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 January 28, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________to_________________
Commission File No. 001-08772
HUGHES SUPPLY, INC.
-------------------
(Exact name of registrant as specified in its charter)
Florida 59-0559446
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
20 North Orange Avenue, Suite 200, Orlando, Florida 32801
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 407/841-4755
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -------------------
Common Stock ($1.00 Par Value) New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Common Stock ($1.00 Par Value)
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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 period 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 III of this Form 10-K or any amendment to this
Form 10-K. [ ]
State the aggregate market value of the voting stock held by non-affiliates of
the registrant: $347,827,104 as of April 14, 2000.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date: 23,589,078 shares of Common
Stock ($1.00 par value) as of April 14, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and the Part
of the Form 10-K into which the document is incorporated:
Part I - Annual Report to Shareholders for the fiscal year ended
January 28, 2000 (designated portions).
Part II - Annual Report to Shareholders for the fiscal year ended
January 28, 2000 (designated portions).
Part III - Definitive Proxy Statement for the 2000 Annual Meeting of
Shareholders (designated portions).
Part IV - Annual Report to Shareholders for the fiscal year ended
January 28, 2000 (designated portions).
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TABLE OF CONTENTS
Page
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PART I
Item 1. Business ......................................................... 4
Item 2. Properties ....................................................... 15
Item 3. Legal Proceedings ................................................ 15
Item 4. Submission of Matters to a Vote of Security Holders............... 15
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters .............................................. 16
Item 6. Selected Financial Data .......................................... 16
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations .............................. 16
Item 7A. Quantitative and Qualitative Disclosures About Market Risk........ 16
Item 8. Financial Statements and Supplementary Data ...................... 17
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure .............................. 17
PART III
Item 10. Directors and Executive Officers of the Registrant................ 18
Item 11. Executive Compensation ........................................... 18
Item 12. Security Ownership of Certain Beneficial Owners and Management ... 18
Item 13. Certain Relationships and Related Transactions ................... 18
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K .. 19
Signatures ....................................................... 23
Index to Consolidated Financial Statements and Schedules ......... 24
Index of Exhibits Filed with this Report ......................... 25
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PART I
ITEM 1. BUSINESS
GENERAL
Hughes Supply, Inc. (as used throughout this report, "Hughes Supply," the
"Company" or the "Registrant" refers to Hughes Supply, Inc. and its
subsidiaries, except where the context otherwise requires) is one of the largest
diversified wholesale distributors of construction and industrial materials,
equipment and supplies to commercial construction, residential construction,
industrial and public infrastructure markets in North America. Hughes Supply
operates primarily in the southeastern, southwestern and midwestern United
States. The Company, founded in 1928, distributes over 250,000 products,
representing five major product categories, through 488 branches and
distribution centers located in 32 states and Mexico.
The Company focuses on distributing products that leverage its strengths in
inventory management, specialized sales forces by product group, distribution
and logistics, credit management, information technology and mergers and
acquisitions. The Company has increasingly focused on value-added products and
services, including integrated supply arrangements, fabrication, facilities,
management and the development of national accounts.
The Company employs a specialized and experienced sales force for each of
its product groups to best serve its customers. Management believes that no
other company competes against Hughes Supply across all of its product groups.
The Company sells its products to customers in the commercial construction,
residential construction, public infrastructure and industrial markets.
At the commencement of fiscal year 2001, Hughes Supply completed its
planned reorganization into five strategic business units ("SBUs"), each of
which is led by a group president and includes a staff dedicated to the unit. An
SBU is organized around each of the following five broad product categories:
- Electrical and Electric Utility;
- Plumbing/Heating, Ventilation, and Air Conditioning ("HVAC");
- Water and Sewer;
- Industrial Pipe, Valves and Fittings ("Industrial PVF"); and
- Building Materials/Pool and Spa/Maintenance Supplies.
This improved product-driven organizational structure is designed to
enhance the Company's already strong, competitive position in the marketplace by
intensifying the Company's focus on satisfying customer needs, strengthening
vendor relationships and streamlining the decision-making processes at the
Company.
In recent years, the Company has centered its internal growth and growth
through acquisitions around customer groups and products which help it to
diversify geographically and product-wise, capturing more of the total
construction dollar while focusing more on products used in repair, maintenance,
replacement and renovation applications. These products generally offer higher
margins and are less dependent on new construction. Management believes that the
Company's product, market and geographic diversification helps reduce the impact
of economic cycles on its net sales and profitability.
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INDUSTRY OVERVIEW
Based on estimates available to the Company, industry sales in the United
States of products sold by the Company exceeded $200 billion in 1999, and no
wholesale distributor of these products accounted for more that 5% of the total
market.
Many local and regional distributors are privately-owned,
relationship-based companies. Such distributors often have limited purchasing
power, lack sufficient resources to offer broad product lines and multiple
brands, and lack the sophisticated inventory management and control systems
necessary to operate multiple branches efficiently. As a result, such
distributors target their services to a particular type or size of customer
and/or a particular product group. To counter the limitations experienced by
small distributors, certain wholesale distributors, including the Company, have
grown considerably through acquisitions. This expansion has enabled Hughes
Supply to service various sizes and types of customers and multiple product
groups and diversify its sales across various types of construction and users of
its products.
Because of Hughes Supply's strong competitive position, its size and its
management infrastructure, management believes that the Company is well
positioned to continue to benefit from consolidation trends within the wholesale
distribution business.
Unlike do-it-yourself home center retailers, the Company does not market
its products to retail consumers. Consequently, the Company differentiates
itself with respect to its customer base, breadth of products offered and level
of service provided. Management believes that the Company's customers are
typically professionals who choose their suppliers primarily on the basis of
product availability, price, relationships with sales personnel, and the quality
and scope of services offered by such suppliers. Furthermore, professional
customers generally buy in large volumes, are repeat buyers because of their
involvement in longer-term projects, and require specialized services not
typically provided by do-it-yourself home center retailers. The Company provides
its customers with credit services, design assistance, material specifications,
scheduled job site delivery, job site visits to ensure satisfaction, technical
product services, including blueprint take-off and computerized order quotes,
and assistance with product returns. Accordingly, the Company has been able to
serve customer groups that do-it-yourself home center retailers generally do not
emphasize.
GROWTH STRATEGY
Hughes Supply's growth strategy consists of internal and acquisition-led
growth.
Internal Growth
Hughes Supply has grown internally through increases in same-store sales
and the opening of new branches. Same store sales increases have been
attributable to new product introductions within existing branches, such as fire
protection equipment and concrete fabrication products, fiber-optic products and
the higher value-added services such as integrated supply, national account
business or complete warehouse management contracts. Since January 27, 1995,
Hughes Supply has opened 83 new branches. New branches are generally opened to
fill in existing market areas or to accommodate the split out of multiple
product group branches.
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Acquisitions
Hughes Supply pursues an active acquisition strategy to capitalize on the
large, growing and highly-fragmented markets in which it competes. Since January
27, 1995, the Company has completed 58 acquisitions representing 228 branches.
Hughes Supply's acquisition strategy focuses on acquiring profitable, private,
wholesale distribution businesses with strong management teams and
well-developed market positions and customer relationships. Hughes Supply
identifies acquisition targets that present growth opportunities and complement
Hughes Supply's existing structure, allowing Hughes Supply to benefit from
synergies resulting from the integration of these targets' operations with its
own. Management believes that significant acquisition opportunities exist in
each of its product categories. Hughes Supply categorizes its acquisitions as
fill-in acquisitions or new market acquisitions:
- Fill-in acquisitions include acquisitions of primarily small companies
that distribute some of the same product groups as the Company in
geographic areas already served by Hughes Supply. Since January 27,
1995, the Company has added 46 branches through 22 fill-in
acquisitions, and the Company's management believes that significant
additional fill-in acquisition opportunities are available.
- New market acquisitions represent the addition of new product groups,
primarily within the Company's existing product categories, or the
entry into new geographic markets, or both. During the last five
fiscal years, the Company has completed 36 new market acquisitions,
adding 182 branches. During such period, the Company's principal
acquisition criteria has been to:
- add products and product groups with higher gross
margins;
- increase sales to the replacement and industrial
markets (that tend to be less cyclical than new
construction markets);
- achieve greater geographical diversification;
- develop additional opportunities for future
fill-in acquisitions and new branch openings; and
- expand its current product offering from leading
suppliers.
Since January 29, 1999, the Company has acquired several wholesale
distributors, including:
(i) W.C. Caye and Company, Inc., significantly increasing
the Company's building materials business in new
geographic markets;
(ii) Reaction Supply Corporation, significantly increasing
the fire protection part of the Company's water and
sewer business in new geographic markets; and
(iii) Western Utilities Supply Co., significantly expanding the
Company's water and sewer business in new geographic
markets.
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The following table summarizes the fill-in and new-market acquisitions
completed by the Company since January 27, 1995:
<TABLE>
<CAPTION>
Type of Date of Number of Location of Major
Company Acquired Acquisition Acquisition Branches Operation Product Categories
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Olander & Brophy, Inc. New market March 1995 4 OH, PA Building Materials/Pool
& Spa/Maintenance
Supplies
Port City Electrical Supply, Inc. Fill-in March 1995 2 GA, SC Electrical and Electric
Utility
Elec-Tel Supply Company Fill-in April 1995 1 GA Electrical and Electric
Utility
Various branches (1) Fill-in June 1995 - 7 AL, FL, KY, NJ, Electrical and Electric
December 1995 SC, TN, VA Utility; Plumbing/HVAC;
Building Materials/Pool
& Spa/Maintenance
Supplies
Moore Electric Supply, Inc.* New market July 1995 4 NC, SC Electrical and Electric
Utility
Atlantic Pump & Equipment Companies Fill-in September 1995 3 FL Building Materials/Pool
& Spa/Maintenance
Supplies
Florida Pipe & Supply Company* New market December 1995 - FL Industrial PVF
Waldorf Supply, Inc. Fill-in February 1996 1 MD Plumbing/HVAC
West Virginia Water and Waste New market March 1996 2 WV Water and Sewer
Supply Co., Inc.
Electric Laboratories and Sales New market April 1996 3 IL, OH Electrical and Electric
Corporation* Utility
PVF Holdings, Inc. New market May 1996 16 GA, IL, LA, MO, NC, Industrial PVF
NJ, TN, TX, UT, WA
Gayle Supply Company, Inc.* Fill-in May 1996 3 AL Plumbing/HVAC
R & G Plumbing Supply, Inc. Fill-in May 1996 2 AL Plumbing/HVAC
JuNo Industries, Inc. and J.I. Services New market September 1996 4 FL, GA Plumbing/HVAC
Corporation*
Palm Pool Products, Inc.* New market September 1996 2 MI, OH Building Materials/Pool
& Spa/Maintenance
Supplies
Coastal Wholesale, Inc. Fill-in November 1996 1 FL Building Materials/Pool
& Spa/Maintenance
Supplies
J & J, Inc. New market November 1996 2 GA, TX Industrial PVF
Wholesale Electric Supply Corporation New market November 1996 2 NC, NY Electrical and Electric
Utility
Panhandle Pipe & Supply Co., Inc.* Fill-in December 1996 1 WV Water and Sewer
Sunbelt Supply Company* New market December 1996 8 LA, TX, VA Industrial PVF
Metals, Incorporated, Stainless New market January 1997 3 AL, MO, OK Industrial PVF
Tubular Products, Inc., and
Metals, Inc. - Gulf Coast Division*
Dixie Forming & Building New market February 1997 5 NC, SC, VA Building Materials/Pool
Specialities Incorporated & Spa/Maintenance
Supplies
Gulf Pool Equipment Company New market February 1997 3 GA, OK, TX Building Materials/Pool
& Spa/Maintenance
Supplies
Dominion Pipe and Supply Company New market May 1997 1 VA Water and Sewer
and Dominion Pipe Fabricators, Inc.*
</TABLE>
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<TABLE>
<CAPTION>
Type of Date of Number of Location of Major
Company Acquired Acquisition Acquisition Branches Operation Product Categories
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Gilleland Concrete Products, Inc. New market June 1997 1 GA Water and Sewer
Shrader Holding Co., Inc.* New market August 1997 3 AR, TX Water and Sewer
Workman Developments, Inc. New market August 1997 1 WV Plumbing/HVAC
Supply One Fill-in September 1997 1 OH Plumbing/HVAC
Allied Metals, Inc. New market October 1997 1 TX Industrial PVF
Virginia Water & Waste Supply Fill-in November 1997 1 VA Water and Sewer
Company, Inc.*
Superior Concrete Products Fill-in December 1997 - FL Building Materials/Pool
& Spa/Maintenance
Supplies
APPCO Process Equipment New market December 1997 - NC Water and Sewer
Company
Mountain Country Supply, Inc. New market January 1998 10 AZ Plumbing/HVAC
International Supply Company, Inc. New market January 1998 33 TX Plumbing/HVAC; Water and
Sewer
and affilitated operations
Merex Corporation New market January 1998 2 TX, MX Plumbing/HVAC
Chad Supply, Inc.* New market January 1998 18 AL, FL, GA, KY, LA, Building Materials/Pool
NC, OH, SC, TN & Spa/Maintenance
Supplies
San Antonio Plumbing Fill-in March 1998 14 TX Plumbing/HVAC
Distributors, Inc.*
United Supply Agencies New market March 1998 1 TX Building Materials/Pool
& Spa/Maintenance
Supplies
Winn-Lange Electric, Inc.* New market June 1998 3 TX Electrical and Electric
Utility
Windward Supply, Inc. New market August 1998 1 TX Building Materials/Pool
& Spa/Maintenance
Supplies
US Fusion, Inc.* New market September 1998 1 LA Plumbing/HVAC
Douglas Leonhardt and New market October 1998 3 GA, NC, TN Water and Sewer
Associates, Inc.
Municipal and Contractor Sales, Inc. New market November 1998 4 MD Water and Sewer
Rainbow Sales Co., Inc. New market December 1998 3 NC, VA Building Materials/Pool
& Spa/Maintenance
Supplies
Florida Electric Supply, Inc. Fill-in December 1998 1 FL Electrical and Electric
Utility
Kamen Supply Company, Inc. New market January 1999 10 CO, KS Plumbing/HVAC
American Industrial Precast New market January 1999 2 TX Water and Sewer
Products, Inc.
</TABLE>
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<TABLE>
<CAPTION>
Type of Date of Number of Location of Major
Company Acquired Acquisition Acquisition Branches Operation Product Categories
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Stewart Supply Company, Inc. Fill-in February 1999 - TX Building Materials/Pool
& Spa/Maintenance
Supplies
State Wholesale Supply, Inc. Fill-in March 1999 1 NC Plumbing/HVAC
W.C. Caye and Company, Inc. New market March 1999 11 AL, FL, GA, SC Building Materials/Pool
& Spa/Maintenance
Supplies
Turf Irrigation & Water Works Fill-in May 1999 4 AZ Water and Sewer
Water Works Supply Fill-in May 1999 2 VA Water and Sewer
Reaction Supply Corporation New market September 1999 8 AZ, CA, NV Water and Sewer
Plumbing & Mechanical Supply Fill-in October 1999 1 FL Plumbing/HVAC
Company, Inc.
Western Utilities Supply Co., Inc. New market February 2000 7 AK, MT, WA Water and Sewer
---
TOTAL 228
===
</TABLE>
* Accounted for as pooling of interests.
(1) Facilities acquired in purchases of assets from four entities.
OPERATING STRATEGY
The Company's operating strategy is based on decentralizing, at the branch
level, customer-related functions such as sales and local inventory management,
and centralizing, at the corporate level, the administrative responsibility for
certain functions such as credit, human resources, finance and accounting, legal
and information technology.
At the commencement of fiscal 2001, Hughes Supply completed its planned
reorganization centered solely around the Company's main product categories by
creating five SBUs, each of which is led by a group president. Under the
reorganized structure, the Company's branches are grouped into territories,
territories into districts, and districts into SBUs. Territory managers
generally have oversight responsibility for branches within a territory as well
as direct responsibility for a specific branch within the territory. District
managers have two or more territory managers who report to them and regional
managers have two or more district managers who report to them. Before the
reorganization, the Company was organized into regions which were mixtures of
geographic and product group categories. The Company's prior organizational
structure also differed in that district and territory managers reported to the
Company's Regional Vice Presidents who, in turn, reported to the Company's
President. Management believes that this reorganization will provide improved
support for the Company's expected future growth through acquisitions, create
increased customer focus and vendor recognition by product category and improve
and accelerate decision making while increasing the overall administrative
efficiency.
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Key elements of the Company's operating strategy include:
Local Market Focus. Hughes Supply has organized its branches as
autonomous, decentralized branches capable of meeting local market needs
and offering competitive prices. Each branch handles one or more of the
Company's product groups and operates as a separate profit center with its
own experienced sales force which is specialized by product group. Each
branch manager has the authority and responsibility to set pricing, tailor
the inventory offering and mix, as well as the nature of services offered,
to meet the local market demand. In addition, each branch manager is
responsible for purchasing, maintaining adequate inventory levels, cost
controls and customer relations. A substantial portion of a branch
manager's compensation is dependent on his branch's financial performance.
The Company has been able to tailor its branch size and product offerings
to meet perceived market demand. As a result, the Company successfully
operates branches in secondary cities where management believes it has
achieved significant market share and in larger metropolitan areas where it
has established a sound market presence.
Superior Customer Service. Substantially all of Hughes Supply's sales
are to professional customers with whom the Company has developed long-term
relationships. These relationships are based on the Company's history of
providing superior service, which creates trust. Customer services provided
by the Company include credit, design assistance, material specifications,
scheduled job site delivery, job site visits to ensure satisfaction,
technical product services (including blueprint take-off and computerized
order quotes) and assistance with product returns.
Comprehensive and Diversified Product Groups. As part of its emphasis
on superior customer service, the Company offers more that 250,000 products
in its product categories at competitive prices. Distribution of a wide
variety of products within each product category helps the Company's
customers manage their inventory, arrange for consolidated delivery
requirements and provide a greater portion of total job specifications. The
depth and breadth of the Company's product categories generally permits it
to make add-on sales of higher margin, non-commodity items. The Company is
diversified across multiple product categories, geographic regions and
various sectors of the construction industry (such as commercial,
residential, public infrastructure and industrial), which lessens its
dependence upon market conditions applicable to any of its product
categories or any single sector of the construction industry. Such product
diversification provides opportunities for the Company to participate in
multiple phases of construction projects, capturing more of the total
construction spending dollar and spanning the entire construction cycle.
Well-Trained and Experienced Workforce. The Company has implemented
extensive employee recruiting and training programs to ensure that its
employees have the skill levels necessary to compete effectively in today's
marketplace. The Company utilizes in-depth training seminars covering basic
and advanced product knowledge, as well as multiple levels of selling,
purchasing, negotiating and management skills workshops. The Company has
also developed a recruiting and training program to increase the number of
qualified applicants introduced into its management and sales ranks. The
Company generally has experienced a low rate of turnover within its
management and sales force ranks. As a result, the Company's corporate
management group, branch managers, outside sales representatives and inside
sales account executives have considerable experience with the Company.
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Centralized Administrative Functions. The Company has centralized
certain administrative functions such as credit, human resources, finance
and accounting, legal and management information systems. Centralization of
human resources, finance and accounting functions ensure conformity in
policy and lower overall cost of administration. The Company's credit
function is essential to its success. All credit decisions are researched,
analyzed and approved by a group of regional credit managers to ensure
conformity and quality of credit decisions across the Company's operations.
Management believes that its credit function has enabled it to be
recognized as an industry leader due to its consistently low level of bad
debt expense.
Volume Purchasing Power. The Company established its Preferred Vendor
Program in 1991 to more effectively leverage its purchasing power. This
program has reduced the number of vendors and has resulted in stronger,
more strategic relationships with a more concentrated group of vendors. The
concentration of vendors has also improved the Company's ability to assure
more timely delivery, reduce errors, and to obtain better terms and greater
financial incentives. Other programs currently being employed with vendors
include vendor-managed inventory systems, bar coding, and electronic
exchange of purchase orders and invoices.
PRODUCTS
The Company distributes products in the following five main product
categories:
- Electrical/Electric Utility: Electrical supplies; residential,
commercial, and industrial electrical fixtures and other specialty
fixtures; and electric utility supplies and related hardware;
- Plumbing/HVAC: Plumbing fixtures and related fittings; plumbing
accessories and supplies; residential, commercial and industrial water
heaters; HVAC equipment; and refrigeration equipment, supplies and
service parts;
- Water and Sewer: Waterworks and industrial supplies; pre-cast concrete
tested utility and fire line vaults; and fire protection fabrication
and supplies and related hardware and accessories;
- Industrial PVF: Mechanical and welded pipe, valves and fittings; high
performance valves; specialty pipe; and stainless steel and other high
alloy pipe, plate, valves and fittings; and
- Building Materials/Pool and Spa/ Maintenance Supplies:
Concrete-forming products, tools, forms and accessories; road and
bridge products; above-ground and in-ground pool packages; cleaning
equipment and water treatment supplies; and multi-family housing
maintenance supplies.
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SALES AND MARKETING
The Company employs approximately 950 outside sales representatives who
call on and work with professional buyers such as architects, engineers,
manufacturers' representatives, purchasing agents, plant superintendents,
foremen and job specifiers for contractors and subcontractors. The Company's
outside sales representatives provide product specifications and usage data,
design alternatives, and job quotes to professional buyers in an effort to
assist them in fulfilling their material needs. This sales force also assists
with custom design projects for customers providing assistance through
brainstorming, story boarding, graphic design and photography.
Approximately 680 inside account executives expedite orders, deliveries,
quotations, requests for pricing and the release of products for delivery. Most
orders and shipment releases are delivered by the Company's trucks to the
customers' offices, job sites or plants.
DISTRIBUTION AND LOGISTICS
The Company's distribution network consists of branches and distribution
centers in the United States (483) and Mexico (5). The efficient operation of
the Company's distribution network is critical in providing quality service to
its specialized customer base. The Company's distribution centers and the
branches connected to a distribution center, use technology in warehouse
management to optimize receiving, inventory control, picking, packing and
shipping functions. The Company's purchasing agents in its branches use a
computerized inventory system to monitor stock levels, while central
distribution centers in Florida, Georgia and Arizona provide purchasing
assistance as well as a broad stock of inventory which supplements the inventory
of the branches. In addition, the Company uses several of its larger branches in
other parts of the country as distribution points for certain product lines.
CUSTOMERS AND SUPPLIERS
The Company currently serves over 125,000 customers, and no single customer
accounts for more than 1% of total annual sales. Orders for larger construction
projects normally require long-term delivery schedules throughout the period of
construction, which in some cases may continue for several years. The
substantial majority of customer orders are shipped from inventory at the
Company's branches. The Company also accommodates special orders from its
customers and facilitates the shipment of certain large volume orders directly
from the manufacturer to the customer.
The Company regularly purchases from over 11,000 manufacturers and
suppliers of which approximately 750 are currently part of the Company's
Preferred Vendor Program. The Company instituted this Preferred Vendor Program
to leverage its existing relationships with a number of suppliers and to
increase sales of their products in local markets through various initiatives,
including sales promotions, cooperative marketing efforts, dedicated sales force
and product exclusivity. In return, many of these key suppliers offer lower
prices and rebate programs to the Company. The Company actively solicits
volume-purchasing discounts and rebates from its preferred vendors and is
constantly working to expand its Preferred Vendor Program. No single supplier
accounted for more than 5% of the Company's total purchases during fiscal 2000.
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INFORMATION TECHNOLOGY
The Company's Information Technology systems are capable of supporting
numerous operational functions including purchasing, receiving, order
processing, shipping, inventory management, sales analysis and accounting. The
Company's customers and sales representatives rely on these systems for
real-time information on product pricing, inventory availability and order
status. The systems also provide management with information relating to sales,
inventory levels and customer payments, and with other data that is essential
for the Company to operate efficiently and provide a high level of service to
its customers. The Company believes that its continued investment in upgrading
and consolidating its Information Technology systems is necessary to provide a
platform to implement its e-commerce initiatives and to allow it to continue its
strategic growth initiatives.
Over the last three fiscal years, the Company has consolidated the number
of operating systems from 35 to 15 and plans to reduce such number to seven by
the end of fiscal year 2001. The Company believes that this consolidation allows
for increased operational efficiencies, particularly in the area of working
capital management, provides a means for decreasing transaction costs and
provides the Company with the infrastructure necessary to realize administrative
synergies associated with past and future acquisitions.
Hughes Supply's multi-pronged approach to e-commerce strategy focuses upon:
(i) expanding net sales through greater customer reach, extended hours (i.e.,
24/7/365) and broader product offerings; and (ii) lowering costs through
streamlined selling, general and administrative costs, improved inventory
management and lower product procurement costs. In addition, e-commerce
solutions in the wholesale distribution business are ideally suited to national
account programs and integrated supply chain management, important growth areas
of the Company.
The key elements of the Company's e-commerce initiatives are:
- hughessupply.com: This web site, when fully operational, will enable
the Company's customers to order products directly via electronic
commerce, as well as allow the Company to place direct electronic
orders with vendors for the majority of its products. Fulfillment will
be done from the existing branch network. The overall reduction in
paper flow is expected to reduce procurement costs. This site is
currently being developed internally by the IT group.
- supplyFORCE.com: The Company has committed to participate in a new
advanced internet system organized by Affiliated Distributors, a
cooperative of supply houses in which Hughes Supply is one of the
largest members. This system will be an e-commerce site focused on
national accounts and integrated supply targeted toward industrial
customers and is expected to be operational during fiscal year 2001.
- bestroute.com: The Company made a significant minority investment in
bestroute.com, a new internet supply house that targets slower-moving,
hard-to-find inventory items to industrial concerns and contractors on
a national basis. bestroute.com's site became operational on March 31,
2000 and is currently serving as a source of industry information. The
commerce part of this site is expected to become operational June 1,
2000.
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COMPETITION
Management believes that the Company is one of the largest wholesale
distributors of its range of products in the United States and that no other
company competes against it across all of its product groups. However, there is
strong competition in each product group distributed by the Company. The main
sources of competition are other wholesalers, manufacturers who sell certain
lines directly to contractors and, to a limited extent, retailers in the markets
for plumbing, electrical fixtures and supplies, building materials, pool and spa
supplies, and contractors' tools. The principal competitive factors in the
Company's business are product availability, pricing, technical knowledge as to
application and usage, and advisory and other service capabilities which develop
the trust factor needed in successful customer relationships.
INVENTORIES
The Company is a wholesale distributor of construction and industrial
materials and maintains significant inventories to meet rapid delivery
requirements and to ensure a continuous allotment of goods from suppliers. As of
January 28, 2000, inventories constituted approximately 36% of the Company's
total assets.
EMPLOYEES
As of January 28, 2000, the Company had approximately 7,800 employees
consisting of approximately 15 executives, 1,840 managers, 1,630 sales personnel
and 4,315 other employees, including truck drivers, warehouse personnel, office
and clerical workers. Over the last year, the Company's work force has increased
approximately 8% compared to the prior year as a result of business
acquisitions, increased sales volume and personnel required for its
administrative functions. The Company considers its relationship with its
employees to be good.
FORWARD-LOOKING STATEMENTS
Certain statements set forth in this Report constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and
are subject to the safe harbor created by such sections. When used in this
Report, the words "believe," "anticipate," `estimate," "expect," "may," "will,"
"should," "plan," "intend," "potential," "predict," "forecast," and similar
expressions are intended to identify forward-looking statements. Although the
Company believes that the expectations reflected in such forward-looking
statements are reasonable, it can give no assurance that such expectations will
prove to be correct. The Company's actual results may differ significantly from
the results discussed in such forward-looking statements. When appropriate,
certain factors that could cause results to differ materially from those
projected in the forward-looking statements are enumerated. The foregoing should
be read in conjunction with the Company's consolidated financial statements and
the notes thereto contained herein.
Page 14
<PAGE>
ITEM 2. PROPERTIES
The Company leases approximately 52,000 square feet of an office building
in Orlando, Florida for its headquarters. In addition, the Company owns or
leases 488 facilities in 32 states and Mexico. The typical sales branch consists
of a combined office and warehouse facility ranging in size from 3,000 to 50,000
square feet, with paved parking and storage areas. The Company also operates a
computer center, three central distribution warehouses and a garage and trucking
terminal.
Additional information regarding owned and leased properties of the Company
is set forth as Exhibit 99.1 to this Report.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various legal proceedings arising in the normal
course of its business. Management believes that none of these proceedings will
have a material adverse impact on its financial condition, results of operations
or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Company's security holders during
the fourth quarter of the fiscal year ended January 28, 2000.
Page 15
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Information with respect to the principal market for the Company's common
stock, stock prices and dividend information is set forth under the caption
"Corporate and Shareholder Information" and in Note 11 of the Notes to
Consolidated Financial Statements of the Company's Annual Report to Shareholders
for the fiscal year ended January 28, 2000, a copy of which is filed as an
exhibit to this Report and the cited portion of which is incorporated herein by
reference.
ITEM 6. SELECTED FINANCIAL DATA
Information with respect to selected financial data of the Company is set
forth under the caption "Selected Financial Data" of the Company's Annual Report
to Shareholders for the fiscal year ended January 28, 2000, a copy of which is
filed as an exhibit to this Report and the cited portion of which is
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Information with respect to the Company's financial condition, changes in
financial condition and results of operations is set forth under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" of the Company's Annual Report to Shareholders for the fiscal year
ended January 28, 2000, a copy of which is filed as an exhibit to this Report
and the cited portion of which is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information with respect to the Company's market risk is set forth under
the section "Inflation and Changing Prices" under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations" of the
Company's Annual Report to Shareholders for the fiscal year ended January 28,
2000, a copy of which is filed as an exhibit to this Report and the cited
portion of which is incorporated herein by reference.
Page 16
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(a) Financial Statements
The financial statements filed with this report are set forth in the "Index
to Consolidated Financial Statements and Schedules" following Part IV hereof.
