UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule
14a6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material under ss. 240.14a-12
HUGHES SUPPLY, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
Common stock, par value $1.00 per share, of Hughes Supply, Inc.
2) Aggregate number of securities to which transaction applies:
69,551,994 shares of Hughes Supply common stock, which consists of (i)
66,926,313 shares of Hughes Supply common stock issued and outstanding
as of January 24, 2006 and (ii) 2,625,681 shares of Hughes Supply
common stock underlying outstanding options as of January 24, 2006
with an exercise price below $46.50 per share.
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
The filing fee was determined by multiplying 0.000107 by the
underlying value of the transaction of $3,186,669,152, which has been
calculated as the sum of (a) the product of (i) the 66,926,313 shares
of Hughes Supply common stock issued and outstanding as January 24,
2006 that are being converted into the right to receive cash in the
merger and (ii) the cash merger consideration of $46.50 per share,
plus (b) the product of (i) the 2,625,681 shares of Hughes Supply
common stock underlying outstanding options as of January 24, 2006
with an exercise price below $46.50 per share and (ii) the difference
between $46.50 per share and the weighted average exercise price of
such options of $18.09 per share.
4) Proposed maximum aggregate value of transaction: $3,186,669,152
5) Total fee paid: $340,974
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:_______________________________________________
2) Form, Schedule or Registration Statement No.:_________________________
3) Filing Party:_________________________________________________________
4) Date Filed:___________________________________________________________
PRELIMINARY PROXY, SUBJECT TO COMPLETION
[Hughes Supply, Inc. logo]
One Hughes Way
Orlando, FL 32805
_______ ___, 2006
DEAR HUGHES SUPPLY SHAREHOLDER:
You are cordially invited to attend a special meeting of the
shareholders of Hughes Supply, Inc., which will be held at our principal
executive offices located at 501 West Church Street, Orlando, Florida 32805, on
______ ___, 2006, beginning at 10:00 a.m., local time.
At the special meeting, we will ask you to consider and vote on a
proposal to approve the Agreement and Plan of Merger, dated as of January 9,
2006, between The Home Depot, Inc. and Hughes Supply, Inc., providing for the
acquisition of Hughes Supply by The Home Depot. If the merger is completed,
Hughes Supply will become a subsidiary of The Home Depot, and you will receive
$46.50 in cash, without interest and less any applicable withholding taxes, for
each share of our common stock that you own and you will cease to have an
ownership interest in the continuing business of Hughes Supply. A copy of the
merger agreement is attached as Annex A to the accompanying proxy statement and
you are encouraged to read it in its entirety.
After careful consideration, our board has unanimously adopted the
merger agreement and determined that the merger and the merger agreement are
advisable, fair to and in the best interests of Hughes Supply and its
shareholders. OUR BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE APPROVAL
OF THE MERGER AGREEMENT.
The proxy statement attached to this letter provides you with
information about the merger and the special meeting. Please read the entire
proxy statement carefully. You may also obtain additional information on Hughes
Supply from documents filed with the Securities and Exchange Commission.
YOUR VOTE IS VERY IMPORTANT. The merger cannot be completed unless
Hughes Supply shareholders holding a majority of the outstanding shares entitled
to vote at the special meeting of shareholders vote to approve the merger
agreement. If you fail to vote on the merger agreement, it will have the same
effect as voting against the approval of the merger agreement.
Whether or not you plan to attend the special meeting in person,
please complete, sign, date and return promptly the enclosed proxy card or
follow the internet or telephone voting instructions. If you hold shares through
a broker or other nominee, you should follow the procedures provided by your
broker or nominee. These actions will not limit your right to vote in person if
you wish to attend the special meeting and vote in person.
If you have any questions or need assistance voting your shares,
please call D. F. King & Co., Inc., who is assisting us, toll-free at
1-800-487-4870.
On behalf of the board of directors of Hughes Supply, I thank you in
advance for your cooperation and continued support.
On behalf of your Board of Directors,
David H. Hughes
Chairman of the Board
Neither the Securities and Exchange Commission nor any state
securities regulatory agency has approved or disapproved the merger, passed upon
the merits or fairness of the merger or passed upon the adequacy or accuracy of
the disclosure in this document. Any representation to the contrary is a
criminal offence.
This proxy statement is dated _____ __, 2006 and is first being
mailed to shareholders on or about _____ __, 2006.
[Hughes Supply, Inc. logo]
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON _______ __, 2006
To the Shareholders of Hughes Supply, Inc.:
NOTICE IS HEREBY GIVEN that the special meeting of shareholders of
Hughes Supply, Inc. will be held at our principal executive offices located at
501 West Church Street, Orlando, Florida 32805 on _______ __, 2006, beginning at
10:00 a.m., local time, for the following purposes:
1. APPROVAL OF THE MERGER AGREEMENT WITH THE HOME DEPOT, INC. To consider
and vote on a proposal to approve the Agreement and Plan of Merger,
dated as of January 9, 2006, between The Home Depot, Inc. and Hughes
Supply, Inc.
2. ADJOURNMENT OR POSTPONEMENT OF THE SPECIAL MEETING. To approve the
adjournment or postponement of the special meeting, if necessary or
appropriate, to solicit additional proxies if there are insufficient
votes at the time of the meeting to approve the merger agreement.
3. OTHER MATTERS. To transact such other business as may properly come
before the meeting or any adjournment thereof.
Only shareholders of record of our common stock as of the close of
business on February 6, 2006 will be entitled to notice of, and to vote at, the
special meeting and any adjournment or postponement of the special meeting.
Your vote is important, regardless of the number of shares of our
common stock you own. The approval of the merger agreement requires the
affirmative vote of the holders of a majority of the outstanding shares of our
common stock entitled to cast votes as of the record date. The approval of the
proposal to adjourn or postpone the meeting, if necessary or appropriate, to
permit further solicitation of proxies requires the affirmative vote of a
majority of the votes cast at the special meeting. Even if you plan to attend
the meeting in person, we request that you complete, sign, date and return the
enclosed proxy and thus ensure that your shares will be represented at the
meeting if you are unable to attend. If you sign, date and mail your proxy card
without indicating how you wish to vote, your vote will be counted as a vote in
favor of the approval of the merger agreement, in favor of the proposal to
adjourn or postpone the meeting, if necessary or appropriate, to permit further
solicitation of proxies, and in accordance with the recommendation of the board
on any other matters properly brought before the meeting for a vote.
If you fail to vote by proxy or in person, it will have the same
effect as a vote against the approval of the merger agreement, but will not
affect the adjournment or postponement, if necessary or appropriate, to permit
further solicitation of proxies. If you are a shareholder of record and do
attend the meeting and wish to vote in person, you may withdraw your proxy and
vote in person.
Please carefully read the proxy statement and other material
concerning our company, the merger and the other proposals enclosed with this
notice for a more complete statement regarding the matters to be acted upon at
the special meeting.
By Order of the Board of Directors
JOHN Z. PARE
Secretary and General Counsel
Orlando, Florida
_______ __, 2006
YOUR VOTE IS IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE VOTE ALL PROXIES
YOU RECEIVE. SHAREHOLDERS CAN VOTE ANY ONE OF THREE WAYS:
BY TELEPHONE: CALL THE TOLL-FREE NUMBER ON YOUR PROXY CARD TO VOTE BY PHONE
VIA INTERNET: VISIT THE WEBSITE ON YOUR PROXY CARD TO VOTE VIA THE INTERNET
BY MAIL: COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY IN THE ENVELOPE
PROVIDED
THE METHOD BY WHICH YOU DECIDE TO VOTE WILL NOT AFFECT YOUR RIGHT TO VOTE IN
PERSON IF YOU ATTEND THE MEETING.
TABLE OF CONTENTS
QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER...........................................................1
SUMMARY..................................................................................................................5
The Parties to the Merger Agreement..................................................................................5
The Merger...........................................................................................................5
The Merger Agreement.................................................................................................5
Appraisal Rights.....................................................................................................9
Special Committee of Our Board of Directors..........................................................................9
Recommendation of Our Board of Directors.............................................................................9
Reason for Recommendation by Our Board of Directors..................................................................9
Opinion of Our Financial Advisor.....................................................................................9
Regulatory Matters..................................................................................................10
Material United States Federal Income Tax Consequences of the Merger................................................10
Interests of Our Directors and Executive Officers in the Merger ....................................................10
CAUTION REGARDING FORWARD-LOOKING STATEMENTS............................................................................12
THE SPECIAL MEETING OF SHAREHOLDERS.....................................................................................13
Date, Time and Place................................................................................................13
Purpose of the Special Meeting......................................................................................13
Recommendation of Our Board of Directors............................................................................13
Record Date; Stock Entitled to Vote; Quorum.........................................................................13
Vote Required.......................................................................................................13
Voting of Proxies...................................................................................................13
Revocability of Proxies.............................................................................................14
Voting 401(k) Plan Shares...........................................................................................14
Solicitation of Proxies.............................................................................................15
Assistance..........................................................................................................15
Share Certificates..................................................................................................15
Other Business......................................................................................................15
THE PARTIES TO THE MERGER AGREEMENT.....................................................................................17
Hughes Supply, Inc..................................................................................................17
The Home Depot, Inc.................................................................................................17
THE MERGER..............................................................................................................18
Background of the Merger............................................................................................18
Reasons for the Merger..............................................................................................25
Recommendation of Our Board of Directors............................................................................28
Opinion of Our Financial Advisor....................................................................................28
Certain Effects of the Merger.......................................................................................34
Effects on Hughes Supply if the Merger is Not Completed.............................................................35
Interests of Our Directors and Executive Officers in the Merger.....................................................36
Appraisal Rights....................................................................................................41
Delisting and Deregistration of Our Common Stock....................................................................41
Accounting Treatment................................................................................................41
Material United States Federal Income Tax Consequences of the Merger................................................42
Regulatory Approvals................................................................................................43
Litigation Related to the Merger....................................................................................44
Past Contacts, Transactions or Negotiations.........................................................................44
PROPOSAL 1 - THE MERGER AGREEMENT.......................................................................................45
Form of the Merger..................................................................................................45
Effective Time of the Merger........................................................................................45
Directors and Officers of the Surviving Corporation.................................................................45
Articles of Incorporation and Bylaws of Hughes Supply...............................................................45
Merger Consideration................................................................................................45
Effect on Stock Options and Restricted Common Stock.................................................................46
Payment Procedures..................................................................................................46
Conditions to the Merger............................................................................................47
i
Material Adverse Effect.............................................................................................48
Indemnification and Insurance.......................................................................................48
Termination of the Merger Agreement.................................................................................49
Expenses and Termination Fee........................................................................................50
Representations and Warranties......................................................................................51
Covenants Under the Merger Agreement................................................................................52
No Solicitation.....................................................................................................56
Amendment and Waiver................................................................................................58
APPRAISAL RIGHTS........................................................................................................59
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..........................................................60
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..........................................................................63
Agreements with Certain Directors and/or Officers...................................................................63
PROPOSAL 2 - ADJOURNMENT OR POSTPONEMENT OF THE SPECIAL MEETING.........................................................64
OTHER MATTERS...........................................................................................................65
FUTURE SHAREHOLDER PROPOSALS............................................................................................66
WHERE YOU CAN FIND MORE INFORMATION.....................................................................................67
INCORPORATION BY REFERENCE..............................................................................................68
ANNEX A .........AGREEMENT AND PLAN OF MERGER
ANNEX B .........OPINION OF LEHMAN BROTHERS INC.
ii
QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER
The following questions and answers are intended to address some
commonly asked questions regarding the special meeting and the proposed merger.
These questions and answers may not address all questions that may be important
to you as a Hughes Supply shareholder. Please refer to the more detailed
information contained elsewhere in this proxy statement, the annexes to this
proxy statement and the documents referred to in this proxy statement.
Q: WHAT IS THE DATE, TIME AND PLACE OF THE SPECIAL MEETING?
A: The special meeting of shareholders of Hughes Supply, Inc. will be held at
our principal executive offices located at 501 West Church Street, Orlando,
Florida 32805 on _______ __, 2006, at 10:00 a.m., local time.
Q: WHO IS SOLICITING MY PROXY?
A: This proxy is being solicited by Hughes Supply.
Q: WHAT AM I BEING ASKED TO VOTE ON?
A: You are being asked to vote on the following two proposals:
o to approve the merger agreement; and
o to approve the adjournment or postponement of the special
meeting, if necessary or appropriate, to solicit additional
proxies if there are insufficient votes at the time of the
meeting to approve the merger agreement.
Q: HOW DOES OUR BOARD OF DIRECTORS RECOMMEND THAT I VOTE?
A: Our board of directors unanimously recommends that you vote:
o "FOR" the proposal to approve the merger agreement; and
o "FOR" the proposal to approve the adjournment or postponement of
the special meeting, if necessary or appropriate, to solicit
additional proxies if there are insufficient votes at the time of
the meeting to approve the merger agreement.
Q: WHAT VOTE OF OUR SHAREHOLDERS IS REQUIRED TO APPROVE THE PROPOSALS?
A: The vote requirements to approve the proposals are as follows:
o The proposal to approve the merger agreement requires the
affirmative vote of the holders of a majority of the shares of
our common stock outstanding on the record date for the special
meeting.
o The proposal to approve the adjournment or postponement of the
special meeting, if necessary or appropriate, to solicit
additional proxies requires the affirmative vote of a majority of
the votes cast at the special meeting.
Q: WHO IS ENTITLED TO VOTE AT THE SPECIAL MEETING?
A: Only shareholders of record as of the close of business on February 6,
2006, the record date for the special meeting, are entitled to receive
notice of and to vote at the special meeting. You will have one vote at the
special meeting for each share of our common stock you owned at the close
of business on the record date. On the record date, _______ shares of our
common stock, held by approximately _____ holders of record, were
outstanding and entitled to be voted at the special meeting.
Q: HOW MANY SHARES MUST BE PRESENT OR REPRESENTED AT THE SPECIAL MEETING IN
ORDER TO CONDUCT BUSINESS?
A: A quorum of shareholders is necessary to hold a valid special meeting. A
quorum is present at the special meeting if a majority of the outstanding
shares of our common stock entitled to vote on the record date are present
in person or represented by proxy. Withheld votes, abstentions and broker
non-votes are counted as present for the purpose of determining whether a
quorum is present.
Q: WHAT DO I NEED TO DO NOW? HOW DO I VOTE?
A: We urge you to read this proxy statement, including its annexes, carefully,
and to consider how the merger affects you. If you are a shareholder of
record, then you can ensure that your shares are voted at the special
meeting by submitting your proxy via:
o TELEPHONE, using the toll-free number listed on each proxy card
(if you are a registered shareholder, that is if you hold your
stock in your name) or vote instruction card (if your shares are
held in "street name," meaning that your shares are held in the
name of a bank, broker or other nominee and your bank, broker or
nominee makes telephone voting available);
o THE INTERNET, at the address provided on each proxy card (if you
are a registered stockholder) or vote instruction card (if your
shares are held in "street name" and your bank, broker or nominee
makes internet voting available); or
o MAIL, by completing, signing, dating and mailing each proxy card
or vote instruction card and returning it in the envelope
provided.
Please do NOT send in your share certificates at this time.
If your shares of our common stock are held in "street name" by your
broker, be sure to give your broker instructions on how you want to vote
your shares because your broker will not be able to vote on the merger
proposal without instructions from you. See the question below "If my
broker holds my shares in "street name," will my broker vote my shares for
me?"
Q: HOW ARE VOTES COUNTED?
A: For the proposal relating to the approval of the merger agreement, you may
vote "FOR," "AGAINST" or "ABSTAIN." Abstention will not count as votes cast
on the proposal relating to approval of the merger agreement, but will
count for the purpose of determining whether a quorum is present. As a
result, if you "ABSTAIN," it has the same effect as if you vote "AGAINST"
the approval of the merger agreement.
For the proposal to adjourn or postpone the meeting, if necessary or
appropriate, to solicit additional proxies, you may vote "FOR," "AGAINST"
or "ABSTAIN." Abstentions will not count as votes cast on the proposal to
adjourn or postpone the meeting, if necessary or appropriate, to solicit
additional proxies, but will count for the purpose of determining whether a
quorum is present. If you "ABSTAIN," it will have no effect on this
proposal.
If you sign and return your proxy and do not indicate how you want to vote,
your proxy will be voted "FOR" the proposal to approve the merger
agreement, "FOR" the proposal to approve the adjournment or postponement of
the special meeting, if necessary or appropriate to solicit additional
proxies, and in accordance with the recommendation of our board on any
other matters properly brought before the meeting for a vote.
Q: IF MY BROKER HOLDS MY SHARES IN "STREET NAME," WILL MY BROKER VOTE MY
SHARES FOR ME?
A: Yes, but only if you provide specific instructions to your broker on how to
vote. You should follow the directions provided by your broker regarding
how to instruct your broker to vote your shares. Without these
instructions, your shares will not be voted.
2
Q: MAY I VOTE IN PERSON?
A: Yes. You may attend the special meeting and vote your shares in person. If
your shares are held in "street name," you must get a proxy card from your
broker or bank in order to attend the special meeting and vote in person.
We urge you to sign, date and return the enclosed proxy card or to vote
over the internet or by telephone as soon as possible, even if you plan to
attend the special meeting, as it is important that your shares be
represented and voted at the special meeting. If you attend the special
meeting, you may vote in person as you wish, even though you have
previously returned your proxy card. See question below "May I change my
vote after I have mailed my signed proxy card?"
Q: WHEN SHOULD I SEND IN MY PROXY CARD?
A: You should send in your proxy card or vote over the internet or by
telephone as soon as possible so that your shares will be voted at the
special meeting.
Q: MAY I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?
A: Yes. You may change your vote at any time before the shares of our common
stock reflected on your proxy card are voted at the special meeting. If
your shares are registered in your name, you can do this in one of three
ways:
o first, you can deliver to our Corporate Secretary a written
notice stating that you would like to revoke your proxy; the
written notice should bear a date later than the proxy card;
o second, you can complete, execute and deliver to our Corporate
Secretary a new, later-dated proxy card for the same shares,
provided the new proxy card is received before the polls close at
the special meeting; or
o third, you can attend the meeting and vote in person. You
attendance alone will not revoke your proxy.
Any written notice of revocation should be delivered to our Corporate
Secretary at or before the taking of the vote at the special meeting.
If you have instructed your broker to vote your shares you must follow
directions received from your broker to change your vote. You cannot vote
shares held in "street name" by returning a proxy card directly to Hughes
Supply or by voting in person at the special meeting, unless you obtain a
proxy card from your bank or broker.
Q: SHOULD I SEND IN MY STOCK CERTIFICATE(S) NOW?
A: No. After the merger is completed, you will receive written instructions,
including a letter of transmittal, for exchanging your shares of our common
stock for the merger consideration of $46.50 per share in cash, without
interest.
Q: WHO WILL BEAR THE COST OF THE SOLICITATION?
A: The expense of soliciting proxies in the enclosed form will be borne by
Hughes Supply. We have retained D.F. King & Co., Inc., a proxy solicitation
firm, to solicit proxies in connection with the special meeting at a cost
of approximately $10,000 plus reimbursement of out-of-pocket fees and
expenses. In addition, we may reimburse brokers, banks and other
custodians, nominees and fiduciaries representing beneficial owners of
shares for their expenses in forwarding soliciting materials to such
beneficial owners. Proxies may also be solicited by certain of our
directors, officers and employees, personally or by telephone, facsimile or
other means of communication. No additional compensation will be paid for
such services.
3
Q: WHAT DOES IT MEAN IF I RECEIVE MORE THAN ONE PROXY CARD?
A: If you have shares of our common stock that are registered differently and
are in more than one account, you will receive more than one proxy card.
Please follow the directions for submitting a proxy on each of the proxy
cards you receive to ensure that all of your shares are voted.
Q: WHAT HAPPENS IF I SELL MY SHARES OF HUGHES SUPPLY COMMON STOCK BEFORE THE
SPECIAL MEETING?
A: The record date of the special meeting is earlier than the special meeting
and the date that the merger is expected to be completed. If you transfer
your shares of Hughes Supply common stock after the record date but before
the special meeting, you will retain your right to vote at the special
meeting, but will have transferred the right to receive $46.50 per share in
cash to be received by our shareholders in the merger.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We are working toward completing the merger as quickly as possible, but we
cannot predict the exact timing. We expect to complete the merger _______.
In addition to obtaining shareholder approval, we must satisfy all other
closing conditions, including the receipt of regulatory approvals. See
"Proposal 1 - The Merger Agreement - Conditions to the Merger."
Q: WHEN WILL I RECEIVE THE CASH CONSIDERATION FOR MY SHARES OF HUGHES SUPPLY
COMMON STOCK?
A: After the merger is completed, you will receive written instructions,
including a letter of transmittal, that explain how to exchange your shares
for the cash consideration paid in the merger. When you properly complete
and return the required documentation described in the written
instructions, you will promptly receive from the paying agent a payment of
the cash consideration for your shares.
Q: WHO CAN HELP ANSWER MY OTHER QUESTIONS?
A: If you have additional questions about the special meeting or the merger,
including the procedures for voting your shares, or if you would like
additional copies, without charge, of this proxy statement, you should
contact our proxy solicitation agent, D.F. King & Co., Inc., at
1-800-487-4870 (toll-free) or at 1-212-269-5550 (collect). If your broker
holds your shares, you may also call your broker for additional
information.
4
SUMMARY
This summary highlights selected information from this proxy
statement and may not contain all of the information that is important to you.
To understand the merger fully, and for a more complete description of the legal
terms of the merger, you should carefully read this entire proxy statement, the
annexes attached to this proxy statement and the documents to which we refer.
The Agreement and Plan of Merger, which we refer to as the merger agreement,
dated as of January 9, 2006, between The Home Depot, Inc. and Hughes Supply,
Inc. is attached as Annex A to this proxy statement. We encourage you to read
the merger agreement as it is the legal document that governs the merger. We
have included page references in parentheses to direct you to the appropriate
place in this proxy statement for a more complete description of the topics
presented in this summary.
Unless we otherwise indicate or unless the context requires
otherwise, all references in this proxy statement to "we," "us," "our," the
"Company" or "Hughes Supply" are to Hughes Supply, Inc. and its consolidated
subsidiaries, predecessors and acquired businesses and all references to "The
Home Depot" mean The Home Depot, Inc. and its subsidiaries, predecessors and
acquired businesses. All references to the "merger agreement" and any other
agreement include all amendments with respect to such document.
THE PARTIES TO THE MERGER AGREEMENT (PAGE 17)
o HUGHES SUPPLY, INC. Hughes Supply, Inc., a corporation organized under
the laws of the State of Florida, is one of the nation's largest
diversified wholesale distributors of construction, repair and
maintenance-related products, with over 500 locations in 40 states.
Headquartered in Orlando, Florida, we employ approximately 9,600
associates and generated revenues of $4.4 billion in our last fiscal
year ended January 31, 2005. Our common stock is traded on The New
York Stock Exchange under the symbol "HUG". Our principal executive
offices are located at 501 West Church Street, Orlando, Florida 32805
and our telephone number is 407-841-4755.
o THE HOME DEPOT, INC. The Home Depot, Inc. is the world's largest home
improvement specialty retailer and the second largest retailer in the
United Sates, with fiscal 2004 sales of $73.1 billion. The Home Depot
employs approximately 325,000 associates and has over 2,000 stores in
all 50 states, the District of Columbia, Puerto Rico, 10 Canadian
provinces and Mexico. The Home Depot's common stock is traded on The
New York Stock Exchange under the symbol "HD", and is included in the
Dow Jones industrial average and Standard & Poor's 500 index. The Home
Depot's principal executive offices are located at 2455 Paces Ferry
Road, N.W., Atlanta, Georgia 30339 and its telephone number is
770-433-8211.
THE MERGER (PAGE 18)
Upon the terms and subject to the conditions of the merger agreement,
a wholly-owned subsidiary of The Home Depot will be merged with and into Hughes
Supply, and each holder of shares of our common stock will be entitled to
receive $46.50 in cash, without interest and less applicable withholding taxes,
per share of our common stock held immediately prior to the merger upon
surrender of his or her stock certificate(s). As a result of the merger, we will
cease to be a publicly traded company and will become a wholly-owned subsidiary
of The Home Depot.
THE MERGER AGREEMENT (PAGE 45 AND ANNEX A)
o EFFECTIVE TIME OF THE MERGER (PAGE 45). The merger will become
effective upon the filing of the articles of merger with the Secretary
of State of the State of Florida, or at such later time as is agreed
upon by The Home Depot and us and specified in the articles of merger.
The closing of the merger will occur on a date specified by us and The
Home Depot, which shall be no later than the second business day after
the conditions to effect the merger set forth in the merger agreement
have been satisfied or waived.
o MERGER CONSIDERATION (PAGE 45). If the merger is completed, you will
receive $46.50 in cash, without interest and less any applicable
withholding taxes, in exchange for each share of our common stock that
you own.
5
After the merger is completed, you will have the right to receive the
merger consideration but you will no longer have any other rights as a
Hughes Supply shareholder. Our shareholders will receive the merger
consideration after exchanging their Hughes Supply stock certificates
in accordance with the instructions contained in the letter of
transmittal to be sent to our shareholders shortly after completion of
the merger. The price of $46.50 per share was determined through
arm's-length bidding and negotiations between The Home Depot and us.
o EFFECT ON STOCK OPTIONS AND RESTRICTED COMMON STOCK (PAGE 46). In
connection with the merger, all outstanding unvested options to
purchase shares of our common stock and outstanding unvested shares of
our restricted common stock will accelerate and become fully vested.
Each outstanding and unexercised option to purchase shares of our
common stock with an exercise price below $46.50 per share, including
the unvested options whose vesting is accelerated in full in
connection with the merger, will be cancelled and converted into the
right to receive an amount of cash equal to the difference between the
$46.50 per share in cash to be paid by The Home Depot in the merger
and the exercise price per share of the option, multiplied by the
number of shares subject to the option, without interest and less any
applicable withholding tax. Each outstanding and unexercised option to
purchase shares of our common stock with an exercise price equal to or
greater than $46.50 per share will be cancelled and no consideration
will be paid for such options. All shares of restricted common stock
will be converted into the right to receive $46.50 per share in cash,
without interest and less any applicable withholding tax.
o CONDITIONS TO THE MERGER (PAGE 47). We and The Home Depot will not
complete the merger unless a number of conditions are satisfied or
waived, as applicable. These conditions include:
o our shareholders must have approved the merger agreement;
o the waiting period applicable to the consummation of the merger
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, which we refer to as the HSR Act, must have expired
or been terminated;
o the absence of any law, injunction, judgment or ruling enacted,
promulgated, issued, entered or enforced by any governmental
authority making the merger illegal or otherwise preventing or
prohibiting the consummation of the merger;
o the absence of any action or proceeding by a governmental
authority that remains pending seeking to enjoin, restrain,
prevent or prohibit consummation of the merger;
o our representations and warranties set forth in the merger
agreement must be true and correct as of the closing date, except
(i) to the extent such representations and warranties are
specifically made as of a particular date, in which case such
representations and warranties must be true and correct as of
such date, and (ii) where the failure to be true and correct,
individually or in the aggregate, has not had and would not
reasonably be expected to have a material adverse effect on us,
with certain exceptions;
o the representations and warranties of The Home Depot set forth in
the merger agreement must be true and correct as of the closing
date, except (i) to the extent such representations and
warranties are specifically made as of a particular date, in
which case such representations and warranties must be true and
correct as of such date, and (ii) where the failure to be true
and correct, individually or in the aggregate, would not
reasonably be expected to impair in any material respect the
ability of The Home Depot to perform its obligations or to
consummate the transactions contemplated by the merger agreement;
and
o the performance in all material respects by each of us and The
Home Depot of our and its obligations under the merger agreement.
o TERMINATION OF THE MERGER AGREEMENT (PAGE 49). The merger agreement
may be terminated at any time prior to the effective time of the
merger:
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o by mutual written consent of us and The Home Depot;
o by either us or The Home Depot, if:
o the merger is not consummated on or before June 9, 2006, provided
that we may only so terminate the merger agreement if a vote on
the approval of the merger agreement shall have occurred and,
provided, further, that if approval pursuant to the HSR Act is
not obtained, (i) the earliest date that we may so terminate the
merger agreement is July 10, 2006 and (ii) The Home Depot may not
so terminate the agreement and, provided, further, that a party
may not terminate the merger agreement if the merger is not
timely consummated primarily due to such party's failure to
perform its obligations under the merger agreement;
o any law, injunction, judgment or ruling enacted, promulgated,
issued, entered or enforced by any governmental authority making
the merger illegal or otherwise preventing or prohibiting the
consummation of the merger becomes final and non-appealable; or
o our shareholders fail to approve the merger agreement;
o by us, if:
o The Home Depot breaches any of its representations, warranties,
covenants or agreements which breach would result in the failure
of closing conditions set forth in the merger agreement and which
cannot be cured prior to June 9, 2006 or, if curable, is not
cured within 45 days after The Home Depot receives notice of such
breach; or
o we concurrently enter into a definitive acquisition agreement for
a superior proposal and have paid a $124,800,000 termination fee
to The Home Depot, provided that we must have materially complied
with our obligations under the shareholders meeting and
non-solicitation covenants under the merger agreement and,
provided, further, that we may only so terminate the merger
agreement if at least seven business days have passed since
providing notice of our intention to enter into such agreement
for such superior proposal to The Home Depot;
o by The Home Depot, if:
o we breach any of our representations, warranties, covenants or
agreements set forth in the merger agreement which breach would
result in the failure of closing conditions set forth in the
merger agreement and which cannot be cured by us prior to June 9,
2006 or, if curable, is not cured within 45 days after we receive
notice of our breach;
o we notify The Home Depot in writing that we seek to (i) enter
into an agreement for a superior proposal or (ii) take any of the
actions described in the following paragraph, provided that The
Home Depot may only so terminate the merger agreement on or
before the seventh business day after receipt of such notice; or
o our board of directors or any committee of our board of directors
(i) withdraws or modifies, in a manner adverse to The Home Depot,
the approval or adoption of the merger agreement or the
recommendation of our board of directors that our shareholders
approve the merger agreement, (ii) approves or adopts, or
recommends to our shareholders, a takeover proposal of Hughes
Supply by any party other than The Home Depot, (iii) in the event
that a takeover proposal is publicly announced or if any person
commences a tender or exchange offer of our shares, fails to
issue a press release reaffirming its recommendation that our
shareholders approve the merger agreement and, in the case of a
tender or exchange offer, fail to recommend against acceptance of
such tender or exchange offer or (iv) publicly proposes to take
any of the foregoing actions.
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o EXPENSES AND TERMINATION FEE (PAGE 50):
o EXPENSES. With limited exceptions, the parties to the merger
agreement will bear their respective costs and expenses incurred
in connection with the merger agreement, whether or not the
merger is consummated.
o TERMINATION FEE. The merger agreement obligates us to pay The
Home Depot a termination fee of $124,800,000 if:
o we terminate the merger agreement because we have
concurrently entered into a definitive acquisition agreement
providing for a superior proposal;
o The Home Depot terminates the merger agreement because:
o we have willfully breached the non-solicitation
covenant contained in the merger agreement;
o we have notified The Home Depot in writing that we seek
to (i) enter into an agreement with a third-party who
has offered us a superior proposal or (ii) take any of
the actions described in the following paragraph;
o our board of directors or any committee of our board of
directors (i) withdraws or modifies, in a manner
adverse to The Home Depot, the approval or adoption of
the merger agreement or the recommendation of our board
of directors that our shareholders approve the merger
agreement, (ii) approves or adopts, or recommends to
our shareholders, a takeover proposal of Hughes Supply
by any party other than The Home Depot, (iii) in the
event that a takeover proposal is publicly announced or
if any person commences a tender or exchange offer of
our shares, fails to issue a press release reaffirming
its recommendation that our shareholders approve the
merger agreement and, in the case of a tender or
exchange offer, fail to recommend against acceptance of
such tender or exchange offer or (iv) publicly proposes
to take any of the foregoing actions;
o we breach any of our representations, warranties,
covenants or agreements set forth in the merger
agreement (except for the non-solicitation covenant)
which cannot be cured by us prior to June 9, 2006 or,
if curable, is not cured within 45 days after we
receive notice of our breach, provided that (i) our
breach or failure is willful, (ii) a takeover proposal
from any party other than The Home Depot shall have
been made known to us or directly to our shareholders
or if any party other than The Home Depot publicly
announced an intention to make a takeover proposal for
Hughes Supply prior to such termination and (iii) we
subsequently enter into or complete an alternative
transaction with respect to a takeover proposal within
12 months after such termination of the merger
agreement; or
o the merger agreement is terminated by us or The Home Depot
because the merger has not been consummated by June 9, 2006,
or, as applicable, July 10, 2006, or our shareholders fail
to approve the merger agreement and (i) a takeover proposal
from any party other than The Home Depot shall have been
made known to us or directly to our shareholders or any
party other than The Home Depot publicly announced an
intention to make a takeover proposal for Hughes Supply
prior to such termination and (ii) we subsequently enter
into or complete an alternative transaction with respect to
a takeover proposal within 12 months after such termination
of the merger agreement.
o REPRESENTATIONS AND WARRANTIES (PAGE 51). The merger agreement
contains representations and warranties that we and The Home
Depot made to, and solely for the benefit of, each other. The
representations and warranties contained in the merger agreement
expire at the effective time of the merger.
o COVENANTS UNDER THE MERGER AGREEMENT (PAGE 52). The merger
agreement contains certain covenants that we and The Home Depot
made to, and solely for the benefit of, each other.
8
o NO SOLICITATION (PAGE 56). The merger agreement contains
non-solicitation provisions which prohibit us from soliciting or
engaging in discussions or negotiations regarding a competing
proposal to the merger. There are exceptions to these
prohibitions if we receive a superior proposal for a competing
transaction from a third party under certain circumstances set
forth in the merger agreement.
APPRAISAL RIGHTS (PAGE 59)
Pursuant to Section 607.1302(2)(a) of the Florida Business
Corporation Act, shareholders of Hughes Supply do not have appraisal rights
because as of February 6, 2006, the record date established for determining
shareholder eligibility to vote in the special meeting, Hughes Supply was a
listed corporation on The New York Stock Exchange, and our shareholders, upon
consummation of the merger, will receive only cash consideration.
SPECIAL COMMITTEE OF OUR BOARD OF DIRECTORS
Our board of directors formed a special committee of independent
directors in July 2005. This committee supervised our evaluation of our
strategic alternatives to maximize shareholder value and our negotiation of the
terms of the merger, and unanimously recommended to our board of directors that
it adopt the merger agreement. For a description of our evaluation of our
strategic alternatives and the process leading to the proposed merger with The
Home Depot, see "The Merger - Background of the Merger."
RECOMMENDATION OF OUR BOARD OF DIRECTORS (PAGE 28)
After due discussion and due consideration, our board of directors,
based in part on the unanimous recommendation of the special committee of our
board of directors, has unanimously determined that the merger agreement and the
merger are fair to, advisable and in the best interests of, Hughes Supply and
our shareholders. Accordingly, our board of directors unanimously recommends
that you vote "FOR" the approval of the merger agreement.
REASON FOR RECOMMENDATION BY OUR BOARD OF DIRECTORS (PAGE 25)
In making its recommendation that you vote "FOR" the approval of the
merger agreement, our board considered a number of factors, including the cash
consideration to be received by our shareholders in the merger and the current
and historical market prices of our common stock, the financial analyses and
written opinion of the special committee's financial advisor, Lehman Brothers
Inc., our board of directors' assessment of a number of strategic, financial and
operational considerations, the terms of the merger agreement, including our
ability to furnish information to, and conduct negotiations with, a third party
should we receive a superior proposal, and the recommendation of the special
committee.
OPINION OF OUR FINANCIAL ADVISOR (PAGE 28 AND ANNEX B)
On January 9, 2006, Lehman Brothers Inc. delivered an oral opinion to
the special committee of our board of directors, followed by a written opinion
dated January 9, 2006, the date of the merger agreement, to the effect that, as
of the date of that opinion and based upon and subject to the matters stated in
the opinion, the merger consideration to be received by holders of our common
stock in the merger was fair, from a financial point of view, to such holders.
The full text of the written opinion of Lehman Brothers Inc., dated January 9,
2006, setting forth the assumptions made, matters considered and limitations on
the review undertaken in connection with the opinion, is attached as Annex B to,
and is incorporated by reference in, this proxy statement. You should read the
opinion of Lehman Brothers Inc. carefully and in its entirety. The opinion of
Lehman Brothers Inc. is addressed to the special committee of our board of
directors in connection with its evaluation of the merger consideration and it
does not address any other aspect of the proposed merger and does not constitute
a recommendation to any shareholder with respect to any matter relating to the
merger (including how any shareholder should vote with respect to the approval
of the merger agreement).
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REGULATORY MATTERS (PAGE 43)
The HSR Act prohibits us from completing the merger until we have
furnished certain information and materials to the Antitrust Division of the
United States Department of Justice and the Federal Trade Commission and the
applicable waiting period has expired or been terminated. Both Hughes Supply and
The Home Depot filed the required pre-merger notification and report forms with
the U.S. antitrust authorities on January 13, 2006. The completion of the merger
also is subject to compliance with applicable laws of the State of Florida.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER (PAGE 42)
The exchange of shares of our common stock for cash in the merger
will be a taxable transaction to our shareholders for U.S. federal income tax
purposes. As a result, each shareholder will recognize gain or loss equal to the
difference, if any, between the amount of cash received and such shareholder's
adjusted tax basis in the shares surrendered. Such gain or loss will be capital
gain or loss if the shares of common stock surrendered are held as a capital
asset in the hands of the shareholder, and will be long-term capital gain or
loss if the shares of common stock have been held for more than one year at the
time of such surrender. Shareholders are urged to consult their own tax advisors
as to the particular tax consequences to them of the merger.
INTERESTS OF OUR DIRECTORS AND EXECUTIVE OFFICERS IN THE MERGER (PAGE 36)
Our directors and executive officers may have interests in the merger
that are different from, or in addition to, yours, including the following:
o our directors and executive officers will have their vested and
unvested stock options and restricted stock canceled and cashed
out in connection with the merger, meaning that they will receive
cash payments for each share of common stock subject to such
option equal to the excess, if any, of $46.50 per share over the
exercise price per share of their options, without interest and
less applicable withholding taxes, and they will receive $46.50
per share for their restricted stock, without interest and less
applicable withholding taxes;
o seventeen of our current senior executive officers have a
severance agreement that provides certain severance payments and
benefits in the case of his or her termination of employment for
good reason or without cause within 24 months following the
public announcement of the merger, and, in addition, the
severance agreements provide that in the event any benefit
received by the senior executive officer gives rise to an excise
tax under Section 4999 of the Internal Revenue Code for the
senior executive officer, the senior executive officer is also
entitled to a "gross-up" payment in an amount that would place
the senior executive officer in the same after-tax position that
he or she would have been in if no excise tax had applied (except
for certain circumstances in which the agreements specify that
the benefits payable to the senior executive will be reduced to
eliminate the applicability of such excise taxes);
o each of our senior executive officers participates in a
supplemental executive retirement program, or SERP, that provides
for a lump sum payment of his or her SERP retirement benefit upon
his or her termination of employment for good reason or without
cause within 24 months following completion of the merger;
o we also maintain for our executive officers a non-qualified
deferred compensation plan under which participants deferred
compensation prior to 2005, which will remain in effect after
completion of the merger, for our directors a 1990 directors'
non-qualified deferred compensation plan under which participants
deferred compensation prior to 2005 and under which participants
will receive in connection with the merger, in accordance with
their prior elections, either a lump sum payment of their account
balances or a five-year installment payout of such amounts, and a
2005 non-qualified deferred compensation plan, under which
participants will, unless they have previously elected otherwise,
receive a lump sum payment of the full value of their account
within 30 days following completion of the merger;
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o the merger agreement provides that The Home Depot will for a
period of 12 months (in the case of employees other than our
senior executive officers) or 24 months (in the case of our
senior executive officers) provide the same level of salary and
bonus opportunity in effect prior to the merger and benefits that
are substantially similar or no less favorable in the aggregate
than the benefits provided by us prior to the merger, without
inhibiting The Home Depot's ability to terminate our employees at
any time; and
o the merger agreement provides for indemnification arrangements
for each of our current and former directors and officers that
will continue for six years following the effective time of the
merger as well as insurance coverage covering his or her service
to the Company as a director or officer.
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CAUTION REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement, and the documents to which we refer you in this
proxy statement, contain forward-looking statements about our plans, objectives,
expectations and intentions. Forward-looking statements include information
concerning possible or assumed future results of operations of our company, the
expected completion and timing of the merger and other information relating to
the merger. Generally these forward-looking statements can be identified by the
use of forward-looking terminology such as "anticipate," "believe," "estimate,"
"expect," "may," "will," "should," "plan," "intend," "project" or phrases such
as "will be well-positioned to," "will benefit," "will gain" and similar
expressions. You should read statements that contain these words carefully. They
discuss our future expectations or state other forward-looking information, and
may involve known and unknown risks over which we have no control. Those risks
include, without limitation:
o the satisfaction of the conditions to consummate the merger,
including the approval of the merger agreement by our
shareholders;
o receipt of necessary approvals under applicable antitrust laws;
o the occurrence of any event, change or other circumstance that
could give rise to the termination of the merger agreement;
o the outcome of any legal proceeding that may be instituted
against us and others following the announcement of the merger
agreement;
o the amount of the costs, fees, expenses and charges related to
the merger;
o the effect of the announcement of the merger on our customer and
vendor relationships, operating results and business generally,
including the ability to retain key employees;
o risks related to diverting management's attention from ongoing
business operations; and
o other risks detailed in our current filings with the SEC,
including our most recent filings on Form 10-K and Form 10-Q. See
"WHERE YOU CAN FIND MORE INFORMATION" on page 67 of this proxy
statement.
We caution you that reliance on any forward-looking statement involves
risks and uncertainties, and that although we believe that the assumptions
on which our forward-looking statements are based are reasonable, our
expectations may not prove to be correct. In light of these and other
uncertainties, you should not conclude that we will necessarily achieve any
plans and objective or projected financial results referred to in any of
the forward-looking statements. Forward-looking statements speak only as of
the date of this proxy statement or the date of any document incorporated
by reference in this document. All subsequent written and oral
forward-looking statements concerning the merger or other matters addressed
in this proxy statement and attributable to us or any person acting on our
behalf are expressly qualified in their entirety by the cautionary
statements contained or referred to in this section. Except as required by
applicable law or regulation, we do not undertake to release the results of
any revisions of these forward-looking statements to reflect future events
or circumstances.
12
THE SPECIAL MEETING OF SHAREHOLDERS
This proxy statement is furnished in connection with the solicitation
of proxies in connection with a special meeting of our shareholders.
DATE, TIME AND PLACE
We will hold the special meeting at our principal executive offices
located at 501 West Church Street, Orlando, Florida, 32805 on _______ __, 2006,
at 10:00 a.m., local time.
PURPOSE OF THE SPECIAL MEETING
At the special meeting, we will ask you to (1) approve the merger
agreement, (2) approve the adjournment or postponement of the special meeting,
if necessary or appropriate, to solicit additional proxies if there are
insufficient votes at the time of the meeting to approve the merger agreement,
and (3) transact any other business that is properly brought before the special
meeting.
