===============================================================================

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934

(AMENDMENT NO. 1)

Filed by the Registrant [X]

Filed by a Party other than the Registrant [_]

Check the appropriate box:

[X] Preliminary Proxy Statement

[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))

[_] Definitive Proxy Statement

[_] Definitive Additional Materials

[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12

PAMECO CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)

Payment of Filing Fee (Check the appropriate box):

[ ] No fee required.

[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

(1) Title of each class of securities to which transaction applies: Common
Stock, $.01 par value per share, of Pameco.
-----------------------------------------------------------------------

(2) Aggregate number of securities to which transaction applies: 3,100,178
shares of Pameco common stock.
-----------------------------------------------------------------------

(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined): The filing
fee was determined based upon the product of 3,100,178 shares of Pameco
common stock and the merger consideration of $0.45 per share in cash.
In accordance with Rule 0-11 under the Securities Exchange Act of 1934,
as amended, the filing fee was determined by multiplying the amount
calculated pursuant to the preceding sentence by 1/50 of one percent.
All outstanding options are omitted from the transaction valuation
because all outstanding options have exercise prices higher than the
$0.45 per share merger consideration and are therefore unlikely to be
exercised.
-----------------------------------------------------------------------

(4) Proposed maximum aggregate value of transaction: $ 1,395,080.

-----------------------------------------------------------------------

(5) Total fee paid: $ 279.00.

-----------------------------------------------------------------------

[X] Fee paid previously with preliminary materials.

[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.

(1) Amount Previously Paid:

-------------------------------------------------------------------------

(2) Form, Schedule or Registration Statement No.:

-------------------------------------------------------------------------

(3) Filing Party:

-------------------------------------------------------------------------

(4) Date Filed:

-------------------------------------------------------------------------

Notes:

Reg. (S) 240.14a-101.

SEC 1913 (3-99)

[PAMECO CORPORATION LOGO]

May , 2001
Dear Pameco Corporation Stockholder:

We invite you to attend a special meeting of stockholders of Pameco
Corporation to be held at a.m., time, on May , 2001, at
[location].

At the special meeting, we will ask you to approve the merger of Pameco
Acquisition, Inc., a Delaware corporation, with Pameco. Pameco will be the
surviving corporation in the merger. Pameco Acquisition was formed by an
investor group comprised of Littlejohn Fund II, L.P. and Quilvest American
Equity Ltd. solely for the purpose of acquiring all of our outstanding shares
of common stock. Currently, Littlejohn and Quilvest beneficially own
approximately 67.8% and 19.2%, respectively, of our outstanding voting
securities.

The merger will be accomplished pursuant to a merger agreement between
Pameco and Pameco Acquisition that we entered into on March 6, 2001. If we
complete the merger, Pameco stockholders will receive $0.45 in cash in
exchange for each share of Pameco common stock they own. As a result of the
merger, all of the outstanding shares of common and preferred stock of Pameco
will be owned by Littlejohn and Quilvest.

A special committee of Pameco's Board of Directors carefully reviewed and
considered the terms and conditions of the proposed merger and negotiated
certain of its terms. The special committee consists solely of directors who
are not employees of Pameco or employees or affiliates of Littlejohn or
Quilvest, and who have no financial interest in the proposed merger different
from Pameco stockholders generally. Based on its review, the special committee
has unanimously determined that the terms of the merger agreement and the
merger are fair to, and in the best interests of, Pameco and its stockholders
other than Littlejohn and Quilvest. In making this determination, the special
committee considered, among other things, the opinion of McDonald Investments
Inc., the special committee's financial advisor, to the effect that the $0.45
per share merger price is fair from a financial point of view to Pameco
stockholders. We have included a copy of McDonald Investments' written opinion
as Appendix C to the accompanying proxy statement, and you should read it in
its entirety.

Your Board of Directors, acting on the recommendation of the special
committee, has unanimously approved the merger agreement and the merger. In
arriving at its decision, the Board gave careful consideration to a number of
factors described in the accompanying proxy statement, including the opinion
of McDonald Investments. The Board believes that the merger is fair to and in
the best interests of Pameco and its stockholders that are unaffiliated with
Littlejohn or Quilvest and unanimously recommends that you vote FOR approval
and adoption of the merger agreement and the merger.

Completion of the merger is subject to a number of conditions, including
obtaining the necessary approvals and consents. One of these conditions
provides that the merger agreement must be adopted by the affirmative vote of
at least a majority of the outstanding shares of Pameco common stock (assuming
conversion of all outstanding shares of preferred stock of Pameco). Because
Littlejohn and Quilvest will vote for adoption of the merger agreement,
satisfaction of this condition is assured.

The attached Notice of Special Meeting of Stockholders and proxy statement
explain the proposed merger and provide specific information about the special
meeting. Please read these materials carefully. In addition, you may obtain
information about us from documents that we have filed with the Securities and
Exchange Commission, including the Schedule 13E-3 Transaction Statement.

If you do not vote in favor of the merger agreement, you will have the right
to dissent and to seek appraisal of the fair market value of your shares of
common stock if the merger is consummated. To do so, however, you must
properly perfect your appraisal rights under Delaware law in accordance with
the procedures described beginning on page 32 of the accompanying proxy
statement.

On behalf of the Board of Directors, I thank you for your support and urge
you to vote FOR approval and adoption of the merger agreement and the merger.

Very truly yours,

[signature to come]
/s/ Dixon R. Walker
-------------------------------------
Dixon R. Walker
President and Chief Executive Officer

THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS
OF THIS TRANSACTION OR THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THIS PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.

This proxy statement is dated May , 2001 and was first mailed to Pameco
Corporation stockholders on or about , 2001.

PAMECO CORPORATION
651 Corporate Circle
Golden, Colorado 80401

----------------

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD ON MAY , 2001

----------------

To the Stockholders of Pameco Corporation:

A special meeting of stockholders of Pameco Corporation will be held at
a.m., time, on May , 2001, at [location], for the following
purposes:

1. To consider and vote upon a proposal to approve and adopt an Agreement
and Plan of Merger, dated as of March 6, 2001, by and between Pameco
Acquisition, Inc. and Pameco Corporation, and the merger of Pameco
Acquisition with and into Pameco. In the merger, each issued and
outstanding share of Pameco common stock (other than shares held by
Pameco, its subsidiaries or Pameco Acquisition and other than shares
held by stockholders who perfect dissenters' rights under Delaware law)
will be converted into the right to receive $0.45 per share in cash. We
refer to this proposal in the proxy statement as the "merger proposal;"
and

2. To transact any other business that may properly come before the
meeting or any adjournment or postponement of the meeting.

Our Board of Directors has fixed the close of business on March 30, 2001 as
the record date for determining stockholders entitled to notice of, and to
vote at, the special meeting and any adjournment or postponement of the
meeting. A list of stockholders entitled to vote at the special meeting will
be available for examination at the time and place of the meeting.

You have the right to dissent from the proposed merger and, upon compliance
with the procedural requirements of the Delaware General Corporation Law, to
receive the "fair value" of your shares if the merger is completed. See
"Special Factors--Dissenters' Rights of Stockholders" in the attached proxy
statement. A copy of the relevant sections of the Delaware General Corporation
Law regarding dissenters' rights is attached to the proxy statement as
Appendix D.

You should not send any certificates representing common stock with your
proxy card.

Whether or not you plan to attend the special meeting, you should complete,
sign, date and promptly return the enclosed proxy card to ensure that your
shares will be represented at the meeting. If you attend the special meeting
and wish to vote in person, you may withdraw your proxy and vote in person.

By Order of the Board of Directors,

[Signature to come]

/s/ G. William Speer
--------------------
G. William Speer
Secretary

Dated: May , 2001

SUMMARY TERM SHEET

The following summarizes material terms of our proposed merger with Pameco
Acquisition, Inc., but does not contain all information that may be important
to consider when evaluating the merits of the merger proposal. We encourage
you to read this proxy statement and the documents we have incorporated by
reference in their entirety before voting.

. Littlejohn Fund II, L.P. and Quilvest American Equity Ltd. currently
beneficially own 67.8% and 19.2%, respectively, of the outstanding
shares of our common stock. Littlejohn and Quilvest have formed Pameco
Acquisition, Inc. to acquire all of the outstanding shares of Pameco
common stock (including those owned by Quilvest) for $0.45 per share in
cash.

. This is a "going-private" transaction. As a result of the merger:

. Littlejohn and Quilvest will own all outstanding shares of our
common stock and preferred stock;

. You will no longer have any interest in our future earnings or
growth;

. We will no longer be a public company; and

. Our common stock will no longer be traded in or quoted on the over-
the-counter market.

Please see "Special Factors--Purpose of the Merger; Certain Effects of the
Merger" on page 18.

. A special committee of independent directors has determined that the
merger is fair to and in the best interests of Pameco and our
stockholders that are unaffiliated with Littlejohn or Quilvest and has
recommended to the full Board that the merger be approved. Please read
"Special Factors--Recommendations of the Special Committee and Board of
Directors; Reasons for the Merger" beginning on page 19.

. The special committee received a written opinion from McDonald
Investments Inc., its financial advisor, that as of March 16, 2001, the
$0.45 per share merger price is fair from a financial point of view to
our stockholders that are unaffiliated with Littlejohn or Quilvest.
Please read "Special Factors--Opinion of Special Committee's Financial
Advisor" beginning on page 23.

. Acting on the recommendation of the special committee, the Board of
Directors has unanimously approved the merger agreement and the merger
and recommends that you vote to approve the merger and adopt the merger
agreement. Please read "Special Factors--Recommendations of the Special
Committee and Board of Directors; Reasons for the Merger" beginning on
page 19.

. The merger agreement and the merger must be approved and adopted by a
majority of the outstanding shares of our common stock (assuming
conversion of all outstanding shares of our preferred stock) voting at
the special meeting. Because Littlejohn and Quilvest will vote for
approval, satisfaction of this condition is assured. Please read
"Information Concerning the Special Meeting" beginning on page 11 and
"The Merger Agreement--Conditions to the Merger" on page 37.

. Delaware law entitles stockholders who do not vote in favor of the
merger and who fulfill other procedural requirements to a judicial
appraisal of the fair value of their shares. Please read "Special
Factors--Dissenters Rights of Stockholders" beginning on page 32.

. Your receipt of cash in the merger generally will be a taxable
transaction to you. Please read "Special Factors--Material Federal
Income Tax Consequences" beginning on page 31.

TABLE OF CONTENTS

Page
----

QUESTIONS AND ANSWERS ABOUT THE MERGER.................................... 1
SUMMARY................................................................... 3
The Parties.............................................................. 3
The Special Meeting...................................................... 4
The Merger............................................................... 5
SELECTED HISTORICAL FINANCIAL DATA OF PAMECO.............................. 10
RECENT DEVELOPMENTS....................................................... 10
INFORMATION CONCERNING THE SPECIAL MEETING................................ 11
Date, Time and Place of the Special Meeting.............................. 11
Purpose of the Special Meeting........................................... 11
Record Date; Quorum; Outstanding Common Stock and Preferred Stock
Entitled to Vote........................................................ 11
Voting Rights............................................................ 12
Voting and Revocation of Proxies......................................... 12
Solicitation of Proxies.................................................. 13
Other Matters............................................................ 13
SPECIAL FACTORS........................................................... 14
Background of the Merger................................................. 14
Purpose of the Merger; Certain Effects of the Merger..................... 18
Recommendations of the Special Committee and the Board of Directors;
Reasons for the Merger.................................................. 19
The Buyers' Purpose and Reasons for the Merger........................... 22
Opinion of Special Committee's Financial Advisor......................... 23
Certain Projections Provided to Financial Advisors....................... 27
Interests in the Merger that Differ from Your Interests.................. 28
Plans for Pameco Following the Merger.................................... 30
Merger Financing; Source of Funds........................................ 31
Material Federal Income Tax Consequences................................. 31
Accounting Treatment..................................................... 32
Dissenters' Rights of Stockholders....................................... 32
THE MERGER AGREEMENT...................................................... 34
The Merger............................................................... 34
Representations and Warranties........................................... 35
Certain Covenants........................................................ 36
Other Agreements......................................................... 36
Stock Options............................................................ 37
Conditions to the Merger................................................. 37
Termination of the Merger Agreement...................................... 38
Expenses................................................................. 38
Amendment; Waiver........................................................ 38
PREFERRED STOCK........................................................... 38
Series................................................................... 38
Conversion............................................................... 39
Dividends................................................................ 39
Liquidation, Dissolution and Winding Up.................................. 39
Voting Rights............................................................ 40
Redemption............................................................... 40
THE SECURITIES PURCHASE AGREEMENT......................................... 40
The Parties.............................................................. 40
Purchases of Preferred Stock............................................. 40
THE SHAREHOLDERS AGREEMENT................................................ 41

The Parties.................................................... 41
Voting Arrangements............................................ 41
Directors...................................................... 41
Transfers...................................................... 41
Management Fee................................................. 41
Overadvance Fee................................................ 42
Expiration..................................................... 42
THE NEW STOCKHOLDERS AGREEMENT.................................. 42
The Parties; Effectiveness..................................... 42
Certain Matters Relating to Pameco Acquisition and the Merger.. 43
Voting Arrangements............................................ 43
Transfers...................................................... 43
Directors...................................................... 43
Management Fee................................................. 43
Overadvance Fee................................................ 43
Expiration..................................................... 44
OTHER AGREEMENTS................................................ 44
Registration Rights Agreement.................................. 44
Term Sheet..................................................... 45
REGULATORY MATTERS.............................................. 45
PARTIES TO THE MERGER AGREEMENT AND NEW STOCKHOLDERS AGREEMENT.. 45
Pameco......................................................... 45
Pameco Acquisition............................................. 45
Littlejohn and Quilvest........................................ 45
DIRECTORS AND EXECUTIVE OFFICERS................................ 47
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.. 49
COMMON STOCK PURCHASE INFORMATION............................... 50
PRICE RANGE OF COMMON STOCK AND DIVIDENDS....................... 50
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS....... 51
OTHER INFORMATION............................................... 52
Proposals by Our Stockholders.................................. 52
Independent Auditors........................................... 52
Where You Can Find More Information............................ 52

Appendices

Merger Agreement................................................ A
New Stockholder Agreement....................................... B
Amendment No. 1 to New Stockholder Agreement.................... B-1
McDonald Investments Opinion.................................... C
Delaware General Corporation Law Regarding Dissenters' Rights... D
Amended Annual Report on Form 10-
K/A for the Year Ended February 29, 2000....................... E
Quarterly Report on Form 10-
Q for the Quarter Ended November 30, 2000 ..................... F

QUESTIONS AND ANSWERS ABOUT THE MERGER

Q:What effect will the merger have on Pameco?

A: We will be merged with Pameco Acquisition, a corporation formed by
Littlejohn Fund II, L.P. and Quilvest American Equity Ltd. We will be the
surviving corporation in the merger. After the merger has been completed,
Littlejohn and Quilvest will beneficially own all of the outstanding
shares of common stock and preferred stock of the Company. After the
merger, our common stock will no longer be publicly traded.

Q: What will I receive in the merger?

A: If the merger is completed, you will receive $0.45 in cash in exchange for
each share of our common stock that you own at the time of the merger. The
$0.45 per share to be paid in the merger represents a premium of
approximately 140% over the $0.1875 closing price of our common stock on
January 12, 2001, the last trading day before we announced the receipt of
the offer which led to signing of the merger agreement.

Q:What is the board's recommendation?

A: The Board, unanimously, has:

. Determined that the terms of the merger and the merger agreement are
fair to you and in your and Pameco's best interests;

. Recommended the merger proposal; and

. Recommended that you vote "FOR" approval and adoption of the merger
proposal.

In making this determination, the Board acted upon the recommendation of a
special committee consisting of two members of the Board who are not
employees of Pameco or employees or directors of Littlejohn or Quilvest,
and who have no financial interest in the proposed merger different from
Pameco stockholders generally. The special committee made this
recommendation after carefully reviewing and evaluating the terms and
conditions of the merger. The special committee and the Board considered
the opinion of the special committee's financial advisor, McDonald
Investments Inc., to the effect that the $0.45 per share of Pameco common
stock to be received by you in the merger is fair to you from a financial
point of view.

Q: What vote of stockholders is required to approve the merger proposal?

A: The merger proposal must be approved by the affirmative vote of the holders
of a majority of the outstanding shares of Pameco common stock (assuming
conversion of all outstanding shares of Pameco preferred stock). Littlejohn
and Quilvest currently beneficially own 67.8% and 19.2%, respectively, of
the outstanding shares of our common stock. Because Littlejohn and Quilvest
will vote for approval of the merger proposal, stockholder approval is
assured.

The Board believes that the transaction is procedurally fair without
requiring that it be approved by the affirmative vote of a majority of our
stockholders who are unaffiliated with Littlejohn and Quilvest because:

. the special committee, comprised of independent directors, approved the
merger agreement, including the terms of the merger;

. the special committee retained and was advised by an independent
financial advisor to assist it in evaluating the merger and to provide a
fairness opinion with respect to the fairness, from a financial point of
view, of the merger consideration to our stockholders who are
unaffiliated with Littlejohn and Quilvest;

. the special committee retained independent legal counsel to advise and
assist it in evaluating the merger and negotiating the merger agreement;
and

. the merger consideration and other terms and conditions of the merger
agreement resulted from good faith negotiations between the special
committee and Littlejohn and Quilvest.

Q: What do I need to do now?

A: You should complete, date and sign your proxy card and mail it in the
enclosed return envelope as soon as possible so that your shares may be
represented at the special meeting, even if you plan to attend the meeting
in person.

Q: May I change my vote after I have mailed my signed proxy card?

A: Yes. You may change your vote by sending in a later dated, signed proxy
card or a written revocation before the special meeting or by attending
the special meeting and voting in person. Your attendance at the meeting
will not, by itself, revoke your proxy. You must also vote your shares in
person at the meeting. If you have instructed a broker to vote your
shares, you must follow the directions received from your broker to change
those instructions.

Q: Should I send my stock certificates now?

A: No. If the merger is completed, we will send you written instructions for
exchanging your stock certificates for the merger consideration.

Q: If my shares are held in "street name" by my broker, will my broker vote my
shares for me?

A: Your broker will vote your shares only if you provide instructions on how
to vote. You should follow the procedures provided by your broker as to how
to vote your shares.

Q: What happens if I do not send in my proxy or if I abstain from voting?

A: If you do not send in your proxy or do not instruct your broker to vote
your shares or if you abstain from voting, it will have the same effect as
a vote against the merger proposal.

Q: What third party approvals and filings are needed to complete the merger?

A: Before we can complete the merger, we are required to obtain the consent of
the lenders under our senior credit facility and the consent of the holders
of our senior subordinated notes (which consents have been obtained).

Q: What are the tax consequences of the merger?

A: The merger will be a taxable transaction to you for federal income tax
purposes. A brief summary of the possible tax consequences to you appears
under the heading "Special Factors--Certain Federal Income Tax
Consequences" of this proxy statement. You should consult your tax advisor
as to the tax effect of your particular circumstances.

Q: What rights do I have to dissent from the merger?

A: If the merger is to be completed, but you do not wish to exchange your
shares of our common stock for the merger consideration, you have the
right under Delaware corporate law to have the "fair value" of your shares
determined by the Delaware Court of Chancery. This "right of appraisal" is
subject to a number of restrictions and technical requirements which are
summarized under the heading "Special Factors--Dissenters' Rights of
Stockholders" of this proxy statement. A complete copy of the relevant
sections of the Delaware code regarding dissenters' rights is included in
this proxy statement as Appendix D. The fair value of your shares may be
the same as, more than or less than the merger consideration to be paid in
the merger.

Q: Who can help answer my questions?

A: If you have additional questions about the merger or would like additional
copies of the proxy statement, you should call Sharla Hoffman at Pameco at
(303) 568-1203.

SUMMARY

This summary sets forth the material terms of the transaction but may not
contain all of the information that is important to you. For additional
information concerning the merger and the terms and conditions of the merger
agreement, you should read this entire proxy statement, including the
appendices, and the other documents referred to or incorporated by reference
into this proxy statement. Copies of the merger agreement and the new
stockholders agreement and amendment no. 1 thereto, are described below and
are included in this proxy statement as Appendices A, B and B-1, respectively.

The Parties (pages 45-46)

Pameco

We are one of the largest distributors of heating, ventilation, and air
conditioning (HVAC) systems and equipment and refrigeration products in the
United States, and have predecessor corporations dating back to 1931. As of
April 25, 2001, we operated 280 branches in 47 states and Guam. Our products
include a complete range of central air conditioners, heat pumps, furnaces and
parts and supplies for the residential market, and condensing units,
compressors, evaporators, valves, walk-in coolers and ice machines for the
commercial market. Our common stock is traded on the OTC Bulletin Board under
the symbol "PAMC".

Pameco Acquisition

Littlejohn and Quilvest formed Pameco Acquisition for the limited purpose of
engaging in the merger and related transactions.

Littlejohn and Quilvest

Littlejohn is a Delaware limited partnership and Littlejohn Associates II,
L.L.C., a Delaware limited liability company, is the general partner of
Littlejohn. Mr. Angus C. Littlejohn, Jr., one of our directors, is the manager
of Littlejohn Associates. Littlejohn & Co., L.L.C., a Delaware limited
liability company, provides certain investment advisory and management
services to Littlejohn.

In February 2000, Littlejohn and Quilvest entered into a series of
agreements with us for the purpose of recapitalizing Pameco. The agreements
include a securities purchase agreement pursuant to which Littlejohn and
Pameco purchased in a series of closings all of the issued and outstanding
shares of our preferred stock together with warrants to purchase additional
shares of our series A preferred stock.

In connection with the securities purchase agreement and the
recapitalization, we also entered into a shareholders agreement with
Littlejohn, Quilvest and Mr. Willem F.P. de Vogel. Under the terms of the
shareholders agreement, our Board is required to have nine members and
Littlejohn and Quilvest have the right to nominate five persons and one
person, respectively, to stand for election to serve as directors of Pameco.
Each of Mr. Littlejohn, Michael Ira Klein, Edmund J. Feeley, Harry F. Weyher
III and Dixon R. Walker is a current director of Pameco and a nominee of
Littlejohn. Mr. de Vogel is a director and the nominee of Quilvest.

In addition, under the terms of the shareholders agreement, Quilvest and Mr.
de Vogel have agreed to vote all of their preferred stock and common stock at
any meeting of our stockholders in accordance with written instructions
received from Littlejohn. In the absence of receipt of written instructions
with respect to a particular matter, Quilvest and Mr. de Vogel are required to
refrain from voting. As a result, as of April 25, 2001, Littlejohn held 87% of
the combined voting power of our outstanding common stock and preferred stock.

As of the record date Quilvest owned 616,667 shares of our common stock, for
which it will receive $0.45 per share in cash as a result of the merger, the
same as all other holders of common stock.

The Special Meeting

Date, Time, Place and Matters to be Considered (page 11)

The special meeting will be held at a.m., time, on May
, 2001, at [location]. At the special meeting, you will be asked to consider
and vote upon the merger proposal.

Vote Required (page 11)

The merger proposal must be approved by the affirmative vote of the holders
of a majority of the combined voting power of our outstanding common stock and
preferred stock, voting as a single class. Holders of our common stock are
entitled to one vote for each share of their common stock. Holders of our
preferred stock are entitled to one vote for each share of common stock then
issuable upon conversion of their preferred stock, whether or not their
preferred stock is actually converted. As a result of its stock ownership and
its right to direct the vote of all of the stock owned by Quilvest and Mr. de
Vogel, as of April 25, 2001, Littlejohn held 87% of the combined voting power
of our outstanding common stock and preferred stock. Littlejohn has indicated
that it will vote all of its stock, and will instruct Quilvest and Mr. de
Vogel to vote all of their stock, for approval of the merger. Accordingly,
stockholder approval of the merger proposal is assured.

. the special committee approved the merger agreement, including the terms
of the merger;

. the special committee retained independent legal counsel to advise and
assist it in evaluating the merger and negotiating the merger agreement;
and

. the merger consideration and other terms and conditions of the merger
agreement resulted from good faith negotiations between the special
committee and Littlejohn and Quilvest.

Record Date for Voting (page 11)

The close of business on March 30, 2001, is the record date for determining
holders of shares of our common stock and preferred stock entitled to vote at
the special meeting. On the record date, there were outstanding:

. 3,100,178 shares of common stock;

. 140,000 shares of series A preferred stock which were convertible into
4,666,666 shares of common stock;

. 62,500 shares of series B preferred stock which were convertible into
3,698,223 shares of common stock; and

. 62,500 shares of series C preferred stock which were convertible into
7,575,758 shares of common stock.

Revocation of Proxies (page 12)

You may revoke your proxy at any time before the special meeting by
delivering a written notice of revocation to our Secretary, by executing and
delivering a later-dated proxy or by attending the meeting and giving oral
notice of your intention to vote in person. Your attendance at the meeting
will not by itself constitute a revocation of your proxy. You must also vote
your shares in person at the meeting. If you have instructed a broker to vote
your shares, you must follow the directions received from your broker to
change those instructions.

Unless contrary instructions are indicated on your proxy, all of your shares
represented by valid proxies will be voted FOR the approval of the merger
proposal.

The Merger

What You Will Receive in the Merger (pages 34-35)

You will receive $0.45 per share in cash in exchange for each share of our
common stock that you own. The merger price represents a premium of
approximately 140% over the $0.1875 per share closing price of our common
stock on January 12, 2001, the last trading day before we announced the
receipt of the offer which led to the signing of the merger agreement. All of
the Pameco preferred stock will remain outstanding after the merger as capital
stock of the surviving corporation. All warrants to purchase our series A
preferred stock will also remain outstanding. All outstanding options to
purchase our common stock will become options to receive the merger
consideration for each share of our common stock subject to the options upon
payment of the exercise price of the options. Because all outstanding options
have an exercise price per share in excess of $0.45, pursuant to the merger
agreement they will all be effectively terminated without any payment.

Background of the Merger; Reasons for the Merger (pages 14-18)

For a description of the events leading to the approval of the merger by the
Board, you should refer to "Special Factors--Background of the Merger" and "--
Recommendations of the Special Committee and the Board of Directors; Reasons
for the Merger."

Purpose of the Merger; Certain Effects of the Merger (pages 18-19)

The principal purpose of the merger is to enable Littlejohn and Quilvest to
own in the aggregate all of the outstanding equity interests in Pameco.
Additionally, the merger provides you with the opportunity to receive a cash
price for your shares at a premium over the market prices at which the common
stock traded immediately prior to the announcement of the receipt of the offer
which led to signing of the merger agreement.

The merger will terminate all common equity interests in Pameco held by
stockholders other than Littlejohn and Quilvest. All of the Pameco preferred
stock will remain outstanding as capital stock of the surviving corporation.
In addition, all of the warrants to purchase series A preferred stock will
remain outstanding. Littlejohn and Quilvest will be the principal
beneficiaries of any earnings and growth of Pameco following the merger and
will bear substantially all of the risks of any decrease in the value of
Pameco following the merger.

Upon completion of the merger, our common stock will no longer be publicly
traded and we will no longer file periodic reports with the SEC.

Recommendations of the Special Committee and the Board (pages 19-21)

A special committee of the Board has unanimously determined that the terms
of the merger as contemplated by the merger agreement are fair to and in the
best interests of our stockholders (other than Littlejohn and Quilvest) and
has recommended that the Board approve the merger agreement, submit the merger
agreement to our stockholders and recommend that our stockholders approve the
merger and approve and adopt the merger agreement. The special committee
consists solely of directors who are not employees of Pameco or employees or
directors of Littlejohn or Quilvest, and who have no financial interest in the
proposed merger different from Pameco stockholders generally. The Board,
taking into account the analyses and recommendation of the special committee
and the opinion of McDonald Investments, the special committee's independent
financial advisor, has unanimously determined that the merger is fair to, and
in the best interests of, Pameco and our stockholders (other than Littlejohn
and Quilvest), recommends the merger proposal and recommends that you vote FOR
approval of the merger proposal.

Littlejohn's and Quilvest's Purpose and Reasons for the Merger (pages 22-23)

Littlejohn's and Quilvest's purpose for engaging in the transactions
contemplated by the merger agreement is to acquire 100% ownership of Pameco in
a transaction in which the stockholders of Pameco (other than Littlejohn and
Quilvest) have their equity interests in Pameco extinguished.

Littlejohn and Quilvest have concluded that the merger, including the merger
consideration of $0.45 per share, and the terms and conditions of the merger
agreement, are fair to Pameco and its stockholders, other than Littlejohn and
Quilvest, based upon:

. The conclusions and recommendations of the special committee and
Pameco's Board of Directors;

. The fact that the special committee, comprised of persons not affiliated
with Littlejohn and Quilvest, had unanimously approved the merger and
recommended that stockholders approve and adopt the merger agreement;

. The fact that the merger consideration and the other terms and
conditions of the merger agreement were the result of good faith
negotiations between the special committee and its advisors, and
Littlejohn and Quilvest, and their respective advisors; and

. The fact that an independent financial advisor issued a fairness opinion
to the special committee to the effect that the merger consideration is
fair from a financial point of view to the holders of common stock other
then Littlejohn and Quilvest.

Opinion of Special Committee's Financial Advisor (pages 23-27)

McDonald Investments delivered an opinion to the special committee to the
effect that, as of the date of its opinion, the price per share to be received
by the holders of our common stock in the merger was fair to the holders of
our common stock from a financial point of view. We have attached a copy of
this opinion as Appendix C to this proxy statement. The opinion of McDonald
Investments is addressed to the special committee and does not constitute a
recommendation as to how you should vote at the special meeting.

Interests in the Merger That Differ From Your Interests (pages 28-30)

In considering the Board's recommendation that you vote in favor of the
merger proposal, you should be aware that some of our directors and officers
have interests in the merger that are different from your interests as a
stockholder, including the following:

. We are a party to the securities purchase agreement with Littlejohn and
Quilvest under which Littlejohn and Quilvest purchased in a series of
closings all of our issued and outstanding preferred stock and warrants
to purchase additional shares of our series A preferred stock. The
preferred stock is convertible into our common stock which, pursuant to
certain terms and conditions, we are required to register under the
Securities Act of 1933. Following the merger, all of the outstanding
equity interests in Pameco will be owned by Littlejohn and Quilvest. As
a result, they will continue to have the opportunity to participate in
any future earnings growth of Pameco following the merger and to benefit
from any increase in value in Pameco.

. In connection with the securities purchase agreement we entered into the
shareholders agreement with Littlejohn, Quilvest and Mr. de Vogel. Under
the shareholders agreement:

-- Our Board is required to have nine members and Littlejohn and
Quilvest are entitled to nominate five persons and one person,
respectively, to stand for election to our Board;

-- We are obligated, commencing on August 31, 2001, to pay an annual
management fee to Quilvest and an affiliate of Littlejohn under
certain terms and conditions. The management fee continues to be
payable so long as Littlejohn has the right to elect the majority of
the members of our Board. The management fee is to be determined by
Littlejohn and us, but can in no event exceed $500,000 for any
annual period;

-- To induce Littlejohn to guarantee up to $5 million of the funds lent
to us pursuant to any overadvance under our senior credit facility,
we have agreed to pay to Littlejohn an overadvance fee under certain
terms and conditions, calculated at a rate of 8% per annum of the
actual amount of the overadvance outstanding from time to time which
Littlejohn is required to guarantee. Littlejohn and Quilvest have
entered into a contribution agreement with respect to this fee
pursuant to which Quilvest has agreed to reimburse Littlejohn for
20% of the actual amount of any overadvance funded by Littlejohn and
in exchange for which Quilvest will receive from Littlejohn 20% of
any overadvance fee that Littlejohn receives from us; and

-- Quilvest and Mr. de Vogel have agreed to vote all of their preferred
stock and common stock at any meeting of our stockholders in
accordance with written instructions received from Littlejohn. In
the absence of written instructions with respect to a particular
matter, Quilvest and de Vogel are required to refrain from voting.

. If the merger is completed, the current shareholders agreement will be
terminated and superseded by the new stockholders agreement and
amendment no. 1 thereto, executed by Littlejohn, Quilvest and Pameco
Acquisition. Under this agreement, if the merger becomes effective:

-- Our Board shall be required to have between five and nine directors.
Immediately following the merger, our Board will have eight
directors.

-- We will be required to pay the management fee to Littlejohn and
Quilvest under substantially the same terms as those provided in the
shareholders agreement; and

-- We will be required to pay an overadvance fee to be shared by
Littlejohn and Quilvest under substantially the same terms presently
in effect except that the overadvance line has been temporarily
increased, effective March 26, 2001, until June 30, 2001, from
$5 million to $15 million.

-- Following the merger Quilvest shall vote all of its preferred stock
and common stock at any meeting of our stockholders in accordance
with written instructions received from Littlejohn. In the absence
of written instructions with respect to a particular matter,
Quilvest shall refrain from voting.

. Certain of our directors and executive officers currently own options to
purchase in the aggregate 1,313,901 shares of our common stock. Because
the option price per share for each outstanding option exceeds the per
share merger price, all outstanding options will, pursuant to the merger
agreement, be effectively terminated as of the effective time of the
merger.

. In the merger agreement, we, as the surviving corporation in the merger,
are required to maintain directors' and officers' liability insurance
for six years following the merger.

. We anticipate that all of our executive officers will continue to serve
in their current capacities with Pameco following the merger.

The special committee and the Board were aware of these interests and
considered them in making their recommendations.

Merger Financing; Source of Funds (page 31)

The maximum total amount of funds required to complete the merger, including
related costs and expenses, is expected to be approximately $1,890,000 of
which $1,116,064 will be provided by Littlejohn and $279,016 will be provided
by Quilvest for the merger consideration and expenses of Pameco Acquisition.
The balance of $495,000 will be provided by Pameco. This amount assumes that
no stockholders perfect their dissenters' rights under Delaware law.
Littlejohn and Quilvest will pay these amounts using internal sources of
funds.

Conditions to the Merger (page 37)

Each party's obligation to complete the merger is subject to a number of
conditions, including the following:

. The absence of any order or injunction prohibiting the merger;

. The receipt of all required consents or approvals of any governmental
authorities; and

. Approval by our stockholders of the merger agreement and merger.

Our obligation to complete the merger is subject to the following additional
conditions:

. The representations and warranties of Pameco Acquisition in the merger
agreement shall be accurate in all material respects; and

. Pameco Acquisition shall have performed its obligations under the merger
agreement in all material respects.

The obligations of Pameco Acquisition to complete the merger are subject to
the following additional conditions:

. Our representations and warranties in the merger agreement will be
accurate in all material respects;

. We shall have performed our obligations under the merger agreement in
all material respects;

. There shall not have been any event that has had or is likely to have a
material adverse effect on our business;

. The receipt of all third party consents to the merger including from
Pameco's senior lender and subordinated note holders (which consents
have been obtained);

. Our special committee shall not have withdrawn its recommendation to our
board of directors; and

. The holders of not more than 10% of our outstanding shares of common
stock shall have exercised dissenters' rights under Delaware law.

The obligations of Pameco Acquisition to complete the merger is not subject
to a financing condition.

Termination of the Merger Agreement (page 38)

The parties to the merger agreement can mutually agree to terminate the
merger agreement at any time, whether before or after receiving stockholder
approval, without completing the merger. The merger agreement may also be
terminated under the following circumstances:

. Delay--by us or Merger Sub if the merger is not completed on or before
July 31, 2001, except that the reason for the delay must not have been
the failure of the terminating party to take any of the actions it was
required to take under the merger agreement;

. Special Committee Recommendation--by Pameco Acquisition if Pameco's
special committee withdraws, or modifies, in a manner adverse to Pameco
Acquisition its recommendation and approval of the merger or the merger
agreement;

. Breach of Merger Agreement--by Pameco Acquisition if we have materially
breached any of our representations, warranties or covenants and have
failed to cure the breach within ten business days thereof; or by us if
Pameco Acquisition has materially breached any of its representations,
warranties or covenants and has failed to cure the breach or within ten
business days thereof;

. Legal Impediments--by Pameco Acquisition or us if any governmental
entity issues an order or takes any other action permanently enjoining
or otherwise prohibiting the merger, which order or other action is
final and non-applicable.

No Termination Fees

The merger agreement does not provide for the payment of a termination fee
in the event the merger agreement is terminated by any party.

Dissenters' Rights (pages 32-33)

If the merger is to be completed, but you do not wish to exchange your
shares of our common stock for the merger consideration, you have the right
under Delaware corporate law to have the "fair value" of your shares

determined by the Delaware Court of Chancery. This "right of appraisal" is
subject to a number of restrictions and technical requirements. Generally, in
order to exercise appraisal rights, you must:

. Not vote in favor of the merger agreement and the merger; and

. Make a written demand for appraisal before the vote on the merger
agreement and the merger.

You will not protect your right of appraisal by merely voting against the
merger agreement and the merger. A copy of the relevant sections of the
Delaware General Corporation Law regarding dissenters' rights is included in
this proxy statement as Appendix D.

Material Federal Income Tax Consequences (pages 31-32)

You will be taxed on the cash you receive in the merger to the extent that
the cash exceeds your tax basis in your shares or, conversely, you will
recognize loss to the extent that your tax basis exceeds the cash you receive.
You should consult your tax advisor regarding the U.S. federal income tax
consequences of the merger, as well as any tax consequences under state, local
or foreign laws.

Preferred Stock (pages 38-40)

Each series of our preferred stock was issued under a separate certificate
of designation. For a description of the material provisions of our preferred
stock, you should refer to "Preferred Stock."

Securities Purchase Agreement (pages 40-41)

Littlejohn and Quilvest purchased all of our issued and outstanding
preferred stock and warrants to purchase series A preferred stock under the
terms of the securities purchase agreement. The dates of the purchases, the
number of shares purchased and the purchase prices are described herein under
"The Securities Purchase Agreement."

Shareholders Agreement (pages 41-42)

For a description of the material provisions of the shareholders agreement,
you should refer to "The Shareholders Agreement." If we complete the merger,
the shareholders agreement will be terminated and superseded by the new
stockholders agreement and amendment no. 1 thereto, attached hereto as
Appendices B and B-1, respectively.

New Stockholders Agreement (pages 42-44)

For a description of the material provisions of the new stockholders
agreement and amendment no. 1 thereto, you should refer to "The New
Stockholders Agreement."

