<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 10, 1996
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
WILMAR INDUSTRIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
NEW JERSEY 5074 22-2232386
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION NO.)
ORGANIZATION)
---------------
303 HARPER DRIVE
MOORESTOWN, NJ 08057
(609) 439-1222
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
WILLIAM S. GREEN
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
WILMAR INDUSTRIES, INC.
303 HARPER DRIVE
MOORESTOWN, NJ 08057
(609) 439-1222
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
COPIES OF ALL COMMUNICATIONS TO:
STEPHEN M. GOODMAN RICHARD C. TILGHMAN, JR.
JAMES W. MCKENZIE, JR. PIPER & MARBURY L.L.P.
MORGAN, LEWIS & BOCKIUS LLP 36 SOUTH CHARLES STREET
2000 ONE LOGAN SQUARE BALTIMORE, MD 21201
PHILADELPHIA, PA 19103-6993 (410) 539-2530
(215) 963-5000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
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, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 426(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement 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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED(1) PER UNIT(2) PRICE(2) FEE
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, without
par value............. 4,335,500 shares $21.50 $93,213,250 $32,143
</TABLE>
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- -------------------------------------------------------------------------------
(1) Includes 565,500 shares which the Underwriters have the option to purchase
to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 under the Securities Act of 1933.
---------------
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.
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- -------------------------------------------------------------------------------
<PAGE>
WILMAR INDUSTRIES, INC.
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF
REGULATION S-K
<TABLE>
<CAPTION>
ITEM NUMBER
IN FORM S-1 LOCATION OR HEADING IN PROSPECTUS
----------- ---------------------------------
<C> <S>
1.Forepart of the Registration Statement
and Outside Front Cover Page of
Prospectus............................ Outside front cover page of Prospectus
2.Inside Front and Outside Back Cover
Pages of Prospectus................... Inside front cover page of Prospectus;
Outside back cover page of Prospectus
3.Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges.... Prospectus Summary; Risk Factors
4.Use of Proceeds......................... Prospectus Summary; Use of Proceeds
5.Determination of Offering Price......... Outside Front Cover Page of Prospectus;
Underwriting
6.Dilution................................ Not Applicable
7.Selling Security Holders................ Principal and Selling Shareholders
8.Plan of Distribution.................... Outside Front Cover of Prospectus;
Underwriting
9.Description of Securities to be
Registered............................ Outside Front Cover Page of Prospectus;
Prior S Corporation Status and Dividend
Policy; Description of Capital Stock
10.Interests of Named Experts and Counsel.. Legal Matters; Experts
11.Information with Respect to the
Registrant
a.Description of Business............... Prospectus Summary; The Company; Business
b.Description of Property............... Business
c.Legal Proceedings..................... Business
d.Market Price of and Dividends on the
Registrant's Common Equity and
Related Shareholders Matters....... Outside Front Cover of Prospectus;
Prior S Corporation Status and Dividend
Policy; Management; Principal and Selling
Shareholders; Description of Capital Stock
e.Financial Statements.................. Financial Statements
f.Selected Financial Data............... Selected Financial Data
g.Supplementary Financial Information... Not Applicable
h.Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... Management's Discussion and Analysis of
Financial Condition and Results of
Operations
i.Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure............... Not Applicable
j.Directors, Executive Officers and
Control Persons.................... Management
k.Executive Compensation................ Management
l.Security Ownership of Certain
Beneficial Owners and Management... Principal and Selling Shareholders
m.Certain Relationships and Related
Transactions....................... Management; Certain Transactions
12.Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities........................... Not Applicable
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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
JULY 9, 1996
3,770,000 Shares
[LOGO OF WILMAR APPEARS HERE]
Common Stock
-----------
Of the 3,770,000 shares of Common Stock (the "Common Stock") of Wilmar
Industries, Inc. ("Wilmar" or the "Company") offered hereby, 2,000,000 shares
are being sold by the Company and 1,770,000 shares are being sold by certain
shareholders of the Company (the "Selling Shareholders"). See "Principal and
Selling Shareholders." The Company will not receive any of the proceeds from
the sale of the shares by the Selling Shareholders. The Common Stock is traded
on The Nasdaq Stock Market under the symbol "WLMR." On July 8, 1996, the last
reported sale price of the Common Stock on The Nasdaq National Market was
$21.50 per share. See "Price Range of Common Stock."
-----------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.SEE "RISK
FACTORS" BEGINNING ON PAGE 7.
-----------
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS PROCEEDS
TO DISCOUNTS AND TO TO SELLING
PUBLIC COMMISSIONS COMPANY(1) SHAREHOLDERS
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<S> <C> <C> <C> <C>
Per Share......................... $ $ $ $
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Total(2).......................... $ $ $ $
</TABLE>
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- --------------------------------------------------------------------------------
(1) Before deducting expenses payable by the Company of the offering estimated
at $ .
(2) The Company has granted the Underwriters a 30-day option to purchase up to
an additional 565,500 shares of Common Stock solely to cover over-
allotments, if any. To the extent that the option is exercised, the
Underwriters will offer the additional shares at the Price to Public shown
above. If the option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will be
$ , $ and $ , respectively. See "Underwriting."
-----------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, and subject
to the right of the Underwriters to reject any order in whole or in part. It is
expected that delivery of the shares of Common Stock will be made at the
offices of Alex. Brown & Sons Incorporated, Baltimore, Maryland, on or about
, 1996.
Alex. Brown & Sons
INCORPORATED
William Blair & Company
Robertson, Stephens & Company
PaineWebber Incorporated
THE DATE OF THIS PROSPECTUS IS , 1996.
<PAGE>
[MAP OF WILMAR DISTRIBUTION CENTERS AND MARKETS SERVED]
----------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE OVER-THE-
COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS, IF ANY, MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON
STOCK ON THE NASDAQ NATIONAL MARKET, IN ACCORDANCE WITH RULE 10B-6A UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED ("THE EXCHANGE ACT"). SEE
"UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and the notes thereto appearing elsewhere
in this Prospectus. Except as otherwise specified, all information in this
Prospectus assumes no exercise of the Underwriters' over-allotment option. This
Prospectus contains forward-looking statements which contain risks and
uncertainties. Discussions containing such forward-looking statements may be
found in the information set forth under the captions "Risk Factors," "Use of
Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Market Overview" and "Business" as well as in the
Prospectus generally. Actual events or results may differ materially from those
discussed in the forward-looking statements as a result of various factors,
including without limitation the risk factors set forth below and the matters
set forth in the Prospectus generally.
THE COMPANY
Wilmar is a rapidly growing national marketer and direct distributor of
repair and maintenance products, principally to the apartment housing market.
Through its 1,000+ page Wilmar Master Catalog, the Company has become a "one-
stop shopping" resource for maintenance managers by offering the industry's
most extensive selection of over 15,000 standard and specialty plumbing,
hardware, electrical, janitorial and related products. By purchasing directly
from domestic and foreign manufacturers in relatively large volumes, Wilmar is
able to offer customers competitive prices on both name brand and private label
products. The Company seeks to win new accounts and increase sales to existing
accounts through a 112-person direct sales force, six full-time outbound
telesales representatives, a national accounts sales program, and monthly
direct mail flyers. Customer service representatives located at Wilmar's
centralized call center use the Company's proprietary software applications to
quickly process orders and answer customer inquiries. The Company provides
free, next-day delivery in local markets served by its distribution centers and
ships by parcel delivery services to other areas. Since 1991, Wilmar has
expanded from four distribution centers located in Philadelphia, Washington,
D.C., Houston and Indianapolis to 15 distribution centers located throughout
the United States. From 1991 to 1995, the Company's net sales increased at a
compound annual rate of 35.3%. Since November 1995, Wilmar has acquired four
regional repair and maintenance supply companies with total annualized net
sales of approximately $40 million.
Based on published industry data, the Company estimates that average annual
expenditures on repair and maintenance products by the apartment housing market
exceed $2.0 billion. This market is highly fragmented, with repair and
maintenance products sold through a variety of channels, including (i) numerous
local or regional broad-line suppliers that market their products using a
direct sales force and catalog, (ii) mail order catalog companies, (iii) retail
stores, (iv) specialty suppliers that focus on a single product category (such
as plumbing or electrical supplies), and (v) industrial suppliers that focus
primarily on other product categories and end markets but include a limited
number of repair and maintenance products in their catalogs. Wilmar believes
that it is the only national, broad-line supplier offering next-day delivery of
an extensive selection of repair and maintenance products to its targeted
markets through a direct sales force and catalog.
The Company believes it has gained market share due to the advantages of its
distinctive business model. The Wilmar Master Catalog, which offers the
industry's most extensive product selection at competitive prices in an easy-
to-use format, enables customers to consolidate purchases with a single vendor.
Wilmar's experienced and knowledgeable sales force provides technical product
advice, shop organization assistance and additional customer services not
generally available from mail order catalogs, retail stores or specialty
suppliers. Wilmar's high in-stock position and growing network of distribution
3
<PAGE>
centers permit reliable, next-day delivery to an increasing number of markets
in the United States, allowing maintenance managers to reduce on-hand inventory
and save time otherwise spent shopping for supplies. The Company believes that
the apartment housing market is consolidating and, as the Company adds
distribution centers throughout the United States, it will be well-positioned
to develop additional regional and national relationships with large property
management companies that are increasingly directing their maintenance managers
to purchase from preferred or authorized vendors.
Wilmar utilizes multiple marketing strategies to establish and solidify
customer relationships. The Company provides an updated edition of the Wilmar
Master Catalog to its customers twice yearly and, on a monthly basis, sends
direct mail flyers to both existing and prospective customers. Senior
executives and regional sales managers call on large property management
companies to establish national or regional relationships, while the Company's
direct sales force calls on local maintenance and property managers in 59
markets, including the 14 markets with a Wilmar distribution center. In other
targeted markets not currently served by local sales representatives, Wilmar
relies upon outbound telesales representatives to solicit new accounts and
service existing customers. The Company believes it garners a greater
percentage of its customers' overall spending on repair and maintenance
supplies in markets that are served by local Wilmar sales representatives,
particularly where the local sales representatives are supported by a nearby
distribution center, enabling free, next-day delivery of the Company's entire
product line.
The key elements of the Company's strategy to increase sales to the apartment
housing market are to (i) increase the direct sales force to win new accounts
in new and existing markets and to better serve accounts currently supported by
telesales, (ii) open new distribution centers and increase line-hauling to
expand the geographic range of the Company's next-day delivery capability,
particularly of larger items, (iii) increase the use of direct mail flyers and
expand the outbound telesales force to win new customers, and (iv) continue to
seek the acquisition of local and regional competitors.
The Company believes that it can also expand its sales to other end markets
that have customer demands and distribution channels similar to those in the
apartment housing market. These end markets include hotels and motels, nursing
homes, hospitals, prisons, military bases, schools and universities. As in the
apartment housing market, on-site maintenance managers in these end markets
typically manage large repair and maintenance budgets and need a broad array of
products delivered quickly at competitive prices. In 1995, the Company added
3,000 stock keeping units ("SKUs") to its Wilmar Master Catalog and initiated
sales efforts to address these new markets.
Wilmar's principal executive office is located at 303 Harper Drive,
Moorestown, New Jersey 08057, and its telephone number is 609-439-1222.
RECENT DEVELOPMENTS
On July 8, 1996, the Company acquired all of the stock of HMA Enterprises,
Inc. ("HMA"), a leading supplier of repair and maintenance products to the
apartment housing market in Texas ("HMA Acquisition"), for a base purchase
price of approximately $6.0 million in cash (including $1.5 million to repay
HMA's outstanding bank debt) and $1.6 million in the Company's Common Stock
(67,615 shares). The Company has placed $500,000 of the cash portion of the
purchase price in escrow to secure any indemnification claims by the Company
and any reduction in shareholder's equity between February 28, 1996 and June
30, 1996. In addition, the Company agreed to pay up to an additional $750,000
if HMA achieves specified revenue and EBIT targets between July 1, 1996 and
June 30, 1997 (the "Measurement Period"). To facilitate an orderly transition
to Wilmar's business model, the Company intends for HMA to operate
independently during the Measurement Period (except for product procurement and
certain centralized functions such as financial and accounting support,
insurance and legal support). Following
4
<PAGE>
the Measurement Period, the Company intends to fully implement its business
model at HMA. HMA had net sales of approximately $24.8 million for the
12 months ended February 29, 1996 from distribution centers in Dallas, Houston
and San Antonio, Texas. The Company used $3.5 million of available cash and
borrowed $2.5 million under its bank line of credit to finance the acquisition.
