01. Section 4.01(b) (vii) of the
-------------------------
Transfer Agreement is amended by adding the phrase "allows the holder thereof to
bring suit or otherwise enforce its remedies against an Obligor through judicial
process," after the word "Receivable" which appears in the first line therein.
SECTION 2.4 AMENDMENTS TO SECTION 4.02. (a) Section 4.02(h)(i) of
--------------------------
the Transfer Agreement is amended by adding the phrase "or its ability to
perform its obligations hereunder" after the word "Originator" which appears in
the last line therein.
(b) Section 4.02(h)(iii) of the Transfer Agreement is amended by
adding the phrase "or its ability to perform its obligations hereunder" after
the word "Originator" which appears in the last line therein.
2
<PAGE>
(c) Section 4.02(h)(iv) of the Transfer Agreement is amended by
adding the phrase ", or written threat to commence any proceedings," after the
word "proceedings" which appears in the first line therein.
(d) Section 4.02(h)(v) of the Transfer Agreement is amended by adding
the phrase "or its ability to perform its obligations hereunder" after the word
"Originator" which appears in the last line therein.
(e) Section 4.02(h)(vi) of the Transfer Agreement is amended by
adding the phrase "or its ability to perform its obligations hereunder" after
the word "Originator" which appears in the last line therein.
SECTION 2.5 AMENDMENT TO SECTION 7.04. Section 7.04(a) of the
-------------------------
Transfer Agreement is hereby amended by deleting therefrom the amount
"$40,000,000" as it appears therein and substituting therefor the amount
"$50,000,000".
SECTION 2.6 NEW PROMISSORY NOTE. On the effective date of this
-------------------
Amendment No. 1, Pameco shall execute and delivery to PSC a Promissory Note (the
"New Promissory Note") substantially in the form of Annex A hereto, in
-------------------
substitution and exchange for, but not in payment of, that certain promissory
note of Pameco dated May 1, 1996 made in favor of PSC in the principal amount of
$40,000,000.
ARTICLE III
AMENDMENTS TO PURCHASE AGREEMENT
SECTION 3.1 AMENDMENT TO SECTION 2.03(A). Section 2.03(a) of the
----------------------------
Purchase Agreement is amended by deleting the last sentence of that paragraph
and substituting in lieu thereof the following:
"Availability will be determined by the Operating Agent
based on the most recent Investment Base Certificate
delivered to the Purchaser and the Operating Agent and such
other information as may then be available to the Operating
Agent including, without limitation, any information from
any audit performed pursuant to Section 5.01(f)."
SECTION 3.2 AMENDMENT TO SECTION 2.04. Section 2.04(d) of the
-------------------------
Purchase Agreement is amended by deleting the phrase "Outstanding Balance" which
appears in therein and substituting in lieu thereof the phrase "Billed Amount
less all payments received from the Obligor with respect thereto".
SECTION 3.3 AMENDMENT TO SECTION 4.02. (a) Section 4.02(b) of the
-------------------------
Purchase Agreement is amended by adding the phrase "and is able to bring suit or
otherwise enforce its remedies through judicial process against each Obligor of
a Transferred Receivable" to the end thereof.
3
<PAGE>
(b) Section 4.02(k) of the Purchase Agreement is amended by adding
the phrase "each of the Originator and" before the phrase "the Servicer" each
time such phrase appears therein.
SECTION 3.4 AMENDMENT TO SECTION 6.02. Section 6.02(c) of the
-------------------------
Purchase Agreement is amended by deleting the phrase "and after" and adding the
phrase "and any date thereafter" after the term "Facility Termination Date".
SECTION 3.5 AMENDMENT TO SECTION 6.05. (a) Section 6.05(b)(viii) of
-------------------------
the Purchase Agreement is amended by deleting the phrase "(c)(i) - (c)(v)" and
substituting in lieu thereof the phrase "(c)(i) - (c)(vi)".
(b) Section 6.05(c) of the Purchase Agreement is amended by:
(i) adding a new clause (v) to read: "(v) to the Collateral
Account, an amount equal to (A) accrued and unpaid Daily Yield minus (B)
the sum of (i) amounts paid pursuant to Section 6.05(c)(i)(A), (ii) amounts
paid pursuant to Section 6.05(c) (ii)(A), and (iii) amounts amounts paid
under Section 6.05(c)(iv)(A) to the extent not paid pursuant to Section
6.05(b)(vi)" at the end of clause (v) thereof;
(ii) redesignating clauses (v) and (vi) as (vi) and (vii),
respectively; and
(iii) changing the reference from "(c) (v)" to "(c) (vi)" in
clause (vii) (after redesignation).
(c) Section 6.05(d) of the Purchase Agreement is amended by deleting
such paragraph in its entirely and substituting in lieu thereof the following:
"(d) on the Facility Termination Date and after any date
thereafter, on each such date by no later than 11:00 a.m. the
Operating Agent shall transfer all amounts then on deposit in the
Retention Account to the Collateral Account;"
SECTION 3.6 AMENDMENT TO SECTION 14.06. Section 14.06 of the
--------------------------
Purchase Agreement is amended by adding a new sentence at the end thereof to
read as follows:
"Whenever the Seller or the Servicer, as the case may be, is required
or permitted to obtain the consent of the Purchaser under this
Agreement, such consent shall be obtained only in the form of a prior
written consent of the Purchaser."
SECTION 3.7 AMENDMENT TO SCHEDULE 3. Effective as of March 1, 1997,
-----------------------
Schedule 3 to the Purchase Agreement is amended by deleting from the definition
of "Daily Margin" and "Daily Default Margin" the number "2.75" as it appears in
two place therein and substituting in lieu thereof the number "2.40".
4
<PAGE>
SECTION 3.8 AMENDMENT TO EXHIBIT H. Exhibit H to the Purchase
----------------------
Agreement is amended by deleting the chart as it appears in Section 1(d) of such
Exhibit and substituting in lieu thereof the following chart:
<TABLE>
<CAPTION>
FISCAL YEAR ENDING AMOUNT
------------------ ------
<S> <C>
February 28, 1997 $12,500,000
February 28, 1998 17,500,000
February 28, 1999 21,000,000
Each Fiscal Year ending thereafter 24,500,000
</TABLE>
SECTION 3.9 AMENDMENT TO EXHIBIT I. Exhibit I to the Purchase
----------------------
Agreement is amended by deleting the percentage "7.5%" from clause (i) of such
Exhibit and substituting in lieu thereof the percentage "9.2%".
ARTICLE IV
AMENDMENTS TO ANNEX X
SECTION 4.1 AMENDMENTS TO ANNEX X. Annex X is hereby amended by:
(a) deleting from the definition of "Fee Letter" the date "April
29, 1996" and substituting therefor the date "January 24, 1997";
(b) deleting from the definition of "Final Purchase Date" the
date "April 29, 2001" and substituting therefor the date "November 21,
2001";
(c) deleting from the definition of "Maximum Purchase Limit" the
amount $40,000,000" and substituting therefor the amount "50,000,000";
(d) deleting the definition of "Purchase Discount Rate" and
substituting thereof the following definition:
"Purchase Discount Rate" means a rate, as of any date, equal to 100%
----------------------
minus the greater of (a)(i) the sum of the Loss Reserve Ratio and the
Dilution Reserve Ratio minus (ii) 30%, or (b) 15%."; and
(e) deleting the definition of "Purchase Excess" and
substituting thereof the following definition:
"Purchase Excess" means, for any date, the extent to which the
---------------
then Capital Investment exceeds the Availability as determined, as of such
date, by the Operating Agent based on the most recently submitted
Investment Base Certificate delivered to the Purchaser and the Operating
Agent and such other information as may then be available to the Operating
Agent including without limitation any information from any audit performed
pursuant to Section 5.01(f) of the Purchase Agreement."
5
<PAGE>
ARTICLE V
AMENDMENTS TO LIQUIDITY AGREEMENT, ETC.
SECTION 5.1 AMENDMENT TO SECTION 1.01. The definition of "Liquidity
-------------------------
Commitment" appearing in Section 1.01 of the Liquidity Agreement is amended by
deleting the number "$41,200,000" appearing therein and by inserting, in lieu
thereof, the number "$51,500,000".
SECTION 5.2 AMENDMENT TO RFC SUPPLEMENT. That certain RFC Supplement
---------------------------
dated as of April 29, 1996 between Redwood and GECC (the "RFC Supplement") is
hereby amended as follows:
(a) by deleting the number "$40,000,000" appearing therein and by
inserting, in lieu thereof, the number "$50,000,000";
(b) by deleting clause (ii) of the definition "LOC Percentage"
appearing in Annex 1 thereof in its entirety and by inserting, in lieu
thereof the following: "(ii) 30%; and"; and
(c) by deleting clauses (i) and (ii) appearing in clause (y) of Annex
1 thereof in their entirety and by inserting, in lieu thereof the
following: "30%".
SECTION 5.3 AMENDMENT TO FORM OF LIQUIDITY NOTES. Exhibit C to the
------------------------------------
Liquidity Agreement is hereby amended by deleting such Exhibit in its entirety
and by inserting, in lieu thereof, a new Exhibit C in the form of Annex B
hereto.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
SECTION 6.1 REPRESENTATIONS AND WARRANTIES OF PSC AND PAMECO.
------------------------------------------------
Each of the PSC and Pameco represents and warrants that:
(a) each of this Amendment No. 1 and the New Promissory Note has been
duly authorized, executed and delivered by each such party which is a signatory
thereto;
(b) each of this Amendment No. 1 and the New Promissory Note
constitutes the legal, valid and binding obligation of each such party which is
a signatory thereto;
(c) each of the representations and warranties of such party set
forth in the Securitization Agreements is true and correct as of the Amendment
Effective Date (as defined below); provided, that references in the
-------- ----
Securitization Agreements to the Purchase Agreement and to the Transfer
Agreement, shall be deemed references to the Purchase Agreement as amended by
this Amendment No. 1 and to the Transfer Agreement as amended by this Amendment
No.1, respectively, and references to the Pameco Note shall be deemed references
to the New Promissory Note.
6
<PAGE>
SECTION 6.2 REPRESENTATIONS AND WARRANTIES OF REDWOOD. Redwood
-----------------------------------------
represents and warrants that:
(a) this Amendment No. 1 has been duly authorized, executed and
delivered by Redwood;
(b) this Amendment No. 1 constitutes the legal, valid and binding
obligation of Redwood; and
(c) each of the representations and warranties of Redwood party set
forth in the Securitization Agreements is true an correct as of the Amendment
Effective Date (as defined below); provided, that references in the
-------- ----
Securitization Agreements to the Purchase Agreement and to the Transfer
Agreement, shall be deemed references to the Purchase Agreement as amended by
this Amendment No. 1 and to the Transfer Agreement as amended by this Amendment
No. 1 respectively, and references to the Pameco Note shall be deemed references
to the New Promissory Note.
ARTICLE VII
CONDITIONS PRECEDENT
SECTION 7.1 CONDITIONS PRECEDENT. This Amendment No. 1 shall become
--------------------
effective (the actual date of such effectiveness, the "Amendment Effective
-------------------
Date") as of the date first above written subject to the satisfaction of the
following conditions precedent: that the Purchaser, the Operating Agent and the
Collateral Agent shall each have received the following, in form and substance
satisfactory to the Operating Agent:
(a) Counterparts hereof shall have been duly executed and
delivered by the parties hereto;
(b) PSC shall have received the New Promissory Note, executed and
delivered by a duly authorized officer of Pameco;
(c) the Operating Agent shall have received fees as required in the
Fee Letter dated January 24, 1997 from the Operating Agent to Redwood (the "New
Fee Letter");
(d) the Purchaser, Operating Agent and Collateral Agent shall have
received the executed legal opinion (including confirmation of true sale
opinion) of Kilpatrick & Cody, L.L.P., counsel to the Seller and the Servicer,
in form and substance satisfactory to the Operating Agent;
(e) the Operating Agent shall have received a certificate of the
Secretary or an Assistant Secretary of each of the Seller and the Servicer,
dated as of the Amendment Effective Date, and certifying (i) the names and true
signatures of the officers authorized on its behalf to sign this Amendment No.
1, (ii) a copy of the such party's certificate of incorporation and by-laws, and
(iii) a copy of the resolutions of the board of directors of such party
approving this Amendment No. 1 and the related transactions to which it is a
party, all in form and substance
7
<PAGE>
satisfactory to the Operating Agent. Such certificate shall state that the
resolutions thereby certified have not been amended, modified, revoked or
rescinded as of the date of such certificate;
(f) the Operating Agent shall have received an Officer's Certificate
from each of the Seller and the Servicer in the forms of Annexes C-1 and C-2
hereto, respectively;
(g) PSC shall have received a certificate of the Secretary or an
Assistant Secretary of the Originator, dated as of the Amendment Effective Date,
and certifying (i) the names and true signatures of the officers authorized on
its behalf to sign this Amendment No. 1 and the New Promissory Note, (ii) a copy
of the Originator's certificate of incorporation and by-laws, and (iii) a copy
of the resolutions of the board of directors of the Originator approving this
Amendment No. 1 and the related transactions to which it is a party. Such
certificate shall state that the resolutions thereby certified have not been
amended, modified, revoked or rescinded as of the date of such certificate;
(h) the Operating Agent shall have received rating agency letters
from Moody's Investors Service and Standard & Poor's Rating Services affirming
the rating of the Redwood commercial paper as "Prime-1" and "A-1+",
respectively, after giving effect to this Amendment No. 1 and consummation of
the transactions contemplated hereby; and
(i) PSC and Pameco shall have taken such other actions and provided
such documentation as the Operating Agent may request.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1 COUNTERPARTS. This Amendment No. 1 may be executed on
------------
any number of separate counterparts and all of said counterparts taken together
shall be deemed to constitute one and the same instrument.
SECTION 8.2 GOVERNING LAW. THIS AMENDMENT NO. 1 SHALL BE GOVERNED
-------------
BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF
NEW YORK.
SECTION 8.3 EXPENSES. Pameco agrees to pay and reimburse the
--------
Operating Agent for all of its out-of-pocket costs and expenses incurred in
connection with the negotiation, preparation, execution, and delivery of this
Amendment No. 1, including the reasonable fees and expenses of counsel to the
Operating Agent and the Collateral Agent.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No.
1 to be duly executed and delivered by their proper and duly authorized officers
as of the day and year first above written.
PAMECO SECURITIZATION CORPORATION
By:_____________________________________
Title: President
REDWOOD RECEIVABLES CORPORATION
By:_____________________________________
Title:
PAMECO CORPORATION
By:_____________________________________
Title: Vice President
GENERAL ELECTRIC CAPITAL CORPORATION
as Operating Agent and Collateral
Agent
By:_____________________________________
Title:
GENERAL ELECTRIC CAPITAL CORPORATION
as Liquidity Agent
By:_____________________________________
Title:
GENERAL ELECTRIC CAPITAL CORPORATION
as Letter of Credit Agent and Letter
of Credit Provider
By:_____________________________________
Title:
9
<PAGE>
ANNEX A
[NEW FORM OF PAMECO NOTE]
10
<PAGE>
ANNEX B
[NEW FORM OF LIQUIDITY NOTE]
11
<PAGE>
ANNEX C-1
FORM OF OFFICER'S CERTIFICATE OF SELLER
---------------------------------------
Pameco Securitization Corporation
Officer's Certificate
I, [Name of Officer], the duly elected [Insert Title] of Pameco
Securitization Corporation (the "Seller"), hereby certify pursuant to Section
7.1(f) of Amendment No. 1 to Securitization Agreements, dated as of January 24,
1997 ("Amendment No. 1"; capitalized terms used but not defined in this
Officer's Certificate having the meaning set forth in Amendment No. 1), between
the Seller, Pameco Corporation, Redwood Receivables Corporation (the
"Purchaser") and General Electric Capital Corporation, and for the benefit of
the Purchaser, the Operating Agent and General Electric Capital Corporation, as
follows:
(1) after giving effect to the effectiveness of the Purchase
Agreement, no Termination Event or Incipient Event will have occurred and be
continuing; and
(2) the representations and warranties of the Seller contained in
Section 4.01 of the Purchase Agreement, in the Transfer Agreement and in any
other document, certificate or financial or other statement delivered by the
Seller in connection with the Purchase Agreement or the Transfer Agreement are
true and correct in all material respects and with the same force and effect as
though such representations and warranties had been made as of such date, except
to the extent any such representations and warranties relate solely to an
earlier date.