SELECTED HISTORICAL FINANCIAL DATA OF PAMECO

The following selected historical financial data as of and for the years
ended February 28, 1999 (as restated) and February 29, 2000 (as restated) have
been derived from our audited consolidated financial statements which are
included in our amended annual report on Form 10-K/A attached hereto as
Appendix E. The selected historical financial data as of and for each of the
nine-month periods ended November 30, 1999 and November 30, 2000 have been
derived from our unaudited consolidated financial statements which are
included in our quarterly report on Form 10-Q attached hereto as Appendix F.
This information is only a summary and you should read it together with the
historical financial statements and related notes contained in the annual and
quarterly reports.

November 30, November 30, February 28, February 29,
1999 2000 1999 2000
------------ ------------ ------------ ------------
Restated

Balance Sheet Information
Current assets............ $152,198 $150,172 $197,425 $159,870
Non-current assets........ 75,737 58,103 75,207 62,659
Current liabilities....... 84,193 61,641 96,606 79,722
Long-term liabilities..... 76,327 99,315 99,283 85,177
Redeemable convertible
preferred stock.......... -- -- -- 23,324
Warrants to purchase
redeemable convertible
preferred stock.......... -- -- -- 11,676

Nine Month Period Ended Year Ended
------------------------- -------------------------
November 30, November 30, February 28, February 29,
1999 2000 1999(a) 2000(b)
------------ ------------ ------------ ------------
Restated Restated

Results of Operations
Net sales................. $502,832 $364,672 $625,042 $603,711
Gross profit.............. 114,014 85,418 146,949 131,775
Net (loss) income
applicable to common
stockholders............. (7,162) (26,818) 1,855 (55,647)

Per Share Data
Basic (loss) earnings per
share.................... (0.78) (8.70) 0.21 (6.06)
Diluted (loss) earnings
per share................ (0.78) (8.70) 0.20 (6.06)

Book value per share...... (2.29)

(a) Reflects the results of operations of Keller Supply, Inc., George L.
Johnston Co., Inc., Park Heating and Air Conditioning Supply, Inc.,
Climate Supply Company, Inc., Tesco Distributors, Inc. and Belleville
Supply Company, Inc. from the respective dates of acquisition.
(b) Includes a $27.0 million increase in the Company's valuation allowance
for deferred tax assets.

RECENT DEVELOPMENTS

We have restated our consolidated financial statements for the years ended
February 29, 2000 and February 28, 1999. For more information, please read
Note 2 to our consolidated financial statements which are included in our
Annual Report on Form 10K/A for the year ended February 29, 2000, which is
attached to this proxy statement as Appendix E.

On March 8, 2001, we advised the special committee and McDonald Investments
that we intended to restate our consolidated financial statements and on March
14, 2001, we delivered the restated financial statements to McDonald
Investments.

After we issued our restated consolidated financial statements, McDonald
Investments updated its opinion originally dated February 28, 2001, to March
16, 2001 and the special committee reaffirmed its approval of the merger and
the merger agreement and its recommendation that our stockholders approve the
merger and the merger agreement. See "Special Factors--Background of the
Merger," "--Recommendations of the Special Committee and the Board of
Directors; Reasons for the Merger" and "--Opinion of Special Committee's
Financial Advisor."

INFORMATION CONCERNING THE SPECIAL MEETING

Date, Time and Place of the Special Meeting

This proxy statement is furnished to you in connection with the solicitation
of proxies by our Board of Directors for the special meeting of stockholders
to be held at a.m., time, on May , 2001, at [location], or
any postponement or adjournment of the meeting. This proxy statement, the
Notice of Special Meeting and the accompanying form of proxy card are first
being mailed to stockholders on or about , 2001.

Purpose of the Special Meeting

At the special meeting, you will be asked:

. To consider and vote upon a proposal to approve and adopt the merger
agreement between Pameco and Pameco Acquisition, and to approve the
merger of Pameco Acquisition with and into Pameco. In the merger, each
issued and outstanding share of our common stock (other than shares held
by Pameco, its subsidiaries or Pameco Acquisition, and other than shares
held by stockholders who perfect dissenters' rights under Delaware law)
will be converted into the right to receive $0.45 per share in cash; and

. To transact any other business that may properly come before the special
meeting or any adjournment or postponement of the meeting.

Record Date; Quorum; Outstanding Common Stock and Preferred Stock Entitled To
Vote

All record holders of shares of our common stock and all record holders of
shares of our preferred stock at the close of business on March 30, 2001 are
entitled to notice of, and to vote at, the special meeting. The presence, in
person or by proxy, of holders of a majority of the combined voting power of
the outstanding shares of our common stock and preferred stock voting as a
single class is required to constitute a quorum for the transaction of
business. A list of record holders will be available for examination at our
executive offices from . , 2001 until the special meeting. At the close of
business on April 25, 2001, there were:

. 3,100,178 outstanding shares of our common stock;

. 140,000 outstanding shares of our series A preferred stock which were
convertible into 4,666,666 shares of our common stock;

. 62,500 outstanding shares of our series B preferred stock which were
convertible into 3,698,223 shares of our common stock; and

. 62,500 outstanding shares of our series C preferred stock which were
convertible into 7,575,758 shares of our common stock.

As of such date, Littlejohn and Quilvest beneficially owned all of our
preferred stock. In addition, Quilvest owned 616,667 shares of our common
stock and Mr. de Vogel owned 40,793 shares of our common stock. Under the
shareholders agreement Quilvest and Mr. de Vogel have agreed to vote all of
their preferred stock and common stock at any meeting of our stockholders in
accordance with written instructions received from

Littlejohn. In the absence of written instructions with respect to a
particular matter, Quilvest and Mr. de Vogel are required to refrain from
voting. As a result of its stock ownership and its power to direct the vote of
all of the stock owned by Quilvest and Mr. de Vogel, Littlejohn holds 87% of
the combined voting power of our common stock and preferred stock. Littlejohn
has indicated that it will vote all of its stock and will instruct Quilvest
and Mr. de Vogel to vote all of their stock, at the special meeting for
approval of the merger and approval and adoption of the merger agreement.
Accordingly, stockholder approval is assured.

. the special committee approved the merger agreement, including the terms
of the merger;

. the special committee retained independent legal counsel to advise and
assist it in evaluating the merger and negotiating the merger agreement;

. the merger consideration and other terms and conditions of the merger
agreement resulted from good faith negotiations between the special
committee and Littlejohn and Quilvest; and

. the stockholders have the right to have the "fair value" of their shares
determined by a court under Delaware law.

Voting Rights

The affirmative vote of the holders of a majority of the voting power
represented by the outstanding shares of our common stock and preferred stock
is required to approve the merger and approve and adopt the merger agreement.
Holders of common stock are entitled to one vote for each share of common
stock they held as of the close of business on the record date. Holders of the
preferred stock are entitled to one vote for each share of common stock which
they are entitled to receive upon conversion of their preferred stock, whether
or not their preferred stock is converted and such shares vote together with
the common stock as a single class. As of the record date for the special
meeting and as of April 25, 2001, Littlejohn held 87% of the combined voting
power of the outstanding shares of our common stock and preferred stock on
such date, as a result of its ownership of preferred stock and its power to
direct the vote of all the preferred stock and common stock owned by Quilvest
or Mr. de Vogel as provided in the shareholders agreement. As noted above,
Littlejohn has indicated that it will vote all of its stock, and will instruct
Quilvest and Mr. de Vogel to vote all of their stock, for approval of the
merger and approval and adoption of the merger agreement. Under Delaware law,
in determining whether approval of the merger and the merger agreement has
received the requisite number of affirmative votes, abstentions and broker
non-votes will have the same effect as a vote against approval of the merger
and the merger agreement.

Voting and Revocation of Proxies

A form of proxy card for your use at the special meeting accompanies this
proxy statement. All properly executed proxies that are received prior to or
at the special meeting and not revoked will be voted at the special meeting in
the manner specified. If you execute and return a proxy and do not specify
otherwise, the shares represented by your proxy will be voted "FOR" approval
of the merger and approval and adoption of the merger agreement in accordance
with the recommendation of the Board. In that event, you will not have the
right to dissent from the merger and seek an appraisal of the fair value of
your shares.

In addition, if you execute and return a proxy and do not specify otherwise,
you will have given the Board discretionary authority to vote the shares
represented by your proxy to act upon other matters relating to the conduct of
the special meeting and any adjournment or postponement of the special
meeting.

If you have given a proxy pursuant to this solicitation, you may nonetheless
revoke it by attending the special meeting, giving oral notice of your
intention to vote in person and voting your shares in person. In addition, you
may revoke any proxy you give at any time before the special meeting by
delivering to our Secretary a written statement revoking it or by delivering a
duly executed proxy bearing a later date. If you have executed and delivered a
proxy to us, your attendance at the special meeting will not in and of itself
constitute a revocation of your proxy. You must also vote your shares in
person. If you vote in favor of the merger proposal, you will not have the
right to dissent and seek appraisal of the fair value of your shares. If you
do not send in your proxy or do not instruct your broker to vote your shares
or if you abstain from voting, it will have the same effect as a vote against
the merger proposal.

Solicitation of Proxies

We will bear the cost of the solicitation of proxies. We will solicit
proxies initially by mail. Further solicitation may be made by our directors,
officers and employees personally, by telephone, electronic mail, or facsimile
transmission, but they will not be specifically compensated for these
services. Neither Pameco nor the buyers have engaged any other person or
entity to solicit proxies on behalf of Pameco or the buyers. Upon request, we
will reimburse brokers, dealers, banks or similar entities acting as nominees
for their reasonable expenses incurred in forwarding copies of the proxy
materials to the beneficial owners of the shares of common stock they hold of
record.

Other Matters

We do not know of any matters other than those described in this proxy
statement which may come before the special meeting. If any other matters are
properly presented to the special meeting for action, we intend that the
persons named in the enclosed form of proxy card will vote in accordance with
their best judgment. These matters may include an adjournment or postponement
of the special meeting from time to time and we have included a section in the
proxy card to allow you to grant our Board discretionary authority to act upon
other matters relating to the conduct of the special meeting and at any
postponement of or adjournment of the special meeting.

Please return your marked proxy card promptly so your shares can be
represented, even if you plan to attend the meeting in person.

You should not send any certificates representing common stock with your
proxy card. If we complete the merger, the procedure for the exchange of
certificates representing common stock will be as described under "The Merger
Agreement--The Merger--Exchange of Common Stock Certificates."

SPECIAL FACTORS

Background of the Merger

On February 18, 2000, we entered into the securities purchase agreement
pursuant to which Littlejohn and Quilvest purchased in the aggregate 140,000
shares of our series A preferred stock and warrants to purchase an additional
140,000 shares of our series A preferred stock for an aggregate purchase price
of $35 million. Littlejohn paid $28 million of the purchase price and Quilvest
paid the remaining $7 million. As a condition to this purchase, we were
required to obtain financing under a $130 million senior credit facility
arranged by Fleet Capital Corporation and $20 million under a subordinated
debt agreement with certain of our suppliers. Pursuant to the securities
purchase agreement, Littlejohn and Quilvest agreed, under certain
circumstances, to purchase up to an additional $25 million of our preferred
stock. In August and September, 2000, Littlejohn and Quilvest purchased an
aggregate of 62,500 shares of our series B preferred stock for an aggregate
purchase price of $12.5 million and in December, 2000, they purchased an
aggregate of 62,500 shares of our series C preferred stock for an aggregate
purchase price of $12.5 million. In respect of the series B preferred stock,
Littlejohn provided $10.5 million of the purchase price and Quilvest provided
$2.0 million. In respect of the series C preferred stock purchase price,
Littlejohn provided $10.0 million and Quilvest provided $2.5 million. The
series A preferred stock, series B preferred stock and series C preferred
stock are each convertible into shares of our common stock at a conversion
price of $7.50, $3.38 and $1.65 per share, respectively, in each case subject
to adjustment under certain circumstances. As of March 6, 2001, our series A
preferred stock was convertible into 4,666,666 shares of our common stock, our
series B preferred stock was convertible into 3,698,223 shares of our common
stock and our series C preferred stock was convertible into 7,575,758 shares
of our common stock.

In connection with the securities purchase agreement, we entered into the
shareholders agreement with Littlejohn, Quilvest and Mr. de Vogel. Under the
shareholders agreement, our Board is required to have nine members. Littlejohn
has the right to nominate five persons to stand for election to our Board, and
each of Mr. Littlejohn, Mr. Klein, Mr. Feeley, Mr. Weyher and Mr. Walker is
one of our current directors and is a nominee of Littlejohn. Quilvest has the
right to nominate one person to stand for election to serve on our Board and
Mr. de Vogel is the nominee of Quilvest.

In addition, under the terms of the shareholders agreement, Quilvest and Mr.
de Vogel agreed to vote all of their preferred stock and common stock at any
meeting of our stockholders in accordance with written instructions received
from Littlejohn. In the absence of written instructions with respect to a
particular matter, Quilvest and Mr. de Vogel are required to refrain from
voting. As a result of its stock ownership and its power to direct the vote of
all of the preferred stock and common stock owned by Quilvest and Mr. de
Vogel, as of April 25, 2001, Littlejohn held 87% of the combined voting power
of the outstanding shares of our common stock and preferred stock.

At a meeting of the Board in December 2000, Mr. Walker inquired whether
Littlejohn and Quilvest would be interested in pursuing a "going-private"
transaction. Mr. Walker mentioned the administrative burdens associated with
being required to file periodic reports under the securities laws.

During the first two weeks of January 2001, Littlejohn and Quilvest and
their representatives negotiated among themselves the terms and conditions
upon which they would join together to present an offer to purchase all of the
outstanding common stock of Pameco. Littlejohn and Quilvest discussed, among
other things, price, structure, timing and conditions of the proposed offer.
In addition, Littlejohn and Quilvest considered the capitalization and
ownership of Pameco after the merger.

On January 16, 2001, Littlejohn and Pameco delivered a letter to the Board
offering to purchase all of the outstanding shares of common stock for a cash
purchase price of $.40 per share. The offer letter contained a number of
conditions, including a requirement that the offer be accepted by Pameco no
later than 5 p.m., New York City time, on February 7, 2001. Other conditions
included: negotiation and execution of a definitive purchase agreement
satisfactory to the buyers, approval by a special committee of the Board of
Directors

consisting solely of directors who are not affiliated with either Littlejohn
or Quilvest, approval by the investment committees and boards of directors of
Littlejohn and Quilvest, receipt of necessary consents from Pameco's senior
and subordinated lenders (which consents have been obtained) and the absence
of any material adverse change in the financial condition, results of
operation, assets, liabilities or business of Pameco. The letter also
disclosed that the buyers intended to amend their Schedule 13D on file with
the SEC to disclose the offer.

Also on January 16, 2001, Littlejohn and Quilvest entered into a term sheet
governing the respective parties' rights and obligations under the offer. In
particular, the term sheet provided that Littlejohn and Quilvest would form a
wholly-owned subsidiary, Pameco Acquisition, for the purpose of acquiring all
of the outstanding shares of common stock of Pameco. Littlejohn and Quilvest
would contribute 80% and 20%, respectively, of the capitalization of Pameco
Acquisition, both at formation and prior to the merger. The term sheet
provided that the post-merger ownership of the surviving corporation would be
equal to the aggregate amount invested in Pameco by each of Littlejohn and
Quilvest, including accrued and unpaid dividends on such invested amounts.
Under the term sheet, the parties agreed to amend the existing shareholders
agreement to contain terms substantially similar to those in the existing
agreement, subject to agreed upon changes, except that Mr. de Vogel would no
longer be a party to such amended agreement. The term sheet would expire at 5
p.m. New York City time on February 7, 2001 if a merger agreement had not been
entered into by such time.

In light of the receipt of the offer letter, we held a meeting of our Board
of Directors on January 16, 2001. At this meeting, our Board unanimously voted
to appoint W. Michael Clevy and Ian Currie to serve on a special committee of
our Board. Our Board of Directors delegated to the special committee broad
authority to consider the merger proposal and negotiate the purchase price and
other material terms of the transaction, considering the interests of the
Company and its stockholders other than Littlejohn and Quilvest. The special
committee was required to consider the offer and thereafter make a
recommendation to our Board concerning the offer and the proposed merger. The
committee also was authorized to retain independent legal counsel and
financial advisors to assist it in its review and negotiation of the merger
proposal. Our Board formed the special committee primarily because it believed
that the offer by Littlejohn and Quilvest for the acquisition of our
outstanding common stock presented conflicts of interest for most of our
directors of the Company since, unlike the other stockholders, they, either
through their interests in Littlejohn or Quilvest or as continuing employees
of Pameco, would have a continuing interest in Pameco following the completion
of such a transaction. Our Board selected Messrs. Clevy and Currie as members
of the special committee because they were not employed by us, because they
have no financial interest which differs from other stockholders generally and
because neither would be employed by nor own an equity interest in Pameco
following the completion of any transaction with Littlejohn and Quilvest.

On January 16, 2001, we issued a press release announcing our receipt of the
merger proposal and indicating that the special committee had been formed to
consider the proposal.

Immediately following our January 16 Board meeting, the special committee
informally discussed a process for selecting independent legal counsel and an
independent financial advisor to assist the special committee in its work.
During the ten days following the January 16 meeting, the special committee's
actions consisted principally of identifying and selecting independent legal
counsel to advise it and, primarily through that counsel, contacting several
potential financial advisors. On January 27, 2001, the special committee
formally engaged Dinsmore & Shohl LLP as its legal counsel and discussed how
best to conclude the process of selecting a financial advisor and preparing to
respond to the merger proposal. Special committee counsel was instructed
following that meeting to request any advisors who wished to be considered to
submit their proposals on or before January 30 for consideration by the
committee. Special committee counsel also was instructed to contact counsel
for Littlejohn and determine whether Littlejohn or Quilvest would be
interested in selling their interests in Pameco.

On January 30, 2001, special committee counsel and Littlejohn counsel
discussed whether Littlejohn or Quilvest would be interested in selling their
interests in Pameco. Special committee counsel was advised that Littlejohn and
Quilvest were not interested in selling their interests in Pameco and would
not entertain offers to that effect. Later that day, the special committee
met, at which time special committee counsel reported

Littlejohn's and Quilvest's response to the committee. At that time, the
committee reviewed the proposals and qualifications of potential financial
advisors that had submitted proposals and voted to engage McDonald
Investments, Inc. as its financial advisor.

McDonald Investments was engaged to provide financial advisory services to
the special committee in connection with the proposed merger and was
instructed to advise the special committee as to the fairness, from a
financial point of view, of the consideration to be received by the
stockholders of the Company (other than Littlejohn and Quilvest). Because
Littlejohn and Quilvest had, through counsel, indicated their unwillingness to
sell their interests in Pameco, the special committee did not consider
further, nor was McDonald Investments asked to review, a possible sale of all
of Pameco.

From January 31 through February 23, 2001, representatives of McDonald
Investments gathered from internal and external sources, information regarding
Pameco, its products, operations, prospects, customers, competitors and other
relevant information. As part of this process, on February 20, McDonald
Investments representatives met with Messrs. Walker and Hileman.

On January 31, 2001, counsel for Littlejohn delivered to our counsel a draft
merger agreement that included all material details of the merger proposal.
The draft merger agreement was provided to the special committee members and
McDonald Investments. Between January 31 and February 20, 2001, our counsel
and special committee counsel collected comments on the proposed merger
agreement.

On February 6, 2001, special committee counsel notified counsel for
Littlejohn that McDonald Investments' engagement letter was ready for
execution and that, in view of the timing and status of certain requests for
information, it seemed appropriate for Littlejohn and Quilvest to extend their
offer, then scheduled to expire on February 7, 2001. Counsel for Littlejohn
confirmed that Littlejohn and Quilvest would agree to extend the offer through
February 21, 2001.

On February 7, 2001, Littlejohn and Quilvest delivered a letter to our
Board, granting an extension until 5:00 p.m. New York City time on February
21, 2001. All other terms of the offer set forth in the letter dated January
16, 2001, were unchanged. In addition, on February 7, 2001, Littlejohn and
Quilvest entered into an amendment to the term sheet providing for, among
other things, a corresponding extension of the expiration of the term sheet
until 5:00 p.m. New York City time on February 21, 2001, an agreement to enter
into a new stockholders agreement with respect to Pameco Acquisition, which
would, at the effective time of the merger, replace and supersede the existing
shareholders agreement. The amendment also provided that upon consummation of
the merger, Pameco Acquisition would reimburse each of Littlejohn and Quilvest
for their respective expenses. On February 7, 2001, Pameco issued a press
release announcing the extension of the offer as well as the engagement of
McDonald Investments as financial advisor to the special committee.

On February 21, 2001, Company counsel provided to counsel for Littlejohn the
collective comments of Pameco and the special committee and its counsel on the
draft merger agreement. On February 21, 2001, counsel requested an extension
of the offer in order to permit the special committee and its advisors to
complete their evaluation of the merger proposal and make a recommendation to
our Board. On February 21, 2001, Littlejohn and Quilvest delivered a letter to
our Board granting an extension until 5:00 p.m., New York City time, on
March 2, 2001. All other terms of the offer set forth in the letter dated
January 16, 2001 were unchanged. On February 22, 2001, we issued a press
release announcing the further extension of the offer letter and Littlejohn
and Quilvest filed an amendment to their Schedule 13D, disclosing the
extension to the offer letter.

On February 24, 2001 the special committee met with its advisors to receive
a preliminary report from McDonald Investments. McDonald Investments reported
to the special committee, in summary, that, among other things

. Pameco had limited liquidity due to its restricted borrowing capacity
and projected cash flows;

. The market for the Company's common stock was illiquid and did not, in
McDonald Investments' opinion, reflect the intrinsic value of our common
stock;

. Management's projections for turning around the operating and financial
performance of the Company were, in McDonald Investments' opinion,
aggressive given recent trends in Pameco's historical financial
performance, HVAC industry trends, and the amount of turnover in, and
the relatively brief tenure of, Pameco's management, sales, and
distribution personnel; and

. Pameco's historical negative earnings and cash flow.

Based in part on McDonald Investments' preliminary evaluation of Pameco, the
special committee concluded that the proposed transaction with Littlejohn and
Quilvest most likely represented the best available alternative to enhance
stockholder value and liquidity. Accordingly, after discussion, the committee
directed McDonald Investments and the committee's counsel to contact
Littlejohn and Quilvest and seek to increase the offer price, but cautioned
its advisors to use their best efforts not to cause Littlejohn and Quilvest to
withdraw the pending offer.

On February 26, 2001, McDonald Investments and special committee counsel
contacted counsel for Littlejohn requesting that the offer be increased and
proposing a price of $0.55 per share because, among other things, such a price
would be in excess of trading prices of our common stock after the
announcement of the offer. The following day, counsel for Littlejohn responded
and indicated that Littlejohn and Quilvest were prepared to offer $0.45 per
share. The special committee convened on February 27 to consider the increased
offer. Based upon information that it had received, including the preliminary
report of McDonald Investments at the prior meeting, the special committee
instructed McDonald Investments and special committee counsel to inform
Littlejohn and Quilvest that it was prepared to recommend the offer of $0.45
per share.

On February 28, 2001, the special committee met again with its advisors.
After a review of the overall process, special committee counsel reported on
the negotiated terms of the merger agreement. McDonald Investments then again
reviewed in detail with the special committee the analysis, including the
methodologies and assumptions it used. These methodologies and assumptions
were substantially the same as those which formed the basis of McDonald
Investments' preliminary report to the special committee on February 24, 2001
and the conclusions of McDonald Investments' analysis of the fairness of the
transaction from a financial point of view are set forth below under "--
Opinion of the Special Committee's Financial Advisor." At the conclusion of
these reports, our counsel and Messrs. Walker and Hileman were asked to join
the meeting and respond to certain questions from the special committee,
following which they were excused. Additional terms of the merger agreement
were then negotiated during the meeting, at which time McDonald Investments
advised the special committee that it was prepared to render to the special
committee and our Board its opinion that the price of $0.45 per share offered
by Littlejohn and Quilvest was fair, from a financial point of view, to our
stockholders other than Littlejohn and Quilvest. Thereafter, the special
committee determined that the terms of the merger were fair and in the best
interests of our stockholders, and agreed to recommend to our Board that it
approve the merger and the merger agreement and recommend the merger to our
stockholders.

Later on February 28, at a special meeting of our Board, the special
committee summarized for our Board the process that it had undertaken in its
review and negotiation of the Littlejohn and Quilvest proposal. The committee
members, in particular, noted the stated unwillingness of Littlejohn and
Quilvest to sell their interests in Pameco which caused the special committee
not to explore whether other offers to acquire Pameco could be obtained from
third parties, but instead to focus on whether the merger proposal was fair
and should be recommended to our stockholders. McDonald Investments then
summarized for the entire Board its methodologies, assumptions and conclusions
and provided its oral opinion to the effect that, as of such date, and based
on the assumptions and subject to the limitations and qualifications
described, the $0.45 per share merger consideration was fair to the Company's
stockholders (other than Littlejohn and Quilvest, to whom no opinion was
rendered) from a financial point of view. McDonald Investments' oral opinion
was subsequently confirmed in a letter dated as of February 28, 2001 and
reissued in a letter dated March 16, 2001. See "--Opinion of the Special
Committee's Financial Advisor." Following a discussion by our Board, the
merger proposal recommended by the special committee was approved by unanimous
vote of the directors. We issued a press release on February 28, 2001
announcing our Board's approval of an agreement with Littlejohn and Quilvest
to

acquire the outstanding common stock for $0.45 per share. During the next
several days, the parties negotiated the final terms of the merger agreement
and Quilvest and Littlejohn negotiated the final terms of the new stockholders
agreement. The merger agreement was executed on March 6, 2001 following final
approval of the terms of the merger agreement by the special committee and
finalization of the terms of the new stockholders agreement by Littlejohn,
Quilvest and their respective counsel.

On February 28, 2001, we received a letter from the staff of the Securities
and Exchange Commission (SEC) in connection with the staff's routine review of
our recent filings with the SEC. The letter raised certain accounting issues
which we discussed with our independent auditors and our legal counsel. Over
the next several days we exchanged correspondence with the accounting staff of
the SEC.

On March 8, 2001, we participated in a telephone conference with our
auditors, our legal counsel, legal counsel for the buyers and the staff of the
SEC regarding these issues. Following that call, we determined to restate our
consolidated financial statements for the years ended February 29, 2000 and
February 28, 1999. We advised the special committee and McDonald Investments
of our determination, and on March 14, 2001, the restated financial statements
were delivered to McDonald Investments. That same day, McDonald Investments
conducted its due diligence with respect to the restated financial statements
with representatives of Pameco and Pameco's independent auditors.

On March 16, 2001, the special committee met with McDonald Investments.
McDonald Investments reviewed for the special committee the effect that the
restatement of Pameco's financial statements had on its prior analysis.
Following additional discussion concerning Pameco and current economic and
market conditions, McDonald Investments reissued its opinion that the $0.45
per share merger consideration was fair, from a financial point of view, to
Pameco's stockholders other than Littlejohn and Quilvest. Accordingly, the
special committee reaffirmed its approval and recommendation of the merger and
the merger agreement and its recommendation that our stockholders approve the
merger and the merger agreement and advised Pameco to proceed with the actions
necessary to consummate the merger.

Purpose of the Merger; Certain Effects of the Merger

The principal purpose of the merger is to enable Littlejohn and Quilvest to
own all of our outstanding equity interests. The merger affords the current
holders of our common stock the opportunity to receive a cash price for their
shares that represents a premium over the market price at which the shares
traded prior to the announcement of the receipt of the offer which led to
signing of the merger agreement. This will be accomplished by a merger of
Pameco Acquisition, a corporation formed by Littlejohn and Quilvest, to effect
the merger, with and into Pameco, with Pameco as the surviving company. In the
merger, all of the shares of our common stock held by our stockholders (other
than Pameco, its subsidiaries or Pameco Acquisition, and other than dissenting
stockholders who perfect dissenters' rights) will be converted into the right
to receive the merger consideration of $0.45 per share. All of our issued and
outstanding shares of preferred stock will remain outstanding following the
merger as capital stock of the surviving corporation. All of our issued and
outstanding warrants to purchase series A preferred stock will also remain
outstanding. At the effective time of the merger, each outstanding option to
purchase shares of our common stock will become an option to receive the
merger consideration for each share of common stock subject to the option upon
payment of the exercise price of the option. Because each of the outstanding
options has an exercise price per share in excess of $0.45, each option will
be terminated without any payment. After the merger, Littlejohn and Quilvest
expect that Pameco will adopt a new stock option plan or plans pursuant to
which the Board of Directors (or a committee thereof) of Pameco may grant
options to purchase common stock to its management.

As a result of the merger, all common equity interests in Pameco held by its
stockholders (other than Littlejohn and Quilvest) will be terminated. We will
become wholly-owned by Littlejohn and Quilvest who will be the principal
beneficiaries of any earnings and growth of Pameco following the merger.
Accordingly, our stockholders (other than Littlejohn and Quilvest) in the
merger will no longer benefit from any increase in the value of Pameco, nor
will they bear the risk of any decrease in the value of Pameco following the
merger.

As a result of the merger, Littlejohn and Quilvest will have an 81% and 19%
interest, respectively, in the net book value and net earnings of Pameco,
increasing its respective interest from the 59.7% and 18.7% interest owned as
of November 30, 2000. Based on the net book value of Pameco on November 30,
2000 of $45.0 million and net loss for the nine months ended November 30, 2000
of $26.8 million, Littlejohn's and Quilvest's respective interest in the net
book value would have increased from $26.9 million and $8.4 million, to
$36.5 million and $8.6 million, and Littlejohn's and Quilvest's respective
interest in the net loss would have increased from $16.0 million and $5.0
million, to $21.7 million and $5.1 million.

Our common stock is currently registered under the Securities Exchange Act
of 1934 and is quoted on the OTC Bulletin Board under the symbol "PAMC." Upon
the completion of the merger, we will terminate registration of our common
stock under the Exchange Act and our common stock will no longer be eligible
for quotation on the OTC Bulletin Board. We will also no longer be required to
file periodic reports with the SEC under the Exchange Act. Because our common
stock will be privately held, we will enjoy certain efficiencies, such as the
elimination of the time devoted by management and certain other employees to
comply with the reporting obligations of the Exchange Act with respect to the
common stock, and the directors, officers and beneficial owners of more than
10% of the common stock will be relieved of their reporting requirements and
restrictions under Section 16 of the Exchange Act. We will be able to reduce
certain costs, including the costs of preparing, printing and mailing annual
reports and proxy statements, the expenses of a transfer agent and registrar,
the costs associated with the number of members of our Board and the costs of
certain investor relations activities. In addition, being the owners of all of
your outstanding equity interests will give Littlejohn and Pameco greater
flexibility with respect to the ownership and operation of Pameco. Being
closely held will enable management to focus on the creation of long-term
value, rather than being subject to the pressures associated with reporting of
quarterly earnings. All of these benefits will inure to Littlejohn and
Quilvest as the owners of all of the outstanding equity interests after the
merger.

The merger is structured as a one-step transaction. If the merger proposal
is approved by stockholders and all other conditions to the merger are
satisfied, Pameco Acquisition will merge with and into Pameco. Approval of the
merger proposal requires the affirmative vote of the holders of a majority of
the combined voting power of the outstanding shares of our common stock and
preferred stock voting as a single class. As of March 30, 2001, Littlejohn
owned shares of preferred stock and the power to direct the vote of shares of
preferred stock and common stock owned by Quilvest and Mr. de Vogel, which in
the aggregate represented 87% of the combined voting power of the outstanding
shares of our common stock and preferred stock on that date. Accordingly,
stockholder approval is assured.

Recommendations of the Special Committee and the Board of Directors; Reasons
for the Merger

Recommendations of the Special Committee and the Board of Directors.

As discussed above under "--Background of the Merger," the special committee
and our Board of Directors unanimously approved the merger and determined that
the merger agreement and the merger are fair to and in the best interests of
our stockholders (other than Littlejohn and Quilvest).

The special committee and our Board recommend that you vote "FOR" the
approval and adoption of the merger agreement and the merger. In reaching the
determination that the merger agreement and the merger are fair to and in the
best interests of our stockholders (other than Littlejohn and Quilvest), the
special committee and our Board of Directors consulted with their financial
and legal advisors, drew on their knowledge of our business, operations,
properties, assets, financial condition, operating results, historical public
share trading prices and prospects and considered the following factors, each
of which, in the opinion of the special committee and our Board, supported the
determination:

. The belief that there was no reasonably available alternative
transaction such as a sale of the entire company. In particular, the
special committee and our Board noted Littlejohn's and Quilvest's stated
unwillingness to sell their interests in Pameco as well as the fact that
neither Pameco, the special

committee nor McDonald Investments had received any unsolicited
indications of interest in any alternative transaction with Pameco after
the initial announcement the merger proposal on January 16, 2001;

. The belief of the special committee and our Board that the merger was a
better alternative for our stockholders (other than Littlejohn and
Quilvest) than continuing to operate as a public company. The special
committee and our Board considered Pameco's recent negative results of
operations and recent decline in sales and the nature of the industry in
which we compete. Based upon this knowledge, the special committee and
our Board concluded that, from the perspective of the holders of our
common stock (other than Quilvest and Littlejohn), it was preferable to
our stockholders that Pameco enter into the merger agreement providing
for a price of $0.45 per share in cash, rather than our stockholders
continuing to own our common stock, the value of which would be subject
to the risks of future performance and the market's reaction to that
performance.

. Our current financial condition. In particular, the special committee
and our Board considered the amount of debt currently owed by Pameco and
our near-term capital needs. Under our current capital structure we
would not be able to fund our capital needs. Further, the special
committee and the Board took note of the negative book value per share
of Pameco.

. The financial advisor's opinion to the special committee and our Board
to the effect that the merger consideration is fair to our stockholders
(other than Littlejohn and Quilvest) from a

financial point of view. In reviewing the analyses performed by the
financial advisor, the special committee and our Board did not weigh
each analysis prepared by McDonald Investments separately, but rather
considered all of them taken as a whole.

. The terms and conditions of the merger agreement, particularly the
provisions giving our Board the right, subject to conditions, to modify
or withdraw its recommendation and to terminate the merger agreement.

. The fact that our stockholders, if they choose, may dissent from the
merger and seek the "fair value" of their shares pursuant to an
appraisal process under Delaware law.

In concluding that the merger is fair to and in the best interests of our
stockholders (other than Littlejohn and Quilvest), the special committee and
our Board also considered the following factors, each of which the special
committee and the Board considered to be a negative factor:

. The fact that Littlejohn and Quilvest advised the special committee that
they were unwilling to sell their controlling interests in Pameco, which
effectively precluded the special committee from seeking strategic
alternatives involving a sale of the entire company. Therefore, the
Board did not consider the going concern value of Pameco that might be
realized from a sale of Pameco.

. The fact that consummation of the merger would preclude our stockholders
(other than Littlejohn and Quilvest) from having the opportunity to
participate in the future growth prospects of the Company. In addition,
the special committee and our Board of Directors recognized that
Littlejohn and Quilvest will have the opportunity to benefit from any
increases in the value of Pameco following the merger as a result of
their increased equity interest in Pameco and therefore may potentially
receive a substantial economic benefit from the transaction.

. The potential conflicts of interest of Littlejohn and Quilvest resulting
from the foregoing benefits that may be realized by them. In addition,
the special committee and our Board considered the potential conflicts
of interest of Messrs. Dixon and Hileman as executive officers of Pameco
resulting from their stated support of Littlejohn and Quilvest's
acquisition of Pameco's outstanding common stock. The special committee
and our Board believe, however, that the procedures followed in the
process of considering the merger proposal and negotiating the terms of
the merger agreement addressed these conflicts and were fair to our
stockholders (other than Littlejohn and Quilvest). See "--Background of
the Merger" and "--Interests in the Merger that Differ from Your
Interests."

. The fact that our common stock price per share had declined from a high
of $11.81 during the third quarter of 2001 to $0.19 prior to the
announcement of Littlejohn and Quilvest's initial offer and had traded
at prices in excess of the offer price subsequent to that initial
announcement, leading to the conclusion that, given the inefficiencies
and the adverse changes in the market for our common stock and in our
industry sector generally, those transactions were not relevant indicia
of the current value of our shares. See "Price Range of Common Stock and
Dividends."

. The fact that a condition to Littlejohn and Quilvest's obligations to
consummate the merger is that holders of no more than 10% of the
Company's outstanding shares of common stock exercise their rights to
dissent from the merger and seek an appraisal of their shares.

Our Board and the special committee did not consider the liquidation value
of Pameco because Littlejohn and Quilvest informed the Board and the special
committee that they wished to continue to operate Pameco on an ongoing basis.
Our Board and the special committee did note, however, that McDonald
Investments performed a liquidation analysis of Pameco and concluded that in
an orderly liquidation, the proceeds received by Pameco would not be
sufficient to repay its liabilities and satisfy the preferences of the holders
of the preferred stock and, as a consequence, no value would be attributable
to the holders of the common stock. See "--Opinion of Special Committee's
Financial Advisor."

Our Board believes that sufficient procedural safeguards to ensure fairness
of the transaction and to permit our Board to effectively represent the
interests of the stockholders who are unaffiliated with Littlejohn and
Quilvest were present and, therefore, there was no need to retain any
additional unaffiliated representative to act on behalf of the unaffiliated
stockholders in view of:

. the independence and experience of the members of the special committee;

. the retention of McDonald Investments and Dinsmore & Shohl LLP,
independent financial advisors and independent legal counsel,
respectively, to advise the special committee; and

. the fact that the appointment of committees comprised of independent
directors advised by independent financial advisors and independent
legal counsel is a mechanism well recognized under Delaware law in
transactions of this type to represent shareholder interests when
members of a company's board of directors may have conflicts of
interest.

The foregoing discussion of the information and factors considered by the
special committee and our Board is not meant to be exhaustive, but includes
all material factors considered by the special committee and our Board as part
of the determination that the merger and the merger agreement are fair to, and
in the best interests of, Pameco and our stockholders (other than Littlejohn
and Quilvest) and the recommendation that our stockholders approve and adopt
the merger and the merger agreement. While each of the Board and the special
committee relied upon and adopted the analysis and conclusions of McDonald
Investments as described in "Opinion of Special Committee's Financial
Advisor," it also considered all of the factors listed above in making the
determination that the merger and the merger agreement are fair to, and in the
best interests of, Pameco and our stockholders (other than Littlejohn and
Quilvest). The special committee and our Board did not assign relative weights
or quantifiable values to those positive and negative factors. Rather, the
decision of the special committee and our Board was based on the subjective
analysis by its members of those factors, including the analysis and
conclusions of McDonald Investments. The special committee and our Board each
viewed its position and recommendations as being based on the totality of the
information presented to and considered by it. In addition, based on the
factors described above, including the appointment of the special committee,
its engagement of McDonald Investments and separate legal counsel to negotiate
on its behalf, Littlejohn's and Quilvest's stated unwillingness to sell their
interests in Pameco and the availability of dissenters' rights (although
Littlejohn and Quilvest may refuse to consummate the merger if the holders of
more than 10% of the outstanding shares of common stock exercise such rights),
our Board and the special committee also believe that the merger is
procedurally fair to our stockholders.