(b) Selected Quarterly Financial Data
Information with respect to selected quarterly financial data of the
Company is set forth in Note 11 of the Notes to Consolidated Financial
Statements of the Company's Annual Report to Shareholders for the fiscal year
ended January 28, 2000, a copy of which is filed as an exhibit to this Report
and the cited portion of which is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company has not had any change in, or disagreement with, its
accountants or reportable event which is required to be reported in response to
this item.
Page 17
<PAGE>
PART III
All information required by Part III (Items 10, 11, 12 and 13) is
incorporated by reference to the Company's Definitive Proxy Statement for the
2000 Annual Meeting of Shareholders.
Page 18
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements and Financial Statement Schedules
Financial statements and financial statement schedules required to be filed
by Item 8 of this Report are listed in a separately designated section submitted
below. Exhibits are listed in subparagraph (c) below.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter ended January
28, 2000.
(c) Exhibits Filed
A substantial number of the exhibits referred to below are indicated as
having been previously filed as exhibits to other reports under the Securities
Exchange Act of 1934, as amended, or as exhibits to registration statements
under the Securities Act of 1933, as amended. Such previously filed exhibits are
incorporated by reference in this Form 10-K. Exhibits not incorporated by
reference herein are filed with this report.
(2) Plan of acquisition, reorganization, arrangement, liquidation or
succession. Not applicable.
(3) Articles of incorporation and by-laws.
3.1 Restated Articles of Incorporation, as amended, incorporated by
reference to Exhibit 3.1 to Form 10-Q for the quarter ended April
30, 1997 (Commission File No. 001-08772).
3.2 Composite By-Laws, as amended, incorporated by reference to
Exhibit 3.2 to Form 10-Q for the quarter ended October 31, 1999
(Commission File No. 001-08772).
3.3 Form of Articles of Amendment to Restated Articles of
Incorporation of the Company, incorporated by reference to
Exhibit 99.2 to Form 8-A dated May 22, 1998 (Commission File No.
001-08772).
(4) Instruments defining the rights of security holders, including
indentures.
4.1 Form of Common Stock Certificate representing shares of the
Registrant's common stock, $1.00 par value, incorporated by
reference to Exhibit 4.1 to Form 10-Q for the quarter ended July
31, 1997 (Commission File No. 001-08772).
4.2 Rights Agreement dated as of May 20, 1998 between Hughes Supply,
Inc. and American Stock Transfer & Trust Company, incorporated by
reference to Exhibit 99.2 to Form 8-A dated May 22, 1998
(Commission File No. 001-08772).
Page 19
<PAGE>
(9) Voting trust agreement. Not applicable.
(10) Material contracts.
10.1 Lease Agreements with Hughes, Inc.
(a) Orlando Trucking, Garage and Maintenance Operations dated
December 1, 1971, incorporated by reference to Exhibit 13(n)
to Registration No. 2-43900 (Commission File No. 0-5235).
Letter dated April 15, 1992 extending lease from month to
month, filed as Exhibit 10.1(a) to Form 10-K for the fiscal
year ended January 31, 1992 (Commission File No. 0-5235).
(b) Leases effective March 31, 1988, incorporated by reference
to Exhibit 10.1(c) to Form 10-K for the fiscal year ended
January 27, 1989 (Commission File No. 0-5235).
Sub-Item Property
-------- --------
(1) Clearwater
(2) Daytona Beach
(3) Fort Pierce
(4) Lakeland
(6) Leesburg
(7) Orlando Electrical Operation
(8) Orlando Plumbing Operation
(9) Orlando Utility Warehouse
(11) Sarasota
(12) Venice
(13) Winter Haven
(c) Lease Amendment Letter between Hughes, Inc. and the
Registrant, dated December 1, 1986, amending Orlando Truck
Operations Center and Maintenance Garage lease, incorporated
by reference to Exhibit 10.1(i) to Form 10-K for the fiscal
year ended January 30, 1987 (Commission File No. 0-5235).
(d) Lease Agreement dated June 1, 1987, between Hughes, Inc. and
the Registrant, for additional Sarasota property,
incorporated by reference to Exhibit 10.1(j) to Form 10-K
for the fiscal year ended January 29, 1988 (Commission File
No. 0-5235).
(e) Lease dated March 11, 1992, incorporated by reference to
Exhibit 10.1(e) to Form 10-K for the fiscal year ended
January 31, 1992 (Commission File No. 0-5235).
Sub-Item Property
-------- --------
(2) Gainesville Electrical Operation
Page 20
<PAGE>
(f) Amendments to leases between Hughes, Inc. and the
Registrant, dated April 1, 1998, amending the leases for the
thirteen properties listed in Exhibit 10.1(b), (d) and (e),
incorporated by reference to Exhibit 10.1 to Form 10-K for
the fiscal year ended January 30, 1998 (Commission File No.
001-08772).
10.2 Hughes Supply, Inc. 1988 Stock Option Plan as amended March 12,
1996 incorporated by reference to Exhibit 10.2 to Form 10-K for
the fiscal year ended January 26, 1996 (Commission File No.
001-08772).
10.3 Form of Supplemental Executive Retirement Plan Agreement entered
into between the Registrant and eight of its executive officers,
incorporated by reference to Exhibit 10.6 to Form 10-K for the
fiscal year ended January 30, 1987 (Commission File No. 0-5235).
10.4 Directors' Stock Option Plan, as amended, incorporated by
reference to Exhibit 10.4 to Form 10-Q for the quarter ended
October 31, 1999 (Commission File No. 001-08772).
10.5 Hughes Supply, Inc. Amended Senior Executives' Long-Term
Incentive Bonus Plan, adopted January 25, 1996, incorporated by
reference to Exhibit 10.9 to Form 10-K for the fiscal year ended
January 26, 1996 (Commission File No. 001-08772).
10.6 Note Purchase Agreement, dated as of August 28, 1997, by and
among the Company and certain purchasers identified in Schedule A
of the Note Purchase Agreement, incorporated by reference to
Exhibit 10.15 to Form 10-Q for the quarter ended July 31, 1997
(Commission File No. 001-08772).
10.7 Hughes Supply, Inc. 1997 Executive Stock Plan.
10.8 Note Purchase Agreement, dated as of May 29, 1996, by and among
the Company and certain purchasers identified in Schedule A of
the Note Purchase Agreement, incorporated by reference to Exhibit
10.13 to Form 10-K for the fiscal year ended January 30, 1998
(Commission File No. 001-08772).
10.9 Note Purchase Agreement, dated as of May 5, 1998, by and among
the Company and certain purchasers identified in Schedule A of
the Note Purchase Agreement, incorporated by reference to Exhibit
10.11 to Form 10-Q for the quarter ended April 30, 1998
(Commission File No. 001-08772).
10.10 Revolving Credit Agreement, dated as of January 26, 1999 and
amended on September 29, 1999, by and among the Company and a
group of banks, incorporated by reference to Exhibit 10.11 to
Form 10-Q for the quarter ended October 31, 1999 (Commission File
No. 001-08772). The Revolving Credit Agreement contains a table
of contents identifying the contents of Schedules and Exhibits,
all of which have been omitted. The Company agrees to furnish a
supplemental copy of any omitted Schedule or Exhibit to the
Commission upon request.
Page 21
<PAGE>
10.11 Line of Credit Agreement, dated as of January 26, 1999 and
amended on September 29, 1999, by and among the Company and a
group of banks, incorporated by reference to Exhibit 10.12 to
Form 10-Q for the quarter ended October 31, 1999 (Commission File
No. 001-08772). The Line of Credit Agreement contains a table of
contents identifying the contents of Schedules and Exhibits, all
of which have been omitted. The Company agrees to furnish a
supplemental copy of any omitted Schedule or Exhibit to the
Commission upon request.
10.12 Bridge Revolving Credit Agreement, dated as of November 30,
1999, by and between the Company and SunTrust Bank, Central
Florida, N.A.
(11) Statement re computation of per share earnings. Not applicable.
(12) Statements re computation of ratios. Not applicable.
(13) Annual report to security holders, Form 10-Q or quarterly report to
security holders.
13.1 Information incorporated by reference into Form 10-K from the
Annual Report to Shareholders for the fiscal year ended January
28, 2000.
(16) Letter re change in certifying accountant. Not applicable.
(18) Letter re change in accounting principles. Not applicable.
(21) Subsidiaries of the Registrant.
21.1 Subsidiaries of the Registrant.
(22) Published report regarding matters submitted to vote of security
holders. Not applicable.
(23) Consents of experts and counsel.
23.1 Consent of PricewaterhouseCoopers LLP.
(24) Power of attorney. Not applicable.
(27) Financial Data Schedule.
27.1 Financial Data Schedule (filed electronically only).
(99) Additional exhibits.
99.1 Location of Facilities.
Page 22
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
HUGHES SUPPLY, INC.
By: /s/ David H. Hughes
----------------------------------
David H. Hughes, Chairman of
the Board and Chief Executive
Officer
/s/ J. Stephen Zepf
----------------------------------
J. Stephen Zepf, Treasurer,
Chief Financial Officer and
Chief Accounting Officer
Date: April 24, 2000
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 Registrant and
in the capacities and on the dates indicated.
/s/ David H. Hughes /s/ A. Stewart Hall, Jr.
- ---------------------------- ------------------------
David H. Hughes A. Stewart Hall, Jr.
April 24, 2000 April 24, 2000
(Director) (Director)
/s/ John D. Baker II /s/ Vincent S. Hughes
- ---------------------------- ----------------------
John D. Baker II Vincent S. Hughes
April 24, 2000 April 24, 2000
(Director) (Director)
/s/ Robert N. Blackford /s/ William P. Kennedy
- ---------------------------- ----------------------
Robert N. Blackford William P. Kennedy
April 24, 2000 April 24, 2000
(Director) (Director)
/s/ H. Corbin Day
- ----------------------------
H. Corbin Day
April 24, 2000
(Director)
Page 23
<PAGE>
HUGHES SUPPLY, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
The following consolidated financial statements of the Registrant and its
subsidiaries included in the Registrant's Annual Report to Shareholders for the
fiscal year ended January 28, 2000, are incorporated by reference:
Annual
Report
Page
----
Consolidated Statements of Income
for the years ended January 28, 2000,
January 29, 1999 and January 30, 1998 17
Consolidated Balance Sheets as of
January 28, 2000 and January 29, 1999 18
Consolidated Statements of Shareholders'
Equity for the years ended January 28, 2000,
January 29, 1999 and January 30, 1998 19
Consolidated Statements of Cash Flows for
the years ended January 28, 2000,
January 29, 1999 and January 30, 1998 20
Notes to Consolidated Financial Statements 21
Report of Independent Certified
Public Accountants 30
All other schedules have been omitted as they are either not applicable, not
required or the information is given in the financial statements or related
notes thereto.
Page 24
<PAGE>
INDEX OF EXHIBITS FILED WITH THIS REPORT
10.7 Hughes Supply, Inc. 1997 Executive Stock Plan.
10.12 Bridge Revolving Credit Agreement, dated as of November 30, 1999, by
and between the Company and SunTrust Bank, Central Florida, N.A.
13.1 Information incorporated by reference into Form 10-K from the Annual
Report to Shareholders for the fiscal year ended January 28, 2000.
21.1 Subsidiaries of the Registrant.
23.1 Consent of PricewaterhouseCoopers LLP.
27.1 Financial Data Schedule (filed electronically only).
99.1 Location of Facilities.
Page 25
HUGHES SUPPLY, INC. 1997 EXECUTIVE STOCK PLAN
SECTION 1. BACKGROUND AND PURPOSE
The name of this Plan is the Hughes Supply, Inc. 1997 Executive Stock Plan
(the "Plan"). The purpose of this Plan is to promote the interest of the Company
and its Subsidiaries through grants to Key Employees of Options to purchase
Stock, grants of stock appreciation rights and grants of Restricted Stock in
order (1) to attract and retain Key Employees, (2) to provide an additional
incentive to each Key Employee to work to increase the value of Stock and (3) to
provide each Key Employee with a stake in the future of the Company which
corresponds to the stake of each of the Company's shareholders.
SECTION 2. DEFINITIONS
Each term set forth in this Section 2 shall have the meaning set forth
opposite such term for purposes of this Plan and, for purposes of such
definitions, the singular shall include the plural and the plural shall include
the singular.
2.1 Board - means the Board of Directors of the Company.
2.2 Change in Control - means the first to occur of the following events:
(i) any person (as defined in Section 3(a)(9) of the Exchange Act and
as used in Sections 13(d) and 14(d) thereof), excluding the Company, any
Subsidiary and any employee benefit plan sponsored or maintained by the
Company or any Subsidiary (including any trustee of such plan acting as
trustee) (the Company, all Subsidiaries, and such employee benefit plans
and trustees acting as trustees being hereafter referred to as the "Company
Group"), but including a 'group' defined in Section 13(d)(3) of the
Exchange Act (a "Person"), becomes the beneficial owner of shares of the
Company having at least thirty percent (30%) of the total number of votes
that may be cast for the election of directors of the Company (the "Voting
Shares"); provided that no Change in Control will occur as a result of an
acquisition of stock by the Company Group which increases, proportionately,
the stock representing the voting power of the Company, and provided
further that if such person or group acquires beneficial ownership of stock
representing more than thirty percent (30%) of the voting power of the
Company by reason of share purchases by the Company Group, and after such
share purchases by the Company Group acquires any additional shares
representing voting power of the Company, then a Change in Control shall
occur;
(ii) the shareholders of the Company shall approve any merger or other
business combination of the Company, sale of the Company's assets or
combination of the foregoing transactions (a "Transaction") other than a
Transaction involving only the Company
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<PAGE>
and one or more of its subsidiaries, or a Transaction immediately following
which the shareholders of the Company immediately prior to the Transaction
continue to have a majority of the voting power in the resulting entity
excluding for this purpose any shareholder owning directly or indirectly
more than ten per cent (10%) of the shares of the other company involved in
the merger; or
(iii) within any 24-month period, the persons who are directors of the
Company immediately before the beginning of such period (the "Incumbent
Directors") shall cease (for any reason other than death) to constitute at
least a majority of the Board or the board of directors of any successor to
the Company, provided that any director who was not a director as of the
effective date of this Plan shall be deemed to be an Incumbent Director if
such director was elected to the Board by, or on the recommendation of or
with the approval of, at least two-third of the directors who were then
qualified as Incumbent Directors either actually or by prior operation of
this clause (iii); and provided further that any director elected to the
Board to avoid or settle a threatened or actual proxy contest shall in no
event be deemed to be an Incumbent Director.
2.3 Code - means the Internal Revenue Code of 1986, as amended.
2.4 Committee - means the Compensation Committee of the Board to which the
responsibility to administer this Plan is delegated by the Board and which shall
consist of at least two members of the Board all of whom are "outside directors"
within the meaning of Code Section 162(m).
2.5 Company - means Hughes Supply, Inc., a Florida company, and any
successor to such corporation.
2.6 "Disability" - has the same meaning as provided in the long-term
disability plan or policy maintained or, if applicable, most recently
maintained, by the Company or, if applicable, any affiliate of the Company for
the Key Employee. If no long-term disability plan or policy was ever maintained
on behalf of the Key Employee or, if the determination of Disability relates to
an ISO, Disability shall mean that condition described in Code Section 22(e)(3),
as amended from time to time. In the event of a dispute, the determination of
Disability shall be made by the Board and shall be supported by advice of a
physician competent in the area to which such Disability relates.
2.7 Exchange Act - means the Securities Exchange Act of 1934, as amended.
2.8 Fair Market Value - refers to the determination of value of a share of
Stock. If the Stock is actively traded on any national securities exchange or
any Nasdaq quotation or market system, Fair Market Value shall mean the closing
price at which sales of Stock shall have been sold on the most recent trading
date immediately prior to the date of termination, as reported by any such
exchange or system selected by the Committee on which the shares of Stock are
then traded. If the shares of Stock are not actively traded on any such exchange
or
-2-
<PAGE>
system, Fair Market Value shall mean the arithmetic mean of the bid and asked
prices for the shares of Stock on the most recent trading date within a
reasonable period prior to the determination date as reported by such exchange
or system. If there are no bid and asked prices within a reasonable period or if
the shares of Stock are not traded on any exchange or system as of the
determination date, Fair Market Value shall mean the fair market value of a
share of Stock as determined by the Committee taking into account such facts and
circumstances deemed to be material by the Committee to the value of the Stock
in the hands of the Key Employee; provided that, for purposes of granting awards
other than ISOs, Fair Market Value of a share of Stock may be determined by the
Committee by reference to the average market value determined over a period
certain or as of specified dates, to a tender offer price for the shares of
Stock (if settlement of an award is triggered by such an event) or to any other
reasonable measure of fair market value and provided further that, for purposes
of granting ISOs, Fair Market Value of a share of Stock shall be determined in
accordance with the valuation principles described in the regulations
promulgated under Code Section 422.
2.9 ISO - means an option granted under this Plan to Purchase Stock which
is evidenced by an Option Agreement which provides that the option is intended
to satisfy the requirements for an incentive stock option under Section 422 of
the Code.
2.10 Key Employee - means any employee of the Company or any Subsidiary
who, in the judgment of the Committee acting in its absolute discretion, is a
key to the success of the Company or such Subsidiary.
2.11 NQO - means an option granted under this Plan to purchase Stock which
is evidenced by an Option Agreement which provides that the option shall not be
treated as an incentive stock option under Section 422 of the Code.
2.12 Option - means an ISO or a NQO.
2.13 Option Agreement - means the written agreement or instrument which
sets forth the terms of an Option granted to a Key Employee under Section 7 of
this Plan.
2.14 Option Price - means the price which shall be paid to purchase one
share of Stock upon the exercise of an Option granted under this Plan.
2.15 Parent Corporation - means any corporation which is a parent of the
Company within the meaning of Section 424(e) of the Code.
2.16 Plan - means the Hughes Supply, Inc. 1997 Executive Stock Plan, as
amended from time to time.
2.17 Restricted Stock - means Stock granted to a Key Employee under Section
8 of this Plan.
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<PAGE>
2.18 Restricted Stock Agreement - means the written agreement or instrument
which sets forth the terms of a Restricted Stock grant to a Key Employee under
Section 8 of this Plan.
2.19 Rule 16b-3 - means the exemption under Rule 16b-3 to Section 16(b) of
the Exchange Act or any successor to such rule.
2.20 Stock - means the One Dollar ($1.00) par value common stock of the
Company.
2.21 SAR - means a right which is granted pursuant to the terms of Section
7 of this Plan to the appreciation in the Fair Market Value of a share of Stock
in excess of the SAR Share Value for such a share.
2.22 SAR - Agreement means the written agreement or instrument which sets
forth the terms of a SAR granted to a Key Employee under Section 7 of this Plan.
2.23 SAR Share Value - means the figure which is set forth in each SAR
Agreement and which is no less than the Fair Market Value of a share of Stock on
the date the related SAR is granted.
2.24 Subsidiary - means any corporation which is a subsidiary corporation
(within the meaning of Section 424(f) of the Code) of the Company except a
corporation which has subsidiary corporation status under Section 424(e) of the
Code exclusively as a result of the Company or its subsidiary holding stock in
such corporation as a fiduciary with respect to any trust, estate,
conservatorship, guardianship or agency.
2.25 Ten Percent Shareholder - means a person who owns (after taking into
account the attribution rules of Section 424(d) of the Code) more than ten
percent of the total combined voting power of all classes of stock of either the
Company, a Subsidiary or a Parent Corporation.
SECTION 3. SHARES RESERVED UNDER PLAN
There shall be 500,000 shares of Stock reserved for use under this Plan.
All such shares of Stock shall be reserved to the extent that the Company deems
appropriate from authorized but unissued shares of Stock and from shares of
Stock which have been reacquired by the Company. Furthermore, any shares of
Stock subject to an Option which remain unissued after the cancellation,
expiration or exchange of such Option and any Restricted Shares which are
forfeited thereafter shall again become available for use under this Plan, but
any shares of Stock used to satisfy a withholding obligation under Section 14.3
shall not again become available for use under this Plan. The exercise of a SAR
or a surrender right in an Option with respect to any shares of Stock shall be
treated for purposes of this Section 3 the same as the exercise of an Option for
the same number of shares of Stock.
-4-
<PAGE>
SECTION 4. EFFECTIVE DATE
This Plan shall be effective on __________________,1997, provided the
shareholders of the Company (acting at a duly called meeting of such
shareholders) approve this Plan within twelve (12) months after such date and
such approval satisfies the requirements for shareholder approval under Code
Section 422(b)(l) and Code Section 162(m). Any Restricted Stock, any Option, and
any SAR granted under this Plan before such shareholder approval automatically
shall be granted subject to such shareholder approval.
SECTION 5. COMMITTEE
This Plan shall be administered by the Committee. The Committee acting in
its absolute discretion shall exercise such powers end like such action as
expressly called for under this Plan arid, further, the Committee shall have the
power to interpret this Plan and (subject to Section 11, Section 12 and Section
13) to take such other action in the administration and operation of this Plan
as the Committee deems equitable under the circumstances, which action shall be
binding on the Company, on each affected Key Employee and on each other person
directly or indirectly affected by such action. The Committee shall use its best
efforts to grant Options, SARs and Restricted Stock under this Plan to a Key
Employee which will quality as "performance-based compensation" for purposes of
Section 162(m) of the Code, except where the Committee deems that the Company's
interests when viewed broadly will be better served by a grant which is free of
the conditions required to so qualify any such grant for purposes of Section
162(m) of the Code.
SECTION 6. ELIGIBILITY
Only Key Employees shall be eligible for the grant of Options, SARs or
Restricted Stock under this Plan.
SECTION 7. OPTIONS AND SARS
7.1 Options. The Committee acting in its absolute discretion shall have the
right to grant Options to Key Employees under this Plan from time to time to
purchase shares of Stock. Each grant of an Option shall be evidenced by an
Option Agreement, and each Option Agreement shall set forth whether the Option
is an ISO or a NQO and shall set forth such other terms and conditions of such
grant as the Committee acting in its absolute discretion deems consistent with
the terms of this Plan.
7.2 $100.000 Limit. The aggregate Fair Market Value of ISOs granted to a
Key Employee under this Plan and Incentive stock options granted to such Key
Employee under any other stock option plan adopted by the Company, a Subsidiary
or a Parent Corporation which
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<PAGE>
first become exercisable in any calendar year shall not exceed $100,000;
provided, however, that if the limitation is exceeded, the ISOs which cause the
limitation to be exceeded will be treated as NQOs. Such Fair Market Value figure
shall be determined by the Committee on the data the ISO or other incentive
stock option is granted, and the Committee shall interpret and administer the
limitation set forth in this Section 7.2 in accordance wit Section 422(d) of the
Code.
7.3 Share Limitation. A Key Employee may be granted in any calendar year
one or more Options, or one or more SARs, or one or more Options and SARS in any
combination which, individually or in the aggregate, relate to no more than
15,000 shares of Stock.
7.4 Option Price. Subject to adjustment in accordance with Section 11, the
Option Price for each share of Stock subject to an Option must be set forth in
the applicable Option Agreement, but in no event shall it be less than the Fair
Market Value of a share of Stock on the date the Option is granted. With respect
to each grant of an ISO to a Key Employee who is a Ten Percent Shareholder, the
Option Price must not be less than 110% of the Fair Market Value of a share of
Stock as of the date the Option is granted. The Option Price may not be amended
or modified after the grant of the Option, and an Option may not be surrendered
in consideration of or exchanged for a grant of a new Option having an Option
Price below that of the Option which was surrendered or exchanged.
7.5 Payment. The Option Price shall be payable in full upon the exercise of
any Option, and an Option Agreement at the discretion of the Committee can
provide for the payment of the Option Price:
(a) in cash or by a check acceptable to the Committee,
(b) in Stock which has been held by the Key Employee for a period
acceptable to the Committee and which Stock is otherwise acceptable to the
Committee,
(c) through a broker facilitated exercise procedure acceptable to the
Committee, or
(d) in any combination of the three methods described in this Section
7.5 which is acceptable to the Committee.
Any payment made in Stock shall be treated as equal to the Fair Market Value of
such Stock on the date the properly endorsed certificate for such Stock is
delivered to the Committee.
7.6 Exercise Period. Any ISO granted to a Key Employee who is not a Ten
Percent Shareholder is not exercisable after the expiration of ten (10) years
after the date the Option is granted. Any ISO granted to a Key Employee who is a
Ten Percent Shareholder is not exercisable after the expiration of five (5)
years after the dare the Option is trained. The term of any NQO must be
specified in the applicable Option Agreement. The date an Option is granted is
the date on which the Committee has approved the terms and conditions of the
Option
-6-
<PAGE>
and has determined the reciPient of the Option and the number of Shares of Stock
covered by the Option.
7.7 Conditions to Exercise of an Option. Each Option granted under the Plan
is exercisable by whom, at such time or times, or upon the occurrence of such
event or events, and in such amounts as the Committee shall specify in the
Option Agreement; provided, however, that subsequent to the grant of an Option,
the Committee, at any time before complete termination of the Option, may
accelerate the time or times at which such Option may be exercised in whole or
in part, including, without limitation, upon a Change in Control and may permit
the Key Employee or any other designated person to exercise the Option, or any
person thereof, for all or part of the remaining Option term, notwithstanding
any provisions in the Option Agreement to the contrary.
7.8 Termination of an ISO. With respect to an ISO, in the event of
termination of employment of a Key Employee, the Option or portion thereof held
by the Key Employee which is unexercised will expire, terminate, and become
exercisable no later than the expiration of three (3) months after the date of
termination of employment; provided, however, that in the case of a holder whose
termination of employment is due to death or Disability, one (1) year shall be
substituted for such three (3) month period. For purposes of this Section 7.8,
termination of employment by the Key Employee will not be deemed to have
occurred if the Key Employee is employed by another corporation (or a parent or
subsidiary corporation of such other corporation) which has assumed the ISO of
the Key Employee in a transaction to which Code Section 424(a) is applicable.
7.9 Special Provisions for Certain Substitute Options. Notwithstanding
anything to the contrary in Section 7, any Option issued in substitution for an
option previously issued by another entity, which substitution occurs in
connection with a transaction to which Code Section 424(a) is applicable, may
provide for an exercise price computed in accordance with Code Section 424(a)
and the regulations thereunder and may contain such other terms and conditions
as the Committee may prescribe to cause substitute Option to contain as nearly
as possible the same terms and conditions (including the applicable vesting and
termination provisions) as those conditions in the previously issued option
being replaced thereby.
7.10 Nontransferability. Except to the extent the Committee deems
permissible under Section 422(b) of the Code and Rule 16b-3 and consistent with
the best interests of the Company neither an Option granted under this Plan for
any related surrender rights nor any SAR shall be transferable by a Key Employee
other than by will or by the laws of descent and distribution, and such Option
and any such surrender rights and any such SAR shall be exercisable during a Key
Employee's lifetime only by the Key Employee. The person or persons to whom an
Option or a SAR is transferred by will or by the laws of descent end
distribution thereafter shall be treated as the Key Employee under this Plan.
-7-
<PAGE>
7.11 SARs and Surrender Rights.
(a) SARs. The Committee acting in its absolute discretion may grant a
Key Employee a SAR which will give the Key Employee the right to the
appreciation in one, or more than one, share of Stock, and any such
appreciation shall be measured from the related SAR Share Value. The
Committee shall have the right to make any such grant subject to such
additional terms as the Committee deems appropriate, and such terms shall
be set forth in the related SAR Agreement.
(b) Option Surrender Rights. The Committee acting in its absolute
discretion also may incorporate a provision in an Option Agreement to give
a Key Employee the right to surrender his or her Option in whole or in part
in lieu of the exercise (in whole or in part) of that Option to purchase
Stock on any date that
(1) the Fair Market Value of the Stock subject to such Option
exceeds the Option Price for such Stock, and
(2) the Option to purchase such Stock is otherwise exercisable.
(c) Procedure. The exercise of a SAR or a surrender right in an Option
shall be effected by the delivery of the related SAR. Agreement or Option
Agreement to the Committee (or to its delegate) together with a statement
signed by the Key Employee which specifies the number of shares of Stock as
to which the Key Employee, as appropriate, exercises his or her SAR or
exercises his or her right to surrender his or her Option and (at the Key
Employee's option) how he or she desires payment to be made with respect to
such shares.
(d) Payment. A Key Employee who exercises his or her SAR or right to
surrender his or her Option shall (to the extent consistent with the
exemption under Rule 16b-3) receive a payment in cash or in Stock, or in a
combination of cash and Stock, equal in amount on the date such exercise is
effected to: (i) the number of shares of Stock with respect to which as
applicable, the SAR or the surrender right is exercised times (ii) the
excess of the Fair Market Value of a share of Stock on such date over, as
applicable, the SAR Share Value for a share of Stock subject to the SAR or
the Option Price for a share of stock subject to an Option. The Committee
acting in its absolute discretion shall determine the form and timing of
such payment, and the Committee shall have the right (1) to tab into
account whatever factors the Committee deems appropriate under the
circumstances, including any written request made by the Key Employee and
delivered to the Committee (or to its delegate) and (2) to forfeit a Key
Employ's right to payment of cash in lieu of a fractional share of stock if
the Committee deems such forfeiture necessary in order for the surrender of
his or her Option under this Section 7.11 to come within the exemption
under Rule 161b-3. Any cash payment under this Section 7.11 shall be made
from the Company's general assets, and a Key Employee shall be no more than
a general and unsecured creditor of the Company with respect to such
payment.
-8-
<PAGE>
(e) Restrictions. Each SAR Agreement and each Option Agreement which
incorporates a provision to allow a Key Employee to surrender his or her
Option shall incorporate such additional restrictions on the exercise of
such SAR or surrender right as the Committee deems necessary to satisfy the
conditions to the exemption under Rule 16b-3.
SECTION 8. RESTRICTED STOCK
8.1 Committee Action. The Committee acting in its absolute discretion shall
have the right to grant Restricted Stock to Key Employees under this Plan from
time to time. However, no more than 250,000 shares of Stock shall be granted as
Restricted Stock from the shares otherwise available for grants under this Plan.