IN WITNESS WHEREOF, I have signed and delivered this Officer's
Certificate this 24th day of January, 1997.
PAMECO SECURITIZATION CORPORATION
By:_________________________________________________
Name:
Title:
12
<PAGE>
ANNEX C-2
FORM OF OFFICER'S CERTIFICATE OF SELLER
---------------------------------------
Pameco Securitization Corporation
Officer's Certificate
I, [Name of Officer], the duly elected [Insert Title] of Pameco
Securitization Corporation (the "Servicer"), hereby certify pursuant to Section
7.1(f) of Amendment No. 1 to Securitization Agreements, dated as of January 24,
1997 ("Amendment No. 1"; capitalized terms used but not defined in this
Officer's Certificate having the meaning set forth in Amendment No. 1), between
Pameco Securitization Corporation, the Servicer, Redwood Receivables Corporation
(the "Purchaser") and General Electric Capital Corporation, and for the benefit
of the Purchaser, the Operating Agent and General Electric Capital Corporation,
as follows:
(1) after giving effect to the effectiveness of the Purchase
Agreement, no Termination Event or Incipient Event will have occurred and be
continuing; and
(2) the representations and warranties of the Seller contained in
Section 4.01 of the Purchase Agreement, in the Transfer Agreement and in any
other document, certificate or financial or other statement delivered by the
Seller in connection with the Purchase Agreement or the Transfer Agreement are
true and correct in all material respects and with the same force and effect as
though such representations and warranties had been made as of such date, except
to the extent any such representations and warranties relate solely to an
earlier date.
IN WITNESS WHEREOF, I have signed and delivered this Officer's
Certificate this 24th day of January, 1997.
PAMECO CORPORATION
By:_________________________________________________
Name:
Title:
13
<PAGE>
PAMECO NOTE
$50,000,000.00 May 1, 1996
Amended and Restated
January 24, 1997
FOR VALUE RECEIVED PAMECO CORPORATION, a Delaware corporation
("Pameco") hereby promises to pay to PAMECO SECURITIZATION CORPORATION (the
"Lender"), for its account, the principal sum of FIFTY MILLION DOLLARS
($50,000,000) (or such lesser amount as shall equal the aggregate unpaid
principal amount of the PRC Loans made by the Lender to Pameco under the
Transfer Agreement referred to below), in lawful money of the United States of
America and in immediately available funds immediately on the demand of the
Lender.
The date, amount and interest rate, of each PRC Loan made by the
Lender to Pameco, and each payment made on account of the principal thereof,
shall be recorded by the Lender on its books and, prior to any transfer of this
Note, endorsed by the Lender on the schedule attached hereto or any continuation
thereof.
This Note is the Pameco Note referred to in the Receivables Transfer
Agreement (as modified and supplemented and in effect from time to time, the
"Transfer Agreement") dated as of the date hereof by and among Pameco and the
Lender and evidences PRC Loans made by the Lender thereunder. Capitalized terms
used in this Note and not defined herein have the respective meanings assigned
to them in the Transfer Agreement.
The Transfer Agreement provides for prepayments of PRC Loans upon the
terms and conditions specified therein.
Notwithstanding any other provisions contained in this Note, if at any
time the rate of interest payable by Pameco under this Note, when combined with
any and all other charges provided for in this Note, in the Purchase Agreement
or in any other document (to the extent such other charges would constitute
interest for the purpose of any applicable law limiting interest that may be
charged on this Note), exceeds the highest rate of interest permissible under
applicable law (the "Maximum Lawful Rate"); then so long as the Maximum Lawful
Rate would be exceeded the rate of interest under this Note shall be equal to
the Maximum Lawful Rate. If at any time thereafter the rate of interest payable
under this Note is less than the Maximum Lawful Rate, Pameco shall continue to
pay interest under this Note at the Maximum Lawful Rate until such time as the
total interest paid by Pameco is equal to the total interest that would have
been paid had such applicable law not limited the interest rate payable under
this Note. In no event event shall the total interest received by the Lender
under this Note exceed the amount which the Lender could lawfully have received
had the interest due under this Note been calculated since the date of this Note
at the Maximum Lawful Rate.
If any payment under this Note falls due on a day which is not a
Business Day, then such due date shall be extended to the next succeeding
Business Day and interest (calculated
14
<PAGE>
at the Pameco Interest Rate for each day during the period then ending) shall be
payable on the principal so extended.
This Note is being issued in replacement of and substitution for that
certain Pameco Note dated May 1, 1996 by Pameco to the order of the Lender in
the principal amount of $40,000,000. In addition to the indebtedness evidenced
by this Note, this Note shall also evidence any accrued and unpaid interest on
such preceding note.
Pameco expressly waives presentment, demand, diligence, protest and
all notices of any kind whatsoever with respect to this Note.
This Note is made and delivered in New York, New York and shall be
governed by, and construed in accordance with, the internal laws (without
application of its conflict of laws provisions) of the State of New York.
IN WITNESS WHEREOF, Pameco has caused this Note to be signed and
delivered by its duly authorized officer as of the date set forth above.
Very truly yours,
PAMECO CORPORATION
By:________________________________
Name:
Title:
15
<PAGE>
PROMISSORY NOTE
REDWOOD RECEIVABLES CORPORATION
$51,500,000.00 May 1, 1996
Amended and Restated
January 24, 1997
FOR VALUE RECEIVED, REDWOOD RECEIVABLES CORPORATION, a Delaware
corporation (the "Company"), promises to pay to GENERAL ELECTRIC CAPITAL
CORPORATION (the "Liquidity Lender"), or registered assigns, the principal sum
of FIFTY ONE MILLION FIVE HUNDRED THOUSAND DOLLARS ($51,500,000) or, if less,
the unpaid principal amount of the aggregate loans ("Liquidity Loans") made by
the Liquidity Lender to the Company pursuant to the Liquidity Loan Agreement,
dated as of April 29, 1996 (as amended, the "Liquidity Loan Agreement"), between
the Company, the Liquidity Lender and General Electric Capital Corporation as
agent for the Liquidity Lender (as agent, the "Liquidity Agent") on the dates
specified in Sections 2.02(c), 4.02 and 4.03 of the Liquidity Loan Agreement,
and to pay interest on the unpaid principal amount of the Note outstanding from
time to time at the Liquidity Interest Rate provided in the Liquidity Loan
Agreement and on the dates specified in Section 4.01 of the Liquidity Loan
Agreement. Capitalized terms used in this Note and not defined herein have the
respective meanings assigned to them in the Liquidity Loan Agreement.
Notwithstanding any other provisions contained in this Note, if at any
time the rate of interest payable by the Company under this Note, when combined
with any and all other charges provided for in this Note, in the Liquidity Loan
Agreement or in any other document (to the extent such other charges would
constitute interest for the purpose of any applicable law limiting interest that
may be charged on this Note), exceeds the highest rate of interest permissible
under applicable law (the "Maximum Lawful Rate"), then so long as the Maximum
Lawful Rate would be exceeded the rate of interest under this Note shall be
equal to the Maximum Lawful Rate. If at any time thereafter the rate of
interest payable under this Note is less than the Maximum Lawful Rate, the
Company shall continue to pay interest under this Note at the Maximum Lawful
Rate until such time as the total interest paid by the Company is equal to the
total interest that would have been paid had such applicable law not limited the
interest rate payable under this Note. In no event shall the total interest
received by the Liquidity Lender under this Note exceed the amount which the
Liquidity Lender could lawfully have received had the interest due under this
Note been calculated since the date of this Note at the Maximum Lawful Rate.
Payments of the principal of, premium, if any, and interest on this
Note shall be made by the Company to the holder hereof by wire transfer of
immediately available funds by 3:00 p.m. New York City time, in the manner and
at the address specified for such purpose as provided in Section 4.04 of the
Liquidity Loan Agreement, or in such manner or at such other address as the
holder of this Note shall have specified in writing to the Company for such
purpose, without the presentation or surrender of this Note or the making of any
notation on this Note.
16
<PAGE>
If any payment under this Note falls due on a day which is not a
Business Day, then such due date shall be extended to the next succeeding
Business Day in such locations and interest (calculated at the Interest Rate in
effect for the period then ending) shall be payable on the principal so
extended.
This Note is being issued in replacement of and substitution for that
certain Note dated May 1, 1996 by the Company to the order of the Lender in the
principal amount of $41,200,000. In addition to the indebtedness evidenced by
this Note, this Note shall also evidence any accrued and unpaid interest on such
preceding note.
The Company expressly waives presentment, demand, diligence, protest
and all notices of any kind whatsoever with respect to this Note.
The holder hereof may, subject to the provisions of Article IX of the
Liquidity Loan Agreement, sell, assign, transfer, negotiate, grant
participations in or otherwise dispose of all or any portion of this Note and
the indebtedness evidenced by this Note.
This Note is secured by (i) the security interests assigned and
granted to General Electric Capital Corporation, as collateral agent on behalf
of, among others, the Liquidity Lender and the Liquidity Agent (in such
capacity, the "Collateral Agent") from time to time pursuant to Purchase
Agreements, and (ii) the security interests granted to the Collateral Agent
pursuant to the Collateral Agent Agreement. The holder of this Note is entitled
to the benefits of the Purchase Agreement and the Collateral Agent Agreement and
may enforce the agreements of the Company contained in such agreements and
exercise the remedies provided for by, or otherwise available in respect of,
such agreements, all in accordance with the terms of such agreements. If an
event of Default shall occur and be continuing, the unpaid balance of the
principal of this Note, together with accrued interest, may be declared and
become due and payable in the manner with the effect provided in the Liquidity
Loan Agreement and the Collateral Agent Agreement.
This Note is made and delivered in New York, New York and shall be
governed by, and construed in accordance with, the internal laws (without
application of its conflict of laws provisions) of the State of New York.
IN WITNESS WHEREOF, the company has caused this Note to be signed and
delivered by its duly authorized officer as of the date set forth above.
Very truly yours,
REDWOOD RECEIVABLES CORPORATION
By:__________________________________
Name:
Title:
17
<PAGE>
January 24, 1997
Pameco Corporation
World Headquarters
1000 Center Place
Norcross, Georgia 30093
Pameco Securitization Corporation
1000 Center Place - Suite A
Norcross, Georgia 30093
Ladies and Gentlemen:
We refer to (i) the Receivables Purchase and Servicing Agreement dated
as of April 29, 1996, as amended (the "Purchase Agreement") among Pameco
Securitization Corporation, as seller (the "Seller"), Redwood Receivables
Corporation, as purchaser ("Redwood"), General Electric Capital Corporation, as
operating agent ("GECC"), and Pameco Corporation, as servicer, and (ii) the
Credit Agreement dated as of March 19, 1992, as amended (the "Credit
Agreement"), among Pameco Corporation, the lenders listed therein (the
"Lenders") and GECC, as agent for the Lenders (in such capacity, the "Agent").
Terms not otherwise defined in this letter shall have the meanings assigned to
them under the Purchase Agreement.
This letter is the Fee Letter referred to in the Purchase Agreement
and in the Credit Agreement and sets forth our understanding with respect to
certain fees that are payable by the Seller and Pameco Corporation pursuant to
the Purchase Agreement and the Credit Agreement. This letter supersedes and
replaces that certain Fee Letter among us dated November 21, 1996.
18
<PAGE>
Pameco Corporation
Pameco Securitization Corporation -2- January 24, 1997
The parties to this letter agree as follows:
1. The Seller and Pameco Corporation shall pay an Unused Commitment
Fee equal to three-eights of one percent (0.375%) per annum calculated
daily and payable monthly on the amount by which $100,000,000 exceeds the
sum of (i) the outstanding Capital Investment on such date and (ii) the
outstanding "Loans" under the Credit Agreement on such date (such sum, the
"Total Outstandings"), with the Seller being responsible for the Unused
commitment Fee based on that portion of Total Outstandings on each day
representing outstanding Capital Investments and Pameco Corporation being
responsible for the Unused Commitment Fee based on that portion of Total
Outstandings on each day representing outstanding "Loans" under the Credit
Agreement.
2. The Seller shall pay, on the date hereof, a Facility Structuring
Fee to the Operating Agent in the amount of $50,000.
3. The provisions of Sections 14.04(a) of the Purchase Agreement are
incorporated herein.
4. This letter shall be governed by, an construed in accordance with
New York law.
Very truly yours,
GENERAL ELECTRIC CAPITAL
CORPORATION, as Lender, as Agent
and As Operating Agent
By:________________________________
Name:
Title:
19
<PAGE>
Pameco Corporation
Pameco Securitization Corporation -3- January 24, 1997
REDWOOD RECEIVABLES
CORPORATION
By:________________________________
Name:
Title:
Agreed and accepted as of
the date first above written:
PAMECO SECURITIZATION CORPORATION
as Seller
By:______________________________
Name: Theodore R. Kallgren
Title: President
PAMECO CORPORATION
as Servicer
By:______________________________
Name: Theodore R. Kallgren
Title: President
20
<PAGE>
EXHIBIT 10.19
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of the 1st day of March,
1996, between PAMECO CORPORATION, a Delaware corporation (the "COMPANY"), and
-------
GERALD J. GURBACKI ("EXECUTIVE").
---------
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the parties hereto desire to enter into an agreement for
Company's employment of Executive on the terms and conditions contained herein;
WHEREAS, the Company is engaged in the business of the marketing, sale
and distribution of heating and air conditioning equipment and components (the
"COMPANY BUSINESS"); and
- -----------------
WHEREAS, Executive possesses significant knowledge and information
with respect to the Company Business, which knowledge and information will be
increased, developed and enhanced by his employment;
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. EMPLOYMENT AND TERM. Subject to the terms and conditions of this
-------------------
Agreement, the Company hereby employs Executive, and Executive hereby accepts
employment, as the Company's Chairman and Chief Executive Officer ("CEO"); and
---
in such capacity Executive shall report to the Board of Directors of the parent
of the Company, Pameco Holdings, Inc. ("PAMECO"), and shall perform such
------
services and duties as the Board of Directors of Pameco may from time to time
designate during the term hereof. Executive's employment under this Agreement
shall be for a term of three (3) years commencing on March 1, 1996. Thereafter,
the term shall be automatically renewed for additional one (1) year terms,
provided that either party may terminate this Agreement by giving written notice
- --------
thereof to the other party at least one hundred eighty (180) days prior to the
expiration of the then-current term. The "TERM" shall include the initial term
----
of Executive's employment hereunder and any renewal term thereof.
