EXHIBIT 10.7
[LOGO OF PAMECO HOLDINGS, INC. APPEARS HERE]
STOCK OPTION AGREEMENT
IN ACCORDANCE WITH, the resolutions of the Compensation Committee of the
Board of Directors of Pameco Holdings, Inc. (the "Company"), but subject to the
approval of the full Board of Directors, this Stock Option (this "Option")
evidences the grant by the Company to Xxxxxx X. Xxxxxxxx (the "Optionee") of the
right and option to purchase up to 75,000 shares of Common Stock of the Company
(the "Common Stock"), subject to the following terms and conditions:
1. Option Price. The purchase price of each share of Common Stock
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subject to this Option shall be $4.00, which the parties acknowledge and agree
to be equal to the fair market value thereof as of the date of grant.
2. Vesting of Shares of Common Stock. Shares of Common Stock subject to
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the option shall vest, and become exercisable, as follows: 22,500 shares of
Common Stock shall vest as of May 6, 1996, 17,500 shares of Common Stock shall
vest as of March 1, 1997, 17,500 shares of Common Stock shall vest as of March
1, 1998, and 17,500 shares of Common Stock shall vest as of March 1, 1999.
In the event of the sale or other disposition of all or substantially all
of the assets of the Company (or Pameco Corporation) or of all of the Common
Stock of the Company (or all of the stock of Pameco Corporation) or an IPO where
shares of the common stock of the Company (or shares of Pameco Corporation) are
offered to the public at a price equal to or greater than $4.00 per share, all
options granted hereunder will immediately vest and become exercisable.
3. Designation of Option. All of the options covered by this Option shall
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be treated as Supplemental Stock Options.
4. Exercise of Option. The Optionee may exercise this Option to purchase
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shares of Common Stock that have vested in accordance with Section 2 hereof, by
following the procedure set forth in Section 5 hereof, at any time and from time
to time, during the period commencing on the date hereof and ending at 5:00
p.m., Atlanta, Georgia time, on the date which immediately precedes the sixth
anniversary of the option date hereof. Notwithstanding the foregoing, a
dissolution or liquidation of the Company, or a merger or consolidation in which
the Company is not the surviving corporation (unless an option is substituted
for this Option or this Option is assumed by the surviving corporation), shall
cause this Option to terminate, provided that Optionee shall, in such event,
have the right immediately prior to such dissolution or liquidation, or merger
or consolidation in which the Company is not the surviving corporation, to
exercise this Option in whole or in part.
5. Manner of Exercise. The Optionee may exercise this Option by
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delivering written notice of exercise to the Secretary of the Company, in
person, or by certified mail, return receipt requested, postage prepaid,
addressed to the attention of the Secretary of the Company at the location at
which the Company then maintains its principal office, and if so mailed, the
date of mailing will be considered the date of exercise. Such notice shall be
in substantially the form attached hereto and shall be accompanied by payment in
full, in immediately available funds, of the total purchase price for the shares
being purchased. The Company, in the event of exercise by an authorized person
other than the Optionee, may require proof of the right of such person to
exercise this Option. As promptly as practicable after receipt by the Company
of the aforementioned notice to purchase and the full purchase price, the
Company shall cause to be issued to the person entitled to purchase the shares
for which this Option is exercised, stock certificate(s) for the number of
shares of Common Stock being purchased, which shall evidence fully paid and
nonassessable shares.
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6. Transferability. This Option shall not be transferable other than by
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will or by laws of descent and distribution; provided that options which are not
designated as incentive stock options may be transferred, in whole or in part,
without consideration, by written instrument signed by the Optionee, to any
member(s) of the immediate family of Optionee or to any trust, partnership, or
similar vehicle for the benefit of such immediate family member(s) (the
"Permitted Transferees"). Evidence of transfer to Permitted Transferees shall
be delivered to the Company at its principal executive office.
7. Persons Who May Exercise Option. This Option shall be exercisable
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only by Optionee, or, if applicable Permitted Transferees, or if Optionee is
disabled, by his duly appointed guardian or legal representative on Optionee's
behalf.