See "Unaudited Pro Forma Combined Financial Data" and HMA's Financial
Statements included elsewhere in this Prospectus.
In May 1996, the Company acquired all of the outstanding stock of Mile High
Maintenance Supply, Inc. ("Mile High"), for a purchase price of approximately
$1.5 million in cash, with up to an additional $250,000 payable if a specified
revenue target is met. Mile High had net sales of $4.1 million for the twelve
months ended December 31, 1995. The Mile High warehouse, serving the Colorado
market, became Wilmar's eleventh distribution center. Also in May 1996, the
Company acquired the assets of Sun Valley Maintenance Supply, Inc. ("Sun
Valley"), for a purchase price of approximately $250,000 in cash. Sun Valley
had net sales of $954,000 for the twelve months ended December 31, 1995. The
Sun Valley warehouse, serving the Las Vegas, Nevada and Phoenix, Arizona
markets, became Wilmar's twelfth distribution center.
The Company's net sales were approximately $40.7 million for the six months
ended June 28, 1996, compared to approximately $28.1 million for the six months
ended June 30, 1995.
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered By:
The Company.................. 2,000,000 shares
The Selling Shareholders..... 1,770,000 shares
----------------
Total...................... 3,770,000 shares
Common Stock to be outstanding
after the offering(1)......... 12,442,160
Use of proceeds................ To repay indebtedness and for working capital,
including possible acquisitions
Nasdaq National Market symbol.. WLMR
</TABLE>
- --------
(1) Excludes (i) 280,000 shares of Common Stock reserved for issuance upon
exercise of outstanding options granted between March and September 1995
with an exercise price of $4.23 per share, (ii) 100,000 shares of Common
Stock reserved for issuance upon exercise of outstanding options granted
upon the consummation of the initial public offering with an exercise price
of $11.00 per share and (iii) 420,000 shares reserved for future option
grants under the Company's 1995 Stock Option Plan. See "Management--
Employee Benefit Plans."
5
<PAGE>
SUMMARY FINANCIAL AND OPERATING DATA (IN THOUSANDS, EXCEPT PER SHARE AND
OPERATING DATA)
<TABLE>
<CAPTION>
THREE MONTH
FISCAL YEAR(1) PERIOD(2)
--------------------------------------- -------------------
1991 1992 1993 1994 1995 1995(3) 1996
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............. $18,132 $24,517 $35,640 $47,679 $60,823 $13,458 $19,309
Operating income...... 619 1,063 1,649 4,929 5,904 1,171 1,707
Income before income
taxes................ 574 1,014 1,476 4,640 4,740 970 1,626
Pro forma data(4):
Income tax
provision.......... 229 403 586 1,860 1,896 389 666
Net income.......... 345 611 890 2,780 2,844 581 960
Net income per
common share....... $ 0.31 $ 0.36 $ 0.07 $ 0.10
Weighted average
common shares
outstanding(5)..... 9,071 7,937 8,596 9,946
OPERATING DATA (AT PE-
RIOD END):
Distribution
centers(6)........... 4 5 6 7 10 7 10
Active customers(7)... 4,900 7,200 10,900 14,000 18,500 14,600 20,300
Total customer list... 8,200 13,200 19,400 27,700 39,800 29,800 42,500
</TABLE>
<TABLE>
<CAPTION>
MARCH 29, 1996
---------------------------
PRO FORMA(8) AS ADJUSTED(9)
------------ --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital................................... $19,874 $60,158
Total assets...................................... 40,749 78,523
Total debt........................................ 2,567 --
Total stockholders' equity........................ 26,515 66,865
</TABLE>
- --------
(1) The Company's fiscal year is based on a 52/53 week fiscal period ending on
the last Friday in December. Fiscal 1993 was a 53 week year while all
other fiscal years presented consist of 52 weeks.
(2) The three month periods ended on March 31, 1995 and March 29, 1996.
(3) In March 1995, the Company was recapitalized (the "1995 Recapitalization")
and, in connection therewith, incurred significant debt and issued
dividend bearing, mandatorily redeemable preferred stock. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations--Overview" and "Certain Transactions."
(4) Prior to March 1, 1995, the Company elected to be taxed as an S
Corporation for federal (and certain state) income tax purposes. Pro forma
information has been computed as if the Company had been subject to
federal income taxes and all applicable state corporate income taxes for
each period presented. The income tax provision and net income for the
three month period ended March 29, 1996 are actual amounts because the
Company was taxed as a C Corporation during the entire period.
(5) See Note 3 of Notes to Consolidated Financial Statements for a description
of the determination of weighted average common shares outstanding.
(6) Subsequent to March 29, 1996, the Company acquired five distribution
centers as part of the Mile High, Sun Valley and HMA acquisitions.
(7) Number of customers that have purchased products from the Company within
the 12 months preceding the relevant period end.
(8) Pro forma to reflect the HMA Acquisition as if it had occurred on March
29, 1996.
(9) Pro forma further adjusted to reflect the sale of the 2,000,000 shares of
Common Stock offered by the Company hereby (at an assumed offering price
of $21.50 per share) and application of the estimated net proceeds
therefrom. See "Use of Proceeds."
6
<PAGE>
RISK FACTORS
In addition to the other information contained elsewhere in this Prospectus,
the following risk factors should be considered carefully in evaluating an
investment in the shares of Common Stock offered by this Prospectus.
Integration of HMA Acquisition; Additional Acquisitions. Prior to November
1995, the Company had never made an acquisition. Since that time, the Company
has made four acquisitions, two of which, One Source Supply, Inc. ("One
Source") and HMA, were substantial in size. Wilmar is restricted in its
ability to integrate HMA's operations with Wilmar's operations during the
Measurement Period and HMA will be operated by its current management during
that time. There can be no assurance that HMA's business or the other acquired
businesses can be successfully integrated into Wilmar's or that Wilmar's
management will be successful in managing the combined operations. The
separate operating results of the Company, One Source and HMA and their pro
forma combined operating results may not be indicative of actual future
operating results of the combined entity. Also, there is a risk in any
acquisition that customers of the acquired company will not continue to do
business with the successor company following the acquisition. See "Unaudited
Pro Forma Combined Financial Data," "Business," the Company's Financial
Statements and HMA's Financial Statements.
An important element of the Company's growth strategy is to continue to seek
additional acquisitions of businesses that would expand the Company's
operations in new geographic regions, complement the Company's existing
business or enable the Company to accelerate its entry into new end markets.
There can be no assurance that Wilmar will be able to identify attractive
acquisition candidates or complete the acquisition of any identified
candidates, or that any acquired businesses can be successfully integrated
into Wilmar's business. A substantial portion of the Company's capital
resources, including a portion of the net proceeds of this offering, will be
necessary to finance such acquisitions, and the Company may require additional
debt or equity financing for future acquisitions which may not be available on
terms favorable to the Company, if at all. See "Business--Business Strategy."
Possible Inability to Manage Growth. The Company intends to grow its
business in large part by expanding into new geographic regions. When entering
new markets, the Company will be required to establish or acquire suitable
distribution centers or line-hauling, hire personnel and establish
distribution methods. To manage its expansion, the Company must continuously
evaluate the adequacy of its existing systems and procedures, including, among
others, its data processing, financial and internal control systems and
management structure. There can be no assurance that management will
adequately anticipate all of the changing demands that growth will impose on
the Company's systems, procedures and structure. Any failure to adequately
anticipate and respond to such changing demands is likely to have a materially
adverse effect on the Company. See "Business--Business Strategy."
Dependence on Systems. The Company's operations in each of its distribution
centers and its customer service and order-taking operations in its
headquarters are dependent on a single integrated computer system located at
the Company's headquarters in New Jersey. Each distribution center has a
continuous on-line connection to the Company's main computer in order to fill
and ship customer orders on a same-day basis. The Company also relies on its
computer system for inventory management and replenishment. Any significant
disruption or unavailability of the system for any significant time period
would have a materially adverse effect on the Company's business and results
of operations. Any disruption in telephone service to the Company's primary
call center at its New Jersey headquarters could result in the Company being
unable to accept orders. Although the Company has taken precautions to protect
itself from events that could interrupt its operations, including off-site
storage of back-up data, fire protection, physical security systems and an
early warning fire detection system, there can be no assurance that a
sustained electrical or communications link outage, fire, flood or other
natural disaster would not disable the system or prevent the system from
communicating with the regional distribution centers. See "Business--
Management Information Systems."
7
<PAGE>
Substantial Competition. The Company competes with broad-line suppliers,
most of which are local or regional and many of which employ sales
representatives and feature catalogs similar to the Company's. The Company
also competes with mail order catalogs, retail stores including superstores,
specialty suppliers and industrial suppliers. Some of the Company's
competitors have greater financial resources than the Company. There can be no
assurance that additional competitors with greater resources than the Company
will not enter the industry. See "Business--Competition."
Possible Inability to Penetrate New End Markets. An element of the Company's
growth strategy is to expand its business by offering its repair and
maintenance products to other end markets. The Company only recently began to
focus on marketing products to these end markets, and sales to customers in
these markets represented approximately 1.5% of the Company's net sales for
fiscal 1995. There can be no assurance that the Company can successfully
penetrate these new end markets to an extent comparable to its penetration of
the apartment housing market, and failure to do so could cause the Company's
actual revenue growth or profit margins to be less than management's
expectations. See "Business--Business Strategy."
Sources of Supply. As is customary in its industry, the Company does not
have long-term contracts with any of its vendors. Although the Company
believes it has access to similar products from competing vendors, any
disruption in the Company's sources of supply, particularly of the most
commonly sold items, could have a materially adverse effect upon the Company's
operations and profitability. In addition, the Company is subject to the risks
of obtaining products abroad, including adverse fluctuations in currency
exchange rates, increases in import duties, decreases in quotas, increased
customs regulations and political turmoil. The occurrence of any one or more
of the foregoing could adversely affect the Company's results of operations.
In fiscal 1993, 1994 and 1995, 11.0%, 16.2% and 16.5%, respectively, of the
Company's net sales were from products manufactured by vendors outside the
U.S. See "Business--Products and Merchandising."
Customer Concentration. A significant number of the Company's customers are
apartment complexes managed by two national property management companies that
have designated Wilmar as a preferred vendor. Sales to properties managed by
these two companies represented 13.0% of the Company's net sales for fiscal
1995. One of these property management companies also owns and manages Buyers
Access, a group purchasing organization ("GPO"), through which member
companies purchase products from designated vendors at discount prices. Sales
to members of the Buyers Access GPO, other than properties managed by the
company that owns Buyers Access, represented an additional 15.3% of the
Company's net sales for fiscal 1995. If these property management companies
were to eliminate Wilmar as a preferred vendor or if Wilmar were eliminated
from the Buyers Access GPO, the Company may lose sales to individual
properties managed by these two property management companies or to other
members of Buyers Access. See "Business--Sales and Marketing."
Reliance on Management. The continued success of the Company will depend to
a significant extent upon the efforts and abilities of senior management and
key employees, in particular those of William Green, its Chairman, President,
Chief Executive Officer and co-founder. The operations of the Company could be
affected adversely if for any reason Mr. Green or other executive officers or
key employees should no longer remain active in the Company's management. The
Company has an employment contract with Mr. Green and currently maintains $2.0
million of key-man life insurance on him. Also, there can be no assurance that
the Company will be able to attract and retain the additional qualified
management and other personnel it will need to expand. See "Management."
Control of the Company by Principal Shareholders. After completion of this
offering, William Green will own beneficially 19.5% of the outstanding Common
Stock, and Summit Ventures III, L.P., Summit Investors II, L.P. and Summit
Subordinated Debt Fund, L.P. (collectively, the "Summit Investors")
collectively will own beneficially approximately 12.7% of the outstanding
Common Stock. As a result, Mr. Green and the Summit Investors may have the
ability effectively to control the election of the Company's
8
<PAGE>
directors and the outcome of any other matter submitted to the shareholders
for approval, including any amendment to the Company's Certificate of
Incorporation or a merger, consolidation or sale of substantially all of the
Company's assets. See "Principal and Selling Shareholders" and "Description of
Capital Stock."
Effects of Recapitalization. As a result of the 1995 Recapitalization, the
Company's interest expense increased significantly and it became obligated to
accrue dividends on the mandatorily redeemable preferred stock. As a result,
the Company reported lower net income for fiscal 1995 than for fiscal 1994.
See "Prior S Corporation Status and Dividend Policy," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Certain
Transactions--Summit Financing and 1995 Recapitalization."