The Buyers' Purpose and Reasons for the Merger

The purpose of Littlejohn and Quilvest (sometimes hereinafter referred to as
the "buyers") for engaging in the transactions contemplated by the merger
agreement is to acquire 100% ownership of Pameco in a transaction in which the
stockholders of Pameco, other than the buyers, would have their equity
interest in Pameco extinguished. In addition, the merger proposal affords the
holders of our common stock the opportunity to receive the merger
consideration which represents a premium over the market prices at which our
common stock traded immediately prior to the announcement of the initial
offer. The determination to proceed with the acquisition at this time also
would, in the view of the buyers, afford Pameco's stockholders an opportunity
to dispose of their shares at a significant premium over recent market prices.
In addition, the buyers noted that causing Pameco to be closely held, and
therefore no longer required to file periodic reports with the SEC, would
enable management to focus on the creation of long-term value, rather than
being subject to the pressures associated with the reporting of quarterly
earnings, would provide the buyers with greater flexibility, and would reduce
costs associated with Pameco's obligations and reporting requirements under
the securities laws.

The buyers did not pursue a liquidation of Pameco or a sale of Pameco to a
third party because the buyers wished to continue to operate the business of
Pameco on an ongoing basis and wanted to acquire the entire equity interest in
Pameco. The buyers did not desire to sell the shares that they owned to a
third party.

The buyers considered alternatives to the merger to accomplish their goal of
acquiring all the outstanding equity interests in Pameco, including (1) a
first step tender offer followed by a second-step merger and (2) open market
purchases of Pameco common stock. The acquisition was structured as a cash
merger, however, to accomplish the acquisition in a single step, without the
necessity of financing separate purchases of shares in a tender offer or in
open market purchases while at the same time not materially disrupting
Pameco's operations. The buyers did not consider any alternatives that would
have allowed the public stockholders to maintain an equity interest in Pameco
because no such alternative would have accomplished the buyers' purposes
described above. The buyers determined to undertake the transaction at this
time because they believed that a long term strategy for increasing the value
of Pameco would be more readily achievable if Pameco were private.

The buyers believe that the transaction is procedurally fair because, among
other things:

. the special committee, consisting only of directors who are not
employees of Pameco or affiliated with the buyers, approved the merger
agreement, including the terms of the merger;

. the special committee retained and was advised by an independent
financial advisor to assist it in evaluating the merger and to provide a
fairness opinion with respect to the fairness, from a financial point of
view, of the merger consideration to the stockholders of Pameco who are
unaffiliated with Littlejohn and Quilvest;

. the special committee retained independent legal counsel to advise and
assist it in evaluating the merger and negotiating the merger agreement;
and

. the merger consideration and other terms and conditions of the merger
agreement resulted from good faith negotiations between the special
committee and the buyers.

The buyers also considered the opinion of McDonald Investments as to the
fairness from a financial point of view of the merger consideration to the
stockholders who are unaffiliated with the buyers and the buyers took into
account the analysis and conclusions of McDonald Investments as described in
"Opinion of Special Committee's Financial Advisor."

The buyers have concluded that the merger, including the merger
consideration of $0.45 per share, and the terms and conditions of the merger
agreement are fair to Pameco and its stockholders, other than the buyers,
based upon the following factors:

. The conclusions and recommendations of the special committee and
Pameco's Board of Directors;

. The fact that the special committee, comprised of persons not affiliated
with the buyers, had unanimously approved the merger and recommended
that stockholders approve and adopt the merger agreement;

. The other factors referred to above as having been taken into account by
the special committee and Pameco's Board of Directors, which each of
Littlejohn and Quilvest agrees with and adopts as its own (see also
"Special Factors--Background of the Merger" and "--Opinion of Special
Committee's Financial Advisor").

Opinion of Special Committee's Financial Advisor

McDonald Investments was engaged by the special committee to render its
opinion as to the fairness from a financial point of view of the consideration
to be received by holders of common stock of Pameco (other than Littlejohn and
Quilvest) in the merger.

On February 28, 2001, McDonald Investments delivered an oral opinion,
subsequently confirmed in writing, to the special committee to the effect
that, as of the date of its opinion and based upon and subject to the
assumptions, limitations, and qualifications contained in its opinion, the
$0.45 cash per share to be received in the merger was fair, from a financial
point of view, to holders of common stock of the Company (other than
Littlejohn and Quilvest).

As a result of the restatement of Pameco's financial statements, McDonald
Investments was requested by the special committee to review its prior
analysis and updated and reissued its fairness opinion, taking into account
the changes in the historical financial statements and changes in economic and
market conditions if any. McDonald Investments' updated fairness opinion was
issued on March 16, 2001.

The full text of the updated written opinion of McDonald Investments, dated
March 16, 2001, is attached to this document as Appendix C and is incorporated
into this proxy statement by reference. We urge you to read that opinion
carefully and in its entirety for the assumptions made, procedures followed,
other matters considered, and limits of the review undertaken in arriving at
that opinion.

McDonald Investments was retained to serve as financial advisor to the
special committee and not as an advisor to or agent of any stockholder of
Pameco. McDonald Investments' opinion was prepared for the special committee
and is directed only to the fairness, from a financial point of view, of the
merger consideration to holders of common stock of the Company (other than
Littlejohn and Quilvest) in the merger and does not address the merits of the
decision by Pameco to engage in the merger or other business strategies
considered by Pameco, nor does it address Pameco's decision to proceed with
the merger. Moreover, McDonald Investments' opinion does not constitute a
recommendation to any Pameco stockholder as to how that stockholder should
vote at the special meeting of stockholders.

McDonald Investments did not recommend the amount of the merger
consideration to be paid in the merger. The merger consideration was
determined in negotiations by or on behalf of the special committee and
representatives of Littlejohn and Quilvest. No restrictions or limitations
were imposed by the special committee on McDonald Investments with respect to
the investigations made or the procedures followed by McDonald Investments in
rendering its opinion, except that McDonald Investments was not authorized to
solicit, and did not solicit, interest from any party with respect to an
acquisition of all or any part of the business or securities of Pameco and
were advised by representatives of Littlejohn and Quilvest that neither of
them was interested in pursuing a sale of their controlling interest in the
Company.

In rendering its opinion, McDonald Investments reviewed, among other things:

. The merger agreement;

. Certain publicly available information concerning the Company included
in its reports filed with the SEC including the Company's financial
statements as restated;

. Certain nonpublic information, primarily financial in nature, including
projections, concerning the business and operations of the Company
furnished to us by management for purposes of our analysis;

. Certain publicly available information concerning the trading of, and
the trading markets for, the Company's common stock;

. Certain publicly available information with respect to certain other
companies that McDonald Investments believed to be comparable to the
Company and the trading markets for those other companies' securities;
and

. Certain publicly available information about the nature and terms of
other business combination transactions that McDonald Investments
considered relevant to its inquiry.

McDonald Investments also met with members of our senior management to
discuss the past and current business operations, financial condition, and
future prospects of Pameco and considered such other matters as McDonald
Investments deemed relevant to its inquiry.

McDonald Investments relied upon the accuracy and completeness of all of the
financial and other information reviewed by McDonald for purposes of its
opinion and has not assumed any responsibility for, nor undertaken an
independent verification of, such information. With respect to the internal
operating data and financial analyses and forecasts supplied to it, McDonald
Investments assumed, with the permission of the special committee, that such
data, analyses, and forecasts were reasonably prepared on bases reflecting the
best currently available estimates and judgments of our senior management as
to the recent and likely future performance of Pameco. Accordingly, McDonald
Investments expressed no opinion with respect to such analyses or forecasts or
the assumptions on which they were based.

McDonald Investments did not make an independent evaluation or appraisal of
the assets or liabilities of Pameco or any of its subsidiaries or affiliates.
During its discussions with the senior management of Pameco, McDonald
Investments was provided various materials, including third party appraisals
of Pameco's inventories at certain prior dates, which McDonald Investments
considered as part of its review of Pameco's financial condition.

McDonald Investments' opinion is based on economic and market conditions and
other circumstances existing on, and information made available as of, the
date of its opinion. McDonald Investments' opinion does not address any
matters after the date of its opinion. Although subsequent developments may
affect its opinion, unless specifically requested to do so by the special
committee, McDonald Investments does not have the obligation to update,
revise, or reaffirm its opinion.

The following is a brief summary of the analyses performed by McDonald
Investments to arrive at its opinion. This summary is not intended to be an
exhaustive description of the analyses performed by McDonald Investments but
includes all material factors considered by McDonald Investments in rendering
its opinion. McDonald Investments drew no specific conclusions from any of
these analyses, but subjectively factored its observations from these analyses
into its qualitative assessment of the relevant facts and circumstances. Each
analysis performed by McDonald Investments is a common methodology utilized in
performing valuations and assessing the fairness of a proposed transaction
from a financial point of view. Although other techniques may exist, McDonald
Investments believes that the analyses described below, when taken as a whole,
provide the most appropriate analyses for McDonald Investments to arrive at
its opinion. McDonald Investments has consented to Pameco's reference to and
summary of its opinion in this proxy statement and to the inclusion of its
opinion as Appendix C hereto.

Liquidation Analysis. McDonald Investments performed a liquidation analysis
analyzing the theoretical residual value of Pameco to the holders of common
stock assuming the assets of Pameco were sold in an orderly liquidation, the
outstanding liabilities were repaid, and the liquidation preferences of the
holders of preferred stock were satisfied. In making the determination to
evaluate the merger in the context of a potential liquidation, McDonald
considered its discussions with management, Pameco's recent negative results
of operations and in particular Pameco's recent decline in sales, Pameco's
financial condition including its amount of debt, Pameco's near-term capital
needs, and such other factors as McDonald Investments deemed relevant. Based
on Pameco's unaudited January 31, 2001 balance sheet prepared in a manner
consistent with Pameco's audited financial statements, discussions with
management, and other analyses regarding the likely results of liquidating
Pameco's assets and liabilities, McDonald Investments concluded that in an
orderly liquidation, the proceeds received by Pameco would not be sufficient
to repay its liabilities and satisfy the preferences of the holders of
preferred stock and, as a consequence, no value would be distributable to the
holders of common stock. In reaching this conclusion, McDonald Investments
considered, among other things, the borrowing base calculations utilized by
Pameco's senior lenders for accounts receivable and inventories, and the
related collection and liquidation costs. McDonald Investments' analysis also
relied on management's estimate of amounts Pameco's property, plant and
equipment would generate in an orderly liquidation. McDonald Investments also
relied on management's estimate that Pameco's intangible assets would have no
realizable value in a liquidation. McDonald Investments also relied on
management's estimate that the liquidation value of Pameco's current
liabilities and short and long-term debt would approximate book value.
Management also confirmed to McDonald Investments that management was not
aware of any materially undervalued asset or overvalued liability in Pameco's
statements.

Discounted Cash Flow Analysis. Using discounted cash flow analysis, based on
financial projections and other information obtained from the senior
management of Pameco, McDonald Investments discounted to present value the
future cash flows that Pameco is projected to generate through Pameco's fiscal
year 2004, under various circumstances. McDonald Investments calculated
terminal values for Pameco--the values at the 2004 fiscal year-end--by
applying multiples of EBITDA in the year 2004 of 4.0x to 6.0x which
represented a discount to the average (excluding the high and low multiples)
comparable public company multiples of 7.5x because of Pameco's performance
and capital position relative to the public comparables. The cash flow streams
and terminal values were then discounted to present values using different
discount rates ranging from 15.0% to 20.0% chosen to reflect different
assumptions regarding Pameco's cost of capital. Given the level of Pameco's
outstanding indebtedness, and taking into account the liquidation preferences
of the outstanding preferred stock, the implied value per share of Pameco
common stock resulting from the discounted cash flow analysis was less than
zero.

Historical Stock Trading and Premiums Analysis. McDonald Investments
reviewed the historical performance of Pameco common stock based on an
analysis of closing prices and trading volumes since the Company's initial
public offering, particularly since February 18, 2000, when Littlejohn and
Quilvest first purchased preferred stock. McDonald Investments noted that,
given that recent trading activity was limited and that the trading market was
relatively illiquid, the market price of the common stock was not necessarily
indicative of the intrinsic value of the Company. Using publicly available
information, McDonald Investments prepared an analysis of the premiums paid in
completed cash acquisitions, valued at less than $100 million, of public
companies announced since January 1, 1999 where 100% of the target's shares
were controlled by the acquiror following the acquisition. This analysis
included the per share prices paid in such transactions in which a large or
controlling stockholder purchased the shares held by the other public
stockholders in a "going private" transaction. McDonald Investments considered
the premiums paid based on the closing price of the target's shares one day,
one week, and four weeks prior to the announcement of the proposed
transaction. For all cash acquisitions where 100% of the target's shares were
controlled by the acquiror following the acquisition, McDonald Investments
calculated average premiums of 32.4%, 35.3%, and 43.2% at one day, one week,
and four weeks prior to the announcement, respectively. For all going private
transactions, McDonald Investments calculated average premiums of 21.0%,
22.0%, and 24.9% at one day, one week, and four weeks prior to the
announcement of the proposed transaction, respectively. For all transactions
in which a large or controlling shareholder bought out the remaining public
stockholders in a going private transaction, McDonald Investments

calculated average premiums of 23.3%, 28.7%, and 38.5% at one day, one week,
and four weeks prior to the announcement of the proposed transaction,
respectively. In addition, McDonald Investments calculated the premium of the
$0.45 consideration that Pameco stockholders would receive to the closing
prices of Pameco's common stock at one day, one week, and four weeks prior to
the initial announcement of the merger proposal on January 16, 2001 as 140.0%,
140.0%, and 2.9%, respectively. Although McDonald Investments noted that
several trades had occurred on the OTC Bulletin Board following the
announcement of the merger proposal at prices in excess of the proposed offer
price, McDonald Investments advised the special committee that it believed
that those trades were made in anticipation of the proposed transaction with
Littlejohn and Quilvest rather than on the basis of improved economic
conditions for Pameco.

Comparable Public Company Analysis. Using publicly available information,
McDonald Investments reviewed and compared certain financial and operating
data of five publicly traded companies engaged in businesses with
characteristics similar to Pameco. This group included ACR Group Inc., Hughes
Supply, Inc., Noland Co., W.W. Grainger Inc., and Watsco Inc. McDonald
Investments cautioned the special committee that no company utilized in the
comparable public company analysis is identical to Pameco.

In selecting comparable companies, McDonald Investments based its
determination on products and services offered by the companies, the markets
they served and their business strategies. On these bases, McDonald
Investments believed the companies selected were reasonably comparable to
Pameco. In addition, the companies selected, in general, were consistent with
the types of companies used by Pameco and its financial advisor in analyzing
the investment by Littlejohn and Quilvest in Pameco in February 2000. The
table below sets forth the ranges of multiples at which the comparable
companies were trading on the date of McDonald Investments' opinion.

Multiple of Comparable Companies
----------- --------------------

Latest Twelve Months Revenue......................... 0.2x -- 0.7x
Latest Twelve Months EBITDA.......................... 5.3x -- 9.1x
Latest Twelve Months Earnings Per Share.............. 5.9x -- 19.0x
Calendar 2000 Earnings Per Share..................... 6.2x -- 19.0x
Calendar 2001 Earnings Per Share (estimated)......... 5.8x -- 17.5x

McDonald Investments then applied the average of the foregoing multiples
(excluding the high and low multiples in each case) to Pameco's historical and
projected revenue, EBITDA, and earnings per share to calculate implied prices
per share for Pameco's common stock. Given the historical and projected
results, level of the Company's outstanding indebtedness, and taking into
account the liquidation preference of the outstanding preferred stock, these
calculations resulted in implied prices per share of common stock that were
less than zero.

Comparable Transactions Analysis. Using publicly available information,
McDonald Investments reviewed the multiples paid in acquisitions of companies
engaged in both the distribution and retail heating, ventilation, air
conditioning, and refrigeration ("HVAC/R") industries completed since January
1, 1997.

In selecting comparable transactions, McDonald Investments based its
determination on the products and services offered by the acquired companies,
the markets they served, and their business strategies. On these bases,
McDonald Investments believed the transactions selected were reasonably
comparable to this transaction. In addition, the transactions selected, in
general, were consistent with the types of transactions used by Pameco and its
financial advisor in analyzing the investment by Littlejohn and Quilvest in
Pameco in February 2000.

McDonald Investments calculated the enterprise value paid for each acquired
company in the HVAC/R distribution industry as a multiple of the latest 12
months EBITDA, which ranged from 2.2x to 8.0x, with an average multiple 5.1x,
and the enterprise value paid for each acquired company in the HVAC/R retail
industry as a multiple of the latest 12 months EBITDA, which ranged from 4.2x
to 13.1x, with an average multiple of 8.5x. McDonald Investments also
calculated the enterprise value paid for each acquired company in the HVAC/R
distribution industry as a multiple of the latest 12 months revenue which
ranged from 0.2x to 0.7x, with an average multiple of 0.4x, and the enterprise
value paid for each acquired company in the HVAC/R retail

industry as a multiple of the latest 12 months revenue, which ranged from 0.4x
to 0.9x, with an average of 0.6x.

McDonald Investments applied the average multiples calculated from these
transactions to Pameco's latest 12 months EBITDA to calculate implied prices
per share for Pameco's common stock. Because of the level of Pameco's
outstanding indebtedness, and taking into account the liquidation preferences
of the outstanding preferred stock, these calculations resulted in implied
prices per share of common stock that were less than zero. In addition,
McDonald Investments applied the average multiples calculated from these
transactions to Pameco's latest 12 months revenue, which generated a range of
approximately $9.00 to $46.00 per share value for Pameco's common stock.
McDonald Investments noted that Pameco's liquidity and the historical losses
at the EBITDA and net income levels rendered any implied valuation of the
common stock based on a revenue multiple less meaningful.

Pursuant to the terms of an engagement letter dated February 6, 2001, as
amended on March 14, 2001, Pameco agreed to pay McDonald Investments for
acting as financial advisor to the special committee in connection with the
merger proposal a cash fee of $175,000 as follows: (i) $50,000 upon execution
of the engagement letter, (ii) $100,000 when McDonald Investments rendered its
original opinion, and (iii) $25,000 when McDonald Investments reissued its
opinion. None of McDonald Investments' fee is contingent upon the consummation
of the merger. Pameco has also agreed to reimburse McDonald Investments for
its reasonable out-of-pocket expenses, including the fees and disbursements of
its counsel, and to indemnify McDonald Investments and certain related persons
against liabilities relating to or arising out of its engagement, including
liabilities under the federal securities laws.

McDonald Investments is a nationally recognized investment banking firm that
engages in the valuation of businesses and securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements,
and valuations for estate, corporate, and other purposes. McDonald Investments
was selected as the special committee's financial advisor based, in part, upon
such expertise. In the ordinary course of its business, McDonald Investments
may trade securities of Pameco for its own account and for the accounts of its
customers and, accordingly, may at any time hold a long or short position in
such securities.

McDonald Investments has advised the Board of Directors and the special
committee that it does not believe that any person (including any stockholder
or creditor of Pameco) other than the directors in their capacity as directors
has the legal right to rely upon McDonald Investments' opinion for any claim
arising under state law and that, should any such claim be brought against
McDonald Investments, this assertion will be raised as a defense. In the
absence of governing authority, this assertion will be resolved by the final
adjudication of such issue by a court of competent jurisdiction. Resolution of
this matter under state law, however, will have no effect on the rights and
responsibilities of any person under the federal securities laws or on the
rights and responsibilities of the Company's Board of Directors and the
special committee under applicable state law.

Certain Projections Provided to Financial Advisors

In the normal course of business, our management prepares internal budgets,
plans, estimates, forecasts or projections as to future revenues, earnings or
other financial information in order to be able to anticipate our financial
performance. We do not, as a matter of course, publicly disclose these
internal documents.

We provided McDonald Investments, in its capacity as financial advisor to
the special committee, with certain financial projections which reflected our
management's best estimates and good faith judgments as to our future
performance. These financial projections do not give effect to the proposed
merger.

The financial projections were subject to and prepared on the basis of
estimates, limitations, qualifications and assumptions, and involved judgments
with respect to, among other things, future economic, competitive, regulatory
and financial and market conditions and future business decisions which may
not be realized and are inherently subject to significant business, economic
and competitive uncertainties, all of which are difficult to predict and many
of which are beyond our control. These uncertainties are described under
"Cautionary Statement Regarding Forward-Looking Statements."

While we believe these estimates and assumptions to have been reasonable,
there can be no assurance that the projections will be accurate, and actual
results may vary materially from those shown. In light of the uncertainties
inherent in forward-looking information of any kind, the inclusion of these
projections should not be regarded as a representation by us, Littlejohn,
Quilvest or any other entity or persons that the anticipated results will be
achieved, and you are cautioned not to place undue reliance on such
information.

The financial projections provided to McDonald Investments in its capacity
as financial advisor to the special committee included the following summary
information which may be material:

PAMECO CORPORATION--3 YEAR PROJECTIONS

Projected Income Statements
($s in 000s)

Estimated Projected
--------- ----------------------------
Fiscal Year Ended February
---------------------------------------
2001 2002 2003 2004
--------- -------- -------- --------

Revenues................................ $433,935 $526,030 $547,005 $568,816
% growth ............................. 21.2% 4.0% 4.0%

EBITDA.................................. $(16,829) $ 15,697 $ 20,397 $ 21,211
% of revenue.......................... -3.9% 3.0% 3.7% 3.7%
-------- -------- -------- --------
Net income.............................. $(43,973) $ (2,672) $ 184 $ 501
======== ======== ======== ========
Preferred dividends .................... -- 9,860 11,162 12,724
-------- -------- -------- --------
Net income to common.................... $(43,973) $(12,532) $(10,978) $(12,224)
-------- -------- -------- --------

Interests in the Merger that Differ from Your Interests

In considering the recommendations of the special committee and our Board
with respect to the merger, you should be aware that some of our directors and
officers and their affiliates, i.e. Littlejohn and Quilvest, have interests in
the merger that are different from your interests as a stockholder. The
special committee and our Board were aware of these actual and potential
conflicts of interest.

Littlejohn and Quilvest.

Preferred Stock. We are a party to the securities purchase agreement with
Littlejohn and Quilvest under which Littlejohn and Quilvest purchased in a
series of closings all of our issued and outstanding preferred stock and
warrants to purchase additional shares of our series A preferred stock. The
preferred stock is convertible into our common stock which, pursuant to
certain terms and conditions, we are required to register under the Securities
Act of 1933. Following the merger, all of the outstanding equity interests in
Pameco will be owned by Littlejohn and Quilvest. As a result, Littlejohn and
Quilvest will continue to have the opportunity to participate in any future
earnings growth of Pameco following the merger and to benefit from any
increase in value in Pameco. Following the merger Littlejohn will own
approximately 81% of the outstanding equity interests in Pameco and Quilvest
will own approximately 19% of the outstanding equity interests in Pameco.

Shareholders Agreement. In connection with the securities purchase agreement
we entered into the shareholders agreement with Littlejohn, Quilvest and Mr.
de Vogel. Under the shareholders agreement:

. Our Board is required to have nine members at all times, and Littlejohn
is entitled to nominate five persons, and Quilvest is entitled to
nominate one person, to stand for election to our Board. The remaining
three directors are required to be nominated in accordance with the
requirements of

applicable law and none of these persons may be affiliates or associates
of Quilvest or Littlejohn. Neither member of the special committee is an
affiliate or associate of Littlejohn or Quilvest and neither is an
employee of Pameco;

. Commencing on August 31, 2001, we are obligated to pay Littlejohn & Co.,
L.L.C., an affiliate of Littlejohn, and Quilvest, or their respective
designees, pro rata based upon the respective applicable percentage
ownership of the series A preferred stock of Littlejohn and Quilvest, a
management fee for each annual period ended on August 31, in an amount
determined by Littlejohn and us, but not to exceed $500,000. The
management fee continues to be payable so long as Littlejohn has the
right to elect a majority of the members of our Board, whether through
the ownership of securities, by contract or otherwise. The management
fee will not be paid (and will not accrue), if:

-- At the time of payment of the management fee, we would be in
violation of the financial covenants contained in our senior credit
facility; or

-- Our Board determines that the payment of the management fee is
reasonably likely to result in our not being able to achieve our
budgeted earnings before interest, taxes, depreciation and
amortization for the applicable fiscal year;

. To induce Littlejohn to guarantee up to $5 million of the funds lent to
us pursuant to any overadvance under our senior credit facility, we have
agreed to pay to Littlejohn a fee calculated at a rate of 8% per annum
of the actual amount of the overadvance outstanding from time to time
which Littlejohn is then required to guarantee. The overadvance fee is
payable quarterly in arrears commencing three months after the first day
on which there is an overadvance pursuant to the senior credit facility
and only with respect to such days on which there is an overadvance. We
are not required to pay an overadvance fee to the extent that, at the
time of the payment, or after giving effect to the payment, we are, or
would be, in violation of the financial covenants contained in the
senior credit facility. In that case, any overadvance fee which would
otherwise be payable will accrue and be payable as soon as possible.
Littlejohn and Quilvest have entered into a contribution agreement
pursuant to which Quilvest has agreed to reimburse Littlejohn for 20% of
the actual amount of any overadvance funded by Littlejohn in exchange
for which Quilvest will receive from Littlejohn 20% of any overadvance
fee that Littlejohn receives from us. The overadvance fee arrangement
will be amended as provided in the new stockholders agreement and
amendment no. 1 thereto; and

. Quilvest and Mr. de Vogel have agreed that, so long as the securities
purchase agreement has not been terminated in accordance with its terms,
at any meeting of our stockholders, each of them will vote the voting
securities of Pameco beneficially owned by it or him in accordance with
written instructions received from Littlejohn. In the absence of such
written instructions as to how such voting securities should be voted
with respect to a particular matter, Quilvest and Mr. de Vogel are
required to refrain from voting. As a result, Littlejohn will have the
power to direct the vote of such stock at the special meeting.
Littlejohn has indicated that it will vote its own stock, and will
instruct Quilvest and Mr. de Vogel to vote their stock, at the special
meeting for approval of the merger and approval and adoption of the
merger agreement. As of March 30, 2001, Littlejohn held 87% of the
voting power of our outstanding preferred stock and common stock.

The New Stockholders Agreement.

If the merger is completed, the current shareholders agreement will be
terminated and superseded by the new stockholders agreement and amendment no. 1
thereto, executed by Littlejohn, Quilvest and Pameco Acquisition. Under this
agreement, if the merger becomes effective:

. Our Board will be required to have between five and nine directors.
Immediately following the merger, our Board will have eight directors;

. We will be required to pay the management fee to Littlejohn and Quilvest
under substantially the same terms as those provided in the shareholders
agreement;

. We will be required to pay an overadvance fee to be shared by Littlejohn
and Quilvest under substantially the same terms presently in effect
except that the overadvance line has been temporarily increased,
effective March 26, 2001, until June 30, 2001 from $5 million to $15
million; and

. Following the merger Quilvest will vote all of its preferred stock and
common stock at any meeting of our stockholders in accordance with
written instructions received from Littlejohn.

Director's and Executive Officer's Shares and Stock Options.

Our directors and executive officers as a group owned, as of March 30, 2001,
an aggregate of 41,968 shares of our common stock and options to purchase
1,313,901 shares of our common stock. Because the exercise price per share of
each outstanding option to purchase common stock exceeds the merger
consideration, at the effective time of the merger, each such option will be
terminated. After the merger, Littlejohn and Quilvest expect that Pameco will
adopt a new stock option plan or plans pursuant to which the Board of Directors
(or a committee thereof) of Pameco may grant options to purchase common stock
to Pameco's management.

Indemnification of Directors and Officers; Insurance Arrangements.

The indemnification provisions contained in our Certificate of Incorporation
and Bylaws will continue to apply to our officers and directors after the
merger.

We will be required to maintain in effect for six years from the date of the
merger, policies of directors' and officers' liability insurance containing
terms and conditions which are not less advantageous to the insureds than our
current policies with respect to matters occurring prior to the effective time
of the merge. However, we will not be required to pay annual premiums for such
insurance in excess of 200% of the annual premiums which we currently pay;
provided, however, that if the annual premiums exceed 200% of the annual
premiums currently paid, we will be obligated to obtain a policy with the
greatest coverage that can be obtained for premiums that are 200% of the annual
premiums which we currently pay.

Special Committee Fees.

Each member will receive a fee of $10,000 for his service on the special
committee regardless of whether the merger proposal or any other transaction is
consummated.

Executive Officers to Remain After Merger.

We anticipate that all of our executive officers will continue to serve in
their current capacities with Pameco following the merger.

Plans for Pameco Following the Merger

It is expected that, following the completion of the merger, the operations
and business of Pameco will be conducted substantially as they are currently
conducted. Neither Pameco, Littlejohn nor Quilvest has any present plans or
proposals that relate to or would result in an extraordinary corporate
transaction involving Pameco's corporate structure, business or management,
such as a merger, reorganization, liquidation, relocation of any material
operations or sale or transfer of a material amount of assets. However, Pameco,
Littlejohn and Quilvest will continue to evaluate Pameco's business and
operations after the merger from time to time, and may in the future propose or
develop new plans and proposals which they consider to be in the best interests
of Pameco and its stockholders at such time.

After the merger, our stock will no longer be publicly traded and we will no
longer be required to file periodic reports with the SEC.

Merger Financing; Source of Funds

The maximum total amount of funds required to complete the merger, including
related costs and expenses, is expected to be approximately $1,890,000. This
amount assumes that no stockholders perfect their dissenters' rights under
Delaware law. We expect to incur approximately $495,000 in costs and expenses
in connection with the merger and the related transactions, as set forth in the
table below:

Expenses Estimated Amount
-------- ----------------

Financial advisory fees.................................. $175,000
Legal fees............................................... 200,000
Accounting fees.......................................... 15,000
Printing and mailing fees................................ 100,000
SEC filing fees.......................................... 279
Miscellaneous............................................ 4,721
--------
Total.................................................... $495,000
========

The buyers have agreed to provide cash in the amount of $1,395,080 to
complete the merger. The buyers will provide this amount from internally
generated funds. Funds to pay additional costs and expenses will be provided by
Pameco and Pameco Acquisition.

Material Federal Income Tax Consequences

The following is a summary of material U.S. federal income tax consequences
of the merger to you and other holders of our common stock receiving the cash
merger consideration.

The receipt of cash in exchange for our common stock in the merger will be a
taxable transaction for federal income tax purposes and may also be a taxable
transaction under applicable state, local and foreign tax laws. You will
generally recognize gain or loss for federal income tax purposes in an amount
equal to the difference between the adjusted tax basis in your Pameco common
stock and the amount of the cash received in exchange for your Pameco common
stock. Your gain or loss will generally be a capital gain or loss if you hold
Pameco common stock as a capital asset, and will be a long-term capital gain or
loss if, at the effective time of the merger, you have held your Pameco common
stock for more than one year.

This discussion may not apply to the following Pameco stockholders:

(1) Those who acquired their Pameco common stock by exercising employee
stock options or through other compensation arrangements with us;

(2) Those who are not citizens or residents of the United States; and

(3) Those who dissent and receive the appraised fair value of their shares
or who are otherwise subject to special tax treatment.

You may be subject to "backup withholding" at a rate of 31% on payments
received in connection with the merger unless you:

. Provide a correct taxpayer identification number (which, if you are an
individual, is your social security number) and any other required
information to the paying agent; or

. Are a corporation or come within certain exempt categories and, when
required, demonstrate this fact, and otherwise comply with applicable
requirements of the backup withholding rules.

If you do not provide a correct taxpayer identification number, you may be
subject to penalties imposed by the IRS. Any amount paid as backup withholding
does not constitute an additional tax and will be creditable against your
federal income tax liability. You should consult with your own tax advisor as
to your qualification

for exemption from backup withholding and the procedure for obtaining such
exemption. You may prevent backup withholding by completing a Substitute Form
W-9 and submitting it to the paying agent for the merger when you submit your
stock certificate(s) following the effective time of the merger.

You are urged to consult your tax advisor with respect to the tax
consequences of the merger, including the effects of applicable state, local,
foreign or other tax laws.

Accounting Treatment

The cost of repurchasing Pameco's outstanding common stock will be accounted
for as a treasury stock transaction, since the merger will not constitute a
change of control within the context of accounting principles generally
accepted in the United States. This means that the historical cost basis of
Pameco's assets and liabilities will be carried forward to the surviving
corporation rather than using a new basis of accounting to account for the
assets and liabilities of the surviving corporation. Consequently, the
aggregate cost of repurchasing Pameco's outstanding common stock will be
accounted for as a charge to stockholders' equity.

Dissenters' Rights of Stockholders

Pameco stockholders who follow the procedures specified in Section 262 of the
Delaware General Corporation Law ("DGCL") are entitled to have their shares of
Pameco common stock appraised by the Delaware Court of Chancery and to receive
the "fair value" of their shares as determined by the court instead of the
merger consideration. Pameco stockholders who elect to receive cash in the
merger are not entitled to these appraisal rights.

The following is a summary of Section 262 of the DGCL and is qualified in its
entirety by reference to Section 262 of the DGCL, a copy of which is attached
as Appendix D to this proxy statement. You should carefully review Section 262
of the DGCL and, in view of the complexity of these provisions of Delaware
corporate law, you should consult with your legal advisors to determine your
right to an appraisal.

If you wish to exercise your right to an appraisal under Section 262 of the
DGCL, you must do ALL of the following:

. File with Pameco a written demand for appraisal of your shares of Pameco
common stock before the vote is taken on the merger agreement and the
merger at the special meeting. You must identify yourself in the written
demand and specifically request an appraisal. The written demand must be
in addition to, and separate from, any proxy or vote against approval of
the merger agreement and the merger;

. Not vote in favor of the merger. Failing to vote or abstaining from
voting will satisfy this requirement, but voting in favor of the merger,
by proxy or in person, or returning a signed proxy which does not
specify a vote against the merger, will constitute a waiver of your
right of appraisal and will nullify any previously filed written demand
for appraisal; and

. Continuously hold your shares of common stock through the date on which
we complete the merger.

You must send any written demand for appraisal to Pameco at 651 Corporate
Circle, Golden, Colorado 80401, Attention: President and Chief Executive
Officer.

Within 10 days after the date on which the merger becomes effective, we will
give written notice of the date on which the merger was completed to each
Pameco dissenting stockholder who has satisfied the requirements of Section 262
of the DGCL and who has not voted in favor of the merger. In addition, within
120 days after the date on which the merger becomes effective, we will give a
statement setting forth:

. The aggregate number of shares of Pameco common stock not voted in favor
of approval of the merger agreement with respect to which demands for
appraisal were made; and

. The number of holders of those shares to any stockholder who has
complied with the applicable provisions of Section 262 and who has
requested such a statement.

We will mail the statement within 10 days after the later of (1) the date on
which we received the written request for the statement and (2) the date on
which the period for delivery of demands for appraisal to us expires.

Within 120 days after the date on which the merger becomes effective, we or
any dissenting stockholder may file a petition in the court demanding a
determination of the fair value of the shares of Pameco common stock of all
dissenting stockholders. We do not currently intend to file an appraisal
petition, and stockholders seeking to exercise appraisal rights should not
assume that we will file a petition for appraisal or that we will initiate any
negotiations with respect to the fair value of the shares. Accordingly, any
dissenting stockholder who wishes to file a petition for appraisal is advised
to do so on a timely basis unless the stockholder receives notice that the
petition for appraisal has already been filed by us or another dissenting
stockholder.

If a petition for appraisal is timely filed, the court:

. May require dissenting stockholders who hold Pameco common stock
represented by certificates to submit their certificates to the Register
in Chancery for notation on the certificates of the pendency of the
appraisal proceedings--the court may dismiss the proceedings with
respect to any Pameco stockholder who fails to comply with this
direction;

. Will determine which Pameco stockholders are entitled to appraisal
rights;

. Will determine the fair value of the shares of Pameco common stock held
by dissenting stockholders, exclusive of any element of value arising
from the accomplishment or expectation of the merger, but together with
a fair rate of interest, if any, to be paid on the amount determined to
be fair value. In determining the fair value, the court will take into
account all relevant factors, including market value, asset value,
dividends, earnings prospects, the nature of the business and any other
facts which can be ascertained as of the date of the merger which throw
light on future prospects of the merged corporation, and may determine
the fair value to be more than, less than or equal to the consideration
that the dissenting stockholder would otherwise be entitled to receive
under the merger agreement;

. May, upon the request of any Pameco stockholder, determine the amount of
interest, if any, to be paid upon the value of the Pameco common stock;

. May, upon the request of a Pameco stockholder, order all or a portion of
the expenses incurred by any Pameco stockholder in connection with the
appraisal proceeding, including reasonable attorneys' fees and the fees
and expenses of experts, to be charged pro rata against the value of all
shares entitled to appraisal; and

. May direct the payment of the fair value of the shares together with
interest, if any, to the Pameco stockholders entitled to the payment.

Once we complete the merger, dissenting stockholders will no longer have any
rights of Pameco stockholders with respect to their shares for any purpose,
except to receive payment of their fair value and to receive payment of
dividends or other distributions on the shares, if any, payable to Pameco
stockholders of record as of a date prior to the date on which the merger
becomes effective.

If a dissenting stockholder delivers to us a written withdrawal of its
demand for an appraisal within 60 days after the date on which we complete the
merger or with our written approval after such date, then the right of the
dissenting stockholder to an appraisal will cease and the dissenting
stockholder will be entitled to receive only the merger consideration that
holders of no election shares received. Notwithstanding the foregoing, no
appraisal proceeding in the Delaware court may be dismissed as to any
stockholder without the approval of the court, and the approval may be
conditioned upon certain terms that the court deems fair.

If neither we nor any stockholder file a petition for appraisal within 120
days after the date on which the merger becomes effective, then the right of
all of the dissenting stockholders to an appraisal will cease and the
dissenting stockholders will be entitled to receive only the merger
consideration that other stockholders of common stock received.

THE MERGER AGREEMENT

The following is a brief summary of the material provisions of the merger
agreement. The following summary is qualified in its entirety by reference to
the merger agreement, which we have attached as Appendix A to this proxy
statement and which we incorporate by reference into this document. We
encourage you to read the merger agreement in its entirety.