2. TERMINATION.
-----------
(a) The Company may terminate Executive's employment under this
Agreement at any time during the Term (i) for Cause, as defined herein, (ii) if
Executive becomes Completely Disabled, as defined herein, (iii) upon Executive's
death, or (iv) for the inability of Executive to carry out effectively his
duties hereunder, as determined in good faith by the Board of Directors of
Pameco.
(b) Executive shall have the right to terminate his employment
hereunder if (i) the Company fails to make any payments due to Executive
hereunder and such failure is not
<PAGE>
remedied within thirty (30) days after written notice of such failure is
provided by Executive to the Board of Directors of Pameco, or (ii) the Company
materially breaches this Agreement and such breach is not cured within forty-
five (45) days after written notice of such breach is given by Executive to the
Company.
3. DUTIES. Executive hereby agrees that during the term of this
------
Agreement he will devote his full time, attention and energies to the diligent
performance of his duties as an Executive of the Company. Executive shall not,
without the prior written consent of the Company, directly or indirectly, at any
time during the term of his employment with the Company: (a) accept employment
with or render services of a business, professional or commercial nature to any
other Person; (b) engage in any venture or activity which the Company may in
good faith consider to be competitive with or adverse to the Company Business,
or the business of any affiliate of the Company, whether alone, as a partner, or
as an officer, director, employee or shareholder or otherwise, except that the
ownership of not more than two percent (2%) of the stock or other equity
interest of any publicly traded corporation or other entity shall not be deemed
a violation of this Section 3; or (c) engage in any venture or activity which
the Company may in good faith consider to interfere with Executive's performance
of his duties hereunder.
4. COMPENSATION. In consideration of Executive's services
------------
hereunder, Company shall pay to Executive the compensation described below:
4.1 ANNUAL SALARY. During the term of his employment hereunder, the
-------------
Company shall pay to Executive a salary at the rate of $315,000.00 per annum, in
equal installments at such times as the Company shall make payments of salary
and wages to its employees generally. The Board of Directors of Pameco shall
review Executive's salary on an annual basis.
4.2 OTHER BENEFITS. Executive shall immediately be entitled to share
--------------
in any employee benefits generally provided by the Company to its employees
similarly situated for so long as the Company provides such benefits. In
addition, Executive shall be entitled to (i) four (4) weeks annual vacation, and
(ii) payment by the Company on behalf of Executive of all premiums for group
medical insurance during Executive's COBRA period following termination of
Executive's employment with the Company, provided Executive is also receiving
severance benefits pursuant to Section 4.5 hereof.
4.3 BONUS.
-----
(a) In addition to the remuneration provided in PARAGRAPH 4.1 above,
Executive shall be entitled to a $75,000.00 bonus at a point in time where the
Company has delivered a draft of the fiscal year ending financial statements
which is acceptable to the Audit Committee. This draft should be delivered on
or before March 31, 1997. In addition, Executive
-2-
<PAGE>
may be paid an additional $75,000.00, with respect to the Company's 1996
calendar year, at the discretion of the Compensation Committee of the Board of
Directors of Pameco (the "COMPENSATION COMMITTEE") based on the Company's
-----------------------
performance during calendar year 1996. Performance targets will be determined by
the Board of Directors of Pameco on or before June 1, 1996 and will include
factors such as (i) the Company's performance relative to the Company's planned
performance for calendar year 1996; (ii) development of the Company's
organizational structure; and (iii) successful transition of Executive and the
Company's present Chairman and CEO.
(b) For calendar year 1997 and thereafter the Compensation Committee
shall develop a bonus plan under which Executive's target bonus shall be equal
to 50% of Executive's annual salary with opportunities to exceed the target
bonus; provided that no bonuses will be paid hereunder unless and until the a
draft of the Company's GAAP financial statements shall be delivered to the Audit
Committee of Pameco. Executive acknowledges that any bonus amounts in excess of
50% of Executive's annual salary will be paid in shares of Pameco at a value per
share determined by the Board of Directors of Pameco at its sole discretion.
Measurements of performance under the bonus plan will be weighted 70% on
financial performance and 30% on other measures as determined by the
Compensation Committee in its sole discretion.
4.4 STOCK OWNERSHIP.
---------------
(a) The Company shall cause Pameco to grant to Executive options to
acquire a total of 750,000 shares of the common stock of Pameco in three series
of options, each of which shall be exercisable for a period of six (6) years
after the date of grant at a purchase price per share of $4.00. The options
granted hereunder shall vest in accordance with the following vesting schedule
and in the event Executive exercises any of the options granted hereunder, he
shall agree to become a signatory to that certain Pameco Holdings, Inc.
Stockholders' Agreement, dated March 19, 1992, as amended from time to time
(5/10/96) by and among the original Stockholders of Pameco Holdings, Inc.:
Vesting Schedule
----------------
(Shares in 000's)
Option Series
- -------------
<TABLE>
<CAPTION>
Exercise Hurdle Total ----------------March 1st----------------
Price Price Shares 1996 1997 1998 1999 2000 2001
----- ----- ------ ---- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Series A $4 $4.00 350 87.5 87.5 87.5 87.5
Series B $4 6.00 250 62.5 62.5 62.5 62.5
Series C $4 8.00 150 - - 37.5 37.5 37.5 37.5
--- ---- ----- ----- ----- ----- -----
Total 750 87.5 150.0 187.5 187.5 100.0 37.5
--- ---- ----- ----- ----- ----- -----
Cumulative Vesting 87.5 237.5 425.0 612.5 712.5 750.0
==== ===== ===== ===== ===== =====
</TABLE>
-3-
<PAGE>
(b) All of the options granted hereunder shall vest as of March 1 in
their respective year of vesting; provided, however, that the Series B and C
options shall vest only in the event the value of Pameco's common stock in a
sale or an initial public offering is equal to or greater than the hurdle price
specified in the schedule set forth above; and, provided further, that all
options granted hereunder will vest immediately upon reaching the hurdle price
in the event of a sale or an initial public offering.
4.5 SEVERANCE. In the event Executive is terminated without Cause
---------
during the term of this Agreement, Executive shall be entitled to severance pay
in an amount equal to (a) his then current annual salary, plus (b) his targeted
bonus for the year in which he is terminated multiplied by a fraction, the
numerator of which is the number of whole or partial months that have elapsed
during the year in which Executive is terminated through the date of such
termination and the denominator of which is 12; provided, however, that if
Executive's employment hereunder is terminated without Cause as a result of a
change of control of the Company or Pameco, Executive shall be entitled to
severance pay hereunder in an amount equal to two times his then current annual
salary, plus his targeted bonus for the year in which he is terminated. In no
event shall Executive be entitled to severance pay hereunder if Executive is
terminated for Cause or voluntarily leaves the employ of the Company.
5. DEFINITIONS. For purposes of this Agreement the following terms
-----------
shall have the meanings specified below:
5.1 "CAUSE"- Commission of any act which, if prosecuted, would
-----
constitute a felony; any act or omission by Executive within Executive's control
which is in reckless disregard of the Company Business; failure or refusal by
Executive to comply with the provisions of this Agreement, where such failure or
refusal is not cured within 10 days after written notice from the Company;
Executive's prolonged absence without the consent of the Company; Executive's
neglect of his duties hereunder; commission of any crime or act of dishonesty,
fraud or moral turpitude; breach of any other agreement with the Company in
which Executive is a party; or institution of any proceeding by or against
Executive under any bankruptcy or similar laws for the relief of debtors.
5.2 "COMPLETE DISABILITY" - the inability of Executive to perform his
-------------------
services by reason of illness or incapacity and which results in his failure to
discharge his duties under this Agreement for an aggregate total of 90 days
(whether consecutive or non-consecutive) during any 180-day period.
5.3 "CONFIDENTIAL INFORMATION" - All information relating to the
------------------------
Company's customers, operations, finances, business and technologies which
derives economic value, actual or potential, from not being generally known to
other Persons, including, without limitation, technical or nontechnical data,
formula (including cost and/or pricing formula), compilations,
-4-
<PAGE>
programs, devices, methods, techniques, drawings, processes, designs,
compositions, computer programs, products, machinery, circuitry, protocols,
standards, invention, improvements, apparatus, research and developments;
financial data; names, addresses, telephone numbers, contact persons and other
identifying information relating to customers, potential customers and
suppliers; compilations and lists of customers, potential customers and
suppliers; information with respect to the needs and requirements of various
customers for the Company's products; rate and price information on products
provided by the Company; information with respect to the Company's relationships
with its suppliers; and all business records and personal data relating to the
Company's employees and agents; in all cases, whether written or oral.
Confidential Information may include information that is not a trade secret, but
information which is not a trade secret under applicable law shall only
constitute "Confidential Information" for two years after the termination or
expiration of this Agreement.
5.4 "CUSTOMERS" - All Persons that (a) Executive serviced or
---------
solicited on behalf of the Company, (b) whose dealings with the Company were
coordinated or supervised, in whole or in part, by Executive, or (c) about whom
Executive obtained Confidential Information, in each case during the one-year
period immediately prior to any termination or expiration of Executive's
employment with the Company.
5.5 "PERSON" - Any individual, corporation, bank, partnership, joint
------
venture, association, joint-stock company, trust, unincorporated organization or
other entity.
6. COVENANTS OF EXECUTIVE.
----------------------
6.1 COVENANT AGAINST DISCLOSURE OR USE OF CONFIDENTIAL INFORMATION.
--------------------------------------------------------------
In consideration of his employment hereunder and the payment by the Company to
Executive of the sums described in SECTION 4 hereof, Executive agrees that he
shall protect the Company's Confidential Information and shall not disclose to
any Person, or otherwise use, except in connection with his duties performed in
accordance with this Agreement, any Confidential Information. Provided,
however, that Executive may make disclosures required by a valid order or
subpoena issued by a court or administrative agency of competent jurisdiction,
in which event Executive will promptly notify the Company of such order or
subpoena to provide the Company an opportunity to protect its interests.
Executive's obligations under this paragraph shall survive any expiration or
termination of this Agreement.
6.2 COVENANT AGAINST POST-TERMINATION COMPETITION. In consideration
---------------------------------------------
of Executive's employment by the Company and the payment by the Company to
Executive of the sums described in SECTION 4 hereof, Executive agrees that for
the period specified in Paragraph 6.3 below, he will not directly or indirectly,
individually or on behalf of any Person other than the Company:
-5-
<PAGE>
(a) provide services of the type provided by Executive to the
Company hereunder to any Person listed in Exhibit "A" within the
-----------
United States;
(b) solicit any Customers for the purpose of selling to them
products or services competitive with the products or services sold by
the Company at the time of such termination or expiration within the
United States; or
(c) solicit or induce, or in any manner attempt to solicit or
induce, any person employed by the Company to leave such employment,
whether or not such employment is pursuant to a written contract with
the Company and whether or not such employment is at will.
Nothing contained in this PARAGRAPH 6.2 shall be construed to prohibit Executive
from owning either of record or beneficially not more than two percent (2%) of
the shares or other equity interest of any publicly traded corporation or other
entity which provides products or services competitive with the products or
services sold by the Company. Executive's obligations under paragraph shall
survive any expiration or termination of this Agreement.
6.3 RESTRICTED PERIOD. The restrictions provided in PARAGRAPH 6.2
-----------------
above shall apply for a period (the "RESTRICTED PERIOD") commencing on the date
-----------------
of this Agreement and continuing in effect for a period of two (2) years after
the expiration or termination of this Agreement.
7. RETURN OF COMPANY DOCUMENTS AND EQUIPMENT. Upon termination or
-----------------------------------------
expiration of Executive's employment for any reason, or at any time upon the
Company's request, Executive agrees to deliver to the Company: (a) all Company
files, customer lists, catalogs, price lists, management reports, memoranda,
research, Company forms, financial data and reports and other documents supplied
to or created by him in connection with his employment hereunder (including all
copies of the foregoing) in his possession or control, (b) all of the software,
computers, modems, diskettes, instruments, tools, devices, equipment, audio or
videos tapes, drawings, papers, notes and other materials, and any copies
thereof (including such as may be contained in magnetic media or other forms of
computer storage), in Executive's possession or control that relate in any way
to the Company Business or with Executive's employment with the Company, and (c)
all other property relating to the employment of Executive, including, without
limitation, company credit cards, telephone cards, office keys, desk keys, car
keys and security passes.
-6-
<PAGE>
8. MISCELLANEOUS.
-------------
8.1 CONTRACT NON-ASSIGNABLE. The parties acknowledge that this
-----------------------
Agreement has been entered into due to, among other things, the special skills
of Executive, and agree that this Agreement may not be assigned or transferred
by Executive, in whole or in part, without the prior written consent of the
Company.
8.2 PROVISIONS SEVERABLE. If any provision or covenant, or any part
--------------------
thereof, of this Agreement should be held by any court to be invalid, illegal or
unenforceable, either in whole or in part, such invalidity, illegality or
unenforceability shall not affect the validity, legality or enforceability of
the remaining provisions or covenants, or any part thereof, of this Agreement,
all of which shall remain in full force and effect.
8.3 REMEDIES. Executive acknowledges that if he breaches or
--------
threatens to breach his covenants and agreements in this Agreement, his actions
may cause irreparable harm and damage to the Company which could not be
compensated in damages. Accordingly, if Executive breaches or threatens to
breach this Agreement, the Company shall be entitled to injunctive relief, in
addition to any other rights or remedies of the Company.
8.4 WAIVER. Failure of either party to insist, in one or more
------
instances, on performance by the other in strict accordance with the terms and
conditions of this Agreement shall not be deemed a waiver or relinquishment of
any right granted in this Agreement or of the future performance of any such
term or condition or of any other term or condition of this Agreement, unless
such waiver is contained in a writing signed by the party making the waiver.
8.5 AMENDMENTS AND MODIFICATIONS. This Agreement may be amended or
----------------------------
modified only by a writing signed by both parties hereto.
8.6 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 principles of conflicts of law.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
Address: EXECUTIVE:
_______________________________ _______________________________________
_______________________________ GERALD J. GURBACKI
_______________________________
Address: THE COMPANY:
<PAGE>
_______________________________ PAMECO CORPORATION
_______________________________
_______________________________ By:____________________________________
Title:______________________________
<PAGE>
EXHIBIT A
A.Y. McDonald Supply/Brock-McVey Co.
ABCO Refrigeration Supply Corp.
ACR Group, Inc.
Air Cold Supply
Aireco Supply Inc.
Andrews Distributing Co., Inc.
Apex Supply
Arizona Refrigeration Supplies, Inc.
Automatic Equipment Sales (AES) Inc.
Baker Bros., Inc.
Burke Engineering
C. C. Dickson Co.
Carleton-Stuart Corporation
Century Air Services
Coastline Distribution, Inc.
Comfort Supply, Inc.
Connor Co.
Crawford Supply Co.
East Coast Metal Distributors, Inc.
Edward B. Ward Company
Familian Corp.
Ferguson Enterprises, Inc.
Geary Pacific Corp.
Gemaire Distributors, Inc.
General Heating & Cooling
Gustave A. Larson Company
Habegger Corporation
Hammond Distributing Company
Heating & Cooling Supply, Inc.
Hughes Supply
Johnson Supply & Equipment Corp.
Johnstone Supply
Lyon, Conklin & Company, Inc.
Mingledorff's Inc.
N.B. Handy Company
Noland Company
Peirce-Phelps Inc.
R.E. Michel Company, Inc.