Shares Eligible for Future Sale; Registration Rights. Sales of a significant
number of shares of Common Stock in the market following this offering could
adversely affect the market price of the Common Stock and make it more
difficult for the Company to sell equity securities in the future at a time
and price it deems appropriate. Upon completion of this offering, the Company
will have 12,442,160 shares of Common Stock outstanding. Of these shares, the
4,600,000 shares issued in the initial public offering are, and the 3,770,000
shares offered hereby (4,335,500 shares if the Underwriters' over-allotment
option is exercised in full) will be, eligible for immediate sale in the
public market without restriction unless acquired by affiliates of the
Company. The Company, its officers, directors and existing shareholders have
agreed not to sell, or otherwise dispose of, directly or indirectly, any of
their shares for a period of 90 days after the date of this Prospectus without
the prior written consent of Alex. Brown & Sons Incorporated. All of the
2,424,545 outstanding shares of Common Stock Mr. Green will own after this
offering have been beneficially owned for more than two years and, therefore,
are eligible for resale in the public market, subject to this 90-day lock-up
agreement and the volume and other restrictions contained in Rule 144 ("Rule
144") promulgated by the Securities and Exchange Commission (the "SEC"). All
the 1,580,000 outstanding shares of Common Stock the Summit Investors will own
after this offering have been beneficially owned since March 9, 1995 and
therefore, will be eligible for resale in the public market, subject to the
90-day lock-up agreement and the volume and other restrictions contained in
Rule 144 on March 9, 1997 (or sooner if the SEC's proposed amendments to Rule
144 become effective). See "Description of Capital Stock--Registration Rights
Agreement" and "Shares Eligible for Future Sale."
Antitakeover Considerations. The Company's Certificate of Incorporation and
By-laws contain certain provisions that may have the effect of substantially
deterring a future takeover of the Company. These provisions vest more power
in the Company's Board of Directors with respect to takeovers of the Company
than applicable state anti-takeover laws, and are designed to encourage a
potential acquiror to enter into negotiations with the Company's Board of
Directors. See "Description of Capital Stock."
9
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the offering of the 2,000,000 shares of
Common Stock being offered by the Company are estimated to be $40.4 million
($51.9 million if the Underwriters' over-allotment option is exercised in
full), at an assumed public offering price of $21.50 per share, after
deducting estimated offering expenses and underwriting discounts and
commissions. Of the net proceeds, $2.5 million will be used to repay bank debt
used to finance a portion of the HMA Acquisition and the balance of the net
proceeds will be used for general working capital purposes and possible
acquisitions of companies engaged in the supply of repair and maintenance
products. Although the Company regularly evaluates possible acquisition
opportunities, it is not currently engaged in any negotiations regarding any
material acquisition and is not a party to any letter of intent or other
agreement regarding any material acquisition. Pending such uses, the Company
intends to invest the net proceeds of this offering in investment grade,
short-term, interest-bearing securities.
The Company will receive no proceeds from the sale of shares offered by the
Selling Shareholders hereby.
PRIOR S CORPORATION STATUS AND DIVIDEND POLICY
For all taxable periods prior to March 1, 1995, the Company was a
corporation subject to taxation under Subchapter S of the Internal Revenue
Code of 1986, as amended (the "Code"). As a result, prior to March 1, 1995,
the taxable income of the Company was taxed, for Federal and some state income
tax purposes, directly to the Company's shareholders rather than to the
Company. Upon termination of its S Corporation status on March 1, 1995, the
Company became subject to federal income taxes and certain additional state
income taxes and, in connection therewith, recorded a deferred tax asset of
approximately $230,000 in accordance with FAS 109. William Green, the
Company's sole shareholder immediately prior to March 1, 1995, included in his
taxable income for 1995 approximately $500,000, which constituted the
Company's taxable income for the period January 1, 1995 through February 28,
1995.
Although the Company regularly made cash distributions in the form of
bonuses and dividends to its shareholders when it was an S Corporation to
enable those shareholders to meet their tax obligations, the Company intends
to retain earnings to finance future operations and expansion and does not
expect to pay any dividends in the foreseeable future. Any future payment of
cash dividends will depend upon the financial condition, capital requirements
and earnings of the Company, as well as upon other factors that the Board of
Directors may deem relevant.
10
<PAGE>
PRICE RANGE OF COMMON STOCK
The Company completed its initial public offering on January 24, 1996 at
$11.00 per share. Beginning on that date, the Company's Common Stock has traded
on the Nasdaq National Market under the symbol "WLMR." The following table sets
forth the high and low closing sale prices per share for the Common Stock, for
the periods indicated, as reported by Nasdaq.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
1996
First Quarter (from January 24, 1996)..................... $22 1/2 $15 3/4
Second Quarter............................................ 27 3/4 19 5/8
Third Quarter (through July 8, 1996)..................... 25 3/4 21 1/2
</TABLE>
CAPITALIZATION
The following table sets forth as of March 29, 1996 the short-term debt,
long-term debt and capitalization of the Company: (i) actual, (ii) pro forma to
reflect the HMA Acquisition and (iii) pro forma further adjusted to reflect the
application of the net proceeds from the sale of the 2,000,000 shares of Common
Stock offered hereby by the Company pursuant to this offering:
<TABLE>
<CAPTION>
MARCH 29, 1996
---------------------------------
PRO FORMA
FOR HMA PRO FORMA
ACTUAL ACQUISITION AS ADJUSTED
-------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Total short-term debt........................ $ -- $ 2,501 $ --
======== ======== =======
Total long-term debt......................... $ -- $ 66 $ --
-------- -------- -------
Stockholders' equity:
Preferred Stock, $0.01 par value, 5,000,000
shares authorized, no shares issued and
outstanding, actual, pro forma for HMA
Acquisition or pro forma as adjusted...... -- -- --
Common Stock, no par value, 50,000,000
shares authorized, 10,374,545 shares
issued and outstanding, actual, 10,442,160
shares pro forma for HMA Acquisition and
12,442,160 shares pro forma as adjusted
(1)....................................... 51,289 52,897 93,247
Retained earnings (accumulated deficit).... (26,382) (26,382) (26,382)
-------- -------- -------
Total stockholders' equity............... 24,907 26,515 66,865
-------- -------- -------
Total capitalization................... $ 24,907 $ 26,581 $66,865
======== ======== =======
</TABLE>
- --------
(1) Excludes (i) 280,000 shares of Common Stock reserved for issuance upon
exercise of options outstanding with an exercise price of $4.23 per share,
(ii) 100,000 shares of Common Stock reserved for issuance upon exercise of
options outstanding within exercise price of $11.00 per share and (iii)
420,000 shares reserved for future option grants under the Company's 1995
Stock Option Plan. See "Management--Employee Benefit Plans."
11
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following unaudited pro forma combined balance sheet gives effect to (i)
the HMA Acquisition and (ii) the sale of the 2,000,000 shares of Common Stock
offered hereby by the Company and application of the estimated net proceeds
therefrom, as if each of the foregoing had occurred on March 29, 1996. The
unaudited pro forma combined statements of operations for the year ended
December 29, 1995 give effect to the One Source and HMA acquisitions as if they
had occurred on January 1, 1995. The unaudited pro forma combined statements of
operations for the three months ended March 29, 1996 give effect to the HMA
Acquisition as if it had occurred on January 1, 1995. Amounts shown for the
three months ended February 29, 1996 for HMA are also included in amounts shown
for the year ended February 29, 1996.
The pro forma combined financial data should be read in conjunction with the
notes included herewith, the Company's Financial Statements, One Source's
Financial Statements, HMA's Financial Statements and "Management's Discussion
and Analysis of Financial Condition and Results of Operations." The pro forma
combined data do not purport to represent what the Company's results of
operations or financial position actually would have been had such transactions
and events occurred on the dates specified, or to project the Company's result
of operations or financial position for any future period or date. The pro
forma adjustments are based upon available information and certain adjustments
that management believes are reasonable. In the opinion of management, all
adjustments have been made that are necessary to present fairly the pro forma
data.
12
<PAGE>
UNAUDITED PRO FORMA BALANCE SHEET
AS OF MARCH 29, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL ACQUISITION PRO FORMA OFFERING PRO FORMA
WILMAR HMA(A) ADJUSTMENTS(B) COMBINED ADJUSTMENTS(C) AS ADJUSTED
---------- ---------- -------------- --------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash require-
ments................. $ 4,310 $ 212 $(3,564) $ 958 $37,774 $ 38,732
Cash--restricted....... 200 200 200
Short-term investment--
available for sale se-
curities.............. 1,765 1,765 1,765
Short-term investment--
trading securities.... 1 1 1
Accounts receivable--
trade, net............ 10,205 3,544 13,749 13,749
Accounts receivable--
related party and
other................. 53 53 53
Inventory.............. 12,978 3,074 16,052 16,052
Prepaid expenses and
other current assets.. 511 267 778 778
Deferred income taxes.. 486 486 486
-------- ------ ------- -------- ------- --------
Total current as-
sets................ 30,455 7,151 (3,564) 34,042 37,774 71,816
Property and equipment,
net.................... 1,385 310 1,695 1,695
Deferred income taxes... 116 116 116
Other assets............ 2,152 2,744 4,896 4,896
-------- ------ ------- -------- ------- --------
Total assets............ $ 33,992 $7,577 $ (820) $ 40,749 $37,774 $ 78,523
======== ====== ======= ======== ======= ========
LIABILITIES AND
STOCKHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Notes payable.......... $1,830 $ 608 $ 2,438 $(2,438)
Current portion of
long-term debt and
capital leases........ 63 63 (63)
Accounts payable....... $ 6,514 1,956 8,470 $ 8,470
Accrued expenses and
other current liabili-
ties.................. 1,622 455 2,077 (9) 2,068
Income taxes payable... 949 171 1,120 1,120
-------- ------ ------- -------- ------- --------
Total current liabil-
ities............... 9,085 4,475 608 14,168 (2,510) 11,658
Long-term debt and capi-
tal leases............. 66 66 (66)
-------- ------ ------- -------- ------- --------
Total liabilities.... 9,085 4,541 608 14,234 (2,576) 11,658
-------- ------ ------- -------- ------- --------
Stockholders' Equity:
Preferred stock, $.01
par value, 5,000,000
shares authorized;
none issued...........
Common stock, no par
value--50,000,000
shares authorized;
10,374,545 shares
issued and
outstanding........... 51,289 1,608 52,897 40,350 93,247
Common stock, $.01 par
value, 1,000,000
shares authorized;
115,170 shares issued
and outstanding....... 1 (1)
Additional paid-in cap-
ital.................. 157 (157)
Retained earnings
(accumulated
deficit).............. (26,382) 2,878 (2,878) (26,382) (26,382)
-------- ------ ------- -------- ------- --------
Total stockholders'
equity (deficit).... 24,907 3,036 (1,428) 26,515 40,350 66,865
-------- ------ ------- -------- ------- --------
Total Liabilities and
Stockholders' Equity... $ 33,992 $7,577 $ (820) $ 40,749 $37,774 $ 78,523
======== ====== ======= ======== ======= ========
</TABLE>
13
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 29, 1995
<TABLE>
<CAPTION>
HISTORICAL PRO
HISTORICAL ONE HISTORICAL ACQUISITION FORMA
WILMAR SOURCE(D) HMA(E,G) ADJUSTMENTS COMBINED
---------- ---------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
Net sales............... $60,823 $8,494 $24,858 $1,416 (h) $95,591
Cost of sales........... 41,835 6,322 19,411 1,046 (i) 68,614
------- ------ ------- ------ -------
Gross profit.......... 18,988 2,172 5,447 370 26,977
Operating expenses
Operating and selling
expenses............. 9,099 884 2,353 60 (j) 12,396
Corporate general and
administrative
expenses............. 3,985 1,185 2,030 (443)(k) 6,757
------- ------ ------- ------ -------
13,084 2,069 4,383 (383) 19,153
------- ------ ------- ------ -------
Operating income...... 5,904 103 1,064 753 7,824
Other income............ 53 53
Interest expense, net... (1,164) (85) (155) (361)(l) (1,765)
------- ------ ------- ------ -------
Income before income
taxes.................. 4,740 18 962 392 6,112
Pro Forma Data (p):
Income tax provision.. 1,896 7 299 243 2,445
------- ------ ------- ------ -------
Net income............ $ 2,844 $ 11 $ 663 $ 149 $ 3,667
======= ====== ======= ====== =======
Net income per common
share................ $ 0.36 $ 0.46
======= =======
Weighted average
common shares
outstanding (q)...... 7,937 68 (r) 8,005
======= ====== =======
</TABLE>
THREE MONTHS ENDED MARCH 29, 1996
<TABLE>
<CAPTION>
PRO
HISTORICAL HISTORICAL ACQUISITION FORMA
WILMAR HMA (F,G) ADJUSTMENTS COMBINED
---------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Net sales........................... $19,309 $5,661 $24,970
Cost of sales....................... 13,373 4,269 $ (2)(m) 17,640
------- ------ ---- -------
Gross profit...................... 5,936 1,392 2 7,330
------- ------ ---- -------
Operating expenses
Operating and selling expenses.... 2,987 564 (13)(m) 3,538
Corporate general and
administrative expenses.......... 1,242 509 7 (n) 1,758
------- ------ ---- -------
4,229 1,073 6 5,308
------- ------ ---- -------
Operating income.................. 1,707 319 (4) 2,022
Other income........................ 13 13
Interest expense, net............... (81) (39) (55)(o) (175)
------- ------ ---- -------
Income before income taxes........ 1,626 293 (59) 1,860
Income tax provision.............. 666 91 2 759
------- ------ ---- -------
Net income........................ $ 960 $ 202 $(61) $ 1,101
======= ====== ==== =======
Pro Forma Data:
Net income per common share....... $ 0.10 $ 0.11
======= =======
Weighted average common shares
outstanding (q).................. 9,946 68 (r) 10,014
======= ==== =======
</TABLE>
14
<PAGE>
- --------
(a) Balance Sheet as of February 29, 1996.