The Merger

The merger agreement provides that, following the satisfaction or waiver of
the conditions to the merger, including the adoption of the merger agreement
and the merger by our stockholders, Pameco Acquisition will be merged with and
into Pameco, and Pameco will be the surviving company. The merger will become
effective upon the filing of the certificate of merger with the Secretary of
State of the State of Delaware or at such other time as is permissible under
the DGCL and as agreed to by the parties and specified in the certificate of
merger.

When the merger becomes effective, our Certificate of Incorporation and
Bylaws will be the Certificate of Incorporation and Bylaws of the surviving
company, provided that the Certificate of Incorporation shall be amended to
provide that the Board of Directors shall consist of between five and nine
members.

Conversion of Common Stock. Immediately prior to the effective time of the
merger, pursuant to the merger agreement and the DGCL, each issued and
outstanding share of our common stock, other than any shares (1) owned by us,
our subsidiaries or Pameco Acquisition, all of which will be canceled without
consideration, or (2) held by a dissenting stockholder exercising and
perfecting dissenters' rights under the DGCL, will be converted into the right
to receive the merger consideration of $0.45 per share in cash, without
interest.

Exchange of Common Stock Certificates. At the effective time, each
certificate representing shares of our common stock then outstanding, other
than any shares owned by us, Pameco Acquisition, or any of our subsidiaries or
held by a dissenting stockholder perfecting dissenters' rights, will represent
the right to receive the cash into which such issued and outstanding shares
may be converted. At the effective time, all such shares of our common stock
will be automatically canceled and retired and cease to exist, and each holder
of a certificate representing any such shares will cease to have any rights
with respect to such shares, except the right to receive the cash
consideration payable under the merger agreement, without interest upon the
surrender of such certificate.

Prior to the effective time of the merger, Pameco Acquisition will appoint a
bank or trust company to act as exchange agent and, as soon as possible after
the effective time of the merger, such exchange agent shall mail a letter of
transmittal and instructions for use to you. The letter of transmittal will
tell you how to surrender your Pameco common stock certificates in exchange
for the $0.45 per share merger consideration.

Holders of common stock whose certificates have been lost, stolen or
destroyed will be required to make an affidavit identifying such certificate
or certificates as lost, stolen or destroyed and may be required to post a
bond in such amount as we may reasonably require to indemnify against any
claim that may be made against us with respect to such certificate.

Any merger consideration not validly distributed to Pameco shareholders six
months after the effective time (and any interest and other income received by
the exchange agent) will be delivered to the surviving corporation upon demand
and any holders of shares of Pameco common stock who have not complied with
the terms and conditions for the exchange of certificates set forth in the
merger agreement will thereafter look only to the surviving corporation, and
only as general creditors, for the payment of their claim to the merger
consideration.

Pameco Preferred Stock. Each share of our preferred stock that is issued and
outstanding immediately prior to the effective time of the merger shall remain
outstanding as capital stock of the surviving corporation and will not be
converted, exchanged or canceled in the merger.

Stock Options. At the effective time of the merger, 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
common stock will, with respect to each share subject to the options, become
an option to purchase the merger consideration and will otherwise remain
outstanding; provided, to the maximum extent permitted by applicable law and
the applicable stock option agreements and underlying option plans, if the
exercise price per share for any such option exceeds the merger consideration,
then such option will be automatically terminated.

Preferred Stock Warrants. At the effective time of the merger, each
outstanding warrant to purchase series A preferred stock shall remain
outstanding as warrants to purchase capital stock of the surviving corporation
and shall not be converted, exchanged or canceled in the merger.

Representations and Warranties

The merger agreement contains customary representations and warranties by us
relating to, among other things:

. Our and our subsidiaries' respective organization and qualification, and
similar corporate matters;

. Our capital structure and the capital structure of our subsidiaries;

. The absence of violation, by our entering into the merger agreement, of
organizational documents, law or contracts;

. The required regulatory and statutory filings and approvals;

. Our authorization, execution and delivery of the merger agreement and
its binding effect on us;

. The special committee's determination that the merger proposal is fair
to and in the best interests of our stockholders (other than Littlejohn
and Quilvest) and its recommendation that our board of directors approve
the merger and merger agreement;

. The receipt of the opinion of McDonald Investments, the special
committee's financial advisor, that the merger consideration to be
received by our stockholders (other than Littlejohn and Quilvest) is
fair from a financial point of view;

. The absence of undisclosed broker's fees;

. The accuracy of the information contained in the reports and financial
statements that we file with the SEC as of their respective dates;

. The absence of undisclosed material adverse changes or changes in our
accounting principles or methods;

. The stockholder vote required to approve the merger proposal; and

. The absence of litigation that would have a material adverse effect or
would materially impair our ability to consummate the merger.

The merger agreement contains customary representations and warranties by
Pameco Acquisition relating to, among other things:

. Its organization, capitalization similar corporate matters;

. Its authorization, execution and delivery of the merger agreement by
Pameco Acquisition and the related joinder by Littlejohn and Quilvest
and their binding effect on each of them, respectively;

. The absence of undisclosed broker's fees;

. It has sufficient funds to pay the merger consideration;

. The absence of litigation that would have a material adverse effect or
would materially impair Pameco Acquisition's ability to consummate the
merger;

. The fact that Pameco Acquisition was formed solely for the purpose of
the merger transaction and has not engaged in any activities other than
those related to the merger;

. The fact that the information supplied to us by Pameco Acquisition,
Littlejohn and Quilvest included in this proxy statement is complete and
accurate in all material respects;

. That no material governmental consent is required in connection with
Pameco Acquisition, Littlejohn and Quilvest entering the merger
agreement and completing the merger, except as stated; and

. The fact that Littlejohn and Quilvest have sufficient financial
resources to fund the merger, including payment of the merger
consideration and related expenses of Pameco Acquisition.

The foregoing representations and warranties are subject, in some cases, to
specified exceptions and qualifications. The representations and warranties of
each of the parties will expire upon completion of the merger.

Certain Covenants

We have agreed under the merger agreement that, from the date of the merger
agreement until the effective time of the merger or its earlier termination,
we will conduct our operations according to our usual regular and ordinary
course in substantially the same manner as previously conducted. We will use
our best efforts to preserve intact our business organizations and goodwill,
to keep available the services of our officers and employees and to maintain
satisfactory relationships with those persons having business relationships
with us. We will promptly deliver to Pameco Acquisition copies of any
documents we file with the SEC after the execution of the merger agreement. In
addition, we have agreed that we will not:

. Issue any shares of our capital stock, effect any stock split or
otherwise change our capitalization other than issuances pursuant to
outstanding stock options, warrants, conversion rights or other
contractual rights;

. Grant any option, warrant or other conversion right to acquire shares of
our capital stock;

. 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 officers or directors, except new
employees consistent with past practice;

. Adopt any new employee benefit plan or amend any existing plan in any
material respect;

. Declare or pay any dividend or make any other distribution with respect
to our capital stock;

. Acquire or agree to acquire any of our capital stock or the capital
stock of any of our subsidiaries;

. Sell, lease or dispose of any of our assets that are material to the
business; or

. Subject to our fiduciary obligations, take any action that is likely to
materially delay or adversely affect the ability of any of the parties
to obtain any required consent or approval or to complete the merger.

Other Agreements

The merger agreement also includes the following agreements made by us and
Pameco Acquisition:

. The indemnification provisions contained in the Certificate of
Incorporation and Bylaws of the surviving corporation will not be
amended after the effective time of the merger to adversely affect the
rights thereunder of individuals who on or prior to the effective time
of the merger were our officers and directors, unless required by law;

. The surviving corporation will maintain directors' and officers'
liability insurance for six years following the effective time of the
merger. Such insurance will have terms and conditions no less favorable
that our policies in effect on the date of the merger agreement,
provided that the surviving corporation shall not be required to pay
annual premiums greater than 200% of the annual premiums we pay for such
insurance; and

. We and our subsidiaries, during normal business hours, will:

-- give Pameco Acquisition and its representatives full access to our
facilities, contracts, reports and other files;

-- furnish Pameco Acquisition with all documents filed pursuant to
federal securities laws;

-- permit Pameco Acquisition to make required inspections;

-- furnish Pameco Acquisition with such information with respect to our
business and properties as reasonably requested, including financial
statements and schedules;

-- allow Pameco Acquisition to interview our employees; and

-- otherwise fully cooperate with Pameco Acquisition in its
investigation of our business.

Stock Options

At the effective time of the merger, 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 common stock will,
with respect to each share subject to the options, become an option to
purchase the merger consideration and will otherwise remain outstanding;
provided, to the maximum extent permitted by applicable law and the applicable
stock option agreements and underlying option plans, if the exercise price per
share for any such option exceeds the merger consideration, then such option
will be automatically terminated.

Prior to the effective time, we will use commercially reasonable efforts, to
the extent permitted by law and the applicable stock option agreements,
underlying stock option plans and warrant agreements, to obtain any consents
from stock option holders and make any amendments to the terms of the Pameco
stock option plans that are necessary to effect the transactions.

Conditions to the Merger

The parties' respective obligations to complete the merger are each subject
to the following conditions:

. The absence of any order or injunction prohibiting the merger;

. The receipt of all required consents or approvals of any governmental
authorities; and

. Approval by our stockholders of the merger agreement and merger.

Additionally, our obligation to complete the merger is subject to the
following conditions:

. The representations and warranties of Pameco Acquisition in the merger
agreement shall be accurate in all material respects; and

. Pameco Acquisition shall have performed its obligations under the merger
agreement in all material respects.

The obligations of Pameco Acquisition to complete the merger are subject to
the following additional conditions:

. Our representations and warranties in the merger agreement shall be
accurate in all material respects;

. We shall have performed our obligations under the merger agreement in
all material respects;

. There shall not have been any event that has had or is likely to have a
material adverse effect on our business;

. The receipt of all third party consents to the merger, including the
consents of our senior lenders and the holders of our subordinated
notes, which consents have been obtained;

. The holders of not more than 10% of our outstanding shares of common
stock shall exercise dissenters' rights under Delaware law.

The obligations of Pameco Acquisition to complete the merger are not subject
to a financing condition.

Termination of the Merger Agreement

The merger agreement may be terminated at any time before the effective time
of the merger under the following circumstances:

. Written Mutual Consent--by written mutual consent of Pameco Acquisition
and us;

. Delay--by us or Pameco Acquisition if the merger is not completed on or
before July 31, 2001, except that the reason for the delay must not have
been the failure of the terminating party to take any of the actions it
was required to take under the merger agreement;

. Special Committee Recommendation--by Pameco Acquisition if Pameco's
special committee withdraws, or modifies, in a manner adverse to Pameco
Acquisition its approval of the merger or the merger agreement;

If the merger agreement is terminated under any of the circumstances
described above, neither of us or Pameco Acquisition or will have any
liability other than for expenses we or they incur with respect to any breach
of the merger agreement.

If the merger agreement is terminated, it is not our intent to continue to
consider strategic alternatives for Pameco.

Expenses

Except as described above, all fees and expenses in connection with the
merger will be paid by the party incurring such expense.

Amendment; Waiver

The merger agreement may be amended by mutual agreement of the parties (in
our case, only if approved by the special committee) prior to approval by our
stockholders. However, after stockholder approval of the merger agreement, no
amendment may be made which requires approval of our stockholders without
obtaining such approval. If the merger agreement is to be amended after this
proxy statement has been mailed to our stockholders and prior to the special
meeting, or after stockholder approval has been obtained, we will resolicit
proxies from our stockholders for approval of the amendment if such approval
is required by law. We will also resolicit proxies from our stockholders for
approval of the waiver of any condition to the merger if such approval is
required by law.

PREFERRED STOCK

The following is a brief summary of the material provisions of our series A
preferred stock, series B preferred stock and series C preferred stock. We
encourage you to read the certificates of designation in their entirety as set
forth in our certificate of incorporation which is included as an exhibit to
the Schedule 13E-3 Transaction Statement.

Series

We have issued three series of our preferred stock which we refer to as
follows:

. Series A cumulative pay-in-kind convertible preferred shares;

. Series B cumulative pay-in-kind convertible preferred shares; and

. Series C cumulative pay-in-kind convertible preferred shares.

The series A preferred stock has a stated value of $250 per share and there
are currently 140,000 shares issued and outstanding, convertible into
4,666,666 shares of common stock (subject to adjustment as described below).
Our series B preferred stock and series C preferred stock have a stated value
of $200 per share and there are currently issued and outstanding 62,500 shares
of series B preferred stock, convertible into 3,698,223 shares of common stock
(subject to adjustment as described below) and 62,500 shares of series C
preferred stock, convertible into 7,575,758 shares of common stock (subject to
adjustment as described below). The stated value is subject to adjustment from
time to time to reflect stock splits, subdivisions or combinations with
respect to the relevant series of preferred stock.

The series A preferred stock, series B preferred stock and series C
preferred stock rank on a parity with respect to priority over other classes
or series of capital stock of Pameco in respect of dividends and distributions
paid by Pameco upon liquidation or dissolution of Pameco. Under the
certificates of designations, a "liquidation" includes a sale of substantially
all of the capital stock or assets of, or a merger, business combination,
recapitalization or similar transaction involving, Pameco.

Conversion

Each share of series A preferred stock, series B preferred stock and series
C preferred stock is convertible into our common stock at the initial
conversion prices of $7.50 per share, $3.38 per share and $1.65 per share,
respectively. The conversion price is subject to customary adjustments,
including for below market issuances of securities and for dividends,
distributions, stock splits and similar events.

Dividends

Dividends are payable on each series of preferred stock at a rate of 14% per
annum on the stated value of the shares of such series. During the initial
dividend period with respect to each series, the dividends are payable in
shares of stock of such series, and after the initial period, the dividends
are payable in cash unless prior to the end of the initial dividend period we
give notice to the holders of such series that such dividends with respect to
periods after the initial dividend period will continue to accrue and be
payable in shares of stock of such series. The initial dividend period for
each series is the three year period following the date of issuance of the
shares of such series. The dividend rate is subject to reduction with respect
to the series A preferred stock from 14% to 8% in certain events based upon
our earnings.

In addition to the dividends described above, if we declare and pay a
dividend on our common stock, a holder of shares of our preferred stock will
be entitled to receive, concurrently with the payment of the dividend on the
common stock, an amount equal to 50% of the dividends such holder would have
been entitled to had such holder fully converted such holder's preferred stock
into shares of common stock immediately prior to the record date for the
distribution of such dividend.

Liquidation, Dissolution and Winding Up

Upon any voluntary or involuntary liquidation, dissolution or winding up of
our affairs, or any reduction or decrease in our capital stock resulting in a
distribution of our assets to the holders of any class or series of our
capital stock, out of our assets available for distribution, we are required
to make the following payments in respect of our capital stock:

. First, payments on any securities which, by their terms are senior in
right of payment to the preferred stock; and

. Second, to the holders of each series of our preferred stock on a pro
rata basis the greater of (i) the aggregate liquidation preference (as
defined below) with respect to the shares of such series (including
shares of series A preferred stock issued upon exercise of warrants) or
(ii) the amount which would be

payable to the holders of such series in respect of our common stock if
such holders had been deemed to have converted all of their shares of
preferred stock, all dividend preferred shares and all warrants to
purchase series A preferred stock.

Under the certificates of designations, a "liquidation" includes a sale of
substantially all of the capital stock or assets of, or a merger, business
combination, recapitalization or similar transaction involving, Pameco. The
term "liquidation preference" means with respect to a particular series of
preferred stock, an amount per share equal to the applicable per share stated
value, plus accrued and unpaid dividends (whether or not declared) plus the
penalty amount (if any). The term "penalty amount" means the contingent amount
that exists only if we have not notified the holders of the applicable series
of preferred stock that we elected to accrue and pay dividends after the
initial dividend period with respect to such series in the same manner as
during the initial dividend period and we have failed to declare and pay the
applicable cash dividends in full.

Voting Rights

We are prohibited from engaging in any of the following actions without the
affirmative vote of the holders of a majority of each series of our preferred
stock:

. Issuing any securities senior to the preferred stock or any securities
on a parity with the preferred stock other than additional shares of
preferred stock;

. Amending our certificate of incorporation in any manner that would
adversely affect the rights of the preferred stock as set forth in the
certificates of designation for such preferred stock; and

. Taking any action requiring a vote of our stockholders that would
adversely affect the rights of the preferred stock as set forth in the
certificate of designation of such preferred stock.

In addition, the holders of our preferred stock are entitled to one vote for
each share of common stock issuable upon conversion of their preferred stock
on all matters brought before a vote of the holders of our common stock. In
such event, the preferred stock and common stock vote together as a single
class.

Redemption

After the sixth anniversary of the issue date of series A, B or C preferred
stock, as applicable, we may redeem, from time to time, all or part of the
shares of such series A, B or C preferred stock, as applicable, held by the
holders. The redemption price per share is payable in cash and equals 105% of
such series' "liquidation preference." If we redeem less than all of the
shares of a particular series, we will redeem such series on a pro rata basis
among the holders of such series.

THE SECURITIES PURCHASE AGREEMENT

The following is a brief summary of the material provisions of the
securities purchase agreement. We encourage you to read the securities
purchase agreement in its entirety which is included as an exhibit to the
Schedule 13E-3 Transaction Statement.

The Parties

We are a party to the securities purchase agreement with Littlejohn and
Quilvest.

Purchases of Preferred Stock

Under the terms of the securities purchase agreement, Littlejohn and
Quilvest purchased all of our issued and outstanding preferred stock as
follows:

. In February 2000, Littlejohn and Quilvest purchased 112,000 shares and
28,000 shares, respectively, of our series A preferred stock and
warrants to purchase 112,000 shares and 28,000 shares, respectively, of
our series A preferred stock, for a purchase price of $28 million and $7
million, respectively;

. In August and September 2000, Littlejohn and Quilvest purchased 52,500
shares and 10,000 shares, respectively, of our series B preferred stock
for a purchase price of $10.5 million and $2.0 million, respectively;
and

. In December 2000, Littlejohn and Quilvest purchased 50,000 shares and
12,500 shares, respectively, of our series C preferred stock for a
purchase of $10 million and $2.5 million, respectively.

There is no further obligation under the securities purchase agreement on
the part of Littlejohn and Quilvest to purchase any additional shares of
preferred stock or of any other of our securities.

THE SHAREHOLDERS AGREEMENT

The following is a brief summary of the material provisions of the
shareholders agreement. We encourage you to read the shareholders agreement in
its entirety which is filed as an exhibit to the Schedule 13E-3 Transaction
Statement. Upon consummation of the merger, the shareholders agreement will be
terminated and superseded by the new stockholders agreement and amendment no.
1 thereto. See "The New Stockholders Agreement."

The Parties

We are parties to the shareholders agreement with Littlejohn, Quilvest and
Mr. de Vogel.

Voting Arrangements

Each of Quilvest and Mr. de Vogel has agreed that, so long as the securities
purchase agreement has not been terminated in accordance with its terms, it or
he will vote all preferred stock and common stock beneficially owned by it or
him in accordance with written instructions received from Littlejohn. In the
absence of receipt of such instructions as to how to vote with respect to a
particular matter, Quilvest and Mr. de Vogel are required to refrain from
voting their preferred stock and common stock on such matter.

Directors

The shareholders agreement requires that our Board have nine directors at
all times. Littlejohn has the right to nominate five persons, and Quilvest has
the right to nominate one person, to stand for election to serve as directors.
The remaining three directors are required to be nominated in accordance with
the requirements of applicable law, and none of these directors may be
affiliates or associates of Littlejohn or Quilvest. Littlejohn's rights
regarding its director nominees will remain in effect so long as Littlejohn
beneficially owns at least 25% of our common stock (assuming conversion of the
preferred stock), and Quilvest's rights regarding its director nominee will
remain in effect so long as:

. Quilvest beneficially owns at least 5% of our common stock (assuming
conversion of the preferred stock); and

. Littlejohn beneficially owns at least 25% of our common stock (assuming
conversion of the preferred stock).

Transfers

Subject to certain exceptions, each of Mr. de Vogel and Quilvest has agreed
that he or it will not transfer any of his or its preferred stock or common
stock, whether held of record or beneficially owned. Under certain
circumstances, each of Littlejohn, Quilvest and Mr. de Vogel has "tag along"
and "bring along" rights to participate in or require participation in a sale
of securities by the other party.

Management Fee

Commencing on August 31, 2001, we are required to pay to Littlejohn & Co.,
L.L.C, an affiliate of Littlejohn, and Quilvest, or their respective
designees, pro rata based upon the respective applicable percentage interests
in the series A preferred stock of Littlejohn and Quilvest, a management fee
for each annual period

ended on August 31, in an amount determined by Littlejohn and us, but not to
exceed $500,000. The management fee is payable on the last business days in
February and August of each year and continues so long as Littlejohn has the
right to elect a majority of the members of our Board, whether through the
ownership of securities, by contract or otherwise. The management fee will not
be paid (and will not accrue), if:

. At the time of payment of the management fee we would be in violation of
the financial covenants contained in our senior credit facility; or

. Our Board determines that the payment of the management fee is
reasonably likely to result in our not being able to achieve our
budgeted earnings before interest, taxes, depreciation and amortization
for the applicable fiscal year.

Overadvance Fee

To induce Littlejohn to guarantee up to $5 million of the funds lent to us
pursuant to an overadvance under our senior credit facility, we agreed to pay
to Littlejohn a fee calculated at a rate of 8% per annum of the actual amount
of such overadvance outstanding from time to time which Littlejohn is then
required to guarantee. The overadvance fee is payable quarterly in arrears
commencing three months after the first day in which there is an overadvance
pursuant to the senior credit facility and only with respect to such days in
which there is an overadvance. We are not required to pay an overadvance fee
to the extent that, at the time of the payment, or after giving effect to the
payment, we are, or would be, in violation of the financial covenants
contained in the senior credit facility. In this case, any such overadvance
fee will accrue and be payable as soon as possible. Littlejohn and Quilvest
have entered into a contribution agreement pursuant to which Quilvest has
agreed to reimburse Littlejohn for 20% of the actual amount of any overadvance
funded by Littlejohn in exchange for which Quilvest will receive from
Littlejohn 20% of any overadvance fee that Littlejohn receives from us. The
overadvance fee arrangement has been amended as provided in amendment no. 1 to
the new stockholders agreement.

Expiration

The shareholders agreement terminates on the earliest of:

. February 18, 2010;

. The mutual agreement of the parties which in the aggregate beneficially
own a majority of our common stock issued or issuable upon conversion of
the preferred stock or upon exercise of the warrants to purchase the
series A preferred stock; or

. The sale of 90% or more of the common stock issued or issuable upon
conversion of the preferred stock or upon the exercise of warrants to
purchase series A preferred stock, to a person which is not a permitted
transferee under the shareholders agreement.

THE NEW STOCKHOLDERS AGREEMENT

The following is a brief summary of the material provisions of the new
stockholders agreement including amendment no. 1 thereto. The following
summary is qualified in its entirety by reference to the new stockholders
agreement and amendment no. 1 thereto, which we have included as Appendix B
and Appendix B-1 respectively, to this proxy statement and which we
incorporate by reference into this document. We encourage you to read the new
stockholders agreement and amendment no. 1 thereto in their entireties.

The Parties; Effectiveness

The parties to the new stockholders agreement are Littlejohn, Quilvest and
Pameco Acquisition. We will become a party to the new stockholders agreement
as successor to Pameco Acquisition at the effective time of the merger. At the
effective time of the merger, the new stockholders agreement and amendment no.
1 thereto, will supersede and replace the shareholders agreement in its
entirety.

Certain Matters Relating to Pameco Acquisition and the Merger

Littlejohn subscribed for 80% of the outstanding common stock of Pameco
Acquisition, and Quilvest subscribed for the remaining 20%. Littlejohn and
Quilvest have agreed to vote their shares of Pameco Acquisition in favor of
adopting and approving the merger agreement. The board of directors of Pameco
Acquisition will consist of four directors, three of whom will be nominated by
Littlejohn and one of whom will be nominated by Quilvest. Prior to the
effective time of the merger, neither Littlejohn nor Quilvest will be
permitted to sell, transfer, pledge or assign its shares of Pameco
Acquisition, except to an affiliate who executes an instrument agreeing to be
bound by the terms of the new stockholders agreement.

Voting Arrangements

After the effective time of the merger, Quilvest has agreed that it will
vote all voting securities beneficially owned by it in accordance with written
instructions received from Littlejohn. In the absence of receipt of such
instructions as to how to vote with respect to a particular matter, Quilvest
is required to refrain from voting its voting securities on such matter.
Quilvest has granted Littlejohn an irrevocable proxy to exercise such voting
rights.

Transfers

Subject to certain exceptions, after the effective time of the merger, each
of Littlejohn and Quilvest has agreed that it will not transfer any of its
securities beneficially owned by it. Under certain circumstances, after the
effective time of the merger, Quilvest has "tag-along" rights to participate
in a sale of securities by Littlejohn. In addition, Littlejohn has "drag-
along" rights under certain circumstances to require Quilvest to participate
in a sale of securities by Littlejohn after the effective time of the merger.

Directors

The new stockholders agreement requires that our Board have between five and
nine directors at all times after the effective time of the merger. At the
effective time of the merger, our Board will have eight directors. Commencing
at the effective time of the merger the Board will consist of the following
directors: the chief executive officer, two nominees of Quilvest, at least one
of whom will not be an affiliate of Quilvest, and five nominees of Littlejohn,
at least one of whom will not be an affiliate of Littlejohn.

Management Fee

Commencing on August 31, 2001, we will be required to pay to Littlejohn &
Co., LLC, an affiliate of Littlejohn, and Quilvest, or their respective
designees, pro rata based upon their respective applicable percentage equity
interests, a management fee for each annual period ended on August 31, in an
amount determined by Littlejohn and us, but not to exceed $500,000. The
management fee is payable on the last business days in February and August of
each year. The management fee will not be paid (and will not accrue), if at
the time of payment of the management fee we would be in violation of the
financial covenants contained in our senior credit facility.

Overadvance Fee

On March 26, 2001, we amended our senior credit facility to increase
temporarily (until June 30, 2001) the overadvance line thereunder from $5
million to $15 million. The increased overadvance line was conditioned by the
senior lender on, among other things, the deliveries of (i) an $8 million
limited guaranty by Littlejohn in favor of the senior lender and backed by an
$8 million letter of credit; (ii) a $2 million limited guaranty by Quilvest in
favor of the senior lender and backed by a $2 million letter of credit; and
(iii) a limited guaranty by Littlejohn in favor of the senior lender amending
and restating its existing $5 million guaranty.

On March 28, 2001, in conjunction with the increase in the overadvance line,
Littlejohn, Quilvest and Pameco Acquisition, Inc. entered into amendment no. 1
to the new stockholders agreement, to provide for our payment of the
overadvance fee as follows: (i) with respect to any overadvance loans
guaranteed pursuant to the

amended and restated $5 million Littlejohn guaranty, we will pay the
overadvance fee to Littlejohn quarterly in arrears commencing three months
after the first day in which there is an overadvance pursuant to the senior
credit facility and only with respect to such days in which there is an
overadvance, and Littlejohn will then pay 20% of such overadvance fee to
Quilvest as provided in the contribution agreement described above; (ii) with
respect to any overadvance loans guaranteed pursuant to the $8 million
Littlejohn guaranty and the $2 million Quilvest guaranty, we will pay 80% of
the overadvance fee to Littlejohn and 20% of the overadvance fee to Quilvest
quarterly in arrears commencing three months after the effective date of the
$8 million Littlejohn guaranty and the $2 million Quilvest guaranty and only
with respect to such days in which there is an overadvance. With respect to
any overadvance loans guaranteed pursuant to both the amended and restated $5
million Littlejohn guaranty and one or more of the $8 million Littlejohn
guaranty and the $2 million Quilvest guaranty, we will pay up to an aggregate
overadvance fee of $400,000 first in accordance with clause (i) above and we
will pay the remainder, if any, of the overadvance fee in accordance with
clause (ii) above.

We will not be required to pay an overadvance fee to the extent that, at the
time of the payment, or after giving effect to the payment, we are, or would
be, in violation of the financial covenants contained in the senior credit
facility. In this case, any such overadvance fee will accrue and be payable as
soon as possible.

Expiration

The new stockholders agreement terminates on the earliest of:

. March 6, 2011;

. The sale of 90% or more of the securities to a person which is not an
affiliate of Littlejohn or a permitted transferee of Quilvest under the
new stockholders agreement or amendment no. 1 thereto; or

. The termination of the merger agreement in accordance with its terms.

OTHER AGREEMENTS

Registration Rights Agreement

We are party to a registration rights agreement, dated February 18, 2000,
with Littlejohn and Quilvest. Under the terms of the registration rights
agreement, Littlejohn is currently entitled to, and after February 18, 2005,
Quilvest will be entitled to, demand that we register their shares under the
Securities Act, subject to limitations. Subject to limited exceptions, we are
not required to effect more than three demand registrations for Littlejohn and
one demand registration for Quilvest. In addition, in the event that we
propose to register any shares of common stock under the Securities Act,
either for our account or for stockholders, Littlejohn and Quilvest are
entitled to include their shares therein, subject to limitations. Further, at
any time after we become eligible to file a registration statement on Form S-
3, Littlejohn may require us to file registration statements under the
Securities Act on Form S-3, not more than once per calendar year. These
registration rights are subject to conditions and limitations, among them the
right of the underwriters of an offering to limit the number of shares of
common stock held by holders included in such registration. We are generally
required to bear all of the expenses of all such registrations, except
underwriting discounts and commissions. We are also required to indemnify
Littlejohn and Quilvest for any losses, claims or damages arising out of any
untrue statement of any material fact contained in any registration statement
filed by us, with certain limitations and exceptions. Registration of any of
the shares of common stock held by Littlejohn or Quilvest would result in such
shares becoming freely tradable without restriction under the Securities Act
immediately upon effectiveness of such registration.

Under the terms of the new stockholders agreement the registration rights
agreement will terminate at the effective time of the merger.

Term Sheet

On January 16, 2001, Littlejohn and Quilvest entered into a term sheet
regarding the offer to acquire all of our outstanding common stock. The term
sheet was amended on February 7, 2001. The term sheet provides that the
parties will form and capitalize Pameco Acquisition, with Littlejohn and
Quilvest contributing 80% and 20%, respectively, of the capital of Pameco
Acquisition, including funds for the merger consideration. After the merger,
Littlejohn and Quilvest would own that percentage of our equity in proportion
to the aggregate amount invested by each party in Pameco (as of January 16,
2001: 80.833%--Littlejohn and 19.167%--Quilvest). The term sheet contains
certain other covenants including an agreement by Littlejohn and Quilvest to
amend the shareholders agreement and the Schedule 13D, as amended, on file
with the SEC, and to pay its respective expenses pending consummation of the
merger. Upon consummation of the merger, the term sheet anticipates that (1)
Pameco Acquisition will reimburse Littlejohn and Quilvest for their respective
reasonable expenses, (2) Pameco Acquisition will pay to Quilvest the full
amount of the merger consideration, without deduction or offset whatsoever
(including with respect to taxes) and (3) Pameco Acquisition will release and
discharge Quilvest from any claims it may have against Quilvest 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. The term sheet
will become null and void upon termination of the merger agreement, unless
extended by mutual agreement by the parties.

REGULATORY MATTERS

We do not believe that any material federal or state regulatory approvals,
filings or notices are required by Pameco in connection with the merger other
than such approvals, filings or notices required under federal securities laws
and the filing of the certificate of merger with the Secretary of State of the
State of Delaware.

PARTIES TO THE MERGER AGREEMENT AND NEW STOCKHOLDERS AGREEMENT

Pameco

We are one of the largest distributors of heating, ventilation and air
conditioning (HVAC) systems and equipment and refrigeration products in the
United States, and have predecessor corporations dating back to 1931. As of
March 30, 2001, we operated 280 branches in 47 states and Guam. Our products
include a complete range of central air conditioners, heat pumps, furnaces,
and parts and supplies for the residential market and condensing units,
compressors, evaporators, valves, walk-in coolers and ice machines for the
commercial market.

Our common stock is traded on the OTC Bulletin Board under the symbol
"PAMC." Information about us is available on our World Wide Web site on the
Internet at www.pameco.com. Our principal address is 651 Corporate Circle,
Golden, Colorado 80401 and our telephone number is 303-568-1200.

Pameco Acquisition

Pameco Acquisition was incorporated in Delaware in February 2001 in
connection with the proposed merger. Pameco Acquisition has not been engaged
in any business activities other than those in connection with the merger. The
principal office and business address of Pameco Acquisition is c/o Littlejohn
& Co., L.L.C., 115 East Putnam Avenue, Greenwich, Connecticut 06830 and its
telephone number is (203) 552-3500.

Littlejohn and Quilvest

investment advisory and management services to Littlejohn. The principal
office and business address of Littlejohn is c/o Littlejohn & Co., L.L.C., 115
East Putnam Avenue, Greenwich, Connecticut 06830. Its phone number is (203)
552-3500.

Quilvest is a subsidiary of Quilvest Overseas Ltd., a British Virgin Islands
international business company. The principal business of Quilvest and its
parent company is the making of direct and indirect equity and debt
investments in various parts of the world and in the United States. Quilvest
Overseas is a subsidiary of Quilvest S.A., a Luxembourg holding company. The
principal office and business address of Quilvest is Craigmuir Chambers, P.O.
Box 71, Road Town Tortola, British Virgin Islands. Its telephone number is
.

In February 2000, Littlejohn and Quilvest entered into a series of
agreements with us for the purpose of recapitalizing Pameco. The agreements
include the securities purchase agreement pursuant to which Littlejohn and
Pameco purchased in a series of closings in the aggregate:

. 140,000 shares of our series A preferred stock and warrants to purchase
140,000 shares of our series A preferred stock for an aggregate purchase
price of $35.0 million,

. 62,500 shares of our series B preferred stock for an aggregate purchase
price of $12.5 million, and

. 62,500 shares of our series C preferred stock for an aggregate purchase
price of $12.5 million.

In connection with the securities purchase agreement and the
recapitalization, we entered into the shareholders agreement with Littlejohn,
Quilvest and Mr. de Vogel. Under the terms of the shareholders agreement, the
Board is required to have nine members at all times, and Littlejohn and
Quilvest have the right to nominate five persons and one person, respectively,
to stand for election to serve as directors of Pameco. Each of Mr. Littlejohn,
Mr. Klein, Mr. Feeley, Mr. Weyher and Mr. Walker, is a director of Pameco and
a nominee of Littlejohn. Mr. de Vogel is a director and the nominee of
Quilvest.

Under the terms of the shareholders agreement Quilvest and Mr. de Vogel have
agreed to vote all of their preferred stock and common stock at any meeting of
our stockholders in accordance with written instructions received from
Littlejohn. In the absence of written instructions with respect to a
particular matter, Quilvest and de Vogel are required to refrain from voting.
As of March 30, 2001:

. Littlejohn owned 112,000 shares of our series A preferred stock, 52,500
shares of our series B preferred stock and 50,000 shares of our series C
preferred stock, which in the aggregate are convertible into 12,900,447
shares of our common stock;

. Littlejohn owned warrants to purchase 112,000 additional shares of our
series A preferred stock, which in the aggregate are convertible into
3,733,333 shares of our common stock;

. Quilvest owned 28,000 shares of our series A preferred stock, 10,000
shares of our series B preferred stock and 12,500 shares of our series C
preferred stock, which in the aggregate are convertible into 3,040,200
shares of our common stock;

. Quilvest owned 616,667 shares of our common stock;

. Quilvest owned warrants to purchase 28,000 additional shares of our
series A preferred stock, which in the aggregate are convertible into
933,333 shares of our common stock; and

. Mr. de Vogel owned 40,793 shares of our common stock.

As a result of its stock ownership and its power to direct the vote of all
of the preferred stock and common stock owned by Quilvest and Mr. de Vogel, as
of March 30, 2001, Littlejohn held 87% of the combined voting power of our
outstanding common stock and preferred stock.

DIRECTORS AND EXECUTIVE OFFICERS

Dixon R. Walker, President, Chief Executive Officer and a Director of
Pameco, joined Pameco in April 2000. Prior to that time, Mr. Walker was the
President and Chief Executive Officer of Jannock Limited from 1999 to March
2000. Prior to joining Jannock Limited, Mr. Walker was a management consultant
at MacMillan Bloedel in 1998. From 1993 until 1997, Mr. Walker was a Senior
Vice President at Johns Manville Corporation where he was employed for 28
years. Mr. Walker is a nominee of Littlejohn pursuant to the shareholders
agreement.

Stephen C. Hileman, Chief Financial Officer of Pameco, joined Pameco in
December 2000. Prior to that time, Mr. Hileman was employed by Bimbo Bakeries
USA as an Executive Vice President from July 1998 through October, 2000, as
Senior Vice President from July 1996 until July 1998, and Vice President from
October 1991 until July 1996.

Kevin J. Nohelty, Senior Vice President Supply Chain of Pameco, joined
Pameco in March 2000. Prior to that time, Mr. Nohelty was General Manager of
Logistics at Timberland Company from April 1994 until joining Pameco.

John R. Monark, Vice President Human Resources of Pameco, joined Pameco in
June 2000. Prior to that time, Mr. Monark was Vice President Human Resources
of CH2M HILL from June 1996 until June 2000.

Thomas E. Cook, Vice President and Chief Information Officer of Pameco,
joined Pameco in June 2000. Prior to that time, Mr. Cook was Vice President
and Chief Information Officer with Jannock Limited, Toronto, Canada from May
1999 through March 2000 and was Vice President and Chief Information Officer
with Johns Manville Corporation from January 1975 through December 1998.

W. Michael Clevy has served as a Director of Pameco since 1999. He currently
serves as President and Chief Executive Officer of Desa International, a
position he has held since November 1999. Prior to such time, Mr. Clevy served
as President and Chief Executive Officer of International Comfort Products,
beginning in September 1994.

Edmund J. Feeley has served as a Director of Pameco since February 2000. Mr.
Feeley is currently a Managing Director of Littlejohn & Co., L.L.C., which he
joined in November 1998. Littlejohn & Co., L.L.C. manages private equity funds
focusing on control investments in under-performing companies. Prior to
joining Littlejohn, Mr. Feeley worked with Fleer Corporation ("Fleer"), a
company that manufactures, markets and distributes collectible sports and
entertainment trading cards, starting in March 1996. Thereafter, Mr. Feeley
served from May 1996 through November 1998 as Fleer's President and Chief
Operating Officer to lead a turnaround of the operations. As part of the
reorganization of Marvel Entertainment Group, Inc. ("Marvel"), Fleer filed a
Chapter 11 reorganization petition in December 1996. Marvel and Fleer emerged
from reorganization proceedings in October 1998 and Fleer was sold in January
1999. He is currently Chairman of the Board of Directors and a Director of
Jerr-Dan Corporation, a privately-held company. Mr. Feeley is a nominee of
Littlejohn pursuant to the shareholders agreement.