Each Restricted Stock grant shall be evidenced by a Restricted Stock Agreement,
and each Restricted Stock Agreement shall set forth the conditions, if any,
which will need to be timely satisfied before the grant will be effective and
the conditions, if any, under which the Key Employee's interest in the related
Stock will be forfeited.
8.2 Effective Date. A Restricted Stock grant shall be effective (a) as of
the date set by the Committee when the grant is made or, if the grant is made
subject to one, or more than one, condition, (b) as of the date the Committee
determines that such conditions have been timely satisfied.
8.3 Conditions.
(a) Grant Conditions. The Committee acting in its absolute discretion
may make the grant of Restricted Stock to a Key Employee subject to the
satisfaction of one, or more than one, objective employment, performance or
other grant condition which the Committee deems appropriate under the
circumstances for Key Employees generally or for a Key Employee in
particular, and the related Restricted Stock Agreement shall set forth each
such condition and the deadline for satisfying each such grant condition.
If a Restricted Stock grant will become effective only upon the
satisfaction of one, or more than one, condition, the related shares of
Stock shall be unavailable under Section 3 for the period which begins on
the date as of which such grant is made and, if a Restricted Stock grant
fails to become effective In whole or in part under Section 8.2, such
period shall end on the date of such failure (i) for the related shares of
Stock subject to such grant (if the entire grant fails to become effective)
or (ii) for the related shares of Stock subject to that part of the grant
which fails to become effective (if only part of the grant fails to become
effective). If such period ends for any such shares of Stock, such shares
shall be treated under Section 3 as forfeited at the end of such period and
shall again become available under Section 3.
(b) Forfeiture Conditions. The Committee may make each Restricted
Stock grant (if, when and to the extent that the grant becomes effective)
subject to one, or more than one, objective employment, performance or
other forfeiture condition which the Committee acting in its absolute
discretion deems appropriate under the circumstances for Key Employees
-9-
<PAGE>
generally or for a Key Employee in particular, and the related Restricted
Stock Agreement shall set forth each such condition and the deadline for
satisfying each such forfeiture condition. A Key Employee's nonforfeitable
interest in the shares of Stock related to a Restricted Stock grant shall
depend on the extent to which each such condition is timely satisfied. Each
share of Stock related to a Restricted Stock grant shall again become
available under Section 3 after such pant becomes effective if such share
is forfeited as a result of a failure to timely satisfy a forfeiture
condition, in which event such share of Stock shall again become available
under Section 3 as of the date of such failure. A Stock certificate shall
be issued (subject to the conditions, if any, described in this Section
8.3(b) and Section 8.4) to, or for the benefit of, the Key Employee with
respect to the number of shares for which a grant has become effective as
soon as practicable after the date the grant becomes effective.
8.4 Dividends and Voting Rights.
(a) Each Restricted Stock Agreement shall state whether the Key
Employee shall right receive any cash dividends which are paid with respect
to his or her Restricted Stock after the date his or her Restricted Stock
grant has become effective and before the first day that the Key Employee's
interest in such stock is forfeited completely or becomes completely
nonforfeitable. If a Restricted Stock Agreement provides that a Key
Employee has no right to receive a cask dividend when paid, such agreement
shall set forth the conditions, if any, under which the Key Employee will
be eligible to receive one, or more than one, payment in the future to
compensate the Key Employee for the fact that he or she had no right to
receive any cash dividends on his or her Restricted Stock when such
dividends were paid. If a Restricted Stock Agreement calls for any such
payments to be made, the Company shall make such payments from the
Company's general users, and the Key Employee shall be no more than a
general and unsecured creditor of the Company with respect to such payment&
(b) If a Stock dividend is declared on such a share of Stock after the
grant is effective but before the Key Employee's interest in such Stock has
been forfeited or has become nonforfeitable, such Stock dividend shall be
treated as pert of the grant of the related Restricted Stock, and a Key
Employee's interest in such Stock dividend shall be forfeited or shall
become nonforfeitable at the same time as the Stock with respect to which
the Stock dividend was paid is forfeited or becomes nonforfeitable.
(c) If a dividend is paid other than in cash or Stock, the disposition
of such dividend shall be made in accordance with such rules as the
Committee shall adopt with respect to each such dividend.
(d) A Key Employee shall have the right to vote the Stock related to
his or her Restricted Stock grant after the grant is effective with respect
to such Stock but before his or her interest in such Stock has been
forfeited or has become nonforfeitable.
8.5 Satisfaction of Forfeiture Conditions. A share of Stock shall cease to
be Restricted Stock at such time as a Key Employee's interest in such Stock
becomes nonforfeitable
-10-
<PAGE>
under this Plan, and the certificate representing such share shall be reissued
as soon as practicable thereafter without any further restricitions related to
Section 8.3(b) or Section 8.4 and shall be transferred to the Key Employee.
SECTION 9. SECURITIES REGISTRATION AND ESCROW OF SHARES
9.1 Securities Registration. Each Option Agreement, SAR Agreement and
Restricted Stock Agreement shall provide that, upon the receipt of shares of
Stock as a result of the exercise of an Option (or any related surrender right)
or a SAR or the satisfaction of the forfeiture conditions under a Restricted
Stock Agreement, the Key Employee shall, if so requested by the Company, hold
such shares of Stock for investment and not with a view of resale or
distribution to the public and, if so requested by the Company, shall deliver to
the Company a written statement satisfactory to the Company to that effect. As
for Stock issued pursuant to this Plan, the Company at its expense shall take
such action as it deems necessary or appropriate to register the original
issuance of such Stock to a Key Employee under the Securities Act of 1933, as
amended, or under any other applicable securities laws or to qualify such Stock
for an exemption under any such laws prior to the issuance of such Stock to a
Key Employee; however, the Company shall have no obligation whatsoever to take
any such action in connection with the transfer, resale or other disposition of
such Stock by a Key Employee.
9.2 Escrow of Shares. Any certificates representing the shares of Stock
issued under the Plan shall be issued in the Key Employee's name, but, if the
applicable Option Agreement, SAR Agreement or Restricted Stock Agreement (the
"Agreements") so provides, the shares of Stock will be held by a custodian
designated by the Committee (the "Custodian"). Each applicable Agreement
providing for the transfer of shares of Stock to the Custodian shall appoint
the~ Custodian as attorney-in-fact for the Key Employee for the term specified
in the applicable Agreement, with full power and authority in the Key Employee's
name, place and stead to transfer, assign and convey to the Company any shares
of Stock held by the Custodian for such Key Employee, if the Key Employee
forfeits the shares of Stock under the terms of the applicable Agreement. During
the period that the Custodian holds the shares subject to this Section, the Key
Employee will be entitled to all rights, except as provided in the applicable.
Agreement, applicable to shares of Stock not so held. Subject to Section 8.4 of
this Plan, any dividends declared on shares of Stock held by the Custodian will,
as the Committee may provide on the applicable Agreement, be paid directly to
the Key Employee or, in the alternative, be retained by the Custodian or by the
Company until the expiration of the term specified in the applicable Agreement
and will then be delivered, together with any proceeds, with the shares of Stock
to the Key Employee or to the Company, as applicable.
SECTION 10. LIFE OF PLAN
No Option or SAR or Restricted Stock shall be granted under this Plan after
the earlier of
-11-
<PAGE>
(1) December 31, 2006, in which event this Plan otherwise thereafter
shall continue in effect until all outstanding Options (and any related
surrender rights) and SARs have been exercised in full or no longer are
exercisable and all Restricted Stock grants under this Plan have been
forfeited or the forfeiture conditions on the related Stock have been
satisfied in full, or
(2) the date on which all of the Stock reserved under Section 3 of
this Plan has (as a result of the exercise of all Options (and any related
surrender rights) and all SARs granted under this Plan or the satisfaction
of the forfeiture conditions on Restricted Stock) been issued or no longer
is available for use under this Plan, in which event this Plan also shall
terminate on such date.
SECTION 11. ADJUSTMENT
The number of shares of Stock reserved under Section 3 of this Plan, the
number of shares of Stock related to Restricted Stock grants under this Plan and
any related grant conditions and forfeiture conditions, the number of shares of
Stock subject to Options granted under this Plan and the Option Price of such
Options and the SAR Grant Value and the number of shares of Stock related to any
SAR all shall be adjusted by the Board in an equitable manner to reflect any
change in the capitalization of the Company, including, but not limited to, such
changes as stock dividends or stock splits. Furthermore, the Board shall have
the right to adjust (in a manner which satisfies the requirements of Section
424(a) of the Code) the number of shares of Stock reserved under Section 3 of
this Plan, the number of shares of Stock related to Restricted Stock grants
under this Plan and any related grant conditions and forfeiture conditions, the
number of shares subject to Options granted under this Plan and the Option Price
of such Options and the SAR Grant Value and the number of shares of Stock
related to any SAR in the event of any corporate transaction described in
Section 424(a) of the Code which provides for the substitution or assumption of
such Options, SARs or Restricted Stock grants. If any adjustment under this
Section 11 would create a fractional share of Stock or a right to acquire a
fractional share of Stock, such fractional share shall be disregarded and the
number of shares of Stock reserved under this Plan and the number subject to any
Options or related to any SARs or Restricted Stock grants under this Plan shall
be the next lower number of shares of Stock, rounding all fractions downward. An
adjustment made under this Section 11 by the Board shall be conclusive and
binding on all affected persons and, further, shall not constitute an increase
in the "number of shares reserved under Section 3" within the meaning of Section
13(1) of this Plan.
SECT1ON 12. CHANGE IN CONTROL
If there is a Change in Control and the Board determines that no adequate
provision has been made as part of such Change in Control for either the
assumption of the Options, SARs and Related Stock grants outstanding under this
Plan or for the granting of comparable,
-12-
<PAGE>
substitute stock options, stock appreciation fights and restricted stock grants,
(1) each outstanding Option and SAR at the direction and discretion of the Board
(a) may (subject to such conditions, if any, as the Board deems appropriate
under the circumstances) be cancelled unilaterally by the Company in exchange
for the number of whole shares of Stock (and cash in lieu, of a fractional
share), if any, which each Key Employee would have received if on the date set
by the Board he or she had exercised his or her SAR in full or if he or she had
exercised a right to surrender his or her outstanding Option in full under
Section 7.11 of this Plan or (b) may be cancelled unilaterally by the Company if
the Option Price or SAR Share Value equals or exceeds the Fair Market Value of a
share of Stock on such date and (2) the grant conditions, if any, and forfeiture
conditions on all outstanding Restricted Stock grants may be deemed completely
satisfied on the date set by the Board.
SECTION 13. AMENDMENT OR TERMINATION
This Plan may be amended by the Board from time to time to the extent that
the Board deems necessary or appropriate; provided, however, that any such
amendment may be conditioned on shareholder approval if the Committee determines
such approval is necessary or advisable for securities of tax purposes. The
Board also may suspend the granting of Options, SARs and Restricted Stock under
this Plan at any time and may terminate this Plan at any time; provided,
however, the Company shall not have the right to modify, amend or cancel any
Option, SAR or Restricted Stock granted before such suspension or termination
unless (1) the Key Employee consents in writing to such modification, amendment
or cancellation or (2) there is a dissolution or liquidation of the Company or a
transaction described in Section 11 or Section 12 of this Plan.
SECTION 14. MISCELLANEOUS
l4.1 Shareholder Rights. No Key Employee shall have any rights as a
shareholder of the Company as a result of the grant of an Option or a SAR under
this Plan or his or her exercise of such Option or SAR pending the actual
delivery of the Stock subject to such Option to such Key Employee, subject to
Section 8.4, a Key Employee's rights as a shareholder in the shares of Stock
related to a Restricted Stock grant which is effective shall be set forth in the
relaxed Restricted Stock Agreement.
14.2 No Contract of Employment. The grant of an Option, SAR or Restricted
Stock to a Key Employee under this Plan shall not constitute a contract of
employment and shall not confer on a Key Employee any rights upon his or her
termination of employment in addition to those rights, if any, expressly set
forth in the Option Agreement which evidences his or her Option, the SAR
Agreement which evidences his or her SAR or the Restricted Stock Agreement
related to his or her Restricted Stock.
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<PAGE>
14.3 Withholding. The Company shall deduct from all cash distributions
under the Plan any taxes required to be withheld by federal, state or local
government. Whenever the Company proposes or is required to issue or transfer
shares of Stock under the Plan, the Company shall have the right to require the
recipient to remit to the Company an amount sufficient to satisfy any federal,
state and local withholding tax requirements prior to the delivery of any
certificate or certificates for such shares. A Key Employee may pay the
withholding tax in cash, or, if the applicable Option Agreement, SAR Agreement
or Restricted Stock Agreement provides, a Key Employee may elect to have the
number of shares of Stock he is to receive reduced by the smallest number of
whole shares of Stock which, when multiplied by the Fair Market Value of the
shares of Stock determined as of the Tax Date (defined below), is sufficient to
satisfy federal, state and local if any, withhoLding taxes arising from exercise
or payment of a grant under this Plan (a "Withholding Election"); A Key Employee
may make a Withholding Election only if both the following conditions are met:
(a) The Withholding Election must be made on or prior to the date on
which the amount of tax required to be withheld is determined (the "Tax
Date") by executing and delivering to the Company a properly completed
notice of Withholding Election as prescribed by the Committee; and
(b) Any Withholding Election made will be irrevocable except on six
months advance written notice delivered to the Company; however, the
Committee may in its sole discretion disapprove and give no effect to the
Withholding Election.
14.4 Construction. This Plan shall be construed under the laws of the State
of Georgia, to the extent not preempted by federal law, without reference to the
principles of conflict of laws.
14.5 Cash Awards. The Committee may, at any time and in its discretion,
grant to any holder of an incentive granted under this Plan the right to
receive, at such times and in such amounts as determined by the Committee in its
discretion, a cash amount which is intended to reimburse such person for all or
a portion of the federal, state and local income taxes imposed upon such a
person as a consequence of the receipt of the incentive granted under this Plan
or the exercise of rights thereunder.
14.6 Compliance with Code. All ISOs to be granted hereunder are intended to
comply with Code Section 422, and all provisions of the Plan and all ISOs
granted hereunder shall be construed in such manner as to effectuate that
intent.
14.7 Non-alienation of Benefits. Other than as specifically provided with
regard to the death of a Key Employee, no benefit under the Plan shall be
subject in any manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance or charge; and any attempt to do so shall be void. No such
benefit shall, prior to receipt by the Key Employee, be in any manner liable for
or subject to the debts, contracts, liabilities, engagements or torts of the Key
Employee.
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<PAGE>
14.8 Listing and Legal Compliance. The Committee may suspend the exercise
or payment of any incentive granted under this Plan so long as it determines
that securities exchange listing or registration or qualification under any
securities laws is required in connection therewith and has not been completed
on terms acceptable to the Committee.
14.9 Effective Date of Plan. The Plan shall become effective upon the date
the Plan is approved by the stockholders of the Company.
HUGHES SUPPLY, INC.
By: /s/ J. Stephen Zepf
----------------------------------------
J. Stephen Zepf
Title: Treasurer and Chief Financial Officer
-------------------------------------
ATTEST:
By: /s/ Benjamin P. Butterfield
------------------------------------
Title: Secretary and General Counsel
---------------------------------
[CORPORATE SEAL]
BRIDGE REVOLVING CREDIT AGREEMENT
Dated as of November 30, 1999
By And Among
HUGHES SUPPLY, INC.
AND
SUNTRUST BANK, CENTRAL FLORIDA, NATIONAL ASSOCIATION,
- --------------------------------------------------------------------------------
King & Spalding
191 Peachtree Street, N.E.
Atlanta, Georgia 30303
Attn: G. Lemuel Hewes
(404) 572-4600
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Article I. DEFINITIONS; CONSTRUCTION................................................1
Section 1.01 Definitions.........................................................1
Section 1.02 Accounting Terms and Determination.................................11
Section 1.03 Other Definitional Terms...........................................11
Section 1.04 Exhibits and Schedules.............................................11
Article II. REVOLVING LOAN COMMITMENT...............................................12
Section 2.01 Revolving Loan Commitment, Use of Proceeds.........................12
Section 2.02 Revolving Note; Repayment of Principal.............................12
Section 2.03 Voluntary Reduction of Revolving Loan Commitment...................13
Article III. GENERAL LOAN TERMS......................................................13
Section 3.01 Funding Notices....................................................13
Section 3.02 Disbursement of Funds..............................................14
Section 3.03 Interest...........................................................14
Section 3.04 Interest Periods...................................................15
Section 3.05 Fees...............................................................16
Section 3.06 Voluntary Prepayments of Borrowings................................16
Section 3.07 Payments, etc......................................................16
Section 3.08 Interest Rate Not Ascertainable, etc...............................18
Section 3.09 Illegality.........................................................18
Section 3.10 Increased Costs....................................................18
Section 3.11 Lending Offices....................................................20
Section 3.12 Funding Losses.....................................................20
Section 3.13 Assumptions Concerning Funding of Eurodollar Advances..............20
Section 3.14 Capital Adequacy...................................................20
Section 3.15 Benefits to Guarantors.............................................21
Section 3.16 Limitation on Certain Payment Obligations..........................21
Article IV. CONDITIONS TO BORROWINGS................................................22
Section 4.01 Conditions Precedent to Initial Revolving Loans....................22
Section 4.02 Conditions to All Revolving Loans..................................23
Article V. REPRESENTATIONS AND WARRANTIES..........................................24
Article VI. COVENANTS...............................................................24
Article VII. EVENTS OF DEFAULT.......................................................25
Section 7.01 Payments...........................................................26
Section 7.02 Other Covenants....................................................26
Section 7.03 Representations....................................................26
Section 7.04 Defaults under Syndicated Revolving Credit Agreement...............26
Section 7.05 Bankruptcy.........................................................26
Section 7.06 Default Under Other Credit Documents...............................27
Article VIII. MISCELLANEOUS...........................................................27
Section 8.01 Notices............................................................27
Section 8.02 Amendments, Etc....................................................27
Section 8.03 No Waiver, Remedies Cumulative.....................................28
Section 8.04 Payment of Expenses, Etc...........................................28
Section 8.05 Right of Setoff....................................................29
Section 8.06 Benefit of Agreement...............................................29
Section 8.07 Governing Law; Submission to Jurisdiction..........................32
Section 8.08 Counterparts.......................................................33
Section 8.09 Effectiveness; Survival............................................33
Section 8.10 Severability.......................................................33
Section 8.11 Independence of Covenants..........................................33
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Section 8.12 Change in Accounting Principles, Fiscal Year or Tax Laws...........34
Section 8.13 Headings Descriptive, Entire Agreement.............................34
Section 8.14 Time is of the Essence.............................................34
Section 8.15 Usury..............................................................34
Section 8.16 Construction.......................................................34
Section 8.17 Waiver of Effect of Corporate Seal.................................35
</TABLE>
<PAGE>
EXHIBITS
Exhibit A Form of Revolving Note
Exhibit B Form of Guaranty Agreement
Exhibit C Form of Closing Certificate
<PAGE>
BRIDGE REVOLVING CREDIT AGREEMENT
THIS BRIDGE REVOLVING CREDIT AGREEMENT, dated as of November 30,1999 (the
"Agreement") by and among HUGHES SUPPLY, INC. ("Borrower"), a Florida
corporation, and SUNTRUST BANK, CENTRAL FLORIDA, NATIONAL ASSOCIATION (together
with its successors and assigns, the "Lender"), a national banking association.
W I T N E S S E T H:
WHEREAS, Borrower has requested that the Lender establish a $50,000,000
revolving credit facility in favor of Borrower, and subject to the terms and
conditions contained herein, the Lender is willing to establish such revolving
credit facility in favor of Borrower subject to the terms and conditions set
forth below;
NOW, THEREFORE, in consideration of the mutual covenants made herein, and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto, intending to be legally bound,
agree as follows:
Article I.
DEFINITIONS; CONSTRUCTION
Section 1.01 Definitions. As used in this Agreement, and in any instrument,
certificate, document or report delivered pursuant hereto, the following terms
shall have the following meanings (to be equally applicable to both the singular
and plural forms of the term defined):
"Adjusted LIBO Rate" shall mean with respect to each Interest Period for a
Eurodollar Advance, the rate obtained by dividing (A) LIBOR for such Interest
Period by (B) a percentage equal to 1 minus the then stated maximum rate (stated
as a decimal) of all reserves requirements (including, without limitation, any
marginal, emergency, supplemental, special or other reserves) applicable to any
member bank of the Federal Reserve System in respect of Eurodollar liabilities
as defined in Regulation D (or against any successor category of liabilities as
defined in Regulation D). The Lender shall promptly notify the Borrower of any
such reserve requirements that become applicable.
"Advance" shall mean an advance hereunder (or conversion or continuation
thereof) consisting of a portion of the Revolving Loans made (or continued or
converted) at the same time, of the same Type and, in the case of Eurodollar
Advances, for the same Interest Period, which shall be made and outstanding as a
Base Rate Advance or Eurodollar Advance, as the case may be.
"Affiliate" of any Person means any other Person directly or indirectly
controlling, controlled by, or under common control with, such Person, whether
through the ownership of
<PAGE>
voting securities, by contract or otherwise. For purposes of this definition,
"control" (including with correlative meanings, the terms "controlling",
"controlled by", and "under common control with") as applied to any Person,
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of that Person.
"Agreement" shall mean this Bridge Revolving Credit Agreement, either as
originally executed or as it may be from time to time supplemented, amended,
restated, renewed or extended and in effect.
"Applicable Margin" shall mean the percentage designated below based on
Borrower's Leverage Ratio for the most recently ended fiscal quarter for which
financial statements have been delivered pursuant to Section 6.07(a) or (b) of
the Syndicated Revolving Credit Agreement:
- --------------------------------------------------------------------------------
Leverage Ratio Applicable Margin for
Revolving Loan
Commitment:
- --------------------------------------------------------------------------------
Less than 0.4: 1.0 0.25%
- --------------------------------------------------------------------------------
Greater than or equal to 0.325%
0.4: 1.0 but less than 0.45: 1.0
- --------------------------------------------------------------------------------
Greater than or equal to 0.55%
0.45: 1.0 but less than 0.5: 1.0
- --------------------------------------------------------------------------------
Greater than or equal to 0.625%
0.5: 1.0 but less than 0.55: 1.0
- --------------------------------------------------------------------------------
Greater than or equal to 0.825%
0.55:1.0
- --------------------------------------------------------------------------------
provided, however, that:
(a) The Applicable Margin in effect as of the date of execution and
delivery of this Agreement is .625%, and such percentage shall remain in
effect until such time as the Applicable Margin may be adjusted as
hereinafter provided; and
(b) Adjustments, if any, to the Applicable Margin based on changes in
the ratios set forth above shall be made and become effective (i) on the
first day of the fiscal quarter immediately following delivery of the
financial statements required pursuant to Section 6.07(b) of the Syndicated
Revolving Credit Agreement, and (ii) on the first day of the second fiscal
quarter immediately following the last day of any fiscal year of Borrower.
(c) Notwithstanding the foregoing, at any time during which Borrower
has failed to deliver the financial statements and certificates when
required by Section 6.07(a) and (b) of the Syndicated Revolving Credit
Agreement, as the case may be, the Applicable Margin shall be 0.825% until
such time as the delinquent financial statements are delivered at which
time the Applicable Margin shall be reset as provided above.
<PAGE>
"Asbestos Laws" means the common law in all federal, state and local and
foreign jurisdictions and other laws in such jurisdictions, and regulations,
codes, orders, decrees, judgments or injunctions issued, promulgated, approved
or entered thereunder, now or hereafter in affect relating to or concerning
asbestos or asbestos-containing material, including without limitation, exposure
to asbestos or asbestos-containing material.
"Bankruptcy Code" shall mean The Bankruptcy Code of 1978, as amended and in
effect from time to time (11 U.S.C.ss. 101 et seq..).
"Base Rate" shall mean (with any change in the Base Rate to be effective as
of the date of change of either of the following rates) the higher of (a) the
rate which the Lender designates from time to time to be its prime lending rate,
as in effect from time to time, and (b) the Federal Funds Rate, as in effect
from time to time, plus one-half of one percent (0.50%) per annum. The Lender's
prime lending rate is a reference rate and does not necessarily represent the
lowest or best rate charged to customers; Lender may make commercial loans or
other loans at rates of interest at, above or below the Lender's prime lending
rate.
"Base Rate Advance" shall mean an Advance bearing interest based on the
Base Rate.
"Business Day" shall mean, with respect to Eurodollar Loans, any day other
than a day on which commercial banks are closed or required to be closed for
domestic and international business, including dealings in Dollar deposits on
the London interbank market, and with respect to all other Revolving Loans and
matters, any day other than Saturday, Sunday and a day on which commercial banks
are required to be closed for business in Atlanta, Georgia or Orlando, Florida.
"Capitalized Lease Obligations" shall mean all lease obligations which have
been or are required to be, in accordance with GAAP, capitalized on the books of
the lessee.
"CERCLA" has the meaning set forth in Section 5.15(a) of the Syndicated
Revolving Credit Agreement Agreement.
"Closing Date" shall mean the date on or before November 30, 1999, on which
the initial Revolving Loans are made and the conditions set forth in Section
4.01 are satisfied or waived in accordance with Section 8.02.
"Consolidated Companies" shall mean, collectively, Borrower and all of its
Subsidiaries.
"Consolidated EBITR" shall mean, for any fiscal period of the Borrower, an
amount equal to Consolidated Net Income (Loss) for such period, plus, to the
extent deducted in determining Consolidated Net Income (Loss), (i) Consolidated
Tax Expense for such period, (ii)
<PAGE>
Consolidated Interest Expense for such period, and (iii) Consolidated Rental
Expense for such period.
"Consolidated Interest Expense" shall mean, for any fiscal period of
Borrower, total interest expense (including without limitation, interest expense
attributable to capitalized leases in accordance with the GAAP and any program
costs incurred by Borrower in connection with sales of accounts receivable
pursuant to a securitization program) of the Consolidated Companies for such
period, determined on a consolidated basis.
"Consolidated Net Income (Loss)" shall mean, for any fiscal period of
Borrower, the net income (or loss) of the Consolidated Companies for such period
(taken as a single accounting period) determined on a consolidated basis in
conformity with GAAP; provided that there shall be excluded therefrom (i) any
items of gain or loss which were included in determining such Consolidated Net
Income and were not realized in the ordinary course of business or the result of
a sale of assets other than in the ordinary course of business; and (ii) the
income (or loss) of any party accrued prior to the date such becomes a
Subsidiary of Borrower or is merged into or consolidated with Borrower or any of
its Subsidiaries, or such party's assets are acquired by any Consolidated
Company, unless such party is acquired in a transaction accounted for as a
pooling of interests.
"Consolidated Net Worth" shall mean as of the date of determination, the
Borrower's total shareholder's equity as of such date as determined in
accordance with GAAP.
"Consolidated Rental Expense" shall mean, for any fiscal period of
Borrower, total operating lease expense of the Consolidated Companies for such
period, determined on a consolidated basis in accordance with GAAP.
"Consolidated Tax Expense" shall mean, for any fiscal period of the
Borrower, tax expense of the Consolidated Companies for such period determined
on a consolidated basis in accordance with GAAP.
"Contractual Obligation" of any Person shall mean any provision of any
security issued by such Person or of any agreement, instrument or undertaking
under which such Person is obligated or by which it or any of the property owned
by it is bound.
"Credit Documents" shall mean, collectively, this Agreement, the Revolving
Note, the Guaranty Agreements, and all other Guaranty Documents, if any.
"Credit Parties" shall mean, collectively, each of Borrower, the
Guarantors, and every other Person who, from time to time, executes a Credit
Document with respect to all or any portion of the Obligations.
"Default" shall mean any condition or event which, with notice or lapse of
time or both, would constitute an Event of Default.
<PAGE>
"Dollar" and "U.S. Dollar" and the sign "$" shall mean lawful money of the
United States of America.
"Eligible Assignee" shall mean (i) a commercial bank organized under the
laws of the United States of America, or any state thereof, or organized under
the laws of any other country with a Lending Office in the United States of
America, having total assets in excess of $1,000,000,000 or any commercial
finance or asset based lending Affiliate of any such commercial bank and (ii)
any Affiliate of the Lender.
"Environmental Laws" shall mean all federal, state, local and foreign
statutes and codes or regulations, rules or ordinances issued, promulgated, or
approved thereunder, now or hereafter in effect (including, without limitation,
Asbestos Laws), relating to pollution or protection of the environment and
relating to public health and safety, relating to (i) emissions, discharges,
releases or threatened releases of pollutants, contaminants, chemicals or
industrial toxic or hazardous constituents, substances or wastes, including
without limitation, any Hazardous Substance, petroleum including crude oil or
any fraction thereof, any petroleum product or other waste, chemicals or
substances regulated by any Environmental Law into the environment (including
without limitation, ambient air, surface water, ground water, land surface or
subsurface strata), or (ii) the manufacture, processing, distribution, use,
generation, treatment, storage, disposal, transport or handling of any Hazardous
Substance, petroleum including crude oil or any fraction thereof, any petroleum
product or other waste, chemicals or substances regulated by any Environmental
Law, and (iii) underground storage tanks and related piping, and emissions,
discharges and releases or threatened releases therefrom, such Environmental
Laws to include, without limitation (i) the Clean Air Act (42 U.S.C.ss.7401 et
seq.), (ii) the Clean Water Act (33 U.S.C.ss.1251 et seq.), (iii) the Resource
Conservation and Recovery Act (42 U.S.C.ss. 6901 et seq..), (iv) the Toxic
Substances Control Act (15 U.S.C.ss.2601 et seq.) and (v) the Comprehensive
Environmental Response Compensation and Liability Act, as amended by the
Superfund Amendments and Reauthorization Act (42 U.S.C.ss. 9601 et seq.).
"Eurodollar Advance" shall mean an Advance bearing interest based on the
Adjusted LIBO Rate.