8. Certain Restrictions. This Option, and any shares of Common Stock
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purchased hereunder, are subject to the following restrictions:
(a) If all the Investors, as defined in that certain Pameco Holdings, Inc.
Stockholders' Agreement, dated March 19, 1992 and as may be amended from time to
time, a copy of which is available to the Optionee upon request to the Company,
(the "Stockholders' Agreement"), propose to sell all of their shares of Common
Stock to a third party (other than an Affiliate, as defined in the Stockholders'
Agreement) in an arms-length transaction, then the investors may, at their
option, require Optionee to sell all, but not part, of the shares acquired by
Optionee upon exercise of this option (the "Designated Shares") to such third
party. If such option is exercised, Optionee hereby agrees to sell all of its
Designated Shares to such third party for the same consideration per share and
otherwise on the same terms and conditions upon which the Investors are selling
their shares, subject to the terms of Section 4 "Rights to Compel Sale" of the
Stockholders' Agreement, which terms are incorporated herein by reference.
(b) If the Optionee ceases to be an employee for any reason other than
death, disability, or retirement (such cessation to be referred to herein as a
"Termination Event"), all Options held by Optionee which are not vested as of
the effective date of the Termination Event shall be immediately forfeited to
the Company. In the event Optionee's employment is terminated by the Company
for Cause (as defined below), or Optionee voluntarily terminates his employment,
the Option rights under any then vested outstanding Options shall immediately
terminate. If Optionee's employment is terminated by the Company without Cause,
any Options vested as of such Optionee's date of termination shall remain
exercisable at any time prior to their expiration date or for one (1) month
after such Optionee's date of termination of employment, whichever period is
shorter.
In addition, the Optionee shall be deemed to have offered for sale to the
Company, at a purchase price determined in accordance with this subsection 8(b),
the Designated Shares at the time of such Termination Event. The Company shall
have a period of thirty (30) days after the date of such Termination Event to
provide Optionee with written acceptance of such offer to sell the Designated
Shares, which acceptance need not be for all of the Designated Shares. The
Company shall have the right to designate a third party to purchase any
Designated Shares which it would otherwise be entitled to purchase hereunder,
and such third party shall be entitled to any such shares on the same terms and
conditions provided for herein; provided , however, that the Company shall
first designate any of the Investors before designating any other third party
purchaser.
The per share purchase price of the Designated Shares shall be an
amount equal to the Appraised Value (as hereinafter defined) of each such share.
"Appraised Value" shall mean, in respect of each Designated Share, the fair
market value of such share, on the date of the Termination Event, based on the
value of the Company, as determined by a nationally recognized independent
investment banking firm selected by the Company, divided by the number of
outstanding shares (on a fully diluted
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basis); provided, however, that if an Appraised Value shall have been determined
pursuant to the Stockholders' Agreement at any time during the six month period
immediately preceding the date of the Termination Event, the Company may in its
sole discretion elect to utilize such prior determination.
Subject to any financing agreements or any other instruments or
agreements of the Company and/or any of its subsidiaries from time to time in
effect restricting the repurchase or retirement of shares, including but not
limited to (i) the Guarantee, dated March 19, 1992 (as amended from time to
time, the "Guarantee") by the Company of the repayment of funds by Pameco Corp.
