-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, S69Ew1QhDYrONmh1FBPLlYBZxQNuA2C44ILT0jLjxtGEme5c/gSe6XLDq5Cx8apH EMdbeeJyK/uIeqwL0vj2qA== 0001036050-01-000374.txt : 20010308 0001036050-01-000374.hdr.sgml : 20010308 ACCESSION NUMBER: 0001036050-01-000374 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 20010307 GROUP MEMBERS: ANGUS C. LITTLEJOHN, JR. GROUP MEMBERS: LITTLEJOHN ASSOCIATES II, LLC GROUP MEMBERS: LITTLEJOHN FUND II L P GROUP MEMBERS: LITTLEJOHN FUND II, L.P. GROUP MEMBERS: PAMECO AQUISITION, INC. GROUP MEMBERS: QUILVEST AMERICAN EQUITY LTD. SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: PAMECO CORP CENTRAL INDEX KEY: 0001036283 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 510287654 STATE OF INCORPORATION: DE FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: SEC FILE NUMBER: 005-51675 FILM NUMBER: 1563049 BUSINESS ADDRESS: STREET 1: 1000 CENTER PL CITY: NORCROSS STATE: GA ZIP: 30093 BUSINESS PHONE: 7707980700 MAIL ADDRESS: STREET 1: 1000 CENTER PLACE CITY: NORCROSS STATE: GA ZIP: 30093 FORMER COMPANY: FORMER CONFORMED NAME: NEW PAMECO GEORGIA CORP DATE OF NAME CHANGE: 19970326 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: LITTLEJOHN FUND II L P CENTRAL INDEX KEY: 0001099495 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: 115 EAST PUTNAM AVE CITY: GREENWICH STATE: CT ZIP: 06830 BUSINESS PHONE: 2038614005 MAIL ADDRESS: STREET 1: 115 EAST PUTNAM AVENUE CITY: GREENWICH STATE: CT ZIP: 06830 SC 13D/A 1 0001.txt AMENDMENT NO. 6 TO SCHEDULE 13D/A UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 SCHEDULE 13D/A (Amendment No. 6) Under the Securities Exchange Act of 1934 PAMECO CORPORATION ------------------ (Name of Issuer) COMMON STOCK, PAR VALUE $0.01 PER SHARE --------------------------------------- (Title of Class of Securities) 697934305 --------- (CUSIP Number) Angus C. Littlejohn, Jr. Littlejohn & Co., LLC 115 East Putnam Avenue Greenwich, Connecticut 06830 (203) 552-3500 -------------- (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) March 6, 2001 ------------- (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Schedule 13D/A, and is filing this schedule because of Rule 13D/A-1(b)(3) or (4), check the following box [_] Check the following box if a fee is being paid with the statement. [_] (A fee is not required only if the reporting person: (1) has a previous statement on file reporting beneficial ownership of more than five percent of the class of securities described in Item 1; and (2) has filed no amendment subsequent thereto reporting beneficial ownership of five percent or less of such class.) (See Rule 13D/A-7.) The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). Page 1 of 13 SCHEDULE 13D - ------------------- ------------------- CUSIP No. 697934305 Page __ of __ Pages - ------------------- ------------------- - ------------------------------------------------------------------------------ NAME OF REPORTING PERSON 1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON Littlejohn Fund II, L.P. - ------------------------------------------------------------------------------ CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP 2 (a) [X] (b) [_] - ------------------------------------------------------------------------------ SEC USE ONLY 3 - ------------------------------------------------------------------------------ SOURCE OF FUNDS 4 WC - ------------------------------------------------------------------------------ CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) or 2(e) [_] 5 - ------------------------------------------------------------------------------ CITIZENSHIP OR PLACE OF ORGANIZATION 6 Delaware, United States - ------------------------------------------------------------------------------ SOLE VOTING POWER 7 NUMBER OF 16,633,780 SHARES ----------------------------------------------------------- SHARED VOTING POWER BENEFICIALLY 8 OWNED BY 6,140,378 ----------------------------------------------------------- EACH SOLE DISPOSITIVE POWER 9 REPORTING 16,633,780 PERSON ----------------------------------------------------------- SHARED DISPOSITIVE POWER WITH 10 7,073,711 - ------------------------------------------------------------------------------ AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 11 23,707,491 - ------------------------------------------------------------------------------ CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES 12 [_] - ------------------------------------------------------------------------------ PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)* 13 100% - ------------------------------------------------------------------------------ TYPE OF REPORTING PERSON 14 PN - ------------------------------------------------------------------------------ *Percentage based on a total outstanding of 23,707,491 shares of Common Stock, consisting of (i) 3,100,178 shares of Common Stock, (ii) 140,000 shares of Series A Preferred Stock, as converted into 4,666,666 shares of Common Stock, (iii) 62,500 shares of Series B Preferred Stock, as converted into 3,698,223 shares of Common Stock, (iv) 62,500 shares of Series C Preferred Stock, as converted into 7,575,758 shares of Common Stock, and (v) warrants to purchase Page 2 of 13 140,000 shares of Series A Preferred Stock, as exercised and converted into 4,666,666 shares of Common Stock. Page 3 of 13 SCHEDULE 13D - ------------------- ------------------- CUSIP No. 697934305 Page __ of __ Pages - ------------------- ------------------- - ------------------------------------------------------------------------------ NAME OF REPORTING PERSON 1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON Littlejohn Associates II, LLC - ------------------------------------------------------------------------------ CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP 2 (a) [X] (b) [_] - ------------------------------------------------------------------------------ SEC USE ONLY 3 - ------------------------------------------------------------------------------ SOURCE OF FUNDS 4 AF - ------------------------------------------------------------------------------ CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) or 2(e) [_] 5 - ------------------------------------------------------------------------------ CITIZENSHIP OR PLACE OF ORGANIZATION 6 Delaware, United States - ------------------------------------------------------------------------------ SOLE VOTING POWER 7 NUMBER OF 16,633,780 SHARES ----------------------------------------------------------- SHARED VOTING POWER BENEFICIALLY 8 OWNED BY 6,140,378 ----------------------------------------------------------- EACH SOLE DISPOSITIVE POWER 9 REPORTING 16,633,780 PERSON ----------------------------------------------------------- SHARED DISPOSITIVE POWER WITH 10 7,073,711 - ------------------------------------------------------------------------------ AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 11 23,707,491 - ------------------------------------------------------------------------------ CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES 12 [_] - ------------------------------------------------------------------------------ PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)* 13 100% - ------------------------------------------------------------------------------ TYPE OF REPORTING PERSON 14 OO - ------------------------------------------------------------------------------ *Percentage based on a total outstanding of 23,707,491 shares of Common Stock, consisting of (i) 3,100,178 shares of Common Stock, (ii) 140,000 shares of Series A Preferred Stock, as converted into 4,666,666 shares of Common Stock, (iii) 62,500 shares of Series B Preferred Stock, as converted into 3,698,223 shares of Common Stock, (iv) 62,500 shares of Series C Preferred Stock, as converted into 7,575,758 shares of Common Stock, and (v) warrants to purchase 140,000 shares of Series A Preferred Stock, as exercised and converted into 4,666,666 shares of Common Stock. Page 4 of 13 SCHEDULE 13D - ------------------- ------------------- CUSIP No. 697934305 Page __ of __ Pages - ------------------- ------------------- - ------------------------------------------------------------------------------ NAME OF REPORTING PERSON 1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON Angus C. Littlejohn, Jr. - ------------------------------------------------------------------------------ CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP 2 (a) [X] (b) [_] - ------------------------------------------------------------------------------ SEC USE ONLY 3 - ------------------------------------------------------------------------------ SOURCE OF FUNDS 4 AF - ------------------------------------------------------------------------------ CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) or 2(e) [_] 5 - ------------------------------------------------------------------------------ CITIZENSHIP OR PLACE OF ORGANIZATION 6 United States - ------------------------------------------------------------------------------ SOLE VOTING POWER 7 NUMBER OF 16,633,780 SHARES ----------------------------------------------------------- SHARED VOTING POWER BENEFICIALLY 8 OWNED BY 6,140,378 ----------------------------------------------------------- EACH SOLE DISPOSITIVE POWER 9 REPORTING 16,633,780 PERSON ----------------------------------------------------------- SHARED DISPOSITIVE POWER WITH 10 7,073,711 - ------------------------------------------------------------------------------ AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 11 23,707,491 - ------------------------------------------------------------------------------ CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES 12 [_] - ------------------------------------------------------------------------------ PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)* 13 100% - ------------------------------------------------------------------------------ TYPE OF REPORTING PERSON 14 IN - ------------------------------------------------------------------------------ *Percentage based on a total outstanding of 23,707,491 shares of Common Stock, consisting of (i) 3,100,178 shares of Common Stock, (ii) 140,000 shares of Series A Preferred Stock, as converted into 4,666,666 shares of Common Stock, (iii) 62,500 shares of Series B Preferred Stock, as converted into 3,698,223 shares of Common Stock, (iv) 62,500 shares of Series C Preferred Stock, as converted into 7,575,758 shares of Common Stock, and (v) warrants to purchase 140,000 shares of Series A Preferred Stock, as exercised and converted into 4,666,666 shares of Common Stock. Page 5 of 13 SCHEDULE 13D - ------------------- ------------------- CUSIP No. 697934305 Page __ of __ Pages - ------------------- ------------------- - ------------------------------------------------------------------------------ NAME OF REPORTING PERSON 1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON Quilvest American Equity Ltd. - ------------------------------------------------------------------------------ CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP 2 (a) [X] (b) [_] - ------------------------------------------------------------------------------ SEC USE ONLY 3 - ------------------------------------------------------------------------------ SOURCE OF FUNDS 4 WC - ------------------------------------------------------------------------------ CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) or 2(e) [_] 5 - ------------------------------------------------------------------------------ CITIZENSHIP OR PLACE OF ORGANIZATION 6 British Virgin Islands - ------------------------------------------------------------------------------ SOLE VOTING POWER 7 NUMBER OF -0- SHARES ----------------------------------------------------------- SHARED VOTING POWER BENEFICIALLY 8 OWNED BY 6,140,378 ----------------------------------------------------------- EACH SOLE DISPOSITIVE POWER 9 REPORTING -0- PERSON ----------------------------------------------------------- SHARED DISPOSITIVE POWER WITH 10 7,073,711 - ------------------------------------------------------------------------------ AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 11 7,073,711 - ------------------------------------------------------------------------------ CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES 12 [_] - ------------------------------------------------------------------------------ PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)* 13 100% - ------------------------------------------------------------------------------ TYPE OF REPORTING PERSON 14 CO - ------------------------------------------------------------------------------ *Percentage based on a total outstanding of 7,073,711 shares of Common Stock, consisting of (i) 3,100,178 shares of Common Stock, (ii) 28,000 shares of Series A Preferred Stock, as converted into 933,333 shares of Common Stock, (iii) 10,000 shares of Series B Preferred Stock, as converted into 591,715 shares of Common Stock, (iv) 12,500 shares of Series C Preferred Stock, as converted into 1,515,152 shares of Common Stock, and (v) warrants to purchase 28,000 shares of Series A Preferred Stock, as exercised and converted into 933,333 shares of Common Stock. Page 6 of 13 SCHEDULE 13D - ------------------- ------------------- CUSIP No. 697934305 Page __ of __ Pages - ------------------- ------------------- - ------------------------------------------------------------------------------ NAME OF REPORTING PERSON 1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON Pameco Acquisition, Inc. - ------------------------------------------------------------------------------ CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP 2 (a) [X] (b) [_] - ------------------------------------------------------------------------------ SEC USE ONLY 3 - ------------------------------------------------------------------------------ SOURCE OF FUNDS 4 WC - ------------------------------------------------------------------------------ CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) or 2(e) [_] 5 - ------------------------------------------------------------------------------ CITIZENSHIP OR PLACE OF ORGANIZATION 6 Delaware - ------------------------------------------------------------------------------ SOLE VOTING POWER 7 NUMBER OF -0- SHARES ----------------------------------------------------------- SHARED VOTING POWER BENEFICIALLY 8 OWNED BY 3,100,178 ----------------------------------------------------------- EACH SOLE DISPOSITIVE POWER 9 REPORTING -0- PERSON ----------------------------------------------------------- SHARED DISPOSITIVE POWER WITH 10 3,100,178 - ------------------------------------------------------------------------------ AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 11 3,100,178 - ------------------------------------------------------------------------------ CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES 12 [_] - ------------------------------------------------------------------------------ PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)* 13 100% - ------------------------------------------------------------------------------ TYPE OF REPORTING PERSON 14 CO - ------------------------------------------------------------------------------ *Percentage based on a total outstanding of 3,100,178 shares of Common Stock to be acquired pursuant to an Agreement and Plan of Merger, dated March 6, 2001, by and between Pameco Acquisition, Inc. and Pameco Corporation. Page 7 of 13 This Statement on Schedule 13D/A (this "Statement"), which is being filed jointly by the Reporting Persons and Pameco Acquisition, Inc., a Delaware corporation ("Merger Sub," hereinafter also referred to as a "Reporting Person"), also constitutes Amendment No. 10 to the Statement on Schedule 13D, as amended, previously filed by Quilvest American Equity Ltd. ("Quilvest") with respect to shares of Class A Common Stock, par value $.01 per share ("Class A Common Stock"), of Pameco Corporation, a Georgia corporation. The Class A Common Stock is currently denominated as Common Stock, par value $.01 per share (the "Common Stock"), of Pameco Corporation, a Delaware corporation (the "Company"). This Statement amends the previously filed Statement on Schedule 13D filed by the Reporting Persons, other than Merger Sub, for which this Statement constitutes the initial filing. Information in this Statement with respect to Quilvest or its affiliates has been provided by Quilvest. Information in this Statement with respect to the other Reporting Persons has been provided by such other Reporting Persons. ITEM 2. IDENTITY AND BACKGROUND. (a) This Statement constitutes the initial filing for Merger Sub as a Reporting Person. Merger Sub is a Delaware corporation, the sole business purpose of which is to engage in the transactions contemplated by the Merger Agreement (as defined below). Merger Sub is owned by Littlejohn Fund II, L.P. ("Littlejohn") and Quilvest. The names of the directors and executive officers of Merger Sub are set forth on Schedule 5 hereto, which is incorporated herein by reference. No person controls or shares in the control of Merger Sub who is not a member of its board. (b) The address of the principal office of Merger Sub is 115 East Putnam Avenue, Greenwich, Connecticut 06830. (c) The present principal occupation of each individual set forth in Item 2(a) is set forth on Schedules 1, 2, 3, 4 and 5. (d) Neither Merger Sub, nor any of its directors or executive officers, has been convicted during the last five years in a criminal proceeding (excluding traffic violations or similar misdemeanors). (e) Neither Merger Sub, nor any of its directors or executive officers, has been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws. (f) The citizenship of each individual set forth in Item 2(a) is set forth on Schedules 1, 2, 3, 4 and 5. ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION. On March 6, 2001, the Company and Merger Sub entered into an Agreement and Plan of Merger (the "Merger Agreement") providing for the merger (the "Merger") of Merger Sub with and into the Company. Littlejohn and Quilvest (collectively, the "Buyers") have joined the Merger Agreement for the sole purpose of contributing to Merger Sub the funds needed to pay the Merger Consideration (as defined below). Pursuant to the Merger Agreement, each share of Common Stock of the Company outstanding immediately prior to the effective time of the Merger (other than (i) shares held in the Company's treasury, by Merger Sub or by a subsidiary of the Company, all of which will be canceled, and (ii) shares held by stockholders who have exercised their statutory right under the laws of the state of Delaware to have such shares appraised and be paid the fair value therefor ("Dissenting Shares")), will be converted into the right to receive $0.45 in cash, without any interest thereon (such cash paid for the shares of Common Stock is hereinafter referred to as the "Merger Consideration"), and each share of common stock of Merger Sub that is issued and outstanding immediately prior to the effective time of the Page 8 of 13 Merger will be converted into that number of shares of the common stock of the Company as the surviving corporation in the Merger (the "Surviving Corporation") equal to the nearest higher whole number to the quotient of (a) the number of shares of Common Stock of the Company outstanding at the effective time of the Merger, divided by (b) 10. The Buyers have calculated that, assuming there are no Dissenting Shares, approximately $1,395,080.10 will be required to pay the Merger Consideration to holders of Common Stock of the Company at the closing of the Merger. Buyers expect that the funds to be used to pay the Merger Consideration shall come from internal funding sources. ITEM 4. PURPOSE OF TRANSACTION. The Buyers intend to consummate the Merger and acquire all the outstanding shares of Common Stock at the earliest practicable date. The Merger is conditioned on, among other things, (i) the approval and adoption of the Merger Agreement and the Merger by the affirmative vote or written consent of the holders of a majority of the outstanding shares of Common Stock and preferred stock of the Company, assuming conversion of all outstanding shares of Company preferred stock, (ii) the absence of any court order, decree or injunction that prohibits the consummation of the Merger, (iii) receipt of the necessary consents to the Merger from the Company's existing senior and subordinated lenders, (iv) Dissenting Shares constituting no more than ten percent (10%) of the total number of shares of Common Stock outstanding on the closing date of the Merger, and (v) the absence of any material adverse change in the financial condition, results of operation, assets, liabilities or business of the Company. As a result of the Merger, (i) all shares of the Common Stock outstanding at the time of the Merger (other than shares owned by Merger Sub, of any subsidiary of the Company, and any shares held in the Company's treasury, all of which will be canceled, and Dissenting Shares) will be converted into the right to receive the Merger Consideration, (ii) all shares of the preferred stock of the Company outstanding at the time of the Merger shall remain outstanding as shares of preferred stock of the Surviving Corporation, (iii) each share of the common stock of Merger Sub shall become that number of shares of common stock of the Surviving Corporation equal to the nearest higher whole number to the quotient of (a) the number of shares of Common Stock of the Company outstanding at the effective time of the Merger, divided by (b) 10, (iv) Buyers shall own one hundred percent (100%) of the outstanding shares of the Surviving Corporation, (v) it is expected that the Common Stock of the Company shall cease to be authorized to be quoted on the OTC Bulletin Board or on any other interdealer quotation system of a registered national securities association; (vi) it is expected that the Common Stock of the Company shall be removed from registration and Company shall cease to be a reporting company under the 1934 Act, and (vii) the directors and officers of the Company shall become the directors and officers of the Surviving Corporation. The foregoing description of the Merger Agreement and the transactions contemplated thereby is only a summary thereof, does not purport to be complete and is qualified in its entirety by the specific terms of the Merger Agreement, which is filed as an exhibit hereto and incorporated herein by reference. ITEM 5. INTEREST IN SECURITIES OF THE ISSUER. (a) As a result of the execution of the Merger Agreement and the Stockholders Agreement described in Items 3 and 6, Merger Sub (the common stock of which is beneficially owned by the Reporting Persons) has the right to acquire 3,100,178 shares of Common Stock, which represents 100% of the outstanding shares of Common Stock. (b) Littlejohn has the sole power to vote and direct the vote of any and all shares of Common Stock beneficially owned by Merger Sub. Page 9 of 13 (c) Except as described in Item 3, to the best knowledge of the Reporting Persons, no transaction in the Common Stock was effected during the past 60 days or since the last filing on Schedule 13D. (d) Except as set forth in this Item 5, to the best knowledge of the Reporting Persons, none of the persons named in Item 2(a) beneficially owns any shares of Common Stock. On the basis of control, the board of directors of Merger Sub may be deemed to have the ultimate power to direct the voting or disposition, as well as the application of dividends from, or the proceeds of the sale of, the shares of Common Stock beneficially owned by Merger Sub. ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO SECURITIES OF THE ISSUER. Merger Sub, Littlejohn and Quilvest entered into a Stockholders Agreement (the "Stockholders Agreement," which is filed as an exhibit hereto and incorporated herein by reference) on March 6, 2001 providing for, among other things: (i) the organization and capitalization of Merger Sub; (ii) certain restrictions on the transfer of the capital stock of both Merger Sub and, upon consummation of the Merger, the Surviving Corporation; (iii) the voting of the capital stock of both Merger Sub and, upon consummation of the Merger, the Surviving Corporation; (iv) the composition of the boards of directors of Merger Sub and, upon consummation of the Merger, the Surviving Corporation; and (v) that immediately following consummation of the Merger, each of Littlejohn and Quilvest shall own that percentage of the equity of the Surviving Corporation (computed on a common stock equivalent basis, assuming conversion of all Preferred Stock) equal to the amount that the aggregate amount invested by such party in the Company to acquire the Preferred Stock plus an amount equal to the accrued and unpaid dividends on the Preferred Stock held by such party through the day immediately prior to the effective time of the Merger plus the amounts invested in Merger Sub by such party (collectively, the "Investment Amount") bears to the aggregate Investment Amount of both parties. Contemporaneously with entering into the Stockholders Agreement, Quilvest has delivered to Littlejohn an irrevocable proxy, which will become effective as of the effective time of the Merger and will be irrevocable to the fullest extent permitted by law, with respect to all voting securities of the Surviving Corporation owned of record and beneficially by Quilvest as of the effective time of the Merger. Pursuant to the Stockholders Agreement, the Buyers have agreed to contribute immediately prior to the effective time of the Merger funds for the further capitalization of Merger Sub. Specifically, in addition to the $4,000.00 cash it already contributed in exchange for eight shares of the common stock of Merger Sub (the "Merger Sub Common Stock"), Littlejohn shall contribute an amount in cash equal to 80% of the Merger Consideration. In addition to the $1,000.00 cash it already contributed in exchange for two shares of Merger Sub Common Stock, Quilvest shall contribute an amount in cash equal to 20% of the Merger Consideration. The Stockholders Agreement requires that the Board of Directors of Merger Sub (the "Merger Sub Board") consist of four directors, three of whom shall be nominated by Littlejohn and one of whom shall be nominated by Quilvest. Pursuant to the Stockholders Agreement, each of the Buyers approved and adopted the Merger Agreement and, subject to the approval by the director nominated by Quilvest under certain circumstances, shall approve and adopt any amendments, supplements or modifications to the Merger Agreement that the Merger Sub Board may approve from time to time. Each of the Buyers is prohibited by the terms of the Stockholders Agreement from transferring, selling, offering to sell, assigning, pledging or encumbering any shares of the Merger Sub Common Stock, subject to certain exceptions. The foregoing prohibition shall terminate and be of no further force or effect upon the effective time of the Merger. Page 10 of 13 Upon consummation of the Merger, the Stockholders Agreement shall be deemed to supersede, replace and terminate that certain Shareholders Agreement dated February 18, 2000, among Littlejohn, Quilvest, the Company and Willem F.P. de Vogel (the "Original Shareholders Agreement"). The Stockholders Agreement provides that, upon consummation of the Merger and the replacement and termination of the Original Shareholders Agreement, Willem F.P. de Vogel shall have no further rights or obligations under the Original Shareholders Agreement. The Stockholders Agreement also provides that, upon consummation of the Merger, that certain Registration Rights Agreement dated February 18, 2000, among Littlejohn, Quilvest and the Company will terminate. The Stockholders Agreement requires that, after the effective time of the Merger, the Board of Directors of the Company shall at all times have between five and nine directors, and, as of the effective time of the Merger, the Board shall have eight directors. Commencing with the effective time of the Merger, Quilvest shall have the right to nominate two persons to stand for election to serve as directors, at least one of whom shall not be an affiliate or associate of Quilvest. The Chief Executive Officer of the Company shall be nominated to stand for election to serve as a director, and Littlejohn shall have the right to nominate all remaining persons to stand for election to serve as directors, at least one of whom shall not be an affiliate or associate of Littlejohn. Subject to certain exceptions, Quilvest has agreed that it will not transfer any of its voting securities of the Company, whether held of record or beneficially owned. Under certain circumstances, Quilvest has tag along rights and Littlejohn has bring along rights. The Stockholders Agreement terminates on the earliest of (i) 10 years from its date of execution, (ii) the mutual agreement of the Buyers which beneficially own a majority of the Common Stock issued or issuable upon conversion of the Preferred Stock or upon the exercise of the Warrants, in each case which are subject to the Stockholders Agreement, (iii) the sale of 90% or more of the securities described in clause (ii) to a person which is not an affiliate of Littlejohn or a permitted transferree of Quilvest who becomes party to the Stockholders Agreement, and (iv) the termination of the Merger Agreement in accordance with its terms as in effect from time to time. The Stockholders Agreement provides that after the Guaranty Amendment Date (as defined therein), the Surviving Corporation will compensate Littlejohn and Quilvest for their guaranties with respect to any Out-of-Formula Loans under the Credit Agreement. Specifically, the Company agrees to pay to Quilvest and Littlejohn a fee (the "Overadvance Fee") calculated at a rate of 8% per annum of the actual amount of such Out-of-Formula Loans outstanding from time to time which Littlejohn and Quilvest are then guarantying. The Overadvance Fee shall be paid 80% to Littlejohn and 20% to Quilvest and shall be payable quarterly in arrears with respect to such days in which there are outstanding Out-of-Formula Loans. Notwithstanding the foregoing, the Company shall not be required to pay an Overadvance Fee to the extent that, at the time of or after giving effect to the payment thereof, the Company is, or would be in violation of the financial covenants contained in the Credit Agreement, in which case any such Overadvance Fee would accrue and be payable as soon as possible thereafter. ITEM 7. MATERIAL TO BE FILED AS EXHIBITS. Exhibit 1. Agreement and Plan of Merger, dated March 6, 2001, by and between Pameco Acquisition, Inc. and Pameco Corporation. Exhibit 2. Stockholders Agreement, dated March 6, 2001, by and among Pameco Acquisition, Inc., Littlejohn Fund II, L.P. and Quilvest American Equity Ltd. Page 11 of 13 SIGNATURE --------- After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this Statement is true, complete and correct. Date: March 6, 2001 Littlejohn Fund II, L.P. By: Littlejohn Associates II, LLC, General Partner By: /s/ Harry F. Weyher, III ------------------------ Name: Harry F. Weyher, III Title: Manager Littlejohn Associates II, LLC By: /s/ Harry F. Weyher, III ------------------------ Name: Harry F. Weyher, III Title: Manager /s/ Angus C. Littlejohn, Jr. ---------------------------- Angus C. Littlejohn, Jr., individually Quilvest American Equity Ltd. By: /s/ Willem F.P. deVogel ----------------------- Name: Willem F.P. deVogel Title: Attorney-in-Fact Pameco Acquisition, Inc. By: /s/ Angus C. Littlejohn, Jr. ---------------------------- Name: Angus C. Littlejohn, Jr. Title: President Page 12 of 13 SCHEDULE 5 PAMECO ACQUISITION, INC.
- --------------------------------------------------------------------------------------------------------------- Principal Occupation or Employment Business and the Name, Principal Business and Address of Organization in which Residence or Business such Employment is Conducted (if Name Address any) Citizenship - --------------------------------------------------------------------------------------------------------------- Angus C. Littlejohn, 115 East Putnam Avenue, Chairman and Chief Executive United States Jr., Greenwich, Connecticut Officer of Littlejohn & Co., L.L.C. President, Secretary 06830 and Treasurer - --------------------------------------------------------------------------------------------------------------- Michael I. Klein, 115 East Putnam Avenue, President of Littlejohn & Co., United States Vice President Greenwich, Connecticut L.L.C. 06830 - --------------------------------------------------------------------------------------------------------------- Harry F. Weyher, III, 115 East Putnam Avenue, Executive Vice President of United States Vice President Greenwich, Connecticut Littlejohn & Co., L.L.C. 06830 - --------------------------------------------------------------------------------------------------------------- Edmund J. Feeley, 115 East Putnam Avenue, Managing Director of Littlejohn & United States Vice President and Greenwich, Connecticut Co., L.L.C. Assistant Secretary 06830 - --------------------------------------------------------------------------------------------------------------- Willem F.P. deVogel, 650 Madison Avenue, 24/th/ Managing Director of Three Cities The Vice President Floor Research, Inc. Netherlands New York, New York 10022 - ---------------------------------------------------------------------------------------------------------------
Page 13 of 13 EX-1 2 0002.txt AGREEMENT AND PLAN OF MERGER Exhibit 1 --------- ================================================================================ AGREEMENT AND PLAN OF MERGER BY AND BETWEEN PAMECO ACQUISITION, INC. AND PAMECO CORPORATION DATED AS OF MARCH 6, 2001 ================================================================================ AGREEMENT AND PLAN OF MERGER THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of March 6, 2001, is entered into by and between PAMECO ACQUISITION, INC., a Delaware corporation ("Merger Sub") and PAMECO CORPORATION, a Delaware corporation (the "Company"). WHEREAS, Littlejohn Fund II, L.P., a Delaware limited partnership ("Littlejohn"), and Quilvest American Equity Ltd., a British Virgin Islands international business company ("Quilvest," and together with Littlejohn, the "Investors," and individually, each an "Investor") together own approximately 87.25% of the outstanding common stock, par value $0.01 per share of the Company (the "Company Common Stock") (assuming conversion of all shares of Company Preferred Stock (as defined in Section 3.2 hereof)); WHEREAS, the Investors own all of the outstanding capital stock of Merger Sub, which has been formed solely for the purpose of acquiring all of the outstanding shares of Company Common Stock; WHEREAS, it is the intention of the parties that Merger Sub shall merge with and into the Company (the "Merger"), with the Company being the surviving corporation; WHEREAS, a Special Committee (the "Special Committee") of the Board of Directors of the Company (composed entirely of directors who have no direct or indirect financial interest in the transactions contemplated hereby) has unanimously determined, and the Board of Directors of the Company has unanimously determined, that the Merger is fair to, advisable for and in the best interests of the Company and its stockholders that are unaffiliated with the Investors, and each of the Special Committee and the Board of Directors of the Company has approved this Agreement and recommended its adoption by the stockholders of the Company; WHEREAS, the Board of Directors of Merger Sub has approved and adopted this Agreement; NOW, THEREFORE, in consideration of the foregoing and the representations, warranties, covenants and agreements set forth in this Agreement, the parties hereto, intending to be legally bound, hereby agree as follows: ARTICLE 1 THE MERGER ---------- Section 1.1. The Merger. At the Effective Time (as hereinafter ---------- defined), upon the terms and subject to the conditions set forth in this Agreement and in accordance with the Delaware General Corporation Law (the "DGCL"), Merger Sub shall be merged with and into the Company. Upon consummation of the Merger, the separate corporate existence of Merger Sub shall cease, and the Company shall continue as the surviving corporation (the "Surviving Corporation"). The Merger shall have the effects set forth in this Agreement and in the DGCL (including Section 259 thereof). Section 1.2. Effective Time. As soon as practicable following the -------------- satisfaction or waiver of the conditions set forth in Article 6, the parties shall file with the Secretary of State of the State of Delaware a certificate of merger (the "Certificate of Merger") executed in accordance with the relevant provisions of the DGCL. The Merger shall become effective at such time as the Certificate of Merger is duly filed in the Department of State of the State of Delaware, or, if specified in the Certificate of Merger, at such other time as is permissible in accordance with the DGCL and as Merger Sub and the Company shall agree (the time the Merger becomes effective being the "Effective Time"). Section 1.3. Closing. The closing of the Merger (the "Closing") shall ------- take place at 10:00 a.m., Philadelphia time, at the offices of Pepper Hamilton LLP, 3000 Two Logan Square, Eighteenth and Arch Streets, Philadelphia, Pennsylvania 19103, on a date to be specified by the parties which shall be no later than the third business day following satisfaction or waiver of the conditions provided in Article 6, or at such other date, time and place as Merger Sub and the Company shall agree (the "Closing Date"). Section 1.4. Certificate of Incorporation and Bylaws. Pursuant to the --------------------------------------- Merger, the Certificate of Incorporation and Bylaws of the Company as in effect immediately prior to the Effective Time shall be the Certificate of Incorporation and Bylaws of the Surviving Corporation following the Merger, until thereafter changed or amended as provided therein and in accordance with applicable law; provided, that Article VI, Section 1 of the Certificate of Incorporation shall be amended by resolution of the Board of Directors of the Company to delete in its entirety the first sentence thereof and insert in its place the following: The properties, business and affairs of the Company shall be managed and controlled by a Board of Directors, which shall consist of between five (5) and nine (9) directors. Section 1.5. Officers and Directors. The officers and directors of ---------------------- the Company shall be the officers and directors of the Surviving Corporation following the Merger and until the earlier of their death, resignation or removal or until their respective successors are duly elected or appointed and qualified. ARTICLE 2 EFFECT OF THE MERGER ON CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES -------------------------------------------------- Section 2.1. Effect on Common Stock. At the Effective Time, by virtue ---------------------- of the Merger and without any action on the part of either Merger Sub, the Company, the holders of any shares of Company Common Stock or the holders of any shares of Company Preferred Stock (as defined in Section 3.2 hereof): -2- (a) Company Common Stock. With the exception of (i) shares -------------------- of Company Common Stock held by a holder who has taken all actions required by Section 262 of the DGCL to be taken prior to the Effective Time in order to maintain such holder's right to appraisal of such shares under the DGCL ("Dissenting Shares") and (ii) shares of Company Common Stock canceled and retired pursuant to Section 2.1(d), each share of Company Common Stock that is issued and outstanding immediately prior to the Effective Time shall be converted into and become a right to receive $0.45 in cash without interest (the "Merger Consideration"), and when so converted, shall automatically be canceled and retired and shall cease to exist, and each holder of a certificate representing any such shares of Company Common Stock (the "Merger Convertible Shares") shall cease to have any rights with respect thereto, except the right to receive the Merger Consideration allocable to the shares formerly represented by such certificate upon surrender of such certificate in accordance with Section 2.4. (b) Company Preferred Stock. Each share of Series A ----------------------- Preferred Stock, Series B Preferred Stock and Series C Preferred Stock (each as defined in Section 3.2) that is issued and outstanding immediately prior to the Effective Time shall remain outstanding as capital stock of the Surviving Corporation and shall not be converted, exchanged or canceled in the Merger. (c) Common Stock of Merger Sub. Each share of common stock, -------------------------- par value $0.01 per share of Merger Sub ("Merger Sub Common Stock"), that is issued and outstanding immediately prior to the Effective Time shall be converted into and become that number of shares of common stock, par value $0.01 per share, of the Surviving Corporation equal to the nearest higher whole number to the quotient of (a) the number of shares of Company Common Stock outstanding at the Effective Time, divided by (b) 10. (d) Company Common Stock to be Canceled and Retired. Each ----------------------------------------------- share of Company Common Stock that is owned immediately prior to the Effective Time by (i) the Company (where such shares constitute treasury stock in the hands of the holder thereof ("Treasury Stock")), (ii) Merger Sub or (iii) a Subsidiary of the Company shall be canceled and retired and shall cease to exist, no consideration shall be delivered in exchange therefor, and the holder thereof shall cease to have any rights with respect to any certificates representing