"Eurodollar Loan" shall mean any Revolving Loan hereunder which bears
interest based on the Adjusted LIBO Rate.
"Event of Default" shall have the meaning set forth in Article VIII.
"Executive Officer" shall mean with respect to any Person (other than a
Guarantor), the President, Vice Presidents, Chief Financial Officer, Treasurer,
Secretary and any Person holding comparable offices or duties, and with respect
to a Guarantor, the President.
"Facility" or "Facilities" shall mean the Revolving Loan Commitment and
Revolving Loans.
<PAGE>
"Federal Funds Rate" shall mean for any period, a fluctuating interest rate
per annum equal for each day during such period to the weighted average of the
rates on overnight Federal funds transactions with member banks of the Federal
Reserve System arranged by Federal funds brokers, as published for such day (or,
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of Atlanta, or, if such rate is not so published for any
day which is a Business Day, the average of the quotations for such day on such
transactions received by the Lender from three Federal funds brokers of
recognized standing selected by the Lender.
"Fee Letter" shall mean that certain letter agreement, dated as of November
30, 1999, executed by the Lender and acknowledged and agreed to by the Borrower,
pursuant to which the Borrower has agreed to pay certain fees set forth in such
letter agreement.
"Fees" shall mean, collectively, any and all fees specified in the Fee
Letter.
"Final Maturity Date" shall mean the date on which all Commitments have
been terminated and all amounts outstanding under this Agreement have been
declared or have automatically become due and payable pursuant to the provisions
of Article VIII.
"GAAP" shall mean generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession, which are applicable to the circumstances as of the date of
determination.
"Guaranteed Indebtedness" shall mean, as to any Person, any obligation of
such Person guaranteeing any indebtedness, lease, dividend, or other obligation
("primary obligation") of any other Person (the "primary obligor") in any manner
including, without limitation, any obligation or arrangement of such Person (a)
to purchase or repurchase any such primary obligation, (b) to advance or supply
funds (i) for the purchase or payment of any such primary obligation or (ii) to
maintain working capital or equity capital of the primary obligor or otherwise
to maintain the net worth or solvency or any balance sheet condition of the
primary obligor, (c) to purchase property, securities or services primarily for
the purpose of assuring the owner of any such primary obligation of the ability
of the primary obligor to make payment of such primary obligation, or (d) to
indemnify the owner of such primary obligation against loss in respect thereof.
"Guarantors" shall mean, collectively, each Material Subsidiary of the
Borrower that has executed the Guaranty Agreement as of the Closing Date,
together with all other Material Subsidiaries that hereafter execute supplements
to the Guaranty Agreement, and their respective successors and permitted
assigns.
"Guaranty Agreement" shall mean the Subsidiary Guaranty Agreement
substantially in the form of Exhibit B attached hereto, dated as of the date
hereof, executed by
<PAGE>
certain of Borrower's Subsidiaries in favor of the Lender, as the same may be
amended, restated or supplemented from time to time.
"Guaranty Documents" shall mean, collectively, the Guaranty Agreement, and
each other guaranty agreement, mortgage, deed of trust, security agreement,
pledge agreement, or other security or collateral document guaranteeing or
securing the Obligations, as the same may be amended, restated, or supplemented
from time to time.
"Hazardous Substances" has the meaning assigned to that term in CERCLA.
"Indebtedness" of any Person shall mean, without duplication (i) all
obligations of such Person which in accordance with GAAP would be shown on the
balance sheet of such Person as a liability (including, without limitation,
obligations for borrowed money and for the deferred purchase price of property
or services, and obligations evidenced by bonds, debentures, notes or other
similar instruments); (ii) all Guaranteed Indebtedness of such Person (including
contingent reimbursements obligations under undrawn financial letters of credit
but not performance letters of credit) (iii) all Capitalized Lease Obligations;
(iv) all Indebtedness of others secured by any Lien upon property owned by such
Person, whether or not assumed; and (v) all obligations or other liabilities
under currency contracts, interest rate contracts, interest rate protection
agreements, or similar agreements or combinations thereof. Notwithstanding the
foregoing, in determining the Indebtedness of any Person, there shall be
included all obligations of such Person of the character referred to in clauses
(i) through (v) above deemed to be extinguished under GAAP but for which such
Person remains legally liable except to the extent that such obligations (x)
have been defeased in accordance with the terms of the applicable instruments
governing such obligations and (y) the accounts or other assets dedicated to
such defeasance are not included as assets on the balance sheet of such Person.
"Interest Period" shall mean, with respect to Eurodollar Advances, the
period of 30, 60, 90, 120, 150 or 180 days selected by the Borrower, pursuant to
the terms of the credit facility and subject to customary adjustments in
duration; provided, that (a) the first day of an Interest Period must be a
Business Day, (b) any Interest Period that would otherwise end on day that is
not a Business Day for Eurodollar Loans shall be extended to the next succeeding
Business Day for Eurodollar Loans, unless such Business Day falls in the next
calendar month, in which case the Interest Period shall end on the next
preceding Business Day for Eurodollar Loans, and (c) Borrower may not elect an
Interest Period that would extend beyond the Revolving Loan Termination Date.
"Lender" shall mean SunTrust Bank, Central Florida, National Association, a
national bank, and each assignee thereof, if any, pursuant to Section 8.06.
"Lending Office" shall mean the office Lender may designate in writing from
time to time to Borrower with respect to each Type of Revolving Loan.
"Leverage Ratio" shall mean, as of any date of determination, the ratio of
Total Funded Debt as of such date to Total Capitalization as of such date.
<PAGE>
"LIBOR" shall mean, for any Interest Period, the offered rates for deposits
in U.S. Dollars for a period comparable to the Interest Period appearing on the
Telerate Page 3750, as of 11:00 A.M. London time on the day that is two business
days prior to the Interest Period. If at least two such rates appear on the
Telerate Page 3750, the rate for that Interest Period will be the arithmetic
mean of such rates, rounded, if necessary, to the next higher 1/16 of 1.0%. If
the foregoing rate is unavailable from the Telerate Page 3750 for any reason,
then such rate shall be determined by the Lender from the Reuters Screen LIBOR
Page, or if such rate is also unavailable on such service, then on any other
interest rate reporting service of recognized standing designated in writing by
the Lender to Borrower; in any such case rounded, if necessary, to the next
higher 1/16 of 1.0%, if the rate is not such a multiple.
"Lien" shall mean any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind or description and shall include, without limitation,
any agreement to give any of the foregoing, any conditional sale or other title
retention agreement, any capital lease in the nature thereof including any lease
or similar arrangement with a public authority executed in connection with the
issuance of industrial development revenue bonds or pollution control revenue
bonds, and the filing of or agreement to give any financing statement under the
Uniform Commercial Code of any jurisdiction.
"Materially Adverse Effect" shall mean the occurrence of an event, which
would (i) cause the recognition of a liability, as required by Statement of
Financial Accounting Standard No. 5, in the current quarter financial statements
in the amount of $15,000,000 or more, or (ii) cause an auditor to have a
substantial doubt about the ability of Borrower to continue as a going concern
after consideration of management's plans as described in Statement of Auditing
Standards, No. 50.
"Material Subsidiary" shall mean each Subsidiary of Borrower, now existing
or hereinafter established or acquired, that at any time prior to the Final
Maturity Date, has or acquires total assets in excess of $1,000,000 or that
accounted for or produced more than 5% of the Consolidated EBITR of Borrower on
a consolidated basis during any of the three most recently completed fiscal
years of Borrower.
"Notice of Borrowing" shall have the meaning provided in Section 3.01
hereof
"Notice of Continuation/Conversion" shall have the meaning provided in
Section 3.01 hereof.
"Obligations" shall mean all amounts owing to the Lender pursuant to the
terms of this Agreement or any other Credit Document, including without
limitation, all Revolving Loans (including all principal and interest payments
due thereunder), fees, expenses, indemnification and reimbursement obligations,
payments, indebtedness, liabilities, and obligations of the Credit Parties,
direct or indirect, absolute or contingent, liquidated or unliquidated, now
existing or hereafter arising, together with all renewals, extensions,
modifications or refinancings thereof
<PAGE>
"Payment Office" shall mean the "Payment Office" listed on the Lender's
signature page to this Agreement.
"Person" shall mean and shall include an individual, a partnership, a joint
venture, a corporation, a trust, an unincorporated association, a government or
any department or agency thereof and any other entity whatsoever.
"Regulation D" shall mean Regulation D of the Board of Governors of the
Federal Reserve System, as the same may be in effect from time to time.
"Requirement of Law" for any Person shall mean the articles or certificate
of incorporation and by-laws or other organizational or governing documents of
such Person, and any law, treaty, rule or regulation, or determination of an
arbitrator or a court or other governmental authority, in each case applicable
to or binding upon such Person or any of its property or to which such Person or
any of its property is subject.
"Reuters Screen" shall mean, when used in connection with any designated
page and LIBOR, the display page so designated on the Reuter Monitor Money Rates
Service (or such other page as may replace that page on that service for the
purpose of displaying rates comparable to LIBOR).
"Revolving Loans" or "Loans" shall mean, collectively, the revolving credit
loans made to Borrower by the Lender pursuant to Section 2.01 hereof.
"Revolving Loan Commitment" or "Commitment" shall mean, at any time, the
amount of such commitment set forth opposite Lender's name on the signature page
hereof or in any assignment hereafter executed by any assignee of Lender
pursuant to Section 8.06, as the same may be increased or decreased from time to
time as a result of any reduction thereof pursuant to Section 2.03, any
assignment thereof pursuant to Section 8.06, or any amendment thereof pursuant
to Section 8.02.
"Revolving Loan Termination Date" shall mean the earlier of (i) May 31,
2000 and (ii) the date on which the Revolving Loan Commitment is terminated in
accordance with Article VIII.
"Revolving Note" or "Note" shall mean a promissory note evidencing
Revolving Loans in the form attached hereto as Exhibit A, either as originally
executed or as the same may be from time to time supplemented, modified,
amended, renewed or extended.
"Subsidiary" shall mean, with respect to any Person, any corporation or
other entity (including, without limitation, partnerships, joint ventures, and
associations) regardless of its jurisdiction of organization or formation, at
least a majority of the total combined voting power of all classes of voting
stock or other ownership interests of which shall, at the time as of which any
determination is being made, be owned by such Person, either directly or
indirectly through one or more other Subsidiaries.
<PAGE>
"Syndicated Revolving Credit Agreement" shall mean that certain Revolving
Credit Agreement, dated as of January 26, 1999, by and among Borrower, SunTrust
Bank, Central Florida, National Association, as Administrative Agent, First
Union National Bank, as Documentation Agent, Bank of America, N.A., formerly
known as NationsBank N.A., as Syndication Agent, SouthTrust Bank, National
Association, as Co-Agent, and the banks and lending institutions from time to
time parties thereto, as amended by the First Amendment to Revolving Credit
Agreement, dated as of September 29, 1999, as so amended and as from time to
time amended, restated, modified or supplemented hereinafter.
"Syndicated Line of Credit Agreement" shall mean that certain Line of
Credit Agreement, dated as of January 26, 1999, by and among Borrower, SunTrust
Bank, Central Florida, National Association, as Administrative Agent, First
Union National Bank, as Documentation Agent, Bank of America, N.A., formerly
known as NationsBank N.A., as Syndication Agent, SouthTrust Bank, National
Association, as Co-Agent, and the banks and lending institutions from time to
time parties thereto, as amended by the First Amendment to Line of Credit
Agreement, dated as of September 29, 1999, as so amended and as from time to
time amended, restated, modified or supplemented hereinafter.
"Tax Code" shall mean the Internal Revenue Code of 1986, as amended and in
affect from time to time.
"Taxes" shall mean any present or future taxes, levies, imposts, duties,
fees, assessments, deductions, withholdings or other charges of whatever nature,
including without limitation, income, receipts, excise, property, sales,
transfer, license, payroll, withholding, social security and franchise taxes now
or hereafter imposed or levied by the United States of America, or any state,
local or foreign government or by any department, agency or other political
subdivision or taxing authority thereof or therein and all interest, penalties,
additions to tax and similar liabilities with respect thereto.
"Telerate" shall mean, when used in connection with any designated page and
"LIBOR," the display page so designated on the Dow Jones Telerate Service (or
such other page as may replace that page on that service for the purpose of
displaying rates comparable to "LIBOR").
"Total Capitalization" shall mean, as of any date of determination, the sum
of (i) Total Funded Debt plus (ii) Consolidated Net Worth as of such date.
"Total Funded Debt" shall mean all Indebtedness of the Consolidated
Companies that by its terms or by the terms of any instrument or agreement
relating thereto matures, or which is otherwise payable or unpaid, one year or
more from, or is directly or indirectly renewable or extendable at the option of
the debtor to a date one year or more (including an option of the debtor under a
revolving credit or similar agreement obligating the lender or lenders to extend
credit over a period of one year or more) from, the date of the creation
thereof, provided that Total Funded Debt shall include, as at any date of
determination, any portion of
<PAGE>
such Indebtedness outstanding on such date which matures on demand or within one
year from such date (whether by sinking fund, other required prepayment, or
final payment at maturity) and shall also include all Indebtedness of the
Consolidated Companies for borrowed money under a line of credit, guidance line,
revolving credit, bankers acceptance facility or similar arrangement for
borrowed money, including, without limitation, all unpaid drawings under letters
of credit and unreimbursed amounts pursuant to letter of credit reimbursement
agreements, regardless of the maturity date thereof.
"Type" of Advance shall mean either a Base Rate Advance or Eurodollar
Advance, as the case may be.
"United States of America" shall mean the fifty (50) States and the
District of Columbia
Section 1.02 Accounting Terms and Determination. Unless otherwise defined
or specified herein, all accounting terms shall be construed herein, all
accounting determinations hereunder shall be made, all financial statements
required to be delivered hereunder shall be prepared, and all financial records
shall be maintained in accordance with, GAAP.
Section 1.03 Other Definitional Terms. The words "hereof', "herein" and
"hereunder" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision of this
Agreement, and Article, Section, Schedule, Exhibit and like references are to
this Agreement unless otherwise specified.
Section 1.04 Exhibits and Schedules. All Exhibits and Schedules
attached hereto are by reference made a part hereof.
<PAGE>
Article II.
REVOLVING LOAN COMMITMENT
Section 2.01 Revolving Loan Commitment, Use of Proceeds.
(a) Subject to and upon the terms and conditions herein set forth, the
Lender severally agrees to make to Borrower from time to time on and after
the Closing Date, but prior to the Revolving Loan Termination Date,
Revolving Loans in an aggregate amount outstanding at any time not to
exceed the Revolving Loan Commitment. Borrower shall be entitled to repay
and reborrow Revolving Loans in accordance with the provisions hereof.
(b) Each Revolving Loan shall, at the option of Borrower, be made or
continued as, or converted into, part of one or more Base Rate Advances or
Eurodollar Advances. The aggregate principal amount of each Eurodollar
Advance shall not be less than $5,000,000 or a greater integral multiple of
$1,000,000. The aggregate principal amount of each Base Rate Advance shall
not be less than $1,000,000 or a greater integral multiple of $1,000,000.
At no time shall the number of Advances outstanding under this Article II
exceed ten; provided that, for the purpose of determining the number of
Advances outstanding and the minimum amount for Advances resulting from
conversions or continuations, all Base Rate Advances under this Facility
shall be considered as one Advance. The parties hereto agree that (i) the
aggregate principal balance of the Revolving Loans shall not exceed the
aggregate principal amount of the Revolving Loan Commitment and (ii) the
Lender shall not be obligated to make Revolving Loans in excess of the
Revolving Loan Commitment.
(c) The proceeds of Revolving Loans shall be used solely to fund the
working capital needs of the Borrower and its Subsidiaries and for general
corporate purposes.
Section 2.02 Revolving Note; Repayment of Principal.
(a) Borrower's obligations to pay the principal of, and interest on,
the Revolving Loans to the Lender shall be evidenced by the records of the
Lender and by the Revolving Note payable to the Lender (or the assignor of
the Lender) completed in conformity with this Agreement.
(b) All outstanding principal amounts under the Revolving Loans shall
be due and payable in full at the earlier of (i) the Revolving Loan
Termination Date or (ii) acceleration of the indebtedness as provided in
Article VIII.
Section 2.03 Voluntary Reduction of Revolving Loan Commitment. Upon at
least three (3) Business Days' prior telephonic notice (promptly confirmed in
writing) to the
<PAGE>
Lender, Borrower shall have the right, without premium or penalty, to terminate
the Revolving Loan Commitment, in part or in whole, provided that (i) any
partial termination pursuant to this Section 2.03 shall be in an amount of at
least $5,000,000 and integral multiples of $1,000,000, and (ii) no such
reduction shall be permitted if prohibited or without payment of all costs
required to be paid hereunder with respect to a prepayment. If the aggregate
outstanding amount of the Revolving Loans exceeds the amount of the Revolving
Loan Commitment as so reduced, Borrower shall immediately repay the Revolving
Loans by an amount equal to such excess, together with all accrued but unpaid
interest on such excess amount and any amounts due under Section 3.12 hereof
Article III.
GENERAL LOAN TERMS
Section 3.01 Funding Notices.
(a) (i) Whenever Borrower desires to borrow a Revolving Loan under its
Revolving Loan Commitment (other than one resulting from a conversion or
continuation pursuant to Section 3.01(b)), it shall give the Lender prior
written notice (or telephonic notice promptly confirmed in writing) of such
requested Revolving Loan (a "Notice of Borrowing") at its Payment Office;
such Notice of Borrowing to be given prior to (x) 11:00 A.M. (local time
for the Lender) one (1) Business Day prior to the requested date if such
Revolving Loan will consist of Base Rate Advances and (y) 11:00 A.M. (local
time for the Lender) three (3) Business Days prior to the requested date if
such Revolving Loan will consist of Eurodollar Advances. Notices received
after 11:00 A.M. shall be deemed received on the next Business Day. Each
Notice of Borrowing shall be irrevocable and shall specify the aggregate
principal amount of such Revolving Loan, the date on which such Revolving
Loan will be borrowed (which shall be a Business Day), and whether such
Revolving Loan will consist of Base Rate Advances or Eurodollar Advances
and (in the case of Eurodollar Advances) the Interest Period to be
applicable thereto.
(b) Whenever Borrower desires to convert all or a portion of any
outstanding Base Rate Advances into one or more Eurodollar Advances or to
continue outstanding a Eurodollar Advance for a new Interest Period, it
shall give the Lender at least three Business Days' prior written notice
(or telephonic notice promptly confirmed in writing) of each such Advance
to be converted into or continued as Eurodollar Advances. Such notice (a
"Notice of Continuation/Conversion") shall be given prior to 11:00 A.M.
(local time for the Lender) on the date specified at the Payment Office of
the Lender. Each such Notice of Continuation/Conversion shall be
irrevocable and shall specify the aggregate principal amount of the
Advances to be converted or continued, the date of such conversion or
continuation and the Interest Period applicable thereto. If, upon the
expiration of any Interest Period in respect of any Eurodollar Advance,
Borrower shall have failed to deliver the Notice of
Continuation/Conversion, Borrower shall be deemed
<PAGE>
to have elected to convert or continue such Eurodollar Advance to a Base
Rate Advance. So long as any Executive Officer of Borrower has knowledge
that any Default or Event of Default shall have occurred and be continuing,
no Advances may be converted into or continued as (upon expiration of the
current Interest Period) Eurodollar Advances unless the Lender shall have
otherwise consented in writing. No conversion of any Eurodollar Advances
shall be permitted except on the last day of the Interest Period in respect
thereof.
(c) Without in any way limiting Borrower's obligation to confirm in
writing any telephonic notice, the Lender may act without liability upon
the basis of telephonic notice believed by the Lender in good faith to be
from Borrower prior to receipt of written confirmation. In each such case,
Borrower hereby waives the right to dispute the Lender's record of the
terms of such telephonic notice.
Section 3.02 Disbursement of Funds. No later than 11:00 A.M. (local time
for the Lender) on the date each Revolving Loan is borrowed (other than one
resulting from a conversion or continuation pursuant to Section 3.01(b)), the
Lender will make available the amount of such Revolving Loan in immediately
available funds by crediting such amount to Borrower's demand deposit account
maintained with the Lender or at Borrower's option, to effect a wire transfer of
such amounts to Borrower's account specified by the Borrower, by the close of
business on such Business Day.
Section 3.03 Interest.
(a) Borrower agrees to pay interest in respect of all unpaid principal
amounts of the Revolving Loans from the respective dates such principal
amounts were advanced to maturity (whether by acceleration, notice of
prepayment or otherwise) at rates per annum (on the basis of a 360-day
year) equal to the applicable rates indicated below:
(i) For Base Rate Advances--The Base Rate in effect from time to
time; and
(ii) For Eurodollar Advances--The relevant Adjusted LIBO Rate
plus the Applicable Margin.
(b) Overdue principal and, to the extent not prohibited by applicable
law, overdue interest, in respect of the Revolving Loans, and all other
overdue amounts owing hereunder, shall bear interest from each date that
such amounts are overdue:
(i) in the case of overdue principal and interest with respect to
all Revolving Loans outstanding as Eurodollar Advances, at the rate
otherwise applicable for the then-current Interest Period plus an
additional two percent (2.0%) per annum; thereafter at the rate in
effect for Base Rate Advances plus an additional two percent (2.0%)
per annum; and
<PAGE>
(ii) in the case of overdue principal and interest with respect
to all other Revolving Loans outstanding as Base Rate Advances, and
all other Obligations hereunder (other than Revolving Loans), at a
rate equal to the applicable Base Rate plus an additional two percent
(2.0%) per annum;
provided that no Revolving Loan shall bear interest after maturity, whether by
non-payment at scheduled due date, acceleration, notice of prepayment or
otherwise at a rate per annum less then two percent (2.0%) per annum in excess
of the rate of interest applicable thereto at maturity.
(c) Interest on each Revolving Loan shall accrue from and including
the date of such Revolving Loan to, but excluding, the date of any
repayment thereof; provided that, if a Revolving Loan is repaid on the same
day made, one day's interest shall be paid on such Revolving Loan. Interest
on all outstanding Base Rate Advances shall be payable quarterly in arrears
on the last calendar day of each fiscal quarter of Borrower in each year.
Interest on all outstanding Eurodollar Advances shall be payable on the
last day of each Interest Period applicable thereto, and, in the case of
Eurodollar Advances having an Interest Period in excess of 90 days, on each
day which occurs every 90 days, as the case may be, after the initial date
of such Interest Period and on the last day of such Interest Period.
Interest on all Revolving Loans shall be payable on any conversion of any
Advances comprising such Revolving Loans into Advances of another Type,
prepayment (on the amount prepaid), at maturity (whether by acceleration,
notice of prepayment or otherwise) and, after maturity, on demand.
(d) The Lender, upon determining the Adjusted LIBO Rate for any
Interest Period, shall promptly notify Borrower by telephone (confirmed in
writing) or in writing. Any such determination shall, absent manifest
error, be final, conclusive and binding for all purposes.
Section 3.04 Interest Periods. In connection with the making or
continuation of, or conversion into, each Eurodollar Advance, Borrower shall
select an interest period (each an "Interest Period") to be applicable to such
Eurodollar Advance, which Interest Period shall be either a 30, 60, 90, 120, 150
or 180 day period; provided that:
(a) The initial Interest Period for any Eurodollar Advance shall
commence on the date of such Advance (including the date of any conversion
from an Advance of another Type) and each Interest Period occurring
thereafter in respect of such Eurodollar Advance shall commence on the day
on which the next preceding Interest Period expires;
(b) If any Interest Period would otherwise expire on a day which is
not a Business Day, such Interest Period shall expire on the next
succeeding Business Day, provided that if any Interest Period in respect of
Eurodollar Advances would otherwise expire on a day that is not a Business
Day but is a day of the month after which no further Business Day occurs in
such month, such Interest Period shall expire on the next preceding
Business Day;
<PAGE>
(c) Any Interest Period in respect of Eurodollar Advances which begins
on a day for which there is no numerically corresponding day in the
calendar month at the end of such Interest Period shall, subject to part
(d) below, expire on the last Business Day of such calendar month;
(d) No Interest Period shall extend beyond any date upon which any
principal payment is due with respect to the Revolving Loans.
Section 3.05 Fees. Borrower shall pay to the Lender the Fees as are
specified, and in accordance with, the Fee Letter.
Section 3.06 Voluntary Prepayments of Borrowings.
(a) Borrower may, at its option, prepay Revolving Loans consisting of
Base Rate Advances at any time in whole, or from time to time in part, in
amounts aggregating $2,500,000 or any greater integral multiple of
$500,000, by paying the principal amount to be prepaid together with
interest accrued and unpaid thereon to the date of prepayment. Those
Revolving Loans consisting of Eurodollar Advances may be prepaid, at
Borrower's option, in whole, or from time to time in part, in amounts
aggregating $5,000,000 or any greater integral multiple of $1,000,000, by
paying the principal amount to be prepaid, together with interest accrued
and unpaid thereon to the date of prepayment and all compensation payments
pursuant to Section 3.12 if such prepayment is made on a date other than
the last day of an Interest Period applicable thereto. Each such optional
prepayment shall be applied in accordance with Section 3.06(c) below.
(b) Borrower shall give written notice (or telephonic notice confirmed
in writing) to the Lender of any intended prepayment of (i) Base Rate
Advances not less than one Business Day prior to any such prepayments and
(ii) Eurodollar Advances not less than three Business Days prior to any
such prepayment. Such notice, once given, shall be irrevocable.
(c) Borrower, when providing notice of prepayment pursuant to Section
3.06(b) may designate the Types of Advances which are to be prepaid,
provided that, if any prepayment shall reduce an outstanding Eurodollar
Advance to an amount less than $1,000,000, such Eurodollar Advance shall
immediately be converted into a Base Rate Advance. All voluntary
prepayments shall be applied to the payment of any unpaid interest before
application to principal.
Section 3.07 Payments, etc.
(a) Except as otherwise specifically provided herein, all payments
under this Agreement and the other Credit Documents shall be made without
defense, set-off or counterclaim to the Lender, not later than 2:00 P.M.
(local time for the Lender) on the
<PAGE>
date when due and shall be made in Dollars in immediately available funds
at the respective Payment Office.
(b) All such payments shall be made free and clear of and without
deduction or withholding for any Taxes in respect of this Agreement, the
Revolving Note or other Credit Documents, or any payments of principal,
interest, fees or other amounts payable hereunder or thereunder (but
excluding any Taxes imposed on the overall net income of the Lender
pursuant to the laws of the jurisdiction in which the principal executive
office or appropriate Lending Office of Lender is located). If any Taxes
are so levied or imposed, Borrower agrees (A) to pay the full amount of
such Taxes, and such additional amounts as may be necessary so that every
net payment of all amounts due hereunder and under the Revolving Note and
other Credit Documents, after withholding or deduction for or on account of
any such Taxes (including additional sums payable under this Section 3.07),
will not be less than the full amount provided for herein had no such
deduction or withholding been required, (B) to make such withholding or
deduction and (C) to pay the full amount deducted to the relevant authority
in accordance with applicable law. Borrower will furnish to the Lender,
within 30 days after the date the payment of any Taxes is due pursuant to
applicable law, certified copies of tax receipts evidencing such payment by
Borrower. Borrower will indemnify and hold harmless the Lender and
reimburse the Lender upon written request for the amount of any Taxes so
levied or imposed and paid by the Lender and any liability (including
penalties, interest and expenses) arising therefrom or with respect
thereto, whether or not such Taxes were correctly or illegally asserted. A
certificate as to the amount of such payment by the Lender, absent manifest
error, shall be final, conclusive and binding for all purposes.
(c) Subject to Section 3.04(b), whenever any payment to be made
hereunder or under the Revolving Note shall be stated to be due on a day
which is not a Business Day, the due date thereof shall be extended to the
next succeeding Business Day and, with respect to payments of principal,
interest thereon shall be payable at the applicable rate during such
extension.
(d) All computations of interest and fees shall be made on the basis
of a year of 360 days for the actual number of days (including the first
day but excluding the last day) occurring in the period for which such
interest or fees are payable (to the extent computed on the basis of days
elapsed), except that interest on Base Rate Advances shall be computed on
the basis of a year of 360 days for the actual number of days. Interest on
Base Rate Advances shall be calculated based on the Base Rate from and
including the date of such Revolving Loan to but excluding the date of the
repayment or conversion thereof. Interest on Eurodollar Advances shall be
calculated as to each Interest Period from and including the first day
thereof to but excluding the last day thereof.
Section 3.08 Interest Rate Not Ascertainable, etc. In the event that the
Lender, in the case of the Adjusted LIBO Rate, shall have determined (which
determination shall be made in good faith and, absent manifest error, shall be
final, conclusive and binding upon all parties) that on any date for determining
the Adjusted LIBO Rate for any Interest Period, by
<PAGE>
reason of any changes arising after the date of this Agreement affecting the
London interbank market or the Lender's position in such market, adequate and
fair means do not exist for ascertaining the applicable interest rate on the
basis provided for in the definition of Adjusted LIBO Rate then, and in any such
event, the Lender shall forthwith give notice (by telephone confirmed in
writing) to Borrower of such determination and a summary of the basis for such
determination. Until the Lender notifies Borrower that the circumstances giving
rise to the suspension described herein no longer exist, the obligations of the
Lender to make or permit portions of the Revolving Loans to remain outstanding
past the last day of the then current Interest Periods as Eurodollar Advances
shall be suspended, and such affected Advances shall bear the same interest as
Base Rate Advances.
Section 3.09 Illegality.
(a) In the event that the Lender shall have determined (which
determination shall be made in good faith and, absent manifest error, shall
be final, conclusive and binding upon all parties) at any time that the
making or continuance of any Eurodollar Advance has become unlawful by
compliance by the Lender in good faith with any applicable law,
governmental rule, regulation, guideline or order (whether or not having
the force of law and whether or not failure to comply therewith would be
unlawful), then, in any such event, the Lender shall give prompt notice (by
telephone confirmed in writing) to Borrower of such determination and a
summary of the basis for such determination.