("P.C.") to General Electric Capital Corporation ("GECC") pursuant to that
certain credit agreement, dated as of March 19, 1992 (as amended from time to
time), by and among P.C. and GECC (the "Credit Agreement"), and (ii) the Credit
Agreement, the purchase price of any Designated Shares to be purchased pursuant
to this subsection 8(b) shall be payable in cash (from sources legally
available therefore). If any Designated Shares to the purchased pursuant to
this subsection 8(b) may not be purchased for all cash under applicable law or
as a result of restrictions contained in the Guarantee or the Credit Agreement
(the "Restrictions"), such portion shall be purchased by the issuance and
delivery of a promissory note (the "Take-Back Note") which shall bear interest
at a rate per annum equal to the prime rate as publicly announced by Citibank,
N.A. from time to time, shall have a five year maturity, and shall have such
other terms as the Company may deem necessary or appropriate. In addition, the
Take-Back Note shall be subordinated to the rights of such creditors of the
Company as may be required by law, the Guarantee or the Credit Agreement. The
principal amount of the Take-Back Note shall be payable in equal annual
installments but shall accelerate on the first day of the month following the
date upon which such Restrictions shall have terminated in their entirety. In
addition, if funds are unavailable for the payment when due of principal of or
interest on the Take-Back Note as a result of the Restrictions, the holder of
the Take-Back Note shall not be entitled to accelerate or demand payment of
outstanding principal of and interest accrued on the Take-Back Note, but, if and
to the extent permitted by law, such accrued interest shall be included as the
principal portion of a separate promissory note having terms otherwise identical
to the Take-Back Note. Any payment of principal or interest deferred as a
result of such Restrictions shall be due and payable on the next date on which
payment of principal on the Take-Back Note is due following the termination of
such Restrictions. The Take-Back Notes shall in all instances have such terms
as shall comply with any applicable requirements of the Guarantee and the Credit
Agreement.
Notwithstanding anything in this Agreement to the contrary, the closing of
any sale hereunder may be delayed in any case in which the Company has
determined (based upon the advise of counsel) that it cannot, in compliance with
applicable law, the Guarantee or the Credit Agreement, purchase any shares that
it is otherwise obligated to purchase. In such case, the closing of such sale
shall be delayed until the earliest practicable date on which such closing may
be effected in compliance with applicable law, the Guarantee and the Credit
Agreement.
If the Company (or other third party purchaser) elects to purchase the
Designated Shares pursuant to this subsection 8(b), Optionee (or other third
party purchaser) and the Company shall mutually determine a closing date (the
"Closing Date" for the purchase and sale of such shares, which shall be not more
than 20 business days, subject to any applicable regulatory waiting periods,
after the expiration of the notice period described herein, or if any such day
is not a business day, then the first business day thereafter; provided,
however, that if the purchase price is to be based upon Appraised Value, and
Appraised Value shall not have been determined during the six month period
immediately preceding such purchase, such 20 business day period shall commence
upon the final determination of Appraised Value. The closing of any sale
pursuant to this subsection 8(b) shall be held at 11:00 a.m., local time, at the
offices of the Company or at such other time or place as the parties agree. On
the Closing Date Optionee shall deliver certificates, with appropriate transfer
tax stamps affixed and with stock powers endorsed in blank, representing the
Designated Shares and shall represent and warrant that Optionee has all
necessary authority to effect the transfer of such shares, that Optionee is the
sole record
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and beneficial owner of such shares and has good and valid title to such shares,
free and clear of any and all liens, claims, pledges, options, and restrictions
of any kind whatsoever. If the Company elects to exercise its right to purchase
shares for fewer than all the Designated Shares, the Company shall purchase from
Optionee at least the number of Designated Shares necessary to qualify such
purchase a substantially disproportionate redemption pursuant to Section
302(b)(2) of the Internal Revenue Code of 1986, as amended.
c) The Optionee, or if applicable, the Permitted Transferee, must become
a signatory to the current Stockholders' Agreement prior to the purchase of any
shares granted under this Option Agreement.
d) For purposes of this Agreement, "Cause" shall have the meaning set
forth below: (i) willful misconduct on the part of the Optionee that is
materially detrimental to the Company; or (ii) the conviction of the Optionee
for the commission of a felony. The existence of "Cause" under either (i) or
(ii) shall be determined by the Compensation Committee of the Board of
Directors. Notwithstanding the foregoing, if the Optionee has entered into an
employment agreement that is binding as of the date of employment termination,
and if such employment agreement defines "Cause", and/or provides a means of
determining whether "Cause" exists, such definition of "Cause" and means of
determining its existence shall apply to the Optionee.
