-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ABH5hMH4gJO8ksar8R9Prh3JjR3GBedBXyjf30f2JY+9ON/MFsebRIC0AC/Lf1WP g/CscMTTs9G/Rm259j0YUg== 0000950144-96-001534.txt : 19960404 0000950144-96-001534.hdr.sgml : 19960404 ACCESSION NUMBER: 0000950144-96-001534 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 19960403 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HUGHES SUPPLY INC CENTRAL INDEX KEY: 0000049029 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-ELECTRICAL APPARATUS & EQUIPMENT, WIRING SUPPLIES [5063] IRS NUMBER: 590559446 STATE OF INCORPORATION: FL FISCAL YEAR END: 0125 FILING VALUES: FORM TYPE: S-3 SEC ACT: 1933 Act SEC FILE NUMBER: 333-02215 FILM NUMBER: 96544219 BUSINESS ADDRESS: STREET 1: 20 N ORANGE AVE, STE 200 STREET 2: P O BOX 2273 CITY: ORLANDO STATE: FL ZIP: 32802-2273 BUSINESS PHONE: 4078414755 S-3 1 HUGHES SUPPLY 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 3, 1996. REGISTRATION NO. 33- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------------- HUGHES SUPPLY, INC. (Exact Name of Registrant as Specified in its Charter) FLORIDA 59-0559446 (State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification No.) Organization)
20 NORTH ORANGE AVENUE, SUITE 200 ORLANDO, FLORIDA 32801 (407) 841-4755 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) --------------------- DAVID H. HUGHES CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER HUGHES SUPPLY, INC. 20 NORTH ORANGE AVENUE, SUITE 200 ORLANDO, FLORIDA 32801 (407) 841-4755 (Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service) --------------------- COPIES OF COMMUNICATIONS TO: ROBERT N. BLACKFORD, ESQ. G. WILLIAM SPEER, ESQ. MAGUIRE, VOORHIS & WELLS, P.A. POWELL, GOLDSTEIN, FRAZER & MURPHY 2 SOUTH ORANGE AVENUE 16TH FLOOR ORLANDO, FLORIDA 32801 191 PEACHTREE STREET, N.E. (407) 244-1100 ATLANTA, GEORGIA 30303 (404) 572-6600
--------------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. If the only securities being registered on this form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. / / If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended (the "Securities Act"), other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. / / If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / _____________ If the delivery of the Prospectus is expected to be made pursuant to Rule 434, please check the following box. / / ___________ --------------------- CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- PROPOSED PROPOSED AMOUNT MAXIMUM MAXIMUM AMOUNT OF TO BE AGGREGATE PRICE AGGREGATE REGISTRATION TITLE OF SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT(2) OFFERING PRICE(2) FEE - -------------------------------------------------------------------------------------------------------------------- Common Stock, par value $1.00 per share......... 2,219,415 shares $29.00 $64,363,035 $22,195 - -------------------------------------------------------------------------------------------------------------------- Rights to purchase Series A Junior Participating Preferred Stock, no par value per share....... 2,219,415 rights N.A. N.A. $100(3) - -------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------
(1) Includes 289,489 shares that the Underwriters have the option to purchase solely to cover over-allotments, if any. (2) Estimated solely for the purpose of determining the registration fee and calculated in accordance with Rule 457(c) under the Securities Act on the basis of the last reported sale price of the Company's Common Stock on April 1, 1996 as reported by the New York Stock Exchange, Inc. (3) The rights to purchase the Series A Junior Participating Preferred Stock will be attached to and trade with shares of the Company's Common Stock. Value attributable to such rights, if any, will be reflected in the market price of the shares of the Company's Common Stock. The fee paid represents the minimum statutory fee pursuant to Section 6(b) of the Securities Act. --------------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION, DATED APRIL 3, 1996 PROSPECTUS 1,929,926 SHARES [HUGHES SUPPLY, INC. LOGO] COMMON STOCK ------------------ Of the 1,929,926 shares of Common Stock offered hereby, 1,250,000 shares are being sold by Hughes Supply, Inc. ("Hughes Supply" or the "Company") and 679,926 shares are being sold by certain shareholders (the "Selling Shareholders"). See "Principal and Selling Shareholders." The Company will not receive any of the proceeds from the sale of shares of Common Stock by the Selling Shareholders. This offering is contingent upon consummation of the PVF Acquisition (as defined herein). The Company's Common Stock is traded on the New York Stock Exchange, Inc. (the "NYSE") under the symbol "HUG." The last reported sale price of the Company's Common Stock on the NYSE on April 1, 1996 was $29.00 per share. SEE "RISK FACTORS" BEGINNING ON PAGE 7 OF THIS PROSPECTUS FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN EVALUATING AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY. ------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- ------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------- UNDERWRITING PROCEEDS TO DISCOUNTS AND PROCEEDS TO SELLING PRICE TO PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS - ------------------------------------------------------------------------------------------------------------- Per Share $ $ $ $ - ------------------------------------------------------------------------------------------------------------- Total(3) $ $ $ $ - ------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------
(1) For information regarding indemnification of the Underwriters, see "Underwriting." (2) Before deducting expenses estimated at $425,000, all of which is payable by the Company. (3) The Company and one of the Selling Shareholders have granted the Underwriters 30-day options to purchase up to 236,989 and 52,500 additional shares of Common Stock, respectively, solely to cover over-allotments, if any. See "Underwriting." If such option is exercised in full, the total Price to Public, Underwriting Discounts and Commissions and Proceeds to Company will be $ , $ and $ , respectively. ------------------ The shares of Common Stock are offered by the several Underwriters named herein, subject to prior sale, when, as and if accepted by them and subject to certain other conditions. It is expected that certificates for the shares of Common Stock offered hereby will be available for delivery on or about , 1996, at the offices of Smith Barney Inc., 388 Greenwich Street, New York, New York 10013. ------------------ SMITH BARNEY INC. ROBERT W. BAIRD & CO. INCORPORATED , 1996 3 The following map shows the locations of the Company's branches and distribution centers and the branch locations of two companies to be acquired by the Company. [MAP] IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. 2 4 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and the financial statements and related notes thereto included elsewhere or incorporated by reference in this Prospectus. As used in this Prospectus, unless the context indicates otherwise, (i) the terms "Company" and "Hughes Supply" mean Hughes Supply, Inc., its subsidiaries and its predecessors, and (ii) the information in this Prospectus assumes that the Underwriters' over-allotment option is not exercised. The Company's fiscal year ends on the last Friday in January of each year. THE COMPANY Hughes Supply is one of the largest diversified wholesale distributors of materials, equipment and supplies for the construction and industrial markets operating primarily in the southeastern and midwestern United States. The Company distributes more than 100,000 products through 221 branches located in 15 states and Puerto Rico. The Company's customers are subcontractors, general contractors, utilities, municipalities and manufacturers. Management believes that the Company holds significant market share in a majority of its local markets and is one of the largest distributors of its range of products in the southeastern and midwestern United States. The Company's largest geographic market is Florida (representing approximately 43% of fiscal 1996 net sales), which is one of the largest commercial and residential construction markets in the United States. The products which the Company distributes are used in new construction for commercial, residential, utility and industrial applications and for replacement and renovation projects. Such products include materials and supplies associated with the Company's nine major product groups, as follows: electrical; plumbing; water and sewer; air conditioning and heating; industrial pipe, valves and fittings; building materials; electric utilities; water systems; and pool equipment and supplies. Each product group is sold by the Company's own specialized and experienced sales force consisting of outside sales representatives and inside account executives. Management believes that the Company's mix of commercial, residential, utility and industrial business, geographic diversification and multiple product groups reduces the impact of economic cycles on the Company's net sales and profitability. Management believes that no other company competes against it across all of its product groups. The Company's principal business objective is to achieve profitable growth, both internally and through selective acquisitions, primarily in existing and contiguous geographic markets. The Company has grown internally through increases in comparable branch net sales, new branch openings and the addition of new product groups. Since January 29, 1993, the Company has opened 25 new branches. In addition, the Company continues to pursue an active acquisition program to capitalize on the opportunities presented by the substantial size and highly fragmented ownership structure of its industry. Based upon estimates available to the Company, industry sales in the United States of products sold by the Company exceeded $100 billion in 1995, and no wholesale distributor of these products accounted for more than 2% of the total market. Since January 29, 1993, the Company has completed 23 acquisitions representing 68 branches, excluding the PVF Acquisition (as defined herein). In addition to increased geographic penetration, acquisitions often provide opportunities for the Company to gain market share and to enhance and diversify product offerings. Management believes that the most cost effective way for the Company to enter new geographic markets is through acquisitions. All of the Company's significant acquisitions have been accretive to the Company's earnings per share. The Company's acquisition strategy is to acquire profitable distribution businesses with strong management and well-developed market positions and customer franchises. Acquisitions can generally be categorized as fill-in acquisitions or new market acquisitions. Fill-in acquisitions are generally smaller in size and represent new branches within existing product groups and existing geographic markets. Since January 29, 1993, the Company has completed fill-in acquisitions of 28 branches, and management believes that significant additional fill-in acquisition opportunities are available. New market acquisitions represent the addition of new product groups, within related commercial construction and industrial product categories, or the entry into new geographic markets, or both. During the last three fiscal years, the Company has increasingly focused on new market acquisitions with the goal of adding products and product groups with higher gross margins, increasing sales to the replacement and 3 5 industrial markets (which tend to be less cyclical than new construction markets), achieving greater geographic diversification and developing additional opportunities for future fill-in acquisitions and new branch openings. Recent new market acquisitions completed by the Company include (i) The Treaty Distribution Group, resulting in a significant increase in the Company's water and sewer products business in new geographic markets, (ii) Moore Electric Supply, Inc., resulting in a significant increase in the Company's electrical products business in new geographic markets, and (iii) Florida Pipe & Supply Company, the Company's initial entry into the industrial pipe, valve and fitting market. The Company's operating strategy is based on decentralizing customer related functions at the branch level, such as sales and local inventory management, and centralizing certain administrative functions at the corporate level, such as credit, human resources, finance and accounting, and management information systems. Other key elements of the Company's operating strategy include: - Comprehensive and diversified product groups; - Superior customer service; - Local market focus; - Well-trained and experienced workforce; and - Volume purchasing power. Hughes Supply differentiates itself from consumer-oriented, large format, do-it-yourself ("DIY") home center retailers with respect to the type of customer served, breadth of products offered and level of service provided. Management believes that the Company's customers, unlike DIY customers, are typically professionals who choose their building materials suppliers primarily on the basis of product availability, price, relationships with sales personnel, and the quality and scope of services offered by such suppliers. Furthermore, professional customers generally buy in large volumes, are involved in ongoing jobs or projects lasting months or years resulting in repeat buying situations, and require specialized services not typically provided by large format DIY home center retailers. Customer services provided by the Company include credit, design assistance, material specifications, scheduled job site delivery, job site visits to ensure satisfaction, technical product services, including blueprint take-off and computerized order quotes, and assistance with product returns. Accordingly, the Company has been able to serve customer groups that large format DIY home center retailers generally do not emphasize. As a result of the Company's operating and acquisition strategies, net sales increased to $1.1 billion in fiscal 1996 from $735.0 million in fiscal 1994, a compound annual growth rate of 21.3%; operating income increased to $29.9 million in fiscal 1996 from $13.1 million in fiscal 1994, a compound annual growth rate of 51.0%; and the number of branches increased to 212 branches at the end of fiscal 1996 from 143 branches at the end of fiscal 1994, a compound annual growth rate of 21.8%. Hughes Supply was founded as a general partnership in Orlando, Florida in 1928 and was incorporated as a Florida corporation in 1947. The Company's executive offices are located at 20 North Orange Avenue, Suite 200, Orlando, Florida 32801, and its telephone number is (407) 841-4755. THE PVF ACQUISITION On March 27, 1996, the Company entered into an asset purchase agreement to acquire substantially all of the assets, properties and business of PVF Holdings, Inc. ("PVF") and its subsidiaries and to assume certain of their liabilities (the "PVF Acquisition"). The aggregate consideration to be paid in the PVF Acquisition is approximately $106 million, consisting of cash in the amount of $74.4 million, the issuance of 669,956 shares of Common Stock and the assumption of up to $13 million of bank debt. The PVF Acquisition is scheduled to close on May 13, 1996. This offering is contingent upon the consummation of the PVF Acquisition. Concurrently, the Company is offering privately (the "Notes Offering") an aggregate of $100 million of Senior Notes (the "Notes"), approximately $74.4 million of the proceeds of which will be used to partially fund the PVF Acquisition. The balance of the proceeds will be used to repay a portion of the Company's bank debt. See "Use of Proceeds" and "Description of Notes." PVF, a privately owned company headquartered in Houston, Texas, is a specialty distributor of stainless steel and nickel alloy based pipe, valve and fitting products to industrial customers. PVF is a leader in its 4 6 market, which is the sale of pipe, valve and fitting products for use by industrial companies that operate manufacturing processes involving highly corrosive or high temperature fluids, such as those of the petrochemical, food and beverage, and paper industries. Management believes that PVF carries one of the country's broadest and deepest inventories of such products, consisting of more than 15,000 different items sold to approximately 4,000 active customers. PVF sells both directly to end-users and to supply houses that sell to end-users through 16 regional branch locations concentrated in the southeastern and southwestern United States. For the 12 months ended December 31, 1995, PVF had net sales of $109.2 million and operating income of $27.7 million. On a pro forma basis, giving effect to the PVF Acquisition, the Company's fiscal 1996 net sales were $1.2 billion, operating income was $57.0 million and, as of the end of fiscal 1996, the Company had 228 branches located in 19 states and Puerto Rico. See "Selected Unaudited Pro Forma Consolidated Financial Data." The PVF Acquisition is a new market acquisition which provides the Company with several strategic benefits, including: (i) a well-established position in the stainless steel and specialty alloy sector of the pipe, valve and fitting products market; (ii) a higher gross margin product group than the Company's other product groups; (iii) greater focus on targeted industrial and replacement markets; (iv) a strong management team; and (v) new opportunities for additional fill-in acquisitions. Additional growth opportunities for the Company related to the PVF Acquisition include incremental sales of complementary valve products (which represented only 2% of PVF's fiscal 1995 net sales) and new branch openings, including the expected opening of a branch in Southern California. RISK FACTORS For a discussion of certain factors that should be considered by prospective purchasers of the Common Stock offered hereby, see "Risk Factors." FORWARD-LOOKING STATEMENTS This Prospectus, including the information incorporated by reference herein, includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and is subject to the safe-harbor created by such sections. The Company's actual results may differ significantly from the results discussed in such forward-looking statements. Certain factors that might cause such differences include, but are not limited to, the "Risk Factors" described herein. THE OFFERING Common Stock being offered by: The Company............................................... 1,250,000 shares The Selling Shareholders.................................. 679,926 shares Common Stock to be outstanding after this offering.......... 9,222,864 shares(1) Use of proceeds............................................. To repay indebtedness under the Company's revolving credit facility and line of credit agreement. See "Use of Proceeds." NYSE symbol................................................. HUG
- --------------- (1) Based on the number of shares of Common Stock outstanding on April 1, 1996 and including an aggregate of 1,155,749 shares of Common Stock to be issued in the PVF Acquisition and the acquisition of Elasco Inc. Does not include 485,941 shares of Common Stock issuable upon the exercise of stock options outstanding as of April 1, 1996. 5 7 SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
FISCAL YEAR ENDED --------------------------------------------------------------------- JAN. 26, 1996 ------------------------- JAN. 31, JAN. 29, JAN. 28, JAN. 27, PRO FORMA AS 1992(1) 1993 1994 1995 ACTUAL ADJUSTED(2) -------- -------- -------- -------- ---------- ------------ STATEMENT OF INCOME DATA: Net sales...................... $558,299 $600,185 $734,958 $875,459 $1,082,179 $1,258,842 Gross profit................... 106,523 115,111 144,492 176,327 223,606 277,580 Operating expenses............. 107,958 109,352 131,383 154,693 193,718 202,246 Operating income (loss)........ (1,435) 5,759 13,109 21,634 29,888 59,683 Interest expense............... 6,439 5,117 5,055 5,284 7,484 12,823 Interest and other income...... 2,058 3,743 2,981 2,848 4,605 5,542 Income (loss) before income taxes................. (5,816) 4,385 11,035 19,198 27,009 52,402 Net income (loss).............. $ (3,856) $ 2,841 $ 6,524 $ 11,485 $ 16,050 $ 31,133 ======== ======== ======== ======== ========= ========== Earnings (loss) per share Primary...................... $ (0.76) $ 0.56 $ 1.27 $ 1.83 $ 2.34 $ 3.36 ======== ======== ======== ======== ========= ========== Fully diluted................ $ (0.76) $ 0.56 $ 1.19 $ 1.81 $ 2.31 $ 3.33 ======== ======== ======== ======== ========= ========== OPERATING DATA: Branches at end of period...... 124 130 143 173 212 240 Comparable branch sales increases (decrease)(3)...... (14)% 3% 17% 13% 8%
AS OF JANUARY 26, 1996 ----------------------------------- ACTUAL PRO FORMA AS ADJUSTED(4) -------- ------------------------ BALANCE SHEET DATA: Working capital.............................................. $180,512 $234,120 Total assets................................................. $379,096 $516,415 Long-term debt, less current portion......................... $106,215 $169,681 Shareholders' equity......................................... $154,143 $211,659
- --------------- (1) Fiscal 1992 represents a 53-week fiscal year. (2) Gives effect to the following as if each had occurred as of January 28, 1995: (i) the PVF Acquisition; (ii) the acquisitions completed by the Company on or after January 27, 1996 through April 1, 1996 and the pending acquisition of Elasco Inc. (the "Fiscal 1997 Acquisitions"); and (iii) this offering, the Notes Offering and the application of the net proceeds therefrom by the Company. See "Selected Unaudited Pro Forma Consolidated Financial Data." (3) Comparable branch sales increases are calculated for each period presented by comparing the net sales results in a fiscal year with the net sales results for the prior fiscal year (for those branches that were open for the entire fiscal year and the entire prior fiscal year). (4) Gives effect to the following as if each had occurred as of January 26, 1996: (i) the PVF Acquisition; (ii) the Fiscal 1997 Acquisitions; and (iii) this offering, the Notes Offering and the application of the net proceeds therefrom by the Company. 6 8 RISK FACTORS In addition to the other information included or incorporated by reference in this Prospectus, prospective investors should consider carefully the following information relating to the Company and the Common Stock before making an investment in the Common Stock offered hereby. RISKS OF ACQUISITION STRATEGY A significant portion of the Company's growth strategy is based upon the acquisition of other building products businesses. During the normal course of its business, the Company pursues suitable acquisition opportunities in selected markets. There can be no assurance, however, that the Company will be able to continue to identify and acquire appropriate businesses or obtain financing for such acquisitions on satisfactory terms. In addition, no assurance can be given that the Company will be successful in integrating the business obtained in the PVF Acquisition or any other acquired business into its existing operations, or that such integration will not result in unforeseen operational difficulties or require a disproportionate amount of management's attention. Future acquisitions may be financed through the incurrence of additional indebtedness or through the issuance of Common Stock or the issuance of equity-linked securities, which may be dilutive to the Company's shareholders. Furthermore, there can be no assurance that competition for acquisition opportunities in the building products industry will not escalate, thereby increasing the cost to the Company of making further acquisitions or causing the Company to refrain from making further acquisitions. See "Business -- Acquisition Strategy" and "-- The PVF Acquisition." DEPENDENCE ON CONSTRUCTION MARKETS, ESPECIALLY IN FLORIDA Demand for the Company's products depends to a significant degree on the commercial, residential and industrial construction markets. The level of activity in the commercial construction market depends largely on vacancy and absorption rates, interest rates, regional economic outlooks, the availability of financing and general economic conditions. The level of activity in the residential construction market depends on new housing starts and residential renovation projects, which are a function of many factors, including interest rates, availability of financing, housing affordability, unemployment, demographic trends, gross domestic product growth and consumer confidence. The level of activity in the industrial construction market is linked to the industrial economic outlook, corporate profitability, interest rates and capacity utilization. Consequently, the level of activity in the commercial, residential and industrial construction markets is determined by factors that are not within the Company's control. Moreover, since such markets are sensitive to cyclical changes in the economy, future downturns in the economy or lack of further improvement in the economy could negatively affect the Company's results of operations, especially in Florida where approximately 43% of the Company's net sales were derived in fiscal 1996. UNCERTAINTY OF SUPPLY AND PRICE OF PRODUCTS The Company distributes construction materials and supplies manufactured by over 5,500 manufacturers and suppliers, no one of which accounted for more than 6% of the Company's total purchases during fiscal 1996. Although the Company has a widely diversified base of suppliers, future supply shortages may occur from time to time as a result of unanticipated demand or production difficulties. In such cases, suppliers often allocate products among distributors, which could have a short-term adverse effect on the Company's results of operations. Although the Company has entered into strategic partnerships with certain suppliers, if the Company fails to maintain such strategic partnerships or if such suppliers cease to offer competitive pricing terms, the Company's results of operations may be adversely affected. Furthermore, the future financial performance of PVF is directly influenced by the cost of stainless steel which, as a commodity item, can be volatile. A significant fluctuation in the price of stainless steel could have a material adverse effect on PVF's future profitability and could create cyclicality in PVF's operating performance. See "Business -- Operating Strategy -- Volume Purchasing Power" and "-- Customers and Suppliers." 7 9 COMPETITION The building products industry is highly competitive and fragmented. The principal competitive factors in the Company's business are availability of materials and supplies, pricing of products, availability of credit, technical product knowledge as to application and usage, and advisory and other service capabilities. The Company competes with other wholesalers, manufacturers who sell certain lines directly to contractors and other of the Company's customers and, to a limited extent, retailers in the markets for plumbing, electrical fixtures and supplies, building materials, pool supplies and contractor's tools. The Company's competition varies by product line, customer classification and geographic market. No assurance can be given that the Company will be able to respond effectively to the competitive pressures created by those entities, especially since certain of those entities have substantially greater financial and other resources than those of the Company. See "Business -- Competition." RELIANCE ON EXECUTIVE OFFICERS The Company is highly dependent upon the skills, experience and efforts of its executive officers. Loss of the services of one or more of the Company's executive officers could have a material adverse effect on the Company's business and development. The Company's continued growth also depends in part on its ability to attract and retain qualified managers, salespersons and other key employees and on its executive officers' ability to manage growth successfully. No assurance can be given that the Company will be able to attract and retain such employees or that such executive officers will be able to manage growth successfully. See "Management." SUBSTANTIAL INCREASE IN SHARES OUTSTANDING; LIMITATIONS ON PAYMENT OF DIVIDENDS This offering, the PVF Acquisition and the acquisition of Elasco Inc. will substantially increase the number of shares of Common Stock outstanding. The amount of future dividends, as well as the decision to pay any dividends, in respect of the Common Stock will depend on the Company's results of operations, capital requirements and financial condition and other factors that the Board of Directors deems relevant. In addition, certain debt instruments and agreements to which the Company and its subsidiaries are or may in the future become parties contain or may contain restrictive covenants and provisions that limit the amount of dividends payable by the Company. See "Price Range of Common Stock and Dividends" and "Description of Notes." VOLATILITY OF MARKET PRICE FOR COMMON STOCK From time to time after this offering, there may be significant volatility in the market price for the Common Stock. Operating results of the Company or of other companies participating in the building products industry, changes in general economic conditions and the financial markets, or other developments affecting the Company or its competitors could cause the market price for the Common Stock to fluctuate substantially. See "-- Dependence on Construction Markets, Especially in Florida" above and "Price Range of Common Stock and Dividends." 8 10 USE OF PROCEEDS The net proceeds to the Company from the sale of 1,250,000 shares of Common Stock offered hereby are estimated to be approximately $33.9 million (approximately $40.4 million if the Underwriters' over-allotment option is exercised in full). This assumes a public offering price of $29.00 per share of Common Stock, the last reported sale price of the Common Stock on the NYSE on April 1, 1996, and expenses payable by the Company estimated at $425,000. The Company expects to apply the net proceeds from this offering to reduce indebtedness outstanding under its revolving credit facility and line of credit agreement. At the end of fiscal 1996, such indebtedness had a weighted average interest rate of 6.29% per annum and becomes payable on June 30, 1998. The net proceeds to the Company from the sale of the Notes are estimated to be approximately $100 million. The Company expects to apply approximately $74.4 million of the net proceeds of the Notes Offering to partially fund the PVF Acquisition. The remaining net proceeds therefrom will be used to further repay indebtedness outstanding under the Company's revolving credit facility and line of credit agreement. See "Business -- The PVF Acquisition" and "Description of Notes." This offering and the Notes Offering are contingent upon the consummation of the PVF Acquisition. If the Company is unable to secure financing through the Notes Offering, the Company has secured a commitment for interim financing of $55 million from its bank syndication group which, along with interim financing from the sellers in the PVF Acquisition of $30 million, would be utilized to fund the PVF Acquisition. The Company will not receive any of the proceeds from the sale of Common Stock by the Selling Shareholders. CAPITALIZATION The following table sets forth the consolidated capitalization of the Company (i) as of January 26, 1996 and (ii) pro forma as adjusted to give effect to the following as if each had occurred as of January 26, 1996: the PVF Acquisition; the Fiscal 1997 Acquisitions; and this offering (assuming a public offering price of $29.00 per share of Common Stock, the last reported sale price of the Common Stock on the NYSE on April 1, 1996), the Notes Offering and the application of the net proceeds therefrom by the Company. See "Use of Proceeds," "Selected Unaudited Pro Forma Consolidated Financial Data," and the Company's Consolidated Financial Statements and related notes included in this Prospectus.
JANUARY 26, 1996 ---------------------- PRO FORMA ACTUAL AS ADJUSTED -------- ----------- (DOLLARS IN THOUSANDS) Current portion of long-term debt....................................... $ 2,551 $ 2,551 -------- ----------- Long-term debt, less current portion: Unsecured revolving bank notes........................................ 68,300 31,766 Short-term instruments classified as long-term debt................... 35,200 35,200 Other notes payable................................................... 558 558 Capital lease obligations............................................. 2,157 2,157 % Senior Notes...................................................... -- 100,000 -------- ----------- Total long-term debt, less current portion.................... 106,215 169,681 -------- ----------- Shareholders' equity: Preferred Stock, no par value; 10,000,000 shares authorized; none issued; preferences, limitations and relative rights to be established by Board of Directors -- -- Common Stock, par value $1 per share; 20,000,000 shares authorized; 6,798,462 and 9,204,211 issued..................................... 6,798 9,204 Capital in excess of par value........................................ 40,553 91,586 Retained earnings..................................................... 106,792 110,869 -------- ----------- Total shareholders' equity.................................... 154,143 211,659 -------- ----------- Total capitalization..................................... $262,909 $ 383,891 ======== =========
9 11 PRICE RANGE OF COMMON STOCK AND DIVIDENDS The Common Stock is listed on the NYSE under the symbol "HUG." The following table sets forth the high and low sale prices of the Common Stock, as reported on the NYSE for, and the dividends per share declared in, the periods indicated.
PRICE RANGE -------------- DIVIDENDS HIGH LOW PER SHARE ---- --- --------- Year Ended January 27, 1995: 1st Quarter.................................................... $32 1/4 $24 $ .05 2nd Quarter.................................................... 28 3/4 17 .05 3rd Quarter.................................................... 21 17 .06 4th Quarter.................................................... 19 3/8 15 7/8 .06 Year Ended January 26, 1996: 1st Quarter.................................................... 20 7/8 17 3/4 .07 2nd Quarter.................................................... 22 3/8 18 7/8 .07 3rd Quarter.................................................... 27 1/4 21 3/8 .07 4th Quarter.................................................... 30 1/2 23 5/8 .09 Year Ending January 31, 1997: 1st quarter (through April 1, 1996)............................ 29 5/8 26 5/8 .09 ---- ---
The closing sale price of the Common Stock, as reported on the NYSE, on April 1, 1996 was $29.00 per share. As of April 1, 1996, there were 1,114 holders of record of the Common Stock. The amount of future dividends, as well as the decision to pay any dividends, in respect of the Common Stock will depend on the Company's results of operations, capital requirements and financial condition and other factors that the Board of Directors deems relevant. In addition, certain debt instruments and agreements to which the Company and its subsidiaries are or may in the future become parties contain or may contain restrictive covenants and provisions that limit the amount of dividends payable by the Company. See "Description of Notes." 10 12 SELECTED UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA The unaudited Pro Forma Consolidated Balance Sheet of the Company as of January 26, 1996 gives effect to the following as if each had occurred as of January 26, 1996: (i) the PVF Acquisition; (ii) the Fiscal 1997 Acquisitions; and (iii) this offering, the Notes Offering and the application of the net proceeds therefrom by the Company. The unaudited Pro Forma Consolidated Statement of Income of the Company for the fiscal year ended January 26, 1996 gives effect to the following as if each had occurred on January 28, 1995: (i) the PVF Acquisition; (ii) the Fiscal 1997 Acquisitions; and (iii) this offering, the Notes Offering and the application of the net proceeds therefrom by the Company. The PVF Acquisition was accounted for under the purchase method of accounting. The total purchase price was allocated to tangible and identifiable intangible assets and liabilities based on management's estimate of their fair values with the excess of cost over the fair value of the net assets acquired allocated to goodwill. The unaudited Pro Forma Consolidated Balance Sheet and Statement of Income have been prepared by the Company based on the Consolidated Financial Statements of the Company and PVF included in this Prospectus. The unaudited Pro Forma Consolidated Balance Sheet and Statement of Income are presented for illustration purposes only and do not purport to be indicative of the combined financial condition or results of operations that actually would have occurred if the transactions described above had been effected at the dates indicated or to project future financial condition or results of operations for any future period. In particular, PVF's gross margin may be adversely affected by fluctuations in stainless steel prices. In addition, the volatility of stainless steel prices may create cyclicality in PVF's operating performance. Therefore, management believes that the pro forma consolidated financial data are not necessarily indicative of future performance. The unaudited Pro Forma Consolidated Balance Sheet and Statement of Income should be read in conjunction with the Company's Consolidated Financial Statements and the Consolidated Financial Statements of PVF and related notes thereto included in this Prospectus. 11 13 HUGHES SUPPLY, INC. UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET AS OF JANUARY 26, 1996 (IN THOUSANDS)
COMMON STOCK PRO FORMA PRO FORMA OFFERING AND ADJUSTMENTS ADJUSTMENTS NOTES HUGHES PVF FISCAL 1997 FISCAL 1997 PRO FORMA OFFERING PRO FORMA SUPPLY PVF ACQUISITION ACQUISITIONS ACQUISITIONS COMBINED ADJUSTMENTS AS ADJUSTED -------- ------- ----------- ------------ ------------ --------- ------------ ----------- (A) (A) (B) (B) ASSETS Current assets: Cash and cash equivalents... $ 3,432 $ 204 $ -- $ 274 $ -- $ 3,910 $ -- $ 3,910 Accounts receivable, net........ 143,354 12,584 -- 8,516 (62)(i) 164,392 -- 164,392 Inventories... 132,524 39,829 -- 8,572 -- 180,925 -- 180,925 Other current assets..... 18,175 747 (747)(c) 44 (16)(i) 18,203 -- 18,203 -------- ------- ----------- ------------ ------------ --------- ------------ ----------- Total current assets... 297,485 53,364 (747) 17,406 (78) 367,430 -- 367,430 Property and equipment, net.......... 57,697 1,295 500(d) 3,107 (1,385)(i) 61,214 -- 61,214 Goodwill....... 16,637 -- 58,167(n) -- 4,327(o) 79,131 -- 79,131 Other assets... 7,277 1,270 (132)(e) 597 (500)(i) 8,512 128(l) 8,640 -------- ------- ----------- ------------ ------------ --------- ------------ ----------- $379,096 $55,929 $ 57,788 $ 21,110 $ 2,364 $516,287 $ 128 $ 516,415 ======== ======= ========== ========= ========= ======== ========== ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable.... $ 84,875 $ 8,233 $ -- $ 5,717 $ -- $ 98,825 $ -- $ 98,825 Other current liabilities... 32,098 8,126 (6,595)(f) 1,062 (206)(i) 34,485 -- 34,485 -------- ------- ----------- ------------ ------------ --------- ------------ ----------- Total current liabilities... 116,973 16,359 (6,595) 6,779 (206) 133,310 -- 133,310 Long-term debt......... 106,215 7,084 78,269(g)(p) 7,405 5,018(j) 203,991 (34,310)(m)(p) 169,681 Other noncurrent liabilities... 1,765 -- -- 605 (605)(i) 1,765 -- 1,765 -------- ------- ----------- ------------ ------------ --------- ------------ ----------- Total liabilities... 224,953 23,443 71,674 14,789 4,207 339,066 (34,310) 304,756 -------- ------- ----------- ------------ ------------ --------- ------------ ----------- Shareholders' equity: Capital stock...... 6,798 10 660(h) 521 (35)(k) 7,954 1,250(m) 9,204 Capital in excess of par value...... 40,553 2,021 15,909(h) 85 (170)(k) 58,398 33,188(m) 91,586 Retained earnings... 106,792 30,455 (30,455)(h) 5,715 (1,638)(k) 110,869 -- 110,869 -------- ------- ----------- ------------ ------------ --------- ------------ ----------- Total shareholders' equity... 154,143 32,486 (13,886) 6,321 (1,843) 177,221 34,438 211,659 -------- ------- ----------- ------------ ------------ --------- ------------ ----------- $379,096 $55,929 $ 57,788 $ 21,110 $ 2,364 $516,287 $ 128 $ 516,415 ======== ======= ========== ========= ========= ======== ========== =========
See notes to unaudited pro forma consolidated balance sheet. 12 14 NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (a) The Company has entered into an agreement to acquire certain assets and liabilities of PVF for cash consideration of $74,400 and Common Stock consideration of $18,600. (b) The Company has acquired certain assets and liabilities of two entities accounted for under the purchase method of accounting, and has entered into an agreement to acquire a third entity which will be accounted for under the poolings of interests method. Cash consideration of $5,430 has been paid and Common Stock consideration of $13,250 will be issued for these acquisitions. These acquisitions are immaterial individually and in the aggregate. (c) Elimination of other current assets of PVF not being acquired. (d) Adjustment to write-up property and equipment acquired in the PVF Acquisition to its estimated fair value. (e) Adjustment to record the elimination of $504 of other assets of PVF not being acquired and to record debt issuance costs of $372 incurred on the issuance of $74,772 of Notes. (f) Adjustment to accrue for professional fees of $500 associated with the PVF Acquisition, to eliminate $2,818 of other current liabilities which are not being assumed, and to reclassify $4,277 of the current portion of PVF debt to long term as it will be replaced by the Company's line of credit. (g) Adjustment to reflect the issuance of $74,772 of Notes (assuming an interest rate of 7.75% and debt issuance costs of $372) to be issued in connection with the PVF Acquisition, the elimination of $780 of PVF debt which is not being assumed, and the reclassification of $4,277 of the current portion of PVF debt to long term as it will be replaced by the Company's line of credit. (h) Elimination of the shareholders' equity accounts of PVF and to reflect the issuance of 669,956 shares of Common Stock in connection with the PVF Acquisition at $27.76 per share, which approximates the estimated fair value of the Common Stock at the date the terms of the acquisition were agreed upon. (i) Elimination of assets/liabilities of the Fiscal 1997 Acquisitions which are not being acquired or assumed. (j) Adjustment to reflect the borrowing of $5,430 under the Company's line of credit facility to fund a portion of the purchase price for the Fiscal 1997 Acquisitions and the elimination of $412 of long-term debt of the acquired companies which is not being assumed. (k) Adjustment to reflect the issuance of 485,793 shares of Common Stock for one of the Fiscal 1997 Acquisitions to be accounted for under the poolings of interest method of accounting and the elimination of the capital accounts of the Fiscal 1997 Acquisitions which have been accounted for under the purchase method of accounting. (l) Adjustment to reflect the balance of the debt issue costs to be incurred upon the issuance of $25,228 of Notes. (m) Adjustment to reflect the issuance of $25,228 of Notes (assuming an interest rate of 7.75% and net proceeds to the Company of $25,100) and the issuance of 1,250,000 shares of Common Stock at an assumed price of $29.00 per share (estimated net proceeds to the Company of $27.55 per share and $34,438 in the aggregate) with the net proceeds from these offerings being used to reduce amounts outstanding under the Company's line of credit facility. (n) Adjustment to record the excess of acquisition cost over the fair value of net assets acquired (goodwill) of PVF of $58,167. (o) Adjustment to reflect the excess of the acquisition cost over the fair value of net assets acquired (goodwill) of $4,327. (p) Included in the adjustment to long-term debt is $74,772 and $25,228 for the private placement of $100,000 of Notes with an assumed final maturity in 2008. Proceeds from the issuance of the Notes will be used to partially fund the PVF Acquisition and to provide additional working capital to the Company. Should the Notes Offering not be consummated, the Company intends to finance the PVF Acquisition through a $55,000 bridge loan with the Company's bank syndication group and issuance of a $30,000 promissory note to the sellers. The bridge loan will carry interest at the same rate as the Company's line of credit facility (an average rate of 6.29% in fiscal 1996) for the first six months, and will increase 1% for months six through nine and increase an additional 1% after nine months. The sellers' promissory note will bear interest at 6% for the first six months, then will increase to prime for the next six months. Thereafter, interest on such note will be at prime plus 1/2%. The sellers' note will mature on May 31, 1998. See "Description of Notes." 13 15 HUGHES SUPPLY, INC. UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED JANUARY 26, 1996 (IN THOUSANDS, EXCEPT PER SHARE DATA)
PRO FORMA PRO FORMA ADJUSTMENTS ADJUSTMENTS HUGHES PVF FISCAL 1997 FISCAL 1997 SUPPLY PVF ACQUISITION ACQUISITIONS ACQUISITIONS ------------ ----------- ----------- ------------ --------------- (A) (A) Net sales................ $1,082,179 $ 109,159 $ -- $ 67,690 $ (186)(f) Cost of sales............ 858,573 66,428 -- 56,261 -- ------------ ----------- ----------- ------------ --------------- Gross profit........... 223,606 42,731 -- 11,429 (186) Operating expenses....... 183,133 14,349 (3,264)(b) 9,064 (1,036)(g) Depreciation & amortization........... 10,585 673 3,878(c) 266 249(h) ------------ ----------- ----------- ------------ --------------- Total operating expenses............... 193,718 15,022 614 9,330 (787) ------------ ----------- ----------- ------------ --------------- Operating income....... 29,888 27,709 (614) 2,099 601 Interest and other income................. 4,605 175 -- 762 -- Interest expense......... (7,484) (965) (5,537)(d)(j) (615) -- ------------ ----------- ----------- ------------ --------------- Income before taxes.... 27,009 26,919 (6,151) 2,246 601 Income taxes............. 10,959 10,910 (2,478)(e) 23 1,133(e) ------------ ----------- ----------- ------------ --------------- Net income............. $ 16,050 $ 16,009 $(3,673) $ 2,223 $ (532) =========== ========== =========== =========== ============= Earnings per share: Primary................ $ 2.34 =========== Fully diluted.......... $ 2.31 =========== Average shares outstanding: Primary................ 6,856 =========== Fully diluted.......... 6,935 =========== COMMON AND NOTES PRO FORMA OFFERING PRO FORMA COMBINED ADJUSTMENTS AS ADJUSTED ---------------- ----------- ----------- Net sales................ $ 1,258,842 $ -- $ 1,258,842 Cost of sales............ 981,262 -- 981,262 ---------------- ----------- ----------- Gross profit........... 277,580 -- 277,580 Operating expenses....... 202,246 -- 202,246 Depreciation & amortization........... 15,651 -- 15,651 ---------------- ----------- ----------- Total operating expenses............... 217,897 -- 217,897 ---------------- ----------- ----------- Operating income....... 59,683 -- 59,683 Interest and other income................. 5,542 -- 5,542 Interest expense......... (14,601) 1,778(i)(j) (12,823) ---------------- ----------- ----------- Income before taxes.... 50,624 1,778 52,402 Income taxes............. 20,547 722(e) 21,269 ---------------- ----------- ----------- Net income............. $ 30,077 $ 1,056 $ 31,133 ========== =========== ========== Earnings per share: Primary................ $ 3.36 ========== Fully diluted.......... $ 3.33 ========== Average shares outstanding: Primary................ 9,262 ========== Fully diluted.......... 9,342 ==========
See notes to unaudited pro forma consolidated statement of income. 14 16 NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME (DOLLARS IN THOUSANDS) (a) Amounts represent results of acquired companies for the 12 months ended December 31, 1995. (b) Adjustments to operating expenses to eliminate overhead allocation from PVF's parent of $2,341 and personnel costs of $923 which will be reduced/eliminated as a result of the acquisition. (c) Adjustment to reflect amortization on goodwill of $58,167 on a straight-line basis over 15 years. (d) Adjustment to interest expense as a result of the PVF Acquisition: Interest on $74,772 of Notes (including $372 of debt issuance costs) to be issued in connection with the PVF Acquisition, assuming an interest rate of 7.75%............................................ $5,795 Reduction of interest on PVF average borrowings of $10,651 at average rate of 9.06% replaced by the Company's line of credit with an average rate of 6.29%..................................... (295) Amortization of debt issuance costs................................. 37 ------ $5,537 ======
(e) Federal income tax adjustments relating to the acquisitions using the Company's annual effective tax rate of 40.6%. This amount also reflects the effect on income taxes for earnings on a sub-chapter S corporation. (f) Elimination of sales generated from assets which were not acquired. (g) Adjustment to reflect a reduction in personnel costs of $855 as a result of the acquisitions and the elimination of expenses of $181 associated with assets which were not acquired. (h) Adjustment to eliminate depreciation charges of $39 for plant and equipment which was not acquired and to reflect amortization of $288 on $4,327 of goodwill recorded on the acquisitions on a straight-line basis over 15 years. (i) Adjustment to interest expense as a result of this offering and the Notes Offering: Use of proceeds from this offering to reduce amounts outstanding under the Company's line of credit facility....................... $2,159 Increase in interest expense resulting from replacing amounts outstanding under the line of credit facility with the Notes...... (381) ------ $1,778 ======
(j) If the Company is unable to secure financing through the Notes Offering, the Company has secured a commitment for interim financing of $55,000 from its bank syndication group which along with interim financing from the sellers of $30,000 would be utilized to fund the PVF Acquisition. The alternative financing would result in the Company incurring an additional $187 of interest expense compared to the amount assumed with respect to the Notes Offering. 15 17 SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) The following selected consolidated financial data have been derived from audited consolidated financial statements of the Company. The following data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Company's Consolidated Financial Statements and related notes included in this Prospectus.