Michael Ira Klein has served as a Director of Pameco since February 2000.
Mr. Klein is President of Littlejohn & Co., L.L.C., a position he has held
since August of 1996. Prior to such time and beginning in 1995, Mr. Klein was
a private investor and a Director of S&S Industries, Inc., a privately- held
company. He currently sits on the Boards of Directors of General Trailers,
Ltd., in the United Kingdom; and of Perfect Fit Industries, Inc., Durakon
Industries, Inc., Jerr-Dan Corporation, Keystone Automotive Operations, Inc.,
and DriverFx.com, Inc., each of which is a private corporation. Mr. Klein is a
nominee of Littlejohn pursuant to the shareholders agreement.

Angus C. Littlejohn, Jr. has served as a Director of Pameco since February
2000. Mr. Littlejohn has been the Chairman and Chief Executive Officer of
Littlejohn & Co., L.L.C. since August 1996. Prior to such time and beginning
in 1988, Mr. Littlejohn was a Partner at Joseph Littlejohn & Levy, a private
equity firm, in New York, New York. Mr. Littlejohn currently serves as a
Director of General Trailers, Ltd., in the United Kingdom; and Perfect Fit
Industries, Inc., Durakon Industries, Inc. and Jerr-Dan Corporation, each of
which is a private corporation. Mr. Littlejohn is a nominee of Littlejohn
pursuant to the shareholders agreement.

Harry F. Weyher III has served as a Director of Pameco since February 2000.
Mr. Weyher has been the Executive Vice President of Littlejohn & Co., L.L.C.
since August 1996. Prior to that time, from 1990 to 1996, he was the Chief
Financial Officer of Gerald Metals, Inc., a privately-held metals trading and
processing firm. Mr. Weyher is a Director of General Trailers, Ltd., in the
United Kingdom; and Perfect Fit Industries, Inc. and Durakon Industries, Inc.
Mr. Weyher is a nominee of Littlejohn pursuant to the shareholders agreement.

Willem F.P. de Vogel has been a Director of Pameco since 1999. He has been
the President of Three Cities Research, Inc. (TCR) since 1977 and was
previously a Director of Pameco from 1992 until 1996. Mr. de Vogel also serves
as a Director of Computer Associates International, Inc. and Morton Industrial
Group, Inc. Mr. de Vogel was appointed to the Board of Directors of Pameco
due to his relationship with TCR and Quilvest. Mr. de Vogel is the nominee of
Quilvest pursuant to the shareholders agreement.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT

The following table sets forth certain information regarding the beneficial
ownership of our common stock as of April 25, 2001, by (1) each person known
by us to own beneficially more than 5% of our outstanding common stock, (2)
each of our directors and executive officers, and (3) all of our directors and
executive officers as a group (12 persons). Except as set forth in the table,
the business address of each person is c/o Pameco Corporation, 651 Corporate
Circle, Suite 200, Golden, Colorado 80401.

Amount and Nature of Percent
Name Beneficial Ownership(1)(2) Beneficially Owned
- ---- -------------------------- ------------------

W. Michael Clevy(3)............. 742 *
Thomas E. Cook(4)............... 16,667 *
Ian Currie(5)................... -- --
Willem F. P. de Vogel(6)........ 47,093 *
Edmund J. Feeley(7)............. -- --
Stephen C. Hileman(8)........... 166,667 *
Michael Ira Klein(7)............ -- --
Angus C. Littlejohn, Jr.(7)(9).. 21,264,773 85.0%
John R. Monark(10).............. 16,667 *
Kevin J. Nohelty(11)............ 166,667 *
Dixon R. Walker(12)............. 763,332 3.1%
Harry F. Weyher III(7).......... -- --
Directors and executive officers
as a group (12
persons)(9)(13)(14)............ 22,369,515 89.5%
Littlejohn Fund II, L.P.(7)(9).. 21,264,773 85.0%
Littlejohn Associates II,
L.L.C.(7)(9)................... 21,264,773 85.0%
Quilvest American Equity
Ltd.(14)....................... 4,590,200 18.4%

- --------
*Less than one percent.

(1) Assumes conversion to common stock of all outstanding shares of series A
preferred stock, series B preferred stock and series C preferred stock.
(2) Includes the shares of our common stock which are issuable upon the
exercise of outstanding stock options which are exercisable within 60
days ("Option Shares").
(3) Includes 567 Option Shares. Mr. Clevy's business address is c/o DESA
International, Inc., 236 Public Square, Suite 103, Franklin, Tennessee
37064.
(4) Includes 16,667 Option Shares.
(5) Mr. Currie's business address is c/o Fraser Milner Casgrain, 1 First
Canadian Place, 100 King Street West, Toronto MSX 1B2 Ontario, Canada.
(6) Includes 6,300 shares held by Mr. de Vogel's minor children. Mr. de Vogel
shares voting and disposition powers with respect to the 6,300 shares
held by his minor children with his wife. Mr. de Vogel shares voting and
disposition power with respect to 40,793 shares with Littlejohn Fund II,
L.P., Littlejohn Associates II, L.L.C. and Mr. Littlejohn. Mr. de Vogel's
business address is 650 Madison Avenue, 24th Floor, New York, New York
10022
(7) Such person's business address is c/o Littlejohn & Co., L.L.C., 115 East
Putnam Avenue, Greenwich, Connecticut 06830.
(8) Includes 166,667 Option Shares.
(9) Includes 3,733,333 shares of common stock which may be obtained by the
exercise of warrants to purchase 112,000 shares of series A preferred
stock that are convertible on a 1-for-100 basis into common stock. Also
includes the 4,590,200 shares as to which beneficial ownership is shared
with Quilvest American Equity Ltd. and 40,793 shares as to which
beneficial ownership is shared with Mr. de Vogel.
(10) Includes 16,667 Option Shares.

(11) Includes 166,667 Option Shares.

(12) Includes 763,332 Option Shares.

(13) Includes 1,313,901 Option Shares.

(14) Includes 933,333 shares which may be obtained upon the exercise of
warrants to purchase 28,000 shares of series A preferred stock that are
convertible on a 1-for-100 basis into common stock. The address of
Quilvest American Equity Ltd. is P.O. Box 71, Road Town, Tortola, British
Virgin Islands.

COMMON STOCK PURCHASE INFORMATION

None of Pameco, its directors or executive officers, Pameco Acquisition,
Quilvest and its affiliates or Littlejohn and its affiliates, has engaged in
any transaction with respect to Pameco common stock within 60 days of the date
of this proxy statement.

Pameco did not purchase any Pameco common stock in fiscal years 2001, 2000
or 1999.

PRICE RANGE OF COMMON STOCK AND DIVIDENDS

Our common stock was listed on the New York Stock Exchange from June, 1997,
through December 28, 2000 under the symbol "PCN." On December 29, 2000, our
stock began trading on the OTC Bulletin Board under the symbol "PAMC." The
following table sets forth, for the fiscal quarters indicated, the high and
low trading prices per share of Pameco common stock as quoted on the New York
Stock Exchange composite tape from March 1, 1998 through December 28, 2000,
and the OTC Bulletin Board commencing on December 29, 2000 through May ,
2001. The prices have been adjusted for stock dividends and stock splits.

High Low
------ ------

2000:
First Quarter............................................ 24 16 1/2
Second Quarter........................................... 29 1/4 19 11/16
Third Quarter............................................ 21 12
Fourth Quarter........................................... 13 1/8 9 15/16
2001:
First Quarter............................................ 12 7 1/2
Second Quarter........................................... 8 1/4 3
Third Quarter............................................ 3 1/2 11 13/16
Fourth Quarter........................................... 1 3/4 1/8
2002:
First Quarter (through May , 2001)......................

On January 12, 2001, the last full trading day prior to the public
announcement of the receipt of the offer which lead to signing of the merger
agreement, the closing sale price of our common stock as quoted on the OTC
Bulletin Board was $.1875 per share and the high and low trading prices per
share of our common stock as quoted on the OTC Bulletin Board were $.1875 and
$.1875, respectively. On May , 2001, the most recent practicable date prior
to the date of this proxy statement, the closing price of our common stock
reported on the OTC Bulletin Board was $ . You are urged to obtain current
market quotations for our common stock prior to making any decision with
respect to the proposed merger.

As of March 30, 2001, there were approximately . holders of record of
our common stock, as shown on the records of our transfer agent. As of March
30, 2001, shares of our preferred stock were held by the following record
holders, as shown on the records of our transfer agent:

Series A Series B Series C
-------- -------- --------

Littlejohn Fund II, L.P........................ 112,000 52,500 50,000
Quilvest American Equity Ltd................... 28,000 10,000 12,500

Dividends

During the periods presented above, we have not paid any dividends. The
merger agreement and our credit agreements limit our ability to pay dividends
on our common stock.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

The following statements are or may constitute forward-looking statements:

. Certain statements, including possible or assumed future results of
operations of Pameco, contained in "Special Factors--Background of the
Merger;" "--Recommendation of the Special Committee and the Board of
Directors; Reasons for the Merger," "--Opinions of Financial Advisors"
and "--Certain Projections Provided to Financial Advisors," including
any forecasts or projections, and certain statements incorporated by
reference from documents filed by us with the SEC and any statements
made herein or therein regarding our plans for future business
development, industry position and industry condition, our financial
condition and structure and our abilities to engage in an acquisition
program as well as the outcome thereof;

. Any statements preceded by, followed by or that include the words
"believes," "expects," "anticipates," "intends," "estimates," "projects"
or similar expressions; and

. Other statements contained or incorporated by reference into this proxy
statement regarding matters that are not historical facts.

Because such statements are subject to risks and uncertainties, actual
results may differ materially from those expressed or implied by such forward-
looking statements. You are cautioned not to place undue reliance on such
statements, which speak only as of the date of this proxy statement.

Among the factors that could cause actual results to differ materially are:

. Changes in economic conditions generally;

. Risks associated with our not being able to successfully implement new
strategies;

. The risks that new acquisitions, if any, will not be successfully
integrated into Pameco;

. The seasonality and cyclicality of our sales;

. Our competition;

. Our dependence on supplier relationships;

. The increased presence of buying groups;

. Risks related to our borrowings; and

. Other risks detailed from time to time in our reports filed with the
SEC.

The cautionary statements contained or referred to in this proxy statement
should be considered in connection with any subsequent written or oral
forward-looking statements that may be issued by us or persons

acting on our behalf. Except for our ongoing obligations to disclose material
information as required by the federal securities laws, we undertake no
obligation to release publicly any revisions to any forward-looking statements
to reflect events or circumstances after the date of this proxy statement or
to reflect the occurrence of unanticipated events. Please refer to our SEC
filings incorporated into this proxy statement by reference, for a description
of such factors.

OTHER INFORMATION

Proposals by Our Stockholders

If we complete the merger, we will no longer have public stockholders or any
public participation in our stockholder meetings. If we do not complete the
merger, we intend to hold our next annual stockholder meeting in July, 2001.
In that case, you would continue to be entitled to attend and participate in
our stockholder meetings.

If the merger is not completed, any stockholder proposal submitted to us for
inclusion in our proxy statement for our annual meeting in 2001 pursuant to
Rule 14a-8 under the Exchange Act must have been received by us at our
principal executive offices, 651 Corporate Circle, Golden, Colorado 80401,
before the close of business on February 23, 2001.

The proxy or proxies designated by us will have discretionary authority to
vote on any matter properly presented by a stockholder for consideration at
the 2001 annual meeting of stockholders but not submitted for inclusion in the
proxy statement for that meeting unless notice of the matter is received by us
at our principal executive office not later than May 8, 2001 and certain other
conditions of the applicable SEC rules are satisfied.

SEC rules establish standards as to which stockholder proposals are required
to be included in a proxy statement for an annual meeting. We will only
consider proposals meeting the requirements of applicable SEC rules.

Independent Auditors

The consolidated financial statements from our amended Annual Report on Form
10-K/A for the year ended February 29, 2000, which is attached to this proxy
statement as Appendix E, have been audited by Ernst & Young, LLP, independent
accountants, as stated in its reports with respect to our financial
statements.

Where You Can Find More Information

As required by law, we file reports, proxy statements and other information
with the SEC. Because the proposed merger is a "going private" transaction,
we, Pameco Acquisition, Littlejohn and Quilvest have filed a Rule 13e-3
Transaction Statement on Schedule 13E-3 with respect to the proposed merger.
The Schedule 13E-3 and the reports, proxy statements and other information
that we file with the SEC contain additional information about us. You may
read and copy this information at the following offices of the SEC:

Public Reference Room 450 Fifth Street, N.W. Room 1024 Washington, DC 20549
New York Regional Office 7 World Trade Center Suite
1300 New York, NY 10048
Chicago Regional
Office 500 West
Madison Street Suite
1400 Chicago, IL 60661

For further information concerning the SEC's public reference rooms, you may
call the SEC at 1-800-SEC-0330. You may obtain copies of this information by
mail from the public reference section of the SEC, 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549, at prescribed rates. You may also access
some of this information via the World Wide Web through the SEC's Internet
address at http://www.sec.gov.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
APPENDIX A

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").

A-1

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):

(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.

A-2

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.

(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, 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

A-3

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.

(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

A-4

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 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 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

A-5

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 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

A-6

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 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)

A-7

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 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
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.

A-8

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 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;

A-9

(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;

(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 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.

A-10

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.

(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

A-11

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
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 prior to the Closing Date of each of the

A-12

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 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.

A-13

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

(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

A-14

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.

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
Philadelphia, Pennsylvania 19103-2799
Attention: James D. Epstein, Esq. or
Elam M. Hitchner, III, Esq.
Facsimile No.: (215) 981-4750

A-15

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 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.

A-16

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 and 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. de Vogel
-----------------------------
Name: Willem F. P. de Vogel
Title: Attorney-in-Fact

A-17

APPENDIX B

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......................... B-1
2. Agreements to Vote; Irrevocable Proxy.................................... B-3
3. Transfers of Securities.................................................. B-4
4. Participation Rights..................................................... B-4
5. Joinder Requirements..................................................... B-5
6. Composition, Nomination and Election of Board............................ B-5
7. Stock Splits............................................................. B-6
8. Representations and Warranties of Littlejohn............................. B-6
9. Representations and Warranties of Quilvest............................... B-7
10. Representations and Warranties of Newco.................................. B-7
11. Termination; Securities Free from Agreement.............................. B-7
12. Expenses................................................................. B-8
13. Fees..................................................................... B-8
14. Certain Covenants........................................................ B-8
15. Financial Reports and Information........................................ B-9
16. Transaction with Affiliates.............................................. B-9
17. Legend and Stop Transfer Instructions.................................... B-9
18. Survival of Representations and Warranties............................... B-9
19. Notices.................................................................. B-10
20. Entire Agreement; Amendment.............................................. B-11
21. Successors and Assigns................................................... B-11
22. Governing Law; Consent to Jurisdiction................................... B-11
23. Injunctive Relief........................................................ B-11
24. Counterparts; Facsimile Signatures....................................... B-11
25. Severability............................................................. B-11
26. Further Assurances....................................................... B-11
27. No Third Party Beneficiaries; No Partnership or Fiduciary Relationship... B-11
28. Legal Expenses........................................................... B-11
29. Interpretation........................................................... B-12
30. Effectiveness; and Termination of Prior Agreements....................... B-12
Appendix A -- Certain Defined Terms.......................................... B-A-1
Exhibit A -- Newco By-laws...................................................
Exhibit B -- Form of Merger Agreement........................................
Exhibit C -- Form of Irrevocable Proxy....................................... B-C-1
Schedule 1 -- Ownership of Securities and Newco Common Stock................. B-S-1

-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 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.

B-2

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 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 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.

B-3

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 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.

B-4

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.

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

B-5

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 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.

B-6

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 (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.

B-7

12. Expenses. Except as provided in Section 28, each party hereto will pay
all of its expenses in connection with Merger and the other 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
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

B-8

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.

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.

B-9

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 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.
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

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

B-10

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 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.

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.

B-11

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.

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

B-12

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.

"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.

B-A-1

"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.

"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.

"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.

B-A-2

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 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:]

B-C-1

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:

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:

B-C-2

Schedule 1

Ownership of Securities

Number of
Shares of Number of Number of Number of Number of
Newco Shares of Series A Series B Series C
Common Common Preferred Preferred Preferred Number of
Name of Stockholder 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

B-S-1

APPENDIX B-1

STOCKHOLDERS AGREEMENT

Amendment No. 1

This AMENDMENT NO. 1, dated March 28, 2001, TO THE STOCKHOLDERS AGREEMENT
(the "Amendment") is entered into by and among Pameco Acquisition, Inc. (the
"Company"), Littlejohn Fund II, L.P. ("Littlejohn") and Quilvest American
Equity Ltd. ("Quilvest"). Capitalized terms used but not otherwise defined
herein shall have the meanings set forth in the Stockholders Agreement,
entered into March 6, 2001, by and among the parties hereto (the "Agreement").

1. Overadvance Fee. Section 13.2 of the Agreement is deleted in its entirety
and the following is substituted therefor:

To compensate Littlejohn and Quilvest for their guaranties with respect to
any Out-of-Formula Loans (as defined in the Credit Agreement), the Company
agrees to pay 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/or Quilvest are then guarantying. The
Overadvance Fee shall be paid as follows: (i) with respect to Out-of-
Formula Loans guaranteed pursuant to the Littlejohn Existing Guaranty, to
Littlejohn quarterly in arrears commencing three months after the first day
in which there is an overadvance pursuant to the Credit Agreement and only
with respect to such days in which there is an overadvance; and (ii) with
respect to Out-of-Formula Loans guaranteed pursuant to the Littlejohn LC
Backed Guaranty and the Quilvest Guaranty, 80% to Littlejohn and 20% to
Quilvest quarterly in arrears commencing three months after the effective
date of the Littlejohn LC Backed Guaranty and the Quilvest Guaranty, and
only with respect to such days in which there are outstanding Out-of-
Formula Loans. With respect to Out-of-Formula Loans guaranteed pursuant to
both the Littlejohn Existing Guaranty and one or more of the Littlejohn LC
Backed Guaranty and the Quilvest Guaranty, up to an aggregate Overadvance
Fee of $400,000 shall be paid first in accordance with clause (i) and the
remainder, if any, of the Overadvance Fee shall be paid in accordance with
clause (ii). 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. Littlejohn and Quilvest hereby confirm their
respective obligations under the Contribution Agreement dated as of
February 29, 2000, to which each is a party. For purposes of this Section
13.2, the terms Littlejohn Existing Guaranty, Littlejohn LC Backed
Guaranty, and Quilvest Guaranty shall have the meanings ascribed to them in
the Credit Agreement.

2. Continued Effect. Except as otherwise amended herein, all other provisions
of the Agreement shall remain in full force and effect.

3. Counterparts. This Amendment may be executed by facsimile and in more than
one counterpart, each one of which shall be deemed an original, and all of
which taken together shall constitute one and the same instrument.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

B-1-1

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly
executed and delivered by their respective proper and duly authorized officers
as of the date first written above.

PAMECO ACQUISITION, INC.

By: /s/ Angus C. Littlejohn, Jr.
------------------------------
Name: Angus C. Littlejohn, Jr.
Title: President

LITTLEJOHN FUND II, L.P. QUILVEST AMERICAN EQUITY LTD.
By: Littlejohn Associates II, LLC,
General Partner

By: /s/ Angus C. Littlejohn, Jr. By: /s/ Willem F.P. de Vogel
------------------------------ --------------------------
Name: Angus C. Littlejohn, Jr. Name: Willem F.P. de Vogel
Title: Manager Title: Attorney-in-Fact

B-1-2

APPENDIX C

[LOGO OF MCDONALD INVESTMENTS]

March 16, 2001

The Special Committee of the Board of Directors
Pameco Corporation
651 Corporate Circle, Suite 200A
Golden, CO 80401

Gentlemen:

You have requested our opinion as to the fairness, from a financial point of
view, to the shareholders of Pameco Corporation ("Pameco" or the "Company")
other than Littlejohn Fund II, L.P. ("Littlejohn") and Quilvest American
Equity Ltd. ("Quilvest") (such shareholders other than Littlejohn and Quilvest
and their affiliates being referred to herein as the "Unaffiliated
Shareholders") of the $0.45 per share in cash (the "Merger Consideration") to
be received by such Unaffiliated Shareholders in the proposed merger (the
"Merger") of an affiliate of Littlejohn and Quilvest with and into the Company
in accordance with the Agreement and Plan of Merger, dated March 5, 2001 (the
"Merger Agreement"). This opinion supersedes and replaces in its entirety the
opinion dated February 28, 2001.

McDonald Investments, Inc., as part of its investment banking business,
engages in the valuation of businesses and securities in connection with
mergers and acquisitions, negotiated underwritings, secondary distributions of
listed and unlisted securities, private placements, and valuations for estate,
corporate, and other purposes. We have been engaged by the Special Committee
of the Board of Directors of the Company to render this opinion in connection
with the Merger and have received and will receive a fee from Pameco for our
services. In addition, Pameco has agreed to indemnify us under certain
circumstances.

In conducting our analysis and arriving at our opinion, we have considered
such financial and other information as we deemed appropriate including, among
other things, the following: (i) the Merger Agreement; (ii) certain publicly
available information concerning the Company included in its reports, as
amended, filed with the Securities and Exchange Commission; (iii) the
Company's financial statements, as restated; (iv) certain nonpublic
information, primarily financial in nature, including projections, concerning
the business and operations of the Company furnished to us by management for
purposes of our analysis; (v) certain publicly available information
concerning the trading of, and the trading markets for, the Company's common
stock; (vi) certain publicly available information with respect to certain
other companies we believed to be comparable to the Company and the trading
markets for such other companies' securities; and (vii) certain publicly
available information concerning the nature and terms of other transactions
that we believed to be relevant to our inquiry. We also have held discussions
with members of the senior management of the Company regarding the past and
current business operations, financial condition, and future prospects of the
Company and considered such other matters as we deemed relevant to our
inquiry.

We have taken into account our assessment of general economic, market, and
financial and other conditions and our experience in other transactions, as
well as our experience in securities valuation and our knowledge of the
industries in which Pameco operates generally. Our opinion is necessarily
based on the information made available to us and conditions as they exist and
can be evaluated as of the date hereof.

We have relied upon the accuracy and completeness of all of the financial
and other information reviewed by us for purposes of our opinion and have not
assumed any responsibility for, nor undertaken an independent verification of,
such information. With respect to the internal operating data and financial
analyses and forecasts supplied to us, we have assumed that such data,
analyses, and forecasts were reasonably prepared on bases reflecting the best
currently available estimates and judgments of Pameco's senior management as
to the recent and likely future performance of Pameco. Accordingly, we express
no opinion with respect to such analyses or forecasts or the assumptions on
which they are based.

C-1

March 16, 2001
Page 2

We have assumed that the Merger will be consummated in accordance with the
terms set forth in the Merger Agreement. We were not asked to consider and our
opinion does not address the relative merits of the Merger as compared to any
alternative business strategies that might exist for Pameco or the effect of
any other transactions in which Pameco might engage. Furthermore, we have not
made an independent evaluation or appraisal of the assets or liabilities of
Pameco or any of its subsidiaries or affiliates and have not been furnished
with any such evaluation or appraisal.

In arriving at our opinion, we were not authorized to solicit, and did not
solicit, interest from any party with respect to an acquisition of Pameco and
were advised by representatives of Littlejohn and Quilvest that they were not
interested in pursuing a sale of their ownership position in the Company.

Pameco is entitled to reproduce this opinion, in whole but not in part, in
the proxy statement/prospectus as required by applicable law or where
otherwise appropriate; provided, however, that any excerpt or reference to
this opinion (including any summary thereof) in such document must be approved
by us in advance in writing. Notwithstanding the foregoing, this opinion does
not constitute a recommendation to any holder of Pameco common stock to vote
in favor of the Merger. We were engaged by you, the Special Committee of the
Board of Directors of Pameco (the "Special Committee"), to render this opinion
in connection with the discharge of your fiduciary obligations. We have
advised the Special Committee that we do not believe that any person
(including a shareholder or creditor of Pameco) other than the directors
serving on the Special Committee has the legal right to rely upon this opinion
for any claim arising under state law and that, should any such claim be
brought against us, this assertion will be raised as a defense. In the absence
of governing authority, this assertion will be resolved by the final
adjudication of such issue by a court of competent jurisdiction. Resolution of
this matter under state law, however, will have no effect on the rights and
responsibilities of any person under the federal securities laws or on the
rights or responsibilities of Pameco's Board of Directors under applicable
state law.

Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof and based on conditions as they currently exist, the Merger
Consideration is fair, from a financial point of view, to the Unaffiliated
Shareholders of Pameco.

Very truly yours,

/s/ MCDONALD INVESTMENTS INC.
MCDONALD INVESTMENTS INC.

C-2

APPENDIX D

DELAWARE CODE ANNOTATED
TITLE 8. CORPORATIONS
CHAPTER 1. GENERAL CORPORATION LAW
SUBCHAPTER IX. MERGER, CONSOLIDATION OR CONVERSION

Section 262. Appraisal rights

(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares
through the effective date of the merger or consolidation, who has otherwise
complied with subsection (d) of this section and who has neither voted in
favor of the merger or consolidation nor consented thereto in writing pursuant
to (section) 228 of this title shall be entitled to an appraisal by the Court
of Chancery of the fair value of the stockholder's shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.

(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to
be effected pursuant to (section) 251 (other than a merger effected pursuant
to (section) 251(g) of this title), (section) 252, (section) 254, (section)
257, (section) 258, (section) 263 or (section) 264 of this title:

(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of (section) 251 of this title.

(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
(section) (section) 251, 252, 254, 257, 258, 263 and 264 of this title to
accept for such stock anything except:

a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect
thereof;

b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;

c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or

d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.

D-1

(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under (section) 253 of this title is not owned
by the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.

(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.

(d) Appraisal rights shall be perfected as follows:

(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are
available pursuant to subsection (b) or (c) hereof that appraisal rights
are available for any or all of the shares of the constituent corporations,
and shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of such stockholder's shares shall deliver
to the corporation, before the taking of the vote on the merger or
consolidation, a written demand for appraisal of such stockholder's shares.
Such demand will be sufficient if it reasonably informs the corporation of
the identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of such stockholder's shares. A proxy or vote against
the merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate written
demand as herein provided. Within 10 days after the effective date of such
merger or consolidation, the surviving or resulting corporation shall
notify each stockholder of each constituent corporation who has complied
with this subsection and has not voted in favor of or consented to the
merger or consolidation of the date that the merger or consolidation has
become effective; or

(2) If the merger or consolidation was approved pursuant to (section) 228
or (section) 253 of this title, each constituent corporation, either before
the effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be

D-2

not more than 10 days prior to the date the notice is given, provided, that
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the
day on which the notice is given.

(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied
with subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger
or consolidation, any stockholder shall have the right to withdraw such
stockholder's demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the
merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting
from the consolidation a statement setting forth the aggregate number of
shares not voted in favor of the merger or consolidation and with respect to
which demands for appraisal have been received and the aggregate number of
holders of such shares. Such written statement shall be mailed to the
stockholder within 10 days after such stockholder's written request for such a
statement is received by the surviving or resulting corporation or within 10
days after expiration of the period for delivery of demands for appraisal
under subsection (d) hereof, whichever is later.

(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.

(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates
to submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.

(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court
may, in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on
the list filed by the surviving or resulting corporation pursuant to
subsection (f) of this section and who has submitted such stockholder's
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that such
stockholder is not entitled to appraisal rights under this section.

D-3

(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation of
the certificates representing such stock. The Court's decree may be enforced
as other decrees in the Court of Chancery may be enforced, whether such
surviving or resulting corporation be a corporation of this State or of any
state.

(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.

(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed within
the time provided in subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a written withdrawal
of such stockholder's demand for an appraisal and an acceptance of the merger
or consolidation, either within 60 days after the effective date of the merger
or consolidation as provided in subsection (e) of this section or thereafter
with the written approval of the corporation, then the right of such
stockholder to an appraisal shall cease. Notwithstanding the foregoing, no
appraisal proceeding in the Court of Chancery shall be dismissed as to any
stockholder without the approval of the Court, and such approval may be
conditioned upon such terms as the Court deems just.

(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.

D-4

APPENDIX E

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

----------------

FORM 10-K

(MARK ONE)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the fiscal year ended February 29, 2000

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-12837

----------------
PAMECO CORPORATION
(Exact name of registrant as specified in its charter)

Georgia 51-0287654
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification number)

1000 Center Place
Norcross, GA 30093
(Address of principal executive offices)

(770)-798-0700
(Registrant's telephone number, including area code)

----------------

Securities registered pursuant to Section 12(b) of the Act:

Title of each class Name of exchange on which registered
Class A Common Stock New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: Not applicable

----------------

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part II of this Form 10-K or any
amendment to this Form 10-K. [_]

The aggregate market value of the Class A Common Stock held by non-
affiliates of the registrant was $12,878,591 on April 30, 2000.

The number of shares outstanding of the registrant's Class A Common Stock,
$.01 par value, and Class B Common Stock, $.01 par value, was 7,366,582 and
1,872,929 respectively, as of April 30, 2000.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's definitive Proxy Statement for the 2000 Annual
Meeting of Stockholders are incorporated by reference into Part III.

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

PAMECO CORPORATION

INDEX

Part I
Item 1. Business................................................. E-3
Item 2. Properties............................................... E-5
Item 3. Legal Proceedings........................................ E-5
Item 4. Submission of Matters to a Vote of Security Holders...... E-5

Part II
Item 5. Market for Registrant's Common Stock and Related
Stockholder Matters...................................... E-5
Item 6. Selected Financial Data.................................. E-7
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... E-7
Item 7A. Quantitative and Qualitative Disclosures about Market
Risk..................................................... E-13
Item 8. Consolidated Financial Statements and Supplementary
Data..................................................... E-14
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure...................... E-37

Part III
Item 10. Directors and Executive Officers of the Registrant....... E-37
Item 11. Executive Compensation................................... E-37
Item 12. Security Ownership of Certain Beneficial Owners and
Management............................................... E-37
Item 13. Certain Relationships and Related Transactions........... E-37

Part IV
Item 14. Exhibits and Financial Statement Schedules and Reports on
Form 8-K................................................. E-37

Signatures.......................................................... E-39

E-2

Part I.

Item 1. Business

Overview

Pameco Corporation ("Pameco" or the "Company") is one of the largest
distributors of heating, ventilation, and air conditioning ("HVAC") systems
and equipment and refrigeration products in the United States, with
predecessor corporations dating back to 1931. As of February 29, 2000, the
Company operated 309 branches in 47 states and Guam. The Company's products
include a complete range of central air conditioners, heat pumps, furnaces and
parts and supplies for the residential market, and condensing units,
compressors, evaporators, valves, walk-in coolers and ice machines for the
commercial market. In fiscal 2000, Pameco primarily focused on generating net
sales from the repair and replacement market, which is higher margin and less
cyclical than the new construction market due to end-users' needs for
immediate service and expert technical advice. Management believes that Pameco
is one of a small number of companies in the United States which offer a
complete line of HVAC and refrigeration products on a significant scale on a
nationwide basis.

The Industry

Based upon the most recent industry report available, management estimates
that sales in the residential and light commercial heating and cooling
equipment and commercial refrigeration markets (excluding product markets in
which the Company does not compete) totaled approximately $13.4 billion and
$3.7 billion, respectively, in 2000. The combined $17.1 billion industry
includes equipment, parts and supplies distributed by wholesalers and by OEMs'
captive distribution arms, but excludes HVAC systems sold for use in large
commercial projects and refrigeration products sold in the residential market.

Business Strategy

For the fiscal year ending February 28, 2001, the Company has two primary
goals. First, the Company will seek to improve its relationships with its core
customers, the HVAC and refrigeration contractors. The Company will focus on
becoming a contractor service organization which means having the right
products and services when its customers need them. Second, the Company will
seek to improve its infrastructure. In particular, the Company will seek to
re-engineer to lower fixed costs in general and optimize the distribution
network in particular. The Company will also seek to implement "best
practices" from both inside and outside the HVAC industry.

Suppliers

The Company's size and stature in the HVAC and refrigeration industries, as
well as its strong and long-standing supplier relationships, enable the
Company to obtain favorable terms from its suppliers. Additionally, suppliers
have traditionally resisted granting distribution rights on a national level.
Due to the Company's size and growth through acquisitions, Pameco has been
granted nationwide distribution rights for certain product lines. Management
believes that as the Company continues to grow, additional suppliers may grant
the Company broader distribution rights.

The Company believes that it has good relationships with its suppliers. A
significant portion, approximately 40.8%, of the Company's purchases are
pursuant to contractual distribution arrangements with its suppliers. The
remainder are verbal and many of these arrangements may be terminated by the
supplier immediately or upon short notice.

During fiscal 2000, the Company purchased approximately $414.0 million of
equipment for resale, of which approximately 52.7% was obtained from its top
five suppliers, while the 25 largest suppliers accounted for approximately
78.7% of total purchases. The largest supplier accounted for approximately
20.4% of the Company's total purchases.

E-3

Customers

The Company currently serves over 35,000 customers, with no single customer
accounting for more than 2.5% of the Company's total sales and with the top
ten customers representing less than 9.0% of total sales in fiscal 2000.

Competition

The Company's business is highly competitive and fragmented. The Company
competes with a wide variety of traditional HVAC and refrigeration product
distributors in each of the Company's geographic markets. Most such
distributors are small enterprises maintaining between one and ten branches
and selling to customers in a limited geographic area. The Company also
competes to some extent with the manufacturers of HVAC and refrigeration
products, although management believes these manufacturers cannot compete
effectively with distributors, such as the Company, which offer broad product
lines and additional services. The primary factors of competition within the
Company's industries include breadth and quality of product lines distributed,
ability to fill orders promptly, technical knowledge of sales personnel and,
in certain product lines, service capability and price. In general, the
Company believes that national and multi-regional wholesalers, such as the
Company, enjoy substantial competitive advantages over small, independent
wholesalers that cannot afford to maintain Pameco's comprehensive product
offerings. The Company believes that its ability to compete effectively is
dependent upon its ability to respond to the needs of its customers through
quality service and product availability.

Government Regulations and Environmental Matters

The Company's operations are subject to federal, state and local laws and
regulations relating to the generation, storage, handling, emission,
transportation and discharge of materials into the environment. These include
laws and regulations implementing the Clean Air Act, relating to minimum
energy efficiency standards of HVAC systems and the production, servicing and
disposal of certain ozone-depleting refrigerants used in such systems,
including those established at the Montreal Protocol in 1992 concerning the
phase-out of CFC-based refrigerants. Management believes that the Company is
in substantial compliance with all applicable federal, state and local
provisions relating to the protection of the environment. The Company is also
subject to regulations concerning the transport of hazardous materials,
including regulations adopted pursuant to the Motor Carrier Safety Act of
1990.

Associates

As of February 29, 2000, Pameco employed 1,493 associates, 172 of whom were
employed primarily in management and administration, 124 in regional
distribution centers and 1,197 in sales and field operations. The Company's
associates are not subject to any material collective bargaining agreements,
and management believes that its relationship with its associates is good.

Forward-Looking Statements

Certain statements contained in this filing are "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
Such risks include, without limitation, risks associated with the Company's
information technology, the risk that the Company will not be able to
successfully implement its new strategies, the risk that new acquisitions will
not be successfully integrated into the Company, the seasonality and
cyclicality of the Company's sales, the Company's competition, the Company's
dependence on supplier relationships, the increased presence of buying groups
and risks related to the Company's borrowings. Such forward-looking statements
are subject to risks, uncertainties and other factors which could cause actual
results to differ materially from future results expressed or implied by such
forward-looking statements. Investors are cautioned that any forward-looking
statements are not guarantees of future performance and involve risks and
uncertainties and that actual results may differ materially from those
contemplated by such forward-looking statements.

E-4

Item 2. Properties

The Company currently maintains its corporate headquarters in Norcross,
Georgia. The lease expires in July 2003. The Company believes that its current
office space is sufficient to meet its present needs and does not anticipate
any difficulty securing additional space, as needed, on terms acceptable to
the Company.

Pameco leases its 11 distribution centers pursuant to agreements expiring
from five to 15 years. As of February 29, 2000, the Company operated 309
branches in 47 states and Guam, of which five are owned. The Company's branch
leases have terms expiring from one to seven years, with its leases typically
having renewal options. Management believes that none of Pameco's leased
facilities, individually, is material to the Company's operations.

Item 3. Legal Proceedings

From time to time, the Company is involved in claims and legal proceedings
in the ordinary course of business. The Company intends to defend vigorously
all such claims and does not believe any such matters would have a material
adverse effect on the Company's results of operations or financial condition.

Item 4. Submission of Matters to a Vote of Security Holders

None

Part II.

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

The Registrant was incorporated in March 1997, and since June 4, 1997 its
Class A Common Stock has been traded on the New York Stock Exchange. As of
January 12, 2000, there were approximately 1,400 beneficial holders and 345
holders of record of the Class A Common Stock. As of January 12, 2000, there
were 36 holders of record of the Class B Common Stock.