Refrigeration Sales Corp.
Robertson Heating Supply Co.
RSD
Shollimier Distributing, Inc.
Sid Harvey Industries, Inc.
Sigler & Reeves
Slakey Brothers, Inc.
Southern Calif. Air Dist'rs. Inc.
Superior Supply
Temperature Systems, Inc.
The Behler-Young Company
The Climatic Corporation
Three States Supply Co. Inc.
United Products Dist., Inc.
United Supply Company (usco), Inc.
United Westburne, Inc.
Watsco Corporation
Winair Inc.
Wittichen
Young Supply Company
<PAGE>
Exhibit 10.20
March 1, 1997
Three Cities Research, Inc.
135 East 57th Street
New York, NY 10022
Gentlemen:
1. This letter confirms that Pameco Holdings, Inc. (the "Company") has engaged
Three Cities Research, Inc. ("TCR"), to act as its financial advisor. TCR
shall render advisory services to the Company and shall make available the
services of certain of its employees to advise the Company on financial
matters.
2. During the term of TCR's engagement hereunder, the Company shall pay to TCR
the following fees for the services to be rendered by TCR hereunder:
a) a fee of $50,000 per annum, payable by check in quarterly installments
of $12,500 each, commencing on March 1, 1997; and
b) in addition, the Company shall reimburse TCR, upon request from time
to time, for all of TCR's documented out-of-pocket expenses which have
been approved in advance by the Company.
3. The engagement of TCR hereunder shall be for a term of five years
commencing on March 1, 1997 and ending on February 28, 2002 unless
terminated earlier pursuant to Section 6 herein.
4. The Company shall furnish to TCR such information as TCR reasonably
believes to be appropriate to its engagement hereunder (all such
information so furnished being referred to hereinafter as "Information").
The Company recognizes and confirms that TCR (a) will use and rely
primarily on the Information and information available from generally
recognized public sources in performing the services contemplated by this
letter without having independently verified the same, and (b) does not
assume responsibility for the accuracy or completeness of the Information
and such other information. The Information shall be kept confidential by
TCR to the extent that it is treated as confidential by the Company and
shall be used only for purposes of performing its services pursuant to
this letter.
5. The Company shall indemnify and hold harmless TCR and each of its
directors, officers, employees and agents (collectively, the "Indemnified
Parties"), from and against any and all claims, liabilities, obligations,
damages or expenses arising out of or in connection with TCR's engagement
hereunder or any action of any Indemnified Party in connection therewith;
provided, however, that the Company shall have no obligation under this
Section 5 to indemnify an Indemnified Party with respect to any claim,
liability, obligation, damage or expense resulting from the gross
negligence or willful misconduct of such Indemnified Party.
<PAGE>
6. This letter agreement may be terminated prior to the end of its term:
a) by mutual agreement of the parties; or
b) by the Company if, at any time, neither Willem de Vogel, J. William
Uhrig, nor H. Whitney Wagner is the managing partner or in an
equivalent position with TCR; or
c) by the Company if, at any time, less than two of Willem de Vogel, J.
William Uhrig, or H. Whitney Wagner are then actively involved in the
management of TCR.
This letter agreement shall be governed by and construed in accordance with the
laws of the State of New York applicable to agreements made and to be performed
entirely in such state. This letter agreement may not be amended or otherwise
modified except by a written instrument, signed by TCR and the Company. If any
provision hereof is determined to be invalid or unenforceable, such
determination shall not affect any other provision of this letter agreement,
each of which shall remain in full force and effect. This letter agreement may
be executed in one or more counterparts, all of which shall constitute one and
the same agreement.
If the foregoing correctly sets forth our understanding, please indicate so by
signing below and returning an executed copy of this letter agreement to us.
Very truly yours,
PAMECO HOLDINGS, INC.
By:____________________________________
James R. Balkcom, Jr.
Chairman
Accepted and agreed to as of
the date first written above:
THREE CITIES RESEARCH, INC.
By:_________________________________________
Printed Name:________________________________
Title:_______________________________________
<PAGE>
EXHIBIT 10.21
AGREEMENT FOR PURCHASE OF SHARES
OF
PAMECO HOLDINGS, INC.
THIS AGREEMENT is made and entered as of this 14th day of November,
1996, by and between Pameco Holdings, Inc., a Delaware corporation (the
"Company") and Sofitam S.A., a French societe anonyme (the "Selling
Shareholder").
W I T N E S S E T H:
WHEREAS, the total authorized share capital of the Company consists of
11,000,000 shares of common stock, par value $.01 per share divided into
5,500,00 shares of Class A common stock and 5,500,000 shares of Class B common
stock (collectively the "Common Shares") and 25,000 shares of preferred stock,
par value $1.00 per share (the "Preferred Shares"); and
WHEREAS, as a result of a transfer from Generale Frigorifique ("GF"),
a subsidiary of the Selling Shareholder, the Selling Shareholder is the record
and beneficial owner of 1,000,000 shares of Class A Common Shares of the Company
and 4,000 shares of the Preferred Shares of the Company (collectively the
"Shares"); and
WHEREAS, in reliance on and subject to the terms, conditions,
representations, warranties, covenants and agreements contained herein, the
Company desires to purchase the Shares from the Selling Shareholder, and the
Selling Shareholder desires to sell the Shares to the Company;
NOW, THEREFORE, for and in consideration of the premises and the
mutual covenants and agreements contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. PURCHASE AND SALE.
------------------
1.1 AGREEMENT TO PURCHASE AND SELL. At the Closing (as defined in
-------------------------------
Paragraph 1.3 below), the Selling Shareholder agrees to sell, assign, transfer
and convey unto the Company, and in reliance on and subject to the terms,
conditions, representations, warranties, covenants and agreements contained
herein, the Company agrees to purchase and acquire from the Selling Shareholder
all (but not less than all) of the Shares, free and clear of any and all claims,
liens, charges and encumbrances, for a total purchase price (the "Purchase
Price") of $14,500,000 (FOURTEEN MILLION FIVE HUNDRED THOUSAND DOLLARS),
calculated as set forth in Exhibit A attached hereto.
1.2 PAYMENT OF PURCHASE PRICE. At the Closing, the Company shall pay
-------------------------
to the Selling Shareholder the Purchase Price for the Shares by wire transfer of
immediately available federal
<PAGE>
funds to the account(s) that have been designated in writing by the Selling
Shareholder at least two business days before the Closing.
1.3 CLOSING. The closing of the transactions contemplated in this
-------
Agreement (the "Closing") shall take place at the Company's offices, 1000 Center
Place, Norcross, Georgia at 10:00 a.m. local time on November 14, 1996 (the
"Closing Date").
1.4 TRANSACTIONS AND DOCUMENTS AT CLOSING.
-------------------------------------
(a) At the Closing, the Selling Shareholder shall deliver to the
Company certificates representing the Shares, duly endorsed for transfer, with
all required stock transfer stamps, if any, affixed, and upon such delivery of
the Share certificates by the Selling Shareholder, the Company shall pay to the
Selling Shareholder the Purchase Price in the manner set forth in Paragraph 1.2
above. All deliveries, payments and other transactions and documents relating to
the Closing shall be interdependent and none shall be effective unless and until
all are effective (except for any of the same as to which the party entitled to
the benefit thereof has waived satisfaction or performance thereof as a
condition precedent to Closing).
(b) From time to time and at any time, at the Company's request,
whether on or after the Closing, and without further consideration, the Selling
Shareholder shall, at the expense of the Selling Shareholder, execute and
deliver such further documents and instruments of conveyance and transfer and
shall take such further reasonable actions as may be necessary or convenient, in
the opinion of the Company, to transfer and convey to the Company all of its
right, title and interest in and to the Shares, free and clear of any and all
liens, claims, charges and encumbrances, or as may otherwise be necessary or
convenient to carry out the intent of this Agreement.
2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE SELLING SHAREHOLDER.
--------------------------------------------------------------------
To induce the Company to enter into this Agreement and to purchase the
Shares, the Selling Shareholder represents, warrants and covenants to the
Company as follows:
2.1. ORGANIZATION. The Selling Shareholder is a societe anonyme
------------
duly organized, validly existing and in good standing under the laws of the
Republic of France.
2.2 AUTHORIZATION; NO INCONSISTENT AGREEMENTS. The Selling
-----------------------------------------
Shareholder has full corporate power and authority to make, execute and perform
this Agreement, and the transactions contemplated hereby. This Agreement and
all transactions required hereunder to be performed by the Selling Shareholder
have been duly and validly authorized and approved by all necessary corporate
action on the part of the Selling Shareholder. This Agreement has been duly and
validly executed and delivered on behalf of the Selling Shareholder by its duly
authorized officers, and this Agreement constitutes the valid and legally
binding obligation of the Selling Shareholder enforceable, subject to general
equity principles, in accordance with its terms, except as enforceability may be
limited by
-2-
<PAGE>
bankruptcy, insolvency, reorganization or similar laws affecting the rights of
creditors generally. Neither the execution and delivery of this Agreement nor
the consummation of the transactions hereby contemplated will constitute a
violation or breach of the articles of association or the charter of the Selling
Shareholder. The execution, delivery and performance of this Agreement do not
require the consent, approval or action of, or any filing with or notice to any
third person or entity.
2.3 OWNERSHIP OF SHARES. The Selling Shareholder is the owner of the
--------------------
Shares, free and clear of any lien, charge or encumbrance. There are no
outstanding contracts, demands, commitments or other agreements or arrangements
under which the Selling Shareholder is or may become obligated to sell, transfer
or assign any of the Shares.
2.4 INFORMED INVESTMENT DECISION. GF has appointed one
----------------------------
representative to serve as a director of the Company and such representative
has, at all times since GF's acquisition of the Shares, served in such capacity.
GF's representative has participated in policy-making decisions regarding the
business of the Company and has been provided with information, financial and
otherwise, sufficient to allow such representative to serve as a director in
accordance with his or her fiduciary obligations to the stockholders of the
Company. The Selling Shareholder hereby confirms and acknowledges that, in
making an investment decision to dispose of the Shares, the Selling Shareholder
has received sufficient information through such representative as to the
business, operation, and finances of the Company to permit it to make an
informed investment decision, that the Selling Shareholder has received all
information requested by it, and that it is capable of evaluating the merits or
risks (if any) of such investment decision.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
--------------------------------------------------------
As an inducement to the Selling Shareholder to enter into this
Agreement and to sell the Shares to the Company, the Company represents,
warrants and covenants as follows:
3.1 ORGANIZATION. The Company is a corporation duly organized,
------------
validly existing and in good standing under the laws of the State of Delaware.
3.2 AUTHORIZATION; NO INCONSISTENT AGREEMENTS. The Company has full
-----------------------------------------
corporate power and authority to make, execute and perform this Agreement, and
the transactions contemplated hereby. This Agreement and all transactions
required hereunder to be performed by the Company have been duly and validly
authorized and approved by all necessary corporate action on the part of the
Company. This Agreement has been duly and validly executed and delivered on
behalf of the Company by its duly authorized officers, and this Agreement
constitutes the valid and legally binding obligation of the Company enforceable,
subject to general equity principles, in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization or
similar laws affecting the rights of creditors generally. Neither the execution
and delivery of this Agreement nor the consummation of the transactions hereby
contemplated will constitute a violation or breach of the certificate of
incorporation or the bylaws of the Company. The execution, delivery and
performance
-3-
<PAGE>
of this Agreement do not require the consent, approval or action of, or any
filing with or notice to any third person or entity.
4. CONDITIONS TO OBLIGATIONS OF THE COMPANY.
----------------------------------------
All obligations of the Company under this Agreement are subject to the
fulfillment and satisfaction of each and every of the following conditions on or
prior to the Closing, any or all of which may be waived in whole or in part by
the Company:
4.1 PROCEEDINGS AND DOCUMENTS SATISFACTORY. All proceedings taken in
--------------------------------------
connection with the consummation of the transactions contemplated herein and all
documents and papers relating thereto shall be reasonably satisfactory to the
Company and its counsel, and the Company and its counsel shall have timely
received copies of such documents and papers, all in form and substance
satisfactory to the Company and its counsel, as reasonably requested by the
Company or its counsel in connection therewith.
4.2 REPRESENTATIONS AND WARRANTIES. The representations and
------------------------------
warranties contained in Section 2 of this Agreement and in any certificate,
instrument, agreement or other writing delivered by or on behalf of the Company
or the Selling Shareholder in connection with the transactions contemplated by
this Agreement shall be true and correct as of the date when made and shall be
deemed to be made again at and as of the Closing and shall be true at and as of
such time.
4.3 CERTIFICATE OF THE SELLING SHAREHOLDER. The Selling Shareholder
--------------------------------------
shall have delivered to the Company a certificate, executed by the Selling
Shareholder, or on behalf of the Selling Shareholder, dated the Closing Date,
certifying in such detail as the Company may reasonably request as to the
fulfillment and satisfaction of the conditions specified in Paragraphs 4.1 and
4.2 above.
4.4 RESOLUTIONS. The Selling Shareholder shall have delivered to the
-----------
Company duly adopted resolutions of the Board of Directors of the Selling
Shareholder, certified by the Secretary or an Assistant Secretary of the Selling
Shareholder, dated the Closing Date, authorizing and approving the execution of
this Agreement by the Selling Shareholder and all other action necessary to
enable the Selling Shareholder to comply with the terms of this Agreement.
4.5 MISCELLANEOUS. The Company and its counsel shall have received
-------------
such other opinions, certifications and documents from the Selling Shareholder
as the Company and its counsel may reasonably request.
5. CONDITIONS TO OBLIGATIONS OF THE SELLING SHAREHOLDER.
----------------------------------------------------
All of the obligations of the Selling Shareholder under this Agreement
are subject to the fulfillment and satisfaction of each and every of the
following conditions on or prior to the Closing, any or all of which may be
waived in whole or in part by the Selling Shareholder:
-4-
<PAGE>
5.1 REPRESENTATIONS AND WARRANTIES. The representations and
------------------------------
warranties contained in Section 3 of this Agreement and in any certificate,
instrument, agreement or other writing delivered by the Company in connection
with the transactions contemplated by this Agreement shall be true and correct
on and as of the Closing.
5.2 CERTIFICATE OF THE COMPANY. The Company shall have delivered to
--------------------------
the Selling Shareholder a certificate, dated the Closing Date, certifying in
such detail as the Selling Shareholder may reasonably request to the fulfillment
and satisfaction of the conditions specified in Paragraph 5.1 above.
5.3 RESOLUTIONS. The Company shall have delivered to the Selling
-----------
Shareholder duly adopted resolutions of the Board of Directors of the Company,
certified by the Secretary or an Assistant Secretary of the Company, dated the
Closing Date, authorizing and approving the execution of this Agreement by the
Company and all other action necessary to enable the Company to comply with the
terms of this Agreement.
5.4 MISCELLANEOUS. The Selling Shareholder and its counsel shall
-------------
have received such other opinions, certifications and documents from the Company
as the Selling Shareholder and its counsel may reasonably request.
6. INDEMNITIES.
-----------
6.1 INDEMNIFICATION OF THE COMPANY. The Selling Shareholder shall
------------------------------
indemnify and hold harmless the Company, its direct and indirect parent
corporations and affiliates, and their officers and directors (hereafter
collectively called "Company Indemnitees"), from and against and in respect of
any and all loss, damage, liability, cost and expense, including reasonable
attorneys' fees suffered or incurred by any Company Indemnitee by reason of, or
arising out of any misrepresentation, breach of warranty or breach or
nonfulfillment of any agreement of the Selling Shareholder contained in this
Agreement or in any certificate, instrument or document delivered to the Company
by or on behalf of the Selling Shareholder pursuant to the provisions of this
Agreement.