FISCAL YEAR ENDED ------------------------------------------------------ JAN. 31, JAN. 29, JAN. 28, JAN. 27, JAN. 26, 1992(1) 1993 1994 1995 1996 -------- -------- -------- -------- ---------- STATEMENT OF INCOME DATA: Net sales.................................. $558,299 $600,185 $734,958 $875,459 $1,082,179 Cost of sales.............................. 451,776 485,074 590,466 699,132 858,573 -------- -------- -------- -------- ---------- Gross profit............................... 106,523 115,111 144,492 176,327 223,606 Operating expenses......................... 107,958 109,352 131,383 154,693 193,718 -------- -------- -------- -------- ---------- Operating income (loss).................... (1,435) 5,759 13,109 21,634 29,888 Interest expense........................... 6,439 5,117 5,055 5,284 7,484 Interest and other income.................. 2,058 3,743 2,981 2,848 4,605 -------- -------- -------- -------- ---------- Income (loss) before income taxes.......... (5,816) 4,385 11,035 19,198 27,009 Income taxes (benefits).................... (1,960) 1,544 4,511 7,713 10,959 -------- -------- -------- -------- ---------- Net income (loss).......................... $ (3,856) $ 2,841 $ 6,524 $ 11,485 $ 16,050 ======== ======== ======== ======== ========= Earnings (loss) per share: Primary.................................. $ (0.76) $ 0.56 $ 1.27 $ 1.83 $ 2.34 ======== ======== ======== ======== ========= Fully diluted............................ $ (0.76) $ 0.56 $ 1.19 $ 1.81 $ 2.31 ======== ======== ======== ======== ========= Cash dividends per share................... $ 0.24 $ 0.12 $ 0.16 $ 0.22 $ 0.30 ======== ======== ======== ======== ========= Shares outstanding: Primary.................................. 5,046 5,058 5,143 6,259 6,856 Fully diluted............................ 5,046 5,086 6,313 6,443 6,935 OPERATING DATA: Branches at end of period.................. 124 130 143 173 212 Comparable branch sales increases (decrease)(2)............................ (14)% 3% 17% 13% 8% BALANCE SHEET DATA (END OF PERIOD): Working capital............................ $112,984 $120,522 $142,392 $172,794 $180,512 Total assets............................... 234,723 246,249 279,390 346,116 379,096 Long-term debt, less current portion....... 77,240 86,258 104,692 105,243 106,215 Shareholders' equity....................... 86,829 90,080 98,066 136,104 154,143
- --------------- (1) Fiscal 1992 represents a 53-week fiscal year. (2) Comparable branch sales increases are calculated for each period presented by comparing the net sales results in a fiscal year with the net sales results for the prior fiscal year (for those branches that were open for the entire fiscal year and the entire prior fiscal year). 16 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Hughes Supply is one of the largest diversified wholesale distributors of materials, equipment and supplies for construction and industrial markets operating primarily in the southeastern and midwestern United States. The Company distributes more than 100,000 products, through 221 branches located in 15 states and Puerto Rico. The Company's customers are subcontractors, general contractors, electric utilities, municipalities and manufacturers. Management believes that the Company holds significant market share in a majority of its local markets and is one of the largest distributors of its range of products in the southeastern and midwestern United States. Since January 29, 1993, the Company has completed 23 acquisitions representing 68 branches, excluding the PVF Acquisition. In addition to increased geographical penetration, acquisitions often provide opportunities for the Company to gain market share and to enhance and diversify product offerings. Management believes that the most cost effective way for the Company to enter new geographic markets is through acquisitions. On March 27, 1996, the Company entered into an asset purchase agreement to acquire substantially all of the assets, properties and business of PVF and its subsidiaries and to assume certain of their liabilities. The aggregate consideration to be paid in the PVF Acquisition is approximately $106 million, consisting of cash in the amount of $74.4 million, the issuance of 669,956 shares of Common Stock and the assumption of up to $13 million of bank debt. The PVF Acquisition is scheduled to close on May 13, 1996. This offering is contingent upon the consummation of the PVF Acquisition. On February 5, 1996, the Company acquired Waldorf Supply Inc. ("Waldorf"), a wholesale distributor of plumbing supplies and materials in Waldorf, Maryland. Waldorf has one location and had annual sales of approximately $6.2 million in its last fiscal year. Waldorf is a fill-in acquisition. On March 22, 1996, the Company acquired West Virginia Water and Waste Supply Co. ("West Virginia Water"), a wholesale distributor of water and sewer products in Charleston, West Virginia. West Virginia Water has two locations and had annual sales of approximately $17.9 million in its last fiscal year. West Virginia Water represents a new market acquisition. The Company expects to acquire Elasco Inc., a wholesale distributor of electric utility products in Mattoon, Illinois in May 1996. Elasco Inc. has three locations and had annual sales of approximately $43.6 million in its last fiscal year. Elasco Inc. is a new market acquisition in the Midwest and will be accounted for as a poolings of interest. The acquisitions of Waldorf, West Virginia Water and Elasco Inc. are collectively referred to as the "Fiscal 1997 Acquisitions." As described in Note 2 of the Notes to the Company's Consolidated Financial Statements, in fiscal 1996 the Company entered into business combinations with Moore Electric Supply, Inc. and Florida Pipe & Supply Company, and such business combinations were accounted for as poolings of interests. Accordingly, all financial data in this discussion and analysis is reported as though the companies had always been combined. In addition to the business combinations accounted for as poolings of interests referred to above, in fiscal 1996 the Company purchased nine wholesale distributor businesses for an aggregate amount of approximately $13 million ($10 million in cash and $3 million in Common Stock). In fiscal 1995, amounts paid for acquisitions totaled approximately $21 million ($11 million in cash, $4 million in Common Stock and $6 million in other consideration), and amounts paid for acquisitions in fiscal 1994 totaled approximately $4 million in cash. The results of these acquired operations are included in the Company's Consolidated Financial Statements from their respective dates of acquisition. See "Business -- Acquisition Strategy." 17 19 RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, the percentage of net sales represented by certain items in the Company's Consolidated Statements of Income:
FISCAL YEAR ENDED ------------------------------ JAN. 28, JAN. 27, JAN. 26, 1994 1995 1996 -------- -------- -------- STATEMENTS OF INCOME DATA: Net sales..................................................... 100.0% 100.0% 100.0% Cost of sales................................................. 80.3 79.9 79.3 Gross profit................................................ 19.7 20.1 20.7 Operating expenses............................................ 17.9 17.7 17.9 Operating income............................................ 1.8 2.5 2.8 Interest and other income..................................... 0.4 0.3 0.4 Interest expense.............................................. 0.7 0.6 0.7 Income before income taxes.................................. 1.5 2.2 2.5 Income taxes.................................................. 0.6 0.9 1.0 Net income.................................................. 0.9 1.3 1.5
NET SALES Net sales were $1.1 billion in fiscal 1996, representing a 23.6% increase over fiscal 1995 net sales of $875.5 million. Fiscal 1995 net sales represented a 19.1% increase over fiscal 1994 net sales of $735.0 million. Newly-opened and acquired branches accounted for approximately 66% of the increase in net sales in fiscal 1996 and 40% of the increase in net sales in fiscal 1995. The remainder of the increase in each period was a result of sales increases in existing branches. The Company's strategy of expansion and diversification has contributed to the above-mentioned sales gains along with growth in comparable branch sales. Although residential construction activity decreased in fiscal 1995 and fiscal 1996 following a period of substantial residential construction activity in fiscal 1994, this decrease was offset by an increase in commercial and industrial construction activity in fiscal 1995 which continued through fiscal 1996. Construction activity, especially commercial construction activity in the Southeast, is expected to remain strong during fiscal 1997. Management believes that the continuing favorable construction markets together with the Company's acquisition program and growth in comparable branch sales should result in continued sales growth. GROSS PROFIT Gross profit was $223.6 million in fiscal 1996, representing a 26.8% increase over fiscal 1995 gross profit of $176.3 million. Fiscal 1995 gross profit increased 22.0% over fiscal 1994 gross profit of $144.5 million. Gross margins have improved steadily over the past three fiscal years. The improvement has resulted from several factors, including the introduction of product offerings with better margins, efficiencies resulting from the Company's use of central distribution centers, and increased volume and concentration of supply sources in connection with the implementation of the Company's preferred vendor program. OPERATING EXPENSES Operating expenses were $193.7 million in fiscal 1996, representing a 25.2% increase over fiscal 1995 operating expenses of $154.7 million. Newly-opened and acquired branches accounted for approximately 60% of the increase. The remainder of the increase was due primarily to personnel and transportation costs associated with growth in the Company's sales. The 17.7% increase in fiscal 1995 operating expenses over fiscal 1994 operating expenses of $131.4 million was primarily attributable (approximately 45%) to branches opened and acquisitions made during fiscal 1995, as well as to an increase in costs, such as personnel, 18 20 transportation and insurance, associated with sales growth. Operating expenses as a percentage of sales remained relatively constant over the three-year period. NON-OPERATING INCOME AND EXPENSES Interest and other income increased to $4.6 million in fiscal 1996 compared to $2.8 million in fiscal 1995, representing a 61.7% increase. This increase is primarily the result of improved collection of service charge income on delinquent accounts receivable. In fiscal 1995, interest and other income decreased to $2.8 million compared to $3.0 million in fiscal 1994, representing a 4.5% decrease. Interest expense increased to $7.5 million in fiscal 1996, representing a 41.6% increase over fiscal 1995 interest expense of $5.3 million. Higher interest rates and higher average borrowing levels were equally responsible for the increase. Fiscal 1995 interest expense was $200,000 higher than fiscal 1994 interest expense of $5.1 million, representing a 4.5% increase. This increase was attributable to higher interest rates which were partially offset by lower borrowing levels resulting in part from the conversion of $23.0 million of subordinated debentures in April, 1994. NET INCOME As a result of the foregoing factors, net income in fiscal 1996 increased by 39.7% to $16.1 million from $11.5 million in fiscal 1995. In fiscal 1996, fully diluted earnings per share increased 27.6% to $2.31 compared to $1.81 in fiscal 1995. Net income in fiscal 1995 increased by 76% from $6.5 million in fiscal 1994. In fiscal 1995, fully diluted earnings per share increased by 52.1% from $1.19 in fiscal 1994. LIQUIDITY AND CAPITAL RESOURCES Working capital at the end of fiscal 1996 amounted to $180.5 million compared to $172.8 million and $142.4 million at the end of fiscal 1995 and fiscal 1994, respectively. The Company continues to maintain more than 75% of total assets as current assets. The working capital ratio was 2.54 to 1, 2.67 to 1 and 2.89 to 1 for fiscal 1996, fiscal 1995 and fiscal 1994, respectively. During periods of expansion when sales volumes are increasing, the Company is required to carry higher levels of inventories and receivables to support its growth. The Company strives to maintain inventories at levels that support, but not exceed, its current sales activity through (i) increased use of its central distribution facilities and (ii) investment in resources to improve the efficiency and service capability of such facilities. As a result, the inventory turnover rate has been in excess of six turns for each of the last three fiscal years, ranging from a low of 6.2 turns in fiscal 1995 to a high of 6.7 turns in fiscal 1996. During the same period, the accounts receivable turnover rate has been in excess of seven turns, ranging from a low of 7.1 turns in fiscal 1995 to a high of 7.6 turns in fiscal 1996. Net cash provided by operations was $20.3 million in fiscal 1996 compared to $3.7 million in fiscal 1995 and cash used in operations in fiscal 1994 was $2.2 million. The foregoing changes are due primarily to fluctuations in accounts receivable, inventories and accounts payable. Because of an increase in the amount of cash generated in fiscal 1996, net borrowings under short-term debt instruments decreased to $6.2 million compared to $23.8 million in fiscal 1995 and $16.7 million in fiscal 1994. The Company invested $11.9 million in property and equipment and $10.0 million in business acquisitions in fiscal 1996. These business acquisitions added 20 branches to the Company's operations. Capital expenditures, not including amounts which may be paid for business acquisitions in fiscal 1997, are expected to be approximately $12 million. During fiscal 1996, the Company's revolving credit facility and line of credit agreement with a group of banks was amended in order to expand the Company's maximum borrowings thereunder from $130 million to $160 million (see Note 4 of Notes to the Company's Consolidated Financial Statements). After giving effect to this offering (assuming a public offering price of $29.00 per share of Common Stock, the last reported sale price of the Common Stock on the NYSE on April 1, 1996) and approximately $25.2 million from the Notes 19 21 Offering to reduce bank debt, the Company will have approximately $96.8 million available under this agreement. Management believes that the Company has sufficient borrowing capacity to take advantage of growth and business acquisition opportunities and has the resources necessary (subject to certain covenants related to the Notes and in the revolving credit facility and line of credit agreement) to fund ongoing operating requirements and anticipated capital expenditures. Future expansion will continue to be financed on a project-by-project basis through the incurrence of additional indebtedness or, as circumstances allow, through the issuance of Common Stock or equity-linked securities. INFLATION AND CHANGING PRICES The Company is aware of the potentially unfavorable effects inflationary pressures may create as a result of higher asset replacement costs and related depreciation, higher interest rates and higher material costs. The Company seeks to minimize these effects by taking advantage of economies of scale in purchasing and inventory management which result in cost reductions and improved productivity. In addition, from time to time the Company will also implement price increases in order to maintain reasonable profit margins. Management believes, however, that inflation (which has been moderate over the past few years) and changing prices have not significantly affected the Company's results of operations or markets in its three most recent fiscal years. SEASONALITY The Company experiences some seasonality in its business. The Company's net sales and net income during the first quarter and, to a lesser extent, the fourth quarter of its fiscal year are generally lower than the second and third quarters of its fiscal year. The first and fourth quarter are typically adversely affected by winter construction cycles and weather patterns as the level of activity in both the home improvement and new construction markets decreases. The Company has a concentration of locations in the southeastern United States, which can offset to some degree the effects of winter weather in other states. Management closely monitors operating expenses and inventory levels during seasonally affected periods and, to the extent possible, controls variable operating costs. 20 22 BUSINESS GENERAL Hughes Supply is one of the largest diversified wholesale distributors of materials, equipment and supplies for the construction and industrial markets operating primarily in the southeastern and midwestern United States. The Company distributes more than 100,000 products through 221 branches located in 15 states and Puerto Rico. The Company's customers are subcontractors, general contractors, utilities, municipalities and manufacturers. Management believes that the Company holds significant market share in a majority of its local markets and is one of the largest distributors of its range of products in the southeastern and midwestern United States. The Company's largest geographic market is Florida (representing approximately 43% of fiscal 1996 net sales), which is one of the largest commercial and residential construction markets in the United States. The products which the Company distributes are used in new construction for commercial, residential, utility and industrial applications and for replacement and renovation projects. Such products include materials and supplies associated with the Company's nine major product groups, as follows: electrical; plumbing; water and sewer; air conditioning and heating; industrial pipe, valves and fittings; building materials; electric utilities; water systems; and pool equipment and supplies. Each product group is sold by the Company's own specialized and experienced sales force consisting of outside sales representatives and inside account executives. Management believes that the Company's mix of commercial, residential, utility and industrial business, geographic diversification and multiple product groups reduces the impact of economic cycles on the Company's net sales and profitability. Management believes that no other company competes against it across all of its product groups. The Company's principal business objective is to achieve profitable growth, both internally and through selective acquisitions, primarily in existing and contiguous geographic markets. The Company has grown internally through increases in comparable branch net sales, new branch openings and the addition of new product groups. Since January 29, 1993, the Company has opened 25 new branches. In addition, the Company continues to pursue an active acquisition program to capitalize on the opportunities presented by the substantial size and highly fragmented ownership structure of its industry. Since January 29, 1993, the Company has completed 23 acquisitions representing 68 branches, excluding the PVF Acquisition. In addition to increased geographic penetration, acquisitions often provide opportunities for the Company to gain market share and to enhance and diversify product offerings. Management believes that the most cost effective way for the Company to enter new geographic markets is through acquisitions. All of the Company's significant acquisitions have been accretive to the Company's earnings per share. As a result of the Company's operating and acquisition strategies, net sales increased to $1.1 billion in fiscal 1996 from $735.0 million in fiscal 1994, a compound annual growth rate of 21.3%; operating income increased to $29.9 million in fiscal 1996 from $13.1 million in fiscal 1994, a compound annual growth rate of 51.0%; and the number of branches increased to 212 branches at the end of fiscal 1996 from 143 branches at the end of fiscal 1994, a compound annual growth rate of 21.8%. INDUSTRY OVERVIEW Based on estimates available to the Company, industry sales in the United States of products sold by the Company exceeded $100 billion in 1995, and no wholesale distributor of these products accounted for more than 2% of the total market. As a result of their smaller size, many of the local or regional distributors generally lack the purchasing power of a larger entity, may lack the resources to offer broad product lines and multiple brands, and may not possess sophisticated inventory management and control systems necessary to operate multiple branches efficiently. As a result, during the past decade many of the large wholesale distributors, including the Company, have grown considerably through acquisitions. However, many independent distributors are still privately owned, relationship-based companies that emphasize service, delivery and reliability to their customers. Further, a majority of independent distributors focus on a particular size or type of customer and a particular product 21 23 group. In contrast, the Company services various sizes and types of customers and multiple product groups and diversifies its sales across various types of construction and users of its products. Due to its strong competitive position, its size and its management infrastructure, management also believes that the Company is well-positioned to continue to benefit from consolidation trends within the wholesale distribution business. Hughes Supply differentiates itself from consumer-oriented, large format, do-it-yourself ("DIY") home center retailers with respect to the type of customer served, breadth of products offered and level of service provided. Management believes that the Company's customers, unlike DIY customers, are typically professionals who choose their building materials suppliers primarily on the basis of product availability, price, relationships with sales personnel, and the quality and scope of services offered by such suppliers. Furthermore, professional customers generally buy in large volumes, are involved in ongoing jobs or projects lasting months or years resulting in repeat buying situations, and require specialized services not typically provided by large format DIY home center retailers. Customer services provided by the Company include credit, design assistance, material specifications, scheduled job site delivery, job site visits to ensure satisfaction, technical product services, including blueprint take-off and computerized order quotes, and assistance with product returns. Accordingly, the Company has been able to serve customer groups that large format DIY home center retailers generally do not emphasize. ACQUISITION STRATEGY The Company's acquisition strategy is to acquire profitable distribution businesses with strong management and well-developed market positions and customer franchises. Acquisitions can generally be categorized as fill-in acquisitions or new market acquisitions. Fill-in acquisitions are generally smaller in size and represent new branches within existing product groups and existing geographic markets. Since January 29, 1993, the Company has completed fill-in acquisitions of 28 branches, and management believes that significant additional fill-in acquisition opportunities are available. New market acquisitions represent the addition of new product groups, within related commercial construction and industrial products categories, or the entry into new geographic markets, or both. During the last three fiscal years, the Company has increasingly focused on new market acquisitions with the goal of adding products and product groups with higher gross margins, increasing sales to the replacement and industrial markets (which tend to be less cyclical than new construction markets), achieving greater geographic diversification and developing additional opportunities for future fill-in acquisitions and new branch openings. Recent new market acquisitions completed by the Company include (i) The Treaty Distribution Group, resulting in a significant increase in the Company's water and sewer products business in new geographic markets, (ii) Moore Electric Supply, Inc., resulting in a significant increase in the Company's electrical products business in new geographic markets, and (iii) Florida Pipe & Supply Company, the Company's initial entry into the industrial pipe, valve and fitting market. 22 24 The following table summarizes the fill-in and new market acquisitions completed, or to be completed, by the Company since January 29, 1993:
TYPE OF DATE OF NUMBER OF STATE(S)/TERRITORY MAJOR PRODUCT ACQUISITION ACQUISITION ACQUISITION BRANCHES OF OPERATION GROUPS - --------------------- ----------- ---------------- --------- ----------------- --------------------- Virginia branch...... Fill-in June, 1993 1 VA Plumbing Florida and Georgia branches........... Fill-in June, 1993 3 FL, GA Electrical and Electric Utilities Electrical Distributors, Inc.*.............. New market June, 1993 1 GA Electrical Alabama Water Works Supply, Inc........ New market July, 1993 3 AL Water and Sewer Florida branches..... Fill-in December, 1993 2 FL Building Materials Swaim Supply Company*........... New market January, 1994 8 NC, VA Plumbing, Air Conditioning and Heating Florida and Georgia branches(1)........ Fill-in February- 4 FL, GA Water and Sewer, September, 1994 Plumbing and Electrical Treaty Distribution Group branches..... New market January, 1995 16 IN, OH Water and Sewer, Plumbing, Air Conditioning and Heating Olander & Brophy, Inc................ New market March, 1995 4 OH, PA Pool Equipment and Supplies, Water Systems Port City Electrical Supply, Inc........ Fill-in March, 1995 3 GA, SC Electrical Elec-Tel Supply Company............ Fill-in April, 1995 1 GA Electric Utilities Various branches(1)........ Fill-in July, 1995 9 AL, FL, KY, MD, Electrical, Pool February, 1996 NC, NJ, SC, TN, Equipment and VA Supplies, Plumbing Moore Electric Supply, Inc.*...... New market August, 1995 5 NC, SC Electrical Atlantic Pump & Equipment Companies.......... Fill-in September, 1995 4 FL, PR Pool Equipment and Supplies Florida Pipe & Supply Company*........... New market December, 1995 1 FL Industrial Pipe, Valves and Fittings Waldorf Supply Inc................ Fill-in February, 1996 1 MD Plumbing West Virginia Water and Waste Supply Co................. New market March, 1996 2 WV Water and Sewer Elasco Inc.*......... New market Pending 3 IL, OH Electrical and Electrical Utilities PVF.................. New market Pending 16 AL, GA, IL, LA, Industrial Pipe MO, NC, NJ, TN, Valves and Fittings TX, UT, WA -- TOTAL....... 87 ==========
- --------------- * Accounted for, or to be accounted for, as pooling of interests. (1) Facilities acquired in purchases of assets from four entities. 23 25 OPERATING STRATEGY The Company's operating strategy is based on decentralizing customer related functions at the branch level, such as sales and local inventory management, and centralizing certain administrative functions at the corporate level, such as credit, human resources, finance and accounting, and management information systems. Key elements of the Company's operating strategy include: Comprehensive and Diversified Product Groups. As part of its emphasis on superior customer service, the Company offers more than 100,000 products in nine product groups at competitive prices. Distribution of a wide variety of products within product groups assists the Company's customers in managing their inventory, arranging for consolidated delivery requirements and providing a greater portion of total job specifications. The depth and breadth of the Company's product groups allows it to make add on sales of higher margin, non-commodity items. The Company is diversified across nine product groups and various sectors of the construction industry (such as commercial, residential, utility and industrial), which lessens its dependence upon market conditions applicable to any one of its products groups or any single sector of the construction industry. Further, the Company's product diversification allows it to participate in multiple phases of construction projects. Superior Customer Service. Substantially all of the Company's sales are to professional customers with whom the Company has developed long-term relationships. These relationships are largely based on the Company's history of providing superior service. Customer services provided by the Company include credit, design assistance, material specifications, scheduled job site delivery, job site visits to ensure satisfaction, technical product services, including blueprint take-off and computerized order quotes, and assistance with product returns. Local Market Focus. The Company has organized its branches as autonomous, decentralized branches capable of meeting local market needs and offering competitive prices. Each branch handles one or more of the Company's product groups and operates as a separate profit center with its own sales force. Each branch manager has the authority and responsibility to set pricing and tailor the product offering and mix, as well as the nature of services offered, to meet the local market demand. In addition, each branch manager is responsible for purchasing, maintenance of adequate inventory levels, cost controls and customer relations. The Company has been able to tailor its branch size and product offerings to perceived market demand. As a result, the Company has successfully operated branches in secondary cities where it has achieved significant market share and in larger metropolitan areas where it has established a sound market presence. Well-Trained and Experienced Workforce. The Company has implemented extensive employee training and recruiting programs to ensure that its employees have the skill levels necessary to compete effectively in today's marketplace. The Company utilizes in-depth training seminars covering basic and advanced product knowledge, and selling, purchasing, negotiating and management skills. The Company has also developed a recruiting and training program to increase the number of qualified applicants introduced into its management and sales ranks. The Company has experienced a low rate of turnover among its employees and, as a result, the Company's corporate management group, branch managers, outside sales representatives and inside sales account executives have considerable experience with the Company. Centralized Administrative Functions. The Company has centralized certain administrative functions such as credit, human resources, finance and accounting and management information systems. The Company's credit function is essential to its success. All credit decisions are researched, analyzed and approved by a group of regional credit managers to ensure conformity and quality of credit decisions across the Company's operations. Management believes that its credit function has enabled it to be recognized as an industry leader due to its consistently low level of bad debt expense. Centralization of human resources, finance and accounting functions ensure conformity in policy and lower overall cost of 24 26 administration. The Company's comprehensive management information system is based on point of sale information and provides managers with real time inventory, receivables, purchasing, pricing, credit and margin information. This management information system allows the Company's branches to more effectively manage their inventory and receivables and respond more quickly and accurately to specific customer needs and local market demand. Volume Purchasing Power. The Company, as one of the largest diversified wholesale distributors of construction products in its markets, is able to achieve significant volume discounts and rebates from its vendors. The Company established its Preferred Vendor Program in 1991 to more effectively leverage its purchasing power. This program has reduced the number of vendors and has resulted in stronger, more strategic relationships with a more concentrated group of vendors. The concentration of vendors has also improved the Company's ability to assure more timely delivery, reduce errors, and to obtain better terms and greater financial incentives. Other programs currently being employed with vendors include vendor managed inventory systems, bar coding, and electronic exchange of purchase orders and invoices, each of which has resulted in a reduction in transaction costs and an improvement in operating efficiency. PRODUCTS The Company distributes products in the following nine major product groups: - Electrical: Electrical supplies, including wire, cable, cords, boxes, covers, wiring devices, conduit, raceway duct, safety switches, motor controls, breakers, panels, fuses and related supplies and accessories, residential, commercial and industrial electrical fixtures and other special use fixtures. - Plumbing: Plumbing fixtures and related fittings, residential, commercial and industrial water heaters, and plumbing accessories and supplies. - Water and Sewer: Water works and industrial supplies, including large diameter plastic (PVC) and cast iron pipe, fire hydrants, water meters, valves, backflow prevention devices and related hardware and accessories. - Air Conditioning and Heating: Air conditioning and heating equipment, furnaces, heaters, heat pumps, condensing units, duct, pipe, fittings, registers, grills, freon, insulation and other refrigeration equipment, supplies and service parts. - Industrial Pipe, Valves and Fittings: Mechanical and weld pipe, valves and related fittings, fire protection systems and supplies, high performance valves, specialty pipe, stainless steel and other high alloy pipe, valves and fittings. - Building Materials: Reinforcing wire, reinforcing steel, plyform, lumber, concrete chemicals, concrete forming accessories, road and bridge products, masonry accessories and other building materials, hand tools, power tools and equipment for all mechanical and building trades. - Electric Utilities: Transformers, conductor cable, insulators, prestressed concrete transmission and distribution poles, and other electric utility supplies and related hardware, accessories and tools. - Water Systems: Jet and submersible pumps and tanks, residential and commercial water treatment, well liners, wire, poly pipe, accessories and environmental products. - Pool Equipment and Supplies: Above ground and in-ground pool packages, pumps, filters, heaters, lights, slides, diving boards, skimmers, drains, chemicals, solar equipment, pool liners and in-ground pool walls, deck products and cleaning equipment. 25 27 The following chart shows the Company's fiscal 1996 sales by product category on a pro forma basis, giving effect to the PVF Acquisition and the Fiscal 1997 Acquisitions: [CHART] SALES AND PURCHASING The Company employs approximately 400 outside sales representatives who call on customers and who also work with architects, engineers, and manufacturers' representatives for major construction projects. For each outside sales representative there are generally two inside account executives who expedite orders, deliveries, quotations, and requests for pricing. Most orders are received by telephone, and materials are delivered by the Company's trucks to the customer's office or job site. The Company's purchasing agents in its branches use a computerized inventory system to monitor stock levels, while central distribution centers in Orlando, Florida, College Park, Georgia, Hendersonville, North Carolina, Monroe, North Carolina, Greenville, Ohio and Nashville, Tennessee provide purchasing assistance as well as a broad stock of inventory which supplements the inventory of the branches. CUSTOMERS AND SUPPLIERS The Company currently serves over 50,000 customers, and no single customer accounts for more than 1% of total sales annually. Orders for larger construction projects normally require long-term delivery schedules throughout the period of construction, which in some cases may continue for several years. The substantial majority of customer orders are shipped from inventory at the Company's branches. The Company also accommodates special orders from its customers and facilitates the shipment of certain large volume orders directly from the manufacturer to the customer. The Company regularly purchases from over 5,500 manufacturers and suppliers, of which 575 are currently part of the Company's Preferred Vendor Program. No single supplier accounted for more than 6% of the Company's total purchases during fiscal 1996. 26 28 COMPETITION Management believes that the Company is one of the largest wholesale distributors of its range of products in the southeastern and midwestern United States. However, there is strong competition in each product group distributed by the Company. The main sources of competition are other wholesalers, manufacturers who sell certain lines directly to contractors and, to a limited extent, retailers in the markets for plumbing, electrical fixtures and supplies, building materials, pool supplies and contractor's tools. The principal competitive factors in the Company's business are product availability, pricing, technical product knowledge as to application and usage, and advisory and other service capabilities. EMPLOYEES As of January 26, 1996, the Company had approximately 3,350 employees consisting of approximately 15 executives, 550 managers, 950 sales personnel, and 1,835 other employees, including truck drivers, warehouse personnel, office and clerical workers. Over the last year, the Company's work force has increased by approximately 20% compared to the prior year as a result of increased sales volume and completed business acquisitions. None of the Company's employees is represented by a union or covered by a collective bargaining agreement; 13 of Elasco Inc.'s employees are represented by a union and are covered by a collective bargaining agreement. The Company considers its relationship with its employees to be excellent. PROPERTIES The Company leases approximately 31,000 square feet of an office building in Orlando, Florida for its headquarters. In addition, the Company owns or leases 214 branches in 15 states and Puerto Rico. The typical sales branch consists of a combined office and warehouse facility ranging in size from 3,000 to 40,000 square feet, with paved parking and storage areas. The Company also operates a computer center, five central distribution warehouses, and a garage and trucking terminal. LEGAL PROCEEDINGS The Company is involved in various legal proceedings incidental to the ordinary conduct of its business. Management believes that none of these proceedings will have a material adverse impact on its financial condition, results of operations or cash flows. THE PVF ACQUISITION General. On March 27, 1996, the Company entered into an asset purchase agreement to acquire substantially all of the assets, properties and business of PVF and its subsidiaries and to assume certain of their liabilities. The aggregate consideration to be paid in the PVF Acquisition is approximately $106 million, consisting of cash in the amount of $74.4 million, the issuance of 669,956 shares of Common Stock and the assumption of up to $13 million of bank debt. The amount of aggregate consideration to be paid is subject to increase or decrease (on a dollar for dollar basis) for the difference between the book value of net assets acquired, adjusted for certain inventory and accounts receivable items, and the book value of such net assets at December 31, 1995. The PVF Acquisition is scheduled to close on May 13, 1996. This offering is contingent upon the consummation of the PVF Acquisition. PVF, a privately owned company headquartered in Houston, Texas, is a specialty distributor of stainless steel and nickel alloy based pipe, valve and fitting products to industrial customers, and conducts its business through its principal subsidiaries Southwest Stainless, Inc., Multalloy, Inc., a Texas corporation, and Multalloy, Inc., a New Jersey corporation. PVF is a leader in its market, which is the sale of pipe, valve and fitting products for use by industrial companies that operate manufacturing processes involving highly corrosive or high temperature fluids, such as those of the petrochemical, food and beverage, and paper industries. Management believes that PVF carries one of the country's broadest and deepest inventories of such products, consisting of more than 15,000 different items sold to approximately 4,000 active customers. PVF sells both directly to end-users and to supply houses that sell to end-users through 16 regional branch locations concentrated in the southeastern and southwestern United States. 27 29 For the 12 months ended December 31, 1995, PVF had net sales of $109.2 million and operating income of $27.7 million. On a pro forma basis, giving effect to the PVF Acquisition, the Company's fiscal 1996 net sales were $1.2 billion, operating income was $57.0 million and, as of the end of fiscal 1996, the Company had 228 branches located in 19 states and Puerto Rico. See "Unaudited Pro Forma Consolidated Financial Data." The PVF Acquisition is a new market acquisition which provides the Company with several strategic benefits, including: (i) a well-established position in the stainless steel and specialty alloy sector of the pipe, valve and fitting products market; (ii) a higher gross margin product group than the Company's other product groups; (iii) greater focus on targeted industrial and replacement markets; (iv) a strong management team; and (v) new opportunities for additional fill-in acquisitions. Additional growth opportunities for the Company related to the PVF Acquisition include incremental sales of complementary valve products (which represented only 2% of PVF's fiscal 1995 net sales) and new branch openings, including the expected opening of a branch in Southern California. Products. PVF carries over 15,000 different items in its inventory of pipe, valve and fitting products. These products are differentiated on the basis of size, material content, performance specifications and manufacturer. Industrial pipe, valve and fitting products generally do not grow obsolete over time, allowing PVF to maintain an extensive inventory of such products. The substantial majority of PVF's products are used in the replacement market, including a significant number in emergency applications. The majority of PVF's products are made of stainless steel. Other nickel alloy based products, however, represent a growing share of PVF's sales. PVF entered the specialty alloy products market in 1993 to take advantage of a market opportunity created by the limited number of sources of these products. These specialty alloy products typically offer performance standards superior to stainless steel products, sell at higher prices and higher margins and are offered by a limited number of distributors. PVF management believes that its sales of specialty alloy products should continue to grow if, as in the past, an increasing number of customers move from stainless steel products to specialty alloy products and as PVF extends its product line to include new specialty alloy products. Sales. PVF's sales force includes 19 outside salespeople and 31 inside salespeople. Outside salespeople visit end-users and supply house customers at their offices and work to develop good business relationships. The inside sales force works on-site at PVF and handles the bulk of PVF's orders, as most of PVF's sales come from a customer calling an inside salesperson directly with an order. PVF sells its products through its 50-person sales force and through 16 branches in 11 states. PVF's salespeople have substantial authority to set prices within guidelines established by senior management. PVF is well-represented in Texas, the largest end-user market for stainless steel pipe, valve and fitting products. PVF has a single branch location in New Jersey which is the second largest end-user market in the United States and thus represents an opportunity for increased distribution of PVF's products. Customers and Suppliers. The end-users of products sold by PVF generally are manufacturers that operate plants involving the use of highly corrosive or high temperature fluids. PVF sells both to supply houses that resell to end-users and directly to end-users. Supply houses typically carry narrower inventory than PVF in any particular PVF product group. Many of PVF's end-user customers are Fortune 500 companies that have highly structured purchasing organizations that typically prefer large, professional suppliers, such as PVF or the Company. PVF has approximately 4,000 active customers, and for its most recent fiscal year ended June 30, 1995 the largest customer accounted for less than 4% of PVF's sales, while its top ten customers accounted for less than 15% of sales. Many of the 15,000 products sold by PVF require long manufacturing lead times. Consequently, a large investment in inventory is often required. PVF's financial strength combined with its product experience allows it to purchase products in large volumes at favorable terms and maintain the large investment in inventory required to be competitive. For its most recent fiscal year ended June 30, 1995, PVF purchased from approximately 400 vendors, and no single vendor accounted for more than 7% of PVF's purchases in such period. 28 30 The future financial performance of PVF will be directly influenced by the cost of stainless steel which, as a commodity item, can be volatile. Significant fluctuations in the price of stainless steel could have an effect on PVF's future profitability and could create cyclicality in PVF's operating performance. In addition, while PVF has not experienced difficulty in obtaining specialty alloy products, PVF currently purchases certain specialty alloy products from one of only two available sources worldwide. Properties. Headquartered in Houston, Texas, PVF has 17 facilities, including 16 distribution centers located in 11 states. PVF owns two of its facilities and leases 15 facilities. Ten of these leases are for properties owned by third parties and five are leased from affiliates of PVF. 29 31 MANAGEMENT The following table sets forth certain information concerning executive officers and directors of the Company:
NAME AGE POSITION ---------------------------------- --- -------------------------------------------------- David H. Hughes(1)................ 52 Chairman of the Board and Chief Executive Officer A. Stewart Hall, Jr.(1)........... 53 President, Chief Operating Officer and Director Russell V. Hughes(1).............. 70 Vice President and Director Vincent S. Hughes(1).............. 55 Vice President and Director Jasper L. Holland, Jr............. 54 Regional Vice President Clyde E. Hughes, III.............. 48 Regional Vice President James C. Plyler, Jr............... 52 Regional Vice President Kenneth H. Stephens............... 55 Regional Vice President Sidney J. Strickland, Jr.......... 46 Regional Vice President Gradie E. Winstead, Jr............ 46 Regional Vice President Peter J. Zabaski.................. 47 Regional Vice President J. Stephen Zepf................... 46 Treasurer and Chief Financial Officer John D. Baker, II(2).............. 47 Director Robert N. Blackford(1)(3)......... 59 Secretary and Director John B. Ellis(2).................. 71 Director Clifford M. Hames(3).............. 70 Director Donald C. Martin(2)............... 59 Director Herman B. McManaway(3)............ 70 Director
- --------------- (1) Member of the Executive Committee (2) Member of the Compensation Committee (3) Member of the Audit Committee David H. Hughes has served as the Company's Chairman of the Board and Chief Executive Officer since November, 1986, as a director since August, 1968, and has been employed with the Company since June, 1959. Mr. Hughes served as President of the Company from June, 1972 until March, 1994. Mr. Hughes is also a director of SunTrust Banks, Inc. and Lithium Technologies Corp. A. Stewart Hall, Jr. has served as President, Chief Operating Officer and a director since March, 1994, and has been employed with the Company since August, 1973. Mr. Hall served as Executive Vice President of the Company from January, 1988 until March, 1994. Russell V. Hughes has served as Vice President since February, 1971, as a director since May, 1964, and has been employed with the Company since March, 1949. Vincent S. Hughes has served as Vice President since April, 1972, as a director since April, 1966, and has been employed with the Company since June, 1957. Jasper L. Holland, Jr. has served as Regional Vice President since June, 1994, and as a Vice President since February, 1980. Mr. Holland has been employed by the Company since March, 1965. Clyde E. Hughes, III has served as Regional Vice President since June, 1994. Previously, Mr. Hughes served as Regional Manager from December, 1990 to June, 1994. Mr. Hughes has been employed by the Company since June, 1966. James C. Plyler, Jr. has served as Regional Vice President since February, 1996. Prior to serving in this capacity, Mr. Plyler served as President of USCO Incorporated, one of the Company's subsidiaries, from January, 1973 to February, 1996. Mr. Plyler has been employed by the Company since May, 1972. Kenneth H. Stephens has served as Regional Vice President, since June, 1994, and as a Vice President since February, 1983. Mr. Stephens has been employed by the Company since June, 1961. 30 32 Sidney J. Strickland, Jr. has served as Vice President of Purchasing and Administration since August, 1994. Previously, Mr. Strickland served as Director of Corporate Services from February, 1994 to August, 1994. Prior to serving as Director of Corporate Services, Mr. Strickland served as Director of Human Resources from September, 1989 to August 1994. Mr. Strickland has been employed by the Company since October, 1979. Gradie E. Winstead, Jr. has served as Regional Vice President since June, 1994. Previously, Mr. Winstead served as Regional Manager from March, 1990 to June, 1994. Mr. Winstead has been employed by the Company since September, 1975. Peter J. Zabaski has served as Regional Vice President since June, 1994. Previously, Mr. Zabaski served as President of One Stop Supply, Inc., a subsidiary of the Company, from January, 1990 to June, 1994. Mr. Zabaski has been employed by the Company since June, 1982. J. Stephen Zepf has served as Treasurer and Chief Financial Officer since April, 1984, and has been employed by the Company since May, 1983. John D. Baker, II has served as a director since March, 1994. Mr. Baker currently serves as President and a director of Florida Rock Industries, Inc. Mr. Baker is also a director of FRP Properties, Inc. Robert N. Blackford was elected Secretary of the Company in February, 1974, and has served as a director since December, 1970. Mr. Blackford is an attorney with the firm of Maguire, Voorhis & Wells, P.A., in Orlando, Florida, where he has practiced since 1968. John B. Ellis has been a director since November, 1986. Mr. Ellis is retired. Prior to retiring in January, 1986, Mr. Ellis served as Senior Vice President Finance and Treasurer of Genuine Parts Company for a period of 11 years. Mr. Ellis is also a director of Interstate/Johnson Lane Corporation, Flowers Industries, Inc., Oxford Industries, Inc., Scotty's, Inc., Intermet Corporation and Integrity Music, Inc., and is a director emeritus of Genuine Parts Company. Clifford M. Hames has been a director since February, 1972. He has been retired from Sun Bank, N.A., in Orlando, Florida since 1989 where he served as Vice Chairman of the Board for a period of 14 years. Donald C. Martin has been a director since August, 1993. Mr. Martin provides consulting services to the Company and has done so since July, 1993. Prior to July, 1993, Mr. Martin served as President of Electrical Distributors, Inc. ("EDI") from April, 1963 until June, 1993. EDI was acquired by the Company in June, 1993. Herman B. McManaway has been a director since October, 1985. Prior to retiring in January, 1987, Mr. McManaway served as Vice President of Ruddick Corporation for a period of 13 years and as President of Ruddick Investment Co. for a period of 13 years. Mr. McManaway is also a director of Versa Technologies, Inc. The following family relationships exist between directors of the Company: David H. Hughes and Vincent S. Hughes are brothers; and Russell V. Hughes is a first cousin of David H. Hughes and Vincent S. Hughes. Clyde E. Hughes is not related to any of the Hughes family members named above. 31 33 PRINCIPAL AND SELLING SHAREHOLDERS The following table sets forth, as of March 15, 1996, certain information regarding the ownership of the Common Stock by (i) each of the Selling Shareholders, (ii) each person known by the Company who is, or may be deemed to be, the beneficial owner of more than 5% of the outstanding shares of Common Stock, and (iii) all officers and directors of the Company as a group. Except as otherwise indicated, each of the following shareholders has sole voting and investment power with respect to shares beneficially owned by such shareholder.