any such shares. The term "Subsidiary" means any corporation, joint venture, partnership, limited liability company or other entity of which the Company, directly or indirectly, owns or controls capital stock (or other equity interests) representing more than fifty percent of the general voting power of such entity under ordinary circumstances. Section 2.2. Dissenting Shares. ----------------- (a) Dissenting Shares shall not be converted into the right to receive the Merger Consideration, but the holder thereof shall instead be entitled to such rights as are afforded under the DGCL with respect to such holder's Dissenting Shares, unless upon or after the Effective Time such holder fails to perfect, withdraws or otherwise loses such holder's right to appraisal. -3- (b) If upon or after the Effective Time, any holder of Dissenting Shares fails to perfect, withdraws or otherwise loses such holder's right to appraisal, the Dissenting Shares of such holder shall represent the right to receive the Merger Consideration, in accordance with Section 2.1(a). (c) The Company shall provide Merger Sub (i) prompt notice of any written demand for appraisal or payment of the fair value of any shares of Company Common Stock, withdrawals of such demands, and any other instruments served pursuant to the DGCL received by or on behalf of the Company and (ii) the opportunity to direct all negotiations and proceedings with respect to demands for appraisal under the DGCL. The Company shall not, except with the prior written consent of Merger Sub, make any payment with respect to, or settle or offer to settle, any such demands. Section 2.3. Treatment of Options and Warrants. --------------------------------- (a) Pursuant to the Merger, at the Effective Time, to the maximum extent permitted by applicable law and the applicable stock option agreements and underlying stock option plans, each outstanding option to purchase shares of Company Common Stock (a "Company Stock Option") will, with respect to each share of Company Common Stock subject thereto, become an option to receive the Merger Consideration on payment of the exercise price thereof, and will otherwise remain outstanding in accordance with its terms; provided, to the maximum extent permitted by applicable law and the applicable stock option agreements and underlying stock option plans, if the exercise price per share under any Company Stock Option exceeds the Merger Consideration, then that Company Stock Option will be terminated automatically and will cease to exist as of the Effective Time. (b) Pursuant to the Merger, at the Effective Time, each outstanding warrant to purchase shares of Series A Preferred Stock (as defined in Section 3.2) (a "Company Warrant") shall remain outstanding as warrants to purchase capital stock of the Surviving Corporation and shall not be converted, exchanged or canceled in the Merger. (c) Prior to the Effective Time, the Company shall use its commercially reasonable efforts, to the extent permitted by law and the applicable stock plans agreements, underlying stock option plans and warrant agreements: (i) to obtain any consents from holders of the Company Stock Options and (ii) to make any amendments to the terms of the Company Stock Options and any options granted thereunder that, in case of either (i) or (ii), are necessary or appropriate to give effect to the transactions contemplated by this Section 2.3. Section 2.4. Exchange of Certificates. ------------------------ (a) Exchange Agent. Prior to the Effective Time, Merger Sub -------------- shall appoint a bank or trust company to act as exchange agent (the "Exchange Agent") for the payment of the Merger Consideration. As of the Effective Time, Merger Sub shall have deposited with the Exchange Agent, for the benefit of the holders of Merger Convertible Shares, -4- for exchange in accordance with this Section 2.4, the aggregate amount of cash payable pursuant to Section 2.1(a) hereof in exchange for outstanding Merger Convertible Shares (the "Exchange Fund"). (b) Exchange Procedures. Promptly after the Effective Time, ------------------- the Exchange Agent shall mail to each holder of record of Merger Convertible Shares (i) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the certificates representing such Merger Convertible Shares shall pass, only upon delivery of such certificates to the Exchange Agent and shall be in such form and have such other provisions as the Exchange Agent may reasonably specify), and (ii) instructions for use in effecting the surrender of such certificates in exchange for the Merger Consideration. Upon surrender to the Exchange Agent of one or more certificates for Merger Convertible Shares, together with a properly completed and duly executed letter of transmittal, and acceptance thereof by the Exchange Agent, the holder thereof shall be entitled to the amount of cash into which the number of Merger Convertible Shares represented by such certificates surrendered shall have been converted pursuant to this Agreement. The Exchange Agent shall accept such certificates upon compliance with such reasonable terms and conditions as the Exchange Agent may impose to effect an orderly exchange thereof in accordance with normal exchange practices. After the Effective Time, there shall be no further transfer on the records of the Company or its transfer agent of certificates representing shares of Company Common Stock and if such certificates are presented to the Company for transfer, they shall be canceled against delivery of the Merger Consideration allocable to the shares of Company Common Stock represented by such certificate or certificates. If any Merger Consideration is to be remitted to a name other than that in which a certificate surrendered for exchange is registered, it shall be a condition of such exchange that the certificate so surrendered shall be properly endorsed, with signature guaranteed, or otherwise be in proper form for transfer and that the person requesting such exchange shall pay to the Company, or its transfer agent, any transfer or other taxes required by reason of the payment of the Merger Consideration to a name other than that of the registered holder of the certificate surrendered, or establish to the satisfaction of the Company or its transfer agent that such tax has been paid or is not applicable. Until surrendered as contemplated by this Section 2.4, each certificate for shares of Company Common Stock (with the exception of (i) Dissenting Shares, (ii) Company Common Stock held by Subsidiaries or Merger Sub, and (iii) Treasury Stock) shall be deemed at any time after the Effective Time to represent only the right to receive upon such surrender the Merger Consideration allocable to the shares represented by such certificate as contemplated by Section 2.1(a). No interest will be paid or will accrue on any amount payable as Merger Consideration. (c) No Further Ownership Rights in the Company Stock. The ------------------------------------------------ Merger Consideration paid upon the surrender for exchange of certificates for Merger Convertible Shares in accordance with the terms of this Section 2.4 shall be deemed to have been paid in full satisfaction of all rights pertaining to the shares of Company Common Stock formerly represented by such certificates. -5- (d) Termination of Exchange Fund. Any portion of the ---------------------------- Exchange Fund (including any interest and other income received by the Exchange Agent in respect of all such funds) which remains undistributed to the holders of the certificates formerly representing shares of Company Common Stock for six months after the Effective Time shall be delivered to the Surviving Corporation, upon demand, and any holders of shares of Company Common Stock prior to the Merger who have not theretofore complied with this Section 2.4 shall thereafter look only to the Surviving Corporation, and only as general creditors thereof, for payment of their claim for Merger Consideration to which such holders may be entitled. (e) No Liability. No party to this Agreement shall be liable ------------ to any Person (as hereinafter defined) in respect of any amount from the Exchange Fund delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. The term "Person" means any individual, corporation, partnership, trust or unincorporated organization or a government or any agency or political subdivision thereof. (f) Lost Certificates. In the event any certificate or ----------------- certificates formerly representing shares of Company Common Stock shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such certificate or certificates to be lost, stolen or destroyed, and if required by the Surviving Corporation, the posting by such Person of a bond in such amount as the Surviving Corporation may reasonably require as indemnity against any claim that may be made against it with respect to such certificate, the Exchange Agent will issue in exchange for such lost, stolen or destroyed certificate the Merger Consideration deliverable in respect thereof as determined in accordance with this Section 2.4. (g) Withholding Rights. The Surviving Corporation and the ------------------ Exchange Agent shall be entitled to deduct and withhold from the consideration otherwise payable pursuant to this Agreement to any holder of Merger Convertible Shares such amounts as the Surviving Corporation or the Exchange Agent is required to deduct and withhold with respect to the making of such payment under the United States Internal Revenue Code of 1986, as amended (the "Code"), or any provision of state, local or foreign tax law applicable to the making of such payment. To the extent that amounts are so withheld by the Surviving Corporation or the Exchange Agent, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the holder of the Merger Convertible Shares in respect of which such deduction and withholding was made by the Surviving Corporation or the Exchange Agent. Section 2.5. Additional Agreements and Provisions. Upon the terms and ------------------------------------ subject to the conditions of this Agreement and subject to the fiduciary duties of the directors of the Company or of its directors constituting the Special Committee (as determined by such directors in good faith after consultation with counsel), each of the parties hereto shall use its best efforts (a) to cause its respective conditions set forth in Article 6 of this Agreement to be fulfilled and (b) to take, or cause to be taken, all additional action and to do, or cause to be done, all additional things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement. If at any time after the -6- Effective Time any further action is necessary or desirable to carry out the purposes of this Agreement or to vest the Surviving Corporation with full title to all properties, assets, rights, approvals, immunities and franchises of either the Company or Merger Sub, the proper officers and directors of each corporation that is a party to this Agreement shall take all such necessary action. The parties hereto agree to use their respective best efforts to challenge any action brought seeking a temporary restraining order or preliminary or permanent injunctive relief which would prohibit, or materially interfere with, the consummation of the transactions contemplated by this Agreement. ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY --------------------------------------------- The Company hereby represents and warrants to Merger Sub as follows: Section 3.1. Organization of the Company and its Subsidiaries. The ------------------------------------------------ Company and each of its Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of its respective jurisdiction of organization and has all the requisite corporate power and authority to carry on its respective business as now being conducted and to own, lease, use and operate the respective properties owned and used by it. The Company and each of its Subsidiaries is qualified and in good standing to do business in each jurisdiction in which the nature of its respective business requires it to be so qualified, except to the extent the failure to be so qualified has not had, and would not reasonably be expected to have, a Material Adverse Effect. The term "Material Adverse Effect" means a material adverse effect on the business, prospects, results of operations or financial condition of the Company and its Subsidiaries, taken as a whole. Section 3.2. Capitalization of the Company; Ownership. The authorized ---------------------------------------- capital stock of the Company consists of 20,000,000 shares of Company Common Stock and 5,000,000 shares of preferred stock, par value $1.00 per share. As of the date hereof, 3,100,178 shares of Company Common Stock are issued and outstanding and no shares of Company Common Stock are held as Treasury Stock. As of the date hereof, an aggregate of 265,000 shares of preferred stock of the Company are issued and outstanding, consisting of 140,000 issued and outstanding shares of Series A Cumulative Pay-in-Kind Preferred Stock, par value $1.00 per share of the Company ("Series A Preferred Stock"), 62,500 shares of Series B Cumulative Pay-in-Kind Convertible Preferred Stock, par value $1.00 per share of the Company ("Series B Preferred Stock"), and 62,500 shares of Series C Cumulative Pay-in-Kind Convertible Preferred Stock, par value $1.00 per share of the Company ("Series C Preferred Stock," and together with the Series A Preferred Stock and Series B Preferred Stock, the "Company Preferred Stock") and no shares of Company Preferred Stock are held in the treasury of the Company. All of the issued and outstanding shares of capital stock of the Company are duly authorized, validly issued, fully paid and non-assessable and free of preemptive rights. There are no outstanding subscriptions, options, warrants, calls, rights, convertible securities or other arrangements or commitments obligating the Company to issue any shares of its capital stock other than (a) options and other -7- rights to receive or acquire an aggregate of 1,288,925 shares of Company Common Stock pursuant to the Company Stock Options, and (b) the Company Warrants to purchase 140,000 shares of Series A Preferred Stock issued by the Company to the Investors on February 18, 2000. There are no outstanding contractual obligations of the Company to repurchase, redeem or otherwise acquire any shares of its capital stock. Following the Merger, the Company will have no obligation to issue, transfer or sell any shares of its capital stock or other securities of the Company pursuant to any employee benefit plan or otherwise. There are no voting trusts or other agreements or understandings to which the Company or any of its Subsidiaries is a party with respect to the voting of the shares of any capital stock of the Company or any of its Subsidiaries, except for the Shareholders Agreement, dated February 18, 2000, by and among the Company, Littlejohn, Quilvest and de Vogel, and the Voting Agreement, dated February 18, 2000, by and among the Company, Littlejohn and Terbem. Section 3.3. Subsidiaries of the Company. Subject to certain liens --------------------------- and security interests in favor of (i) Fleet pursuant to the Loan Agreement (as such terms are defined in Section 6.3(d)), and (ii) Subordinated Note Holders pursuant to the Note Agreement (as each of those terms is defined in Section 6.3(f)), all outstanding shares of capital stock or other equity interests of each Subsidiary are owned by the Company, free and clear of any and all liens, claims, security interests or options, except for restrictions on transfer under federal and state securities laws. All shares of capital stock of each Subsidiary which is a corporation have been validly issued and are fully paid and non-assessable. There are no outstanding options, warrants or other rights of any kind to acquire (including preemptive rights) any additional equity interests of any Subsidiary or securities convertible into or exchangeable for, or which otherwise confer on the holder thereof any right to acquire, any additional equity interests of any Subsidiary, nor is any Subsidiary committed to issue any such option, warrant, right or security. Other than as previously disclosed to Merger Sub, the Company does not own, directly or indirectly, any equity interest in any other corporation, joint venture, partnership, limited liability company or other entity. Section 3.4. No Conflict. ----------- (a) Neither the execution and delivery by the Company of this Agreement nor the consummation by the Company of the transactions contemplated hereby in accordance with the terms hereof will: (i) conflict with or result in a breach of any provisions of the Certificate of Incorporation or Bylaws of the Company or any Subsidiary; (ii) except as previously disclosed to Merger Sub, violate, or conflict with, or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination or in a right of termination or cancellation of, or give rise to a right of purchase under, or accelerate the performance required by, or result in the creation of any lien upon any of the properties of the Company or its Subsidiaries under, or result in being declared void, voidable, or without further binding effect, or otherwise result in a detriment to the Company or any of its Subsidiaries under, any of the terms, conditions or provisions of, any note, bond, mortgage, indenture, deed of trust, license, franchise, permit, lease, contract, agreement, joint venture or other instrument or obligation to -8- which the Company or any of its Subsidiaries is a party, or by which the Company or any of its Subsidiaries or any of their properties is bound or affected; or (iii) contravene or conflict with or constitute a violation of any provision of any law, rule, regulation, judgment, order or decree binding upon or applicable to the Company or any of its Subsidiaries, except, in the case of matters described in clause (ii) or (iii), as would not have, individually or in the aggregate, a Material Adverse Effect. (b) Neither the execution and delivery by the Company of this Agreement nor the consummation by the Company of the transactions contemplated hereby in accordance with the terms hereof will require any consent, approval or authorization of, or filing or registration with, any governmental or regulatory authority, other than filings required by the Securities Exchange Act of 1934, as amended, and including the rules and regulations promulgated thereunder (the "Exchange Act"), with respect to the meeting of the stockholders of the Company to approve and adopt this Agreement and the transactions contemplated hereby, and the filing of the Certificate of Merger as contemplated by Section 1.2, except for any consent, approval or authorization the failure of which to obtain, and for any filing or registration the failure of which to make, would not have, individually or in the aggregate, a Material Adverse Effect. Section 3.5. Authorization. The Company has all requisite corporate ------------- power and authority to enter into this Agreement and, subject to any necessary approval of the Merger by the stockholders of the Company, to carry out its obligations hereunder and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all requisite corporate action on the part of the Company (other than the approval of this Agreement and the transactions contemplated hereby by the stockholders of the Company). The Board of Directors of the Company has adopted resolutions approving this Agreement and the Merger, and has determined that the terms of the Merger are fair to, and in the best interests of the Company's stockholders other than Merger Sub and/or the stockholders of Merger Sub (the "Public Stockholders"). The Company has taken all action necessary to exempt the Merger and the other transactions contemplated hereby with Merger Sub and its affiliates from the operation of Section 203 of the DGCL (the "Business Combination Statute"). This Agreement has been duly executed and delivered by the Company and, assuming the due authorization, execution and delivery hereof by Merger Sub, constitutes the valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally or by general equitable principles. Section 3.6. Fairness Opinion and Approval by the Special Committee. ------------------------------------------------------ On or prior to the date hereof, the Special Committee (a) determined that the Merger is fair to and in the best interest of the Public Stockholders and (b) recommended that the Board of Directors of the Company approve and authorize this Agreement and declare its advisability. The Special Committee has received an opinion of McDonald Investments, Inc. (the "Advisor") to the effect -9- that, as of the date of such opinion, the consideration to be received by the Public Stockholders in the Merger is fair to the Public Stockholders from a financial point of view. Section 