FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(MARK ONE)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MAY 31, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO ___________
COMMISSION FILE NUMBER 001-12837
PAMECO CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
GEORGIA 51-0287654
---------------------------- ----------------
(State or other jurisdiction (I.R.S. employer
of incorporation or identification
organization) number)
1000 CENTER PLACE
NORCROSS, GA 30093
----------------------------------------
(Address of principal executive offices)
(770)-798-0700
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter periods that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the
past 90 days Yes X No__
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practical date. Class
A Common Stock, $.01 par value, 4,716,512 shares and Class B Common
Stock, $.01 par value, 4,046,346 shares, both as of June 30, 1998.<PAGE>
PAMECO CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets-May 31, 1998
and February 28, 1998 3
Condensed Consolidated Statements of Income-Three
Months ended May 31, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows-Three
Months ended May 31, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES
2
<PAGE>
PART I. FINANCIAL INFORMATION
PAMECO CORPORATION
PAMECO CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
May 31, February 28,
1998 1998
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 152 $ 142
Accounts receivable, less allowance of $4,489 at May 31, 1998
and $3,992 at February 28, 1998 33,742 35,266
Inventories 134,286 123,041
Prepaid expenses and other current assets 2,316 1,554
---------- ----------
Total current assets 170,496 160,003
Property and equipment, net 13,010 11,603
Excess of cost over acquired net assets, net 27,684 25,613
Other assets 728 806
Deferred income tax assets 12,787 12,787
---------- ----------
Total assets $ 224,705 $ 210,812
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 71,481 $ 60,323
Accrued compensation and withholdings 2,108 5,115
Other accrued liabilities and expenses 18,164 18,056
Note payable ---- 7,700
Current portion of capital lease obligations and other debt 31 56
---------- ----------
Total current liabilities 91,784 91,250
Long-term liabilities:
Debt 53,421 42,072
Capital lease obligations 29 148
Warranty reserves and other 4,003 3,691
---------- ----------
Total long-term liabilities 57,453 45,911
Excess of acquired net assets over cost, net 4,693 4,999
Shareholders' equity:
Class A common stock, $.01 par value-authorized 40,000 shares;
4,712 and 4,665 shares issued and outstanding at May 31, 1998
and February 28, 1998, respectively 47 47
Class B common stock, $.01 par value-authorized 20,000 shares; 4,046
and 4,046 shares issued and outstanding at May 31, 1998 and
February 28, 1998, respectively 41 41
Capital in excess of par value 37,332 37,092
Retained earnings 33,955 32,072
---------- ----------
71,375 69,252
Note receivable from shareholder (600) (600)
Total shareholders' equity 70,775 68,652
---------- ----------
Total liabilities and shareholders' equity $ 224,705 $ 210,812
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
3<PAGE>
PAMECO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
May 31
------------------------------
1998 1997
---------- ----------
<S> <C> <C>
Net sales $ 145,194 $ 113,735
Costs and expenses:
Cost of products sold 111,146 87,124
Warehousing, selling, and administrative expenses 29,519 23,434
Amortization of excess of cost over acquired net assets 204 81
Amortization of excess of acquired net assets over cost (306) (306)
---------- ----------
140,563 110,333
---------- ----------
Operating earnings 4,631 3,402
Other expense:
Interest expense, net (1,022) (1,219)
Discount on sale of accounts receivable and other expense (760) (696)
---------- ----------
Income before income taxes 2,849 1,487
Provision for income taxes 965 472
---------- ----------
Net income $ 1,884 $ 1,015
========== ==========
Basic earnings per share $ 0.22 $ 0.19
========== ==========
Basic weighted average shares outstanding 8,740 5,229
========== ==========
Diluted earnings per share $ 0.21 $ 0.18
========== ==========
Diluted weighted average shares outstanding 9,120 5,643
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
4<PAGE>
PAMECO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
May 31
--------------------------
1998 1997
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,884 $ 1,015
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization of excess of cost over acquired net assets 204 81
Amortization of excess of acquired net assets over cost (306) (306)
Depreciation 485 386
(Gain) /Loss on sale of property and equipment (40) (1)
Changes in operating assets and liabilities net of assets
acquired and liabilities assumed:
Accounts receivable 4,423 (1,005)
Inventories, prepaid expenses and other assets (5,034) (5,267)
Accounts payable and accrued liabilities (1,029) 14,589
---------- ---------
Net cash provided by operating activities 587 9,492
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant, and equipment (1,718) (675)
Proceeds from sale of property and equipment 123 28
Business acquisitions (10,428) (1,282)
---------- ---------
Net cash used in investing activities (12,023) (1,929)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on working capital facility 167,397 116,773
Repayments on working capital facility (186,164) (117,282)
Borrowings (repayments) on term loan 30,000 (7,500)
Payments on capital lease obligations and other debt (26) (145)
Exercise of stock options 239 592
---------- ---------
Net cash provided by (used in) financing activities 11,446 (7,562)
---------- ---------
Net increase in cash and cash equivalents 10 1
Cash and cash equivalents at beginning of period 142 145
---------- ---------
Cash and cash equivalents at end of period $ 152 $ 146
========== =========
Issuance of common stock in exchange for note receivable $ --- $ 600
========== =========
</TABLE>
See notes to condensed consolidated financial statements.