(b) Upon the giving of the notice to Borrower referred to in
subsection (a) above, Borrower's right to request and the Lender's
obligation to make Eurodollar Advances shall be immediately suspended, and
the Lender shall make any requested Eurodollar Advance as a Base Rate
Advance, and (ii) if the affected Eurodollar Advance or Advances are then
outstanding, Borrower shall immediately, or if permitted by applicable law,
no later than the date permitted thereby, upon at least one Business Day's
written notice to the Lender, convert each such Advance into an Advance or
Advances of a different Type with an Interest Period ending on the date on
which the Interest Period applicable to the affected Eurodollar Advances
expires.
Section 3.10 Increased Costs.
(a) If, by reason of (x) after the date hereof, the introduction of or
any change (including, without limitation, any change by way of imposition
or increase of reserve requirements) in or in the interpretation of any law
or regulation, or (y) the compliance with any guideline or request from any
central bank or other governmental authority or quasi-governmental
authority exercising control over banks or financial institutions generally
(whether or not having the force of law):
(i) the Lender (or its applicable Lending Office) shall be
subject to any tax, duty or other charge with respect to its
Eurodollar Advances or its obligation to make Eurodollar Advances, or
the basis of taxation of payments to the Lender of the principal
<PAGE>
of or interest on its Eurodollar Advances or its obligation to make
Eurodollar Advances shall have changed (except for changes in the tax
on the overall net income of the Lender or its applicable Lending
Office imposed by the jurisdiction in which the Lender's principal
executive office or applicable Lending Office is located); or
(ii) any reserve (including, without limitation, any imposed by
the Board of Governors of the Federal Reserve System), special deposit
or similar requirement against assets of, deposits with or for the
account of, or credit extended by, the Lender's applicable Lending
Office shall be imposed or deemed applicable or any other condition
affecting its Eurodollar Advances or its obligation to make Eurodollar
Advances shall be imposed on the Lender or its applicable Lending
Office or the London interbank market;
and as a result thereof there shall be any increase in the cost to the
Lender of agreeing to make or making, funding or maintaining
Eurodollar Advances (except to the extent already included in the
determination of the applicable Adjusted LIBO Rate for Eurodollar
Advances), or there shall be a reduction in the amount received or
receivable by the Lender or its applicable Lending Office; then
Borrower shall from time to time (subject, in the case of certain
Taxes, to the applicable provisions of Section 3.07(b)), upon written
notice from and demand by the Lender on Borrower, pay to the Lender
within five Business Days after the date of such notice and demand,
additional amounts sufficient to indemnify the Lender against such
increased cost. A certificate as to the amount of such increased cost,
submitted to Borrower in good faith and accompanied by a statement
prepared by the Lender describing in reasonable detail the basis for
and calculation of such increased cost, shall, except for manifest
error, be final, conclusive and binding for all purposes.
(b) If at any time, because of the circumstances described in clauses
(x) or (y) in Section 3.11(a) or any other circumstances beyond the
Lender's reasonable control arising after the date of this Agreement
affecting the Lender or the London interbank market or the United States of
America secondary certificate of deposit market or the Lender's position in
such markets, the Adjusted LIBO Rate, as determined by the Lender, will not
adequately and fairly reflect the cost to the Lender of funding its
Eurodollar Advances, then, and in any such event:
(i) the Lender shall forthwith give notice (by telephone
confirmed in writing) to Borrower of such advice;
(ii) Borrower's right to request and the Lender's obligation to
make or permit portions of the Revolving Loans to remain outstanding
past the last day of the then current Interest Periods as Eurodollar
Advances shall be immediately suspended; and
(iii) the Lender shall make any requested Eurodollar Advance as a
Base Rate Advance.
<PAGE>
Section 3.11 Lending Offices. The Lender agrees that, if requested by
Borrower, it will use reasonable efforts (subject to overall policy
considerations of the Lender) to designate an alternate Lending Office with
respect to any of its Eurodollar Advances affected by the matters or
circumstances described in Sections 3.07(b), 3.08, 3.09 or 3.10 to reduce the
liability of Borrower or avoid the results provided thereunder, so long as such
designation is not disadvantageous to the Lender as determined by the Lender,
which determination if made in good faith, shall be conclusive and binding on
all parties hereto. Nothing in this Section 3.11 shall affect or postpone any of
the obligations of Borrower or any right of the Lender provided hereunder.
Section 3.12 Funding Losses. Borrower shall compensate the Lender, upon its
written request to Borrower (which request shall set forth the basis for
requesting such amounts in reasonable detail and which request shall be made in
good faith and, absent manifest error, shall be final, conclusive and binding
upon all of the parties hereto), for all losses, expenses and liabilities
(including, without limitation, any interest paid by the Lender to lenders of
funds borrowed by it to make or carry its Eurodollar Advances, in either case to
the extent not recovered by the Lender in connection with the re-employment of
such funds and including loss of anticipated profits), which the Lender may
sustain: (i) if for any reason (other than a default by the Lender) a borrowing
of, or conversion to or continuation of Eurodollar Advances to Borrower does not
occur on the date specified therefor in a Notice of Borrowing or Notice of
Continuation/Conversion (whether or not withdrawn), (ii) if any repayment
(including mandatory prepayments and any conversions pursuant to Section
3.09(b)) of any Eurodollar Advances to Borrower occurs on a date which is not
the last day of an Interest Period applicable thereto, or (iii), if, for any
reason, Borrower defaults in its obligation to repay its Eurodollar Advances
when required by the terms of this Agreement.
Section 3.13 Assumptions Concerning Funding of Eurodollar Advances.
Calculation of all amounts payable to the Lender under this Article III shall be
made as though the Lender had actually funded its relevant Eurodollar Advances
through the purchase of deposits in the relevant market bearing interest at the
rate applicable to such Eurodollar Advances in an amount equal to the amount of
the Eurodollar Advances and having a maturity comparable to the relevant
Interest Period and through the transfer of such Eurodollar Advances from an
offshore office of the Lender to a domestic office of the Lender in the United
States of America; provided, however, that the Lender may fund each of its
Eurodollar Advances in any manner it sees fit and the foregoing assumption shall
be used only for calculation of amounts payable under this Article III.
Section 3.14 Capital Adequacy. Without limiting any other provision of this
Agreement, in the event that the Lender shall have determined that any law,
treaty, governmental (or quasi-governmental) rule, regulation, guideline or
order regarding capital adequacy not currently in effect or fully applicable as
of the Closing Date, or any change therein or in the interpretation or
application thereof after the Closing Date, or compliance by the Lender with any
request or directive regarding capital adequacy not currently in effect or fully
applicable as of the Closing Date (whether or not having the force of law and
whether or not failure to comply
<PAGE>
therewith would be unlawful) from a central bank or governmental authority or
body having jurisdiction, does or shall have the effect of reducing the rate of
return on the Lender's capital as a consequence of its obligations hereunder to
a level below that which the Lender could have achieved but for such law,
treaty, rule, regulation, guideline or order, or such change or compliance by an
amount reasonably deemed by the Lender to be material, then within ten (10)
Business Days after written notice and demand by the Lender, Borrower shall from
time to time pay to the Lender additional amounts sufficient to compensate the
Lender for such reduction (but, in the case of outstanding Base Rate Advances,
without duplication of any amounts already recovered by the Lender by reason of
an adjustment in the applicable Base Rate). Each certificate as to the amount
payable under this Section 3.14 (which certificate shall set forth the basis for
requesting such amounts in reasonable detail), submitted to Borrower by the
Lender in good faith, shall, absent manifest error, be final, conclusive and
binding for all purposes.
Section 3.15 Benefits to Guarantors. In consideration for the execution and
delivery by the Guarantors of the Guaranty Agreement, Borrower agrees to make
the benefit of extensions of credit hereunder available to the Guarantors.
Section 3.16 Limitation on Certain Payment Obligations.
(a) The Lender shall make written demand on Borrower for
indemnification or compensation pursuant to Section 3.07 no later than 90
days after the earlier of (i) the date on which the Lender makes payment of
such Taxes, and (ii) the date on which the relevant taxing authority or
other governmental authority makes written demand upon the Lender for
payment of such Taxes.
(b) The Lender shall make written demand on Borrower for
indemnification or compensation pursuant to Sections 3.12 and 3.13 no later
than 90 days after the event giving rise to the claim for indemnification
or compensation occurs.
(c) The Lender shall make written demand on Borrower for
indemnification or compensation pursuant to Sections 3.10 and 3.14 no later
than 90 days after the Lender receives actual notice or obtains actual
knowledge of the promulgation of a law, rule, order or interpretation or
occurrence of another event giving rise to a claim pursuant to such
sections.
(d) In the event that the Lender fails to give Borrower notice within
the time limitations prescribed in (a) or (b) above, Borrower shall not
have any obligation to pay such claim for compensation or indemnification.
In the event that the Lender fails to give Borrower notice within the time
limitation prescribed in (c) above, Borrower shall not have any obligation
to pay any amount with respect to claims accruing prior to the ninetieth
day preceding such written demand.
<PAGE>
Article IV.
CONDITIONS TO BORROWINGS
The obligations of the Lender to make Advances to Borrower hereunder is
subject to the satisfaction of the following conditions:
Section 4.01 Conditions Precedent to Initial Revolving Loans. At the time
of the making of the initial Revolving Loans hereunder on the Closing Date, all
obligations of Borrower hereunder incurred prior to the initial Revolving Loans
(including, without limitation, Borrower's obligations to reimburse the
reasonable fees and expenses of counsel to the Lender and any fees and expenses
payable to the Lender as previously agreed with Borrower), shall have been paid
in full, and the Lender shall have received the following, in form and substance
reasonably satisfactory in all respects to the Lender:
(a) the duly executed counterparts of this Agreement;
(b) the duly completed Revolving Note evidencing the Revolving Loan
Commitment;
(c) the duly executed Guaranty Agreement;
(d) certificate of Borrower in substantially the form of Exhibit C
attached hereto and appropriately completed;
(e) the duly executed Fee Letter;
(f) certificates of the Secretary or Assistant Secretary of each of
the Credit Parties (i) attaching and certifying copies of the resolutions
of the boards of directors of the Credit Parties, authorizing as applicable
the execution, delivery and performance of the Credit Documents, (ii)
certifying (A) the name, title and true signature of each officer of such
entities executing the Credit Documents and (B) that the certificate or
articles of incorporation and bylaws or comparable governing documents of
each Credit Party have not been amended or modified since the version of
such documents certified to the lenders under the Syndicated Revolving
Credit Agreement;
(g) certificate of good standing or existence, as may be available
from the Secretary of State of the jurisdiction of incorporation or
organization of Reaction Supply Corporation;
(h) copies of all documents and instruments, including all consents,
authorizations and filings, required or advisable under any Requirement of
Law or by any material Contractual Obligation of the Credit Parties, in
connection with the execution, delivery, performance, validity and
enforceability of the Credit Documents and the other documents to be
executed and delivered hereunder, and such consents, authorizations,
<PAGE>
filings and orders shall be in full force and effect and all applicable
waiting periods shall have expired;
(i) duly executed solvency certificates of Borrower and each of the
Guarantors, in form and substance satisfactory to the Lender; and
(j) the favorable opinion of counsel to the Credit Parties addressed
to the Lender.
In addition to the foregoing, the following conditions shall have been satisfied
or shall exist, all to the satisfaction of the Lender, as of the time the
initial Revolving Loans are made hereunder:
(x) the Revolving Loans to be made on the Closing Date and the use of
proceeds thereof shall not contravene, violate or conflict with, or involve
the Lender in a violation of, any law, rule, injunction, or regulation, or
determination of any court of law or other governmental authority; and
(y) all corporate proceedings and all other legal matters in
connection with the authorization, legality, validity and enforceability of
the Credit Documents shall be reasonably satisfactory in form and substance
to the Lender.
Section 4.02 Conditions to All Revolving Loans. At the time of the making
of all Revolving Loans (before as well as after giving effect to such Revolving
Loans and to the proposed use of the proceeds thereof), the following conditions
shall have been satisfied or shall exist:
(a) there shall exist no Default or Event of Default;
(b) all representations and warranties by Borrower contained herein
shall be true and correct in all material respects with the same effect as
though such representations and warranties had been made on and as of the
date of such Revolving Loans;
(c) since the date of the most recent financial statements of the
Consolidated Companies described in Section 6.07 of the Syndicated
Revolving Credit Agreement, there shall have been no change which has had
or could reasonably be expected to have a Materially Adverse Effect.
(d) there shall be no action or proceeding instituted or pending
before any court or other governmental authority or, to the knowledge of
Borrower, threatened (i) which reasonably could be expected to have a
Materially Adverse Effect, or (ii) seeking to prohibit or restrict one or
more Credit Party's ownership or operation of any portion of its business
or assets, or to compel one or more Credit Parties to dispose of or hold
separate all or any portion of its businesses or assets, where such portion
or portions of such business(es) or assets, as the case may be, constitute
a material portion of the total businesses or assets of the Consolidated
Companies;
<PAGE>
(e) the Revolving Loans to be made and the use of proceeds thereof
shall not contravene, violate or conflict with, or involve the Lender in a
violation of, any law, rule, injunction, or regulation, or determination of
any court of law or other governmental authority applicable to Borrower;
and
(f) the Lender shall have received such other documents or legal
opinions as the Lender may reasonably request, all in form and substance
reasonably satisfactory to the Lender.
Each request to borrow a Revolving Loan and the acceptance by Borrower of
the proceeds thereof shall constitute a representation and warranty by Borrower,
as of the date of such Revolving Loan, that the applicable conditions specified
in Sections 4.01 and 4.02 have been satisfied. Article V.
REPRESENTATIONS AND WARRANTIES
The Borrower hereby represents and warrants that all of the representations
and warranties set forth in Article 5 of the Syndicated Revolving Credit
Agreement, which representations and warranties are, for the benefit of the
Lender, incorporated by reference herein (including the definition of terms used
therein which appear in other provisions of the Syndicated Revolving Credit
Agreement, and the schedules attached thereto) are true and correct on and as of
the date hereof; provided that (i) all references to the "Administrative Agent"
and "Lenders" shall be deemed to mean the Lender, (ii) all references to "this
Agreement" or the "Credit Documents" shall be deemed to refer to this Agreement
and the Credit Documents and the reference to "Loans" shall be deemed to refer
to the Revolving Loans, and (iii) the words "hereunder" and "hereby" and the
like shall be deemed to refer to this Agreement. In addition, the Borrower
expressly represents and warrants that there has been no material adverse change
in the business, condition or operations (financial or otherwise), or prospects
of the Borrower and its Subsidiaries since the date of the last audited
financial statements delivered by the Borrower to the lenders pursuant to the
Syndicated Revolving Credit Agreement.
Article VI.
COVENANTS
Section 6.01 Covenants in Syndicated Revolving Credit Agreement. The
Borrower covenants and agrees that, so long as any Revolving Loans or any other
Obligations shall remain unpaid or the Revolving Loan Commitment shall be
outstanding, it will comply with each of the covenants set forth in Articles 6
and 7 of the Syndicated Revolving Credit Agreement, which covenants are, for the
benefit of the Lender, incorporated by reference herein (including the
definition of the terms used therein which appear in other provisions of the
<PAGE>
Syndicated Revolving Credit Agreement and the schedules thereto), irrespective
of whether the Syndicated Revolving Credit Agreement is terminated after the
date hereof; provided that (i) all references to the "Administrative Agent" and
the "Lenders" shall be deemed to mean the Lender, (ii) except for the reference
to "this Agreement" in Section 7.01 thereof which shall be deemed to refer to
this Agreement and the Syndicated Revolving Credit Agreement, all references to
"this Agreement" or the "Credit Documents" shall be deemed to refer to this
Agreement and the Credit Documents and the reference to "Loans" shall be deemed
to refer to the Revolving Loans, (iii) the words "hereunder" and "hereby" and
the like shall be deemed to refer to this Agreement and (iv) the reference to
$75,000,000 in Section 7.01(g) of the Syndicated Revolving Credit Agreement
shall for purposes of this Agreement be changed to $25,000,000. In the event of
any amendment, consent, modification or waiver of the Syndicated Revolving
Credit Agreement occurring after the date hereof, such amendment, consent,
modification or waiver of the Syndicated Revolving Credit Agreement shall
automatically be effective hereunder. In the event of the termination of the
Syndicated Revolving Credit Agreement or in the event that the Lender is no
longer a lender thereunder, the Borrower agrees to negotiate in good faith to
enter into appropriate amendments and modifications to this Agreement to set
forth the covenants governing the Borrower and its Subsidiaries herein but
unless and until such amendments or modifications are in full force and effect,
the terms and provisions of the Syndicated Revolving Credit Agreement
incorporated herein by reference shall continue in full force and effect
notwithstanding the termination or amendment thereof. The failure of the
Borrower to comply with this Article VI shall constitute an Event of Default
pursuant to this Agreement.
Section 6.02 Additional Guarantors. Borrower shall cause each new Material
Subsidiary reported to the lenders pursuant to Section 6.07(l) of the Syndicated
Revolving Credit Agreement, incorporated into this Agreement pursuant to Section
5.01 above, to execute and deliver to the Lender, simultaneously with the report
given pursuant to Section 6.07(l) of the Syndicated Revolving Credit Agreement,
a Guaranty Agreement, together with related documents of the kind described in
Section 4.01, as appropriate, all in form and substance satisfactory to the
Lender.
Article VII.
EVENTS OF DEFAULT
Upon the occurrence and during the continuance of any of the following
specified events (each an "Event of Default"):
Section 7.01 Payments. Borrower shall fail to make promptly when due
(including, without limitation, by mandatory prepayment) any principal payment
with respect to the Revolving Loans, or Borrower shall fail to make within five
(5) Business Days after the due date thereof any payment of interest, fee or
other amount payable hereunder;
<PAGE>
Section 7.02 Other Covenants. Borrower shall fail to observe or perform any
covenant or agreement contained in this Agreement, other than those referred to
in Section 7.01 above, and, if capable of being remedied, such failure shall
remain unremedied for 30 days after the earlier of (i) Borrower's obtaining
knowledge thereof, or (ii) written notice thereof shall have been given to
Borrower by the Lender;
Section 7.03 Representations. Any representation or warranty made or deemed
to be made by Borrower or any other Credit Party or by any of its officers under
this Agreement or any other Credit Document (including the Schedules attached
thereto), or any certificate or other document submitted to the Lender by any
such Person pursuant to the terms of this Agreement or any other Credit
Document, shall be incorrect in any material respect when made or deemed to be
made or submitted;
Section 7.04 Defaults under Syndicated Revolving Credit Agreement. Any
Event of Default (as defined in the Syndicated Revolving Credit Agreement) has
occurred and is continuing;
Section 7.05 Bankruptcy. Borrower or any other Consolidated Company shall
commence a voluntary case concerning itself under the Bankruptcy Code or an
involuntary case for bankruptcy is commenced against any Consolidated Company
and the petition is not controverted within 10 days, or is not dismissed within
60 days, after commencement of the case; or a custodian (as defined in the
Bankruptcy Code) is appointed for, or takes charge of, all or any substantial
part of the property of any Consolidated Company; or any Consolidated Company
commences proceedings of its own bankruptcy or to be granted a suspension of
payments or any other proceeding under any reorganization, arrangement,
adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or
similar law of any jurisdiction, whether now or hereafter in effect, relating to
any Consolidated Company or there is commenced against any Consolidated Company
any such proceeding which remains undismissed for a period of 60 days; or any
Consolidated Company is adjudicated insolvent or bankrupt; or any order of
relief or other order approving any such case or proceeding is entered; or any
Consolidated Company suffers any appointment of any custodian or the like for it
or any substantial part of its property to continue undischarged or unstayed for
a period of 60 days; or any Consolidated Company makes a general assignment for
the benefit of creditors; or any Consolidated Company shall fail to pay, or
shall state that it is unable to pay, or shall be unable to pay, its debts
generally as they become due; or any Consolidated Company shall call a meeting
of its creditors with a view to arranging a composition or adjustment of its
debts; or any Consolidated Company shall by any act or failure to act indicate
its consent to, approval of or acquiescence in any of the foregoing; or any
corporate action is taken by any Consolidated Company for the purpose of
effecting any of the foregoing;
Section 7.06 Default Under Other Credit Documents. There shall exist or
occur any "Event of Default" as provided under the terms of any other Credit
Document, or any Credit Document ceases to be in full force and effect or the
validity or enforceability thereof is disaffirmed by or on behalf of Borrower or
any other Credit Party, or at any time it is or becomes
<PAGE>
unlawful for Borrower or any other Credit Party to perform or comply with its
obligations under any Credit Document, or the obligations of Borrower or any
other Credit Party under any Credit Document are not or cease to be legal, valid
and binding on Borrower or any such Credit Party;
then, and in any such event, and at any time thereafter if any Event of Default
shall then be continuing, the Lender shall, by written notice to Borrower, take
any or all of the following actions, without prejudice to the rights of any
holder of the Revolving Note to enforce its claims against Borrower or any other
Credit Party: (i) declare the Revolving Loan Commitment terminated, whereupon
the Revolving Loan Commitment shall terminate immediately and Fees shall
forthwith become due and payable without any other notice of any kind; and (ii)
declare the principal of and any accrued interest on the Revolving Loans, and
all other Obligations owing hereunder, to be, whereupon the same shall become,
forthwith due and payable without presentment, demand, protest or other notice
of any kind, all of which are hereby waived by Borrower; provided, that, if an
Event of Default specified in Section 7.05 of this Agreement shall occur, the
result which would occur upon the giving of written notice by the Lender to any
Credit Party, as specified in clauses (i) and (ii) above, shall occur
automatically without the giving of any such notice.
Article VIII.
MISCELLANEOUS
Section 8.01 Notices. All notices, requests and other communications to any
party hereunder shall be in writing (including bank wire, telex, telecopy or
similar teletransmission or writing) and shall be given to such party at its
address or applicable teletransmission number set forth on the signature pages
hereof, or such other address or applicable teletransmission number as such
party may hereafter specify by notice to the Lender and Borrower. Each such
notice, request or other communication shall be effective (i) if given by telex,
when such telex is transmitted to the telex number specified in this Section and
the appropriate answer back is received, (ii) if given by mail, 72 hours after
such communication is deposited in the mails with first class postage prepaid,
addressed as aforesaid, (iii) if given by telecopy, when such telecopy is
transmitted to the telecopy number specified in this Section and the appropriate
confirmation is received, or (iv) if given by any other means (including,
without limitation, by air courier), when delivered or received at the address
specified in this Section; provided that notices to the Lender shall not be
effective until received.
Section 8.02 Amendments, Etc. No amendment or waiver of any provision of
this Agreement or the other Credit Documents, nor consent to any departure by
any Credit Party therefrom, shall in any event be effective unless the same
shall be in writing and signed by the Lender, and then such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given.
<PAGE>
Section 8.03 No Waiver, Remedies Cumulative. No failure or delay on the
part of the Lender or any holder of the Revolving Note in exercising any right
or remedy hereunder or under any other Credit Document, and no course of dealing
between any Credit Party and the Lender or the holder of the Revolving Note
shall operate as a waiver thereof, nor shall any single or partial exercise of
any right or remedy hereunder or under any other Credit Document preclude any
other or further exercise thereof or the exercise of any other right or remedy
hereunder or thereunder. The rights and remedies herein expressly provided are
cumulative and not exclusive of any rights or remedies which the Lender or the
holder of the Revolving Note would otherwise have. No notice to or demand on any
Credit Party not required hereunder or under any other Credit Document in any
case shall entitle any Credit Party to any other or further notice or demand in
similar or other circumstances or constitute a waiver of the rights of the
Lender or the holder of the Revolving Note to any other or further action in any
circumstances without notice or demand.
Section 8.04 Payment of Expenses, Etc. Borrower shall:
(i) whether or not the transactions hereby contemplated are
consummated, pay all reasonable, out-of-pocket costs and expenses of the
Lender in the administration (both before and after the execution hereof
and including reasonable expenses actually incurred relating to advice of
counsel as to the rights and duties of the Lender with respect thereto) of,
and in connection with the preparation, execution and delivery of,
preservation of rights under, enforcement of, and, after a Default or Event
of Default, refinancing, renegotiation or restructuring of, this Agreement
and the other Credit Documents and the documents and instruments referred
to therein, and any amendment, waiver or consent relating thereto
(including, without limitation, the reasonable fees actually incurred and
disbursements of counsel for the Lender);
(ii) subject, in the case of certain Taxes, to the applicable
provisions of Section 3.07(b), pay and hold the Lender harmless from and
against any and all present and future stamp, documentary, and other
similar Taxes with respect to this Agreement, the Revolving Note and any
other Credit Documents, any collateral described therein, or any payments
due thereunder, and save the Lender harmless from and against any and all
liabilities with respect to or resulting from any delay or omission to pay
such Taxes; and
(iii) indemnify the Lender and each director, officer, employee,
affiliate and agent thereof (each, an "Indemnitee") from, and hold each of
them harmless against, and reimburse each Indemnitee, upon its demand, for
any losses, claims, damages, liabilities or other expenses ("Losses")
incurred by such Indemnitee insofar as such Losses arise out of or are in
any way related to or result from this Agreement, the Revolving Note or any
other Credit Document or the financing provided hereby, including, without
limitation, Losses arising in connection with any legal proceeding relating
to any of the foregoing (whether or not such Indemnitee is a party thereto)
and the reasonable attorneys fees and expenses actually incurred in
connection therewith; provided, however, that the foregoing shall not apply
to any Losses resulting from the gross negligence or willful misconduct of
such Indemnitee.
<PAGE>
(iv) without limiting the indemnities set forth in subsection (iii)
above, indemnify each Indemnitee for any and all expenses and costs
(including without limitation, remedial, removal, response, abatement,
cleanup, investigative, closure and monitoring costs), losses, claims
(including claims for contribution or indemnity and including the cost of
investigating or defending any claim and whether or not such claim is
ultimately defeated, and whether such claim arose before, during or after
any Credit Party's ownership, operation, possession or control of its
business, property or facilities or before, on or after the date hereof,
and including also any amounts paid incidental to any compromise or
settlement by the Indemnitee or Indemnitees to the holders of any such
claim), lawsuits, liabilities, obligations, actions, judgments, suits,
disbursements, encumbrances, liens, damages (including without limitation
damages for contamination or destruction of natural resources), penalties
and fines of any kind or nature whatsoever (including without limitation in
all cases the reasonable fees actually incurred, other charges and
disbursements of counsel in connection therewith) incurred, suffered or
sustained by that Indemnitee based upon, arising under or relating to
Environmental Laws based on, arising out of or relating to in whole or in
part, the existence or exercise of any rights or remedies by any Indemnitee
under this Agreement, any other Credit Document or any related documents
(but excluding those incurred, suffered or sustained by any Indemnitee as a
result of any action taken by or on behalf of the Lender with respect to
any Subsidiary of Borrower (or the assets thereof owned or controlled by
the Lender.
If and to the extent that the obligations of Borrower under this Section 8.04
are unenforceable for any reason, Borrower hereby agrees to make the maximum
contribution to the payment and satisfaction of such obligations which is
permissible under applicable law. Section 8.05 Right of Setoff. In addition to
and not in limitation of all rights of offset that the Lender or other holder of
the Revolving Note may have under applicable law, the Lender or other holder of
the Revolving Note shall, upon the occurrence of any Event of Default and
whether or not the Lender or such holder has made any demand or any Credit
Party's obligations are matured, have the right to appropriate and apply to the
payment of any Credit Party's obligations hereunder and under the other Credit
Documents, all deposits of any Credit Party (general or special, time or demand,
provisional or final) then or thereafter held by and other indebtedness or
property then or thereafter owing by the Lender or other holder to any Credit
Party, whether or not related to this Agreement or any transaction hereunder.
The Lender shall promptly notify Borrower of any offset hereunder.
Section 8.06 Benefit of Agreement.
(a) This Agreement shall be binding upon and inure to the benefit of
and be enforceable by the respective successors and assigns of the parties
hereto, provided that Borrower may not assign or transfer any of its
interest hereunder without the prior written consent of the Lender.
(b) The Lender may make, carry or transfer Revolving Loans at, to or
for the account of, any of its branch offices or the office of an Affiliate
of the Lender.
<PAGE>
(c) The Lender may assign all or a portion of its interests, rights
and obligations under this Agreement (including all or a portion of the
Revolving Loan Commitment and the Revolving Loans at the time owing to it
and the Revolving Note held by it) to any Eligible Assignee; provided,
however, that (i) the Borrower must give its prior written consent to such
assignment (which consent shall not be unreasonably withheld or delayed)
unless such assignment is an Affiliate of the Lender, (ii) the amount of
the Revolving Loan Commitment, in the case of the Revolving Loan
Commitment, or the Revolving Loans, in the case of the assignment of Loans,
of the assigning Lender subject to each assignment (determined immediately
prior to such assignment) shall not be less than $5,000,000. From and after
the effective date of such assignment, the assignee thereunder shall be a
party hereto and to the extent of the interest assigned shall have the
rights and obligations of a Lender under this Agreement. Notwithstanding
the foregoing, the assigning Lender must retain after the consummation of
such assignment, a minimum aggregate amount of Revolving Loan Commitment or
Revolving Loans, as the case may be, of $5,000,000; provided, however, no
such minimum amount shall be required with respect to any such assignment
made at any time there exists an Event of De-fault hereunder. Within five
(5) Business Days after receipt of the notice of an assignment, Borrower,
at its own expense, shall execute and deliver to the assignee and the
assignor, in exchange for the surrendered Revolving Note or Notes of the
assignor, a new Revolving Note or Notes to the order of such assignee in a
principal amount equal to the applicable Revolving Loan Commitment or
Revolving Loans assumed by it and a new Revolving Note or Notes to the
assigning Lender in the amount of its retained Revolving Loan Commitment or
amount of its retained Revolving Loans. Such new Revolving Note or Notes
shall be in an aggregate principal amount equal to the aggregate principal
amount of such surrendered Revolving Note or Notes, shall be dated the date
of the surrendered Revolving Note or Notes which they replace, and shall
otherwise be in substantially the form attached hereto.