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP PRIOR TO THE OFFERING AFTER THE OFFERING --------------------------- ----------------------- PERCENT OF PERCENT OF NUMBER OF OUTSTANDING SHARES NUMBER OF OUTSTANDING NAME OF BENEFICIAL OWNER SHARES SHARES OFFERED SHARES SHARES - ------------------------------------ --------- ----------- ------- --------- ----------- The Employees' Retirement Plan of Consolidated Electrical Distributors, Inc.(1)............. 921,062 13.5 564,926 356,136 4.4 John V. Moore(2).................... 251,703 3.7 20,000 231,703 2.9 Russell V. Hughes(3)................ 250,723 3.7 20,000 230,723 2.9 Donald C. Martin(4)................. 197,828 2.9 30,000 167,828 2.1 John E. Petterson(5)................ 96,148 1.4 25,000 71,148 * John F. Caswell, Jr.(6)............. 64,099 * 20,000 44,099 * All directors and officers as a group (18 persons)(7)............. 1,293,171 19.0(8) 1,273,171 15.8
- --------------- * Indicates less than one percent ownership. (1) In Amendment No. 13 to Schedule 13D dated January 27, 1995 and filed with the Securities and Exchange Commission (the "Commission"), The Employees' Retirement Plan of Consolidated Electrical Distributors, Inc. (the "Plan") reported aggregate beneficial ownership of 921,062 shares. Of the shares reported as beneficially owned, 214,926 were reported as held with sole voting and dispositive power, and 706,136 were reported as held with shared voting and dispositive power. The address of the Plan is 1516 Pontius Avenue, No. 201, Los Angeles, California 90025. (2) The address of Mr. Moore is 3531 Castellaine Drive, Charlotte, North Carolina 28226. (3) The address of Mr. Hughes is 20 North Orange Avenue, Suite 200, Orlando, Florida 32801. (4) The address of Mr. Martin is 1303 Henderson Mill Road, Mansfield, Georgia 30255. (5) The address of Mr. Petterson is 71 Shadow Lane, Lakeland, Florida 33813. (6) The address of Mr. Caswell is 510 Goldenrod Court, Lakeland, Florida 33813. (7) Includes an aggregate of 305,441 shares subject to options under the Hughes Supply, Inc. 1988 Stock Option Plan which are exercisable within 60 days, 84,000 shares subject to options under the Directors' Stock Option Plan, and 19,377 shares credited to the accounts of directors and officers under the Hughes Supply, Inc. Employee Stock Ownership Plan. All officers and directors as a group hold sole voting power with respect to 1,937,060 shares, shared voting power with respect to 356,111 shares, sole investment power with respect to 1,917,683 shares and shared investment power with respect to 375,488 shares. (8) Calculated on the basis of 7,122,456 shares, including 6,817,015 outstanding shares and 305,441 shares subject to options exercisable within 60 days. 32 34 DESCRIPTION OF CAPITAL STOCK The authorized capital stock of the Company consists of 20,000,000 shares of Common Stock, $1.00 par value per share, and 10,000,000 shares of Preferred Stock, no par value (the "Preferred Stock"). COMMON STOCK All holders of Common Stock have the right to cast one vote for each share held of record on matters coming before the shareholders for a vote. Holders of Common Stock have no cumulative voting rights with respect to the election of directors and have no preemptive or other rights to purchase additional securities of the Company. The holders of Common Stock are entitled to receive dividends, if any, as and if declared from time to time by the Board of Directors in its discretion out of assets legally available therefore and subject to the prior dividend rights of holders of any Preferred Stock then outstanding. In the event of the liquidation, dissolution or winding up of the Company, holders of Common Stock will be entitled to share equally and ratably in the assets available for distribution after the payment of the liabilities, subject to any prior rights of holders of any Preferred Stock then outstanding. All outstanding shares of Common Stock are, and the shares offered hereby upon payment therefor will be, validly issued, fully paid and non-assessable. PREFERRED STOCK The Board of Directors has the authority to issue up to 10,000,000 shares of Preferred Stock in one or more series, and to fix the number of shares constituting such series and the rights and preferences thereof, including dividend rights, voting rights, terms of redemption and liquidation preferences, without further vote or action by the shareholders. The Board of Directors has established a Series A Junior Participating Preferred Stock, no par value per share (the "Series A Stock"), consisting of 300,000 shares. No shares of Series A Stock or any other shares of Preferred Stock have been issued or are presently outstanding. The issuance of Preferred Stock with voting and conversion rights may adversely affect the voting power of the holders of Common Stock. SHAREHOLDER RIGHTS PLAN The Company has a shareholder rights plan. Under the plan, the Company distributed to shareholders a dividend of one right per share of the Common Stock. When exercisable, each right will permit the holder to purchase from the Company a unit consisting of one one-hundredth of a share of Series A Stock at a purchase price of $65 per unit (the "Rights"). The Rights generally become exercisable if a person or group acquires 20% or more of the Common Stock or commences a tender offer that could result in such person or group owning 30% or more of the Common Stock. If certain subsequent events occur after the Rights first become exercisable, the Rights may become exercisable for the purchase of shares of Common Stock of the Company, or of an acquiring company, having a value equal to two times the exercise price of the Right. The Rights may be redeemed by the Company at $.01 per Right at any time prior to ten days after 20% or more of the Common Stock is acquired by a person or group. The Rights expire on June 2, 1998 unless sooner terminated in accordance with the rights plan. CERTAIN PROVISIONS OF THE RESTATED ARTICLES OF INCORPORATION Under the Restated Articles of Incorporation of the Company (the "Articles"), directors are classified with respect to the time for which they severally hold office by being divided into three classes, each consisting of as near to one-third of the whole number of directors as practicable, with directors in each class being elected every third year. The provisions of the Florida Business Corporation Act (the "Florida Act") permit any vacancy occurring on the Board of Directors, including any vacancy created by reason of an increase in the number of directors, to be filled by a director elected by the affirmative vote of a majority of the remaining directors. Any such director elected by the remaining directors shall hold office until the next meeting of the shareholders at which directors are elected. The Articles also provide that no plan of consolidation or merger in which the Company is a constituent corporation but not the surviving corporation shall be deemed approved by the shareholders unless such plan 33 35 of consolidation or merger shall have been approved by the affirmative vote of the holders of two-thirds of the total number of shares of voting stock of the Company entitled to vote. The Articles also require the affirmative vote of two-thirds of the outstanding shares of the Company's voting stock to approve certain business combinations involving Company and any 10% shareholder unless approved by a majority of the directors not affiliated with such shareholder or unless certain price and procedural requirements are met; to require the affirmative vote of at least 80% of the outstanding shares to remove directors without cause; to provide that the size of the Board of Directors may be determined by the affirmative vote of 80% or more of the outstanding shares; to require the affirmative vote of at least 80% of the outstanding shares to alter the provisions of the Articles in relating to the number, classification and terms of office of directors; to require that special meetings called by the shareholders be called by an 80% vote of shareholders; and to prohibit the shareholders of the Company from taking action by means of a written consent. These provisions may have the effect of delaying or preventing transactions involving a change of control of the Company, including transactions in which shareholders might otherwise receive a substantial premium for their shares over then current market prices, and may limit the ability of shareholders to approve transactions that they may deem to be in their best interests. CERTAIN PROVISIONS OF FLORIDA LAW The Company is subject to several anti-takeover provisions under the Florida Act that apply to a public corporation organized under Florida law unless the corporation has elected to opt out of such provisions in its Articles or (depending on the provision in question) its Bylaws. The Company has not elected to opt out of these provisions. The Florida Act contains a provision that prohibits the voting of shares in a publicly-held Florida corporation which are acquired in a "control share acquisition" unless the holders of a majority of the corporation's voting shares (exclusive of shares held by officers of the corporation, inside directors or the acquiring party) approve the granting of voting rights as to the shares acquired in the control share acquisition. A control share acquisition is defined as an acquisition that immediately thereafter entitled the acquiring party to vote in the election of directors within each of the following ranges of voting power: (i) one-fifth or more but less than one-third of such voting power; (ii) one-third or more but less than a majority of such voting power and (iii) more than a majority of such voting power. The Florida Act also contains an "affiliated transaction" provision that prohibits a publicly-held Florida corporation from engaging in a broad range of business combinations or other extraordinary corporate transactions with an "interested shareholder" unless (i) the transaction is approved by a majority of disinterested directors before the person becomes an interested shareholder or (ii) the interested shareholder has owned at least 80% of the corporation's outstanding voting shares other than those owned by the interested shareholder. An interested shareholder is defined as a person who together with affiliates and associates beneficially owns more than 10% of the corporation's outstanding voting shares. TRANSFER AGENT AND REGISTRAR The Transfer Agent and Registrar for the Company's Common Stock is American Stock Transfer & Trust Company. 34 36 DESCRIPTION OF NOTES Concurrently with this offering, the Company is offering privately the Notes in an aggregate principal amount of $100 million. The Notes will be issued pursuant to a Note Agreement between the Company and SunTrust Capital Markets, Inc., as agent (the "Note Agreement"). The following is a summary of the assumed terms of the Notes, and there can be no assurance that the Notes will be issued on such terms, or that the Notes Offering will be consummated. This offering is not contingent upon consummation of the Notes Offering. General. The Notes will mature on , 2008, will be limited to $100 million aggregate principal amount, and will be pari passu to the Company's revolving credit facility and line of credit agreement. The Notes will bear interest at %, payable in cash semi-annually in arrears. Sinking Fund. The Note Agreement will not provide for a sinking fund. Optional Redemption. The Notes may be redeemed at the Company's option, in whole or in part, on a pro rata basis, on any interest payment date for the sum of (i) the greater of par or the present value of all, remaining interest and principal payments, such present value to be determined using a discount rate equal to the sum of (a) 50 basis points and (b) the yield on a U.S. Treasury obligation having a maturity date corresponding with the remaining average life of the Notes being prepaid, and (ii) accrued interest at the date of redemption. Certain Covenants. The Note Agreement will contain a number of covenants restricting the operations of the Company and its subsidiaries, including covenants with respect to the following matters: (i) limitation on indebtedness; (ii) limitation on restricted payments (in the form of the declaration or payment of certain dividends or distributions, the purchase, redemption or other acquisition of any capital stock of the Company (or any affiliate thereof), the voluntary prepayment of subordinated indebtedness, the incurrence of any guarantee of indebtedness of any affiliate of the Company or an investment in any other person; (iii) limitation on transactions with affiliates; (iv) limitation on liens; (v) limitation on issuance of other senior indebtedness; (vi) limitation on sales of assets; (viii) limitation on capital stock issuances and sales by subsidiaries; (viii) limitation on issuance of guarantees of and pledges for indebtedness; and (ix) limitation on consolidations, mergers and sale of all or substantially all assets of the Company. Events of Default. The events of default ("Events of Default") under the Note Agreement will include provisions that are typical of senior debt financing, including a default by the Company or any subsidiary on any indebtedness that has an aggregate principal amount of not less than $ million resulting in such indebtedness becoming or being declared due and payable prior to the date on which it would otherwise become due and payable. Upon the occurrence of an Event of Default, the holders of not less than % in principal amount of the outstanding Notes may immediately accelerate the maturity of all the Notes as provided in the Note Agreement. Interim Financing. In the event the Notes Offering cannot be consummated concurrently with the PVF Acquisition, the Company intends to finance the PVF Acquisition through a $55 million bridge loan with the Company's bank syndication group and a $30 million note to be issued by the Company to the sellers. The bridge loan will carry interest at the same rate as the Company's line of credit facility (an average rate of 6.29% in fiscal 1996) for the first six months. The sellers' promissory note will bear interest at 6% for the first six months, then will increase to prime for the next six months. Thereafter, interest on such note will be at prime plus 1/2%. The sellers' note will mature on May 31, 1998. 35 37 UNDERWRITING Upon the terms and subject to the conditions stated in the Underwriting Agreement dated the date hereof (the "Underwriting Agreement"), each of the underwriters named below (the "Underwriters"), for whom Smith Barney Inc. and Robert W. Baird & Co. Incorporated are acting as representatives (the "Representatives"), has severally agreed to purchase, and the Company and the Selling Shareholders have agreed to sell to such Underwriter, the number of shares of Common Stock set forth opposite the name of such Underwriter.
NUMBER UNDERWRITERS OF SHARES - ---------------------------------------------------------------------------------- --------- Smith Barney Inc.................................................................. Robert W. Baird & Co. Incorporated................................................ --------- Total................................................................... ========
The Underwriting Agreement provides that the obligations of the several Underwriters to pay for and accept delivery of the shares of Common Stock offered hereby are subject to approval of certain legal matters by counsel and to certain other conditions. The Underwriters are obligated to take and pay for all of the shares of Common Stock offered hereby (other than those covered by the over-allotment option described below) if any such shares are taken. The Underwriters initially propose to offer part of the shares of Common Stock directly to the public at the public offering price set forth on the cover page of this Prospectus and part of such shares to certain dealers at a price which represents a concession not in excess of $ per share below the public offering price. The Underwriters may allow, and such dealers may reallow, a concession not in excess of $ per share to certain other dealers. After the offering, the public offering price and such concessions may be changed by the Underwriters. The Company and one of the Selling Shareholders have granted the Underwriters options, exercisable for 30 days from the date of this Prospectus, to purchase up to 236,989 and 52,500 additional shares of Common Stock, respectively, at the public offering price set forth on the cover page of this Prospectus less the underwriting discounts and commissions. The Underwriters may exercise such options solely for the purpose of covering over-allotments, if any, in connection with the offering of the shares of Common Stock offered hereby. To the extent such options are exercised, each Underwriter will become obligated, subject to certain conditions, to purchase approximately the same percentage of such additional shares as the number of shares set forth opposite each Underwriter's name in the preceding table bears to the total number of shares listed in such table. The Company and its officers and directors have agreed that, for a period of 180 days from the date of this Prospectus, they will not, without the prior written consent of Smith Barney Inc., offer, sell, contract to sell, or otherwise dispose of, any shares of Common Stock or any securities convertible into, or exercisable or 36 38 exchangeable for, Common Stock, or grant any options or warrants to purchase Common Stock, except for the shares of Common Stock offered hereby, the grant of options and the issuance shares of Common Stock pursuant to the Company's existing stock option plans and the surrender of Common Stock in payment of the exercise price of stock options. Further, the Selling Shareholders and certain other shareholders of the Company designated by the Representatives have agreed that, for a period of 90 days from the date of this Prospectus, they will not, without the prior written consent of Smith Barney Inc., offer, sell, contract to sell, or otherwise dispose of, any shares of Common Stock or any securities convertible into, or exercisable or exchangeable for, Common Stock, or grant any options or warrants to purchase Common Stock, except for the shares of Common Stock offered hereby. The Company, the Selling Shareholders, and the Underwriters have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act. LEGAL MATTERS The validity, authorization and issuance of the shares of Common Stock offered hereby will be passed upon for the Company by Maguire, Voorhis & Wells, P.A., Orlando, Florida. Robert N. Blackford, a member of Maguire, Voorhis & Wells, P.A. is Secretary and a director of the Company. Certain members of Maguire, Voorhis & Wells, P.A. beneficially own 24,237 shares of the Company's Common Stock. Certain legal matters will be passed upon for the Underwriters by Powell, Goldstein, Frazer & Murphy, Atlanta, Georgia. Powell, Goldstein, Frazer & Murphy will rely upon the opinion of Maguire, Voorhis & Wells, P.A., as to all matters of Florida law. EXPERTS The Consolidated Balance Sheets as of January 26, 1996 and January 27, 1995, and the Consolidated Statements of Income, Shareholders' Equity and Cash Flows of the Company for each of the two years in the period ended January 26, 1996, included in this Prospectus and incorporated in this Prospectus by reference to the Company's Annual Report on Form 10-K for the year ended January 26, 1996, have been so included and incorporated in reliance on the report of Price Waterhouse LLP, independent certified public accountants, given on the authority of said firm as experts in auditing and accounting. The Company's Consolidated Statements of Income, Shareholders' Equity and Cash Flows for the year ended January 28, 1994, included in this Prospectus and incorporated in this Prospectus by reference to the Company's Annual Report on Form 10-K for the year ended January 26, 1996, have been so included and incorporated in reliance on the reports of Price Waterhouse LLP, independent certified public accountants, and Coopers & Lybrand, independent accountants, given on the authority of said firms as experts in auditing and accounting. The Consolidated Balance Sheets of PVF as of June 30, 1994 and June 30, 1995 and the Consolidated Statements of Income, Stockholders' Equity and Cash Flows of PVF for each of the three years in the period ended June 30, 1995 have been included herein in reliance upon the report of Deloitte & Touche LLP, independent certified public accountants, given on the authority of that firm as experts in accounting and auditing. AVAILABLE INFORMATION The Company is subject to the informational requirements of the Exchange Act, and in accordance therewith files reports, proxy statements and other information with the Commission. Such reports, proxy statements and other information may be inspected without charge at, and copies thereof may be obtained at prescribed costs from, the public reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the following regional offices of the Commission: New York Regional Office, 7 World Trade Center, Suite 1300, New York, New York 10048; and Chicago Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. In addition, the aforemen- 37 39 tioned materials may also be inspected at the offices of the NYSE, 20 Broad Street, New York, New York 10005. This Prospectus, which constitutes part of a registration statement on Form S-3 (the "Registration Statement") filed by the Company with the Commission under the Securities Act, omits certain of the information contained in the Registration Statement and the exhibits and schedules thereto. Reference is hereby made to the Registration Statement and to the exhibits and schedules relating thereto for further information with respect to the Company and the Common Stock offered hereby. Statements contained herein concerning the provisions of documents are necessarily summaries of such documents, and each such statement is qualified in its entirety by reference to the copy of the applicable document filed with the Commission. The Rights are attached to each share of Common Stock currently outstanding and each share of Common Stock to be sold pursuant to this offering. Any reference herein made to the Common Stock shall include the Rights. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The Company's Annual Report on Form 10-K for the fiscal year ended January 26, 1996 has been filed with the Commission and is incorporated in this Prospectus by reference and made a part hereof. All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to the termination of this offering shall be deemed to be incorporated by reference in this Prospectus and to be a part hereof from the respective dates of filing of such documents. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document incorporated or deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute part of this Prospectus. The Company undertakes to provide without charge to each person, including any beneficial owner of Common Stock, to whom a copy of this Prospectus has been delivered, upon written or oral request, a copy of any or all information incorporated by reference in this Prospectus (not including exhibits to such information, unless such exhibits are specifically incorporated by reference into such information). Such requests should be directed to Hughes Supply, Inc., Attention: J. Stephen Zepf, Treasurer and Chief Financial Officer, at 20 North Orange Avenue, Suite 200, Orlando, Florida 32801, telephone number (407) 841-4755. 38 40 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- HUGHES SUPPLY, INC. Report of Price Waterhouse LLP, Independent Certified Public Accountants.............. F-2 Report of Coopers and Lybrand L.L.P., Independent Accountants......................... F-3 Consolidated Balance Sheets as of January 27, 1995 and January 26, 1996............... F-4 Consolidated Statements of Income for the fiscal years ended January 28, 1994, January 27, 1995 and January 26, 1996....................................................... F-5 Consolidated Statements of Shareholders' Equity for the fiscal years ended January 28, 1994, January 27, 1995 and January 26, 1996......................................... F-6 Consolidated Statements of Cash Flows for the fiscal years ended January 28, 1994, January 27, 1995 and January 26, 1996............................................... F-7 Notes to Consolidated Financial Statements............................................ F-8 PVF HOLDINGS, INC. Report of Deloitte & Touche LLP, Independent Auditors................................. F-20 Consolidated Balance Sheets as of June 30, 1994, June 30, 1995 and December 31, 1995 (unaudited)......................................................................... F-21 Consolidated Statements of Income for the fiscal years ended June 30, 1993, 1994 and 1995, and for the six months ended December 31, 1994 and 1995 (unaudited)........... F-22 Consolidated Statements of Stockholders' Equity for the fiscal years ended June 30, 1993, 1994 and 1995, and for the six months ended December 31, 1995 (unaudited)..... F-23 Consolidated Statements of Cash Flows for the fiscal years ended June 30, 1993, 1994 and 1995, and for the six months ended December 31, 1994 and 1995 (unaudited)....... F-24 Notes to Consolidated Financial Statements............................................ F-25
F-1 41 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Shareholders and Board of Directors of Hughes Supply, Inc. In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, shareholders' equity and of cash flows present fairly, in all material respects, the financial position of Hughes Supply, Inc. and its subsidiaries at January 26, 1996 and January 27, 1995, and the results of their operations and their cash flows for the years ended January 26, 1996 and January 27, 1995, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. The consolidated financial statements of Hughes Supply, Inc. and its subsidiaries for the year ended January 28, 1994, prior to restatement, were audited by other independent accountants whose report dated March 17, 1994 expressed an unqualified opinion on those financial statements. The financial statements for 1994 have been restated to reflect the poolings of interests described in Note 2. We have audited the restatement adjustments described in Note 2 that were applied to restate the 1994 financial statements. In our opinion, such adjustments are appropriate and have been properly applied to the 1994 financial statements. PRICE WATERHOUSE LLP Orlando, Florida March 14, 1996 F-2 42 REPORT OF INDEPENDENT ACCOUNTANTS Shareholders and Board of Directors Hughes Supply, Inc. We have audited the consolidated statements of income, shareholders' equity, and cash flows of Hughes Supply, Inc. and subsidiaries for the fiscal year ended January 28, 1994 (not presented herein). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated results of operations and cash flows of Hughes Supply, Inc. and subsidiaries for the fiscal year ended January 28, 1994 (prior to the retroactive restatement to account for the poolings of interests), in conformity with generally accepted accounting principles. COOPERS & LYBRAND Orlando, Florida March 17, 1994 F-3 43 HUGHES SUPPLY, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
JANUARY 27, JANUARY 26, 1995 1996 ----------- ----------- ASSETS Current Assets: Cash and cash equivalents............................................. $ 3,485 $ 3,432 Accounts receivable, less allowance for losses of $5,042 and $4,671... 131,907 143,354 Inventories........................................................... 125,159 132,524 Deferred income taxes................................................. 8,921 10,397 Other current assets.................................................. 6,551 7,778 ----------- ----------- Total current assets.......................................... 276,023 297,485 Property and Equipment, Net............................................. 54,618 57,697 Deferred Income Taxes................................................... 2,095 2,430 Other Assets............................................................ 13,380 21,484 ----------- ----------- $ 346,116 $ 379,096 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Current portion of long-term debt..................................... $ 1,393 $ 2,551 Accounts payable...................................................... 78,275 84,875 Accrued compensation and benefits..................................... 9,823 12,622 Other current liabilities............................................. 13,738 16,925 ----------- ----------- Total current liabilities..................................... 103,229 116,973 Long-Term Debt.......................................................... 105,243 106,215 Other Noncurrent Liabilities............................................ 1,540 1,765 ----------- ----------- Total liabilities............................................. 210,012 224,953 ----------- ----------- Commitments and Contingencies (Note 7) Shareholders' Equity: Preferred stock, no par value; 10,000,000 shares authorized; none issued; preferences, limitations and relative rights to be established by the Board of Directors.............................. -- -- Common stock, par value $1 per share; 20,000,000 shares authorized; 6,613,757 and 6,798,462 shares issued.............................. 6,614 6,798 Capital in excess of par value........................................ 37,653 40,553 Retained earnings..................................................... 93,525 106,792 ----------- ----------- 137,792 154,143 Less treasury stock, 108,988 shares and no shares, at cost............ (1,688) -- ----------- ----------- Total shareholders' equity.................................... 136,104 154,143 ----------- ----------- $ 346,116 $ 379,096 ======== ========
The accompanying notes are an integral part of these consolidated financial statements. F-4 44 HUGHES SUPPLY, INC. CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE DATA)
FISCAL YEARS ENDED --------------------------------------- JANUARY 28, JANUARY 27, JANUARY 26, 1994 1995 1996 ----------- ----------- ----------- Net Sales.................................................... $ 734,958 $ 875,459 $ 1,082,179 Cost of Sales................................................ 590,466 699,132 858,573 ----------- ----------- ----------- Gross Profit................................................. 144,492 176,327 223,606 ----------- ----------- ----------- Operating Expenses: Selling, general and administrative........................ 121,645 144,256 181,284 Depreciation and amortization.............................. 7,800 9,056 10,585 Provision for doubtful accounts............................ 1,938 1,381 1,849 ----------- ----------- ----------- Total operating expenses........................... 131,383 154,693 193,718 ----------- ----------- ----------- Operating Income............................................. 13,109 21,634 29,888 ----------- ----------- ----------- Non-Operating Income and (Expenses): Interest and other income.................................. 2,981 2,848 4,605 Interest expense........................................... (5,055) (5,284) (7,484) ----------- ----------- ----------- (2,074) (2,436) (2,879) ----------- ----------- ----------- Income Before Income Taxes................................... 11,035 19,198 27,009 Income Taxes................................................. 4,511 7,713 10,959 ----------- ----------- ----------- Net Income................................................... $ 6,524 $ 11,485 $ 16,050 ======== ======== ========= Earnings Per Share: Primary.................................................... $ 1.27 $ 1.83 $ 2.34 ======== ======== ========= Fully diluted.............................................. $ 1.19 $ 1.81 $ 2.31 ======== ======== ========= Average Shares Outstanding: Primary.................................................... 5,143 6,259 6,856 ======== ======== ========= Fully diluted.............................................. 6,313 6,443 6,935 ======== ======== =========
The accompanying notes are an integral part of these consolidated financial statements. F-5 45 HUGHES SUPPLY, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
COMMON STOCK CAPITAL IN TREASURY STOCK ------------------ EXCESS OF RETAINED ------------------- SHARES AMOUNT PAR VALUE EARNINGS SHARES AMOUNT --------- ------ ---------- -------- -------- -------- Balance, January 29, 1993, as previously reported............... 5,453,249 $5,453 $ 22,410 $ 72,761 901,055 $(13,958) Adjustment for poolings of interests....................... 439,057 439 (276) 3,251 -- -- --------- ------ ---------- -------- -------- -------- Balance, January 29, 1993, as restated........................... 5,892,306 5,892 22,134 76,012 901,055 (13,958) Net income......................... -- -- -- 6,524 -- -- Cash dividends -- $.16 per share.................. -- -- -- (724) -- -- Pooled company.................. -- -- -- (13) -- -- Issuance of treasury shares for EDI merger.......................... (374,998) (375) (5,434) -- (374,998) 5,809 Other acquisition.................. -- -- (1,557) 2,158 (101,368) 1,570 Treasury shares issued under stock option plans.................... -- -- -- (18) (6,123) 95 Purchase and retirement of common shares.......................... (2,581) (2) (9) (38) -- -- --------- ------ ---------- -------- -------- -------- Balance, January 28, 1994............ 5,514,727 5,515 15,134 83,901 418,566 (6,484) Net income......................... -- -- -- 11,485 -- -- Cash dividends -- $.22 per share.................. -- -- -- (1,290) -- -- Pooled company.................. -- -- -- (27) -- -- Treasury shares contributed to employee benefit plan........... -- -- 243 -- (16,597) 257 Conversion of subordinated convertible debentures into common stock.................... 1,081,146 1,081 21,670 -- -- -- Stock dividend by pooled company... 26,101 26 207 (233) -- -- Treasury shares issued under stock option plans.................... -- -- -- (141) (44,341) 687 Purchase and retirement of common shares.......................... (8,217) (8) (35) (170) -- -- Other acquisitions................. -- -- 434 -- (248,640) 3,852 --------- ------ ---------- -------- -------- -------- Balance, January 27, 1995............ 6,613,757 6,614 37,653 93,525 108,988 (1,688) Net income......................... -- -- -- 16,050 -- -- Cash dividends -- $.30 per share.................. -- -- -- (1,971) -- -- Pooled company.................. -- -- -- (15) -- -- Stock dividend by pooled company... 28,710 29 260 (289) -- -- Shares issued under stock option plans........................... 6,657 6 74 (154) (86,984) 1,347 Purchase and retirement of common shares.......................... (19,642) (20) (146) (354) -- -- Other acquisitions................. 168,980 169 2,712 -- (22,004) 341 --------- ------ ---------- -------- -------- -------- Balance, January 26, 1996............ 6,798,462 $6,798 $ 40,553 $106,792 -- $ -- ======== ====== ======= ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. F-6 46 HUGHES SUPPLY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
FISCAL YEARS ENDED --------------------------------------- JANUARY 28, JANUARY 27, JANUARY 26, 1994 1995 1996 ----------- ----------- ----------- Increase (Decrease) in Cash and Cash Equivalents: Cash flows from operating activities: Cash received from customers.......................... $ 718,603 $ 861,732 $ 1,073,951 Cash paid to suppliers and employees.................. (712,125) (846,357) (1,034,589) Interest received..................................... 2,001 2,323 3,454 Interest paid......................................... (5,134) (4,825) (7,273) Income taxes paid..................................... (5,544) (9,181) (15,230) ----------- ----------- ----------- Net cash provided by (used in) operating activities....................................... (2,199) 3,692 20,313 ----------- ----------- ----------- Cash flows from investing activities: Capital expenditures.................................. (8,885) (11,915) (11,853) Proceeds from sale of property and equipment.......... 709 743 1,228 Business acquisitions, net of cash.................... (3,934) (11,099) (10,009) ----------- ----------- ----------- Net cash used in investing activities............... (12,110) (22,271) (20,634) ----------- ----------- ----------- Cash flows from financing activities: Net borrowings under short-term debt arrangements..... 16,733 23,832 6,245 Proceeds from issuance of long-term debt.............. 580 -- -- Principal payments on: Long-term notes..................................... (2,918) (1,266) (4,150) Capital lease obligations........................... (660) (725) (844) Proceeds from issuance of common shares under stock option plans........................................ 77 546 1,273 Purchase of common shares............................. (49) (213) (520) Dividends paid........................................ (629) (1,188) (1,736) ----------- ----------- ----------- Net cash provided by financing activities........... 13,134 20,986 268 ----------- ----------- ----------- Net Increase (Decrease) in Cash and Cash Equivalents....... (1,175) 2,407 (53) Cash and Cash Equivalents, beginning of year............... 2,253 1,078 3,485 ----------- ----------- ----------- Cash and Cash Equivalents, end of year..................... $ 1,078 $ 3,485 $ 3,432 ========= ========= ==========
The accompanying notes are an integral part of these consolidated financial statements. F-7 47 HUGHES SUPPLY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 1 -- DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES INDUSTRY Hughes Supply, Inc. and its subsidiaries (the "Company") are engaged in the wholesale distribution of a broad range of materials, equipment and supplies primarily to the construction industry. Major product lines distributed by the Company include electrical, plumbing and electric utility equipment, building materials, pool equipment and supplies, water and sewer products, heating and air conditioning equipment and supplies, water systems and industrial pipe, valves and fittings. The Company's principal customers are electrical, plumbing and mechanical contractors, electric utility companies, municipal and industrial accounts. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the Company and its wholly-owned subsidiaries. All significant intercompany transactions and accounts have been eliminated. Prior period financial statements have been restated to include the accounts of companies acquired and accounted for as poolings of interests. Results of operations of companies purchased and immaterial poolings are included from dates of acquisition. The Company's minority investment in affiliate is accounted for by the equity method. FISCAL YEAR The Company's fiscal year ends on the last Friday in January. Fiscal years 1994, 1995 and 1996 each contained 52 weeks. CASH EQUIVALENTS The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. INVENTORIES Inventories are carried at the lower of cost or market. The cost of substantially all inventories is determined by the average cost method. PROPERTY AND EQUIPMENT Buildings and equipment are depreciated using both straight-line and declining-balance methods based on the following estimated useful lives: Buildings and improvements................................... 5-40 years Transportation equipment..................................... 2-7 years Furniture, fixtures and equipment............................ 3-10 years Property under capital leases................................ 20-40 years
Maintenance and repairs are charged to expense as incurred and major renewals and betterments are capitalized. Gains or losses are credited or charged to earnings upon disposition. OTHER ASSETS The excess of cost over the fair value of net assets of purchased companies ($8,806 and $16,637 at January 27, 1995 and January 26, 1996, respectively, net of accumulated amortization) is being amortized by the straight-line method over 15 to 25 years. F-8 48 HUGHES SUPPLY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) IMPAIRMENT OF LONG-LIVED ASSETS In the event that facts and circumstances indicate that the excess of cost over the fair value of net assets of purchased companies or other assets may be impaired, an evaluation of recoverability would be performed. If an evaluation is required, the estimated future undiscounted cash flows associated with the asset would be compared to the asset's carrying amount to determine if a write-down to market value or discounted cash flow is required. REVENUE RECOGNITION The Company recognizes revenue from product sales when goods are received by customers. INCOME TAXES Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes resulting from temporary differences. Such temporary differences result from differences in the carrying value of assets and liabilities for tax and financial reporting purposes. The deferred tax assets and liabilities represent the future tax consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred taxes are also recognized for operating losses that are available to offset future taxable income. EARNINGS PER COMMON SHARE Primary earnings per share are based on the weighted average number of shares outstanding during each year plus the common stock equivalents issuable upon the exercise of stock options. Fully diluted earnings per share assumes the conversion of 7% convertible subordinated debentures (after elimination of related interest expense, net of income tax effect) and exercise of stock options. DEFERRED EMPLOYEE BENEFITS The present value of amounts estimated to be payable under unfunded supplemental retirement agreements with certain officers is being accrued over the remaining years of active employment of the officers and is included in other noncurrent liabilities. ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles necessarily requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. NOTE 2 -- BUSINESS COMBINATIONS On August 1, 1995, the Company acquired all the common stock of Moore Electric Supply, Inc. ("Moore") in exchange for 316,000 shares of the Company's common stock. Moore is a wholesale distributor of electrical products with five outlets in North Carolina and South Carolina. On December 18, 1995, the Company acquired all the common stock of Florida Pipe & Supply Company ("FPS") in exchange for 178,000 shares of the Company's common stock. FPS is a wholesale distributor of industrial pipe, valves and fittings with one outlet in Florida. F-9 49 HUGHES SUPPLY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) The above transactions have been accounted for as poolings of interests and, accordingly, the consolidated financial statements for the periods presented have been restated to include the accounts of Moore and FPS. Moore's and FPS's fiscal year ends have been changed to the last Friday in January to conform to the Company's fiscal year end. Net sales and net income of the separate companies for the periods preceding the acquisitions were as follows:
NET NET SALES INCOME -------- ------- Six months ended July 31, 1995 (unaudited): Hughes, as previously reported.................................. $494,239 $ 6,681 Moore........................................................... 32,297 1,023 -------- ------- Combined........................................................ $526,536 $ 7,704 ======== ======= Nine months ended October 31, 1995 (unaudited): Hughes, as previously reported.................................. $805,575 $11,732 FPS............................................................. 14,762 520 -------- ------- Combined........................................................ $820,337 $12,252 ======== ======= Fiscal year ended January 27, 1995: Hughes, as previously reported.................................. $802,445 $10,328 Moore........................................................... 54,115 423 FPS............................................................. 18,899 734 -------- ------- Combined........................................................ $875,459 $11,485 ======== ======= Fiscal year ended January 28, 1994: Hughes, as previously reported.................................. $660,938 $ 6,286 Moore........................................................... 54,854 358 FPS............................................................. 19,166 (120) -------- ------- Combined........................................................ $734,958 $ 6,524 ======== =======
During fiscal years 1994, 1995 and 1996, the Company acquired several wholesale distributors of materials to the construction industry that were accounted for as purchases. These acquisitions, individually or in the aggregate, did not have a material effect on the consolidated financial statements. Results of operations of these companies from their respective dates of acquisition have been included in the consolidated financial statements. F-10 50 HUGHES SUPPLY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 3 -- PROPERTY AND EQUIPMENT Property and equipment consist of the following:
1995 1996 -------- -------- Land........................................................... $ 13,415 $ 14,380 Buildings and improvements..................................... 42,850 45,996 Transportation equipment....................................... 19,930 20,265 Furniture, fixtures and equipment.............................. 21,045 24,129 Property under capital leases.................................. 10,794 10,551 -------- -------- 108,034 115,321 Less accumulated depreciation and amortization................. (53,416) (57,624) -------- -------- $ 54,618 $ 57,697 ======== ========
NOTE 4 -- LONG-TERM DEBT Long-term debt consists of the following:
1995 1996 -------- -------- Unsecured revolving bank notes under $160,000 credit agreement, payable June 30, 1998, fluctuating interest (6.3% to 6.4% at January 26, 1996)............................................ $ 61,025 $ 68,300 Short-term instruments classified as long-term debt............ 34,803 35,200 Other notes payable............................................ 6,950 2,252 Capital lease obligations...................................... 3,858 3,014 -------- -------- 106,636 108,766 Less current portion........................................... (1,393) (2,551) -------- -------- $105,243 $106,215 ======== ========
On July 31, 1995, the Company's revolving credit and line of credit agreement with a group of banks was amended. The agreement, as amended, now permits the Company to borrow up to $160,000 (subject to borrowing limitations under the agreement) -- $125,000 long-term, expiring June 30, 1998, and $35,000 line of credit convertible to a term note due two years from conversion date. The $35,000 line of credit backs commercial paper. Under the credit facility, interest is payable at market rates plus applicable margins. Commitment fees of .25% and .125% are paid on the unused portions of the revolving and line of credit facilities, respectively. Loan covenants require the Company to maintain consolidated working capital of not less than $75,000 and a maximum ratio of funded debt to total capital, as defined, of .55 to 1.0. The covenants also restrict the Company's activities regarding investments, liens, borrowing and leasing, and payment of dividends other than stock. Under the dividend covenant, approximately $13,480 is available at January 26, 1996 for payment of dividends. The Company has a bank line of credit for short-term borrowing aggregating $6,000 (subject to borrowing limitations under the long-term debt covenants) under which $200 was outstanding at January 26, 1996. There were no amounts outstanding at January 27, 1995. The line provides for interest at market rates. The interest rate on short-term borrowings as of January 26, 1996 was 5.9%. In addition, the Company has a commercial paper program backed by its revolving credit facility. The weighted average interest rate on F-11 51 HUGHES SUPPLY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) outstanding commercial paper borrowings of $34,803 and $35,000 as of January 27, 1995 and January 26, 1996 was 6.0% and 5.9%, respectively. The Company's credit facility enables the Company to refinance short-term borrowings on a long-term basis to the extent that the credit facility is unused. Accordingly, $34,803 and $35,200 of short-term borrowings at January 27, 1995 and January 26, 1996, respectively, have been classified as long-term debt. The carrying value of notes payable is a reasonable estimate of fair value since interest rates are based on prevailing market rates. Maturities of long-term debt, excluding capital lease obligations, for each of the five years subsequent to January 26, 1996 and in the aggregate are as follows:
FISCAL YEARS ENDING ------------------------------------------------------------------ 1997......................................................... $ 1,694 1998......................................................... 408 1999......................................................... 103,615 2000......................................................... 31 2001......................................................... 4 Later years.................................................. -- -------- $105,752 ========
NOTE 5 -- INCOME TAXES The components of deferred tax assets and liabilities are as follows:
1995 1996 ------- ------- Deferred tax assets: Allowance for doubtful accounts................................ $ 1,854 $ 1,809 Inventories.................................................... 2,866 1,757 Capital leases................................................. 590 503 Property and equipment......................................... 744 1,148 Accrued vacation............................................... 667 911 Deferred compensation.......................................... 597 681 Environmental clean-up costs................................... 216 268 Operating leases............................................... -- 276 Other accrued liabilities...................................... 3,222 5,106 Other.......................................................... 310 389 ------- ------- Total deferred tax assets.............................. 11,066 12,848 ------- ------- Deferred tax liabilities: Operating leases............................................... 42 -- Intangible assets.............................................. 8 21 ------- ------- Total deferred tax liabilities......................... 50 21 ------- ------- Net deferred tax asset........................................... $11,016 $12,827 ======= =======
No valuation allowance has been provided for these deferred tax assets at January 27, 1995 and January 26, 1996 as full realization of these assets is expected. F-12 52 HUGHES SUPPLY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) The consolidated provision for income taxes consists of the following:
FISCAL YEARS ENDED ------------------------------ 1994 1995 1996 ------ ------- ------- Currently payable: Federal.............................................. $4,567 $ 9,927 $11,091 State................................................ 645 1,635 1,679 ------ ------- ------- 5,212 11,562 12,770 ------ ------- ------- Deferred: Federal.............................................. (906) (3,650) (1,555) State................................................ 205 (199) (256) ------ ------- ------- (701) (3,849) (1,811) ------ ------- ------- $4,511 $ 7,713 $10,959 ====== ======= =======
The following is a reconciliation of tax computed at the statutory Federal rate to the income tax expense in the consolidated statements of income:
FISCAL YEARS ENDED ---------------------------------------------- 1994 1995 1996 ------------- ------------- -------------- AMOUNT % AMOUNT % AMOUNT % ------ ---- ------ ---- ------- ---- Tax computed at statutory Federal rate...... $3,862 35.0 $6,719 35.0 $ 9,453 35.0 Effect of: State income tax, net of Federal income tax benefit............................ 552 5.0 933 4.9 925 3.4 Nondeductible purchase adjustments........ 24 .2 38 .2 43 .2 Nondeductible expenses.................... 117 1.1 330 1.7 396 1.5 Other, net................................ (44) (.4) (307) (1.6) 142 .5 ------ ---- ------ ---- ------- ---- Income tax expense.......................... $4,511 40.9 $7,713 40.2 $10,959 40.6 ====== ==== ====== ==== ======= ====
NOTE 6 -- EMPLOYEE BENEFIT PLANS PROFIT SHARING AND EMPLOYEE STOCK OWNERSHIP PLANS The Company has a 401(k) profit sharing plan which provides benefits for substantially all employees of the Company who meet minimum age and length of service requirements. Under the plan, employee contributions of not less than 2% to not more than 3% of each eligible employee's compensation are matched (in cash or stock) 50% by the Company. Additional annual contributions may be made at the discretion of the Board of Directors. The Company has an employee stock ownership plan (ESOP) covering substantially all employees of the Company who meet minimum age and length of service requirements. The plan is designed to enable eligible employees to acquire a proprietary interest in the Company. Company contributions (whether in cash or stock) are determined annually by the Board of Directors in an amount not to exceed the maximum allowable as an income tax deduction. At January 27, 1995 and January 26, 1996, the plan owned approximately 172,000 and 184,000 shares, respectively, of the Company's common stock, all of which were allocated to participants. Amounts charged to expense for these and other similar plans during the fiscal years ended in 1994, 1995 and 1996 were $1,000, $1,157 and $1,710, respectively. F-13 53 HUGHES SUPPLY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) BONUS PLANS The Company has bonus plans, based on profitability formulas, which provide incentive compensation for key employees. Amounts charged to expense for bonuses to executive officers were $533, $935 and $1,354 for the fiscal years ended in 1994, 1995 and 1996, respectively. STOCK OPTION PLANS The Company's stock option plans authorize the granting of both incentive and non-incentive stock options for an aggregate of 1,635,000 shares of common stock to key executive, management, and sales employees, and, with respect to 135,000 shares, to non-employee directors. Under the plans, options are granted at prices not less than market value on the date of grant, and the maximum term of an option may not exceed ten years. Prices for incentive stock options granted to employees who own 10% or more of the Company's stock are at least 110% of market value at date of grant. Options may be granted from time to time to May 1998, or May 2003 with regard to directors. An option becomes exercisable at such times and in such installments as set by the Board of Directors. The employee plan also permits the granting of stock appreciation rights (SARs) to holders of options. Such rights permit the optionee to surrender an exercisable option, in whole or in part, on any date that the fair market value of the Company's common stock exceeds the option price for the stock and receive payment in common stock, or, if the Board of Directors approves, in cash or any combination of cash and common stock. Such payment would be equal to the excess of the fair market value of the shares under the surrendered option over the option price for such shares. The change in value of SARs would be reflected in income based upon the market value of the stock. No SARs have been granted or issued through January 26, 1996. A summary of option transactions during each of the three fiscal years in the period ended January 26, 1996 is shown below:
NUMBER OF OPTION PRICE SHARES RANGE --------- ------------- Under option, January 29, 1993 (253,442 shares exercisable)............................ 406,442 $12.00 - $17.63 Granted................................................ 12,000 $16.25 Exercised.............................................. (6,023) $12.25 - $12.87 Cancelled.............................................. (12,835) $12.00 - $12.63 --------- Under option, January 28, 1994 (297,584 shares exercisable)............................ 399,584 $12.25 - $17.63 Granted................................................ 115,000 $18.13 - $25.37 Exercised.............................................. (44,241) $12.25 - $12.63 --------- Under option, January 27, 1995 (339,343 shares exercisable)............................ 470,343 $12.25 - $25.37 Granted................................................ 15,000 $19.25 Exercised.............................................. (93,541) $12.25 - $20.25 Cancelled.............................................. (1,861) $12.25 - $12.63 --------- Under option, January 26, 1996 (329,941 shares exercisable)............................ 389,941 $12.25 - $25.37 ========