(b) Represents adjustments for the HMA Acquisition based on a purchase price
of $7,610 (including $1,830 of HMA debt repaid by Wilmar). The HMA
Acquisition has been accounted for using the purchase method. The purchase
price has been allocated on a preliminary basis to the assets acquired
based on the fair values of such assets which are estimated to equal their
book value. The balance of the purchase price was allocated as follows:
$1,571 to intangible assets (including covenants-not-to-compete and
customer lists) and $1,173 to goodwill. This results in total other assets
of $2,744. The other assets will be amortized on a straight-line basis
over the following lives: the covenants-not-to-compete will be amortized
over three years; the customer lists will be amortized over 20 years; and
the goodwill will be amortized over 30 years.
(c) Represents the sale by the Company of 2,000 shares of Common Stock
pursuant to this offering (at an assumed offering price of $21.50 per
share) and the application of the net proceeds therefrom as described in
"Use of Proceeds."
(d) Statement of Operations for the nine months ended September 30, 1995.
(e) Statement of Operations for year ended February 29, 1996.
(f) Statement of Operations for three months ended February 29, 1996.
(g) Certain amounts in the historical financial statements of HMA have been
reclassified to conform with the Wilmar presentation.
(h) Represents sales of $1,416 for One Source from October 1, 1995 to November
17, 1995 (the effective date of the One Source acquisition).
(i) Adjustment to reflect: (i) costs of sales of $1,054 for One Source from
October 1, 1995 to November 17, 1995, offset by (ii) $8 of expense related
to the HMA Employee Stock Ownership Trust ("HMA ESOP"), which was
terminated after the HMA Acquisition.
(j) Adjustments to reflect: (i) distribution center payroll expenses of $36
for One Source related to personnel that were terminated after the One
Source acquisition and (ii) $51 of expense related to the HMA ESOP, which
was terminated after the HMA Acquisition, offset by (iii) operating and
selling expenses of $147 for One Source from October 1, 1995 to November
17, 1995.
(k) Adjustments to reflect: (i) $780 of expenses and compensation, bonuses and
fringe benefit packages paid to management and employees of One Source
that were terminated after the One Source Acquisition with no
corresponding increase in corporate overhead, (ii) $41 of expense related
to the HMA ESOP, which was terminated after the HMA Acquisition, (iii)
$100 of compensation paid to an officer of HMA in excess of the
compensation due under the officer's employment contract effective after
the HMA Acquisition, offset by: (iv) corporate general and administrative
expenses of $280 for One Source from October 1, 1995 to November 17, 1995
and (v) additional expenses of $378 which represent the amortization of
intangible assets, including goodwill, covenants-not-to-compete and
customer lists acquired by Wilmar in the One Source and HMA acquisitions.
(l) Represents interest expense on amounts drawn on the Company's line of
credit to finance the One Source and HMA acquisitions as if the
acquisitions had occurred on January 1, 1995.
(m) Adjustments to reflect the HMA ESOP, which was terminated after the HMA
Acquisition as follows: (i) $2 of cost of sales (ii) $13 of operating and
selling expenses.
(n) Adjustments to reflect: (i) $10 of expenses related to the HMA ESOP, which
was terminated after the HMA Acquisition and (ii) $25 of compensation paid
to an officer of HMA in excess of the compensation due under the officer's
employment contract effective after the HMA Acquisition, offset by (iii)
additional expenses of $42 which represents the amortization of intangible
assets, including goodwill, covenants-not-to-compete and customer lists
acquired by Wilmar in the HMA Acquisition.
(o) Represents interest expense on amounts drawn on the Company's line of
credit to finance the HMA Acquisition as if the acquisition had occurred
on January 1, 1995.
(p) Prior to March 1, 1995, the Company elected to be taxed as an S
Corporation for federal (and certain state) income tax purposes. Pro forma
information has been computed as if the Company had been subject to
federal income tax and all applicable state corporate income taxes for
each period presented.
(q) See Note 3 of Notes to Consolidated Financial Statements for a description
of the determination of weighted average common shares outstanding.
(r) Represents shares of Common Stock issued in connection with the HMA
Acquisition as if the acquisition had occurred on January 1, 1995.
15
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The selected financial and operating data set forth below should be read in
conjunction with the Financial Statements of the Company, including the notes
thereto included elsewhere herein and "Management's Discussion and Analysis of
Financial Condition and Results of Operations." The selected financial data for
fiscal 1993, fiscal 1994 and fiscal 1995 have been derived from the Company's
financial statements which have been audited by independent auditors. The
selected financial data for fiscal years 1991, 1992, the three months ended
March 31, 1995 and the three months ended March 29, 1996 have been derived from
the Company's unaudited financial statements which have been prepared on the
same basis as the audited financial statements and, in the opinion of
management, contain all adjustments, consisting of only normal recurring
adjustments, necessary for a fair presentation of the financial position and
results of operations for these periods.
<TABLE>
<CAPTION>
THREE MONTH
FISCAL YEAR(1) PERIOD(2)
--------------------------------------- --------------------
1991 1992 1993 1994 1995 1995(3) 1996
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales.............. $18,132 $24,517 $35,640 $47,679 $60,823 $13,458 $19,309
Cost of sales (4)...... 12,293 16,847 24,735 32,787 41,835 9,212 13,373
------- ------- ------- ------- ------- ------- -------
Gross profit........... 5,839 7,670 10,905 14,892 18,988 4,246 5,936
Operating and selling
expenses.............. 3,260 3,909 5,400 7,068 9,099 2,015 2,987
Corporate general and
administrative
expenses.............. 1,765 2,054 2,393 2,895 3,985 1,060 1,242
Bonuses to S
Corporation
shareholders (5)...... 195 644 1,463 -- -- -- --
------- ------- ------- ------- ------- ------- -------
Operating income....... 619 1,063 1,649 4,929 5,904 1,171 1,707
Interest expense, net.. 45 49 173 289 1,164 201 81
------- ------- ------- ------- ------- ------- -------
Income before income
taxes................. 574 1,014 1,476 4,640 4,740 970 1,626
------- ------- ------- ------- ------- ------- -------
PRO FORMA DATA (6):
Income tax provision... 229 403 586 1,860 1,896 389 666
------- ------- ------- ------- ------- ------- -------
Net income............. $ 345 $ 611 $ 890 $ 2,780 $ 2,844 581 $ 960
======= ======= ======= ======= ======= ======= =======
Net income per common
share................. $ 0.31 $ 0.36 $ 0.07 $ 0.10
======= ======= ======= =======
Weighted average common
shares outstanding
(7)................... 9,071 7,937 8,596 9,946
======= ======= ======= =======
BALANCE SHEET DATA:
Working capital
(deficit)............. $ 1,916 $ 2,880 $ 3,818 $ 4,367 (54) $ 3,075 $21,370
Total assets........... 5,058 7,192 9,866 14,561 26,871 16,155 33,992
Long-term debt, less
current portion....... 234 290 1,817 2,693 5,667 6,244
Mandatorily redeemable
preferred stock....... 25,058 23,646
Total stockholders'
equity (deficit)...... 2,128 3,064 2,468 2,719 (27,062) (25,742) 24,907
</TABLE>
- --------
(1) The Company's fiscal year is based on a 52/53 week fiscal period ending on
the last Friday in December. Fiscal 1993 was a 53 week year while all other
fiscal years consist of 52 weeks.
(2) The three month periods ended on March 31, 1995 and March 29, 1996.
(3) In March 1995, the Company was recapitalized and, in connection therewith,
incurred significant debt and issued dividend bearing, mandatorily
redeemable preferred stock. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Overview" and "Certain
Transactions."
(4) Cost of sales includes merchandise, freight, distribution center occupancy
and delivery costs.
(5) See Note 5 of Notes to Consolidated Financial Statements.
(6) Prior to March 1, 1995, the Company elected to be taxed as an S Corporation
for federal (and certain state) income tax purposes. Pro forma information
has been computed as if the Company had been subject to federal income
taxes and all applicable state corporate income taxes for each period
presented. The income tax provision and net income for the three month
period ended March 29, 1996 are actual amounts because the Company was
taxed as a C Corporation during that period.
(7) See Note 3 of Notes to Consolidated Financial Statements for description of
the determination of weighted average common shares outstanding.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Wilmar was founded in 1978 by its current Chief Executive Officer, William
Green, and his father, Martin Green, to provide reliable, next-day delivery of
repair and maintenance products to customers in its original Philadelphia
market. Since its inception, the Company has experienced significant growth.
The Company opened its second distribution center in Washington, D.C. in 1982
and its third in Houston in 1987. Since 1991, the Company has accelerated its
growth, opening six distribution centers: Indianapolis (1991), Fresno (1992),
Atlanta (1993), Tampa (December 1994), Columbus (July 1995) and Seattle
(October 1995). Since 1995, the Company has acquired three additional
distribution centers through acquisitions: Miami (November 1995), Denver (May
1996) and Las Vegas (May 1996). In addition, HMA, which the Company acquired
on July 8, 1996, operates distribution centers in Dallas, Houston and San
Antonio, Texas.
The Company typically opens a distribution center in a territory after sales
generated by local sales representatives and by telesales have reached a level
sufficient to support the distribution center. Newly opened distribution
centers typically become profitable within six months after opening. The
introduction of a distribution center into a market allows the Company to
increase sales to existing customers and add new customers at a more rapid
rate because the Company can offer free, next-day delivery of all products to
its customers in the local market.
The 1995 Recapitalization. In March 1995, the Company effected a
recapitalization (the "1995 Recapitalization"). As an integral part of the
1995 Recapitalization, the Company made a dividend distribution to William
Green, the sole shareholder of the Company at that time, in the form of
105,914 shares of Series B Junior Preferred Stock with a redemption value of
$10.6 million, to be amended as described below. The Company issued 129,450
shares of its Series A Senior Preferred Stock to the Summit Investors for a
purchase price of $12.9 million. All of the outstanding Series A Senior
Preferred Stock was redeemed, by its terms, for $12.9 million (plus accrued
dividends estimated at $900,000) upon consummation of the Company's initial
public offering in January 1996. The Company used the proceeds of the
investment by Summit to redeem 3,584,000 shares of Common Stock held by
William Green for $15.1 million. As deferred consideration for the redemption
of Mr. Green's Common Stock in connection with the 1995 Recapitalization, the
Company issued a $2.0 million note to Mr. Green on November 22, 1995, payable
only if the Company satisfies certain earnings targets in 1995 and 1996, or
upon the earlier consummation of a qualified liquidity event, including the
initial public offering. The Company paid the note with a portion of the
proceeds of its initial public offering in January 1996. In connection with
the 1995 Recapitalization, the Company issued 3,080,000 shares of its Common
Stock to the Summit Investors for an aggregate purchase price of $55,000. As a
result of the 1995 Recapitalization, the Company incurred significant interest
expense and was required to accrue preferred dividends from March 9, 1995
through the initial public offering in January 1996. In connection with
Wilmar's initial public offering, William Green agreed to convert $5.0 million
of his Series B Junior Preferred Stock into Common Stock at the initial public
offering price of $11.00. Simultaneously with the initial public offering, the
terms of the Series B Junior Preferred Stock were amended to provide that $5.0
million of Mr. Green's Series B Junior Preferred Stock would be converted into
454,545 shares of Common Stock, and the balance would be redeemed for $5.6
million (plus accrued dividends of approximately $700,000).