RECOMMENDATION OF OUR BOARD OF DIRECTORS
Our board of directors, by unanimous vote, (1) approved and adopted
the merger agreement and approved the merger and the transactions contemplated
by the merger agreement and (2) determined that the merger is advisable and fair
to and in the best interests of our shareholders. Accordingly, our board of
directors unanimously recommends that you vote "FOR" approval of the merger
agreement and "FOR" the proposal to adjourn or postpone the special meeting, if
necessary or appropriate, to solicit additional proxies if there are
insufficient votes at the time of the meeting to approve the merger agreement.
RECORD DATE; STOCK ENTITLED TO VOTE; QUORUM
Only holders of record of our common stock at the close of business
on February 6, 2006, the record date, are entitled to notice of and to vote at
the special meeting. On the record date, ______ shares of our common stock were
issued and outstanding and held by approximately ______ holders of record. Each
holder of record of common stock will be entitled to one vote per share at the
special meeting on the proposal to approve the merger agreement and the other
matters to be voted on at the meeting.
The holders of a majority of the outstanding shares of common stock
entitled to vote must be present, either in person or by proxy, to constitute a
quorum at the special meeting. We will count abstentions, either in person or by
proxy, and broker non-votes (shares held by a broker or other nominee that does
not have the authority to vote on a matter) for the purpose of establishing a
quorum. If a quorum is not present at the special meeting, the holders of a
majority of the common stock represented at the special meeting may adjourn the
meeting to solicit additional proxies. In the event that a quorum is not present
at the special meeting, it is expected that the meeting will be adjourned or
postponed to solicit additional proxies.
VOTE REQUIRED
The approval of the merger agreement requires the affirmative vote of
the shares representing a majority of the outstanding shares entitled to vote on
the merger agreement at the special meeting. If you abstain from voting, either
in person or by proxy, or do not instruct your broker or other nominee how to
vote your shares, it will effectively count as a vote against the approval of
the merger agreement. The affirmative vote of a majority of the votes cast is
required for approval of the adjournment or postponement of the special meeting,
if necessary, to solicit additional proxies if there are insufficient votes at
the time of the meeting to approve the merger agreement.
VOTING OF PROXIES
To vote your shares, you should follow the instructions as indicated
on your proxy card if you vote over the internet or by telephone, or you should
mark, sign, date and return the enclosed proxy in the enclosed postage-paid
13
envelope. The laws of Florida, where we are incorporated, allow a proxy to be
sent electronically, so long as it sets forth or is submitted with information
from which it can be determined that the electronic transmission was authorized
by the shareholder, the other person entitled to vote on behalf of the
shareholder or the attorney-in-fact for the shareholder. Voting your proxy does
not limit your right to vote in person should you decide to attend the special
meeting. If your shares are held in the name of a bank, broker or other nominee,
you will be provided voting instructions from the nominee and, in order to vote
at the special meeting, you must obtain a legal proxy, executed in your name,
from the nominee.
If you vote by mail and the returned proxy card is completed, signed
and dated, your shares will be voted at the special meeting in accordance with
your instructions. If you vote by mail and your proxy card is returned unsigned,
then your vote cannot be counted. If you vote by mail and the returned proxy
card is signed and dated, but you do not fill out the voting instructions on the
proxy card, the shares represented by your proxy will be voted "FOR" the
approval of the merger agreement, and the adjournment or postponement of the
special meeting, if necessary or appropriate, to solicit additional proxies if
there are insufficient votes at the time of the meeting to approve the merger
agreement.
Shareholders who hold their shares of our common stock in "street
name," meaning in the name of a bank, broker or other nominee who is the record
holder, should follow the directions provided by your bank, broker or other
nominee regarding how to instruct your broker to vote your shares.
We do not expect that any matter other than the ones discussed in
this proxy statement will be brought before the special meeting. If, however,
any other matters are properly presented, the persons named as proxies will vote
in accordance with their judgment as to matters that they believe to be in the
best interests of our shareholders.
DO NOT SEND YOUR STOCK CERTIFICATES WITH YOUR PROXY. A LETTER OF
TRANSMITTAL WITH INSTRUCTIONS FOR THE SURRENDER OF YOUR COMMON STOCK
CERTIFICATES WILL BE MAILED TO OUR SHAREHOLDERS AS SOON AS PRACTICABLE AFTER
COMPLETION OF THE MERGER.
REVOCABILITY OF PROXIES
If you hold your shares in your name, you have the unconditional
right to revoke your proxy at any time prior to its exercise by employing any of
the following methods:
o delivering a written notice of revocation to the secretary of
Hughes Supply at our principal executive offices located at One
Hughes Way, Orlando, Florida 32805;
o signing and delivering a later-dated proxy at a date after the
date of the previously submitted proxy; or
o voting in person at the special meeting.
The revocation of your proxy by written notice or your later-dated
proxy will be effective only if the secretary of Hughes Supply receives the
written notice or later-dated proxy prior to the day of the special meeting or
if the judge of elections receives the written notice or later-dated proxy at
the special meeting. Your attendance at the special meeting without further
action will not automatically revoke your proxy.
If you have instructed a bank, broker or other nominee to vote your
shares, you must follow the directions received from such nominee to revoke a
previously submitted proxy.
VOTING 401(K) PLAN SHARES
Shareholders who are current or former employees of Hughes Supply
participating in the Hughes Supply Cash or Deferred Profit Sharing Plan and
Trust, and have shares of our common stock credited to their plan account as of
the record date, have the right to direct the plan trustee regarding how to vote
those shares. The trustee for the plan will vote the shares in each
participant's account in accordance with the participant's instructions. If a
participant does not send instructions in one of the manners discussed in the
section captioned "Voting of Proxies", or if the participant's proxy card is not
14
received by Hughes Supply in a timely manner, the shares credited to the
participant's account will not be voted by the trustee and will therefore count
as a vote against approval of the merger agreement.
SOLICITATION OF PROXIES
Hughes Supply is soliciting your proxy. In addition to the
solicitation of proxies by use of the mail, officers and other employees of
Hughes Supply may solicit the return of proxies by personal interview,
telephone, e-mail or facsimile. We will not pay additional compensation to our
officers and employees for their solicitation efforts, but we will reimburse
them for any out-of-pocket expenses they incur in their solicitation efforts. We
will request that brokerage houses and other custodians, nominees and
fiduciaries forward solicitation materials to the beneficial owners of stock
registered in their names. We will bear all costs of preparing, assembling,
printing and mailing the Notice of Special Meeting of Shareholders, this proxy
statement, the enclosed proxy and any additional materials, as well as the cost
of forwarding solicitation materials to the beneficial owners of stock and all
other costs of solicitation.
We have retained D.F. King & Co., Inc. to aid in the solicitation of
proxies for the special meeting. D.F. King & Co., Inc. will receive a base fee
of $10,000 plus reimbursement of out-of-pocket fees and expenses.
ASSISTANCE
Shareholders who have questions regarding the materials, need
assistance voting their shares or require additional copies of the proxy
statement or proxy card, should contact or call:
D.F. King & Co., Inc.
48 Wall Street
New York, NY 10005
1-800-487-4870 (toll-free)
or
1-212-269-5550 (call collect)
SHARE CERTIFICATES
Please do not send any certificates representing shares of our common
stock with your proxy card. The procedure for the exchange of certificates
representing shares of our common stock will be as described in this proxy
statement. For a description of procedures for exchanging certifications
representing shares of our common stock, see "The Merger Agreement - Conversion
of Shares; Procedures for Exchange of Certificates."
OTHER BUSINESS
We are not currently aware of any business to be acted upon at the
special meeting other than the matters discussed in this proxy statement. Under
the Florida Business Corporation Act, business transacted at the special meeting
is limited to matters specifically designated in the notice of special meeting,
which is provided at the beginning of this proxy statement. If other matters do
properly come before the special meeting, we intend that shares of our common
stock represented by properly submitted proxies will be voted by and at the
discretion of the persons named as proxies on the proxy card.
In addition, the grant of a proxy will confer discretionary authority
on the persons named as proxies on the proxy card to vote in accordance with
their best judgment on procedural matters incident to the conduct of the special
meeting. Any adjournment or postponement may be made without notice by an
announcement made at the special meeting. If the persons named as proxies on the
proxy card are asked to vote for one or more adjournments or postponements of
the meeting for matters incidental to the conduct of the meeting, such persons
will have the authority to vote in their discretion on such matters. However, if
the persons named as proxies on the proxy card are asked to vote for one or more
adjournments or postponements of the meeting to permit further solicitation of
proxies if there are not sufficient votes at the time of the meting to approve
the merger agreement, they will only have the authority to vote on such matter
as instructed by you or your proxy or, if no instructions are provided, in favor
15
of such adjournment or postponement. Any adjournment or postponement of the
special meeting for the purpose of soliciting additional proxies will allow our
shareholders who have already granted their proxies to revoke them at any time
prior to their use.
16
THE PARTIES TO THE MERGER AGREEMENT
HUGHES SUPPLY, INC.
Hughes Supply, Inc., a corporation organized under the laws of the
State of Florida, is one of the nation's largest diversified wholesale
distributors of construction, repair and maintenance-related products, with over
500 locations in 40 states. Headquartered in Orlando, Florida, we employ
approximately 9,600 associates and generated revenues of $4.4 billion in our
last fiscal year ended January 31, 2005. Our common stock is traded on The New
York Stock Exchange under the symbol "HUG". Our principal executive offices are
located at 501 West Church Street, Orlando, Florida 32805 and our telephone
number is 407-841-4755.
THE HOME DEPOT, INC.
The Home Depot, Inc. is the world's largest home improvement
specialty retailer and the second largest retailer in the United Sates, with
fiscal 2004 sales of $73.1 billion. The Home Depot employs approximately 325,000
associates and has over 2,000 stores in all 50 states, the District of Columbia,
Puerto Rico, 10 Canadian provinces and Mexico. The Home Depot's common stock is
traded on The New York Stock Exchange under the symbol "HD", and is included in
the Dow Jones industrial average and Standard & Poor's 500 index. The Home
Depot's principal executive offices are located at 2455 Paces Ferry Road, N.W.,
Atlanta, Georgia 30339 and its telephone number is 770-433-8211.
17
THE MERGER
BACKGROUND OF THE MERGER
As part of its long-range planning, the Company's board of directors
has periodically reviewed and assessed various strategic alternatives available
to Hughes Supply, including strategic business plans and possible acquisitions,
dispositions and mergers. In formulating the Company's strategic plans during
fiscal 2006, the board and management considered the competitive challenges
posed by consolidation in the wholesale distribution industry and the entry of
new and larger competitors. In order to address these challenges, the Company
developed a new business plan to further its core strategy of organic growth,
strategic acquisitions and best in class operations. The Company sought, among
other things, to accelerate improvement in human resource development, off-shore
sourcing of products, results from under-performing businesses and the
efficiency of its overall distribution structure.
On July 18, 2005, the Company's Chief Executive Officer and
President, Thomas I. Morgan, received an email from a senior representative of
an internationally recognized financial sponsor expressing a strong interest in
a potential acquisition of the Company. The communication outlined a process by
which the financial sponsor sought to obtain additional information in order to
make a formal acquisition proposal.
On July 20, 2005 the Company revised its second quarter and full year
earnings guidance downward, primarily as a result of weaker performance in the
Plumbing/HVAC and Maintenance, Repair and Operations (MRO) businesses.
On July 25, 2005, the Company's board of directors met and was
informed of the financial sponsor's expression of interest. The board determined
that an evaluation of strategic alternatives may become appropriate in light of
the expression of interest received and the increasing challenges faced by the
Company as an independent company. The July 20th earnings guidance was
discussed, as well as recently announced acquisitions in the industry that
continued the upward pricing trends the Company had observed during the past
year. The Company's general counsel and representatives of Holland & Knight LLP,
the Company's outside counsel, reviewed with the board its fiduciary duties in
connection with an evaluation of strategic alternatives and the circumstances
under which the appointment of a special committee of independent directors
would be advisable. It was discussed that certain strategic alternatives could
potentially involve a continued interest on the part of the Company's senior
management team. Accordingly, the board determined that a committee of
independent and disinterested directors who have no financial interest in a
strategic transaction different from that of the shareholders of the Company
generally should be formed. The board created a special committee of the board
of directors, comprised of Robert N. Blackford, William P. Kennedy, Patrick J.
Knipe, Amos R. McMullian and John Baker, as chairman, each of whom is an
independent director under the applicable rules of The New York Stock Exchange.
The special committee was given the authority to evaluate and negotiate any
strategic transaction and, if appropriate, to recommend the terms of the
strategic transaction to the entire board.
On August 3, 2005, the special committee met to discuss the interest
expressed by the financial sponsor in an acquisition of the Company. At this
meeting, the special committee retained Lehman Brothers as its financial advisor
and Weil, Gotshal & Manges LLP as its legal advisor. Representatives of Weil,
Gotshal & Manges reviewed with the special committee its fiduciary duties in
connection with a review of strategic alternatives. Following discussion, the
special committee decided against making a formal response to the financial
sponsor until after an August 17th board meeting at which the board had
requested an update from management on its current assessment of the Company's
business plan. The special committee instructed Lehman Brothers to advise the
financial sponsor of its timing considerations.
At the meeting of the board of directors on August 17, 2005, members
of the Company's management made a presentation concerning the Company's
strategic plan, business, results of operations and prospects. Management
outlined major initiatives to be completed as part of the Company's plan in the
next three to four years to further the Company's strategy of organic growth,
strategic acquisitions and best in class operations. These initiatives included
implementing and training personnel to utilize new information technology,
upgrading field management, extensively restructuring the Company's field branch
network to eliminate losses or low profitability in numerous branches,
significantly improving purchasing and merchandising effectiveness and reducing
18
the Company's portfolio of businesses to a fewer number of sharply focused,
higher growth and return businesses. The Company's management and the board of
directors discussed the challenges and opportunities that the Company may face
in the future given consolidation trends in the industry and the risks inherent
in implementing the Company's strategic plan. These risks included increasing
competition for strategic acquisitions, which had already driven pricing beyond
historical valuation multiples, and accelerating industry consolidation, both of
which potentially put the Company at a competitive disadvantage. Additional
risks were presented by the expenditures required to attain needed operating
improvements, which could impair the ability to meet quarterly investor
expectations. In addition, while the Company's existing human resources were
stretched to manage seven separate businesses, divesting two or three businesses
as may be desired would have an adverse earnings per share impact. The Company
also faced the need to attract new management talent to achieve its goal of best
in class operations. Members of the Company's management further outlined
various alternatives available to the Company, including continuing to pursue
the Company's strategic plan, engaging in more extensive acquisition and
disposition activity and selling the entire Company. During the meeting, it was
noted that the compensation committee would review the Company's executive
severance arrangements, including its recently expired severance agreements, in
light of the potential evaluation of strategic alternatives.
Immediately following the board meeting, the special committee met
with its legal and financial advisors. At the request of the special committee,
Lehman Brothers made a presentation regarding the possible strategic
alternatives available to the Company in order to maximize shareholder value,
including executing management's current plan for the business and engaging in a
sale of the Company to a financial or strategic buyer. It was noted that while
pursuit of the strategic plan could create significant shareholder value over
the long term, its implementation would entail execution risks as previously
described to the board and the projected value of management's plan may not be
fully realized. The expression of interest from the financial sponsor was
discussed. It was also noted that a senior executive of The Home Depot had
contacted the Company to express an interest in arranging a meeting in Orlando
between Mr. Morgan and Robert L. Nardelli, the Chief Executive Officer of The
Home Depot, although the purpose of such a meeting was not specified. The
special committee discussed the importance of keeping any strategic review
process confidential.
At a meeting on August 23, 2005, the special committee again
discussed the expression of interest from the financial sponsor. The special
committee authorized Lehman Brothers to contact the financial sponsor to learn
more details about its interest in the Company. Lehman Brothers subsequently
asked the financial sponsor to give a written indication of its proposed
valuation based solely on publicly available information.
On September 7, 2005, the Company received a preliminary written
indication of interest from the financial sponsor in which it affirmed its
strong interest in acquiring all of the outstanding common stock of the Company.
In its letter, the financial sponsor outlined a proposed due diligence process
and indicated a preliminary valuation of $39.00-$41.00 per share, representing a
premium of 18.5% to 24.6% over the NYSE per share closing price on September 6,
2005.
On September 12, 2005, the special committee met to discuss the
letter received from the financial sponsor. Representatives of Lehman Brothers
observed that the financial sponsor's valuation of the Company represented a
reasonable multiple of the Company's earnings based on a comparative company
analysis and that the per share price range also reflected an attractive premium
to then current trading levels. Members of the special committee expressed
concern that the valuation range proposed by the financial sponsor may not be
adequate in light of the long-term prospects of the Company. Lehman Brothers
proposed a process by which other potentially interested parties would be
contacted in order to ensure the highest value could be obtained by the Company.
It was discussed that the special committee would be able to terminate the sale
process at any time if the offers received were not satisfactory in light of the
value which the committee believed could be achieved by staying the course and
pursuing the Company's strategic plan. The special committee was also informed
that a meeting had been arranged with The Home Depot for September 22nd. The
special committee did not authorize a sale process to be commenced at this time
but authorized Lehman Brothers to advance discussions with the financial sponsor
to get a more informed view on the potential valuation of the Company prior to
making such a decision.
On September 22, 2005, the financial sponsor executed a
confidentiality and standstill agreement with the Company.
19
Also on September 22, 2005, Mr. Nardelli, Mr. Morgan and an
additional senior executive from each organization met. Mr. Nardelli, on behalf
of The Home Depot, expressed an interest in acquiring the Company. The members
of the special committee were notified of this development and Lehman Brothers
was directed to seek a written indication of interest from The Home Depot.
On September 30, 2005, the Company made a management presentation to
the financial sponsor, with representatives of Lehman Brothers in attendance.
The presentation included financial information relating to each of the
Company's product lines and broad overviews of its corporate function and
general legal structure and status.
Beginning on October 7, 2005, certain media outlets reported that a
sale of the Company was imminent. In light of the press activity, the Company
retained a public relations advisor to manage communications surrounding the
strategic alternatives process. Over the weekend, members of the special
committee conferred with its legal and public relations advisors about the
potential necessity to make a public announcement that the Company was
considering its strategic alternatives.
On October 11, 2005, as requested by Lehman Brothers, the financial
sponsor submitted a revised written indication of interest containing a price
range of $39.00-$42.00 per share. The revised indication of interest was subject
to further due diligence and the negotiation of definitive transaction
documents.
On October 12, 2005, the board of directors met to review the process
that Lehman Brothers had conducted to date with respect to strategic
alternatives, including receiving an update on the interest of the financial
sponsor and The Home Depot, as well as the recent media activity.
Representatives of Lehman Brothers provided an update of the discussions with
both parties and reported that The Home Depot was expected to make a formal
offer on or about October 14, 2005.
On October 14, 2005, the Company received a preliminary written
indication of interest from The Home Depot containing a price range of
$37.50-$40.00 per share in cash, a premium of 18.4% to 26.3% over the NYSE
closing price on October 13, 2005. The Home Depot's indication of interest was
not contingent on the arrangement of financing. The Home Depot also requested
that the Company enter into exclusive negotiations with The Home Depot. The
Company did not agree to comply with The Home Depot's request for exclusivity.
On October 17, 2005, Lehman Brothers provided representatives of The
Home Depot with a draft confidentiality and standstill agreement.
At a meeting held on October 19, 2005, the compensation committee
approved the Company entering into new change in control severance agreements
with up to 18 executives, as well as certain amendments to the Company's
Supplemental Executive Retirement Plan. See "The Merger - Interests of Our
Executive Officers and Directors in the Merger" for information regarding these
agreements.
At a board of directors meeting held on October 20, 2005, Lehman
Brothers reviewed the indications of interest received and discussed the sale
process with the members of the board. Lehman Brothers discussed the alternative
of performing a market check in which the Company would publicly announce that
it is considering its strategic alternatives. It was discussed that such an
announcement would facilitate the making of outbound calls to potentially
interested parties who were not yet subject to a confidentiality agreement.
Following the board meeting, the special committee met in executive session with
its legal and financial advisors to further discuss and review the indications
of interest provided by the financial sponsor and The Home Depot, as well as the
advisability of a publicly announced market check process.
On October 26, 2005, representatives of Cleary Gottlieb Steen &
Hamilton LLP, legal advisor to The Home Depot, commented on the terms of the
draft confidentiality and standstill agreement previously provided to The Home
Depot. The terms of the agreement were negotiated in detail during the following
two days.
On October 27, 2005, the special committee met with its legal and
financial advisors to discuss the sale process, review other parties who may be
interested in engaging in a transaction with the Company and determine if a
strategic alternatives announcement was advisable. Members of the Company's
management reported to the special committee that vendors, customers and
20
employees were increasingly inquiring whether the Company was engaged in a sale
process. At the conclusion of the meeting, the special committee determined that
a public announcement that the Company is exploring its strategic alternatives
should be made early in the following week. The timing of the announcement would
be left to Mr. Morgan, in consultation with Mr. Baker, based on the intensity of
market rumors and the need to communicate clearly with employees. The special
committee determined that after the public announcement was made,
representatives of Lehman Brothers should contact the potentially interested
strategic and financial parties as previously reviewed with the special
committee.
On October 28, 2005, The Home Depot executed a confidentiality and
standstill agreement with the Company.
On October 30, 2005, the Company made a second management
presentation to the financial sponsor, with representatives of Lehman Brothers
in attendance.
After the close of the U.S. financial markets on October 31, 2005,
following repeated media and employee inquiries, the Company publicly announced
its decision to explore strategic alternatives to maximize shareholder value. It
also announced that a special committee of independent directors of the board of
directors had been formed to oversee the process, with Lehman Brothers and Weil,
Gotshal & Manges acting as the special committee's advisors. The Company also
announced that revenue and earnings for the third quarter of fiscal 2006 were
expected to exceed the Company's previously issued guidance due to strong demand
across most of its businesses.
At the direction of the special committee, Lehman Brothers began to
conduct a market check on November 1, 2005. Outbound and inbound calls were made
and received. In total, Lehman Brothers had contact with 8 potentially
interested strategic parties and twelve potentially interested financial
sponsors. All parties were requested to submit indicative proposals on or prior
to November 11th based on publicly available information.
On November 3, 2005, the Company made a management presentation to
representatives of The Home Depot, with representatives of Lehman Brothers in
attendance.
Two additional parties, both financial sponsors, submitted indicative
proposals in writing on November 10th and 11th, respectively. One party gave a
preliminary price indication of $40.00 to $44.00 per share in cash while the
other indicated a price of approximately $41.50 per share in cash. Both parties
entered into confidentiality and standstill agreements with the Company. Lehman
Brothers also had discussions with other parties regarding their interest in
participating in the proposal process, either as a bidder or as an equity
sponsor for existing bidders, but these parties ultimately did not participate
in the formal process.
On November 16, 2005, the special committee met with its legal and
financial advisors to discuss the results of the market check, to review the
indicative proposals received from the financial sponsor, The Home Depot and the
two additional financial sponsors who submitted written proposals, to discuss
the diligence process timeline and to discuss the overall sale process.
On November 25, 2005, and December 1, 2005, respectively, the two
additional financial sponsors who submitted written proposals following the
strategic alternatives announcement withdrew from the sale process.
During November and December 2005, the financial sponsor and The Home
Depot engaged in a full business, financial and legal due diligence
investigation of the Company. Each party was provided with access to an
electronic data room, participated in meetings with members of the senior
management of the Company and received formal management presentations on
business segments and operational functions of the Company. The financial
sponsor requested that four other firms participate as co-investors in
connection with the potential acquisition of the Company. The Company
subsequently entered into confidentiality agreements with the co-investors of
the financial sponsor during November and December.
On December 8, 2005, Lehman Brothers sent bid instruction letters on
the special committee's behalf to the financial sponsor and The Home Depot,
formally soliciting the submission of final bids by January 6, 2006.
21
The special committee met with its legal and financial advisors on
December 15, 2005 to receive an update on the strategic review process and to
discuss the continuing interest shown by the financial sponsor and The Home
Depot. The special committee reviewed the principal provisions of a draft merger
agreement to be sent to interested parties and submitted with final bids, copies
of which were provided to the members of the special committee prior to the
meeting. Representatives of Weil, Gotshal & Manges asked the members of the
special committee to once again consider and discuss their relationship with the
Company and also with the financial sponsor and The Home Depot to ensure that
the members were independent from such entities in light of the sale process.
Representatives of Weil, Gotshal & Manges answered questions of the members of
the special committee regarding their independence.
On December 16, 2005, Weil, Gotshal & Manges circulated an initial
draft of the merger agreement to the financial sponsor and to The Home Depot.
The parties were requested to submit a mark-up of the draft merger agreement by
December 30, 2005.
On December 30, 2005, the Company received mark-ups of the draft
merger agreement from The Home Depot and the financial sponsor. The financial
sponsor also provided drafts of its proposed equity financing and debt financing
commitment letters supporting its offer. On January 4, 2006, the Company sent a
new draft merger agreement to The Home Depot and the financial sponsor
reflecting comments which had been accepted by the Company, and requested that
the final bids be submitted on the basis of the new draft merger agreement.
On January 6, 2006, The Home Depot submitted to the Company a written
proposal to acquire the Company for $44.00 per share in cash. The Home Depot's
proposal was not subject to any financing condition and indicated a desire to
consummate the transaction in an expeditious manner.
On January 6, 2006, the financial sponsor also submitted a written
proposal to the Company. The letter expressed the financial sponsor's continued
interest in the Company and requested a 10 day extension to complete its
internal evaluation process and due diligence investigation of the Company. The
financial sponsor also expressed a willingness to continue to discuss the draft
merger agreement and their financing commitment letters. Representatives of
Weil, Gotshal & Manges discussed the merger agreement with legal advisors of the
financial sponsor on January 6th.
On January 7th and 8th, the Company, together with its legal and
financial advisors, continued discussions with representatives of The Home Depot
concerning the outstanding issues under the merger agreement, including among
other things the proposed breakup fee, The Home Depot's desire for a "force the
vote" provision that would require the Company to hold a shareholder meeting
even if the board no longer supported a transaction with The Home Depot, and the
commitment by The Home Depot to bear the risk of obtaining necessary antitrust
regulatory approvals for the transaction.
On January 7th, updated six year financial projections were delivered
to The Home Depot and the financial sponsor. The Company as a matter of course
does not make public detailed forecasts or long-range internal projections as to
future performance, revenue, earnings or financial condition. However, during
the Company's exploration of strategic alternatives, the Company provided
bidders with a six year forecast prepared by management and presented to the
board of directors as a means of facilitating potential purchasers' due
diligence investigations. The forecasts were not prepared with a view to public
disclosure and are included in this proxy statement only because such
projections were made available to bidders. In addition, Lehman Brothers
utilized the updated management plan projections in performing its financial
analysis in connection with the rendering of its fairness opinion. See "The
Merger - Opinion of Our Financial Advisor." The updated management plan
projections forecasted EBITDA of $308.9 million, $343.5 million, $411.4 million,
$521.5 million, $617.6 million, and $709 million in fiscal years 2006 through
2011, respectively. The updated projections included a forecasted fiscal 2006
EBITDA which was $27.9 million higher than the fiscal 2006 EBITDA previously
forecasted and presented to the board at its August 17th meeting, due primarily
to improved third and fourth quarter performance. The projections for fiscal
years 2007 through 2011 give effect to the funding of various strategic
initiatives. The projections were based on a number of assumptions that may not
be realized and are subject to significant uncertainties and contingencies, some
of which are beyond the control of the Company. Most significantly, the
projections assumed acquisitions that would contribute approximately $1.2
billion of additional net sales by fiscal 2011, stable economic growth rates, a
compound annual sales growth rate of 9.3%, a compounded annual EBITDA growth
22
rate of 18.1% and associated margin improvements relating to off-shore sourcing
and branch closures. Accordingly, there can be no assurance that the assumptions
made in preparing the projections will prove accurate, and actual results may be
materially different than those contained in the projections. The projections
were not prepared with a view to compliance with the published guidelines of the
Securities and Exchange Commission or the guidelines established by the American
Institute of Certified Public Accountants regarding projections or forecasts.
The Company's independent registered public accounting firm has not examined,
compiled or performed any procedures with respect to the projections. In the
view of the Company's management, the projections were prepared on a reasonable
basis, reflecting the best currently available estimates and judgments, and
presented, to the best knowledge and belief of the Company's management, the
expected course of action and the expected future financial performance of
Hughes Supply assuming that the Company's strategic plan is fully implemented in
the timeframe proposed by management. HOWEVER, THIS INFORMATION IS NOT FACT AND
SHOULD NOT BE RELIED UPON AS BEING NECESSARILY INDICATIVE OF FUTURE RESULTS, AND
YOU ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THIS INFORMATION. The Company
does not intend to update or otherwise revise the prospective financial
information to reflect circumstances existing since its preparation or to
reflect the occurrence of unanticipated events, even in the event that any or
all of the underlying assumptions are shown to be in error. Furthermore, the
Company does not intend to update or revise the prospective financial
information to reflect changes in general economic or industry conditions. The
Company has made no representations to The Home Depot or any other party
relating to the projections.
On January 8, 2006, Messrs. Nardelli and Baker met in Jacksonville,
Florida to discuss the proposal made by The Home Depot. The two discussed The
Home Depot's commitment to community and employees, as well as the financial
aspects of the transaction. Mr. Baker encouraged Mr. Nardelli to put his best
bid forward prior to Monday's board meeting as a final decision would be made at
that time.
During the morning of January 9, 2006, Mr. Baker received a call from
Mr. Nardelli increasing the offer by The Home Depot to $46.50 per share, a
premium of 22.0% over the NYSE closing price on January 6th and 39.0% over the
NYSE closing price on October 31, 2005, the last full trading day prior to the
Company's strategic alternatives announcement.
Also during the morning of January 9, 2006, representatives of Lehman
Brothers engaged in further discussions with representatives of the financial
sponsor to better understand the extension request and to get a preliminary
indication of the financial sponsor's valuation of the Company. The financial
sponsor's representatives indicated that they were still working to be able to
submit a final bid within the valuation range previously proposed.
Later in the morning of January 9, 2006, a joint meeting of the
Company's board of directors and the special committee of the board of directors
was convened to consider whether to approve the transaction proposed by The Home
Depot. During the board meeting, a letter was presented confirming the $46.50
per share offer from The Home Depot. Representatives of The Home Depot confirmed
that the offer was not subject to any further corporate approvals.
Representatives of Weil, Gotshal & Manges, Holland & Knight and the Company's
general counsel again discussed with the Company's board of directors and the
special committee the legal duties of directors in connection with an
extraordinary transaction such as the proposed merger.
Representatives of Weil, Gotshal & Manges reviewed for the board of
directors and the special committee in detail the terms of the merger agreement
(copies of which had been provided to the members of the board prior to the
meeting) and other legal aspects of the proposal by The Home Depot. Weil,
Gotshal & Manges and Lehman Brothers responded to questions from the board of
directors.
Representatives of Lehman Brothers then summarized for the board of
directors the full sale process, indicating that Lehman Brothers had contacted,
or had otherwise received unsolicited inquiries from, approximately 20 parties.
Representatives of Lehman Brothers then reviewed and analyzed, among other
matters, the financial aspects of The Home Depot proposal, utilizing, among
other methodologies, a comparable company analysis, a premium paid analysis, a
leveraged buyout analysis, a discounted cash flow analysis based on different
management provided scenarios and an analysis of comparable transactions between
2002 and 2005. Representatives of Lehman Brothers responded to questions from
the Company's board of directors and further discussed The Home Depot's implied
valuation of the Company based on its offer price. It was noted by certain board
members that management's updated six year projections, if realized, would
create shareholder value in excess of $46.50 per share based on Lehman's
23
discounted cash flow analysis. Mr. Morgan reviewed with the board the risk
factors that he considered to be significant in terms of the Company's ability
to fully realize its projections. In particular, Mr. Morgan conveyed his view
that implementation of the Company's acquisition strategy would likely be
hindered by the valuation multiples currently being paid in the industry, that
the Company's ability to achieve organic growth was dependent on the execution
of cost savings strategies such as off-shore sourcing of products and that any
failure to meet quarterly investor expectations during the implementation of
these strategies would adversely impact the Company's share value. It was also
noted that the offer by The Home Depot reflected substantial current value and
in fact represented a higher multiple of EBITDA, based on the Company's updated
projected EBITDA for the fiscal year ending January 31, 2006, than had been paid
in any other transaction in our industry of which Lehman Brothers was aware.
The special committee of the board of directors then met in executive
session with its legal and financial advisors. After further discussions, the
special committee requested that Lehman Brothers render an opinion as to whether
the proposed merger with The Home Depot was fair from a financial point of view
to the Company's shareholders. Lehman Brothers delivered to the special
committee an oral opinion, which was subsequently confirmed by delivery of a
written opinion dated January 9, 2006, that, as of such date and based upon and
subject to the factors and assumptions set forth in the written opinion, from a
financial point of view, the consideration to be received by the holders of the
Company's common stock in the proposed merger was fair to such shareholders.
During the course of Lehman Brothers' presentation and rendering of its opinion,
representatives of Lehman Brothers responded to questions from members of the
special committee confirming or clarifying their understanding of the analyses
performed by Lehman Brothers and the opinion rendered by Lehman Brothers, as
described in more detail under "The Merger--Opinion of Our Financial Advisor"
beginning on page 28. The full text of the written opinion of Lehman Brothers,
which sets forth the assumptions made, procedures followed, matters considered
and limitations on the review undertaken in connection with such opinion, is
attached as Annex B to this proxy statement.
The special committee then met solely with representatives of Weil,
Gotshal & Manges. Representatives of Weil, Gotshal & Manges reviewed its
previous advice concerning the legal standard applicable to the special
committee's decisions and actions with respect to its evaluation of
alternatives, including the fiduciary duties of the members of the special
committee, and confirmed the independence of the members of the special
committee. The special committee itself also reaffirmed its conclusion that each
of its members was independent. The special committee then discussed and
reviewed certain significant provisions in the merger agreement. The special
committee also discussed the fees to be paid to Lehman Brothers in connection
with the proposed transaction. Following additional discussion and deliberation,
the special committee unanimously recommended the approval and adoption of the
merger agreement by the Company's board of directors.
Immediately following the executive session of the special committee,
the full board of directors reconvened to continue its meeting. Mr. Baker, on
behalf of the special committee, reported that the special committee was
recommending that the board of directors approve and adopt the merger agreement.
Following additional discussion and deliberation, and based upon the
recommendation of the special committee, the board of directors unanimously
approved and adopted the merger agreement and the transactions contemplated by
the merger agreement, determined that the merger is advisable, fair to and in
the best interests of the shareholders of the company and unanimously resolved
to recommend that the Company's shareholders vote to approve the merger
agreement.
During the evening of January 9, 2006, Lehman Brothers received an
email from a representative of the financial sponsor indicating that the
representative believed that the price per share to be offered by the financial
sponsor upon completion of its internal evaluation process would be
$39.00-$40.00 per share. The financial sponsor was informed later that evening
that the Company had accepted an offer from The Home Depot.
During the evening of January 9, 2006, Hughes Supply and The Home
Depot executed the merger agreement. Prior to the opening of the U.S. financial
markets on January 10, 2006, Hughes Supply and The Home Depot announced the
execution of the merger agreement pursuant to a press release.
24
REASONS FOR THE MERGER
In reaching its determinations, approvals and recommendations
referred to in the section captioned "The Merger - Recommendation of Our Board
of Directors", our board of directors consulted with senior management, the
special committee of the board of directors, and legal and financial counsel.
The following describes material reasons, factors and information taken into
account by the special committee in deciding to recommend to our board of
directors that it approve the merger agreement and the transactions contemplated
thereby, and by our board of directors in deciding to approve and adopt the
merger agreement and the transactions contemplated thereby and to recommend that
our shareholders approve the merger agreement.
EXTENSIVE PROCESS. The extensive and thorough strategic review
process that Lehman Brothers and we conducted under the direction of the special
committee, which included the following:
o we issued a press release in October 2005 announcing (i) that our
board of directors authorized us to consider the strategic
alternatives available to us to maximize shareholder value, (ii)
our engagement of Lehman Brothers and Weil, Gotshal & Manges to
assist in evaluating strategic alternatives, and (iii) the
formation of the special committee of the board of directors to
oversee the process;
o Lehman Brothers and we contacted approximately 13 companies from
a wide range of industries, including participants in the
wholesale distribution sector and private equity firms, that
Lehman Brothers and we considered to be the most likely potential
acquirers of our company;
o in addition to the companies Lehman Brothers and we contacted, 7
other parties contacted us and we and Lehman Brothers responded
to such unsolicited inquiries;
o of all of these parties, 4 executed confidentiality and
standstill agreements with us for the purpose of exploring a
possible strategic transaction with us and each of these parties
provided preliminary written indications of interest specifying a
price range per share at which each party indicated a willingness
to engage in a transaction;
o of these four parties, two elected to pursue further discussions
and provided written reaffirmed and revised indications of
interest in acquiring Hughes Supply, and we (i) provided to each
of them access to our management and an electronic data room for
conducting additional due diligence and (ii) distributed bid
instructions to each of them; and
o The Home Depot's per share offer was materially higher than any
price range previously indicated by other interested parties and
our special committee unanimously determined that The Home
Depot's bid was advisable, fair to and in the best interests of
our shareholders.
In addition, the special committee and our board of directors believe
that sufficient procedural safeguards were and are present to ensure the
fairness of the merger and to permit the special committee and our board of
directors to represent effectively the interests of our shareholders. These
procedural safeguards include the following:
o the fact that our board of directors established a special
committee, the members of which are each independent directors
under the rules of The New York Stock Exchange and are not
employees of Hughes Supply;
o the fact that Lehman Brothers and Weil, Gotshal & Manges were
retained by the special committee as its financial and legal
advisors to advise the special committee with respect to the
merger;
o the fact that the special committee provided instructions to its
legal and financial advisors regarding the negotiation of the
terms of the merger agreement, including the amount of the merger
consideration;
o the fact that our board of directors and special committee have
retained the right to change their recommendation of the merger;
and
25
o the fact that we are permitted under certain circumstances to
respond to inquiries regarding acquisition proposals and to
terminate the merger agreement in order to complete a superior
proposal upon payment of a $124,800,000 termination fee.
MERGER CONSIDERATION PREMIUM. The $46.50 per share merger
consideration represents a significant premium to the current and historical
closing trading price of our common stock. The $46.50 per share merger
consideration represents a premium of approximately 39.0% to the closing price
of our common stock on October 31, 2005, the last full trading day before our
strategic alternatives announcement, approximately 20.6% to the closing price of
our common stock on January 9, 2006, the last trading day before the public
announcement of the execution of the merger agreement, and approximately 24.3%
to the average daily closing price of our common stock over the 30 trading day
period ended January 9, 2006. The merger price proposed by The Home Depot
represented the highest price that we were offered for the acquisition of Hughes
Supply and the board, based on its own experience and discussions with its
financial advisors, believes that it is unlikely that a third party would
propose to acquire Hughes Supply at a price higher than $46.50 per share.
TERMS OF THE MERGER AGREEMENT. Our board of directors' and the
special committee's consideration of the financial and other terms and
conditions of the merger agreement, by themselves and in comparison to the terms
of agreements in other similar transactions, including:
o The structure of the merger as an all cash transaction which will
allow our shareholders to immediately realize fair value and
liquidity for their investment and which will provide them with
certainty of value for their shares;
o the right of our board of directors under certain circumstances,
in connection with the discharge of its fiduciary duties to our
shareholders, to consider unsolicited acquisition proposals and
to furnish information to and conduct negotiations with third
parties that make an unsolicited takeover proposal prior to
obtaining shareholder approval;
o the ability of our board of directors to change its
recommendation with respect to the merger and to terminate the
merger agreement upon the payment of a termination fee of
$124,800,000 to The Home Depot should we receive an unsolicited
proposal that our board of directors determines to be a superior
offer and concurrently enter into a definitive acquisition
agreement for a superior proposal;
o the board of directors' understanding, after consultation with
financial and legal counsel, that our obligation to pay the
$124,800,000 termination fee (and the circumstances when such fee
is payable) is reasonable and customary in light of the benefits
of the merger, commercial practice and transactions of this size
and nature;
o The Home Depot's obligation to complete the merger is not subject
to any financing contingencies;
o the risks associated with obtaining regulatory approval for the
merger under the HSR Act would be borne by The Home Depot; and
o the likelihood of satisfying the other conditions to The Home
Depot's obligations to complete the merger, including the
likelihood of obtaining the necessary regulatory and shareholder
approvals and the likelihood that the merger would be completed.
OPINION OF OUR FINANCIAL ADVISOR. The financial analyses reviewed by
Lehman Brothers Inc. at the meeting of the special committee on January 9, 2006
and the meeting of our board of directors on January 9, 2006, including its
opinion as to the fairness, from a financial point of view, to holders of our
common stock of the consideration to be received by such shareholders in the
merger. See "Opinion of Our Financial Advisor" on page 28.
CHALLENGES FACED BY US AS AN INDEPENDENT COMPANY. The board of
directors' view that the merger was more favorable to shareholders than any
other alternative reasonably available to Hughes Supply and its shareholders,
including continuing to operate the business as a stand-alone, independent
company (including an evaluation by the board of directors of the updated six
26
year projections prepared by management) in light of the risks involved in
implementing the Company's business plan. The board of directors believes that a
sale to The Home Depot is more favorable to our shareholders than remaining
independent based on the potential value of such alternative and the assessment
of our board of directors of the risks associated with remaining independent,
after taking into account the presentation to the board of directors by
management. See "The Merger - Background of the Merger." In assessing the
potential value of remaining independent, the board considered and discussed,
among other things, the financial condition, results of operations, management,
competitive position, business and prospects of Hughes Supply and current
economic, industry and market conditions.
The special committee and our board of directors were aware that the
range of values for the management plan without recession and management plan
with recession generated by the discounted cash flow analysis performed by
Lehman Brothers was above the cash merger price of $46.50 per share. For the
purposes of its analysis, Lehman Brothers also performed sensitivity analyses on
the financial projections furnished by Hughes Supply management to reflect more
conservative assumptions, whereby projected sales growth rate and margin
improvement assumptions were reduced by 50% throughout the projection period.
The special committee and our board of directors were also aware that the high
end of the range of values under Lehman Brothers' sensitivity analysis without
recession, and the sensitivity analysis with recession, was above the cash
merger price of $46.50 per share. For a more detailed description of Lehman
Brothers' discounted cash flow analysis and calculations, please see the section
captioned "The Merger - Opinion of Our Financial Advisor" beginning on page 28.
The special committee and our board of directors, however, did not believe that
such discounted cash flow values, which were based on certain assumed terminal
value multiples and discount rates, were a countervailing factor, particularly
because the other valuation metrics provided by Lehman Brothers indicated a
valuation of Hughes Supply below $46.50 per share and because the low to mid
range values generated under the Lehman Brothers' sensitivity analyses valued
Hughes Supply significantly below $46.50 per share. The special committee and
the board of directors also considered the fact that the offer by The Home Depot
reflected substantial current value, represented a higher multiple of EBITDA,
based on Hughes Supply's projected EBITDA for the fiscal year ending January 31,
2006, than had been paid in any other transaction in our industry's history of
which Lehman Brothers was aware, and the fact that the cash merger price of
$46.50 per share exceeded the all-time highest trading price of our common
stock.
Our board of directors also identified and considered a variety of
risks and other potentially negative factors relating to the merger in its
deliberations, including the following:
FAILURE TO CLOSE. The risks and costs to us if the merger does not
close, including the diversion of management and employee attention, employee
attrition and the effect on customer and vendor relationships.