There were 640,658 and 627,519 shares available for the granting of options at January 27, 1995 and January 26, 1996, respectively. F-14 54 HUGHES SUPPLY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) STOCK-BASED COMPENSATION The Company accounts for compensation cost related to employee stock options and other forms of employee stock-based compensation plans in accordance with the requirements of Accounting Principles Board Opinion 25 ("APB 25"). APB 25 requires compensation cost for stock-based compensation plans to be recognized based on the difference, if any, between the fair market value of the stock on the date of grant and the option exercise price. In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation ("SFAS 123"). SFAS 123 established a fair value-based method of accounting for compensation cost related to stock options and other forms of stock-based compensation plans. However, SFAS 123 allows an entity to continue to measure compensation costs using the principles of APB 25 if certain pro forma disclosures are made. SFAS 123 is effective for fiscal years beginning after December 15, 1995. The Company intends to adopt the provisions for pro forma disclosure requirements of SFAS 123 in fiscal 1997. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN The Company has entered into agreements with certain key executive officers providing for supplemental payments, generally for periods up to 15 years, upon retirement, disability or death. The obligations are not funded apart from the Company's general assets. Amounts charged to expense under the agreements were $166, $390 and $238 in fiscal years ended 1994, 1995 and 1996, respectively. NOTE 7 -- COMMITMENTS AND CONTINGENCIES LEASE COMMITMENTS A portion of the Company's operations are conducted from locations leased under capital leases from a corporation which is owned by three of the directors of Hughes Supply, Inc. The leases generally provide that all expenses related to the properties are to be paid by the lessee. The leases also generally provide for rental increases at specified intervals. The leases all expire within ten years; however, it is expected that they will be renewed. Rents under these agreements amounted to $1,165 for fiscal years ended 1994 and 1995 and $1,149 in fiscal year ended 1996. Property under capital leases is included in the consolidated balance sheets as follows:
1995 1996 ------- ------- Property under capital leases (consisting of land and buildings)................................................... $10,794 $10,551 Accumulated amortization....................................... (8,458) (8,840) ------- ------- $ 2,336 $ 1,711 ======= =======
In addition, rents under operating leases paid to this related corporation were $396, $400 and $358 in 1994, 1995 and 1996, respectively. F-15 55 HUGHES SUPPLY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Future minimum payments, by year and in the aggregate, under the aforementioned leases and other noncancellable operating leases with initial or remaining terms in excess of one year as of January 26, 1996, are as follows:
CAPITAL OPERATING FISCAL YEARS ENDING LEASES LEASES --------------------------------------------------------------- ------- --------- 1997...................................................... $ 1,141 $ 9,122 1998...................................................... 1,141 8,238 1999...................................................... 558 6,540 2000...................................................... 360 4,755 2001...................................................... 325 3,201 Later years............................................... 258 5,221 ------- --------- Total minimum lease payments................................... 3,783 $37,077 ======= Less amount representing interest.............................. (769) ------- Present value of net minimum lease payments.................... 3,014 Less current portion........................................... (857) ------- $ 2,157 ======
Lease-related expenses are as follows:
FISCAL YEARS ENDED ----------------------------- 1994 1995 1996 ------ ------ ------- Capital lease amortization...................................... $ 594 $ 594 $ 584 Capital lease interest expense.................................. 505 440 364 Operating lease rentals (excluding month-to-month rents)........ 6,397 7,412 12,090
GUARANTEES OF AFFILIATE DEBT A wholly-owned subsidiary of the Company owns a 20% interest in Accord Industries Company ("Accord"), a joint venture formed from the Company's sale of its manufacturing operations in 1990. As partial consideration for the sale, the Company received $2,750 in notes receivable, part of which is convertible into an additional partnership interest in Accord of up to 29%. In connection with the investment in Accord, the Company guaranteed $500 of Accord's indebtedness to a bank and the Company's subsidiary as a joint venturer is contingently liable for the remaining bank debt of approximately $1,100 as of January 26, 1996. LEGAL MATTERS The Company is involved in various legal proceedings incident to the conduct of its business. In the opinion of management, none of the proceedings are material in relation to the Company's consolidated operations or financial position. NOTE 8 -- CAPITAL STOCK COMMON STOCK On May 24, 1994, the shareholders approved an amendment to the articles of incorporation of the Company increasing the number of authorized shares of common stock to 20,000,000 shares, $1.00 par value per share. F-16 56 HUGHES SUPPLY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) On March 8, 1994, the Company issued a call for redemption of its outstanding 7% convertible subordinated debentures to take place on April 7, 1994. Of the $22,960 debentures outstanding at January 28, 1994, $22,889, or 99.7%, were converted into the Company's common stock at $21.17 per share or 47.2 common shares for each $1 face amount of debentures. This conversion resulted in the issuance of 1,081,146 common shares. PREFERRED STOCK The Company's Board of Directors established Series A Junior Participating Preferred Stock (Series A Stock) consisting of 300,000 shares. Each share of Series A Stock will be entitled to one vote on all matters submitted to a vote of shareholders. Series A Stock is not redeemable or convertible into any other security. Each share of Series A Stock shall have a minimum cumulative preferential quarterly dividend rate equal to the greater of $1.25 per share or 100 times the aggregate per share amount of the dividend declared on common stock. In the event of liquidation, shares of Series A Stock will be entitled to the greater of $100 per share plus any accrued and unpaid dividend or 100 times the payment to be made per share of common stock. No shares of Series A Stock are presently outstanding, and no shares are expected to be issued except in connection with the shareholder rights plan referred to below. The Company has a shareholder rights plan. Under the plan, the Company distributed to shareholders a dividend of one right per share of the Company's common stock. When exercisable, each right will permit the holder to purchase from the Company a unit consisting of one one-hundredth of a share of Series A Stock at a purchase price of $65 per unit. The rights generally become exercisable if a person or group acquires 20% or more of the Company's common stock or commences a tender offer that could result in such person or group owning 30% or more of the Company's common stock. If certain subsequent events occur after the rights first become exercisable, the rights may become exercisable for the purchase of shares of common stock of the Company, or of an acquiring company, having a value equal to two times the exercise price of the right. The rights may be redeemed by the Company at $.01 per right at any time prior to ten days after 20% or more of the Company's stock is acquired by a person or group. The rights expire on June 2, 1998 unless sooner terminated in accordance with the rights plan. NOTE 9 -- CONCENTRATION OF CREDIT RISK The Company sells its products in the major areas of construction markets in certain states of the eastern half of the United States. Approximately 90% of the Company's sales are credit sales which are primarily to customers whose ability to pay is dependent upon the construction industry economics prevailing in these areas; however, concentration of credit risk with respect to trade accounts receivable is limited due to the large number of customers comprising the Company's customer base and no one customer comprises more than 1% of annual sales. The Company performs ongoing credit evaluations of its customers and in certain situations obtains collateral sufficient to protect its credit position. The Company maintains reserves for potential credit losses, and such losses have been within management's expectations. F-17 57 HUGHES SUPPLY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 10 -- SUPPLEMENTAL CASH FLOWS INFORMATION The following is a reconciliation of net income to net cash provided by (used in) operating activities:
FISCAL YEARS ENDED ------------------------------- 1994 1995 1996 -------- -------- ------- Net income............................................ $ 6,524 $ 11,485 $16,050 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation..................................... 7,038 8,217 8,669 Amortization..................................... 762 839 1,916 Provision for doubtful accounts.................. 1,938 1,381 1,849 Gain on sale of property and equipment........... (270) (294) (621) Undistributed (earnings) losses of affiliate..... (171) (139) 115 Treasury shares contributed to employee benefit plan........................................... -- 500 -- Changes in assets and liabilities, net of effects of business acquisitions: (Increase) decrease in -- Accounts receivable......................... (16,894) (13,819) (8,872) Inventories................................. (4,688) (16,539) 1,129 Other current assets........................ (81) (835) (1,119) Other assets................................ 178 (262) (1,063) Increase (decrease) in -- Accounts payable and accrued expenses....... 4,399 13,770 6,095 Accrued interest and income taxes........... (487) 2,840 (2,249) Other noncurrent liabilities................ 178 397 225 Increase in deferred income taxes.............. (625) (3,849) (1,811) -------- -------- ------- Net cash provided by (used in) operating activities... $ (2,199) $ 3,692 $20,313 ======== ======== =======
NONCASH INVESTING AND FINANCING ACTIVITIES The net assets acquired and consideration for acquisitions accounted for as purchases are summarized below:
FISCAL YEARS ENDED ------------------------------- 1994 1995 1996 -------- -------- ------- Fair value of: Assets acquired..................................... $ 8,421 $ 28,396 $22,600 Liabilities assumed................................. (4,487) (7,269) (9,369) -------- -------- ------- Purchase price........................................ $ 3,934 $ 21,127 $13,231 ======== ======== =======
Consideration in fiscal 1995 included 249,000 shares of common stock (fair value $4,286), a note for $1,525 and amounts payable of $4,217. Consideration in fiscal 1996 included 191,000 shares of common stock (fair value $3,222). Additional common stock was issued in fiscal year 1995 upon the conversion of $22,889 convertible subordinated debentures. F-18 58 HUGHES SUPPLY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 11 -- SUBSEQUENT EVENT (UNAUDITED) On March 27, 1996, the Company entered into an asset purchase agreement to acquire substantially all of the assets, properties and business of PVF Holdings, Inc. and its subsidiaries and to assume certain of their liabilities. The aggregate consideration to be paid is approximately $106 million, consisting of cash in the amount of $74.4 million, the issuance of 669,956 shares of common stock and the assumption of bank debt not to exceed $13 million. F-19 59 INDEPENDENT AUDITORS' REPORT To The Board of Directors of PVF Holdings, Inc.: We have audited the accompanying consolidated balance sheets of PVF Holdings, Inc. and subsidiaries as of June 30, 1994 and 1995, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended June 30, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of PVF Holdings, Inc. and subsidiaries as of June 30, 1994 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 1995 in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Birmingham, Alabama September 25, 1995 (October 25, 1995 and March 27, 1996 as to Note 9) F-20 60 PVF HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
JUNE 30, ------------------------- DECEMBER 31, 1994 1995 1995 ----------- ----------- ------------ (UNAUDITED) ASSETS (NOTE 4) CURRENT ASSETS: Cash.................................................. $ 197,118 $ 183,182 $ 203,512 Accounts receivable, less allowance for doubtful accounts of $75,000 (June 30, 1994), $110,000 (June 30, 1995) and $120,000 (December 31, 1995)............................................ 8,590,232 12,346,105 12,583,641 Inventories........................................... 23,006,950 37,487,362 39,829,495 Prepaid expenses...................................... 33,457 21,020 74,946 Deferred income taxes (Note 5)........................ 231,468 576,000 672,000 ----------- ----------- ------------ Total current assets.......................... 32,059,225 50,613,669 53,363,594 PROPERTY, PLANT AND EQUIPMENT -- NET (Note 2)........... 1,426,187 1,278,274 1,294,929 INVESTMENT IN AND LOANS TO AFFILIATE (Note 3)........... 183,740 636,108 688,157 GOODWILL, NET........................................... 530,400 494,560 476,633 OTHER ASSETS............................................ 163,189 121,244 105,874 ----------- ----------- ------------ TOTAL......................................... $34,362,741 $53,143,855 $ 55,929,187 ========== ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Revolving line of credit -- bank (Note 4)............. $ 6,738,000 $ 3,583,000 $ 3,423,000 Accounts payable...................................... 8,191,188 10,852,719 8,233,078 Accrued management fees (Note 3)...................... 265,466 1,866,118 750,494 Other accrued expenses (Note 3)....................... 745,836 1,887,870 1,884,228 Income taxes payable.................................. 82,269 2,456,746 985,157 Current portion of long-term debt (Note 4)............ 3,193,549 1,058,540 1,083,249 Current portion of subordinated debt (Note 4)......... 175,000 -- -- ----------- ----------- ------------ Total current liabilities..................... 19,391,308 21,704,993 16,359,206 LONG-TERM DEBT (Note 4)................................. 462,660 6,719,230 6,384,126 SUBORDINATED DEBT (Notes 3 and 4)....................... 700,000 700,000 700,000 COMMITMENTS (Note 6) STOCKHOLDER'S EQUITY (Notes 4 and 8): Series A preferred stock; nonvoting and cumulative; par value $1 per share; 9,500 shares authorized, issued and outstanding............................. 9,500 9,500 9,500 Series B preferred stock; nonvoting, cumulative and convertible; par value $1 per share; 310 shares authorized; 310 (June 30, 1994 and 1995) and -0- (December 31, 1995) shares issued and outstanding........................................ 310 310 -- Common Stock; par value $.01 per share; 100,000 shares authorized; 19,000 (June 30, 1994 and 1995) and 50,000 (December 31, 1995) shares issued and outstanding........................................ 190 190 500 Additional paid-in-capital............................ 2,021,000 2,021,000 2,021,000 Retained earnings..................................... 12,013,447 21,988,632 30,454,855 Unearned compensation relating to stock award......... (235,674) -- -- ----------- ----------- ------------ Total stockholders' equity.................... 13,808,773 24,019,632 32,485,855 ----------- ----------- ------------ TOTAL......................................... $34,362,741 $53,143,855 $ 55,929,187 ========== ========== ==========
See notes to consolidated financial statements. F-21 61 PVF HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, --------------------------------------- ------------------------- 1993 1994 1995 1994 1995 ----------- ----------- ----------- ----------- ----------- (UNAUDITED) NET SALES....................... $48,297,228 $60,930,776 $92,790,481 $39,808,900 $56,514,677 ----------- ----------- ----------- ----------- ----------- COSTS AND EXPENSES: Cost of goods sold............ 37,105,439 46,211,087 60,423,904 28,957,788 34,982,987 Operating expenses (Notes 3, 6, 7 and 8)................ 8,514,457 9,878,622 14,339,683 6,303,462 7,127,306 Interest expense (Note 3)..... 730,858 830,638 997,709 486,019 453,161 ----------- ----------- ----------- ----------- ----------- Total costs and expenses............ 46,350,754 56,920,347 75,761,296 35,747,269 42,563,454 ----------- ----------- ----------- ----------- ----------- INCOME BEFORE INCOME TAXES...... 1,946,474 4,010,429 17,029,185 4,061,361 13,951,223 INCOME TAXES (Note 5)........... 706,000 1,419,000 7,054,000 1,629,000 5,485,000 ----------- ----------- ----------- ----------- ----------- NET INCOME...................... $ 1,240,474 $ 2,591,429 $ 9,975,185 $ 2,432,631 $ 8,466,223 ========== ========== ========== ========== ==========
See notes to consolidated financial statements. F-22 62 PVF HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
SERIES A SERIES B UNEARNED PREFERRED STOCK PREFERRED STOCK COMMON STOCK ADDITIONAL COMPENSATION --------------- --------------- --------------- PAID-IN RETAINED RELATING TO SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS STOCK AWARD TOTAL ------ ------ ------ ------ ------ ------ ---------- ----------- ------------ ----------- BALANCE, JULY 1, 1992.............. 9,500 $9,500 310 $ 310 19,000 $190 $2,021,000 $ 8,181,544 $ (471,567) $ 9,740,977 Net income........ 1,240,474 1,240,474 Amortization of shares vested under stock award (Note 8)............. 117,923 117,923 ------ ------ ------ ------ ------ ------ ---------- ----------- ------------ ----------- BALANCE, JUNE 30, 1993.............. 9,500 9,500 310 310 19,000 190 2,021,000 9,422,018 (353,644) 11,099,374 Net income........ 2,591,429 2,591,429 Amortization of shares vested under stock award (Note 8)............. 117,970 117,970 ------ ------ ------ ------ ------ ------ ---------- ----------- ------------ ----------- BALANCE, JUNE 30, 1994.............. 9,500 9,500 310 310 19,000 190 2,021,000 12,013,447 (235,674) 13,808,773 Net income........ 9,975,185 9,975,185 Amortization of shares vested under stock award (Note 8)............. 235,674 235,674 ------ ------ ------ ------ ------ ------ ---------- ----------- ------------ ----------- BALANCE, JUNE 30, 1995.............. 9,500 9,500 310 310 19,000 190 2,021,000 21,988,632 -- 24,019,632 Conversion of Series B preferred stock into common stock (Note 8)............. (310) (310 ) 31,000 310 Net income (unaudited).... 8,466,223 8,466,223 ------ ------ ------ ------ ------ ------ ---------- ----------- ------------ ----------- BALANCE, DECEMBER 31, 1995 (unaudited)....... 9,500 $9,500 -- $ -- 50,000 $500 $2,021,000 $30,454,855 $ -- $32,485,855 ===== ====== ===== ====== ====== ====== ========= ========== ========== ==========
See notes to consolidated financial statements. F-23 63 PVF HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, ---------------------------------------- ------------------------- 1993 1994 1995 1994 1995 ----------- ----------- ------------ ----------- ----------- (UNAUDITED) OPERATING ACTIVITIES: Net income......................................... $ 1,240,474 $ 2,591,429 $ 9,975,185 $ 2,432,631 $ 8,466,223 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation..................................... 332,387 385,457 414,770 207,386 207,900 Amortization..................................... 259,684 148,459 98,512 49,188 31,829 Compensation expense relating to stock award and performance stock plan......................... 117,923 117,970 418,916 280,673 209,260 Provision for losses on accounts receivable...... 59,119 73,228 97,630 39,832 (4,212) Equity in net income of affiliate................ (104,143) (16,920) (52,049) (Gain) loss on disposal of fixed assets......................................... (8,478) 1,377 Changes in assets and liabilities provided (used) cash: Accounts receivable.............................. (1,624,606) (2,425,405) (3,853,503) (1,136,628) (233,324) Inventories...................................... (5,734,882) (1,385,973) (14,480,412) (4,447,040) (2,342,133) Prepaid expenses................................. (12,232) 29,695 12,437 (14,383) (53,926) Deferred income taxes............................ (75,000) 1,000 (344,532) (147,532) (96,000) Accounts payable and accrued expenses............ 2,131,773 1,124,603 5,220,975 1,692,347 (3,948,167) Income taxes payable............................. 7,084 73,282 2,374,477 211,577 (1,471,589) Other............................................ (18,271) (11,856) (20,727) (16,603) 1,469 ----------- ----------- ------------ ----------- ----------- Net cash provided by (used in) operating activities..................................... (3,316,547) 721,889 (198,893) (865,472) 716,658 ----------- ----------- ------------ ----------- ----------- INVESTING ACTIVITIES: Capital expenditures............................... (596,967) (165,801) (271,779) (133,931) (225,933) Investment in and loans to affiliates.............. (183,740) (348,225) (348,225) Proceeds from the sale of fixed assets............. 13,400 ----------- ----------- ------------ ----------- ----------- Net cash used in investing activities............ (596,967) (349,541) (606,604) (482,156) (225,933) ----------- ----------- ------------ ----------- ----------- FINANCING ACTIVITIES: Net borrowings (payments) under line of credit..... 4,934,000 772,000 (3,155,000) (3,245,000) (160,000) Proceeds from issuance of long-term debt........... 28,412 7,500,000 7,500,000 147,045 Payments on long-term debt......................... (1,270,393) (1,187,364) (3,553,439) (2,947,905) (457,440) ----------- ----------- ------------ ----------- ----------- Net cash provided by (used in) financing activities..................................... 3,692,019 (415,364) 791,561 1,307,095 (470,395) ----------- ----------- ------------ ----------- ----------- NET INCREASE (DECREASE) IN CASH...................... (221,495) (43,016) (13,936) (40,533) 20,330 CASH, BEGINNING OF PERIOD............................ 461,629 240,134 197,118 197,118 183,182 ----------- ----------- ------------ ----------- ----------- CASH, END OF PERIOD.................................. $ 240,134 $ 197,118 $ 183,182 $ 156,585 $ 203,512 ========== ========== =========== ========== ========== SUPPLEMENTAL CASH FLOW DISCLOSURES: Cash paid for: Interest......................................... $ 782,082 $ 882,922 $ 967,059 $ 483,159 $ 406,188 ========== ========== =========== ========== ========== Income taxes..................................... $ 828,735 $ 1,346,059 $ 5,113,069 $ 1,549,411 $ 7,058,914 ========== ========== =========== ========== ==========
See notes to consolidated financial statements. F-24 64 PVF HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SIGNIFICANT ACCOUNTING POLICIES a. Principles of Consolidation -- The consolidated financial statements include the accounts of PVF Holdings, Inc. ("PVF"), Southwest Stainless, Inc. ("SWS"), Coastline Products, Inc. ("Coastline"), Houston Products and Machine ("HPM"), and Multalloy, Inc., ("Multalloy") (hereinafter collectively referred to as the "Company"). The Company's investment in C. F. Fluid Controls Inc. ("C.F. Fluid") a 50% owned unconsolidated investee, is accounted for on the equity method (see Note 3). All significant intercompany accounts and transactions have been eliminated in consolidation. b. Description of the Company -- PVF was incorporated in Delaware on November 30, 1989. At that time, it issued 19,000 shares of common stock, 9,500 shares of Series A preferred stock and 310 shares of Series B convertible preferred stock for all of the similar shares of SWS, of which Coastline was a wholly-owned subsidiary, in a non-taxable exchange. SWS and Coastline were surviving companies from a purchase acquisition in 1988. In 1992, the Company acquired the assets of HPM and, in 1994, it incorporated its Multalloy division. The Company is a wholesale distributor, selling to customers located primarily in the Southeastern and Southwestern United States, of stainless and special-alloy pipe, valves and accessories for use primarily in the chemical, paper and textile industries. Effective June 30, 1992, Jemison industries, Inc. ("Industries"), a majority-owned subsidiary of Jemison Investment Co., Inc. ("Investment"), transferred its interest in PVF to Investment. The stockholders of the Company at June 30, 1995 include, among others, Investment, which is a 49% shareholder, and certain management members and shareholders of Investment and Industries. As of July 1, 1995, Investment increased its ownership of the Company to 80.5% by converting all of its Series B preferred stock (see Note 8). c. Inventories -- Inventories, which consist of purchased materials, are valued at average cost (using the weighted average method) and are stated at the lower of cost or market. d. Property, Plant and Equipment -- Property, plant and equipment is stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. e. Goodwill -- Goodwill is being amortized on a straight-line basis primarily over 40 years. Accumulated amortization of goodwill was $179,000 and $215,000 at June 30, 1994 and 1995, respectively. f. Income Taxes -- Effective July 1, 1993, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes. SFAS No. 109 requires that deferred income taxes be determined under an asset and liability method. Under this method, deferred tax assets and liabilities are based on the expected future tax consequences of temporary differences between the book and tax bases of assets and liabilities. Previously, deferred income taxes were determined under Accounting Principles Board Opinion No. 11, Accounting for Income Taxes ("APB No. 11"). Under APB No. 11, deferred income taxes were based on the historical tax effects of timing differences between book and taxable income. The impact of adopting SFAS No. 109 was immaterial to the Company's consolidated financial statements. Deferred income taxes are provided for temporary differences between financial and tax reporting, primarily attributable to capitalization of inventory costs under uniform capitalization regulations. g. Interim Period Presentation -- The unaudited consolidated financial statements for the six months ended December 31, 1994 and 1995 have been prepared on a basis substantially consistent with that of the audited financial statements included herein. In the opinion of management, such unaudited financial statements include all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the results of operations and cash flows. The results of operations for the six months ended December 31, 1995 are not necessarily indicative of results that may be expected for the year ending June 30, 1996. F-25 65 PVF HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) h. Reclassifications -- Certain reclassifications have been made to the 1994 balance sheet amounts to conform to the 1995 presentation. i. New Accounting Standards Not Yet Adopted -- In December 1991, SFAS No. 107, Disclosures About Fair Value of Financial Instruments was issued by the Financial Accounting Standards Board ("FASB"). In October 1994, SFAS No. 107 was amended by SFAS No. 119, Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments. SFAS Nos. 107 and 119 require various disclosures relating to nonderivative financial instruments and derivative financial instruments. These statements are effective for fiscal years ending after December 15, 1995 for entities with less than $150 million in total assets. The adoption of these statements will impact the Company's financial statements only in terms of increased disclosures regarding the affected instruments. The FASB has also issued SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. This statement establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles, and goodwill related to those assets to be held and used, and for long-lived assets and certain identifiable intangibles to be disposed of. This statement is effective for fiscal years beginning after December 15, 1995. Management believes there would be no impact on the Company's consolidated financial statements if this Statement were adopted currently. 2. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consists of the following:
JUNE 30, ------------------------- DECEMBER 31, 1994 1995 1995 ---------- ---------- ------------ (UNAUDITED) Land and buildings............................ $ 278,040 $ 278,040 $ 278,040 Furniture and fixtures........................ 149,918 167,610 175,360 Machinery and equipment....................... 1,720,451 1,914,347 2,008,807 Transportation equipment...................... 203,055 210,985 210,277 Leasehold improvements........................ 110,180 136,260 148,278 ---------- ---------- ------------ 2,461,644 2,707,242 2,820,762 Less accumulated depreciation and amortization................................ 1,035,457 1,428,968 1,525,833 ---------- ---------- ------------ Total............................... $1,426,187 $1,278,274 $1,294,929 ========= ========= ==========
3. RELATED PARTY TRANSACTIONS The Company owes $700,000 to Investment, which until November 3, 1994 was guaranteeing certain of the Company's other debt. Interest of $70,000 was incurred on this obligation in 1993, 1994 and 1995. In exchange for these guarantees and certain management services, the Company paid Investment an annual consultant and guarantee fee based upon 5% of the Company's adjusted pre-tax income. For the years ended June 30, 1993, 1994 and 1995, the Company incurred approximately $160,000, $265,000 and $1,866,000, respectively, of these fees, including in 1995 a special management fee of $900,000. The Company leases certain branch facilities from related parties consisting of its President, the Chairman of Investment and Investment. Related party rents of approximately $266,000, $370,000 and $384,000 were incurred in 1993, 1994 and 1995, respectively. At June 30, 1995, the Company has $348,000 in notes receivable from C. F. Fluid plus $20,000 accrued interest on these notes. During 1995, the Company purchased inventory from C.F. Fluid totaling $634,000, and as of June 30, 1995 had related accounts payable of $200,000. F-26 66 PVF HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 4. LONG-TERM DEBT The Company's long-term debt consists of:
JUNE 30, ------------------------- DECEMBER 31, 1994 1995 1995 ---------- ---------- ------------ (UNAUDITED) Note payable to bank, refinanced in 1995 to include additional borrowings, bearing interest at prime (9% at June 30, 1995) due in quarterly principal installments of $187,500 through October 1, 1999 and a final payment of $3,750,000 due January 1, 2000... $2,873,864 $7,125,000 $6,750,000 Two notes payable to former owners of Coastline, due in annual installment of $100,650 (including 14% interest) through November 30, 1998........................... 345,538 293,264 233,671 Note payable to Investment in monthly installments of $2,492 (including 11.5% interest) through December 1, 1999.......... 121,476 104,673 98,713 Dividends payable to stockholders, due June 30, 1996........................... 210,107 210,107 210,107 Other......................................... 105,224 44,726 174,884 ---------- ---------- ------------ 3,656,209 7,777,770 7,467,375 Less current portion.......................... 3,193,549 1,058,540 1,083,249 ---------- ---------- ------------ Total............................... $ 462,660 $6,719,230 $6,384,126 ========= ========= ==========
The short-term revolving line of credit (under which the Company may borrow up to $10,000,000 as of June 30, 1995, with interest payable at the prime rate) and long-term note payable agreements with the bank contain various restrictive covenants which among others, require the Company to maintain a net working capital of not less than $8,000,000, a tangible net worth of not less than $10,000,000, and a debt-to-equity ratio of not more than 1.5:1. The Company must also maintain a current ratio of not less than 1.5:1 and no dividends in excess of 10% of the prior fiscal year's net income may be paid. The Company is also limited on acquisitions of capital assets and its incurrence of additional debt. At June 30, 1994, the Company was in violation of certain of these covenants and, accordingly, $2,173,864 of long-term obligations were classified as current liabilities in the accompanying 1994 consolidated balance sheet. The Company was in compliance with these covenants as of June 30, 1995. Substantially all of the Company's assets are pledged as collateral on this indebtedness. At June 30, 1995, the future maturities of long-term debt were as follows: 1996............................................................. $1,058,540 1997............................................................. 863,804 1998............................................................. 851,132 1999............................................................. 864,848 2000............................................................. 4,139,446 ---------- Total.................................................. $7,777,770 =========
F-27 67 PVF HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Subordinated Debt The Company is obligated under an unsecured $700,000 note payable to Investment, with 10% interest payable quarterly. The entire principal amount is due on January 1, 2009. At June 30, 1994 the Company was also obligated under 8% notes payable to former stockholders totaling $175,000 which matured in December 1994. All principal payments relating to these notes are subordinate to the bank debt. 5. INCOME TAXES Provision (benefit) for income taxes consist of:
1993 1994 1995 -------- ---------- ---------- Current: Federal........................................... $726,000 $1,338,000 $6,684,532 State............................................. 55,000 80,000 714,000 -------- ---------- ---------- 781,000 1,418,000 7,398,532 -------- ---------- ---------- Deferred: Federal........................................... (70,000) 1,000 (321,532) State............................................. (5,000) -- (23,000) -------- ---------- ---------- (75,000) 1,000 (344,532) -------- ---------- ---------- $706,000 $1,419,000 $7,054,000 ======== ========= =========
Provision (benefit) for income taxes differ from the amounts computed by applying the statutory federal income tax rate to income before income taxes as follows:
1993 1994 1995 -------- ---------- ---------- Federal income tax at statutory rate................ $681,000 $1,404,000 $6,471,000 Effect of graduated rates........................... (19,000) (40,000) (171,000) State income taxes, net of federal taxes............ 32,000 53,000 449,000 Nondeductible expenses.............................. 35,000 24,000 66,000 Other............................................... (23,000) (22,000) 239,000 -------- ---------- ---------- $706,000 $1,419,000 $7,054,000 ======== ========= =========
F-28 68 PVF HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The approximate tax effects of temporary differences that give rise to the deferred tax assets and liabilities at June 30, 1994 and 1995 are as follows:
1994 1995 -------- -------- Deferred tax assets: Inventory valuation............................................ $356,000 $581,000 Performance stock plan expense................................. -- 70,000 Provision for bad debts........................................ 27,000 42,000 Other.......................................................... 16,468 29,000 -------- -------- Gross deferred tax assets...................................... 399,468 722,000 -------- -------- Deferred tax liabilities: Depreciation................................................... 97,000 106,000 Compensation expense related to stock award.................... 65,000 -- Other.......................................................... 6,000 40,000 -------- -------- Gross deferred tax liabilities................................. 168,000 146,000 -------- -------- Net deferred tax asset......................................... $231,468 $576,000 ======== ========
6. LEASE ARRANGEMENTS The Company leases its branch facilities and offices under operating lease agreements. Several leases provide for multiple renewal options covering periods of up to nine years. In most cases, management expects that in the normal course of business, leases will be renewed or replaced by other leases. Minimum lease commitments at June 30, 1995 for all noncancelable operating leases, excluding renewal periods, are as follows: 1996........................................................... $288,000 1997........................................................... 201,000 1998........................................................... 66,000 1999........................................................... 55,000 2000........................................................... 27,000 -------- Total................................................ $637,000 ========
Total rent expense was $557,000 (1993), $670,000 (1994) and $821,000 (1995). 7. EMPLOYEE BENEFIT PROGRAMS 401(k) Plan The Company has elected to participate in the Jemison Multi-Company 401(k) Plan (the "Plan"). Under the Plan, the Company has the option to contribute up to 6% of a participant's earnings. Contributions by the Company for the years ended June 30, 1993, 1994, and 1995 totaled $216,000, $250,000 and $288,000, respectively. Performance Stock Plan Effective July 1, 1994 the Company established the PVF Holdings, Inc. Performance Stock Plan under which certain designated employees are granted performance shares to provide long-term incentives. The performance shares are valued based on the greater of the Company's common stock book value per share or F-29 69 PVF HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) six times the average of the previous five years' net income per share. Participants vest 50% upon seven years of employment and continue to vest 10% annually, becoming fully vested at twelve years of employment. Participants are paid their vested balance upon termination of employment; however, if the award exceeds $50,000 the Company may elect to pay $50,000 upon termination and the balance in annual or quarterly installments, plus interest of 7% per annum. Compensation expense related to this plan is recognized over the vesting period and was $183,000 for the year ended June 30, 1995 and $209,000 (unaudited) for the six-months ended December 31, 1995. 8. CAPITAL STOCK The Company has three types of preferred stock authorized at June 30, 1995: (a) Series A preferred stock has a dividend rate of $16 per share per year as declared by the board of directors, a liquidation preference of $200 per share ($1,900,000 total) held plus any unpaid accumulated dividends whether or not declared, and is redeemable at the option of the Company for the liquidation preference. Dividend arrearages were $848,667 (1995) and $696,667 (1994). (b) Series B preferred stock has a dividend rate of $18 per share per year as declared by the board of directors, a liquidation preference of $300 per share ($93,000 total) held plus any unpaid accumulated dividends (whether or not declared) but subject to the preferential rights of holders of Series A preferred stock, and is redeemable at the option of the Company for the liquidation preference. Dividend arrearages were $31,155 (1995) and $25,575 (1994). Effective July 1, 1995, the Series B preferred stock was converted into 31,000 shares of the Company's common stock. (c) Other preferred stock, par $1.00, 10,190 shares authorized (none of which have been issued), which the Board of Directors of the Company has the authority to divide into series and to fix and determine the relative rights and preferences of any series so established. Pursuant to a stock restriction agreement, unless a shareholder obtains written consent from Investment to sell his or her stock, Investment has first option to purchase any or all of the preferred or common shares offered. Stock Award In December 1991, the Company issued 5,000 shares of common stock to a key officer of the Company to satisfy a deferred compensation liability of approximately $152,000 and to provide the officer additional compensation for past and future services. Compensation expense related to this stock award was recognized in accordance with the vesting schedule specified in the agreement, which was 40% vested at June 30, 1992 (including the deferred compensation amount) with an additional 15% vesting occurring annually through June 30, 1996. In connection with the adoption of the Performance Stock Plan (see Note 7), the key officer was deemed 100% vested as of August 15, 1994 and the remaining unearned portion ($235,674) was charged to operations in 1995. Related compensation expense of approximately $118,000 was charged to operations in 1993 and 1994. 9. SUBSEQUENT EVENTS On October 25, 1995, the Company renewed its bank line of credit to provide for maximum borrowings of $12 million. On March 27, 1996, the Company entered into an agreement with Hughes Supply, Inc. ("Hughes") to sell substantially all of its assets, properties and business and to convey certain of its liabilities to Hughes. The aggregate consideration is approximately $106 million, consisting of cash of $74.4 million, 669,956 shares of common stock of Hughes, and the assumption by Hughes of up to $13 million of the Company's bank debt. F-30 70 ------------------------------------------------------ ------------------------------------------------------ NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY OF THE SELLING SHAREHOLDERS OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY ANY SECURITY OTHER THAN THE COMMON STOCK OFFERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR SOLICITATION OF ANY OFFER TO BUY THE COMMON STOCK OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF SUCH INFORMATION. ------------------ TABLE OF CONTENTS
PAGE ---- Prospectus Summary.................... 3 Risk Factors.......................... 7 Use of Proceeds....................... 9 Capitalization........................ 9 Price Range of Common Stock and Dividends........................... 10 Selected Unaudited Pro Forma Consolidated Financial Data......... 11 Selected Consolidated Financial and Operating Data...................... 16 Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 17 Business.............................. 21 Management............................ 30 Principal and Selling Shareholders.... 32 Description of Capital Stock.......... 33 Description of Notes.................. 35 Underwriting.......................... 36 Legal Matters......................... 37 Experts............................... 37 Available Information................. 37 Incorporation of Certain Documents by Reference........................... 38 Index to Consolidated Financial Statements.......................... F-1
------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ 1,929,926 SHARES [HUGHES SUPPLY, INC. LOGO] COMMON STOCK ------------ PROSPECTUS , 1996 ------------ SMITH BARNEY INC. ROBERT W. BAIRD & CO. INCORPORATED ------------------------------------------------------ ------------------------------------------------------ 71 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. It is estimated that the Company will incur the following expenses in connection with the offering of the securities being registered: SEC registration fee.............................................................. $ 22,295 NYSE additional listing fee....................................................... 29,500 NASD filing fee................................................................... 6,936 Accounting fees and expenses...................................................... 80,000 Legal fees and expenses........................................................... 50,000 Blue sky fees and expenses........................................................ 6,000 Printing and engraving expenses................................................... 165,000 Miscellaneous expenses............................................................ 65,269 -------- Total................................................................... $425,000 ========
The foregoing items, except for the SEC registration fee, the NYSE additional listing fee, the NASD filing fee and blue sky fees and expenses, are estimated. The Company has agreed to bear all expenses (other than underwriting discounts and commissions) in connection with the registration and sale of the shares of Common Stock. ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Section 607.0850 of the Florida Business Corporation Act permits, and in some cases requires, the Company as a Florida corporation to indemnify a director, officer, employee, or agent of the Company, or any person serving at the request of the Company in any such capacity with respect to another entity against certain expenses and liabilities incurred as a party to any proceeding brought against such person by reason of the fact that such person is or was a director, officer, employee, or agent of the Company or is or was serving in such capacity with respect to another entity at the request of the Company. With respect to actions, other than in the right of the Company, such indemnification is permitted if such person acted in good faith and in a manner such person reasonably believed to be in, or not opposed to, the best interests of the Company, and with respect to any criminal action or proceeding, if such person had no reasonable cause to believe his or her conduct was unlawful. Termination of any such action by judgment, order, settlement or conviction or a plea of nolo contendere, or its equivalent shall not, of itself, create a presumption that such person did not act in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the Company, or with respect to any criminal action or proceeding, had reasonable cause to believe that his or her conduct was unlawful. With respect to any action threatened, pending or completed in the right of the Company to procure a judgment in its favor against any such person, the Company may indemnify any such person against expenses actually and reasonably incurred by him or her in connection with the defense or settlement of such action or suit, including the appeal thereof, if he or she acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the Company, except that no indemnification shall be made in respect of any claim, issue or matter as to which any such person shall have been adjudged to be liable for negligence or misconduct in the performance of his or her duties to the Company unless the Court in which the action was brought determines that despite the adjudication of liability, but in view of all the circumstances in the case, such person is fairly and reasonably entitled to indemnity for such expenses. Section 607.0850 also provides that if any such person has been successful on the merits or otherwise in defense of any action, suit or proceeding, whether brought in the right of the Company or otherwise, such person shall be indemnified against expenses actually and reasonably incurred by him or her in connection therewith. II-1 72 If any director or officer does not succeed upon the merits or otherwise in defense of an action, suit or proceeding, then unless pursuant to a determination made by a court, indemnification by the Company shall be made only as authorized in the specific case upon a determination that indemnification of the director or officer is proper because he or she has met the applicable standard of conduct. Any such determination may be made: (a) By the Board of Directors by a majority vote of a quorum consisting of directors who are not parties to such action, suit, or proceeding; (b) If such a quorum is not obtainable or, even if obtainable, by a majority vote of a committee duly designated by the Board of Directors (in which directors who are parties may participate) consisting solely of two or more directors not at the time parties to the proceeding; (c) By independent legal counsel selected by the Board of Directors prescribed in paragraph (a) or the committee prescribed in paragraph (b); or if a quorum of the directors cannot be obtained for paragraph (a) or the committee cannot be designated under paragraph (b) selected by a majority vote of the full Board of Directors (in which directors who are parties may participate); or (d) By the shareholders by a majority vote of a quorum consisting of shareholders who were not parties to the proceeding or, if no such quorum is obtainable, by a majority vote of shareholders who were not parties to such proceedings. Section 607.0850 also contains a provision authorizing corporations to purchase and maintain liability insurance on behalf of its directors and officers. For some years the Company has maintained an insurance policy which insures directors and officers of the Company against amounts the director or officer is obligated to pay in respect of his legal liability, whether actual or asserted, for any negligent act, any error, any omission or any breach of duty which, subject to the applicable limits and terms of the policy, include damages, judgments, settlements, costs of investigation, and costs, charges and expenses incurred in the defense of actions, suits, or proceedings or appeals thereto, subject to the exceptions, limitations and conditions set forth in the policy. ITEM 16. EXHIBITS. The following items are filed as exhibits to this registration statement:
EXHIBIT NO. DESCRIPTION - ------- ------------------------------------------------------------------------------------ 1 -- Form of Underwriting Agreement by and among the Company, the Selling Shareholders named therein and Smith Barney Inc. and Robert W. Baird & Co. Incorporated, as representatives of the several underwriters dated May , 1996.+ 2 -- Asset Purchase Agreement by and among the Company, Jemison Investment Co., Inc., PVF Holdings, Inc., Southwest Stainless, Inc., Multalloy, Inc. (Texas), Multalloy, Inc. (New Jersey) and Houston Products & Machine, Inc., dated March 27, 1996 4.1 -- Restated Articles of Incorporation of the Company, as amended(1) 4.2 -- Composite By-Laws of the Company(2) 4.3 -- Specimen Stock Certificate representing shares of the Company's Common Stock(3) 4.4 -- Resolution approving and implementing Shareholder Rights Plan together with a copy thereof(4) 5 -- Opinion of Maguire, Voorhis & Wells, P.A.+ 11 -- Summary Schedule of Earnings Per Share Calculations 23.1 -- Consent of Maguire, Voorhis & Wells, P.A. (See Exhibit 5 hereto)+
II-2 73
EXHIBIT NO. DESCRIPTION - ------- ------------------------------------------------------------------------------------ 23.2 -- Consent of Coopers & Lybrand L.L.P. 23.3 -- Consent of Deloitte & Touche LLP 23.4 -- Consent of Price Waterhouse LLP 24 -- Power of Attorney (See the signature pages to this registration statement)
- --------------- + To be filed by amendment. (1) Incorporated by reference to Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q filed for the quarter ended July 31, 1994. (2) Incorporated by reference to Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q filed for the quarter ended July 31, 1994. (3) Incorporated by reference to Exhibit 4.2 to the Company's Quarterly Report on Form 10-Q filed for the quarter ended October 31, 1984. (4) Incorporated by reference to Exhibit 4.4 to the Company's Current Report on Form 8-K dated May 17, 1988. ITEM 17. UNDERTAKINGS. The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in this registration statement shall be deemed to be a new registration statement relating to the securities offered herein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions described under Item 15 above or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted against the registrant by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-3 74 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Orlando, State of Florida, on this 2nd day of April, 1996. HUGHES SUPPLY, INC. By: /s/ DAVID H. HUGHES ------------------------------------ David H. Hughes Chairman of the Board and Chief Executive Officer POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints DAVID H. HUGHES, J. STEPHEN ZEPF and ROBERT N. BLACKFORD, or any of them, as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments to this registration statement, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto each of said attorneys-in-fact and agents, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully as to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that each of said attorneys-in-fact and agents, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - --------------------------------------------- ------------------------------- --------------- /s/ DAVID H. HUGHES Chairman of the Board and Chief April 2, 1996 - --------------------------------------------- Executive Officer David H. Hughes /s/ JOHN D. BAKER, II Director April 2, 1996 - --------------------------------------------- John D. Baker, II /s/ ROBERT N. BLACKFORD Director April 2, 1996 - --------------------------------------------- Robert N. Blackford /s/ JOHN B. ELLIS Director April 2, 1996 - --------------------------------------------- John B. Ellis /s/ A. STEWART HALL, JR. Director April 2, 1996 - --------------------------------------------- A. Stewart Hall, Jr. /s/ CLIFFORD M. HAMES Director April 2, 1996 - --------------------------------------------- Clifford M. Hames /s/ RUSSELL V. HUGHES Director April 2, 1996 - --------------------------------------------- Russell V. Hughes
II-4 75
SIGNATURE TITLE DATE - --------------------------------------------- ------------------------------- --------------- /s/ VINCENT S. HUGHES Director April 2, 1996 - --------------------------------------------- Vincent S. Hughes /s/ HERMAN B. McMANAWAY Director April 2, 1996 - --------------------------------------------- Herman B. McManaway /s/ DONALD C. MARTIN Director April 2, 1996 - --------------------------------------------- Donald C. Martin /s/ J. STEPHEN ZEPF Treasurer and Chief Financial April 2, 1996 - --------------------------------------------- Officer (Principal and J. Stephen Zepf Accounting Officer)
II-5 76 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE - ------- ------------------------------------------------------------------------------ ---- 1 -- Form of Underwriting Agreement by and among the Company, the Selling Shareholders named therein and Smith Barney Inc. and Robert W. Baird & Co. Incorporated, as representatives of the several underwriters dated May , 1996.+........................................................................ 2 -- Asset Purchase Agreement by and among the Company, Jemison Investment Co., Inc., PVF Holdings, Inc., Southwest Stainless, Inc., Multalloy, Inc. (Texas), Multalloy, Inc. (New Jersey) and Houston Products & Machine, Inc., dated March 27, 1996...................................................................... 4.1 -- Restated Articles of Incorporation of the Company, as amended(1).............. 4.2 -- Composite By-Laws of the Company(2)........................................... 4.3 -- Specimen Stock Certificate representing shares of the Company's Common Stock(3)...................................................................... 4.4 -- Resolution approving and implementing Shareholder Rights Plan together with a copy thereof(4)............................................................... 5 -- Opinion of Maguire, Voorhis & Wells, P.A.+.................................... 11 -- Summary Schedule of Earnings Per Share Calculations........................... 23.1 -- Consent of Maguire, Voorhis & Wells, P.A. (See Exhibit 5 hereto)+............. 23.2 -- Consent of Coopers & Lybrand L.L.P............................................ 23.3 -- Consent of Deloitte & Touche LLP.............................................. 23.4 -- Consent of Price Waterhouse LLP............................................... 24 -- Power of Attorney (See the signature pages to this registration statement)....
- --------------- + To be filed by amendment. (1) Incorporated by reference to Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q filed for the quarter ended July 31, 1994. (2) Incorporated by reference to Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q filed for the quarter ended July 31, 1994. (3) Incorporated by reference to Exhibit 4.2 to the Company's Quarterly Report on Form 10-Q filed for the quarter ended October 31, 1984. (4) Incorporated by reference to Exhibit 4.4 to the Company's Current Report on Form 8-K dated May 17, 1988. EX-2 2 ASSET PURCHASE AGREEMENT 1 EXHIBIT 2 ________________________________________________________________________________ ________________________________________________________________________________ ASSET PURCHASE AGREEMENT BY AND AMONG HUGHES SUPPLY, INC. AND JEMISON INVESTMENT CO., INC., PVF HOLDINGS, INC., SOUTHWEST STAINLESS, INC., MULTALLOY, INC. (TEXAS), MULTALLOY, INC. (NEW JERSEY), and HOUSTON PRODUCTS & MACHINE, INC., Dated: March 27, 1996 ________________________________________________________________________________ ________________________________________________________________________________ 2 TABLE OF CONTENTS (The Table of Contents for this Agreement is for convenience of reference only and is not intended to define, limit or describe the scope or intent of any provisions of this Asset Purchase Agreement.)