5<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MAY 31, 1998
1. BASIS OF PRESENTATION
The accompanying unaudited Condensed Consolidated Financial
Statements have been prepared in accordance with generally
accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the three month period
ended May 31, 1998 are not necessarily indicative of the results
that may be expected for the year ending February 28, 1999. The
sale of products by Pameco Corporation (the "Company" or
"Pameco") is seasonal with sales generally increasing during the
warmer months beginning in April and peaking in the months of
June, July, and August. For further information, refer to the
consolidated financial statements and footnotes thereto included
in the Company's Annual Report on Form 10-K for the year ended
February 28,1998.
The balance sheet at February 28, 1998 included herein has
been derived from the audited financial statements at that date
but does not include all the information and footnotes required
by generally accepted accounting principles for complete
financial statements.
2. INVENTORIES
Inventories consist of goods held for resale and are stated
at the lower of cost or market. Cost is determined by the first
- -in, first-out method.
6<PAGE>
3. EARNINGS PER SHARE
The following table sets for the computation of basic and
diluted earnings per share (in thousands,
except per share amounts).
<TABLE>
<CAPTION>
Three Months Ended
May 31,
1998 1997
-------- --------
<S> <C> <C>
Numerator:
Net income applicable to common shareholders $ 1,884 $ 1,015
Denominator:
Basic earnings per share-weighted average shares 8,740 5,229
Effect of dilutive securities:
Employee Stock Options 380 414
-------- --------
Diluted earnings per share-adjusted weighted-average
shares and assumed conversions 9,120 5,643
======== ========
Basic earnings per share $ 0.22 $ 0.19
======== ========
Diluted earnings per share $ 0.21 $ 0.18
======== ========
</TABLE>
4. ACQUISITIONS
In March 1998, the Company purchased the heating,
ventilation, and air conditioning ("HVAC") operations and related
assets of Keller Supply, Inc., a distributor of HVAC equipment
in Huntsville, Alabama, a new market for the Company. The
acquired business had net sales in excess of $2.0 million for the
year ended December 31, 1996 and derived substantially all its
net sales from the sale of HVAC products.
In May 1998, the Company purchased the HVAC and
refrigeration operations and related assets of George L.
Johnston Co., Inc., a 10-branch distributor in Michigan and
Ohio. Two of the branches are in top 100 Standard Metropolitan
Statistical Areas ("SMSAs") not previously served by the Company.
The acquired business had net sales in excess of $20.0 million
for the year ended December 31, 1997 and derived substantially
all its net sales from the sale of HVAC and refrigeration
products.
In June 1998, the Company purchased the HVAC operations and
substantially all the related assets of Park Heating and Air
Conditioning Supply Co., Inc., a seven branch distributor in the
greater Chicago area. For the year ended December 31, 1997, the
acquired business had net sales in excess of $30.0 million and
derived substantially all its net sales from the sale of HVAC
products.