BECOMING A WHOLLY-OWNED SUBSIDIARY. The fact that we will no longer
exist as an independent, publicly traded company and our shareholders will no
longer participate in any of our future earnings or growth and will not benefit
from any appreciation in value of our company.
TAXATION. The fact that gains realized from an all-cash transaction
would generally be taxable to our shareholders for U.S. federal income tax
purposes.
DISRUPTIONS. The impact of the announcement and pendency of the
merger, including the impact of the merger on our employees, customers, and our
relationships with other third parties and the risk of diverting management
focus and resources from other strategic opportunities and from operational
matters while working to negotiate and close the merger with The Home Depot,
which could impair our prospects as an independent company if the merger is not
consummated
OPERATING RESTRICTIONS. The fact that, pursuant to the merger
agreement, we must generally conduct our business in the ordinary course and we
are subject to a variety of other restrictions on the conduct of our business
prior to closing of the merger or termination of the merger agreement, which may
delay or prevent us from pursuing business opportunities that may arise or
preclude actions that would be advisable if we were to remain an independent
company.
REGULATORY. The possibility of significant costs, delays and
non-consummation of the merger resulting from seeking the regulatory approvals
necessary for the consummation of the merger.
27
NO SOLICITATION; TERMINATION FEE. The fact that under the terms of
the merger agreement, we cannot solicit other acquisition proposals and must pay
to The Home Depot a termination fee of $124,800,000 if the merger agreement is
terminated under certain circumstances, which, in addition to being costly,
might have the effect of discouraging other parties from proposing an
alternative transaction that might be more advantageous to our shareholders than
the merger.
OFFICERS AND DIRECTORS. The interests of our executive officers and
directors in merger which may be different or in addition to the interests of
our shareholders generally. See "Interests of Hughes Supply's Directors and
Executive Officers in the Merger".
The foregoing discussion summarizes the material factors considered
by the board of directors in its consideration of the merger. After considering
these factors, the board of directors concluded that the positive factors
relating to the merger agreement and the merger outweighed the negative factors.
In view of the wide variety of factors considered by the board of directors, the
board did not find it practicable to quantify or otherwise assign relative
weights to the foregoing factors. In addition, individual directors may have
assigned different weights to various factors. The board of directors approved
and recommends the merger agreement and the merger based upon the totality of
the information presented to and considered by it.
RECOMMENDATION OF OUR BOARD OF DIRECTORS
On January 9, 2006, after evaluating a variety of business, financial
and market factors and consulting with our legal and financial advisors, and
after due discussion and due consideration, our board of directors unanimously
determined that the merger with The Home Depot is advisable, fair to and in the
best interests of our shareholders and approved, adopted and declared advisable
the merger agreement and the transactions contemplated thereby, including the
merger. ACCORDINGLY, OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE
SHAREHOLDERS OF HUGHES SUPPLY VOTE "FOR" THE APPROVAL OF THE MERGER AGREEMENT.
OPINION OF OUR FINANCIAL ADVISOR
In August 2005, the special committee of the board of directors of
Hughes Supply engaged Lehman Brothers to act as its financial advisor with
respect to exploring its strategic alternatives. On January 9, 2006, Lehman
Brothers rendered its oral opinion (subsequently confirmed in writing) to the
special committee of the board of directors of Hughes Supply that as of such
date and, based upon and subject to certain matters stated therein, from a
financial point of view, the consideration to be offered to the shareholders of
Hughes Supply in the merger was fair to such shareholders.
THE FULL TEXT OF LEHMAN BROTHERS' WRITTEN OPINION, DATED JANUARY 9,
2006, IS ATTACHED AS ANNEX B TO THIS PROXY STATEMENT. SHAREHOLDERS ARE
ENCOURAGED TO READ LEHMAN BROTHERS' OPINION CAREFULLY AND IN ITS ENTIRETY FOR A
DESCRIPTION OF THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED, FACTORS CONSIDERED AND
LIMITATIONS UPON THE REVIEW UNDERTAKEN BY LEHMAN BROTHERS IN RENDERING ITS
OPINION. THE FOLLOWING IS A SUMMARY OF LEHMAN BROTHERS' OPINION AND THE
METHODOLOGY THAT LEHMAN BROTHERS USED TO RENDER ITS FAIRNESS OPINION. THIS
SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE
OPINION.
Lehman Brothers' advisory services and opinion were provided for the
information and assistance of the special committee of the board of directors of
Hughes Supply in connection with its consideration of the merger. Lehman
Brothers' opinion is not intended to be and does not constitute a recommendation
to any shareholder of Hughes Supply as to how such shareholder should vote in
connection with the merger. Lehman Brothers was not requested to opine as to,
and Lehman Brothers' opinion does not address, Hughes Supply's underlying
business decision to proceed with or effect the merger.
In arriving at its opinion, Lehman Brothers reviewed and analyzed:
(1) the merger agreement and the specific terms of the merger;
(2) publicly available information concerning Hughes Supply that
Lehman Brothers believed to be relevant to its analysis,
including Hughes Supply's Annual Report on Form 10-K for the
fiscal year ended January 31, 2005;
28
(3) financial and operating information with respect to the
business, operations and prospects of Hughes Supply
furnished to Lehman Brothers by Hughes Supply, including
financial projections of Hughes Supply prepared by Hughes
Supply's management;
(4) published estimates of independent research analysts with
respect to the future price targets of Hughes Supply common
stock;
(5) a trading history of Hughes Supply common stock from January
5, 1996 to January 6, 2006;
(6) a comparison of the historical financial results and present
financial condition of Hughes Supply with those of other
companies that Lehman Brothers deemed relevant;
(7) a comparison of the financial terms of the merger with the
financial terms of certain other transactions that Lehman
Brothers deemed relevant; and
(8) the results of Lehman Brothers' efforts to solicit
indications of interest and definitive proposals from third
parties with respect to a sale of Hughes Supply.
In addition, Lehman Brothers had discussions with the management of
Hughes Supply concerning Hughes Supply's business, operations, assets, financial
condition and prospects and undertook such other studies, analyses and
investigations as Lehman Brothers deemed appropriate.
In arriving at its opinion, Lehman Brothers assumed and relied upon
the accuracy and completeness of the financial and other information used by
Lehman Brothers without assuming any responsibility for independent verification
of such information and further relied upon the assurances of Hughes Supply's
management that it was not aware of any facts or circumstances that would make
such information inaccurate or misleading. With respect to the financial
projections of Hughes Supply, upon advice of Hughes Supply, Lehman Brothers
assumed that such projections were reasonably prepared on a basis reflecting the
best currently available estimates and judgments of the management of Hughes
Supply as to the future financial performance of Hughes Supply and Lehman
Brothers relied upon such projections in performing its analysis. However, for
the purpose of its analysis, Lehman Brothers performed a sensitivity analysis on
the financial projections of Hughes Supply to reflect a more conservative
assumption regarding the growth rate of Hughes Supply's business and margin
improvement which were discussed with the management of Hughes Supply and were
relied upon in rendering its opinion. In arriving at its opinion, Lehman
Brothers did not conduct a physical inspection of the properties and facilities
of Hughes Supply and did not make or obtain any evaluations or appraisals of the
assets or liabilities of Hughes Supply. Lehman Brothers further assumed, upon
advice of Hughes Supply, that all material governmental, regulatory or other
consents or approvals necessary for the consummation of the merger will be
obtained as contemplated by the merger agreement. Lehman Brothers' opinion
necessarily was based upon market, economic and other conditions as they existed
on, and could be evaluated as of January 9, 2006.
In connection with rendering its opinion, Lehman Brothers performed
certain financial, comparative and other analyses as described below. In
arriving at its opinion, Lehman Brothers did not ascribe a specific range of
values to Hughes Supply, but rather made its determination as to the fairness,
from a financial point of view, to the shareholders of Hughes Supply of the
consideration to be offered to such shareholders in the merger on the basis of
financial and comparative analyses. The preparation of a fairness opinion
involves various determinations as to the most appropriate and relevant methods
of financial and comparative analysis and the application of those methods to
the particular circumstances, and therefore, such an opinion is not readily
susceptible to summary description. Furthermore, in arriving at its opinion,
Lehman Brothers did not attribute any particular weight to any analysis or
factor considered by it, but rather made qualitative judgments as to the
significance and relevance of each analysis and factor. Accordingly, Lehman
Brothers believes that its analyses must be considered as a whole and that
29
considering any portion of such analyses and factors, without considering all
analyses and factors as a whole, could create a misleading or incomplete view of
the process underlying its opinion. In its analyses, Lehman Brothers made
numerous assumptions with respect to industry performance, general business and
economic conditions and other matters, many of which are beyond the control of
Hughes Supply. None of Hughes Supply, Lehman Brothers or any other person
assumes responsibility if future results are materially different from those
discussed. Any estimates contained in these analyses were not necessarily
indicative of actual values or predictive of future results or values, which may
be significantly more or less favorable than as set forth therein.
The following is a summary of the material financial analyses used by
Lehman Brothers in connection with providing its opinion to the special
committee of the board of directors of Hughes Supply.
COMPARABLE COMPANY ANALYSIS
Lehman Brothers reviewed and compared specific financial and
operating data relating to Hughes Supply with selected companies that Lehman
Brothers deemed comparable to Hughes Supply. Lehman Brothers chose the companies
used in the comparable company analysis based on their general similarity to
Hughes Supply in the mix and characteristics of their businesses, growth and
returns. For Hughes Supply, Lehman Brothers included in its review of comparable
companies the following companies:
- Anixter International, Inc.
- Applied Industrial Technologies, Inc.
- Builders FirstSource, Inc.
- Building Materials Holding Corporation
- Interline Brands, Inc.
- Watsco, Inc.
- WESCO International, Inc.
- Wolseley plc
- W. W. Grainger, Inc.
Lehman Brothers selected the comparable companies above because their
businesses and operating profiles are reasonably similar to those of Hughes
Supply. However, because of the inherent differences between the business,
operations and prospects of Hughes Supply and the businesses, operations and
prospects of the comparable companies, Lehman Brothers believed that it was
inappropriate to, and therefore did not, rely solely on the quantitative results
of the comparable company analysis. Accordingly, Lehman Brothers also made
qualitative judgments concerning differences between the financial and operating
characteristics and prospects of Hughes Supply and the companies included in the
comparable company analysis that would affect the public trading values of each
in order to provide a context in which to consider the results of the
quantitative analysis. These qualitative judgments related primarily to the
differing sizes, growth prospects, profitability levels and degree of
operational risk between Hughes Supply and the companies included in the
comparable company analysis.
For each comparable company, Lehman Brothers calculated multiples of
enterprise value over earnings before interest, taxes, depreciation, and
amortization, referred to as EBITDA, and multiples of current stock price over
earnings per fully diluted share, referred to as EPS, based upon estimates of
EBITDA and EPS for each of the calendar years ended December 31, 2005 and 2006.
Lehman Brothers then applied the range of multiples derived from this analysis
to Hughes Supply's projected EBITDA and EPS for the fiscal year ended January
31, 2007 to calculate Hughes Supply's implied enterprise value. Lehman Brothers
calculated Hughes Supply's implied equity value by subtracting the net debt
30
(which is total debt minus cash) from the implied enterprise value and divided
the implied equity value by the projected diluted shares outstanding to obtain
Hughes Supply's implied equity value per share. All of these calculations were
performed and based on the updated management projections for Hughes Supply that
were provided to The Home Depot on January 7, 2006, and utilized closing prices,
as of January 6, 2006. These implied stand-alone public market trading values
did not include any value an acquirer may derive from consolidated ownership
such as synergies, cost savings, and enhanced revenue opportunities.
Based on a selected range of multiples of enterprise value to CY 2006
EBITDA for the comparable companies of 7.5x to 9.5x, Lehman Brothers calculated
a range of implied enterprise values for Hughes Supply of $2,576 million to
$3,263 million and an implied equity value of $2,289 million to $2,976 million.
This analysis resulted in an implied equity value per share for Hughes Supply of
$33.62 to $43.49 per share.
Based on a selected range of multiples of current stock price to CY
2006 EPS for the comparable companies of 13.0x to 16.0x, Lehman Brothers
calculated a range of implied enterprise values for Hughes Supply of $2,604
million to $3,150 million and an implied equity value of $2,317 million to
$2,863 million. This analysis resulted in an implied equity value per share for
Hughes Supply of $34.01 to $41.86.
Lehman Brothers noted that the merger consideration of $46.50 per
share was above the range of the implied share prices of $33.62 and $43.49 that
resulted from this analysis.
COMPARABLE TRANSACTION ANALYSIS
Lehman Brothers reviewed and compared the purchase prices and
financial multiples paid in twelve acquisitions of companies that Lehman
Brothers, based on its experience, deemed relevant to arriving at its opinion.
Lehman Brothers chose the transactions used in the Comparable Transaction
Analysis based on the similarity of the target companies in the transactions to
Hughes Supply in the size, mix, margins and other relevant characteristics of
their businesses. Lehman Brothers reviewed the following transactions:
o Acquisition of Carlton-Bates Company by WESCO International, Inc.
o Acquisition of National Waterworks, Inc. by The Home Depot, Inc.
o Acquisition of Copperfield Chimney Supply, Inc. by Interline
Brands, Inc.
o Acquisition of Noland Company by WinWholesale, Inc.
o Acquisition of Edgen Corporation by Jefferies Capital Partners
o Acquisition of Rexel S.A. by Clayton, Dubilier & Rice, Inc.
o Acquisition of Western States Electric, Inc. by Hughes Supply,
Inc.
o Acquisition of Todd Pipe & Supply, Inc. by Hughes Supply, Inc.
o Acquisition of Bluelinx Holdings, Inc. (formerly ABP Distribution
Holdings, Inc. - A division of Georgia-Pacific Corporation) by
Cerberus Capital Management, L.P.
o Acquisition of The Hillman Group, Inc. by Code Hennessey &
Simmons, L.L.C.
o Acquisition of Century Maintenance Supply, Inc. by Hughes Supply,
Inc.
o Acquisition of United States Filter Distribution Group, Inc. (a
division of United States Filter Corporation) by National
Waterworks, Inc.
31
The reasons for and the circumstances surrounding each of the
transactions analyzed were diverse and there are inherent differences in the
business, operations, financial condition and prospects of Hughes Supply, and
the businesses, operations, financial conditions and prospects of the companies
included in the Comparable Transaction Analysis. Accordingly, Lehman Brothers
believed that a purely quantitative comparable transaction analysis would not be
particularly meaningful in the context of the merger. Lehman Brothers believed
that the appropriate use of the Comparable Transaction Analysis required
qualitative judgments concerning the differences between the characteristics of
these transactions and the merger.
Based on publicly-available information, Lehman Brothers considered
the transaction value as a multiple of the then trailing twelve months EBITDA
for each transaction. Lehman Brothers then applied the range of multiples
derived from this analysis to Hughes Supply's updated projected EBITDA for the
fiscal year ended January 31, 2006 to calculate an implied transaction value for
the merger. Lehman Brothers calculated Hughes Supply's implied equity value by
subtracting the net debt from the implied transaction value and divided the
implied equity value by the projected diluted shares outstanding to obtain
Hughes Supply's implied equity value per share.
Based on a selected range of multiples of transaction value to
trailing twelve month EBITDA for the comparable transactions of 9.0x to 10.5x,
Lehman Brothers calculated a range of implied transaction values of $2,808
million to $3,275 million and an implied equity value of $2,518 million to
$2,986 million. This analysis resulted in an implied equity value per share for
Hughes Supply of $36.90 to $43.63.
Lehman Brothers noted that the merger consideration of $46.50 per
share was above the range of the implied share prices of $36.90 and $43.63 that
resulted from this analysis.
PREMIUM PAID ANALYSIS
Lehman Brothers compared the premium proposed to be paid in the
merger with premia paid in mergers and acquisitions transactions for domestic
companies in the industrial sector that were announced or completed between
January 1, 2005 and December 31, 2005 with transaction values greater than $500
million and less than $5 billion and a subset of this group that comprised of
only those transactions with transaction values greater than $2.5 billion and
less than $3.5 billion. For each transaction, Lehman Brothers calculated the
premium per share paid by the acquirer compared to the share price of the target
company prevailing (i) one day, (ii) one week and (iii) one month prior to the
announcement of the transaction. Lehman Brothers then applied the range of
premia paid derived from this analysis for the three timeframes to Hughes
Supply's stock price on January 6, 2006 (reflecting Hughes Supply's then current
stock price), on October 31, 2005 (reflecting Hughes Supply's stock price prior
to its announcement of pursuing strategic alternatives) and on October 7, 2005
(reflecting Hughes Supply's stock price prior to the publication of the article
speculating on a potential transaction with The Home Depot), to calculate Hughes
Supply's implied equity value. Lehman Brothers calculated Hughes Supply's
implied enterprise value by adding the net debt to the implied equity value and
implied equity value per share by dividing the implied equity value by the
projected diluted shares outstanding.
Based on a selected range of premia paid in such transactions of
17.5% to 22.5%, Lehman Brothers calculated a range of implied equity values for
Hughes Supply of $2,594 million to $2,803 million and an implied enterprise
value of $2,881 million to $3,090 million. This analysis resulted in an implied
equity value per share for Hughes Supply of $38.00 to $41.00.
Lehman Brothers noted that the merger consideration of $46.50 per
share was above the range of the implied share prices of $38.00 and $41.00 that
resulted from this analysis.
DISCOUNTED CASH FLOW ANALYSIS
Lehman Brothers performed a discounted cash flow analysis of Hughes
Supply based on the updated projected financial information of Hughes Supply
provided by its management for fiscal years 2006 to 2011, for both the
management plan without recession and the management plan with recession. The
management plan with recession incorporates a projected economic downturn in
fiscal year 2009, which adversely impacts sales growth rate and margin
32
assumptions relative to the management plan without recession. For the purposes
of its analysis, Lehman Brothers also performed a sensitivity analysis on the
financial projections furnished by Hughes Supply management to reflect more
conservative assumptions, whereby projected sales growth rate and margin
improvement assumptions were reduced by 50% throughout the projection period.
The 50% reduction, which was discussed with Hughes Supply's management, did not
reflect Lehman Brothers' view of the underlying business, industry performance
and general business and economic conditions but was presented in order to
provide a reference point for the board of directors to consider in light of the
risk factors inherent in the management plan.
A discounted cash flow analysis is a traditional valuation
methodology used to derive a valuation of an asset by calculating the "present
value" of estimated future cash flows of the asset. "Present value" refers to
the current value of future cash flows or amounts and is obtained by discounting
those future cash flows or amounts by a discount rate that takes into account
macro-economic assumptions and estimates of risk, the opportunity cost of
capital, expected returns and other appropriate factors. Lehman Brothers
performed a discounted cash flow analysis for Hughes Supply using each projected
plan by adding (1) the present value of Hughes Supply's projected after-tax
unlevered free cash flows for the fiscal years 2007 through 2011 to (2) the
present value of the "terminal value" of Hughes Supply as of fiscal year 2011.
To estimate the residual value of Hughes Supply at the end of the
forecast period, or terminal value, Lehman Brothers applied EBITDA terminal
value multiples of 8.0x, 9.0x and 10.0x to projected fiscal year 2011 EBITDA for
each projected plan. This EBITDA multiple range was based on Lehman Brothers'
analysis of trailing twelve month EBITDA multiples for comparable companies over
recent business cycles. Lehman Brothers discounted the unlevered free cash flows
and the estimated terminal value to a present value at a range of after-tax
discount rates ranging from 10.0% to 12.0%. This range of discount rates was
based on an analysis of Hughes Supply's weighted average cost of capital and
those of other comparable companies. Lehman Brothers calculated a range of
implied enterprise values for Hughes Supply by adding the present values of the
after-tax unlevered free cash flows and terminal values for each EBITDA terminal
multiple and discount rate scenario. Lehman Brothers then calculated Hughes
Supply's implied equity values subtracting the net debt from the implied
enterprise value and divided the implied equity value by the projected diluted
shares outstanding to obtain Hughes Supply's implied equity value per share.
Based on these discount rates and the selected range of terminal
values, the analysis resulted in an implied equity value per share of $52.00 to
$62.00 in the management plan, $48.00 to $57.00 for the management plan with
recession, $39.00 to $49.00 for the sensitized management plan, and $37.00 to
$47.00 for the sensitized management plan with recession.
Lehman Brothers noted that the merger consideration of $46.50 per
share was within the range of the implied share prices of $37.00 and $49.00 that
resulted from this analysis based on the sensitized management plans.
LEVERAGED BUYOUT ANALYSIS
Lehman Brothers performed a leveraged buyout analysis in order to
ascertain a per share price of Hughes Supply which might be achieved in a
leveraged buyout transaction based upon current market conditions. In conducting
this analysis, Lehman Brothers assumed the following: (i) a capital structure of
Hughes Supply comprised of $2,028 million in total debt (or approximately 6.5x
projected fiscal year 2006 EBITDA), (ii) an equity investment that would achieve
a minimum rate of return in the mid 20% range on equity invested during a
five-year period, and (iii) a projected EBITDA terminal value multiple of 8.0x
to 10.0x trailing twelve month EBITDA.
Based on these assumptions, the analysis resulted in a range of
implied leveraged acquisition prices per share of Hughes Supply common stock of
$40.00 to $45.00 using the management case and a range of $37.00 to $42.00 using
the management case with recession.
Lehman Brothers noted that the merger consideration of $46.50 per
share was above the range of the implied share prices of $37.00 to $45.00 that
resulted from this analysis.
33
GENERAL
Lehman Brothers is an internationally recognized investment banking
firm and, as part of its investment banking activities, is regularly engaged in
the valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. The special committee of the board
of directors of Hughes Supply selected Lehman Brothers because of its expertise,
reputation and familiarity with Hughes Supply and the wholesale distribution
industry generally and because its investment banking professionals have
substantial experience in transactions comparable to the merger.
As compensation for its services in connection with the merger,
Hughes Supply paid Lehman Brothers $2.5 million upon the delivery of Lehman
Brothers' opinion. Compensation of approximately $16.7 million or 0.48% of the
merger consideration plus any assumed net financial liabilities will be payable
on completion of the merger against which the $2.5 million paid for the opinion
will be credited. Hughes Supply has also paid Lehman Brothers a fee of $500,000
upon the signing of the engagement letter which is fully creditable towards the
fee payable on the completion of the merger. In addition, Hughes Supply has
agreed to reimburse Lehman Brothers for reasonable out-of-pocket expenses
incurred in connection with the merger and to indemnify Lehman Brothers for
certain liabilities that may arise out of its engagement by Hughes Supply and
the rendering of the Lehman Brothers opinion. Lehman Brothers has in the past
rendered investment banking services to Hughes Supply and received customary
fees for such services. During the past two years, Lehman Brothers served, among
other things, as a book runner in two of our equity offerings and co-arranged a
bridge-loan facility, for which Lehman Brothers received compensation in the
aggregate of approximately $14 million.
Lehman Brothers has performed various investment banking and other
services for The Home Depot from time to time, including acting as a current
participant under The Home Depot's syndicated revolving credit facility and a
dealer under The Home Depot's commercial paper facility, and expects to provide
such services in the future. In connection with these services, Lehman Brothers
expects to receive customary fees.
In the ordinary course of its business, Lehman Brothers may actively
trade in the debt or equity securities of Hughes Supply for its own account and
for the accounts of its customers and, accordingly, may at any time hold a long
or short position in such securities.
CERTAIN EFFECTS OF THE MERGER
If the merger agreement is approved by our shareholders and certain
other conditions to the closing of the merger are either satisfied or waived, a
wholly-owned subsidiary of The Home Depot created solely for the purpose of
engaging in the transactions contemplated by the merger agreement, will be
merged with and into us, and we will be the surviving corporation. When the
merger is completed, we will cease to be a publicly traded company and will
instead become a wholly-owned subsidiary of The Home Depot
When the merger is completed, each share of our common stock issued
and outstanding immediately prior to the effective time of the merger (other
than shares owned by us, The Home Depot or any of their respective direct or
indirect wholly-owned subsidiaries) will be converted into the right to receive
$46.50 in cash, without interest.
The merger agreement provides that immediately prior to the effective
time of the merger, all outstanding unvested options to purchase shares of our
common stock and outstanding unvested shares of our restricted common stock will
accelerate and become fully vested. Each outstanding and unexercised option to
purchase shares of our common stock with an exercise price below $46.50 per
share, including the unvested options whose vesting is accelerated in full in
connection with the merger, will be converted into the right to receive an
amount of cash equal to the difference between the $46.50 per share in cash to
be paid by The Home Depot in the merger and the exercise price per share of the
option, multiplied by the number of shares subject to the option. Each
outstanding and unexercised option to purchase shares of our common stock with
an exercise price equal to or greater than $46.50 per share will be cancelled
and no consideration will be paid for such options. All shares of restricted
common stock will be converted into the right to receive $46.50 per share in
cash.
34
At the effective time of the merger, our shareholders will have the
right to receive the merger consideration but will cease to have ownership
interests in Hughes Supply or rights as Hughes Supply shareholders. Therefore,
our shareholders will not participate in any future earnings or growth of Hughes
Supply and will not benefit from any appreciation in value of Hughes Supply.
Our common stock is currently registered under the Securities
Exchange Act of 1934, as amended, which we refer to as the Exchange Act, and is
quoted on The New York Stock Exchange under the symbol "HUG"'. As a result of
the merger, Hughes Supply will be wholly owned subsidiary of The Home Depot, the
common stock will cease to be quoted on The New York Stock Exchange and there
will be no public market for our common stock. In addition, registration of the
common stock under the Exchange Act will be terminated and we will no longer be
required to file periodic reports with the SEC on account of our common stock.
When the merger becomes effective, the directors of the wholly-owned
subsidiary of The Home Depot that will be merged with and into us and our
officers in office immediately prior to the effective time of the merger will be
the directors and officers of the surviving corporation. The surviving
corporation's articles of incorporation and bylaws will be amended and restated
in their entirety as of the effective time of the merger to be identical to the
articles of incorporation and bylaws of such wholly-owned subsidiary of The Home
Depot, except that the name of the surviving corporation will be Hughes Supply,
Inc.
The benefit of the merger to our shareholders is the right to receive
$46.50 in cash, without interest, for each share of our common stock. The
detriments are that our shareholders will cease to participate in our future
earnings and growth, if any, and that their receipt of payment for their shares
generally will be a taxable transaction for United States federal income tax
purposes. See "The Merger--Material United States Federal Income Tax
Consequences of the Merger."
Under the terms of the merger agreement, The Home Depot has generally
agreed to indemnify our current officers and directors for any acts or omissions
in their capacity as an officer or director occurring on or before the effective
time of the merger and to provide for liability insurance for a period of six
years from and after the effective time of the merger, subject to certain
conditions.
EFFECTS ON HUGHES SUPPLY IF THE MERGER IS NOT COMPLETED
In the event that the merger agreement is not approved by our
shareholders or if the merger is not completed for any other reason, our
shareholders will not receive any payment for their shares in connection with
the merger. Instead, we will remain an independent public company and our common
stock will continue to be listed on The New York Stock Exchange. In addition, if
the merger is not completed, we expect that management will operate our business
in a manner similar to that in which it is being operated today and that our
shareholders will continue to be subject to the same risks and opportunities as
they currently are, including, among other things, the nature of the wholesale
distribution industry and economic and market conditions.
Accordingly, if the merger is not consummated, there can be no
assurance as to the effect of these risks and opportunities on the future value
of your shares of our common stock. In the event the merger is not completed,
our board will continue to evaluate and review our business operations,
properties, dividend policy and capitalization, among other things, make such
changes as are deemed appropriate and continue to seek to identify strategic
alternatives to enhance shareholder value. If the merger agreement is not
approved by our shareholders or if the merger is not consummated for any other
reason, there can be no assurance that any other transaction acceptable to us
will be offered or that our business, prospects or results of operation will not
be adversely impacted.
If the merger agreement is terminated, under certain circumstances,
we will be obligated to pay a termination fee of $124,800,000 to The Home Depot.
For a description of the circumstances triggering payment of the termination fee
see "Proposal 1--The Merger Agreement--Expenses and Termination Fee" beginning
on page 50 of this proxy statement.
35
INTERESTS OF OUR DIRECTORS AND EXECUTIVE OFFICERS IN THE MERGER
In addition to their interests in the merger as shareholders, certain
of our executive officers and directors have interests in the merger that differ
from, or are in addition to, your interests as a shareholder. In considering the
recommendation of our board of directors to vote "FOR" the approval of the
merger agreement, you should be aware of these interests. Our board of directors
was aware of, and considered the interests of, our directors and executive
officers in approving the merger agreement, the merger and the transactions
contemplated by the merger agreement. All interests are described below, to the
extent material, and except as described below such persons have, to our
knowledge, no material interest in the merger that differ from your interests
generally.
STOCK OPTIONS. The merger agreement provides that all unexpired and
unexercised options to purchase our common stock granted under our Directors'
Stock Option Plan, 1998 Stock Option Plan, 1997 Executive Stock Plan and 2005
Executive Stock Plan that are outstanding at the effective time of the merger,
whether vested or unvested, will be cancelled and converted into the right to
receive an amount in cash equal to the product of the number of shares of our
common stock subject to the option and the amount, if any, by which $46.50, the
merger consideration, exceeds the per share exercise price of the option,
without interest and less applicable withholding taxes.
Based on the number and exercise prices of options held on January
25, 2006 by our executive officers and directors as set forth in the following
table, our executive officers and directors will receive the following amounts
(before any applicable withholding taxes) in settlement of their respective
options if the merger is completed:
Options that
will vest as a result of
Vested Options* the merger* Totals
- ----------------------------- -------------------------------- ------------------------ ------------------------------
Name Shares Payment Shares Payment Total Shares Total Payment
---- ------ ------- ------ ------- ------------ -------------
NON-EMPLOYEE DIRECTORS:
John D. Baker, II 70,176 $ 2,321,441 0 $0 70,176 $2,321,441
Robert N. Blackford 70,176 2,321,441 0 0 70,176 2,321,441
H. Corbin Day 62,676 2,068,942 0 0 62,676 2,068,942
Vincent S. Hughes 5,000 155,250 0 0 5,000 155,250
Dale E. Jones 3,000 82,200 0 0 3,000 82,200
William P. Kennedy 45,000 1,527,187 0 0 45,000 1,527,187
Patrick J. Knipe 1,000 21,295 0 0 1,000 21,295
Amos R. McMullian 15,000 440,000 0 0 15,000 440,000
EMPLOYEE DIRECTORS/EXECUTIVE
OFFICERS:
David H. Hughes 169,800 5,750,940 0 0 169,800 5,750,940
Thomas I. Morgan 75,500 2,159,370 95,000 2,263,250 170,500 4,422,620
OTHER EXECUTIVE OFFICERS:
David Bearman 12,594 279,405 46,800 1,136,280 59,394 1,415,686
Stephen R. Benton 34,800 1,030,113 18,000 416,800 52,800 1,446,913
Jacquel K. Clark 5,830 188,134 9,740 259,579 15,570 447,713
Jeffrey A. Clyne 26,000 753,870 18,000 416,800 44,000 1,170,670
Jasper L. Holland 10,800 286,100 5,600 88,760 16,400 374,860
Clyde E. Hughes, III 11,627 299,203 27,253 694,965 38,880 994,168
Wetteny N. Joseph 840 13,314 9,680 258,628 10,520 271,942
Neal J. Keating 14,600 234,277 29,200 468,553 43,800 702,830
Jeffrey S. Leonard 11,030 367,826 12,059 322,634 23,089 690,460
Robert A. Machaby 15,400 416,470 26,800 687,780 42,200 1,104,250
Rick J. McClure 9,467 236,237 16,933 399,893 26,400 636,130
John Z. Pare 3,000 47,550 26,000 675,100 29,000 722,650
Michael Jay Romans 3,133 49,663 6,267 99,327 9,400 148,990
36
Michael L. Stanwood 7,067 169,467 26,133 677,213 33,200 846,680
Thomas J. Starnes 27,667 852,697 27,333 696,233 55,000 1,548,930
John A. Steele 15,396 417,317 26,667 685,667 42,063 1,102,984
Ken Veneziano 990 15,692 7,980 205,382 8,970 221,074
Thomas M. Ward, II 7,333 173,693 26,667 685,667 34,000 859,360
Gradie E. Winstead, Jr. 55,867 1,662,743 32,133 772,313 88,000 2,435,056
J. Stephen Zepf 61,195 2,070,928 26,667 685,667 87,862 2,756,595
ALL DIRECTORS AND EXECUTIVE
OFFICERS AS A GROUP (30
PERSONS) 851,964 $26,412,765 520,912 $12,596,491 1,372,876 $39,009,257
* Assumes a closing date of March 31, 2006
RESTRICTED STOCK. In addition, any restricted shares, including
performance-based restricted shares, granted to our executive officers and
directors under our 1997 Executive Stock Plan and 2005 Executive Stock Plan,
will become fully vested in connection with the merger and will be converted
into the right to receive $46.50, the merger consideration, without interest and
less applicable withholding taxes. As of January 25, 2006, the following
executive officers and directors held the following number of shares of
restricted common stock, whose vesting will accelerate in connection with the
merger, and will receive the following amounts (before any applicable
withholding taxes) in settlement of their respective shares of restricted common
stock if the merger is completed:
Number of Value of
Shares That Accelerated
Name Would Accelerate Shares
- ------------------------------------- ---------------- ------------
EMPLOYEE DIRECTORS/EXECUTIVE OFFICERS:
David H. Hughes 182,592 $8,490,528
Thomas I. Morgan 166,634 7,748,481
OTHER EXECUTIVE OFFICERS:
David Bearman 105,943 4,926,350
Stephen R. Benton 18,035 838,628
Jacquel K. Clark 13,630 633,795
Jeffrey A. Clyne 8,035 373,628
Jasper L. Holland 112,910 5,250,315
Clyde E. Hughes, III 123,889 5,760,839
Wetteny N. Joseph 3,594 167,121
Neal J. Keating 24,391 1,134,182
Jeffrey S. Leonard 3,819 177,584
Robert A. Machaby 107,325 4,990,613
Rick J. McClure 7,404 344,286
John Z. Pare 46,851 2,178,572
Michael Jay Romans 13,709 637,469
Michael L. Stanwood 106,930 4,972,245
Thomas J. Starnes 97,640 4,540,260
John A. Steele 67,246 3,126,939
Ken Veneziano 3,772 175,398
Thomas M. Ward, II 117,246 5,451,939
Gradie E. Winstead, Jr. 130,077 6,048,581
J. Stephen Zepf 139,838 6,502,467
ALL DIRECTORS AND EXECUTIVE OFFICERS AS A
GROUP (30 PERSONS) 1,601,510 $74,470,220
SEVERANCE AGREEMENTS; SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN. We have
entered into severance agreements with seventeen of our senior executive
officers. These agreements provide for severance payments in the event of
termination of their employment following a "change-in-control" if such
termination is by us "without cause" or by the executive for "good reason." Each
agreement provides for:
37
o a term of two years which will automatically renew for successive two-year
terms, provided that (i) either the Company or the senior executive may
give notice of non-renewal prior to the end of the then existing term and
(ii) upon a "change of control" of the Company (as defined in the severance
agreement), the term automatically extends until the date that is 60 days
following the date that is 24 months after the change of control;
o non-competition and non-solicitation covenants which are effective for the
term of the Agreement and thereafter for three years as to our Chairman,
CEO, CFO and COO (who are referred to as the "Tier I" executives in the
severance agreements), and two years for all other senior executives (who
are referred to as the "Tier II" executives in the severance agreements);
o if the senior executive is terminated "without cause" or the executive
terminates his employment for "good reason" during the term of the
severance agreement and within 24 months following a "change of control" of
the Company (each as defined in the severance agreement), we are required
to:
o pay a severance payment equal to the senior executive's average
base pay plus annual bonus for the three year period prior to
such termination multiplied by three for Tier I executives and by
two for Tier II executives;
o provide continuation of benefits under our health and life
insurance plans for three years for Tier I executives and for two
years for Tier II executive;
o provide additional service credits of three years for Tier I
executives and two years for Tier II executives that apply to the
calculation of benefits under our Supplemental Executive
Retirement Plan;
o make a gross up payment to the senior executive in an amount
sufficient to pay any excise tax that the senior executive would
be subject to pursuant to Section 4999 of the Code and any
additional excise taxes, income taxes and other employment taxes
resulting from such payment. If, however, reducing the change in
control-related payments and compensation to the senior executive
by no more than 10% would avoid incurring liability under Section
4999 of the Code, then payments to the senior executive will be
reduced to the extent necessary to avoid imposition of excise
taxes and eliminate any gross up payment; and
o the Company's obligation to provide any severance payment upon termination
being contingent upon the executive's execution of a standard release of
claims in the event of such termination.
A "change of control" under these agreements will occur upon
consummation of the merger. "Good reason" for the executives to terminate
employment under the agreements is generally any reduction in compensation or
benefits, loss of title or position, significant diminution of duties and
responsibilities or relocation requirement.
We also have a Supplemental Executive Retirement Plan, which we refer
to as the SERP, under which our senior executive officers are eligible to
receive supplemental retirement compensation in addition to any compensation
paid under our other benefit programs. We are obligated to pay supplemental
retirement compensation to each of such officers (i) after retirement of such
executive officer from service with us, or (ii) upon such officer's total
disability while in our employ provided such disability continues until such
officer's normal retirement age. If a change in control occurs after payment of
a participant's normal supplemental retirement compensation or disability
retirement compensation (described below) has commenced but before payment of
all of the participant's normal supplemental retirement compensation or
disability retirement compensation have been made, we are required to pay the
participant a single lump sum payment, within 30 days after the date on which
the change in control occurs, equal to the present value, determined using a
five percent (5%) discount factor per annum, of the remaining compensation
payable to the participant pursuant to this plan. If (i) a change in control
occurs before payment of a participant's normal supplemental retirement
compensation or disability retirement compensation (described below) has
commenced, and (ii) within two years after the change in control has occurred
(an "accelerating termination"), the participant either (x) has his or her
38
employment with us and our affiliates terminated by us and our affiliates
without cause, or (y) terminates his or her employment with us and our
affiliates for good reason, then we are required to pay the participant a single
lump sum payment, within 30 days after the termination of the participant's
employment with us and our affiliates, equal to the present value, determined
using a five percent (5%) discount factor per annum, of the change in control
benefit. For this purpose, "change in control benefit" means (a) if at the time
of the accelerating termination the participant was age 65 or older, then the
change in control benefit shall be equal to the normal supplemental retirement
compensation (described below) that the participant would have been entitled to
receive had he or she retired as of the date of the accelerating termination;
(b) if at the time of the accelerating termination the participant was age 55 or
older (but younger than 65), then the change in control benefit shall be equal
to the normal supplemental retirement compensation that the participant would
have been entitled to receive had he or she retired as of the date of the
accelerating termination and such retirement was approved by our compensation
committee, and (c) if at the time of the accelerating termination the
participant was younger than age 55, then the change in control benefit shall be
equal to the normal supplemental retirement compensation that the participant
would have been entitled to receive had he or she reached age 55 and retired as
of the date of the accelerating termination and such retirement was approved by
our compensation committee. Under this plan, a change of control will be deemed
to have occurred on consummation of the merger.
The normal supplemental retirement compensation will be based upon a
senior executive officer's average annual salary plus bonus for our three fiscal
years during which the executive's annual salary plus bonus were the highest,
considering only the 10 years immediately prior to retirement or disability
("average compensation") and will be payable monthly following such retirement
for a period of 15 years. The rate per annum of supplemental retirement
compensation in the case of normal retirement or disability retirement at age 65
will be equal to between 30% and 60% (depending upon the participant's position
and normal retirement age) of average compensation. In the case of early
retirement with our approval or early disability retirement prior to age 65, the
benefit will be an amount equal to the product of the benefit multiplied by a
fraction the numerator of which is the executive's years of service and the
denominator of which is five in the case of our Chairman, CEO, CFO and COO and
15 in the case of the other participants.
Assuming the consummation of the merger on March 31, 2006 and
assuming the termination of each such executive's employment for good reason or
by us without cause immediately following the consummation of the merger, such
executive officers will receive the following estimated cash severance payment,
SERP lump sum payment and any gross-up payments for excise taxes that may be
payable under Section 4999 of the Code pursuant to the terms of his or her
severance agreement and the SERP (before any applicable withholding taxes):
SERP LUMP SUM
NAME OF EXECUTIVE SEVERANCE PAYMENT PAYMENT GROSS-UP PAYMENT(1) TOTAL
----------------- ----------------- ------- ------------------- -----
Thomas I. Morgan $5,379,260 $6,781,429 $6,392,569 $18,553,258
David Bearman 3,492,493 6,651,158 3,857,719 14,001,370
Neal J. Keating 3,348,496 4,335,479 3,791,948 11,475,923
David H. Hughes 1,114,224 4,047,062 960,546 6,121,832
Gradie E. Winstead, Jr. 1,545,803 3,015,966 1,124,236 5,686,005
John A. Steele 1,080,929 1,633,197 1,447,724 4,161,850
Robert A. Machaby 1,062,624 1,835,489 1,387,875 4,285,988
Thomas M. Ward, II 1,062,013 1,643,188 1,632,492 4,337,693
John Z. Pare 839,728 1,288,870 1,374,920 3,503,518
J. Stephen Zepf 996,858 1,815,173 915,432 3,727,463
Michael Jay Romans 932,514 1,698,063 1,257,834 3,888,411
Clyde E. Hughes, III 969,791 2,320,212 0 3,290,003
Thomas J. Starnes 956,726 1,595,911 1,438,152 3,990,789
Jeffrey A. Clyne 791,970 1,290,399 0 2,082,369
Rick J. McClure 810,437 1,393,558 0 2,203,995
Michael L. Stanwood 1,064,151 1,792,445 671,424 3,528,020
Stephen R. Benton 895,208 1,608,274 832,687 3,336,169
Jasper L. Holland 0 1,004,745 0 1,004,745
ALL SENIOR EXECUTIVE OFFICERS AS $ 26,343,225 $ 45,750,618 $27,085,559 $99,179,402
A GROUP (18 PERSONS)
39
(1) The gross-up payments relate to all benefits or compensation
payable in connection with a change in control, including without limitation
severance payments, SERP lump sum payments, and payments or accelerated vesting
in respect of stock options and restricted stock. The aggregate amount of the
gross-up payments is an estimate only and does not take into account the value
of restrictive covenants applicable to certain executives and other possible
mitigating factors which could potentially reduce the amount of such payments.
NON-QUALIFIED DEFERRED COMPENSATION PLANS. We have a Non-Qualified
Deferred Compensation Plan for our executive officers and a 1990 Directors'
Non-Qualified Deferred Compensation Plan for our directors under which
participants have deferred compensation prior to 2005. We also have a 2005
Non-Qualified Deferred Compensation Plan under which executive officers (among
other Company employees and non-employee directors) may participate. The purpose
of these plans is to allow participants to defer a portion of their compensation
until a future point in time. Under the Non-Qualified Deferred Compensation
Plan, upon a change in control, including the merger, approved by our board of
directors, no immediate payment is to be made to participants, and the plan
remains in full force and effect. Under the 1990 Directors' Non-Qualified
Deferred Compensation Plan, directors will receive, in accordance with their
prior elections, either a lump sum payment of their account balance or a
five-year installment payout of such amount. Under the 2005 Non-Qualified
Deferred Compensation Plan, participants will, unless they have previously
elected otherwise, receive a lump sum payment of the full value of the
participant's account within 30 days after the completion of the merger.