3.7. Brokers and Finders. Other than the Advisor, neither the ------------------- Company nor any Subsidiary has employed any broker, finder, advisor or intermediary in connection with the transactions contemplated by this Agreement which would be entitled to a broker's, finder's or similar fee or commission in connection therewith or upon the consummation thereof. Any such fees due to the Advisor shall be paid by the Company. Section 3.8. SEC Documents; Financial Statements. The Company has ----------------------------------- filed all required reports, schedules, forms, statements and other documents with the Securities and Exchange Commission (the "SEC") since February 28, 1999 (the "SEC Documents"). As of their respective dates, except as previously disclosed to Merger Sub, the SEC Documents complied in all material respects with the requirements of the Securities Act of 1933, as amended and including the rules and regulations promulgated thereunder (the "Securities Act"), or the Exchange Act, as the case may be, applicable to such SEC Documents. Except to the extent that information contained in any SEC Document has been revised or superseded by a later filed SEC Document, and except as previously disclosed to Merger Sub, none of the SEC Documents as of their respective dates contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. Except as previously disclosed to Merger Sub, the consolidated financial statements of the Company contained or specifically incorporated by reference in the SEC Documents (including in each case any related notes and schedules) comply as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with generally accepted accounting principles ("GAAP") (except, in the case of unaudited statements, as permitted by applicable instructions or regulations of the SEC relating to the preparation of quarterly reports on Form 10-Q) applied on a consistent basis during the period involved (except as may be indicated in the notes thereto) and fairly present in all material respects the consolidated financial position of the Company and its consolidated subsidiaries as of the dates thereof and the results of their operations, cash flows and stockholders' equity for the periods then ended (subject, in the case of unaudited quarterly statements, to normal year-end adjustments). Section 3.9. Absence of Certain Changes or Events. Except as ------------------------------------ disclosed in the SEC Documents filed and publicly available prior to the date of this Agreement, since February 29, 2000 the Company and its Subsidiaries have conducted their respective businesses and operations consistent with past practice only in the ordinary and usual course, except for actions which individually and in the aggregate would not have a Material Adverse Effect. Without limiting the generality of the foregoing, since February 29, 2000, except as disclosed in the SEC Documents or as previously disclosed to Merger Sub, there has not occurred: (i) any event, change, or effect (including the incurrence of any liabilities of any nature, whether or not accrued, contingent or otherwise) having or, which would be reasonably likely to have, individually or in the aggregate, a Material Adverse Effect; or (ii) any change by the Company or -10- any of its Subsidiaries in accounting principles or methods. Since February 29, 2000, neither the Company nor any of its Subsidiaries has taken any of the actions prohibited by Section 5.1 hereof. Section 3.10. Vote Required. The affirmative vote of the holders of ------------- Company Common Stock and Company Preferred Stock representing a majority of the shares of Company Common Stock outstanding (assuming conversion of all outstanding shares of Company Preferred Stock) is the only vote of the holders of any class or series of Company capital stock necessary to approve and adopt this Agreement. Section 3.11. Litigation. Except to the extent disclosed in the SEC ---------- Documents or as otherwise previously disclosed to Merger Sub, there is no suit, claim, action, proceeding or investigation pending or, to the best knowledge of the Company, threatened against or affecting, the Company or any of its Subsidiaries which, individually or in the aggregate, is reasonably likely, individually or in the aggregate, to have a Material Adverse Effect, or materially impair the ability of the Company to consummate the Merger or the other transactions contemplated hereby. ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF MERGER SUB -------------------------------------------- Section 4.1. Organization and Authority of Merger Sub. Merger Sub is ---------------------------------------- a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware. Merger Sub was incorporated solely for the purpose of merging with and into the Company, and since its incorporation, it has conducted no business of any kind whatsoever other than in connection with the transactions contemplated hereby. Section 4.2. Capitalization of Merger Sub. The authorized capital ---------------------------- stock of Merger Sub consists of 10,000 shares of Merger Sub Common Stock, of which 10 shares are issued and outstanding as of the date hereof. All of the issued and outstanding shares of capital stock of Merger Sub are duly authorized, validly issued, fully paid and non-assessable and free of preemptive rights. Section 4.3. Authorization. Merger Sub and the Investors, each ------------- individually, has all corporate power and authority to enter into this Agreement and to perform its respective obligations hereunder and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement by the Merger Sub and the Joinder attached to this Agreement by the Investors and the consummation of the transactions contemplated hereby have been duly authorized by all requisite corporate action on the part of Merger Sub and the Investors, respectively. This Agreement has been duly executed and delivered by Merger Sub and the Joinder by each of the Investors and, assuming the due authorization, execution and delivery hereof by the Company, each constitutes the valid and binding obligation of Merger Sub or each of the Investors, as the case may be, enforceable against Merger Sub and each of the Investors, as -11- the case may be, in accordance with its respective terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, or similar laws affecting creditors' rights generally or by general equitable principles. Section 4.4. Brokers and Intermediaries. Merger Sub has not employed -------------------------- any broker, finder, advisor or intermediary in connection with the transactions contemplated by this Agreement which would be entitled to a broker's, finder's, or similar fee or commission in connection therewith or upon the consummation thereof. Section 4.5. Available Funds. On the Closing Date Merger Sub shall --------------- have sufficient funds to pay the aggregate Merger Consideration. Section 4.6. Litigation. There is no suit, claim, action, proceeding ---------- or investigation pending or, to the best knowledge of Merger Sub, threatened against or affecting, Merger Sub that is reasonably likely, individually or in the aggregate, to have a Material Adverse Effect, or materially impair the ability of Merger Sub to consummate the Merger or the other transactions contemplated hereby. Section 4.7. Merger Sub's Operation. Merger Sub was formed solely for ---------------------- the purpose of engaging in the transactions contemplated hereby and has not engaged in any business activities or conducted any operations other than in connection with the transactions contemplated hereby. Section 4.8. Merger Sub and Investor Information. None of the ----------------------------------- information supplied or to be supplied by Merger Sub or any Investor for inclusion or incorporation by reference in the Proxy Statement (as defined in Section 5.6(a)), at the time filed with the SEC and, in addition, in the case of the Proxy Statement, at the date it or any amendment or supplement is mailed to holders of the Company Common Stock and at the time of the Special Meeting (as defined in Section 5.7), will contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances in which they are made, not misleading. Section 4.9. Governmental and Other Consents and Approvals. No --------------------------------------------- consent, waiver, approval, license or authorization of or designation, declaration or filing with any governmental agency or authority or other public Persons in the United States is required in connection with the execution or delivery by Merger Sub and the Investors of this Agreement or the consummation by Merger Sub of the Merger or the transactions contemplated hereby, other than (a) filings in the State of Delaware in accordance with the DGCL, (b) filings required under the Exchange Act and (c) such other consents, waivers, approvals, licenses or authorizations, the failure of which to be obtained will not have a material adverse effect on Merger Sub, the Investors or on the ability of Merger Sub to consummate the transactions contemplated hereby. Section 4.10. Payment of Merger Consideration. The Investors have ------------------------------- sufficient financial resources to make capital contributions to Merger Sub necessary to permit, with the -12- cash of the Company at the Closing, Merger Sub to fund the consummation of the transactions contemplated hereby, including, without limitation, to fund the payment of the Merger Consideration plus the expenses related to the Merger and the Investors have agreed so to fund Merger Sub. ARTICLE 5 CERTAIN COVENANTS AND AGREEMENTS -------------------------------- Section 5.1. Conduct of Businesses. Prior to the Effective Time, --------------------- except as expressly contemplated by any other provision of this Agreement or as required by applicable law, unless Merger Sub has consented in writing thereto, the Company: (a) shall, and shall cause each of its Subsidiaries to, conduct its operations according to their usual, regular and ordinary course in substantially the same manner as heretofore conducted; (b) shall use its best efforts, and shall cause each of its Subsidiaries to use its best efforts, to preserve intact their business organizations and goodwill, keep available the services of their respective officers and employees and maintain satisfactory relationships with those persons having business relationships with them; (c) shall promptly deliver to Merger Sub true and correct copies of any report, statement or schedule filed by the Company with the SEC subsequent to the date of this Agreement; (d) shall not (i) except pursuant to the exercise of options, warrants, conversion rights and other contractual rights existing on the date hereof, issue any shares of its capital stock, effect any stock split or otherwise change its capitalization as it exists on the date hereof; (ii) grant, confer or award any option, warrant, conversion right or other right not existing on the date hereof to acquire any shares of its capital stock; (iii) increase any compensation or benefits, except in the ordinary course of business consistent with past practice, or enter into or amend any employment agreement with any of its present or future officers or directors, except with new employees consistent with past practice; or (iv) adopt any new employee benefit plan (including any stock option, stock benefit or stock purchase plan) or amend (except as required by law) any existing employee benefit plan in any material respect; (e) shall not (i) declare, set aside or pay any dividend or make any other distribution or payment with respect to any shares of its capital stock or (ii) redeem, purchase or otherwise acquire any shares of its capital stock or capital stock of any of its Subsidiaries, or make any commitment for any such action; (f) shall not, and shall not permit any of its Subsidiaries to, sell, lease or otherwise dispose of any of its assets (including capital stock of Subsidiaries) that are material to the Company, individually or in the aggregate, except in the ordinary course of business; -13- (g) shall not, nor shall it permit any of its Subsidiaries to, agree to take any of the foregoing actions; and (h) subject to the fiduciary obligations set forth in Section 5.7, shall not take any action that is likely to delay materially or adversely affect the ability of any of the parties hereto (i) to obtain any consent, authorization, order or approval of any governmental commission, board or other regulatory body or (ii) to consummate the Merger. Section 5.2. Announcements. Neither the Company nor Merger Sub shall ------------- issue any press release or otherwise make any public statement with respect to this Agreement and the transactions contemplated hereby without the prior consent of the other (which consent shall not be unreasonably withheld), except as may be required by applicable law or stock exchange regulation. Notwithstanding anything in this Section 5.2 to the contrary, Merger Sub, the Investors and the Company will, to the extent practicable, consult with each other before issuing, and provide each other the opportunity to review and comment upon, any such press release or other public statement with respect to this Agreement and the transactions contemplated hereby whether or not required by law. Section 5.3. Notification of Certain Matters. The Company shall give ------------------------------- prompt notice to Merger Sub, and Merger Sub shall give prompt notice to the Company, of (a) the occurrence or nonoccurrence of any event the occurrence or nonoccurrence of which would be likely to cause any of its respective representations or warranties contained in this Agreement to be untrue or inaccurate in any material respect at or prior to the Effective Time and (b) any material failure of the Company or Merger Sub, as the case may be, to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder; provided, however, that the delivery of any notice pursuant to this Section 5.3 shall not limit or otherwise affect the remedies available hereunder to the party receiving such notice. Section 5.4. Directors' and Officers' Indemnification. ---------------------------------------- (a) The Certificate of Incorporation and the Bylaws of the Surviving Corporation shall contain the provisions with respect to indemnification and limitation of liability of directors and officers set forth in the Company's Certificate of Incorporation and Bylaws on the date of this Agreement, which provisions shall not be amended, repealed or otherwise modified in any manner that would adversely affect the rights thereunder of individuals who on or prior to the Effective Time were directors or officers of the Company, unless such modification is required by law. (b) The Surviving Corporation shall maintain in effect for six years from the Effective Time policies of directors' and officers' liability insurance containing terms and conditions which are not less advantageous to the insured than any such policies of the Company currently in effect on the date of this Agreement (the "Company Insurance Policies"), with respect to matters occurring prior to the Effective Time, to the extent available, and having the maximum available coverage under any such Company Insurance Policies; provided, that in -14- no event shall the Surviving Corporation be required to pay annual premiums for insurance under this Section 5.4(b) in excess of 200% of the annual premiums currently paid by the Company and provided further, however, that if the annual premiums for such insurance coverage exceed 200% of the annual premiums currently paid by the Company, the Surviving Corporation shall be obligated to obtain a policy with the greatest coverage that can be obtained for premiums that are 200% of the annual premiums currently paid by the Company. Section 5.5. Access to Information; Right of Inspection. From the ------------------------------------------ date hereof until the Effective Time, the Company and each of its Subsidiaries will, during normal business hours, (a) give Merger Sub, its affiliates and their respective officers, employees, counsel, accountants, financial advisors, financing sources and other agents and representatives full access to the offices, properties, warehouses and other facilities and to all contracts, internal reports, data processing files, books and records, Federal, state, local and foreign tax returns and records, commitments, books, records and affairs of the Company, whether located on the premises of the Company, its Subsidiaries or at another location; (b) furnish promptly to Merger Sub or its affiliates a copy of each report, schedule, registration statement and other document filed or received by it during such period pursuant to the requirements of Federal securities laws or regulations; (c) permit Merger Sub or its affiliates to make such inspections as they may reasonably require; (d) cause its officers to furnish Merger Sub and its affiliates such existing financial, operating and product data and other information with respect to the business and properties of the Company and its Subsidiaries as Merger Sub or its affiliates from time to time may reasonably request, including without limitation financial statements and schedules; (e) allow Merger Sub and its affiliates the opportunity to interview such employees and other personnel of the Company and its Subsidiaries; and (f) otherwise instruct and cause the Company's and its Subsidiaries' employees, accountants, counsel and financial advisors to fully cooperate with Merger Sub in its investigation of the business of the Company and its Subsidiaries; provided, however, that no investigation pursuant to this Section 5.5 shall affect or be deemed to modify any representation or warranty made by the Company herein. Section 5.6. Proxy Statement and Schedule 13E-3. ---------------------------------- (a) In connection with the Special Meeting (as defined in Section 5.7), the Company shall prepare and file a preliminary proxy statement relating to the transactions contemplated by this Agreement and the Merger (the "Preliminary Proxy Statement") with the SEC and shall use its reasonable best efforts to respond to the comments of the SEC and to cause a definitive proxy statement (the "Proxy Statement") to be mailed to the Company's shareholders all as soon as reasonably practicable; provided, that prior to the filing of each of the Preliminary Proxy Statement and the Proxy Statement, the Company shall consult with Merger Sub with respect to such filings and shall afford Merger Sub reasonable opportunity to comment thereon. Merger Sub shall provide the Company with any information for inclusion in the Preliminary Proxy Statement and the Proxy Statement that may be required under applicable law with respect to the Merger Sub and the Investors and is reasonably requested by the Company. -15- (b) The Company and Merger Sub shall, and shall cause any other Person that may be deemed to be an affiliate of the Company to, prepare and file concurrently with the filing of the Preliminary Proxy Statement a statement on Schedule 13E-3 (the "Schedule 13E-3 Transaction Statement") with the SEC. If at any time prior to the Special Meeting (as defined in Section 5.7) any event should occur that is required by applicable law to be set forth in an amendment of, or supplement to, the Schedule 13E-3 Transaction Statement, the Company and Merger Sub shall, and shall cause such Person to, file such amendments or supplements. (c) The Company covenants and agrees that none of the information to be supplied by the Company for inclusion in the Preliminary Proxy Statement, the Proxy Statement or the Schedule 13E-3 Transaction Statement will, at the time of the mailing of the Proxy Statement or the filing of the Preliminary Proxy Statement or the Schedule 13E-3 Transaction Statement, and any amendments or supplements thereto, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. The Preliminary Proxy Statement, the Proxy Statement and the Schedule 13E-3 Transaction Statement shall, as of their respective dates, comply as to form in all material respects with all applicable laws, including the provisions of the Exchange Act. The Company shall not mail, amend or supplement the Proxy Statement unless the Proxy Statement or any amendment or supplement thereof is satisfactory in content to Merger Sub in the exercise of its reasonable judgment, provided that Merger Sub shall raise any objections thereto in a timely manner. (d) Merger Sub covenants that the information furnished to the Company by Merger Sub and/or the Investors specifically for inclusion in the Proxy Statement or the Schedule 13E-3 Transaction Statement, or any amendment or supplement thereof, or specifically for inclusion in any other documents filed with the SEC by the Company in connection with the Merger, shall not, with respect to the Proxy Statement at the time the Proxy Statement