7<PAGE>
5. CONTINGENCIES
On November 18, 1996, United Refrigeration, Inc. ("United"),
a competitor of the Company, filed suit against Pameco in the
United States District Court for the Eastern District of
Pennsylvania claiming that Pameco had tortiously interfered with
United's alleged contract to purchase Sid Harvey's southeastern
business operations (the "Southeastern Assets"). United asserts
that beginning on or about August 23, 1996, it met with Sid
Harvey and thereafter negotiated an agreement (allegedly
finalized on or about October 24, 1996) to purchase the
Southeastern Assets for approximately $26 million and that Pameco
tortiously interfered with this alleged contract by offering
"substantial inducements" to Sid Harvey and by itself purchasing
the Southeastern Assets. In the alternative, United claims that,
should the agreement be deemed unenforceable, Pameco tortiously
interfered with United's prospective contractual relations with
Sid Harvey. On February 18, 1997, United filed an amended
complaint adding Sid Harvey as a defendant. In the amended
complaint, United claims that Sid Harvey (i) breached its
agreement to sell the Southeastern Assets to United; (ii)
committed fraud in the inducement of that alleged contract; (iii)
negligently misrepresented certain facts concerning the sale of
the operations and Sid Harvey's intention to carry out the sale
of those assets and (iv) was unjustly enriched by certain
information obtained from United during the United-Sid Harvey
negotiations.
Although the amended complaint does not demand specified
damages, it asserts that United should recover the "loss of its
bargain," which United estimates to be $11.4 million, plus
punitive damages. Upon consummation of the Southeastern Assets
acquisition, Pameco agreed, based on certain written
representations made by Sid Harvey about the status of its
discussions with United, to indemnify Sid Harvey against all
liabilities arising out of any action filed by United in
connection with the purchase of the Southeastern Assets. At this
time, the Company is not able to determine the outcome of the
lawsuit.
Pameco and Sid Harvey have asserted a counterclaim against
United seeking to recover the damages they have incurred in going
forward with the transaction in reliance on representations that
the President of United made to the President of Sid Harvey.
On June 22, 1998, Pameco and Sid Harvey filed motions for
summary judgment requesting that the District Court dismiss all
of United's claims against them. On the same day, United filed a
cross-motion for summary judgment, seeking to dismiss the
counterclaim filed by Pameco and Sid Harvey, and requesting that
the District Court enter judgment in its favor on its breach of
contract claim against Sid Harvey. The District Court has not
yet ruled on any of these motions.
The Company is involved in other claims and legal
proceedings which have arisen in the ordinary course of its
business. The Company intends to defend vigorously all such
claims and does not believe any such matters or the actions
described above will have a material adverse affect on the
Company's results of operations or financial condition.
8<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following table sets forth the percentage relationship of
certain statement of operations data to net revenue for the
periods indicated.
<TABLE>
<CAPTION>
Three Months Ended
May 31
----------------------
1998 1997
------- ------
<S> <C> <C>
Net sales 100.0 % 100.0 %
Cost of products sold 76.5 76.6
------ ------
Gross profit 23.5 23.4
Warehousing, selling, and administrative expenses 20.3 20.6
Amortization of excess of cost over acquired net assets 0.2 0.1
Amortization of excess of acquired net assets over cost (0.2) (0.3)
------ ------
Operating earnings 3.2 3.0
Other expense:
Interest expense, net 0.7 1.1
Discount on sale of accounts receivable and other expense 0.5 0.6
------ ------
Income before income taxes 2.0 1.3
Provision for income taxes 0.7 0.4
------ ------
Net income 1.3 % 0.9 %
====== ======
</TABLE>
RESULTS OF OPERATIONS
Net sales of $145.2 million in the quarter ended May 31,
1998 increased 27.7% from $113.7 million for the comparable
period in 1997. Same store daily sales increased 6.6% in the
quarter as compared to the prior year.