EMPLOYMENT-RELATED PROVISIONS OF THE MERGER AGREEMENT. The merger
agreement provides that The Home Depot will, for a period of 12 months (in the
case of employees other than our senior executive officers) or 24 months (in the
case of senior executive officers) immediately following the effective time of
the merger, cause the surviving corporation and its subsidiaries to (i) provide
our employees with (x) the same level of salary and bonus opportunity as in
effect on the effective time of the merger and (y) benefits that are
substantially similar (or in the case of senior executive officers no less
favorable), in the aggregate than benefits provided under our benefit plans by
us and our subsidiaries to such persons prior to that time, (without limiting
the right of The Home Depot or any of its subsidiaries to terminate the
employment of any such person at any time or require The Home Depot or any of
its subsidiaries to provide any such salary, bonus opportunity or benefits for
any period following any such termination) and (ii) continue our SERP without
any reduction of benefits thereunder.
The merger agreement also requires The Home Depot or one of its
affiliates (i) to recognize the service of our employees with us prior to the
effective time of the merger as service with The Home Depot and its affiliates
in connection with any 401(k) savings plan and welfare benefit plan and policy
(including vacations and severance policies) maintained by The Home Depot or one
of its affiliates which is made available following the consummation of the
merger by The Home Depot or one of its affiliates for purposes of any waiting
period, vesting, eligibility and benefit entitlement (but excluding benefit
accruals), (ii) to waive, or cause its insurance carriers to waive, all
limitations as to pre-existing and at-work conditions, if any, with respect to
participation and coverage requirements applicable to our employees under any
group health plan which is made available to our employees following the
effective date of the merger by parent or one of its affiliates, (iii) to
provide credit to our employees for any co-payments, deductibles and
out-of-pocket expenses paid by such employees under any group health plan of
Hughes Supply and our subsidiaries during the portion of the relevant plan year
including the effective time of the merger for purposes of any applicable
co-payments, deductibles and out-of-pocket expense requirements under any such
group health plan of The Home Depot or any of its subsidiaries, and (iv) to
cause the surviving company and its subsidiaries to maintain for a period of 12
months immediately following the effective time of the merger a severance pay
plan under which the amount of severance pay to each of our employees will not
be less than the amount that such employee would have received under our
applicable severance pay plan in effect at the effective time of the merger, to
be calculated, however, on the basis of the employee's compensation and service
at the time of the layoff or other termination.
The merger agreement also provides that if the effective time of the
merger occurs prior to the payment of performance based bonuses for the fiscal
2006 year, The Home Depot will cause the surviving company and its subsidiaries
(as applicable) to pay such bonuses in accordance with our existing schedule for
payment and other policies; provided that any employee (other than a senior
executive officer) who is employed as of the effective time of the merger and
who is involuntarily terminated without cause (as defined) prior to the payment
of such fiscal 2006 bonus shall be entitled to the payment of such fiscal 2006
bonus upon termination. We may establish annual bonus plans ("2007 Bonus Plans")
for the fiscal 2007 year on terms consistent with past practice and including
40
customary provisions permitting reasonable management flexibility to adjust
bonus performance targets following the effective time of the merger to reflect
changes in the business of Hughes Supply and its subsidiaries resulting from the
merger. If the effective time occurs during the fiscal 2007 year, The Home Depot
shall cause the surviving company and its subsidiaries (as applicable) to pay to
each employee (other than a senior executive officer) who was employed as of the
effective time of the merger and who is involuntarily terminated without cause
during the fiscal 2007 year, a pro rata amount of such employee's target bonus
measured to the date of termination in accordance with the terms of the 2007
Bonus Plan as in effect as of the effective time of the merger as soon as
practicable following such termination.
We will terminate or cause to be terminated any of our benefit plans
intended to include an arrangement under Section 401(k) of the Code (each, a
"Company 401(k) Plan") unless The Home Depot provides written notice to us that
any such Company 401(k) Plan is not to be terminated.
DIRECTORS' AND OFFICERS' INDEMNIFICATION AND INSURANCE. The merger
agreement further provides that at the option of Hughes Supply (after
consultation with The Home Depot), (i) Hughes Supply may obtain a "tail"
insurance policy with a claim period of at least six years from the effective
time of the merger with respect to directors' and officers' liability insurance
in amount and scope at least as favorable as our existing policies for the
benefit of the indemnified persons with respect to their acts and omissions as
our directors and officers occurring prior to the effective time of the merger
or (ii) the surviving company will maintain in effect for a period of six years
following the effective time of the merger, for the benefit of the indemnified
persons with respect to their acts and omissions as our directors and officers
occurring prior to the effective time of the merger, our existing policy of
directors' and officers' liability insurance. However, if during the six year
period the aggregate annual premiums for such insurance exceed 300% of the
current aggregate annual premium, then The Home Depot will provide our a
directors' and officers' insurance policy for the Indemnified Persons with the
best coverage then available at an annual premium of 300% of the current
aggregate annual premium.
NEW MANAGEMENT ARRANGEMENTS. As of the date we entered into the
merger agreement with The Home Depot, no member of management had any
arrangement or understanding with The Home Depot regarding continued employment
with the Company, The Home Depot or any of their respective affiliates. As of
the date of this proxy statement, certain members of our management have been
informed by The Home Depot that their continued services are desired following
the completion of the merger. As of the date of this proxy statement, no member
of our management has entered into any new agreement with the Company, The Home
Depot or their respective affiliates regarding employment with The Home Depot.
Although we believe certain members of our management team are likely to enter
into new arrangements with The Home Depot regarding employment with the
surviving corporation, such matters are subject to further discussion and no
terms or conditions have been finalized.
APPRAISAL RIGHTS
Pursuant to Section 607.1302(2)(a) of the Florida Business
Corporation Act, shareholders of Hughes Supply do not have appraisal rights
because as of February 6, 2006, the record date established for determining
shareholder eligibility to vote in the special meeting, Hughes Supply was a
listed corporation on The New York Stock Exchange, and our shareholders, upon
consummation of the merger, will receive only cash consideration.
DELISTING AND DEREGISTRATION OF OUR COMMON STOCK
If the merger is completed, our common stock will be delisted from
The New York Stock Exchange and deregistered under the Exchange Act and we will
no longer file periodic reports with the Securities and Exchange Commission.
ACCOUNTING TREATMENT
We expect that the merger will be accounted for by The Home Depot
using the purchase method of accounting, in accordance with generally accepted
accounting principles. This means that The Home Depot will record as goodwill
the excess, if any, of the purchase price over the fair value of our
identifiable assets, including intangible assets, and liabilities.
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MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following is a discussion of the material U.S. federal income tax
consequences of the merger to U.S. holders (as defined below) whose shares of
our common stock are converted into the right to receive cash under the merger.
The discussion is based upon the Internal Revenue Code, Treasury regulations,
IRS rulings and judicial and administrative decisions in effect as of the date
of this proxy statement, all of which are subject to change (possibly with
retroactive effect) or to different interpretations. The following discussion
does not purport to consider all aspects of federal income taxation that might
be relevant to our shareholders. This discussion applies only to shareholders
who, on the date on which the merger is completed, hold shares of our common
stock as a capital asset. The following discussion does not address taxpayers
subject to special treatment under federal income tax laws, such as insurance
companies, financial institutions, dealers in securities, tax-exempt
organizations, mutual funds, real estate investment trusts, investors in
pass-through entities, S corporations and taxpayers subject to the alternative
minimum tax. In addition, the following discussion may not apply to shareholders
who acquired their shares of our common stock upon the exercise of employee
stock options or otherwise as compensation for services or through a
tax-qualified retirement plan or who hold their shares as part of a hedge,
straddle, conversion transaction or other integrated transaction. If our common
stock is held through a partnership, the federal income tax treatment of a
partner in the partnership will generally depend upon the status of the partner
and the activities of the partnership. Partnerships that are holders of our
common stock and partners in such partnerships are urged to consult their own
tax advisors regarding the tax consequences to them of the merger.
The following discussion does not address potential foreign, state,
local and other tax consequences of the merger. All shareholders are urged to
consult their own tax advisors regarding the federal income tax consequences, as
well as the foreign, state and local tax consequences, of the disposition of
their shares in the merger.
For purposes of this summary, a "U.S. holder" is a holder of shares
of our common stock, who is, for federal income tax purposes:
o an individual who is a citizen or resident of the United States;
o a corporation (or other entity taxable as a corporation) created
or organized in or under the laws of the United States, any state
of the United States or the District of Columbia;
o an estate whose income is subject to U.S. federal income tax
regardless of its source; or
o a trust if (i) a U.S. court is able to exercise primary
supervision over the trust's administration and one or more U.S.
persons are authorized to control all substantial decisions of
the trust; or (ii) it was in existence on August 20, 1996 and has
a valid election in place to be treated as a domestic trust for
U.S. federal income tax purposes.
Except with respect to the backup withholding discussion below, this
discussion does not discuss the tax consequences to any shareholder who, for
federal income tax purposes, is not a U.S. holder.
For federal income tax purposes, the merger will be treated as a
taxable sale or exchange of our common stock for cash by each of our
shareholders. Accordingly, the federal income tax consequences to a shareholder
receiving cash in the merger will generally be as follows:
o The shareholder will recognize a capital gain or loss for federal
income tax purposes upon the disposition of the shareholder's
shares of our common stock pursuant to the merger.
o The amount of capital gain or loss recognized by each shareholder
will be measured by the difference, if any, between the amount of
cash received by the shareholder in the merger and the
shareholder's adjusted tax basis in the shares of our common
stock surrendered at the effective time of the merger. Gain or
loss will be determined separately for each block of shares
(i.e., shares acquired at the same cost in a single transaction)
surrendered for cash in the merger.
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o The capital gain or loss, if any, will be long-term with respect
to shares of our common stock that have a holding period for tax
purposes in excess of one year at the time such common stock is
surrendered. Long-term capital gains of individuals are eligible
for reduced rates of taxation. There are limitations on the
deductibility of capital losses.
Cash payments made pursuant to the merger will be reported to our
shareholders and the Internal Revenue Service to the extent required by the
Internal Revenue Code and applicable Treasury regulations. These amounts will
ordinarily not be subject to withholding of U.S. federal income tax. However,
backup withholding of the tax at applicable rates will apply to all cash
payments to which a U.S. holder is entitled pursuant to the merger agreement if
such holder (i) fails to supply the paying agent selected by The Home Depot with
the shareholder's taxpayer identification number (Social Security number, in the
case of individuals, or employer identification number, in the case of other
shareholders), certify that such number is correct, and otherwise comply with
the backup withholding rules, (ii) has received notice from the Internal Revenue
Service of a failure to report all interest and dividends required to be shown
on the shareholder's federal income tax returns, or (iii) is subject to backup
withholding in certain other cases. Accordingly, each U.S. holder will be asked
to complete and sign a Substitute Form W-9, which is to be included in the
appropriate letter of transmittal for the shares of our common stock, in order
to provide the information and certification necessary to avoid backup
withholding or to otherwise establish an exemption from backup withholding tax,
unless an exemption applies and is established in a manner satisfactory to the
paying agent. Shareholders who are not U.S. holders should complete and sign a
Form W-8BEN and return it to the paying agent in order to provide the
information and certification necessary to avoid backup withholding tax or
otherwise establish an exemption from backup withholding tax. Certain of our
shareholders will be asked to provide additional tax information in the
appropriate letter of transmittal for the shares of our common stock.
Backup withholding is not an additional tax. Any amounts withheld
under the backup withholding rules will be allowed as a refund or a credit
against your federal income tax liability provided the required information is
timely furnished to the Internal Revenue Service.
THE FOREGOING DISCUSSION OF CERTAIN MATERIAL UNITED STATES FEDERAL
INCOME TAX CONSEQUENCES IS INCLUDED FOR GENERAL INFORMATIONAL PURPOSES ONLY AND
IS NOT INTENDED TO BE, AND SHOULD NOT BE CONSTRUED AS, LEGAL OR TAX ADVICE TO
ANY HOLDER OF SHARES OF OUR COMMON STOCK. WE URGE YOU TO CONSULT YOUR OWN TAX
ADVISOR TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO YOU (INCLUDING THE
APPLICATION AND EFFECT OF ANY STATE, LOCAL OR FOREIGN INCOME AND OTHER TAX LAWS)
OF THE RECEIPT OF CASH IN EXCHANGE FOR SHARES OF OUR COMMON STOCK PURSUANT TO
THE MERGER.
REGULATORY APPROVALS
The HSR Act and related rules provide that transactions such as the
merger may not be completed until the parties submit a Notification and Report
Form to the Antitrust Division of the U.S. Department of Justice and the Federal
Trade Commission and certain waiting period requirements have been satisfied. On
January 13, 2006, Hughes Supply and The Home Depot each filed its Notification
and Report Form and requested early termination of the waiting period, which
otherwise is scheduled to expire at 11:59 p.m. on February 13, 2006 unless such
governmental authorities grant early termination of the waiting period or extend
such waiting period in connection with a request for additional information and
documentary material received from such governmental authorities.
Under the merger agreement, Hughes Supply and The Home Depot have
agreed to use their reasonable best efforts to obtain all required governmental
approvals in connection with the execution of the merger agreement and
completion of the merger. In addition, Hughes Supply and The Home Depot have
agreed to use their reasonable best efforts to take those actions as may be
necessary to resolve any objections asserted on antitrust grounds with respect
to the merger, and The Home Depot has agreed to take all actions, including but
not limited to holding separate or divesting any of the businesses or assets of
The Home Depot and its subsidiaries, to cause the clearance of the merger under
the HSR Act to the extent reasonably necessary to consummate the merger prior to
July 10, 2006.
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Except as noted above with respect to the required filings under the
HSR Act and the filing of articles of merger in Florida at or before the
effective time of the merger, we are not aware of any other material government
or regulatory requirements or approvals required for the completion of the
merger.
LITIGATION RELATED TO THE MERGER
We are aware of one purported class action lawsuit related to the
merger filed against Hughes Supply and each of its directors in the Circuit
Court of the Ninth Judicial Circuit, in and for Orange County, Florida. The
lawsuit, Joel Abrams, on behalf of himself and all others similarly situated v.
Hughes Supply, Inc., et al., Case No. 06-CA-254, was filed on January 10, 2006,
and alleges, among other things, that the merger consideration to be paid to our
shareholders in the merger is unfair and inadequate. In addition, the complaint
alleges that the directors of Hughes Supply violated their fiduciary duties by,
among other things, failing to engage in a fair sale process and failing to
conduct an active market check of Hughes Supply's value, tailoring the
transaction to serve the interests of The Home Depot and the individual
directors of the board at the expense of our shareholders, and failing to
disclose material information to our shareholders related to our financial
results. The complaint seeks, among other relief, certification of the lawsuit
as a class action, an injunction preventing completion of the merger unless and
until the defendants implement procedures to obtain the highest possible price
for Hughes Supply in compliance with their fiduciary duties, attorneys' and
experts' fees, along with such other relief as the court may deem just and
proper. We believe this lawsuit is without merit and plan to defend it
vigorously. Additional lawsuits pertaining to the merger could be filed in the
future.
PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS
Other than as described in the section captioned "Background of the
Merger," Hughes Supply and The Home Depot have not had any contacts,
transactions or negotiations during the past two years.
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PROPOSAL 1 - THE MERGER AGREEMENT
This section of the proxy statement describes the material provisions
of the merger agreement but does not purport to describe all the provisions of
the merger agreement. The following summary is qualified in its entirety by
reference to the complete text of the merger agreement, which is included as
Annex A to this proxy statement and is incorporated into this proxy statement by
reference. We urge you to read the full text of the merger agreement because it
is the legal document that governs the merger. The merger agreement has been
included to provide you with information regarding its terms. It is not intended
to provide you with any other factual information about us. Such information can
be found elsewhere in this proxy statement and in the other public filings we
make with the Securities and Exchange Commission, which are available without
charge at www.sec.gov.
FORM OF THE MERGER
Subject to the terms and conditions of the merger agreement and in
accordance with Florida law, at the effective time of the merger, a wholly-owned
subsidiary of The Home Depot created solely for the purpose of engaging in the
transactions contemplated by the merger agreement, referred to as the merger
subsidiary, will merge with and into us. The separate corporate existence of the
merger subsidiary will cease, and we will continue as the surviving corporation
and will become a wholly owned subsidiary of The Home Depot.
EFFECTIVE TIME OF THE MERGER
The merger will become effective upon the filing of the articles of
merger with the Secretary of State of the State of Florida or at such later time
as is agreed upon by The Home Depot and us and specified in the articles of
merger. The closing of the merger will occur on a date specified by us and The
Home Depot, which shall be no later than the second business day after the
conditions to effect the merger set forth in the merger agreement have been
satisfied or waived. Although we expect to complete the merger _______, we
cannot specify when, or assure you that, we and The Home Depot will satisfy or
waive all conditions to the merger.
DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION
The directors of the merger subsidiary immediately prior to the
effective time of the merger will be the initial directors of the surviving
corporation. Our officers immediately prior to the effective time of the merger
will be the initial officers of the surviving corporation. The directors and
officers will serve in accordance with the bylaws of the surviving corporation
until their respective successors are duly elected or appointed and qualified.
ARTICLES OF INCORPORATION AND BYLAWS OF HUGHES SUPPLY
At the effective time of the merger, our articles of incorporation
and bylaws will be amended and restated in their entirety to be identical to the
articles of incorporation and bylaws of the merger subsidiary, except that the
name of the surviving corporation will be Hughes Supply, Inc.
MERGER CONSIDERATION
At the effective time of the merger, each outstanding share of our
common stock, other than (i) shares owned by The Home Depot or any of its direct
or indirect subsidiaries (including Ocean Merger Corporation) and (ii) shares
owned by us as treasury stock, will be converted into the right to receive
$46.50 per share in cash, without interest. Shares owned by The Home Depot or
any of its direct or indirect subsidiaries (including Ocean Merger Corporation)
and shares owned by us as treasury stock, will be cancelled immediately prior to
the merger without any payment. Our shareholders will receive the merger
consideration after exchanging their Hughes Supply stock certificates in
accordance with the instructions contained in the letter of transmittal to be
sent to our shareholders shortly after completion of the merger. The price of
$46.50 per share was determined through arm's-length bidding and negotiations
between The Home Depot and us.
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The Home Depot and the surviving corporation shall be entitled to
deduct and withhold from the consideration otherwise payable to any holder of
shares of our common stock such amounts that it is required to deduct and
withhold with respect to making such payment under the Code, or any other
applicable state, local or foreign tax law.
EFFECT ON STOCK OPTIONS AND RESTRICTED COMMON STOCK
We will take all necessary actions such that at the effective time of
the merger, all outstanding options to purchase shares of our common stock and
all shares of restricted common stock issued under our equity compensation plans
will, to the extent not then vested, accelerate and become fully vested and, in
the case of options, exercisable. Immediately prior to the effective time of the
merger, each outstanding and unexercised option to purchase shares of our common
stock with an exercise price below $46.50 per share, including the unvested
options whose vesting will accelerate in full, will be cancelled and converted
into the right to receive an amount of cash equal to the difference between the
$46.50 per share in cash to be paid by The Home Depot in the merger and the
exercise price per share of the option, multiplied by the number of shares
subject to the option, without interest and less any applicable withholding tax.
Each outstanding and unexercised option to purchase shares of our common stock
with an exercise price equal to or greater than $46.50 per share will be
cancelled and no consideration will be paid for such options. All shares of
restricted common stock will be converted into the right to receive $46.50 per
share in cash, less any applicable withholding tax. For more information as it
relates to the accelerated vesting of stock options and shares of restricted
common stock held by Hughes Supply's directors and executive officers, please
see "The Merger -- Interests of our Directors and Executive Officers in the
Merger."
PAYMENT PROCEDURES
At or prior to the effective time of the merger, The Home Depot will
designate a bank or trust company reasonably acceptable to us to act as the
paying agent under the merger agreement and The Home Depot will deposit with the
paying agent cash in an amount equal to the aggregate cash consideration payable
in the merger. As soon as practicable following the effective time of the
merger, but in no event later than three business days following the effective
time, the paying agent will mail to each holder of record of a certificate or
certificates that immediately prior to the effective time of the merger
represented outstanding shares of our common stock a letter of transmittal and
instructions for use in effecting the surrender of the stock certificate or
stock certificates representing shares of our common stock in exchange for cash.
The letter of transmittal will specify that delivery will be affected, and risk
of loss and title to the certificates representing shares of our common stock
will pass, only upon actual delivery of the certificates to the paying agent.
You should not return your stock certificates with the enclosed proxy. Upon
surrender to the paying agent of a stock certificate representing shares of our
common stock, together with a duly executed letter of transmittal and any other
documents that may be reasonably required by the paying agent, you will be
entitled to receive from the paying agent $46.50 in cash, without interest and
less any applicable withholding taxes, for each share represented by the stock
certificate, and the certificate surrendered will be cancelled.
From and after the effective time of the merger, until it is
surrendered, each certificate that previously evidenced shares of our common
stock will be deemed to represent only the right to receive $46.50 in cash per
share represented by such certificate less any applicable withholding taxes. No
interest will be paid or accrue on any merger consideration payable upon the
surrender of the share certificates representing shares of our common stock.
In the event of a transfer of ownership of our common stock that is
not registered in our records, the cash consideration for shares of our common
stock may be paid to a person other than the person in whose name the
surrendered certificate is registered if:
o the certificate is properly endorsed or otherwise is in proper form
for transfer; and
o the person requesting such payment either:
o pays any transfer or other taxes required by reason of the
payment to a person other than the registered holder of the
surrendered certificate; or
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o establishes to the satisfaction of the surviving corporation that
the tax has been paid or is not payable.
The surviving corporation may request the paying agent to deliver to
it any funds undistributed to our shareholders at any time following the first
anniversary of the effective time of the merger. Any holders of Hughes Supply
share certificates who have not surrendered such certificates in compliance with
the above-described procedures may thereafter look only to either The Home Depot
or the surviving corporation for payment of the merger consideration to which
they are entitled. Any merger consideration remaining unclaimed when it would
otherwise escheat to or become property of any governmental authority will be
forfeited to The Home Depot.
If any Hughes Supply share certificates has been lost, stolen or
destroyed, upon making of an affidavit by the owner of such certificate claiming
such certificate has been lost, stolen or destroyed and, if required by the
surviving corporation, the posting of a bond by such person in such reasonable
amount as The Home Depot may direct as indemnity against any claim that may be
made with respect to that certificate, the paying agent will deliver to such
person the merger consideration, without interest and less any applicable
withholding taxes, with respect to the shares formerly represented by such lost,
stolen or destroyed certificate.
Share certificates should not be surrendered by our shareholders
before the effective time of the merger and should be sent only pursuant to
instructions set forth in the letters of transmittal to be mailed to our
shareholders promptly following the effective time of the merger. In all cases,
the merger consideration will be provided only in accordance with the procedures
set forth in this proxy statement and such letters of transmittal.
The merger consideration paid to you upon exchange of your shares of
our common stock will be paid in full satisfaction of all rights relating to the
shares of our common stock.
CONDITIONS TO THE MERGER
The parties' obligations to complete the merger are subject to the
following conditions:
o our shareholders must have approved the merger agreement;
o the waiting period applicable to the consummation of the merger under
the HSR Act must have expired or been terminated; and
o the absence of any law, injunction, judgment or ruling enacted,
promulgated, issued, entered or enforced by any governmental authority
making the merger illegal or otherwise preventing or prohibiting the
consummation of the merger.
The Home Depot's obligations to complete the merger are also subject
to the following conditions:
o our representations and warranties set forth in the merger agreement
must be true and correct as of the closing date, except (i) to the
extent such representations and warranties are specifically made as of
a particular date, in which case such representations and warranties
must be true and correct as of such date, and (ii) where the failure
to be true and correct, individually or in the aggregate, has not had
and would not reasonably be expected to have a material adverse effect
on us, with certain exceptions;
o we must have performed in all material respects our covenants and
agreements contained in the merger agreement required to be performed
on or prior to the closing date of the merger;
o our delivery to The Home Depot at closing of a certificate as to the
matters discussed in the previous two paragraphs signed by an
executive officer of Hughes Supply; and
o the absence of any action or proceeding by a governmental authority
that remains pending seeking to enjoin, restrain, prevent or prohibit
consummation of the merger.
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Our obligation to complete the merger is also subject to the
following conditions:
o the representations and warranties of The Home Depot set forth in the
merger agreement must be true and correct as of the closing date,
except (i) to the extent such representations and warranties are
specifically made as of a particular date, in which case such
representations and warranties must be true and correct as of such
date, and (ii) where the failure to be true and correct, individually
or in the aggregate, would not reasonably be expected to impair in any
material respect the ability of The Home Depot to perform its
obligations or to consummate the transactions contemplated by the
merger agreement;
o The Home Depot must have performed in all material respects its
covenants and agreements contained in the merger agreement required to
be performed on or prior to the closing date of the merger; and
o The Home Depot's delivery to us at closing of a certificate as to the
matters discussed in the previous two paragraphs signed by an
executive officer of The Home Depot.
MATERIAL ADVERSE EFFECT
The merger agreement defines material adverse effect as, with respect
to any party, any change event, development or occurrence that is materially
adverse to (A) the ability of such party to timely consummate the transactions
contemplated by the merger agreement or (B) the results of operations, financial
condition or assets of such party and its subsidiaries taken as a whole, other
than changes, events, developments or occurrences arising out of, resulting from
or attributable to (i) changes in conditions in the United States or the global
economy or the capital or financial or markets generally, including changes in
interest or exchange rates, fluctuating commodity prices and unexpected product
shortages, (ii) changes in general legal, regulatory, political, economic or
business conditions or changes in generally accepted accounting principles in
the United States that, in each case, generally affect industries in which such
party and its subsidiaries conduct business, (iii) the negotiation and
announcement of the merger agreement and the identity of The Home Depot,
including the impact thereof on relationships, contractual or otherwise, with
customers, suppliers, distributors, partners or employees, (iv) acts of war,
sabotage or terrorism, or any escalation or worsening of any such acts of war,
sabotage or terrorism or (v) hurricanes, floods, earthquakes or other natural
disasters (in the case of unexpected product shortages referred to in clause (i)
and each of clauses (ii), (iv) and (v), other than to the extent any change,
event, development or occurrence has had or would reasonably be expected to have
a disproportionately adverse effect on such party and its subsidiaries as
generally compared to other participants in the industries in which such party
and its subsidiaries conduct business).
INDEMNIFICATION AND INSURANCE
The merger agreement provides that each of The Home Depot and the
surviving corporation will (i) indemnify and hold harmless, to the fullest
extent permitted by applicable law and provided under the articles of
incorporation and bylaws of Hughes Supply and our subsidiaries, each person who
prior to the effective time was an officer or director of Hughes Supply or any
of our subsidiaries, whom we refer to as the indemnified persons, against all
claims, liabilities, losses, damages, judgments, fines, penalties, costs and
expenses in connection with any claims, suits, actions, proceedings or
investigations based on or arising out of acts or omissions of such person in
his or her capacity as an officer or director of Hughes Supply or any of our
subsidiaries or taken at the request of Hughes Supply at or at any time prior to
the effective time of the merger and (ii) assume all obligations of Hughes
Supply and our subsidiaries to the indemnified persons as provided in the
articles of incorporation and bylaws of Hughes Supply and our subsidiaries in
respect of indemnification and exculpation from liabilities for acts or
omissions occurring at or prior to the completion of the merger. The Home Depot
will also cause the certificate of incorporation and bylaws of the surviving
corporation to contain provisions no less favorable to the indemnified persons
with respect to limitation of liabilities of directors and officers and
indemnification as were set forth in our articles of incorporation and bylaws as
of January 9, 2006.
The merger agreement further provides that at our election in
consultation with The Home Depot, (i) we may obtain a "tail" insurance policy
with a claims period of at least six years from the effective time of the merger
with respect to directors' and officers' liability insurance in amount and scope
at least as favorable as our existing policies for claims arising from facts or
events that occurred on or prior to the effective time of the merger or (ii) if
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a tail policy is not obtained, the surviving company will maintain in effect for
a period of six years following the effective time of the merger our current
directors' and officers' liability insurance covering acts or omissions
occurring at or prior to the effective time of the merger for the benefit of the
indemnified persons on terms, and in an amount, not less favorable to such
individuals than those of our policy in effect as of January 9, 2006. However,
if during the six year period the aggregate annual premiums for such insurance
exceed 300% of the current aggregate annual premium, then The Home Depot will
provide a directors' and officers' insurance policy for the indemnified persons
with the best coverage then available at an annual premium of 300% of the
current aggregate annual premium.
TERMINATION OF THE MERGER AGREEMENT
The merger agreement provides that, at any time prior to the
consummation of the merger, either before or after the requisite approval of our
shareholders has been obtained, the merger agreement nay be terminated:
o by mutual written consent of us and The Home Depot;
o by either us or The Home Depot, if:
o the merger is not consummated on or before June 9, 2006,
provided that we may only so terminate the merger agreement
if a vote on the approval of the merger agreement shall have
occurred and, provided, further, that if approval pursuant
to the HSR Act is not obtained, (i) the earliest date that
we may so terminate the merger agreement is July 10, 2006
and (ii) The Home Depot may not so terminate the agreement
and, provided, further, that a party may not terminate the
merger agreement if the merger is not timely consummated
primarily due to such party's failure to perform its
obligations under the merger agreement;
o any law, injunction, judgment or ruling enacted,
promulgated, issued, entered or enforced by any governmental
authority making the merger illegal or otherwise preventing
or prohibiting the consummation of the merger becomes final
and non-appealable;
o our shareholders fail to approve the merger agreement;
o by us, if:
o The Home Depot breaches any of its representations,
warranties, covenants or agreements, which breach would
result in the failure of closing conditions set forth in the
merger agreement and which cannot be cured prior to June 9,
2006 or, if curable, is not cured within 45 days after The
Home Depot receives notice of such breach;
o we concurrently enter into a definitive acquisition
agreement for a superior proposal and have paid a
$124,800,000 termination fee to The Home Depot, provided
that we must have materially complied with our obligations
set forth in the shareholders meeting and non-solicitation
covenants of the merger agreement and, provided, further,
that we may only so terminate the merger agreement if at
least seven business days have passed since providing notice
of our intention to enter into such agreement for such
superior proposal to The Home Depot;
o by The Home Depot, if:
o we breach any of our representations, warranties, covenants
or agreements set forth in the merger agreement, which
breach would result in the failure of closing conditions set
forth in the merger agreement and which cannot be cured by
us prior to June 9, 2006 or, if curable, is not cured within
45 days after we receive notice of our breach;
49
o we notify The Home Depot in writing that we seek to (i)
enter into an agreement for a superior proposal or (ii) take
any of the actions described in the following paragraph,
provided that The Home Depot may only so terminate the
merger agreement on or before the seventh business day after
receipt of such notice; or
o our board of directors or any committee of our board of
directors (i) withdraws or modifies, in a manner adverse to
The Home Depot, the approval or adoption of the merger
agreement or the recommendation of our board of directors
that our shareholders approve the merger agreement, (ii)
approves or adopts, or recommends to our shareholders, a
takeover proposal of Hughes Supply by any party other than
The Home Depot, (iii) in the event that a takeover proposal
is publicly announced or if any person commences a tender or
exchange offer of our shares, fails to issue a press release
reaffirming its recommendation that our shareholders approve
the merger agreement and, in the case of a tender or
exchange offer, fail to recommend against acceptance of such
tender or exchange offer or (iv) publicly proposes to take
any of the foregoing actions.
EXPENSES AND TERMINATION FEE
o EXPENSES. With limited exceptions, the parties to the merger agreement
will bear their respective costs and expenses incurred in connection
with the merger agreement, whether or not the merger is consummated.
o TERMINATION FEE. The merger agreement obligates us to pay The Home
Depot a termination fee of $124,800,000 if:
o we terminate the merger agreement because we have concurrently
entered into a definitive acquisition agreement providing for a
superior proposal;
o The Home Depot terminates the merger agreement because:
o we have willfully breached the non-solicitation covenant
contained in the merger agreement;
o we have notified The Home Depot in writing that we seek to
(i) enter into an agreement with a third-party who has
offered us a superior proposal or (ii) take any of the
actions described in the following paragraph;
o our board of directors or any committee of our board of
directors (i) withdraws or modifies, in a manner adverse to
The Home Depot, the approval or adoption of the merger
agreement or the recommendation of our board of directors
that our shareholders approve the merger agreement, (ii)
approves or adopts, or recommends to our shareholders, a
takeover proposal of Hughes Supply by any party other than
The Home Depot, (iii) in the event that a takeover proposal
is publicly announced or if any person commences a tender or
exchange offer of our shares, fails to issue a press release
reaffirming its recommendation that our shareholders approve
the merger agreement and, in the case of a tender or
exchange offer, fail to recommend against acceptance of such
tender or exchange offer or (iv) publicly proposes to take
any of the foregoing actions;
o we breach any of our representations, warranties, covenants
or agreements set forth in the merger agreement (except for
the non-solicitation covenant) which cannot be cured by us
prior to June 9, 2006 or, if curable, is not cured within 45
days after we receive notice of our breach, provided that
(i) our breach or failure is willful, (ii) a takeover
proposal from any party other than The Home Depot shall have
been made known to us or directly to our shareholders or if
any party other than The Home Depot publicly announced an
intention to make a takeover proposal for Hughes Supply
prior to such termination and (iii) we subsequently enter
into or complete an alternative transaction with respect to
a takeover proposal within 12 months after such termination
of the merger agreement.
50
o the merger agreement is terminated by us or The Home Depot
because the merger has not been consummated by June 9, 2006 or,
as applicable, July 10, 2006 or our shareholders fail to approve
the merger agreement and (i) a takeover proposal from any party
other than The Home Depot shall have been made known to us or
directly to our shareholders or any party other than The Home
Depot publicly announced an intention to make a takeover proposal
for Hughes Supply prior to such termination and (ii) we
subsequently enter into or complete an alternative transaction
with respect to a takeover proposal within 12 months after such
termination of the merger agreement.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains representations and warranties that we
and The Home Depot made to, and solely for the benefit of, each other. The
representations and warranties expire at the effective time of the merger. The
assertions embodied in those representations and warranties are qualified by
information in confidential disclosure schedules that the parties exchanged in
connection with signing the merger agreement. While the Company does not believe
that the disclosure schedules contain non-public information that the securities
laws require to be publicly disclosed, the disclosure schedules do contain
information that modifies, qualifies and creates exceptions to the
representations and warranties set forth in the merger agreement. Accordingly,
you should not rely on the representations and warranties as characterizations
of the actual state of facts, because (i) they were only made as of the date of
the merger agreement or a prior specified date, (ii) in some cases they are
subject to a material adverse effect standard or other materiality and knowledge
qualifiers and (iii) they are modified in important part by the underlying
disclosure schedules. These disclosure schedules contain information that has
been included in the Company's prior public disclosures, as well as non-public
information. Moreover, information concerning the subject matter of the
representations and warranties may have changed since the date of the merger
agreement, which subsequent information may or may not be fully reflected in the
Company's public disclosures.
Our representations and warranties relate to, among other things:
o due organization, valid existence and good standing;
o approval of the merger agreement and power and authorization to
enter into the transactions contemplated by the merger agreement;
o our subsidiaries;
o our capitalization;
o the required vote of our shareholders to approve the merger
agreement and transactions contemplated by the merger agreement;
o the binding effect of the merger agreement;
o compliance with laws and our possession of all licenses,
franchises, permits, certificates, approvals and authorizations
from governmental authorities to conduct business;
o our Securities and Exchange Commission filings since February 1,
2004;
o the absence of liabilities, other than as set forth on our
October 31, 2005 balance sheet, ordinary course liabilities,
liabilities expressly contemplated by the merger agreement or
liabilities that would not reasonably be expected to have a
material adverse effect;
o the accuracy and completeness of information supplied by us in
this proxy statement and other documents filed with the
Securities and Exchange Commission;
51
o the absence of certain changes since October 31, 2005, including
the absence of a material adverse effect;
o the absence of litigation or outstanding court orders against us;
o employment and labor matters affecting us, including matters
relating to our employee benefit plans;
o real property owned and leased by us and our subsidiaries and
title to assets;
o our intellectual property;
o taxes, environmental matters and certain specified types of
contracts;
o our insurance policies;
o our receipt of an opinion in connection with this merger from
Lehman Brothers, Inc., our financial advisor;
o the absence of undisclosed broker's fees;
o amendment of our rights agreement;
o the inapplicability of certain state statutes;
o disclosure of transactions with related parties;
o our compliance and non-modification of standstill agreements; and
o our compliance with certain ethical conduct.
In addition, the merger agreement contains representations and
warranties made by The Home Depot to us as to, among other things, its
organization and standing, corporate power and authority, governmental
approvals, information supplied to us for inclusion in this proxy statement,
ownership and operation of the merger subsidiary, the availability of capital
resources to consummate the merger, ownership of our shares, and the absence of
undisclosed broker's or similar fees.
The representations and warranties in the merger agreement are
complicated and not easily summarized. You are urged to read carefully and in
their entirety the sections of the merger agreement entitled "Representations
and Warranties of the Company" and "Representations and Warranties of Parent" in
Annex A attached to this proxy statement.
COVENANTS UNDER THE MERGER AGREEMENT
The merger agreement contains certain covenants that Hughes Supply
and The Home Depot made to, and solely for the benefit of, each other. Certain
of the covenants embodied in the merger agreement are qualified by information
in confidential disclosure schedules that the parties exchanged in connection
with the execution of the merger agreement. The disclosure schedules contain
information that has been included in our general prior public disclosures, as
well as additional non-public information.
Conduct of Our Business. We have agreed in the merger agreement that,
until the effective time of the merger, unless The Home Depot otherwise consents
in writing, we will, and we will cause our subsidiaries to:
o conduct our business in all material respects in the ordinary course
consistent with past practice and policies;
52
o use commercially reasonable efforts consistent with past practice and
policies to preserve intact our present business organizations;
o keep available the services of our present executive officers and key
employees;
o preserve our relationships with persons having significant business
dealings with us; and
o take no action which would adversely affect or delay in any material
respect the ability of either Hughes Supply or The Home Depot to
obtain any necessary approvals of any governmental authority required
for completion of the merger.
In addition, we have agreed that, subject to certain exceptions,
neither we nor any of our subsidiaries may, without The Home Depot's prior
written consent:
o issue, sell or grant any shares of our capital stock or any securities
convertible into or exchangeable for any shares of our capital stock,
or any rights, warrants or options to purchase any shares of our
capital stock or any securities convertible into or exchangeable for
any shares of our capital stock;
o redeem, purchase or otherwise acquire any of our outstanding shares of
capital stock, or any rights, warrants or options to acquire any
shares of our capital stock (except pursuant to commitments in effect
as of January 9, 2006);
o declare, set aside or pay any dividend other than regularly quarterly
dividends;
o effect any stock split or otherwise change our or our subsidiaries'
capitalization;
o incur any indebtedness or guarantee any indebtedness, other than
short-term indebtedness under our existing revolving credit agreement
not in excess of $30,000,000;
o sell, lease, dispose of or grant, create or incur any lien on certain
properties owned by us;
o acquire the capital stock, or purchase or lease the assets or
properties of any other person, which when combined with all other
permitted transactions exceeds $50 million in the aggregate (and the
disclosure schedules to the merger agreement require us to make a
presentation to The Home Depot of the results of our due diligence
review for any acquisition, even if such acquisitions fall within such
$50 million aggregate amount);
o amend or terminate any existing employee benefit plans, or fail to
make any required contribution to such plans, or adopt or enter into
any such employee benefit plan;
o increase the compensation or benefits payable to any director, officer
or employee;
o make any changes in financial or tax accounting methods, principles or
practices;
o amend our articles of incorporation or our bylaws;
o grant any waiver, other than to The Home Depot, under our rights
agreement;
o amend or waive any material rights under or enter into any material
contracts;
o enter into any related party transaction that would be required to be
disclosed in a future Securities and Exchange Commission report;
o forgive or make any loans, advances or capital contributions to, or
investments in, any person;
53
o lease or acquire real property or make any commitment for any other
capital expenditure in excess of $40 million in the aggregate,
provided that we will consult with The Home Depot prior to any such
lease, acquisition or expenditure in excess of $2,500,000;
o enter into, amend or extend any collective bargaining or other labor
agreement;
o settle or agree to settle any material suit, action, claim, proceeding
or investigation, or pay, discharge or satisfy or agree to pay,
discharge or satisfy any material claim, liability or obligation;
o adopt a plan or agreement of complete or partial liquidation or
dissolution;
o convene any shareholders meeting (except a shareholder's meeting for
the purpose of seeking approval of the merger agreement); and
o agree to take any of the actions listed above.
OTHER COVENANTS. The merger agreement contains a number of mutual
covenants, which subject to certain exceptions, obligate us and The Home Depot
to:
o use reasonable best efforts to take or cause to be taken any action to
cause the conditions to the consummation of the merger to be satisfied
and to cause the merger to occur in the most expeditious manner
practicable;
o use reasonable best efforts to obtaining governmental approvals
including those relating to antitrust matters;
o make an appropriate filing, and to supplement such filing as needed,
pursuant to the HSR Act;
o use reasonable best efforts to ensure that no state takeover statute
or regulation is applicable to the merger and the transactions
contemplated by the merger;
o use reasonable best efforts to cooperate with one another in
connection with any litigation or proceeding against either party with
respect to the transactions contemplated by the merger agreement and
to keep the other party informed of any material communication in
connection with any such litigation or proceeding;
o keep the other party informed of any material communication received
by the party from, or given by such party to, any governmental
authority;
o use reasonable best efforts to resolve objections, if any, that may be
asserted by a governmental authority or other person with respect to
the transactions contemplated by the merger agreement;
o obtain the consent of the other party prior to issuing press releases
and public announcements with respect to the transactions contemplated
by the merger agreement;
o provide the other party notice of communications received by any
governmental authority in connection with the merger or from any
person alleging that their consent is required in connection with the
merger, any actions, suits, claims, investigations or proceedings
commenced or threatened to be commenced which relate to the merger, or
any event that would cause the representations and warranties in the
merger agreement to be untrue or inaccurate in any material respect or
any material failure to comply with or satisfy any covenant, condition
or agreement in the merger agreement; and
o prepare and file this proxy statement and to supplement this proxy
statement, if required.
54
The merger agreement also contains covenants requiring us, subject to
certain exceptions, to:
o provide The Home Depot with reasonable access to our properties,
books, contracts, records and employees;
o use reasonable best efforts to cause our consultants and independent
public accountants to provide access to their work papers and other
information reasonably requested by The Home Depot;
o terminate certain of our employee benefit plans;
o provide to The Home Depot copies of documents we file pursuant to
federal or state securities laws, written updates provided to our
board of directors on our financial performance and projections, and
other information concerning our business and properties that The Home
Depot may reasonably request;
o respond (after notification and consultation with The Home Depot) as
promptly as practicable to any comments of the Securities and Exchange
Commission with respect to this proxy statement;
o mail this proxy statement to our shareholders as promptly as
practicable after the date of the merger agreement;
o establish a record date for, duly call, give notice of, convene and
hold a meeting of shareholders as promptly as practicable to obtain
shareholder approval of the merger agreement;
o recommend, through our board of directors, approval of the merger
agreement except as otherwise permitted by the merger agreement;
o take steps prior to the effective time of the merger to cause
dispositions of our equity securities to be exempt under Rule 16b-3
promulgated under the Exchange Act; and
o to prepare and commence an offer to purchase our outstanding notes and
to obtain payoff letters or consents with respect to our revolving
credit facility and amounts owing to landlords and other
nongovernmental counterparties to our contracts.