6.2 INDEMNIFICATION OF THE SELLING SHAREHOLDER. The Company shall
------------------------------------------
indemnify and hold harmless the Selling Shareholder, its direct and indirect
parent corporations and affiliates, and their officers and directors (hereafter
collectively called "Shareholder Indemnitees"), from and against and in respect
of any and all loss, damage, liability, cost and expense, including reasonable
attorneys' fees, suffered or incurred by any Shareholder Indemnitee by reason
of, or arising out of any misrepresentation, breach of warranty or breach or
nonfulfillment of any agreement of the Company contained in this Agreement or in
any certificate, instrument or document delivered to the Selling Shareholder by
or on behalf of the Company pursuant to the provisions of this Agreement.
-5-
<PAGE>
7. SURVIVAL OF REPRESENTATIONS AND OTHER PROVISIONS.
------------------------------------------------
7.1 SURVIVAL. The representations, warranties, covenants, agreements
--------
and indemnifications of the parties contained in this Agreement or in any
writing delivered pursuant to the provisions of this Agreement shall survive the
consummation of the transactions contemplated herein.
8. TERMINATION.
-----------
8.1 TERMINATION FOR CERTAIN CAUSES. This Agreement may be terminated
------------------------------
at any time prior to or on the Closing Date by the Selling Shareholder or the
Company upon written notice to the other party as follows, and, upon such
termination of this Agreement, no party hereto shall have any liability to the
other:
(a) By the Company, if the terms, covenants or conditions of
this Agreement to be complied with or performed by the Selling Shareholder at or
before the Closing shall not have been complied with or performed and such
noncompliance or nonperformance shall not have been waived by the Company.
(b) By the Selling Shareholder, if the terms, covenants or
conditions of this Agreement to be complied with or performed by the Company at
or before the Closing Date shall not have been complied with or performed and
such noncompliance or nonperformance shall not have been waived by the Selling
Shareholder.
(c) By any party, if any action, suit or proceeding shall have
been instituted or threatened against any party to this Agreement to restrain or
prohibit, or to obtain substantial damages in respect of, this Agreement or the
consummation of the transactions contemplated herein, which, in the good faith
opinion of any party, makes consummation of the transactions herein contemplated
inadvisable.
9. MISCELLANEOUS.
-------------
9.1 NOTICES.
-------
(a) All notices, demands or 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 air mail
(or the functional equivalent in any foreign country), return receipt requested,
or by facsimile transmission to the intended recipient thereof at its address or
facsimile number specified below. Any such notice, demand or communication shall
be deemed to have been duly given immediately (if given or made by confirmed
facsimile), or three days after mailing (if given or made by letter addressed to
a location within the country in which it is posted) or seven days after mailing
(if made or given by letter addressed to a location outside the country in which
it is posted), and in proving same it shall be sufficient to show that the
envelope containing the same was duly
-6-
<PAGE>
addressed, stamped and posted, or that receipt of a facsimile was confirmed by
the recipient. The addresses and facsimile numbers of the parties for purposes
of this Agreement are:
(i) If to the Company: Pameco Holdings, Inc.
1000 Center Place
Norcross, Georgia 30093
Facsimile No. 770-798-0621
With a copy to: Kilpatrick & Cody
Suite 2800
1100 Peachtree Street
Atlanta, Georgia 30309
Facsimile No. 404-815-6555
(ii) If to the Selling Shareholder: Sofitam S.A.
55, rue Charles Delescluze
93171 Bagnolet Cedex
France
Facsimile No. 011-331-40-805-680
(b) Any party may change the address to which notices, requests,
demands or other communications to such parties shall be delivered or mailed by
giving notice thereof to the other parties hereto in the manner provided herein.
9.2 COUNTERPARTS. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original, and all of which shall
constitute one and the same instrument.
9.3 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 among
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 parties hereto.
9.4 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 conflict rules.
9.5 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 shall be solely and
finally settled by arbitration, which shall be conducted in Atlanta, Georgia
U.S.A., by a single arbitrator selected by the parties. The arbitrator shall be
a lawyer
-7-
<PAGE>
familiar with international business transactions and conversant in English. The
parties hereby renounce all recourse to litigation and agree that the award of
the arbitrator shall be final and subject to no judicial review. The arbitrator
shall conduct the proceedings in the English language and pursuant to the Rules
of American Arbitration Association, as now or hereafter amended (the "Rules").
If the parties fail to agree on the arbitrator within 30 days of the date one of
them invokes this arbitration provision, either party may apply to the Superior
Court of Fulton County to make the appointment. The arbitrator shall decide the
issues submitted to him in accordance with: (i) the provisions and commercial
purposes of this Agreement; and (ii) what is just and equitable under the
circumstances, provided that all substantive questions of law shall be
determined under the laws of the State of Georgia, United States of America
(without regard to its principles of conflicts of laws).
(b) The parties agree to facilitate the arbitration by: (i)
making available to one another and to the arbitrator for examination,
inspection and extraction all documents, books, records and personnel under
their control if determined by the arbitrator 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 arbitrator for submission of evidence or briefs.
(c) Judgment on the award of the arbitrator may be entered in
any court having jurisdiction over the party against which enforcement of the
award is being sought and in any court of competent jurisdiction, U.S.A.; and
the parties hereby irrevocably consent to the jurisdiction of any such court for
the purpose of enforcing any such award. The arbitrator shall divide all costs
(other than fees of counsel) incurred in conducting the arbitration in his final
award in accordance with what he deems just and equitable under the
circumstances.
9.6 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
----------------------
shall inure to the benefit of the parties hereto and their respective heirs,
executors, legal representatives, successors and assigns.
9.7 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 applicable laws 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 shall be held to be illegal, invalid or
unenforceable by a court of competent jurisdiction, it is the intention of the
parties that the remaining terms hereof, or part thereof shall constitute their
agreement 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.
9.8 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 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
-8-
<PAGE>
partial exercise of any right, power or remedy by any 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 to 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.
9.9 HEADINGS. The headings as to contents of particular paragraphs
--------
of this Agreement are inserted for convenience and shall not be construed as a
part of this Agreement or as a limitation on the scope of any terms or
provisions of this Agreement.
9.10 NUMBER AND GENDER. Where the context requires, 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 any and all
genders.
9.11 TIME OF PERFORMANCE. Time is of the essence.
-------------------
IN WITNESS WHEREOF, the parties have executed this Agreement under
seal or caused this Agreement to be duly executed under seal by their duly
authorized officers as of the day and year first above written.
THE COMPANY:
PAMECO HOLDINGS, INC.
___________________________
By:________________________
Title:_____________________
THE SELLING SHAREHOLDER:
SOFITAM S.A.
___________________________
By:________________________
Title:_____________________
-9-
<PAGE>
EXHIBIT A
---------
Formula for Purchase Price of the Shares
----------------------------------------
<TABLE>
<CAPTION>
Class of Shares Number of Shares Price Per Share Total
- --------------- ---------------- --------------- -----
<S> <C> <C> <C>
Common Shares 1,000,000 $10.50 $10,500,000
Preferred Shares 4,000 $1,000 $ 4,000,000
-----------
-----------
Total Purchase Price $14,500,000
</TABLE>
-10-
<PAGE>
EXHIBIT 10.22
-------------
================================================================================
AMENDMENT NO. 1, DATED AS OF JUNE 16, 1994,
TO
PAMECO HOLDINGS, INC.
STOCKHOLDERS' AGREEMENT
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Recitals.................................................................. 1
1. Consent and Amendment.................................................. 3
2. Permitted Transfers by Non-Employee Holders............................ 3
3. Transfers of Employee Shares........................................... 4
4. Rights of Inclusion.................................................... 5
5. Rights to Compel Sale.................................................. 7
6. Termination of Employment of Employee Holders.......................... 9
7. Right of First Refusal on Lender Shares................................ 11
8. Right of First Refusal on Investor Shares.............................. 13
9. Right of First Refusal on Frigorifique Shares.......................... 13
10. Antidilution and Preemptive Rights.................................... 14
11. After-Acquired Shares................................................. 14
12. Directors; Voting Agreement; Other Covenants.......................... 14
13. Share Certificates.................................................... 15
14. Covenant by the Investors............................................. 17
15. Covenant by the Corporation........................................... 17
16. Covenant by Frigorifique.............................................. 17
17. Equitable Relief...................................................... 17
18. Arbitration........................................................... 17
19. Miscellaneous......................................................... 18
Signatures................................................................ 19
</TABLE>
<PAGE>
AMENDMENT NO. 1
TO
STOCKHOLDERS' AGREEMENT
-----------------------
This AMENDMENT NO. 1, dated as of June 16, 1994, to STOCKHOLDERS'
AGREEMENT (as so amended, this "Agreement") is entered into as of June 16, 1994,
by and among TCR International Partners L.P., a Delaware limited partnership
("TCRI"), Terbem Ltd., a British Virgin Islands corporation ("Terbem"), Tinvest
Ltd., a British Virgin Islands corporation ("Tinvest"), Mitvest Ltd., a British
Virgin Islands corporation ("Mitvest"), Bobst Investment Corp., a British Virgin
Islands corporation ("Bobst"), K Investment Partners L.P., a Delaware limited
partnership ("KIP"), Klingenstein Charitable Partners, a New York general
partnership ("KCP"), Pameco Holdings, Inc., a Delaware corporation (the
"Corporation"), Brian R. Esher, Chief Executive Officer of the Corporation
and/or certain of its direct or indirect wholly-owned subsidiaries ("Esher"),
certain employees of the Corporation and/or certain of its direct or indirect
wholly-owned subsidiaries that may, from time to time, enter into an option
agreement with the Investors (the "Employees") (the Employees and Esher (to the
extent he owns the Employee Shares indicated on the signature pages hereof) are
collectively referred to herein as the "Employee Holders"), Generale
Frigorifique SA, a French corporation ("Frigorifique"), and each of the Lenders
listed on the signature pages hereof (collectively, the "Lenders"). TCRI,
Terbem, Tinvest, Mitvest, Bobst, KIP, KCP and Esher (to the extent he owns the
Investor Shares indicated on the signature pages hereof) are collectively
referred to herein as the "Investors". The Investors, the Employee Holders,
Frigorifique and the Lenders are collectively referred to herein as the
"Stockholders" and each individually as a "Stockholder."
<PAGE>
W I T N E S S E T H:
- - - - - - - - - --
WHEREAS, the Corporation is authorized to issue 10,000,000 shares of
Common Stock, par value $.01 per share (the "Shares"), and 4,000 shares of
Series A Preferred Stock, par value $1.00 per share (the "Series A Preferred
Shares"), all of which Shares and Series A Preferred Shares are currently issued
and outstanding; and
WHEREAS, the parties hereto (other than Frigorifique) are parties to a
Stockholders' Agreement, dated as of March 19, 1992 (the "Original Stockholders'
Agreement"), which contains certain agreements with respect to the management of
the Corporation, the transfer of the Shares of the Corporation by each of the
Stockholders and certain other matters;
WHEREAS, on June 30, 1993, Frigorifique purchased from certain of the
Stockholders an aggregate of 1,000,000 Shares (such purchase being hereinafter
referred to as the "1993 Transaction");
WHEREAS, Frigorifique currently proposed to purchase from certain of
the Stockholders an aggregate of 1,000,000 additional Shares (such purchase
being hereinafter referred to as the "1994 Transaction");
WHEREAS, the Stockholders (other than Frigorifique) which are parties
to this Amendment No. 1 desire to consent herein to the 1993 Transaction and the
Stockholders which are parties to this Amendment No. 1 desire to consent herein
to the 1994 Transaction and to amend the Original Stockholders' Agreement for
the purpose, among others, of reflecting Frigorifique's status as a Stockholder
and to make certain provisions with respect thereto; and
WHEREAS, each Stockholder is currently the record and beneficial owner
of the number of Shares appearing opposite his or its name on the signature
pages hereto, free and clear of all options, liens, encumbrances or charges of
any kind (the Shares held at any time by the Investors being sometimes
collectively referred to herein as the "Investor Shares", the Shares being held
by the Lenders being sometimes collectively referred to herein as the "Lender
Shares", the Shares being held by Frigorifique being sometimes referred to as
the "Frigorifique Shares" and the Shares being held at any time by the Employee
Holders being sometimes referred to as "Employee Shares"); and
WHEREAS, Frigorifique is currently the record and beneficial owner of
4,000 Series A Preferred Shares.
NOW, THEREFORE, in consideration of the agreements and mutual
covenants contained herein, the parties hereto hereby agree as follows:
-2-
<PAGE>
1. Consent and Amendment.
---------------------
(a) Consent to 1993 Transaction. Notwithstanding anything to the
---------------------------
contrary set forth in the Original Stockholders' Agreement or elsewhere, each of
the Stockholders which is a party to this Amendment No. 1 (other than
Frigorifique) hereby consents to the consummation of the 1993 Transaction and
waives all rights of any nature whatsoever to which such Stockholder might
otherwise be entitled by reason of such transaction.
(b) Consent to 1994 Transaction. Notwithstanding anything to the
---------------------------
contrary set forth in the Original Stockholders' Agreement or elsewhere, each of
the Stockholders which is a party to this Amendment No. 1 hereby consents to the
consummation, upon the terms and subject to the conditions set forth in the
letter agreement dated May 10, 1994 between Frigorifique and the Sellers
referred to therein, of the 1994 Transaction and waives all rights of any nature
whatsoever to which such Stockholder might otherwise be entitled by reason of
such transaction.
(c) Amendment. The Original Stockholders' Agreement is hereby
---------
amended so that, as amended, it shall read in its entirety as set forth in this
Amendment No. 1.
2. Permitted Transfers by Non-Employee Holders.
-------------------------------------------
(a) Transfer of Investor Shares. Notwithstanding anything to the
---------------------------
contrary contained in this Agreement, but subject to Sections 4, 5 and 8 hereof,
any of the Investors may, without the consent of any of the other parties
hereto, directly or indirectly, sell or assign any of the Investor Shares;
provided, however, that no Investor shall, without the prior written consent of
- -------- -------
the Lenders, mortgage, pledge or create a security interest in, or lien upon,
any of such Investor's Shares, except pursuant to the GECC Option Agreement (as
hereinafter defined). In the event of any such disposition, a transferee or
subsequent transferee of such Investor shall be entitled to the rights and
privileges enjoyed by such Investor that are set forth in this Agreement and
shall be bound and obligated to the extent of the Investor by the provisions of
this Agreement. In the event of any disposition by the Investors of Shares to
GECC pursuant to that certain Option Agreement dated March 19, 1992 (the "Option
Agreement"), GECC and its transferees or subsequent transferees shall be
entitled to the rights and privileges that are set forth in this Agreement
pertaining to Lenders and GECC shall be bound and obligated to the same extent
as Lenders, except that GECC shall have no rights under Section 12(a) hereof.
(b) Transfer of Lender Shares. Except to the extent expressly
-------------------------
permitted by Sections 4, 5 and 7 hereof, no Lender shall, without the prior
written consent of the Investors, directly or indirectly, sell, assign,
mortgage, hypothecate, transfer, pledge, create a security interest in or lien
upon, encumber, give, place in trust, or otherwise voluntarily or involuntarily
dispose of any of the Lender Shares (other than to an Affiliate (as hereinafter
defined)). However, in the event any such disposition is permitted or consented
to, a transferee or subsequent transferee of any Lender shall be entitled to the
rights and privileges that are set forth in this Agreement and shall be bound
and obligated by the provisions of this Agreement to the same extent as the
transferor of such Shares.
