Company Name: Hughes Supply, Inc.
Public Availability Date: October 4, 2004
Securities Exchange Act of 1934 Reg. M 102
Securities Exchange Act of 1934 Section Reg. M ---
Document Sections: INQUIRY LETTER
STAFF REPLY LETTER
[INQUIRY LETTER]
VIA OVERNIGHT DELIVERY AND FACSIMILE (202-347-6539) October 4, 2004 Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Attention: James A. Brigagliano Division of Market Regulation Re: Hughes Supply, Inc. Request for Exemption under Regulation M, Rule 102(e)
Ladies and Gentlemen: We are writing on behalf of our client, Hughes Supply, Inc., a Florida
corporation ("Hughes Supply" or the "Company"), to request that the staff at the
Division of Market Regulation (the "Staff"), pursuant to delegated authority,
grant an exemption pursuant to Rule 102(e) of Regulation M under the Securities
Exchange Act of 1934 ("1934 Act") from the prohibition set forth in Rule 102(a)
of Regulation M if Hughes Supply conducts a rescission offer for certain shares
of its common stock while it offers its shares to the public. I. BACKGROUND Hughes Supply Founded in 1928, Hughes Supply is one of the largest diversified wholesale
distributors of construction, repair and maintenance-related products in the
United States. Hughes Supply distributes over 350,000 products to more than
100,000 customers through approximately 500 branches located in 38 states. Its
principal customers include electrical, plumbing and mechanical contractors;
public utilities; property management companies; municipalities; and industrial
companies. Hughes Supply's common stock is registered pursuant to Section 12(b) of the 1934
Act and is traded on the New York Stock Exchange under the symbol "HUG". The Form S-3 Shelf Registration Statement On June 14, 2004, Hughes Supply filed a registration statement on Form S-3 with
the Securities and Exchange Commission ("Commission") relating to its proposed
offer and sale, from time to time, of debt securities, shares of common stock,
warrants, stock purchase contracts and units comprised of any or all of these
securities for an aggregate offering price of up to $700,000,000, File No.
333-116464, which was amended on September 17, 2004 to include 300,000 shares of
common stock that may be offered and sold on behalf of a selling shareholder who
is an affiliate of Hughes Supply (as amended, the "Shelf Registration
Statement"). All common share amounts and prices in this letter reflect Hughes
Supply's two-for-one stock split paid on September 22, 2004. The Shelf
Registration Statement was declared effective by the Commission on September 24,
2004. Hughes Supply anticipates that, if market conditions permit, it may engage
in an offering of common stock or other securities pursuant to the Shelf
Registration Statement. The Rescission Offer In June 1998, Hughes Supply filed a registration statement on Form S-8 to
register 500,000 shares of its common stock (the "401(k) Plan Shares") to be
acquired by participants in the Hughes Supply, Inc. Cash or Deferred Profit
Sharing Plan and Trust (the "401(k) Plan") pursuant to the 401(k) Plan and the
interests of those participants in the 401(k) Plan. Subsequent to filing the
registration statement, the 401(k) Plan did not file annual reports on Form
11-K. At some point in time, purchases of common stock by the 401(k) Plan
participants exceeded the number of 401(k) Plan Shares covered by the Form S-8
registration statement. Consequently, the acquisition by the 401(k) Plan's
trustee for the benefit and at the direction of 401(k) Plan participants of
shares of common stock of Hughes Supply may not have been registered in
compliance with applicable securities laws. The 401(k) Plan filed its Form 11-K
for the fiscal year ended January 30, 2004 on August 13, 2004. Hughes Supply
filed a Form S-8 to register the acquisition of additional shares of its common
stock by 401(k) Plan participants on August 25, 2004. Hughes Supply believes that the statute of limitations period that applies to
claims for rescission by 401(k) Plan participants under applicable federal laws
is one year. Hughes Supply is considering offering a right of rescission (the
"Rescission Offer") to those 401(k) Plan participants who may have received
shares of its common stock in violation of applicable securities laws during the
one year preceding the date of its filing of the new Form S-8 registration
statement on August 25, 2004. Under the Rescission Offer, the 401(k) plan
participants would be entitled to require Hughes Supply to repurchase those
shares at the price per share of Hughes Supply's common stock when the shares
were transferred to the participant's account, plus interest at a rate to be
determined. Based upon its preliminary investigation, Hughes Supply currently
believes that approximately 168,320 shares of its common stock may have been
transferred to a total of 3,337 401(k) Plan participants between August 25, 2003
and August 25, 2004, and, if subject to rescission, would have an aggregate
repurchase price of approximately $4.3 million, plus interest. Hughes Supply would file a registration statement on Form S-3 to register the
Rescission Offer under the Securities Act of 1933 (the "1933 Act") as promptly
as practicable. This registration statement would register 168,320 shares of
common stock that would be subject to the Rescission Offer. Hughes Supply
anticipates that it would commence the rescission offer as soon as practicable,
assuming the registration statement relating to the Rescission Offer has been
declared effective by the Staff. The Rescission Offer would be kept open for at
least 30 days. The Rescission Offer would not be contingent upon the completion
of any public offering pursuant to the Shelf Registration Statement, although
Hughes Supply may commence the Rescission Offer after a public offering pursuant
to the Shelf Registration Statement is completed, if market conditions permit.