S Corporation Status. From its inception until March 1, 1995, the Company
was subject to federal income taxation under Subchapter S of the Code. As a
result, for federal and certain state income tax purposes, the net income of
the Company was reported by and taxed directly to its shareholders, rather
than to the Company. Accordingly, the Company has calculated pro forma income
tax provision, pro forma net income and pro forma income per share for each
year presented as if the Company were a C Corporation subject to all federal
and applicable state income taxes. The effective tax rate used in
17
<PAGE>
calculating the pro forma income tax provision was approximately 40% for all
periods. In connection with the termination of its S Corporation status, the
Company distributed to William Green, the Company's then sole shareholder, an
aggregate of approximately $5.2 million between late 1994 and early 1995.
These distributions represented the Company's income previously taxed to Mr.
Green, net of prior distributions to him.
Acquisitions. In November 1995, the Company acquired One Source for
approximately $3.6 million in cash. During 1996 to date, the Company has
completed three additional acquisitions--Mile High, Sun Valley and HMA--for an
aggregate purchase price of approximately $7.75 million in cash and $1.6
million in Common Stock. The Company accounted for all four acquisitions as
purchases for financial reporting purposes. The resulting goodwill of
approximately $3.7 million is amortized on a straight-line basis over 30 years
and other intangible assets of approximately $2.2 million is amortized over
three to 20 years.
RESULTS OF OPERATIONS
The following table sets forth statement of operations data as a percentage
of net sales for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTH
FISCAL YEAR ENDED PERIOD
------------------- ------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales.................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales.............................. 69.4 68.8 68.8 68.5 69.3
----- ----- ----- ----- -----
Gross profit............................. 30.6 31.2 31.2 31.5 30.7
Operating and selling expenses............. 15.2 14.8 15.0 15.0 15.5
Corporate general and administrative ex-
penses.................................... 6.7 6.1 6.5 7.8 6.4
Bonuses to S Corporation shareholders...... 4.1 -- -- -- --
----- ----- ----- ----- -----
Operating income......................... 4.6 10.3 9.7 8.7 8.8
Interest expense, net...................... 0.5 0.6 1.9 1.5 0.4
----- ----- ----- ----- -----
Income before income taxes............... 4.1 9.7 7.8 7.2 8.4
----- ----- ----- ----- -----
Pro forma data(1):
Income tax provision..................... 1.6 3.9 3.1 2.9 3.4
----- ----- ----- ----- -----
Net income............................... 2.5% 5.8% 4.7% 4.3% 5.0%
===== ===== ===== ===== =====
</TABLE>
- --------
(1) The income tax provision and net income for the three month period ended
March 29, 1996 are actual amounts because the Company was taxed as a C
Corporation during the period.
THREE MONTHS ENDED MARCH 29, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31,
1995
Net Sales. Net sales increased by $5.8 million, or 43.5%, to $19.3 million
for the quarter ended March 29, 1996 from $13.5 million for the corresponding
quarter in 1995. Of this increase, 36.9% was attributable to higher sales
volumes shipped from distribution centers open for all of both periods, and
the balance was attributable to the three distribution centers (Tampa,
Columbus and Seattle) opened between December 1, 1994 and December 29, 1995
and the acquisition of One Source Supply, Inc. which occurred on November 17,
1995. The higher net sales from distribution centers open during all of both
periods resulted primarily from the increased experience of the Company's
direct sales and telesales forces and increased sales to national accounts.
The Company's sales force at the end of the first quarter of 1996 was 86, an
increase of 35 when compared with the corresponding quarter of 1995. Price
increases during both quarters were modest and made only on selected items.
During the quarter ended March 29, 1996, Wilmar generated approximately
$436,000 in net sales to new end markets as a result of the Company's decision
to target customers outside its core apartment housing market beginning in the
first quarter of 1995.
18
<PAGE>
Gross Profit. Cost of sales include merchandise, freight, distribution
center occupancy and delivery costs. As a percentage of net sales, gross
profit was 30.7% for the quarter ended March 29, 1996 compared to 31.5% for
the corresponding quarter in 1995. This decrease in the gross margin resulted
from increased delivery expenses associated with "line-hauling" (the use of
third party trucks to ship multiple orders from a distribution center to other
markets overnight followed by next day local delivery) to new markets, higher
relative occupancy costs relating to the operation of two immature, less
efficient distribution centers opened after the first quarter of 1995
(Columbus and Seattle) and a decrease in vendor allowances and early payment
discounts when compared with the first quarter of 1995.
Operating and Selling Expenses. Operating and selling expenses consist of
labor and other costs associated with opening and operating a distribution
center as well as selling expenses and commissions. The Company expenses all
distribution center pre-opening costs when incurred. Operating and selling
expenses increased by $1.0 million, or 48.2%, to $3.0 million for the quarter
ended March 29, 1996 from $2.0 million for the corresponding quarter in 1995.
As a percentage of net sales, these expenses represented 15.5% for the quarter
ended March 29, 1996 compared to 15.0% for the corresponding quarter in 1995.
These increases resulted primarily from increased commissions related to
higher sales volumes, higher relative costs associated with the distribution
centers opened after the first quarter of 1995, the distribution center
acquired from One Source (Miami) in November 1995 and an expanded sales force
and higher operating costs associated with increased sales volumes at the
other distribution centers.
Corporate General and Administrative Expenses. Corporate general and
administrative expenses increased by $182,000, or 17.2%, to $1.2 million for
the quarter ended March 29, 1996 from $1.0 million for the corresponding
quarter in 1995, as a result of the increased staffing required to manage a
larger volume of business. During the first quarter of 1995 the Company
incurred $207,000 in expenses related to the 1995 Recapitalization. Excluding
the expenses associated with the 1995 Recapitalization, corporate general and
administrative expenses as a percentage of net sales were 6.4% for the quarter
ended March 29, 1996 compared to 6.3% for the corresponding quarter in 1995.
Operating Income. Operating income increased by $536,000, or 45.8%, to $1.7
million for the quarter ended March 29, 1996 from $1.2 million for the
corresponding quarter in 1995. As a percentage of net sales, operating income
was 8.8% for the quarter ended March 29, 1996 compared to 8.7% for the
corresponding quarter in 1995. Excluding the one-time expenses associated with
the 1995 Recapitalization, operating income would have increased by $329,000,
or 23.9%, from the first quarter of 1995 to the first quarter of 1996. As a
percentage of net sales, operating income (excluding the 1995 Recapitalization
expenses) would have been 10.2% for the first quarter in 1995 compared to 8.8%
for the first quarter of 1996.
Interest Expense, Net. Net interest expense decreased by $120,000 to $81,000
for the quarter ended March 29, 1996 from $201,000 for the corresponding
quarter in 1995 as a result of the reduction in debt made from the proceeds of
the initial public offering.
FISCAL 1995 COMPARED TO FISCAL 1994
Net Sales. Net sales increased by $13.1 million, or 27.5%, to $60.8 million
in fiscal 1995 from $47.7 million in fiscal 1994. Of this increase, 51.9% was
attributable to higher sales volumes shipped from distribution centers open
for all of both periods, and the balance was attributable to the three
distribution centers (Tampa, Columbus and Seattle) opened between December 1,
1994 and December 29, 1995 and the One Source acquisition which occurred on
November 17, 1995. The higher net sales from distribution centers open during
all of both periods resulted primarily from the increased experience of the
Company's direct sales and telesales forces and increased sales to national
accounts. In addition, the Company added 26 local sales representatives during
fiscal 1995, the majority of whom were hired in the second half of the year
and ten of whom joined the Company as part of the One Source acquisition in
November 1995.
19
<PAGE>
Price increases during fiscal 1995 were modest and made only on selected
items. During fiscal 1995, Wilmar generated approximately $940,000 in net
sales to new end markets as a result of the Company's decision to target
customers outside its core apartment housing market beginning in 1995.
Gross Profit. As a percentage of net sales, gross profit was 31.2% in fiscal
1995, which was unchanged from fiscal 1994.
Operating and Selling Expenses. Operating and selling expenses increased by
$2.0 million, or 28.2%, to $9.1 million in fiscal 1995 from $7.1 million in
fiscal 1994. This increase resulted primarily from increased commissions
related to higher sales volumes, costs associated with the new Tampa, Columbus
and Seattle distribution centers and higher operating costs associated with
increased sales volumes at the other distribution centers. As a percentage of
net sales, these expenses represented 15.0% in fiscal 1995 compared to 14.8%
in fiscal 1994, due to the effects of operating three immature, less efficient
distribution centers and higher pre-opening expenses in fiscal 1995.
Corporate General and Administrative Expenses. Corporate general and
administrative expenses increased by $1.1 million, or 37.9%, to $4.0 million
in fiscal 1995 from $2.9 million in fiscal 1994. During fiscal 1995, the
Company incurred $207,000 in expenses related to the 1995 Recapitalization and
a full year of expenses associated with the Company's new corporate
headquarters in Moorestown, New Jersey. Until May 1994, the Company had
operated its headquarters within its Philadelphia distribution center. During
fiscal 1995, the Company significantly increased its corporate staff to manage
the Company's greater base of operations. Excluding the expenses associated
with the 1995 Recapitalization, corporate general and administrative expenses
as a percentage of net sales would have increased to 6.3% in fiscal 1995 from
6.1% in fiscal 1994.
Operating Income. Operating income increased by $975,000, or 19.8%, to $5.9
million in fiscal 1995 from $4.9 million in fiscal 1994. Excluding the one-
time expenses associated with the 1995 Recapitalization, operating income
would have increased by $1.2 million, or 24.4%, to $6.1 million in fiscal 1995
from $4.9 million in fiscal 1994. As a percentage of net sales, operating
income (excluding the 1995 Recapitalization expenses) would have decreased to
10.0% in fiscal 1995 from 10.3% in 1994 due primarily to the effects of
operating three immature, less efficient distribution centers, increases in
the corporate staff and the operation of the Company's new corporate
headquarters for all of 1995.
Interest Expense, Net. Net interest expense increased by $875,000 to $1.2
million in fiscal 1995 from $289,000 in fiscal 1994 as a result of the
approximately $9.3 million of additional indebtedness incurred in connection
with the 1995 Recapitalization.
FISCAL 1994 COMPARED TO FISCAL 1993
Net Sales. Fiscal 1994 consisted of 52 weeks and fiscal 1993 consisted of 53
weeks. Net sales increased by $12.0 million, or 33.8%, to $47.7 million in
1994 from $35.6 million in 1993. Of this increase, approximately 71.6% was
attributable to higher sales volumes shipped from distribution centers open
for all of both years, and the balance was attributable to distribution
centers opened after January 1, 1993. Higher net sales from existing
distribution centers was primarily the result of the increased experience of
the Company's direct sales and telesales forces. In addition, the Company
added 10 local sales representatives during 1994, increased sales to its
national accounts and initiated a full-time, outbound telesales effort, all of
which resulted in increased sales to existing customers and an increase in new
customers. During 1994, price increases were modest and made only on selected
items.
Gross Profit. As a percentage of net sales, gross profit increased to 31.2%
in 1994 from 30.6% in 1993. This margin improvement was attributable primarily
to higher merchandise margins in 1994 resulting from increased sourcing of
products manufactured overseas, partially offset by higher delivery and
freight costs. The higher delivery costs were the result of greater use of
third party delivery services
20
<PAGE>
from the Company's newer distribution centers where the Company had not
established the sales volumes to justify operating its own trucks. The higher
freight costs were the result of increased sourcing of products manufactured
overseas.
Operating and Selling Expenses. Operating and selling expenses increased by
$1.7 million, or 30.9%, to $7.1 million in 1994 from $5.4 million in 1993.
This increase was due primarily to increased commissions related to higher
sales volumes, and a full year's operation of the Atlanta distribution center
which opened in July 1993. As a percentage of net sales, these expenses
decreased to 14.8% in 1994 from 15.2% in 1993, due primarily to the spreading
of relatively fixed costs over higher sales volumes.
Corporate General and Administrative Expenses. Corporate general and
administrative expenses increased by $502,000, or 21.0%, to $2.9 million in
1994 from $2.4 million in 1993. The dollar increase resulted primarily from
the opening of the new corporate headquarters in Moorestown, New Jersey in May
1994. As a percentage of net sales, these expenses decreased to 6.1% in 1994
from 6.7% in 1993, primarily due to the spreading of relatively fixed
corporate overhead expenses over higher sales volumes.