(d) The Lender may, without the consent of Borrower, sell
participations without restriction to one or more banks or other entities
in all or a portion of its rights and obligations under this Agreement
(including all or a portion of its Revolving Loan Commitment in the
Revolving Loans owing to it and the Revolving Note held by it), provided,
however, that (i) the Lender's obligations under this Agreement shall
remain unchanged, (ii) the Lender shall remain solely responsible to the
other parties hereto for the performance of such obligations, (iii) the
participating bank or other entity shall not be entitled to the benefit
(except through its selling Lender) of the cost protection provisions
contained in Article III of this Agreement, and (iv) Borrower shall
continue to deal solely and directly with the Lender in connection with the
Lender's rights and obligations under this Agreement and the other Credit
Documents, and the Lender shall retain the sole right to enforce the
obligations of Borrower relating to the Revolving Loans and to approve any
amendment, modification or waiver of any provisions of this Agreement.
Should the Lender sell a participation hereunder, the Lender shall provide
prompt written notice to Borrower of the name of such participant.
<PAGE>
(e) Any Lender or participant may, in connection with the assignment
or participation or proposed assignment or participation, pursuant to this
Section, disclose to the assignee or participant or proposed assignee or
participant any information relating to Borrower or the other Consolidated
Companies furnished to the Lender by or on behalf of Borrower or any other
Consolidated Company. With respect to any disclosure of confidential,
non-public, proprietary information, such proposed assignee or participant
shall agree to use the information only for the purpose of making any
necessary credit judgments with respect to this credit facility and not to
use the information in any manner prohibited by any law, including without
limitation, the securities laws of the United States of America. The
proposed participant or assignee shall agree not to disclose any of such
information except (i) to directors, employees, auditors or counsel to whom
it is necessary to show such information, each of whom shall be informed of
the confidential nature of the information, (ii) in any statement or
testimony pursuant to a subpoena or order by any court, governmental body
or other agency asserting jurisdiction over such entity, or as otherwise
required by law (provided prior notice is given to Borrower and the Lender
unless otherwise prohibited by the subpoena, order or law), and (iii) upon
the request or demand of any regulatory agency or authority with proper
jurisdiction. The proposed participant or assignee shall further agree to
return all documents or other written material and copies thereof received
from the Lender or Borrower relating to such confidential information
unless otherwise properly disposed of by such entity.
(f) The Lender may at any time assign all or any portion of its rights
in this Agreement and the Revolving Note issued to it to a Federal Reserve
Bank; provided that no such assignment shall release the Lender from any of
its obligations hereunder.
(g) If (i) any Taxes referred to in Section 3.07(b) have been levied
or imposed so as to require withholdings or deductions by Borrower and
payment by Borrower of additional amounts to the Lender as a result
thereof, (ii) the Lender shall make demand for payment of any material
additional amounts as compensation for increased costs pursuant to Section
3.11 or for its reduced rate of return pursuant to Section 3.14, or (iii)
the Lender shall decline to consent to a modification or waiver of the
terms of this Agreement or the other Credit Documents requested by
Borrower, then and in such event, upon request from Borrower delivered to
the Lender, the Lender shall assign, in accordance with the provisions of
Section 8.06(c), all of its rights and obligations under this Agreement and
the other Credit Documents to another Lender or an Eligible Assignee
selected by Borrower, in consideration for the payment by such assignee to
the Lender of the principal of, and interest on, the outstanding Revolving
Loans accrued to the date of such assignment, and the assumption of the
Lender's Revolving Loan Commitment hereunder, together with any and all
other amounts owing to the Lender under any provisions of this Agreement or
the other Credit Documents accrued to the date of such assignment.
<PAGE>
Section 8.07 Governing Law; Submission to Jurisdiction.
(a) THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER AND UNDER THE REVOLVING NOTE SHALL BE CONSTRUED IN ACCORDANCE
WITH AND BE GOVERNED BY THE LAW (WITHOUT GIVING EFFECT TO THE CONFLICT OF
LAW PRINCIPLES THEREOF) OF THE STATE OF GEORGIA.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT, THE
REVOLVING NOTE OR ANY OTHER CREDIT DOCUMENT MAY BE BROUGHT IN THE SUPERIOR
COURT OF FULTON COUNTY, GEORGIA, OR ANY OTHER COURT OF THE STATE OF GEORGIA
OR OF THE UNITED STATES OF AMERICA FOR THE NORTHERN DISTRICT OF GEORGIA,
AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, BORROWER HEREBY ACCEPTS
FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY,
THE JURISDICTION OF THE AFORESAID COURTS. THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVE TRIAL BY JURY, AND BORROWER HEREBY IRREVOCABLY WAIVES ANY
OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF
VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR
HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING IN SUCH
RESPECTIVE JURISDICTIONS.
(c) BORROWER HEREBY IRREVOCABLY DESIGNATES THE CORPORATION SERVICE
COMPANY, ATLANTA, GEORGIA, AS ITS DESIGNEE, APPOINTEE AND LOCAL AGENT TO
RECEIVE, FOR AND ON BEHALF OF BORROWER, SERVICE OF PROCESS IN SUCH
RESPECTIVE JURISDICTIONS IN ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO
THIS AGREEMENT OR THE REVOLVING NOTE OR ANY DOCUMENT RELATED THERETO. IT IS
UNDERSTOOD THAT A COPY OF SUCH PROCESS SERVED ON SUCH LOCAL AGENT WILL BE
PROMPTLY FORWARDED BY SUCH LOCAL AGENT AND BY THE SERVER OF SUCH PROCESS BY
MAIL TO BORROWER AT ITS ADDRESS SET FORTH OPPOSITE ITS SIGNATURE BELOW, BUT
THE FAILURE OF BORROWER TO RECEIVE SUCH COPY SHALL NOT AFFECT IN ANY WAY
THE SERVICE OF SUCH PROCESS. BORROWER FURTHER IRREVOCABLY CONSENTS TO THE
SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION
OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED) OR CERTIFIED
MAIL, POSTAGE PREPAID, TO BORROWER AT ITS SAID ADDRESS, SUCH SERVICE TO
BECOME EFFECTIVE 30 DAYS AFTER SUCH MAILING.
(d) Nothing herein shall affect the right of the Lender, any holder of
a Revolving Note or any Credit Party to serve process in any other manner
permitted by law or to commence legal proceedings or otherwise proceed
against Borrower in any other jurisdiction.
<PAGE>
Section 8.08 Counterparts. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument.
Section 8.09 Effectiveness; Survival.
(a) This Agreement shall become effective on the date (the "Effective
Date") on which all of the parties hereto shall have signed a counterpart
hereof (whether the same or different counterparts) and shall have
delivered the same to the Lender pursuant to Section 8.01 .
(b) The obligations of Borrower under Sections 3.07(b), 3.10, 3.12,
3.13, 3.14, and 8.04 hereof shall survive for ninety (90) days after the
payment in full of the Revolving Note after the Final Maturity Date. All
representations and warranties made herein, in the certificates, reports,
notices, and other documents delivered pursuant to this Agreement shall
survive the execution and delivery of this Agreement, the other Credit
Documents, and such other agreements and documents, the making of the
Revolving Loans hereunder, and the execution and delivery of the Revolving
Note.
Section 8.10 Severability. In case any provision in or obligation under
this Agreement or the other Credit Documents shall be invalid, illegal or
unenforceable, in whole or in part, in any jurisdiction, the validity, legality
and enforceability of the remaining provisions or obligations, or of such
provision or obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.
Section 8.11 Independence of Covenants. All covenants hereunder shall be
given independent effect so that if a particular action or condition is not
permitted by any of such covenants, the fact that it would be permitted by an
exception to, or be otherwise within the limitation of, another covenant, shall
not avoid the occurrence of a Default or an Event of Default if such action is
taken or condition exists.
Section 8.12 Change in Accounting Principles, Fiscal Year or Tax Laws. If
(i) any preparation of the financial statements referred to in Section 6.07 of
the Syndicated Revolving Credit Agreement hereafter occasioned by the
promulgation of rules, regulations, pronouncements and opinions by or required
by the Financial Accounting Standards Board or the American Institute of
Certified Public Accounts (or successors thereto or agencies with similar
functions) (other than changes mandated by FASB 106) result in a material change
in the method of calculation of financial covenants, standards or terms found in
this Agreement, (ii) there is any change in Borrower's fiscal quarter or fiscal
year, or (iii) there is a material change in federal tax laws which materially
affects any of the Consolidated Companies' ability to comply with the financial
covenants, standards or terms found in this Agreement, Borrower and the Lender
agree to enter into negotiations in order to amend such provisions so as to
equitably reflect such changes with the desired result that the criteria for
evaluating any of the Consolidated
<PAGE>
Companies' financial condition shall be the same after such changes as if such
changes had not been made. Unless and until such provisions have been so
amended, the provisions of this Agreement shall govern.
Section 8.13 Headings Descriptive, Entire Agreement. The headings of the
several sections and subsections of this Agreement are inserted for convenience
only and shall not in any way affect the meaning or construction of any
provision of this Agreement. This Agreement, the other Credit Documents, and the
agreements and documents required to be delivered pursuant to the terms of this
Agreement constitute the entire agreement among the parties hereto and thereto
regarding the subject matters hereof and thereof and supersede all prior
agreements, representations and understandings related to such subject matters.
Section 8.14 Time is of the Essence. Time is of the essence in interpreting
and performing this Agreement and all other Credit Documents.
Section 8.15 Usury. It is the intent of the parties hereto not to violate
any federal or state law, rule or regulation pertaining either to usury or to
the contracting for or charging or collecting of interest, and Borrower and
Lender agree that, should any provision of this agreement or of the Revolving
Note, or any act performed hereunder or thereunder, violate any such law, rule
or regulation, then the excess of interest contracted for or charged or
collected over the maximum lawful rate of interest shall be applied to the
outstanding principal indebtedness due to lenders by Borrower under this
Agreement.
Section 8.16 Construction. Should any provision of this Agreement require
judicial interpretation, the parties hereto agree that the court interpreting or
construing the same shall not apply a presumption that the terms hereof shall be
more strictly construed against one party by reason of the rule of construction
that a document is to be more strictly construed against the party who itself or
through its agents prepared the same, it being agreed that Borrower, the Lender
and their respective agents have participated in the preparation hereof
Section 8.17 Waiver of Effect of Corporate Seal. Borrower represents and
warrants that it is not required to affix its corporate seal to this Agreement
or any other Credit Document pursuant to any Requirement of Law and waives any
shortening of the statute of limitations that may result from not affixing the
corporate seal to this Agreement or the other Credit Documents.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered in Atlanta, Georgia, by their duly authorized
officers as of the day and year first above written.
Address for Notices: BORROWER:
- -------------------
20 N. Orange Avenue HUGHES SUPPLY, INC.
Suite 200
Orlando, Florida 32801
Attention: J. Stephen Zepf By: ________________________
J. Stephen Zepf
Treasurer
By: ________________________
Ben Butterfield
Secretary
LENDER:
Address for. Notices:
- --------------------
SUNTRUST BANK, CENTRAL FLORIDA,
NATIONAL ASSOCIATION
200 S. Orange Avenue
MC 2064
Orlando, Florida 32801
Attn: Mr. William C. Barr By: ________________________
William C. Barr
Telecopy No. 407/237-4076 First Vice President
Payment Office:
- ---------------
200 S. Orange Avenue
MC 2064
Orlando, Florida 32801
- --------------------------------------------
Revolving Loan Commitment: $50,000,000.00
Pro Rata Share of Revolving Loan Commitment: 100.00%
[SIGNATURE PAGE TO BRIDGE REVOLVING CREDIT AGREEMENT]
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data) Fiscal Years Ended
--------------------------------------------------------------
January 28, January 29, January 30,
2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales ............................................... $ 2,994,877 $ 2,536,265 $ 1,945,446
Cost of Sales ........................................... 2,320,604 1,977,266 1,519,323
- ------------------------------------------------------------------------------------------------------------------------------------
Gross Profit ............................................ 674,273 558,999 426,123
- ------------------------------------------------------------------------------------------------------------------------------------
Operating Expenses:
Selling, general and administrative ................... 508,644 416,642 318,923
Depreciation and amortization ......................... 29,629 23,269 18,727
Provision for doubtful accounts ....................... 3,608 1,882 1,229
- ------------------------------------------------------------------------------------------------------------------------------------
Total operating expenses ............................ 541,881 441,793 338,879
- ------------------------------------------------------------------------------------------------------------------------------------
Operating Income ........................................ 132,392 117,206 87,244
- ------------------------------------------------------------------------------------------------------------------------------------
Non-Operating Income and (Expenses):
Interest and other income ............................. 9,015 6,886 5,837
Interest expense ...................................... (31,805) (25,415) (19,257)
- ------------------------------------------------------------------------------------------------------------------------------------
(22,790) (18,529) (13,420)
- ------------------------------------------------------------------------------------------------------------------------------------
Income Before Income Taxes .............................. 109,602 98,677 73,824
Income Taxes ............................................ 43,731 37,234 26,254
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income .............................................. $ 65,871 $ 61,443 $ 47,570
====================================================================================================================================
Earnings Per Share:
Basic ................................................. $ 2.82 $ 2.57 $ 2.37
====================================================================================================================================
Diluted ............................................... $ 2.80 $ 2.55 $ 2.33
====================================================================================================================================
Average Shares Outstanding:
Basic ................................................. 23,398 23,889 20,108
====================================================================================================================================
Diluted ............................................... 23,547 24,138 20,432
====================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
HUGHES SUPPLY, INC. 17
<PAGE>
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
January 28, January 29,
2000 1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents .............................................................. $ 10,000 $ 6,010
Accounts receivable, less allowance for losses of $2,777 and $2,809 .................... 398,244 341,109
Inventories ............................................................................ 495,491 409,734
Deferred income taxes .................................................................. 15,993 8,520
Other current assets ................................................................... 38,050 31,346
- ------------------------------------------------------------------------------------------------------------------------------------
Total current assets ................................................................. 957,778 796,719
Property and Equipment, Net .............................................................. 144,945 127,632
Excess of Cost over Net Assets Acquired .................................................. 243,367 181,622
Other Assets ............................................................................. 22,924 17,540
- ------------------------------------------------------------------------------------------------------------------------------------
$ 1,369,014 $ 1,123,513
====================================================================================================================================
Liabilities and Shareholders' Equity
Current Liabilities:
Current portion of long-term debt ...................................................... $ 803 $ 39
Accounts payable ....................................................................... 239,810 176,234
Accrued compensation and benefits ...................................................... 29,590 25,029
Other current liabilities .............................................................. 30,075 27,982
- ------------------------------------------------------------------------------------------------------------------------------------
Total current liabilities ............................................................ 300,278 229,284
Long-Term Debt ........................................................................... 535,000 402,203
Deferred Income Taxes .................................................................... 6,027 4,711
Other Noncurrent Liabilities ............................................................. 5,265 3,359
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities .................................................................... 846,570 639,557
- ------------------------------------------------------------------------------------------------------------------------------------
Commitments and Contingencies (Note 7)
Shareholders' Equity:
Preferred stock, no par value; 10,000,000 shares authorized; none issued;
preferences, limitations and relative rights to be established
by the Board of Directors ............................................................ -- --
Common stock, par value $1 per share; 100,000,000 shares
authorized; 24,249,281 and 24,183,834 shares issued .................................. 24,249 24,184
Capital in excess of par value ......................................................... 221,284 219,558
Retained earnings ...................................................................... 300,144 242,730
Treasury stock, 668,950 and no shares, at cost ......................................... (15,434) --
Unearned compensation related to outstanding restricted stock .......................... (7,799) (2,516)
- ------------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity ........................................................... 522,444 483,956
- ------------------------------------------------------------------------------------------------------------------------------------
$ 1,369,014 $ 1,123,513
====================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
18
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands, except per share data)
<TABLE>
<CAPTION>
Capital in
Number of Common Excess of Retained Treasury Unearned
Shares Stock Par Value Earnings Stock Compensation
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 31, 1997 ............................ 19,576 $ 19,576 $ 110,328 $ 169,329 $ -- $ --
Net income ......................................... -- -- -- 47,570 -- --
Cash dividends-$.31 per share ...................... -- -- -- (5,966) -- --
Pooled companies ................................. -- -- -- (2,794) -- --
Shares issued under stock option
and bonus plans .................................. 172 172 1,494 -- -- --
Purchase and retirement of common shares ........... (19) (19) (234) (325) -- --
Issuance of restricted stock ....................... 50 50 1,250 -- -- (1,300)
Amortization of unearned restricted stock .......... -- -- -- -- -- 58
Capitalization of undistributed earnings of
Subchapter S corporation ......................... -- -- 12,999 (12,999) -- --
Other acquisitions ................................. 3,658 3,658 76,373 2,549 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, January 30, 1998 ............................ 23,437 23,437 202,210 197,364 -- (1,242)
Net income ......................................... -- -- -- 61,443 -- --
Cash dividends-$.33 per share ...................... -- -- -- (7,866) -- --
Pooled companies ................................. -- -- -- (1,222) -- --
Shares issued under stock option
and bonus plans .................................. 108 108 1,282 -- -- --
Purchase and retirement of common shares ........... (19) (19) (193) (389) -- --
Issuance of restricted stock ....................... 52 52 1,615 -- -- (1,667)
Amortization of unearned restricted stock .......... -- -- -- -- -- 393
Capitalization of undistributed earnings of
Subchapter S corporation ......................... -- -- 7,697 (7,697) -- --
Other acquisitions ................................. 606 606 6,947 1,097 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, January 29, 1999 ............................ 24,184 24,184 219,558 242,730 -- (2,516)
Net income ......................................... -- -- -- 65,871 -- --
Cash dividends-$.34 per share ...................... -- -- -- (7,990) -- --
Purchase of treasury stock ......................... (921) -- -- -- (21,229) --
Shares issued under stock option
and bonus plans .................................. 65 29 472 (378) 811 --
Purchase and retirement of common shares ........... (7) (7) (57) (89) -- --
Issuance of restricted stock,
net of cancellations ............................. 259 43 1,311 -- 4,984 (6,338)
Amortization of unearned restricted stock .......... -- -- -- -- -- 1,055
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, January 28, 2000 ............................ 23,580 $ 24,249 $ 221,284 $ 300,144 $ (15,434) $ (7,799)
====================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
HUGHES SUPPLY, INC. 19
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Fiscal Years Ended
--------------------------------------------
January 28, January 29, January 30,
2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income ....................................................................... $ 65,871 $ 61,443 $ 47,570
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization ................................................ 29,629 23,269 18,727
Provision for doubtful accounts .............................................. 3,608 1,882 1,229
Other, net ................................................................... (262) (671) (626)
Changes in assets and liabilities, net of effects of business acquisitions:
(Increase) in accounts receivable ............................................ (33,961) (25,497) (30,443)
(Increase) in inventories .................................................... (67,594) (29,493) (39,136)
(Increase) in other current assets ........................................... (4,464) (7,718) (3,865)
(Increase) in other assets ................................................... (4,006) (5,692) (9,061)
Increase in accounts payable and accrued liabilities ......................... 47,639 8,532 6,102
Increase (decrease) in accrued interest and income taxes ..................... 2,169 (2,948) 1,880
Increase in other noncurrent liabilities ..................................... 168 697 408
(Increase) decrease in net deferred income taxes ............................. (5,348) 7,763 2,425
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities ........................ 33,449 31,567 (4,790)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Capital expenditures ............................................................. (30,740) (26,921) (28,185)
Proceeds from sale of property and equipment ..................................... 4,892 6,630 1,184
Investments in affiliated entities ............................................... (3,750) -- --
Business acquisitions, net of cash ............................................... (88,905) (40,378) (47,725)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash (used in) investing activities .................................... (118,503) (60,669) (74,726)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Net borrowings under short-term debt arrangements ................................ 132,797 10,232 36,921
Principal payments on debt of acquired entities .................................. (14,724) (24,084) (25,212)
Proceeds from issuance of long-term debt ......................................... -- 50,000 80,000
Purchase of treasury shares ...................................................... (21,229) -- --
Dividends paid ................................................................... (8,042) (8,832) (8,112)
Other ............................................................................ 242 (408) (2,496)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities .................................. 89,044 26,908 81,101
- ------------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents ............................... 3,990 (2,194) 1,585
Cash and Cash Equivalents, Beginning of Year ....................................... 6,010 8,204 6,619
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, End of Year ............................................. $ 10,000 $ 6,010 $ 8,204
====================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
Note 1 -- DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Industry
Hughes Supply, Inc. and its subsidiaries (the "Company") are engaged in the
wholesale distribution of a broad range of materials, equipment and supplies
primarily to the construction and industrial markets. The Company distributes
nine different product groups which it has classified into three major product
categories: (i) Fluid Control Products, consisting of the Company's industrial
pipe, plate, valves and fittings, plumbing, water and sewer, and water systems
product groups; (ii) Electrical Products, consisting of the Company's electrical
and electric utilities product groups; and (iii) Specialty Products, consisting
of the Company's air conditioning and heating, building materials, and pool and
spa equipment and supplies product groups. The Company's principal customers are
electrical, plumbing and mechanical contractors, electric utility companies,
property management companies, municipalities and industrial companies.
Industrial companies include companies in the petrochemical, food and beverage,
pulp and paper, mining, pharmaceutical and marine industries.
Principles of Consolidation
The consolidated financial statements include the Company and its wholly-owned
subsidiaries. All significant intercompany transactions and accounts have been
eliminated. Results of operations of companies acquired and accounted for as
purchases are included from their respective dates of acquisition.
Fiscal Year
The Company's fiscal year ends on the last Friday in January. Fiscal years 2000,
1999 and 1998 each contained 52 weeks.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Inventories
Inventories are carried at the lower of cost or market. The cost of
substantially all inventories is determined by the average cost method.
Property and Equipment
Buildings and equipment are recorded at cost and depreciated using both
straight-line and declining-balance methods based on the following estimated
useful lives:
Buildings and improvements ............................... 5-40 years
Transportation equipment ................................. 2- 7 years
Furniture, fixtures and equipment ........................ 2-12 years
Property under capital leases ............................ 20-40 years
Maintenance and repairs are charged to expense as incurred and major renewals
and betterments are capitalized. Gains or losses are credited or charged to
earnings upon disposition. Depreciation of property and equipment totaled
$18,309, $15,750 and $12,759 in fiscal 2000, 1999 and 1998, respectively.
Excess of Cost over Net Assets Acquired
The excess of cost over the fair value of net assets of purchased companies
(goodwill) is being amortized by the straight-line method over 15 to 40 years.
At January 28, 2000 and January 29, 1999, goodwill totaled $243,367 and
$181,622, respectively, net of accumulated amortization of $24,477 and $16,688,
respectively. Amortization of goodwill totaled $7,797, $5,614 and $5,053 in
fiscal 2000, 1999 and 1998, respectively.
Other Assets
The Company capitalizes certain internal software development costs which are
amortized by the straight-line method over the estimated useful lives of the
software, not to exceed five years. At January 28, 2000 and January 29, 1999,
unamortized software development costs totaled $11,465 and $9,474, respectively,
net of accumulated amortization of $5,186 and $1,873, respectively. Amortization
of capitalized internal software development costs totaled $3,385, $1,680 and
$316 in fiscal 2000, 1999 and 1998, respectively.
Impairment of Long-Lived Assets
In the event that facts and circumstances indicate that the carrying value of a
long-lived asset, including associated intangibles, may be impaired, an
evaluation of recoverability is performed by comparing the estimated future
undiscounted cash flows associated with the asset to the asset's carrying amount
to determine if a write-down to market value or discounted cash flow is
required.
HUGHES SUPPLY, INC. 21
<PAGE>
Deferred Employee Benefits
The present value of amounts estimated to be payable under unfunded supplemental
retirement agreements with certain officers is being accrued over the remaining
years of active employment of the officers and is included in other noncurrent
liabilities.
Fair Value of Financial Instruments
The carrying values of cash and cash equivalents, accounts receivable, accounts
payable and accrued liabilities approximate their fair values because of the
short maturity of these instruments. The fair value of the Company's long-term
debt is estimated based on quoted market prices for the same or similar issues
or on current rates offered to the Company for debt of the same remaining
maturities.
Revenue Recognition
The Company recognizes revenue from product sales when goods are received by
customers.
Advertising
Advertising costs are charged to expense as incurred. Advertising expenses
totaled $6,471, $5,533 and $4,369 in fiscal 2000, 1999 and 1998, respectively.
Income Taxes
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes
resulting from temporary differences. Such temporary differences result from
differences in the carrying value of assets and liabilities for tax and
financial reporting purposes. The deferred tax assets and liabilities represent
the future tax consequences of those differences, which will either be taxable
or deductible when the assets and liabilities are recovered or settled. Deferred
taxes are also recognized for operating losses that are available to offset
future taxable income. An assessment is made as to whether or not a valuation
allowance is required to offset deferred tax assets.
Stock-Based Compensation
The Company measures compensation expense for employee and director stock
options as the aggregate difference between the market and exercise prices of
the options on the date that both the number of shares the grantee is entitled
to receive and the purchase price are known. Compensation expense associated
with restricted stock grants is equal to the market value of the shares on the
date of grant and is recorded pro rata over the required holding period. Pro
forma information relating to the fair value of stock-based compensation is
presented in Note 6 to the consolidated financial statements.
Earnings Per Common Share
Basic earnings per share is calculated by dividing net income by the
weighted-average number of shares outstanding. Diluted earnings per share is
calculated by dividing net income by the weighted-average number of shares
outstanding, adjusted for dilutive potential common shares. The weighted-average
number of shares used in calculating basic earnings per share were 23,398,000,
23,889,000 and 20,108,000 for fiscal 2000, 1999 and 1998, respectively. In
calculating diluted earnings per share, these amounts were adjusted to include
149,000, 249,000 and 324,000 of dilutive potential common shares for fiscal
2000, 1999 and 1998, respectively. The Company's dilutive potential common
shares consist of stock options and restricted stock.
Reclassifications
The fiscal 1999 and 1998 statements of cash flows contain certain
reclassifications which were made to conform to the Company's current financial
statement format.
Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles necessarily requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE 2--BUSINESS COMBINATIONS
On January 8, 1998, the Company acquired all of the common stock of Mountain
Country Supply, Inc. ("Mountain Country"). Mountain Country is a wholesale
distributor of plumbing supplies, water and sewer equipment and supplies, and
air conditioning and heating equipment and supplies, with 10 locations in
Arizona. On January 13, 1998, the Company acquired all of the common stock of
International Supply Company, Inc. and all of its affiliated operations
("International"). International is a wholesale distributor of water and sewer
equipment and supplies, plumbing supplies and industrial pipe, valves and
fittings with 38 locations in Texas. The aggregate consideration paid for the
Mountain Country and International acquisitions was
22
<PAGE>
$98,772, consisting of cash in the amount of $39,642 and the issuance of
2,153,396 shares of common stock. These transactions were accounted for as
purchases and the results of operations of Mountain Country and International
from their respective dates of acquisition are included in the consolidated
financial statements. The excess of cost over net assets acquired for Mountain
Country and International is being amortized over 40 years by the straight-line
method.
The following table reflects the unaudited pro forma combined results of
operations, assuming the Mountain Country and International acquisitions had
occurred at the beginning of the year presented:
Fiscal Year Ended
-----------------
1998
- --------------------------------------------------------------------------------
Net sales ........................................... $ 2,180,227
Net income .......................................... 53,214
Earnings per share:
Basic ............................................. 2.41
Diluted ........................................... 2.37
During fiscal 2000, 1999 and 1998, the Company acquired several other wholesale
distributors of materials to the construction and industrial markets that were
accounted for as purchases or immaterial poolings. These acquisitions,
individually or in the aggregate, did not have a material effect on the
consolidated financial statements. Results of operations of these companies from
their respective dates of acquisition have been included in the consolidated
financial statements.
NOTE 3--PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
2000 1999
- --------------------------------------------------------------------------------
Land ......................................... $ 28,771 $ 25,590
Buildings and improvements ................... 110,308 93,341
Transportation equipment ..................... 33,205 31,158
Furniture, fixtures and equipment ............ 64,613 57,840
- --------------------------------------------------------------------------------
236,897 207,929
Less accumulated depreciation
and amortization ........................... (91,952) (80,297)
- --------------------------------------------------------------------------------
$ 144,945 $ 127,632
================================================================================
NOTE 4--LONG-TERM DEBT
Long-term debt consists of the following:
2000 1999
- --------------------------------------------------------------------------------
7.96% Senior notes, due 2011 ................. $ 98,000 $ 98,000
7.14% Senior notes, due 2012 ................. 40,000 40,000
7.19% Senior notes, due 2012 ................. 40,000 40,000
6.74% Senior notes, due 2013 ................. 50,000 50,000
Unsecured bank notes under
$275,000 revolving credit
agreement, payable January 25,
2004, fluctuating interest (6.0%
to 6.9% at January 28, 2000) ............... 232,959 108,450
Short-term instruments classified
as long-term debt .......................... 74,041 65,753
Other notes payable .......................... 803 39
- --------------------------------------------------------------------------------
535,803 402,242
Less current portion ......................... (803) (39)
- --------------------------------------------------------------------------------
$ 535,000 $ 402,203
================================================================================
On August 28, 1997, the Company issued $80,000 of senior notes due 2012 in a
private placement. The senior notes, of which $40,000 bear interest at 7.14% and
$40,000 bear interest at 7.19%, will be payable in 21 and 13 equal semi-annual
principal payments beginning in 2002 and 2006, respectively. Proceeds received
by the Company from the sale of the senior notes were used to reduce
indebtedness outstanding under the Company's revolving credit agreement and line
of credit agreement (the "credit agreement").