The Home Depot agreed, subject to certain exceptions, in the merger
agreement to, and to cause the surviving corporation of the merger to:
o provide our employees who are not covered by a collective bargaining
agreement, for a period of 12 months following the effective time of
the merger, the same level of salary and bonus opportunity as in
effect prior to the effective time of the merger and benefits that are
substantially similar in the aggregate to benefits provided under
existing company plans;
o provide our executive officers, for a period of 24 months following
the effective time of the merger, the same salary, bonus opportunities
and benefits provide to them by us, and to continue the benefits
provided under our SERP (see the section captioned "The Merger
-Interests of our Directors and Executive Officers in the Merger); and
o cause our securities to be de-listed from The New York Stock Exchange
and de-registered under the Exchange Act as soon as practicable
following the effective time of the merger.
Pursuant to the merger agreement, we will also provide persistency
bonuses in our reasonable discretion (after consultation with The Home Depot
about the formulation and terms of the such bonuses) to selected employees in an
aggregate amount up to, and not exceeding, $2.5 million. Such bonuses would be
payable upon the earlier of November 9, 2006 and the date that is 6 months after
the closing of the merger, and may include such other customary provisions as we
55
deem prudent. These bonuses will be distributed to our employees below the level
of vice president and the total number of employees to whom such bonuses will be
distributed will not exceed 125.
For a discussion of the additional covenants relating to our
directors, officers and employees, directors' and officers' indemnification and
insurance arrangements and our solicitation of other acquisition proposals, see
"The Merger - Interests of Hughes Supply's Directors and Executive Officers in
the Merger," "Indemnification and Insurance," and "No Solicitation by Hughes
Supply" on pages 36, 48 and 56, respectively.
The covenants in the merger agreement are complicated and not easily
summarized. You are urged to read carefully and in its entirety the section of
the merger agreement entitled "Additional Covenants and Agreements" in ANNEX A
attached to this proxy statement.
NO SOLICITATION
Under the merger agreement, we have agreed, and we have agreed to
cause our subsidiaries and our and their directors, officers, employees,
investment bankers, financial advisors, attorneys, accountants, agents and other
advisors and representatives, which we refer to collectively as our
representatives, to:
o cease any discussions or negotiations with any other person with
respect to a takeover proposal or that would reasonably be expected to
lead to a takeover proposal;
o request the return or destruction of any confidential information
provided to interested parties; and
o not terminate, waive or fail to enforce any existing standstill or
confidentiality agreements.
We have further agreed not to, and we will cause our representatives
not to, directly or indirectly:
o solicit or encourage a takeover proposal or any inquiry that could
lead to a takeover proposal;
o participate in any discussions, or furnish any information to any
person, with respect to a takeover proposal; or
o enter into any agreements relating to a takeover proposal.
Notwithstanding the foregoing, prior to obtaining the approval of our
shareholders to the merger agreement, if we receive an unsolicited written
takeover proposal that is not reasonably understandable or clear on its face,
then we and our representatives may submit a written question to the party
making such proposal that is limited exclusively to asking for clarification of
such portion of the statement that is not reasonably understandable or clear,
but we may not provide any information about Hughes Supply nor encourage or
facilitate such proposal. If each of the special committee and our board of
directors determines, after consultation with outside counsel, in good faith
that such proposal constitutes or is reasonably likely to constitute a superior
proposal and that it is reasonably necessary for the special committee or our
board of directors to take action to comply with their fiduciary duties to our
shareholders, then we, after giving The Home Depot prompt written notice (within
24 hours) of such determinations, may:
o furnish any information with respect to Hughes Supply to the person
making the takeover proposal, pursuant to a confidentiality and
standstill agreement (provided that all information so provided has
been provided to The Home Depot); and
o participate in discussions and negotiations with such person regarding
the takeover proposal.
At any time that we receive a takeover proposal or request for
information or inquiry that relates to or would be reasonably likely to lead to
a takeover proposal, we must promptly (within 24 hours) provide The Home Depot
with a copy (if in writing) and summary of the material terms and conditions of
such takeover proposal, request or inquiry and the identity of the person making
such takeover proposal, request or inquiry, and must keep The Home Depot
reasonably informed of the status of any financial or other material
modifications to such takeover proposal, request or inquiry, including by
conveying a copy of all such modifications that are in writing promptly (within
24 hours) after our receipt thereof.
56
Except as provided in the next sentence, our board of directors or
any committee thereof may not take or publicly propose to take any of the
following actions, each of which we refer to as a company adverse recommendation
change:
o withdraw or modify, in a manner adverse to The Home Depot, the
approval or adoption of the merger agreement or the recommendation of
our board of directors that our shareholders approve the Merger
Agreement;
o recommend to our shareholders, or approve or adopt, a takeover
proposal of Hughes Supply by any party other than The Home Depot; or
o in the event that any takeover proposal is publicly announced or if
any person commences a tender or exchange offer for our outstanding
common stock, fail to issue a press release that reaffirms the
approval of our board of directors of the merger agreement and its
recommendation that our shareholders approve the merger agreement and,
in the case of a tender or exchange offer, fail to recommend against
such offer within 10 business days of such announcement or
commencement.
NOTWITHSTANDING THE FOREGOING:
o our board of directors may withdraw its recommendation that our
shareholders approve the merger agreement if it determines in good
faith (after receiving the advice of its outside counsel) that it is
reasonably necessary to do so in order for our board of directors to
comply with its fiduciary duties to our shareholders; and
o if our board of directors receives a takeover proposal that it
determines constitutes a superior proposal, we may enter into an
acquisition agreement with respect to such superior proposal if we
shall have complied with the requirements of the following paragraph
and terminated the merger agreement concurrently with entering into
such acquisition agreement.
If we desire to enter into an acquisition agreement with respect to a
takeover proposal, or to make a company adverse recommendation change, we are
required to provide The Home Depot with a written notice, containing a
description of the terms of such takeover proposal and the basis for the company
adverse recommendation change, a copy of such acquisition agreement and, if
applicable, advising The Home Depot that our board of directors has determined
that such takeover proposal is a superior proposal and that our board of
directors intends to enter into an agreement providing for such superior
proposal. We may make a company adverse recommendation change or terminate the
merger agreement to enter into an acquisition agreement with respect to a
superior proposal only if (i) at least 7 business days have passed since such
notice has been given to The Home Depot and (ii) after taking into account any
revised proposal that may be made by The Home Depot in response to such notice,
our board of directors continues to believe that such takeover proposal still
constitutes a superior proposal.
Under the merger agreement:
o the term "takeover proposal" means any inquiry, proposal or offer,
whether or not conditional, from any person (other than The Home Depot
and its subsidiaries) relating to any direct or indirect (A)
acquisition of assets of Hughes Supply and our subsidiaries (including
securities of our subsidiaries, but excluding sales of assets in the
ordinary course of business in compliance with the merger agreement)
equal to 20% or more of Hughes Supply's consolidated assets or to
which 20% or more of Hughes Supply's revenues or earnings on a
consolidated basis are attributable, (B) acquisition of 20% or more of
the outstanding common stock of Hughes Supply, voting power of Hughes
Supply or any class of equity securities of Hughes Supply, (C) tender
offer or exchange offer that if consummated would result in any person
beneficially owning 20% or more of the outstanding common stock of
57
Hughes Supply, (D) merger, consolidation, share exchange, business
combination, recapitalization, liquidation, dissolution or similar
transaction involving Hughes Supply, (E) acquisition by Hughes Supply
or any of our subsidiaries of any third party in any of the foregoing
types of transactions in which the shareholders of such third party
immediately prior to the consummation of such transaction will own
more than 20% of the outstanding common stock of Hughes Supply
immediately following such transaction, or (F) without limiting any of
the foregoing, any of the foregoing types of transactions involving
the acquisition of greater than 49% of the voting equity interests in
any subsidiary or subsidiaries of Hughes Supply with assets, revenue
or earnings representing 20% or more of the consolidated assets,
revenue or earnings of Hughes Supply on a consolidated basis; and
o the term "superior proposal" means a bona fide written proposal or
offer to acquire, directly or indirectly, for consideration consisting
of cash and/or publicly listed and traded securities, more than 68.5%
of our equity securities or all or substantially all of our and our
subsidiaries' assets on a consolidated basis, made by a third party,
and which is otherwise on terms and conditions which our board of
directors determines in its good faith and reasonable judgment and by
resolution duly adopted (after consultation with a financial advisor
of national reputation and in light of all relevant circumstances,
including all the terms and conditions of such proposal and the merger
agreement and the timing and certainty of consummation) to be more
favorable to our shareholders from a financial point of view than the
terms set forth in the merger agreement or the terms of any other
proposal made by The Home Depot after The Home Depot receives notice
that we desire to enter into an acquisition agreement with respect to
a takeover proposal or to make a company adverse recommendation
change, and which our board of directors determines in good faith is
reasonably capable of being consummated on the terms so proposed,
taking into account any financing and approval requirements, timing of
such consummation and all financial, regulatory, legal and other
aspects of such proposal.
AMENDMENT AND WAIVER
The parties may amend the merger agreement at any time before or
after approval of the matters presented in connection with the merger agreement
by our shareholders. However, after shareholder approval has been obtained, the
parties may not amend the merger agreement without obtaining further approval by
our shareholders if, by law, such amendment would require further approval of
our shareholders. The merger agreement also provides that, at any time prior to
the effective time of the merger, each party may extend the time for the
performance of any obligations or other acts of the other party, waive any
inaccuracies in the representations and warranties in the merger agreement or
waive compliance with any of the agreements or, except as otherwise provided in
the merger agreement, the conditions contained in the merger agreement.
58
APPRAISAL RIGHTS
Pursuant to Section 607.1302(2)(a) of the Florida Business
Corporation Act, shareholders of Hughes Supply do not have appraisal rights
because as of February 6, 2006, the record date established for determining
shareholder eligibility to vote in the special meeting, Hughes Supply was a
listed corporation on The New York Stock Exchange, and our shareholders, upon
consummation of the merger, will receive only cash consideration.
59
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table, except as otherwise noted, sets forth
information about the beneficial ownership of our common stock as of January 25,
2006 by:
o the shareholders we know to beneficially own more than 5% of our
outstanding common stock;
o each of our current directors;
o our chief executive officer and our other executive officers named in
the Summary Compensation Table in our proxy statement sent to
shareholders in connection with our 2005 Annual Meeting of
Shareholders; and
o all of our current directors and executive officers as a group.
Under the rules of the Securities and Exchange Commission, you are
deemed to be a beneficial owner of shares if you have or share the power to vote
or direct the voting of the shares or the power to dispose of or direct the
disposition of the shares. You are also deemed to be a beneficial owner of
shares if you have the right to acquire beneficial ownership of the shares
within 60 days (other than in connection with an acceleration resulting from the
merger). Accordingly, more than one person may be deemed to be a beneficial
owner of the same shares. Unless otherwise indicated by footnote, the persons
named in the table have sole voting and investment power with respect to the
shares beneficially owned. Unless otherwise noted, the address of each person
listed in the table is: c/o Hughes Supply, Inc., 501 West Church Street,
Orlando, Florida 32805.
NO. OF
DIRECTORS AND NAMED EXECUTIVES SHARES PERCENT(1)
------------------------------ ------ ----------
John D. Baker II 104,476(2) *
David Bearman 164,343(3) *
Robert N. Blackford 118,078(2) *
H. Corbin Day 65,976(2)(4) *
David H. Hughes 943,085(5)(6)(7) 1.4
Vincent S. Hughes 533,691(2)(6)(7)(8) *
Dale E. Jones 6,800(2) *
William P. Kennedy 92,800(2)(9) *
Patrick J. Knipe 9,300(2) *
Robert A. Machaby 125,759(10) *
Amos R. McMullian 20,300(2) *
Thomas I. Morgan 255,880(11) *
Michael L. Stanwood 113,997(12) *
Gradie E. Winstead, Jr. 219,825(13) *
All Directors and Executive Officers
as a Group (30 Persons) 3,871,344(14) 5.8(15)
5% SHAREHOLDERS
Lord, Abbett & Co. LLC (16)
90 Hudson Street 5,042,920 7.5
Jersey City, NJ 07302-3900
Barclays Global Investors, N.A. (17)
45 Fremont Street 3,992,532 6.0
San Francisco, CA 94105-2228
J.P. Morgan Investment Management,
Inc. (18) 3,779,513 5.6
522 Fifth Avenue
New York, NY 10036
* Less than 1%.
60
(1) These percentages have been calculated on the basis of 66,920,837 common
shares outstanding as of January 25, 2006, and, with respect to each of the
persons noted in the table above:
o the shares subject to options exercisable granted to such person; and
o the shares subject to restricted share grants under our 1997 Executive
Stock Plan and 2005 Executive Stock Plan, pursuant to which such
person has the power to vote or direct the voting of the shares.
Percentages shown only for those persons whose beneficial ownership of shares
exceeds one percent of the common shares outstanding or deemed to be outstanding
for this calculation.
(2) Includes the number of shares subject to options granted under our
Directors' Stock Option Plan for non-management (which for all purposes in
this proxy statement shall mean non-employee) directors and our 1997
Executive Stock Plan as follows: John D. Baker II, 70,176; Robert N.
Blackford, 70,176; H. Corbin Day, 62,676; Vincent S. Hughes, 5,000; Dale E.
Jones, 3,000; William P. Kennedy, 45,000; Patrick J. Knipe, 1,000; and Amos
R. McMullian, 15,000.
(3) Includes 12,594 shares subject to options under our 1997 Executive Stock
Plan which are exercisable within 60 days and 105,943 shares represented by
restricted share grants under our 1997 Executive Stock Plan. Mr. Bearman is
considered to have sole voting power as to 151,749 shares and sole
investment power as to 45,806 shares.
(4) 411,900 common shares are owned of record by Jemison Investment Company,
Inc. Mr. Day is the Chairman of the Executive Committee of Jemison, and he
and members of his immediate family own an equity interest in Jemison. Mr.
Day disclaims beneficial ownership of these shares.
(5) Includes 169,800 shares subject to options under our 1988 Stock Option Plan
and/or our 1997 Executive Stock Plan that are exercisable within 60 days,
182,592 shares represented by restricted share grants under our 1997
Executive Stock Plan and 7,929 shares owned of record by Mr. Hughes's
spouse. Mr. Hughes is considered to have sole voting and investment power
as to 435,585 shares and shared voting and investment power as to 329,771
shares.
(6) Includes 86,432 shares held by Hughes, Inc. David H. Hughes and Vincent S.
Hughes are executive officers and directors of, and each owns a one-third
equity interest in, Hughes, Inc. David H. Hughes and Vincent S. Hughes are
considered to share voting and investment power as to such shares and all
such shares are reported in the table above as beneficially owned by each
of them.
(7) Includes 243,339 shares held by three trusts of which David H. Hughes and
Vincent S. Hughes are co-trustees. All of the shares held by these trusts
are included in the table above as beneficially owned by each of David H.
Hughes and Vincent S. Hughes.
(8) Includes 39,642 shares owned of record by Mr. Hughes's spouse. Mr. Hughes
is considered to have sole voting and investment power as to 159,278 shares
and shared voting and investment power as to 329,771 shares.
(9) Includes 8,500 shares held through Vital Support Charitable Foundation, for
which Mr. Kennedy acts as Chairman, 3,000 shares held through the Ashley E.
Kennedy Trust and 3,000 shares held through the Courtney B. Kennedy Trust.
Mr. Kennedy acts as Trustee for both of these trusts. Mr. Kennedy is
considered to have sole investment and voting power as to 39,300 shares and
shared voting and investment power as to 8,500 shares.
(10) Includes 15,400 shares subject to options under our 1997 Executive Stock
Plan which are exercisable within 60 days and 107,325 shares represented by
restricted share grants under our 1997 Executive Stock Plan. Mr. Machaby is
considered to have sole voting power as to 110,359 shares and sole
investment power as to 2,982.
61
(11) Includes 75,500 shares subject to options under our 1997 Executive Stock
Plan that are exercisable within 60 days and 166,634 shares represented by
restricted share grants under our 1997 Executive Stock Plan. Mr. Morgan is
considered to have sole voting power as to 180,380 shares and sole
investment power as to 13,746 shares.
(12) Includes 7,067 shares subject to options under our 1997 Executive Stock
Plan that are exercisable within 60 days and 106,930 shares represented by
restricted share grants under our 1997 Executive Stock Plan and/or 2005
Executive Stock Plan. Mr. Stanwood is considered to have sole voting power
as to 106,930 shares and sole investment power as to 0 shares.
(13) Includes 55,867 shares subject to options under our 1988 Stock Option Plan
and/or our 1997 Executive Stock Plan which are exercisable within 60 days
and 130,077 shares represented by restricted share grants under our 1997
Executive Stock Plan. Mr. Winstead is considered to have sole voting power
as 161,262 shares, sole investment power as to 31,185 shares, and shared
voting and investment power as to 2,696 shares.
(14) Includes an aggregate of 579,932 shares subject to options under our 1988
Stock Option Plan and/or our 1997 Executive Stock Plan and exercisable
within 60 days and 1,601,510 shares subject to restricted share grants
under our 1997 Executive Stock Plan and/or our 2005 Executive Stock Plan
held by our executive officers as a group, and 272,028 shares subject to
unexercised stock options under our Directors' Stock Option Plan held by
our non-management directors as a group. Directors and executive officers
hold sole voting power as to 3,016,311 shares, sole investment power as
1,424,205 shares, and shared voting and investment power as to 472,359
shares.
(15) Calculated on the basis of 67,772,797 shares, including 66,920,837 shares
outstanding and 851,960 shares subject to options. The shares subject to
stock options have been deemed outstanding for the purpose of computing
such percentage.
(16) Based solely upon a Form 13F filed with the Securities and Exchange
Commission on November 14, 2005.
(17) Based solely upon a Form 13F filed with the Securities and Exchange
Commission on November 14, 2005.
(18) Based solely upon a Form 13F filed with the Securities and Exchange
Commission on November 10, 2005.
62
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
AGREEMENTS WITH CERTAIN DIRECTORS AND/OR OFFICERS
We lease certain buildings and properties from Hughes, Inc., a
Florida corporation, a company of which David H. Hughes, Vincent S. Hughes
(formerly an executive officer) and Russell V. Hughes (formerly an executive
officer) are officers and directors, and in which each owns a one-third
interest. Since February 1, 2004, eight of these leases have been in effect in
Florida. Each lease was entered into prior to March 12, 1992, and was renewed
effective April 2003, except for one lease that was entered into effective June
2000. Since February 1, 2004, eight of these leases were assigned by Hughes,
Inc. to non-related third parties as a result of Hughes, Inc.'s sale of the
properties. Another of these leases was terminated in January 2005 as a result
of our purchase of the property. Of the three remaining leases with Hughes,
Inc., two were renewed on a short-term basis and will expire in March 2006, and
one expires in March 2008. These leases typically relate to branch facilities
including buildings ranging in size from approximately 21,644 to 117,327 square
feet together with outside parking and storage areas. Under leases in effect
during the fiscal year ended January 31, 2006, we made rental payments to
Hughes, Inc. in the aggregate of $570,745. We also pay real estate taxes,
building insurance and certain maintenance and repair expenses with respect to
these leased properties. During the fiscal year ended January 31, 2006, we paid
real estate taxes, building insurance and maintenance and repair expenses on
such leased properties of $120,770, $4,900 and $107,246, respectively.
We also lease certain buildings and properties from JEM-Realty, LLC,
SJ Limited Partnership, SJ Partnership, Stanwood Interests Limited Partnership,
Stanwood Limited Partnership, SWS-GA Realty, Inc., and SWS-TX Realty, Inc.
JEM-Realty, LLC is a wholly-owned subsidiary of Jemison Investment Co., Inc., of
which Mr. Stanwood is a director. Mr. Stanwood is a limited partner of SJ
Limited Partnership and SJ Partnership. Mr. Stanwood is President of Stanreal,
LLC, the general partner of Stanwood Interests Limited Partnership and Stanwood
Limited Partnership. Mr. Day is the sole shareholder of SWS-GA Realty, Inc. and
SWS-TX Realty, Inc. Since February 1, 2004, a total of ten such leases have been
in effect with respect to seven locations in Texas, two locations in Georgia,
and one location in North Carolina. Five of these leases were entered into in
May 1996, one of these leases was entered into in July 1998, one of these leases
was entered into in April 1999, one of these leases was entered into in May
2000, one of these leases was entered into in June 2002, and one of these leases
was entered into in July 2003. One of the leases expired in September 2004, two
of the leases expire in May 2008, three of these leases expire in April 2010,
one of these leases expires in July 2013, and three of the leases were renewed
for 10 years and will expire in May 2015. These leases relate to branch
facilities ranging in size from approximately 10,000 to 50,000 square feet,
together with outside storage and parking, with the exception of one lease which
is solely for vacant land used for outside storage. During the fiscal year ended
January 31, 2006, we made rental payments to JEM-Realty, LLC, SJ Limited
Partnership, Stanreal, LLC (for the benefit of Stanwood Interests Limited
Partnership), SWS-GA Realty, Inc. and SWS-TX Realty, Inc. in the aggregate of
$999,564. We also pay real estate taxes, building insurance and certain
maintenance and repair expenses with respect to these leased properties. During
the last fiscal year we paid real estate taxes, building insurance and
maintenance and repair expenses on such leased properties of $178,119, $4,737
and $188,495, respectively.
These transactions were negotiated and entered into in an arms-length
manner after satisfactory due diligence verified that the terms of such
transactions were competitive with or better than terms available for comparable
properties in the respective markets at the time of each transaction. We believe
that the terms of the transactions described above are at least as favorable to
us as those which could have been obtained from unrelated parties.
63
PROPOSAL 2 - ADJOURNMENT OR POSTPONEMENT OF THE SPECIAL MEETING
If we fail to receive a sufficient number of votes to approve the
merger agreement, we may propose to adjourn or postpone the special meeting, if
a quorum is present, for a period of not more than 120 days for the purpose of
soliciting additional proxies to approve the merger agreement. We currently do
not intend to propose adjournment or postponement at our special meeting if
there are sufficient votes to approve the merger agreement. If approval of the
proposal to adjourn or postpone our special meeting for the purpose of
soliciting additional proxies is submitted to our shareholders for approval,
such approval requires the affirmative vote of a majority of the votes cast at
the special meeting by holders of shares of our common stock present or
represented by proxy and entitled to vote thereon.
Our board of directors unanimously recommends that you vote "FOR" the
proposal to adjourn or postpone the special meeting, if necessary or
appropriate, to solicit additional proxies if there are insufficient votes at
the time of the meeting to approve the merger agreement.
64
OTHER MATTERS
OTHER BUSINESS AT THE SPECIAL MEETING
The board of directors currently knows of no other business that will
be presented for consideration at the special meeting. Nevertheless, should any
business other than that set forth in the Notice of Special Meeting of
Shareholders properly come before the meeting, the enclosed proxy confers
discretionary authority to vote with respect to such matters, including matters
that the board of directors does not know, a reasonable time before proxy
solicitation, are to be presented at the meeting. If any of these matters are
presented at the meeting, then the proxy agents named in the enclosed proxy card
will vote in accordance with their judgment.
65
FUTURE SHAREHOLDER PROPOSALS
If the merger is completed, there will be no public shareholders of
Hughes Supply and no public participation in any future meetings of our
shareholders. However, if the merger is not completed, our shareholders will
continue to be entitled to attend and participate in our shareholder meetings.
We intend to hold an annual shareholders meeting in 2006 only if the merger is
not completed, or if we are required to do so by law.
Proposals received from shareholders in accordance with Rule 14a-8
under the Exchange Act are given careful consideration by Hughes Supply.
Shareholder proposals are eligible for consideration for inclusion in the proxy
statement for the 2006 annual meeting of shareholders if they are received by us
on or before ____ __, 2006. Shareholder proposals must be directed to the
Corporate Secretary, Hughes Supply, Inc., One Hughes Way, Orlando, Florida
32805. In order for a shareholder proposal submitted outside of Rule 14a-8 to be
considered "timely" within the meaning of Rule 14a-4(c) under the Exchange Act,
such proposal must be received by us not later than the last date for submission
under our bylaws. In order for a proposal to be "timely" under our bylaws,
proposals of shareholders made outside of Rule 14a-8 under the Exchange Act must
be submitted, in accordance with the requirements of our bylaws, not later than
_______, 2006 and not earlier than ________, 2006; provided, however in the
event that the 2006 annual meeting of shareholders is advanced more than 30 days
prior to or delayed more than 30 days after _____ __, 2006 a proposal by a
shareholder to be timely must be delivered not later than the close of business
on _____ __, 2006.
66
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and
other information with the Securities and Exchange Commission. You may read and
copy any reports, statements or other information that we file with the
Securities and Exchange Commission at the Securities and Exchange Commission's
Public Reference Room, 100 F Street, N.E., Washington, D.C. 20549, at prescribed
rates. Please call the Securities and Exchange Commission at 1-800-SEC-0330 for
further information on the operation of the public reference room.
Our public filings are also available to the public from document
retrieval services and at the Internet site maintained by the Securities and
Exchange Commission at http://www.sec.gov.
Reports, proxy statements and other information concerning Hughes
Supply may also be inspected at the offices of The New York Stock Exchange, Inc.
at 20 Broad Street, New York, New York 10005.
If you have any questions about this proxy statement, the special
meeting or the merger or need assistance with the voting procedures, you should
contact D.F. King & Co., Inc., our proxy solicitor, at 1-800-487-4870
(toll-free) or at 1-212-269-5550 (collect).
67
INCORPORATION BY REFERENCE
The Securities and Exchange Commission allows us to incorporate by
reference information into this proxy statement. This means that we can disclose
important information to you by referring you to another document filed
separately with the Securities and Exchange Commission. Information that we file
later with the Securities and Exchange Commission, prior to the closing of the
merger, will automatically update and supersede the previously filed information
and be incorporated by reference into this proxy statement.
We incorporate by reference any documents that may be filed with the
Securities and Exchange Commission between the date of this proxy statement and
prior to the date of the special meeting of our shareholders. These include
periodic reports, such as Annual Reports on Form 10-K, Quarterly Reports on Form
10-Q and Current Reports on Form 8-K, as well as proxy statements.
Any person, including any beneficial owner, to whom this proxy
statement is delivered may request copies of reports, proxy statements or other
information concerning us, without charge, by written or telephonic request
directed to us at Hughes Supply, Inc., One Hughes Way, Orlando, Florida 32805,
Attention: Assistant Corporate Secretary. If you would like to request
documents, please do so by _______ __, 2006, in order to receive them before the
special meeting. In addition, these documents may also be obtained through our
website at http://www.hughessupply.com.
No persons have been authorized to give any information or to make
any representations other than those contained in this proxy statement and, if
given or made, such information or representations must not be relied upon as
having been authorized by us or any other person. This proxy statement is dated
_______ __, 2006. You should not assume that the information contained in this
proxy statement is accurate as of any date other than that date, and the mailing
of this proxy statement to shareholders shall not create any implication to the
contrary.
68
ANNEX A
EXECUTION COPY
================================================================================
AGREEMENT AND PLAN OF MERGER
Dated as of January 9, 2006
between
THE HOME DEPOT, INC.,
and
HUGHES SUPPLY, INC.
================================================================================
TABLE OF CONTENTS
PAGE
ARTICLE I THE MERGER........................................................................1
Section 1.1 The Merger...............................................................1
Section 1.2 Closing..................................................................1
Section 1.3 Effective Time...........................................................1
Section 1.4 Effects of the Merger....................................................2
Section 1.5 Articles of Incorporation and By-laws of the Surviving Corporation.......2
Section 1.6 Directors and Officers of the Surviving Corporation......................2
ARTICLE II EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS;
EXCHANGE OF CERTIFICATES;COMPANY STOCK OPTIONS....................................2
Section 2.1 Effect on Capital Stock..................................................2
Section 2.2 Exchange of Certificates.................................................3
Section 2.3 Company Stock Awards.....................................................5
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY.....................................6
Section 3.1 Organization, Standing and Corporate Power...............................6
Section 3.2 Capitalization...........................................................8
Section 3.3 Authority; Noncontravention; Voting Requirements.........................9
Section 3.4 Governmental Approvals..................................................11
Section 3.5 Company SEC Documents; Undisclosed Liabilities..........................11
Section 3.6 Absence of Certain Changes..............................................13
Section 3.7 Legal Proceedings.......................................................13
Section 3.8 Compliance With Laws; Permits...........................................13
Section 3.9 Information Supplied....................................................13
Section 3.10 Tax Matters.............................................................14
Section 3.11 Employee Benefits and Labor Matters.....................................14
Section 3.12 Environmental Matters...................................................16
Section 3.13 Properties..............................................................17
Section 3.14 Opinion of Financial Advisor............................................19
Section 3.15 Brokers and Other Advisors..............................................19
Section 3.16 Company Rights Agreement................................................19
Section 3.17 State Statutes..........................................................19
Section 3.18 Material Contracts......................................................20
Section 3.19 Intellectual Property Matters...........................................21
Section 3.20 Insurance...............................................................21
Section 3.21 Ethical Practices.......................................................22
Section 3.22 Related Party Transactions..............................................22
Section 3.23 Standstill Agreements...................................................22
Section 3.24 No Other Representations or Warranties..................................22
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TABLE OF CONTENTS
(CONTINUED)
PAGE
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT.........................................22
Section 4.1 Organization; Standing..................................................22
Section 4.2 Authority; Noncontravention.............................................23
Section 4.3 Governmental Approvals..................................................23
Section 4.4 Information Supplied....................................................24
Section 4.5 Ownership and Operations of Merger Sub..................................24
Section 4.6 Capital Resources.......................................................24
Section 4.7 Brokers and Other Advisors..............................................24
Section 4.8 Ownership of Shares.....................................................24
ARTICLE V ADDITIONAL COVENANTS AND AGREEMENTS..............................................25
Section 5.1 Preparation of the Proxy Statement; Shareholders Meeting................25
Section 5.2 Conduct of Business.....................................................26
Section 5.3 No Solicitation.........................................................29
Section 5.4 Reasonable Best Efforts.................................................34
Section 5.5 Public Announcements....................................................36
Section 5.6 Access to Information; Confidentiality..................................36
Section 5.7 Notification of Certain Matters.........................................37
Section 5.8 Indemnification and Insurance...........................................37
Section 5.9 Fees and Expenses.......................................................39
Section 5.10 Rule 16b-3..............................................................39
Section 5.11 Employee Matters........................................................39
Section 5.12 Delisting...............................................................41
Section 5.13 Indebtedness............................................................41
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TABLE OF CONTENTS
(CONTINUED)
PAGE
ARTICLE VI CONDITIONS PRECEDENT.............................................................43
Section 6.1 Conditions to Each Party's Obligation to Effect the Merger..............43
Section 6.2 Conditions to Obligations of Parent.....................................43
Section 6.3 Conditions to Obligations of the Company................................43
ARTICLE VII TERMINATION......................................................................44
Section 7.1 Termination.............................................................44
Section 7.2 Effect of Termination...................................................46
Section 7.3 Termination Fee.........................................................46
Section 7.4 Remedies................................................................47
ARTICLE VIII MISCELLANEOUS....................................................................48
Section 8.1 No Survival of Representations and Warranties...........................48
Section 8.2 Amendment or Supplement.................................................48
Section 8.3 Extension of Time, Waiver, Etc..........................................48
Section 8.4 Assignment..............................................................48
Section 8.5 Counterparts............................................................48
Section 8.6 Entire Agreement; No Third-Party Beneficiaries..........................49
Section 8.7 Governing Law; Jurisdiction; Waiver of Jury Trial.......................49
Section 8.8 Specific Enforcement....................................................49
Section 8.9 Notices.................................................................49
Section 8.10 Severability............................................................51
Section 8.11 Definitions.............................................................51
Section 8.12 Interpretation..........................................................54
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AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER, dated as of January 9, 2006 (this
"Agreement"), is between The Home Depot, Inc., a Delaware corporation
("Parent"), and Hughes Supply, Inc., a Florida corporation (the "Company").
Certain capitalized terms used in this Agreement are used as defined in Section
8.11.
WHEREAS, the Board of Directors of Parent and the Board of Directors
of the Company, based on the recommendation of a special committee thereof
formed to evaluate the Company's strategic alternatives (the "Special
Committee"), have each unanimously approved and adopted this Agreement and the
merger of Merger Sub with and into the Company (the "Merger") in accordance with
the Florida Business Corporation Act (the "FBCA"), upon the terms and subject to
the conditions set forth herein.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, and intending to be
legally bound hereby, Parent and the Company hereby agree as follows:
ARTICLE I
The Merger
----------
Section 1.1 The Merger. Upon the terms and subject to the conditions
set forth in this Agreement, and in accordance with the FBCA, at the Effective
Time a newly formed wholly-owned subsidiary of Parent, to be incorporated in
Florida ("Merger Sub"), shall be merged with and into the Company, and the
separate corporate existence of Merger Sub shall thereupon cease, and the
Company shall be the surviving corporation in the Merger (the "Surviving
Corporation").
Section 1.2 Closing. The closing of the Merger (the "Closing") shall
take place at 10:00 a.m. (New York City time) on a date to be specified by the
parties (the "Closing Date"), which date shall be no later than the second
business day after satisfaction or waiver of the conditions set forth in Article
VI (other than those conditions that by their nature are to be satisfied at the
Closing, but subject to the satisfaction or waiver of those conditions at such
time), at the offices of Weil, Gotshal & Manges LLP, 767 Fifth Avenue, New York,
New York 10153, unless another time, date or place is agreed to in writing by
the parties hereto.
Section 1.3 Effective Time. Subject to the provisions of this
Agreement, as soon as practicable on the Closing Date the parties shall file
with the Secretary of State of the State of Florida the articles of merger,
executed in accordance with, and in such form as is required by, the relevant
provisions of the FBCA (the "Articles of Merger"). The Merger shall become
effective upon the filing of the Articles of Merger or at such later time and
date as is agreed to by the parties hereto (the time and date at which the
Merger becomes effective is herein referred to as the "Effective Time").
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Section 1.4 Effects of the Merger. The Merger shall have the effects
set forth herein and in the applicable provisions of the FBCA. Without limiting
the generality of the foregoing, and subject thereto, at the Effective Time, all
the properties, rights, privileges, powers and franchises of the Company and
Merger Sub shall vest in the Surviving Corporation, and all debts, liabilities
and duties of the Company and Merger Sub shall become the debts, liabilities and
duties of the Surviving Corporation.
Section 1.5 Articles of Incorporation and By-laws of the Surviving
Corporation. At the Effective Time, the articles of incorporation of the Company
shall be amended and restated in their entirety to be identical (subject to
Section 5.8 hereof) to the articles of incorporation of Merger Sub, as in effect
immediately prior to the Effective Time, except that the name of the Surviving
Corporation shall remain Hughes Supply, Inc., until thereafter amended as
provided therein or by applicable Law. The by-laws of Merger Sub in effect
immediately prior to the Effective Time shall be the by-laws of the Surviving
Corporation until thereafter amended as provided therein or by applicable Law.
Section 1.6 Directors and Officers of the Surviving Corporation.
(a) Each of the parties hereto shall take all necessary action to
cause the directors of Merger Sub immediately prior to the Effective Time
to be the directors of the Surviving Corporation immediately following the
Effective Time, until their respective successors are duly elected or
appointed and qualified or their earlier death, resignation or removal in
accordance with the certificate of incorporation and by-laws of the
Surviving Corporation.
(b) Each of the parties hereto shall take all necessary action to
cause the officers of the Company immediately prior to the Effective Time
to be the officers of the Surviving Corporation until their respective
successors are duly appointed and qualified or their earlier death,
resignation or removal in accordance with the articles of incorporation and
by-laws of the Surviving Corporation.
ARTICLE II
Effect of the Merger on the Capital Stock of the Constituent Corporations;
--------------------------------------------------------------------------
Exchange of Certificates; Company Stock Options
-----------------------------------------------
Section 2.1 Effect on Capital Stock. At the Effective Time, by virtue
of the Merger and without any action on the part of Merger Sub, the Company or
the holders of any shares of common stock, par value $1.00 per share, of the
Company ("Company Common Stock") or any shares of capital stock of Merger Sub:
(a) Capital Stock of Merger Sub. Each share of capital stock of Merger
Sub issued and outstanding immediately prior to the Effective Time shall be
converted into and become one validly issued, fully paid and nonassessable
share of common stock of the Surviving Corporation.
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(b) Cancellation of Treasury Stock and Parent-Owned Stock. Any shares
of Company Common Stock that are owned by the Company as treasury stock,
and any shares of Company Common Stock owned by Parent, Merger Sub or any
Subsidiary of the Company, shall be automatically canceled and shall cease
to exist and no consideration shall be delivered in exchange therefor.
(c) Conversion of Company Common Stock. Each share of Company Common
Stock issued and outstanding immediately prior to the Effective Time (other
than shares to be canceled in accordance with Section 2.1(b) and Company
Common Stock received pursuant to Section 2.1(a)), together with the
associated Preferred Share (as defined in the Rights Agreement) purchase
rights (the "Rights") issued under the Rights Agreement, dated as of May
20, 1998, between the Company and American Stock Transfer & Trust Company,
as rights agent (the "Rights Agreement"), shall be converted into the right
to receive $46.50 in cash, without interest (the "Merger Consideration").
As of the Effective Time, all such shares of Company Common Stock shall no
longer be outstanding and shall automatically be canceled and shall cease
to exist, and each holder of a certificate (or evidence of shares in
book-entry form) which immediately prior to the Effective Time represented
any such shares of Company Common Stock (each, a "Certificate") shall cease
to have any rights with respect thereto, except the right to receive the
Merger Consideration to be paid in consideration therefor upon surrender of
such Certificate in accordance with Section 2.2(b), without interest.
Section 2.2 Exchange of Certificates.
(a) Paying Agent. Prior to the Effective Time, Parent shall designate
a bank or trust company reasonably acceptable to the Company to act as
agent for the benefit of the holders of shares of Company Common Stock in
connection with the Merger (the "Paying Agent") to receive, on terms
reasonably acceptable to the Company, for the benefit of holders of shares
of Company Common Stock, the aggregate Merger Consideration to which
holders of shares of Company Common Stock shall become entitled pursuant to
Section 2.1(c). The Paying Agent shall also act as the agent for the
Company's shareholders for the purpose of holding the Certificates and
shall obtain no rights or interests in the shares represented by such
Certificates. Parent shall deposit such aggregate Merger Consideration with
the Paying Agent at or prior to the Effective Time. Such aggregate Merger
Consideration deposited with the Paying Agent shall, pending its
disbursement to such holders, be invested by the Paying Agent as directed
by Parent or the Surviving Corporation; provided that Parent shall promptly
replace any funds deposited with the Paying Agent lost through any
investment made pursuant to this paragraph.
(b) Payment Procedures. Promptly after the Effective Time (but in no
event more than three business days thereafter), the Surviving Corporation
shall cause the Paying Agent to mail to each holder of record of Company
Common Stock (i) a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall
pass, only upon delivery of the Certificates to the Paying Agent, and which
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shall be in such form and shall have such other customary provisions
(including customary provisions with respect to delivery of an "agent's
message" with respect to shares held in book-entry form) as Parent may
reasonably specify) and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for payment of the Merger
Consideration. Upon surrender of a Certificate for cancellation to the
Paying Agent, together with such letter of transmittal, duly completed and
validly executed in accordance with the instructions (and such other
customary documents as may reasonably be required by the Paying Agent), the
holder of such Certificate shall be entitled to receive in exchange
therefor the Merger Consideration, without interest, for each share of
Company Common Stock formerly represented by such Certificate, and the
Certificate so surrendered shall forthwith be canceled. If payment of the
Merger Consideration is to be made to a Person other than the Person in
whose name the surrendered Certificate is registered, it shall be a
condition of payment that (x) the Certificate so surrendered shall be
properly endorsed or shall otherwise be in proper form for transfer and (y)
the Person requesting such payment shall have paid any transfer and other
taxes required by reason of the payment of the Merger Consideration to a
Person other than the registered holder of such Certificate surrendered or
shall have established to the reasonable satisfaction of the Surviving
Corporation that such tax either has been paid or is not applicable. Until
surrendered as contemplated by this Section 2.2, each Certificate shall be
deemed at any time after the Effective Time to represent only the right to
receive the Merger Consideration as contemplated by this Article II,
without interest, and any declared and unpaid dividends to which the holder
of such Certificate is entitled.
(c) Transfer Books; No Further Ownership Rights in Company Stock. The
Merger Consideration paid in respect of shares of Company Common Stock upon
the surrender for exchange of Certificates in accordance with the terms of
this Article II shall be deemed to have been paid in full satisfaction of
all rights pertaining to the shares of Company Common Stock previously
represented by such Certificates, and at the Effective Time, the stock
transfer books of the Company shall be closed and thereafter there shall be
no further registration of transfers on the stock transfer books of the
Surviving Corporation of the shares of Company Common Stock that were
outstanding immediately prior to the Effective Time. From and after the
Effective Time, the holders of Certificates that evidenced ownership of
shares of Company Common Stock outstanding immediately prior to the
Effective Time shall cease to have any rights with respect to such shares
of Company Common Stock, except as otherwise provided for herein or by
applicable Law. Subject to the last sentence of Section 2.2(e), if, at any
time after the Effective Time, Certificates are presented to the Surviving
Corporation for any reason, they shall be canceled and exchanged as
provided in this Article II.
(d) Lost, Stolen or Destroyed Certificates. If any Certificate shall
have been lost, stolen or destroyed, upon the making of an affidavit of
that fact by the Person claiming such Certificate to be lost, stolen or
destroyed and, if required by the Surviving Corporation, the posting by
such Person of a bond, in such reasonable amount as Parent may direct, as
A-4
indemnity against any claim that may be made against it with respect to
such Certificate, the Paying Agent will pay, in exchange for such lost,
stolen or destroyed Certificate, the applicable Merger Consideration to be
paid in respect of the shares of Company Common Stock formerly represented
by such Certificate, as contemplated by this Article II.
(e) Termination of Fund. At any time following the first anniversary
of the Closing Date, the Surviving Corporation shall be entitled to require
the Paying Agent to deliver to it any funds (including any interest
received with respect thereto) that had been made available to the Paying
Agent and which have not been disbursed to holders of Certificates, and
thereafter such holders shall be entitled to look only to Parent or the
Surviving Corporation (subject to abandoned property, escheat or other
similar Laws) as general creditors thereof with respect to the payment of
any Merger Consideration that may be payable upon surrender of any
Certificates held by such holders, as determined pursuant to this
Agreement, without any interest thereon. Any amounts remaining unclaimed by
such holders at such time at which such amounts would otherwise escheat to
or become property of any Governmental Authority shall become, to the
extent permitted by applicable Law, the property of Parent, free and clear
of all claims or interest of any Person previously entitled thereto.
(f) No Liability. Notwithstanding any provision of this Agreement to
the contrary, none of the parties hereto, the Surviving Corporation or the
Paying Agent shall be liable to any Person for Merger Consideration
delivered to a public official pursuant to any applicable abandoned
property, escheat or similar Law.
(g) Withholding Taxes. Parent, the Surviving Corporation and the
Paying Agent shall be entitled to deduct and withhold from the
consideration otherwise payable to any Person who was a holder of shares of
Company Common Stock pursuant to this Agreement such amounts as may be
required to be deducted and withheld with respect to the making of such
payment under the Internal Revenue Code of 1986, as amended, and the rules
and regulations promulgated thereunder (the "Code"), or under any provision
of state, local or foreign tax Law. To the extent amounts are so withheld
and paid over to the appropriate Governmental Authority, the withheld
amounts shall be treated for all purposes of this Agreement as having been
paid to the Person in respect of which such deduction and withholding was
made.