During the past three years, the following persons were issued Class A
Common Stock of the Registrant based on the exemption provided under Section
4(2) of the Securities Act of 1933 on the date and for the consideration
referenced below:

Name No. Shares Date of Issuance Consideration
---- ---------- ---------------- -------------

*J Chelsey Culpepper............... 625 07/31/97 $3,400.00
*Hector M. Colon................... 375 07/09/97 $1,800.00
*Robert J. Duncan.................. 375 06/23/97 $1,800.00
*Mary C. Barnett................... 375 06/20/97 $1,800.00
*Eugene H. Dill.................... 375 06/19/97 $ 330.00
*James E. Plew..................... 375 06/19/97 $ 330.00
*Andrew F. Ross.................... 375 06/19/97 $ 330.00
*Garland A. Smith.................. 375 06/19/97 $ 330.00
*Randall Fly....................... 5,000 06/17/97 $4,400.00
*Charles Bailly.................... 375 06/16/97 $ 330.00
*David Whitman..................... 375 06/16/97 $ 330.00
*James C. Herlinger................ 375 06/12/97 $ 330.00
*Wally W. George................... 5,000 06/11/97 $4,400.00
*Philip A. Mattera................. 375 06/11/97 $ 330.00
*Francis S. Dzialo................. 375 06/10/97 $ 330.00
*Lawrence C. Olson................. 6,250 06/10/97 $5,500.00
*Thomas S. Greenway................ 375 06/09/97 $ 330.00

E-5

Name No. Shares Date of Issuance Consideration
---- ---------- ---------------- -------------

*John K. Hammer.................... 375 06/09/97 $ 330.00
*Jacke Reynolds.................... 5,000 06/09/97 $ 4,400.00
*John D. Davis..................... 375 06/06/97 $ 330.00
*Pedro Morales..................... 375 06/04/97 $ 330.00
*Steve Ferguson.................... 375 05/28/97 $ 330.00
*Paul J. Smith..................... 625 05/21/97 $ 4,000.00
*Al J. Lendino..................... 5,000 05/16/97 $ 4,400.00
*J.W. Leneave...................... 6,250 05/02/97 $ 5,500.00
*Ronald T. Nakamura................ 5,000 05/02/97 $ 4,400.00
*David P. Satterthwaite............ 3,125 05/02/97 $ 2,750.00
*Robert Ellis...................... 375 04/14/97 $ 330.00
*Gary Wadsworth.................... 1,562 04/14/97 $ 1,375.00
*Jesus B. Pizarro.................. 5,000 04/10/97 $ 4,400.00
*Charles Sorrentino................ 21,875 04/07/97 $140,000.00
*J. Christopher van Ee............. 19,031 04/07/97 $ 30,100.00
*Mark L. Davison................... 1,875 04/04/97 $ 15,000.00
*Philip J. Filer................... 3,987 04/04/97 $ 19,140.00
*Donagh M. Kelly................... 22,916 04/04/97 $ 27,580.00
*James R. Balkcom, Jr.............. 12,500 04/03/97 $100,000.00
*Theodore R. Kallgren.............. 17,312 04/03/97 $ 39,000.00
*Jeffrey S. Ruege.................. 19,997 04/03/97 $ 39,638.00
*Brian T. Silva.................... 375 04/03/97 $ 330.00
*Walter W. Wilcox.................. 6,250 04/03/97 $ 5,500.00
*Mark A. Graham.................... 12,362 04/02/97 $ 44,620.00
*Thomas L. Jacques................. 7,625 04/01/97 $ 41,350.00
*Mary M. McCulley.................. 2,750 04/01/97 $ 13,200.00
*Jeffrey D. Ward................... 3,525 03/31/97 $ 15,110.00
*Paul K. Bois...................... 14,375 03/27/97 $ 12,650.00
*Gerald V. Gurbacki................ 76,875 03/20/97 $492,000.00
James R. Balkcom, Jr............... 62,500 03/10/97 $600,000.00
*James Giolas...................... 5,000 03/10/97 $ 4,400.00

- --------
* Pursuant to the exercise of stock options

The following table sets forth for the periods indicated the high and low
sales prices of the Class A Common Stock on the New York Stock Exchange. The
Company has not paid dividends on its Class A Common Stock. The Company
intends to retain its earnings to finance its growth and for general corporate
purposes. Under the terms of its credit agreements, the Company may not pay
dividends without the consent of its lenders.

Stock Market Price Range Low High
------------------------ ------ ------

First Quarter--March 1, 1999-May 31, 1999..................... $ 5.63 $ 8.00
Second Quarter--June 1, 1999-August 31, 1999.................. $ 6.56 $ 9.50
Third Quarter--September 1, 1999-November 30, 1999............ $ 4.13 $ 6.88
Fourth Quarter--December 1, 1999-February 29, 2000............ $ 3.38 $ 4.31

First Quarter--March 1, 1998-May 31, 1998..................... $16.38 $20.50
Second Quarter--June 1, 1998-August 31, 1998.................. $17.00 $23.75
Third Quarter--September 1, 1998-November 30, 1998............ $13.69 $16.31
Fourth Quarter--December 1, 1998-February 28, 1999............ $ 6.69 $13.75

E-6

Item 6. Selected Financial Data

Year Ended
----------------------------------------------------------------
February 29, February 28, February 28, February 28, February 29,
2000(a) 1999(b) 1998(c) 1997(d) 1996
------------ ------------ ------------ ------------ ------------

Results of Operations
Net sales............... $603,711 $625,042 $484,010 $378,658 $334,537
Net (loss) income
applicable to common
shareholders........... $(53,604) $ (188) $ 8,846 $ 10,732 $ 5,494

Per Share Data
Basic (loss) earnings
per share.............. $ (5.84) $ (0.02) $ 1.14 $ 1.82 $ 0.88
Diluted (loss) earnings
per share.............. $ (5.84) $ (0.02) $ 1.08 $ 1.71 $ 0.83

Balance Sheet
Information
Total assets............ $222,529 $273,888 $210,812 $149,369 $119,167
Long-term liabilities... 85,177 99,283 45,911 36,299 42,972
Redeemable convertible
preferred stock........ 23,324 -- -- -- 4,000
Warrants to purchase
redeemable convertible
preferred stock........ 11,676 -- -- -- --

- --------
(a) Includes a $27.0 million increase in the Company's valuation allowance for
deferred tax assets.
(b) Reflects the results of operations of Keller Supply, Inc., George L.
Johnston Co., Inc., Park Heating and Air Conditioning Supply, Inc.,
Climate Supply Company, Inc., Tesco Distributors, Inc. and Belleville
Supply Company, Inc. from the respective dates of acquisition.
(c) Reflects the results of operations of Bellows-Evans, Inc., Trigg Supply,
Inc., Heating Cooling Distributors, Inc., Saez Refrigeration, Inc., Saez
Refrigeration of Hialeah, Inc., Superior Supply Company, General Heating
and Cooling Company, and Williams Refrigeration, Inc. from the respective
dates of acquisition.
(d) Reflects the results of operations of Chase Supply Company and Sid Harvey
Industries from the respective dates of acquisition.

Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations

Pameco Corporation is one of the largest distributors of HVAC systems and
equipment and refrigeration products in the United States, with predecessor
corporations dating back to 1931. As of February 29, 2000, the Company
operated 309 branches in 47 states and Guam.

In fiscal 2000, Pameco primarily focused on generating net sales from the
repair and replacement market, which is higher margin and less cyclical than
the new construction market due to end-users' needs for immediate service and
expert technical advice. Management believes that Pameco is one of a small
number of companies in the United States which offers a complete line of HVAC
and refrigeration products on a significant scale on a nationwide basis.

E-7

Results of Operations

The table below sets forth certain consolidated historical operating
information for the Company, as a percentage of total sales, for the periods
indicated:

Year Ended
--------------------------------------
February 29, February 28, February 28,
2000 1999 1998
------------ ------------ ------------

Net sales............................... 100.0 % 100.0 % 100.0 %
Cost of products sold................... 78.2 76.5 76.2
----- ----- -----
Gross profit............................ 21.8 23.5 23.8
Warehousing, selling, and
administrative expenses............... 26.8 21.5 20.4
Restructuring.......................... 0.1 0.6 0.0
Amortization of excess of cost over
acquired net assets................... 0.2 0.2 0.1
Amortization of excess of acquired net
assets over cost...................... (0.2) (0.2) (0.3)
----- ----- -----
Operating (loss) earnings............... (5.1) 1.4 3.6
Other expense:
Interest expense, net.................. 1.4 0.8 0.4
Discount on sale of accounts receivable
and other expense..................... 0.3 0.5 0.6
----- ----- -----
(Loss) income before income taxes....... (6.8) (0.2) 2.6
Provision (benefit) for income taxes.... 2.1 (0.1) 0.7
----- ----- -----
Net (loss) income....................... (8.9)% (0.1)% 1.9 %
===== ===== =====

Year Ended February 29, 2000 Compared to Year Ended February 28, 1999

Net sales for the year ended February 29, 2000 decreased 3.4% to $603.7
million as compared to $625.0 million for the year ended February 28, 1999.
For the year ended February 29, 2000, same store net sales decreased 3.9% as
compared to the prior year. The decline in same store net sales cannot be
attributed to any single market factor. The decline was similar across all
regions of the country and included broad product categories, which affected a
broad range of product segments and vendor lines. The decline in net sales was
due primarily to supply chain and cash flow issues that affected product
availability. The Company also continued to reduce its inventory levels in an
effort to manage working capital more effectively, which adversely impacted
net sales volume. For the year ended February 29, 2000, working capital was
reduced by $17.4 million and long-term debt was reduced by $15.2 million.

Gross profit for the year ended February 29, 2000, decreased 10.3% to $131.8
million from $146.9 million for the prior year. The gross profit percentage
for year ended February 29, 2000, decreased to 21.8% from 23.5% for the prior
year. The gross profit percentage was negatively impacted by the Company's
lack of availability of higher margin repair and replacement products during
the year due to supply chain and cash flow issues. The gross profit percentage
was reduced as the Company received lower benefits from vendor rebate programs
due to lower purchasing levels. Also in February 2000, the Company conducted a
full physical inventory. Based on the results of that physical inventory, the
Company recorded an additional product shrinkage expense. In addition, the
Company revalued a portion of its inventory and also sold a significant
portion of its excess and idle inventory during the year. The effect of these
items lowered the gross profit percentage for the year ended February 29, 2000
from 23.3% to 21.8%.

Warehousing, selling, and administrative expenses for the year ended
February 29, 2000, increased 19.2% to $162.4 million from $136.2 million for
the prior year. The normal operating expenses of the 32 branches acquired
since February 28, 1998, contributed approximately 53.3% of the additional
expense. Of the remaining expenses, a significant portion is attributable to
the approximately $9.0 million dollars of consulting costs associated with the
Company's enhancement of its key business processes. Warehousing costs have
also increased due to the Company's strategic re-deployment of its inventory
throughout the entire distribution system during the current year.

E-8

For the year ended February 29, 2000, the Company recorded a $3.7 million
restructuring charge for costs relating to the closing of 40 unprofitable
branches. The charge was partially offset by the reversal of $3.3 million of
restructuring charges recorded in the prior year related to the previous plan
to close or relocate the Company's distribution centers and discontinue its
dedicated fleet contract. During the quarter ended February 29, 2000, the
Company's management determined that it would continue to use its current
distribution centers and dedicated fleet at this time and reversed the
previous charge to operating earnings.

Net interest expense for the year ended February 29, 2000, increased $3.5
million to $8.6 million from $5.1 million for the prior year. Higher interest
rates during the year in conjunction with higher average borrowings, which
increased by $3.4 million over the previous year, caused the increased
interest expense. The discount on the sale of accounts receivable of
$2.6 million and $3.6 million for the years ended February 29, 2000, and
February 28, 1999, respectively, was recorded as part of the "Discount on sale
of accounts receivable and other expense" on the statement of operations. The
weighted average rate of interest on all debt, including the Securitization
Program, for the year ended February 29, 2000, was 8.7% as compared to 7.0%
for the previous year.

For the year ended February 29, 2000, the Company recorded an income tax
expense of $12.3 million as compared to a benefit of $931,000 in the prior
year. The Company's effective income tax rate for the year ended February 29,
2000, differed from the statutory rate principally as a result of an increase
in the deferred tax asset valuation allowance of $27.0 million. In February
2000, in connection with the significant loss incurred by the Company during
the fourth quarter of the year, management concluded that realization of its
net deferred tax assets was no longer more likely than not and, accordingly,
increased the valuation allowance to fully provide for such assets. The
Company's effective income tax rate is reduced by the exclusion of the
amortization of the acquired net assets over cost (negative goodwill
amortization) from taxable income.

Year Ended February 28, 1999 Compared to Year Ended February 28, 1998

Net sales of $625.0 million for the year ended February 28, 1999 increased
29.1% from $484.0 million for the year ended February 28, 1998. Same store net
sales increased 9.6% for the year ended February 28, 1999 as compared to the
prior year.

Although acquired branches contributed significantly to the year to year
growth in net sales, the net sales of HVAC products on a same store basis
increased by 14.8% for the year ended February 28, 1999 as compared to the
prior year. Continued net sales improvement in the Company's ThermalZone(TM)
private label equipment line was a primary reason for the increase. Sales of
refrigeration equipment, parts, and supplies increased 3.1% on a daily same
store basis for the year ended February 28, 1999 as compared to the prior
year.

For the year ended February 28, 1999, gross profit increased 27.4% to $146.9
million from $115.3 million in the prior year. The Company's gross profit
increased largely due to increased sales volume. The gross profit percentage
decreased to 23.5% for the year ended February 28, 1999 as compared to 23.8%
for the prior year. During the year, the Company increased the volume of its
lower margin ThermalZone(TM) product lines at a substantially faster rate than
its higher margin refrigeration products. In addition, the Company sustained
higher product shrinkage and damage expenses in the year ended February 28,
1999 than in the previous year. The gross profit also was adversely impacted
by non-recurring charges for (i) the write down of inventories associated with
certain discontinued product lines and (ii) other charges for damaged
equipment in inventory. These reductions to gross profit were offset in part
by improved terms and prompt payment discounts from key suppliers. The Company
also revised its purchasing practices to take further advantage of
manufacturer rebate programs and volume purchase discounts.

Warehousing, selling, and administrative expenses for the year ended
February 28, 1999 increased 38.0% to $136.2 million from $98.7 million in the
prior year. Although a portion of the increase over the prior year can be
attributed to the normal operating expenses of the acquired branches, the
Company also incurred significant additional expenses during its conversion to
a new enterprise-wide management information system ("MIS"). To facilitate a
smooth transition to the new system with minimal disruption to its customers,
the Company

E-9

retained seasonal employees at its branches and warehouses through the
transition period that lasted into the third quarter of fiscal 1999. Likewise,
additional administrative costs were incurred at the corporate office during
this transition period for the same purpose. The Company also recorded non-
recurring charges consisting of (i) the expensing of certain training and
software costs relating to the implementation of the new MIS; and (ii) a
significant increase in the Company's allowance for losses on accounts
receivable relating to the increase in aging of such receivables because of
billing statement delays and other inefficiencies associated with the
transition to the new MIS. Warehousing, selling, and administrative expenses
as a percentage of net sales increased to 26.9% for the year ended February
28, 1999 from 21.8% in the prior year.

For the year ended February 28, 1999, the Company also recorded a $3.2
million restructuring charge for the costs relating to the down sizing of
distribution centers and the closing or combining of branch offices. The
Company recorded an $840,000 charge for the costs associated with terminating
one of its fleet contracts.

Interest expense during the year ended February 28, 1999 increased to $5.1
million from $2.0 million in the previous year. The Company's average
borrowings increased by $64.8 million over the previous year. During the past
fiscal year, the Company utilized the Working Capital Facility to fund all its
acquisitions. To avoid disruptions during the transition to the new MIS, the
inventory levels were increased to a higher than normal level and maintained
at that level through the transition period. In addition, the mailing of
customer statements was delayed in September and October 1998 as the new
system became operational. Both of these events resulted in increased bank
borrowings during the third and fourth quarters of the year ended February 28,
1999. The Securitization Program (as defined below) was recorded as a sale of
assets; therefore, approximately $43.6 million of accounts receivable and debt
are not reflected on the Company's balance sheet at February 28, 1999. The
discount on the sale of accounts receivable of $3.6 million and $3.0 million
for the years ended February 28, 1999 and February 28, 1998, respectively, was
recorded as other expense on the consolidated statements of operations. The
weighted average rate of interest on all debt, including the Securitization
Program, for the year ended February 28, 1999 was 7.0% as compared to 7.3% for
the previous year.

For the year ended February 28, 1999, the Company recorded an income tax
benefit of $931,000. The Company's effective tax rate differed from the
statutory rate principally as a result of the amortization of the excess of
acquired net assets over cost (negative goodwill amortization) not being
included in taxable income. The Company's effective income tax rate for the
year ended February 28, 1998, was lower than the statutory rate principally as
a result of the reduction of the deferred income tax valuation allowances.

Liquidity and Capital Resources

The Company's liquidity needs arise from seasonal working capital
requirements, capital expenditures, interest and principal payment
obligations, and acquisitions. The Company has historically met its liquidity
and capital investment needs with internally generated funds and borrowings
under its credit facilities. For the year ended February 29, 2000, the cash
used in operating activities was $10.1 million compared to cash provided in
operating activities of $762,000 for the year ended February 28, 1999. Net
cash used in investing activities was $3.4 million for the year ended February
29, 2000 as compared to $51.0 for the prior year. During the year ended
February 28, 1999, the Company purchased the HVAC operations and related
assets of Keller Supply, Inc., George L. Johnston Co., Inc., Park Heating and
Air Conditioning, Inc., Tesco Distributors, Inc., Climate Supply Company, Inc.
and Belleville Supply Company, Inc. for an aggregate cash price of $45.7
million. Net cash provided by financing activities was $13.5 million for the
year ended February 29, 2000, while such activities provided $50.3 million in
the prior year. The Company received $35.0 million from the issuance of Series
A redeemable convertible preferred stock and warrants in February 2000. The
Company borrowed $60.2 million pursuant to the new credit agreement it
executed in February 2000. The Company also borrowed $20.0 million under a
subordinated debt agreement reached in February 2000. The Company repaid $49.7
million and $49.2 million of outstanding borrowings under its previous working
capital facility and term debt, respectively, with the proceeds from the new
borrowings.

E-10

The Company's working capital decreased to $80.1 million at February 29,
2000 from $97.5 million at February 28, 1999.

At February 28, 1999, the Company had a $240.0 million Credit Agreement with
one primary institution and several other participating lenders. The Credit
Agreement provided for (a) a securitization commitment ("the Securitization
Program") of $100.0 million; (b) a revolving line of credit ("the Revolver")
of $90.0 million; and (c) two term loans aggregating $50.0 million ("Tranche
A" and "Tranche B"). The combined $240.0 million of facilities bore interest
based on the commercial paper or the Eurodollar rate plus a margin as
described below.

At February 28, 1999, the Company had a Securitization Program with General
Electric Capital Corporation, Redwood Receivables Corporation ("Redwood"), and
Pameco Securitization Corporation ("PSC"). The Securitization Program was an
off-balance sheet arrangement that provided for the transfer and sale of
accounts receivable to PSC, a special purpose wholly-owned subsidiary, that
sold the accounts receivable to Redwood, which issued commercial paper on the
Company's behalf. At February 28, 1999, accounts receivable of $43.6 million
were sold under the Securitization Program. The sales of such accounts
receivable were reflected as a reduction of accounts receivable in the
Company's consolidated balance sheet. The margin on the commercial paper rate
for the Securitization Program ranged from 0.75% to 1.75%, depending upon the
Company's interest coverage ratio, and was 1.00% at February 28, 1999. The
borrowing rate at February 28, 1999 was 5.9%. The discount on the sale of
accounts receivable was $2.6 million and $3.6 million for the years ended
February 29, 2000, and February 28, 1999, and such amounts are included in
other expenses on the consolidated statements of operations.

At February 28, 1999, the Company had borrowings of $49.7 million
outstanding under the Revolver. The margin on the Eurodollar rate for the
Revolver ranged from 1.50% to 2.50%, depending upon the Company's interest
coverage ratio, and was 1.75% at February 28, 1999. The borrowing rate at
February 28, 1999 was 6.7%.

The Company had aggregate borrowings of $49.2 million outstanding at
February 28, 1999 on Tranche A and Tranche B. The margin on the Eurodollar
rate for the Tranche A ranged from 1.50% to 2.50%, depending upon the
Company's interest coverage ratio, and was 1.75% at February 28, 1999. The
margin on the Eurodollar rate for the Tranche B ranged from 2.00% to 3.00%,
depending upon the Company's interest coverage ratio, and was 2.25% at
February 28, 1999.

During the year ended February 29, 2000, the Company entered into a series
of amendments to the Credit Agreement and the Securitization Program described
above. The Company entered into amendments to the Credit Agreement in June
1999, July 1999, August 1999, October 1999, December 1999, and January 2000.
These amendments primarily served to lower certain financial covenants, adjust
interest rates, decrease borrowing bases, and adjust repayment dates for the
tranche loans. Additionally, the Company entered into amendments to the
Securitization Program in June 1999, July 1999, August 1999, October 1999,
December 1999, and January 2000. These amendments principally served to change
reporting requirements and lower certain financial covenants. On February 29,
2000, the Company repaid all borrowings under the Credit Agreement using the
proceeds from the financing agreement described below. Additionally, the term
loan borrowings with the primary institution sponsoring the Credit Agreement
have been repaid. Accounts receivable previously sold under the Securitization
Program were repurchased by the Company concurrent with the repayment of
borrowings under the Credit Agreement.

On February 17, 2000, the Company entered into an agreement with a new
primary lender and various participating lenders (the "Lenders") to obtain
financing under a senior credit facility amounting to an aggregate of $130
million (the "New Credit Agreement"). The New Credit Agreement provides for
(a) a revolving line of credit of $130.0 million (the "New Revolver
Facility"), and (b) a subfacility of the New Revolver Facility providing for
the issuance of letters of credit (the "LC Facility"), not to exceed $15
million, (such amount to be calculated as part of, and not in addition to, the
aggregate limit of the New Credit Agreement). At February 29, 2000, no amounts
were outstanding on the LC Facility or additional credit facility.

E-11

At February 29, 2000, the Company had borrowings of $60.2 million
outstanding under the New Revolver Facility. Proceeds from these borrowings on
February 29, 2000, were used to repay borrowings under the previous Credit
Agreement. These borrowings are due February 17, 2005. Interest is based on
LIBOR plus 2.75% for specified loan amounts and the prime rate plus 0.75% for
borrowings in excess of specified loan amounts. The effective borrowing rate
at February 29, 2000 was 8.77%.

At February 29, 2000, debt includes a $20.0 million subordinated debt
agreement (the "Subdebt Facility") entered into on February 18, 2000,
simultaneously with the $130.0 million New Credit Agreement. The Subdebt
Facility bears interest of 12% per annum due quarterly. The 12% interest rate
consists of 6% payable in cash and 6% added to principal ("paid in kind"
interest). Principal of $2.0 million is due at March 31, 2003 and 2004,
respectively, and the remaining principal plus accrued paid in kind interest
balance is due on March 31, 2005.

In connection with the $20.0 million Subdebt Facility and effective February
18, 2000, the Company entered into future inventory purchase agreements with
the parties to the Subdebt Facility. These agreements require the Company to
purchase minimum percentages of its annual inventory demand for certain
products over the next five years from specified suppliers. Failure to meet
these minimum percentages would result in penalties and default on the
associated $20.0 million Subdebt Facility. Minimum commitments under these
purchase agreements are: 2001-$19.9 million; 2002-$24.1 million; 2003-
$25.4 million; 2004-$26.4 million; and 2005 and fiscal years thereafter $27.5
million. For the year ended February 29, 2000, the Company purchased $200.2
million of inventory from these specified suppliers.

The New Credit Agreement and the Subdebt Facility require compliance with
specific levels of net worth, earnings before interest, taxes, depreciation,
and amortization ("EBITDA"), and a specified fixed charge coverage ratio. The
negative covenants include various limitations on indebtedness, liens,
fundamental changes, dividends, and investments. At February 29, 2000, the
Company complied with all covenants or subsequently obtained a waiver and
amendment as of May 18, 2000, with respect to any violations. The Company has
granted a security interest to the Lenders for substantially all the assets of
the Company, including the accounts receivable, inventory, and equipment, as
collateral for the debt.

On December 30, 1999, the Company borrowed $7.5 million principal amount
from a related party ("Related Party Note"). Interest on the Related Party
Note accrued at an annual rate equal to the LIBOR rate plus 7%. During the
year ended February 29, 2000, interest expense incurred on the Related Party
Note was $114,000. The outstanding principal and interest of $7.6 million were
repaid in February 2000 in connection with the New Credit Agreement described
above.

The Company's capital expenditures for the year ended February 29, 2000,
were $3.4 million as compared to $5.4 million for the previous fiscal year.
Such capital expenditures were primarily for branch and distribution center
leasehold improvements, equipment, and computer equipment and supply chain
software. Capital expenditures for fiscal year 2001 are expected to total
approximately $5.0 million.

Management believes that the Company has adequate resources and liquidity to
meet its borrowing obligations, fund all required capital expenditures, and
pursue its business strategy for existing operations through the end of fiscal
year 2001. However, the Company will require additional funding in order to
pursue significant acquisition opportunities. Future acquisitions may be
financed by bank borrowings, public offerings, or private placements of equity
or debt securities, or a combination of the foregoing. Such financings may
require the consent of the Company's existing lenders.

E-12

Seasonality

The Company's operating results vary significantly from quarter to quarter.
Sales typically increase during the warmer months beginning in April and peak
in the months of June, July, and August. For the year ended February 29, 2000,
the Company's second fiscal quarter accounted for $207.7 million of its net
sales and $1.8 million of operating earnings.

Sales of HVAC and refrigeration equipment and replacement components are
also affected by weather patterns and seasonal equipment start-ups. Warmer
than normal summer temperatures or colder than normal winter temperatures
cause increased stress on cooling and heating equipment. Increased stress on
equipment produces higher failure rates and therefore increased sales volume
of replacement equipment. Start-up modes for inactive equipment also produce
higher failure rates and an increase in replacement business on a seasonal
basis. Management believes the Company's national branch coverage mitigates
much of the risk associated with regional or local weather patterns.

Inflation

The rate of inflation as measured by changes in the average consumer price
index has not had a material effect on the sales or operating results of the
Company. However, inflation in the future could affect the Company's operating
costs. Price changes from suppliers have historically been consistent with
inflation and have had little impact on the Company's profitability. The
Company has been able to pass supplier price increases to its customers or, in
a case where the Company meets resistance from its customers on a price
increase, the Company has been successful in working with its suppliers to
reduce acquisition costs in order to maintain a reasonable margin on its
sales.

Year 2000

The Company developed a Year 2000 strategic plan that identified initiatives
necessary to minimize failures of its electronic systems to process date-
sensitive information in the Year 2000 and thereafter. The Company completed
the necessary modification and replacements to its critical supply chain and
financial management systems and software by November 1999. The Company also
replaced non-compliant point of sale ("POS") systems and telephone systems by
November 1999. The Company did not experience any significant failures of
these systems and software during the transition from 1999 to 2000. The
Company will continue to monitor these systems and software throughout the
year 2000 to ensure continued compliance.

The Company incurred approximately $358,000 through the end of 1999 in the
implementation of the modifications and replacements described above.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

The Company is exposed to changes in interest rates due to the Company's
variable rated debt. As a result of the Company's use of floating rate debt,
if market interest rates average 1% more in fiscal 2001 than the rates at
February 29, 2000, interest expense would increase by $604,000 for the year
ending February 29, 2001. Comparatively, based on the Company's debt profile
at February 28, 1999, a 1% increase in market interest rates would increase
interest expense by $392,000 for fiscal 2000. These amounts were determined by
calculating the effect of the hypothetical interest rate on the Company's
floating debt rate, after giving consideration to the Company's interest rate
swap agreements and other risk management instruments. These amounts do not
include the effects of certain potential results of increased interest rates,
such as a reduced level of overall economic activity or other actions
management may take to mitigate this risk. Furthermore, this sensitivity
analysis does not assume changes in the Company's financial structure that
could occur if interest rates were higher.

E-13

Item 8. Consolidated Financial Statements and Supplementary Data

REPORT OF INDEPENDENT AUDITORS

Board of Directors
Pameco Corporation

We have audited the accompanying consolidated balance sheets of Pameco
Corporation as of February 29, 2000, and February 28, 1999, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended February 29, 2000. Our audits also
included the financial statement schedule listed in Part IV, Item 14(a). These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material aspects, the consolidated financial position of Pameco
Corporation at February 29, 2000, and February 28, 1999, and the consolidated
results of its operations and its cash flows for each of the three years in
the period ended February 29, 2000, in conformity with accounting principles
generally accepted in the United States. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.

/s/ Ernst & Young LLP

Atlanta, Georgia
April 21, 2000, except for the Subsequent Event Section of Note 4, as to which
the date is May 18, 2000

E-14

PAMECO CORPORATION

CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)

February 29, February 28,
2000 1999
------------ ------------

Assets
Current assets:
Cash and cash equivalents.......................... $ 120 $ 148
Accounts receivable, less allowance of $5,991 at
February 29, 2000 and $6,210 at February 28,
1999.............................................. 59,769 35,507
Inventories........................................ 96,619 157,621
Prepaid expenses and other current assets.......... 3,362 4,149
-------- --------
Total current assets............................. 159,870 197,425
Property and equipment, net.......................... 15,046 15,694
Excess of cost over acquired net assets, net......... 43,221 44,133
Debt financing costs................................. 3,657 815
Other assets......................................... 735 682
Deferred income tax assets........................... -- 15,139
-------- --------
Total assets..................................... $222,529 $273,888
======== ========
Liabilities and shareholders' equity
Current liabilities:
Accounts payable................................... $ 58,116 $ 68,521
Accrued compensation and withholdings.............. 5,201 4,661
Other accrued liabilities and expenses............. 16,355 23,148
Current portion of other debt...................... 50 3,575
-------- --------
Total current liabilities........................ 79,722 99,905
======== ========
Long-term liabilities:
Debt............................................... 80,392 95,608
Deferred warranty revenue ......................... 4,785 3,675
-------- --------
Total long-term liabilities...................... 85,177 99,283
Excess of acquired net assets over cost, net......... 3,245 4,160
Redeemable convertible preferred stock, $1.00 par
value: 600 and no shares authorized as of February
29, 2000, and February 28, 1999, respectively;
140 and no shares issued and outstanding as February
29, 2000, and February 28, 1999, respectively;
aggregate liquidation preference of $35,000
as of February 29, 2000............................. 23,324 --
Warrants to purchase redeemable convertible preferred
stock............................................... 11,676 --
Shareholders' equity:
Class A Common stock, $.01 par value--authorized
40,000 shares; 5,959 and 5,226 shares issued and
outstanding at February 29, 2000 and February 28,
1999, respectively................................ 59 52
Class B Common stock, $.01 par value--authorized
20,000 shares; 3,273 and 3,831 shares issued and
outstanding at February 29, 2000 and February 28,
1999, respectively................................ 33 38
Capital in excess of par value..................... 41,312 38,966
Unamortized deferred compensation.................. (299) --
Retained earnings (accumulated deficit)............ (21,720) 31,884
-------- --------
19,385 70,940
Note receivable from shareholder................... -- (400)
-------- --------
Total shareholders' equity....................... 19,385 70,540
-------- --------
Total liabilities and shareholders' equity....... $222,529 $273,888
======== ========

See notes to consolidated financial statements.

E-15

PAMECO CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)

Year ended
--------------------------------------
February 29, February 28, February 28,
2000 1999 1998
------------ ------------ ------------

Net sales............................... $603,711 $625,042 $484,010
Costs and expenses:
Cost of products sold................. 471,936 478,093 368,685
Warehousing, selling, and
administrative expenses.............. 162,387 136,194 98,715
Restructuring......................... 448 4,025 --
Amortization of excess of cost over
acquired net assets.................. 1,186 1,023 381
Amortization of excess of acquired net
assets over cost..................... (1,244) (1,224) (1,224)
-------- -------- --------
634,713 618,111 466,557
-------- -------- --------
Operating (loss) earnings............... (31,002) 6,931 17,453

Other expense:
Interest expense, net................. (8,568) (5,146) (1,980)
Discount on sale of accounts
receivable and other expense......... (1,737) (2,904) (3,086)
-------- -------- --------
(Loss) income before income taxes....... (41,307) (1,119) 12,387
Provision (benefit) for income taxes.... 12,297 (931) 3,541
-------- -------- --------
Net (loss) income applicable to common
shareholders........................... $(53,604) $ (188) $ 8,846
======== ======== ========
Basic (loss) earnings per share......... $ (5.84) $ (0.02) $ 1.14
======== ======== ========
Basic weighted average shares
outstanding............................ 9,183 8,802 7,779
======== ======== ========
Diluted (loss) earnings per share....... $ (5.84) $ (0.02) $ 1.08
======== ======== ========
Diluted weighted average shares
outstanding............................ 9,183 8,802 8,183
======== ======== ========

See notes to consolidated financial statements.

E-16

PAMECO CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)

Class Class
A B Retained
Common Common Common Common Capital in Unamortized Earnings
Stock Stock Stock Stock Excess of Note Deferred Treasury (Accumulated
Shares Shares Shares Amount Par Value Receivable Compensation Stock Deficit) Total
------ ------ ------ ------ ---------- ---------- ------------ -------- ------------ -------

Balances at February
28, 1997.............. 5,108 -- -- $64 $ 1,841 $ -- $ -- $(10,500) $ 23,226 $14,631
Conversion of Common
Stock to Class A
shares................ (1,125) 1,125 -- -- -- -- -- -- -- --
Conversion of Common
Stock to Class B
shares................ (3,983) -- 3,983 -- -- -- -- -- -- --
Issuance of common
stock, net of
expenses.............. -- 3,536 -- 35 45,098 -- -- -- -- 45,133
Purchase of treasury
stock................. -- (207) -- -- -- -- -- (1,207) (1,207)
Retirement of treasury
stock................. -- -- -- (13) (11,694) -- -- 11,707 -- --
Note receivable from
shareholder........... -- 63 -- -- 600 (600) -- -- -- --
Proceeds from exercise
of common stock
warrants.............. -- -- 63 1 524 -- -- -- -- 525
Proceeds from exercise
of stock options...... -- 148 -- 1 723 -- -- -- -- 724
Net income............ -- -- -- -- -- -- -- -- 8,846 8,846
------ ----- ----- --- ------- ----- ------ -------- -------- -------
Balances at February
28, 1998.............. -- 4,665 4,046 $88 $37,092 $(600) $ -- $ -- $ 32,072 $68,652
====== ===== ===== === ======= ===== ====== ======== ======== =======
Note receivable from
shareholder........... -- -- -- -- -- 200 -- -- -- 200
Conversion of Class B
shares to Class A
shares................ -- 215 (215) -- -- -- -- -- -- --
Proceeds from the
issuance of shares
under Employee Stock
Purchase Plan......... -- 31 -- -- 425 -- -- -- -- 425
Proceeds from exercise
of stock options...... -- 315 -- 2 1,449 -- -- -- -- 1,451
Net loss.............. -- -- -- -- -- -- -- -- (188) (188)
------ ----- ----- --- ------- ----- ------ -------- -------- -------
Balances at February
28, 1999.............. -- 5,226 3,831 $90 $38,966 $(400) $ -- $ -- $ 31,884 $70,540
====== ===== ===== === ======= ===== ====== ======== ======== =======
Note receivable from
shareholder........... -- -- -- -- -- 400 -- -- -- 400
Issuance of shares for
restricted stock
grant................. -- 200 -- 2 1,448 -- (1,450) -- -- --
Withdrawal of shares
to cover tax liability
of chairman........... -- (90) -- -- -- -- -- -- -- --
Amortization of
compensation cost for
vested restricted
stock................. -- -- -- -- -- -- 1,151 -- -- 1,151
Conversion of Class B
shares to Class A
shares................ -- 558 (558) -- -- -- -- -- -- --
Proceeds from the
issuance of shares
under Employee Stock
Purchase Plan......... -- 58 -- -- 326 -- -- -- -- 326
Proceeds from exercise
of stock options...... -- 7 -- -- 572 -- -- -- -- 572
Net loss.............. -- -- -- -- -- -- -- -- (53,604) (53,604)
------ ----- ----- --- ------- ----- ------ -------- -------- -------
Balances at February
29, 2000.............. -- 5,959 3,273 $92 $41,312 $ -- $ (299) $ -- $(21,720) $19,385
====== ===== ===== === ======= ===== ====== ======== ======== =======

See notes to consolidated financial statements.

E-17

PAMECO CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

Year ended
--------------------------------------
February 29, February 28, February 28,
2000 1999 1998
------------ ------------ ------------

Cash flows from operating activities
Net (loss) income....................... $(53,604) $ (188) $ 8,846
Adjustments to reconcile net (loss)
income to net cash (used in) provided
by operating activities:
Amortization of excess of acquired net
assets over cost..................... (1,244) (1,224) (1,224)
Amortization of excess of cost over
acquired net assets.................. 1,186 1,023 381
Charge to restructuring for goodwill
impairment........................... 1,377 -- --
Depreciation.......................... 3,610 2,459 1,596
Loss on sale of property and
equipment, including amounts charged
to restructuring..................... 435 30 66
Amortization of deferred compensation
for vested restricted stock.......... 1,151 -- --
Deferred income tax provision
(benefit)............................ 14,646 (1,659) (904)
Changes in operating assets and
liabilities net of assets acquired
and liabilities assumed:
Accounts receivable................. (23,862) 10,481 (2,309)
Inventories, prepaid expenses and
other assets....................... 62,551 (16,902) 10,467
Accounts payable and accrued
liabilities........................ (16,377) 6,742 (13,126)
-------- -------- --------
Net cash (used in) provided by operating
activities............................. (10,131) 762 3,793
Cash flows from investing activities
Purchases of property and equipment..... (3,411) (5,369) (5,546)
Proceeds from sales of property and
equipment.............................. 14 9 126
Business acquisitions, net of cash
acquired............................... -- (45,685) (44,580)
-------- -------- --------
Net cash used in investing activities... (3,397) (51,045) (50,000)
Cash flows from financing activities
Net (repayments) borrowings on working
capital facility....................... (49,670) 7,598 12,354
Net (repayments) borrowings on term
debt................................... (49,187) 49,187 --
Repayments on notes to affiliate........ -- -- (18,600)
(Repayments) borrowings on note
payable................................ -- (7,700) 7,700
Repayments on other debt................ (128) (672) (425)
Net borrowings on new credit agreement.. 60,244 -- --
Debt issue costs paid for new credit
agreement.............................. (3,657) -- --
Net borrowings from subordinated debt... 20,000 -- --
Issuance of common stock, net of
offering expenses...................... -- -- 45,133
Purchases of treasury stock............. -- -- (1,207)
Issuance of Series A redeemable
convertible preferred stock and
warrants............................... 35,000 -- --
Proceeds from exercise of stock options
and employee stock purchase plan....... 898 1,876 1,249
-------- -------- --------
Net cash provided by financing
activities............................. 13,500 50,289 46,204
-------- -------- --------
Net (decrease) increase in cash and cash
equivalents............................ (28) 6 (3)
Cash and cash equivalents at beginning
of year................................ 148 142 145
-------- -------- --------
Cash and cash equivalents at end of
year................................... $ 120 $ 148 $ 142
======== ======== ========
Supplemental disclosure of noncash
financing activities
Issuance of common stock in exchange for
note receivable........................ $ -- $ -- $ 600
======== ======== ========
Forgiveness of note receivable.......... $ 400 $ 200 $ --
======== ======== ========

See notes to consolidated financial statements.