On August 27, 1997, in connection with the issuance of the $80,000 of senior
notes, the Company entered into an interest rate swap agreement (the "swap
agreement"). The swap agreement effectively converts the Company's $40,000 of
7.19% senior notes due 2012 from fixed-rate debt to floating-rate debt based on
six month London Interbank Offered Rates (LIBOR) less a predetermined spread of
.05% (5.99% as of January 28, 2000). The differential is accrued as interest
rates change and is recorded as an adjustment to interest expense. As a result
of the swap agreement, interest expense decreased by $705, $171 and $219 in
fiscal 2000, 1999 and 1998, respectively. The swap agreement matures in 2012.
However, the counterparty has the option to terminate the agreement at any time
from May 30, 2000 through November 30, 2011. The estimated fair value of the
swap agreement, based on a valuation from an investment bank, approximated
$1,504 and $1,251 at January 28, 2000 and January 29, 1999, respectively.
HUGHES SUPPLY, INC. 23
<PAGE>
On May 5, 1998, the Company issued $50,000 of senior notes due 2013 in a private
placement. The senior notes bear interest at 6.74% and will be payable in 21
equal semi-annual principal payments beginning in 2003. Proceeds received by the
Company from the sale of the senior notes were used to reduce indebtedness
outstanding under the Company's credit agreement.
On September 29, 1999, the credit agreement was amended. The credit agreement,
as amended, now permits the Company to borrow up to $350,000 (subject to
borrowing limitations under the credit agreement)--$275,000 under its revolving
credit agreement as long-term debt due January 25, 2004 and $75,000 under its
line of credit agreement. Under the credit agreement, interest is payable at
market rates plus applicable margins. Facility fees of .25% and .225% are paid
on the total of the revolving credit agreement and line of credit agreement,
respectively.
The credit agreement contains financial covenants requiring the Company to
maintain certain financial ratios and minimum net worth levels. The covenants
also restrict the Company's activities regarding investments, liens, borrowing
and leasing, and payment of dividends other than stock. Under the dividend
covenant, approximately $115,257 was available at January 28, 2000 for payment
of dividends.
The Company has a commercial paper program backed by its line of credit
agreement. The weighted-average interest rate on outstanding commercial paper
borrowings of $74,041 and $65,753 as of January 28, 2000 and January 29, 1999
was 6.6% and 5.8%, respectively. The Company has the ability and intent to
refinance short-term borrowings on a long-term basis. Accordingly, all of the
commercial paper borrowings at January 28, 2000 and January 29, 1999 have been
classified as long-term debt.
On March 1, 1999, the Company entered into two new lines of credit for
short-term borrowing totaling $25,000. There were no amounts outstanding under
these lines of credit at January 28, 2000.
On November 30, 1999, the Company entered into a new $50,000 bridge revolving
credit agreement for short-term borrowing. There were no amounts outstanding
under this line of credit at January 28, 2000.
Maturities of long-term debt for each of the five years subsequent to January
28, 2000 and in the aggregate are as follows:
Fiscal Years Ending
- --------------------------------------------------------------------------------
2001 .................................................. $ 803
2002 .................................................. 9,333
2003 .................................................. 13,143
2004 .................................................. 324,905
2005 .................................................. 17,905
Later years ........................................... 169,714
- --------------------------------------------------------------------------------
$535,803
================================================================================
The fair values of long-term debt approximated $524,002 and $407,836 and the
related carrying values were $535,803 and $402,242 at January 28, 2000 and
January 29, 1999, respectively.
NOTE 5--INCOME TAXES
The components of deferred tax assets and liabilities at January 28, 2000 and
January 29, 1999 are as follows:
2000 1999
- --------------------------------------------------------------------------------
Deferred tax assets:
Allowance for doubtful accounts ................ $ 1,064 $ 1,211
Inventories .................................... 2,537 506
Accrued vacation ............................... 2,646 3,001
Deferred compensation .......................... 2,054 1,446
Other accrued liabilities ...................... 3,325 2,326
Other .......................................... 662 270
- --------------------------------------------------------------------------------
Total deferred tax assets .................... 12,288 8,760
- --------------------------------------------------------------------------------
Deferred tax liabilities:
Capitalized software
development costs ............................ 3,401 2,664
Intangible assets .............................. 3,590 2,287
Property and equipment ......................... 1,243 --
- --------------------------------------------------------------------------------
Total deferred tax liabilities ............... 8,234 4,951
Net deferred tax assets .......................... $ 4,054 $ 3,809
================================================================================
No valuation allowance has been provided for these deferred tax assets at
January 28, 2000 and January 29, 1999 as full realization of these assets is
more likely than not.
24
<PAGE>
The consolidated provision for income taxes consists of the following:
Fiscal Years Ended
---------------------------------------
2000 1999 1998
- --------------------------------------------------------------------------------
Currently payable:
Federal ...................... $36,763 $25,119 $21,058
State ........................ 5,553 2,778 3,377
- --------------------------------------------------------------------------------
42,316 27,897 24,435
Deferred:
Federal ...................... 1,241 7,864 1,500
State ........................ 174 1,473 319
- --------------------------------------------------------------------------------
1,415 9,337 1,819
- --------------------------------------------------------------------------------
$43,731 $37,234 $26,254
================================================================================
The following is a reconciliation of tax computed at the statutory Federal rate
to the income tax expense in the consolidated statements of income:
<TABLE>
<CAPTION>
Fiscal Years Ended
--------------------------------------------------------------------------
2000 1999 1998
- ---------------------------------------------------------------------------------------------------
Amount % Amount % Amount %
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Tax computed
at statutory
Federal rate ...... $ 38,361 35.0 $ 34,537 35.0 $ 25,838 35.0
Effect of:
State and
local income
tax, net of
Federal income
tax benefit ..... 3,722 3.4 2,763 2.8 2,459 3.3
Subchapter
S corporation
earnings ........ -- -- (606) (.6) (2,315) (3.1)
Nondeductible
purchase
adjustments ..... -- -- 880 .9 288 .4
Nondeductible
expenses ........ 2,740 2.5 1,085 1.1 886 1.2
Other, net ........ (1,092) (1.0) (1,425) (1.5) (902) (1.2)
- ---------------------------------------------------------------------------------------------------
Income tax
expense ........... $ 43,731 39.9 $ 37,234 37.7 $ 26,254 35.6
===================================================================================================
</TABLE>
The Company merged with Chad Supply, Inc. ("Chad") on January 30, 1998 and with
Winn-Lange Electric, Inc. ("Winn-Lange") on June 30, 1998. Prior to their merger
with the Company, Chad and Winn-Lange were Subchapter S corporations and were
not subject to corporate income tax.
NOTE 6--EMPLOYEE BENEFIT PLANS
Profit Sharing and Employee Stock Ownership Plans
The Company has a 401(k) profit sharing plan which provides benefits for
substantially all employees of the Company who meet minimum age and length of
service requirements. In fiscal 1999 and 1998, employee contributions of not
less than 2% to not more than 3% of each eligible employee's compensation were
matched (in cash or stock) 50% by the Company. In fiscal 2000, the Company
adopted a plan to increase the maximum amount of employee contributions eligible
to be matched 50% by the Company. The maximum percentage of each eligible
employee's contribution to be matched by the Company was increased from 3% to 4%
on August 1, 1999 and from 4% to 5% as of February 1, 2000. The plan also calls
for an additional increase in the maximum matching percentage from 5% to 6% on
February 1, 2001. Additional annual contributions may be made at the discretion
of the Board of Directors.
The Company had an employee stock ownership plan (ESOP) covering substantially
all employees of the Company who met minimum age and length of service
requirements. The plan was terminated by the Company on December 31, 1998. At
January 28, 2000 and January 29, 1999, the plan owned approximately 236,000 and
248,000 shares, respectively, of the Company's common stock, all of which were
allocated to participants. The Company is in the process of distributing each
participant's final account balance in cash or stock.
Amounts charged to expense for these and other similar plans during fiscal 2000,
1999 and 1998 were $2,883, $1,946 and $1,581, respectively.
25
<PAGE>
Bonus Plans
The Company has bonus plans, based on profitability formulas, which provide
incentive compensation for key officers and employees. Amounts charged to
expense for bonuses to executive officers were $1,914, $1,576 and $1,539 for
fiscal 2000, 1999 and 1998, respectively.
Stock Plans
The Company's two active stock plans include the 1997 Executive Stock Plan (the
"1997 Stock Plan") and the Directors' Stock Option Plan. These stock plans
authorize the granting of both incentive and non-incentive stock options for an
aggregate of 1,052,500 shares of common stock, including 750,000 shares to key
employees and 302,500 shares to directors. Under the stock plans, options are
granted at prices not less than the market value on the date of grant, and the
maximum term of an option may not exceed ten years. Prices for incentive stock
options granted to employees who own 10% or more of the Company's stock are at
least 110% of market value at date of grant. Options may be granted from time to
time to December 2006 with respect to the 1997 Stock Plan, or May 2003 with
respect to the Directors' Stock Option Plan. An option becomes exercisable at
such times and in such installments as set forth by the Compensation Committee
or by the Directors' Stock Option Plan.
Under the 1997 Stock Plan, the Company can grant up to 375,000 shares of the
authorized options as restricted stock to certain key employees. These shares
are subject to certain transfer restrictions, and vesting may be dependent upon
continued employment, the satisfaction of performance objectives, or both.
During fiscal 2000, 1999 and 1998, the Company granted certain employees
261,921, 52,500 and 50,000 shares of restricted stock, with market values of
$6,415, $1,667 and $1,300 at the date of grant, respectively. In fiscal 2000,
the Company also cancelled 2,400 of the restricted shares granted, with a market
value of $77 at the date of grant, according to the provisions of the grant. The
market value of the restricted stock at the date of grant was recorded as
unearned compensation, a component of shareholders' equity, and is being charged
to expense over the respective vesting periods. In fiscal 2000, 1999 and 1998,
this expense amounted to $1,055, $393 and $58, respectively.
The 1997 Stock Plan also permits the granting of stock appreciation rights
("SARs") to holders of options. Such rights permit the optionee to surrender an
exercisable option, in whole or in part, on any date that the fair market value
of the Company's common stock exceeds the option price for the stock and receive
payment in common stock or, if the Board of Directors approves, in cash or any
combination of cash and common stock. Such payment would be equal to the excess
of the fair market value of the shares under the surrendered option over the
option price for such shares. The change in value of SARs would be reflected in
income based upon the market value of the stock. No SARs have been granted or
issued through January 28, 2000.
A summary of option transactions, including a terminated plan under which
options remain outstanding, during each of the three fiscal years in the period
ended January 28, 2000 is shown below:
Weighted-
Number of Average
Shares Option Price
- --------------------------------------------------------------------------------
Under option, January 31, 1997
(492,312 shares exercisable) .............. 666,314 12.78
Granted .................................. 271,991 33.23
Exercised ................................ (112,908) 11.53
Cancelled ................................ (6,000) 13.50
- -----------------------------------------------------------------
Under option, January 30,1998
(455,897 shares exercisable) .............. 819,397 19.74
Granted .................................. 48,000 34.19
Exercised ................................ (98,587) 10.99
Cancelled ................................ (12,800) 34.06
- -----------------------------------------------------------------
Under option, January 29, 1999
(435,810 shares exercisable) .............. 756,010 21.55
Granted .................................. 40,500 24.93
Exercised ................................ (51,900) 11.89
Cancelled ................................ (11,463) 28.24
- -----------------------------------------------------------------
Under option, January 28, 2000
(426,947 shares exercisable) .............. 733,147 22.32
=================================================================
There were 211,751 shares available for the granting of options at January 28,
2000.
26
<PAGE>
The following table summarizes the stock options outstanding at January 28,
2000:
Weighted-
Average
Options Remaining Weighted-
Range of Outstanding at Contractual Average
Exercise Prices Jan. 28, 2000 Life Exercise Price
- --------------------------------------------------------------------------------
$ 8.42 154,069 1 Year $ 8.42
12.83-18.67 234,276 6 Years 16.69
21.63-28.75 74,102 8 Years 25.55
33.00-35.63 270,700 8 Years 34.22
If the fair value of options granted had been used to record compensation
expense, pro forma net income would have been $64,770, $60,307 and $47,140 in
fiscal 2000, 1999 and 1998, respectively. Diluted earnings per share would have
been $2.75, $2.50 and $2.31 in fiscal 2000, 1999 and 1998, respectively. The
fair value of each option is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions: dividend yields of 1.3% for fiscal 2000, 1999 and 1998; expected
volatility of 35%, 33% and 32% for fiscal 2000, 1999 and 1998, respectively;
risk-free interest rates of 6.65%, 4.77% and 5.72% for fiscal 2000, 1999 and
1998, respectively; and expected lives of 8 years for fiscal 2000, 1999 and
1998. The weighted-average fair value of options granted during the year was
$11.48, $13.81 and $13.92 for fiscal 2000, 1999 and 1998, respectively. The pro
forma calculations do not include the effects of options granted prior to fiscal
1996. As such, the impact is not necessarily indicative of the effects on
reported net income in future years.
Supplemental Executive Retirement Plan
The Company has entered into agreements with certain key executive officers
providing for supplemental payments, generally for periods up to 15 years, upon
retirement, disability or death. The obligations are not funded apart from the
Company's general assets. Amounts charged to expense under the agreements were
$543, $537 and $445 in fiscal 2000, 1999 and 1998, respectively.
NOTE 7--COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company leases certain properties from a corporation owned by two directors
and one executive officer of Hughes Supply, Inc. The leases generally provide
that all expenses related to the properties are to be paid by the lessee. On
April 1, 1998, certain amendments to these leases were executed, which included
the extension of their lease terms through March 31, 2003. Rents paid to the
related corporation under these leases and other operating leases amounted to
$1,341, $1,241 and $1,140 in fiscal 2000, 1999 and 1998, respectively.
Future minimum payments, by year and in the aggregate, under the aforementioned
leases and other noncancelable operating leases with initial or remaining terms
in excess of one year as of January 28, 2000, are as follows:
Fiscal Years Ending
- --------------------------------------------------------------------------------
2001 ..................................................... $ 35,698
2002 ..................................................... 31,282
2003 ..................................................... 24,704
2004 ..................................................... 15,741
2005 ..................................................... 10,392
Later years .............................................. 17,342
- --------------------------------------------------------------------------------
Total minimum lease payments ............................. $135,159
================================================================================
Lease-related expenses were as follows:
Fiscal Years Ended
-------------------------------------
2000 1999 1998
- --------------------------------------------------------------------------------
Capital lease
amortization .................... $ -- $ 89 $ 518
Capital lease
interest expense ................ -- 30 199
Operating lease
rentals (excluding
month-to-month rents) ........... 42,792 33,062 22,335
Legal Matters
The Company is involved in various legal proceedings arising in the normal
course of its business. In the opinion of management, none of the proceedings
are material in relation to the Company's consolidated operations or financial
position.
HUGHES SUPPLY, INC. 27
<PAGE>
NOTE 8--CAPITAL STOCK
Common Stock
On May 20, 1997, the Company's Board of Directors declared a three-for-two stock
split to shareholders of record as of July 10, 1997. The date of issuance for
the additional shares was July 17, 1997. Accordingly, all share and per share
data have been restated for periods prior to the stock split.
On May 20, 1997, the shareholders approved an amendment to the Restated Articles
of Incorporation of the Company increasing the number of authorized shares of
common stock from 20,000,000 to 100,000,000 shares.
Treasury Stock
On March 15, 1999, the Company's Board of Directors authorized the Company to
repurchase up to 2,500,000 shares of its outstanding shares of common stock to
be used for general corporate purposes. In fiscal 2000, the Company repurchased
921,100 shares for a total cost of $21,229 at an average price of $23.05 per
share. During fiscal 2000, the Company issued 36,150 shares of treasury stock
for stock options exercised and 216,000 shares of treasury stock for restricted
stock grants.
Preferred Stock
The Company's Board of Directors established Series A Junior Participating
Preferred Stock ("Series A Stock") consisting of 75,000 shares. Each share of
Series A Stock will be entitled to 1,000 votes on all matters submitted to a
vote of shareholders. Series A Stock is not redeemable or convertible into any
other security. Each share of Series A Stock shall have a minimum cumulative
preferential quarterly dividend rate equal to the greater of $1.00 per share or
1000 times the aggregate per share amount of the dividend declared on common
stock in the related quarter. In the event of liquidation, shares of Series A
Stock will be entitled to the greater of $1000 per share plus any accrued and
unpaid dividend or 1000 times the payment to be made per share of common stock.
No shares of Series A Stock are presently outstanding, and no shares are
expected to be issued except in connection with the shareholder rights plan
referred to below.
The Company has a shareholder rights plan. Under the plan, the Company
distributed to shareholders a dividend of one right per share of the Company's
common stock. When exercisable, each right will permit the holder to purchase
from the Company one one-thousandth of a share (a "unit") of Series A Stock at a
purchase price of $200 per unit. The rights generally become exercisable if a
person or group acquires 15% or more of the Company's common stock or commences
a tender offer that could result in such person or group owning 15% or more of
the Company's common stock. If certain subsequent events occur after the rights
first become exercisable, the rights may become exercisable for the purchase of
shares of common stock of the Company, or of an acquiring company, having a
value equal to two times the exercise price of the right. In general, the rights
may be redeemed by the Company at $.0l per right at any time prior to the later
of (i) ten days after 20% or more of the Company's stock is acquired by a person
or group and (ii) the first date of a public announcement that a person or group
has acquired 15% or more of the Company's stock. The rights expire on June 2,
2008 unless terminated earlier in accordance with the rights plan.
NOTE 9--SUPPLEMENTAL CASH FLOWS INFORMATION
Cash paid for interest during fiscal 2000, 1999 and 1998 was $29,636, $23,972
and $18,107, respectively. Cash paid for income taxes during fiscal 2000, 1999
and 1998 was $49,079, $33,862 and $23,099, respectively.
Noncash Investing and Financing Activities
The net assets acquired and consideration for acquisitions accounted for as
purchases are summarized below:
Fiscal Years Ended
--------------------------------------------
2000 1999 1998
- --------------------------------------------------------------------------------
Fair value of:
Assets acquired ........... $ 125,536 $ 77,707 $ 172,546
Liabilities assumed ....... (37,510) (32,048) (45,816)
- --------------------------------------------------------------------------------
Purchase price .............. $ 88,026 $ 45,659 $ 126,730
================================================================================
Consideration in fiscal 1999 and 1998 included 207,829 and 2,850,526 shares of
common stock, with fair values of $5,438 and $78,768, respectively.
28
<PAGE>
NOTE 10--PRODUCT, GEOGRAPHIC AND CUSTOMER INFORMATION
The Company's products are classified into three major product categories,
including Fluid Control Products, Electrical Products and Specialty Products.
Net sales for each of these product categories were as follows:
Fiscal Years Ended
- --------------------------------------------------------------------------------
2000 1999 1998
- --------------------------------------------------------------------------------
Fluid Control
Products .................. $1,803,742 $1,512,828 $1,048,688
Electrical Products ......... 625,068 572,048 536,490
Specialty Products .......... 566,067 451,389 360,268
- --------------------------------------------------------------------------------
$2,994,877 $2,536,265 $1,945,446
================================================================================
The Company sells its products in the major areas of construction and industrial
markets in certain states primarily in the Southeast, Southwest and Midwest
United States. Revenues and assets of operations located outside the United
States are not material.
Approximately 90% of the Company's sales are credit sales which are made
primarily to customers whose ability to pay is dependent upon the economic
strength of the construction industry in the areas where it operates.
Concentration of credit risk with respect to trade accounts receivable is
limited, however, due to the large number of customers comprising the Company's
customer base and the fact that no one customer comprises more than 1% of annual
sales. The Company performs ongoing credit evaluations of its customers and in
certain situations obtains collateral sufficient to protect its credit position.
The Company maintains reserves for potential credit losses, and such losses have
been within management's expectations.
NOTE 11--QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Quarter
--------------------------------------------------------
First Second Third Fourth
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fiscal 2000
Net sales .......................................... $711,296 $774,888 $786,379 $722,314
Gross profit ....................................... $156,358 $176,173 $178,648 $163,094
Net income ......................................... $ 13,355 $ 20,905 $ 20,243 $ 11,368
Earnings per share:
Basic ............................................ $ .56 $ .90 $ .87 $ .49
Diluted .......................................... $ .55 $ .88 $ .87 $ .49
Average shares outstanding (in thousands):
Basic ............................................ 23,863 23,300 23,214 23,215
Diluted .......................................... 24,240 23,686 23,349 23,338
Market price per share:
High ............................................. $ 26.25 $ 29.94 $ 28.50 $ 24.13
Low .............................................. $ 17.94 $ 22.94 $ 20.75 $ 18.06
Dividends per share ................................ $ .085 $ .085 $ .085 $ .085
- --------------------------------------------------------------------------------------------------------------------
Fiscal 1999
Net sales .......................................... $602,031 $674,550 $659,045 $600,639
Gross profit ....................................... $129,277 $148,841 $146,639 $134,242
Net income ......................................... $ 11,603 $ 19,773 $ 19,150 $ 10,917
Earning per share:
Basic ............................................ $ .49 $ .83 $ .80 $ .45
Diluted .......................................... $ .49 $ .82 $ .79 $ .45
Average shares outstanding (in thousands):
Basic ............................................ 23,601 23,925 23,989 24,038
Diluted .......................................... 23,874 24,180 24,204 24,294
Market price per share:
High ............................................. $ 39.81 $ 39.19 $ 32.50 $ 29.50
Low .............................................. $ 32.56 $ 29.13 $ 25.13 $ 25.13
Dividends per share ................................ $ .080 $ .080 $ .085 $ .085
</TABLE>
HUGHES SUPPLY, INC. 29
<PAGE>
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
of Hughes Supply, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of Hughes
Supply, Inc. and its subsidiaries at January 28, 2000 and January 29, 1999, and
the results of their operations and their cash flows for each of the three years
in the period ended January 28, 2000 in conformity with accounting principles
generally accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States, which 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, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Orlando, Florida
March 17, 2000
MANAGEMENT'S RESPONSIBILITY
FOR FINANCIAL STATEMENTS
Management's Responsibility
for Financial Statements
The consolidated financial statements and related information included in this
annual report were prepared in conformity with generally accepted accounting
principles. Management is responsible for the integrity of the financial
statements and for the related information. Management has included in the
Company's financial statements amounts that are based on estimates and
judgements which it believes are reasonable under the circumstances.
The responsibility of the Company's independent accountants is to express an
opinion on the fairness of the financial statements. Their opinion is based on
an audit conducted in accordance with generally accepted auditing standards as
further described in their report.
The Audit Committee of the Board of Directors is composed of three
non-management directors. The Committee meets periodically with financial
management, internal auditors, and the independent accountants to review
internal accounting control, auditing, and financial reporting matters.
30
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Certain statements set forth in Management's Discussion and Analysis of
Financial Condition and Results of Operations constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and
are subject to the safe harbor created by such sections. When used in this
report, the words "believe," "anticipate," "estimate," "expect," "may," "will,"
"should," "plan," "intend," "potential," "estimate," "predict," "forecast," and
similar expressions are intended to identify forward-looking statements.
Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, it can give no assurance that such
expectations will prove to be correct. The Company's actual results may differ
significantly from the results discussed in such forward-looking statements.
When appropriate, certain factors that could cause results to differ materially
from those projected in the forward-looking statements are enumerated. This
Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the Company's consolidated
financial statements and the notes thereto.
RESULTS OF OPERATIONS
Net Sales
In fiscal 2000, the Company generated net sales of $2.99 billion, an 18%
increase over fiscal 1999 net sales of $2.54 billion. Fiscal 1999 net sales of
$2.54 billion increased 30% over fiscal 1998 net sales of $1.95 billion. The
increases in net sales were primarily due to acquired and newly-opened wholesale
branches resulting from the Company's acquisition and internal growth programs.
Same-store sales growth also contributed to the increases. On a basis comparable
to the prior year, same-store sales increased 7% in fiscal 2000 and 6% in fiscal
1999.
The increase of 7% in same-store sales for fiscal 2000 was attributable to (i)
continued overall strength of the construction market, (ii) increases in pool
and spa product sales due to increased market penetration and (iii) growth in
electric utility product sales resulting from increased spending by utility
companies due to the anticipated deregulation within their industry. The
same-store sales increase of 6% in fiscal 1999 was primarily attributable to (i)
continued growth in construction markets and (ii) the favorable impact of warm
and dry weather conditions experienced in certain regions served by the
Company's air conditioning and pool supply products. These increases were
partially offset by declines in industrial product demand and deflationary
pricing within certain of the Company's commodity-based products as further
discussed below.
Gross Margin
Over the past three years, gross margins have been improving. Gross margins were
22.5%, 22.0% and 21.9% for fiscal 2000, 1999 and 1998, respectively. The
improvement in gross margins resulted from several factors, including the
Company's overall expansion of higher-margin products due primarily to its
acquisition program, efficiencies created with central distribution centers and
enhanced purchasing power. Enhanced purchasing power was attributable to
increased volume and concentration of supply sources as part of the Company's
preferred vendor program. In the early part of fiscal 2000, all of fiscal 1999
and the last part of fiscal 1998, total gross profit dollars were negatively
impacted by deflationary pressures on the pricing of certain of the Company's
products whose manufacture is reliant on certain commodities, including
stainless steel, nickel alloys, copper, aluminum and plastic. Despite the
commodity pricing pressures, the Company was able to maintain the gross margins
on much of the business associated with these products and increase overall
gross margin for each of these years. In the latter part of fiscal 2000, the
deflationary pressures on certain commodity items eased, which further improved
gross margins.
Operating Expenses
Operating expenses in fiscal 2000 were $542 million (or 18.1% of net sales), a
23% increase over fiscal 1999 operating expenses of $442 million (or 17.4% of
net sales). The increase in operating expenses as a percent of net sales for
fiscal 2000 was primarily due to (i) higher personnel costs resulting from
increased headcount due to higher volume levels of activity, wage increases and
the Company's employee retention activities and (ii) increased information
technology ("IT") spending and conversion costs as the Company continued its
program of upgrading IT systems. The Company believes its investment in these
initiatives will provide a platform for future growth and enable it to realize
more administrative synergies from past and future acquisitions.
Similarly, the increase of $103 million in fiscal 1999 compared to fiscal 1998,
which had operating expenses of $339 million (or 17.4% of net sales), was
primarily attributable to branches acquired and opened after February 1,
HUGHES SUPPLY, INC. 31
<PAGE>
1997. The remainder of the increase was primarily due to (i) higher personnel
and transportation costs associated with same-store sales growth, (ii) expenses
related to the Company's IT initiatives and (iii) the impact of deflation on
sales volumes.
Non-Operating Income and Expenses
Interest and other income was $9.0 million in fiscal 2000 compared to $6.9
million in fiscal 1999 and $5.8 million in fiscal 1998. The increases of $2.1
million and $1.1 million in fiscal 2000 and 1999, respectively, were primarily
the result of higher levels of accounts receivable and the related collection of
service charge income on delinquent accounts receivable.
Interest expense for fiscal 2000, 1999 and 1998 was $31.8 million, $25.4 million
and $19.3 million, respectively. The $6.4 million increase in fiscal 2000 and
the $6.1 million increase in fiscal 1999 were primarily the result of higher
borrowing levels. The higher borrowing levels were primarily due to the
Company's expansion through business acquisitions, which was partially funded by
debt financing. The increase in fiscal 2000's debt level was also due to the
Company's share repurchase program.
Income Taxes
The effective tax rates for fiscal 2000, 1999 and 1998 were 39.9%, 37.7% and
35.6%, respectively. Prior to the mergers with Chad Supply, Inc. ("Chad") on
January 30, 1998 and with Winn-Lange Electric, Inc. ("Winn-Lange") on June 30,
1998, both of these entities were Subchapter S corporations and, therefore, not
subject to corporate income tax. Each entity's Subchapter S corporation status
terminated upon the merger with the Company. As a result, the Company's
effective tax rate is higher for fiscal 2000 compared to fiscal 1999 and is
higher for fiscal 1999 compared to fiscal 1998. The Company's effective tax rate
for fiscal 1999 and 1998 would have been approximately 38.3% and 38.7%,
respectively, assuming Chad and Winn-Lange were tax paying entities.
Net Income
Net income in fiscal 2000 increased 7% to $65.9 million from $61.4 million in
fiscal 1999. Diluted earnings per share increased 10% to $2.80 in fiscal 2000
compared to $2.55 in fiscal 1999. These results followed fiscal 1999 increases
of 29% and 9% in net income and diluted earnings per share, respectively. Net
income and diluted earnings per share in fiscal 1998 were $47.6 million and
$2.33, respectively.
Liquidity and Capital Resources
Net cash provided by operations was $33.4 million in fiscal 2000 compared to
$31.6 million in fiscal 1999 and net cash used in operations of $4.8 million in
fiscal 1998. In fiscal 2000, net cash provided by operations of $33.4 million
was primarily the result of an increase in accounts payable and accrued
liabilities resulting from the Company's working capital management efforts. Net
cash provided by operations of $31.6 million in fiscal 1999 was primarily the
result of the Company's improved profit levels, partially offset by increases in
accounts receivable and inventories, resulting from higher sales volumes.
The Company's expenditures for property and equipment were $30.7 million in
fiscal 2000 compared to $26.9 million in fiscal 1999. Of these expenditures,
approximately $14 million and $10 million, respectively, were for new warehouse
facilities to support the Company's growth and approximately $5 million and $7
million, respectively, were related to information technology outlays. Capital
expenditures for property and equipment, not including amounts for business
acquisitions, are expected to be approximately $30 million in fiscal 2001.
Proceeds from the sale of property and equipment were $4.9 million for fiscal
2000 compared to $6.6 million and $1.2 million for fiscal 1999 and 1998,
respectively. The increases in fiscal 2000 and fiscal 1999, as compared to
fiscal 1998, were primarily due to the sale and subsequent lease-back of certain
computer hardware which generated proceeds of $2.5 million and $5.4 million,
respectively.