9. Investment Representation. The Optionee hereby represents, warrants
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and agrees if the shares then to be issued are not included in an effective
Registration Statement under the Securities Act of 1933, as amended (the "Act"):
(a) That the shares that shall be purchased under this Option will be
purchased for Optionee's own account for investment purposes only and not with a
view to resale or distribution thereof;
(b) That Optionee understands the offer of shares under this Option may be
made pursuant to a claim of exemption from the registration provisions of the
Act and any applicable state securities laws;
(c) That the shares subject to this Option may be unregistered and, if so,
will be required to be held indefinitely, unless such shares are subsequently
registered or an exemption from registration is then available;
(d) That the Company is under no obligation to register such shares, to
comply with any such exemption or to supply the Optionee with any information
necessary to enable him to make routine sales of such shares under Rule 144 or
any other rule or regulation of the Securities and Exchange Commission; and
(e) That the transfer agent for the Company may be instructed not to
transfer ownership of the stock certificate(s) representing shares acquired upon
any exercise of this Option, unless in the prior written opinion of counsel
reasonably acceptable to the Company, such transfer is lawful under the Act and
applicable state securities laws.
In regard to the foregoing, the Optionee understands and agrees that the
certificate(s) evidencing any shares that may be purchased pursuant to the
exercise of this Option which have not been registered under the Act or any
applicable state securities law, may bear an appropriate restrictive legend in a
form determined in the sole discretion of the Company.
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10. Legal Restrictions. If in the opinion of legal counsel for the
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Company the issuance or sale of any shares of Common Stock pursuant to the
exercise of this Option would not be lawful for any reason, including without
limitation the inability of the Company to obtain from any governmental
authority or regulatory body having jurisdiction the authority deemed by such
counsel to be necessary to such issuance or sale, the Company shall not be
obligated to issue or sell any Common Stock pursuant to the exercise of this
Option to Optionee or any other authorized person until such legal impediment
has, to the satisfaction of counsel, been removed. The Company shall not be
obligated to issue or sell any shares of Common Stock pursuant to the exercise
of this option, if in the opinion of legal counsel, such shares cannot be issued
or sold in the absence of an effective registration statement under any
applicable state or federal securities laws, including without limitation the
Georgia Securities Act of 1973 and the Securities Act of 1933, as amended, or
that an exemption from any such registration requirement is then available. The
Company is in no event obligated to register any such shares, to comply with any
exemption from registration requirements or to take any other action which may
be required in order to permit, or to remedy or remove any prohibition or
limitation on, the issuance or sale of such shares to the Optionee or other
authorized person.
11. No Rights As Shareholder. Neither the Optionee nor any other person
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authorized to purchase Common Stock upon exercise of this Option shall have any
interest in or shareholder rights with respect to any shares of the Common Stock
which are subject to this Option until such shares have been issued and
delivered to the Optionee or any such person pursuant to the exercise of this
Option.
IN WITNESS WHEREOF, the Company has caused this Option to be executed by
its duly authorized officer and its corporate seal to be affixed hereto, as of
this 6th day of May, 1996.
PAMECO HOLDINGS, INC.
By:______________________________________
Name: Xxxxx X. Xxxxxxx, Xx.
Title: Chairman
Date: May 6, 1996
ATTEST:
By: ____________________________________
Name: Xxxx X. XxXxxxxx
Title: Treasurer / Asst. Secretary
(CORPORATE SEAL)
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ADDENDUM: The options evidenced by this Stock Option Agreement have been
effected by a Reverse One-for-Two Stock Split that occurred on October 16, 1996.
The total number of shares evidenced by this grant is now 37,500 and the
purchase price is now $8.00 per share. The vesting schedule in Section 2 has
been modified accordingly. Further, the Optionee hereby consents to the
modification of the Option so that it now constitutes the right to purchase
37,500 shares of the Company's Class B Common Stock.
By:___________________________________
Name: Xxxxx X. Xxxxxxx, Xx.
Title: Chairman
Date: October 16, 1996
Optionee:
______________________________________
Xxxxxx X. Xxxxxxxx
ATTEST:
____________________________________
Xxxx X. XxXxxxxx
(CORPORATE SEAL)
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