Excluding the effect of acquisitions, the net sales of HVAC
products increased 14.6% on a daily same store basis in the
quarter ended May 31, 1998 as compared to the prior year. Net
sales of refrigeration equipment, parts, and supplies decreased
2.9% on a daily same store basis in the first quarter as compared
to the prior year. The ThermalzoneTM private label equipment
line, with an 80.3% increase in net sales in the quarter ended
May 31, 1998 over the prior year, was a major contributor to this
increase in HVAC sales. Net sales from national accounts also
increased 28.5% over the prior year. Although unit sales of
refrigerant products for the quarter ended May 31, 1998 increased
over the prior year, the market shifted to lower priced products
which caused an overall decrease in net sales of refrigerant
products.
9<PAGE>
In the quarter ended May 31, 1998, gross profit increased
27.9% to $34.0 million from $26.6 million in the prior year
primarily due to increased sales volume. The gross profit
percentage increased to 23.5% during the quarter ended May 31,
1998 as compared to 23.4% during the same quarter in the prior
year. In the quarter ended May 31, 1998, the Company benefited
from more stringent pricing guidelines at the point of sale, in
addition to improved terms and prompt payment discounts from
suppliers.
Warehousing, selling, and administrative expenses during the
quarter increased 26.0% to $29.5 million from $23.4 million in
the prior year. The addition of the normal operating expenses of
the acquired branches contributed significantly to the increase
in warehousing, selling, and administrative expenses in the
quarter ended May 31, 1998. As a percentage of net sales,
warehousing, selling, and administrative expenses decreased to
20.3% in the first quarter from 20.6% in the prior year.
Interest expense during the quarter ended May 31, 1998
decreased to $1.0 million from $1.2 million in the previous year.
The Company's average borrowings under the Working Capital
Facility increased by $20.9 million in the three months ended May 31,
1998 over the previous year. The accounts receivable
securitization borrowing (the "Securitization Program") was
recorded as a sale of assets; therefore, approximately $60.0
million of accounts receivable and debt are not reflected on the
Company's balance sheet at May 31, 1998. The discount on the
sale of accounts receivable of $749,000 and $669,000 for the
three months ended May 31, 1998 and May 31, 1997, respectively,
was recorded as other expense on the income statement. The
average rate of interest on all debt, including the
Securitization Program, for the quarter ended May 31, 1998 was
7.1% as compared to 7.6% for the previous year.
Income taxes increased $493,000 to $965,000 for the quarter
ended May 31, 1998 due to greater income before taxes. The
Company's effective tax rate was 33.9% for the three months ended
May 31, 1998 as compared to 31.7% in the prior year. The
effective tax rate is lower than the statutory rate due primarily
to nontaxable amortization income.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity needs arise from seasonal working
capital requirements, capital expenditures, interest and
principal payment obligations, and acquisitions. The Company has
historically met its liquidity and capital investment needs with
internally generated funds and borrowings under its Credit
Facilities (as defined below). For the three months ended May
31, 1998, cash provided by operating activities was $587,000
compared to cash provided by operating activities of $9.5 million
for the three months ended May 31,1997. Net cash used in
investing activities was $12.0 million for the three months ended
May 31, 1998 as compared to $1.9 million for the three months
ended May 31, 1997. In the three months ended May 31, 1998, the
Company purchased the HVAC operations and related assets of
10<PAGE>
Keller Supply, Inc. and George L. Johnston Co., Inc. for an
aggregate cash price of $10.4 million as compared to $1.3 million
for the acquisitions of Bellows-Evans, Inc. and Trigg Supply,
Inc. in the prior year. Net cash provided by financing
activities was $11.4 million for the three months ended May 31,
1998, while such activities used $7.6 million in the three months
ended May 31, 1997.
The Company's working capital increased to $78.7 million at
May 31, 1998 from $68.8 million at February 28, 1998.
At May 31, 1998, the Company had senior borrowings
of $113.3 million under its $140.0 million Credit Facilities, of
which $25.8 million was unused and available. The Company's
senior indebtedness consists of $53.3 million under the Working
Capital Facility and $60.0 million under the Securitization
Program (collectively, the "Credit Facilities"). The
Securitization Program is an off balance sheet arrangement that
provides for the transfer and sale of accounts receivable to a
special purpose corporation. The weighted average interest rate
on the Credit Facilities at May 31, 1998 was 7.1%. This rate
fluctuates with the commercial paper and LIBOR rates.