-3-
<PAGE>
(c) Condition to Permitted Transfers. As a condition to any
--------------------------------
transfer, sale or exchange permitted pursuant to this Section 2, each transferee
shall, prior to such transfer, sale or exchange, agree in writing to be bound by
all of the provisions of this Agreement (unless it has already done so).
(d) Notwithstanding anything to the contrary set forth herein,
Frigorifique may, without the consent of any of the other parties hereto,
directly or indirectly, sell or assign any of its Shares to any Affiliate of
Frigorifique. Any such Affiliate shall be entitled to all of the rights and
subject to all of the obligations, of Frigorifique hereunder.
3. Transfers of Employee Shares.
----------------------------
(a) Except as otherwise provided in this Agreement no Employee
Holder, either directly or indirectly, shall sell, assign, mortgage,
hypothecate, transfer, pledge, create a security interest in or lien upon,
encumber, give, place in trust, or otherwise voluntarily or involuntarily
dispose of any Employee Shares now owned or hereafter acquired by such Employee
Holder.
(b) Notwithstanding the provisions of Section 3(a) hereof:
(i) Each Employee Holder shall have the right at any time
during the term of this Agreement to transfer any or all of his Vested Shares
(as hereinafter defined), for no Consideration or at a price to be determined in
the sole discretion of such Employee Holder, during his lifetime, to his spouse
or his issue or a trust formed for their benefit.
(ii) In the event of the death or adjudicated incompetency of
an Employee Holder, the Shares of such Employee Holder may be transferred to his
heirs, beneficiaries, executor, administrator, guardian or other legal
representative, or in the event of the death of an Employee Holder whose Shares
are held in joint tenancy, to the surviving joint tenant.
(iii) Subsequent to the Public Offering Date (as defined in
Section 19(d) hereof), each Employee Holder shall have the right to sell Vested
Shares pursuant to transactions exempt from registration pursuant to Rule 144
promulgated under the Securities Act of 1933, as amended (the "Act").
As a condition of any transfer permitted in this Section 3(b) (other
than transfers permitted by Section 3(b) (iii)), each such transferee shall
agree in writing at the time of any such transfer to be bound by all of the
provisions of this Agreement and shall be deemed to be an Employee Holder for
purposes of this Agreement unless the context requires otherwise. In the event
of any transfer permitted by this Section 3(b), prompt written notice thereof
shall be delivered to the Corporation by the transferring Employee Holder or his
successor or legal representative.
(c) Unvested Shares shall not be transferable by any Employee Holder
except as permitted by Section 3(b)(ii).
-4-
<PAGE>
4. Rights of Inclusion.
(a) None of the Investors shall, directly or indirectly, sell or
otherwise dispose of any Shares to any third party (other than an Affiliate), if
after giving effect to such sale or other disposition, the total number of
Shares owned by TCRI, Terbem, Tinvest, Mitvest, Bobst, KIP, KCP, Esher (to the
extent he owns Investor Shares) and/or any of their respective Affiliates (the
"Initial Investors"), collectively, would constitute less than 51% of the total
number of Shares issued and outstanding at such time, unless the terms and
conditions of such sale or other disposition to such third party shall include
an offer to each of the other Stockholders, to include, at the option of each
such Stockholder, in the sale or other disposition to the third party, a number
of Shares owned by each such Stockholder determined in accordance with Section
4(b) below. If the Investors receive a bona fide offer from a third party to
purchase or otherwise acquire a number of Shares which, after giving effect to
such disposition, would reduce the total number of Shares owned by the Initial
Investors collectively to less than 51% of the total number of Shares issued and
outstanding at such time, the Investors receiving such a bona fide offer shall
then cause the third party's offer to be reduced to writing (which writing shall
include an offer to purchase or otherwise acquire Shares from the Stockholders
according to the terms and conditions of this Section) and shall send written
notice of the third party's offer (the "Notice") to each of the Stockholders.
The Notice shall be accompanied by a true and correct copy of the third party's
offer. At any time within 30 days after receipt of the Notice, each of the
Stockholders (other than the Investors) may accept the offer (the "Accepting
Stockholders") included in the Notice for up to such number of Shares as is
determined in accordance with the provisions of subsection (b) of this Section
4, by furnishing written notice of such acceptance to the Corporation, the
Investors and the third party offeror. Each Accepting Stockholder hereby agrees
to take all necessary steps to consummate the sale or other disposition of such
Shares pursuant to the terms of such third party's offer, including the delivery
to the third party offeror of the certificate or certificates representing the
Shares to be sold or otherwise disposed of pursuant to such offer by the
Accepting Stockholder. In the case of Employee Holders, the rights and benefits
of this Section 4 shall only be deemed to apply to Vested Shares.
(b) Each Accepting Stockholder shall have the right, pursuant to
Section 4(a) above, to sell, pursuant to the third party's offer, Shares equal
to the product of (A) the total number of Shares to be acquired by the third
party, times (B) a fraction, the numerator of which shall be the total number of
Shares owned by such Accepting Stockholder, and the denominator of which shall
be the total number of Shares owned by all the Stockholders. The maximum number
of Shares that may be sold or otherwise disposed of by each Stockholder pursuant
to the third party's offer shall be the total number of Shares then owned by
such Stockholder. The Investors shall have the right to sell an amount of
Shares equal to (A) the total number of Shares to be acquired by the third
party, minus (B) the aggregate number of Shares to be sold by all of the
Accepting Stockholders.
(c) It shall be a condition to each Accepting Stockholder's right to
sell its Shares under this Section 4, that the purchase from each Accepting
Stockholder pursuant to this Section shall be for the same Consideration per
Share and otherwise on the same terms and conditions upon which the Investors
are selling their shares.
-5-
<PAGE>
"Consideration" means the aggregate value, whether in cash,
securities, assumption or guarantee of debt or liabilities, or other property
paid or payable directly or indirectly to any Stockholder whether denominated as
compensation for the transfer of Shares, finders fee, bonus, or otherwise.
For purposes of computing the value of Consideration:
(i) the value of securities shall be determined as follows:
(A) the value of securities (whether debt or equity) that are traded on a
national securities exchange shall be the last closing price of such securities
on such exchange on the day prior to the transfer of such securities by the
Stockholder; and (B) the value of securities (whether debt or equity) that the
principal market for which is the over-the-counter market shall be the
arithmetic mean between the last bid and asked prices for such securities on the
day prior to the transfer of such securities by the Stockholder;
(ii) the value of indebtedness, including indebtedness assumed
or guaranteed, shall be its fair market value; and
(iii) the value of other liabilities and property shall be the
fair market value at the date of transfer or such other value upon which the
Investors, the Lenders and the third party offeror agree.
(d) As promptly as practicable (but in no event later than 10
business days) after the consummation of the sale or other disposition of the
Shares of the Investors and the Accepting Stockholders to the third party
pursuant to the third party's offer, the Investors shall notify the Accepting
Stockholders thereof. The total sales price to be collected by the Stockholders
in connection with the sale of the Shares of the Accepting Stockholders shall be
paid by the third party purchaser directly to the Accepting Stockholders.
(e) If within 30 days after the receipt of the Notice, any
Stockholder has not accepted the offer contained in the Notice, such Stockholder
will be deemed to have waived any and all rights with respect to the sale or
other disposition of Shares in the transaction described in the Notice and the
Investors shall have 30 days in which to sell or otherwise dispose of not more
than the amount of Shares described in the Notice, on terms not more favorable
to the Investors receiving the bona fide offer than were set forth in the
Notice. If, at the end of 60 days following the receipt of the Notice, the
Investors have not completed the sale or other disposition of Shares owned by
the Investors and the Accepting Stockholders in accordance with the terms of the
third party's offer, and all the restrictions on sale or other disposition
contained in this Agreement with respect to Shares owned by the Investors and
the Accepting Stockholders shall again be in effect.
5. Rights to Compel Sale.
---------------------
(a) Notwithstanding anything to the contrary contained herein, if, at
any time, any one or more of the Initial Investors desires to, directly or
indirectly, sell or otherwise dispose of any Shares to any third party (other
than an Affiliate), such that after giving effect to such sale
-6-
<PAGE>
or other disposition the total number of Shares owned by the Initial Investors
and Employee Holders, collectively, would constitute 10% or less of the total
number of Shares collectively owned, directly or indirectly, by them as of the
date hereof, such Initial Investors (the "Offering Holders") shall first make a
written offer (the "Offer") to Frigorifique offering to sell such Shares and (i)
stating the cash price per Share, denominated in U.S. Dollars, which the
Offering Holders are seeking, (ii) stating the number of Shares the Offering
Holders desire to sell, (iii) indicating what portion (if any) of the price will
be subject to future indemnification and specifying the terms thereof, (iv)
stating generally the representations and warranties the Offering Holders are
prepared to make, and (v) stating any other terms and conditions of the offer.
Frigorifique shall then have the option, but not the obligation, to purchase
all, but not less than all, of the Shares so offered at the price and upon the
terms and conditions set forth in the Offer. The option provided for herein
shall be exercisable by Frigorifique by giving written notice to the Offering
Holders within sixty (60) days after receipt of the Offer.
(b) if Frigorifique chooses not to exercise such option, it may,
within the sixty (60) day period provided for herein, propose a counteroffer
(the "Counteroffer") proposing changes to the Offer. The offering Holder shall
then have the option, but not the obligation, to accept the Counteroffer by
giving written notice thereof within thirty (30) days of receipt of the
Counteroffer.
(c) If, for any reason, Frigorifique does not acquire the Shares
subject to an Offer as provided in the preceding subsections (a) and (b), the
Offering Holders shall have the right for a period of two hundred and seventy
(270) days following the termination of the thirty (30) day period referred to
in the preceding subsection (b) to (i) sell all of the Shares that were the
subject of the Offer to any third party purchaser (other than an Affiliate), but
only on terms and conditions more favorable to the Offering Holders than those
contained in the Offer (or any Counteroffer, if a Counteroffer shall have been
made), and (ii) compel Frigorifique to sell all of its Shares to such third
party purchaser in accordance with the provisions of subsection (f) below.
(d) If, for any reason, Frigorifique chooses not to exercise the
option provided for in subsection (a) hereof and not to make a counteroffer
pursuant to subsection (b), then, at the expiration of the sixty (60) day period
provided for in subsection (a), the Offering Holders shall have the right for a
period of two hundred and seventy (270) days to (i) sell all of the Shares that
were the subject of the Offer to any third party purchaser (other than an
Affiliate) on any terms and conditions, including, without limitation, such
terms or conditions which may be less favorable to the Offering Holders than
those contained in the Offer and (ii) to compel Frigorifique to sell all of its
Shares to such third party purchaser in accordance with the provisions of
subsection (f) below.
(e) If Shares which were the subject of an Offer pursuant to
subsection (a) hereof are not sold pursuant to the provisions of this Section
prior to the expiration of the applicable time periods, such Shares shall be
come subject once again to the provisions and restrictions hereof.
-7-
<PAGE>
(f) If Frigorifique is compelled to sell its Shares pursuant to
subsections (c) or (d) hereof, then the Offering Holders may, at their option,
require all the other Stockholders to sell all, but not part, of the Shares
owned by them (together with the Frigorifique Shares to be sold, the "Designated
Shares") to such third party. If the Offering Holders elect to compel
Frigorifique to sell its Shares and the Offering Holders exercise their option
(pursuant to this subsection (f)) to require all other Stockholders to sell
their Shares, each Stockholder hereby agrees to sell all of its Designated
Shares to such third party for the same Consideration per Share and otherwise on
the same terms and conditions upon which the Offering Holders are selling their
Shares; provided, however, that such sale shall not be for Consideration valued
-------- -------
at less than US$4.00 per Share; provided, further, however, that each such
-------- ------- -------
Stockholder shall only be required to indemnify any such third party for an
amount equal to the product of (i) the difference between the Consideration per
Share received by such Stockholder and such Stockholder's cost basis in such
Shares and (ii) the number of Shares sold by each such Stockholder. For the
purposes of this Section 5, "Consideration" shall have the same meaning as is
assigned to such term in Section 4(c) hereof.
(g) The Investors shall send written notice of the exercise of their
rights and option referred to in subsection (f) to each of the other
Stockholders, setting forth the Consideration per Share to be paid by the third
party purchaser and the other terms and conditions of such transaction. In the
event that the Consideration is in a form other than cash, the Offering Holders
shall provide the other Stockholders with a good faith valuation of the
Consideration. Within 10 days following the date of such notice, each of the
other Stockholders shall deliver to a representative of the Offering Holders
designated in the notice referred to above, certificates representing the
Designated Shares held by such Stockholder, duly endorsed, together with all
other documents required to be executed in connection with such transaction. In
the event that any of such other Stockholders shall fail to deliver such
certificates to the Offering Holders' representative, the Corporation shall
cause the books and records of the Corporation to show that such Shares are
bound by the provisions of this Section 5 and that such Shares shall be
transferred only to such third party purchaser upon any surrender of such Shares
for transfer by the holder thereof.
(h) If, within 90 days after the Offering Holders given such notice,
the sale of all the Shares of the Stockholders in accordance with the written
notice referred to above has not been completed, the Offering Holders shall
return to each of the other Stockholders all certificates representing Shares
that such Stockholder delivered for sale pursuant hereto, and all the
restrictions on sale or other disposition contained in this Agreement with
respect to Shares owned by the Offering Holders and the other Stockholders shall
again be in effect.
(i) Simultaneously with the consummation of the sale of Shares of the
Offering Holders and the other Stockholders pursuant to this Section 5, the
Offering Holders shall remit to each of the other Stockholders the total sales
price of the Shares of such Stockholders sold pursuant thereto, and shall
furnish such other evidence of the completion and time of completion of such
sale or other disposition and the terms thereof as may be reasonably requested
by such Stockholders.
-8-
<PAGE>
(j) Prior to, or simultaneously with, any compulsory sale by
Frigorifique of its Shares pursuant to this Agreement, the Company shall redeem
all of the Series A Preferred Shares then owned by Frigorifique.
6. Termination of Employment of Employee Holders.
---------------------------------------------
(a) For purposes of this Agreement, all Employee Shares owned by
Esher after giving effect to the 1994 Transaction, shall be deemed "Vested
Shares". The Shares owned by each Employee shall be deemed "Vested Shares" for
the purposes of this Agreement at such time as such Shares shall be deemed to be
vested pursuant to option agreements to be entered into by such Employee and the
Investors (the "Option Agreements"). Any Shares which shall not have vested
pursuant to the Option Agreements entered into by an Employee shall be deemed
"Unvested Shares" for the purposes of this Agreement. Notwithstanding the
foregoing, any Vested Shares owned by Esher will not be subject to this Section
6.
(b) If the employment of an Employee Holder terminates for any reason
(such termination of employment to be referred to, for the purposes of this
Agreement, as a "Termination Event" as to such Employee Holder), then such
Employee Holder shall be deemed to have offered for sale to the Corporation, at
a purchase price determined in accordance with Section 6(e) hereof, all of the
Shares owned by such Employee Holder at the time of such Termination Event. The
Corporation shall have a period of thirty (30) days after the date of such
Termination Event to provide such Employee Holder with written acceptance of his
offer to sell his Shares, which acceptance, subject to Section 6(h) hereof, need
not be for all of his Shares offered to the Corporation.