is mailed and at the time of the Special Meeting (as defined in Section 5.7), and, with respect to the Schedule 13E-3 Transaction Statement and such other documents, at the time of filing with the SEC and at the time of the Special Meeting, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (e) Each of the parties hereto shall use its best efforts to cooperate and to provide each other with such information as any of such parties may reasonably request in connection with the preparation of the Proxy Statement and the Schedule 13E-3 Transaction Statement. Each party hereto shall promptly supplement, update and correct any information provided by it for use in the Proxy Statement and the Schedule 13E-3 Transaction Statement if and to the extent that such information provided by it is or shall have become incomplete, false or misleading. Section 5.7. Company Stockholders Meeting. The Company will take all ---------------------------- actions reasonably necessary in accordance with applicable law and its Certificate of -16- Incorporation and Bylaws to convene the Company Stockholders Meeting as promptly as reasonably practicable to consider and vote upon the approval and adoption of this Agreement and the Merger (the "Special Meeting"). In connection with the Special Meeting, the Special Committee and the Board of Directors of the Company shall recommend approval of the Agreement and the Merger subject to the determination by the Board of Directors of the Company and the Special Committee, after consultation with their respective counsels, that recommending approval of such matters would not be inconsistent with its fiduciary obligations. Additionally, the Special Committee shall not at any time prior to the Effective Time withdraw, modify, or change any recommendation and declaration regarding this Agreement or the Merger unless the Special Committee reasonably believes after consultation with its counsel, that the failure to so withdraw, modify, or change its recommendation and declaration would be inconsistent with its fiduciary obligations. ARTICLE 6 CONDITIONS PRECEDENT -------------------- Section 6.1. Conditions to Each Party's Obligation to Effect the --------------------------------------------------- Merger. The respective obligation of each party to effect the Merger shall be - ------ subject to the satisfaction on or prior to the Closing Date of each of the following conditions (any of which may be waived by the parties hereto in writing, in whole or in part, to the extent permitted by applicable law): (a) No Injunction or Proceeding. No preliminary or permanent --------------------------- injunction, temporary restraining order or other decree of a court, legislature or other agency or instrumentality of federal, state or local government (a "Governmental Entity") shall be in effect, no statute, rule or regulation shall have been enacted by a Governmental Entity and no action, suit or proceeding by any Governmental Entity or any other Person shall have been instituted or threatened, which prohibits the consummation of the Merger or challenges the transactions contemplated hereby. (b) Consents. Other than filing the Certificate of Merger, -------- all consents, approvals and authorizations of and filings with Governmental Entities required for the consummation of the transactions contemplated hereby, shall have been obtained or effected or filed. (c) Approval of Holders of Company Common Stock. This ------------------------------------------- Agreement and the Merger shall have been adopted by the affirmative vote or written consent of the holders of Company Common Stock and Company Preferred Stock constituting a majority of the outstanding shares of Company Common Stock (assuming conversion of all outstanding shares of Company Preferred Stock). Section 6.2. Conditions to the Obligation of the Company to Effect ----------------------------------------------------- the Merger. The obligation of the Company to effect the Merger is further - ---------- subject to the satisfaction on or -17- prior to the Closing Date of each of the following conditions (any of which may be waived by the parties hereto in writing, in whole or in part, to the extent permitted by applicable law): (a) Representations and Warranties. The representations and ------------------------------ warranties of Merger Sub contained in this Agreement shall be true and correct in all material respects on the date hereof and at and as of the Effective Time as though made at and as of the Effective Time and the Company shall have received a certificate of an officer of Merger Sub to that effect. (b) Covenants, Undertakings and Agreements. Merger Sub shall -------------------------------------- have performed and complied in all material respects with all its covenants, undertakings and agreements required by this Agreement to be performed or complied with by it prior to or at the Effective Time. Section 6.3. Conditions to the Obligation of Merger Sub to Effect the -------------------------------------------------------- Merger. The obligation of Merger Sub to effect the Merger is further subject to - ------ the satisfaction on or prior to the Closing Date of each of the following conditions (any of which may be waived by the parties hereto in writing, in whole or in part, to the extent permitted by applicable law): (a) Representations and Warranties. The representations and ------------------------------ warranties of the Company contained in this Agreement shall be true and correct in all material respects on the date hereof and at and as of the Effective Time as though made at and as of the Effective Time and Merger Sub shall have received a certificate of an officer of the Company to that effect. (b) Covenants, Undertakings and Agreements. The Company -------------------------------------- shall have performed and complied in all material respects with all of its covenants, undertakings and agreements required by this Agreement to be performed or complied with by it prior to or at the Effective Time and Merger Sub shall have received a certificate of an officer of the Company to that effect. (c) No Material Adverse Effect. At any time after the date -------------------------- of this Agreement, there shall not have been any event or occurrence that has had, or is likely to have, individually or in the aggregate, a Material Adverse Effect other than those disclosed on or contemplated by Schedule 3.9. (d) Consents from Lenders and Other Third Parties. The --------------------------------------------- Company shall have received written consents to the Merger from: (i) Fleet Capital Corporation, as agent ("Fleet") for the lenders party to the Loan and Security Agreement, dated February 17, 2000, as amended, by and among the Company, the lenders party thereto and Fleet (the "Loan Agreement") and (ii) the purchasers (the "Subordinated Note Holders") of the $20,000,000 Senior Subordinated Notes due March 31, 2005, issued by the Company to said Subordinated Note Holders pursuant to the Securities Purchase Agreement, dated as of February 18, 2000, between the Company and certain Subordinated Note Holders (the "Note Agreement"). The -18- consents and related amendments to the Loan Agreement and Note Agreement shall be in form and substance satisfactory to Merger Sub. All consents, approvals, authorizations and permits required to be obtained prior to the consummation of the Merger from any Person in connection with this Agreement, the Merger and the other transactions contemplated hereby, shall have been obtained. (e) Recommendation of the Special Committee. The Special --------------------------------------- Committee shall not have withdrawn its recommendation and approval identified in Section 3.6 except in accordance with the provisions of Section 5.7. (f) Appraisal Rights. The holders of not more than 10% of ---------------- the issued and outstanding shares of Company Common Stock shall have exercised, or given notice of their intent to exercise, their rights to dissent from the Merger in accordance with Section 262 of the DGCL and pursuant to Section 2.2 of this Agreement. ARTICLE 7 TERMINATION, AMENDMENT AND WAIVER --------------------------------- Section 7.1. Termination. This Agreement may be terminated and the ----------- Merger may be abandoned at any time prior to the Effective Time, whether before or after stockholder approval thereof: (a) by the mutual written consent of Merger Sub and the Company; (b) by either Merger Sub or the Company, in each case by written notice to the other, if: (i) the Merger has not been consummated on or prior to July 31, 2001; provided, however, that the right to terminate this Agreement under this Section 7.1(b)(i) shall not be available to any party whose failure to fulfill any obligation under this Agreement has been the cause of, or resulted in, the failure of the Merger to occur on or prior to such date; (ii) the Special Committee shall have withdrawn, or modified its approval or recommendation of this Agreement or the Merger in accordance with Section 5.7; (iii) the other party hereto breaches or fails in any material respect to perform or comply with any of its material covenants and agreements contained herein or breaches its representations and warranties in any material respect, which breach or failure is incapable of being cured or is not cured within ten (10) Business Days of written notice thereof (a "Business Day" means any day other than a Saturday, Sunday, legal holiday, or other day on which banks in the State of Delaware are authorized to close); or -19- (iv) any Governmental Entity shall have issued an order, decree or ruling or taken any other action, in each case permanently restraining, enjoining or otherwise prohibiting the transactions contemplated by this Agreement and such order, decree, ruling or other action shall have become final and non-appealable. Section 7.2. Effect of Termination. In the event of the termination --------------------- of this Agreement as provided in Section 7.1, including without limitation Section 7.1(b)(ii), this Agreement shall become null and void, and there shall be no liability on the part of Merger Sub or the Company (except in this Section 7.2 and Sections 8.2, 8.3, 8.4, 8.5, 8.6, 8.9 and 8.10 hereof, which shall survive any termination of this Agreement), provided that nothing herein shall relieve any party from any liability or obligation with respect to any breach of this Agreement. Section 7.3. Amendment. This Agreement may be amended by the parties --------- hereto (in the case of the Company, only if authorized by the Special Committee), at any time before or after approval of matters presented in connection with the Merger by the stockholders of the Company, but after any such stockholder approval, no amendment shall be made which by law requires the further approval of stockholders without obtaining such further approval. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto. Section 7.4. Waiver. At any time prior to the Effective Time, whether ------ before or after the approval of the holders of Company Common Stock referred to in Section 6.1(c) hereof, either party may (a) extend the time for the performance of any of the obligations or other acts of the other party hereto or (b) waive compliance with any of the agreements of the other party or fulfillment of any conditions to its own obligations hereunder. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party by a duly authorized officer. ARTICLE 8 MISCELLANEOUS ------------- Section 8.1. Performance of Covenants; Non-Survival of ----------------------------------------- Representations and Warranties. None of the representations and warranties in - ------------------------------ this Agreement or in any instrument delivered pursuant to this Agreement, nor any covenants required of the parties hereunder to be performed on or prior to the Effective Time, shall survive the Effective Time, and neither Merger Sub, the Company or any Subsidiary, nor any of their respective officers, directors, employees, advisors or stockholders shall have any liability whatsoever with respect to any such representation, warranty or covenant after such time. This Section 8.1 shall not limit any covenant or agreement of the parties which by its terms contemplates performance after the Effective Time. -20- Section 8.2. Expenses. Except as contemplated by this Agreement -------- (including Section 7.2), all costs and expenses incurred in connection with the Agreement and the consummation of the transactions contemplated hereby shall be the obligation of the party incurring such expenses. Section 8.3. Applicable Law. This Agreement shall be governed by the -------------- laws of the State of Delaware, without regard to its rules of conflict of laws. Section 8.4. Notices. All notices, requests, claims, demands and ------- other communications under this Agreement shall be in writing and shall be deemed given if delivered personally or sent by facsimile transmission or overnight courier (providing proof of delivery) to the parties at the following addresses (or at such address for a party as shall be specified by like notice): If to the Company, to: Pameco Corporation 651 Corporate Circle Suite 200 Golden, Colorado 80401 Attention: President Facsimile No.: 303-568-1232 with a copy to: Powell, Goldstein, Frazer & Murphy LLP 191 Peachtree Street, N.E., 16th Floor Atlanta, Georgia 30303 Attention: G. William Speer, Esq. Facsimile No.: (404) 572-6999 If to Merger Sub, to: Pameco Acquisition, Inc. c/o Littlejohn & Co. LLC 115 East Putnam Avenue Greenwich, CT 06830 Attention: Mr. Angus C. Littlejohn, Jr. Facsimile No.: 203-552-3550 with a copy to: Pepper Hamilton LLP 3000 Two Logan Square Eighteenth and Arch Streets -21- Philadelphia, Pennsylvania 19103-2799 Attention: James D. Epstein, Esq. or Elam M. Hitchner, III, Esq. Facsimile No.: (215) 981-4750 and Paul, Weiss, Rifkind, Wharton & Garrison 1285 Avenue of the Americas New York, New York 10019 Attention: Michele R. Jenkinson, Esq. Facsimile No.: (212) 373-2004 Section 8.5. Entire Agreement. This Agreement (including the ---------------- documents and instruments referred to herein) contains the entire understanding of the parties hereto with respect to the subject matter contained herein, and supersedes and cancels all prior agreements, negotiations, correspondence, undertakings and communications of the parties, oral or written, respecting such subject matter. Section 8.6. Assignment. Neither this Agreement nor any of the ---------- rights, interests or obligations hereunder shall be assigned by either party hereto (whether by operation of law or otherwise) without the prior written consent of the other party. Section 8.7. Headings; References. The article, section and paragraph -------------------- headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Section 8.8. Counterparts. This Agreement may be executed in one or ------------ more counterparts, each counterpart shall be deemed to be an original but all of which shall be considered one and the same agreement. Section 8.9. No Third Party Beneficiaries. Except as provided in ---------------------------- Section 5.4, nothing in this Agreement, express or implied, is intended to confer upon any Person not a party to this Agreement any rights or remedies under or by reason of this Agreement. Section 8.10. Severability; Enforcement. Any term or provision of this ------------------------- Agreement that is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or unenforceability of any of the terms or provisions of this Agreement in any other jurisdiction. If any provision of this Agreement is so broad as to be unenforceable, the provisions shall be interpreted to be only so broad as is enforceable. Section 8.11. Interpretation. When a reference is made in this -------------- Agreement to a Section, Article, or Schedule, such reference shall be to a Section, Article, or Schedule, as the -22- case may be, of this Agreement unless otherwise indicated. Whenever the words "include," "includes" or "including" are used in this Agreement they shall be deemed to be followed by the words "without limitation." The phrase "made available" in this Agreement shall mean that the information referred to has been made available if requested by the party to whom such information is to be made available. The phrases "the date of this Agreement," "the date hereof," and terms of similar import, unless the context otherwise requires, shall be deemed to refer to March 6, 2001. As used in this Agreement, the term "affiliate(s)" shall have the meaning set forth in Rule l2b-2 of the Exchange Act. [SIGNATURE PAGE FOLLOWS] -23- IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first above written. PAMECO CORPORATION By: /s/ Dixon R. Walker ------------------- Name: Dixon R. Walker Title: President & CEO PAMECO ACQUISITION, INC. By: /s/ Angus C. Littlejohn, Jr. ---------------------------- Name: Angus C. Littlejohn, Jr. Title: President JOINDER The undersigned hereby join this Merger Agreement solely for purposes of confirming that Littlejohn Fund II, L.P. has agreed to fund 80% and Quilvest American Equity Ltd. has agreed to fund 20% of the funds required to permit the Merger Sub to pay the Merger Consideration as contemplated by Section 4.10 of this Agreement. LITTLEJOHN FUND II, L.P. By: Littlejohn Associates II, LLC, General Partner By: /s/ Angus C. Littlejohn, Jr. ---------------------------- Name: Angus C. Littlejohn, Jr. Title: Manager QUILVEST AMERICAN EQUITY LTD. By: /s/ Willem F.P. deVogel ----------------------- Name: Willem F.P. deVogel Title: Attorney-in-Fact EX-2 3 0003.txt STOCKHOLDERS AGREEMENT Exhibit 2 --------- STOCKHOLDERS AGREEMENT by and among PAMECO ACQUISITION, INC., LITTLEJOHN FUND II, L.P. and QUILVEST AMERICAN EQUITY LTD. dated as of March 6, 2001 TABLE OF CONTENTS -----------------
Page ---- 1. Certain Matters Relating to Newco and the Merger.................................. 2 2. Agreements to Vote; Irrevocable Proxy............................................. 4 3. Transfers of Securities........................................................... 5 4. Participation Rights.............................................................. 6 5. Joinder Requirements.............................................................. 7 6. Composition, Nomination and Election of Board..................................... 8 7. Stock Splits...................................................................... 9 8. Representations and Warranties of Littlejohn...................................... 9 9. Representations and Warranties of Quilvest........................................ 10 10. Representations and Warranties of Newco........................................... 10 11. Termination; Securities Free from Agreement....................................... 11 12. Expenses.......................................................................... 12 13. Fees.............................................................................. 12 14. Certain Covenants................................................................. 13 15. Financial Reports and Information................................................. 14 16. Transaction with Affiliates....................................................... 14 17. Legend and Stop Transfer Instructions............................................. 14 18. Survival of Representations and Warranties........................................ 14 19. Notices........................................................................... 14 20. Entire Agreement; Amendment....................................................... 16 21. Successors and Assigns............................................................ 16 22. Governing Law; Consent to Jurisdiction............................................ 17 23. Injunctive Relief................................................................. 17 24. Counterparts; Facsimile Signatures................................................ 17 25. Severability...................................................................... 17 26. Further Assurances................................................................ 17 27. No Third Party Beneficiaries; No Partnership or Fiduciary Relationship............ 17 28. Legal Expenses.................................................................... 18 29. Interpretation.................................................................... 18 30. Effectiveness; and Termination of Prior Agreements................................ 18