Bonuses to S Corporation Shareholders. Prior to 1994, the Company paid
bonuses to S Corporation shareholders to enable them to pay income taxes on
the Company's taxable income. In 1993, bonuses paid were $1.5 million. In
1994, the Company changed its tax strategy and distributed dividends to its
shareholders rather than bonuses.
Operating Income. Operating income increased by $3.3 million, or 198.9%, to
$4.9 million in 1994 from $1.6 million in 1993. Excluding bonuses to S
Corporation shareholders in 1993, operating income would have increased by
$1.8 million, or 58.4%, to $4.9 million in 1994 from $3.1 million in 1993. As
a percentage of net sales, operating income would have increased to 10.3% in
1994 from 8.7% in 1993 (excluding bonuses to S Corporation shareholders). This
increase in the operating margin was attributable to continued spreading of
relatively fixed distribution center and corporate overhead expenses over
higher sales volumes.
Interest Expense, Net. Net interest expense increased to $289,000 in 1994
from $173,000 in 1993. This increase was primarily due to higher borrowings
under the Company's line of credit to finance increased working capital needs.
21
<PAGE>
QUARTERLY RESULTS AND SEASONALITY
The following table sets forth statements of operations data for the first
quarter of fiscal 1996, the four quarters of fiscal 1995 and the four quarters
of fiscal 1994. These quarterly data are unaudited but have been prepared on a
basis consistent with the Company's audited financial statements presented
elsewhere herein and, in the Company's opinion, include all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the information for the quarters presented. The operating
results for any quarter are not necessarily indicative of results for any
future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 29, DECEMBER 29, MARCH 29,
1995 1995 1995 1995 1996
--------- -------- ------------- ------------ ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net sales............... $13,458 $14,625 $16,381 $16,359 $19,309
Cost of sales........... 9,212 10,091 11,274 11,258 13,373
------- ------- ------- ------- -------
Gross profit.......... 4,246 4,534 5,107 5,101 5,936
Operating and selling
expenses............... 2,015 2,186 2,374 2,524 2,987
Corporate general and
administrative
expenses............... 1,060 893 895 1,137 1,242
------- ------- ------- ------- -------
Operating income...... 1,171 1,455 1,838 1,440 1,707
Interest expense, net... 201 305 303 355 81
------- ------- ------- ------- -------
Income before income
taxes.................. 970 1,150 1,535 1,085 1,626
------- ------- ------- ------- -------
Pro forma data:
Income tax
provision(1)......... 389 461 615 431 666
------- ------- ------- ------- -------
Net income(1)......... $ 581 $ 689 $ 920 $ 654 $ 960
======= ======= ======= ======= =======
Net income per common
share................ $ 0.07 $ 0.09 $ 0.12 $ 0.08 $ 0.10
======= ======= ======= ======= =======
Weighted average common
shares outstanding..... 8,596 7,675 7,718 7,760 9,946
======= ======= ======= ======= =======
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------
MARCH 25, JUNE 24, SEPTEMBER 30, DECEMBER 30,
1994 1994 1994 1994
--------- -------- ------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales............... $10,281 $11,895 $13,766 $11,737
Cost of sales........... 7,021 8,152 9,469 8,146
------- ------- ------- -------
Gross profit.......... 3,260 3,743 4,297 3,591
Operating and selling
expenses............... 1,465 1,773 1,947 1,882
Corporate general and
administrative
expenses............... 579 687 756 873
------- ------- ------- -------
Operating income...... 1,216 1,283 1,594 836
Interest expense, net... 60 78 87 64
------- ------- ------- -------
Income before income
taxes.................. 1,156 1,205 1,507 772
------- ------- ------- -------
Pro forma data:
Income tax provision.. 463 483 604 310
------- ------- ------- -------
Net income............ $ 693 $ 722 $ 903 $ 462
======= ======= ======= =======
Net income per common
share................ $ 0.08 $ 0.08 $ 0.10 $ 0.05
======= ======= ======= =======
Weighted average common
shares outstanding..... 9,071 9,071 9,071 9,071
======= ======= ======= =======
</TABLE>
- --------
(1) The income tax provision and net income for the three month period ended
March 29, 1996 are actual amounts because the Company was taxed as a C
Corporation during the period.
22
<PAGE>
The Company's net sales were approximately $40.7 million for the six months
ended June 28, 1996, compared to approximately $28.1 million for the six
months ended June 30, 1995.
The Company's sales volumes tend to be lower in the fourth quarter because
customers defer purchases at year end as their budget limits are met. In
addition, net sales in the fourth quarter are reduced because of the holidays
during the period.
LIQUIDITY AND CAPITAL RESOURCES
Historically, Wilmar's primary source of liquidity has been cash flow from
operations, supplemented by borrowings under its revolving bank line of credit
to support increases in accounts receivable and inventory, net of accounts
payable.
During the first quarter of 1996, the Company completed an initial public
offering of 4,600,000 shares of its Common Stock for $11.00 per share,
resulting in net proceeds of $47,058,000.
Cash used in operating activities was $1.4 million during the first quarter
of 1996 compared to $124,000 of cash provided by operating activities during
the first quarter of 1995. Cash used in operating activities during the first
quarter of 1996 consisted of $1.0 million of net income before depreciation
and amortization and other non-cash charges, offset by $2.4 million of changes
in operating assets and liabilities primarily resulting from a $1.4 million
decrease in accounts payable and increases in the Company's accounts
receivable and inventory of $908,000, consistent with its higher volume of
business.
Cash used in investing activities for the first quarter of 1996 was $1.9
million, related to the purchase of short-term investments and the purchase of
property and equipment compared to $90,000 for the first quarter of 1995. Cash
provided by financing activities during the first quarter of 1996 was $7.6
million, consisting primarily of the net proceeds of an initial public
offering less the repayment of all debt and the redemption of the outstanding
preferred stock.
Capital expenditures were $134,000 for the first quarter of 1996 compared to
$90,000 for the first quarter of 1995. The Company expects to spend
approximately $326,000 on capital expenditures in the remaining three quarters
of fiscal 1996 primarily for office, computer and distribution center
equipment. Additionally, the Company expects to spend approximately $500,000
to equip its new Philadelphia distribution center in connection with a lease
agreement entered into on April 29, 1996. Historically, capital expenditures
have been primarily for similar items, except for 1994 when the Company made
additional capital expenditures related to the relocation of its headquarters
to its present Moorestown, New Jersey location. A typical distribution center
requires a capital investment of approximately $75,000 to $80,000 for
equipment and leasehold improvements and an initial commitment of
approximately $250,000 for working capital (net of accounts payable
attributable to new inventory). The Company typically incurs expenses of
approximately $50,000 before a new distribution center becomes operational.
Since 1991, the Company's distribution centers have generated average sales of
$3.1 million and operating income (before corporate overhead expenses) of
$495,000 in the first full calendar year of operation. The Company expects
that newer distribution center operating margins will continue to improve over
time as the Company leverages fixed costs of operations over higher sales of
products shipped from these distribution centers. The Company intends to
finance its future capital expenditures with cash flow from operations and
possibly with a portion of the proceeds of this offering, term debt or capital
leases.
Cash provided by operating activities was $277,000 during fiscal 1995
compared to $2.3 million during fiscal 1994. This decline was primarily the
result of a $616,000 increase in income taxes paid because the Company
terminated its S Corporation status in March 1995 and increases in the
Company's accounts receivable and inventory, net of accounts payable,
consistent with its higher volume of business. Cash provided by operating
activities in fiscal 1995 consisted of $3.4 million of net income before
depreciation and amortization and other non-cash charges, offset by $3.1
million of changes in operating assets and liabilities.
23
<PAGE>
Cash used in investing activities for fiscal 1995 was $4.1 million, related
to the acquisition of One Source and the purchase of property and equipment.
Cash provided by financing activities for fiscal 1995 was $3.7 million,
consisting primarily of borrowings in connection with the acquisition of One
Source and the Recapitalization.
Cash provided by operating activities was $2.3 million in fiscal 1994. This
was the result of $4.8 million of net income before depreciation and
amortization and other non-cash charges offset by $2.5 million of changes in
operating assets and liabilities. Cash used by investing activities in fiscal
1994 was $768,000, primarily related to the purchase of property and
equipment. Net cash used in financing activities of $1.6 million resulted
primarily from bank borrowings offset by the payment of S Corporation
dividends.
Capital expenditures were $507,000, $768,000 and $152,000 in fiscal 1995,
1994 and 1993, respectively. These expenditures were primarily for office,
computer and distribution center equipment, except for 1994, when the Company
made additional capital expenditures related to the relocation of its
headquarters to its present Moorestown, New Jersey location.
Wilmar's credit facility consists of a $10.0 million unsecured bank line of
credit. The line of credit had a zero balance as of March 29, 1996, having
been repaid with a portion of the proceeds of the initial public offering. In
March 1996, the Company replaced its existing secured bank line of credit with
the $10.0 million unsecured bank line of credit, which bears interest at three
quarters of one percent below the bank's prime rate and expires in March 1997.
A portion of the net proceeds of the initial public offering was used to
repay the revolving bank line of credit and the term debt and to redeem the
$4.0 million of 11.5% Subordinated Debentures issued to certain of the Summit
Investors. The reduction in these borrowings and the increase in shareholders'
equity as a result of the initial public offering and this offering will
decrease the Company's financial leverage. The Company expects to renew its
revolving line of credit when it expires in March 1997 and believes it could
increase the amount of this credit facility if needed.
The Company believes that its existing cash balances, supplemented by
borrowings under the revolving line of credit, are adequate to meet planned
operating and capital expenditure needs at least through 1996. However, if the
Company were to make any significant acquisitions for cash, it may be
necessary for the Company to obtain additional debt or equity financing.
INFLATION
The Company does not believe that inflation has had a material effect on its
results of operations in recent years. There can be no assurance, however,
that the Company's business will not be affected by inflation in the future.
24
<PAGE>
MARKET OVERVIEW
The Company broadly defines its industry as the sale of repair and
maintenance products to residential or temporary stay facilities that are
large enough to employ a full time maintenance manager. Through 1994, the
Company focused its marketing efforts on the apartment housing market. In
1995, the Company began to target other end markets, such as hotels and
motels, hospitals, nursing homes, prisons, military bases, schools and
universities. Customers in these new end markets accounted for approximately
1.5% of net sales in fiscal 1995. Based on published industry data, the
Company estimates that there are more than 94,000 apartment complexes in the
United States large enough to have a maintenance manager and that annual
expenditures by these apartment complexes on repair and maintenance supplies
exceed $2 billion. The Company believes that the other end markets it has
recently begun to target are also of substantial size.
Maintenance managers have traditionally purchased repair and maintenance
supplies through a variety of distribution channels, including:
Local or Regional Broad-Line Suppliers. There are numerous broad-line
suppliers offering product categories similar to those found in the Wilmar
Master Catalog. Most of these suppliers are local or regional in scope.
Although these competitors typically use a direct sales force, often supported
by a proprietary catalog, they are smaller and tend to offer fewer product
categories, or a narrower range of products within categories, and fewer
services than offered by Wilmar. These competitors typically cannot
effectively serve national accounts.
Mail Order Catalogs. There are a few mail order catalog companies that offer
a broad selection of repair and maintenance products (typically 6,000 to 8,000
SKUs), have multiple warehouses and offer next-day or two-day delivery via
parcel delivery services on most items. Although these catalog companies sell
products to maintenance managers, they do not employ local sales
representatives and cannot provide many of the services offered by Wilmar.
Retail Stores. Traditional hardware stores and home-improvement superstores
such as Home Depot sell repair and maintenance products. Their product
selection and marketing efforts, however, are primarily targeted to individual
homeowners and contractors. Retail stores generally do not provide extensive
catalogs, sales representatives, convenient phone ordering or free, next-day
delivery and most do not provide the depth of products offered by Wilmar.
Specialty Suppliers. Specialty suppliers focus on a single product category,
such as plumbing or electrical supplies. Specialty suppliers are typically
local or regional in scope and cannot provide the one-stop shopping sought by
maintenance managers.
Industrial Suppliers. There are a few industrial suppliers that include a
limited selection of maintenance and repair products in their merchandise mix
but that do not focus on Wilmar's target markets. For example, W.W. Grainger,
a leading industrial supplier, carries fewer than one-half of Wilmar's top 100
items and has fewer than 100 catalog pages dedicated to plumbing items,
compared to more than 500 pages in the Wilmar Master Catalog.
Wilmar believes it is the only national, broad-line supplier to its targeted
markets offering next-day delivery of an extensive selection of repair and
maintenance products through a direct sales force and catalog.
Maintenance managers are primarily responsible for making repairs and
generally do not have time to shop with multiple vendors. Maintenance managers
value extensive product selection, convenient ordering, reliable, next-day
delivery and other value-added services. In addition, maintenance departments
typically operate within budgetary constraints, making competitive pricing
important.