Section 2.3 Company Stock Awards. Prior to the Effective Time, the
Company shall take all actions necessary to provide that each option that
represents the right to acquire shares of Company Common Stock granted under the
Company Stock Plans (each, an "Option") outstanding immediately prior to the
Effective Time (whether or not then vested or exercisable) shall be cancelled
and terminated and converted at the Effective Time into the right to receive a
cash amount equal to the Option Consideration (as defined below) for each share
of Company Common Stock then subject to the Option. The Option Consideration
shall be paid as soon after the Closing Date as shall be practicable.
Notwithstanding the foregoing, Parent and the Company shall be entitled to
deduct and withhold from the Option Consideration otherwise payable such amounts
A-5
as may be required to be deducted and withheld with respect to the making of
such payment under the Code, or any provision of state, local or foreign tax
law. For purposes of this Agreement, "Option Consideration" means, with respect
to any share of Company Common Stock issuable under a particular Option, an
amount equal to the excess, if any, of (i) the Merger Consideration per share of
Company Common Stock over (ii) the exercise price payable in respect of such
share of Company Common Stock issuable under such Option. All shares of Company
Common Stock that are restricted shares pursuant to Company Stock Plans
(including performance based restricted shares) ("Restricted Company Common
Stock") outstanding immediately prior to the Effective Time shall vest at the
Effective Time. As of the Effective Time, such Restricted Company Common Stock
shall be converted into the right to receive the Merger Consideration in
accordance with Section 2.1(c). For purposes of this Agreement, "Company Stock
Plans" means the Hughes Supply, Inc. Directors' Stock Option Plan, the Hughes
Supply, Inc. 1988 Stock Option Plan, the Hughes Supply, Inc. 1997 Executive
Stock Plan and the Hughes Supply, Inc. 2005 Executive Stock Plan, each as
amended.
SECTION 2.4 Adjustments. Notwithstanding any provision of this
Article II to the contrary, if between the date of this Agreement and the
Effective Time the outstanding shares of Company Common Stock or any of the
Rights shall have been changed into a different number of shares or a different
class by reason of the occurrence or record date of any stock dividend,
subdivision, reclassification, recapitalization, split, combination, exchange of
shares or similar transaction, the Merger Consideration shall be appropriately
adjusted to reflect such stock dividend, subdivision, reclassification,
recapitalization, split, combination, exchange of shares or similar transaction.
ARTICLE III
Representations and Warranties of the Company
---------------------------------------------
The Company represents and warrants to Parent that except as set
forth in the disclosure schedule delivered by the Company to Parent immediately
prior to the execution of this Agreement (the "Company Disclosure Schedule")
(any matter set forth under any particular section or subsection of the Company
Disclosure Schedule shall also be deemed disclosed with respect to any other
section or subsection of Article III or to Section 5.2 of this Agreement, in
each case to the extent the relevance of such matter to such section or
subsection is reasonably apparent from the text of such disclosure) or the
consolidated financial statements, including any footnotes thereto, of the
Company included in the Company SEC Documents (as hereinafter defined) filed
prior to the date of this Agreement (the "Filed Company SEC Documents"):
Section 3.1 Organization, Standing and Corporate Power.
(a) The Company is a corporation duly organized, validly existing and
in good standing under the Laws of the State of Florida and has all
requisite corporate power and authority necessary to own or lease all of
its properties and assets and to carry on its business as it is now being
conducted. The Company is duly licensed or qualified to do business and is
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in good standing in each jurisdiction in which the nature of the business
conducted by it or the character or location of the properties and assets
owned or leased by it makes such licensing or qualification necessary,
except where the failure to be so licensed, qualified or in good standing
(or equivalent status), individually or in the aggregate, has not had and
would not reasonably be expected to have a Material Adverse Effect (as
defined below) on the Company ("Company Material Adverse Effect"). For
purposes of this Agreement, "Material Adverse Effect" shall mean, with
respect to any party, any change, event, development or occurrence that is
materially adverse to (A) the ability of such party to timely consummate
the Transactions or (B) the results of operations, financial condition or
assets of such party and its Subsidiaries taken as a whole, other than
changes, events, developments or occurrences arising out of, resulting from
or attributable to (i) changes in conditions in the United States or the
global economy or the capital or financial or markets generally, including
changes in interest or exchange rates, fluctuating commodity prices and
unexpected product shortages, (ii) changes in general legal, regulatory,
political, economic or business conditions or changes in GAAP that, in each
case, generally affect industries in which such party and its Subsidiaries
conduct business, (iii) the negotiation and announcement of this Agreement
and the identity of Parent and its Affiliates, including the impact thereof
on relationships, contractual or otherwise, with customers, suppliers,
distributors, partners or employees, (iv) acts of war, sabotage or
terrorism, or any escalation or worsening of any such acts of war, sabotage
or terrorism or (v) hurricanes, floods, earthquakes or other natural
disasters (in the case of unexpected product shortages referred to in
clause (i) and each of clauses (ii), (iv) and (v), other than to the extent
any change, event, development or occurrence has had or would reasonably be
expected to have a disproportionately adverse effect on such party and its
Subsidiaries as generally compared to other participants in the industries
in which such party and its Subsidiaries conduct business).
(b) Exhibit 21.1 of the Company's Annual Report on Form 10-K for the
fiscal year ended January 31, 2005, together with Schedule 3.1(b) of the
Company Disclosure Schedule, sets forth a true and complete list of each of
the Company's Subsidiaries, as of the date hereof. Each of the Company's
Subsidiaries is duly organized, validly existing and in good standing under
the laws of the jurisdiction of its organization and has all requisite
corporate or other power and authority necessary to own or lease all of its
properties and assets and to carry on its business as it is now being
conducted, except as, individually or in the aggregate, has not had and
would not reasonably be expected to have a Company Material Adverse Effect.
Each of the Company's Subsidiaries is duly licensed or qualified to do
business and is in good standing in each jurisdiction in which the nature
of the business conducted by it or the character or location of the
properties and assets owned or leased by it makes such licensing or
qualification necessary, except where the failure to be so licensed,
qualified or in good standing (or equivalent status), individually or in
the aggregate, has not had and would not reasonably be expected to have a
Company Material Adverse Effect. All the outstanding shares of capital
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stock of, or other equity interests in, each such Subsidiary (except for
directors' qualifying shares or the like) are owned directly or indirectly
by the Company free and clear of liens, pledges, security interests and
transfer restrictions or other encumbrances ("Liens"), except for such
transfer restrictions of general applicability as may be provided under the
Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder (the "Securities Act"), and other applicable
securities Laws. The Company does not own of record or beneficially (within
the meaning of Rule 13d-3 of the Exchange Act), any material equity or
similar interest in, or any material interest convertible into or
exchangeable or exercisable for any equity or similar interest in, any
other Person.
(c) The Company has made available to Parent prior to the date hereof
(i) complete and correct copies of the articles of incorporation and
by-laws of the Company and each of its Subsidiaries, as amended to the date
of this Agreement (the "Company Charter Documents") and (ii) the minutes
(or, in the case of draft minutes, the most recent drafts thereof) of all
meetings of the Company's stockholders, Board of Directors and each
committee of the Board of Directors (other than the Special Committee) held
since February 1, 2002 through the date hereof.
Section 3.2 Capitalization.
(a) The authorized capital stock of the Company consists of
200,000,000 shares of Company Common Stock par value $1.00 per share and
10,000,000 shares of preferred stock, no par value ("Company Preferred
Stock"). At the close of business on December 31, 2005, (i) 66,877,913
shares of Company Common Stock were issued and outstanding, which includes
2,079,423 shares subject to outstanding grants of Restricted Company Common
Stock and 850,462 shares held by the Hughes Supply, Inc. Cash or Deferred
Profit Sharing Plan and Trust, (ii) no shares of Company Common Stock were
held by the Company in its treasury, (iii) 4,622,214 shares of Company
Common Stock were reserved for issuance under the Company Stock Plans (of
which 2,676,081 shares were subject to outstanding Options granted under
the Company Stock Plans) and (iv) no shares of Company Preferred Stock were
issued or outstanding. All outstanding shares of Company Common Stock and
all outstanding shares of capital stock or other equity interests of each
of the Company's Subsidiaries have been duly authorized and validly issued
and are fully paid, nonassessable and free of preemptive and similar rights
in favor of third parties. Since December 31, 2005, the Company has not
issued, or entered into any agreement or arrangement to issue, any shares
of its capital stock, or entered into any agreement or arrangement to issue
securities convertible into or exchangeable or exercisable for any shares
of its capital stock, other than or pursuant to Options referred to above
that are outstanding as of the date of this Agreement or are hereafter
issued without violation of Section 5.2 hereof. All dividends on the
Company Common Stock that have been declared or have accrued prior to the
date hereof have been paid in full to the Company's paying agent.
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(b) Schedule 3.2(b) of the Company Disclosure Schedule contains a
true, accurate and complete list, as of December 31, 2005, of the number of
outstanding Options, the grant date of each such Option, the number of
shares of Company Common Stock that holders of such Options are entitled to
receive upon the exercise of the Options, the corresponding exercise price,
and the expiration date of such Option. Except for the Options set forth in
such Schedule and the shares of Restricted Company Common Stock referenced
in Section 3.2(a)(i), there are no outstanding (i) securities of the
Company or any of its Subsidiaries convertible into or exchangeable for
shares of capital stock or other voting securities or ownership interests
in the Company or any of its Subsidiaries, (ii) options, restricted stock,
warrants, rights or other agreements or commitments to acquire from the
Company or any of its Subsidiaries, or obligations of the Company or any of
its Subsidiaries to issue or transfer, any capital stock, voting securities
or other ownership interests (or securities convertible into or
exchangeable for capital stock or voting securities or other ownership
interests) in the Company or any of its Subsidiaries, (iii) obligations of
the Company or any of its Subsidiaries to grant, extend or enter into any
subscription, warrant, right, convertible or exchangeable security or other
similar agreement or commitment relating to any capital stock, voting
securities or other ownership interests in the Company or any of its
Subsidiaries or (iv) obligations of the Company or any of its Subsidiaries
to make any payment based on the market price or value of any securities of
the Company or any of its Subsidiaries. There are no (i) outstanding
obligations of the Company or any of its Subsidiaries to purchase, redeem
or otherwise acquire any outstanding securities of the Company or any of
its Subsidiaries or (ii) voting trusts or other agreements or
understandings to which the Company or any of its Subsidiaries is a party
with respect to the voting of capital stock of the Company or any of its
Subsidiaries. Neither the Company nor any of its Subsidiaries has any
obligation or commitment to provide financing to or make any debt or equity
investment in any entity other than wholly-owned Subsidiaries of the
Company.
Section 3.3 Authority; Noncontravention; Voting Requirements.
(a) The Company has all necessary corporate power and authority to
execute and deliver this Agreement and to perform its obligations hereunder
and to consummate the Transactions, subject in the case of the consummation
of the Merger to obtaining the Company Shareholder Approval. The execution,
delivery and performance by the Company of this Agreement, and the
consummation by it of the Transactions, have been duly authorized by all
necessary corporate action and no other corporate action on the part of the
Company is necessary to authorize the execution, delivery and performance
by the Company of this Agreement and the consummation by it of the
Transactions, subject in the case of the consummation of the Merger to
obtaining the Company Shareholder Approval. This Agreement has been duly
executed and delivered by the Company and, assuming due authorization,
execution and delivery hereof by Parent, constitutes a legal, valid and
binding obligation of the Company, enforceable against the Company in
accordance with its terms, except that such enforceability (i) may be
limited by bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and other similar Laws of general application affecting or
relating to the enforcement of creditors' rights generally and (ii) is
subject to general principles of equity, whether considered in a proceeding
at Law or in equity (the "Bankruptcy and Equity Exception").
A-9
(b) The Special Committee, at a meeting duly held and called, has
unanimously recommended the approval and adoption of this Agreement by the
Company's Board of Directors. The Company's Board of Directors, based upon
the recommendation of the Special Committee, at a meeting duly called and
held, has unanimously (i) approved and adopted this Agreement and approved
the Transactions, including the Merger, (ii) determined that the Merger is
advisable and fair to and in the best interests of, the shareholders of the
Company, (iii) consented to this Agreement and the transactions
contemplated hereby in accordance with the terms and provisions of the
Confidentiality Agreement, dated as of October 28, 2005, between Parent and
the Company (as it may be amended from time to time, the "Confidentiality
Agreement") and (iv) resolved to submit this Agreement to the shareholders
of the Company for approval, file the Proxy Statement with the SEC and,
subject to Section 5.3 hereof, recommend that the shareholders of the
Company approve this Agreement.
(c) Neither the execution, delivery and performance of this Agreement
by the Company nor the consummation by the Company of the Transactions, nor
compliance by the Company with any of the terms or provisions hereof, will
(i) conflict with or violate any provision of the Company Charter Documents
or (ii) assuming that the authorizations, consents and approvals referred
to in Section 3.4 (and, in the case of the consummation of the Merger, the
Company Shareholder Approval) are obtained and the filings referred to in
Section 3.4 are made, (x) violate any Law, judgment, writ or injunction of
any Governmental Authority applicable to the Company or any of its
Subsidiaries or any of their respective assets, properties or rights, (y)
violate or constitute a default (or an event which with notice or lapse of
time or both would become a default) or give rise to any right of
termination, cancellation, modification or acceleration under any of the
terms, conditions or provisions of any loan or credit agreement, debenture,
note, bond, mortgage, indenture, deed of trust, lease, license, contract or
other instrument or agreement (each, a "Contract") to which the Company or
any of its Subsidiaries is a party or by which any of their assets,
properties or rights are bound or (z) result in the creation of any Lien
upon any of the assets, properties or rights of the Company or any of its
Subsidiaries other than Permitted Liens, except, in the case of clause
(ii), for such violations, defaults, rights or Liens, as, individually or
in the aggregate, have not had and would not reasonably be expected to have
a Company Material Adverse Effect.
(d) The affirmative vote (in person or by proxy) of the holders of at
least a majority of the outstanding shares of Company Common Stock at the
Company Shareholders Meeting, or any adjournment or postponement thereof,
in favor of the adoption of this Agreement (the "Company Shareholder
Approval") is the only vote or approval of the holders of any class or
series of capital stock of the Company or any of its Subsidiaries which is
necessary to adopt this Agreement and approve the Merger.
A-10
Section 3.4 Governmental Approvals. Except for (i) the filing with
the SEC of a proxy statement relating to the Company Shareholders Meeting (as
amended or supplemented from time to time, the "Proxy Statement"), and other
filings required under, and compliance with other applicable requirements of,
the Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder (the "Exchange Act"), and the rules of the NYSE, (ii) the
filing of the Articles of Merger with the Secretary of State of the State of
Florida pursuant to the FBCA and (iii) filings required under, and compliance
with other applicable requirements of, the HSR Act and any other applicable
Antitrust Law, no consents or approvals of, or filings, declarations or
registrations with, any Governmental Authority are necessary for the execution,
delivery and performance of this Agreement by the Company and the consummation
by the Company of the Transactions, other than such other consents, approvals,
filings, declarations or registrations that, if not obtained, made or given,
individually or in the aggregate, have not had and would not reasonably be
expected to have a Company Material Adverse Effect.
Section 3.5 Company SEC Documents; Undisclosed Liabilities.
(a) The Company and each of its Subsidiaries have timely filed all
required registration statements, reports, schedules, forms, certifications
and other documents with the Securities and Exchange Commission (the "SEC")
since February 1, 2004 (collectively, and in each case including all
exhibits and schedules thereto and documents incorporated by reference
therein, the "Company SEC Documents"). As of their respective filing dates,
the Company SEC Documents complied as to form in all material respects with
the requirements of the Exchange Act and the Securities Act and all other
federal securities Laws applicable to such Company SEC Documents, and none
of the Company SEC Documents as of such respective dates contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The Company has made available to Parent prior to the date
hereof copies of all correspondence between the SEC and the Company or any
Company Subsidiary, since February 1, 2004 until the date hereof.
(b) The consolidated financial statements of the Company included in
the Company SEC Documents have been prepared in accordance with GAAP
(except, in the case of unaudited interim statements, as indicated in the
notes thereto) applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto) and fairly present in all
material respects the consolidated financial position of the Company and
its consolidated Subsidiaries as of the dates thereof and the consolidated
results of their operations, cash flows and shareholders' equity (when
required to be included in any such Company SEC Document) for the periods
then ended (subject, in the case of unaudited interim statements, to normal
year-end audit adjustments).
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(c) Neither the Company nor any of its Subsidiaries has any
liabilities, whether accrued, absolute, fixed, contingent or otherwise,
whether due or to become due, whether or not known, and whether or not
required to be reflected or reserved against on a consolidated balance
sheet of the Company prepared in accordance with GAAP or the notes thereto,
except liabilities (i) reflected or reserved against on the balance sheet
of the Company and its Subsidiaries as of October 31, 2005 (the "Balance
Sheet Date") (including the notes thereto) included in the Filed Company
SEC Documents, (ii) incurred after the Balance Sheet Date in the ordinary
course of business consistent with past practice, (iii) as expressly
contemplated by this Agreement or set forth in the Company Disclosure
Schedules or (iv) as, individually or in the aggregate, have not had and
would not reasonably be expected to have a Company Material Adverse Effect.
(d) The Company has established and maintains effective internal
control over financial reporting (and since February 1, 2004 has had no
material weaknesses with respect to its internal control over financial
reporting) and disclosure controls and procedures (as such terms are
defined in Rule 13a-15 and Rule 15d-15 under the Exchange Act) sufficient
to provide reasonable assurances regarding the reliability of financial
reporting and the preparation of financial statements in accordance with
GAAP; such disclosure controls and procedures are designed to ensure that
material information relating to the Company, including its consolidated
Subsidiaries, required to be disclosed by the Company in the reports that
it files or submits under the Exchange Act is accumulated and communicated
to the Company's principal executive officer and its principal financial
officer by others within those entities to allow timely decisions regarding
required disclosure; and such disclosure controls and procedures are
effective to ensure that information required to be disclosed by the
Company in the reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported within the time periods
specified in SEC rules and forms. The Company's principal executive officer
and its principal financial officer have disclosed, based on their most
recent evaluation, to the Company's outside auditors and the audit
committee of the Board of Directors of the Company (x) all significant
deficiencies in the design or operation of internal controls which could
adversely affect the Company's ability to record, process, summarize and
report financial data and have identified for the Company's outside
auditors any material weaknesses in internal controls and (y) any fraud,
whether or not material, that involves management or other employees who
have a significant role in the Company's internal controls. The principal
executive officer and the principal financial officer of the Company have
made all certifications required by the Sarbanes-Oxley Act, the Exchange
Act and any related rules and regulations promulgated by the SEC with
respect to the Company SEC Documents, and the statements contained in such
certifications are complete and correct. Any written notifications the
Company has received of a "reportable condition" or "material weakness"
(each as defined in the Statement of Auditing Standards No. 60, as in
effect on the date hereof) in the Company's internal controls have been
made available to Parent prior to the date hereof.
A-12
Section 3.6 Absence of Certain Changes. Since the Balance Sheet Date,
(a) the Company, together with its Subsidiaries, has carried on and operated its
businesses in all material respects in the ordinary course of business
consistent with past practice, (b) there have not been any events, changes,
conditions, developments or occurrences that, individually or in the aggregate,
have had or would be reasonably be expected to have a Company Material Adverse
Effect and (c) neither the Company nor any of its Subsidiaries have taken any
action that, if taken after the date hereof, would constitute a breach of
Section 5.2(b)(ii), (iii), (iv), (v), (vi), (vii), (x), (xi), (xiii) or (xiv)
(or Section 5.2(b)(xvi) with respect to any such clauses) hereof.
Section 3.7 Legal Proceedings. There is no pending or, to the
Knowledge of the Company, threatened, legal or administrative proceeding, claim,
suit, action or, to the Knowledge of the Company, is there any pending
investigation against or relating to the Company or any of its Subsidiaries (or
any of their respective assets or properties), nor is there any injunction,
order, writ, judgment, ruling or decree imposed upon the Company or any of its
Subsidiaries, in each case, by or before any Governmental Authority that,
individually or in the aggregate, has had or would reasonably be expected to
have a Company Material Adverse Effect or, as of the date hereof, that
challenges or relates to the proposed sale of the Company, this Agreement or any
of the Transactions.
Section 3.8 Compliance With Laws; Permits. The Company and its
Subsidiaries are in compliance with all laws, statutes, ordinances, codes,
rules, regulations, decrees and orders of Governmental Authorities
(collectively, "Laws") applicable to the Company or any of its Subsidiaries or
any of their respective properties and assets, except for such non-compliance
as, individually or in the aggregate, has not had and would not reasonably be
expected to have a Company Material Adverse Effect. The Company and each of its
Subsidiaries hold all licenses, franchises, permits, certificates, approvals and
authorizations from Governmental Authorities necessary for the lawful conduct of
their respective businesses (collectively, "Permits"), except where the failure
to hold the same, individually or in the aggregate, has not had and would not
reasonably be expected to have a Company Material Adverse Effect. The Company
and its Subsidiaries are in compliance with the terms of all Permits, except for
such non-compliance as, individually or in the aggregate, has not had and would
not reasonably be expected to have a Company Material Adverse Effect. The
Company and its Subsidiaries are in compliance in all material respects with all
applicable listing and corporate governance rules and regulations of the NYSE.
Section 3.9 Information Supplied. The Proxy Statement will not, on
the date it is first mailed to shareholders of the Company and at the time of
the Company Shareholders Meeting, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they are made, not misleading. The Proxy Statement will comply as to
form in all material respects with the applicable requirements of the Exchange
Act. Notwithstanding the foregoing, the Company makes no representation or
warranty with respect to information supplied by or on behalf of Parent or
Merger Sub expressly for inclusion or incorporation by reference in the Proxy
Statement.
A-13
Section 3.10 Tax Matters. Except for those matters that would not
reasonably be expected to have a Company Material Adverse Effect: (i) each of
the Company and its Subsidiaries has timely filed, or has caused to be timely
filed on its behalf (taking into account any extension of time within which to
file), all Tax Returns required to be filed by it, and all such filed Tax
Returns are correct and complete in all respects; (ii) all Taxes shown to be due
on such Tax Returns have been timely paid and all Taxes payable (whether or not
actually shown on such Tax Returns) have, to the Knowledge of the Company, been
adequately reserved for in the Company SEC Documents; (iii) no deficiency with
respect to Taxes has been proposed, asserted or assessed against the Company or
any of its Subsidiaries, which has not been fully paid or adequately reserved in
the Filed Company SEC Documents; (iv) no audit or other administrative or court
proceedings are pending with any Governmental Authority with respect to Taxes of
the Company or any of its Subsidiaries, and no written notice of threatened or
proposed audit or proceeding has been received; (v) there are no Liens for Taxes
other than Permitted Liens upon any assets of the Company or any of its
Subsidiaries and (vi) since the Balance Sheet Date, neither the Company nor any
of its Subsidiaries has incurred any liability for Taxes other than in the
ordinary course of business.
Section 3.11 Employee Benefits and Labor Matters.
(a) Schedule 3.11(a) of the Company Disclosure Schedule lists (i) each
"employee benefit plan" (as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")), whether or
not subject to ERISA, and (ii) all employment, consulting, and severance
plans and agreements and all bonus or other incentive compensation, stock
purchase, equity or equity-based compensation, deferred compensation,
change in control, vacation, salary continuation, profit-sharing, fringe
benefit, life insurance and other similar plans, programs, and agreements
with respect to which the Company or any of its Subsidiaries has any
obligation or liability, contingent or otherwise ((i) and (ii)
collectively, the "Company Plans").
(b) The Company has made available to Parent prior to the date hereof,
with respect to each Company Plan (if applicable), a correct and complete
copy of the most recent (i) document constituting the Company Plan or, with
respect to any such Company Plan that is not in writing, a written
description thereof, and any modifications thereto, (ii) annual report on
Form 5500, including all schedules thereto, (iii) summary plan description
for each Company Plan and any modifications thereto, (iv) trust agreement
and insurance or group annuity contract, (v) annual report, financial
statement and/or actuarial report, and (vi) determination letter from the
Internal Revenue Service.
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(c) Each Company Plan has been maintained in all respects in
accordance with its terms and in compliance with the applicable provisions
of ERISA, the Code and all other applicable Laws and, to the Knowledge of
the Company, the terms of each Company Plan are in compliance with all such
applicable Laws, except in each case for any instances of noncompliance
that, individually or in the aggregate, have not had and would not
reasonably be expected to have a Company Material Adverse Effect.
(d) All contributions, premiums and benefit payments under or in
connection with the Company Plans that are required to have been made as of
the date hereof in accordance with the terms of the Company Plans have been
timely made. Other than routine claims for benefits, there are no actions
pending, or to the Knowledge of the Company, threatened with respect to any
Company Plan that, individually or in the aggregate, have had or would
reasonably be expected to have a Company Material Adverse Effect.
(e) Each Company Plan that is intended to qualify under Section 401
and/or 409 of the Code (i) has received a favorable determination letter to
such effect and (ii) no facts, circumstances or events have occurred since
the date of the most recent determination letter or application therefor
relating to any such Company Plan that, individually or in the aggregate,
have caused or would reasonably be expected to cause the loss of such
qualification which has had or would reasonably be likely to result in a
Company Material Adverse Effect.
(f) None of the Company Plans is subject to Title IV of ERISA or is a
multi-employer plan or a multiple employer plan described in Section 3(37)
or Section 4063/4064, respectively, of ERISA, and neither the Company nor
any of its Subsidiaries to its and their Knowledge has any obligation to
contribute to any such multi-employer plan or has any withdrawal liability
associated with any such multi-employer plan. There have been no non-exempt
"prohibited transactions" (as such term is defined in Section 406 of ERISA
or Section 4975 of the Code) with respect to any Company Plan that,
individually or in the aggregate, have had or would reasonably be expected
to have a Company Material Adverse Effect.
(g) There are no strikes, work slowdowns, work stoppages, lockouts,
arbitrations, grievances, unfair labor practice charges or complaints
pending or, to the Knowledge of the Company, threatened with respect to the
Company or any of its Subsidiaries, and neither the Company nor any of its
Subsidiaries has experienced any such strikes, slowdowns, work stoppages,
lockouts, arbitrations, grievances, unfair labor practice charges or
complaints within the past three years, that, individually or in the
aggregate, have had or would reasonably be expected to have a Company
Material Adverse Effect. Each of the Company and its Subsidiaries is in
compliance with all applicable Laws relating to labor, employment,
termination of employment or similar matters and has not engaged in any
unfair labor practices or similar prohibited practices except in each case
for any instances of noncompliance that, individually or in the aggregate,
have not had and would not reasonably be expected to have a Company
Material Adverse Effect.
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(h) Neither the Company nor any of the Subsidiaries is a party to or
is bound by any labor or collective bargaining agreement, and, as of the
date hereof and to the Knowledge of the Company, there is no organizational
campaigns, petitions or other unionization activities seeking recognition
of a collective bargaining unit with respect to, or otherwise attempting to
represent, any of the employees of the Company or any of its Subsidiaries.
(i) Neither the execution and delivery of this Agreement nor the
consummation of the Transactions will, either alone or in conjunction with
any other event, (i) result in any payment becoming due, or increase the
amount of any compensation due, to any current or former director,
individual who is an independent contractor or employee of the Company or
its Subsidiaries, (ii) increase the amount or value of any benefits or
compensation otherwise payable under any Company Plan or (iii) result in
the acceleration of the time of payment, vesting or funding of any such
compensation or benefits.
Section 3.12 Environmental Matters.
(a) Except for those matters that, individually or in the aggregate,
have not had and would not reasonably be expected to have a Company
Material Adverse Effect, (i) each of the Company and its Subsidiaries is
and has been in compliance with all applicable Environmental Laws (as
defined below), (ii) there is no notice of violation in writing,
investigation, suit, claim, action or proceeding relating to or arising
under Environmental Laws that is pending or, to the Knowledge of the
Company, threatened against the Company or any of its Subsidiaries or any
real property currently or, to the Knowledge of the Company, formerly
owned, operated or leased by the Company or any of its Subsidiaries, (iii)
neither the Company nor any of its Subsidiaries has received any notice of,
or entered into, any order, settlement, judgment, injunction or decree (or,
to the Knowledge of the Company, has agreed to perform or entered into any
contractual obligation with a reasonable likelihood of requiring a material
payment) involving uncompleted, outstanding or unresolved obligations,
liabilities or requirements relating to or arising under Environmental
Laws; and (iv) to the Knowledge of the Company, no Hazardous Materials have
been released at, on, above, under or from any properties currently or
formerly owned, leased or operated by the Company or any of its
Subsidiaries, nor are there any conditions or circumstances at any
properties currently or formerly owned, leased or operated by the Company
that have or would reasonably be expected to give rise to material
liability for the Company or any of its Subsidiaries under any
Environmental Law.
(b) To the Knowledge of the Company, copies of all material
environmental and health and safety reports or assessments or other
material communications or documentation concerning environmental, health
and safety matters in the Company's possession, as of the date hereof,
relating to the Company and any of its Subsidiaries and any real property
owned, operated or leased by the Company or any of its Subsidiaries, have
been made available to Parent prior to the date hereof, to the extent any
of the issues identified in any such reports, assessments or other
communications or documentation would reasonably be expected to result in a
material liability to the Company or any of its Subsidiaries.
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(c) For purposes of this Agreement, "Environmental Laws" shall mean
all applicable Laws relating to (i) the protection or remediation of the
environment, including soil and subsurface soil, surface water,
groundwater, drinking water, indoor and ambient air, and natural resources,
(ii) human health and safety as affected by exposure to Hazardous
Materials, or (iii) the presence, use, management, assessment, remediation,
transportation, treatment, storage, disposal or recycling of any Hazardous
Materials.
(d) For purposes of this Agreement, "Hazardous Materials" shall mean
any material, substance, or waste defined or regulated as hazardous, toxic,
a pollutant, a contaminant or words of similar meaning, including without
limitation, petroleum and petroleum byproducts and any fraction thereof,
asbestos and asbestos containing material, mold of the concentrations and
levels that would reasonably be likely to adversely affect human health,
radon or polychlorinated biphenyls, in non-utility owned electrical
equipment.
Section 3.13 Properties.
(a) Schedule 3.13(a) of the Company Disclosure Schedule contains a
true and complete list of (i) all real property owned by the Company or any
of its Subsidiaries where revenues attributable to each such real property
site exceeded $20,000,000 in the Company's last completed fiscal year and
(ii) all Material Real Property owned by the Company (collectively, the
"Owned Real Property") and for each parcel of Owned Real Property,
identifies the correct street address and current use (including business
unit, if applicable) of such Owned Real Property. Neither the Company nor
any of its Subsidiaries has received any notice of any, and to the
Knowledge of the Company there is no, default under any restrictive
covenants, restrictions and conditions affecting the Owned Real Property
and there has not occurred any event that with the lapse of time or the
giving of notice or both would constitute such a default under any such
restrictive covenants, restrictions or conditions, except as, individually
or in the aggregate, has not had and would not reasonably be expected to
have a Company Material Adverse Effect.
(b) Schedule 3.13(b) of the Company Disclosure Schedule contains a
true and complete list of (i) all real property leased, subleased, licensed
or otherwise used or occupied (whether as a tenant, subtenant or pursuant
to other occupancy arrangements) by the Company or any of its Subsidiaries
or which the Company or any of its Subsidiaries has the right to use or
occupy where revenues attributable to each such real property site exceeded
$20,000,000 in the Company's last completed fiscal year and (ii) all
Material Real Property leased, subleased, licensed or otherwise used or
occupied (whether as a tenant, subtenant or pursuant to other occupancy
arrangements) by the Company or any of its Subsidiaries or which the
Company or any of its Subsidiaries has the right to use or occupy
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(collectively, including the improvements thereon, the "Leased Real
Property"), and for each Leased Real Property, identifies the correct
street address and current use (including business unit, if applicable) of
such Leased Real Property. True and complete copies of all agreements
(including all material written modifications, amendments, supplements,
waivers and side letters thereto) under which the Company or any Subsidiary
is the landlord, sublandlord, tenant, subtenant, or occupant (each a "Real
Property Lease") that have not been terminated or expired as of the date of
this Agreement have been made available to Parent prior to the date hereof.
(c) Except as, individually or in the aggregate, has not had and would
not reasonably be expected to have a Company Material Adverse Effect, the
Company and/or its Subsidiaries have good and marketable fee simple title
to all Owned Real Property and valid leasehold estates in all Leased Real
Property free and clear, in each case, of all Liens other than Permitted
Liens.
(d) Except as, individually or in the aggregate, has not had and would
not reasonably be expected to have a Company Material Adverse Effect, other
than the Real Property Leases, none of the Owned Real Property or the
Leased Real Property is subject to any lease, sublease, license or other
agreement granting to any other Person any right to the use, occupancy or
enjoyment of such Owned Real Property or Leased Real Property or any part
thereof.
(e) Except as, individually or in the aggregate, has not had and,
would not reasonably be expected to have a Company Material Adverse Effect,
each Real Property Lease is in full force and effect and constitutes the
valid and legally binding obligation of the Company or its Subsidiaries,
enforceable in accordance with its terms (subject to the Bankruptcy and
Equity Exception), and there is no material default under any Real Property
Lease either by the Company or its Subsidiaries party thereto or, to the
Knowledge of the Company, by any other party thereto.
(f) Except as, individually or in the aggregate, has not had and,
would not reasonably be expected to have a Company Material Adverse Effect,
there does not exist any violations of building codes or pending
condemnation or eminent domain proceedings that affect any Owned Real
Property or, to the Knowledge of the Company, any such proceedings that
affect any Leased Real Property or, to the Knowledge of the Company, any
threatened condemnation or eminent domain proceedings that affect any Owned
Real Property or Leased Real Property, and neither the Company nor its
Subsidiaries have received any written notice of the intention of any
Governmental Authority or other Person to take or use any Owned Real
Property or Leased Real Property.
(g) Except as, individually or in the aggregate, has not had and would
not reasonably be expected to have a Company Material Adverse Effect, the
buildings and improvements on the Owned Real Property and the Leased Real
Property are in good condition and in a state of good and working
maintenance and repair, ordinary wear and tear excepted.
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(h) Except as, individually or in the aggregate, has not had and would
not reasonably be expected to have a Company Material Adverse Effect, the
Company and each of its Subsidiaries are in possession of and have good
title to, or have valid leasehold interests in, all tangible personal
property used in the business of the Company and each of its Subsidiaries,
respectively, and all such tangible personal property is owned by the
Company or any of its Subsidiaries, free and clear of all Liens other than
Permitted Liens, or is leased under a valid and subsisting lease, and in
any case, is in good working order and condition, ordinary wear and tear
excepted.
Section 3.14 Opinion of Financial Advisor. The Board of Directors of
the Company has received the opinion of Lehman Brothers Inc., dated the date of
this Agreement, to the effect that, as of such date, and subject to the various
assumptions and qualifications set forth therein, the consideration to be
received in the Merger by holders of the Company Common Stock is fair from a
financial point of view to holders of such shares.
Section 3.15 Brokers and Other Advisors. Except for Lehman Brothers
Inc., the fees and expenses of which will be paid by the Company and a true and
correct copy of whose engagement letter has been made available to Parent prior
to the date hereof, no broker, investment banker, financial advisor or other
Person is entitled to any broker's, finder's, financial advisor's or other
similar fee or commission, or the reimbursement of expenses, in connection with
the Transactions based upon arrangements made by or on behalf of the Company or
any of its Subsidiaries.
Section 3.16 Company Rights Agreement. The Company has taken all
actions necessary (subject only to execution by the Rights Agent, which the
Company shall cause to take place as soon as reasonably practicable on the date
hereof) to (a) render the Rights Agreement inapplicable to this Agreement and
the Transactions, (b) ensure that (i) none of Parent, Merger Sub or any other
Subsidiary of Parent is or may be reasonably expected to become an Acquiring
Person (as defined in the Rights Agreement) pursuant to the Rights Agreement as
a result of this Agreement or the transactions contemplated hereby and (ii) a
Distribution Date, a Triggering Event or a Share Acquisition Date (as such terms
are defined in the Rights Agreement) does not occur, in the case of clauses (i)
and (ii), by reason of the execution of this Agreement or the consummation of
the Transactions, and (c) provide that the Final Expiration Date (as defined in
the Rights Agreement) shall occur immediately prior to the Effective Time
without any payment being made in respect thereof. The Company has made
available to Parent prior to the date hereof a true and correct copy of the
Rights Agreement and all amendments thereto and exemptions, redemptions and
waivers thereunder.
Section 3.17 State Statutes. Assuming the representations and
warranties of Parent set forth in Section 4.8 of this Agreement are true and
correct in all respects, Section 607.0901 (Affiliated Transactions) and Section
607.0902 (Control-Share Acquisitions) of the FBCA are not applicable to the
Merger, this Agreement and the transactions contemplated hereby either because
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(i) such statutes are not applicable by their terms or (ii) all actions
necessary to exempt the Company, Parent, Merger Sub, their Affiliates, the
Merger, this Agreement and the transactions contemplated hereby from such
statutes have been taken. To the Knowledge of the Company, no other state
takeover, "moratorium," "fair price," "affiliate transaction" or similar statute
or regulation under any applicable Law applies or purports to apply to any of
the Transactions.
Section 3.18 Material Contracts. Schedule 3.18 of the Company
Disclosure Schedule contains a true and complete list of all active Contracts
(other than purchase orders and invoices) to which the Company or any of its
Subsidiaries is a party (a) which is a joint venture, partnership or other
similar agreement involving co-investment with a third party; (b) except for any
Contract which has been filed as an exhibit to any Company SEC Document, under
which the Company or any of its Subsidiaries has created, incurred, assumed or
guaranteed indebtedness for borrowed money, or any capitalized lease obligation,
or any agreement under which it has granted a Lien on any of its assets,
tangible or intangible (but with a value in excess of $5,000,000), or any
currency or interest rate swap, collar or hedge agreement; (c) whereby the
Company or any of its Subsidiaries has an obligation to make an investment in or
loan to any Person in excess of $5,000,000; (d) that contains a minimum purchase
requirement for the Company and its Subsidiaries to purchase during the 12-month
period immediately following, or pursuant to which the Company and its
Subsidiaries have purchased during the 12-month period immediately preceding,
the Balance Sheet Date, in the aggregate, a minimum of $30,000,000 of goods
and/or services on an annual basis; (e) that contains a minimum supply
commitment for the Company and its Subsidiaries to sell during the 12-month
period immediately following, or pursuant to which the Company and its
Subsidiaries have sold during the 12-month period immediately preceding, the
Balance Sheet Date, in the aggregate, a minimum of $30,000,000 of goods and/or
services on an annual basis; (f) that contains covenants restricting or limiting
the ability of the Company, any of its Subsidiaries or any of their Affiliates
(including, without limitation, Parent or any of its Affiliates from and after
the Closing) to compete in any business or with any person or in any geographic
area; (g) that contains any indemnification rights or obligations, or credit
support relating to such indemnification rights or obligations, where the
contingent rights or obligations reasonably would be expected to exceed
$5,000,000; (h) to which any agency or department of the United States federal
government is a counterparty; or (i) for the lease of personal property to or
from any Person providing for lease payments in excess of $30,000,000 per annum.
The Company has made available to Parent prior to the date hereof a true and
correct copy of each such Contract. Each Contract required to be so listed is
valid and binding on the Company or its Subsidiary, as the case may be, and, to
the Knowledge of the Company, on each counterparty and is in full force and
effect, and neither the Company nor any of its Subsidiaries, nor, to the
Knowledge of the Company, any other party thereto, is in breach of, or default
under, any such Contract, and no event has occurred that with notice or lapse of
time or both would constitute such a breach or default thereunder by the Company
or any of its Subsidiaries, or, to the Knowledge of the Company, any other party
thereto, except for such failures to be valid, binding or in full force and
effect and such breaches and defaults that, individually or in the aggregate,
have not had and would not reasonably be expected to have a Company Material
Adverse Effect.
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Section 3.19 Intellectual Property Matters. Except for those matters
which, individually and in the aggregate, have not had and would not reasonably
be expected to have a Company Material Adverse Effect, (i) the Company and each
of its Subsidiaries owns, or is licensed to use (in each case, free and clear of
any Liens, other than Permitted Liens), all Intellectual Property (as defined
below) used in or necessary for the conduct of its business as currently
conducted by it, (ii) to the Knowledge of the Company, the use of any
Intellectual Property by the Company and its Subsidiaries does not infringe on
or otherwise violate the rights of any Person and is in accordance with any
applicable license pursuant to which the Company or any of its Subsidiaries
acquired the right to use any Intellectual Property, (iii) to the Knowledge of
the Company, no Person is challenging or infringing upon or otherwise violating
any Intellectual Property owned or licensed by the Company or its Subsidiaries
and (iv) to the Knowledge of the Company, neither the Company nor any of its
Subsidiaries has received any written notice of any pending claim with respect
to any Intellectual Property owned or licensed by the Company or its
Subsidiaries and no Intellectual Property owned or licensed by the Company or
its Subsidiaries is being used or enforced in a manner that would result in the
abandonment, cancellation or unenforceability of such Intellectual Property. For
the purposes of this Agreement, "Intellectual Property" shall mean trademarks,
service marks, brand names, certification marks, trade dress and other
indications of origin, the goodwill associated with the foregoing and the
registrations in any jurisdiction of, and applications in any jurisdiction to
register, the foregoing, including any extension, modification or renewal of any
such registration or application; inventions, discoveries and ideas, whether
patentable or not, in any jurisdiction; patents, applications for patents
(including divisions, continuations, continued prosecution applications,
continuations in part and renewal applications), and any renewals, extensions or
reissues thereof, in any jurisdiction; know-how, trade secrets and confidential
information and rights in any jurisdiction to limit the use or disclosure
thereof by any Person; writings and other works, whether copyrightable or not,
in any jurisdiction; and registrations or applications for registration of
copyrights in any jurisdictions, and any renewals or extensions thereof.
Section 3.20 Insurance. The Company has made available to Parent
prior to the date hereof (i) a list of the material policies of insurance
currently maintained by the Company or any of its Subsidiaries (including any
material policies of insurance maintained for purposes of providing benefits
such as workers' compensation and employers' liability coverage) and (ii) a list
of all material claims currently pending (including with respect to insurance
obtained but not currently maintained). Except for those matters that,
individually and in the aggregate, have not had and would not reasonably be
expected to have a Company Material Adverse Effect, to the Knowledge of the
Company, (i) all such policies are in full force and effect and cover the assets
and risks of the Company and its Subsidiaries in a manner consistent with
customary practices of companies engaged in businesses and operations similar to
those of the Company and its Subsidiaries and (ii) all premiums due on such
policies have been paid and no notice of cancellation or termination or intent
to cancel has been received by the Company or any of its Subsidiaries with
respect to such policies.
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Section 3.21 Ethical Practices. To the Knowledge of the Company,
except as permitted under applicable Law, neither the Company nor any of its
Subsidiaries has offered or given anything of value to any official of a
Governmental Authority, any political party or official thereof, or any
candidate for political office (i) with the intent of inducing such Person to
use such Person's influence with any Governmental Authority to affect or
influence any act or decision of such Governmental Authority to assist the
Company or any of its Subsidiaries in obtaining or retaining business for, or
with, or directing business to, any Person or (ii) constituting a bribe,
kickback or illegal or improper payment to assist the Company or any of its
Subsidiaries in obtaining or retaining business for or with any Governmental
Authority.