Appendix A - Certain Defined Terms Exhibit A - Newco By-laws Exhibit B - Form of Merger Agreement Exhibit C - Form of Irrevocable Proxy Schedule 1 - Ownership of Securities and Newco Common Stock -i- STOCKHOLDERS AGREEMENT This STOCKHOLDERS AGREEMENT (this "Agreement"), dated as of March 6, 2001, by and among Littlejohn Fund, II, L.P., a Delaware limited partnership ("Littlejohn"), Quilvest American Equity Ltd. a British Virgin Islands company ("Quilvest" and Littlejohn are sometimes hereinafter referred to, individually, as a "Stockholder" and, collectively, as the "Stockholders"), and Pameco Acquisition, Inc., a Delaware corporation ("Newco"). W I T N E S S E T H: ------------------- WHEREAS, the Stockholders are proposing to acquire all of the issued and outstanding Common Stock, par value $.01 per share, of Pameco Corporation, a Delaware corporation (the "Company"), through the formation of Newco and the merger of Newco with and into the Company (the "Merger") pursuant to that certain Merger Agreement dated as of the date hereof (the "Merger Agreement"), between Newco and the Company; WHEREAS, the parties desire to enter into this Agreement providing for, among other things, the organization and capitalization of Newco, certain restrictions on the transfer of the capital stock of Newco and, upon the effective time of the Merger (the "Effective Time"), the Company, the voting of the capital stock of Newco and, upon the Effective Time, the Company, and the composition of the boards of directors of Newco and, upon the Effective Time, the Company; WHEREAS, the parties desire that, except as expressly provided herein, upon the Effective Time, this Agreement shall be deemed to supersede, replace and terminate that certain Shareholders Agreement, dated February 18, 2000, among the Stockholders, the Company and Willem F.P. de Vogel (the "Original Shareholders Agreement"), and shall terminate that certain Registration Rights Agreement among the Stockholders and the Company (the "Registration Rights Agreement"); WHEREAS, it is the intention of the parties hereto and Willem F.P. de Vogel that, upon the Effective Time and the replacement and termination of the Original Shareholders Agreement, Willem F.P. de Vogel, individually, shall have no further rights or obligations under the Original Shareholders Agreement, except to the extent a right or obligation referred to therein expressly by its terms survives the termination of the Original Shareholders Agreement; and WHEREAS, as used in this Agreement, the terms set forth in Appendix A have the meanings set forth therein (such meanings to be equally applicable to both the singular and plural forms of the terms defined); NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained and other, good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, the parties hereto, hereby agree as follows: 1. Certain Matters Relating to Newco and the Merger. ------------------------------------------------ 1.1. Formation and Capitalization. The Stockholders have caused Newco ---------------------------- to be formed as a Delaware corporation by the filing of a Certificate of Incorporation with the Delaware Secretary of State on March 1, 2001 and, on such date, Littlejohn has contributed $4,000.00 in cash in exchange for eight shares of Newco Common Stock and Quilvest has contributed $1,000.00 in cash in exchange for two shares of Newco Common Stock. Immediately prior to the Effective Time, Littlejohn shall contribute to Newco as an additional capital contribution to Newco an amount in cash equal to 80% of the Merger Consideration (as defined in the Merger Agreement), and Quilvest shall contribute to Newco as an additional capital contribution to Newco an amount in cash equal to 20% of the Merger Consideration. The by-laws of Newco shall be as set forth in Exhibit A hereto. 1.2. Directors of Newco. The board of directors of Newco (the "Newco ------------------ Board") shall consist of four directors, three of which shall be nominated by Littlejohn and one of which shall be nominated by Quilvest. Angus C. Littlejohn, Jr., Michael I. Klein and Edmund J. Feeley shall be the initial nominees of Littlejohn, and Willem F.P. de Vogel shall be the initial nominee of Quilvest. By execution of this Agreement, each of Littlejohn and Quilvest hereby votes their shares of Newco Common Stock in favor of the foregoing four director nominees. If there shall occur a vacancy for any reason, whether by resignation, removal or otherwise, in the position of any director who was nominated by a particular Stockholder pursuant to this Agreement, then the Stockholder who originally nominated such director shall be entitled to nominate such director's successor, and the Stockholders shall promptly take such action, including removing such Stockholder's nominee(s) for director(s), if any, so as to cause the successor director(s) to be duly elected or appointed. No Stockholder shall take any action, or permit any director nominated by it to take any action, to remove a director which was nominated by another Stockholder without the prior written consent of such other Stockholder. Any person nominated to serve as a director by a Stockholder may be removed from such position, with or without cause, only by the Stockholder nominating such director, and the other Stockholders shall promptly take such action, including causing such Stockholder's nominee(s) for director(s), if any, to take such action, as may be requested by the Stockholder who nominated the director(s) sought to be removed, to duly and properly effect the removal of such director(s) from such position. 1.3. The Merger. (i) Each Stockholder hereby approves and adopts the ---------- Merger Agreement in substantially the form attached hereto as Exhibit B, and approves and adopts any amendments, supplements or modifications thereto that the Newco Board may approve from time to time; provided that the approval of the director nominated by Quilvest is a prerequisite to approval of any amendment, supplement or modification to the Merger -2- Agreement which has the effect of treating Quilvest differently from Littlejohn in their respective capacities as stockholders of Newco. Each Stockholder covenants to the other that the Transaction Statement on Schedule 13E-3 to be prepared and filed by them in connection with the Merger (the "Schedule 13E-3"), at the time it is filed with the Commission or mailed to the Company's stockholders, will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, no representation or warranty is deemed made by such Stockholder with respect to information supplied by the Company or any other Stockholder for use in preparing the Schedule 13E-3 or any such Schedule 13E-3 amendment. Such Stockholder will provide the other Stockholders who are members of the "group" (within the meaning of the Exchange Act) filing such Schedule 13E-3 with a reasonable opportunity to review and comment on the original Schedule 13E-3 and on any proposed Schedule 13E-3 amendment prior to filing such with the Commission (subject to any requirements of law to file promptly), will provide such other Stockholders with a copy of all such filings made with the Commission and will notify such other Stockholders as promptly as practicable after the receipt of any comments or any request for additional information from the Commission or its staff and, upon request of any such other Stockholder, will supply each of them and their legal counsel with copies of all correspondence between it or any of its representatives, on the one hand, and the Commission, its staff or any state securities administrators, on the other hand. Such Stockholder further agrees to promptly notify the other Stockholders after becoming aware that any information provided by it for inclusion in the Schedule 13E-3 contains an untrue statement of material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. 1.4. Transfer of Newco Common Stock. Neither Stockholder shall ------------------------------ transfer, sell, offer to sell, assign, pledge or encumber, whether directly, indirectly, by contract, by operation of law or otherwise, any shares of Newco Common Stock, except to an Affiliate of such Stockholder who executes an instrument agreeing to be bound by the terms and conditions of this Agreement as a Stockholder. The provisions of this Section 1.4 shall automatically terminate and be of no further force or effect upon the Effective Time. 1.5. Dissolution of Newco. If the Merger Agreement shall terminate in -------------------- accordance with its terms as in effect from time to time, each Stockholder hereby agrees to take such actions as are necessary or appropriate to dissolve and liquidate Newco, including executing, delivering and filing such documents, agreements and instruments as are necessary or appropriate to dissolve and liquidate Newco. 1.6. Post Merger Ownership: It is the intention of Littlejohn and --------------------- Quilvest that immediately following consummation of the Merger, each of Littlejohn and Quilvest shall own that percentage of the equity of the surviving company (computed on a common stock equivalent basis, assuming conversion of all Preferred Stock (the "Common -3- Equivalent Basis")) (the "Equity") equal to the amount that the aggregate amount invested by such party in the Company to acquire the Preferred Stock plus an amount equal to the accrued and unpaid dividends on the Preferred Stock held by such party through the day immediately preceding the Effective Time plus the amounts invested in Newco by such party (collectively, the "Investment Amount") bears to the aggregate Investment Amount of both parties. 2. Agreements to Vote; Irrevocable Proxy. ------------------------------------- 2.1. Agreement to Vote on All Matters. Quilvest hereby agrees that at -------------------------------- any meeting or vote of the stockholders of the Company to be held after the Effective Time, however called, it shall vote all Securities which are entitled by the DGCL, the Certificate of Incorporation or the Bylaws to be voted ("Voting Securities") which are beneficially owned by it in accordance with written instructions which it reasonably believes in good faith after reasonable inquiry were signed by an authorized officer of Littlejohn. In the absence of receipt of such written instructions as to how such Voting Securities should be voted with respect to a particular meeting, Quilvest shall refrain from voting such Voting Securities on such particular matter. Notwithstanding anything to the contrary, Littlejohn shall be entitled to exercise the voting rights attributable to such Voting Securities at any time pursuant to the Irrevocable Proxy without notice to Quilvest. Nothing contained in this Section 2.1 shall require Quilvest, or shall permit Littlejohn through the exercise of the Irrevocable Proxy, to vote the Voting Securities beneficially owned by Quilvest, in the case of the election of members of the board of directors of the Company ("Board"), in contravention of the provisions of Section 6 hereof or in contravention of Section 16 hereof. 2.2. Irrevocable Proxy. Contemporaneously with the execution of this ----------------- Agreement: (a) Quilvest shall deliver to Littlejohn a proxy in the form attached hereto as Exhibit C, which shall become effective as of the Effective Time and shall be irrevocable to the fullest extent permitted by law (the "Irrevocable Proxy"), with respect to all Voting Securities owned of record by it as of the Effective Date; (b) Quilvest shall cause to be delivered to Littlejohn additional Irrevocable Proxies executed on behalf of each record owner of any Voting Securities owned beneficially (but not owned of record) by it; and (c) any and all existing irrevocable proxies delivered to Littlejohn pursuant to the Original Shareholders Agreement shall be terminated and have no further force or effect. From time to time after the date of this Agreement: (i) if Quilvest shall become the record owner of additional Voting Securities, it shall immediately deliver to Littlejohn an Irrevocable Proxy with respect to such additional Voting Securities; and (ii) if Quilvest shall become the beneficial owner (but not the record owner) of additional Voting Securities, it shall immediately cause to be delivered to Littlejohn an Irrevocable Proxy with respect to such additional Voting Securities from the record holder of such additional Voting Securities. 2.3. Written Consents. The provisions of this Section 2 shall be ---------------- equally applicable to any action taken or proposed to be taken by the Company's stockholders without a -4- meeting, including any such action taken or proposed to be taken by written consent pursuant to Section 228 of the DGCL. 2.4. General. Quilvest hereby confirms each and every action to be ------- taken by Littlejohn pursuant to the Irrevocable Proxy (so long as such action was taken when the Irrevocable Proxy was in effect and was taken in accordance with the last sentence of Section 2.1) as if it were its own and waives any right to make any claim against Littlejohn that may arise, directly or indirectly, as a result of Littlejohn's voting of any of the Voting Securities pursuant to the Irrevocable Proxy. 2.5. Indemnity. Quilvest hereby agrees to defend, indemnify and hold --------- Littlejohn harmless from and against any Losses and Investigatory and Defense Costs (as defined in the Purchase Agreement) that Littlejohn may sustain, suffer or incur, directly or indirectly, as a result of a breach by Quilvest of any of its representations, warranties, covenants or agreements contained in this Agreement. Littlejohn hereby agrees to defend, indemnify and hold Quilvest harmless from and against any Losses and Investigatory and Defense Costs (as defined in the Purchase Agreement) that Quilvest may sustain, suffer or incur, directly or indirectly, as a result of a breach by Littlejohn of any of its representations, warranties, covenants or agreement contained in this Agreement. 3. Transfers of Securities. After the Effective Time: ----------------------- 3.1. Except as expressly permitted by the terms of this Agreement, Quilvest hereby agrees that it shall not Transfer, or permit the Transfer of, all or any of the Securities beneficially owned by it. Littlejohn agrees that it will not Transfer any Securities if such Transfer is prohibited by the terms and conditions of this Agreement. As a condition to any Transfer to an Affiliate of Littlejohn, such Affiliate of Littlejohn shall execute a counterpart agreeing to be bound by the terms and conditions of this Agreement to the same extent as its transferor. No Transfer shall be effective and the Company shall not, and shall not be compelled to, recognize any Transfer or record any Transfer on its books if such Transfer is prohibited by this Agreement, or issue any certificate representing any Securities to any Person who has received such Securities in a Transfer made in contravention of the terms of this Agreement, and only if such Person has delivered to the Company and Littlejohn an executed counterpart where one is required to be delivered hereunder. 3.2. Quilvest shall be permitted to transfer to any of its Affiliates Securities beneficially owned by Quilvest, provided that, in any such case, any such Affiliate shall, as a condition to such Transfer, execute a counterpart, and deliver such counterpart to the Company and Littlejohn, providing that such Affiliate shall be bound by the terms and provisions of this Agreement to the same extent as Quilvest was bound. 3.3. In the case of a proposed Transfer of Securities by Quilvest to someone other than one of its Affiliates (other than pursuant to Section 4 or 5 of this -5- Agreement), Quilvest shall provide Littlejohn with written notice at least 20 days prior to the anticipated Transfer. Such notice shall contain (a) the identity of the proposed transferor and (b) the proposed number of Securities to be Transferred. Within 15 days of receipt of written notice of a proposed Transfer, Littlejohn shall provide either (i) written consent to the proposed Transfer, which consent may be denied for any reason or for no reason, and which may be given or denied in Littlejohn's sole and absolute discretion, (ii) written notice specifying an alternate number of shares to be transferred to which it would be prepared to provide consent, or (iii) written notice to Quilvest of Littlejohn's decision not to consent to the proposed Transfer. If Littlejohn shall fail to respond, it shall be deemed not to have consented to such Transfer. Quilvest shall provide Littlejohn with such other information as Littlejohn shall reasonably request, including the terms and conditions of the Transfer and information concerning the proposed transferee. Upon receipt of the written consent of Littlejohn, if at all, Quilvest may consummate the proposed Transfer. Quilvest may also consummate a Transfer of the number of Securities set forth in the alternate proposal of Littlejohn, provided, however, that Quilvest shall notify Littlejohn of its decision to accept the Littlejohn alternate proposed number of Securities to be Transferred not less than 10 days after receipt of the same from Littlejohn, if at all. 3.4. The provisions of Sections 3.1 and 3.3 hereof, shall not apply to sales of Securities by Quilvest pursuant to Rule 144 promulgated under the Securities Act ("Rule 144"). 3.5. The parties agree that the transfer restrictions set forth in this Section 3 are not manifestly unreasonable. 4. Participation Rights. -------------------- 4.1. If at any time after the Effective Time Littlejohn or an Affiliate of Littlejohn (for purposes of this section, a "Selling Stockholder") proposes to sell a portion of the Securities beneficially owned by it ("Offered Securities"), whether or not the transaction is exempt from the registration requirements of the Securities Act but excluding sales under Rule 144, to a proposed transferee which is not an Affiliate of Littlejohn (the "Purchaser"), it shall give written notice ("Participation Notice") to Quilvest hereunder and comply with this Section 4 before making such sale. The Participation Notice shall identify the third party purchaser (if the transaction is a private sale) and the material terms (including the proposed closing date) of the proposed sale of the Offered Securities (the "Third Party Offer Terms"). 4.2. Quilvest may elect to participate in the Selling Stockholder's sale of Offered Securities to the Purchaser in accordance with this Section 4. 4.3. For a period of 15 days after receipt of the Participation Notice (the "Option Period"), Quilvest shall have the right ("Participation Right") to Transfer to the Purchaser, on the same terms and conditions as the Selling Stockholder, part or all of the Offered Securities to be sold to the Purchaser, as determined pursuant to Section 4.5 below. -6- 4.4. The Participation Right shall be exercised, if at all, by Quilvest giving written notice of exercise of the Participation Right, including the number of Securities it desires to sell, to the Selling Stockholder before the expiration of the Option Period. 4.5. The number of Offered Securities to be sold by the Stockholders in a transaction governed by this Section 4 shall be allocated between Littlejohn and its Affiliates, on the one hand, and Quilvest, and its permitted transferees who are party to this Agreement, on the other hand, such that Littlejohn and its Affiliates will be permitted to sell up to Littlejohn's Applicable Percentage of the Offered Securities, allocated among them as they shall so determine, and Quilvest, and its permitted transferees who are party to this Agreement will be permitted to sell up to Quilvest's Applicable Percentage of the Offered Securities, allocated among them as they shall so determine. 4.6. Notwithstanding anything to the contrary contained in this Section 4, any sale of Securities in connection with an effective registration statement, or pursuant to the provisions of Rule 144 of the Securities Act (if the Company becomes a reporting company under Section 12(g) or 15(d) of the Exchange Act), shall not be restricted by Section 3, 4 or 5 of this Agreement. 5. Joinder Requirements. -------------------- 5.1. If at any time after the Effective Time Littlejohn or its Affiliates (for purposes of this section, the "Initiating Holder") proposes to sell at least 90% of the Securities beneficially owned by it to a prospective purchaser which is not an Affiliate of Littlejohn, and the purchaser of such Securities requires as a condition of the sale that it acquire the same percentage of the Securities beneficially owned by Quilvest and its permitted transferees who are party to this Agreement, then Quilvest and its permitted transferees who are party to this Agreement, shall be required to sell the same percentage of its respective Securities to the purchaser as Littlejohn and its Affiliates, in the aggregate, are selling to the purchaser on terms providing Quilvest and its permitted transferees who are party to this Agreement, with substantially the same economic benefit as was provided to the Initiating Holder, after taking into consideration the relative rights, preferences and privileges of the various Securities to be purchased and sold, and otherwise on the same terms and conditions as those offered to the Initiating Holder. Quilvest agrees to execute an irrevocable proxy in favor of the purchaser under this Section 5 if the purchaser so requires it in order to retain voting control of the Company, which irrevocable proxy shall be in substantially the form of Exhibit C attached hereto. 