Although maintenance managers typically make day-to-day purchasing
decisions, many property management companies with multiple sites attempt to
gain volume purchasing advantages by establishing "preferred" or "required"
vendor arrangements with suppliers. Some property management companies have
joined group purchasing organizations ("GPOs") to gain increased purchasing
power. Competition for these national or regional accounts requires a
significant national presence in addition to a broad product selection,
competitive pricing and a sophisticated billing system.
25
<PAGE>
BUSINESS
OVERVIEW
Wilmar is a rapidly growing national marketer and direct distributor of
repair and maintenance products, principally to the apartment housing market.
Through its 1,000+ page Wilmar Master Catalog, the Company has become a "one-
stop shopping" resource for maintenance managers by offering the industry's
most extensive selection of over 15,000 standard and specialty plumbing,
hardware, electrical, janitorial and related products. By purchasing directly
from domestic and foreign manufacturers in relatively large volumes, Wilmar is
able to offer customers competitive prices on both name brand and private
label products. The Company seeks to win new accounts and increase sales to
existing accounts through a 112-person direct sales force, six full-time
outbound telesales representatives, a national accounts sales program, and
monthly direct mail flyers. Customer service representatives located at
Wilmar's centralized call center use the Company's proprietary software
applications to quickly process orders and answer customer inquiries. The
Company provides free, next-day delivery in local markets served by its
distribution centers and ships by parcel delivery services to other areas.
Since 1991, Wilmar has expanded from four distribution centers located in
Philadelphia, Washington, D.C., Houston and Indianapolis to 15 distribution
centers located throughout the United States. From 1991 to 1995, the Company's
net sales increased at a compound annual rate of 35.3%. Since November 1995,
Wilmar has acquired four regional repair and maintenance supply companies with
total annualized net sales of approximately $40 million.
BUSINESS STRATEGY
The Company's goal is to become the nation's leading supplier of repair and
maintenance products to the apartment housing market and to leverage its
expanding national infrastructure to increase its sales of these products to
other end markets that also rely upon on-site maintenance staffs. These other
end markets include hotels and motels, hospitals, nursing homes, prisons,
military bases, schools and universities. The following are critical elements
of Wilmar's business strategy:
Broadest Product Selection. Wilmar's objective is to supply virtually all of
the items a maintenance manager needs to maintain and repair the property.
Through its 1,000+ page Wilmar Master Catalog, the Company has become a "one-
stop shopping" resource for maintenance managers by offering its customers the
industry's most extensive selection of over 15,000 standard and specialty
plumbing, hardware, electrical, janitorial and related products. Wilmar's
merchandise consists of both name brand and private label products.
Reliable Next-Day Delivery. Through its large in-stock inventory and growing
network of distribution centers, Wilmar is able to provide reliable, next-day
delivery to an increasing number of markets in the United States. This permits
customers to reduce on-hand inventory and save time otherwise spent shopping
for supplies. The Company's goal is to provide free, next-day delivery of all
in-stock items to customers in most major markets in the United States.
Volume Purchasing Power; Private Label; Competitive Pricing. Wilmar's
relatively large size and ability to purchase directly from manufacturers
enable the Company to procure products at prices generally lower than those
available to smaller competitors. The Company's eight years of experience with
Asian sourcing of the Company's private label products and its ongoing
relationships with manufacturers in that region have strengthened its ability
to import many of its products at prices below those that prevail in the U.S.
market. Private label sales constituted 18.4% of Wilmar's net sales in fiscal
1995. The Company's volume purchasing power, foreign sourcing capability and
private label program permit it to provide its customers with competitive
prices on a broad array of products.
Superior Customer Service. A central tenet of Wilmar's business strategy is
to provide service levels superior to those that have historically
characterized its industry. In addition to providing "one-stop
26
<PAGE>
shopping" and reliable delivery, Wilmar provides high levels of customer
service through its knowledgeable direct sales force. The experienced and
knowledgeable sales force maintains regular contact with active accounts to
solve problems and provides technical product advice, shop organization
assistance and customer services not generally available from mail order
catalogs, retail stores and specialty suppliers. Ease of ordering is provided
via the Company's toll-free "800" number, which is staffed by customer service
representatives from 8:00 am to 8:00 pm Eastern Time. These customer service
representatives utilize Wilmar's proprietary software applications to quickly
process orders and answer customer inquiries. The Company also offers
customized billing and usage reports to meet the individual accounting and
management needs of its customers.
Centralized Operations. An important part of the Company's operating
strategy is to enhance efficiency and service levels through a centrally
controlled, computerized management system. The Company maintains its
management-intensive, relatively fixed-cost administrative functions at its
Moorestown, New Jersey headquarters. These functions include merchandising,
purchasing, catalog production, outbound telesales, order entry and customer
service, management information systems, administration, finance and
accounting and legal services. The Company is able to spread its
administrative costs over a greater volume of business than its smaller local
and regional competitors.
GROWTH STRATEGY
The Company utilizes multiple marketing strategies to win new accounts and
retain active accounts. Wilmar's direct sales force calls on prospective and
existing customers in assigned territories while senior management and
regional sales managers call on large property management companies to
establish national or regional relationships designating Wilmar as a preferred
or authorized vendor. In targeted markets currently not covered by local sales
representatives, Wilmar's outbound telesales representatives win new accounts
and service existing customers.
Key elements of the Company's growth strategy include:
Expand Direct Sales Force. Management believes there is significant
opportunity for Wilmar to win new accounts and increase sales to existing
accounts by expanding the Company's direct sales force. The Company will add
local sales representatives in existing markets, permitting it to further
capitalize on the name recognition created by the Wilmar Master Catalog. In
addition, the Company will locate sales representatives in new markets after
sufficient sales volumes have been generated through outbound telesales or
national account relationships to support a direct sales effort. The Company
has found that local sales representatives generate higher average orders than
telesales representatives because of the effectiveness of in-person contact
and suggestive selling techniques.
Expand Geographic Penetration in the United States. The Company garners a
higher share of customers' overall spending on repair and maintenance supplies
when it can provide free, next-day delivery on all in-stock products. The
Company plans to increase its ability to deliver its full line of products on
a next-day basis by opening distribution centers in new markets and by
increasing the Company's recently established practice of "line-hauling" (the
use of third party trucks to ship multiple orders from a distribution center
to other markets overnight followed by next-day, local delivery).
Expand Sales to New End Markets. The Company believes it can expand its
sales to other end markets that have customer demands and distribution
channels similar to those in the apartment housing market. These end markets
include hotels and motels, hospitals, nursing homes, prisons, military bases,
schools and universities. On-site maintenance managers in these end markets
also typically manage large repair and maintenance budgets and need a broad
array of products delivered quickly at competitive prices. In 1995, the
Company added 3,000 SKUs to its Wilmar Master Catalog and initiated sales
efforts to target these markets.
27
<PAGE>
Continue to Seek Strategic Acquisitions. The Company plans to take advantage
of the highly fragmented nature of its industry by exploring strategic
acquisitions. In November 1995, the Company completed its first acquisition,
One Source the leading direct supplier of repair and maintenance products to
the apartment housing market in south Florida. In May 1996, the Company
acquired Mile High, a direct supplier of repair and maintenance products to
the apartment housing market in Colorado and Sun Valley, a direct supplier of
repair and maintenance products to the apartment housing markets in Las Vegas
and Phoenix. In July 1996, the Company completed the acquisition of HMA, a
large regional direct supplier of repair and maintenance products to the
apartment housing market in Texas. The Company believes that there are
additional attractive acquisition candidates in both new and existing markets.
Acquisitions in new geographic markets should permit the Company to acquire
established accounts and gain market presence quickly. In addition to
increasing sales, the Company believes the acquisition of companies serving
Wilmar's newly targeted end markets will accelerate the Company's growth in
these end markets. It is the Company's strategy to implement its business
model at each acquired company as soon as practicable after each acquisition
is completed.
PRODUCTS AND MERCHANDISING
Wilmar markets over 15,000 repair and maintenance products. These items
constitute a full range of standard and specialty products in the following
product categories: plumbing, hardware, electrical, chemical and janitorial,
appliance parts, window and floor coverings, heating, ventilating and air
conditioning ("HVAC"), and paint and paint accessories. Wilmar offers a broad
range of name brands such as Kwikset, Insinkerator, Delta Faucet, Moen,
Philips Lighting, and Briggs Plumbingware. In fiscal 1995, private label
products marketed under the "Wilmar" and "Wilflo" names accounted for 16.3% of
net sales, and no single product accounted for more than 1.3% of the Company's
net sales. Through its inventory management system, the Company is able to
identify sales trends and adjust the Company's merchandise mix accordingly.
Product Categories. For the periods presented, the approximate percentages
of the Company's net sales by product category were as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
----------------
PRODUCT CATEGORY 1993 1994 1995
---------------- ---- ---- ----
<S> <C> <C> <C>
Plumbing................................................... 35% 35% 34%
Electrical................................................. 20 20 19
Hardware................................................... 15 16 18
Chemical and janitorial.................................... 7 6 6
Appliance parts............................................ 5 5 5
Window and floor coverings................................. 8 6 7
HVAC....................................................... 3 4 5
Paint and paint accessories................................ 3 3 3
Other...................................................... 4 5 3
--- --- ---
100% 100% 100%
=== === ===
</TABLE>
28
<PAGE>
The following is an illustrative listing of the types of products sold by
Wilmar in each of its major product categories:
PLUMBING APPLIANCE PARTS
Faucets and sink repair parts Range elements, drip pans and
Faucets, sinks and garbage disposals accessories
Tub and shower repair parts Refrigerator accessories
Medicine cabinets and bath accessories Dishwasher parts
Toilets and toilet tank repair parts Washer and dryer accessories
Institutional plumbing parts
Copper and PVC pipe and fittings WINDOW AND FLOOR COVERINGS
Water heaters
Drain cleaning tools Window blinds and shades
Floor tile
ELECTRICAL HVAC
Light bulbs
Lighting fixtures and replacement glass Grills and vents
Ceiling fans Thermostats
Smoke detectors Compressors, motors and repair
Wiring devices and circuit breakers parts
Ballasts and fuses Condensing units
Refrigerants and recovery units
Filters
HARDWARE PAINT AND PAINT ACCESSORIES
Replacement window hardware Paint
Storm window and patio door parts Paint sundries
Custom screens and accessories Caulks, adhesives, sealants and
Locksets and custom keying tape
Closet, cabinet and drawer hardware Brushes
Door hardware Rollers, roller pans and scrapers
Hand and power tools
CHEMICAL AND JANITORIAL OTHER
Soaps, disinfectants, cleaners and Pool supplies
detergents Cleaning tools, machines Safety products
and accessories Insecticides and pest Lawn and garden tools
control products Paper products and Office supplies
supplies
The Wilmar Master Catalog. The foundation of the Company's merchandising
strategy is its proprietary Wilmar Master Catalog, which serves as a widely-
used reference tool among maintenance managers. This 1,000+ page catalog,
offering more than 15,000 SKUs, provides the industry's most extensive product
selection. By comparison, the Company believes that most of its regional and
local competitors produce catalogs offering approximately 6,000 SKUs. At
Wilmar, a merchandise committee composed of the managers of the sales,
marketing and purchasing departments selects the products to be included in
the catalog, based on sales trends, customer requests, new product
introductions and price changes. Important differentiating features of the
Wilmar Master Catalog include many actual-size drawings as well as schematics
of over 300 faucets and other plumbing products. These drawings and schematics
enable customers to easily identify and order proper parts for their
maintenance and repair needs. The Company publishes its prices in the Wilmar
Master Catalog including a three-tier pricing structure for quantity
discounts.
29
<PAGE>
Wilmar produces the catalog in-house to streamline the production process
and achieve savings in production costs. The Wilmar Master Catalog is produced
twice a year. In the first three months of 1996, approximately 45,000 copies
were distributed to customers and prospective customers.
Special Services. In addition to the 15,000 SKUs the Company offers through
its Wilmar Master Catalog, the Company will supply virtually any product on a
special order basis. The Company's four-person special order department
accommodates customers' desire for "one-stop shopping" by sourcing requested
products from any of the Company's regular 550 vendors or other vendors if
necessary. The Company reviews its entire special order file annually to
consider whether any items were ordered with sufficient frequency to warrant
inclusion in the Wilmar Master Catalog. Special orders accounted for 2.5% of
the Company's total sales in fiscal 1995. The Company also operates custom
screening and keying services. During fiscal 1995, the Company custom
manufactured approximately 66,000 screens and sold approximately 74,000
master-keyed locks.