Principal reductions on debt of acquired entities were $14.7 million for fiscal
2000 compared to $24.1 million and $25.2 million for fiscal 1999 and 1998,
respectively. Dividend payments totaled $8.0 million, $8.8 million and $8.1
million during fiscal 2000, 1999 and 1998. This included cash dividends of
pooled companies totaling $1.2 million and $2.8 million in fiscal 1999 and 1998,
respectively.
As discussed in Note 4 of the Notes to Consolidated Financial Statements, in
September 1999 the Company amended its credit agreement. The credit agreement
permits the Company to borrow up to $350 million ($300 million previously). With
the increase in this facility and the additional $50,000 bridge facility
discussed in Note 4, the Company believes it has the resources necessary,
32
<PAGE>
with approximately $103 million available under its existing credit facilities
(subject to borrowing limitations under long-term debt covenants) as of January
28, 2000, to fund ongoing operating requirements and anticipated capital
expenditures. The Company also believes it has sufficient borrowing capacity to
take advantage of growth and business acquisition opportunities and to fund
share repurchases in the near term. The Company expects to continue to finance
future expansion on a project-by-project basis through additional borrowing or
through the issuance of common stock.
Business Acquisitions
Cash payments for business acquisitions accounted for as purchases totaled $88.9
million for fiscal 2000 compared to $40.4 million and $47.7 million in fiscal
years 1999 and 1998, respectively. These outlays represent seven, eight and ten
wholesale distributors acquired and accounted for as purchases in fiscal 2000,
1999 and 1998, respectively. The increase in cash paid for acquisitions in
fiscal 2000 was the result of all of the Company's fiscal 2000 acquisitions
being financed completely with cash consideration. In fiscal 1999 and 1998, the
Company used $18 million and $96 million of its stock, respectively, as
additional consideration for acquisitions (excluding poolings of interests).
Investment in Affiliated Entities
In fiscal 2000, the Company invested $3.8 million into two e-commerce
initiatives. Under the terms of these agreements, the Company may be required to
fund an additional $6.3 million in fiscal 2001 if certain operating thresholds
are met.
Share Repurchases
On March 15, 1999, the Board of Directors authorized the Company to repurchase
up to 2.5 million of its outstanding shares. Through March 31, 2000, the Company
repurchased 921,100 shares for a total cost of $21.2 million at an average
purchase price of $23.05 per share.
Inflation and Changing Prices
The Company is aware of the potentially unfavorable effects inflationary
pressures may create through higher asset replacement costs and related
depreciation, higher interest rates and higher material costs. In addition, the
Company's operating performance is affected by price fluctuations in stainless
steel, nickel alloys, copper, aluminum, plastic and other commodities. The
Company seeks to minimize the effects of inflation and changing prices through
economies of purchasing and inventory management resulting in cost reductions
and productivity improvements as well as price increases to maintain reasonable
profit margins.
At January 28, 2000, the Company had approximately $307.0 million of outstanding
variable-rate debt. Based upon an assumed 10% increase or decrease in interest
rates from their January 28, 2000 levels, the Company's interest expense would
increase or decrease by approximately $2.0 million. The Company manages its
interest rate risk by maintaining a combination of fixed-rate and variable-rate
debt.
Management believes that inflation (which has been moderate over the past few
years) did not significantly affect the Company's operating results or markets
in fiscal 2000, 1999 or 1998. As discussed above, however, the Company's results
of operations for fiscal 1999 and parts of fiscal 2000 and 1998 were negatively
impacted by declines in the pricing of certain commodity-based products. Such
commodity price fluctuations have from time to time created cyclicality in the
financial performance of the Company and could continue to do so in the future.
Recent Accounting Pronouncements
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities ("SFAS 133"), is effective for fiscal years
beginning after June 15, 2000. SFAS 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. The adoption of this
standard is not expected to have a material impact on the Company's financial
reporting.
Year 2000 Issues
The Company studied the "Year 2000" issues affecting its information technology
systems, its non-information technology systems, and its issues with third-party
companies and other significant suppliers, and implemented a plan to address
them. Year 2000 issues have not had a material adverse effect on the Company's
operations. The cost of addressings its Year 2000 issues was approximately $1.2
million. These costs have not had a material effect on the Company's financial
position or results of operations in any one period in part because they
represent the re-deployment of existing information technology resources, and
because they would have been incurred as part of normal software upgrades and
replacements.
HUGHES SUPPLY, INC. 33
<PAGE>
SELECTED FINANCIAL DATA
(in thousands, except per share data and ratios)
<TABLE>
<CAPTION>
Fiscal Years Ended(1)(2)
-----------------------------------------------------
2000 1999 1998 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
STATEMENTS OF INCOME:
Net sales .......................... $2,994,877 $2,536,265 $1,945,446 $1,619,362
Cost of sales ...................... $2,320,604 $1,977,266 $1,519,323 $1,276,481
Gross margin ....................... 22.5% 22.0% 21.9% 21.2%
- --------------------------------------------------------------------------------------------
Selling, general and
administrative expenses .......... $508,644 $416,642 $318,923 $261,355
As a percentage of net sales .... 17.0% 16.4% 16.4% 16.1%
Depreciation and amortization ...... $29,629 $23,269 $18,727 $15,566
Provision for doubtful accounts .... $3,608 $1,882 $1,229 $1,023
Operating income ................... $132,392 $117,206 $87,244 $64,937
Operating margin ................... 4.4% 4.6% 4.5% 4.0%
- --------------------------------------------------------------------------------------------
Interest and other income .......... $9,015 $6,886 $5,837 $6,241
Interest expense ................... $31,805 $25,415 $19,257 $14,842
- --------------------------------------------------------------------------------------------
Income before income taxes ......... $109,602 $98,677 $73,824 $56,336
As a percentage of net sales .... 3.7% 3.9% 3.8% 3.5%
Income taxes (benefits) ............ $43,731 $37,234 $26,254 $19,282
Net income ......................... $65,871 $61,443 $47,570 $37,054
As a percentage of net sales .... 2.2% 2.4% 2.4% 2.3%
- --------------------------------------------------------------------------------------------
Earnings per share:
Basic ........................... $2.82 $2.57 $2.37 $2.13
Diluted ......................... $2.80 $2.55 $2.33 $2.09
- --------------------------------------------------------------------------------------------
Average shares outstanding:
Basic ........................... 23,398 23,889 20,108 17,384
Diluted ......................... 23,547 24,138 20,432 17,719
BALANCE SHEET:
Working capital .................... $657,500 $567,435 $486,106 $350,975
Total assets ....................... $1,369,014 $1,123,513 $965,742 $684,056
Long-term debt, less current portion $535,000 $402,203 $343,197 $228,351
Shareholders' equity ............... $522,444 $483,956 $421,769 $299,233
- --------------------------------------------------------------------------------------------
Current ratio ...................... 3.2 to 1 3.5 to 1 3.5 to 1 3.3 to 1
Ratio of long-term debt to
total capital employed ........... .51 to 1 .45 to 1 .45 to 1 .43 to 1
Leverage (total assets/
shareholders' equity) ............ 2.62 2.32 2.29 2.29
OTHER:
Cash dividends per share ........... $.34 $.33 $.31 $.25
Shareholders' equity per share ..... $22.16 $20.01 $18.00 $15.29
Return on average assets ........... 5.3% 5.9% 5.8% 6.4%
Return on average
shareholders' equity ............. 13.1% 13.6% 13.2% 15.2%
Capital expenditures(3) ............ $30,740 $26,921 $28,185 $16,898
- --------------------------------------------------------------------------------------------
</TABLE>
- --------
(1) The Company's fiscal year ends on the last Friday in January.
(2) All data adjusted for poolings of interests and the three-for-two stock
split declared in fiscal 1998.
(3) Excludes capital leases.
34
<PAGE>
<TABLE>
<CAPTION>
Fiscal Years Ended(1)(2)
------------------------------------------------------------------
1996 1995 1994 1993
------------------------------------------------------------------
<S> <C> <C> <C> <C>
STATEMENTS OF INCOME:
Net sales .......................... $1,326,978 $1,065,549 $ 880,977 $ 724,466
Cost of sales ...................... $1,052,120 $ 848,698 $ 704,907 $ 583,513
Gross margin ....................... 20.7% 20.4% 20.0% 19.5%
- ---------------------------------------------------------------------------------------------------------
administrative expenses .......... $ 218,093 $ 172,828 $ 145,913 $ 119,732
As a percentage of net sales .... 16.4% 16.2% 16.6% 16.5%
Depreciation and amortization ...... $ 11,859 $ 10,131 $ 8,657 $ 7,382
Provision for doubtful accounts .... $ 2,203 $ 1,501 $ 2,448 $ 2,028
Operating income ................... $ 42,703 $ 32,391 $ 19,052 $ 11,811
Operating margin ................... 3.2% 3.0% 2.2% 1.6%
- ---------------------------------------------------------------------------------------------------------
Interest and other income .......... $ 5,111 $ 3,206 $ 3,677 $ 4,072
Interest expense ................... $ 10,440 $ 6,813 $ 6,456 $ 6,087
- ---------------------------------------------------------------------------------------------------------
Income before income taxes ......... $ 37,374 $ 28,784 $ 16,273 $ 9,796
As a percentage of net sales .... 2.8% 2.7% 1.8% 1.4%
Income taxes (benefits) ............ $ 11,728 $ 7,984 $ 4,710 $ 1,734
Net income ......................... $ 25,646 $ 20,800 $ 11,563 $ 8,062
As a percentage of net sales .... 1.9% 2.0% 1.3% 1.1%
- ---------------------------------------------------------------------------------------------------------
Earnings per share:
Basic ........................... $ 1.78 $ 1.54 $ .97 $ .68
Diluted ......................... $ 1.75 $ 1.50 $ .92 $ .68
- ---------------------------------------------------------------------------------------------------------
Average shares outstanding:
Basic ........................... 14,418 13,504 11,900 11,899
Diluted ......................... 14,647 13,992 13,675 11,917
BALANCE SHEET:
Working capital .................... $ 235,113 $ 212,573 $ 171,702 $ 148,919
Total assets ....................... $ 474,574 $ 418,717 $ 330,526 $ 294,510
Long-term debt, less current portion $ 139,165 $ 127,166 $ 121,292 $ 103,870
Shareholders' equity ............... $ 188,926 $ 165,427 $ 116,918 $ 106,597
- ---------------------------------------------------------------------------------------------------------
Current ratio ...................... 2.6 to 1 2.7 to 1 2.9 to 1 2.8 to 1
Ratio of long-term debt to
total capital employed ........... .42 to 1 .43 to 1 .51 to 1 .49 to 1
Leverage (total assets/
shareholders' equity) ............ 2.51 2.53 2.83 2.76
OTHER:
Cash dividends per share ........... $ .20 $ .15 $ .11 $ .08
Shareholders' equity per share ..... $ 12.64 $ 11.40 $ 9.43 $ 8.71
Return on average assets ........... 5.7% 5.6% 3.7% 2.8%
Return on average
shareholders' equity ............. 14.5% 14.7% 10.3% 7.8%
Capital expenditures(3) ............ $ 14,713 $ 15,824 $ 9,997 $ 10,335
- ---------------------------------------------------------------------------------------------------------
<CAPTION>
Fiscal Years Ended(1)(2)
------------------------------------------------
1992 1991 1990
------------------------------------------------
<S> <C> <C> <C>
STATEMENTS OF INCOME:
Net sales .......................... $ 690,311 $ 752,951 $ 706,860
Cost of sales ...................... $ 557,380 $ 608,322 $ 565,386
Gross margin ....................... 19.3% 19.2% 20.0%
- --------------------------------------------------------------------------------------
administrative expenses .......... $ 116,317 $ 117,649 $ 107,882
As a percentage of net sales .... 16.8% 15.6% 15.3%
Depreciation and amortization ...... $ 7,987 $ 9,929 $ 9,743
Provision for doubtful accounts .... $ 3,247 $ 3,119 $ 2,962
Operating income ................... $ 5,380 $ 13,932 $ 20,887
Operating margin ................... .8% 1.9% 3.0%
- --------------------------------------------------------------------------------------
Interest and other income .......... $ 2,696 $ 4,732 $ 3,348
Interest expense ................... $ 7,702 $ 9,850 $ 8,911
- --------------------------------------------------------------------------------------
Income before income taxes ......... $ 374 $ 8,814 $ 15,324
As a percentage of net sales .... .1% 1.2% 2.2%
Income taxes (benefits) ............ $ (1,359) $ 2,058 $ 4,937
Net income ......................... $ 1,733 $ 6,756 $ 10,387
As a percentage of net sales .... .3% .9% 1.5%
- --------------------------------------------------------------------------------------
Earnings per share:
Basic ........................... $ .15 $ .58 $ .84
Diluted ......................... $ .15 $ .58 $ .81
- --------------------------------------------------------------------------------------
Average shares outstanding:
Basic ........................... 11,899 11,746 12,374
Diluted ......................... 11,899 11,746 14,062
BALANCE SHEET:
Working capital .................... $ 134,961 $ 143,011 $ 140,226
Total assets ....................... $ 276,439 $ 273,216 $ 285,434
Long-term debt, less current portion $ 89,921 $ 99,261 $ 94,409
Shareholders' equity ............... $ 99,649 $ 102,094 $ 107,113
- --------------------------------------------------------------------------------------
Current ratio ...................... 2.6 to 1 3.0 to 1 2.7 to 1
Ratio of long-term debt to
total capital employed ........... .47 to 1 .49 to 1 .47 to 1
Leverage (total assets/
shareholders' equity) ............ 2.77 2.68 2.66
OTHER:
Cash dividends per share ........... $ .16 $ .24 $ .23
Shareholders' equity per share ..... $ 8.14 $ 8.64 $ 8.54
Return on average assets ........... .6% 2.4% 3.8%
Return on average
shareholders' equity ............. 1.7% 6.5% 9.9%
Capital expenditures(3) ............ $ 6,073 $ 8,877 $ 11,844
- --------------------------------------------------------------------------------------
</TABLE>
HUGHES SUPPLY, INC. 35
<PAGE>
CORPORATE AND SHAREHOLDER INFORMATION
<TABLE>
<S> <C> <C>
DIRECTORS EXECUTIVE OFFICERS Thomas M. Ward II
David H. Hughes AND MANAGEMENT Vice President and Chief Technology Officer
Chairman of the Board
David H. Hughes Gradie E. Winstead, Jr.
John D. Baker II Chairman of the Board and Group President
President and Chief Executive Officer Chief Executive Officer
Florida Rock Industries, Inc.
A. Stewart Hall, Jr. J. Stephen Zepf
Robert N. Blackford President and Chief Operating Officer Treasurer and Chief Financial Officer
Attorney, Holland & Knight LLP
Benjamin P. Butterfield
H. Corbin Day Secretary and General Counsel TRANSFER AGENT
Chairman, Jemison Investment Co., Inc. AND REGISTRAR
Jack R. Clark
A. Stewart Hall, Jr. Vice President of Credit American Stock Transfer
& Trust Company
Vincent S. Hughes Jacquel K. Clark 40 Wall Street
Assistant Secretary and New York, New York 10005
William P. Kennedy Assistant Treasurer
Chief Executive Officer ANNUAL MEETING
Nephron Pharmaceuticals Corporation Jasper L. Holland, Jr.
Group President Tuesday, May 16, 2000,
at 10:00 a.m., local time
Clyde E. Hughes III Hughes Supply, Inc.
Group President 20 North Orange Avenue
Suite 200
Vincent S. Hughes Orlando, Florida 32801
Vice President
INDEPENDENT ACCOUNTANTS
Robert A. Machaby
Group President PricewaterhouseCoopers LLP
Orlando, Florida
James C. Plyler, Jr.
Vice President and Regional Manager CORPORATE HEADQUARTERS
Kenneth H. Stephens Hughes Supply, Inc.
Vice President and Regional Manager 20 North Orange Avenue
Orlando, Florida 32801
Michael L. Stanwood Telephone: 407-841-4755
Group President
Sidney J. Strickland, Jr.
Vice President of Administration
</TABLE>
The shares of Hughes Supply, Inc. common stock are traded on the New York Stock
Exchange under the symbol "HUG." The approximate number of shareholders of
record as of March 24, 2000 was 1,188. A COPY OF THE HUGHES SUPPLY, INC. ANNUAL
REPORT ON FORM 10-K AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION WILL BE
MADE AVAILABLE WITHOUT CHARGE, UPON WRITTEN REQUEST. REQUESTS SHOULD BE DIRECTED
TO:
J. Stephen Zepf
Treasurer and Chief Financial Officer
Hughes Supply, Inc.
Post Office Box 2273
Orlando, Florida 32802
EXHIBIT 21.1
Subsidiaries of the Registrant
Set forth below is a listing, by name and jurisdiction of incorporation, of
each corporation which is, as of the date of this Report, a subsidiary of the
Registrant. Unless otherwise indicated, each such corporation is a 100% owned
subsidiary of the Registrant.
1) Allied Metals, Inc., a Texas corporation.
2) Atlantic Pump & Equipment Company of Miami, Inc., a Florida corporation.
3) Atlantic Pump and Equipment Co. of Puerto Rico, a Puerto Rico corporation.
4) Atlantic Pump & Equipment Company of West Palm Beach, Inc., a Florida
corporation.
5) Carolina Pump & Supply Corp., a Rhode Island corporation.
6) Cayesteel, Inc., a Georgia corporation.
7) CF Fluid Controls, Inc., a Texas corporation.
8) Chad Supply, Inc., a Florida corporation.
9) Coastal Wholesale, Inc., a Florida corporation.
10) Dominion Pipe & Supply Co., a Virginia corporation.
11) Dominion Pipe Fabricators, Incorporated, a Virginia corporation.
12) Douglas Leonhardt & Associates, Inc., a North Carolina corporation.
13) ELASCO Agency Sales, Inc., an Illinois corporation.
14) Elec-Tel Supply Company, a Georgia corporation.
15) Electric Laboratories and Sales Corporation, a Delaware corporation.
16) FES Merger Corp., Inc., a Florida corporation.
17) First National Fixture Corporation, a Kansas corporation.
18) Gayle Supply Company, Inc., an Alabama corporation.
<PAGE>
19) Gilleland Concrete Products, Inc., a Georgia corporation.
20) GPEC, Inc., a Texas corporation.
21) H Venture Corp., a Florida corporation.
22) HHH, Inc., a Delaware corporation.
23) HSI Acquisition Corporation, an Ohio corporation.
24) HSI bestroute Investment, Inc., a Florida corporation.
25) HSI Corp., a Delaware corporation.
26) HSI Fusion Services, Inc., a Florida corporation.
27) Hughes Supply Foundation, Inc., a Florida corporation not-for-profit.
28) Hughes Supply FSC, Inc., a Barbados corporation.
29) Hughes Supply Management Services, Inc., a Delaware corporation.
30) Hughes Water & Sewer Company, a West Virginia corporation.
31) International Supply Company, a Texas corporation.
32) J & J, Inc., a Georgia corporation.
33) JuNo Industries, Inc., a Florida corporation.
34) Kamen Supply Company, Inc., a Kansas corporation.
35) L & T of Delaware, Inc., a Delaware corporation.
36) Merex Corporation, a Texas corporation.
37) Merex De Mexico, Sociedad Anonima De Capital Variable, a Mexico
corporation, 75% owned.
38) Merex Diesel Power, Sociedad Anonima De Capital Variable, a Mexico
corporation, 75% owned.
39) Metals Incorporated, an Oklahoma corporation.
40) Metals, Inc. - Gulf Coast Division, an Oklahoma corporation.
41) Mills & Lupton Supply Company, a Tennessee corporation.
42) Moore Electric Supply, Inc., a North Carolina corporation.
43) Mountain Country Supply, Inc., an Arizona corporation.
44) Olander & Brophy, Incorporated, a Pennsylvania corporation.
<PAGE>
45) One Stop Supply, Inc., a Tennessee corporation.
46) Paine Supply of Jackson, Inc., a Mississippi corporation.
47) Palm Pool Products, Inc., a Michigan corporation.
48) Panhandle Pipe & Supply Co., Inc., a West Virginia corporation.
49) Port City Electrical Supply, Inc., a Georgia corporation.
50) R & G Plumbing Supply, Inc., an Alabama corporation.
51) Reaction Supply Corporation, a California corporation.
52) San Antonio Plumbing Distributors, Inc., a Texas corporation.
53) Shrader Holding Company, Inc., an Arkansas corporation.
54) Southwest Stainless, L.P., a Delaware limited partnership.
55) Stainless Tubular Products, Inc., an Oklahoma corporation.
56) Sunbelt Supply Co., a Texas corporation.
57) Union Merger Corporation, a North Carolina corporation.
58) USCO Incorporated, a North Carolina corporation.
59) U.S. Fusion Services, Inc., a Louisiana corporation.
60) Virginia Water & Waste Supply Company, Inc., a Virginia corporation.
61) WCC Merger Corporation, a Georgia corporation.
62) Wholesale Electric Supply Corporation, a New York corporation.
63) Z&L Acquisition Corp., a Delaware corporation.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET OF HUGHES SUPPLY, INC. AS OF JANUARY 28, 2000, AND
THE RELATED STATEMENT OF INCOME FOR THE YEAR THEN ENDED AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000049029
<NAME> HUGHES SUPPLY, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-28-2000
<PERIOD-END> JAN-28-2000
<CASH> 10,000
<SECURITIES> 0
<RECEIVABLES> 401,021
<ALLOWANCES> 2,777
<INVENTORY> 495,491
<CURRENT-ASSETS> 957,778
<PP&E> 236,897
<DEPRECIATION> 91,952
<TOTAL-ASSETS> 1,369,014
<CURRENT-LIABILITIES> 300,278
<BONDS> 535,000
0
0
<COMMON> 24,249
<OTHER-SE> 498,195
<TOTAL-LIABILITY-AND-EQUITY> 1,369,014
<SALES> 2,994,877
<TOTAL-REVENUES> 2,994,877
<CGS> 2,320,604
<TOTAL-COSTS> 2,320,604
<OTHER-EXPENSES> 538,273
<LOSS-PROVISION> 3,608
<INTEREST-EXPENSE> 31,805
<INCOME-PRETAX> 109,602
<INCOME-TAX> 43,731
<INCOME-CONTINUING> 65,871
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 65,871
<EPS-BASIC> 2.82
<EPS-DILUTED> 2.80
</TABLE>
HUGHES SUPPLY, INC. EXHIBIT 99.1
LOCATION OF FACILITIES
AS OF JANUARY 28, 2000
NUMBER OF
STATE/TERRITORY/COUNTRY CITY BRANCHES
- --------------------------------------------------------------------------------
ALABAMA Anniston 2
Birmingham 4
Cullman 1
Dothan 2
Homewood 1
Huntsville 4
Mobile 3
Montgomery 3
Pelham 1
Prichard 2
-----------
23
ALASKA Anchorage 1
-----------
1
ARIZONA Cottonwood 1
Flagstaff 1
Gilbert 2
Kingman 1
Lake Havasu City 1
Lakeside 1
Mesa 1
Phoenix 7
Prescott 1
Scottsdale 1
Tucson 2
-----------
19
ARKANSAS North Little Rock 1
Tontitown 1
-----------
2
CALIFORNIA Artesia 1
Fresno 1
La Habra 1
North Hollywood 1
Sacramento 1
San Francisco 1
Union City 1
-----------
7
COLORADO Avon 1
Denver 3
Englewood 1
Ft. Collins 1
Longmont 1
-----------
7
<PAGE>
NUMBER OF
STATE/TERRITORY/COUNTRY CITY BRANCHES
- --------------------------------------------------------------------------------
FLORIDA Bradenton 1
Bunnell 1
Cape Coral 2
Clearwater 3
Clermont 1
Daytona 1
Eaton Park 2
Ft. Lauderdale 2
Ft. Myers 4
Ft. Pierce 2
Gainesville 2
Holly Hill 1
Inverness 1
Jacksonville 7
Kissimmee 1
Lady Lake 1
Lake City 1
Lakeland 4
Leesburg 1
Longwood 1
Marianna 1
Melbourne 1
Miami 4
Naples 1
Ocala 4
Orange City 1
Orlando 13
Panama City 3
Pembroke Park 1
Pensacola 2
Perry 1
Pompano Beach 4
Port Richey 1
Port St. Lucie 1
Riviera Beach 1
St. Augustine 1
St. Petersburg 1
Sarasota 3
Sebring 1
Tallahassee 5
Tampa 6
Tavares 1
Thonotosassa 2
Venice 1
West Melbourne 1
West Palm Beach 4
Winter Haven 2
Winter Park 1
-----------
107
<PAGE>
NUMBER OF
STATE/TERRITORY/COUNTRY CITY BRANCHES
- --------------------------------------------------------------------------------
GEORGIA Albany 1
Alpharetta 1
Athens 3
Atlanta 3
Augusta 1
Austell 1
Brunswick 1
Buford 2
Columbus 3
Conyers 2
Doraville 2
Forest Park 1
Garden City 1
Hampton 1
Kennesaw 1
Lawrenceville 1
Lithonia 1
Macon 6
Marietta 2
Martinez 1
McDonough 1
Norcross 4
Oakwood 1
Savannah 3
Thomasville 1
Tifton 2
Tucker 1
Valdosta 2
Woodstock 1
-----------
51
ILLINOIS Decatur 1
Mattoon 2
Romeoville 1
-----------
4
INDIANA Fort Wayne 1
Indianapolis 3
Muncie 1
Whitestown 1
-----------
6
<PAGE>
NUMBER OF
STATE/TERRITORY/COUNTRY CITY BRANCHES
- --------------------------------------------------------------------------------
KANSAS Garden City 1
Hutchinson 1
Wichita 1
-----------
3
KENTUCKY Bowling Green 1
Glasgow 1
Louisville 4
-----------
6
LOUISIANA Baton Rouge 1
Gonzales 1
Kenner 1
Luling 1
Port Allen 1
Sulphur 1
-----------
6
MARYLAND Aberdeen 1
Capitol Heights 1
Finksburg 1
Frederick 1
Salisbury 1
Waldorf 2
-----------
7
MEXICO Tampico 4
Villahermosa 1
-----------
5
<PAGE>
NUMBER OF
STATE/TERRITORY/COUNTRY CITY BRANCHES
- --------------------------------------------------------------------------------
MICHIGAN Holt 1
Romulus 1
Warren 1
-----------
3
MISSISSIPPI D'Iberville 1
Greenville 1
Greenwood 1
Gulfport 1
Hattiesburg 1
Jackson 1
Laurel 1
Meridian 1
Pascagoula 1
Tupelo 1
-----------
10
MISSOURI Arnold 1
Springfield 1
St. Charles 1
Wentzville 1
-----------
4
MONTANA Missoula 1
-----------
1
NEVADA Las Vegas 1
-----------
1
NEW JERSEY Blackwood 1
Hopelawn 1
Piscataway 1
-----------
3
NEW YORK Vestal 1
-----------
1
NORTH CAROLINA Albemarle 1
Asheville 1
Charlotte 9
Concord 2
Durham 1
Elizabeth City 1
Fayetteville 1
Goldsboro 1
Greensboro 2
Henderson 1
Hickory 1
High Point 1
Huntersville 1
Kinston 1
Monroe 4
Pinehurst 1
Pineville 1
Raleigh 5
Rocky Mount 1
Salisbury 1
Statesville 1
Wilmington 2
Zebulon 1
-----------
41
<PAGE>
NUMBER OF
STATE/TERRITORY/COUNTRY CITY BRANCHES
- --------------------------------------------------------------------------------
OHIO Batavia 1
Brimfield 1
Cincinnati 1
Cleveland 1
Columbus 3
Dayton 3
Elyria 1
Fairfield 1
Greenville 1
Hartville 1
Lima 1
Marion 1
Monroe 1
Perrysburg 1
Solon 1
Van Wert 1
West Chester 1
-----------
21
OKLAHOMA Oklahoma City 1
Tulsa 2
-----------
3
PENNSYLVANIA Bedford 1
Monroeville 1
Shippenville 1
-----------
3
SOUTH CAROLINA Aiken 1
Anderson 1
Bluffton 2
Charleston 3
Cheraw 1
Columbia 2
Florence 1
Greenville 3
Greer 2
Hilton Head 1
Lancaster 1
Myrtle Beach 1
North Charleston 2
Ridgeland 1
Roebuck 1
West Columbia 2
-----------
25
TENNESSEE Alcoa 1
Chattanooga 2
Clarksville 1
Cookeville 1
Franklin 1
Jackson 1
Knoxville 2
Memphis 6
Nashville 6
-----------
21
TEXAS Allen 1
Alvarado 1
Austin 4
Beaumont 2
Boerne 1
Brenham 1
College Station 1
Conroe 1
Corpus Christi 3
Dallas 4
Denton 1
Fort Worth 1
Freeport 1
Friendswood 1
Garland 1
Grand Praire 1
Grapevine 1
Haltom City 1
Harlingen 1
Helotes 1
Houston 15
Kerrville 1
La Porte 1
Laredo 1
Longview 2
Lufkin 1
McAllen 1
Mesquite 1
Mt. Pleasant 1
Pharr 1
Prosper 1
Richardson 1
Richland Hills 1
Round Rock 1
San Antonio 9
Seguin 1
Sherman 2
Southlake 1
Texas City 1
Waxahachie 1
-----------
73
<PAGE>
NUMBER OF
STATE/TERRITORY/COUNTRY CITY BRANCHES
- --------------------------------------------------------------------------------
UTAH Salt Lake City 1
-----------
1
VIRGINIA Colonial Heights 1
Herndon 1
La Crosse 1
Lynchburg 1
Manassas Park 1
Norfolk 2
Richmond 2
Roanoke 1
Virginia Beach 2
Yorktown 1
-----------
13
WASHINGTON Marysville 1
Seattle 2
Spokane 1
Tacoma 1
Tukwila 1
-----------
6
WEST VIRGINIA Alum Creek 1
Fairmont 1
Martinsburg 1
South Charleston 1
-----------
4
-----------
TOTAL BRANCHES 488
===========