PAGE ---- WITNESSETH: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1- ARTICLE I SALE AND PURCHASE OF ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1- Section 1.01 Assets to be Acquired. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1- (a) Fixed Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -2- (b) Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -2- (c) Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -2- (d) Intellectual Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -2- (e) Other Promotional Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -2- (f) Accounts Receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -2- (g) Real Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -3- (h) Assumed Contract Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -3- (i) Customer Lists and Other Intangible Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -3- (j) Sellers' Prepayments and Deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -3- (k) Permits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -3- (l) Telephone and Fax Numbers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -3- (m) Books and Records. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -3- (n) Claims Relating to Purchased Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -4- (o) Other Property and Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -4- (p) C.F. Fluid Controls, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -4- Section 1.02 Assumed Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -4- (a) Trade Payables, Other Payables, and Accrued Expenses . . . . . . . . . . . . . . . . . . . . . . . . -4- (b) Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -5- (c) Other Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -5- (d) Open Customer Purchase Orders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -5- (e) Customer Deposits and Prepayments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -5- (f) Purchase Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -5- (g) Bank Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -5- (h) Product Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -5- (i) Other Notes Payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -5- Section 1.03 Excluded Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -6- (a) Books and Records. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -6- (b) Claims Against Third Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -6- (c) Prepaid Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -6- (d) Rights Hereunder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -6- (e) Certain Intangible Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -6- (f) Contracts not Assigned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -6- (g) Other Excluded Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -7-
-i- 3 ARTICLE II PURCHASE PRICE; POST-CLOSING ADJUSTMENT; ESCROW; CONSIGNMENT; ALLOCATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -7- Section 2.01 Purchase Price and Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -7- Section 2.02 Escrowed Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -11- Section 2.03 Consignment of Non-Qualifying Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -11- Section 2.04 Allocation of Purchase Price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -11- Section 2.05 No Fractional Shares; Fractional Cents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -12- ARTICLE III CLOSING; DOCUMENTS OF CONVEYANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -12- Section 3.01 Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -12- Section 3.02 Assignment and Assumption Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -12- Section 3.03 Other Instruments of Conveyance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -13- Section 3.04 Other Deliveries at Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -13- Section 3.05 Allocation of Closing Costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -14- Section 3.06 Prorations at Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -14- Section 3.07 Transfer of Possession. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -15- Section 3.08 Termination and Related Employee Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -15- Section 3.09 Utility Services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -15- Section 3.10 Procedure Relating to Motor Vehicles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -15- Section 3.11 Other Actions and Instruments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -16- ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -16- Section 4.01 Organization, Good Standing and Qualification. . . . . . . . . . . . . . . . . . . . . . . . . . . . -16- Section 4.02 Corporate Power and Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -16- Section 4.03 Validity of Contemplated Transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -16- Section 4.04 Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -17- Section 4.05 Regulatory Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -17- Section 4.06 Copies of Articles and Bylaws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -17- Section 4.07 Inventory Held for Resale. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -17- Section 4.08 Litigation; Compliance with Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -17- Section 4.09 Brokers' or Finders' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -18- Section 4.10 Completeness of Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -18- Section 4.11 Buyer's Filings with SEC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -18- Section 4.12 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -19- Section 4.13 No Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -19- Section 4.14 Financial Position and Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -20- Section 4.15 Reliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -21- ARTICLE V REPRESENTATIONS AND WARRANTIES OF SELLERS, PVF AND JEMISON . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -21- Section 5.01 Organization, Good Standing and Qualification. . . . . . . . . . . . . . . . . . . . . . . . . . . . -21- Section 5.02 Corporate Power and Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -21- Section 5.03 Validity of Contemplated Transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -22- Section 5.04 Regulatory Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -22- Section 5.05 Copies of Articles of Incorporation and Bylaws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -22- Section 5.06 Liabilities and Obligations of Sellers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -23- Section 5.07 Condition of and Title to Purchased Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . -23- Section 5.08 Material Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -23-
-ii- 4 Section 5.09 Assumed Leases and Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -24- Section 5.10 Concerning the Leased Real Estate, the Affiliate Real Estate and the Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . -24- Section 5.11 Buildings, Structures and Other Improvements. . . . . . . . . . . . . . . . . . . . . . . . . . . . -26- Section 5.12 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -26- Section 5.13 Certain Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -27- Section 5.14 Ad Valorem, Real Property Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -28- Section 5.15 Litigation: Compliance with Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -28- Section 5.16 Permits and Licenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -28- Section 5.17 Intellectual Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -28- Section 5.18 All Necessary Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -29- Section 5.19 Labor or Employee Disputes; Employment Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -29- Section 5.20 Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -29- Section 5.21 Employee Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -29- Section 5.22 No Changes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -30- Section 5.23 No Affiliates' Assets, Leases or Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . -31- Section 5.24 Insurance Coverages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -31- Section 5.25 Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -32- Section 5.26 Customers and Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -33- Section 5.27 Benefit Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -33- Section 5.28 Brokers' or Finders' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -35- Section 5.29 Investment Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -35- Section 5.30 Sellers Not a Foreign Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -36- Section 5.31 Completeness of Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -36- Section 5.32 Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -36- ARTICLE VI ACTIVITIES PRIOR TO THE CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -37- Section 6.01 Activities by Sellers, PVF and Jemison Prior to Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -37- Section 6.02 Reports; Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -38- Section 6.03 Access; Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -39- Section 6.04 Consents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -40- Section 6.05 Public Announcements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -41- Section 6.06 Hart-Scott-Rodino . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -42- Section 6.07 Filings with SEC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -42- Section 6.08 Condition of Title; Title Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -42- Section 6.09 Surveys. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -43- Section 6.10 Exclusivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -43- Section 6.11 Insurance Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -44- Section 6.12 Activities by Buyer Prior to Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -44- ARTICLE VII CASUALTY AND CONDEMNATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -44- Section 7.01 Casualty. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -44- Section 7.02 Condemnation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -45- ARTICLE VIII CONDITIONS TO OBLIGATIONS OF BUYER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -46- Section 8.01 Representations and Warranties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -46- Section 8.02 Performance of Covenants, Agreements and
-iii- 5 Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -46- Section 8.03 Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -46- Section 8.04 Prohibitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -47- Section 8.05 Opinion of Sellers' Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -47- Section 8.06 Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -47- Section 8.07 Required Consents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -47- Section 8.08 UCC Search Report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -48- Section 8.09 Noncompetition Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -48- Section 8.10 Employment Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -48- Section 8.11 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -48- Section 8.12 Escrow Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -49- Section 8.13 Approval of Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -49- Section 8.14 Other Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -49- ARTICLE IX CONDITIONS TO OBLIGATIONS OF SELLERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -49- Section 9.01 Representations and Warranties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -50- Section 9.02 Performance of Covenants, Agreements and Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -50- Section 9.03 Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -50- Section 9.04 Prohibitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -50- Section 9.05 Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -51- Section 9.06 Opinions of Buyer's Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -51- Section 9.07 H-S-R . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -51- Section 9.08 Employment Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -51- Section 9.09 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -51- Section 9.10 Approval of Counsel to the Sellers, PVF and Jemison. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -51- Section 9.11 Other Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -51- ARTICLE X TRANSFERS OF BUYER'S COMMON STOCK; REGISTRATION RIGHTS; RULE 144 AND RULE 144(k) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -52- Section 10.1 Transfers of Buyer Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -52- Section 10.2 Registration for Resale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -52- Section 10.3 Demand Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -53- Section 10.4 Piggyback Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -53- Section 10.5 Filings; Registration Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -54- Section 10.6 Rule 144; Removal of Legends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -59- Section 10.7 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -60- Section 10.8 Cooperation of Sellers, PVF and Jemison . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -60- ARTICLE XI INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -61- Section 11.01 Indemnification by the Sellers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -61- Section 11.02 Indemnification by the Buyer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -62- Section 11.03 Survival of Obligation to Indemnify. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -62- Section 11.04 Notice and Procedure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -63- Section 11.05 Limitation on Indemnification Obligation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -64- Section 11.06 Indemnification Exclusive Remedy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -64- Section 11.07 Nature of Liability of Sellers, PVF and
-iv- 6 Jemison . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -64- Section 11.08 Waiver of Bulk Sales and Indemnity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -64- Section 11.09 No Consequential Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -65- Section 11.10 Right of Set-Off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -65- ARTICLE XII CONDUCT OF THE PARTIES AFTER CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -65- Section 12.01 Cooperation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -65- Section 12.02 Access to Books and Records. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -66- Section 12.03 Manufacturers' and Suppliers' Warranties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -66- Section 12.04 Use of License Tags. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -66- Section 12.05 Use of Name. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -67- Section 12.06 Collection and Disposition of Accounts and Noters Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -67- Section 12.07 Maintenance of Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -67- ARTICLE XIII EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -67- Section 13.01 Transactional Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -67- ARTICLE XIV TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -67- Section 14.01 Termination by Mutual Consent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -67- Section 14.02 Termination Due to Casualty or Condemnation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . -68- Section 14.03 Termination Attributable to Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -68- Section 14.04 Termination Due to Failure to Satisfy Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -68- ARTICLE XV MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -69- Section 15.01 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -69- Section 15.02 Assignability and Parties in Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -69- Section 15.03 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -70- Section 15.04 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -70- Section 15.05 Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -70- Section 15.06 Complete Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -70- Section 15.07 Modifications, Amendments and Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -71- Section 15.08 Interpretation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -71- Section 15.09 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -71- Section 15.10 Time of Essence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -71- Section 15.11 Gender, Number. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -71- Section 15.12 Exhibits and Schedules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -71- Section 15.13 Definition of Sellers', PVF's and Jemison's Knowledge. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -72- Section 15.14 Definition of Buyer's Knowledge. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -72- Section 15.15 No Benefit to Others. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -72- Section 15.16 Attorneys' Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -72- Section 15.17 Certain Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -72- Section 15.18 Survival of Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -73- Section 15.19 Recitals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -73-
-v- 7 SCHEDULES AND EXHIBITS
Schedules Description - --------- ----------- Schedule 1.01(a) . . . . . . . . . . . . . . . . . . . Fixed Assets Schedule 1.01(d) . . . . . . . . . . . . . . . . . . . Intellectual Property Schedule 1.01(g) . . . . . . . . . . . . . . . . . . . Real Property Schedule 1.02(a) . . . . . . . . . . . . . . . . . . . Trade Payables, Etc. Schedule 1.02(b) . . . . . . . . . . . . . . . . . . . Assumed Leases Schedule 1.02(c) . . . . . . . . . . . . . . . . . . . Other Contracts Schedule 1.02(g) . . . . . . . . . . . . . . . . . . . Bank Indebtedness Schedule 1.02(i) . . . . . . . . . . . . . . . . . . . Other Notes Payable Schedule 4.12 . . . . . . . . . . . . . . . . . . . . . Buyer's Financial Statements Schedule 4.13 . . . . . . . . . . . . . . . . . . . . . No Changes - Exceptions Schedule 5.03 . . . . . . . . . . . . . . . . . . . . . Validity of Transactions -Exceptions Schedule 5.07 . . . . . . . . . . . . . . . . . . . . . Condition of and Title to Assets Schedule 5.08 . . . . . . . . . . . . . . . . . . . . . Material Contracts Schedule 5.09 . . . . . . . . . . . . . . . . . . . . . Assumed Leases and Contracts Schedule 5.10 . . . . . . . . . . . . . . . . . . . . . Concerning the Real Property Schedule 5.11 . . . . . . . . . . . . . . . . . . . . . Buildings, Structures, Etc. Schedule 5.12 . . . . . . . . . . . . . . . . . . . . . PVF's and Sellers' Financial Statements Schedule 5.13 . . . . . . . . . . . . . . . . . . . . . Certain Tax Matters Schedule 5.15 . . . . . . . . . . . . . . . . . . . . . Litigation: Compliance with Laws Schedule 5.16 . . . . . . . . . . . . . . . . . . . . . Permits and Licenses Schedule 5.17 . . . . . . . . . . . . . . . . . . . . . Intellectual Properties Schedule 5.19 . . . . . . . . . . . . . . . . . . . . . Labor Matters Schedule 5.21 . . . . . . . . . . . . . . . . . . . . . Employee Compensation
-vi- 8
Schedules Description - --------- ----------- Schedule 5.22 . . . . . . . . . . . . . . . . . . . . . No Changes - Exceptions Schedule 5.23 . . . . . . . . . . . . . . . . . . . . . Affiliates' Assets, Leases, etc. Schedule 5.24 . . . . . . . . . . . . . . . . . . . . . Insurance Coverages Schedule 5.25 . . . . . . . . . . . . . . . . . . . . . Environmental Matters Schedule 5.26 . . . . . . . . . . . . . . . . . . . . . Customers and Supplies Schedule 5.27 . . . . . . . . . . . . . . . . . . . . . Employee Benefit Plans Schedule 5.29 . . . . . . . . . . . . . . . . . . . . . Investment Information Schedule 5.32 . . . . . . . . . . . . . . . . . . . . . Accounts Receivable - Exceptions Schedule 6.01 . . . . . . . . . . . . . . . . . . . . . Activities Prior to Closing - Exceptions Schedule 6.10 . . . . . . . . . . . . . . . . . . . . . Exclusivity Schedule 15.13 . . . . . . . . . . . . . . . . . . . . Seller's Knowledge
Exhibits Description - -------- ----------- Exhibit 2.01(i) . . . . . . . . . . . . . . . . . . . Promissory Note Exhibit 2.01(iii) . . . . . . . . . . . . . . . . . . Accountants' Review Procedures Exhibit 2.03 . . . . . . . . . . . . . . . . . . . . Consignment Agreement Exhibit 3.02 . . . . . . . . . . . . . . . . . . . . Assignment and Assumption Agreement Exhibit 3.03(a) . . . . . . . . . . . . . . . . . . . Bill of Sale Exhibit 3.04(a) . . . . . . . . . . . . . . . . . . . Noncompetition Agreements Exhibits 3.04(d)(1 through 5) . . . . . . . . . . . . Affiliate Leases Exhibit 3.04(e) . . . . . . . . . . . . . . . . . . . Employment Agreement Exhibit 8.03 . . . . . . . . . . . . . . . . . . . . Certificate of Sellers, PVF and Jemison Exhibit 8.12 . . . . . . . . . . . . . . . . . . . . Escrow Agreement Exhibit 9.03 . . . . . . . . . . . . . . . . . . . . Certificate of Buyer
-vii- 9 ASSET PURCHASE AGREEMENT THIS ASSET PURCHASE AGREEMENT (this "Agreement"), is made this 27th day of March, 1996, by and among HUGHES SUPPLY, INC., a Florida corporation (hereinafter referred to as the "Buyer"), JEMISON INVESTMENT CO., INC., a Delaware corporation ("Jemison"), PVF HOLDINGS, INC., a Delaware corporation ("PVF"), SOUTHWEST STAINLESS, INC., a Texas corporation ("Southwest"), MULTALLOY, INC., a New Jersey corporation formerly known as COASTLINE PRODUCTS, INC. ("Multalloy NJ"), MULTALLOY, INC., a Texas corporation ("Multalloy TX"), and HOUSTON PRODUCTS & MACHINE, INC., a Texas corporation ("HPM") (Southwest, Multalloy NJ, Multalloy Tx, and HPM are hereinafter sometimes collectively referred to as the "Sellers" and sometimes individually as a "Seller"). The Buyer, Sellers, Jemison and PVF are sometimes referred to collectively herein as the "parties" or individually as a "party." W I T N E S S E T H: WHEREAS, Jemison owns 80.5% of the issued and outstanding common stock and 100% of the issued and outstanding preferred stock of PVF; and WHEREAS, PVF and the Sellers, its wholly owned subsidiaries, are engaged in the business of distributing stainless steel and other metal alloy products (the "Business"); and WHEREAS, Sellers desire to sell or cause to be sold to Buyer, and Buyer wishes to purchase from Sellers, substantially all of the assets, properties and business of the Sellers, upon the terms and subject to the conditions set forth herein; NOW, THEREFORE, in consideration of the foregoing premises and of the mutual promises, covenants, representations, warranties, and agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties to this Agreement do hereby agree as follows: ARTICLE I SALE AND PURCHASE OF ASSETS Section 1.01 Assets to be Acquired. Subject to the terms and conditions set forth herein, on the Closing Date (as set forth in Section 3.01), the Sellers shall sell, assign, transfer, convey and deliver to the Buyer, free and clear of all mortgages, deeds of trust, pledges, liens, conditional sales agreements, leases, lease-purchase agreements, security interests, restrictions, encumbrances, and options (hereafter collectively referred to as "Encumbrances"), except as approved by Buyer pursuant to Section 6.08 and as set forth on SCHEDULE 5.07 attached hereto, and the 10 Buyer shall purchase, acquire and accept from the Sellers, all of the Sellers' right, title and interest in and to the following assets of the Sellers which are utilized in the Business, whether real, personal or mixed, and whether tangible or intangible (hereafter collectively referred to as the "Purchased Assets"): (a) Fixed Assets. All machinery, equipment, Rolling Stock, fixtures and leasehold improvements (but only to the extent owned by Sellers), tools, furniture, furnishings, signs, displays and other fixed assets, in each case owned by the Sellers as of the Effective Time, including, without limitation, computer hardware and software, licenses covering software, and those assets more particularly described in SCHEDULE 1.01(A) attached hereto (the fixed assets to be purchased by the Buyer are hereafter collectively referred to as the "Fixed Assets"); (b) Inventory. All merchandise, inventory and other products held for sale to customers as of the Effective Time (the foregoing items to be purchased by the Buyer are hereafter collectively referred to as the "Inventory"); (c) Supplies. All supplies as of the Effective Time, including, without limitation, all fuel, petroleum products, tires, parts, product labels, packaging materials, sacks, bags, containers, shop supplies, office supplies and cleaning supplies owned by the Sellers as of the Effective Time (the supplies to be purchased by the Buyer are hereafter collectively referred to as the "Supplies"); (d) Intellectual Property. All trademarks, patents, service marks, copyrights and trade names (including the names of the Sellers identified in the preamble hereto or any variation thereof) owned by Sellers as of the Effective Time, including, without limitation, those set forth in SCHEDULE 1.01(D) attached hereto, all of the intrinsic goodwill associated therewith, and any applications therefor or registrations thereof (hereafter referred to as the "Intellectual Property"); (e) Other Promotional Rights. All marketing or promotional designs, brochures, advertisements, concepts, literature, books, media rights, rights against any other Person in respect of any of the foregoing and all other promotional properties (hereafter collectively referred to as the "Promotional Rights"), in each case exclusively used or useful or developed or acquired by the Sellers for use in connection with the ownership and operation of the Purchased Assets; (f) Accounts Receivable. All of the Sellers' accounts receivable and miscellaneous receivables as of the Effective Time and the proceeds thereof after the Effective Time resulting from the operations of the Sellers (hereinafter referred to as the "Accounts Receivable"); -2- 11 (g) Real Property. All of Sellers' interest in the real property operated or utilized in the conduct of the Sellers' operations reflected as owned (the "Real Property") in the most recent audited Financial Statements (as defined in Section 5.12), the legal descriptions of which are attached as SCHEDULE 1.01(G) hereto, together with all buildings, structures, improvements and fixtures owned by Sellers and utilized in connection with the Real Property; (h) Assumed Contract Rights. All of Sellers' interest and rights which Sellers may have as of the Effective Time in the Assumed Leases or the Assumed Contracts, Assumed Purchase Orders and Materials Purchase Obligations (all as hereinafter defined); (i) Customer Lists and Other Intangible Assets. All other intangible assets and cash, currency, coins or balances in checking or other demand deposits, securities or money market accounts or other cash equivalents, and deposits with others such as utility deposits in each case owned by the Sellers as of the Effective Time, including, without limitation, all customer lists (the "Customer Lists"), intrinsic goodwill, "know-how," proprietary information and trade secrets, and, to the extent assignable, all suppliers' and manufacturers' warranties (including pending warranty claims), and manuals in Sellers' possession relating to the Purchased Assets; (j) Sellers' Prepayments and Deposits. All of the Sellers' prepayments and deposits existing as of the Effective Time (including, without limitation, prepaid ad valorem taxes and heavy vehicle highway use taxes but excluding prepaid insurance premiums) (hereafter referred to as the "Sellers' Prepayments"); (k) Permits. All Permits (as defined in Section 5.16), to the extent such Permits are transferable, whether or not all action necessary to effect such transfer has been taken prior to the Closing (as defined in Section 3.01); (l) Telephone and Fax Numbers. The right to use the telephone and fax machine numbers (including any mobile telephone numbers) assigned to Sellers and/or their employees, and to each of the Sellers' places of business; (m) Books and Records. Except as expressly set forth in Section 1.03(a), true and correct copies of all papers, documents, computerized databases and records of Sellers exclusively used in the conduct of the Business, including, without limitation, all personnel, labor relations and workers' compensation records relating to employees hired by the Buyer, environmental control records, sales records, marketing records, accounting and financial records, and maintenance records; -3- 12 (n) Claims Relating to Purchased Assets. To the extent assignable, all claims, causes of action, rights of recovery and rights of set-off of every type and kind relating to suppliers' and manufacturer's warranties issued with respect to the Purchased Assets, and all claims, causes of action, rights of recovery and rights of set-off of every type and kind relating to the Assumed Obligations (as defined in Section 1.02), in each case whether accruing before or after the Closing; (o) Other Property and Rights. Unless otherwise expressly excluded above or in Section 1.03, all other property and rights, tangible and intangible, real, personal or mixed, which the Sellers own and which are utilized exclusively in connection with the Business and which exist as of the Effective Time; (p) C.F. Fluid Controls, Inc. All of the outstanding capital stock in C.F. Fluid Controls, Inc., a Texas corporation ("C.F."), constituting 50% of all such stock outstanding, owned by SWS and notes(s) in the principal amount of $349,020 (as of February 29, 1996) payable by C.F. to Southwest. Buyer shall have the option, exercisable by notice to Sellers prior to Closing, to treat the C.F. stock and notes(s) as Excluded Assets in the event Buyer is unable prior to the Closing to reach arrangements with David Jans, the other C.F. stockholder, regarding its future relationship with C.F. that are mutually satisfactory to Buyer and David Jans; provided, however, that the definition of Purchased Assets shall not include any items defined as Excluded Assets in Section 1.03. Section 1.02 Assumed Obligations. Subject to the terms and conditions set forth herein, on the Closing Date, the Buyer shall assume, pay and discharge in full when due all of the liabilities and obligations of the Sellers with respect to which any of the Sellers have provided an accrual on their books and records as of the Effective Time, and shall further assume, pay and discharge in full when due all of the liabilities and obligations under the following leases, contracts, purchase orders and liabilities of the Sellers (hereafter collectively referred to as the "Assumed Obligations"): (a) Trade Payables, Other Payables, and Accrued Expenses. All (i) trade and other accounts payable as of the Effective Time, (ii) accrued but unpaid compensation, payroll and withholding taxes relating to Sellers' employees as of the Effective Time and (iii) other accrued expenses reflected on the Closing Date Balance Sheet (hereinafter defined), including those described in SCHEDULE 1.02(A), as of the Effective Time, presently expected to include all accruals except intercompany accounts, bonus accruals, insurance payables, dividends payable, accrued franchise taxes and income taxes payable; -4- 13 (b) Leases. The leases (other than the Affiliate Leases described in Section 3.04(d)) relating to the Sellers' facilities (the "Real Estate Leases"), as well as all operating leases and capital leases for machinery and equipment, all as described in SCHEDULE 1.02(B) (hereafter collectively referred to as the "Assumed Leases"); (c) Other Contracts. The material contracts described in Section 5.08 (except as expressly excluded in Section 5.08), all other contracts which do not meet the materiality criteria in Sections 5.08(a), (b), and (c), and the contracts described in SCHEDULE 1.02(C) (hereafter referred to as the "Assumed Contracts"); (d) Open Customer Purchase Orders. The Sellers' obligations to deliver products to customers who have placed orders with the Sellers for products which have not been delivered as of the Effective Time, including all customer purchase orders and contracts relating thereto (hereafter referred to as the "Assumed Purchase Orders"); (e) Customer Deposits and Prepayments. All deposits and prepayments received from customers relating to Inventory to be delivered after the Effective Time (referred to herein as the "Customer Deposits"); (f) Purchase Obligations. Any obligation of the Sellers to purchase materials, supplies or inventory which were ordered by the Sellers prior to the Effective Time and not delivered to the Sellers prior to the Effective Time (hereafter referred to as the "Materials Purchase Obligations"); (g) Bank Indebtedness. All bank indebtedness identified in SCHEDULE 1.02(G) hereto, which indebtedness shall not exceed Thirteen Million Dollars ($13,000,000) at Closing; (h) Product Warranties. All obligations of Sellers for product warranty and return items by customers of Sellers; and (i) Other Notes Payable. The Sellers' obligations under the other notes described in SCHEDULE 1.02(I). Except as otherwise expressly set forth in this Section 1.02, the Buyer shall have no responsibility for any of the Sellers' obligations (including contracts, leases, purchase orders and liabilities of any type, kind or nature), whether fixed, accrued, contingent or otherwise, and whether arising in contract, in tort, by operation or violation of law, or otherwise, and all such obligations shall remain with the Sellers and are herein referred to as the "Excluded Obligations." Without limiting the generality of the foregoing, it is hereby agreed that Buyer is not assuming any liability and shall have no obligation with respect to any -5- 14 liability or obligation of the Sellers (i) in respect of any current and deferred federal and state income and franchise tax liabilities, any intercompany accounts or notes payable (except with respect to rental of real estate) by or to any of the Sellers or any Affiliate of Sellers, liability for any insurance premiums payable, any liability for dividends payable, or any liability under PVF's Performance Stock Plan or (ii) in respect of employees of Sellers terminated prior to the Effective Time who do not become employees of Buyer, or (iii) except as otherwise provided in this Section 1.02 and Section 11.02 hereto, arising out of any action, suit or proceeding based upon an event occurring or a claim arising (x) prior to the Effective Time or (y) after the Effective Time in the case of claims and attributable to acts performed or omitted by Sellers prior to the Effective Time. Section 1.03 Excluded Assets. The "Purchased Assets" shall not include any of the Sellers' rights, privileges, title or interest in any of the following assets (hereafter referred to as the "Excluded Assets"): (a) Books and Records. All of the original copies of the Sellers' books and records referred to in Section 1.01(m) hereof and all of the Sellers' minute books, stock books, tax returns and books and records directly relating to the Excluded Assets and the Excluded Obligations, all personnel, labor relations and workers' compensation records relating to the Sellers' employees who are not hired by the Buyer; (b) Claims Against Third Parties. Any claim of the Sellers against any Person unless such claim is a Purchased Asset under Section 1.01(n) hereof; (c) Prepaid Expenses. Prepaid expenses not assignable to Buyer, prepaid insurance premiums, and any claim for refund of prepaid insurance premiums, it being understood and agreed that the Sellers may cancel all policies insuring the Purchased Assets as of the Effective Time upon the first to occur of (i) three (3) business days after the Closing or (ii) notification that Buyer's insurance has become effective; (d) Rights Hereunder. All rights and claims of the Sellers under this Agreement; (e) Certain Intangible Assets. The capitalized costs, as reflected in the Closing Date Balance Sheet, for goodwill, non-compete, deferred organization costs, deferred legal and commitment fees, deferred income taxes and memberships and the capital stock of Southwind Steel Corporation, an Alabama corporation; (f) Contracts not Assigned. All rights of the Sellers in, to and under those leases, purchase orders, contracts and other -6- 15 agreements not being assigned to the Buyer pursuant to Section 1.01; and (g) Other Excluded Assets. Notwithstanding anything to the contrary contained herein, the Sellers shall retain all intercompany accounts or notes receivable due from any Seller or from any Affiliate of Sellers (except those arising out of the rental of real estate), federal and state income tax credits and tax refund claims. ARTICLE II PURCHASE PRICE; POST-CLOSING ADJUSTMENT; ESCROW; CONSIGNMENT; ALLOCATIONS Section 2.01 Purchase Price and Payment. In consideration of the sale and purchase contemplated herein, the Buyer shall assume or pay the Assumed Obligations as herein provided and the Sellers shall receive the Adjusted Purchase Price (as defined in Section 2.01(iv)) which shall be determined and paid as follows: (i) Base Price. At Closing, the Buyer shall pay Sellers the aggregate sum of Ninety Three Million Dollars ($93,000,000) (the "Base Price"), payable as follows: (a) Seventy-Four Million Four Hundred Thousand Dollars ($74,400,000) in cash, payable by a wire transfer of immediately available funds to a bank account to be designated in writing by Sellers prior to Closing; provided, however, that if Buyer has not closed the SunTrust Financing (defined in Section 2.01(ii) below) and has not received at least Thirty Million Dollars ($30,000,000) of proceeds from the sale of Securities (defined in 2.01(ii) below) prior to the Closing Date, the Buyer may elect to deliver to Sellers at the Closing the Buyer's promissory note (the "Promissory Note") payable to Sellers in the principal amount of Thirty Million Dollars ($30,000,000) in the form attached hereto as Exhibit 2.01(i) and Forty-Four Million Four Hundred Thousand Dollars ($44,400,000) in cash payable by a wire transfer of immediately available funds to said bank account designated by Sellers, and (b) 669,956.42 shares of Common Stock, at an agreed value of $27.763 per share, being an aggregate agreed value of Eighteen Million Six Hundred Thousand Dollars ($18,600,000), 334,978 shares of which (the "Escrowed Shares") shall be delivered to the Escrow Agent (defined in Section 2.02). The Base Price shall be increased or decreased to the extent necessary for the determination of the Adjusted Purchase Price, as hereinafter provided. (ii) Sale of Securities; Approval of Promissory Note. Buyer shall use its best efforts to sell $30,000,000 or more of Common Stock (the "Securities") and to consummate the SunTrust Capital Markets, Inc. financing on substantially the terms set forth in Exhibit 2.01(ii) hereto (the "SunTrust Financing"), as -7- 16 promptly as practicable after the date of this Agreement. The Promissory Note, if issued to Sellers at Closing, shall be paid in full immediately after Buyer receives $30,000,000 of proceeds from the sale of the Securities or the SunTrust Financing. If Securities sufficient to pay off the Promissory Note are not sold by Buyer, of if the SunTrust Financing is not closed, then Buyer shall use its best efforts to obtain financing from other sources to pay off the Promissory Note as promptly as practicable after Closing. Execution and delivery of the Promissory Note by Buyer is subject to prior approval by the lenders under that certain Revolving Credit and Line of Credit Agreement dated May 28, 1993, as amended ("Credit Agreement"), and the provisions of the Promissory Note providing for its subordination to the indebtedness under the Credit Agreement shall be subject to the mutual agreement of Sellers and the lenders under the Credit Agreement prior to Closing, and if such approval or mutual agreement is not obtained or reached prior to Closing, the Buyer shall pay Sellers $30,000,000 cash in lieu of the Promissory Note. (iii) Closing Date Financial Statements. Jemison will cause PVF to prepare consolidated financial statements (consisting of a balance sheet, a statement of income and retained earnings, and a statement of cash flows, but excluding footnotes) of PVF and Sellers as of the Closing Date and have such financial statements (the "Closing Date Financial Statements") subjected to the procedures described in Exhibit 2.01(iii) hereto attached to be performed by Deloitte & Touche LLP (the "Sellers' Accountants") and with Price Waterhouse LLP (the "Buyer's Accountants"). The Closing Date Financial Statements shall be prepared in accordance with generally accepted accounting principles ("GAAP") consistently applied in the preparation of the Financial Statements referred to in Section 5.12, except to the extent qualified by the procedures referred to above. The consolidated balance sheet ("Closing Date Balance Sheet") included in the Closing Date Financial Statements, after adjustments for balance sheet Excluded Assets and balance sheet Excluded Obligations as contemplated by Section 2.01(v), shall be used as the basis from which to determine the Adjusted Purchase Price pursuant to Section 2.01(iv). The costs associated with the procedures performed by Sellers' Accountants shall be borne by Sellers and such costs referable to Buyer's Accountants shall be borne by Buyer. Sellers shall use reasonable efforts to complete and deliver to Buyer the Closing Date Financial Statements no later than sixty (60) days after the Closing Date. If Buyer, within ten (10) days after its receipt of the Closing Date Financial Statements, disagrees with such financial statements, Buyer shall notify Sellers in writing of the details of such disagreement. If Buyer and Sellers are unable to resolve such disagreement within ten (10) days after such notice to Sellers, the Buyer's Accountants and the Sellers' Accountants shall choose an unrelated firm of independent certified public accountants of recognized national standing within ten (10) days thereafter to resolve such dispute. Such unrelated firm shall resolve any such -8- 17 dispute within thirty (30) days after its engagement and its decision shall be final and binding on all parties. The fees and expenses of any such unrelated firm of accountants shall be shared equally by Sellers and Buyer. (iv) Adjusted Purchase Price. The Base Price shall be increased or decreased, thus resulting in the "Adjusted Purchase Price", as follows: If the Net Assets Amount (defined in Section 2.01(v)) is less than $32,425,000, there shall be a corresponding decrease in the Base Price by such difference. If the Net Assets Amount is greater than $32,425,000, there shall be a corresponding increase in the Base Price by such difference. (v) Net Assets Amount. The amount of the Net Assets (hereinafter defined) shall be determined as of the Closing Date (the "Net Assets Amount"). The Net Assets Amount shall be the difference between Purchased Assets and Assumed Obligations to the extent reflected in the Closing Date Balance Sheet (which shall not include or take into account any Excluded Assets or Excluded Obligations reflected in the Closing Date Balance Sheet), and after further adjustments pursuant to (a), (b) and (c) below. Such further adjustments shall take into account: (a) a reduction by the book value, as reflected on the Closing Date Balance Sheet, of any Non-Qualifying Inventory which Buyer elects not to retain and which Buyer resells and reassigns to Sellers pursuant to Section 2.03; (b) a reduction by the amount, if any, by which Non-Qualifying Accounts Receivable as of the Non-Qualifying Receivables Determination Date exceeds the allowance for doubtful accounts reflected in the Closing Date Balance Sheet; and (c) an increase by the amount, if any, by which the allowance for doubtful accounts reflected in the Closing Date Balance Sheet exceeds the amount of Non-Qualifying Accounts Receivable as of the Non-Qualifying Receivables Determination Date. (vi) Non-Qualifying Inventory and Non-Qualifying Accounts and Notes Receivable. (a) "Non-Qualifying Inventory" shall be (x) those items of Inventory as of the Closing Date which have had no unit sales for the twelve (12) month period preceding the Closing Date; and (y) those items of Inventory as of the Closing Date in excess of two (2) times the number of items of such Inventory as were sold by the Sellers in the twelve (12) month period immediately preceding the Closing Date, provided all of such items, and not merely those items in excess of two (2) times twelve (12) months' sales of such items, shall be considered "Non-Qualifying Inventory," all of which are identified by Buyer to Sellers in accordance with Section 2.03. Items of Non- Qualifying Inventory to -9- 18 be resold and reassigned to Sellers pursuant to Section 2.03 shall be dealt with pursuant to the terms of the Consignment Agreement. (b) "Non-Qualifying Accounts and Notes Receivable" shall be (A) any accounts and notes receivable which are ninety (90) days or more past due on the date which is ninety (90) days after the Closing Date (the "Non-Qualifying Receivables Determination Date") and which the Buyer elects to reassign and does reassign to the Sellers within ten (10) days after the Non-Qualifying Receivables Determination Date, and (B) any service charges or unissued credits for items included as Accounts Receivable on the Closing Date but which remain uncollected on the Non-Qualifying Receivables Determination Date, which the Buyer elects to reassign to the Sellers. (vii) Final Determination of Adjusted Purchase Price. Within fifteen (15) days after the later of (i) the Non-Qualifying Receivables Determination Date, (ii) the determination of the Non-Qualifying Inventory to be resold and reassigned to Sellers, or (iii) the final resolution of any dispute between Buyer and Sellers concerning the Net Assets Amount, the Sellers shall determine, and give written notice to the Buyer of, the Adjusted Purchase Price. If Buyer disagrees with the determination by Sellers of the Adjusted Purchase Price, Buyer shall give Sellers written notice within ten (10) days after Buyer's receipt of Sellers' notice of the details of such disagreement, and such dispute will be resolved in the manner provided for in the last three sentences of Section 2.01(iii). Upon final determination of the Adjusted Purchase Price as herein provided, Sellers and Buyer shall give written notice thereof to the Escrow Agent. (viii) Adjusted Purchase Price Settlement. Within ten (10) days after final determination of the Adjusted Purchase Price as provided in Section 2.01(vii), either Buyer or Sellers, as the case may be, shall make the following payments and deliveries: (a) To the extent that the Adjusted Purchase Price exceeds the Base Price, the Buyer shall pay and deliver to the Sellers, in the form of 80% cash and 20% Common Stock at $27.763 per share, the excess of the Adjusted Purchase Price over the Base Price; provided, however, that to the extent that Common Stock issued to Sellers pursuant to Section 2.01(i) and this paragraph (a) would exceed in the aggregate 9.9% of the total outstanding shares of Common Stock in Buyer, such excess number of shares shall be settled by payment in cash of an amount equal to $27.763 times said number of excess shares. (b) To the extent that the Base Price exceeds the Adjusted Purchase Price, the Sellers shall pay and surrender to the Buyer, in the form of 80% cash and 20% Common Stock at $27.763 per share, the excess of the Base Price over the Adjusted Purchase Price. -10- 19 (c) The cash portion of the adjustment amount under either (a) or (b) above shall bear interest at 6% per annum from the Closing Date to date of payment, and the total cash payment shall be by wire transfer of immediately available funds to an account designated prior to the post-Closing settlement date by either Buyer or Sellers, as the case may be. (ix) Concerning Indemnification Under Article XI. All cash and Common Stock required to be paid and surrendered by Sellers to Buyer under Section 2.01(viii) shall not be subject to the indemnity limitations of Sellers, PVF and Jemison set forth in Section 11.05 and represent an additional obligation of the Sellers, PVF and Jemison under this Agreement. Section 2.02 Escrowed Shares. The Escrowed Shares shall be delivered at Closing to Maguire, Voorhis & Wells, P.A., as escrow agent (the "Escrow Agent"), under the Escrow Agreement referred to in Section 8.12. The Escrowed Shares shall be held as security for Sellers obligations under Section 2.01(viii)(b) above. Section 2.03 Consignment of Non-Qualifying Inventory. Within five (5) days after the later of the date on which the Buyer and Sellers have agreed upon and accepted the Closing Date Financial Statements, or the final resolution of any dispute between the parties with respect thereto, as provided in Section 2.01(iii), the Buyer shall notify Sellers of the items, if any, of Non-Qualifying Inventory which Buyer elects to retain and treat as Inventory and those items it has elected to treat as Non-Qualifying Inventory for purposes of this Agreement, whereupon the Buyer shall resell and reassign to Sellers such Non-Qualifying Inventory (the "Resold Inventory"). At the post-Closing settlement referable to the Adjusted Purchase Price pursuant to Section 2.01(viii), Buyer shall execute and deliver an appropriate bill of sale (transferring only that title received by Buyer from Sellers) reselling and reassigning the Resold Inventory to Sellers and the Resold Inventory shall be dealt with pursuant to the terms and provisions of the Consignment Agreement attached hereto as EXHIBIT 2.03, which Buyer and Sellers shall execute and deliver. Section 2.04 Allocation of Purchase Price. Each party agrees to report the purchase and sale contemplated herein on Internal Revenue Service Form 8594 and to mutually agree on the allocation of the consideration being paid by the Buyer for the Purchased Assets and for all other federal and state tax purposes in accordance with such allocation and within the applicable time periods required for such reporting. The written instrument of this allocation will be attached at Closing. In the event that Sellers and the Buyer shall be unable to agree on the allocation of such consideration, then such dispute will be resolved in the same manner as disputes concerning the Closing Date Financial Statements will be resolved in Section 2.01(iii). -11- 20 Section 2.05 No Fractional Shares; Fractional Cents. No fractional shares of Common Stock will be issued to Sellers hereunder. The number of shares of Common Stock which would otherwise have been made in a fractional share interest will be paid in cash by the Buyer based upon $27.763 per share of Common Stock. In computing the amount of any payment to the Sellers under the terms of this Agreement, any fractional cents will be disregarded. ARTICLE III CLOSING; DOCUMENTS OF CONVEYANCE Section 3.01 Closing. Subject to the satisfaction of the conditions set forth in Articles VIII and IX, the purchase and sale contemplated hereby shall be consummated at a closing (referred to herein as the "Closing") to be held at the offices of Johnston, Barton, Proctor & Powell, 2900 AmSouth/Harbert Plaza, 1901 Sixth Avenue North, Birmingham, Alabama, starting at 10:00 a.m. local time on May 13, 1996, or at such other location, or such earlier or later date or time as the parties may mutually agree. The date the Closing occurs is referred to herein as the "Closing Date". The purchase and sale shall be deemed effective for all purposes as of the opening of business on the Closing Date (the "Effective Time"). Section 3.02 Assignment and Assumption Agreements. At the Closing, the Buyer and the Sellers shall execute and deliver to each other instruments of assignment and assumption, in form and content reasonably acceptable to counsel for the Buyer and the Sellers, pursuant to which the Sellers shall assign to Buyer its rights in certain of the Purchased Assets (to the extent legally transferable to Buyer) and the Buyer shall assume all Assumed Obligations. The instruments of assignment and assumption are hereafter collectively referred to as the "Assignment and Assumption Agreements," one of which shall be in the form of EXHIBIT 3.02 attached hereto. With respect to the Real Estate Leases, the Sellers shall also use reasonable efforts to deliver to the Buyer copies of the landlord consents to the assignment of such leases to the Buyer and such landlord estoppel certificates and non-disturbance agreements as the Buyer or the Buyer's lenders may reasonably request, and Buyer shall reasonably cooperate with Sellers and such landlords in obtaining such consents and other documents. If any landlord's consent is only obtainable upon Buyer's agreement to rental or other financial concessions, Sellers shall have the option to make a reimbursement payment to Buyer as an adjustment to the Base Price in an amount equal to the present value of such financial -12- 21 concessions discounted at a rate equal to the Prime Rate published daily in The Wall Street Journal. If Sellers do not elect to make such reimbursement payment to Buyer, or if the consents cannot be obtained for reasons unrelated to a lessor's demand for rental or other financial concessions, then Sellers shall cause the operations of Sellers at that location to be transferred to another facility of comparable size and suitability and equivalent rental for lease by Buyer, and Sellers shall bear all expenses related to such relocation and to the renovation of the new leased premises. Such relocation shall be completed not later than ninety (90) days following the Closing Date. With respect to the Assumed Contracts, the Sellers shall also use reasonable efforts to deliver to the Buyer copies of the consents by the other parties thereto to the assignment of the Assumed Contracts. The Buyer shall reasonably cooperate with Sellers in obtaining all such consents and other documents. Section 3.03 Other Instruments of Conveyance. At the Closing, the Sellers shall execute and/or deliver to the Buyer the following instruments of conveyance (hereafter referred to as the "Other Instruments of Conveyance"): (a) A bill of sale conveying the Purchased Assets (including all assignable manufacturers' and other warranties relating thereto) (the "Bill of Sale") to the Buyer, in the form attached hereto as EXHIBIT 3.03(A). (b) Certificates of title relating to the titled Rolling Stock, duly endorsed for transfer to the Buyer; (c) General Warranty Deeds conveying good and marketable record title to the Real Property and improvements thereon at each of the Locations, together with Title Insurance thereon; (d) An assignment of all other Purchased Assets (including, without limitation, the Sellers' Prepayments); and (e) Such other instruments as may be reasonably requested by the Buyer to convey the Purchased Assets or any part thereto to the Buyer or to transfer any transferable Permits to the Buyer. All Other Instruments of Conveyance shall be in form and content reasonably acceptable to counsel for the Buyer and the Sellers. Section 3.04 Other Deliveries at Closing. At the Closing, in addition to the instruments described in Sections 3.02 and 3.03, the following documents shall be executed and the following deliveries shall be made: -13- 22 (a) The Sellers shall use reasonable efforts to deliver to Buyer (i) a sales tax status certificate issued by the appropriate regulatory authorities in each state where Sellers file sales tax returns, dated not less than five (5) days prior to the Closing Date, indicating that all sales taxes required to be paid by the Sellers as of such date have been paid (provided, however, that if the Sellers cannot or do not deliver said certificate, the Sellers shall indemnify the Buyer for any sales tax matters pursuant to a separate indemnification agreement), (ii) the Noncompetition Agreements in the form attached hereto as EXHIBIT 3.04(A), and (iii) all certificates and opinions required by Article VIII, except such as may be expressly waived in writing by the Buyer; (b) The Buyer shall deliver to the Sellers (1) the Base Price in the manner and form described in Section 2.01(i); (2) a copy of the Buyer's blanket certificate of resale; and (3) all certificates required by Article IX, except such as may be expressly waived in writing by Sellers. (c) The Escrowed Shares shall be delivered to the Escrow Agent pursuant to Section 2.02. (d) The Buyer shall enter into and execute lease agreements, as lessee, in the form attached hereto as EXHIBITS 3.04(D)(1-5) with certain Affiliates of Sellers identified in EXHIBITS 3.04(D)(1-5) covering five (5) parcels of real estate and improvements thereon owned by such Affiliates and used by Sellers in the operation of the Business (the "Affiliate Leases"). (e) Buyer and Michael L. Stanwood shall execute and deliver an Employment Agreement in substantially the form attached hereto as EXHIBIT 3.04(E). Section 3.05 Allocation of Closing Costs. At or promptly after the Closing, (a) the Buyer shall pay in a timely manner all documentary stamp taxes, if any, on the shares of Common Stock and the Promissory Note, (b) the Sellers shall pay all sales taxes and transfer fees relating to the Purchased Assets (including transfer fees, title insurance and recording costs related to the Real Property), and the transfer of the certificates of title described in Section 3.03(b), and (c) Buyer shall pay for the issuance of new license tags for the Rolling Stock. Except as otherwise provided in this Agreement, each party shall be responsible for and bear all of its own transactional costs and charges relating to the purchase and sale contemplated herein. Section 3.06 Prorations at Closing. All ad valorem taxes, general and special real property taxes, and special district levies and assessments, if any, relating to the Purchased Assets and the property covered by the Affiliate Leases for the 1996 calendar year (or current fiscal year, as applicable) shall be -14- 23 allocated as of the Closing Date based on the Sellers' 1995 tax bills (with any subsequent adjustment to be paid by the appropriate party once the 1996 tax bills are delivered). Section 3.07 Transfer of Possession. Simultaneously with the Effective Time, the Sellers shall give the Buyer full possession and enjoyment of the Purchased Assets and all risk of loss with respect thereto. Section 3.08 Termination and Related Employee Matters. On the Closing Date as of the Effective Time, Buyer shall employ all of the employees of Sellers at substantially the same salary or wage levels in effect as of the Effective Time (except for key employees who are parties to employment agreements with Buyer). Buyer shall be solely responsible for, and shall indemnify Sellers with respect to, (i) payroll, vacation pay, sick leave and severance payments, if any, to be paid to such employees for any period prior to the Effective Time to the extent accrued for on the Closing Date Balance Sheet, and (ii) any liability to such employees under the Worker Adjustment and Retraining Notification Act, 29 U.S.C. Section 2101, et seq., or other applicable laws or regulations for any period prior to the Effective Time. Nothing herein constitutes a promise or agreement by Buyer to provide employment for any employees of Sellers for any period of time after the Effective Time. Buyer shall give each employee of Sellers that it hires credit for past years of service with the Sellers for purposes of calculating such employee's ability to participate in, and benefits under, the Buyer's pension and welfare plans. Section 3.09 Utility Services. On the Closing Date or as soon thereafter as practicable, the Sellers and the Buyer will cooperate with each other to arrange to obtain final readings with respect to all electricity, water, telephone, and other utilities serving the Real Property being purchased hereunder and the Leased Real Estate that is the subject of the Assumed Leases and the Affiliate Leases, and to have such services transferred to the Buyer's name immediately thereafter. All unpaid utility charges accrued through the Effective Time shall be paid by the Sellers or accrued for on the Closing Date Financial Statements. Section 3.10 Procedure Relating to Motor Vehicles. At the Closing, the Buyer and the Sellers shall execute an affidavit prepared by the Sellers, together with all other documentation required in transferring the certificates of title to the titled motor vehicles (and trailers) included in the Purchased Assets. The affidavit shall identify each such motor vehicle by year, make, model and vehicle identification number and shall set forth the current odometer readings and the purchase price that the parties have mutually agreed to allocate to each such motor vehicle. -15- 24 Section 3.11 Other Actions and Instruments. The Buyer and the Sellers shall take such other actions and shall execute and deliver such other instruments, documents and certificates at the Closing as are required by the terms of this Agreement or as may be reasonably requested by the Buyer or the Sellers in connection with the Closing of the transactions contemplated by this Agreement. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER The Buyer makes the following representations and warranties to the Sellers, PVF and Jemison, each of which shall be deemed material (and the Sellers, Jemison and PVF, in executing, delivering and consummating this Agreement, have relied and will rely upon the correctness and completeness of each of such representations and warranties): Section 4.01 Organization, Good Standing and Qualification. The Buyer is a corporation duly organized, validly existing, and in good standing under the laws of the State of Florida. The Buyer is duly qualified to do business and is in good standing in each and every jurisdiction where the failure to qualify or to be in good standing would have a material adverse effect on the consolidated assets, liabilities, financial condition or results of operations of the Buyer (the "Buyer's Material Adverse Effect"). Section 4.02 Corporate Power and Authority. The Buyer has the requisite corporate power and authority to execute, deliver and perform its obligations under and pursuant to this Agreement, and all documents executed and delivered by Buyer in connection herewith, including, without limitation, the requisite corporate power and authority to acquire the Purchased Assets and assume the Assumed Obligations upon the terms and conditions set forth herein. The execution and delivery of this Agreement and all documents executed and delivered by Buyer in connection herewith and the consummation of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Buyer. This Agreement and all documents required under the terms of this Agreement to be executed and delivered by Buyer in connection herewith will be duly executed and upon the execution and delivery thereof will be the legal, valid and binding obligations of the Buyer, enforceable against the Buyer in accordance with their respective terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles. Section 4.03 Validity of Contemplated Transactions. The execution, delivery and performance of this Agreement and all -16- 25 documents executed and delivered in connection herewith, and the consummation of the transactions contemplated hereby, do not and will not (a) contravene any provision of the Articles of Incorporation or the Bylaws of the Buyer, (b) violate, be in conflict with, constitute a default under, result in the termination of, cause the acceleration of any payments pursuant to, or otherwise impair the good standing, validity, and effectiveness of any agreement, contract, commitment, indenture, lease or mortgage applicable to the Buyer, (c) violate any provision of law, rule, regulation, order, license, permit, authorization, or approval to which the Buyer is subject, or (d) violate any judgment, order, writ, prohibition, injunction or decree of any court, governmental body or arbitrator by which the Buyer is bound, except where such contravention, violation, breach or conflict would not, individually or in the aggregate, have a Buyer's Material Adverse Effect. Section 4.04 Capitalization. The authorized capital stock of the Buyer consists of 20,000,000 shares of Common Stock, of which 6,817,115 shares of Common Stock were issued and outstanding as of March 27, 1996, and 10,000,000 shares of Preferred Stock, no par value, none of which were outstanding on March 27, 1996. All of such shares of outstanding Common Stock are duly authorized and validly issued, fully paid and nonassessable. The Common Stock to be issued to Sellers under this Agreement shall be duly authorized, and when issued shall be fully paid, non-assessable and free from preemptive rights, options, warrants and rights of others (other than the rights of Sellers or any of their Affiliates). Section 4.05 Regulatory Approvals. All consents, waivers, approvals, authorizations and exemptions from governmental entities and other third parties and other requirements prescribed by any law, rule or regulation which must be obtained or satisfied by the Buyer in order to permit the consummation of the transactions contemplated by this Agreement have been obtained and satisfied or will be obtained and satisfied prior to the Closing. Section 4.06 Copies of Articles and Bylaws. The copy of the Buyer's Articles of Incorporation and Bylaws (the completeness and accuracy of which will be certified by an authorized officer of the Buyer at Closing) which have been delivered to the Sellers are true, complete and correct and in full force and effect as of the date hereof. Section 4.07 Inventory Held for Resale. The Buyer intends to hold the Inventory for resale to customers and for no other purpose. Section 4.08 Litigation; Compliance with Laws. (a) To Buyer's knowledge, there is no suit, action, claim, investigation, arbitration, administrative or legal or other proceeding or governmental investigation pending or threatened against the Buyer, -17- 26 which may adversely affect the Buyer in an amount in excess of Five Hundred Thousand Dollars ($500,000), nor (b) to Buyer's knowledge, has the Buyer failed to comply with any law, including without limitation, any ordinance, requirement, regulation, or order applicable to the Buyer, nor (c) to Buyer's knowledge, has the Buyer violated any order, writ, injunction, judgment, or decree of any court or federal, state or local department, official, commission, authority, board, bureau, agency, or other instrumentality which was issued against or is pending against the Buyer, which violation might have a Buyer's Material Adverse Effect. Section 4.09 Brokers' or Finders' Fees. No broker, Person or firm acting on behalf of the Buyer or under its authority is or will be entitled to any commission, broker's or finder's fee or financial advisory fee from the Buyer in connection with any of the transactions contemplated herein. The Buyer agrees to indemnify the Sellers, PVF and Jemison against, and to hold them harmless from, any claim for brokerage or similar commission or other compensation which may be made against the Sellers, PVF or Jemison by any third party in connection with the transactions contemplated hereby, which claim is based upon any action by the Buyer. Section 4.10 Completeness of Disclosure. To Buyer's knowledge, no representation or warranty by the Buyer in this Agreement contains any false or misleading statement of material fact or omits a fact necessary to make the statements made, in light of the circumstances under which they were made, not misleading. Section 4.11 Buyer's Filings with SEC. (a) The Buyer is current with all its filings with the Securities and Exchange Commission (the "SEC") and any other securities regulatory agency or governmental body required by the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), and the regulations promulgated thereunder or any other applicable securities laws, and has complied with all requirements of the New York Stock Exchange and any listing agreement therewith. (b) Buyer has heretofore delivered to the Seller: (i) the annual reports on Form 10-K for its fiscal year ended January 26, 1996 and January 27, 1995; and (ii) all of its other reports, statements, schedules, and registration statements (including exhibits and schedules thereto) filed with the SEC since January 28, 1994 and through the date of this Agreement (the "SEC Filings"). (c) As of their respective filing dates, each such report or statement filed pursuant to the Act and the Exchange Act complied with the requirements of the Act and the Exchange Act and did not contain any untrue statement of a material fact or omit to -18- 27 state any material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. Section 4.12 Financial Statements. The Buyer's financial statements which consist of audited balance sheets, statements of income and retained earnings, and statements of cash flows, and the footnotes thereto, for the years ended January 26, 1996 and January 27, 1995, accompanied by the opinion of the Buyer's independent accountants, are attached hereto as SCHEDULE 4.12 and incorporated by reference herein (such financial statements being referred to herein collectively as the "Buyer's Financial Statements"), and to the Buyer's knowledge, the Buyer's Financial Statements present fairly in all material respects the financial condition of the Buyer on the last day of and the results of operations for the respective periods ended on such dates. To Buyer's knowledge, there are no liabilities or obligations, absolute, fixed or contingent, known or unknown, of the Buyer that are relevant to the Buyer and/or that are required to be disclosed on financial statements prepared in accordance with GAAP, except (x) those reflected in or otherwise provided for in the Buyer's Financial Statements, and (y) those arising in the ordinary course of business since the fiscal year end for the period noted, except as set forth on SCHEDULE 4.12 attached hereto, none of which either individually or in the aggregate are materially adverse. To Buyer's knowledge, since January 26, 1996, there has been no Buyer's Material Adverse Effect, except for such change as may be caused by completing the transactions contemplated by this Agreement. Section 4.13 No Changes. Except as set forth in SCHEDULE 4.13, since January 26, 1996, Buyer has conducted its business only in the ordinary course, and except as specifically contemplated by this Agreement, there has not been: (a) to Buyer's knowledge, any Buyer's Material Adverse Effect; (b) any transaction or commitment made, or any contract or agreement entered into, by Buyer or any of its subsidiaries relating to its assets or business (including the lease, acquisition or other disposition of any assets or capital stock of Buyer or other third parties) or any relinquishment by Buyer or any of its subsidiaries of any contract or other right, in either case, material to Buyer and its subsidiaries, taken as a whole, other than transactions and commitments in the ordinary course of business consistent with past practice; (c) any amendment of or change in any material term of the Articles of Incorporation or Bylaws, or in any rights with respect to the Common Stock or any other security or class of capital stock of Buyer; or -19- 28 (d) any declaration, setting aside or payment of any dividend or other distribution with respect to any shares of capital stock of Buyer, other than usual quarterly dividends consistent with past practices; (e) any repurchase, redemption or other acquisition by Buyer or any of its subsidiaries of any outstanding shares of capital stock or other securities of, or other ownership interests in, Buyer or any of its subsidiaries; (f) any material change in Buyer's accounting principles, practices or methods; (g) any issuance of any shares, or rights with respect thereto, of its capital stock, any stock split, recapitalization, reorganization or other change in its capitalization, except pursuant to the exercise of options, warrants, conversion rights or other contractual rights existing as of January 26, 1996; or (h) any grant or award of any option, warrant, conversion right or other right not existing on January 26, 1996 to acquire any shares of the capital stock of Buyer, other than employee stock options, stock benefits and stock purchases under any stock option, stock benefit or stock purchase plan existing on January 26, 1996; (i) any merger, consolidation or reorganization involving Buyer or any of its subsidiaries, or any material acquisition or agreement to acquire or be acquired by any Person or other entity that involves Buyer or any of its subsidiaries, or any actual, pending or threatened "change in control" of Buyer, which shall be defined as the acquisition or beneficial ownership by any Person or "group" of Persons (all within the meaning of Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder) of twenty percent (20%) or more of any class of Buyer's capital stock; or (j) any agreement by Buyer to do any of the things described in this Section 4.13. Section 4.14 Financial Position and Information. At the Closing, Buyer will have the funds necessary to (i) purchase the Purchased Assets pursuant to the terms of this Agreement, (ii) provide for the payment, when due, of the debts and liabilities of the Business in the ordinary course of business (except those to be paid, by the terms of this Agreement, by Sellers), and (iii) satisfy all the other obligations of Buyer under this Agreement. Prior to the execution of this Agreement, Buyer has delivered to Sellers evidence that Buyer has commitments, subject to reasonable conditions that may be specified therein, to borrow or otherwise obtain such funds. At the Closing on the Closing Date, Buyer will deliver to Sellers evidence satisfactory to Sellers that Buyer has -20- 29 such commitments and has complied with all the terms and conditions thereof. Section 4.15 Reliance. Buyer acknowledges and agrees that it has the capacity, and has taken all steps necessary, to protect its interest in the transactions contemplated by this Agreement, including, without limitation, by investigating and inquiring into the financial position, results of operations, properties, assets, contractual relationships, prospects and all other matters relating to the Business; provided, however, that such investigation shall not relieve Sellers from any liability to Buyer in accordance with the terms and conditions of this Agreement on account of the representations and warranties of Sellers, PVF or Jemison that are expressly set forth herein. Buyer further acknowledges and agrees that there are no other representations, warranties or covenants being made by or on behalf of any of the Sellers, PVF or Jemison in connection with the transactions contemplated by this Agreement, except as expressly set forth herein, and that nothing in this Agreement shall be deemed to constitute a representation by any of the Sellers, PVF or Jemison as to any projections or forecasts regarding any of the Sellers' or the Business' revenues, earnings, business or prospects. ARTICLE V REPRESENTATIONS AND WARRANTIES OF SELLERS, PVF AND JEMISON The Sellers, PVF and Jemison, jointly and severally, each make the following representations and warranties to the Buyer, each of which shall be deemed material (and the Buyer, in executing, delivering and consummating this Agreement, has relied and will rely upon the correctness and completeness of each of such representations and warranties): Section 5.01 Organization, Good Standing and Qualification. Each of the Sellers, PVF and Jemison is a corporation duly organized, validly existing, and in good standing under the laws of its state of incorporation. The Sellers are duly qualified to do business and are in good standing in each and every jurisdiction where the failure to qualify or to be in good standing would have a material adverse effect on the consolidated assets, liabilities, financial condition or results of operations of PVF and the Sellers (the "Sellers' Material Adverse Effect"). Section 5.02 Corporate Power and Authority. The Sellers, PVF and Jemison have the requisite corporate power and authority to execute, deliver and perform their obligations under and pursuant to this Agreement, and all documents required under the terms of this Agreement to be executed and delivered by them in connection herewith, including, without limitation, the requisite corporate -21- 30 power and authority to sell the Purchased Assets and transfer the Assumed Obligations upon the terms and conditions set forth herein. The execution and delivery of this Agreement, all documents required by the terms of this Agreement to be executed and delivered by Sellers, PVF and Jemison in connection herewith, and the consummation of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action on the part of the Sellers, PVF and Jemison. This Agreement and all documents required under the terms of this Agreement to be executed and delivered by Sellers, PVF and Jemison in connection herewith have been or will be duly executed and upon the execution and delivery thereof will be legal, valid and binding obligations of the Sellers, PVF and Jemison, enforceable against them in accordance with their respective terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or other laws affecting the enforcement of creditors' rights generally and by general equitable principles. Section 5.03 Validity of Contemplated Transactions. Except as set forth on SCHEDULE 5.03 attached hereto, the execution, delivery and performance of this Agreement and all documents executed and delivered in connection herewith, and the consummation of the transactions contemplated hereby do not and will not (a) contravene any provision of the Articles of Incorporation or Bylaws of the Sellers, PVF or Jemison, (b) to Sellers' knowledge, violate, conflict with, or constitute a default under, any agreement, contract, commitment, indenture, lease or mortgage, to which the Sellers, PVF or Jemison are a party or by which the Sellers, PVF or Jemison or the Purchased Assets are bound, except where such violation, conflict or default would not result in a Sellers' Material Adverse Effect, (c) to Sellers', PVF's or Jemison's knowledge, violate any material provision of any law, rule or regulation of any governmental authority, administrative body or agency applicable to the Sellers, PVF or Jemison, or (d) violate any judgment, order, writ, prohibition, injunction or decree specifically applicable to the Sellers, PVF or Jemison or the Purchased Assets of which the Sellers, PVF or Jemison have knowledge. Section 5.04 Regulatory Approvals. All consents, waivers, approvals, authorizations and exemptions from governmental entities and other material requirements prescribed by any law, rule or regulation which must be obtained or satisfied by the Sellers in order to permit the consummation of the transactions contemplated by this Agreement have been obtained or satisfied or will be obtained or satisfied prior to the Closing, except where the failure to obtain or satisfy the same would not have a Sellers' Material Adverse Effect prior to the Closing, or, following the Closing, a Buyer's Material Adverse Effect. Section 5.05 Copies of Articles of Incorporation and Bylaws. A copy of the Sellers', PVF's and Jemison's Articles of -22- 31 Incorporation and Bylaws (the completeness and accuracy of which will be certified by an authorized officer of each corporation at Closing) which have been delivered to the Buyer are true, complete and correct and in full force and effect. Section 5.06 Liabilities and Obligations of Sellers. The Sellers understand and acknowledge that the Buyer is not assuming any liabilities or obligations of the Sellers other than the Assumed Obligations. All such liabilities or obligations other than the Assumed Obligations shall continue to be the obligation of the Sellers. Section 5.07 Condition of and Title to Purchased Assets. Except as set forth on SCHEDULE 5.07 attached hereto or Section 6.08, (a) all of the Purchased Assets (other than the Real Property), taken as a whole, are in good condition and repair, ordinary wear and tear excepted, and (b) the Sellers have good title to all of the Purchased Assets, free and clear of any and all Encumbrances and restrictions of any nature whatsoever, other than the restrictions affecting the Real Property approved in writing by the Buyer pursuant to Section 6.08, and other than (i) those, if any, which are not substantial in character, amount or extent and do not, severally or in the aggregate, materially detract from the value of such Purchased Assets, (ii) liens securing liabilities which will be reflected in the Closing Date Balance Sheet, and (iii) liens for current taxes, assessments or governmental charges or levies on property not yet due and delinquent. In the case of leased assets which are included in the Purchased Assets, to Sellers' knowledge, all such assets have been maintained in a condition required by their respective leases in all material respects, none of which will result in material charges to Buyer for excess wear and tear on or to such items. Section 5.08 Material Contracts. SCHEDULE 5.08 attached hereto contains a true and complete copy (or description if not in writing) of the following oral and written contracts (and all amendments, supplements, and modifications thereto) to which the Sellers are a party: (a) any contract or agreement relating to capital expenditures in excess of $25,000; (b) all current or pending contracts or agreements between the Sellers and any other party which involve, in the aggregate, the payment or receipt by the Sellers of more than $25,000, which cannot be cancelled by the Sellers without penalty upon thirty (30) days notice; (c) any loan or advance to, or investment in, any Person or any contract or agreement relating to the making of any such loan, advance, or investment in excess of $25,000; (d) any guarantee or other contingent liability in respect of any indebtedness or obligation of any Person; (e) any management, consulting, employment, severance, union, termination or other agreement or similar contract or agreement; (f) any contract or agreement limiting the freedom of Sellers or their successors from engaging in any line of business, soliciting employees or customers, competing with any -23- 32 person and any contract or agreement where any Person has agreed not to compete with Sellers or their Affiliates; (g) any contract, agreement or obligation to complete an existing customer's job or purchase order which, to Sellers' knowledge, may reasonably be expected to have a Sellers' Material Adverse Effect prior to Closing or a Buyer's Material Adverse Effect after Closing; (h) any contract, commitment, or agreement between (1) Sellers and (2) any shareholder, officer, employee or Director (or any of their Affiliates) of Sellers; and (i) all concession agreements; and material contracts not being assumed by Buyer are noted in SCHEDULE 5.08. Section 5.09 Assumed Leases and Contracts. Subject to receipt of all necessary third party and lessor consents, at the Closing, the Buyer will receive the Sellers' entire right, title and interest in the Assumed Leases and the Assumed Contracts, free and clear of all Encumbrances, except as approved by Buyer pursuant to Section 6.08 and as set forth on SCHEDULE 5.09 attached hereto. To Sellers' knowledge, each of the Assumed Leases and Assumed Contracts is valid, binding, in full force and effect, and enforceable by or against Sellers in accordance with their respective terms and conditions, and to Sellers' knowledge, upon assignment to and assumption by Buyer, will be enforceable by Buyer in accordance with their respective terms, subject to bankruptcy, insolvency and laws affecting the rights of creditors generally. To Sellers' knowledge, there is no existing material default thereunder or material breach thereof or condition which, with the passage of time or notice or both, might constitute a default thereunder. There has been no written termination or, to Sellers' knowledge, threatened termination or notice of default (not heretofore cured) relating to any such lease or contract. Prior to the Closing, the Sellers will employ their reasonable best efforts to obtain all necessary consents to the assignment of the Assumed Leases and Assumed Contracts to the Buyer at the Closing. Except as set forth on SCHEDULE 5.09 attached hereto and except for the Assumed Leases and the Affiliate Leases to be entered into at Closing, there are no leases, agreements or commitments, written or oral, pursuant to which the Sellers use or occupy or have the right to occupy, any real property now or in the future in connection with the Business. Section 5.10 Concerning the Leased Real Estate, the Affiliate Real Estate and the Real Property. The Sellers do not own, lease or use any real estate other than the real estate subject to the Real Estate Leases (the "Leased Real Estate"), the real estate subject to the Affiliate Leases (the "Affiliate Real Estate") and the Real Property (the Leased Real Estate, the Affiliate Real Estate, and the Real Property may be collectively referred to herein as the "Property"). Further representations and warranties as to the Property are as follows, and are subject to the disclosures set forth on SCHEDULE 5.10 attached hereto: -24- 33 (a) The only person in occupancy of the Property are the Sellers. The Property is not homestead property, and no other person resides at the Property. (b) The Property is zoned to permit the operations of the Sellers which are being conducted on the Property as of the date of this Agreement. To Sellers' knowledge, there are no planned or threatened changes to the current zoning or land use designations of the Property. (c) The Sellers have not received any notice or communication from any governmental entity indicating that any condition exists with respect to the Property or with respect to the improvements thereon that violates any city, county, state or federal law, ordinance, regulation, ruling or code, including, without limitation, the Environmental Laws (as defined in Section 5.25). The Sellers have not received from any insurance carrier insuring or proposing to insure the Property or any other person any notice or other communication noting any dangerous or illegal condition at the Property or any other condition at the Property otherwise requiring material corrective action; (d) The Real Property is not subject to any outstanding lease, agreement of sale (except for this Agreement), option or other right of a third party to acquire any interest therein. (e) To Sellers' knowledge, the Property is not subject to any outstanding lease (other than the Real Estate Leases and the Affiliate Leases to be entered into at Closing), agreement of sale (except for this Agreement), option or other right of a third party to acquire any interest therein. (f) To Sellers' knowledge, there is ingress and egress to and from the Property of record adequate for the use of the Property as currently operated by the Sellers. To Sellers' knowledge, and except as set forth on either SCHEDULE 5.08 or SCHEDULE 5.09, the Sellers have made no material off-record agreements affecting the ownership, use or operation of the Property. (g) All public utilities, including, without limitation, sewers, water, electric, gas, and telephone, required for the operation of the Property as presently operated are installed and operating, and all installation and connection charges therefor have been paid in full. The Sellers have not received any notice stating that the Sellers will not be able to obtain adequate supplies of water and other utilities to operate the Business on the Property as presently conducted, or that the provision of utilities violates any public or private easement. (h) The Sellers have received no notice that any part of any improvements on the Property encroaches upon any property -25- 34 adjacent thereto or upon any easement, nor is there, to Sellers' knowledge, any encroachment or overlap upon the Property. (i) To Sellers' knowledge, there is no underground or buried storage tank or drum located on the Property, except for any underground storage tanks described in SCHEDULE 5.10. Any underground storage tank on the Property described in SCHEDULE 5.10 is in material compliance with all applicable requirements of law in all material respects, has been duly permitted and inspected in accordance with all applicable requirements of law, and no deficiencies have been noted in any inspections thereof. No law (i) that is presently in effect, (ii) that has been passed prior to the date hereof but with a delayed effective date, or (iii) that, to the Sellers' knowledge, has been proposed, would require any of such underground storage tanks to be relocated above ground within five (5) years from the date of this Agreement. (j) To Sellers' knowledge, except as set forth on SCHEDULE 5.10 attached hereto, (1) the Sellers have no Hazardous Materials Liabilities (as hereinafter defined), and (2) neither the Purchased Assets, the operations of the Sellers nor the operations of its predecessors in interest on the Property will carry with them any Hazardous Materials Liabilities (x) for which the Buyer could be responsible, or (y) that would adversely affect the ability of the Buyer to use the Property in the manner heretofore used by the Sellers. Section 5.11 Buildings, Structures and Other Improvements. Except as set forth on SCHEDULE 5.11 attached hereto, to Sellers' knowledge: (a) the buildings, structures and other improvements constituting part of the Real Property, Leased Real Estate and the Affiliate Real Estate (collectively the "Structures"), taken as a whole, are in a good state of repair and operating condition, reasonable wear and tear and normal usage excepted; (b) the Structures do not contain any material latent defects; (c) all of the Structures comply in all material respects with all applicable building, fire, and other applicable laws, rules, codes and regulations; and (d) the Fixed Assets include all fixed assets of any material value used in the business operations of the Sellers. The Sellers are not leasing or holding for consignment any of its Fixed Assets or Inventory except as set forth on SCHEDULE 5.11. Sellers have received no notice that there are any outstanding special tax assessments against any of the Purchased Assets. Section 5.12 Financial Statements. PVF's and the Sellers' consolidated financial statements, consisting of audited balance sheets, statements of income and stockholders' equity, and statements of cash flows, and the footnotes thereto, for the years ended June 30, 1995, 1994 and 1993, accompanied by the opinions of the Sellers' Accountants, and the unaudited consolidated balance sheet and income statement (without footnotes) of PVF and the Sellers for the six (6) month period ended December 31, 1995, are -26- 35 attached hereto as SCHEDULE 5.12 and incorporated by reference herein (such financial statements being referred to herein collectively as the "Financial Statements"). December 31, 1995 is hereafter referred to as the "Financial Statement Date." To Sellers' knowledge, the Financial Statements were prepared in accordance with GAAP consistently applied throughout the periods noted, except for normal year-end adjustments and the absence of footnotes for the interim period, and present fairly in all material respects the consolidated financial condition of PVF and the Sellers on the last day of and the results of operations for the respective periods ended on such dates, subject in the case of the interim financial statements to the absence of footnotes and to normal year-end adjustments. To Sellers' knowledge, there are no liabilities or obligations, absolute, fixed or contingent, known or unknown, of the Sellers, Jemison or PVF that are relevant to the Sellers and that are required to be disclosed on financial statements prepared in accordance with GAAP, except (x) those reflected in or otherwise provided for in the Financial Statements, and (y) those arising in the ordinary course of business since the Financial Statement Date, except as set forth on SCHEDULE 5.12 attached hereto. To Sellers', PVF's and Jemison's knowledge, since the Financial Statement Date, there has been no material adverse change in the financial condition of the Sellers, PVF or Jemison. Section 5.13 Certain Tax Matters. The Sellers have duly filed all federal, state, and local tax returns and reports required to be filed by them and all taxes shown as being payable on such reports or returns either have been paid, withheld or reserved. The Sellers' income tax returns have not been audited except as noted on SCHEDULE 5.13 attached hereto, and to the knowledge of Jemison, PVF and Sellers, all such returns have been properly completed and filed on a timely basis and such returns are true and correct in all material respects. To the knowledge of Jemison, PVF and Sellers, as of the time of filing, all such returns correctly reflected in all material respects the facts regarding the income, business, assets, operations, activities, status or other matters of the Sellers or any information required to be shown thereon. Except as set forth on SCHEDULE 5.13 attached hereto, the Sellers have not (i) entered into any agreements for the extension of time or for the assessment of any tax or tax delinquency which would adversely affect the Buyer or the Purchased Assets or (ii) received any outstanding or unresolved notices from the Internal Revenue Service or any taxing body of any proposed deficiency or assessment. To Sellers' knowledge, the Sellers have properly paid all sales and use taxes due with respect to their business operations and withheld all amounts, if any, required by law to be withheld for income taxes and unemployment taxes, including, without limitation, social security and unemployment compensation, relating to their employees, and remitted such withheld amounts to the appropriate taxing authority. -27- 36 Section 5.14 Ad Valorem, Real Property Tax Matters. There are no taxes, fees, or assessments of any kind or nature whatsoever which are presently due or, to Sellers' knowledge, which will or may become due with respect to the Purchased Assets, except for ad valorem personal property taxes, general and special real property taxes and special district levies and assessments, if any, for the current calendar year (or current fiscal year, as applicable), which have been prorated and accrued for in accordance with Section 3.06. Section 5.15 Litigation: Compliance with Laws. (a) The Sellers have not been served with any notice of any legal proceeding, and to the knowledge of Sellers, PVF and Jemison, there is no material suit, action, claim, investigation, arbitration, administrative or legal or other proceeding or governmental investigation pending or threatened against the Sellers or PVF, or the Purchased Assets, or Jemison to the extent the same affects the Purchased Assets, except as disclosed on SCHEDULE 5.15 nor (b) to the knowledge of Sellers, PVF and Jemison, have the Sellers failed to comply with any law, ordinance, requirement, regulation, or order applicable to the Sellers if the failure to comply would have a Sellers' Material Adverse Effect prior to Closing, or a Buyer's Material Adverse Effect following the Closing, nor (c) have the Sellers violated any order, writ, injunction, judgment, or decree of any court or federal, state or local department, official, commission, authority, board, bureau, agency, or other instrumentality which was issued against or is pending against the Sellers, PVF or Jemison, which violation might have a Sellers' Material Adverse Effect prior to the Closing or a Buyer's Material Adverse Effect after the Closing. Section 5.16 Permits and Licenses. To Sellers' knowledge, the only permits, licenses, approvals or other authorizations (hereafter referred to as the "Permits") necessary for the operation of the Business as it is presently operated have been obtained, are in full force and effect, and are listed on SCHEDULE 5.16 hereto, except where the failure to obtain the same would not have a Sellers' Material Adverse Effect prior to the Closing or a Buyer's Material Adverse Effect following the Closing. To Sellers' knowledge, all such Permits are currently valid, and no revocation, cancellation or withdrawal thereof has been effected or, to Sellers' knowledge, threatened. Section 5.17 Intellectual Properties. To Sellers' knowledge, except as set forth on SCHEDULE 5.17 attached hereto, the Sellers own no trademarks, service marks, trade names, copyrights, patents or applications for any of the foregoing and none are used in connection with the Business. To Sellers' knowledge, there is no claim or reason to believe that the Sellers are or may be infringing on or otherwise acting adversely to the rights of any person under or in respect of any proprietary rights. The Sellers are not obligated to make any payments by way of -28- 37 royalties, fees, or otherwise to any owner or franchisor, licensor, permitter, or grantor of, or other claimant to, any trademark, service mark, trade name, trade secret, copyright, or patent with respect to the use thereof, in connection with the conduct of its business operations, except to sanctioning bodies whose name it uses on its products. Section 5.18 All Necessary Assets. The Purchased Assets constitute all of the assets, contracts and leases necessary for the conduct of the Business as it is presently being conducted by Sellers, other than the Excluded Assets. Section 5.19 Labor or Employee Disputes; Employment Matters. Except as set forth on SCHEDULE 5.19 attached hereto, the Sellers are not parties to any contract or other agreement with any labor union and are not experiencing or the subject of, or to Sellers' knowledge, threatened by, any union organization campaign or any strike, slowdown, picketing, work stoppage, or other labor disturbance by any labor union or group of employees, and there have not been any, strikes, walkouts, work stoppages, or slowdowns affecting the Sellers. To Sellers' knowledge, no Person (including, but not limited to, any federal, state, county or local government or other governmental, regulatory or administrative agency or authority) has filed any claim or basis for any suit, action, proceeding or investigation against the Sellers regarding their operations arising out of any statute, law, ordinance, code, rule or regulation relating to discrimination in employment or employment practices or occupational safety and health standards (including, without limitation, The Fair Labor Standards Act, as amended, Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. Section 1981, the Rehabilitation Act of 1973, as amended, the Age Discrimination in Employment Act of 1967, as amended, or the Americans with Disabilities Act of 1990) which, if upheld, would have a Sellers' Material Adverse Effect prior to the Closing or a Buyer's Material Adverse Effect following the Closing. To Sellers' knowledge, the employment or termination of any of the Sellers' employees within the past five (5) years has been in material compliance with all applicable laws, rules and regulations. Section 5.20 Inventory. To Sellers' knowledge, the Inventory is merchantable and in salable condition in all material respects, as measured consistently with prior periods, and no portion of the Inventory is obsolete or unusable, as measured consistently with prior periods, except as set forth in the Financial Statements and except with respect to Non-Qualifying Inventory (whether or not such inventory is resold and reassigned to Sellers). Section 5.21 Employee Compensation. SCHEDULE 5.21 hereto is a list of all employees of the Sellers, their dates of hire, positions, base salaries and commissions or bonus schedules, and a list of all employment contracts with the Sellers' employees, and -29- 38 all employee manuals which have been distributed to or otherwise apply to the Sellers' employees. Section 5.22 No Changes. Except as set forth in SCHEDULE 5.22, since the Financial Statement Date, (i) to Sellers', PVF's or Jemison's knowledge, there has not been any Sellers' Material Adverse Effect, and (ii) there has not been: (a) any waiver by the Sellers of a valuable right or of a material debt owed to them; (b) any satisfaction or discharge of any material lien, claim or encumbrance or payment of any material obligation by the Sellers, except in the ordinary course of business consistent with past practices and that is not material to the Purchased Assets, financial condition, operating results or business of the Sellers; (c) to the knowledge of Sellers, PVF and Jemison, any material default (including, without limitation, any event that with the giving of notice or the passage of time, or both, would constitute such a default), termination or threatened termination under or amendment to any material agreement, arrangement, contract, lease or license that constitutes a portion of the Purchased Assets or any other material contract or agreement relating to the Sellers or the Purchased Assets; (d) any material change in any compensation arrangement or agreement with any employee (including, without limitation, any increase in the rate of wages, salaries, bonuses or other remuneration of any employee of the Sellers), except in the ordinary course of business and consistent with the ordinary cycles of employee review and past practices; (e) any sale, assignment or transfer of any material assets of the Sellers, except in the ordinary course of business consistent with past practices; (f) to Sellers' knowledge, any material adverse change in their relations with the Sellers' employees or independent contractors taken as a whole; (g) any receipt of notice that there has been a loss of any major customer or supplier (identified in SCHEDULE 5.22(G)) of the Sellers; (h) any mortgage, pledge, encumbrance, restriction, security interest, transfer of a security interest in, or lien created by the Sellers with respect to any of the Purchased Assets, except liens for taxes not yet due or payable and except as approved by Buyer pursuant to Section 6.08 or as set forth on SCHEDULE 5.07 attached hereto; -30- 39 (i) any bonuses or profit sharing distribution of any kind or any loans or guarantees made by the Sellers, PVF or Jemison relating to the Sellers or their operations, to or for the benefit of any of their employees, officers or directors, or any members of their immediate families, other than travel advances and other business-related advances made in the ordinary course of business consistent with past practices; (j) any declaration, setting aside, or payment of any dividend or other distribution in respect of any of Sellers' capital stock, or any direct or indirect redemption, purchase or other acquisition of any of such stock or any option, warrant, or other right to purchase or acquire any such stock by Sellers; (k) any material capital expenditure or commitment therefor, except in the ordinary course of business consistent with past practices; (l) any incurrence of material indebtedness or guaranty of indebtedness, liability or obligation by Sellers, except for the obligations incurred in the ordinary course of business consistent with past practices; (m) any change in the method of accounting or auditing practices; (n) any write-off as uncollectible of any notes or accounts receivable, except write-offs in the ordinary course of business charged to applicable reserves consistent with past practices, none of which individually or in the aggregate is material to the Sellers; (o) any business conducted by Sellers, or any transaction entered into by Sellers, except in the ordinary course of business consistent with past practices; or (p) any agreement or commitment by the Sellers to do any of the things described in this Section 5.22. Section 5.23 No Affiliates' Assets, Leases or Contracts. (a) None of the Purchased Assets are owned by any person other than the Sellers, and (b) all of the Assumed Contracts and Assumed Leases are with Persons who are not Affiliates of the Sellers and were negotiated at arms' length, except for the Affiliate Leases and except as listed in SCHEDULE 5.23 attached hereto. Section 5.24 Insurance Coverages. SCHEDULE 5.24 attached hereto contains a true, complete and correct listing of all policies of fire, liability, and other forms of insurance, including the amounts and types of coverages pursuant to which the Sellers and the Purchased Assets are insured. All of such insurance policies shall be kept in full force and effect until the -31- 40 first to occur of (a) three (3) business days after the Closing or (b) notification that the Buyer's insurance has become effective. All of such insurance policies provide that a third party, such as the Buyer, may be subrogated to the rights of Sellers, with respect to all claims concerning the Purchased Assets which might be asserted against the Buyer for occurrences occurring prior to Closing. Section 5.25 Environmental Matters. To Sellers' knowledge, and except as set forth on SCHEDULE 5.25 attached hereto, Sellers have not, during their ownership of the Purchased Assets, or ownership or use of the Property, generated, processed, distributed, transported, used, treated, stored, handled, emitted, discharged, released or disposed of (or caused any person or entity to do any of the foregoing or assisted any person or entity in doing any of the foregoing) any Hazardous Materials, or any product which may give rise to Hazardous Materials Liabilities, except in accordance with applicable Environmental Laws. For purposes of this Section 5.25, the following terms shall have the following meanings: (i) The term "Hazardous Materials" shall mean (a) pollutants, hazardous materials, contaminants, constituents, medical wastes, hazardous or infectious wastes and hazardous substances as those terms are defined in any Environmental Laws, including without limitation the following statutes and their implementing regulations: the Hazardous Materials Transportation Authorization Act of 1994, 49 U.S.C. Section 5101, et seq. (the "HMTA"), the Comprehensive Environmental Response, Compensation and Liability Act, as amended by the Superfund Amendments and Reauthorization Act, 42 U.S.C. Section 9601 et seq. (as so amended, "CERCLA"), the Clean Water Act, 33 U.S.C. Section 1251 et seq. (the "CWA"), and the Clean Air Act, 42 U.S.C. Section 7401 et seq. (the "CAA"); (b) petroleum, including crude oil and any fractions thereof; (c) natural gas, synthetic gas and any mixtures thereof; (d) asbestos and/or asbestos-containing materials; (e) polychlorinated biphenyl ("PCBs") or materials or fluids containing PCBs in excess of 50 parts per million (ppm); (f) urea formaldehyde; and (g) any product which may give rise to Hazardous Materials Liabilities; provided, however, that components, materials or substances which are properly used, handled, stored in appropriate containers and disposed of in accordance with applicable Environmental Laws shall not be deemed a Hazardous Material for the purpose of this Section 5.25; (ii) The term "Hazardous Materials Liabilities" shall mean any and all direct out-of-pocket damages, losses, liabilities, disabilities, fines, penalties, costs or expenses (including reasonable attorneys' fees) incurred or to be incurred, whether absolute, fixed or contingent, civil or criminal, and whether arising under federal law or state law, incurred or to be incurred -32- 41 in connection with the handling, storage, transportation, or disposal of any Hazardous Materials; and (iii) The Term "Environmental Laws" shall mean any statute, law, ordinance, code, rule, regulation, written guideline, policy, permit, consent, approval, license, judgment, order, writ, decree or authorization, including the requirement to register storage tanks, established or enacted for, or relating to, the protection of the environment or the health and safety of any Person, including, without limitation, those relating to (a) the HMTA, CERCLA, the CWA, the CAA or the Resource Conservation and Recovery Act, 42 U.S.C. Section 6903 et seq.; (b) emissions, discharges, releases or threatened releases of Hazardous Materials into the environment, including, without limitation, into ambient air, soil, sediments, land surface or subsurface, buildings or facilities, surface water, groundwater, publicly-owned treatment works, septic systems or land; or (c) the generation, treatment, storage, disposal, use, handling, manufacturing, transportation or shipment of Hazardous Materials. Section 5.26 Customers and Sales. SCHEDULE 5.26 attached hereto and incorporated herein by reference, is a true and accurate list of the top twenty (20) customers of, and suppliers for, Sellers for the fiscal year ended June 30, 1995 and the six (6) month period ended December 31, 1995. Except as set forth on SCHEDULE 5.26 attached hereto, the officers and directors of Sellers do not possess, directly or indirectly, any financial interest in, nor do they act as a director, officer or employee of, any Person that is a supplier, customer, lessor (except for the property covered by the Affiliate Leases), lessee, or competitor of the Sellers. To the Sellers' knowledge, except as set forth in SCHEDULE 5.26, no customer or supplier of the Sellers listed in Schedule 5.26 have advised the Sellers that they intend to cease doing business with the Sellers or the Buyer after the Closing. Section 5.27 Benefit Plans. To Sellers' knowledge: (a) The Sellers neither sponsor nor otherwise participate in, nor have Sellers previously sponsored or otherwise participated in, any Employee Pension Benefit Plan (as defined in Section 3(2) of ERISA) that is subject to the minimum funding standards of Section 412 of the Internal Revenue Code of 1986, as amended (the "Code"), or Section 301, et seq. of ERISA. (b) No Non-Exempted Prohibited Transaction (as defined in Section 406 of ERISA or Section 4975 of the Code) has occurred with respect to any Employee Benefit Plan (as defined in Section 3(3) of ERISA) sponsored by the Sellers and covered by Part 4 of Subtitle B of Title I of ERISA. (c) With respect to any self-funded Employee Welfare Benefit Plan (as defined in Section 3(1) of ERISA), such plan is -33- 42 fully funded on a present value actuarial basis, except as set forth on SCHEDULE 5.27 attached hereto. (d) Except as otherwise set forth in SCHEDULE 5.27 hereto, the Sellers are not now, nor have they been during the preceding five (5) years, a contributing employer to a Multiemployer Plan (as defined in Section 4001(a)(3) of ERISA). (e) There are no actions, suits or claims pending (other than routine claims for benefits) or that could reasonably be expected to be asserted against any Employee Pension Benefit Plan or Employee Welfare Benefit Plan, or the assets of any such plans. To Sellers' knowledge, no civil or criminal action brought pursuant to the provisions of Title I, Subtitle B, Part 5 of ERISA or any other federal or state law is pending or threatened against any fiduciary of any such plans. No Employee Pension Benefit Plan or Employee Welfare Benefit Plan, or any fiduciary thereof, has been, or is currently, the direct or indirect subject of an audit, investigation or examination by any governmental or quasi-governmental agency. (f) All of the Employee Pension Benefit Plans and Employee Welfare Benefit Plans maintained by the Sellers comply currently, and have complied in the past, both as to form and operation, in all material respects with their terms and with the provisions of ERISA and the Code, and all other applicable laws, rules and regulations. All necessary governmental approvals and determinations for the Employee Pension Benefit Plans have been obtained, including where applicable, a favorable determination (covering all changes or amendments required by TEFRA, DEFRA and REA) as to the qualification of such plans under Sections 401(a) and 501(a) of the Code. Each of the Employee Pension Benefit Plans maintained by the Sellers have either obtained a favorable determination (covering all changes or amendments required by TRA '86 and subsequent pension legislation, regulations or rulings) from the Internal Revenue Service as to its qualification under Sections 401(a) and 501(a) of the Code or is within the remedial amendment period (as provided in Section 401(b) of the Code) for making any required changes or amendments, and nothing has occurred since the date of each such determination or recognition letter that would adversely affect such qualification. (g) Except as otherwise set forth in SCHEDULE 5.27 hereto, the Sellers are not a party to, nor do they have any liability under, any nonqualified plan of deferred compensation (whether funded or unfunded). (h) Except as otherwise set forth in SCHEDULE 5.27 hereto, all discretionary, employer contributions that have been declared by the Sellers have been contributed to the Jemison Multicompany (401(k)) Plan (the "Plan"), and all employer matching -34- 43 contributions for employee 401(k) contributions made to the Plan prior to Closing, have been made and contributed to the Plan. (i) For purposes of all Sections of this Agreement dealing with ERISA, the term "Sellers" shall mean the Sellers and each trade or business (whether or not incorporated) that together with the Sellers would be treated as a single employer under the provisions of Titles I or IV of ERISA. (j) To Sellers' knowledge, the Sellers have complied in all material respects with all provisions of the health care continuation coverage requirements of Code Section 4980B, the Family and Medical Leave Act of 1993, and the regulations thereunder. (k) Except as set forth on SCHEDULE 5.27 hereto, the Sellers do not have in effect any Employee Benefit Plans or employee health insurance plans. The Plan permits, or prior to Closing shall be amended to permit, employees of Sellers hired by the Buyer to roll or directly transfer their vested account balances to a qualified Employee Pension Plan at no cost to Buyer. (l) The Sellers agree that the employment of Sellers' employees by Buyer as provided in Section 3.08 of this Agreement shall constitute a partial termination of the Plan, and accordingly all such employees shall be one hundred percent (100%) vested in all their accounts in the Plan. Section 5.28 Brokers' or Finders' Fees. PVF has employed the services of The Beacon Group, which will be entitled to a commission, payable by PVF upon the Closing of the transactions contemplated by this Agreement. No other broker, Person or firm acting on behalf of the Sellers, PVF or Jemison or under the authority of either the Sellers, PVF or Jemison is or will be entitled to any commission, broker's or finder's fee or financial advisory fee from the Sellers, PVF or Jemison in connection with any of the transactions contemplated herein, and the Sellers, PVF and Jemison agree to indemnify the Buyer against, and to hold it harmless from, any claim for brokerage or similar commission or other compensation which may be made against the Buyer by any third party in connection with the transactions contemplated hereby, which claim is based upon any action by PVF, Jemison or the Sellers. Section 5.29 Investment Information. Sellers, PVF and Jemison represent that they have been furnished with or have had access to the information such parties have requested from the Buyer and have had an opportunity to ask questions and receive answers from management of Buyer. The Sellers, PVF and Jemison acknowledge that they have received and reviewed copies of the SEC Filings. Sellers, PVF and Jemison further represent that they are either (i) an "accredited investor" (as that term is defined in -35- 44 Rule 501(a) promulgated pursuant to the Securities Act of 1933, as amended (the "Act")), or (ii) alone, or together with a "purchaser representative" (as that term is defined in Rule 501(h) promulgated pursuant to the Securities Act), have such knowledge, experience and skill in business and financial matters and with respect to investments in securities so as to enable them to understand and evaluate the merits and risks of the acquisition of the shares of Common Stock and to form an investment decision with respect to such investment. The Sellers, PVF and Jemison hereby represent that they understand that the transaction contemplated by this Agreement is to be carried out as a transaction exempt from registration under the Act and, accordingly, the shares of Common Stock will not have been registered under the Act. The Sellers, PVF and Jemison hereby further represent that they will be acquiring the shares of Common Stock for investment purposes only and not with a view to or for resale in connection with any distribution of the Common Stock, nor with any intention of distribution of the Common Stock or of selling the Common Stock, except as described on SCHEDULE 5.29 attached hereto. The Sellers, PVF and Jemison understand that because the shares of Common Stock will not have been registered under the Act, the Buyer will not permit the transfer of such shares without registration under the Act, or upon the issuance to the Buyer of a favorable opinion of counsel or of the submission to the Buyer of such other evidence as may be reasonably satisfactory to counsel for the Buyer, in either case, to the effect that any such transfer, whether pursuant to Rule 144 of the Act or otherwise, shall not be in violation of the Act, and any applicable state securities laws, and that the share certificates representing such shares will be issued with a restrictive legend providing notice of such restriction. Section 5.30 Sellers Not a Foreign Person. The Sellers are not a "foreign person" within the meaning of Section 1445, et seq., of the Code. Section 5.31 Completeness of Disclosure. To Sellers', PVF's and Jemison's knowledge, no representation or warranty by the Sellers, PVF or Jemison in this Agreement contains any false or misleading statement of material fact or omits a material fact necessary to make the statements made, in light of the circumstances under which they were made, not misleading. Section 5.32 Accounts Receivable. Except as set forth on SCHEDULE 5.32 all of the Accounts Receivable reflected in the books of account of the Sellers arose in the ordinary course of its business, from the sale of services or goods, and neither Sellers, PVF or Jemison know, or have a reason to know, of any valid defense or right of set-off to the rights of the Sellers to collect such Accounts Receivable in the full amounts shown on such books of account, subject, however, to a reasonable reserve for bad debts. -36- 45 ARTICLE VI ACTIVITIES PRIOR TO THE CLOSING Section 6.01 Activities by Sellers, PVF and Jemison Prior to Closing. The Sellers, PVF and Jemison hereby covenant and agree that from and after the date hereof to the Closing Date, the Sellers will, in all material respects, except as set forth in SCHEDULE 6.01 hereto, conduct Business solely in the ordinary course consistent with past practices and the Sellers will; (a) Engage in no material transaction out of the ordinary course of business except as contemplated herein and will operate the Business in the ordinary course of business except as contemplated herein; (b) Not merge or consolidate the Sellers with any other corporation or allow any of them to acquire or agree to acquire or be acquired by any corporation, association, partnership, joint venture, or other entity; (c) Not sell, assign, lease, transfer, or otherwise dispose of any of the Purchased Assets without the prior written consent of the Buyer except in the ordinary course of business; (d) Not create or suffer to exist any Encumbrance on any of the Purchased Assets, except as approved by Buyer pursuant to Section 6.08 or as set forth on SCHEDULE 5.07, and shall maintain and keep the Purchased Assets, taken as a whole, in good repair and condition, ordinary wear and tear excepted; (e) Not commit to make any capital expenditure or major repair in excess of Ten Thousand Dollars ($10,000) in the aggregate without the prior written consent of the Buyer, which consent shall not be unreasonably withheld; (f) Not waive any material rights or material claims of the Sellers related to the Purchased Assets without first having notified the Buyer and received the Buyer's written consent thereto; (g) Use reasonable efforts to preserve, in accordance with past practices, the goodwill and the existing business organization of Sellers and the relations of Sellers with their employees that Buyer expects to hire and with Sellers' customers, suppliers, and others with whom Sellers have a business relationship; (h) Use reasonable efforts to maintain in full force and effect, subject to the terms and conditions thereof, all material agreements, contracts, leases, Permits, authorizations, and approvals necessary for or related to the business operations of -37- 46 the Sellers as such operations are now conducted, except for changes made in the ordinary course of business, and use reasonable efforts to comply in all material respects with all laws, rules and regulations applicable to the business operations of the Sellers as now conducted; and (i) Promptly advise Buyer in writing of any change or inaccuracy in any document, Schedule, Exhibit or other written information given to the Buyer by Sellers, PVF or Jemison pursuant to the terms and conditions of this Agreement; (j) Cause a physical inventory to be conducted as close to the Closing Date as practicable, employing the following procedures and methods: (i) The inventory date will be the Closing Date; (ii) The inventory will be conducted by authorized personnel or representatives of Sellers and observed by authorized personnel and representatives of the Buyer; (iii) The inventory taking, cutoff, and costing shall be completed in accordance with GAAP consistently applied, with the existing policies of Sellers and with the methods and principles utilized in the preparation of the Financial Statements, valuing the Inventory at the lower of average cost, using the weighted average method, or market for determining cost; and (iv) Authorized personnel and representatives of Buyer will be allowed to review the results of the inventory and of the costing thereof; (k) Grant Buyer the right to review the credit history of customers of the Sellers; (l) Use their reasonable efforts to perform or fulfill all of their covenants and conditions to be performed or fulfilled by them under the terms of this Agreement; and (m) Keep Buyer reasonably informed concerning material events relating to the conduct of the Business. Section 6.02 Reports; Taxes. Between the date hereof and the Closing Date, the Sellers will duly and timely file all reports or returns required to be filed with federal, state, local and foreign authorities, will promptly pay when due all federal, state, local and foreign taxes, assessments and governmental charges levied or assessed upon them or any of their properties (unless the Sellers are contesting the same in good faith and adequate provision has been made therefor), and will use reasonable efforts to duly observe and conform in all material respects to any lawful requirements of any governmental authority relating to any of the -38- 47 Purchased Assets or to the operation and conduct of the Business and all covenants, terms and conditions upon or under which any of their Purchased Assets are held. Section 6.03 Access; Confidentiality. (a) Between the date hereof and the Closing Date, the Sellers will give to authorized representatives of the Buyer (including, without limitation, attorneys, accountants, agents, appraisers, environmental experts, and equipment experts) (collectively, the "Representatives"), the right to make complete and thorough inspections of and have access to, during normal business hours, in such manner as not to unduly disrupt normal business activities: (i) the Sellers and all of their assets, including, but not limited to, physical inspections of the Purchased Assets; and (ii) the businesses of the Sellers, including, but not limited to (A) all premises and properties associated therewith, including any Property, or (B) the jobs in progress and all related work in progress data, including information as to the amount billed and unbilled, and revenues to be recognized, on each such job as compared with the percentage of completion of each such job, (C) the bid and contract documents relating to other jobs included in backlog or pending bids prior to Closing, (D) employee records, including compensation and fringe benefits, (E) agreements for the procurement of inventory, (F) all leases and options, (G) copies of any existing environmental studies or any files (including alleged violations of Environmental Laws, if any) relating thereto, (H) environmental permits and records, (I) copies of operating and similar permits, (J) any matters of pending or overtly threatened litigation (subject to the parties making reasonable efforts to preserve the work product doctrine and attorney-client privilege), and (K) all other books, records and files of the Sellers. In addition, the Sellers will cause their officers and employees to furnish any and all financial, technical and operating data and other information as the Buyer will from time to time reasonably request. The Buyer and the Representatives shall have the right to make extracts from all documents so reviewed. (b) Between the date hereof and the Closing Date, the Buyer shall promptly select an environmental consultant to perform a Phase I environmental assessment of the Property; provided, however, that the Buyer's environmental consultants shall not conduct any soil or groundwater assessments without the consent of Sellers, nor shall they contact any governmental agencies or third parties without the consent of Sellers, which consent shall not be unreasonably withheld or delayed. Buyer shall bear all costs associated with the environmental assessment of the Property. Sellers shall cooperate and provide access to any party who performs an independent environmental assessment of the Property. -39- 48 (c) The due diligence review conducted by Buyer and/or its Representatives shall not relieve the Sellers, PVF or Jemison of any duty concerning their representations, warranties, covenants or agreements contained in this Agreement. (d) Between the date hereof and the Closing Date, the Sellers shall make arrangements reasonably satisfactory to the Buyer for the Representatives to meet the Sellers' employees, vendors and customers. Sellers will be permitted to have a representative at each such meeting. (e) The Buyer and its Representatives will hold in confidence all information obtained in any such review and will use such information only for the purpose of considering the transactions contemplated hereby. The Buyer further agrees that it will not otherwise disclose any such information to any third party, other than its attorneys, financial advisors and financing sources, who shall be informed of and shall agree to comply with the restrictions of this Section 6.03, it being understood that Buyer shall be responsible for any failure of such persons to comply with this Section, except upon the written consent of the Sellers or except as required by law. In the event disclosure is required by law, Buyer shall give Sellers advance notice thereof and the ability to obtain a protective order regarding such information prior to disclosing the same. If the transactions contemplated hereby are not consummated as contemplated herein, the Buyer will promptly return all data furnished to it to the Sellers and copies and summaries thereof. In such event, Buyer also shall destroy any internal compilations, memoranda, reports, analyses or other information derived from such information, and shall confirm such destruction to Sellers upon Seller's request therefor. Such obligation of confidentiality will not extend to any information which is shown to be or to have been generally known to others engaged in the same trade or business as the furnishing party, or that is or will be public knowledge through no act or omission by the Buyer or any of its directors, officers, employees, professional advisors or other representatives. Section 6.04 Consents. (a) Between the date hereof and the Closing Date, the Sellers will in good faith request and use all reasonable efforts to obtain all necessary consents, waivers, approvals, or authorizations from third parties (collectively the "Consents") which are necessary in connection with the assignment of the Assumed Leases, the Assumed Contracts and the Assumed Purchase Orders as contemplated herein (including pursuant to Sections 3.02 and 5.09 hereof), and the Buyer will in good faith request and use all reasonable efforts to assist Sellers in obtaining consents to the assignment of the Assumed Leases, Assumed Contracts and Assumed Purchase Orders and to obtain all Consents which are necessary in connection with the assignment of the Permits that are transferable -40- 49 as contemplated herein. Each party will cooperate with the other party in such efforts. However, it is understood and agreed that although obtaining such Consents shall be a condition to the Buyer's obligation to close the transactions contemplated herein, the failure to obtain the Consents shall not give rise to any action by any party for breach of this Agreement or any provision hereof, notwithstanding any language contained in this Agreement to the contrary. (b) Assumed Obligations. To the extent that the assignment and assumption of any Assumed Obligation, or any leases, contracts or agreements referable thereto, requires the consent of a third party, this Agreement shall not constitute an agreement by Sellers to assign the same if an attempted assignment or sublease thereof, without the consent of the third party thereto, would constitute a breach thereof, but Sellers shall use their reasonable efforts to obtain the consents of such other parties to all such Assumed Obligations, and such leases, contracts and agreements, to the assignment or sublease thereof to Buyer prior to the Closing Date. If any such consent is not obtained or is obtainable only upon payment by Buyer of amounts not otherwise required to be paid under the terms of such Assumed Obligations, and such leases, contracts and agreements, Sellers will cooperate with Buyer in any reasonable arrangement, which does not impose any additional expense to Sellers, which is designed to provide for Buyer the benefits under any such Assumed Obligations, including enforcement for the benefit of Buyer, at the expense of Buyer, of any and all rights of Sellers against any third party thereto arising out of the failure or refusal of such third party to consent to such assignment or sublease. The inability of Sellers to obtain one or more consents to the assignment or sublease of any Assumed Obligation, and such leases, contracts and agreements, to Buyer shall not constitute grounds for the termination of this Agreement by Buyer, unless the same shall be material to the transactions contemplated hereby or to the continued operation of the Business (with materiality for such purpose being defined by the exceptions referenced in the last sentence of Section 8.07), in which event, subject to applicable limitation hereunder, Buyer may terminate this Agreement, but in no event shall Sellers be liable to Buyer for damages by reason of inability to obtain any such consents. The Buyer reserves the right, at any time, to waive its right to receive a consent hereunder. Section 6.05 Public Announcements. Except as otherwise required by law, neither party shall make any public announcements regarding the transactions contemplated herein without the prior written consent of the other party, including its approval of the content thereof. Any public announcement which is required to be made by any party hereto will be made only after providing the other party as much notice as is reasonably practicable and after giving consideration to the reasonable comments of such party. -41- 50 Section 6.06 Hart-Scott-Rodino. Between the date hereof and the Closing, the Sellers, PVF, Jemison and Buyer shall cooperate fully to timely file all documents required by the Hart-Scott-Rodino Antitrust Improvements Act of 1976 ("H-S-R"), as amended. Each party shall bear its own costs in complying with this provision; provided, however, that the filing fee required by the Federal Trade Commission shall be paid by the Buyer. Section 6.07 Filings with SEC. Between the date hereof and Closing, the Buyer may have to make certain filings with the SEC, to meet its reporting obligations under the Exchange Act. Copies of all such filings will be provided to the Sellers in a fashion to allow Sellers to provide comments to Buyer, and Buyer shall give good faith consideration to Sellers' comments. To the extent that information concerning the Sellers, PVF or Jemison is required to be included in such filings, the Sellers, PVF and Jemison will use reasonable efforts to supply such information, in the manner and form reasonably requested by Buyer, and the party supplying such information shall bear the cost of complying with such request. Section 6.08 Condition of Title; Title Insurance. (a) As soon as practicable after execution of this Agreement, Sellers shall obtain, at Sellers' expense, commitments of title insurance (the "Commitments") issued by a title insurance company reasonably acceptable to Buyer (the "Title Company"), in which the Title Company agrees, following the recording of a deed in the name of the Buyer, to issue a Standard Owner's Policy of Title Insurance (ALTA Form B) (the "Title Insurance") in the amount of the purchase price for that Location (as hereinafter defined) showing record title to be in Buyer, and covering the Real Property and improvements at each of the locations owned by the Sellers (the "Locations"), and containing such endorsements as Buyer shall reasonably request, at Sellers' expense. The Commitments shall show the state of the title of the real property owned by Sellers on which each of the Locations is located. As soon as practicable after the execution of this Agreement, Buyer shall also cause the Title Company to provide Buyer with a copy of each instrument of record constituting a lien or encumbrance on each of the Locations or an exception or qualification to title in the Commitments. (b) Within ten (10) days after receipt of any Commitment, Buyer shall deliver written notice to Sellers and Escrow Agent of any objections that Buyer has to the state of title, and exceptions to coverage shown in the Commitments or in copies of instruments of record. The failure of Buyer to disapprove in writing, at or prior to that time, a particular exception or exceptions shown in any Commitment shall be deemed to be approval by Buyer of the exception or exceptions not disapproved or objected to by Buyer. -42- 51 (c) If Buyer disapproves of any exception from coverage shown on any Commitment, Sellers shall use their best efforts to cure the matter(s) causing Buyer's objections by taking all reasonable action to cure the objections. If Sellers are unable to cure the matter(s) within fifteen (15) days after receipt from Buyer of the notice of disapproval of or objection to any Commitment, Sellers shall notify Buyer of their inability to cure, and Buyer and Sellers shall enter into a lease, with an option to purchase such property, on terms consistent with those contained in the Affiliate Leases and mutually acceptable to the parties hereto, at a rental rate and purchase option price tied to the book value thereof. (d) Buyer's interest in the Locations shall be insured by a Standard Owner's Policy with fee simple title to the Real Property vested in Buyer, together with such endorsements as Buyer may reasonably require, subject only to: (i) nondelinquent state, county, city and special district taxes and assessments, if any; (ii) standard printed exceptions and exclusions set forth in the title policy; (iii) the covenants, conditions, restrictions, reservations, rights of way, easements, encumbrances, and other matters of record approved by Buyer under this Agreement; and (iv) encumbrances made or created by Buyer under this Agreement. The Escrow Agent shall hold the title policies as a condition precedent to Closing. Section 6.09 Surveys. Prior to Closing, the Sellers shall obtain, at Sellers' expense, a survey of the Locations being conveyed hereunder, showing any and all improvements, easements, rights, reservations and restrictions thereon, and all roads, streets or highways adjacent to said Locations. If the survey shows any material encroachments, overlaps, or boundary line disputes, the same shall be treated as title defects hereunder. Section 6.10 Exclusivity. Except as provided in Schedule 6.10 attached hereto, except as may be necessary to comply with any fiduciary duty, from the date hereof until such date as this Agreement is terminated, the Sellers, PVF and Jemison shall negotiate with the Buyer with respect to the acquisition of the Purchased Assets and shall not directly or indirectly: (a) solicit any other buyers for all or any part of the capital stock of the Sellers, PVF or Jemison or any of the Purchased Assets; (b) encourage any third parties to bid for any of the Purchased Assets -43- 52 or to purchase shares of the capital stock of Sellers, PVF or Jemison or participate in any negotiations or discussions with any such third parties with respect thereto; (c) provide business or financial information (not otherwise publicly available) concerning Sellers to any third parties; or (d) assist or cooperate with any third party to make any proposal to purchase all or any part of the capital stock or assets of Sellers, PVF or Jemison. Sellers, PVF and Jemison will immediately notify Buyer if they becomes aware of any efforts by any Person to, directly or indirectly, in any manner whatsoever, acquire Sellers, PVF or the Purchased Assets and will cooperate with Buyer by furnishing any information that they may reasonably request in contesting any such efforts. In addition, Sellers, PVF and Jemison shall direct their financial and other advisors and representatives to comply with each of the foregoing covenants. Section 6.11 Insurance Policies. All insurance policies of Sellers in effect as of the date hereof shall be kept in full force and effect until the first to occur of (a) three (3) business days after the Closing or (b) notification that the Buyer's insurance has become effective. Section 6.12 Activities by Buyer Prior to Closing. Buyer agrees that from and after the date hereof to the Closing Date, Buyer will, in all material respects, conduct its business only in the ordinary course consistent with past practices and will not take any action or commit to take any action, or permit any action to occur, and Buyer covenants that no such action shall occur, that would be of a nature that would require disclosure as an exception to the representation and warranty made by Buyer in Section 4.13 of this Agreement. Buyer will also promptly advise Sellers, PVF and Jemison in writing of any change or inaccuracy in any document, Schedule, Exhibit or other information given to Sellers, PVF or Jemison by Buyer pursuant to the terms and conditions of this Agreement. Buyer further shall use its reasonable efforts to perform or fulfill all of its covenants and conditions to be performed or fulfilled by it under this Agreement and shall keep Sellers, PVF and Jemison reasonably informed concerning material events relating to the conduct of its business. ARTICLE VII CASUALTY AND CONDEMNATION Section 7.01 Casualty. If prior to the Effective Time, any material portion of the Purchased Assets are damaged or destroyed by fire or any other casualty, the Sellers will promptly give notice of the same to the Buyer. In such event, if the amount of loss from such fire or casualty exceeds One Hundred Thousand Dollars ($100,000), at the Buyer's option, the Buyer will have the right to terminate this Agreement by giving notice thereof to the -44- 53 Sellers. If the Buyer terminates this Agreement pursuant to this Section 7.01, or if the loss from such casualty does not exceed such amount, this Agreement will become null and void, and the Sellers and the Buyer will thereupon have no further liabilities or obligations under this Agreement or otherwise hereunder, except as specifically provided in Sections 6.03(e), 6.05 and 13.01. If the Buyer elects not to terminate this Agreement pursuant to this Section 7.01, or if the loss from such casualty does not exceed such amount, and the transactions contemplated by this Agreement are consummated, the Buyer will be entitled to the benefits of all insurance proceeds and claims relating to any such fire or casualty loss (except business interruption insurance), and the Sellers will at or prior to Closing assign to the Buyer all such insurance proceeds and claims, provided that such insurance shall be considered a Purchased Asset for purposes of Article II of this Agreement. The Sellers will inform the Buyer of any negotiations with respect to insurance claims involving any damaged Purchased Assets, will permit the Buyer to take part therein, and will not settle any such claims without the Buyer's prior written consent, which consent shall not be unreasonably withheld. Section 7.02 Condemnation. If any authority having the right of eminent domain commences legal action for the damaging, taking or acquiring of any of the Purchased Assets or the real property subject to the Assumed Leases, either temporarily or permanently, by condemnation or by exercise of the right of eminent domain (a "Taking"), the Sellers will promptly give notice of the same to the Buyer. In the event of a Taking in which the amount of loss therefrom exceeds One Hundred Thousand Dollars ($100,000), at the Buyer's option, the Buyer will have the right to terminate this Agreement by giving notice thereof to the Sellers. If the Buyer terminates this Agreement pursuant to this Section, this Agreement will become null and void, and none of the parties hereto will thereupon have any further liabilities or obligations under this Agreement or otherwise hereunder, except as specifically provided in Sections 6.03(e), 6.05 and 13.01. If the Buyer elects not to terminate this Agreement pursuant to this Section 7.02 or if the loss from such Taking does not exceed such amount, and the transactions contemplated by this Agreement are consummated, the Buyer will be entitled to the benefits of all awards, claims, settlement proceeds, and other proceeds payable by reason of any such Taking, and the Sellers will assign to the Buyer all awards, claims, settlement proceeds, or other proceeds payable by reason of any such Taking; provided that all property subject to such Taking and all awards, claims, settlement proceeds, and other proceeds payable by reason of any such Taking shall be considered a Purchased Asset for purposes of Article II of this Agreement. In the event of any negotiations with respect to any of the Purchased Assets with any authority regarding settlement on account of any Taking, the Sellers will inform the Buyer of all such negotiations, will permit the Buyer to take part therein, and will not enter into -45- 54 any settlements thereof without the Buyer's prior written consent, which consent shall not be unreasonably withheld. ARTICLE VIII CONDITIONS TO OBLIGATIONS OF BUYER The obligations of the Buyer to consummate the transactions contemplated hereby will be subject to the satisfaction or the waiver by the Buyer, at or prior to the Closing Date, of each of the following conditions precedent (Buyer hereby acknowledges that all conditions precedent to the Closing of the transactions contemplated by this Agreement which have not been performed by Sellers prior to Closing shall, subject to the last sentence of Section 8.03, be deemed to be waived by the Buyer as of the Closing): Section 8.01 Representations and Warranties. The representations and warranties of the Sellers, PVF and Jemison contained in this Agreement, the Exhibits hereto, or in any other document expressly required to be delivered by Sellers, PVF or Jemison pursuant to this Agreement, shall have been true and correct in all material respects on the date such representations and warranties were made, and at the Closing, as though made on and as of the Closing Date; provided, however, that the foregoing condition shall be deemed to be satisfied except where the failure to be so true and correct shall reasonably be expected to result in a material adverse change in the consolidated financial condition or results of operation of PVF and Sellers or, following the Effective Time, of Buyer, in excess of an aggregate amount of $2,500,000. Section 8.02 Performance of Covenants, Agreements and Obligations. Each covenant, agreement and obligation of the Sellers, PVF or Jemison to be performed on or before the Closing Date pursuant to the terms and provisions of this Agreement will have been duly performed and complied with in all material respects on or before the Closing Date, and at the Closing. Section 8.03 Certificate. The Buyer shall have received a certificate in the form annexed hereto as EXHIBIT 8.03 dated the Closing Date, signed by the appropriate officers of the Sellers, PVF and Jemison as to the satisfaction of the conditions contained in Sections 8.01 and 8.02, with such additional disclosures as shall be required to make such certificate true and accurate in all material respects. Disclosures in such certificates shall be deemed to be disclosures hereunder for all purposes of this Agreement, in which event the Buyer may refuse to close the transactions contemplated hereby if any such additional disclosures are not acceptable to the Buyer and they result in the threshold referenced in the last clause of Section 8.01 being exceeded, but -46- 55 such additional disclosures shall not be deemed a breach of a representation or warranty by the Sellers, Jemison or PVF prior to or after Closing, and the sole remedy by Buyer on account thereof shall be termination of this Agreement. In the event that such additional disclosures are not reasonably acceptable to Buyer and they do not result in the threshold referenced in the last sentence of Section 8.01 being exceeded, and the transactions contemplated by this Agreement are consummated on the Closing Date, then Buyer shall be entitled to preserve, by notice in writing given to Sellers at the Closing, a claim for indemnification under Article XI against Sellers, PVF and Jemison on account of the inaccuracy of any representations and warranties made as of the date hereof resulting from such additional disclosures, subject to the limitations with respect to indemnification set forth in Article XI, including, without limitation, Section 11.05, and provided that the loss arising out of such claim has not otherwise been accrued for in accordance with GAAP on the Closing Date Balance Sheet. Section 8.04 Prohibitions. No claim, action, suit, investigation, arbitration or legal or other proceeding or governmental investigation will be pending or threatened in writing before any court or governmental agency which (i) presents a substantial risk of the restraint or prohibition of the transactions contemplated by this Agreement or (ii) could materially adversely affect the right of the Buyer to acquire or utilize the Purchased Assets. Section 8.05 Opinion of Sellers' Counsel. At the Closing, the Buyer will have been furnished the written opinions of Johnston, Barton, Proctor, & Powell (as to Sellers and PVF), and Bradley, Arant, Rose & White (as to Jemison), all dated the Closing Date, in form and substance satisfactory to such counsel and reasonably satisfactory to the Buyer and its counsel. Section 8.06 Authority. All actions required to be taken by, or on the part of, the Sellers, PVF and Jemison to authorize the execution, delivery and performance of this Agreement and all agreements required to be executed and delivered under the terms of this Agreement, and the consummation of the transactions contemplated hereby and thereby will have been duly and validly taken by the Boards of Directors and the shareholders of the Sellers, PVF and Jemison, if necessary, and the Buyer shall have received copies of all such resolutions certified by the Secretary of the Sellers, PVF and Jemison. Section 8.07 Required Consents. On the Closing Date, the parties (other than the Sellers, PVF or Jemison) to all of the Assumed Leases and the Assumed Contracts, any governmental agency or body or any other person, firm or corporation which owns or has authority to grant any franchise, license, permit, easement, right or other authorization necessary for the business or operations of the Sellers or the Purchased Assets which will be transferred by -47- 56 the Sellers to the Buyer pursuant to this Agreement, and any governmental body or regulatory agency having jurisdiction over the Buyer, the Sellers, PVF or Jemison, to the extent that their consent or approval is required under the pertinent debt, lease, contract, commitment or agreement or other document or instrument or under applicable laws, rules or regulations for the consummation of the transactions contemplated hereby (including receipt of all consents required by H-S-R and the expiration of all applicable writing periods required by H-S-R), and for the continued operation by the Buyer of Sellers' business in the same manner which the Sellers operated their business prior to the Closing, will have granted such consent or approval, except where the failure to grant such consent or approval would not have a Sellers' Material Adverse Effect or, following the Closing, a Buyer's Material Adverse Effect, and except where the failure to grant such consent or approval would not result in the threshold referenced in the last clause of Section 8.01 being exceeded. Section 8.08 UCC Search Report. Prior to the Closing, the Buyer shall have received UCC search reports dated as of a date not more than five (5) days before the Closing Date issued by the appropriate governmental bodies indicating that there are no filings under the Uniform Commercial Code on file with such governmental bodies which indicate any Encumbrances on the Purchased Assets, other than those Encumbrances which will be released at Closing, or except as approved by Buyer pursuant to Section 6.08 or as set forth on Schedule 5.07 attached hereto, or except those Encumbrances which would not have a Sellers' Material Adverse Effect or, following the Closing, a Buyer's Material Adverse Effect. Section 8.09 Noncompetition Agreements. PVF and Jemison shall have entered into, and shall have caused each of the Sellers, H. Corbin Day, James D. Davis, J. D. Brown, Jr., and J. David Brown III, to enter into, the Noncompetition Agreements attached hereto as EXHIBIT 3.04(A). Section 8.10 Employment Agreements. The Buyer and Michael L. Stanwood shall have entered into an Employment Agreement in the form of EXHIBIT 3.04(E) hereto. Section 8.11 Environmental Matters. In the event that between the date hereof and the Closing, Hazardous Materials are discovered on any of the Property, which Hazardous Materials are reasonably likely to give rise to Hazardous Materials Liabilities to Buyer after Closing in an amount in excess of Two Hundred and Fifty Thousand Dollars ($250,000), then either (i) Buyer, Sellers or PVF and Jemison shall have entered into arrangements satisfactory to Buyer in its sole discretion for the remediation or satisfaction by Sellers, PVF and Jemison of such Hazardous Materials Liabilities, or (ii) Sellers, PVF and Jemison shall have made arrangements for the transfer of the operations conducted at -48- 57 the site from which such Hazardous Materials Liabilities arise to a new location in a manner that cannot reasonably be expected to cause Buyer to have any responsibility following the Closing for such Hazardous Materials Liabilities or to result in a material disruption of the conduct of the Business by Buyer following the Closing. It is understood that if Hazardous Materials are discovered on any of the Property between the date hereof and the Closing Date, which Hazardous Materials are reasonably likely to give rise to Hazardous Materials Liabilities to Buyer following the Closing in an amount less than Two Hundred Fifty Thousand Dollars ($250,000), then such liabilities shall be the responsibility of Sellers, PVF, and Jemison, without regards to the Threshold Amount. This Section 8.11 is not limited by any disclosure made under Section 5.25 or the Schedule referenced therein. Section 8.12 Escrow Agreement. At the Closing, Buyer, Sellers, PVF, Jemison and Maguire, Voorhis & Wells, P.A. (the "Escrow Agent"), shall have entered into an escrow agreement (the "Escrow Agreement") substantially in the form annexed hereto as EXHIBIT 8.12, and pursuant thereto, Buyer shall have deposited the Escrowed Shares (as determined in accordance with Section 2.01(i) of this Agreement). The Escrowed Shares shall be held by the Escrow Agent and shall be held for disbursement in accordance with the terms of such Escrow Agreement. Section 8.13 Approval of Counsel. All actions, proceedings, instruments and documents required to carry out this Agreement, or incidental thereto, and all other related legal matters, shall have been approved as to form and substance by counsel to the Buyer, which approval shall not be unreasonably withheld or delayed. Section 8.14 Other Documents. On the Closing Date, the Buyer will have been provided with such other documents as it may have reasonably requested from the Sellers, PVF or Jemison that are consistent with the terms and conditions of this Agreement and are customary in transactions of this nature. ARTICLE IX CONDITIONS TO OBLIGATIONS OF SELLERS The obligations of the Sellers, PVF and Jemison to effect the transactions contemplated hereby will be subject to the satisfaction or the waiver by the Sellers, PVF and Jemison at or prior to the Closing Date, of the following conditions precedent (Sellers hereby acknowledge that all conditions precedent to the Closing of the transactions contemplated by this Agreement which have not been performed by Buyer prior to Closing, subject to the last sentence of Section 9.03, shall be deemed to be waived by the Sellers, PVF and Jemison as of the Closing): -49- 58 Section 9.01 Representations and Warranties. The representations and warranties of the Buyer contained in this Agreement, the Exhibits hereto, or in any other document expressly required to be delivered by the Buyer pursuant to this Agreement, shall have been true and correct in all material respects on the date such representations and warranties were made, and at the Closing, as though made on and as of the Closing Date; provided, however, that the foregoing condition shall be deemed to be satisfied except where the failure to be so true and correct shall reasonably be expected to result in a material adverse change in the consolidated financial condition or results of operations of Buyer following the Effective Time in an aggregate amount in excess of $5,000,000. Section 9.02 Performance of Covenants, Agreements and Obligations. Each covenant, agreement and obligation of the Buyer to be performed by it on or before the Closing Date pursuant to the terms and provisions of this Agreement will have been duly performed and complied with in all material respects on or before the Closing Date, and at the Closing. Section 9.03 Certificate. The Sellers shall have received a certificate in the form annexed hereto as EXHIBIT 9.03 dated the Closing Date, signed by the authorized officer of the Buyer as to the satisfaction of the conditions contained in Sections 9.01 and 9.02, with such additional disclosures as shall be required to make such certificate true and accurate in all material respects. Disclosures in such certificates shall be deemed to be disclosures hereunder for all purposes of this Agreement, but the Sellers, PVF and Jemison shall nevertheless retain the right to refuse to close the transactions contemplated hereby if any such additional disclosure is not acceptable to the Sellers, PVF and Jemison and they result in the threshold referenced in the last clause of Section 9.01 being exceeded, but such additional disclosures shall not be deemed a breach of a representation or warranty by Buyer prior or after Closing, and the sole remedy by Sellers, PVF and Jemison on account thereof shall be termination of this Agreement. In the event that such additional disclosures are not reasonably acceptable to Sellers, PVF and Jemison and they do not result in the threshold referenced in the last sentence of Section 9.01 being exceeded, and the transactions contemplated by this Agreement are consummated on the Closing Date, then Sellers, PVF and Jemison shall be entitled to preserve, by notice in writing given to Buyer at the Closing, a claim for indemnification against Buyer under Article XI on account of the inaccuracy of any representations and warranties made as of the date hereof resulting from such additional disclosures, subject to the limitations with respect to indemnification set forth in Article XI, including, without limitation, Section 11.05. Section 9.04 Prohibitions. No claim, action, suit, investigation, arbitration or legal or other proceeding or -50- 59 governmental investigation will be pending or threatened in writing before any court or governmental agency which presents a substantial risk of the restraint or prohibition of the transactions contemplated by this Agreement. Section 9.05 Authority. All actions required to be taken by, or on the part of, the Buyer to authorize the execution, delivery and performance of this Agreement and all agreements required to be executed and delivered under the terms of this Agreement, and the consummation of the transactions contemplated hereby and thereby will have been duly and validly taken by the Board of Directors of Buyer (and the Stockholders if required), and the Sellers, PVF and Jemison shall have received copies of all such resolutions certified by the Secretary of the Buyer. Section 9.06 Opinions of Buyer's Counsel. At the Closing, Sellers, PVF and Jemison will have been furnished the written opinions of Benjamin P. Butterfield, Esq., and Maguire, Voorhis & Wells, P.A., counsel for Buyer, all dated the Closing Date, in form and substance reasonably satisfactory to Sellers, PVF and Jemison and their counsel, and reasonably satisfactory to Buyer and its counsel. Section 9.07 H-S-R. The applicable waiting period, together with any extension thereof, under H-S-R shall have expired or been terminated, and the other consents referenced in Section 8.07 shall have been obtained. Section 9.08 Employment Agreements. The Buyer and Michael L. Stanwood shall have entered into the Employment Agreement in the form of EXHIBIT 3.04(E) hereto. Section 9.09 Environmental Matters. Between the date hereof and the Closing Date, there shall not have been discovered on any of the Property any Hazardous Materials that are reasonably likely to give rise to Hazardous Materials Liabilities to PVF, Sellers or Jemison, or to Buyer after Closing for which PVF,Sellers or Jemison will be responsible, in an amount in excess of Two Hundred Fifty Thousand Dollars ($250,000). Section 9.10 Approval of Counsel to the Sellers, PVF and Jemison. All actions, proceedings, instruments and documents required to carry out this Agreement or incidental thereto, and all other related legal matters shall have been approved as to form and substance by Johnston, Barton, Proctor & Powell (as to Sellers and PVF), and by Bradley, Arant, Rose & White (as to Jemison), which approvals shall not be unreasonably withheld or delayed. Section 9.11 Other Documents. On the Closing Date, the Sellers, PVF and Jemison will have been provided with such other documents as they may have reasonably requested from the Buyer that are consistent with the terms and conditions of this Agreement. -51- 60 ARTICLE X TRANSFERS OF BUYER'S COMMON STOCK; REGISTRATION RIGHTS; RULE 144 AND RULE 144(k) Section 10.1 Transfers of Buyer Shares. The Sellers and the Stockholders (as hereinafter defined) shall not sell or otherwise transfer any of the Buyer's Common Stock delivered to Sellers under this Agreement (the "Buyer Shares"), for a period of ninety (90) days after the Closing Date, or such longer period, not to exceed one hundred eighty (180) days following the Closing Date, as the Buyer and its executive officers may be obligated under the underwriting agreement executed in connection with the sale of the Securities referred to in Article II hereof not to sell shares of the Buyer Common Stock; provided, however, that following the Closing, it is contemplated that Sellers may liquidate or dissolve and that the Buyer Shares will be transferred to the direct and indirect stockholders of Sellers, including without limitation, Jemison; and provided, further, that immediately prior to or following the Closing, it is contemplated that certain members of the management of PVF and Sellers (the "Management Stockholders") will sell their interest in PVF to Jemison in exchange for a promissory note and the right to receive some of the Buyer Shares. Such transferees of Sellers and the Management Stockholders are hereinafter referred to as the "Stockholders." The parties hereto expressly acknowledge and agree that such transfers shall be permitted and that both the Sellers and the Stockholders, and their respective successors and permitted assigns, shall be deemed "Holders" for purposes of, and shall otherwise be entitled to the benefits of, this Article X. Section 10.2 Registration for Resale. As soon as practicable following the Closing Date, but in no event more than ninety (90) days following the Closing Date, the Buyer will file a registration statement with the SEC to register the Buyer Shares under the Securities Act for resale by the Holders from time to time in transactions on the New York Stock Exchange, in negotiated transactions, or in a combination of such methods of sale (the "Initial Registration"), and shall use its best efforts to cause such registration statement to become effective under the Act as soon as practicable thereafter. For so long as such registration statement is required to be kept effective, such registration statement shall be in form and substance reasonably satisfactory to Sellers and their counsel and shall be amended or supplemented (or a new registration statement filed) from time to time as may be necessary to add additional Holders, to change the method of distribution of the shares (including, without limitation, to distribute such shares in an underwritten public offering) and otherwise to accomplish any sales of Buyer Shares by the Holders. Buyer shall keep such registration statement effective for a period of not less than three (3) years after the Closing Date, three (3) years after the liquidation or dissolution of Sellers, three (3) -52- 61 years following the receipt by the Management Stockholders of Buyer Shares, or three (3) years after delivery of Common Stock to Sellers by Buyer pursuant to Section 2.01(viii)(a), whichever is longer, but in no event more than four (4) years after the Closing Date (the "Initial Registration Period"). Section 10.3 Demand Registration. (a) In addition to and not in lieu of the rights granted in Section 10.2 above, during the period of three (3) years after the Initial Registration Period, any Holder or Holders who are "Affiliates" of Buyer within the meaning of the Securities Act and applicable regulations thereunder may make a written request to Buyer for registration under the Securities Act of Buyer Shares, subject to the conditions hereinafter set forth (the "Demand Registration"). Such request will specify the number of Buyer Shares proposed to be sold and will also specify the intended method of disposition thereof. Following such request, Buyer will use its best efforts to effect, as expeditiously as possible, the registration under the Securities Act of the Buyer Shares which Buyer has been so requested to register by such Holder or Holders so as to permit the disposition (in accordance with the intended methods thereof as aforesaid) of such Buyer Shares and Buyer shall keep such registration statement effective for a period of not less than 270 days. (b) The obligations of Buyer to take the actions contemplated by Section 10.3(a) with respect to an offering of Buyer Shares shall be subject to the following conditions: (i) the Buyer Shares requested to be registered shall not constitute more than 50% of the Buyer Shares then held by Holders; and (ii) the Buyer shall not be obligated to make more than one Demand Registration during the period set forth in Section 10.3(a). Section 10.4 Piggyback Registration. During the Initial Registration Period and the period during which a Holder is entitled to effect a demand registration under Section 10.3 above, any Holder shall have the right to include Buyer Shares as part of any other applicable registration statement filed by the Buyer (a "Piggyback Registration"); provided, however, that if, in the written opinion of the Buyer's managing underwriter or underwriters, if any, for such offering, the inclusion of the Buyer Shares, when added to the securities being registered by the Buyer or other selling shareholder(s), will exceed the maximum amount of the Buyer's securities which can be marketed (i) at a price reasonably related to their then current market value; or (ii) without materially and adversely affecting the entire offering, then the Buyer may exclude from such offering that number of shares -53- 62 of Common Stock requested to be so registered as exceeds such maximum amount; but provided, further, that if any such Common Stock is so excluded, then the number of securities to be sold by all shareholders in such public offering shall be apportioned pro rata among all such selling shareholders, including such Holder, according to the total amount of securities of the Buyer owned by said selling shareholders, including such Holder. The Buyer shall cause any registration statement filed pursuant to these "piggyback" rights to remain effective for at least ninety (90) days from the date that such Holder is first given the opportunity to sell any part of the Buyer Shares registered under this Section 10.4. Section 10.5 Filings; Registration Procedures. In connection with the Initial Registration, the Demand Registration or any Piggyback Registration of Buyer Shares, and any registration statement filed in connection therewith: (a) Holders shall cooperate with Buyer and its representatives and upon request shall promptly furnish such information regarding the Holders and the distribution proposed by such Holders as is reasonably requested by Buyer for inclusion in the registration statement, or any amendment or supplement thereto. (b) Holders and Buyer agree in connection with any underwritten registration of Buyer Shares to enter into an appropriate underwriting agreement containing terms and provisions (including reasonable provisions as to opinions of counsel, comfort letters, covenants, representations and warranties and indemnification and contribution) customary in such agreements. (c) Buyer shall use its best efforts to cause the registration statement to become effective as soon as possible and to prepare and file with the SEC, as expeditiously as possible, any amendments and supplements to the registration statement as may be necessary. (d) Buyer shall, as expeditiously as possible, use its best efforts to register or qualify the Buyer Shares covered by the registration statement under the securities or Blue Sky laws of those states set forth on schedules to be furnished to the Buyer by Holders listing those states in which it is reasonable that registration or qualification will be required to enable Holders to consummate the sale or other disposition of the Buyer Shares by Holders, and do any and all other acts and things that may be necessary or desirable to enable Holders to consummate the sale or other disposition of the Buyer Shares owned by them; provided, however, that Holders holding Buyer Shares included in any such registration statement shall furnish in writing to the Buyer such information regarding such Holders and the distribution proposed by such Holders as the Buyer may reasonably request in writing and as shall be required in connection with any registration, qualification or compliance under such state securities or Blue Sky -54- 63 laws; and, provided, further, that Buyer shall not be obligated to qualify as a foreign corporation to do business under the laws of any jurisdiction in which it is not then qualified or to file any general consent to service of process. (e) Buyer shall, as expeditiously as possible, use its best efforts to list or register the Buyer Shares on the New York Stock Exchange and to maintain such listing in such manner as may be necessary to permit sales of such shares under this Article X. (f) Buyer shall pay all expenses incurred by Buyer in complying with this Article X, including, without limitation, registration fees, exchange listing fees, printing expenses, fees and disbursements of counsel for the Buyer, state Blue Sky fees and expenses, and the expense of any special audits incident to or required by any such registration, and the Holders shall pay all underwriting discounts and selling commissions, if any, and the fees and expenses of their legal counsel and accountants. (g) Buyer will, if requested prior to filing such registration statement or any amendment or supplement thereto, furnish to Holders and each underwriter, if any, copies thereof, and thereafter furnish to Holders