5.2. Any sale of Securities pursuant to this Section 5 shall not be subject to the provisions of Sections 3 and 4 of this Agreement. Nothing contained in this Section 5 shall apply to sales made pursuant to Rule 144 under the Securities Act or pursuant to an effective registration statement. -7- 6. Composition, Nomination and Election of Board. After the Effective --------------------------------------------- Time: 6.1. Number of Directors. The Board shall at all times have between ------------------- five and nine directors. At the Effective Time, the Board shall have eight directors. 6.2. Nomination and Election of Board Members. Commencing with the ---------------------------------------- Effective Time, Quilvest shall have the right to nominate two persons to stand for election to serve as directors, at least one of whom shall not be an Affiliate or Associate (as defined for purposes of the Securities Act or the DGCL) of Quilvest, the Chief Executive Officer of the Company shall be nominated to stand for election to serve as a director, and Littlejohn shall have the right to nominate all remaining persons to stand for election to serve as directors, at least one of whom shall not be an Affiliate or Associate (as defined for purposes of the Securities Act or the DGCL) of Littlejohn. Each of the Stockholders shall vote their Voting Securities in favor of the eight persons nominated as provided above in this Section 6.2. If there shall occur a vacancy for any reason, whether by resignation, removal or otherwise, in the position of any director who was nominated by a particular Stockholder pursuant to this Agreement, then the Stockholder who originally had the right to nominate such director, shall be entitled to nominate such director's successor, and the Stockholders shall promptly take such action, including causing such Stockholder's nominee(s) for director(s), if any, to take such action, so as to cause the successor director to be duly and properly elected or appointed. No Stockholder shall take any action, or permit any director nominated by it to take any action, to remove a director which was nominated by another Stockholder without the consent of such other Stockholder. Any person nominated to serve as a director by a Stockholder may be removed from such position, with or without cause, only by the Stockholder nominating such director, and the other Stockholders shall promptly take such action, including causing such Stockholder's nominee(s) for director(s), if any, to take such action, as may be requested by the Stockholder who nominated the director sought to be removed, to duly and properly effect the removal of such director from such position. 6.3. Minimum Ownership. Notwithstanding the foregoing, the provisions ----------------- of Section 6.2 shall remain in full force and effect (i) in the case of Littlejohn, so long as it beneficially owns at least 25% of the Common Stock then outstanding on a fully-diluted basis, and (ii) in the case of Quilvest, so long as it beneficially owns at least 5% of the Common Stock then outstanding on a fully-diluted basis and Littlejohn beneficially owns at least 25% of the Common Stock then outstanding on a fully-diluted basis. After such time, if any, that either Littlejohn or Quilvest shall no longer be entitled to nominate persons to stand for election to serve as a director in accordance with clause (i) or clause (ii) above, upon the expiration of the term, resignation or removal of any director nominated by such Shareholder which is no longer entitled to nominate persons to stand for election to serve as a director, the successor to such director(s) shall be designated or nominated in accordance with the requirements of the DGCL and the rules and regulations of the Commission, if applicable, and the principal national -8- securities exchange or trading market on which shares of the Common Stock are then listed, if any. 6.4. Contrary Proposals. Each Stockholder shall vote its Voting ------------------ Securities against any proposal brought before the Stockholders, including a proposal to amend the Company's Certificate of Incorporation or Bylaws, which, if adopted, would frustrate the provisions of this Section 6. 7. Stock Splits. If there shall be any change in the Securities of the ------------ Company as a result of any merger, consolidation, reorganization, recapitalization, stock dividend, split-up, combination, exchange or otherwise, the provisions of this Agreement shall apply with equal force to additional and/or substitute Securities, if any, received by each Stockholder in exchange for or by virtue of its ownership of Securities. 8. Representations and Warranties of Littlejohn. Littlejohn represents -------------------------------------------- and warrants to Quilvest as follows: 8.1. Ownership of Shares. The Newco Common Stock and the Preferred ------------------- Stock listed by its name on Schedule 1 are all of the securities of Newco and the Company, respectively, which are beneficially owned by Littlejohn. Littlejohn has with respect to the Securities listed by its name on Schedule 1, good, valid and marketable title, free and clear of all liens, encumbrances, restrictions, options, warrants, rights to purchase, voting agreements or voting trusts, and claims of every kind (other than the encumbrances created by this Agreement and other than restrictions on transfer under applicable federal and state securities laws). 8.2. Power; Non-Contravention; Binding Agreement. Littlejohn has the ------------------------------------------- full power and authority to enter into this Agreement and perform all of its obligations herewith. Neither the execution, delivery nor performance of this Agreement by Littlejohn will violate its charter, bylaws or other organizational or constitutive documents, or any other agreement, contract or arrangement to which it is a party or is bound, including any voting agreement, stockholders agreement or voting trust. This Agreement has been duly executed and delivered by Littlejohn and constitutes a legal, valid and binding agreement of Littlejohn, enforceable in accordance with its terms. Neither the execution or delivery of this Agreement nor the consummation by Littlejohn of the transactions contemplated hereby will (a) require any consent or approval of or filing with any governmental or other regulatory body, other than filings required under the federal or state securities laws, or (b) constitute a violation of, conflict with or constitute a default under (i) any law, rule or regulation applicable to Littlejohn, or (ii) any order, judgment or decree to which Littlejohn is bound. 8.3. Finder's Fees. No person is, or will be, entitled to any ------------- commission or finder's fees from Littlejohn in connection with this Agreement or the transactions contemplated hereby. -9- 9. Representations and Warranties of Quilvest. Quilvest represents and ------------------------------------------ warrants to Littlejohn as follows: 9.1. Ownership of Securities. The Newco Common Stock and the ----------------------- Securities listed by its name on Schedule 1 are all of the Securities which are beneficially owned by Quilvest as of the date hereof. Quilvest does not have any rights to acquire any additional Securities other than pursuant to the Warrants it beneficially owns. Quilvest has with respect to the Securities listed by its name on Schedule 1 good, valid and marketable title, free and clear of all liens, encumbrances, restrictions, options, warrants, rights to purchase, voting agreements or voting trusts, and claims of every kind (other than the encumbrances created by the Original Shareholders Agreement and this Agreement and other than restrictions on transfer under applicable federal and state securities laws). 9.2. Power; Non-Contravention; Binding Agreement. Quilvest has the ------------------------------------------- full, right, power and authority to enter into this Agreement and perform all of its obligations hereunder. Neither the execution, delivery nor performance of this Agreement by Quilvest will violate its charter, bylaws or other organizational or constitutive documents or any other agreement, contract or arrangement to which it is a party or is bound, including any voting agreement, stockholders agreement or voting trust. This Agreement has been duly executed and delivered by Quilvest and constitutes a legal, valid and binding agreement of Quilvest, enforceable in accordance with its terms. Neither the execution or delivery of this Agreement nor the consummation by Quilvest of the transactions contemplated hereby will (a) require any consent or approval of or filing with any governmental or other regulatory body, other than filings required under the federal or state securities laws, or (b) constitute a violation of, conflict with or constitute a default under (i) any law, rule or regulation applicable to Quilvest, or (ii) any order, judgment or decree to which Quilvest is bound. 9.3. Finder's Fees. No person is, or will be, entitled to any ------------- commission or finder's fees from Quilvest in connection with this Agreement or the transactions contemplated hereby. 10. Representations and Warranties of Newco. Newco represents and warrants --------------------------------------- to each Stockholder as follows: 10.1. Power Authority; Non-Contravention; Binding Agreement. Newco has ----------------------------------------------------- full right, power and authority to enter into and perform all of its obligations under this Agreement. Neither the execution, delivery nor performance of this Agreement by Newco will violate the charter, bylaws or other organizational or constitutive documents of Newco, or any other agreement, contract or arrangement to which Newco is a party or is bound. This Agreement has been duly executed and delivered by Newco and constitutes a legal, valid and binding agreement of Newco, enforceable in accordance with its terms. Neither the execution of this Agreement nor the consummation by Newco of the transactions contemplated hereby will -10- (a) require any consent or approval of or filing with any governmental or other regulatory body other than filings required under federal or state securities laws, or (b) constitute a violation of, conflict with or constitute a default under (i) any law, rule or regulation applicable to Newco, or (ii) any order, judgment or decree to which Newco is bound. 10.2. Finder's Fees. No person is, or will be, entitled to any ------------- commission or finder's fee from Newco in connection with this Agreement or the transactions contemplated hereby. 11. Termination; Securities Free from Agreement. ------------------------------------------- 11.1. This Agreement (other than Sections 2.4, 12 and 18 through 30 which shall survive any termination of this Agreement), shall terminate on the earliest of (i) 10 years from the date hereof, (ii) the mutual agreement of the Stockholders which beneficially own a majority of the Common Stock issued or issuable upon conversion of the Preferred Stock or upon the exercise of the Warrants, in each case which are subject to this Agreement, (iii) the sale of 90% or more of the Securities described in clause (ii) to a Person which is not an Affiliate of Littlejohn or a permitted transferee of Quilvest who becomes party to this Agreement and (iv) the termination of the Merger Agreement in accordance with its terms as in effect from time to time. 11.2. Securities which are sold by a Stockholder pursuant to and in accordance with the provisions of Rule 144 or Section 4 or Section 5 hereof shall be deemed sold, upon the consummation of such sale in accordance therewith, free and clear of this Agreement and the Irrevocable Proxy granted to Littlejohn. -11- 12. Expenses. Except as provided in Section 28, each party hereto -------- will pay all of its expenses in connection with Merger and the other the transactions contemplated by this Agreement, including, without limitation, the fees and expenses of its counsel and other advisors; provided, however, if the Merger is consummated, all such expenses shall be paid by Newco. Newco agrees that if the Merger is consummated, it will pay to Quilvest the full amount of the Merger Consideration (as defined in the Merger Agreement), without deduction or offset whatsoever (including with respect to taxes), which may become due and owing to Quilvest in connection with the cancellation of the Common Stock pursuant to the Merger Agreement, and Newco hereby releases and forever discharges Quilvest from and against any claims which it may have against Quilvest or its successors and assigns with respect to any taxes which may be required to be paid by or with respect to Quilvest in connection with its receipt of the Merger Consideration in connection with the cancellation of the Common Stock pursuant to the Merger Agreement. 13. Fees. ---- 13.1. Commencing August 31, 2001, the Company shall pay to Littlejohn & Co., LLC and Quilvest or its designees, pro rata based upon their respective Applicable Percentages, a management fee in such amount, not to exceed $500,000 for each annual period ended on August 31st, determined by Littlejohn and the Company (the "Management Fee"), payable on the last Business Day in February and August of each year, or on such dates as the parties shall otherwise agree. Notwithstanding the foregoing, the Management Fee shall not be paid (and shall not accrue) if at the time of the payment of the Management Fee, the Company would not be in violation of the financial covenants contained in the Loan and Security Agreement dated as of February 17, 2000, between the Company, Fleet Capital Corporation, as agent, and the lenders named therein, as amended from time to time the ("Credit Agreement"). 13.2. Until such time as the Credit Agreement is amended to increase the amount of Guaranteed Out-of-Formula Loans (as defined in the Credit Agreement) from the current $5.0 million level and Littlejohn amends its existing Guaranty (as defined in the Credit Agreement) to guarantee 80% of the Guaranteed Out-of-Formula Loans and Quilvest enters into a new guaranty pursuant to which it guarantees to Agent for the benefit of the Lenders (both as defined in the Credit Agreement) 20% of such loans (the "Guaranty Amendment Date"), the provisions of Section 13(b) of the Original Shareholders Agreement shall continue to apply. After the Guaranty Amendment Date, to compensate Littlejohn and Quilvest for their guaranties with respect to any Out-of-Formula Loans under the Credit Agreement, the Company agrees to pay to Quilvest and Littlejohn a fee (the "Overadvance Fee") calculated at a rate of 8% per annum of the actual amount of such Out-of-Formula Loans outstanding from time to time which Littlejohn and Quilvest are then guarantying. The Overadvance Fee shall be paid 80% to Littlejohn and 20% to Quilvest and shall be payable quarterly in arrears commencing three months after the Guaranty Amendment Date and only with respect to such days in which there are -12- outstanding Out-of-Formula Loans. Notwithstanding the foregoing, the Company shall not be required to pay an Overadvance Fee to the extent that, at the time of or after giving effect to the payment thereof, the Company is, or would be in violation of the financial covenants contained in the Credit Agreement, in which case any such Overadvance Fee would accrue and be payable as soon as possible thereafter. 14. Certain Covenants. ------------------ 14.1. Except in accordance with the provisions of this Agreement, Quilvest agrees not to, directly or indirectly grant any proxies, deposit any Securities into a voting trust or enter into a voting agreement with respect to any Securities. 14.2. Each Stockholder agrees, while this Agreement is in effect and to the extent disclosure would be required under the Exchange Act, to notify the Company, as soon as practicable, of the number of any Voting Securities, beneficial ownership of which is acquired by such Stockholder after the date hereof, and to prepare and file with the Commission an amendment to its Schedule 13D, as and when required to be filed, which amendment shall comply as to form in all material respects with the applicable provisions of the Exchange Act. Such Stockholder represents and warrants that any such Schedule 13D amendment, at the time it is filed with the Commission, will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, no representation or warranty is deemed made by such Stockholder with respect to information supplied by any other Stockholder for use in preparing the Schedule 13D or any such Schedule 13D amendment. Such Stockholder will provide the other Stockholders who are members of the "group" (within the meaning of the Exchange Act) filing such Schedule 13D with a reasonable opportunity to review and comment on any proposed Schedule 13D amendment prior to filing such with the Commission (subject to any requirements of law to file promptly), will provide such other Stockholders with a copy of all such filings made with the Commission and will notify such other Stockholders as promptly as practicable after the receipt of any comments or any request for additional information from the Commission or its staff and, upon request of any such other Stockholder, will supply each of them and their legal counsel with copies of all correspondence between it or any of its representatives, on the one hand, and the Commission, its staff or any state securities administrators, on the other hand. 14.3. In the event the Company determines to raise additional monies after the Effective Time through the sale of additional Securities and Littlejohn is afforded the opportunity to purchase from the Company such additional Securities then, from time to time after the date hereof, subject to applicable law, Littlejohn shall permit Quilvest to purchase from the Company such additional securities offered for sale to Littlejohn in proportion with Littlejohn pro rata based upon their respective Applicable Percentages. -13- 15. Financial Reports and Information. If the Company is not required --------------------------------- to file periodic reports under Section 12(g) or 15(d) of the Exchange Act, it will furnish to each Stockholder financial statements (including accompanying notes) similar in form and substance to those which would be required to be filed by it in any annual or quarterly report filed under the Exchange Act if the Company were subject to such Exchange Act. Such reports will be furnished within 45 days after the end of the first, second and third fiscal quarters of each year, and within 90 days after the end of each fiscal year. 16. Transaction with Affiliates. The Company hereby agrees that it --------------------------- shall not enter into any transaction with an Affiliate except upon fair and reasonable terms that are no less favorable to it than it reasonably believes it could obtain in a comparable arm's length transaction with a Person not its Affiliate. 17. Legend and Stop Transfer Instructions. Immediately after the ------------------------------------- execution of this Agreement (and from time to time prior to the termination of this Agreement), each Stockholder, if the particular restriction is applicable to it, shall request the Company and Newco to provide that each certificate representing Securities or Newco Common Stock beneficially owned by it will bear a legend in substantially the following form: THE SHARES REPRESENTED BY THIS CERTIFICATE (I) MAY NOT BE SOLD, EXCHANGED OR OTHERWISE TRANSFERRED OR DISPOSED OF EXCEPT IN COMPLIANCE WITH THE TERMS AND CONDITIONS OF THE STOCKHOLDERS AGREEMENT, AND (II) ARE SUBJECT TO THE TERMS AND CONDITIONS OF THE STOCKHOLDERS AGREEMENT DATED AS OF MARCH 6, 2001, AND THE IRREVOCABLE PROXY REFERRED TO THEREIN, AS SUCH AGREEMENT MAY BE AMENDED FROM TIME TO TIME, AND COPIES OF WHICH ARE ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF THE ISSUER. Immediately after the execution of this Agreement (and from time to time prior to the termination of this Agreement), each Stockholder shall request the Company to require that the transfer agent for its Securities shall make a notation in its records prohibiting the transfer of any of the Securities owned of record by such Stockholder, except in accordance with the terms and conditions of this Agreement. Each Stockholder agrees to surrender to the Company each certificate representing Securities in order to effectuate the provisions of this Section 17. 