(c) The Corporation shall have the right to designate a third party
to purchase any Shares which it would otherwise be entitled to purchase
hereunder, and such third party shall be entitled to any such Shares on the same
terms and conditions provided for herein; provided, however, that the
-------- -------
Corporation shall first designate any of the Investors before designating any
other third party purchaser.
(d) The per Share purchase price of the Employee Shares to be sold by
an Employee Holder pursuant to this Section 6 shall be determined as follows:
(i) In the case of a Vested Share, the Appraised Value (as
hereinafter defined) of such Share.
(ii) In the case of an Unvested Share, the lesser of (A) the
Base Price (as hereinafter defined) of such Share or (B) the Appraised Value of
such Share.
(e) For the purposes of this Section 6:
(i) "Base Price" shall mean the sum of (A) the amount equal to
the average purchase price per share paid by such Employee Holder for the Shares
and (B) an amount equal to the interest that would accrue on the amount referred
to in clause (A) above, at the rate per annum offered from time to time by
Citibank, N.A. for 90-day certificates of deposit
-9-
<PAGE>
in the amount of $1,000,000, had such amount been borrowed on the date of
purchase of such Employee Shares and repaid on the date of the Termination
Event.
(ii) "Appraised Value" shall mean, in respect of any Employee
Share, the fair market value of such Share, on the date of the Termination
Event, based on the value of the Corporation, as determined by a nationally
recognized independent investment banking firm selected by the Corporation,
divided by the number of outstanding Shares (on a fully diluted basis);
provided, however, that if an Appraised Value shall have been determined
- -------- -------
pursuant to this Agreement at any time during the six month period immediately
preceding the date of the Termination Event, the Corporation may in its sole
discretion elect to utilize such prior determination.
(f) Subject to any financing agreements or any other instruments or
agreements of the Corporation and/or any of its subsidiaries from time to time
in effect restricting the repurchase or retirement of Shares, including but not
limited to (i) the Guarantee, dated March 19, 1992, (as amended from time to
time, the "Guarantee"), by the Corporation of the repayment of funds by MLX
Refrigeration & Air Conditioning Group, Inc. ("RAC") to General Electric Capital
Corporation ("GECC") pursuant to that certain Credit Agreement, dated as of
March 19, 1992, by and among RAC and GECC (the "Credit Agreement"), and (ii) the
Credit Agreement, the purchase price of Employee Shares purchased upon the
exercise of any option granted under this Section 6 shall be payable in cash
(from sources legally available therefor). If any portion of the cash purchase
price payable hereunder for any Employee Shares purchased pursuant to this
Section 6 is not available under applicable law or as a result of restrictions
contained in the Guarantee or the Credit Agreement (the "Restrictions"), such
portion shall be payable by the issuance and delivery of a promissory note (the
"Take-Back Note") which shall bear interest at a rate per annum equal to the
prime rate as publicly announced by Citibank, N.A. from time to time and which
shall have such other terms as the Corporation may deem necessary or appropriate
and (ii) thereafter shall have a five year maturity. In addition, the Take-Back
Notes shall be subordinated to the rights of such creditors of the Corporation
as may be required by law, the Guarantee or the Credit Agreement. The principal
amount of the Take-Back Note shall be payable in equal annual installments but
shall accelerate on the first date of the month following such date as such
Restrictions shall have terminated in their entirety. In addition, if funds are
unavailable for the payment when due of principal of or interest on the Take-
Back Note as a result of the Restrictions, the holder of the Take-Back Note
shall not be entitled to accelerate or demand payment of outstanding principal
of and interest accrued on the Take-Back Note, but if and to the extent
permitted by law, such accrued interest shall be included as the principal
portion of a separate promissory note having terms otherwise identical to the
Take-Back Note. Any payment of principal or interest deferred as a result of
such restrictions shall be due and payable on the next date on which payment of
principal on the Take-Back Note is due following the termination of such
Restrictions. The Take-Back Notes shall in all instances have such terms as
shall comply with any applicable requirements of the Guarantee and the Credit
Agreement.
(g) Notwithstanding anything in this Agreement to the contrary, the
closing of any sale hereunder may be delayed in any case in which the
Corporation has determined (based upon the advice of counsel) that it cannot, in
compliance with applicable law, the
-10-
<PAGE>
Guarantee or the Credit Agreement, purchase any Shares that it is otherwise
obligated to purchase. In such case the closing of such sale shall be delayed
until the earliest practicable date on which such closing may be effected in
compliance with applicable law, the Guarantee and the Credit Agreement.
(h) Subject to Sections 6(f) and 6(g) hereof, the Employee Holder and
the Corporation shall mutually determine a closing date (the "Closing Date") for
the purchase and sale of Employee Shares deemed offered hereunder, which shall
be not more than 20 business days, subject to any applicable regulatory waiting
periods, after the expiration of the notice period described in the subsection
pursuant to which such Employee Shares may be purchased in accordance with this
Agreement, or if any such day is not a business day, then the first business day
thereafter; provided, however, that if the purchase price is to be based upon
-------- -------
Appraised Value, such 20 business day period shall commence upon the final
determination of Appraised Value.
(i) The closing shall be held at 11:00 a.m., local time, at the
offices of the Corporation or at such other time or place as the parties may
agree. On the Closing Date, the Employee Holder shall deliver certificates,
with appropriate transfer tax stamps affixed and with stock powers endorsed in
blank, representing the shares of Stock to be purchased hereunder and shall
represent and warrant that such Employee Holder has all necessary authority to
effect the transfer of the subject Shares, that such Employee is the sole record
and beneficial owner of such Employee Shares and has good and valid title to
such Shares, free and clear of any and all liens, claims, pledges, options and
restrictions of any kind whatsoever.
(j) If the Corporation elects to exercise its right to purchase
Shares under subsection (b) of this Section 5 for fewer than all the Employee
Shares held by an Employee Holder, the Corporation shall purchase from such
Employee Holder at least the number of Employee Shares necessary to qualify such
purchase as a substantially disproportionate redemption pursuant to Section
302(b)(2) of the Internal Revenue Code of 1986, as amended.
7. Right of First Refusal on Lender Shares.
---------------------------------------
(a) If any holder of Lender Shares desires to dispose of any or all
of its Lender Shares, (i) such transfer must be pursuant to a written offer
received from a proposed third party purchaser (the "Offer"), (ii) such holder
shall give written notice (the "Holder's Notice") to the Corporation and the
other holders of Lender Shares not fewer than thirty (30) days before the date
of the proposed disposition, which notice shall specify the terms and conditions
of the Offer and the identity of the offeror and (iii) the other holders of
Lender Shares shall have the option, but not the obligation, to purchase all,
but not less than all, of the Lender Shares for which the Offer was made at the
price and upon the terms and conditions set forth in the Offer. The option
provided for herein shall be exercisable by the other holders of Lender Shares,
in such proportions as they may determine, by giving notice to the selling
holder within ten (10) days after receipt of the Holder's Notice.
(b) If, for any reason, the other holders of Lender Shares fail to
exercise the option provided for in Section 7(a) hereof within the ten (10) day
period described in Section
-11-
<PAGE>
7(a) hereof, the rights provided to the other holders of Lender Shares in
Section 7(a) hereof shall expire and then Frigorifique shall have the option,
but not the obligation, by providing written notice to such selling holder
within ten (10) days following the expiration of the option of the other holders
of Lender Shares above, to purchase all, but not less than all, of the Lender
Shares for which the Offer was made at the price and upon the terms and
conditions set forth in the Offer. The option provided for herein shall be
exercisable by Frigorifique by giving notice to the selling holder within ten
(10) days after the expiration of the option provided for in Section 7(a)
hereof.
(c) If, for any reason, Frigorifique fails to exercise the option
provided for in Section 7(b) hereof within the ten (10) days period described in
Section 7(b) hereof, the rights provided to Frigorifique in Section 7(b) hereof
shall expire and then the Investors shall have the option, but not the
obligation, by providing written notice to such selling holder within ten (10)
days following the expiration of the option of Frigorifique above, to purchase
all, but not less than all, of the Lender Shares for which the Offer was made at
the price and upon the terms and conditions set forth in the Offer. The option
provided for herein shall be exercisable by the Investors by giving notice to
the selling holder within ten (10) days after the expiration of the option
provided for in Section 7(b) hereof.
(d) If, for any reason, the Investors fail to exercise the option
provided for in Section 7(c) hereof within the ten (10) day period described in
Section 7(c) hereof, the Investors' rights shall expire and then the Corporation
shall have the option, but not the obligation, by providing written notice to
such selling holder within ten (10) days following the expiration of the
Investors' option above, to purchase all, but not less than all, of the Lender
Shares for which the offer was made at the price and upon the terms and
conditions set forth in the Offer. The option provided for herein shall be
exercisable by the Corporation by giving notice to the selling holder within ten
(10) days after the expiration of the option provided for in Section 7(c)
hereof.
(e) If, for any reason, the Corporation fails to exercise the option
provided for in Section 7(d) hereof within the ten (10) day period described in
Section 7(d) hereof, the Corporation's option shall expire and no subsequent
attempted exercise thereof shall be effective, and the selling holder shall have
the right for a period of sixty (60) days following the expiration of such
option, to sell any or all of the Shares subject to the Offer, notwithstanding
the restrictions or limitations of this Agreement; provided, however, that such
-------- -------
sale may be to any offeror but only pursuant to the terms and conditions of the
Offer, and provided, further, that such offeror shall agree in writing to be
bound by all of the terms and conditions of this Agreement which apply to
Lenders. If such Shares are not sold pursuant to the provisions of this Section
7(e) prior to the expiration of the sixty (60) day period specified herein, such
Shares shall become subject once again to the provisions and restrictions
hereof.
8. Right of First Refusal on Investor Shares.
-----------------------------------------
(a) If, at any time, any Initial Investor desires to dispose of any
Shares, such Initial Investor (the "Offering Investor") shall first make a
written offer (the "Offer") to Frigorifique offering to sell such Shares and
stating the price per Share, denominated in U.S.
-12-
<PAGE>
Dollars, which such holder is seeking, the number of Shares such Offering
Investor desires to sells and any other terms and conditions of the offer.
Frigorifique shall then have the option, but not the obligation, to purchase
all, but not less than all, of the Shares so offered at the price and upon the
terms and conditions set forth in the Offer. The option provided for herein
shall be exercisable by Frigorifique by giving written notice to the Offering
Investor within sixty (60) days after receipt of the Offer.
(b) If, for any reason, Frigorifique fails to exercise the option
provided for in the preceding subsection (a) within the sixty (60) day period
provided for therein, Frigorifique's option shall expire and no subsequent
attempted exercise thereof shall be effective, and the Offering Investor shall
have the right for a period of two hundred and ten (210) days following the
expiration of such option, to sell any or all of the Shares that were the
subject of the Offer notwithstanding the restrictions or limitations of this
Agreement; provided, however, that such sale may be made to any third party
-------- -------
purchaser but only on terms no less favorable to the Offering Investor holder
than those contained in the Offer; and provided, further, that such purchaser
-------- -------
shall agree in writing to be bound by all of the terms and conditions of this
Agreement which apply to Investors. If such Shares are not sold pursuant to the
provisions of this subsection (b) prior to the expiration of the two hundred and
ten (210) day period specified herein, such Shares shall be come subject once
again to the provisions and restrictions hereof.
9. Right of First Refusal on Frigorifique Shares.
---------------------------------------------
(a) If Frigorifique or any Affiliate of Frigorifique desires to
dispose of any of its Shares, Frigorifique and each of its Affiliates shall
first make a written offer (the "Offer") to the Investors offering to sell all,
but not part, of their Shares and stating the price per Share, denominated in
U.S. Dollars, which they are seeking, the number of Shares they desire to sell
and any other terms and conditions of the offer. The Investors shall then have
the option, but not the obligation, to purchase all, but not less than all, of
the Shares so offered at the price and upon the terms and conditions set forth
in the Offer. The option provided for herein shall be exercisable by the
Investors by giving written notice to Frigorifique and each Affiliate within
thirty (30) days after receipt of the Offer.
(b) If, for any reason, the Investors fail to exercise the option
provided for in the preceding subsection (a) within the thirty (30) day period
provided for therein, the Investors' option shall expire and no subsequent
attempted exercise thereof shall be effective, and Frigorifique shall have the
right for a period of two hundred and ten (210) days following the expiration of
such option, to sell the Shares that were the subject of the Offer
notwithstanding the restrictions or limitations of this Agreement; provided,
--------
however, that such sale may be made to any third party purchaser but only on
- -------
terms no less favorable to Frigorifique than those contained in the Offer; and
provided, further, that such purchaser shall agree in writing to be bound by all
- -------- -------
of the terms and conditions of this Agreement which apply to Frigorifique;
provided, however, that such purchaser will not have any rights of first refusal
- -------- -------
granted to Frigorifique as part of Sections 5 and 8 hereof unless such purchaser
is an Affiliate of Frigorifique. If such Shares are not sold pursuant to the
provisions of this subsection (b) prior to the expiration of the two hundred and
ten (210) day period specified herein, such Shares shall be come subject once
again to the provisions and restrictions hereof.
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<PAGE>
(c) Notwithstanding anything else to the contrary contained herein,
once Frigorifique has made an Offer pursuant to subsection (a) hereof (and
whether or not such Offer was accepted by the Investors), the right of first
refusal on the Investor Shares and the Employee Shares granted to Frigorifique
as part of Sections 5 and 8 hereof shall terminate. Further, the Investors
shall be able to compel Frigorifique to sell to a third party under Section 5
without being required to first make an Offer to Frigorifique thereunder.
10. Antidilution and Preemptive Rights. Prior to and other than in
----------------------------------
connection with an initial public offering, or any transaction in which all
stockholders participate pro rata in accordance with their respective Share
ownership (such as a stock dividend, stock split, rights offering,
reclassification, recapitalization, merger or similar transaction), the
Corporation shall not issue any Shares in addition to the amount issued and
outstanding on the date hereof (other than issuances pursuant to stock bonus,
stock option or similar compensation plans for the benefit of employees,
officers or directors of the Corporation and/or its subsidiaries, which
employees, officers, or directors are not either Employee Holders or Investors)
without offering the Lenders the opportunity to participate in such issuance
upon the same terms as any of the other parties thereto.
11. After-Acquired Shares.
---------------------
(a) All of the provisions of this Agreement shall apply to all of the
Shares now owned or hereafter issued or transferred to a Stockholder or to its
transferee or subsequent transferee in consequence of any additional issuance,
purchase, exchange or reclassification of Shares, corporate reorganization, or
any other form of recapitalization, consolidation, merger, share split or share
dividend, or which are acquired by a Stockholder in any other manner; provided,
--------
however, that this Agreement shall not apply to Shares purchased by Employee
- -------
Holders in open market transactions after the Public Offering Date.
(b) Prior to the Public Offering Date, the Investors agree to use
their best efforts to cause any employee of the Corporation who is not an
Employee Holder on the date hereof and who in the future is granted an option to
purchase any Investor Shares, to execute an Option Agreement and become bound as
a party to this Agreement prior to granting any such option.