The Rescission Offer would not be generally advertised and would be offered to
existing Hughes Supply employees and shareholders who hold shares pursuant to
the 401(k) Plan that are subject to the Rescission Offer. Each of these
employees and shareholders would receive a copy of the prospectus relating to
the Rescission Offer. Shares of common stock not repurchased by Hughes Supply
pursuant to the Rescission Offer would be deemed to be registered shares under
the 1933 Act effective as of the commencement date of the Rescission Offer
without any further action on the part of the offerees in the Rescission Offer.
Participants in the Rescission Offer would also be advised that non-acceptance
of the Rescission Offer may not terminate such person's right to bring civil
action against Hughes Supply under federal securities laws before the expiration
of any applicable statute of limitations, but that in any litigation brought by
an offeree who does not accept the Rescission Offer, Hughes Supply intends to
assert, among other defenses, that such offeree is estopped or otherwise
precluded from bringing such claims. The rescission offer would be conducted solely by Hughes Supply personnel, and
Hughes Supply has not, and would not, retain any underwriters to act as
dealer-managers in connection with the Rescission Offer or to otherwise
participate in, or facilitate, the Rescission Offer. Hughes Supply expects that
it would be able to fund any costs related to the Rescission Offer from its
current cash balances and would not be relying on the proceeds of any public
offering pursuant to the Shelf Registration Statement to make any purchases
pursuant to the Rescission Offer. II. DISCUSSION OF APPLICABLE LAW Regulation M; Rule 102 Rule 102 of Regulation M is designed to prevent manipulation of the trading
markets while a distribution of securities is in process. Rule 102 accomplishes
this by prohibiting an issuer (and certain other persons participating in a
distribution) from bidding for or purchasing securities of the same class being
distributed during the distribution process because such bids and purchases
might create an appearance of trading activity which is unjustified or might
maintain or increase the prices at which the securities are being traded. As
stated in its adopting release, Regulation M was adopted by the Commission with
the intent to preclude manipulative conduct by persons with an interest in the
outcome of the offering. Rule 102 of Regulation M contains various exceptions from the limitations or
prohibitions upon the purchase of securities while a distribution is in process.
In addition, Rule 102(e) provides that upon written application or upon its own
motion, the Commission may grant an exemption from the provisions of Rule 102,
either unconditionally or on specified terms and conditions, to any transaction
or class of transactions or to any security or class of securities. Hughes Supply's proposed Rescission Offer would include an offer to purchase its
common stock, which may also be the subject of a public offering by Hughes
Supply and possibly one of its shareholders pursuant to the Shelf Registration
Statement if market conditions permit. Accordingly, if Hughes Supply and its
selling shareholder engage in a public offering of common stock pursuant to the
Shelf Registration Statement, the Rescission Offer may be deemed to be in
violation of Rule 102(a) because Hughes Supply would be bidding for shares of
its common stock concurrently with the public offering. Rule 102 was promulgated
to prevent participants in a distribution of securities from artificially
maintaining the trading price of the security above that which would otherwise
prevail as a result of market factors. The purposes of Rule 102(a) would not be furthered by its application to Hughes
Supply's proposed Rescission Offer because there is little possibility that the
Rescission Offer would affect or manipulate the price at which the shares of
Hughes Supply's common stock would be sold in any public offering pursuant to
the Shelf Registration Statement while the Rescission Offer is ongoing. It is
unlikely that the Rescission Offer could be used to manipulate the offering
price of Hughes Supply's common stock as the prices at which Hughes Supply would
offer to repurchase the shares of common stock in the Rescission Offer would be
entirely based on the historical purchase prices of these shares, and these
historical prices have no correlation with the current value of Hughes Supply's
common stock. In connection with the proposed Rescission Offer, Hughes Supply would offer to
repurchase shares of its common stock from a limited number of employees and
shareholders. The weighted average price of the shares subject to the Rescission
Offer would be approximately $25.56 per share. The high and low trading prices
of Hughes Supply's common stock on the New York Stock Exchange during the period
from August 1, 2004 to September 7, 2004 were $31.89 and $28.18, respectively.