On March 10, 1998, the Working Capital Facility Credit
Agreement (the "Credit Agreement") was amended and restated. The
Credit Agreement provides a facility commitment of $80.0 million,
which includes a $40.0 million Revolving Credit Loan (the
"Revolver"), a $10.0 million swing-line facility (the
"Swingline") and two $15.0 million term loans ("Tranche A" and
"Tranche B). The Credit Agreement will expire on March 10, 2003.
The Tranche A term loan matures on March 10, 2003 and the Tranche
B term loan matures on March 10, 2005.
The Company's capital expenditures, excluding acquisitions,
for the three months ended May 31, 1998, were $1.7 million as
compared to $675,000 for the previous year. Such capital
expenditures were primarily for branch and distribution center
leasehold improvements, equipment, and computer equipment and
supply chain software.
Management believes that the Company has adequate resources
and liquidity to meet its borrowing obligations, fund all
required capital expenditures, and pursue its business strategy
for existing operations through the end of this fiscal year.
However, the Company will require additional funding in order to
pursue significant acquisition opportunities. Future
acquisitions may be financed by bank borrowings, public
offerings, or private placements of equity or debt securities or
a combination of the foregoing. Such financings may require the
consent of the Company's existing lenders.
11
<PAGE>
SEASONALITY
The sale of products by the Company is seasonal. Sales
generally increase during the warmer months beginning in April
and peak in the months of June, July, and August.
YEAR 2000
The Company utilizes computer systems and software that are
affected by the Year 2000 issue. Many computer programs were
originally designed to utilize two digits instead of four to
define the applicable year. As a result, a computer program
might recognize a date using "00" as the year 1900 rather than
2000 which could cause system failures or miscalculations.
The Company is currently replacing and upgrading its supply
chain and financial management systems and software. In addition
to being Year 2000 compliant, the systems will also improve the
Company's ability to respond to the needs of its customers. The
Company intends to resolve all Year 2000 issues on mission
critical systems by December 1998. By mid 1999, the Company
should have Year 2000 compliance testing completed for its other
affected business systems.
In addition to reviewing all internal software for Year 2000
compliance, the Company is contacting suppliers, customers, and
other business contacts. After this step is completed, the
Company will be able to better assess its own vulnerability to
the failure of third parties to properly address the Year 2000
issue.
The Company does not expect the cost of Year 2000
compliance to be material to its financial statements. However,
if the Company, its vendors, or its customers do not timely
resolve their significant Year 2000 issues, it could have a
material adverse effect on the Company. Therefore, the Company is
committed to devoting sufficient resources to ensure that all
Year 2000 issues are resolved in a timely manner.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See Note 5 to the Condensed Consolidated Financial
Statements (Unaudited) contained in Part I of this Report.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.20A Amendment to Employment Agreement between Gerald
V. Gurbacki and Pameco Corporation
27. Financial Data Schedule (for SEC use only)
b). Reports on Form 8-K
None
12<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
PAMECO CORPORATION
-----------------------------------
(Registrant)
By: /s/ THEODORE R. KALLGREN
---------------------------------------
Theodore R. Kallgren
Chief Financial Officer
July 14, 1998 (Mr. Kallgren has been duly authorized
to sign on behalf of the registrant)
12
<PAGE>
Exhibit Index
Exhibit No. Exhibit
----------- ------
10.20A Amendment to Employment Agreement between Gerald
V. Gurbacki and Pameco Corporation
27. Financial Data Schedule (for SEC use only)
Exhibit 10.20A
FIRST AMENDMENT TO
EMPLOYMENT AGREEMENT
THIS FIRST AMENDMENT is made and entered into as of the
10th day of June, 1998, between PAMECO CORPORATION, a Georgia
corporation ("Pameco"), and GERALD V. GURBACK1 ("Executive").