Section 3.22 Related Party Transactions. Except to the extent
disclosed in the Filed Company SEC Documents, there are and have been no
transactions, agreements, arrangements or understandings involving the Company
or its Subsidiaries that would be required to be disclosed under Item 404 of
Regulation S-K under the Securities Act.
Section 3.23 Standstill Agreements. Other than invitations to
participate in sale processes that are now concluded and terminated, since
October 31, 2005, neither the Company nor any of its Subsidiaries has
terminated, waived or amended any standstill agreement with any third party
relating to a Takeover Proposal.
Section 3.24 No Other Representations or Warranties. Except for the
representations and warranties made by the Company in this Article III, neither
the Company nor any other Person makes any representation or warranty with
respect to the Company or its Subsidiaries or their respective business,
operations, assets, liabilities, condition (financial or otherwise) or
prospects, notwithstanding the delivery or disclosure to Parent or any of its
Affiliates or representatives of any documentation, forecasts, projections or
other information with respect to any one or more of the foregoing.
ARTICLE IV
Representations and Warranties of Parent
----------------------------------------
Parent represents and warrants to the Company:
Section 4.1 Organization; Standing. Parent is a corporation duly
organized, validly existing and in good standing under the Laws of the State of
Delaware and, as of the Closing Date, Merger Sub will be a corporation duly
organized, validly existing and in good standing under the Laws of the State of
Florida.
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Section 4.2 Authority; Noncontravention.
(a) Parent has all necessary corporate power and authority to execute
and deliver this Agreement, to perform its obligations hereunder and to
consummate the Transactions. The execution, delivery and performance by
Parent of this Agreement, and the consummation by Parent of the
Transactions, have been duly authorized and approved by the Board of
Directors of Parent, and no other corporate action on the part of Parent is
necessary to authorize the execution, delivery and performance by Parent of
this Agreement and the consummation by it of the Transactions. This
Agreement has been duly executed and delivered by Parent and, assuming due
authorization, execution and delivery hereof by the Company, constitutes a
legal, valid and binding obligation of Parent, enforceable against it in
accordance with its terms, subject to the Bankruptcy and Equity Exception.
(b) Neither the execution, delivery and performance of this Agreement
by Parent, nor the consummation by Parent or Merger Sub of the
Transactions, nor compliance by Parent with any of the terms or provisions
hereof, will (i) conflict with or violate any provision of the certificate
of incorporation or bylaws of Parent or Merger Sub or (ii) assuming that
the authorizations, consents and approvals referred to in Section 4.3 are
obtained and the filings referred to in Section 4.3 are made, (x) violate
any Law, judgment, writ or injunction of any Governmental Authority
applicable to Parent or any of its Subsidiaries or any of their respective
assets, properties or rights, (y) violate or constitute a default (or an
event which with notice or lapse of time or both would become a default) or
give rise to any right of termination, cancellation, modification or
acceleration under any of the terms, conditions or provisions of any
Contract to which Parent, Merger Sub or any of their respective
Subsidiaries is a party or (z) result in the creation of any Lien upon any
of the assets, property or rights of the Parent or any of its Subsidiaries,
except, in the case of clause (ii), for such violations, defaults, rights
or Liens, as, individually or in the aggregate, would not reasonably be
expected to impair in any material respect the ability of Parent to perform
its obligations hereunder or prevent or materially delay consummation of
the Transactions.
(c) As of the Closing Date, Merger Sub will have all necessary
corporate power and authority, and will be duly and validly authorized, to
consummate the Merger and perform its obligations hereunder.
Section 4.3 Governmental Approvals. Except for (i) filings required
under, and compliance with other applicable requirements of, the Exchange Act
and the rules of the NYSE, (ii) the filing of the Articles of Merger with the
Secretary of State of the State of Florida pursuant to the FBCA and (iii)
filings required under, and compliance with other applicable requirements of,
the HSR Act and any other applicable Antitrust Law, no consents or approvals of,
or filings, declarations or registrations with, any Governmental Authority are
necessary for the execution, delivery and performance of this Agreement by
Parent and the consummation by Parent and Merger Sub of the Transactions, other
than such other consents, approvals, filings, declarations or registrations
that, if not obtained, made or given, would not reasonably be expected to impair
in any material respect the ability of Parent or Merger Sub to perform its
obligations hereunder or prevent or materially delay consummation of the
Transactions.
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Section 4.4 Information Supplied. The information supplied by Parent
expressly for inclusion (or incorporation by reference) in the Proxy Statement
will not, on the date the Proxy Statement is first mailed to shareholders of the
Company and at the time of the Company Shareholders Meeting, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they are made, not misleading.
Section 4.5 Ownership and Operations of Merger Sub. As of the Closing
Date, Parent will own beneficially and of record all of the outstanding capital
stock of Merger Sub. Merger Sub will be formed solely for the purpose of
engaging in the Transactions, will engage in no other business activities and
will conduct its operations only as contemplated hereby.
Section 4.6 Capital Resources. Parent has cash and cash equivalents
and available amounts under an existing commercial paper facility, and Parent
and Merger Sub collectively will have at the Effective Time cash and cash
equivalents, that are sufficient to pay the aggregate Merger Consideration and
Option Consideration, to satisfy all indebtedness to be repaid by the Parent (or
the Company) at or following the Closing, to pay all related fees and expenses
of Parent and the Company payable by them in connection with the Transactions,
to make any payments that may be required to be made in respect of the Company's
indebtedness at or following the Closing as a consequence of the Transactions
and to fund the ongoing operations of the Company.
Section 4.7 Brokers and Other Advisors. Except for Morgan Stanley &
Co., the fees and expenses of which will be paid by Parent, no broker,
investment banker, financial advisor or other Person is entitled to any
broker's, finder's, financial advisor's or other similar fee or commission in
connection with the Transactions based upon arrangements made by or on behalf of
Parent or any of its Subsidiaries.
Section 4.8 Ownership of Shares. Neither Parent nor any of its
controlled Affiliates owns (directly or indirectly, beneficially or of record)
any shares of Company Common Stock and neither Parent nor any of its controlled
Affiliates holds any rights to acquire shares of Company Common Stock except
pursuant to this Agreement.
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ARTICLE V
Additional Covenants and Agreements
-----------------------------------
Section 5.1 Preparation of the Proxy Statement; Shareholders Meeting.
(a) As soon as practicable following the date of this Agreement, (i)
the Company shall prepare the Proxy Statement, (ii) Parent shall promptly
provide to the Company any information concerning itself and its Affiliates
required for inclusion in the Proxy Statement and shall promptly provide
such other information or assistance in the preparation thereof as may be
reasonably requested by the Company and (iii) after consulting with Parent,
the Company shall file the Proxy Statement with the SEC. The Company shall
thereafter use its reasonable best efforts to respond as promptly as
practicable to any comments of the SEC with respect to the Proxy Statement
and to cause the Proxy Statement to be mailed to the shareholders of the
Company as promptly as practicable after the date of this Agreement. The
Company shall promptly notify Parent upon the receipt of any comments from
the SEC or its staff or any request from the SEC or its staff for
amendments or supplements to the Proxy Statement, shall consult with Parent
prior to responding to any such comments or request or filing any amendment
or supplement to the Proxy Statement, and shall provide Parent with copies
of all correspondence between the Company and its representatives, on the
one hand, and the SEC and its staff, on the other hand. In the event that
the Company receives any comments from the SEC or its staff or any request
from the SEC or its staff for amendments or supplements to the Proxy
Statement, Parent shall promptly provide to the Company, upon receipt of
notice from the Company, any information concerning itself and its
Affiliates required for inclusion in the response of the Company to such
comments or such request and shall promptly provide such other information
or assistance in the preparation thereof as may be reasonably requested by
the Company. If at any time prior to the Effective Time any information
relating to Parent or the Company, or any of their respective Affiliates,
officers or directors, should be discovered by Parent or the Company which
should be set forth in an amendment or supplement to the Proxy Statement so
that any of such documents would not include any misstatement of a material
fact or omit to state any material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, the party that discovers such information shall promptly notify
the other party hereto and, to the extent required by law, rules or
regulations, an appropriate amendment or supplement describing such
information shall be promptly filed with the SEC and disseminated to the
shareholders of the Company.
(b) The Company shall, as soon as practicable following the date of
this Agreement, establish a record date for, duly call, give notice of,
convene and hold a meeting of its shareholders (the "Company Shareholders
Meeting") for the purpose of obtaining the Company Shareholder Approval.
Subject to Section 5.3(b), the Company shall, through its Board of
Directors, recommend to its shareholders adoption of this Agreement and
include such recommendation in the Proxy Statement. Without limiting the
generality of the foregoing, the Company's obligations pursuant to the
first sentence of this Section 5.1(b) shall not be affected by (i) the
commencement, public proposal, public disclosure or communication to the
Company of any Takeover Proposal or (ii) any Company Adverse Recommendation
Change. Notwithstanding anything to the contrary contained in this
Agreement, the Company shall not be required to hold the Company
Shareholders Meeting only if this Agreement is terminated in accordance
with Section 7.1.
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Section 5.2 Conduct of Business.
(a) Except as contemplated by this Agreement, or Schedule 5.2(a) of
the Company Disclosure Schedule, or required by applicable Law, during the
period from the date of this Agreement until the Effective Time, unless
Parent otherwise consents (which consent shall not be unreasonably withheld
or delayed), the Company shall, and shall cause its Subsidiaries to,
conduct its business in all material respects in the ordinary course
consistent with past practice and policies and use commercially reasonable
efforts consistent with past practice and policies to preserve intact its
present business organizations, keep available the services of its present
executive officers and key employees and preserve its relationships with
Persons having significant business dealings with it and take no action
which would adversely affect or delay in any material respect the ability
of either Parent or the Company to obtain any necessary approvals of any
Governmental Authority required for the Transactions.
(b) Neither the Company nor its Subsidiaries shall, unless Parent
otherwise consents (which consent, except with respect to clause (vii)(B),
shall not be unreasonably withheld or delayed):
(i) (A) issue, sell or grant any shares of its capital stock, or
any securities or rights convertible into, exchangeable or exercisable
for, or evidencing the right to subscribe for any shares of its
capital stock, or any rights, warrants or options to purchase any
shares of its capital stock, or any securities or rights convertible
into, exchangeable or exercisable for, or evidencing the right to
subscribe for, any shares of its capital stock, provided that the
Company may issue shares of Company Common Stock upon the exercise of
Options or shares of Company Preferred Stock or Company Common Stock
as required by the Company's Rights Agreement; (B) redeem, purchase or
otherwise acquire any of its outstanding shares of capital stock, or
any rights, warrants or options to acquire any shares of its capital
stock, except pursuant to commitments in effect as of the date hereof;
(C) declare, set aside for payment or pay any dividend on, or make any
other distribution in respect of, any shares of its capital stock,
except for regular quarterly dividends of no more than $0.09 per
share, consistent with past practice; or (D) split, combine, subdivide
or reclassify any shares of its capital stock;
(ii) incur any indebtedness for borrowed money or guarantee any
such indebtedness, other than short-term indebtedness under the
Company's existing revolving credit agreement not in excess of $30
million;
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(iii) sell, lease, dispose of or grant, create or incur any Lien
on (x) any Material Real Property or (y) any of its properties or
assets with a fair market value in excess of $30 million in the
aggregate, except (A) sales, leases, rentals and licenses of inventory
in the ordinary course of business consistent with past practice or
(B) transfers among the Company and its wholly owned Subsidiaries;
(iv) except with respect to leases or acquisitions of real
property, which are intended to be covered in Section 5.2(b)(xi) below
(it being understood that any business combination transaction with
another Person, even if such transaction includes the acquisition of
the real property of such Person, shall be covered by this clause (iv)
and not by clause (xi)), make any acquisition (including by merger) of
the capital stock, or purchase or lease (except for purchases of
inventory in the ordinary course of business consistent with past
practice) the assets or properties, of any other Person for
consideration that, when taken together with the consideration in all
other such transactions not prohibited by this clause (iv), is not in
excess of $50 million in the aggregate;
(v) (A) amend or terminate any Company Plan, fail to make any
required contribution to any Company Plan or establish, adopt or enter
into any plan, agreement or policy that would be a Company Plan if it
were in existence on the date of this Agreement or (B) increase the
compensation or other benefits payable or to become payable to any of
its current or former directors, officers, or employees, other than
(i) as required pursuant to applicable Law or the terms of Contracts
in effect on the date of this Agreement, (ii) increases in salaries,
wages and benefits of employees other than the Company Senior
Executives made in the ordinary course of business consistent with
past practice and (iii) payments of performance based bonuses for
fiscal 2006 based on the Company's actual performance and in
accordance with the bonus targets in effect on the date of this
Agreement in the aggregate amount accrued on the balance sheet of the
Company and its Subsidiaries as of January 31, 2006 (it being
understood that the fourth fiscal quarter accrual for fiscal 2006
shall be sufficient to fully accrue for the actual amount of all such
bonuses that will become payable pursuant to the terms of the bonus
plans and agreements set forth on Schedule 3.11(a));
(vi) make any changes in financial or Tax accounting methods,
principles or practices (or change an annual accounting period),
except insofar as may be required by a change in GAAP or applicable
Law;
(vii) (A) amend the Company Charter Documents or (B) amend or
grant any waiver under the Rights Agreement (provided that this clause
(vii) shall not prevent the Company's Board of Directors from taking
the action set forth in the first parenthetical in clause (ii) of
Section 1(h) of the Rights Agreement);
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(viii) amend in a material way or waive any material rights under
or enter into a Contract that would be required to be listed in the
Company Disclosure Schedules if the value at issue in any such
amendment, waiver or entrance (or any group of related amendments,
waivers or entrances) exceeds $30 million;
(ix) enter into any transaction that would be required to be
reported pursuant to Item 404 of Regulation S-K in a future SEC
report;
(x) forgive or make any loans, advances or capital contributions
to, or investments in, any other Person, other than (A) loans or
advances in immaterial amounts in the ordinary course of business
consistent with past practice or (B) to wholly owned Subsidiaries of
the Company;
(xi) make any lease or acquisition of real property or any
commitment for any other capital expenditure in excess of $40 million
in the aggregate (it being understood that (A) the total present value
of all future lease payments shall be taken into account for purposes
of determining whether the $40 million basket has been filled and (B)
leases, acquisitions and commitments that would be covered by clause
(iv) shall not be included in the $40 million basket in this clause
(xi)); provided that the Company shall consult with Parent prior to
any such individual lease, acquisition or expenditure in excess of
$2,500,000;
(xii) enter into, amend, or extend any collective bargaining or
other labor agreement;
(xiii) settle or agree to settle any material suit, action,
claim, proceeding or investigation (including any suit, action, claim,
proceeding or investigation relating to this Agreement or the
Transactions) or pay, discharge or satisfy or agree to pay, discharge
or satisfy any material claim, liability or obligation (absolute or
accrued, asserted or unasserted, contingent or otherwise) other than
the payment, discharge or satisfaction of liabilities reflected or
reserved against in full in the financial statements as at October 31,
2005 or incurred in the ordinary course of business consistent with
past practice subsequent to that date;
(xiv) adopt a plan or agreement of complete or partial
liquidation or dissolution;
(xv) unless requested or directed by a Governmental Authority,
convene any regular or special meeting (or any adjournment thereof) of
the stockholders of the Company other than the Company Shareholders
Meeting; and
(xvi) agree to take any of the foregoing actions.
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(c) The Company and Parent agree that, during the period from the date
of this Agreement until the Effective Time, the Company and Parent shall
not, and shall not permit any of their respective Subsidiaries to, take, or
agree or commit to take, any action that could reasonably be expected to
(i) impose any material delay in the obtaining of, or significantly
increase the risk of not obtaining, any authorizations, consents, orders,
declarations or approvals of any Governmental Authority necessary to
consummate the Transactions or the expiration or termination of any
applicable waiting period, (ii) significantly increase the risk of any
Governmental Authority entering an order or Restraint prohibiting or
impeding the consummation of the Transactions or (iii) otherwise materially
delay the consummation of the Transactions (each, a "Delay"). Without
limiting the generality of the foregoing, Parent agrees that, during the
period from the date of this Agreement until the Effective Time, Parent
shall not, and shall not permit any of its Subsidiaries to, acquire or
agree to acquire by merging or consolidating with, or by purchasing a
substantial portion of the assets of or equity in, or by any other manner,
any Person or portion thereof, or otherwise acquire or agree to acquire any
assets or rights, if the entering into of a definitive agreement relating
to or the consummation of such acquisition, merger or consolidation would
reasonably be expected to result in a Delay.
Section 5.3 No Solicitation.
(a) The Company shall, and shall cause its Subsidiaries and its and
its Subsidiaries' respective directors, officers and employees and each
investment banker, financial advisor, attorney, accountant and each other
advisor, agent or representative retained by or acting at the direction of
the Company or any of its Subsidiaries in connection with the Transactions
(collectively, "Representatives") to, (i) cease any discussions or
negotiations with any Person with respect to a Takeover Proposal or that
would reasonably be expected to lead to a Takeover Proposal, (ii) request
the prompt return or destruction of any confidential information or
evaluation material previously provided or furnished to any such Person and
(iii) not terminate, waive, amend, modify or fail to enforce any provision
of any standstill or confidentiality agreement to which it or any of its
Subsidiaries is a party. The Company shall not, and shall cause its
Subsidiaries and its and their Representatives not to, directly or
indirectly (i) solicit, initiate, knowingly facilitate or otherwise
knowingly encourage any Takeover Proposal or any inquiry that constitutes
or would reasonably be likely to lead to a Takeover Proposal or (ii) other
than to inform such third party of the provisions of this Section 5.3,
participate in any discussions or negotiations regarding any Takeover
Proposal or any inquiry that constitutes or would reasonably be likely to
lead to a Takeover Proposal, furnish to any Person any information or data
with respect to, or otherwise cooperate with or take any action to
knowingly facilitate any proposal that constitutes or would reasonably be
expected to lead to any Takeover Proposal, or requires the Company to
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abandon, terminate or fail to consummate the Transactions or (iii) enter
into any letter of intent, memorandum of understanding, merger agreement or
other agreement or understanding relating to, or that would reasonably be
expected to lead to, any Takeover Proposal. Notwithstanding the foregoing,
prior to the Company Shareholder Approval, if there is a portion of a
statement in an unsolicited written Takeover Proposal received after the
date hereof that is not reasonably understandable or clear on its face,
then the Company may submit a written question to the party making such
Takeover Proposal that is restricted exclusively to asking for
clarification of such portion of such statement (it being understood that
such request may neither provide information about the Company nor
otherwise encourage or facilitate such Takeover Proposal), provided that
both such Takeover Proposal and such written request for clarification have
been provided concurrently to Parent with the delivery of such written
request to such party. Notwithstanding the foregoing, prior to the Company
Shareholder Approval, if each of the Special Committee and the Board of
Directors of the Company determines, after consultation with outside
counsel, in good faith by resolution duly adopted that an unsolicited
written Takeover Proposal received after the date hereof other than in
breach of this Section 5.3 constitutes or is reasonably likely to
constitute a Superior Proposal and that it is reasonably necessary to take
such action to comply with its fiduciary duties to the shareholders of the
Company under applicable Law, then the Company, after giving Parent prompt
written notice of such determination (and in any event no later than 24
hours after such determination), may (A) furnish any information with
respect to the Company and its Subsidiaries to the Person (and its
Representatives) making such Takeover Proposal pursuant to a
confidentiality agreement not less restrictive of such Person than the
Confidentiality Agreement, provided, that all such information provided or
furnished to such Person has been provided or furnished previously to
Parent or is provided or furnished to Parent concurrently with it being
provided or furnished to such Person and (B) participate in discussions and
negotiations with such Person (and its Representatives) regarding a
Takeover Proposal. The Company agrees that any violation of this Section
5.3(a) by any Representative of the Company or any of its Subsidiaries
shall be deemed a breach of this Section 5.3(a) by the Company.
(b) In the event the Company receives a Takeover Proposal or request
for information or inquiry that relates to or would be reasonably likely to
lead to a Takeover Proposal, the Company shall promptly (within 24 hours)
provide Parent with a copy (if in writing) and summary of the material
terms and conditions of such Takeover Proposal, request or inquiry and the
identity of the Person (and its equity investors, if known by the Company)
making such Takeover Proposal, request or inquiry, and shall keep Parent
reasonably informed of the status of any financial or other material
modifications to such Takeover Proposal, request or inquiry, including by
conveying a copy of all such modifications that are in writing, promptly
(within 24 hours) of any of the Company's officers', directors' or
financial advisors' receipt thereof.
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(c) Except as expressly permitted by this Section 5.3(c), the Board of
Directors of the Company or any committee thereof shall not and shall not
publicly propose to (i)(A) withdraw or modify, in a manner adverse to
Parent, the approval or adoption of this Agreement or the recommendation by
such Board of Directors or committee that shareholders of the Company adopt
this Agreement (the "Company Board Recommendation"), (B) recommend to the
shareholders of the Company, or approve or adopt, a Takeover Proposal or
(C) in the event that any Takeover Proposal is publicly announced or any
Person commences a tender offer or exchange offer for any outstanding
shares of Company Common Stock, fail to issue a press release that
reaffirms the Company Board Recommendation and, in the case of a tender
offer or exchange offer, recommend against acceptance of such tender offer
or exchange offer by the Company shareholders, in each case within 10
business days of such announcement or commencement (for the avoidance of
doubt, the taking of no position by the Board of Directors of the Company
in respect of the acceptance of any tender offer or exchange offer by its
shareholders shall constitute a failure to recommend against any such
offer) (any action, publicly proposed action or inaction described in this
clause (i) being referred to as a "Company Adverse Recommendation Change")
or (ii) enter into, approve or authorize the Company or any of its
Subsidiaries to enter into any letter of intent, memorandum of
understanding, or any merger, acquisition, option, joint venture,
partnership or similar agreement with respect to any Takeover Proposal
(other than a confidentiality agreement, subject to the requirements set
forth in Section 5.3(a)) (each, a "Company Acquisition Agreement").
Notwithstanding the foregoing, (x) the Board of Directors of the Company
may, subject to compliance with this Section 5.3, withdraw or modify the
Company Board Recommendation if such Board determines (after receiving the
advice of its outside counsel) in good faith by resolution duly adopted
that it is reasonably necessary to do so to comply with its fiduciary
duties to the shareholders of the Company under applicable Law and (y) if
the Board of Directors of the Company receives a Takeover Proposal that
such Board determines, in good faith by resolution duly adopted,
constitutes a Superior Proposal, the Company or its Subsidiaries may,
subject to compliance with this Section 5.3, enter into a definitive
Company Acquisition Agreement with respect to such Superior Proposal if the
Company shall have made the determination set forth in clause (x) of this
sentence and concurrently with entering into such Company Acquisition
Agreement terminates this Agreement pursuant to Section 7.1(d)(ii). If the
Company desires to enter into such a Company Acquisition Agreement with
respect to a Takeover Proposal or to make a Company Adverse Recommendation
Change, it shall give Parent written notice (a "Company Adverse
Recommendation Notice") containing a description of the material terms of
such Takeover Proposal or any other basis for a Company Adverse
Recommendation Change, the most current version of any Company Acquisition
Agreement relating to the Superior Proposal, if any, any other information
required by Section 5.3(b) and, if applicable, advising Parent that the
Board of Directors of the Company has determined that such Takeover
Proposal is a Superior Proposal, that the Board has made the determination
in clause (x) above and that the Board intends to enter into a Company
Acquisition Agreement with respect to such Superior Proposal. The Company
may make a Company Adverse Recommendation Change or terminate this
A-31
Agreement pursuant to Section 7.1(d)(ii) only (i) if at least seven
business days have passed since the date of the Company Adverse
Recommendation Notice and (ii) if after taking into account any revised
proposal that may be made by Parent since receipt of the Company Adverse
Recommendation Notice, the Board of Directors of the Company shall have not
changed its determination under clause (x) above or its determination that
such Takeover Proposal is a Superior Proposal (it being understood that any
amendment to the financial terms or other material terms of such Superior
Proposal shall require a new Company Adverse Recommendation Notice and a
new seven business day period).
(d) For purposes of this Agreement:
"Takeover Proposal" means any inquiry, proposal or offer, whether or
not conditional, from any Person (other than Parent and its Subsidiaries)
relating to any direct or indirect (A) acquisition of assets of the Company and
its Subsidiaries (including securities of Subsidiaries, but excluding sales of
assets in the ordinary course of business in compliance with this Agreement)
equal to 20% or more of the Company's consolidated assets or to which 20% or
more of the Company's revenues or earnings on a consolidated basis are
attributable, (B) acquisition of 20% or more of the outstanding Company Common
Stock, voting power of the Company or any class of equity securities of the
Company, (C) tender offer or exchange offer that if consummated would result in
any Person beneficially owning 20% or more of the outstanding Company Common
Stock, (D) merger, consolidation, share exchange, business combination,
recapitalization, liquidation, dissolution or similar transaction involving the
Company, (E) acquisition by the Company or any of its Subsidiaries of any third
party in any of the foregoing types of transactions in which the shareholders of
such third party immediately prior to the consummation of such transaction will
own more than 20% of the outstanding Company Common Stock immediately following
such transaction, or (F) without limiting any of the foregoing, any of the
foregoing types of transactions involving the acquisition of greater than 49% of
the voting equity interests in any Subsidiary or Subsidiaries of the Company
with assets, revenue or earnings representing 20% or more of the consolidated
assets, revenue or earnings of the Company on a consolidated basis.
"Superior Proposal" means a bona fide written proposal or offer to
acquire, directly or indirectly, for consideration consisting of cash and/or
publicly listed and traded securities, more than 68.5% of the equity securities
of the Company or all or substantially all of the assets of the Company and its
Subsidiaries on a consolidated basis, made by a third party, and which is
otherwise on terms and conditions which the Board of Directors of the Company
determines in its good faith and reasonable judgment and by resolution duly
adopted (after consultation with a financial advisor of national reputation and
in light of all relevant circumstances, including all the terms and conditions
of such proposal and this Agreement and the timing and certainty of
consummation) to be more favorable to the Company's shareholders from a
financial point of view than the terms set forth in this Agreement or the terms
of any other proposal made by Parent after Parent's receipt of a Company Adverse
Recommendation Notice, and which the Board of Directors of the Company
determines in good faith is reasonably capable of being consummated on the terms
so proposed, taking into account any financing and approval requirements, timing
of such consummation and all financial, regulatory, legal and other aspects of
such proposal.
A-32
(e) Nothing in this Section 5.3 shall prohibit the Board of Directors
of the Company from taking and disclosing to the Company's shareholders a
position contemplated by Rule 14e-2(a), Rule 14d-9 or Item 1012(a) of
Regulation M-A promulgated under the Exchange Act, or other applicable Law,
if such Board determines, after consultation with outside counsel, that
there is a reasonable likelihood failure to so disclose such position would
constitute a violation of applicable Law. In addition, it is understood and
agreed that, for purposes of this Agreement (including Article VII), (i) a
factually accurate public statement by the Company that merely describes
the Company's receipt of a Takeover Proposal and the operation of this
Agreement with respect thereto shall not be deemed a withdrawal or
modification, or proposal by the Board of Directors of the Company to
withdraw or modify, such Board's recommendation of this Agreement or the
Transactions, or an approval or recommendation with respect to such
Takeover Proposal and (ii) any "stop, look and listen" communication by the
Board of Directors to the shareholders of the Company pursuant to Rule
14d-9(f) of the Exchange Act or any similar communication to the
shareholders shall not constitute a Company Adverse Recommendation Change
provided that, in no event will the Company, the Board of Directors of the
Company or any committee thereof (A) recommend that the shareholders of the
Company tender their shares in connection with any such tender or exchange
offer (or otherwise approve or recommend any Takeover Proposal) or (B)
withdraw or modify the Company Board Recommendation, in each case other
than in accordance with Section 5.3(c).
(f) The Company shall not take any action (including any action by any
of its disinterested directors under subsection (4) of Section 607.0901 of
the FBCA) to cause subsection (2) of such Section not to apply to any
affiliated transaction, and in the event of a control-share acquisition (as
defined in Section 607.0902 of the FBCA), the Board of Directors of the
Company (and any committee thereof), at any shareholders meeting at which
the voting rights of any control shares so acquired are to be considered,
shall recommend against granting to such control shares the same voting
rights as were accorded the shares prior to such control-share acquisition
(for the avoidance of doubt, the taking of no position by the Board of
Directors of the Company in respect of the granting of such voting rights
shall constitute a failure to recommend against any such granting of such
voting rights).
(g) Nothing in this Section 5.3 shall permit the Board of Directors to
take any action that would result in the representation contained in the
second sentence of Section 3.3(a) to become untrue at any time prior to the
Effective Time as if restated on and as of such time.
A-33
Section 5.4 Reasonable Best Efforts.
(a) Subject to the terms and conditions of this Agreement, each of the
parties hereto shall cooperate with the other parties and use (and shall
cause their respective Subsidiaries to use) their respective reasonable
best efforts to promptly (i) take, or cause to be taken, all actions, and
do, or cause to be done, all things, necessary, proper or advisable to
cause the conditions to Closing to be satisfied as promptly as practicable
and to consummate and make effective, in the most expeditious manner
practicable, the Transactions, including preparing and filing promptly and
fully all documentation to effect all necessary filings, notices,
petitions, statements, registrations, submissions of information,
applications and other documents (including any required or recommended
filings under applicable Antitrust Laws) and (ii) obtain all approvals,
consents, registrations, permits, authorizations and other confirmations
from any Governmental Authority or third party necessary, proper or
advisable to consummate the Transactions. For purposes hereof, "Antitrust
Laws" means the Sherman Act, as amended, the Clayton Act, as amended, the
HSR Act, the Federal Trade Commission Act, as amended, and all other
applicable Laws issued by a foreign, United States or federal Governmental
Authority that are designed or intended to prohibit, restrict or regulate
actions having the purpose or effect of monopolization or restraint of
trade or lessening of competition through merger or acquisition.
(b) In furtherance and not in limitation of the foregoing, (i) each
party hereto agrees to make an appropriate filing of a Notification and
Report Form pursuant to the HSR Act with respect to the Transactions as
promptly as practicable and in any event within ten business days of the
date hereof and to supply as promptly as practicable any additional
information and documentary material that may be requested pursuant to the
HSR Act and use its reasonable best efforts to take, or cause to be taken,
all other actions consistent with this Section 5.4 necessary to cause the
expiration or termination of the applicable waiting periods under the HSR
Act (including any extensions thereof) as soon as practicable and (ii) the
Company and Parent shall each use its reasonable best efforts to (x) take
all action necessary to ensure that no state takeover, "moratorium," "fair
price," "affiliate transaction" or similar statute or regulation under any
applicable Law is or becomes applicable to any of the Transactions and (y)
if any state takeover, "moratorium," "fair price," "affiliate transaction"
or similar statute or regulation under any applicable Law becomes
applicable to any of the Transactions, take all action necessary to ensure
that the Transactions may be consummated as promptly as practicable on the
terms contemplated by this Agreement and otherwise minimize the effect of
such Law on the Transactions.
(c) Each of the parties hereto shall use its reasonable best efforts
to (i) cooperate in all respects with each other in connection with any
filing or submission with a Governmental Authority in connection with the
Transactions and in connection with any investigation or other inquiry by
or before a Governmental Authority relating to the Transactions, including
any proceeding initiated by a private party and (ii) keep the other party
informed in all material respects and on a reasonably timely basis of any
A-34
material communication received by such party from, or given by such party
to, the Federal Trade Commission, the Antitrust Division of the Department
of Justice or any other Governmental Authority and of any material
communication received or given in connection with any proceeding by a
private party, in each case regarding any of the Transactions. Subject to
applicable Laws relating to the exchange of information, each of the
parties hereto shall have the right to review in advance, and to the extent
practicable each will consult the other on, all the information relating to
the other parties and their respective Subsidiaries, as the case may be,
that appears in any filing made with, or written materials submitted to,
any third party and/or any Governmental Authority in connection with the
Transactions. Each party shall have the right to attend conferences and
meetings between the other party and regulators concerning the
Transactions, unless objection is raised by the Governmental Authority.
Notwithstanding anything in this Agreement to the contrary, nothing in the
Agreement shall require Parent or Merger Sub to provide to the Company any
or any access to non-public information about Parent and its Affiliates.
(d) In furtherance and not in limitation of the covenants of the
parties contained in this Section 5.4, each of the parties hereto shall use
its reasonable best efforts to resolve such objections, if any, as may be
asserted by a Governmental Authority or other Person with respect to the
Transactions. Without limiting any other provision hereof, Parent and the
Company shall each use its reasonable best efforts to (i) avoid the entry
of, or to have vacated or terminated, any decree, order or judgment that
would restrain, prevent or delay the consummation of the Transactions, on
or before the later of the Walk-Away Date and the Extended Walk-Away Date,
including by defending through litigation on the merits any claim asserted
in any court by any Person, and (ii) avoid or eliminate each and every
impediment under any Antitrust Law that may be asserted by any Governmental
Authority with respect to the Transactions so as to enable the consummation
of the Transactions to occur as soon as reasonably possible (and in any
event no later than the later of the Walk-Away Date and the Extended
Walk-Away Date). Notwithstanding anything in this Agreement to the
contrary, Parent shall take all such actions, including (y) proposing,
negotiating, committing to and effecting, by consent decree, hold separate
order, or otherwise, the sale, divestiture or disposition of such assets or
businesses of Parent or any of its Subsidiaries (including, after giving
effect to the Merger, the Company and its Subsidiaries) and (z) otherwise
taking or committing to take actions that limit Parent or its Subsidiaries'
(including, after giving effect to the Merger, the Company and its
Subsidiaries) freedom of action with respect to, or its ability to retain,
one or more of its or its Subsidiaries' businesses, product lines or
assets, in each case, as may be required in order to cause the expiration
or termination of the applicable waiting period under the HSR Act
(including any extensions thereof) as soon as practicable and to avoid the
entry of, or to effect the dissolution of, any injunction, temporary
restraining order, or other order in any suit or proceeding, which would
otherwise have the effect of preventing or materially delaying the
consummation of the Transactions provided, that, notwithstanding the
foregoing or anything else in this Agreement, Parent shall be required to
take any of the actions described in clauses (y) and (z) only to the extent
reasonably necessary to consummate the Transactions prior to the later of
the Walk Away Date and, if applicable, the Extended Walk Away Date. The
Company shall take such of the foregoing actions only if requested by
Parent and conditioned upon the consummation of the Merger.
A-35
Section 5.5 Public Announcements. The initial press release with
respect to the execution of this Agreement shall be a joint press release to be
reasonably agreed upon by Parent and the Company. Thereafter, neither the
Company nor Parent shall issue or cause the publication of any press release or
other public announcement (to the extent not previously issued or made in
accordance with this Agreement) with respect to the Merger, this Agreement or
the other Transactions without the prior consent of the other party (which
consent shall not be unreasonably withheld or delayed), except (i) as may be
required by Law or by any applicable listing agreement with a national
securities exchange or Nasdaq as determined in the good faith judgment of the
party proposing to make such release (in which case such party shall not issue
or cause the publication of such press release or other public announcement
without prior consultation with the other party) and (ii) each of Parent and the
Company may make any public statement in response to specific questions by the
press, analysts, investors or those attending industry conferences or financial
analyst conference calls, so long as such statements are substantially similar
to previous press releases, public disclosures or public statements made jointly
by Parent and the Company (or individually, if approved by the other party).
Section 5.6 Access to Information; Confidentiality. Subject to
applicable Laws relating to the exchange of information, the Company shall (i)
afford to Parent and Parent's Representatives reasonable access during normal
business hours to the Company's properties, books, Contracts, records (including
Tax Returns) and employees (subject to reasonable procedures, including
appointment of a management representative to coordinate and supervise such
access to such employees), (ii) use reasonable best efforts to cause the
Company's consultants and independent public accountants to provide access to
their work papers and such other information as Parent may reasonably request
and (iii) furnish promptly to Parent (A) a copy of each report, schedule and
other document filed by it pursuant to the requirements of Federal or state
securities Laws, (B) each written update provided to its Board of Directors on
the financial performance and projections for the Company or any of its
Subsidiaries and (C) other information concerning its business and properties as
Parent may reasonably request; provided, however, that the Company shall not be
obligated to provide such access or information if the Company determines, in
its reasonable judgment, that doing so would violate applicable Law or a
Contract or obligation of confidentiality owing to a third-party or jeopardize
the protection of an attorney-client privilege. The Company shall use reasonable
best efforts to obtain waivers of any of the foregoing confidentiality
obligations and the Company and Parent shall use reasonable best efforts to
enter into appropriate joint defense agreements to preserve attorney-client
privilege. Until the Effective Time, the information provided will be subject to
the terms of the Confidentiality Agreement.
A-36
Section 5.7 Notification of Certain Matters. The Company shall give
prompt notice to Parent, and Parent shall give prompt notice to the Company, of
(i) any notice or other communication received by such party from any
Governmental Authority in connection with the Transactions or from any Person
alleging that the consent of such Person is or may be required in connection
with the Transactions, (ii) any actions, suits, claims, investigations or
proceedings commenced or, to such party's knowledge, threatened against,
relating to or involving or otherwise affecting such party or any of its
Subsidiaries which relate to the Transactions, or (iii) the occurrence, or
non-occurrence, of any event the occurrence, or non-occurrence, of which is
likely (A) to cause any representation or warranty of such party contained in
this Agreement to be untrue or inaccurate in any material respect if made as of
any time at or prior to the Effective Time or (B) to result in any material
failure of such party to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied hereunder; provided, however, that
the delivery of any notice pursuant to this Section 5.7 shall not limit or
otherwise affect the remedies or conditions to Closing available hereunder to
the party receiving such notice.
Section 5.8 Indemnification and Insurance.
(a) From and after the Effective Time, Parent shall, and shall cause
the Surviving Corporation to, (i) indemnify and hold harmless each
individual who at the Effective Time is, or at any time prior to the
Effective Time was, a director or officer of the Company or of a Subsidiary
of the Company (each, an "Indemnitee" and, collectively, the "Indemnitees")
with respect to all claims, liabilities, losses, damages, judgments, fines,
penalties, costs (including amounts paid in settlement or compromise) and
expenses (including fees and expenses of legal counsel) in connection with
any claim, suit, action, proceeding or investigation (whether civil,
criminal, administrative or investigative), whenever asserted, based on or
arising out of, in whole or in part, acts or omissions by an Indemnitee in
the Indemnitee's capacity as a director, officer, employee or agent of the
Company or such Subsidiary or taken at the request of the Company or such
Subsidiary (including in connection with serving at the request of the
Company or such Subsidiary as a director, officer, employee or agent of
another Person (including any employee benefit plan)), at, or at any time
prior to, the Effective Time (including in connection with the
Transactions), to the fullest extent permitted under applicable Law and
provided under the Company Charter Documents or any existing agreements
with such Indemnitee, and (ii) assume all obligations of the Company and
such Subsidiaries to the Indemnitees in respect of indemnification and
exculpation from liabilities for acts or omissions occurring at or prior to
the Effective Time as provided in the Company Charter Documents. Without
limiting the foregoing, Parent, from and after the Effective Time, shall
cause the certificate of incorporation and by-laws of the Surviving
Corporation to contain provisions no less favorable to the Indemnitees with
respect to limitation of liabilities of directors and officers and
indemnification than are set forth as of the date of this Agreement in the
Company Charter Documents, which provisions shall not be amended, repealed
or otherwise modified in a manner that would adversely affect the rights
A-37
thereunder of the Indemnitees. In addition, from and after the Effective
Time, Parent shall, and shall cause the Surviving Corporation to, pay any
expenses (including fees and expenses of legal counsel) of any Indemnitee
under this Section 5.8 (including in connection with enforcing the
indemnity and other obligations provided for in this Section 5.8) as
incurred to the fullest extent permitted under applicable Law, provided
that the person to whom expenses are advanced provides an undertaking to
repay such advances to the extent required by applicable Law.
(b) At the Company's election in consultation with Parent, (i) the
Company shall obtain prior to the Effective Time "tail" insurance policies
with a claims period of at least six years from the Effective Time with
respect to directors' and officers' liability insurance in amount and scope
at least as favorable as the Company's existing policies for claims arising
from facts or events that occurred on or prior to the Effective Time or
(ii) if the Company shall not have obtained such tail policy, the Surviving
Corporation shall maintain in effect for six years from the Effective Time
the Company's current directors' and officers' liability insurance covering
acts or omissions occurring at or prior to the Effective Time with respect
to those persons who are currently (and any additional persons who prior to
the Effective Time become) covered by the Company's directors' and
officers' liability insurance policy on terms with respect to such
coverage, and in amount, not less favorable to such individuals than those
of such policy in effect on the date hereof (or Parent may cause the
Surviving Corporation to substitute therefor policies, issued by reputable
insurers, of at least the same coverage with respect to matters occurring
prior to the Effective Time); provided, however, that, if the aggregate
annual premiums for such insurance shall exceed 300% of the current
aggregate annual premium, then Parent shall provide or cause to be provided
a policy for the applicable individuals with the best coverage as shall
then be available at an annual premium of 300% of the current aggregate
annual premium.
(c) The provisions of this Section 5.8 are (i) intended to be for the
benefit of, and shall be enforceable by, each Indemnitee, his or her heirs
and his or her representatives and (ii) in addition to, and not in
substitution for, any other rights to indemnification or contribution that
any such Person may have by contract or otherwise. The obligations of
Parent and the Surviving Corporation under this Section 5.8 shall not be
terminated or modified in such a manner as to adversely affect the rights
of any Indemnitee to whom this Section 5.8 applies unless (x) such
termination or modification is required by applicable Law or (y) the
affected Indemnitee shall have consented in writing to such termination or
modification (it being expressly agreed that the Indemnitees to whom this
Section 5.8 applies shall be third party beneficiaries of this Section
5.8).
(d) In the event that Parent, the Surviving Corporation or any of
their respective successors or assigns (i) consolidates with or merges into
any other Person and is not the continuing or surviving corporation or
entity of such consolidation or merger or (ii) transfers or conveys all or
substantially all of its properties and assets to any Person, then, and in
each such case, proper provision shall be made so that the successors and
assigns of Parent and the Surviving Corporation shall assume all of the
obligations thereof set forth in this Section 5.8.
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Section 5.9 Fees and Expenses. All fees and expenses incurred in
connection with this Agreement and the Transactions shall be paid by the party
incurring such fees or expenses, whether or not the Transactions are
consummated, except as otherwise provided in Sections 5.13 and 7.3.
Section 5.10 Rule 16b-3. Prior to the Effective Time, the Company
shall take such steps as may be reasonably requested by any party hereto to
cause dispositions of Company equity securities (including derivative
securities) pursuant to the Transactions by or in respect of each individual who
is a director or officer of the Company to be exempt under Rule 16b-3
promulgated under the Exchange Act, including any such actions specified in that
certain No-Action Letter dated January 12, 1999 issued by the SEC regarding such
matters.
Section 5.11 Employee Matters.