and each such underwriter such number of copies of such registration statement, amendment and supplement thereto (in each case including all exhibits thereto and documents incorporated by reference therein) and the prospectus included in such registration statement (including each preliminary prospectus), as Holders or each such underwriter may reasonably request in order to facilitate the sale of the Buyer Shares, each of which registration statement, amendment and supplement shall be in form and substance reasonably satisfactory to such Holders and underwriters. (h) Buyer will, as promptly as is practicable, notify Holders at any time when a prospectus relating to the sale of the Buyer Shares is required by law to be delivered in connection with sales by a Holder, underwriter or dealer, of the occurrence of any event requiring the preparation of a supplement or amendment to such prospectus so that, as thereafter delivered to the purchasers of such Buyer Shares, such prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, and shall promptly make available to Holders and to the underwriters any such supplement or amendment, which shall be subject to the reasonable prior approval of Holders and the underwriters. Holders will, upon receipt of any notice from Buyer of the occurrence of any event of the kind described in the preceding sentence, discontinue the offer and sale of Buyer Shares pursuant to the registration statement covering such Buyer Shares until receipt by Holders and the underwriters, if any, of the copies of such supplemented or amended prospectus and, if so -55- 64 directed by Buyer, Holders will deliver to Buyer all copies, other than permanent file copies then in Holders' possession, of the most recent prospectus covering such Buyer Shares at the time of receipt of such notice. In the event Buyer shall give such notice, Buyer shall extend the period during which such registration statement shall be maintained effective by the number of days during the period from and including the date of the giving of such notice to the date when the Buyer shall make available to Holders such supplemented or amended prospectus. (i) Buyer shall make available for inspection by Holders, any underwriter participating in any disposition pursuant to such registration statement, and any attorney, accountant or other agent retained by Holders or any such underwriter (collectively, the "Inspectors"), all financial and other records, pertinent corporate documents and properties of Buyer (collectively, the "Records") as shall be reasonably necessary to enable them to exercise their due diligence responsibility, and shall cause the officers, directors and employees of Buyer to supply all information reasonably requested by any such Inspector in connection with such registration, provided that (i) records and information obtained hereunder shall be used by such persons only to exercise their due diligence responsibility and (ii) records or information which Buyer determines in good faith to be confidential shall not be disclosed by the Inspectors unless (x) the disclosure of such records or information is necessary to avoid or correct or to make the Inspectors aware of a misstatement or omission in the registration statement or (y) the release of such records or information is ordered pursuant to a subpoena or other order from a court or governmental authority of competent jurisdiction. Upon learning that disclosure of such records or information is sought by a court or governmental authority, Holders shall give notice to Buyer and allow Buyer, at the expense of Buyer, to undertake appropriate action to prevent disclosure of the records or information deemed confidential. Information obtained by Holders as a result of such inspections shall be deemed confidential and shall not be used by any Holder as the basis for any market transactions in the securities of Buyer or its affiliates unless and until such information is made generally available to the public. (j) Buyer will furnish to Holders and to each underwriter, if any, a signed counterpart, addressed to Holders and such underwriter, if any, of (i) an opinion or opinions of counsel to Buyer and (ii) a comfort letter or comfort letters from Buyer's independent public accountants, each in customary form and covering such matters of the type customarily covered by opinions or comfort letters, as the case may be, as Holders or the underwriter reasonably requests. (k) Holders shall conform to all applicable requirements of the Securities Act and the Exchange Act with respect to the -56- 65 offering and sale of securities, and, if applicable, shall advise each underwriter, broker or dealer through which any of the Buyer Shares are offered that the Buyer Shares are part of a distribution that is subject to the prospectus delivery requirements of the Securities Act. (l) With respect to any registration statement effected pursuant to this Article X, Buyer agrees to indemnify and hold harmless Holders, and their respective successors, assigns, heirs, estates, and representatives, officers and directors and each person, if any, who controls any Holder within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, against any and all losses, claims, damages, or liabilities to which Holders or any such persons or entities may become subject under the Act or any other statute or common law, and to reimburse Holders and such persons for any reasonable legal or other expenses actually and reasonably incurred by any of them in connection with investigating any claims and defending any actions, insofar as such losses, claims, damages, liabilities, or actions arise out of or are based upon any untrue statement, or alleged untrue statement, of a material fact contained in or incorporated by reference in any preliminary prospectus included in the registration statement or filed with the SEC pursuant to Rule 424(a) under the Securities Act (the "Preliminary Prospectus"), the registration statement or the final prospectus filed pursuant to Rule 424(b) under the Securities Act (the "Prospectus"), or any amendment thereof or supplement thereto, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that the indemnification provisions contained in this Section 10.5 shall not apply to such losses, claims, damages, liabilities, or actions arising out of, or based upon any untrue statement or alleged untrue statement, or any omission or alleged omission, if such statement or omission was made in reliance upon and in conformity with written information furnished by Holders specifically for inclusion in the registration statement or such Preliminary Prospectus or Prospectus or any such amendments thereof or supplement thereto. (m) With respect to any registration statement effected pursuant to this Article X, Holders, jointly and severally, agree to indemnify and hold harmless Buyer and each Person, if any, who controls Buyer within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, its directors and those officers of Buyer who shall have signed the registration statement or any post-effective amendment thereof against any and all losses, claims, damages or liabilities to which Buyer or any such person may become subject under the Act or any other statute or common law, and to reimburse Buyer and such persons for any reasonable legal or other expenses actually and reasonably incurred by any of them in connection with investigating any claims and defending any actions, insofar as such losses, claims, damages, liabilities or -57- 66 actions arise out of or are based upon any untrue statement, or alleged untrue statement, of a material fact contained in or incorporated by reference in the Preliminary Prospectus, the registration statement or the Prospectus or any amendment thereof or supplement thereto, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent that such untrue statement or alleged untrue statement or alleged omission was made in any Preliminary Prospectus, the registration statement or the Prospectus or any amendment thereof or supplement thereto in reliance upon and in conformity with any written information furnished to Buyer by Holders specifically for inclusion in the registration statement or such Preliminary Prospectus or Prospectus or any such amendments thereof or supplements thereto. Notwithstanding the foregoing, in no event shall any such Holder be liable to the Buyer or any such person under this Section 10.5(m) in an aggregate amount in excess of the net proceeds received by such Holder from the offering and sale of Buyer Shares owned by such Holder. (n) Each indemnified party under this Article X shall, promptly after the receipt of notice of the commencement of any action against such indemnified party in respect of which indemnity may be sought from an indemnifying party on account of an indemnity agreement contained in this Section 10.5, notify the indemnifying party in writing of the commencement thereof; provided, however, that the omission to so notify the indemnifying party shall not relieve the indemnifying party from any liability which it may otherwise have to such indemnified party except to the extent that the indemnified party's failure to notify the indemnifying party caused additional damages to be sustained by such party or materially prejudiced the ability of such party to defend against or prevent any loss, damage, or liability. If any such action is brought against any indemnified party and it notifies the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it elects by delivering written notice to the indemnified party promptly after receiving notice of the commencement of the action from the indemnified party, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party, provided that such counsel shall not be deemed unsatisfactory solely because it will also assume the defense of one or more other indemnified parties. After notice from the indemnifying party to such indemnified party of its election to assume the defense thereof, the indemnifying party shall not be responsible to such indemnified party under this Section 10.5 for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof except as provided below. The indemnified party will have the right to employ its own counsel in any such action, but the fees, expenses and other charges of such counsel will be at the expense of such -58- 67 indemnified party unless (1) the employment of counsel by the indemnified party has been authorized in writing by the indemnifying party, (2) the indemnified party has reasonably concluded (based on advice of counsel) that there may be legal defenses available to it or other indemnified parties that are different from or in addition to those available to the indemnifying party, (3) a conflict or potential conflict of interest exists (based on advice of counsel to the indemnified party) between the indemnified party and the indemnifying party or (4) the indemnifying party has not in fact employed counsel to assume the defense of such action within a reasonable time after receiving notice of the commencement of the action, in each of which cases the reasonable fees, disbursements and other charges of such counsel will be at the expense of the indemnifying party or parties. It is understood that the indemnifying party or parties shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees, disbursements and other charges of more than one separate firm admitted to practice in such jurisdiction at any one time for all such indemnified parties. An indemnifying party will not be liable for any settlement of any action or claim effected without its written consent, which consent will not be unreasonably withheld. (o) If the indemnification provided for in this Section 10.5 from the indemnifying party is unavailable to an indemnified party for any loss, claim, damage, liability, or expense covered thereby, then the indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage, liability, or expense. The contribution of such indemnifying party shall be limited to the proportionate share of the amount paid or payable that reflects the relative fault of the indemnifying party with respect to such loss, claim, damage, liability, or expense, and, in the case of a Holder, shall further be limited as provided in the last sentence of Section 10.5(m). The relative fault shall be determined by reference to, among other things, whether any untrue or alleged untrue statement of material fact or any omission or alleged omission of a material fact was made by or relates to information supplied by the indemnifying party. The parties to this Agreement agree that it would not be just and equitable to determine contribution under this Section 10.5 by pro-rata allocation or by any other method which does not take into account the equitable considerations referred to above. Notwithstanding anything to the contrary in this Section 10.5, no Person found guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not found guilty of fraudulent misrepresentation. Section 10.6 Rule 144; Removal of Legends. Buyer covenants that it will file on a timely basis the reports required to be filed by it under the Securities Act and the Exchange Act and the -59- 68 rules and regulations adopted by the SEC thereunder, and it will take such further action as any Holder may reasonably request, all to the extent required from time to time to enable Holders to sell Buyer Shares without registration under the Securities Act within the limitation of the exemptions provided by (i) Rule 144 and Rule 144A under the Securities Act, as such rules may be amended from time to time, or (ii) any similar rule or regulation hereafter adopted by the SEC. Upon the request of any Holder, Buyer will deliver to Holders a written statement as to whether it has complied with such reporting requirements. Whenever a Holder has met the requirements for transfer of any of the Buyer Shares pursuant to subparagraph (k) of Rule 144 (as amended from time to time), or pursuant to any successor provision thereof, Buyer shall cause to be issued upon request to such Holder a new certificate representing such shares that does not bear a restrictive legend regarding transferability under applicable federal or state securities laws. Section 10.7 Remedies. In case any one or more of the covenants and/or agreements set forth in this Article X shall have been breached by either party, the other party may proceed to protect and enforce its rights either by suit in equity and/or by action at law, including, but not limited to, an action for damages as a result of any such breach and/or an action for specific performance of any such covenant or agreement contained in this Article X, and such remedies shall lie and be enforceable without regard to any set-off, claim or defense that the breaching party may have or assert against such other party, other than claims or defenses arising solely and exclusively under this Article X. Section 10.8 Cooperation of Sellers, PVF and Jemison. The Sellers, PVF and Jemison agree: (i) that they will reasonably cooperate with the Buyer and the underwriter in connection with the delivery of information concerning the Sellers, PVF and Jemison which is included in Buyer's Registration Statement which is being prepared by Buyer for the sale of the Securities (the "Offering"), which information relates to those transactions described in this Agreement; (ii) that they will use reasonable efforts to cause Sellers' Accountants to deliver comfort letters reasonably acceptable to Sellers' Accountants to the underwriters in the Offering with respect to audited historical financial information concerning the Sellers and PVF, which information is included in such Offering documentation; and (iii) that they will use reasonable efforts to cause their attorneys to permit the underwriters in the Offering to rely upon those opinions which Buyer receives pursuant to Section 8.05 of this Agreement. -60- 69 ARTICLE XI INDEMNIFICATION Section 11.01 Indemnification by the Sellers. The Sellers, PVF and Jemison, regardless of any prior knowledge, inspection or investigation on the part of the Buyer, hereby agree to indemnify and hold harmless the Buyer against and in respect of any direct out-of-pocket loss, damage or expense arising out of: (a) Any claim, liability, or obligation suffered or incurred by the Buyer resulting from or arising out of any misrepresentation, breach, or non-fulfillment of any representation, warranty, covenant or agreement on the part of the Sellers, PVF or Jemison contained in this Agreement; (b) Any liability or claim which may be asserted against the Buyer arising at any time following the Effective Time in connection with the Sellers' ownership or operation of the Business or Purchased Assets prior to the Effective Time, including, without limitation, any liability incurred by Buyer for sums accrued for on the Closing Date Financial Statements but which later prove to be inadequate, other than with respect to Assumed Obligations and matters with respect to which the Buyer has agreed to indemnify Sellers, PVF or Jemison under this Agreement; (c) All liabilities and obligations of the Sellers, PVF or Jemison arising prior to the Effective Time of every kind and description, regardless of how or when the same may have arisen, including the Excluded Obligations, except with respect to the Assumed Obligations and matters with respect to which Buyer has agreed to indemnify Sellers, PVF or Jemison under this Agreement; (d) All claims against, or claims of any interest in, or of a lien upon, any or all of the Purchased Assets, which arise in connection with events, acts, omissions, or circumstances occurring or existing on or prior to the Effective Time, except as approved by Buyer pursuant to Section 6.08 and as set forth on Schedule 5.07 attached hereto, except with respect to the Assumed Obligations and matters with respect to which Buyer has agreed to indemnify Sellers, PVF or Jemison under this Agreement; (e) Any liability or claim based on product liability, including property damage or personal injury or death referable thereto, with respect to an occurrence prior to the Effective Time involving products delivered by Sellers prior to the Effective Time; and (f) All actions, suits, investigations, proceedings, demands, assessments, judgments, reasonable attorneys' fees, direct out-of-pocket costs and expenses incident to the foregoing, -61- 70 including, but not limited to, any audit or investigation by any governmental entity. Section 11.02 Indemnification by the Buyer. The Buyer, regardless of any prior knowledge, inspection or investigation on the part of the Sellers, PVF or Jemison, hereby agrees to indemnify and hold harmless the Sellers, PVF and Jemison against and in respect of any direct out-of-pocket loss, damage or expense arising out of: (a) Any claim, liability, or obligation suffered or incurred by the Sellers, PVF or Jemison resulting from or arising out of any misrepresentation, breach, or non-fulfillment of any representation, warranty, covenant or agreement on the part of the Buyer contained in this Agreement; (b) Any liability or claim asserted against the Sellers, PVF or Jemison arising in connection with the Buyer's failure to pay or perform any of its obligations with respect to the Assumed Obligations; (c) Any liability or claim which may be asserted against the Sellers, PVF or Jemison arising at any time following the Effective Time in connection with the Buyer's ownership or operation of the Purchased Assets subsequent to the Effective Time; (d) Any liability or claim based on product liability or warranty, including property damage and personal injury or death referable thereto, with respect to an occurrence after the Effective Time involving products delivered either by Sellers prior to the Effective Time or by Buyer following the Effective Time; and (e) All actions, suits, investigations, proceedings, demands, assessments, judgments, reasonable attorneys' fees, direct out-of-pocket costs and expenses incident to the foregoing, including, but not limited to, any audit or investigation by any governmental entity. Section 11.03 Survival of Obligation to Indemnify. The obligation of each party hereto to indemnify the other party hereto shall survive the Closing, the transfer of the Purchased Assets and the payment of the consideration therefor until three (3) years following the Closing Date (the "Indemnification Period"), and shall continue thereafter only with respect to matters which the party seeking indemnity hereunder shall have given the other party written notice of as provided herein prior to the expiration of the Indemnification Period; provided, however, that the foregoing time limitation shall not apply with respect to claims by Sellers, PVF or Jemison against Buyer under Section 11.02(b) above. The Buyer shall be entitled to set-off against the Promissory Note, if applicable, any loss, damage or expense with respect to any indemnity claims which may arise under this Agreement. -62- 71 Section 11.04 Notice and Procedure. Any party claiming indemnity hereunder (hereinafter referred to as the "Indemnified Party") shall give the party against whom indemnity is sought (hereinafter referred to as the "Indemnifying Party") prompt written notice after obtaining knowledge of any claim or the existence of facts as to which recovery may be sought against the Indemnifying Party because of the indemnity provisions set forth in this Article XI. If such claim for indemnity arises in connection with a legal action instituted by, or a claim made by, a third party (hereinafter a "Third Party Claim"), the Indemnified Party hereby agrees that, within ten (10) business days after it is served with notice of the assertion of any Third Party Claim for which it may seek indemnity hereunder, the Indemnified Party will notify the Indemnifying Party in writing of such Third Party Claim. If the claim for indemnity arises in connection with a Third Party Claim, the Indemnifying Party shall have the right at any time after receipt of notice of such claim from the Indemnified Party to assume the defense (which assumption may be made under a reservation of rights) and to control the settlement and compromise of such action or claim at its sole expense. The Indemnified Party shall cooperate in such defense as reasonably necessary to enable the Indemnifying Party to conduct its defense, including providing the Indemnifying Party with reasonable access to such records as may be relevant to its defense. The Indemnifying Party shall be entitled to settle any such Third Party Claim without the prior written consent of the Indemnified Party provided that the Indemnifying Party provides the Indemnified Party with reasonable assurances that the Indemnified Party will be fully indemnified by the Indemnifying Party in connection with any such Third Party Claim. The Indemnified Party shall be entitled to retain its own counsel at its own expense in connection with any Third Party Claim that the Indemnifying Party has elected to defend. If the Indemnifying Party elects not to conduct the defense of a Third Party Claim, the Indemnified Party may defend and/or settle such Third Party Claim; provided, however, that the Indemnifying Party shall not be liable for any costs, damages or expenses arising out of any settlement effected without its prior written consent, unless at the time of such settlement the Indemnifying Party, upon being fully informed regarding the terms of such settlement and the facts and circumstances regarding the Third Party Claim, denies liability to the Indemnified Party for indemnification under this Agreement. The Indemnified Party and the Indemnifying Party agree to keep each other reasonably informed as to the progress of any matter that is the subject of an indemnity claim under this Agreement. The Indemnified Party further agrees to take any and all reasonable steps, including, without limitation, those steps reasonably requested by the Indemnifying Party, to mitigate any losses, damages or expenses with respect to any indemnity claim under this Agreement and to cooperate with the defense thereof. In the event it is ultimately determined that the Indemnified Party was not entitled to indemnification under this Agreement, and the -63- 72 Indemnifying Party has nonetheless assumed the defense of such asserted liability, then the Indemnified Party shall, at such time as it is ultimately determined that the Indemnified Party was not entitled to indemnification, reimburse the Indemnifying Party for the costs and expenses, including reasonable attorney's fees, incurred by the Indemnified Party in connection with such assumption. Section 11.05 Limitation on Indemnification Obligations. An Indemnified Party shall not be entitled to recover any amounts under this Agreement until the total amount for which the Indemnified Party would seek a recovery exceeds the sum of Five Hundred Thousand Dollars ($500,000) (the "Threshold Amount"), and then the Indemnified Party may recover only such sums which are in excess of the Threshold Amount, but in no event may the Indemnified Party be entitled to recover an amount under this Agreement in excess of Fifty Million Dollars ($50,000,000) (the "Indemnity Amount"), except such limitation shall not apply with respect to matters excluded in Section 11.06 from the exclusivity provisions of such Section, to the failure of the Buyer to pay the Adjusted Purchase Price under Article II of this Agreement, to deliver or register duly authorized, fully paid and nonassessable Common Stock to Sellers pursuant to Article II, or to any claim by Sellers, PVF or Jemison under Section 11.02(b) hereof. Notwithstanding anything to the contrary contained herein, the Buyer shall not be entitled to recovery under this Article XI if the subject matter of the claim is recovered from title or other insurance. Section 11.06 Indemnification Exclusive Remedy. Except with respect to intentional misrepresentation, indemnity obligations set forth in Article X of this Agreement, and indemnity obligations set forth in Section 11.08 of this Agreement, indemnification pursuant to the provisions of this Article XI shall be the sole and exclusive remedy of the parties hereto for any misrepresentation or breach of any warranty, covenant or agreement contained in this Agreement or in any closing document executed and delivered pursuant to the provisions hereof, or any other claim arising out of the transactions contemplated by this Agreement. Section 11.07 Nature of Liability of Sellers, PVF and Jemison. Each of the indemnity obligations of the Sellers, PVF and Jemison contained in this Article XI are joint and several. Section 11.08 Waiver of Bulk Sales and Indemnity. The parties hereby waive compliance with all applicable bulk sales laws. The Sellers, PVF and Jemison, however, agree to indemnify the Buyer and hold the Buyer harmless from and against any and all loss, cost or expense in connection with any claim (other than in respect of the Assumed Obligations or matters with respect to which Buyer has agreed to indemnify Sellers, PVF or Jemison under this Agreement) that would have been barred by the proper implementation -64- 73 of the practices and procedures called for under any applicable bulk sales laws. The indemnity provided by the Sellers, PVF and Jemison under this Section 11.08 (i) shall be in addition to and not in lieu of any indemnity provided to the Buyer under Section 11.01, but the Buyer shall not be entitled to collect from the Sellers, PVF and Jemison more than once for the same loss, cost or expense, and (ii) shall not be subject to (x) the time limitations set forth in Section 11.03 or (y) the limitation amount which is equal to the Indemnity Amount set forth in Section 11.05. Section 11.09 No Consequential Damages. With respect to any claim for indemnity under this Agreement or any dispute between Buyer and Sellers, PVF or Jemison arising out of this Agreement, no party shall be entitled to recover from any other party or parties any consequential damages, any damages for lost or future profits, or any punitive damages, except that such limitation shall not apply in the case of intentional misrepresentation or intentional fraud on the part of a party. Section 11.10 Right of Set-Off. Upon the occurrence or failure of an Indemnified Party to pay when due any amount required to be paid to an Indemnifying Party, or on upon the occurrence or failure of an Indemnified Party to satisfy any other liability or obligation from an Indemnified Party to the Indemnifying Party, including, without limiting the generality of the foregoing, any liability or obligation incurred under this Agreement, such Indemnifying Party is authorized, but shall not be obligated, at any time and from time to time, to set-off and apply such amount, liability or obligation against any and all payments required to be paid or satisfied by such Indemnifying Party under the terms of this Agreement, including, without limitation, pursuant to the indemnification provisions of this Article XI. ARTICLE XII CONDUCT OF THE PARTIES AFTER CLOSING Section 12.01 Cooperation. The Buyer, Sellers, PVF and Jemison will cooperate upon and after the Closing Date in effecting the orderly transfer of the Purchased Assets to the Buyer. Without limiting the generality of the foregoing, the Sellers, PVF and Jemison at the request of the Buyer and at the expense of Sellers, PVF and Jemison, but without additional consideration, and without regard to any indemnity limitation, will execute and deliver from time to time such further instruments of assignment, conveyance and transfer, will sign any documents necessary or useful to ensure that all of the right, title and interest in and to the Purchased Assets, the Assumed Leases and the Assumed Contracts vests in the Buyer, will cooperate in the conduct of litigation and the processing and collection of insurance claims (subject to the rights and obligations of the parties regarding indemnification -65- 74 under this Agreement), and will take such other actions as may reasonably be required to convey and deliver more effectively to the Buyer the Purchased Assets, the Assumed Leases and the Assumed Contracts or to confirm and perfect the Buyer's title thereto, as contemplated by this Agreement. PVF and Jemison shall use reasonable efforts to cause the Sellers to take all actions to cause the Buyer to be subrogated to any rights the Sellers may have under the insurance policies of Sellers which cover the Purchased Assets prior to Closing. Section 12.02 Access to Books and Records. As long as the Buyer retains the books and records of the Sellers acquired by the Buyer hereunder, it will provide the Sellers with reasonable access during customary business hours to such books and records for any legitimate business purpose and as long as the Sellers retain the books and records retained by the Sellers hereunder, they will provide the Buyer with reasonable access during customary business hours to such books and records for any legitimate business purpose. All such books and records shall be maintained in accordance with all applicable laws, rules and regulations and for a period of not less than six (6) years commencing on the Effective Time. Prior to the disposal of any such books and records by any party hereto, such party shall provide sixty (60) days' prior written notice to the other party and shall relinquish possession of such books and records to such other party upon receipt of a written request therefor within the sixty (60) day time period. Section 12.03 Manufacturers' and Suppliers' Warranties. After the Closing, the Sellers, PVF and Jemison will cooperate with and assist the Buyer, but without liability or undue expense to Sellers, PVF or Jemison, and subject to the rights of the parties to indemnification under this Agreement (but without regard to the Threshold Amount), to pursue any manufacturers' and suppliers' warranty claims pending as of the Closing Date or that may arise thereafter with respect to the Purchased Assets. Section 12.04 Use of License Tags. After the Closing, the Buyer will use its reasonable best efforts to obtain new license tags at the earliest practicable date for all of the Rolling Stock included in the Purchased Assets that require license tags. Until the earlier of (a) the date the new license tags are issued or (b) five (5) Business Days after the Closing Date, the Buyer shall be entitled to operate the Rolling Stock included in the Purchased Assets using the Sellers' license tags. The Buyer covenants and agrees that as long as the Buyer operates using the Sellers' license tags it shall have insurance policies in place, including umbrella policies providing motor vehicle liability coverage for all owned, non-owned and hired vehicles operated by the Buyer in an amount not less than One Million Dollars ($1,000,000) with deductibles aggregating not more than One Thousand Dollars ($1,000) per vehicle. The Buyer covenants and agrees to indemnify and hold harmless the Sellers from and against all loss, cost or expense, -66- 75 including reasonable attorneys' fees, by reason of any suit, claim or demand arising out of or resulting from the Buyer's operation of the Rolling Stock after the Effective Time using the Sellers' license tags. Section 12.05 Use of Name. The Sellers shall permanently discontinue the use of the Sellers' corporate names or any name derived therefrom or similar thereto effective upon the Closing Date. Within five (5) Business Days after the Closing Date, the Sellers shall amend their Articles of Incorporation to change their corporate names to names other than the corporate names as set forth in the preamble hereto or any name derived therefrom or similar thereto, which new names shall be approved in advance by the Buyer, and shall provide proof of such name changes to the Buyer no later than fifteen (15) days after the Closing Date. Section 12.06 Collection and Disposition of Accounts and Notes Receivable. All accounts and notes receivables transferred to Buyer hereunder as part of the Purchased Assets and which have prior to Closing been written off as uncollectible, but which are later collected by Buyer, shall remain the property of the Buyer. Section 12.07 Maintenance of Insurance. Buyer will maintain for a period of five (5) years after the Closing Date general liability insurance, including coverage for products liability, with coverage equal to or greater than present levels currently maintained by the Sellers, and will name the Sellers, PVF and Jemison as additional insureds under said insurance policies. ARTICLE XIII EXPENSES Section 13.01 Transactional Expenses. Except as otherwise expressly provided in this Agreement, the parties agree to bear their fees and expenses incident to the negotiation, preparation, execution, delivery and performance hereof, including without limitation, the fees and expenses of their counsel, accountants and other experts. ARTICLE XIV TERMINATION Section 14.01 Termination by Mutual Consent. On or prior to the Closing Date, the Buyer, Sellers, PVF and Jemison may terminate this Agreement by joint execution of an instrument to such effect. Subject to the provisions of any such instrument terminating this Agreement, no party will have any liability to the other party hereunder in the event of any termination of this Agreement -67- 76 pursuant to this Section, except that the parties will continue to be subject to the provisions of Sections 6.03(e), 6.05 and 13.01 of this Agreement relating to confidentiality, publicity and the allocation of transaction expenses. Section 14.02 Termination Due to Casualty or Condemnation. The Buyer may terminate this Agreement by reason of casualty or condemnation but only in accordance with the provisions of Sections 7.01 and 7.02, respectively, by giving written notice to the Sellers, PVF and Jemison of such termination. In the event of a termination of this Agreement pursuant to this Section, no party will have any liability to the other party hereunder, except that the parties will continue to be subject to the provisions of Sections 6.03(e), 6.05 and 13.01 of this Agreement relating to confidentiality, publicity and the allocation of transaction expenses. Section 14.03 Termination Attributable to Default. If either the Buyer, on the one hand, or any Seller, PVF or Jemison on the other hand, make any misrepresentation, breach any warranties or default in the due and timely performance of any covenants or agreements under this Agreement in any material respect, the non-defaulting party may give notice of termination to the defaulting party in the manner provided in Section 15.01; provided, however that with respect to breaches or misrepresentations of representations and warranties by a party or parties hereto, the other party or parties hereto shall only be entitled to terminate this Agreement in the event such misrepresentation or breach would result in the failure of the condition precedent set forth in Section 8.01 (with respect to Buyer's right to terminate) or Section 9.01 (with respect to Sellers' PVF's, and Jemison's right to terminate). The notice shall specify with particularity the default(s) on which this notice is based. The termination shall be effective five (5) Business Days after service unless the specified default(s) have been cured on or before the effective date of termination. Subject to Sections 8.03 and 9.03, termination pursuant to this Section 14.03 shall relieve the non-defaulting party from any obligations under this Agreement, but shall not relieve the defaulting party from liability for damages or other available remedies by reason of the breach of this Agreement prior to termination. Section 14.04 Termination Due to Failure to Satisfy Conditions. Either party hereto may terminate this Agreement in the event that the conditions precedent to such party's obligation to effect the transactions contemplated hereby which are contained in this Agreement are not satisfied on or before the Closing Date. -68- 77 ARTICLE XV MISCELLANEOUS Section 15.01 Notices. All notices, consents, waivers, demands and other communications under this Agreement must be in writing and will be deemed to have been duly given when (a) delivered by hand (with written confirmation of receipt), (b) sent by telecopier (with written confirmation of receipt), provided that a copy is mailed by registered or certified mail, return receipt requested, or (c) when received by the addressee, if sent by a nationally recognized overnight delivery service (receipt requested), in each case to the appropriate addresses and telecopier numbers set forth below (or to such other addresses and telecopier numbers as a party may designate by notice to the other parties: Buyer: Hughes Supply, Inc. 20 North Orange Avenue Orlando, Florida 32801 Attention: David H. Hughes Telecopier: (407) 649-1670 Sellers, PVF Jemison Investment Co., Inc. or Jemison: 320 Park Place Tower 2001 Park Place North Birmingham, Alabama 35203 Attention: James D. Davis Telecopier: (205) 324-7684 With copies to: Johnston, Barton, Proctor & Powell 2900 AmSouth/Harbert Plaza 1901 Sixth Avenue North Birmingham, Alabama 35203-2618 Attention: G. Burns Proctor, Jr. Telecopier: (205) 458-9500 and Bradley, Arant, Rose & White 1400 Park Place Tower 2001 Park Place North Birmingham, Alabama 35203 Attention: John B. Grenier Telecopier: (205) 252-0264 Section 15.02 Assignability and Parties in Interest. No party may assign any of its rights or delegate any of its obligations hereunder without the prior written consent of the other party. Notwithstanding the foregoing, however, this Agreement, and the rights of Buyer to acquire the Purchased Assets hereunder, and any covenants and agreements of the Buyer hereunder, -69- 78 or any of the other agreements contemplated to be delivered by the Buyer at Closing, may be assigned by Buyer, in whole or in part, to a wholly owned subsidiary or Affiliate of Buyer, in which event such subsidiary or Affiliate shall assume the obligations of Buyer under this Agreement or such agreement, the Buyer shall remain liable to Sellers under this Agreement and the Buyer shall unconditionally guarantee the payment and performance when due of each of the obligations of such subsidiary or Affiliate; provided, however, that the documentation regarding such assignment and guarantee by Buyer shall be in form and substance reasonably satisfactory to Sellers, PVF and Jemison and their respective counsel; and provided, further, that the Buyer may not deliver to the Sellers any common stock other than the Common Stock of the Buyer; provided, further, that any of the Sellers and PVF may assign to, and have assumed by, any one or more of Sellers, PVF or Jemison, all or any portion of its rights, duties and obligations under this Agreement (provided that the documentation in respect thereof is reasonably satisfactory to Buyer); and provided, further, that the Sellers and the Stockholders shall be entitled to assign their rights under Article X of this Agreement to any of their respective transferees of Buyer Shares so long as such transfer is effected in compliance with applicable federal and state securities laws and any contractual restrictions on transfer. This Agreement shall bind, inure to the benefit of and be enforceable by the respective successors and permitted assigns of the parties and it does not confer any rights on any other persons or entities. Section 15.03 Governing Law. This Agreement shall be construed and enforced in accordance with the local laws of the State of Florida applicable to agreements to be executed and performed wholly within said state without giving effect to its conflicts of laws provisions. Section 15.04 Counterparts. This Agreement may be executed in any number of counterparts and any party hereto may execute any such counterpart, each of which when executed and delivered will be deemed to be an original and all of which counterparts taken together will constitute but one and the same instrument. The execution of this Agreement by any party hereto will not become effective until counterparts hereof have been executed by all the parties hereto. It will not be necessary in making proof of this Agreement or any counterpart hereof to produce or account for any of the other counterparts. Section 15.05 Waiver. The failure of any party to insist upon strict performance of any of the terms or conditions of this Agreement will not constitute a waiver of any of its rights hereunder. Section 15.06 Complete Agreement. This Agreement, the Exhibits hereto and the Schedules hereto delivered pursuant to this -70- 79 Agreement contain the entire agreement between the parties hereto with respect to the transactions contemplated herein and, except as provided herein, supersede all previous oral and written and all contemporaneous oral negotiations, representations, commitments, writings and understandings relating to the subject matter hereof. Section 15.07 Modifications, Amendments and Waivers. At any time prior to the Closing Date or termination of this Agreement, the Buyer, on the one hand, and the Sellers, PVF and Jemison on the other hand, may, by written agreement: (a) extend the time for the performance of any of the obligations or other acts of the other party hereto; (b) waive any inaccuracies in the representations and warranties made by the other party contained in this Agreement or in the Schedules hereto or any other document delivered pursuant to this Agreement; and (c) waive compliance with any of the covenants or agreements of the other party contained in this Agreement. Section 15.08 Interpretation. The headings contained in this Agreement are for reference purposes only and will not affect in any way the meaning or interpretation of this Agreement. Section 15.09 Severability. If any provision of this Agreement is held illegal, invalid, or unenforceable, such illegality, invalidity, or unenforceability will not affect any other provision hereof. This Agreement will, in such circumstances, be deemed modified to the extent necessary to render enforceable the provisions hereof. Section 15.10 Time of Essence. The parties to this Agreement acknowledge and agree that time is of the essence with respect to the consummation of the transactions contemplated by this Agreement. Section 15.11 Gender, Number. Words of gender may be read as masculine, feminine, or neuter, as required by context. Words of number may be read as singular or plural, as required by context. All terms such as "herein," "hereby" or "hereunder" refer to this Agreement as a whole. Section 15.12 Exhibits and Schedules. All exhibits or schedules annexed hereto and the documents and instruments referred to herein or required to be delivered simultaneously herewith or at the Closing (the "Exhibits") are expressly made a part of this Agreement as fully as though completely set forth herein, and all references to this Agreement herein or in any of such Exhibits, schedules, documents or instruments shall be deemed to refer to and include all such Exhibits, schedules, documents and instruments. -71- 80 Section 15.13 Definition of Sellers', PVF's and Jemison's Knowledge. For the purposes of this Agreement, the knowledge of Sellers, PVF and Jemison shall be deemed to be limited to the actual knowledge of the individuals identified on Schedule 15.13 attached hereto. Section 15.14 Definition of Buyer's Knowledge. For the purposes of this Agreement, the knowledge of the Buyer shall be deemed to be limited to those individuals who hold the office of Chairman of the Board, President, Chief Financial Officer and General Counsel for the Buyer. Section 15.15 No Benefit to Others. The representations, warranties, covenants and agreements contained in this Agreement are for the sole benefit of the parties hereto and their respective successors and permitted assigns, and they will not be construed as conferring and are not intended to confer any rights on any other Persons. Section 15.16 Attorneys' Fees. In the event any party hereto institutes litigation to enforce its rights or remedies under this Agreement, the party prevailing in such litigation shall be entitled to receive an award from the non-prevailing party of the prevailing party's reasonable attorneys' fees and costs incurred in connection with such litigation. The foregoing shall include reasonable attorneys' fees and costs (including paralegals' fees) incurred at trial, on any appeal and in any proceeding in bankruptcy. Section 15.17 Certain Defined Terms. Except as otherwise defined in this Agreement, the following defined terms whether used in upper or lower case shall have the respective meanings set forth below: (a) The term "Affiliate" shall mean any controlled groups (within the meaning of Section 414(b) of the Internal Revenue Code of 1986, as amended (the "Code")) of which any party to this Agreement is a member, all trades or businesses, whether or not incorporated, under common control (within the meaning of Section 414(c) of the Code) and of which any party to this Agreement is a member, and all affiliated service groups (within the meaning of Section 414(m) of the Code of which any party to this Agreement is a member). (b) The term "Business Days" shall mean any day which is not a Saturday, Sunday or a permitted or required bank holiday in the States of Florida or Alabama. (c) The term "Common Stock" shall mean the $1.00 par value common capital stock of the Buyer. -72- 81 (d) The term "Executive Officers" shall mean those officers holding the office of Chairman of the Board, President, Vice President, Secretary and Treasurer. (e) The term "material" when referring to representations or warranties with respect to the Financial Statements, Sellers' Material Adverse Effect, Buyer's Material Adverse Effect, or a "material adverse change", shall be deemed to mean an effect or variance with respect to the Buyers or Sellers, as appropriate, the magnitude of which would result in an after tax net effect or variance of One Hundred Thousand Dollars ($100,000) or more, whether individually or in the aggregate, or when related to any other representation, warranty, covenant or agreement, shall be deemed to mean any effect or variance which results in an after tax net effect of Fifteen Thousand Dollars ($15,000) or more, whether individually or in the aggregate. (f) The term "Person" shall mean an individual, partnership, corporation, trust, unincorporated organization, or a federal, state, local or foreign governmental body or agency. (g) The term "Records" shall mean any paper, document, file or record of any kind, whether recorded in writing or on magnetic, optical, or any other storage medium, and including without limitation all computer records in whatever form. (h) The term "Rolling Stock" shall mean automobiles, trucks, trailers, forklifts, loaders, tractors and other motorized vehicles of every type and nature. Section 15.18 Survival of Agreement. This Agreement and the representations, warranties, covenants and agreements contained herein shall survive the Closing of the transactions contemplated hereby. Section 15.19 Recitals. The recitals set forth at the beginning of this Agreement, as well as the definitions contained therein, are by this reference incorporated herein and made a part of this Agreement. -73- 82 [Page 74 intentionally left blank] -74- 83 IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be signed as of the date first above written. "BUYER" HUGHES SUPPLY, INC., a Florida corporation Attest: By: /s/ David H. Hughes -------------------------- ------------------------------ J. Stephen Zepf David H. Hughes CFO and Treasurer Chairman of the Board "SELLERS" SOUTHWEST STAINLESS, INC., a Texas corporation Attest: By: /s/ Michael L. Stanwood -------------------------- ------------------------------ Michael L. Stanwood President MULTALLOY, INC., a New Jersey corporation Attest: By: /s/ Michael L. Stanwood -------------------------- ------------------------------ Michael L. Stanwood President MULTALLOY, INC., a Texas corporation Attest: By: /s/ Michael L. Stanwood -------------------------- ------------------------------ Michael L. Stanwood President HOUSTON PRODUCTS & MACHINE, INC., a Texas corporation Attest: By: /s/ Michael L. Stanwood -------------------------- ------------------------------ Michael L. Stanwood President -75- 84 "PVF" PVF HOLDINGS, INC., a Delaware corporation Attest: By: /s/ HCL Day ---------------------- ---------------------------- HCL Day Chairman "JEMISON" JEMISON INVESTMENT CO., INC., a Delaware corporation Attest: By: /s/ HCL Day ---------------------- ---------------------------- HCL Day Chairman Schedules and Exhibits Omitted from Asset Purchase Agreement Filed as Exhibit 2 to the Registration Statement of Hughes Supply, Inc. on Form S-3. All of the Schedules and Exhibits listed under "Schedules and Exhibits" on pages VI and VII of this Asset Purchase Agreement filed as Exhibit 2 to the Registration Statement of Hughes Supply, Inc. on Form S-3 have been omitted pursuant to Item 601(b)(2) of Regulation S-K as the Registrant does not deem any of such omitted Schedules or Exhibits material to a decision to invest in the Common Stock offered in connection with the aforementioned registration statement. The Registrant agrees to furnish supplementally a copy of any such omitted Schedule or Exhibit to the Securities and Exchange Commission upon request. -76- EX-11 3 SCHEDULE OF EARNINGS PER SHARE 1 EXHIBIT 11 HUGHES SUPPLY, INC. SUMMARY SCHEDULE OF EARNINGS PER SHARE CALCULATIONS Potentially dilutive securities: a) Options for common stock, issued under stock option plan. b) 7% Convertible subordinated debentures, due May 1, 2011.
FISCAL YEARS ENDED --------------------------- LINE 1/29/94 1/28/95 1/27/96 ---- ------- ------- ------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) SHARES 1 Average shares outstanding.................................. 5,047 6,117 6,725 2 Incremental shares (options) -- Assuming options outstanding at end of period were exercised at beginning of period (or time of issuance, if later) and proceeds were used to purchase shares at average market price during the period.................... 96 142 130 ------- ------- ------- 3 Shares used in calculating Earnings Per Common and Common Equivalent Share.......................................... 5,143 6,259 6,855 4 Incremental shares (options) -- Assuming options outstanding at end of period were exercised at beginning of period (or time of issuance, if later) and proceeds were used to purchase shares at the higher of the average market price during the period or the market price at the end of the period; and that options exercised during the period were exercised at the beginning of the period (or time of issuance, if later) and the proceeds were used to purchase shares at the market price at the date of exercise...................... 85 4 80 5 Incremental shares (debentures) -- Assuming debentures were converted at beginning of period (or time of issuance, if later) at most advantageous (for security holder) conversion rate that becomes effective within 10 years........................................... 1,085 180 -- ------- ------- ------- 6 Shares used in calculating Earnings Per Common Share -- Assuming Full Dilution........................... 6,313 6,443 6,935 ====== ======= ======= EARNINGS 7 Net income per financial statements, used in calculating Earnings Per Common Share and Earnings Per Common and Common Equivalent Share................................... $6,524 $11,485 $16,050 8 Incremental earnings (debentures) -- Assuming interest charges applicable to convertible debentures (and nondiscretionary adjustments that would have been made based on net income) are taken into account in determining balance of income applicable to common stock..................................................... 996 166 -- ------- ------- ------- 9 Earnings used in calculating Earnings Per Common Share -- Assuming Full Dilution.................................... $7,520 $11,651 $16,050 ====== ======= =======
2
FISCAL YEARS ENDED --------------------------- LINE 1/29/94 1/28/95 1/27/96 ---- ------- ------- ------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) RESULTING PER SHARE DATA 10 Earnings per common share (Line 7/Line 1)................... $ 1.29 $ 1.88 $ 2.39 ====== ======= ======= 11 Earnings per common share and common equivalent share (Line 7/ Line 3)................................................ $ 1.27 $ 1.83 $ 2.34 ====== ======= ======= 12 Dilution.................................................... 1.6 % 2.7% 2.1% ====== ======= ======= 13 Earnings per common share -- assuming full dilution (Line 9/ Line 6)................................................... $ 1.19 $ 1.81 $ 2.31 ====== ======= ======= 14 Dilution.................................................... 7.8 % 3.7% 3.3% ====== ======= ======= 15 Used in statements of income: [ ] Line 10, if dilution less than 3%, or antidilution, exists for all periods. [X] Lines 11 and 13, if dilution > = 3% for any period.
EX-23.2 4 CONSENT OF COOPERS & LYBRAND 1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion and incorporation by reference in this registration statement on Form S-3 of Coopers & Lybrand's report, dated March 17, 1994, on Coopers & Lybrand's audit of the consolidated statements of income, shareholders' equity, and cash flows of Hughes Supply, Inc. and subsidiaries, for the fiscal year ended January 28, 1994 which report is included in this Prospectus and incorporated by reference in the Company's Annual Report on Form 10-K for the fiscal year ended January 26, 1996. We also consent to the reference to Coopers & Lybrand under the caption "Experts." COOPERS & LYBRAND L.L.P. Orlando, Florida April 1, 1996 EX-23.3 5 CONSENT OF DELOITTE & TOUCHE 1 INDEPENDENT AUDITORS' CONSENT We consent to the use in this Registration Statement of Hughes Supply, Inc. on Form S-3 of our report dated September 25, 1995 (October 25, 1995 and March 27, 1996 as to Note 9) on the consolidated financial statements of PVF Holdings, Inc. and subsidiaries, appearing in the Prospectus, which is part of this Registration Statement. We also consent to the reference to us under the heading "Experts" in such Prospectus. Deloitte & Touche, LLP Birmingham, Alabama April 1, 1996 EX-23.4 6 CONSENT OF PRICE WATERHOUSE 1 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We hereby consent to the inclusion and incorporation by reference in the Prospectus constituting part of the Registration Statement on Form S-3 of our report dated March 14, 1996 relating to the consolidated financial statements of Hughes Supply, Inc., which appears in such Prospectus. We also consent to the references to us under the heading "Experts" in such Prospectus. Price Waterhouse LLP Orlando, Florida April 2, 1996 -----END PRIVACY-ENHANCED MESSAGE-----