E-18

PAMECO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

February 29, 2000

1. Summary of Significant Accounting Policies and Other Matters

Principles of Consolidation

The consolidated financial statements include the accounts of Pameco
Corporation and its wholly-owned subsidiaries (collectively the "Company").
All significant intercompany accounts and transactions have been eliminated in
consolidation.

Description of Business

The Company is a nationwide wholesale distributor of heating, ventilation
and air conditioning ("HVAC") and refrigeration equipment, with 309 branches
located in 47 states and Guam. The principal components of the Company's
business are sales of heating, air conditioning, and refrigeration parts and
equipment to the commercial and residential markets. The Company operates in
one business segment.

Sales of HVAC and refrigeration equipment and replacement components are
also affected by weather patterns and seasonal equipment startups. Warmer than
normal summer temperatures or colder than normal winter temperatures cause
increased stress on cooling and heating equipment. Increased stress on
equipment produces higher failure rates and therefore increased sales volume
of replacement equipment. Start-up modes for inactive equipment also produce
higher failure rates and an increase in replacement business on a seasonal
basis. Management believes the Company's national branch coverage mitigates
much of the risk associated with regional or local weather patterns.

Initial Public Offering

On June 4, 1997, the Company completed an initial public offering ("IPO") of
its Class A Common Stock. A total of 4,115,441 shares were sold at $14 per
share, including 536,797 shares sold pursuant to the underwriters
overallotment option and 578,644 shares sold by certain selling shareholders.
The Company did not receive any of the proceeds from the sale of shares of
Class A Common Stock by the selling shareholders. The net proceeds to the
Company were approximately $45.1 million and were used to repay $11.1 million
of outstanding indebtedness to certain members and affiliates of a group of
investors in the Company, to repay approximately $32.8 million of the
outstanding balance of the Company's $100.0 million revolving credit line (the
"Working Capital Facility"), and to repurchase 206,847 shares of Common Stock
from certain shareholders, including members of the aforementioned investor
group, for an aggregate purchase price of approximately $1.2 million.

On June 3, 1997, Pameco Holdings Inc. ("PHI") and Pameco Corporation, both
Delaware corporations, were merged with and into the Company, and in
connection therewith the shareholders of PHI received 1.25 shares of the
Company's Class A Common Stock or Class B Common Stock, as agreed upon among
themselves, for each share of Class A Common Stock and Class B Common Stock of
PHI held by them immediately prior to the merger. In general, the Company's
Class A Common Stock entitles its holder to one vote per share, whereas the
Class B Common Stock entitles its holder to ten votes per share.

E-19

PAMECO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

February 29, 2000

Prior to the IPO, certain shareholders of the Company agreed to sell to the
Company shares of Common Stock equal to the number of shares issued as certain
stock options were exercised at a price equal to the exercise price of such
stock options. The Company repurchased all of the 206,847 shares subject to
this arrangement at the time of the IPO from such investors, and such shares
have been retired. Upon exercise of these stock options, the Company issues
its Class A Common Stock.

Revenue Recognition

Revenue is recognized upon delivery of products to customers. Warranty
revenue is initially deferred and recognized over the warranty term.

Cash Equivalents

For purposes of the accompanying consolidated statements of cash flows, the
Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.

Inventories

Inventories consist of finished goods held for resale and are stated at the
lower of cost or market. Cost is determined by the first-in, first-out method.
During fiscal 2000, the Company purchased approximately $414.0 million of
equipment for resale, of which approximately 52.7% was obtained from its top
five suppliers, while the 25 largest suppliers accounted for approximately
78.7% of total purchases. Two suppliers accounted for more than 33.2% of the
Company's total purchases and represented 13.6% of accounts payable as of
February 29, 2000. To help ensure adequate future inventory supply sources,
the Company maintains supply relationships with numerous other vendors.

The Company maintained reserves for excess and idle inventory aggregating
$3.2 million and $7.3 million as of February 29, 2000 and February 28, 1999,
respectively.

Property and Equipment

Properties are recorded at cost and include expenditures for additions and
major improvements. Expenditures for repairs and maintenance are charged to
operations as incurred. Depreciation is computed using the straight line
method over the estimated useful lives of the respective assets. The estimated
useful lives for property and equipment range from three to ten years.

Excess of Cost Over Acquired Net Assets

Excess of cost over acquired net assets is a result of fourteen business
acquisitions beginning in fiscal 1997. Such amounts are being amortized on a
straight-line basis over 40 years. Accumulated amortization of the excess of
cost over acquired net assets was approximately $2.7 million and $1.5 million
at February 29, 2000 and February 28, 1999, respectively.

The Company continually monitors events and changes in circumstances that
could indicate carrying amounts of the excess of cost over acquired net assets
may not be recoverable. When such events or changes in circumstances are
present, the Company assesses the recoverability of the excess of cost over
acquired net assets by determining whether the carrying value of such excess
of cost over acquired net assets will be recovered through undiscounted
expected future cash flows. Should the Company determine that the carrying
values of the excess of cost over acquired net assets are not recoverable, the
Company would record a charge to reduce the carrying values of such assets to
their fair values.

E-20

PAMECO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

February 29, 2000

Excess of Acquired Net Assets Over Cost

Excess of the acquired net assets over cost, which is the result of the
bargain purchase on the original purchase of the Company in March 1992, is
being amortized on a straight-line basis over 10 years. Accumulated
amortization of the excess of acquired net assets over cost was approximately
$9.6 and $8.4 million at February 29, 2000 and February 28, 1999,
respectively.

Use of Estimates

The preparation of the financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results will differ from those
estimates, and such differences could be material to the financial statements.

Credit Policy

The Company performs periodic credit evaluations of its customers' financial
condition and in some instances places liens on sales of equipment. Accounts
receivable are generally due within 30 days. Credit losses have been within
management's expectations.

Income Taxes

The Company uses the liability method of accounting for income taxes. Under
this method, deferred income tax assets and liabilities are determined based
on differences between the financial reporting and tax bases of assets and
liabilities and are measured using the statutory tax rates and laws that will
be in effect when the differences are expected to reverse.

Recent Pronouncements

The FASB issued Statement No. 133, Accounting for Derivative Instruments and
Hedging Activities in June 1998 and Statement No. 137, which defers the
effective date of Statement No. 133 for one year, in June 1999. The Company
expects to adopt the new Statement effective March 1, 2001. This Statement
will require the Company to recognize all derivatives on the balance sheet at
fair value. The Company does not anticipate that the adoption of this
Statement will have a significant effect on the results of operations or
financial position.

Earnings Per Share

The Company computes earnings per share in accordance with SFAS No. 128.
Basic earnings per share is computed by dividing net income by the total of
the weighted average number of shares outstanding. Diluted earnings per share
assumes conversion of any dilutive common stock equivalents.

Fair Value of Financial Instruments

The carrying amounts reported in the consolidated balance sheets for cash,
accounts receivable, and accounts payable approximate their fair values. The
fair values of the Company's debt instruments approximate the reported amounts
in the consolidated balance sheets as their respective interest rates
approximate the market rates for similar debt instruments.

E-21

PAMECO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

February 29, 2000

The unrealized gain for interest rate swap agreements was approximately $1.6
million at February 28, 1999 based on evaluations made by the counterparties
to the interest rate swap agreements. The swap agreements were terminated in
December 1999, and the underlying debt was extinguished in February 2000,
resulting in a gain of $1.5 million.

Management Advisory Services

The Company received certain advisory services from Three Cities Research,
Inc. Three Cities Research, Inc. is the investment advisor for certain
investors who owned approximately 20.0% and 29.6% of the combined Class A and
Class B Common Stock of the Company at February 29, 2000 and February 28,
1999, respectively. Three Cities Research, Inc. was paid an annual fee of
$50,000 for advisory services and was reimbursed for expenses. The advisory
agreement was terminated by the Company on February 29, 2000 upon the closing
of the recapitalization of the Company.

Reclassifications

Certain reclassifications have been made to the prior years' consolidated
financial statements to conform to the current year presentation.

2. Acquisitions

All acquisitions have been accounted for under the purchase method of
accounting. Under the purchase method of accounting, the results of operations
of the acquired companies are included in the consolidated statements of
operations as of the acquisition dates. The excess of cost over acquired net
assets of the businesses acquired has been recorded as an intangible asset and
is being amortized on a straight-line basis over 40 years. The estimated net
sales information for the fiscal year prior to acquisition of the acquired
companies is unaudited. The Company did not make any acquisitions during the
year ended February 29, 2000.

Fiscal Year Ended February 28, 1999

In March 1998, the Company purchased the HVAC operations and related assets
of Keller Supply, Inc., a distributor of HVAC equipment in Huntsville,
Alabama, a new market for the Company. The acquired business had net sales in
excess of $2.0 million for the year ended December 31, 1997 and derived
substantially all its net sales from the sale of HVAC products.

In May 1998, the Company purchased the HVAC and refrigeration operations and
related assets of George L. Johnston Co., Inc., a 10 branch distributor in
Michigan and Ohio. The acquired business had net sales in excess of $20.0
million for the year ended October 31, 1997 and derived substantially all its
net sales from the sale of HVAC and refrigeration products.

In June 1998, the Company purchased the HVAC operations and substantially
all the related assets of Park Heating and Air Conditioning Supply Co.
("Park"), Inc., a seven branch distributor in the greater Chicago area. For
the year ended December 31, 1997, the acquired business had net sales in
excess of $30.0 million and derived substantially all its net sales from the
sale of HVAC products. The purchase price for Park aggregated $22.5 million.

In November 1998, the Company purchased the HVAC operations and
substantially all the related assets of Tesco Distributors, Inc., a six branch
distributor in the New York City and New Jersey markets. For the year ended
November 30, 1997, the acquired business had net sales in excess of $14.0
million and derived substantially all its net sales from HVAC and
refrigeration products.

E-22

PAMECO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

February 29, 2000

In November 1998, the Company purchased the HVAC operations and
substantially all the related assets of Climate Supply Company, Inc., a six
branch distributor in the Dallas market. For the year ended October 31, 1997,
the acquired business had net sales in excess of $7.0 million and derived
substantially all its net sales from HVAC and refrigeration products.

In January 1999, the Company purchased the HVAC operations and substantially
all the related assets of Belleville Supply Company, Inc., a three branch
distributor in the Virginia market. For the year ended December 31, 1998, the
acquired business had net sales in excess of $14.0 million and derived
substantially all its net sales from HVAC products.

Fiscal Year Ended February 28, 1998

In March 1997, the Company purchased the HVAC operations and related assets
of Bellows-Evans, Inc., a distributor of HVAC equipment in Birmingham,
Alabama, a new market for the Company. The acquired business had revenues in
excess of $3.0 million for the year ended May 31, 1996 and derived
substantially all of its revenues from the sale of HVAC products.

In April 1997, the Company purchased the HVAC operations and related assets
of Trigg Supply, Inc., a distributor of HVAC products in Ft. Worth, Texas. The
acquired business had revenues of approximately $2.0 million for the year
ended December 31, 1996 and derived all of its revenues from the sale of HVAC
products.

In July 1997, the Company purchased the HVAC operations and related assets
of Heating Cooling Distributors, Inc., a distributor of HVAC equipment in
Indianapolis, Indiana, a new market for the Company. The acquired business had
revenues in excess of $2.0 million for the year ended December 31, 1996 and
derived substantially all of its revenues from the sale of HVAC products.

In August 1997, the Company purchased the HVAC operations and related assets
of Saez Refrigeration, Inc., and Saez Refrigeration of Hialeah, Inc. a
distributor of HVAC equipment in Miami, Florida. The acquired businesses had
revenues in excess of $13.0 million for the year ended December 31, 1996 and
derived substantially all of their revenues from the sale of HVAC products.

In August 1997, the Company purchased the HVAC operations and related assets
of Superior Supply Company, a distributor of HVAC equipment in the Midwest. Of
the 13 locations, ten were in new markets for the Company. The acquired
business had revenues in excess of $20.0 million for the year ended January
31, 1997 and derived substantially all of its revenues from the sale of HVAC
and refrigeration products.

In September 1997, the Company purchased the HVAC operations and related
assets of General Heating and Cooling Company, a distributor of HVAC equipment
in the Midwest. The acquired business had revenues in excess of $25.0 million
for the year ended December 31, 1996 and derived substantially all of its
revenues from the sale of HVAC products.

In December 1997, the Company purchased the refrigeration operations and
related assets of Williams Refrigeration, Inc., a distributor of refrigeration
equipment in the East. The acquired business had annual revenues of
approximately $30.0 million and derived substantially all of its revenues from
the sale of refrigeration products.

E-23

PAMECO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

February 29, 2000

Pro Forma Data

The following table summarizes unaudited pro forma financial information of
the Company as if the June 1998 acquisition of Park Heating and Air
Conditioning Supply Co., Inc. had occurred as of March 1, 1997. Pro forma
results have not been presented for those acquisitions which were not
significant during the periods presented. These unaudited pro forma results of
operations do not purport to represent what the Company's actual results of
operations would have been if the acquisition had occurred on March 1,
1997,and should not serve as a forecast of the Company's operating results for
any future periods.

The adjustments to the historical data reflect the following: (i) interest
expense assuming the Company financed the acquisition at a rate of 7.3%;
(ii)amortization of the excess of cost over acquired net assets;(iii) income
taxes on the earnings of the acquiree adjusted to reflect the Company's
effective tax rate; and (iv) the income tax effect of such pro forma
adjustments. The pro forma adjustments are based on the available information
and certain assumptions that management believes are reasonable.

Year ended
-------------------------
February 28, February 28,
1999 1998
------------ ------------
(In thousands)

Net sales.......................................... $635,705 $518,105
======== ========
Net income......................................... $ 68 $ 9,176
======== ========
Basic earnings per share........................... $ 0.01 $ 1.18
======== ========
Basic weighted average shares outstanding.......... 8,802 7,779
======== ========
Diluted earnings per share......................... $ 0.01 $ 1.12
======== ========
Diluted weighted average shares outstanding........ 9,118 8,183
======== ========

3. Property and Equipment

The components of property and equipment are as follows:

February 29, February 28,
2000 1999
------------ ------------
(In thousands)

Buildings and leasehold improvements............... $ 3,938 $ 2,751
Machinery and equipment............................ 4,422 3,051
Furniture, office, and computer equipment.......... 17,061 18,331
-------- --------
25,421 24,133
Accumulated depreciation........................... (10,375) (8,439)
-------- --------
$ 15,046 $ 15,694
======== ========

E-24

PAMECO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

February 29, 2000

4. Debt

The components of debt are as follows:

February 29, February 28,
2000 1999
------------ ------------
(In thousands)

Revolver........................................... $ -- $49,670
Term loans......................................... -- 49,187
New credit agreement............................... 60,244 --
Subdebt facility................................... 20,000 --
Other.............................................. 198 326
------- -------
80,442 99,183
Less current portion of debt....................... (50) (3,575)
------- -------
$80,392 $95,608
======= =======

At February 28, 1999, the Company had a Securitization Program with General
Electric Capital Corporation, Redwood Receivables Corporation ("Redwood"), and
Pameco Securitization Corporation ("PSC"). The Securization Program was an
off-balance sheet arrangement that provides for the transfer and sale of
accounts receivable to PSC, a special purpose wholly-owned subsidiary, that
sold the accounts receivable to Redwood, which issues commercial paper on the
Company's behalf. At February 28, 1999, accounts receivable of $43.6 million
were sold under the Securitization Program. The sales of such accounts
receivable were reflected as a reduction of accounts receivable in the
Company's consolidated balance sheet. The margin on the commercial paper rate
for the Securitization Program ranged from 0.75% to 1.75%,depending upon the
Company's interest coverage ratio, and was 1.00% at February 28, 1999. The
borrowing rate at February 28, 1999 was 5.9%. The discount on the sale of
accounts receivable was $2.6 million, $3.6 million, and $3.0 million for the
years ended February 29, 2000, February 28, 1999 and February 28, 1998, and
such amounts are included in other expenses on the consolidated statements of
operations.

The Company had aggregate borrowings of $49.2 million outstanding at
February 28, 1999 on Tranche A and Tranche B. The margin on the Eurodollar
rate for the Tranche A ranges from 1.50% to 2.50%, depending upon the
Company's interest coverage ratio, and was 1.75% at February 28, 1999. The
margin on the Eurodollar rate for the Tranche B ranged from 2.00% to 3.00%,
depending upon the Company's interest coverage ratio, and was 2.25% at
February 28, 1999.

E-25

PAMECO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

February 29, 2000

These amendments primarily served to lower certain financial covenants, adjust
interest rates, decrease borrowing bases, and adjust repayment dates for the
tranche loans. Additionally, the Company entered into amendments to the
Securitization Program in June 1999, July 1999, August 1999, October 1999,
December 1999, and January 2000. These amendments principally served to change
reporting requirements and lower certain financial covenants. On February 29,
2000, the Company repaid all borrowings under the Credit Agreement using the
proceeds from the financing agreement described below. Additionally, the term
loan borrowings with the primary institution sponsoring the Credit Agreement
were repaid. Accounts receivable previously sold under the Securitization
Program were repurchased by the Company concurrent with the repayment of
borrowings under the Credit Agreement.

On February 17, 2000, the Company entered into an agreement with a new
primary lender and various participating lenders (the "Lenders") to obtain
financing under a senior credit facility amounting to an aggregate of $130
million (the "New Credit Agreement"). The New Credit Agreement provides for
(a) a revolving line of credit of $130.0 million (the "New Revolver
Facility"), and (b) a subfacility of the New Revolver Facility providing for
the issuance of letters of credit (the "LC Facility"), not to exceed $15
million (such amount to be calculated as part of, and not in addition to, the
aggregate limit of the New Credit Agreement). At February 29, 2000, no amounts
were outstanding on the LC Facility or additional credit facility.

At February 29, 2000, the Company had borrowings of $60.2 million
outstanding under the New Facility. Proceeds from these borrowings on February
29, 2000, were used to repay borrowings under the previous Credit Agreement.
These borrowings are due February 17, 2005. Interest is based on LIBOR plus
2.75% for specified loan amounts and the prime rate plus .75% for borrowings
in excess of specified loan amounts. The effective borrowing rate at February
29, 2000 was 8.77%.

In connection with the $20.0 million Subdebt Facility and effective February
18, 2000, the Company entered into future inventory purchase agreements with
the parties to the Subdebt Facility. These agreements require the Company to
purchase minimum percentages of its annual inventory demand for certain
products over the next five years from specified suppliers. Failure to meet
these minimum percentages would result in penalties and default on the
associated $20.0 million Subdebt Facility. Minimum commitments under these
purchase agreements are: 2001--$19.9 million; 2002--$24.1 million; 2003--$25.4
million; 2004--$26.4 million; and 2005 and fiscal years thereafter $27.5
million. For the year ended February 29, 2000, the Company purchased $200.2
million of inventory from these specified suppliers.

The New Credit Agreement and the Subdebt Facility require compliance with
specific levels of net worth, earnings before interest, taxes, depreciation,
and amortization ("EBITDA"), and a specified fixed charge coverage ratio. The
negative covenants include various limitations on indebtedness, liens,
fundamental changes, dividends, and investments. At February 29, 2000, the
Company complied with all covenants or subsequently obtained a waiver and
amendment as of May 18, 2000, with respect to any violations (see "Subsequent
Event"). The Company has granted a security interest to the Lenders for
substantially all the assets of the Company, including the accounts
receivable, inventory, and equipment, as collateral for the debt.

E-26

PAMECO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

February 29, 2000

plus 7%. During the year ended February 29, 2000, interest expense incurred on
the Related Party Note was $114,000. The outstanding principal and interest of
$7.6 million were repaid in February 2000 in connection with the New Credit
Agreement described above.

Aggregate maturities and other required reductions of debt for the next five
fiscal years and thereafter are: 2001--$50,000; 2002--$74,000; 2003--$74,000;
2004--$2.0 million; 2005--$62.2 million; and thereafter--$16.0 million.

Interest paid was $9.7 million, $4.2 million, and $2.5 million, for the
years ended February 29, 2000, February 28, 1999 and February 29, 1998,
respectively.

Subsequent Event

5. Redeemable Convertible Preferred Stock and Warrants

On February 29, 2000 (the "issue date"), the Company issued 140,000 shares
of Series A Preferred Stock, at a purchase price of $249.99 per share, and
warrants to purchase 140,000 additional shares of Series A Preferred Stock
(the "Warrants") at a purchase price of $0.01 per Warrant, for an aggregate
consideration of $35 million.

The fair value of the Series A Preferred Stock at the issue date was $23.3
million, or $166 per share. Commencing on the fifth anniversary of the issue
date, each holder of Series A Preferred Stock may elect to sell to the Company
all or any part of the Series A Preferred Stock at a per share price equal to
the Liquidation Preference of $250 per share plus accrued dividends. As a
result of the "put" provision, the Series A Preferred Stock is considered
mandatorily redeemable and has been classified as mezzanine equity in the
Company's February 29, 2000 balance sheet. The value of the Series A Preferred
Stock will be accreted each month, commencing in March 2000 and until February
2005, to the contractual redemption value of $250 per share plus accrued
dividends using the effective interest method. The increase in the carrying
amount will be charged each month against retained earnings and will be
reflected as a reduction in net income available for common shareholders.

For the three year period following the issue date, the holders of the
Series A Preferred Shares are entitled to receive cumulative preferential
dividends at the rate of 14% of the stated value. The dividends will be paid
by the issuance of additional shares of Series A Preferred Shares. The
dividends compound quarterly to the extent unpaid on March 1, June 1,
September 1 and December 1 of each fiscal year. In the years ending February
28, 2002 and February 28, 2003, if the Company meets certain EBITDA targets in
each year, the dividends will be calculated retroactively at 8% for the
respective fiscal year. The dividends will be charged each quarter against
retained earnings and will be reflected as a reduction in net income available
for common shareholders.

The Series A Preferred Stock will be convertible to the Company's Class A
Common Stock, subject to shareholder approval at the Company's 2000 Annual
Meeting of Stockholders. The holders of the Series A Preferred Stock initially
will be able to convert each share of Series A Preferred Stock into 100 shares
of the Company's Class A Common Stock. Such conversion formula is subject to
adjustment given certain changes in the Company's capitalization. If all the
shares of the Series A Preferred Stock outstanding were converted, a total of
14 million shares of Class A Common Stock would be issued.

E-27

PAMECO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

February 29, 2000

If the Company declares and pays a dividend on the Class A Common Stock, a
holder of the Series A Preferred Shares is entitled to 50% of the dividends
such holder would have been entitled to receive had such holder fully
converted the Series A Preferred Shares into Class A Common Stock.

On or after the sixth anniversary of the issue date, the Company may redeem
the Series A Preferred Shares at a price equal to 105% of the Liquidation
Preference, or $262.50 per share. Also subject to shareholder approval, the
holders of the Series A Preferred Stock will be entitled to vote such shares
together with the holders of the Class A Common Stock on an as-converted
basis.

The Warrants entitle holders to purchase shares of the Series A Preferred
Stock and are immediately exercisable at an initial exercise price of $300 per
share of Series A Preferred Stock, or $3.00 per share of Class A Common Stock,
on an as converted basis. If all the Warrants were exercised in full, an
additional 14 million shares of Class A Common Stock would be issued. The
Company has recorded the fair value of the Warrants of $11.7 million at
February 29, 2000 on its balance sheet.

When the Company declares dividends on preferred shares in subsequent
periods, the holders will also receive warrants to purchase the same number of
Series A Preferred Shares that are issued as dividends. The exercise price for
such warrants is $312.50 per share of Series A Preferred Stock.

6. Stock-Based Compensation

The Board of Directors and shareholders of the Company approved an Employee
Stock Purchase Plan that became effective on January 1, 1998. The purpose of
the Plan is to provide an opportunity for employees to purchase shares of the
Class A Common Stock, par value $.01 per share, of the Company through payroll
deductions. A total of 500,000 shares of Common Stock, including a maximum of
100,000 shares in any calendar year, are available for purchase under the
Plan.

The Company's Employee Stock Option Plan I provides that 1,050,000 stock
options may be granted to key employees, including officers and directors, to
purchase common stock at fair market value. In June 1999, the shareholders
approved the 1999 Stock Award Plan. The plan provides that 1,000,000 stock
options and other stock awards may be granted to key employees, including
officers and directors, and business partners. Under both plans, stock options
typically vest one-third at the date of grant with the remainder vesting
incrementally over a two-year period and expire five years from the date
granted. Additionally, the Company has a stock option plan which provides for
the granting of 112,500 stock options to outside directors and a separate
issuance of 515,625 stock options to the Company's former chief executive
officer.

The Company has elected to follow APB 25 and related interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under SFAS No. 123 requires use
of option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of the Company's
employee stock options equals the fair value of the underlying stock on the
date of grant, no compensation expense is recognized.

Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, which also requires that the information be
determined as if the Company had accounted for its employee stock options
granted subsequent to February 28, 1995 under the fair value method of SFAS
No. 123.

E-28

PAMECO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

February 29, 2000

The fair value of stock options granted during the years ended February 29,
2000, February 28, 1999, and February 28, 1998, was estimated on the date of
grant using the Black-Scholes option pricing model with the following
assumptions:

Year ended
--------------------------------------
February 29, February 28, February 28,
2000 1999 1998
------------ ------------ ------------
(In thousands)

Expected life in years................ 4-5 2-5 2-6
Risk-free interest rate............... 5.77-6.46% 4.33-6.50% 5.25-6.50%
Expected volatility................... 50.0% 60.0% 55.1%
Dividend yield........................ 0% 0% 0%

The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options.

For purposes of pro forma disclosure, the estimated fair value of the
options is amortized to expense over the options' vesting periods. The
Company's pro forma information follows (in thousands, except for earnings per
share information):

Year ended
--------------------------------------
February 29, February 28, February 28,
2000 1999 1998
------------ ------------ ------------
(In thousands)

Pro forma net (loss) income......... $(53,552) $(1,050) $8,055
======== ======= ======
Pro forma basic (loss) earnings per
share applicable to common
shareholders....................... $ (5.83) $ (0.12) $ 1.04
======== ======= ======
Pro forma diluted (loss) earnings
per share applicable to common
shareholders....................... $ (5.83) $ (0.12) $ 0.98
======== ======= ======

Because SFAS No.123 is applicable only to options granted subsequent to
February 28, 1995, its pro forma effect will not be fully reflected until
future years.

E-29

PAMECO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

February 29, 2000

A summary of the status of the Company's stock option activity, and related
information for the years ended February 29, 2000, February 28, 1999, and
February 29, 1998, is as follows:

February 29, 2000 February 28, 1999 February 28, 1998
------------------ ------------------ ------------------
Weighted Weighted Weighted
Number Average Number Average Number Average
Of Exercise Of Exercise Of Exercise
Shares Price Shares Price Shares Price
-------- -------- -------- -------- -------- --------

Outstanding at beginning
of year................ 702,209 $13.86 674,613 $7.40 966,312 $5.61
Granted............... 674,500 5.83 497,500 19.33 49,750 17.68
Exercised............. (7,365) 5.18 (312,321) 6.44 (334,401) 3.70
Cancelled............. (606,219) 14.89 (157,208) 19.38 (7,048) 7.71
Expired............... -- -- (375) 4.80 -- --
-------- -------- --------
Outstanding at end of
year................... 763,125 6.03 702,209 13.86 674,613 7.40
======== ======== ========
Exercisable at end of
year................... 548,129 381,375 624,885
======== ======== ========
Options available for
future grant........... 392,010 294,486 284,403
======== ======== ========
Weighted average fair
value of options
granted during the
year................... $ 5.83 $ 19.33 $ 17.68
======== ======== ========

The following table summarizes information about stock options outstanding
at February 29, 2000:

Options Outstanding Options Exercisable
-------------------------------- --------------------
Weighted
Number Average Weighted Number Weighted
Outstanding Remaining Average Exercisable Average
February Contractual Exercise February Exercise
Range of Exercise Prices 29, 2000 Life Price 29, 2000 Price
- ------------------------ ----------- ----------- -------- ----------- --------

$3.31-$6.40.............. 523,125 3.1 $ 4.86 394,795 $ 5.25
$6.75-$9.60.............. 221,250 5.4 $ 7.50 134,584 $ 7.96
$16.00-$17.75............ 18,750 3.2 $16.58 18,750 $16.58
------- -------
763,125 548,129
======= =======

In June 1999, the Company granted restricted stock, consisting of 200,000
shares of its Class A Common Stock, to its chairman and then chief executive
officer. On the grant date, 90,000 shares vested and were immediately retained
by the Company to cover the officer's related tax liabilities. Originally, the
remaining 110,000 shares would have vested as follows: 40,000 on January 1,
2000; 40,000 on January 1, 2001; and 30,000 on January 1, 2002. As a result of
the Recapitalization, all the shares in the restricted stock award vested.
Upon issuance of the restricted shares, unearned compensation was charged to
stockholder's equity for the cost of restricted stock of $1,450,000.
Compensation cost is recognized as amortization expense ratably over the
vesting period. The Company recognized $1,151,000 of related compensation
expense in the year ended February 29, 2000.

7. Income Taxes

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant

E-30

PAMECO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

February 29, 2000

components of the Company's deferred income tax assets and liabilities at
February 29, 2000 and February 28, 1999 are as follows:

February 29, February 28,
2000 1999
------------ ------------
(In thousands)

Deferred income tax assets:
Accounts receivable reserves................... $ 2,379 $ 1,448
Inventory reserves............................. 2,994 6,436
Extended product warranties.................... 2,322 2,131
Restructuring reserves......................... 861 2,146
Other.......................................... 530 3,099
Net operating losses........................... 16,322 --
Alternative minimum tax credit................. 2,716 1,019
-------- -------
Total deferred income tax assets................. 28,124 16,279
Valuation allowance for deferred income tax
assets.......................................... (28,124) (1,140)
-------- -------
Net deferred income tax assets................... $ -- $15,139
======== =======

The cumulative alternative minimum tax credit generated in prior years can
be carried forward indefinitely to offset regular federal income tax expense
in future periods. Net operating losses of $277,859 can be carried forward
through 2007. The remaining net operating losses of $42.6 million from the
year ended February 29, 2000 can be carried forward through 2020.

The components of provision (benefit) for income taxes for the years ended
February 29, 2000, February 28, 1999, and February 28, 1998 are as follows:

Year ended
--------------------------------------
February 29, February 28, February 28,
2000 1999 1998
------------ ------------ ------------

Current:
Federal income taxes.............. $(2,033) $ 492 $2,920
State, local, and foreign income
and franchise taxes.............. (316) 236 380
------- ------- ------
(2,349) 728 3,300
Deferred:
Federal and state income taxes.... 14,646 (1,659) 241
------- ------- ------
$12,297 $ (931) $3,541
======= ======= ======

E-31

PAMECO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

February 29, 2000

A reconciliation of the expected income tax expense at the statutory federal
rate to the Company's actual income tax provision (benefit) is as follows:

Year ended
--------------------------------------
February 29, February 28, February 28,
2000 1999 1998
------------ ------------ ------------

Statutory (benefit) expense......... $(14,044) $(380) $4,212
State (benefit) expense net of
federal benefit.................... (1,652) (138) 327
Increase (reduction) in valuation
allowance.......................... 26,984 -- (671)
Nondeductible items................. (382) (347) (327)
Other, net.......................... 1,391 (66) --
-------- ----- ------
$ 12,297 $(931) $3,541
======== ===== ======

The Company's effective income tax rate for the years ended February 29,
2000, differed from the statutory rate principally as a result of an increase
in the deferred tax asset valuation allowance of $27.0 million in the year
ended February 29, 2000. In February 2000, in connection with the significant
loss incurred by the Company during the fourth quarter of the year, management
concluded that realization of its net deferred tax assets was no longer more
likely than not and, accordingly, increased the valuation allowance to fully
provide for such assets. The Company's effective income tax rate is
additionally reduced by the exclusion of the amortization of the acquired net
assets over cost (negative goodwill amortization) from taxable income.

The Company received (paid) approximately $1.1 million, $(1.4 million) and
($3.0 million) for federal and state income taxes during the years ended
February 29, 2000, February 28, 1999 and February 28, 1998, respectively.

8. Commitments and Contingencies

Operating Leases

The Company leases office and warehouse facilities and equipment under
operating leases. Rental expense for the years ended February 29, 2000,
February 28, 1999 and February 28, 1998 approximated $16.8 million, $16.2
million and $13.0 million, respectively. Future minimum lease commitments
under these agreements as of February 29, 2000 are as follows: 2001--$13.8
million; 2002--$10.6 million; 2003--$8.1 million; 2004--$5.5 million; 2005--
$2.6 million and $2.1 million thereafter.

Legal Proceedings

The Company is involved in claims and legal proceedings which have arisen in
the ordinary course of business. The Company intends to defend vigorously all
such claims and does not believe any such matters will have a material adverse
effect on the Company's results of operations or financial condition.

9. Employee Benefit Plan

The Company has a defined contribution plan which covers a majority of its
employees. The plan provides for voluntary employee contributions. Employee
contributions under plan provisions are discretionary. Pameco contributed
$300,219, $330,000 and $272,000 to the plan for the years ended February 29,
2000, February 28, 1999 and February 29, 1998, respectively.

E-32

PAMECO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

February 29, 2000

10. Earnings Per Share

The following table sets forth the computation of basic and diluted (loss)
earnings per share (in thousands, except per share amounts).

Year ended
--------------------------------------
February 29, February 28, February 28,
2000 1999 1998
------------ ------------ ------------

Numerator:
Net (loss) income applicable to common
shareholders......................... $(53,604) $ (188) $8,846
======== ====== ======
Denominator:
Denominator for basic earnings per
share-weighted average shares........ 9,183 8,802 7,779
Effect of dilutive securities:
Employee Stock Options................ -- -- 404
Series A Redeemable Convertible
Preferred Stock...................... -- -- --
Warrants for Series A Preferred
Stock................................ -- -- --
-------- ------ ------
Denominator for diluted earnings per
share-adjusted weighted-average shares
and assumed conversions................ 9,183 8,802 8,183
======== ====== ======
Basic (loss) earnings per share......... $ (5.84) $(0.02) $ 1.14
======== ====== ======
Diluted (loss) earnings per share....... $ (5.84) $(0.02) $ 1.08
======== ====== ======

The computation of dilutive common shares for the year ended February 28,
1998 excludes 49,750 of stock options that are antidilutive based on the
average market price for that period.

11. Restructuring

In the quarter ended February 28, 1999, the Company determined that the
existing distribution center network should be modified. Management believed
that the number of distribution centers should be increased and relocated
closer to the major markets served by the Company. The replacement
distribution centers would also be smaller in size. Management believed that
the revised distribution network would lead to increased inventory turns, less
damaged inventory, and lower overall rent expense.

Additionally, the Company initiated an extensive review of its unprofitable
branches in the quarter ended February 28, 1999. The Company had determined
that 15 branches should be closed based on either of the following criteria:
(1) The branch location was already in a market sufficiently serviced by a
Pameco branch or (2) The branch location was in an area with limited demand.
As of February 29, 2000, the Company has closed 14 of these branches. The
remaining branch closing should be completed by May 2000.

By closing or consolidating branches in these markets, the Company seeks to
reduce its inventory levels and operating expenses, without significantly
reducing its net sales. The Company does not expect the demographics of these
markets to change significantly enough within the next several years for these
branches to become profitable.

E-33

PAMECO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

February 29, 2000

In connection with the closure and the consolidation of these 15 branches
and the downsizing of the distribution centers, the Company recorded a
$4,026,000 restructuring charge. The charge consisted of the following
components: (1) lease and other facility expenses of $3,148,000; (2) the write
off of $35,000 of fixed assets no longer in use; and (3) $843,000 for the
termination of the dedicated fleet contract.

During the quarter ended February 29, 2000, the Company's management
determined that the present locations of the distribution centers most
appropriately serviced the markets currently served by the Company and
reversed into operating income the $2,456,000 charge previously established
for this purpose. Similarly, the Company determined that the current dedicated
fleet contract best suited the needs of the Company at this time and reversed
into operating income the $843,000 restructuring charge previously
established.

The following table provides more detail describing the restructuring charge
and related reversal:

Reserve
Charged Reversed Balance
Cash/ Restructuring to into February 29,
Non-Cash Charges Accrual Income 2000
-------- ------------- ------- -------- ------------
(In thousands)

Branches to be closed
Lease................... Cash $ (494) $269 $ -- $(225)
Severance............... Cash (25) 8 -- (17)
Fixed asset write-off... Non-Cash (35) 13 -- (22)
Utilities............... Cash (61) 27 -- (34)
Other................... Cash (112) 112 -- --
------- ---- ------ -----
Total-Branches............ (727) 429 -- (298)
Distribution centers to be
closed
Lease................... Cash (1,953) -- 1,953 --
Severance............... Cash (91) -- 91 --
Utilities............... Cash (229) -- 229 --
Other................... Cash (183) -- 183 --
------- ---- ------ -----
Total-Distribution
centers................ (2,456) -- 2,456 --
Termination of dedicated
fleet contract......... Cash (843) 843 --
------- ---- ------ -----
Total................... $(4,026) $429 $3,299 $(298)
======= ==== ====== =====

The majority of the cash expenditures related to branch closures, excluding
lease commitments, were completed by February 2000. The Company will continue
to pay on certain lease commitments through 2001. To date, the Company has
paid approximately $269,000 to terminate leases.