Hughes Supply anticipates that if it were to engage in a public offering of its
common stock pursuant to the Shelf Registration Statement, the public offering
price would be determined in relation to its current market price. Consequently,
Hughes Supply currently does not anticipate that there would be economic
incentive for a significant number of offerees in the Rescission Offer to accept
the Rescission Offer, and the Rescission Offer should not increase or otherwise
affect trading in Hughes Supply's publicly traded stock. In addition, as discussed above, Hughes Supply has sufficient working capital to
fund the proposed Rescission Offer and would not be relying upon the proceeds of
any public offering pursuant to the Shelf Registration Statement to make these
purchases. The Rescission Offer would be directed to a limited number of
persons, would not be widely publicized and would be conducted solely by Hughes
Supply personnel, independent of any underwriter participating in any public
offering pursuant to the Shelf Registration Statement. Because the Rescission
Offer would be conducted in this manner, purchases made pursuant to the
Rescission Offer, if any, would be unlikely to artificially support the market
price for the shares to be distributed in any public offering pursuant to the
Shelf Registration Statement. Finally, Hughes Supply's sole purpose in
conducting the Rescission Offer would be to attempt to address violations of
securities laws in connection with the issuance of certain shares of its common
stock. We believe that the circumstances of Hughes Supply's proposed rescission offer
are similar to those described in previous requests in which an exemption was
granted, such as Google Inc. (August 16, 2004) and Plastics Manufacturing
Company (January 21, 2000), in which the Commission granted an exemption under
Rule 102(e) of Regulation M, and Criticare Systems, Inc. (June 22, 1987), in
which the Commission granted an exemption from Rule 10b-6, the predecessor to
Regulation M. In each of these requests, the applicant maintained that the
proposed rescission offer did not implicate the market manipulation concerns
underlying Regulation M because, among other reasons, it was highly unlikely
that a significant number of shares would be tendered pursuant to the rescission
offer and therefore bids for and purchases of shares pursuant to the rescission
offer would not appear to result in any of the abuses that Regulation M is
designed to prevent. III. REQUEST FOR RELIEF For the foregoing reasons, Hughes Supply believes that conducting the proposed
Rescission Offer in the manner described above would not pose the dangers of
market manipulation that Regulation M seeks to prevent and that the Rescission
Offer is necessary to effectuate the purposes of federal securities laws and
regulations in general. We therefore request that the Staff, pursuant to
delegated authority, grant an exemption pursuant to Rule 102(e) of Regulation M
under the 1934 Act from the prohibition set forth in Rule 102(a) of Regulation
M. If you have any questions with respect to this request or require any additional
information, please do not hesitate to call the undersigned at 407-244-5108. In accordance with Securities Act Release No. 33-6269 (December 5, 1980),
enclosed are seven (7) additional copies of this letter. Please acknowledge
receipt of this letter by date-stamping the enclosed extra copy of this letter
and returning it to the undersigned in the enclosed, self-addressed stamped
envelope. Very truly yours, HOLLAND & KNIGHT LLP /s/ Tom McAleavey cc: John Z. Par|pi|qe, Esq., Hughes Supply, Inc.
[STAFF REPLY LETTER]
October 4, 2004 Tom McAleavey, Esq. Holland & Knight LLP 200 South Orange Avenue, Suite 2600 P.O. Box 1526 (ZIP 32802-1526) Orlando, FL 32801 Re: Hughes Supply, Inc., Rescission Offer File No. TP 04-96 Dear Mr. McAleavey: In your letter dated October 4, 2004, as supplemented by conversations with the
staff, you request on behalf of Hughes Supply, Inc. ("Hughes Supply" or the
"Company") an exemption from Rule 102 of Regulation M to allow the Company to
bid for rescission shares while it continues to offer its shares to the public.