(a) Parent shall, for a period of 12 months immediately following the
Closing Date, cause the Surviving Corporation and its Subsidiaries to
provide employees of the Company and its Subsidiaries (treated as a group)
and who are not covered by a collective bargaining agreement (the "Company
Employees") with (x) the same level of salary and bonus opportunity as in
effect on the Closing Date and (y) benefits that are substantially similar,
in the aggregate, to the benefits provided under the Company Plans by the
Company and its Subsidiaries to Company Employees prior to the Closing
Date; provided that nothing in this Section 5.11(a) shall limit the right
of Parent or any of its Subsidiaries to terminate the employment of any
Company Employee at any time or require Parent or any of its Subsidiaries
to provide any such salary, hourly wage, bonus opportunity or benefits for
any period following any such termination.
(b) Notwithstanding anything contained in this Agreement to the
contrary, Parent shall, for a period of 24 months immediately following the
Closing Date, cause the Surviving Corporation and its Subsidiaries to (i)
provide the members of the Company's management set forth on Schedule
5.11(b) ("Company Senior Executives") with (x) the same level of salary and
bonus opportunity as in effect on the Closing Date and (y) benefits that
are no less favorable, in the aggregate, than benefits provided under the
Company Plans by the Company and its Subsidiaries to Company Senior
Executives prior to the Closing Date (provided that nothing in this Section
5.11(b) shall limit the right of Parent or any of its Subsidiaries to
terminate the employment of any Company Senior Executive at any time or
require Parent or any of its Subsidiaries to provide any such salary, bonus
opportunity or benefits for any period following any such termination) and
(ii) continue the Company Supplemental Executive Retirement Plan without
any reduction of benefits thereunder.
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(c) Parent or one of its Affiliates shall recognize the service of
Company Employees with the Company prior to the Closing Date as service
with Parent and its Affiliates in connection with any 401(k) savings plan
and welfare benefit plan and policy (including vacations and severance
policies) maintained by Parent or one of its Affiliates which is made
available following the Closing Date by Parent or one of its Affiliates for
purposes of any waiting period, vesting, eligibility and benefit
entitlement (but excluding benefit accruals).
(d) Parent shall (i) waive, or cause its insurance carriers to waive,
all limitations as to pre-existing and at-work conditions, if any, with
respect to participation and coverage requirements applicable to Company
Employees under any group health plan (as defined in Section 4980(B) of the
Code) which is made available to Company Employees following the Closing
Date by Parent or one of its Affiliates and (ii) provide credit to Company
Employees for any co-payments, deductibles and out-of-pocket expenses paid
by such employees under any group health plan (as defined in Section
4980(B) of the Code) of the Company and its Subsidiaries during the portion
of the relevant plan year including the Closing Date for purposes of any
applicable co-payments, deductibles and out-of-pocket expense requirements
under any such group health plan of Parent or any of its Subsidiaries.
(e) Notwithstanding Section 5.11(a), Parent shall cause the Surviving
Company and its Subsidiaries to maintain for a period of 12 months
immediately following the Closing Date a severance pay plan under which the
amount of severance pay to a Company Employee shall not be less than the
amount that such employee would have received under the Company's
applicable severance pay plan in effect on the Closing Date as set forth on
Schedule 5.11(e) of the Company Disclosure Schedule, to be calculated,
however, on the basis of the employee's compensation and service at the
time of the layoff or other termination.
(f) If the Closing occurs prior to the payment of performance based
bonuses for the fiscal 2006 year referred to in Section 5.2(b)(v)(iii),
Parent shall cause the Surviving Company and its Subsidiaries (as
applicable) to pay such bonuses in accordance with Section 5.2(b)(v)(iii)
the Company's existing schedule for payment and other policies; provided
that any employee (other than a Company Senior Executive) who is employed
as of the Effective Time and who is involuntarily terminated without cause
as defined in Schedule 5.11(f) prior to the payment of such fiscal 2006
bonus shall be entitled to the payment of such fiscal 2006 bonus upon
termination. The Company may establish annual bonus plans ("2007 Bonus
Plans") for the fiscal 2007 year on terms consistent with past practice and
including customary provisions permitting reasonable management flexibility
to adjust bonus performance targets following the Closing to reflect
changes in the business of the Company and its Subsidiaries resulting from
the Transactions. If the Effective Time occurs during the fiscal 2007 year,
Parent shall cause the Surviving Company and its Subsidiaries (as
applicable) to pay to each employee (other than a Company Senior Executive)
who was employed as of the Effective Time and who is involuntarily
terminated without cause during the fiscal 2007 year, a pro rata amount of
such employee's target bonus measured to the date of termination in
accordance with the terms of the 2007 Bonus Plan as in effect as of the
Effective Time as soon as practicable following such termination.
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(g) Effective no later than immediately prior to the Effective Time,
the Company shall terminate or cause to be terminated any Company Plan
intended to include an arrangement under Section 401(k) of the Code (each,
a "Company 401(k) Plan") unless Parent provides written notice to the
Company that any such Company 401(k) Plan shall not be terminated. Unless
Parent provides such written notice to the Company, no later than three
business days prior to the Closing Date, the Company shall provide Parent
with evidence that such Company 401(k) Plan(s) have been terminated
(effective no later than immediately prior to the Effective Time) pursuant
to resolutions of the Board of Directors of the Company or one of its
Subsidiaries, as the case may be. The Company also shall take such other
actions in furtherance of terminating such Company 401(k) Plan(s) as Parent
may reasonably require.
Section 5.12 Delisting. Parent shall cause the Company's securities
to be de-listed from the NYSE and de-registered under the Exchange Act as soon
as practicable following the Effective Time.
Section 5.13 Indebtedness.
(a) The Company shall commence, on or prior to the date of filing the
Proxy Statement in preliminary form with the SEC or on any other date
agreed to in writing between the Company and Parent, an offer to purchase,
and related consent solicitation to eliminate certain covenants with
respect to, all of the outstanding notes set forth in Schedule 5.13(a) of
the Company Disclosure Schedule (the "Notes") on the terms and conditions
set forth on such Schedule (or as may be agreed in writing between the
Company and Parent) and such other customary terms and conditions as may be
agreed between Parent and the Company (together with the related consent
solicitation, the "Debt Offers"). Unless otherwise agreed by the Company,
all Debt Offers shall be contingent upon the consummation of the Merger.
Subject to the foregoing, the Company (i) shall waive any of the conditions
to the Debt Offers (other than that the Merger shall have been consummated
and that there shall be no Restraint that has the effect of preventing the
consummation of any of the Debt Offers) as may be reasonably requested by
Parent and (ii) shall not, without the written consent of Parent, waive any
condition to the Debt Offers or make any changes to the terms and
conditions of the Debt Offers.
(b) As promptly as practicable after the date hereof, the Company
shall prepare all necessary and appropriate documentation in connection
with the Debt Offers, including offers to purchase, related letters of
transmittal and other related documents (collectively, the "Debt Offer
Documents"), forms of which shall be provided by Parent to the Company as
promptly as practicable after the date hereof. Subject to the preceding
sentence, Parent and the Company shall cooperate with each other in the
preparation of the Debt Offer Documents. All mailings to the holders of
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Notes in connection with the Debt Offers shall be subject to prior review
and comment by Parent, and no Debt Offer Document shall be mailed or
otherwise distributed to holders of Notes without the written consent of
Parent. If at any time prior to the completion of any Debt Offer any
information in or concerning any Debt Offer Document is discovered by the
Company or Parent, which information should be included in an amendment or
supplement to the Debt Offer Documents to prevent the Debt Offer Documents
from containing any untrue statement of a material fact or from omitting to
state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which
they are made, not misleading, the party that discovers such information
shall promptly notify the other party, and an appropriate amendment or
supplement describing such information shall be disseminated to the holders
of the Notes.
(c) The Company agrees that, immediately following any consent payment
deadline specified in any Debt Offer Documents, assuming the requisite
consents are received, it shall, and shall cause its Subsidiaries (as
applicable) and use reasonable best efforts to cause the other parties to
the agreements and documents relating to the Notes, as applicable, to,
execute supplemental indentures or amendments, as applicable, to implement
the proposed amendments set forth in the applicable Debt Offer Documents to
become operative substantially concurrently with the Effective Time. At
least two business days prior to Closing, the Company shall deliver to
Parent a certificate setting forth the amount to be paid, together with
wire transfer instructions, and substantially concurrently with the
Effective Time, Parent shall cause the Surviving Corporation to accept for
payment and, as promptly as practicable thereafter, pay, for any Notes that
have been properly tendered and not withdrawn pursuant to the Debt Offers
and in accordance with the Debt Offer Documents.
(d) Notwithstanding anything to the contrary in this Section 5.13, the
Company shall comply with the requirements of Rule 14e-1 under the Exchange
Act and any other Law to the extent such Law is applicable in connection
with the Debt Offers. To the extent that the provisions of any applicable
Law conflict with this Section 5.13, the Company shall comply with such
applicable Law and shall not be deemed to have breached its obligations
hereunder by such compliance.
(e) At least two business days prior to Closing, the Company shall
deliver to Parent an executed payoff letter with respect to its revolving
credit agreement that sets forth (i) the amount to be paid at the Effective
Time, together with wire transfer instructions and (ii) that the payment of
such amount shall result in a complete release of the Company and its
Subsidiaries from all obligations and Liens relating to such credit
agreement.
(f) The Company shall cooperate with Parent with respect to any
request by Parent to obtain consents to (i) this Agreement and the
Transactions from landlords and other nongovernmental counterparties to
agreements with the Company and its Subsidiaries, (ii) the prepayment of
amounts owing to such parties (including the provision of customary pay-off
letters) or (iii) the amendment of covenants under such agreements.
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(g) Parent shall reimburse, indemnify and hold harmless the Company
for all out-of-pocket costs, expenses and liabilities relating to its
performance of its obligations under this Section 5.13, provided that the
Company shall not incur any material expenses (including printer, dealer
manager and agency fees) without prior consultation with Parent.
ARTICLE VI
Conditions Precedent
--------------------
Section 6.1 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligations of each party hereto to effect the Merger
shall be subject to the satisfaction (or waiver, if permissible under applicable
Law) on or prior to the Closing Date of the following conditions:
(a) Company Shareholder Approval. The Company Shareholder Approval
shall have been obtained;
(b) Antitrust. The waiting period (and any extension thereof)
applicable to the Merger under the HSR Act shall have been terminated or
shall have expired; and
(c) No Injunctions or Restraints. No Law, injunction, judgment or
ruling enacted, promulgated, issued, entered, amended or enforced by any
Governmental Authority (collectively, "Restraints") shall be in effect
enjoining, restraining, preventing or prohibiting consummation of the
Merger or making the consummation of the Merger illegal.
Section 6.2 Conditions to Obligations of Parent. The obligation of
Parent to effect the Merger is further subject to the satisfaction (or waiver,
if permissible under applicable Law) on or prior to the Closing Date of the
following conditions:
(a) Representations and Warranties. The representations and warranties
of the Company contained in this Agreement (other than the representations
and warranties in Section 3.2), disregarding all qualifications and
exceptions contained therein relating to materiality or Material Adverse
Effect, shall be true and correct as of the Closing Date as if made on and
as of the Closing Date (or, if given as of a specific date, at and as of
such date), except where the failure or failures to be so true and correct,
individually or in the aggregate, have not had and would not reasonably be
expected to have a Company Material Adverse Effect. The representations and
warranties in Section 3.2 shall be true and correct, individually and in
the aggregate, in all material respects as of the Closing Date as if made
on and as of the Closing Date (or, if given as of a specific date, at and
as of such date);
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(b) Performance of Obligations of the Company. The Company shall have
performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Closing Date;
(c) Officer's Certificate. Parent shall have received a certificate
signed on behalf of the Company by an executive officer of the Company
certifying that the conditions set forth in Sections 6.2(a) and (b) have
been satisfied; and
(d) No Pending Governmental Authority Actions. No Governmental
Authority shall have instituted an action or proceeding that remains
pending seeking to enjoin, restrain, prevent or prohibit consummation of
the Merger.
Section 6.3 Conditions to Obligations of the Company. The obligation
of the Company to effect the Merger is further subject to the satisfaction (or
waiver, if permissible under applicable Law) on or prior to the Closing Date of
the following conditions:
(a) Representations and Warranties. The representations and warranties
of Parent contained in this Agreement, disregarding all qualifications and
exceptions contained therein relating to materiality or Material Adverse
Effect, shall be true and correct as of the Closing Date as if made on and
as of the Closing Date (or, if given as of a specific date, at and as of
such date), except where the failure or failures to be so true and correct,
individually or in the aggregate, would not reasonably be expected to
impair in any material respect the ability of Parent to perform its
obligations under this Agreement or prevent or materially delay
consummation of the Transactions;
(b) Performance of Obligations of Parent. Parent shall have performed
in all material respects all obligations required to be performed by them
under this Agreement at or prior to the Closing Date; and
(c) Officer's Certificate. The Company shall have received a
certificate signed on behalf of Parent by an executive officer of each of
Parent certifying that the conditions set forth in Sections 6.3(a) and (b)
have been satisfied.
ARTICLE VII
Termination
-----------
Section 7.1 Termination. This Agreement may be terminated and the
Transactions abandoned at any time prior to the Effective Time, whether before
or after receipt of the Company Shareholder Approval:
(a) by the mutual written consent of the Company and Parent duly
authorized by each of their respective Boards of Directors; or
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(b) by either of the Company or Parent:
(i) if the Merger shall not have been consummated on or before
June 9, 2006 (the "Walk-Away Date"); provided, however, that the right
to terminate this Agreement under this Section 7.1(b)(i) shall not be
available to a party if the failure of the Merger to have been
consummated on or before the Walk-Away Date was primarily due to the
failure of such party to perform any of its obligations under this
Agreement and provided, further, that if the condition set forth in
Section 6.1(b) shall not have been satisfied, the earliest date on
which the Company may terminate this Agreement because the Merger
shall not have been consummated shall be July 10, 2006 (the "Extended
Walk-Away Date"); and provided, further, that the right to terminate
this Agreement under this Section 7.1(b)(i) shall not be available to
(A) Parent if the condition set forth in Section 6.1(b) shall not have
been satisfied or (B) the Company if a vote on the adoption and
approval of this Agreement and the Merger shall not yet have occurred
at a duly convened Company Shareholder Meeting;
(ii) if any Restraint having the effect set forth in Section
6.1(c) shall be in effect and shall have become final and
nonappealable; or
(iii) if the Company Shareholder Approval shall not have been
obtained at the Company Shareholders Meeting duly convened therefor or
at any adjournment or postponement thereof;
(c) by Parent:
(i) if the Company shall have breached or failed to perform any
of its representations, warranties, covenants or agreements set forth
in this Agreement, which breach or failure to perform (x) would give
rise to the failure of a condition set forth in Section 6.2(a) or (b)
and (y) cannot be cured by the Company by the Walk-Away Date or, if
curable, is not cured within 45 days after the Company receives
written notice from Parent of such breach;
(ii) if Parent shall have received a Company Adverse
Recommendation Notice, provided that Parent shall be permitted to
terminate this Agreement pursuant to this Section 7.1(c)(ii) only on
or before the end of the seventh (7th) business day after Parent's
receipt of the related Company Adverse Recommendation Notice; or
(iii) if a Company Adverse Recommendation Change shall have
occurred; or
(d) by the Company:
(i) if Parent shall have breached or failed to perform any of its
representations, warranties, covenants or agreements set forth in this
Agreement, which breach or failure to perform (x) would give rise to
the failure of a condition set forth in Section 6.3(a) or (b) and (y)
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cannot be cured by Parent by the Walk-Away Date or, if curable, is not
cured within 45 days after Parent receives written notice from the
Company of such breach (for purposes of clarity, a termination by the
Company pursuant to this Section 7.1(d)(i) shall not constitute a
Company Adverse Recommendation Change); or
(ii) prior to the Company Shareholder Approval, if the Company
(A) has materially complied with its obligations under Sections 5.1
and 5.3, (B) has paid the Termination Fee pursuant to Section 7.3(a)
and (C) concurrently enters into a definitive Company Acquisition
Agreement providing for a Superior Proposal provided that the Company
may not terminate this Agreement pursuant to this Section 7.1(d)(ii)
until at least seven business days have passed since the date of the
most recent Company Adverse Recommendation Notice.
Section 7.2 Effect of Termination. In the event of the termination of
this Agreement as provided in Section 7.1, written notice thereof shall be given
to the other party or parties, specifying the provision hereof pursuant to which
such termination is made, and this Agreement shall forthwith become null and
void (other than Sections 5.9, 7.2 and 7.3, Article VIII and the last sentence
of Section 5.6, and the Confidentiality Agreement in accordance with its terms,
all of which shall survive termination of this Agreement), and there shall be no
liability on the part of Parent, Merger Sub or the Company or their respective
directors, officers and Affiliates, except (i) the Company may have liability as
provided in Section 7.3 and (ii) nothing shall relieve any party from liability
for fraud or any willful breach of this Agreement.
Section 7.3 Termination Fee.
(a) In the event that this Agreement is terminated by the Company
pursuant to Section 7.1(d)(ii), then the Company shall pay to Parent a
termination fee of $124,800,000 in cash (the "Termination Fee"), which
Termination Fee shall be paid concurrently with such termination, payable
by wire transfer of same-day funds.
(b) In the event that this Agreement is terminated by Parent either
(i) pursuant to Section 7.1(c)(i) based on a willful breach of Section 5.3
or (ii) pursuant to Section 7.1(c)(ii) or 7.1(c)(iii), the Company shall
pay to Parent the Termination Fee within two business days of such
termination, payable by wire transfer of same-day funds.
(c) In the event this Agreement is terminated by the Company or Parent
pursuant to Section 7.1(b)(i) or 7.1(b)(iii) and (A) after the date of this
Agreement but prior to the date of such termination a Takeover Proposal or
a request or communication reasonably likely to lead to a Takeover Proposal
shall have been made known to the Company (or any director or officer of
the Company) or shall have been made directly to its shareholders generally
or any Person shall have publicly announced an interest in making or an
intention (whether or not conditional) to make a Takeover Proposal and (B)
the Company enters into a Company Acquisition Agreement with respect to, or
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consummates the transaction contemplated by, a Takeover Proposal within
twelve months of the date this Agreement is so terminated pursuant to
Section 7.1(b)(i) or 7.1(b)(iii), then the Company shall pay to Parent the
Termination Fee concurrently with (and as a condition to) the event under
clause (B), payable by wire transfer of same-day funds; provided, that in
the event of a termination pursuant to Section 7.1(b)(i), no Termination
Fee shall be payable unless the conditions set forth in Section 6.1(b),
6.1(c) (except for any Restraint that was not issued in connection with
Antitrust Law), 6.3(a) and 6.3(b) shall have been satisfied.
(d) In the event that this Agreement is terminated by Parent pursuant
to Section 7.1(c)(i) (other than as described in Section 7.3(b)(i)), the
Company shall pay to Parent the Termination Fee only if (A) the Company's
breach or failure triggering such termination shall have been willful, (B)
after the date of this Agreement but prior to the date of such termination
a Takeover Proposal or a request or communication reasonably likely to lead
to a Takeover Proposal shall have been made known to the Company (or any
director or officer of the Company) or shall have been made directly to its
shareholders generally or any Person shall have publicly announced an
interest in making or an intention (whether or not conditional) to make a
Takeover Proposal and (C) the Company enters into a Company Acquisition
Agreement with respect to, or consummates the transaction contemplated by,
a Takeover Proposal within twelve months of the date this Agreement is so
terminated pursuant to Section 7.1(c)(i), then the Company shall pay to
Parent the Termination Fee concurrently with (and as a condition to) the
event under clause (C) giving rise to the obligation to make such payment,
payable by wire transfer of same-day funds.
(e) Each of the Company and Parent acknowledges that the agreements
contained in this Section 7.3 are an integral part of the Transactions. If
the Company shall fail to pay the Termination Fee when due, the Company
shall reimburse Parent for all reasonable costs and expenses actually
incurred or accrued by Parent (including reasonable fees and expenses of
counsel) in connection with the collection under and enforcement of this
Section 7.3 together with interest on the amount of the Termination Fee
from the date such payment was required to be made until the date of
payment at the prime rate of Citibank N.A. in effect on the date such
payment was required to be made. Solely for the purposes of Section 7.3(c)
and 7.3(d), the term "Takeover Proposal" shall have the meaning assigned to
such term in Section 5.3(d), except that all references to "20%" shall be
changed to "40%".
Section 7.4 Remedies. Except as otherwise provided in this Agreement,
any and all remedies expressly conferred upon a party to this Agreement shall be
cumulative with, and not exclusive of, any other remedy contained in this
Agreement, at law or in equity. The exercise by a party to this Agreement of any
one remedy shall not preclude the exercise by it of any other remedy.
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ARTICLE VIII
Miscellaneous
-------------
Section 8.1 No Survival of Representations and Warranties. The
representations, warranties and agreements in this Agreement shall terminate at
the Effective Time or, except as otherwise provided in Section 7.2, upon the
termination of this Agreement pursuant to Section 7.1, as the case may be,
except that the agreements set forth in Article II and Sections 5.8, 5.10, 5.11,
and 5.12 and any other agreement in this Agreement which contemplates
performance after the Effective Time shall survive the Effective Time
indefinitely and those set forth in Sections 5.9, 7.2 and 7.3 and this Article
VIII shall survive termination indefinitely. The Confidentiality Agreement shall
(i) survive termination of this Agreement in accordance with its terms and (ii)
terminate as of the Effective Time.
Section 8.2 Amendment or Supplement. At any time prior to the
Effective Time, this Agreement may be amended or supplemented in any and all
respects, whether before or after receipt of the Company Shareholder Approval,
by written agreement of the parties hereto, by action taken or authorized by
their respective Boards of Directors; provided, however, that following receipt
of the Company Shareholder Approval, there shall be no amendment or change to
the provisions hereof which by Law would require further approval by the
shareholders of the Company without such approval.
Section 8.3 Extension of Time, Waiver, Etc. At any time prior to the
Effective Time, any party may, subject to applicable Law, (a) waive any
inaccuracies in the representations and warranties of any other party hereto,
(b) extend the time for the performance of any of the obligations or acts of any
other party hereto or (c) waive compliance by the other party with any of the
agreements contained herein or, except as otherwise provided herein, waive any
of such party's conditions. Notwithstanding the foregoing, no failure or delay
by the Company or Parent in exercising any right hereunder shall operate as a
waiver thereof nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right hereunder.
Any agreement on the part of a party hereto to any such extension or waiver
shall be valid only if set forth in an instrument in writing signed on behalf of
such party.
Section 8.4 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned, in whole or in part, by
operation of Law or otherwise, by any of the parties without the prior written
consent of the other party, provided, that Parent may assign any of its rights
and obligations to any direct or indirect wholly owned Subsidiary of Parent, but
no such assignment shall relieve Parent of its obligations hereunder. Subject to
the preceding sentence, this Agreement shall be binding upon, inure to the
benefit of, and be enforceable by, the parties hereto and their respective
successors and permitted assigns. Any purported assignment not permitted under
this Section 8.4 shall be null and void.
Section 8.5 Counterparts. This Agreement may be executed in
counterparts (each of which shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement) and shall become
effective when one or more counterparts have been signed by each of the parties
and delivered to the other party.
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Section 8.6 Entire Agreement; No Third-Party Beneficiaries. This
Agreement, including the Company Disclosure Schedule, the exhibits hereto, the
documents and instruments relating to the Merger referred to herein and the
Confidentiality Agreement (a) constitute the entire agreement, and supersede all
other prior agreements and understandings, both written and oral, among the
parties with respect to the subject matter hereof and thereof and (b) except for
the provisions of Section 5.8 are not intended to and shall not confer upon any
Person other than the parties hereto any rights, benefits or remedies hereunder.
Section 8.7 Governing Law; Jurisdiction; Waiver of Jury Trial.
(a) This Agreement shall be governed by and interpreted under the laws
of the State of Delaware (without regard to its principles of conflicts of
laws), except that the Merger and all applicable fiduciary duties of the
Board of Directors of the Company and any committee thereof hereunder shall
be governed by and interpreted under the Laws of the State of Florida. Each
party irrevocably and unconditionally (a) consents to submit to the
jurisdiction of the Chancery Court of the State of Delaware for any action,
suit or proceeding arising out of or relating to this agreement (and each
party irrevocably and unconditionally agrees not to commence any such
action, suit or proceeding except in such courts), (b) waives any objection
to the laying of venue of any such action, suit or proceeding in any such
courts and (c) waives and agrees not to plead or claim that any such
action, suit or proceeding brought in any such court has been brought in an
inconvenient forum.
(b) Each of the parties hereto hereby irrevocably waives any and all
rights to trial by jury in any legal proceeding arising out of or related
to this Agreement.
Section 8.8 Specific Enforcement. The parties agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions of this Agreement in the Chancery Court of
the State of Delaware this being in addition to any other remedy to which they
are entitled at law or in equity.
Section 8.9 Notices. All notices, requests and other communications
to any party hereunder shall be in writing and shall be deemed given if
delivered personally, facsimiled (which is confirmed) or sent by overnight
courier (providing proof of delivery) to the parties at the following addresses:
If to Parent, to:
The Home Depot, Inc.
Legal Department, Building C-20
2455 Paces Ferry Road
Atlanta, GA 30339
Attention: L. Briley Brisendine, Esq., Director - Legal Mergers and
Acquisitions
Facsimile: 770-384-2739
A-49
with a copy (which shall not constitute notice) to:
Cleary Gottlieb Steen & Hamilton LLP
One Liberty Plaza
New York, NY 10006
Attention: Ethan A. Klingsberg
Facsimile: (212) 225-3999
If to the Company, to:
Hughes Supply, Inc.
501 West Church Street
Orlando, FL 32805
Attention: General Counsel
Facsimile: 407-649-3018
with a copy (which shall not constitute notice) to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, NY 10153
Attention: Thomas A. Roberts
Marita A. Makinen
Facsimile: (212) 310-8007
and to:
Holland & Knight LLP
200 South Orange Avenue
Suite 2600
Orlando, FL 32801
Attention: Tom McAleavey
Facsimile: (407) 244-5288
or such other address or facsimile number as such party may hereafter specify by
like notice to the other party hereto. All such notices, requests and other
communications shall be deemed received on the date of receipt by the recipient
thereof if received prior to 5 P.M. in the place of receipt and such day is a
business day in the place of receipt. Otherwise, any such notice, request or
communication shall be deemed not to have been received until the next
succeeding business day in the place of receipt.
A-50
Section 8.10 Severability. If any term or other provision of this
Agreement is determined by a court of competent jurisdiction to be invalid,
illegal or incapable of being enforced by any rule of Law or public policy, all
other terms, provisions and conditions of this Agreement shall nevertheless
remain in full force and effect. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible to the fullest extent
permitted by applicable Law in an acceptable manner to the end that the
Transactions are fulfilled to the extent possible.
Section 8.11 Definitions.
(a) As used in this Agreement, the following terms have the meanings
ascribed thereto below:
"Affiliate" shall mean, as to any Person, any other Person that,
directly or indirectly, controls, or is controlled by, or is under common
control with, such Person. For this purpose, "control" (including, with its
correlative meanings, "controlled by" and "under common control with") shall
mean the possession, directly or indirectly, of the power to direct or cause the
direction of management or policies of a Person, whether through the ownership
of securities or partnership or other ownership interests, by contract or
otherwise.
"business day" shall mean a day except a Saturday, a Sunday or other
day on which the SEC or banks in the City of New York, New York are authorized
or required by Law to be closed.
"Company Supplemental Executive Retirement Plan" shall mean the
Company's Second Amended and Restated Supplemental Executive Retirement Plan, as
in effect on the date hereof.
"GAAP" shall mean generally accepted accounting principles in the
United States.
"Governmental Authority" shall mean any government, court, regulatory
or administrative agency, commission or authority, securities exchange, Nasdaq
or other governmental instrumentality, whether federal, state or local,
domestic, foreign or multinational.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended.
"Knowledge" shall mean, in the case of the Company, the actual
knowledge, as of the date of this Agreement and at and as of the Closing Date,
of the individuals listed on Schedule 8.11 of the Company Disclosure Schedule.
A-51
"Material Real Property" shall mean the land, improvements and
fixtures constituting real property owned or leased by the Company or any of its
Subsidiaries that comprise each of (i) the Atlanta, Georgia and Miami, Florida
"Megacenters", (ii) any portion of the Orlando, Florida "Megacenter", (iii) the
"Distribution Centers" located in Orlando, Florida, Phoenix, Arizona, Monroe,
North Carolina, Greenville, Ohio, Stafford, Texas, Tampa, Florida, College Park,
Georgia and Aurora, Colorado, (iv) any manufacturing or fabrication shop or
plant, (v) any facility with building square footage of 100,000 square feet or
more and (vi) the Company's corporate headquarters located at One Hughes Way,
Orlando, Florida 32805.
"NYSE" shall mean The New York Stock Exchange.
"Permitted Liens" shall mean Liens specifically disclosed on the
Balance Sheet; Liens for taxes not yet due or being contested in good faith
(and, with respect to those being contested, for which adequate accruals or
reserves have been established on the Balance Sheet); or Liens that do not
materially detract from the value or materially interfere with any present or
intended use of such property or assets.
"Person" shall mean an individual, a corporation, a limited liability
company, a partnership, an association, a trust or any other entity, including a
Governmental Authority.
"Subsidiary" when used with respect to any party, shall mean any
corporation, limited liability company, partnership, association, trust or other
entity of which securities or other ownership interests representing more than
50% of the equity and more than 50% of the ordinary voting power (or, in the
case of a partnership, more than 50% of the general partnership interests) are,
as of such date, owned by such party or one or more Subsidiaries of such party
or by such party and one or more Subsidiaries of such party.
"Tax Returns" shall mean any return, report, claim for refund,
estimate, information return or statement or other similar document relating to
or required to be filed with any Governmental Authority with respect to Taxes,
including any schedule or attachment thereto, and including any amendment
thereof.
"Taxes" shall mean (i) all federal, state, local or foreign taxes,
charges, fees, imposts, levies or other assessments, including all net income,
gross receipts, capital, real property, personal property, sales, use, ad
valorem, value added, transfer, franchise, profits, inventory, capital stock,
license, withholding, payroll, employment, social security, unemployment,
excise, severance, stamp, occupation, property and estimated taxes, customs
duties, fees, assessments and charges of any kind and all interest, penalties,
fines, additions to tax or additional amounts imposed by any Governmental
Authority with respect thereto, (ii) any liability for the payment of any
amounts described in clause (i) as a result of being a member of an affiliated,
consolidated, combined, unitary or similar group or as a result of transferor or
successor liability; and (iii) any liability for the payments of any amounts as
a result of being a party to any tax sharing agreement or as a result of any
express or implied obligation to indemnify any other Person with respect to the
payment of any amounts of the type described in clause (i) or (ii).
A-52
"Transactions" refers collectively to this Agreement and the
transactions contemplated hereby, including the Merger.
The following terms are defined on the page of this Agreement set forth after
such term below:
2007 Bonus Plans...............................41 Effective Time..................................2
Agreement.......................................2 Environmental Laws.............................18
Antitrust Laws.................................35 ERISA..........................................15
Articles of Merger..............................2 Exchange Act...................................12
Balance Sheet Date.............................13 Extended Walk-Away Date........................46
Bankruptcy and Equity Exception................11 FBCA............................................2
Certificate.....................................4 Filed Company SEC Documents.....................7
Closing.........................................2 Hazardous Materials............................18
Closing Date....................................2 Indemnitee.....................................38
Code............................................6 Indemnitees....................................38
Company.........................................2 Intellectual Property..........................22
Company 401(k) Plan............................42 Laws...........................................14
Company Acquisition Agreement..................32 Leased Real Property...........................19
Company Adverse Recommendation Change..........32 Liens...........................................9
Company Adverse Recommendation Notice..........32 Material Adverse Effect.........................8
Company Board Recommendation...................32 Merger..........................................2
Company Charter Documents.......................9 Merger Consideration............................4
Company Common Stock............................3 Merger Sub......................................2
Company Disclosure Schedule.....................7 Notes..........................................42
Company Employees..............................40 Option..........................................6
Company Material Adverse Effect.................8 Option Consideration............................7
Company Plans..................................15 Owned Real Property............................18
Company Preferred Stock.........................9 Parent..........................................2
Company SEC Documents..........................12 Paying Agent....................................4
Company Senior Executives......................40 Permits........................................14
Company Shareholder Approval...................11 Proxy Statement................................12
Company Shareholders Meeting...................26 Real Property Lease............................19
Company Stock Plans.............................7 Representatives................................30
Confidentiality Agreement......................11 Restraints.....................................44
Contract.......................................11 Restricted Company Common Stock.................7
Debt Offer Documents...........................42 Rights..........................................4
Debt Offers....................................42 Rights Agreement................................4
Delay..........................................30 SEC............................................12
A-53
Securities Act..................................9
Special Committee...............................2
Superior Proposal..............................33
Surviving Corporation...........................2
Takeover Proposal..............................33
Termination Fee................................47
Walk-Away Date.................................46
Section 8.12. Interpretation.
(a) When a reference is made in this Agreement to an Article, a
Section, Exhibit or Schedule, such reference shall be to an Article of, a
Section of, or an Exhibit or Schedule to, this Agreement unless otherwise
indicated. The table of contents and headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning
or interpretation of this Agreement. Whenever the words "include",
"includes" or "including" are used in this Agreement, they shall be deemed
to be followed by the words "without limitation". The 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. All terms defined in this Agreement
shall have the defined meanings when used in any document made or delivered
pursuant hereto unless otherwise defined therein. The definitions contained
in this Agreement are applicable to the singular as well as the plural
forms of such terms and to the masculine as well as to the feminine and
neuter genders of such term. Any agreement, instrument or statute defined
or referred to herein or in any agreement or instrument that is referred to
herein means such agreement, instrument or statute as from time to time
amended, modified or supplemented, including (in the case of agreements or
instruments) by waiver or consent and (in the case of statutes) by
succession of comparable successor statutes and references to all
attachments thereto and instruments incorporated therein. References to a
Person are also to its permitted successors and assigns.
(b) The parties hereto have participated jointly in the negotiation
and drafting of this Agreement and, in the event an ambiguity or question
of intent or interpretation arises, this Agreement shall be construed as
jointly drafted by the parties hereto and no presumption or burden of proof
shall arise favoring or disfavoring any party by virtue of the authorship
of any provision of this Agreement.
[signature page follows]
A-54
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered as of the date first above written.
THE HOME DEPOT, INC.
By:
--------------------------------------
Name:
Title:
HUGHES SUPPLY, INC.
By:
--------------------------------------
Name: Thomas I. Morgan
Title: Chief Executive Officer and
President
A-55
ANNEX B
LEHMAN BROTHERS
January 9, 2006
The Special Committee of the Board of Directors
Hughes Supply, Inc.
501 West Church Street
Orlando, FL 32805
Members of the Special Committee of the Board of Directors:
We understand that Hughes Supply, Inc. (the "Company") intends to
enter into an Agreement and Plan of Merger, dated as of January 9, 2006 (the
"Agreement"), between the Company and The Home Depot, Inc.("Parent"), pursuant
to which (i) a wholly owned subsidiary of Parent ("Merger Sub") will merge with
and into the Company with the Company surviving the merger, and (ii) upon the
effectiveness of such merger, each share of common stock of the Company ("Hughes
Common Stock") issued and outstanding immediately prior to the effective time of
the merger, together with the associated preferred share purchase rights issued
under the Rights Agreement, dated as of May 20, 1998, between the Company and
American Stock Transfer & Trust Company, as rights agent, but excluding any
shares of Hughes Common Stock then owned by Parent, Merger Sub and the Company
and its subsidiaries, shall be converted into the right to receive $46.50 per
share in cash (the "Proposed Transaction"). The terms and conditions of the
Proposed Transaction are set forth in more detail in the Agreement.
We have been requested by the Special Committee of the Board of
Directors of the Company (the "Special Committee") to render our opinion with
respect to the fairness, from a financial point of view, to the Company's
stockholders of the consideration to be offered to such stockholders in the
Proposed Transaction. We have not been requested to opine as to, and our opinion
does not in any manner address, the Company's underlying business decision to
proceed with or effect the Proposed Transaction.
In arriving at our opinion, we reviewed and analyzed: (1) the
Agreement and the specific terms of the Proposed Transaction, (2) publicly
available information concerning the Company that we believe to be relevant to
our analysis, including the Company's Annual Report on Form 10-K for the fiscal
year ended January 31, 2005, (3) financial and operating information with
respect to the business, operations and prospects of the Company furnished to us
by the Company, including financial projections of the Company prepared by the
management of the Company, (4) published estimates of independent research
analysts with respect to the future price targets of Hughes Common Stock, (5) a
trading history of the Company Stock from January 5, 1996 to January 6, 2006,
(6) a comparison of the historical financial results and present financial
condition of the Company with those of other companies that we deemed relevant,
(7) a comparison of the financial terms of the Proposed Transaction with the
B-1
financial terms of certain other transactions that we deemed relevant, and (8)
the results of our efforts to solicit indications of interest and definitive
proposals from third parties with respect to a sale of the Company. In addition,
we have had discussions with the management of the Company concerning
itsbusiness, operations, assets, financial condition and prospects and have
undertaken such other studies, analyses and investigations as we deemed
appropriate.
In arriving at our opinion, we have assumed and relied upon the
accuracy and completeness of the financial and other information used by us
without assuming any responsibility for independent verification of such
information and have further relied upon the assurances of management of the
Company that they are not aware of any facts or circumstances that would make
such information inaccurate or misleading. With respect to the financial
projections of the Company, upon advice of the Company we have assumed that such
projections have been reasonably prepared on a basis reflecting the best
currently available estimates and judgments of the management of the Company as
to the future financial performance of the Company and we have relied upon such
projections in performing our analysis. However, for the purpose of our
analysis, we performed a sensitivity analysis on the financial projections of
the Company to reflect a more conservative assumption regarding the growth rate
of the Company's business and margin improvement which were discussed with the
Company's management and were relied on in rendering our opinion. In arriving at
our opinion, we have not conducted a physical inspection of the properties and
facilities of the Company and have not made or obtained any evaluations or
appraisals of the assets or liabilities of the Company. We have further assumed,
upon advice of the Company, that all material governmental, regulatory or other
consents or approvals necessary for the consummation of the Proposed Transaction
will be obtained as contemplated by the Agreement. Our opinion necessarily is
based upon market, economic and other conditions as they exist on, and can be
evaluated as of, the date of this letter.
Based upon and subject to the foregoing, we are of the opinion as of
the date hereof that, from a financial point of view, the consideration to be
offered to the stockholders of the Company in the Proposed Transaction is fair
to such stockholders.
We have acted as financial advisor to the Company in connection with
the Proposed Transaction and will receive a fee for our services, a substantial
portion of which is contingent upon the consummation of the Proposed
Transaction. In addition, the Company has agreed to indemnify us for certain
liabilities that may arise out of the rendering of this opinion. We also have
performed various investment banking services for the Company and Parent in the
past, and expect to provide such services in the future, and have received, and
expect to receive, customary fees for such services. In the ordinary course of
our business, we actively trade in the debt and equity securities of the Company
and Parent for our own account and for the accounts of our customers and,
accordingly, may at any time hold a long or short position in such securities.
B-2
This opinion is for the use and benefit of the Special Committee and
is rendered to the Special Commitee in connection with its consideration of the
Proposed Transaction. This opinion is not intended to be and does not constitute
a recommendation to any stockholder of the Company as to how such stockholder
should vote with respect to the Proposed Transaction.
Sincerely,
LEHMAN BROTHERS
B-3
- --------------------------------------------------------------------------------
SPECIAL MEETING OF SHAREHOLDERS OF
HUGHES SUPPLY, INC.
_______ __, 2006
PROXY VOTING INSTRUCTIONS
MAIL--Date, sign and mail your proxy
card in the envelope provided as soon
as possible.
COMPANY NUMBER
- OR -
TELEPHONE--Call toll-free [INSERT PHONE NUMBER] from ACCOUNT NUMBER
any touch-tone telephone and follow the instructions.
Have your proxy card available when you call.
- OR -
INTERNET--Access "[INSERT URL]" and follow the
on-screen instructions. Have your proxy card
available when you access the web page.
You may enter your voting instructions at [INSERT PHONE NUMBER] or [INSERT URL]
up until 11:59 PM Eastern Time the day before the cut-off or meeting date.
| |
| Please detach along perforated line and mail in the envelope provided |
\|/ IF you are not voting via telephone or the Internet. \|/
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK
YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE |X|
FOR AGAINST ABSTAIN
PROPOSAL 1. Approve the merger agreement with The [_] [_] [_]
Home Depot.
PROPOSAL 2. The adjournment or postponement of the [_] |_| |_|
special meeting, if necessary or appropriate, to
solicit additional proxies if there are insufficient
votes at the time of the meeting to approve the
merger agreement.
PROPOSAL 3. Consider and take action upon any other [_] [_] [_]
matters that may properly come before the meeting or
any adjournment thereof.
To change the address on your account, please [_]
check the box at right and indicate your new
address in the address space above. Please note
that changes to the registered name(s) on the
account may not be submitted via this method.
Signature of Shareholder:___________________ Date:______________
Signature of Shareholder:___________________ Date:______________
Note: Please sign exactly as your name or names appear on this Proxy. When
shares are held jointly, each holder should sign. When signing as
executor, administrator, attorney, trustee or guardian, please give
full title as such. If the signer is a corporation, please sign full
corporate name by duly authorized officer, giving full title as such.
If signer is a partnership, please sign in partnership name by
authorized person.
HUGHES SUPPLY, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE COMPANY
The undersigned hereby acknowledges receipt of the Notice of Special Meeting of
Shareholders and Proxy Statement, each dated _______ __, 2006, and does hereby
appoint David H. Hughes, Thomas I. Morgan and John Z. Pare, and any of them,
with full power of substitution, as proxy or proxies of the undersigned, to
represent the undersigned and vote all shares of Hughes Supply, Inc. Common
Stock which the undersigned would be entitled to vote if personally present at
the Special Meeting of Shareholders of Hughes Supply, Inc. to be held at the
principal executive offices of the Company, located at 501 West Church Street,
Orlando, Florida 32805, at 10:00 a.m., on _______ __, 2006, and at any
adjournment(s) thereof.
(Continued and to be signed on the reverse side)
- --------------------------------------------------------------------------------
SPECIAL MEETING OF SHAREHOLDERS OF
HUGHES SUPPLY, INC.
_______ __, 2006
PLEASE DATE, SIGN AND MAIL
YOUR PROXY CARD IN THE
ENVELOPE PROVIDED AS SOON
| AS POSSIBLE. |
| |
\|/ Please detach along perforated line and mail in the envelope provided. \|/
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK
YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE |X|
FOR AGAINST ABSTAIN
PROPOSAL 1. Approve the merger agreement with The [_] [_] [_]
Home Depot.
PROPOSAL 2. The adjournment or postponement of the [_] [_] [_]
special meeting, if necessary or appropriate, to
solicit additional proxies if there are insufficient
votes at the time of the meeting to approve the
merger agreement.
[_] [_] [_]
PROPOSAL 3. Consider and take action upon any other
matters that may properly come before the meeting or
any adjournment thereof.
To change the address on your account, please [_]
check the box at right and indicate your new
address in the address space above. Please note
that changes to the registered name(s) on the
account may not be submitted via this method.
Signature of Shareholder:___________________ Date:______________
Signature of Shareholder:___________________ Date:______________
Note: Please sign exactly as your name or names appear on this Proxy. When
shares are held jointly, each holder should sign. When signing as
executor, administrator, attorney, trustee or guardian, please give
full title as such. If the signer is a corporation, please sign full
corporate name by duly authorized officer, giving full title as such.
If signer is a partnership, please sign in partnership name by
authorized person.