During the quarters ended August 31, 1999 and November 30,1999, the Company
identified 40 additional branches that met the closing criteria mentioned
above. As of February 29, 2000, the Company had closed 33 of these branches.
The remaining closings should be completed by August 31, 2000. The Company
recorded a $3,747,000 restructuring charge that can be attributed to the
additional 40 branches scheduled to close. These charges consisted of the
following components: (1) lease and other facility expenses of $1,821,000; (2)
the write-off of $549,000 of fixed assets no longer in use; and (3) an asset
impairment charge of $1,377,000 for the write-

E-34

PAMECO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

February 29, 2000

off of goodwill associated with certain branches to be closed. The table below
provides supplementary data pertaining to the $3,747,000 charge:

Reserve
Charged Balance
Cash/ Restructuring to February 29,
Description Non-Cash Charges Accrual 2000
----------- -------- ------------- ------- ------------
(in thousands)

Branches to be closed
Lease........................... Cash $(1,277) $ 122 $(1,155)
Severance....................... Cash (162) 36 (126)
Fixed asset write-off........... Non-Cash (549) 355 (194)
Utilities....................... Cash (167) 10 (157)
Other........................... Cash (215) 185 (30)
Goodwill related to branches to be
closed........................... Non-Cash (1,377) 1,377 --
------- ------ -------
Total............................. $(3,747) $2,085 $(1,662)
======= ====== =======

12. Quarterly Financial Data (unaudited)

The following is a summary of the unaudited quarterly results of operations
for the fiscal years ended February 29, 2000 and February 28, 1999 (in
thousands, except per share data):

Year ended February 29, 2000
--------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------- -------- -------- --------

Net sales............................. $159,117 $207,724 $135,991 $100,879
Gross profit.......................... $ 37,202 $ 43,984 $ 32,828 $ 17,761
Net loss.............................. $ (1,433) $ (587) $ (5,142) $(46,442)
Basic loss per share.................. $ (0.16) $ (0.06) $ (0.56) $ (5.03)
Basic weighted average shares
outstanding.......................... 9,092 9,201 9,216 9,225
Diluted earnings (loss) per share..... $ (0.16) $ (0.06) $ (0.56) $ (5.03)
Diluted weighted average shares
outstanding.......................... 9,092 9,201 9,216 9,225

Year ended February 28, 1999
-----------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------- -------- -------- --------

Net sales................................ $145,194 $210,293 $148,068 $121,487
Gross profit............................. $ 34,048 $ 50,483 $ 35,493 $ 26,925
Net income (loss)........................ $ 1,884 $ 8,308 $ 102 $(10,482)
Basic earnings (loss) per share.......... $ 0.22 $ 0.95 $ 0.01 $ (1.18)
Basic weighted average shares
outstanding............................. 8,740 8,782 8,818 8,867
Diluted earnings (loss) per share........ $ 0.21 $ 0.91 $ 0.01 $ (1.18)
Diluted weighted average shares
outstanding............................. 9,120 9,180 9,106 8,867

E-35

PAMECO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

February 29, 2000

In fourth quarter 2000, the Company conducted a full physical inventory.
Based on the results of that physical inventory, the Company recorded an
additional product shrinkage expense. In addition, the Company revalued a
portion of its inventory during the quarter.

The normal operating expenses of the 32 branches acquired since February 28,
1998, contributed approximately $6.7 million of the additional warehousing,
selling, and administrative expenses as compared to the prior year. In
addition, the Company incurred approximately $3.2 million of consulting costs
in the fourth quarter associated with the Company's process of enhancing its
key business processes.

In the prior year, the Company established a $3.3 million restructuring
charge to close or relocate its distribution centers and discontinue its
dedicated fleet contract. During the quarter ended February 29, 2000, the
Company's management determined that it would continue to use its current
distribution centers and dedicated fleet at this time and reversed the
previous charge to income.

In the fourth quarter, the Company recorded income tax expense of $17.0
million. In February 2000, in connection with the significant loss incurred by
the Company during the fourth quarter of the year, management concluded that
realization of its net deferred tax assets was no longer more likely than not
and, accordingly, increased the valuation allowance by $27.0 million
(including additional deferred tax assets originating in the fourth quarter)
to fully provide for such assets.

Fourth quarter 1999 net income is unusually low due to severance costs
associated with several executive level separations, product discontinuance,
and a restructuring of the Company's distribution system which resulted in a
fourth quarter charge aggregating approximately $8.1 million.

In February 1999, the Company announced an operations restructuring plan
which encompassed three primary elements: (a) downsizing distribution centers
and relocating certain branches to increase capacity, (b) certain branch
closings and (c) terminating its dedicated fleet contract. This plan resulted
in a fourth quarter charge of approximately $4.0 million. Such amount is
reflected in the 1999 consolidated statement of operations as restructuring.

In the fourth quarter of 1999, three executive level employees were
separated and the Company provided severance packages resulting in an
aggregate charge of approximately $1.5 million. Such amount is reflected in
the 1999 consolidated statement of operations as severance.

In the fourth quarter of 1999, the Company elected to discontinue relations
with certain suppliers and recorded a charge of approximately $2.6 million to
adjust such inventory to net realizable value. Such charge is included in cost
of products sold in the 1999 consolidated statement of operations.

E-36

Item 9. Changes In And Disagreements With Accountants On Accounting And
Financial Disclosure

None.

Part III.

Item 10. Directors and Officers of the Registrant

The information contained under the headings "Directors and Executive
Officers" and Section "16(c) Beneficial Ownership Reporting Compliance" in the
definitive Proxy Statement to be used in connection with the solicitation of
proxies for the Company's 2000 Annual Meeting of Shareholders, to be filed
with the Commission, are incorporated by reference.

Item 11. Executive Compensation

The information contained under the heading "Executive Compensation" in the
definitive Proxy Statement to be used in connection with the solicitation of
proxies for the Company's 2000 Annual Meeting of Shareholders, to be filed
with the Commission, is incorporated herein by reference. In no event shall
the information contained in the Proxy Statement under the heading "Comparison
of Cumulative Total Return" be deemed incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management

The information contained under the heading "Beneficial Ownership of
Securities and Voting Rights-Voting Securities and Principal Holders" in the
definitive Proxy Statement to be used in connection with the solicitation of
proxies for the Company's 2000 Annual Meeting of Shareholders, to be filed
with the Commission, is incorporated herein by reference. For purposes of
determining the aggregate market value of the Company's voting stock held by
nonaffiliates, shares held by all directors and executive officers of the
Company have been excluded. The exclusion of such shares is not intended to,
and shall not, constitute a determination as to which persons or entities may
be "affiliates" of the Company as defined by the Commission.

Item 13. Certain Relationships and Related Transactions

The information contained under the heading "Certain Transactions" in the
definitive Proxy Statement to be used in connection with the solicitation of
proxies for the Company's 2000 Annual Meeting of Shareholders, to be filed
with the Commission, is incorporated herein by reference.

Part IV.

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a) Financial Statements, Financial Statement Schedule and Exhibits

(1) Financial Statements included in Item 8:

Report of Independent Auditors

Consolidated Balance Sheets as of February 29, 2000 and February 28,
1999

Consolidated Statements of Operations for the years ended February
29, 2000, February 28, 1999, and February 28, 1998

Consolidated Statements of Shareholders' Equity for the years ended
February 29, 2000, February 28, 1999, and February 28, 1998

Consolidated Statements of Cash Flows for the years ended February
29, 2000, February 28, 1999, and February 28, 1998

Notes to Consolidated Financial Statements

(2) Financial Statement Schedule

Schedule II. Valuation and Qualifying Accounts

E-37

All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable and
therefore have been omitted.

(3) Exhibits:

23.1 Consent of Ernst and Young LLP
27 Financial Data Schedule

(b) Reports on Form 8-K:

NONE

E-38

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Corporation and in the capacities indicated, this 18th day of May, 2000.

/s/ James R. Balkcom Chairman /s/ Michael Ira Klein Director
- ------------------------------- -------------------------------
James R. Balkcom Michael Ira Klein

/s/ W. Michael Clevy Director /s/ Angus C. Littlejohn, Jr Director
- ------------------------------- -------------------------------
W. Michael Clevy Angus C. Littlejohn, Jr.

/s/ Willem F.P. de Vogel Director /s/ Dixon Ray Walker Director
- ------------------------------- -------------------------------
Willem F.P. de Vogel Dixon Ray Walker

/s/ Earl Dolive Director /s/ Harry F. Weyher III Director
- ------------------------------- -------------------------------
Earl Dolive Harry F. Weyher III

/s/ Edmund J. Feeley Director /s/ Robert J. Davis Chief
Financial
- ------------------------------- -------------------------------
Edmund J. Feeley Robert J. Davis Officer

E-39

Schedule II. Valuation and Qualifying Accounts

VALUATION AND QUALIFYING ACCOUNTS

Additions
---------------------------------
Charged to Other
Balance at Beg. Charged to Costs Accounts-- Deductions Balance at
of year and Expenses Describe Describe End of year
--------------- ---------------- ---------------- ---------- -----------

Allowance for losses on trade
accounts(a):
Year ended February 29, 2000........ 6,210 3,854 -- 4,074(c) 5,991
Year ended February 28, 1999........ 3,992 3,727 949(b) 2,458(c) 6,210
Year ended February 28, 1998........ 2,535 1,854 850(b) 1,247(c) 3,992

Valuation allowance for Inventory(a):
Year ended February 29, 2000........ 10,381 2,307 -- 9,439(e) 3,249
Year ended February 28, 1999........ 4,779 5,296 2,209(d) 1,903(e) 10,381
Year ended February 28, 1998........ 4,192 1,277 1,297(d) 1,987(e) 4,779

Valuation allowance for deferred tax
assets(a):
Year ended February 29, 2000........ 1,140 26,984(f) -- -- 28,124
Year ended February 28, 1999........ 1,140 -- -- -- 1,140
Year ended February 28, 1998........ 1,811 -- -- 671(g) 1,140

- --------
(a) Deducted from the related asset accounts.
(b) Principally represents recoveries of amounts previously charged off and
allowances for losses on trade accounts of acquired companies at the date
of acquisition.
(c) Charge off of uncollected accounts (net of recoveries).
(d) Inventory reserves of acquired companies at the date of acquisition.
(e) Adjustments relating to book-to-physical differences, sale of excess and
idle inventory, and other inventory adjustments.
(f) Increase in valuation allowance due to management's belief that
recognition of the related deferred tax assets is no longer more likely
than not.
(g) Reduction in valuation allowance due to management's belief that
recognition of the related deferred tax assets is more likely than not.

E-40

APPENDIX F

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

----------------

FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the quarterly period ended November 30, 2000

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-12837

----------------

PAMECO CORPORATION
(Exact name of registrant as specified in its charter)

Delaware 51-0287654
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification number)

651 Corporate Circle
Suite 200A
Golden, Co. 80401
(Address of principal executive offices)

(303) 568-1200
(Registrant's telephone number, including area code)

----------------

Number of shares outstanding of each of the issuer's classes of common stock,
as of the latest practical date. Class A Common Stock, $.01 par value,
3,091,111 shares as of January 5, 2001.

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

PAMECO CORPORATION

INDEX

PART I.FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets-November 30, 2000 and
February 29, 2000............................................... F-3
Condensed Consolidated Statements of Operations-Three Months
ended November 30, 2000 and 1999................................ F-4
Condensed Consolidated Statements of Operations-Nine Months ended
November 30, 2000 and 1999...................................... F-4
Consolidated Statements of Cash Flows-Nine Months ended
November 30, 2000 and 1999...................................... F-5
Notes to Condensed Consolidated Financial Statements............. F-6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... F-9

PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................ F-13
Item 6. Exhibits and Reports on Form 8-K............................. F-13

SIGNATURES............................................................... F-14

F-2

PAMECO CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)

November 30, February 29,
2000 2000
------------ ------------

ASSETS
Current assets:
Cash and cash equivalents........................... $ 111 $ 120
Accounts receivable, less allowance of $4,289 at
November 30, 2000 and $5,991 at February 29, 2000.. 51,257 59,769
Inventories, net.................................... 96,712 96,619
Prepaid expenses and other current assets........... 2,092 3,362
-------- --------
Total current assets............................... 150,172 159,870
Property and equipment, net.......................... 12,576 15,046
Excess of cost over acquired net assets, net......... 41,313 43,221
Debt financing costs................................. 3,229 3,657
Other assets......................................... 985 735
-------- --------
Total assets....................................... $208,275 $222,529
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................... $ 40,259 $ 58,116
Accrued compensation and withholdings............... 5,910 5,201
Other accrued liabilities and expenses.............. 15,422 16,355
Current portion of capital lease obligations and
other debt......................................... 50 50
-------- --------
Total current liabilities.......................... 61,641 79,722
Long-term liabilities:
Debt................................................ 94,773 80,392
Warranty reserves, etc.............................. 4,542 4,785
-------- --------
Total long-term liabilities........................ 99,315 85,177
Excess of acquired net assets over cost, net......... 2,299 3,245
Redeemable convertible preferred stock, $1.00 par
value; 600 shares authorized and 140 issued and
outstanding as of February 29, 2000, with an
aggregate liquidation preference of $35,000 as of
February 29, 2000................................... -- 23,324
Warrants to purchase redeemable convertible preferred
stock............................................... -- 11,676
Shareholders' equity:
Convertible preferred stock, $1.00 par value; 913
shares authorized and 203 issued and outstanding as
of November 30, 2000................................ 40,413 --
Warrants to purchase convertible preferred stock..... 11,676 --
Class A Common stock, $.01 par value-authorized
40,000 shares; 3,091 and 1,986 shares issued and
outstanding at November 30, 2000 and February 29,
2000, respectively................................. 31 59
Class B Common stock, $.01 par value-authorized
20,000 shares; no shares issued or outstanding at
November 30, 2000; 1,091 shares issued and
outstanding at February 29, 2000................... -- 33
Capital in excess of par value...................... 41,438 41,312
Deferred compensation cost.......................... -- (299)
Accumulated deficit................................. (48,538) (21,720)
-------- --------
Total shareholders' equity......................... 45,020 19,385
-------- --------
Total liabilities and shareholders' equity......... $208,275 $222,529
======== ========

See notes to condensed consolidated financial statements.

F-3

PAMECO CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)

Three Months
Ended Nine Months Ended
November 30, November 30,
------------------ ------------------
2000 1999 2000 1999
-------- -------- -------- --------

Net sales............................. $ 97,390 $135,991 $364,672 $502,832
Costs and expenses:
Cost of products sold................ 74,050 103,163 279,254 388,818
Warehousing, selling, and
administrative expenses............. 30,718 37,382 93,928 113,392
Severance............................ -- 35 -- 633
Branch restructuring................. (959) 881 (959) 3,585
Amortization of excess of cost over
acquired net assets................. 636 281 1,908 855
Amortization of excess of acquired
net assets over cost................ (315) (303) (946) (918)
Distribution center closure.......... 5,309 -- 5,309 --
-------- -------- -------- --------
109,439 141,439 378,494 506,365
-------- -------- -------- --------
Operating loss........................ (12,049) (5,448) (13,822) (3,533)

Other expenses:
Interest expense, net................ (2,656) (1,861) (7,739) (5,431)
Discount on sale of accounts
receivable and other expenses....... (265) (962) (668) (2,904)
-------- -------- -------- --------

Loss before income taxes.............. (14,970) (8,271) (22,229) (11,904)
Benefit for income taxes.............. -- (3,129) -- (4,742)
-------- -------- -------- --------
Net loss.............................. (14,970) (5,142) (22,229) (7,162)
Preferred stock dividends and
accretion of redeemable convertible
preferred stock...................... (1,130) -- (4,589) --
-------- -------- -------- --------
Net loss applicable to common
shareholders......................... $(16,100) $ (5,142) $(26,818) $ (7,162)
======== ======== ======== ========
Basic loss per share.................. $ (4.85) $ (1.67) $ (7.21) $ (2.34)
======== ======== ======== ========
Basic loss applicable to common
shareholders per share............... $ (5.21) $ (1.67) $ (8.70) $ (2.34)
======== ======== ======== ========
Basic weighted average shares
outstanding.......................... 3,089 3,072 3,082 3,057
======== ======== ======== ========
Diluted loss per share................ $ (4.85) $ (1.67) $ (7.21) $ (2.34)
======== ======== ======== ========
Diluted loss applicable to common
shareholders per share............... $ (5.21) $ (1.67) $ (8.70) $ (2.34)
======== ======== ======== ========
Diluted weighted average shares
outstanding.......................... 3,089 3,072 3,082 3,057
======== ======== ======== ========

Weighted average shares outstanding and basic and diluted loss per share
amounts for all periods presented reflect the effect of a one-for-three reverse
stock split effective on June 21, 2000.

See notes to condensed consolidated financial statements.

F-4

PAMECO CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

Nine Months Ended
November 30,
------------------
2000 1999
-------- --------

Cash flows from operating activities
Net loss .................................................. $(22,229) $ (7,162)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Amortization of excess of cost over acquired net assets... 1,908 855
Amortization of excess of acquired net assets over cost... (946) (918)
Depreciation.............................................. 2,941 2,741
Amortization of debt financing costs...................... 570 --
Loss on sale of property and equipment.................... 202 52
Changes in operating assets and liabilities net of assets
acquired and liabilities assumed:
Accounts receivable...................................... 8,811 2,143
Inventories, prepaid expenses and other assets........... 927 43,158
Accounts payable, accrued liabilities, and warranty
reserves................................................ (18,324) (11,774)
-------- --------
Net cash (used in) provided by operating activities........ (26,140) 29,095

Cash flows from investing activities
Purchases of property and equipment........................ (693) (3,409)
Proceeds from sales of property and equipment.............. 20 23
-------- --------
Net cash used in investing activities...................... (673) (3,386)

Cash flows from financing activities
Borrowings on working capital facility..................... -- 3,724
Repayments on term debt.................................... -- (29,756)
Payments on capital lease obligations and other debt....... -- (248)
Issuance of preferred stock................................ 12,500 --
Net borrowings on new credit agreement..................... 14,381 --
Debt issue costs paid for new debt......................... (142) --
Proceeds from exercise of stock options and contributions
from stock purchase plan.................................. 65 551
-------- --------
Net cash provided by (used in) financing activities........ 26,804 (25,729)
-------- --------
Net decrease in cash and cash equivalents.................. (9) (20)
Cash and cash equivalents at beginning of period........... 120 148
-------- --------
Cash and cash equivalents at end of period................. $ 111 $ 128
======== ========

See notes to consolidated financial statements.

F-5

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
November 30, 2000

1. BASIS OF PRESENTATION

The accompanying unaudited Condensed Consolidated Financial Statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the three- and
nine-month period ended November 30, 2000 are not necessarily indicative of
the results that may be expected for the year ending February 28, 2001. The
sale of products by Pameco Corporation (the "Company" or "Pameco") is
seasonal, with sales generally increasing during the warmer months beginning
in April and peaking in the months of June, July, and August. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's Annual Report on Form 10-K for the year
ended February 29, 2000.

2. INVENTORIES

Inventories consist of goods held for resale and are stated at the lower of
cost or market. Cost is determined by the first-in, first-out method.

3. EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings
per share (in thousands, except per share amounts).

Three Months Ended Nine Months Ended
November 30, November 30,
-------------------- -------------------
2000 1999 2000 1999
--------- --------- --------- --------

Numerator:
Net loss............................ $ (14,970) $ (5,142) $ (22,229) $ (7,162)
========= ======== ========= ========
Net loss applicable to common
shareholders....................... $ (16,100) $ (5,142) $ (26,818) $ (7,162)
========= ======== ========= ========
Denominator:
Denominator for basic loss per
share-weighted average shares...... 3,089 3,072 3,082 3,072
Effect of dilutive securities:
Stock options....................... -- -- -- --
--------- -------- --------- --------
Denominator for diluted loss per
share-adjusted weighted-average
shares and assumed conversions...... 3,089 3,072 3,082 3,057
========= ======== ========= ========
Basic loss per share................. $ (4.85) $ (1.67) $ (7.21) $ (2.34)
========= ======== ========= ========
Basic loss applicable to common
shareholders per share.............. $ (5.21) $ (1.67) $ (8.70) $ (2.34)
========= ======== ========= ========
Diluted loss per share............... $ (4.85) $ (1.67) $ (7.21) $ (2.34)
========= ======== ========= ========
Diluted loss applicable to common
shareholders per share.............. $ (5.21) $ (1.67) $ (8.70) $ (2.34)
========= ======== ========= ========

Weighted average shares outstanding and basic and diluted loss per share
amounts for the three months and nine months ended November 30, 2000 have been
restated to effect the one-for-three reverse stock split effective on June 21,
2000.

F-6

4. CONTINGENCIES

From time to time, the Company is involved in claims and legal proceedings,
which arise in the ordinary course of its business. The Company intends to
defend vigorously all such claims and does not believe any such matters would
have a material adverse effect on the Company's results of operations or
financial condition.

5. BRANCH RESTRUCTURING

Throughout the years ended February 28, 1999 and February 29, 2000, the
Company performed extensive reviews of its unprofitable branches. The Company
determined that 55 branches should be closed based on either of the following
criteria: (1) the branch location was already in a market sufficiently
serviced by a Pameco branch or (2) the branch location was in an area with
limited demand. As of November 30, 2000, the Company has closed 53 of these 55
branches. By closing or consolidating branches in these markets, the Company
seeks to reduce its inventory levels and operating expenses. The Company does
not expect the demographics of these markets to change significantly enough
within the next several years for these branches to become profitable.

In the connection with the closure and the consolidation of these 55 branches,
the Company recorded $4.5 million of restructuring charges. The charges
consisted of the following components: (1) lease and other facility expenses
of $2.3 million; (2) the write off of $584,000 of fixed assets no longer in
use; (3) severance payments of $187,000; and (4) an asset impairment charge of
$1.4 million for the write-off of goodwill associated with certain branches to
be closed.

During the three-month period ended November 30, 2000, the Company reversed
reserves of $959,000 representing favorable results of lease termination
negotiations. The reserve balance at November 30, 2000 was approximately
$846,000. The Company will continue to pay on certain lease commitments
through 2003.

6. DISTRIBUTION CENTER CLOSURE

During the second quarter of the current fiscal year the Company began an
extensive analysis of the distribution infrastructure of the Company. The
Company determined that the existing centralized distribution structure was
inadequate to serve the branch network efficiently and began testing alternate
approaches. Starting in the third quarter, the Company began transitioning to
a decentralized operating structure consisting of 32 districts with each
district relying on direct vendor supply. In the third quarter the Company
concluded that the decentralized structure was viable and ceased operations at
the Company's eight distribution centers. As of November 30, 2000, the Company
has terminated one of the facility leases, and the Company is actively
pursuing sublease opportunities and lease terminations on the remaining seven
facilities.

In connection with the closure of these eight distribution centers, the
Company recorded a charge of $5.3 million. The charge consists of the
following items: (1) lease and other facility expenses of $3.4 million; (2)
the write off of $885,000 of fixed assets no longer in use; and (3) $1.0
million of other items, primarily related to the termination of logistic
service contracts. Payments on lease and facility expenses through November
30, 2000 have not been significant.

F-7

7. SHARE CAPITAL

On June 21, 2000, the shareholders approved a one-for-three reverse stock
split. All amounts disclosed in these financial statements have been restated
to give effect to the reverse stock split.

On August 28, 2000, the Company authorized 312,500 shares of redeemable Series
B convertible preferred stock. The Company issued 50,000 shares of Series B
preferred stock on August 28, 2000 and 12,500 shares of Series B preferred
stock on September 21, 2000.

On October 17, 2000, the holders of the outstanding Series A and Series B
preferred shares agreed to waive certain redemption rights with respect to the
Series A and Series B preferred shares. As a result of such waiver, the
Company reclassified the value of the preferred stock investment from
mezzanine equity to shareholders' equity. Additionally, it is no longer
necessary that the value of such shares be accreted each month to an ultimate
redemption value.

8. SUBSEQUENT EVENTS

On December 2, 2000, the Company entered into a fifth amendment to the New
Credit Agreement. In general, the amendment modified certain debt covenant
levels.

On December 2, 2000, the Company authorized 312,500 shares of convertible
Series C preferred stock with a par value of $1.00 per share. Also on December
2, 2000, 62,500 shares of the Series C preferred stock were issued in exchange
for $12.5 million.

On December 6, 2000, the Company received notice that the New York Stock
Exchange ("NYSE") had determined that the Company's common stock should be
delisted from the NYSE. The NYSE's action was taken in view of the fact that
the Company is below the NYSE's continued listing criteria relating to total
global market capitalization less than $50 million, total stockholders' equity
of less than $50 million and average global market capitalization over a
consecutive 30 day trading period of less than $15 million. In addition, the
plan for return to conformity with continued listing standards was not
acceptable to the Listings and Compliance Committee of the NYSE. On December
28, 2000, the Company was delisted from the NYSE, and trading of the Company's
common stock began on the NASDAQ Over the Counter Bulletin Board under the
symbol PAMC.

On January 15, 2001, the Company received an offer from Littlejohn Fund II,
L.P. and Quilvest American Equity Ltd. to acquire all of the outstanding
shares of common stock of the Company for $0.40 per common share, payable in
cash. Filed herewith as an exhibit to this Quarterly Report on Form 10-Q is
the press release of the Company announcing receipt of this offer.

F-8

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The following table sets forth the percentage relationship of certain
statement of income data to net revenue for the periods indicated.

Three Months Ended Nine Months Ended
------------------------- -------------------------
November 30, November 30, November 30, November 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------

Net sales.................. 100.0 % 100.0 % 100.0 % 100.0 %
Cost of products sold..... 76.0 75.9 76.6 77.3
----- ----- ----- -----
Gross profit............... 24.0 24.1 23.4 22.7
Warehousing, selling, and
administrative expenses.. 31.5 27.5 25.8 22.6
Severance................. -- -- -- 0.1
Branch restructuring...... (1.0) .6 (.3) 0.7
Amortization of excess of
cost over acquired net
assets................... 0.7 .2 0.5 0.2
Amortization of excess of
acquired net assets over
cost..................... (0.3) (0.2) (0.3) (0.2)
Distribution center
closure.................. 5.5 -- 1.5 --
----- ----- ----- -----
Operating loss............. (12.4) (4.0) (3.8) (0.7)
Other expense:
Interest expense, net..... 2.7 1.4 2.1 1.1
Other expense............. 0.3 0.7 0.2 0.6
----- ----- ----- -----
Loss before income taxes... (15.4) (6.1) (6.1) (2.4)
Benefit for income taxes... -- (2.3) -- (0.9)
----- ----- ----- -----
Net loss................... (15.4)% (3.8)% (6.1)% (1.5)%
===== ===== ===== =====

Results Of Operations

Quarter Ended November 30, 2000 vs Quarter Ended November 30, 1999

Net sales for the quarter ended November 30, 2000 decreased 28% to $97.4
million from $136.0 million for the same period in 1999. Second quarter same
store daily sales decreased 23.1%. Net sales were adversely impacted by supply
chain issues and a general slow down in the industry.

Gross profit for the quarter ended November 30, 2000, decreased 28.9% to $23.3
million from $32.8 million for the same period in 1999. The gross profit
percentage for the quarter ended November 30, 2000 stayed essentially the
same, decreasing to 24.0% from 24.1% for the same period in 1999.

Warehousing, selling, and administrative expenses during the quarter decreased
17.8% to $30.7 million from $37.3 million for the same period in 1999. As a
result of the decline in sales, and the closure of branches, non-personnel
related warehousing, selling, and administrative expenses were reduced by $6.6
million as compared to the same period in the prior year.

Interest expense, net, for the third quarter ended November 30, 2000 increased
to $2.7 million from $1.9 million for the same period in 1999, primarily due
to higher interest rates and higher outstanding balances. During the year
ended February 29, 2000, the Company used an accounts receivable
securitization program, and the discount on the sale of accounts receivable of
$559,000 for the quarter ended November 30, 1999 was recorded as "Other
Expense" on the statements of operations. This program was terminated on
February 29, 2000.

F-9

Nine Months Ended November 30, 2000 and November 30, 1999

Net sales for the nine months ended November 30, 2000, decreased 27.5% to
$364.7 million from $502.8 million for the same period in 1999. Same store
daily sales through nine months decreased 20.6%. Net sales and same store
sales were negatively impacted by inadequate levels of inventory at the start
of the year, the ongoing effects of the restructuring effort, along with a
general slow down in the industry in the third quarter ended November 30,
2000.

Gross profit for the nine months ended November 30, 2000 decreased 25.1% to
$85.4 million from $114.0 million for the same period in 1999. The decline in
gross profit is directly related to the decline in net sales explained above.
The gross profit percentage for the nine months ended November 30, 2000
increased to 23.4% from 22.7% for the same period in 1999.

Warehousing, selling, and administrative expenses for the nine months ended
November 30, 2000 decreased 17.2% to $93.9 million from $113.4 million for the
same period in 1999. As a result of the decline in sales, and the closure of
branches, non-personnel related warehousing, selling, and administrative
expenses were reduced by $19.5 million as compared to the same period in the
prior year.

Interest expense, net, for the nine months ended November 30, 2000 increased
$2.3 million to $7.7 million from $5.4 million for the same period in 1999,
primarily due to higher interest rates and higher balances. The discount on
the sale of accounts receivable for the securitization program of $2.4 million
for the nine months ended November 30, 1999 was recorded as "Other Expense" on
the statements of operations.

Liquidity and Capital Resources

The Company's working capital increased to $87.6 million at November 30, 2000
from $80.1 million at February 29, 2000.

The Company's capital expenditures, excluding acquisitions, for the nine
months ended November 30, 2000, were $693,000 as compared to $3.4 million for
the previous year. Such capital expenditures were primarily for branch and
leasehold improvements, and computer equipment and software.

On February 17, 2000, the Company entered into an agreement with a new primary
lender and various participating lenders (the "Lenders") to obtain financing
under a senior credit facility amounting to an aggregate of $130 million (the
"New Credit Agreement"). The New Credit Agreement provides for (a) a revolving
line of credit of $130.0 million (the "New Revolver Facility"), and (b) a
subfacility of the Revolver Facility providing for the issuance of letters of
credit (the "LC Facility"), not to exceed $15 million (such amount to be
calculated as part of, and not in addition to, the aggregate limit of the New
Credit Agreement).

At November 30, 2000, the Company had borrowings of $73.6 million outstanding
under the New Revolver Facility. These borrowings are due February 17, 2005.
Interest is based on LIBOR plus 3.25% for specified loan amounts and the prime
rate plus 1.25% for borrowings in excess of specified loan amounts. The
effective borrowing rate at November 30, 2000 was 10.0%.

At November 30, 2000, debt includes $20.9 million outstanding under a
subordinated debt agreement (the "Subdebt Facility") entered into on February
18, 2000 in connection with the $130.0 million New Credit Agreement. The
Subdebt Facility bears interest of 12% per annum due quarterly. The 12%
interest consists of 6% payable in cash and 6% added to principal ("paid in
kind" interest). Principal plus paid in kind interest of $2.0 million is due
at March 31, 2003 and 2004, respectively, and the remaining balance is due on
March 31, 2005.

F-10

In connection with the Subdebt Facility and effective February 18, 2000, the
Company entered into future inventory purchase agreements with the owners of
such Subdebt Facility. These agreements require the Company to purchase
minimum percentages of its annual inventory demand for certain products over
the next five years from specified suppliers. Failure to meet these minimum
percentages would result in penalties and default on the associated $20.0
million Subdebt Facility. Minimum commitments under these purchase agreements
for the next five fiscal years are estimated to be: 2001-$20.1 million; 2002-
$24.3 million; 2003-$25.7 million; 2004-$26.1 million; and 2005 and thereafter
$27.2 million. For the year ended February 29, 2000, the Company purchased
$200.2 million of inventory from these specified suppliers.

The New Credit Agreement and the Subdebt Facility require compliance with
specific levels of net worth, earnings before interest, taxes, depreciation,
and amortization ("EBITDA"), and a specified fixed charges coverage ratio. The
negative covenants include various limitations on indebtedness, liens,
fundamental changes, dividends, and investments. At November 30, 2000, the
Company complied with all covenants. The Company has granted a security
interest to the Lenders for substantially all the assets of the Company,
including the accounts receivable, inventory, and equipment, as collateral for
the debt.

On May 18, 2000, the Company entered into an amendment and waiver to the New
Credit Agreement. In general, the amendment waived the Company's violation of
the consolidated net worth covenant as of February 29, 2000, modified the
definition of consolidated net worth, and reduced the levels of consolidated
net worth required for future periods. The covenant violation was primarily
attributable to the establishment of a non-cash valuation allowance for
deferred tax assets. In February 2000, in connection with the significant loss
incurred by the Company during the fourth quarter of fiscal 2000, management
concluded that realization of its net deferred tax assets was no longer likely
and, accordingly, increased the valuation allowance to fully provide for such
assets. Although the asset was fully reserved on the Company's balance sheet,
the benefit remains available through an increase in the Company's tax loss
carry forward provision. As such, the related reduction in the net worth has
no cash impact on the Company. In addition, the Subdebt Facility contains
provisions whereby amendments to the New Credit Agreement are automatically
incorporated into the Subdebt Facility.

On August 28, 2000, the Company entered into another amendment to the New
Credit Agreement. In general, the amendment reduces the revolving line of
credit limit to $117.5 million and further modified certain debt covenant
levels.

On August 28, 2000 and September 21, 2000, the Company obtained additional
funding from private investors of $10 million and $2.5 million, respectively,
in exchange for shares of Series B preferred stock pursuant to the existing
February 18, 2000 Securities Purchase Agreement. The preferred stock is
convertible into shares of the Company's common stock at a conversion price
per share of $3.38 and will have the right to vote with the common stock on an
as-converted basis.

Management believes that the Company has adequate resources and liquidity to
meet its borrowing obligations, fund all required capital expenditures, and
pursue its business strategy for existing operations through the end of fiscal
2001. However, the Company will require additional funding in order to pursue
significant acquisition opportunities. Future acquisitions may be financed by
bank borrowings, public offerings, or private placements of equity or debt
securities, or a combination of the foregoing. Such financing may require the
consent of the Company's existing lenders.

Subsequent Events

On December 2, 2000, the Company entered into a fifth amendment to the New
Credit Agreement. In general, the amendment modified certain debt covenant
levels.

On December 2, 2000, the Company obtained additional funding from private
investors of $12.5 million in exchange for 62,500 shares of a new Series C
preferred stock pursuant to the existing February 18, 2000

F-11

Securities Purchase Agreement. The Series C preferred stock is convertible
into shares of the Company's common stock at a conversion price per share of
$1.65 and will have the right to vote with the common stock on an as-converted
basis.

On December 6, 2000, the Company received notice that the New York Stock
Exchange ("NYSE") had determined that the Company's common stock should be
delisted from the NYSE. The NYSE's action was taken in view of the fact that
the Company is below the NYSE's continued listing criteria relating to total
global market capitalization less than $50 million, total stockholder's equity
of less than $50 million and average global market capitalization over a
consecutive 30 day trading period of less than $15 million. In addition, the
plan for return to conformity with continued listing standards was not
acceptable to the Listings and Compliance Committee of the NYSE. On December
28, 2000, the Company was delisted from the NYSE, and trading of the Company's
common stock began on the NASDAQ Over the Counter Bulletin Board under the
symbol PAMC.

Seasonality

The sale of products by the Company is seasonal. Sales generally increase
during the warmer months beginning in April and peak in the months of June,
July, and August.

Other

The Company is in the process of assessing certain operations and strategic
plans. This assessment may result in changes in the Company's forecasts of
future operating results and the recoverability of the excess of cost over
acquired net assets. The Company plans to complete this assessment in the
fourth quarter of fiscal 2001. It is possible that additional non-cash charges
against operations could result.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains various "forward-looking
statements" which represent the Company's expectations or beliefs concerning
future events. The Company cautions that a number of important factors could,
individually or in the aggregate, cause actual results to differ materially
from those included in the forward-looking statements, including the
following: consumer spending trends, weather conditions, increased
competition, and general economic conditions.

F-12

PART II.

OTHER INFORMATION

Item 1. Legal Proceedings

See Note 4 to the Condensed Consolidated Financial Statements (Unaudited)
contained in Part I of this Report.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

99 -- Press release announcing the receipt on January 15, 2001 of an offer
to purchase common stock of the Company

(b) Reports on Form 8-K

none

F-13

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

PAMECO CORPORATION
(Registrant)

/s/ Robert J. Davis
By: _________________________________
Robert J. Davis
Chief Financial Officer

January 16, 2001

(Mr. Davis has been duly authorized
to sign on behalf of the registrant)

F-14

PAMECO CORPORATION
651 CORPORATE CIRCLE
GOLDEN, COLORADO 80401

PROXY

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY , 2001

The undersigned stockholder of Pameco Corporation ("Pameco"), revoking all
previous proxies, hereby constitutes and appoints and
, and each, as proxy and attorney in fact, with full power of
substitution, on behalf of and in the name of the undersigned, to represent the
undersigned, at the special meeting of stockholders of Pameco at .m.,
Eastern time, on May , 2001 at , and at any adjournment or
postponement thereof (the "Special Meeting"), and to vote the number of shares
of common stock and preferred stock of Pameco the undersigned would be entitled
to vote if personally present at the Special Meeting on the matters set forth
herein. The undersigned hereby acknowledges receipt of the Notice of Special
Meeting and proxy statement relating to the Special Meeting and hereby
instructs said proxies to vote or refrain from voting such shares of Pameco
common stock as marked on the reverse side of this proxy card upon the matters
listed thereon.

THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDERS. THIS PROXY WILL BE VOTED FOR PROPOSAL
NOS. 1 AND 2 IF NO SPECIFICATION IS MADE AND WILL BE VOTED AT THE DISCRETION OF
THE PROXY HOLDERS ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE SPECIAL
MEETING.

THE PROXIES CANNOT VOTE YOUR SHARES UNLESS YOU SIGN AND RETURN THIS CARD.
(CONTINUED, AND TO BE SIGNED AND DATED, ON REVERSE SIDE)

[X] Please mark your vote as in this example.

THE BOARD OF DIRECTORS OF PAMECO RECOMMENDS A VOTE FOR PROPOSAL NOS. 1 AND 2.

1. To approve and adopt the Agreement and Plan of Merger, dated as of March 6,
2001, by and between Pameco Acquisition, Inc. and Pameco, and to approve the
merger of Pameco Acquisition, Inc. with and into Pameco, as described in the
accompanying proxy statement. In the merger, each issued and outstanding
share of Pameco common stock (other than shares held by Pameco, its
subsidiaries, or Pameco Acquisition, and other than shares held by
stockholders who perfect dissenters' rights under Delaware law) will be
converted into the right to receive $0.45 net per share in cash.

[_] FOR [_] AGAINST [_] ABSTAIN

2. To grant the Pameco Board the discretionary authority to act upon other
maters relating to the conduct of the Special Meeting and at any adjournment
or postponement thereto.

[_] FOR [_] AGAINST [_] ABSTAIN

Please sign and date this proxy and return it in the enclosed return
envelope, whether or not you expect to attend the Special Meeting. You may also
vote in person if you do attend.

Date:
-------------------------

---------------------------------

Signature(s)

Note: Please sign this proxy
exactly as your name appears
hereon. Persons signing in a
fiduciary capacity should so
indicate. If shares are held by
joint tenants or as community
property, both should sign. If
the stockholder is a
corporation, please sign full
corporate name by an authorized
officer. If stockholder is a
partnership, please sign full
partnership name by an
authorized person.