We have attached a copy of your letter to avoid reciting the facts that it
presents. Unless otherwise noted, each defined term in this letter has the same
meaning as defined in your letter. Response: Sometime after June 1998, participants in the Hughes Supply, Inc. Cash or
Deferred Profit Sharing Plan and Trust (the "401(k) Plan") purchased shares of
common stock which exceeded the number of 401(k) Plan Shares covered by the
Company's registration statement. Consequently, the acquisition by the 401(k)
Plan's trustee for the benefit and at the direction of 401(k) Plan participants
of shares of common stock of Hughes Supply may not have been registered in
compliance with applicable securities laws. In order to address this issue, the
Company desires to repurchase their shares through a rescission offer (the
"Rescission Offer"). The Company would file a registration statement covering
168,320 shares of common stock that would be subject to the Rescission Offer on
a Form S-3 under the Securities Act of 1933 to register the Rescission Offer as
promptly as possible. On June 14, 2004, the Company filed with the Commission, a registration
statement on Form S-3, under the Securities Act of 1933, relating to its
proposed offer and sale, from time to time, of debt securities, shares of common
stock, warrants, stock purchase contracts and units comprised of any or all of
these securities for an aggregate offering price of up to $700,000,000 (the
"Shelf Registration Statement"). The Company amended the Shelf Registration
Statement on September 17, 2004 to include 300,000 shares of common stock that
may be offered and sold on behalf of a selling shareholder who is an affiliate
of Hughes Supply. Following effectiveness of the Shelf Registration Statement,
the Company anticipates it may engage in an offering of common stock or other
securities pursuant to the Shelf Registration Statement, if market conditions
permit. As a result of a public offering of common stock pursuant to the Shelf
Registration Statement, the Company would be engaged in a distribution of Common
Stock subject to Regulation M. Consequently, unless exempted from the provisions
of Regulation M, the Company and its selling shareholder would be prohibited
from bidding for, purchasing, or attempting to induce any person to bid for or
purchase Common Stock, or any reference security, including bids or purchases in
connection with the Rescission Offer, until the offering is completed or
abandoned. You have requested relief from Rule 102 of Regulation M for the sale
of shares pursuant to the Shelf Registration Statement during the Rescission
Offer. In your correspondence, you make the following key representations:
The Rescission Offer will not be generally advertised and will be offered only
to the Company's existing employees and shareholders who hold shares pursuant to
the 401(k) Plan that are subject to the Rescission Offer;
The Rescission Offer will be conducted independent of any offering pursuant to
the Shelf Registration Statement;
The Rescission Offer will be conducted solely by Hughes Supply personnel, and
Hughes Supply has not, and will not, retain any underwriters to act as
dealer-managers in connection with the Rescission Offer or to otherwise
participate in, or facilitate, the Rescission Offer;
It is not anticipated that a significant number of offerees will accept the
Rescission Offer because most of the stock purchases that are subject to the
Rescission Offer occurred at prices below the current market value of the stock;
The Company will not be relying on the proceeds of any public offering
pursuant to the Shelf Registration Statement to make any purchases pursuant to
the Rescission Offer. Rule 102 prohibits issuers, selling security holders, and their affiliated
purchasers from bidding for, purchasing, or attempting to induce any person to
bid for or purchase a covered security during the distribution period.1
Accordingly, the Rescission Offer may constitute a bid by the Company during a
public offering that is prohibited by Regulation M. Based on the facts and
representations that you have made, the Rescission Offer would not appear to
result in any of the abuses that Rule 102 is designed to prevent. Accordingly,
on the basis of these facts and representations, but without necessarily
concurring in your analysis, the Commission hereby grants the Company an
exemption from Rule 102 of Regulation M pursuant to paragraph (e) thereof to
permit the Company to conduct the Rescission Offer as described. This exemption
is subject to the following conditions: 1. The Company shall provide to the Division of Market Regulation ("Division"),
upon request, a list of all stockholders that accept the Rescission Offer, and
the number of shares subject to the Rescission Offer and price per share
received by such accepting stockholders. 2. The prospectus supplement for any public offering pursuant to the Shelf
Registration Statement shall disclose that the Company has received an exemption
from the provisions of Rule 102. The foregoing exemption from Rule 102 of Regulation M is based solely on your
representations and the facts presented to the staff, and is strictly limited to
the application of this rule to the Rescission Offer. In the event that any
material change occurs with respect to any of those facts or representations,
the Rescission Offer should be discontinued, pending presentation of the facts
for our consideration. In addition, your attention is directed to the anti-fraud and anti-manipulation
provisions of the Exchange Act, particularly Sections 10(b) and 13(e), and Rule
10b-5 thereunder. Responsibility for compliance with these and any other
applicable provisions of the federal securities laws must rest with the
participants in the various transactions. The Division expresses no view with
respect to any other questions that the Rescission Offer may raise, including,
but not limited to, the adequacy of disclosure concerning, and the applicability
of any other federal or state laws to, the Rescission Offer. For the Commission, by the Division of Market Regulation, pursuant to delegated authority, /s/ James A. Brigagliano Assistant Director -----FOOTNOTES----- 1 See Securities Exchange Act Release No. 23611 (September 11, 1986), 51 FR
33242 (September 19, 1986). The release explains, among other things, that the
issuer is subject to Rule 10b-6 whenever an "affiliated purchaser" of the issuer
sells securities off the shelf. This analysis applies to Regulation M which
superseded Rule 10b-6.
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