W I T N E S S E T H:
WHEREAS, Pameco and Executive entered into that certain
Employment Agreement, dated as of March 1,1996 (the "Agreement");
and
WHEREAS, Pameco and Executive desire to amend the Agreement;
NOW THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Pameco
and Executive hereby agree to amend the Agreement as follows:
1. AMENDMENT TO SECTION 1. Section 1 of the Agreement is
hereby amended to reflect the extension of the term of the
Agreement through February 29, 2000 by deleting the phrase "for a
term of three (3) years" and substituting in lieu thereof the
phrase "for a term of four (4) years". Section 1 of the
Agreement is hereby further amended by adding a new sentence
before the last sentence as fo1lows: "In the event the Company
decides not to renew this Agreement by giving written notice
thereof to Executive as provided in this Paragraph 1 prior to the
expiration of the initial or any renewal term of Executive's
employment hereunder, Executive shall be entitled to severance
pay commencing on the expiration of the initial or such renewal
term, as the case may be, in an aggregate amount equal to his
then current annual salary."
2. AMENDMENT TO SECTION 4.2. Section 4.2 of the Agreement
is hereby amended by deleting the second sentence thereof in its
entirety and substituting the following in lieu thereof: "In
addition, Executive shall be entitled to four (4) weeks of annual
vacation."
3. AMENDMENT TO ARTICLE 4. Article 4 of the Agreement is
hereby amended by adding a new Section 4.6 at the end of Article
4 as follows:
"4.6 SPECIAL HEALTH INSURANCE PROVISIONS. (a) Upon any
termination or expiration of Executive's employment with the
Company for any reason whatsoever during the term of this
Agreement, the Company shall give Executive the option between
receiving continuation coverage for Executive (and, if
applicable, his dependents) under the Company's group health plan
in accordance with the continuation coverage provisions of the
Consolidated Omnibus Budget Reconciliation Act of 1995 (COBRA),
or the alternative continuation coverage described in Section
4.6(b) below.
b) Under the alternative continuation coverage,
Executive and his dependents shall have the right to
participate in the Company's group health plan until
Executive reaches age sixty-five (65); provided, however
that the right provided for in this Section 4.6(b) will
terminate as to Executive and his dependents and be of no
further force and effect as of the date Executive becomes
eligible to participate under any other group health plan
sponsored by a subsequent employer, whether or not Executive
elects to participate in such plan. If Executive is
terminated without Cause and is entitled to severance pay
under this Agreement, then for as long as Executive receives
severance pay, the Company shall pay all premiums for the
Executive's and his dependents' participation in the
Company's group health plan pursuant to this Paragraph
4.6(b). Immediately upon termination of the payment of
severance pay, Executive shall be required to pay all
premiums for continued participation in the Company's group
health plan. If Executive is terminated for Cause,
voluntarily leaves the employ of the Company, or his
employment with the Company is terminated for any reason
other than termination without Cause, then Executive shall
be required to pay all premiums for his and his dependents'
continued participation in the Company's group health plan
pursuant to this Section 4.6(b).
(c) The Company reserves the right to amend the
Company's group health plan at any time, to change, reduce,
or cease benefit coverages provided under the plan, and to
change how such coverages are paid at any time; provided
that in no event shall Executive's coverage under the
Company's group health plan be less favorable than the
coverage provided to the then active employees of the
Company."
4. ENTIRE AGREEMENT. Except as provided herein, all
terms and conditions of the Agreement shall remain in full
force and effect.
5. GOVERNING LAW. This Amendment has been executed and
delivered in the State of Georgia, and the validity and
effect of this Amendment shall be governed by and construed
arid enforced in accordance with the laws of the State of
Georgia
6. COUNTERPARTS. This Amendment may be executed in
one or more counterparts, each of which shall for all
purposes be deemed an original, and all of which together
shall constitute one and the same agreement.
IN WITNESS WHEREOF, the undersigned have executed this First
Amendment effective as of the day and year first above written.
PAMECO CORPORATION
By: /s/ Theodore R. Kallgren
Name: Theodore R. Kallgren
Title: VP, CFO
/s/ Gerald V. Gurbacki
Gerald V. Gurbacki
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF PAMECO CORPORATION FOR THE THREE MONTHS ENDED MAY 31,
1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0001036283
<NAME> PAMECO CORPORATION
<MULTIPLIER> 1,000
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