12. Directors; Voting Agreement; Other Covenants.
--------------------------------------------
(a) The Board of Directors shall consist of seven (7) directors (or
such other number as may be determined in accordance with the Corporation's
Certificate of Incorporation and By-Laws). The holders of the Lender Shares
shall be entitled to elect one director to the Board of Directors and appoint
two observers who may attend meetings of the Board of Directors, but who will
not have any rights to participate therein. The director to be elected by the
holders of the Lender Shares shall be chosen jointly by The Equitable Life
Assurance Society of the United States and Equitable Variable Life Insurance
Company. Upon reasonable notice, such director (or his designated agent) shall
be entitled to inspect the books and records of the Corporation. Frigorifique
shall be entitled to elect one director to the Board of Directors.
-14-
<PAGE>
(b) Each of the Lenders and the Employee Holders hereby grants an
irrevocable proxy to TCRI to vote, or gives a written consent with respect to,
all of the Shares and the Series A Preferred Shares then owned by the grantor of
the proxy for the election to the Board of Directors of the person or persons
chosen by the Investors; provided, however, that in order to implement Section
-------- -------
12(a) hereof in addition to such other directors as the Investors may from time
to time elect, the Investors shall elect to the Board of Directors the one
nominee designated in writing jointly be Equitable Life Assurance Society of the
United States and Equitable Variable Life Insurance Company and the one nominee
designated by Frigorifique.
(c) Each of the parties hereto agrees that as long as this Agreement
is in effect, the By-laws of the Corporation will provide that (i) any director
of the Corporation shall be entitled to call a special meeting of the Board of
Directors; provided, however, that such right shall only be available up to a
-------- -------
maximum of two times per calendar year, and (ii) that any special meeting of the
Board of Directors must be called with a minimum of two days notice.
(d) There shall be no discrimination in any compensation or fees
paid, or expenses reimbursed, to any director of the Corporation.
(e) Any information provided to any outside director by the
Corporation shall be provided to all outside directors of the Corporation.
(f) The Corporation shall obtain and maintain a directors' and
officers' liability insurance policy; provided, however, that the Corporation
-------- -------
shall not be obligated to do so if, in the opinion of the Board of Directors, it
is not commercially reasonable to do so.
(g) The Corporation shall provide to the Lenders (i) as soon as
available and in any event within forty-five (45) days after the end of each
quarter, consolidated balance sheets of the Corporation and its subsidiaries as
at the end of such quarter and the related consolidated statements of income,
stockholders' equity and cash flows for such quarter, and (ii) as soon as
available and in any event within ninety (90) days after the end of each fiscal
year of the Corporation, consolidated balance sheets of the Corporation and its
subsidiaries as of the end of such year and the related consolidated statements
of income, shareholders' equity and cash flows for the period commencing at the
end of the previous fiscal year and ending with the end of such year.
13. Share Certificates.
------------------
(a) Restrictive Endorsement. Each certificate representing the
-----------------------
Shares now or hereafter held by a Stockholder shall be stamped with a legend in
substantially the following form:
"The shares represented by this certificate are subject to a
Stockholders' Agreement dated March 19, 1992 (the "Stockholders'
Agreement"), a copy of which is on file at the office of the
Corporation and will be furnished to any prospective purchasers on
request. Such Stockholders' Agreement provides, among other things,
for certain restrictions on the sale, transfer, pledge,
-15-
<PAGE>
hypothecation or other disposition of the shares represented by this
certificate and that under certain circumstances the holder hereof may be
required to sell the Shares represented by this Certificate. It is a
condition to the Corporation's obligation to register the transfer of this
certificate that the transferee holder hereof agrees to be bound by the
provisions of the Stockholders' Agreement.
The shares represented by this certificate have been sold
pursuant to an exemption from the registration requirements of the
Securities Act of 1933, as amended, and may not be reoffered or sold
unless so registered or an exemption from such registration is
available and the Corporation receives an opinion of counsel to the
foregoing effect."
The Corporation agrees that upon the receipt by the Corporation of an
opinion of securities counsel reasonably satisfactory to it that certain Shares
and/or any certificate representing Shares may be transferred without
registration under the Act, the holder thereof shall be entitled to receive from
the Corporation a new certificate or certificates representing such Shares,
without the last paragraph of the foregoing legend.
The certificates representing Lender Shares also shall contain a
legend substantially in the following form:
"The shares represented by this certificate are Lender Shares (as
defined in the Stockholders' Agreement)."
The certificates representing Investor Shares also shall contain a
legend substantially in the following form:
The securities represented hereby are subject to the terms of an
Option Agreement, dated as of March 19, 1992 (as amended, supplemented
or otherwise modified from time to time), to which the registered
holder, General Electric Capital Corporation and the issuer are
parties, pursuant to which General Electric Capital Corporation has
been granted an option to purchase such securities.
(b) Replacement Certificates. Upon receipt of evidence reasonably
------------------------
satisfactory to the Corporation of the loss, theft, destruction or mutilation of
any certificate representing Shares issued hereunder and of a bond or other
indemnity reasonably satisfactory to the Corporation, and upon reimbursement to
the Corporation of all reasonable expenses incident thereto, and upon surrender
of such certificate, if mutilated, the Corporation will make and deliver a new
certificate of like tenor in lieu of such lost, stolen, destroyed or mutilated
certificate.
14. Covenant by the Investors. The Corporation shall not, directly
-------------------------
or indirectly, incur any indebtedness to or guarantee indebtedness or
obligations of any Investor (or any Affiliate of an Investor) or issue any
equity securities senior to the Shares to any Investor (or any Affiliate of an
Investor) in excess of (i) an aggregate of $32.5 million in principal amount
(which amount shall include the liquidation value of the 4,000 shares of Series
A Preferred
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<PAGE>
Stock of the Corporation issued and outstanding as of the date hereof and $5
million principal amount of Junior Subordinated Notes of the Corporation
outstanding as of the date hereof), plus (ii) any amounts that may be required
to be paid by the Corporation pursuant to its Guarantee under the Credit
Agreement and the ancillary documents delivered pursuant thereto, plus (iii) any
dividends payable on the Series A Preferred Stock and any interest payable on
the Junior Subordinated Notes referred to in this Section 14.
15. Covenant by the Corporation. The Corporation agrees that it
---------------------------
shall not at any time permit any transfer to be made on its books or records of
the certificates representing the Shares of the Stockholders or any other person
subject to the provisions of this Agreement, and that it will refuse to
recognize any claims of ownership of any purported transferee of such Shares,
unless such transfer is made pursuant to and in accordance with the terms and
conditions of this Agreement.
16. Covenant by Frigorifique. Frigorifique agrees that so long as it
------------------------
owns at least 3% of the issued and outstanding Shares, it shall not, directly or
indirectly, make any investments in, or enter into any joint ventures or
business combinations with, any corporation or other entity incorporated,
organized, or doing business primarily in the United States and which is
engaged, directly or indirectly, in any business now conducted by the
Corporation.
17. Equitable Relief. The parties hereto agree and declare that
----------------
legal remedies may be inadequate to enforce the provisions of this Agreement and
that equitable relief, including specific performance and injunctive relief, may
be used to enforce the provisions of this Agreement.
18. Arbitration. Any controversy arising under, out of, in
-----------
connection with, or relating to, this Agreement, any amendment hereof, or the
breach hereof, shall be determined and settled by arbitration in New York, New
York, by a person or persons mutually agreed upon, or in the event of a
disagreement as to the selection of the arbitrator or arbitrators, in accordance
with the rules then obtaining of the American Arbitration Association. Any
award rendered therein shall specify the findings of fact of the arbitrators and
the reasons for such award, with the reference to and reliance on relevant law.
Any such award shall be final and binding on each and all of the parties thereto
and their personal representatives, and judgment may be entered thereon in any
court having jurisdiction thereof.
19. Miscellaneous.
-------------
(a) Affiliate. The term "Affiliate" as used herein shall mean (i)
---------
any person directly or indirectly controlling, controlled by, or under common
control with, another person, (ii) a person owning or controlling a majority of
the outstanding voting securities of such other person, (iii) any officer,
director, partner or employee of such other person, (iv) if such other person is
an officer, director, partner or employee, any other entity for which such
person acts in any such capacity, and (v) any parent, spouse or child (or any
trust for the benefit of any parent, spouse or child) of any of the foregoing.
-17-
<PAGE>
(b) Notices. Any and all notices, designations, consents, offers,
-------
acceptances, or any other communication provided for herein shall be made by
hand-delivery, first class mail (registered or certified, return receipt
requested), telex, telecopier, or overnight air courier guaranteeing next day
delivery: (i) in the case of the Corporation, the Investors or Esher, to it,
them or him, as the case may be, care of Three Cities Research, Inc., 135 East
57 Street, New York, New York 10022, and (ii) in the case of any other
Stockholder, to the address of the party appearing under his or its name on the
signature pages attached hereto (or to such other address as may be designated
by such party). Except as otherwise provided in this Agreement, each such
notice shall be deemed given at the time delivered by hand, if personally
delivered; five business days after being deposited in the mail, postage
prepaid, if mailed; when answered back, if telexed; when receipt acknowledged,
if telecopied; and the next business day after timely delivery to the courier,
if sent by overnight air courier guaranteeing next day delivery.
(c) Amendment. No change or modification of this Agreement shall be
---------
valid, binding or enforceable unless the same shall be in writing and signed by
the holders of at least 91% of the issued and outstanding Shares.
(d) Termination. This Agreement may be terminated at any time by an
-----------
instrument in writing signed by the holders of at least 91% of the issued and
outstanding Shares. All provisions of this Agreement other than Sections 3, 6
and 15 through 19, shall terminate (i) upon the effectiveness of a Registration
Statement filed by the Corporation in connection with an initial public offering
of any of its equity securities, the date of such effectiveness being referred
to herein as the "Public Offering Date." This Agreement shall terminate in its
entirety ten (10) years from the date hereof, unless, at any time within two (2)
years prior to such date, all of the parties extend its duration for as many
additional periods, each not to exceed ten (10) years, as they may desire.
(e) Waiver. No failure or delay on the part of the Stockholders or
------
any of them in exercising any right, power or privilege hereunder, and no course
of dealing between the Corporation and the Stockholders or any of them shall
operate as a waiver thereof nor shall any single or partial exercise of any
right, power or privilege hereunder preclude the simultaneous or later exercise
of any other right, power or privilege. The rights and remedies herein expressly
provided are cumulative and not exclusive of any rights and remedies which the
Stockholders or any of them would otherwise have. No notice to or demand on the
Corporation in any case shall entitle the Corporation to any other or further
notice or demand in similar or other circumstances or constitute a waiver of the
rights of the Stockholders or any of them to take any other or further action in
any circumstances without notice or demand.
(f) Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
(g) Governing Law. This Agreement shall be governed and construed in
-------------
accordance with the law of the State of New York, except as to matters of
general corporate law, as to which the Delaware General Corporation Law shall
apply.
-18-
<PAGE>
(h) Benefit and Binding Effect. This Agreement shall be binding upon
--------------------------
and shall inure to the benefit of the Corporation, its successors and assigns,
and each of the Stockholders, and their respective executors, administrators and
personal representatives and heirs and assigns. This Agreement shall not be
construed so as to confer any right or benefit upon any person other than the
aforementioned parties. In the event that any part of this Agreement shall be
held to be invalid or unenforceable, the remaining parts thereof shall
nevertheless continue to be valid and enforceable as though the invalid portions
were not a part thereof.
(i) Attorneys' Fees. In any action or proceeding brought to enforce
---------------
any provisions of this Agreement, or where any provisions hereof are validly
asserted as a defense, the successful party shall be entitled to recover
reasonably attorneys' fees in addition to any other available remedy.
(j) No Implied Right. Nothing set forth in this Agreement shall be
----------------
deemed to (i) create any obligation on the part of the Corporation to employ or
retain the services of any Stockholder or (ii) create any obligation of any
Stockholder to remain in such employ or perform any services.
(k) Confidentiality. All parties hereto will treat as confidential
---------------
and keep secret and not make known to anyone the contents of this Agreement
except as may be required by law or by order of any governmental body or with
the consent of all the parties hereto.
IN WITNESS WHEREOF, the parties hereto have signed this Agreement as
of the day and year first above written.
PAMECO HOLDINGS, INC.
By:__________________________________________
Name:
Title:
TCR INTERNATIONAL PARTNERS L.P.
Number of Shares
owned: 1,399,449
By:__________________________________________
Name:
Title:
-19-
<PAGE>
TERBEM, LTD.
Number of Shares
owned: 2,918,188
By:__________________________________________
Name:
Title:
TINVEST, LTD.
Number of Shares
owned: 1,667,726
By:__________________________________________
Name:
Title:
MITVEST, LTD.
Number of Shares
owned: 390,315
By:__________________________________________
Name:
Title:
BOBST INVESTMENT CORP.
Number of Shares
owned: 496,773
By:__________________________________________
Name:
Title:
K INVESTMENT PARTNERS L.P.
Number of Shares
owned: 99,069
By:__________________________________________
Name:
Title:
KLINGENSTEIN CHARITABLE PARTNERS
Number of Shares
owned: 99,069
By:__________________________________________
Name:
Title:
-20-
<PAGE>
BRIAN R. ESHER
Number of Employee
Shares owned: 808,544
_____________________________________________
Number of Investor
Shares owned: 0
GENERALE FRIGORIFIQUE SA
Number of Shares 55, rue Charles Delescluze
owned: 2,000,000 93171 Bagnolet Cedex
France
By:__________________________________________
Name:
Title:
THE LENDERS:
- -----------
THE BANK OF NOVA SCOTIA
Number of Shares 55 Park Place, Suite 650
owned: 120,867 Atlanta, Georgia 30303
By:__________________________________________
Name:
Title:
with a copy to:
THE BANK OF NOVA SCOTIA
Special Accounts Management
1 Liberty Plaza - 26th Floor
New York, NY 10006
-21-
<PAGE>
EXHIBIT 11.1
PAMECO CORPORATION
COMPUTATION OF HISTORICAL NET INCOME PER SHARE
<TABLE>
<CAPTION>
YEAR NINE MONTHS
ENDED ENDED
FEBRUARY NOVEMBER NOVEMBER
29, 1996 30, 1995 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Primary and fully diluted:
weighted average common stock and common stock
equivalents outstanding during the period 6,250 6,250 6,117
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) 237 358 358
-------------------------------------------------------
Total 6,487 6,608 6,535
=======================================================
Net Income $5,494 $6,220 $7,343
=======================================================
Historical net income per share of common stock $0.85 $ 0.94 $ 1.12
=======================================================
</TABLE>
_________________________________________________________
(1) Pursuant to Securities and Exchange Commission Staff Accounting Bulletin
No. 83, common stock equivalents issued at prices below the assumed initial
public offering price per share ("cheap stock") during the twelve month
period immediately preceding the initial filing date of the Company's
Registration Statement for its initial public offering have been included
as outstanding for all periods prior to the initial public offering.
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
Pameco Securitization Corporation
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated April 26, 1996 (except for Note 8 as to which the date
is May 2, 1996, and except for the last paragraph of Note 9 as to which the date
is ______, 1997), in the Registration Statement (Form S-1 No. 33-00000) and
related Prospectus of Pameco Corporation for the registration of 3,075,541
shares of its Class A Common Stock.
Ernst & Young LLP
Atlanta, Georgia
________________________________________________________
The foregoing consent is in the form that will be signed upon the completion of
the restatement of capital accounts and the merger described in the last
paragraph of Note 9 to the financial statements.
Ernst & Young LLP
Atlanta, Georgia
March 26, 1997