18. Survival of Representations and Warranties. Except as expressly ------------------------------------------ set forth herein, the representations, warranties, covenants and agreements made by the Stockholders or Newco in this Agreement shall survive the date hereof and the Effective Time. 19. Notices. All notices or other communications required or ------- permitted hereunder shall be in writing, shall be given by hand delivery, U.S. Express Mail (return receipt -14- requested), overnight courier guaranteeing next business day delivery, or facsimile, and shall be deemed duly given when received, addressed as follows: If to Newco (after the Effective Time), to: c/o Pameco Corporation 651 Corporate Circle Suite 200 Golden, Colorado 80401 Attention: President and Chief Executive Officer Facsimile: 303-568-1232 Telephone 303-568-1260 with a copy to: Powell, Goldstein, Frazer & Murphy LLP 191 Peachtree Street, N.E. 16th Floor Atlanta, GA 30303 Attention: G. William Speer, Esq. Facsimile: 404-572-6999 Telephone: 404-572-6722 If to Newco (prior to the Effective Time) or Littlejohn, to: c/o Littlejohn & Co., LLC 115 East Putnam Avenue Greenwich, CT 06830 Attention: Mr. Angus C. Littlejohn, Jr. Facsimile: 203-861-4009 Telephone: 203-861-4005 -15- with a copy to: Pepper Hamilton LLP 3000 Two Logan Square Eighteenth and Arch Streets Philadelphia, PA 19103-2799 Attention: James D. Epstein, Esq. or Elam M. Hitchner, III, Esq. Facsimile: 215-981-4750 Telephone: 215-981-4000 If to Quilvest to: c/o Three Cities Research, Inc. 650 Madison Avenue New York, NY 10022 Attention: Mr. Willem F. P. de Vogel Facsimile: 212-980-1142 Telephone: 212-605-3213 with a copy to: Paul, Weiss, Rifkind, Wharton & Garrison 1285 Avenue of the Americas New York, NY 10019-6046 Attention: Michele R. Jenkinson, Esq. Facsimile: 212-373-2004 Telephone: 212-373-3101 20. Entire Agreement; Amendment. This Agreement, together with the --------------------------- documents expressly referred to herein, constitute the entire agreement among the parties hereto with respect to the subject matter contained herein and supersede all prior agreements and understandings among the parties with respect to such subject matter (including any agreements between Quilvest and the Company regarding stockholder rights); provided, however, that, until the -------- ------- Effective Time, the Original Shareholders Agreement will remain in full force and effect. This Agreement may not be modified, amended, altered or supplemented except by an agreement in writing executed by the party against whom such modification, amendment, alteration or supplement is sought to be enforced. 21. Successors and Assigns. This Agreement shall be binding upon and ---------------------- inure to the benefit of the parties hereto and their respective successors (including the Company), and permitted assigns, but neither this Agreement nor any of the rights, interests or obligations -16- hereunder shall be assigned by any of the parties hereto without the prior written consent of the other parties. 22. Governing Law; Consent to Jurisdiction. This Agreement shall be -------------------------------------- construed and enforced in accordance with the laws of the State of Delaware without regard to the application of the principles of conflicts or choice of laws. Each party hereto submits to the jurisdiction of the courts of the State of Delaware in New Castle County and to the jurisdiction of the United States District Court for the District of Delaware, and hereby agrees that service of process may be effected in accordance with the delivery methods described in Section 19 hereof. 23. Injunctive Relief. The parties agree that in the event of a breach ----------------- of any provision of this Agreement, the aggrieved party may be without an adequate remedy at law. The parties therefore agree that in the event of a breach of any provision of this Agreement, the aggrieved party shall be entitled to obtain in any court of competent jurisdiction a decree of specific performance or to enjoin the continuing breach of such provision, in each case without the requirement that a bond be posted, as well as to obtain damages for breach of this Agreement. By seeking or obtaining such relief, the aggrieved party will not be precluded from seeking or obtaining any other relief to which it may be entitled. 24. Counterparts; Facsimile Signatures. This Agreement may be executed ---------------------------------- in any number of counterparts (including by facsimile signature), each of which shall be deemed to be an original and all of which together shall constitute one and the same document. 25. Severability. Any term or provision of this Agreement which is ------------ invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdiction. If any provision of this Agreement is so broad as to be unenforceable, such provision shall be interpreted to be only so broad as is enforceable. 26. Further Assurances. Each party hereto shall execute and deliver ------------------ such additional documents as may be necessary or desirable to consummate the transactions contemplated by this Agreement. 27. No Third Party Beneficiaries; No Partnership or Fiduciary --------------------------------------------------------- Relationship. Nothing in this Agreement, expressed or implied, shall be - ------------ construed to give any person, other than a party hereto, any legal or equitable right, remedy or claim under or by reason of this Agreement or any provision contained herein. Nothing in this Agreement shall create, or is intended to create, a fiduciary relationship between Quilvest and Littlejohn or a partnership or similar relationship between Quilvest and Littlejohn. -17- 28. Legal Expenses. In the event any legal proceeding is commenced by -------------- any party to this Agreement to enforce, or recover damages for any breach of, the provisions hereof, the prevailing party in such legal proceeding shall be entitled to recover in such legal proceeding from the losing party such prevailing party's costs and expenses incurred in connection with such legal proceedings, including reasonable attorneys fees and disbursements. 29. Interpretation. Unless the context of this Agreement otherwise -------------- requires, (i) words of any gender include each gender and the neuter; (ii) words using the singular or plural number also include the plural or singular number, respectively; (iii) the terms "hereof," "herein," "hereby" and derivative or similar words refer to this entire Agreement; (iv) the term "Section" refers to the specified Section of this Agreement; and (v) the term "including" or similar words shall be construed as to refer to such matter without limitation thereof. Whenever this Agreement refers to a number of days, such number shall refer to calendar days unless Business Days are specified. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 30. Effectiveness; and Termination of Prior Agreements. This Agreement -------------------------------------------------- shall become effective as of the date hereof and, as of the Effective Time, this Agreement shall supersede and replace, in its entirety, the Original Shareholders Agreement (which Littlejohn and Quilvest hereby agree shall terminate pursuant to Section 11 thereof) except that the representations and warranties of Quilvest contained in Section 9.4 of the Original Shareholders Agreement shall survive the Effective Time. As of the Effective Time, Willem F.P. de Vogel, individually, shall have no further right or obligation under the Original Shareholders Agreement, except to the extent a right or obligation referred to therein expressly by its terms survives the termination of the Original Shareholders Agreement. As of the Effective Time, the Registration Rights Agreement dated as of February 18, 2000 shall be of no further force or effect. -18- IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the date and year first above written. PAMECO ACQUISITION, INC. By: /s/ Angus C. Littlejohn, Jr. ----------------------------- Name: Angus C. Littlejohn, Jr. Title: President LITTLEJOHN FUND II, L.P. By: Littlejohn Associates II, L.L.C. its General Partner By: /s/ Angus C. Littlejohn, Jr. ---------------------------- Name: Angus C. Littlejohn, Jr. Title: Manager QUILVEST AMERICAN EQUITY LTD. By: /s/ Willem F.P. de Vogel ---------------------------- Name: Willem F.P. de Vogel Title: Attorney-in-Fact The undersigned, Willem F.P. de Vogel, hereby executes this Agreement in his individual capacity solely to confirm his agreement that upon the Effective Time, the Original Shareholders Agreement shall automatically terminate and be of no further force or effect, and that he shall have no rights under or obligations under the Original Shareholders Agreement, except to the extent a right or obligation referred to therein expressly by its terms survives the termination of the Original Shareholders Agreement. /s/ Willem F.P. de Vogel _____________________________ Willem F.P. de Vogel -19- Appendix A ---------- As used in this Agreement, the following terms have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "Affiliate" of a Person shall mean any Person which, directly or indirectly, controls, is controlled by, or is under common control with such Person. The term "control" (including, with correlative meaning, the terms "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to elect a majority of the board of directors (or other governing body) or to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise and, in any event and without limiting the generality of the foregoing, any Person owning 10% or more of the voting securities of another Person shall be deemed to control that Person. Notwithstanding anything to the contrary in the foregoing definition, for the purposes of this Agreement, neither Littlejohn, Quilvest, nor the directors of the Company or Newco acting in their capacities as such, shall be considered an "Affiliate" of the Company or Newco, as applicable. "Applicable Percentage" means (a) in the case of Littlejohn, the ratio stated as a percentage that Littlejohn's Investment Amount bears to the Aggregate Investment, and (b) in the case of Quilvest, the ratio stated as a percentage that Quilvest's Investment Amount bears to of the Aggregate Investment. "Beneficial Owner" and "beneficial ownership" shall be determined in accordance with Rule 13d-3 promulgated under the Exchange Act. "Board" has the meaning set forth in Section 2.1 hereof. "Business Day" means any day other than a Saturday, Sunday, legal holiday, or other day on which banks in the State of Delaware are authorized to close. "Bylaws" means the Bylaws of the Company, as they may hereafter be amended or modified. "Certificate of Incorporation" means the Certificate of Incorporation of the Company, as it may hereafter be amended or modified. "Commission" means the United States Securities and Exchange Commission, or any successor thereto. A-1 "Common Stock" means the Common Stock of the Company, par value $0.01 per share. "Company" has the meaning set forth in the preamble hereof prior to the Effective Time, and, after the Effective Time, means the surviving company of the Merger. "Credit Agreement" has the meaning set forth in Section 13.1 hereof. "DGCL" means the Delaware General Corporation Law. "Effective Time" has the meaning set forth in the preamble hereof. "Exchange Act" means the Securities and Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. "Governmental Body" means any government, or governmental or regulatory body thereof, or political subdivision thereof, whether federal, state, local or foreign, or any agency or instrumentality thereof, or any court or arbitrator (public or private). "Initiating Holder" has the meaning set forth in Section 5.1 hereof. "Irrevocable Proxy" has the meaning set forth in Section 2.2 hereof. "Lenders" shall have the meaning set forth in the Credit Agreement. "Littlejohn" means Littlejohn Fund II, L.P., a Delaware limited partnership. "Management Fee" has the meaning set forth in Section 13.1 hereof. "Merger" has the meaning set forth in the preamble hereof. "Merger Agreement" has the meaning set forth in the preamble hereof. "Newco Board" has the meaning set forth in Section 1.2 hereof. "Newco Common Stock" means the Common Stock of Newco, par value $.01 per share. "Offered Securities" has the meaning set forth in Section 4.1 hereof. "Option Period" has the meaning set forth in Section 4.3 hereof. "Original Shareholders Agreement" has the meaning set forth in the preamble hereof. A-2 "Overadvance Fee" has the meaning set forth in Section 13.2 hereof. "Participation Notice" has the meaning set forth in Section 4.1 hereof. "Participation Right" has the meaning set forth in Section 4.3 hereof. "Person" means any individual, corporation, partnership, firm, joint venture, limited liability company or partnership, association, joint-stock company, trust, unincorporated organization or Governmental Body. "Preferred Stock" means any series of preferred stock, par value $1.00 per share, of the Company. "Purchase Agreement" means that certain Securities Purchase Agreement, dated as of February 18, 2000, by and among the Company, Quilvest and Littlejohn, as amended from time to time. "Purchaser" has the meaning set forth in Section 4.1 hereof. "Quilvest" means Quilvest American Equity Ltd., a British Virgin Islands company. "Registration Rights Agreement" means that certain registration rights agreement, dated February 18, 2000, among the Company, Littlejohn and Quilvest, as the same may be amended or modified from time to time. "Securities" means and include (a) all shares of the Common Stock and Preferred Stock, (b) all options, warrants or rights to acquire shares of Common Stock or Preferred Stock, (c) all securities which are convertible into or exchangeable or exercisable for, Common Stock or Preferred Stock, and (d) all other securities of the Company which may be issued in exchange for or in respect of shares of Common Stock or Preferred Stock (whether by way of stock split, stock dividend, combination, reclassification, reorganization or any other means). "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. "Selling Stockholder" has the meaning set forth in Section 4.1 hereof. "Series A Preferred Shares" means the Series A Cumulative Pay-in-Kind Preferred Stock, par value $1.00 per share, of the Company, as the same may be amended or modified from time to time. A-3 "Series B Preferred Shares" means the Series B Cumulative Pay-in-Kind Convertible Preferred Stock, par value $1.00 per share, of the Company, as the same may be amended or modified from time to time. "Series C Preferred Shares" means the Series C Cumulative Pay-in-Kind Convertible Preferred Stock, par value $1.00 per share, of the Company, as the same may be amended or modified from time to time. "Third Party Offer Terms" has the meaning set forth in Section 4.1 hereof. "Transfer" means any transfer of Securities, whether by sale, assignment, gift, will, devise, bequest, operation of the laws of descent and distribution, or in trust, pledge, hypothecation, mortgage, encumbrance or other disposition. The verb to "transfer" means to sell, assign, give, dispose, transfer (including by gift, will, devise, bequest, or operation of laws of descent and distribution, or in trust), pledge, hypothecate, mortgage, or encumber. "Voting Securities" has the meaning set forth in Section 2.1 hereof. "Warrants" means the warrants to purchase shares of Series A Cumulative Pay-in-Kind Preferred Stock of the Company as issued and sold to Littlejohn and Quilvest pursuant to that certain Securities Purchase Agreement, dated February 18, 2000, by and among Littlejohn, Quilvest and the Company. A-4 EXHIBIT C FORM OF IRREVOCABLE PROXY The undersigned stockholder of Pameco Corporation, a Delaware corporation (the "Company"), hereby irrevocably (to the fullest extent permitted by law) appoints and constitutes Littlejohn Fund II, L.P., a Delaware limited partnership ("Littlejohn"), the attorney and proxy of the undersigned with full power of substitution and resubstitution, to the full extent of the undersigned's rights with respect to (i) the issued and outstanding shares of voting Securities of the Company, whether common stock, preferred stock or otherwise, owned of record by the undersigned as of the date of this proxy, which Securities are specified on the final page of this proxy and (ii) any and all other Securities of the Company as to which the undersigned may acquire record ownership after the date hereof (the Securities of the Company referred to in clauses (i) and (ii) of the immediately preceding sentence are collectively referred to as the "Subject Shares"). As of the Effective Time, all prior proxies given by the undersigned with respect to any of the Subject Shares are hereby revoked, and no subsequent proxies will be given with respect to any of the Subject Shares. This proxy is irrevocable, is coupled with an interest and is granted in connection with a Stockholders Agreement, dated as of the date hereof, between the Company (as the successor to Pameco Acquisition, Inc. by merger), Littlejohn and the undersigned (as hereafter amended from time to time, the "Stockholders Agreement"), and is granted in consideration of Littlejohn's participation, by way of its interest in Pameco Acquisition, Inc. in the Merger Agreement, dated as of March 6, 2001, between the Company and Pameco Acquisition, Inc. (a) The attorney and proxy named above will be empowered, and may exercise this proxy, to vote the Subject Shares, at any time and from time to time, in its sole and absolute discretion (subject only to the terms and conditions of the Stockholders Agreement), at any meeting of the stockholders of the Company, however called, or in any written action by consent of stockholders of the Company, with respect to all matters brought before a vote of the stockholders, including a vote for the election of directors; provided, that nothing contained in this proxy shall permit Littlejohn to vote the Subject Shares in contravention of the provisions of the Stockholders Agreement. This proxy shall be binding upon the heirs, successors and assigns of the undersigned (including any transferee of any of the Subject Shares in accordance with the Stockholders Agreement). The undersigned hereby confirms each and every action to be taken by Littlejohn pursuant to this proxy as if it were its own and waives any right to make any claim against C-1 Littlejohn that may arise, directly or indirectly, as a result of Littlejohn's voting of any of the Subject Shares by virtue of this proxy. Any term or provision of this proxy which is invalid or unenforceable, in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this proxy or affecting the validity or enforceability of any of the terms or provisions of this proxy in any other jurisdiction. If any provision of this proxy is so broad as to be unenforceable, the provision shall be interpreted to be only so broad as is enforceable. Notwithstanding anything to the contrary, this proxy shall become effective only as of, and subject to, the occurrence of the Effective Time, and shall terminate immediately upon the termination of the Stockholders Agreement pursuant to Section 11 thereof and shall terminate earlier as to particular Subject Shares to the extent set forth in Section 11 of the Stockholders Agreement. Dated: ____________, ____ Name: _____________________ [By: ___________________________] [Name:] [Title:] Number of shares of Common Stock, $.01 par value per share, of the Company owned of record as of the date of this proxy: ___________ Number of shares of Series A Cumulative Pay-in-Kind Preferred Stock, $1.00 par value per share, of the Company owned of record as of the date of this proxy: ___________ Number of shares of Series B Cumulative Pay-in-Kind Convertible Preferred Stock, $1.00 par value per share, of the Company owned of record as of the date of this proxy: ___________ Number of shares of Series C Cumulative Pay-in-Kind Convertible Preferred Stock, $1.00 par value per share, of the Company owned of record as of the date of this proxy: ___________ C-2 Number of Warrants to purchase Series A Cumulative Pay-in-Kind Preferred Stock, $1.00 par value per share, of the Company owned of record as of the date of this proxy: ________________________ C-3 Schedule 1 ---------- Ownership of Securities
Name of Stockholder Number of Number of Number of Number of Number of Shares of Shares of Series A Series B Series C Newco Common Common Preferred Preferred Preferred Number of Stock Stock Shares Shares Shares Warrants - ---------------------------------------------------------------------------------------------------------------------------------- Littlejohn Fund II, L.P. 8 0 112,000 52,500 50,000 112,000 - ---------------------------------------------------------------------------------------------------------------------------------- Quilvest American Equity Ltd. 2 616,667 28,000 10,000 12,500 28,000 - ----------------------------------------------------------------------------------------------------------------------------------
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