SALES AND MARKETING
The Company markets and sells through all levels of the customer's
organization, including senior managers of property management companies,
local and regional property managers and, most importantly, on-site
maintenance managers. The Company's sales and marketing efforts are designed
to establish and solidify customer relationships through frequent contact, and
to emphasize on the Company's broad product selection, reliable next-day
delivery, high level of customer service and competitive pricing. The
Company's base of active customers (customers that have purchased in the
preceding 12 months) has grown from 7,200 at December 31, 1992 to 20,300 at
March 29, 1996. No single property accounted for as much as 1.0% of the
Company's net sales during fiscal 1995 although approximately 1,800 properties
managed by two large property management companies accounted for an aggregate
of 13.0% of Wilmar's net sales during this period.
Direct Sales Force. Wilmar maintains one of the largest direct sales forces
in its industry with 112 local sales representatives covering 59 markets
nationwide. The Company has found that it garners a greater percentage of its
customers' overall spending on repair and maintenance supplies in markets
serviced by local Wilmar sales representatives, particularly where local sales
representatives are supported by a nearby distribution center, enabling free,
next-day delivery of the Company's entire product line. In the first three
months of 1996, the average order placed with sales representatives was
approximately twice as large as those placed with telesales representatives.
To generate new customers, the Company provides its sales representatives with
lists of prospective customers and generally expects them to call on existing
customers approximately every two weeks. In servicing existing customers,
local sales representatives are expected not only to generate orders but also
to be problem solvers. Typical problem-solving services include shop
organization, special orders, part identification and complaint resolution.
Local sales representatives are compensated based on a combination of salary
and commission. The Company's sales force is managed by Wilmar's Vice
President of Sales and three regional sales managers.
Telesales. The Company employs six full-time telesales representatives whose
responsibility is to obtain new customers and maintain regular contact with
active customers, principally in territories where the Company does not employ
a local sales representative. In these territories, the Company rents lists of
prospective customers and distributes to them monthly direct mail flyers which
highlight promotions and new product introductions. The Company mails
approximately 85,000 sales flyers per month to existing and prospective
customers. Telesales representatives make follow-up calls to prospective
customers in targeted markets. Operating from the Company's New Jersey
headquarters, telesales representatives also service approximately 7,800
accounts by assisting their active customers with purchasing decisions,
processing orders and responding to customer inquiries. In fiscal 1995,
telesales accounted for approximately 25% of Wilmar's net sales. Compensation
for telesales representatives consists of a salary and bonus (based on
performance versus budget).
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<PAGE>
National Accounts; Group Purchasing Organizations ("GPOs"). Wilmar senior
management supports the local calling efforts of the direct sales force by
calling on the senior management of large national or regional property
management companies to establish national account relationships whereby
Wilmar becomes an authorized or preferred vendor for all or a portion of the
management company's properties. Once Wilmar has been named an authorized or
preferred vendor, Wilmar's local sales representatives and telesales
representatives target the individual properties managed by that company to
build relationships with maintenance managers. Similarly, Wilmar targets
selected GPOs. Property management companies typically pay a fee to join a
GPO, which entitles them to purchase products at discount prices from the
GPO's designated vendors. Wilmar is currently one of three repair and
maintenance suppliers in Buyers Access, a GPO owned and managed by NHP
Incorporated, the nation's second largest property management company. Sales
to Buyers Access participants constituted 23.2% of the Company's net sales for
fiscal 1995. The Company has found that in instances where a customer leaves a
GPO, the Company has normally retained the customer's account.
OPERATIONS
Order Entry. During fiscal 1995, Wilmar's average order was $164. The
Company receives all orders placed by customers or customers' local sales
representatives at its centralized customer service center within the
Company's New Jersey headquarters. Approximately 94% of orders are placed via
telephone through the Company's toll-free "800" number, with the remaining 6%
placed by fax. Calls are received by 36 customer service representatives who
utilize on-line terminals to enter customer orders into a fully computerized
order processing system. Through this system, customer service representatives
access product availability, product location, pricing and promotions
information. Customer service personnel determine immediately whether the
product is available at the distribution center closest to the customer and,
if not, the closest distribution center with availability. As a result, the
customer service representative informs the customer immediately as to when
the product can be delivered. Customer service lines are open from 8:00 am to
8:00 pm Eastern Time. During fiscal 1995, the Company received an average of
approximately 2,000 calls per day.
Fulfillment. Once an order is entered into the computer system by a customer
service representative, a picking slip is generated at the appropriate
distribution center. Items on the picking slip are automatically arranged by
warehouse location sequence to facilitate ease of picking within the
distribution center. Distribution center personnel pick items from 8:00 am to
6:00 pm and all orders received before 3:00 pm are readied for shipment on the
same day. Wilmar uses bar-coding on all orders to track shipment and delivery
status. Most sales are billed on net 30 day terms, with the balance paid by
credit card at the time of sale. The Company seeks to carefully manage
inventory to assure product availability and minimize inventory shrinkage. The
Company regularly cycle counts key inventory items.
Delivery. Wilmar attempts to ship its products in the most cost-effective
and efficient manner. For customers located within the local delivery radius
of a distribution center (typically 50 miles), Wilmar's own trucks or a
contract service will deliver the products directly to the customer the next
day, at no charge for orders over $25. For customers located outside the local
delivery radius of a distribution center, the Company will deliver products
via UPS or another parcel delivery company or, in the case of large orders, by
less-than-truckload common carrier. For these customers, the Company imposes a
$25 minimum order size and does not charge delivery costs if the customer's
order exceeds $50, except for heavy or oversized products marked in the
catalog with a "plus freight" symbol.
Customized Reports. Wilmar maintains a two-year purchase history for all
customers and uses this sales information to produce customized reports. The
Company is able to provide customers with usage reports identifying each
product purchased by the customer during any given period, the quantity,
number of times purchased and total price paid. These usage reports enable
customers to manage supply requirements, maintain inventory levels and prepare
forecasts and budgets. Management companies can also track product purchases
on either a property or company-wide basis. The Company also provides
31
<PAGE>
customers with budget reports, showing a property's spending by product
category, detailed by month-to-date, year-to-date and per apartment unit.
Management reports show the same information for the entire management
company, detailed by property. Wilmar's standard invoices contain a summary of
purchases detailed by product category. To fit customer needs, Wilmar will
develop upon request customized invoices, using customers' general ledger
numbers.
Wilmar's Electronic Shop. Wilmar's Electronic Shop is a free service that
allows customers to electronically access Wilmar's computer through their own
computers to place orders, check product pricing and availability, check order
status and inquire about previous invoices.
Return Policy; Warranty. The Company arranges for pick-up of returns at no
charge to the customer in local delivery areas. For customers outside local
delivery zones, the Company provides parcel service pick-up of the returns at
no charge plus full refund if the return is the result of Company error. In
fiscal 1995, the Company's return rate was approximately 4.0% of sales. The
Company offers 12-year warranties on its "Wilflo" faucets and one-year
warranties on its "Wilmar" ceiling fans and "Wilmar" garbage disposals. In
June 1996, the Consumer Products Safety Commission ("CPSC") announced that
some imported, non-glossy vinyl mini-blinds, including mini-blinds of the type
sold by the Company, have lead added to stabilize the plastic in the blinds
which presents a lead poisoning hazard for young children. The Company, in
accordance with its standard return policy, will accept any mini-blinds
returned by a customer in unopened packages. The CPSC has not announced a
recall of the mini-blinds. The Company intends to sell a low lead mini-blind
beginning in September 1996.
PURCHASING
Wilmar currently purchases products from approximately 550 vendors. In
fiscal 1995, 83.5% of the Company's net sales were from products purchased
directly from manufacturers in the United States and the balance
(approximately 5% of total SKUs sold) directly from manufacturers in Asia. In
fiscal 1995, sales of the Company's 100 highest volume SKUs accounted for
26.6% of the Company's net sales, with no single product accounting for more
than 1.3% of net sales. Domestic manufacturers deliver most merchandise
directly to the Company's distribution centers. The Company's volume
purchasing has enabled it to benefit from favorable pricing, payment and
delivery terms and promotional allowances from its manufacturers. The Company
believes it has good relationships with its vendors and, to date, has not
experienced any difficulty in obtaining products in sufficient quantities.
The Company purchases certain products directly from suppliers in Taiwan,
China and Korea, enabling it to source certain products at lower prices than
those generally prevailing in the U.S. market. Most products sourced overseas
are in the electrical, window and floor covering, plumbing and hardware
categories and are sold under the Company's private label "Wilflo" and
"Wilmar" brand names. Most of the Company's overseas purchases are financed by
letters of credit and all payment terms are dollar denominated. Although the
Company has no long-term contracts with its Asian suppliers, it believes that
multiple sources exist for each product it purchases overseas.
The Company's management information system assists buyers in monitoring and
managing the Company's inventory in order to minimize out-of-stock positions.
Generally, the Company has been able to return unsold inventory, and inventory
write-offs have not been material.
MANAGEMENT INFORMATION SYSTEMS
The Company has invested substantial resources to develop proprietary
computer software applications. The Company believes that these applications
enable it to deliver superior customer service, centrally manage its
operations and achieve cost savings. The Company uses proprietary software
applications for customer service and order fulfillment and uses third party
developed software programs for its inventory management and purchasing
operations. Each distribution center has a continuous on-line connection to
the Company's IBM RS/6000 computer system to support immediate order
transmission,
32
<PAGE>
on-line query capability and full system reporting. The Company has also
installed a computerized imaging system that allows investigation of shipping
status for its customers through automatic retrieval of picking and shipping
document images and status queries placed through computerized access to some
of its delivery services' systems. The Company manages its customer service
and telesales efforts through automated routing of incoming calls. The Company
has adopted procedures to protect its investment in its computer systems and
to provide for recovery in the event of equipment failures. All production
systems are backed up to tape daily with backup tapes stored off-site. End-of-
month tapes, tape archives and production software kept on-site are stored in
a fire-proof safe.
COMPETITION
The Company believes that the principal competitive factors in the
distribution of repair and maintenance products to the apartment housing
market and similar markets are the breadth and quality of products offered,
reliability of delivery, customer service, product pricing and sales
relationships. The Company believes it competes favorably with respect to
these factors.
Although there are a large number of repair and maintenance distributors in
the United States, based on industry reports and its own experience, the
Company believes that most of them operate in a single region (often with a
single distribution center) and have significantly less annual sales than the
Company. In addition, the Company competes with mail order catalog companies,
retail stores including superstores, specialty suppliers and industrial
suppliers. Certain of these companies have greater financial resources and
sell more products than Wilmar.
EMPLOYEES
The Company employed 397 people as of June 30, 1996. Of these, 89 were in
sales, six in telesales, 36 in customer service, 202 in operations and 64 in
management and administration. At June 30, 1996, HMA employed 117 people,
including 23 direct sales people. Fifty of the Company's distribution center
employees and truck drivers at the Philadelphia distribution center are
covered by a collective bargaining agreement with Highway Truck Drivers and
Helpers Local 107, which is affiliated with the International Brotherhood of
Teamsters. This agreement expires in May 1998. The Company has never
experienced a work stoppage. The Company believes its relations with its
employees are good.
PROPERTIES
The Company leases approximately 12,500 square feet of office space in
Moorestown, New Jersey from William Green for its headquarters. See "Certain
Transactions--Headquarters Lease." The Company leases the following
distribution centers:
<TABLE>
<CAPTION>
CURRENT YEAR
DISTRIBUTION CENTER SQUARE FOOTAGE OPENED/ACQUIRED
------------------- -------------- ---------------
<S> <C> <C>
Philadelphia(1)........................... 43,200 1978
Washington, D.C........................... 28,500 1982
Houston................................... 12,700 1987
Indianapolis.............................. 16,000 1991
Fresno.................................... 14,400 1992
Atlanta................................... 12,200 1993
Tampa..................................... 36,700 1994
Columbus.................................. 20,800 1995
Seattle................................... 16,200 1995
Miami (One Source)........................ 37,000 1995*
Denver (Mile High)........................ 27,100 1996*
Las Vegas (Sun Valley).................... 3,300 1996*
Dallas (HMA).............................. 26,900 1996*
Houston (HMA) ............................ 55,000 1996*
San Antonio (HMA)......................... 5,700 1996*
</TABLE>
- --------
* Distribution center acquired.
(1) The Company has recently leased approximately 70,000 square feet of office
and warehouse space in Mt. Laurel, New Jersey to replace its existing
Philadelphia distribution center. See "Certain Transactions--Mt. Laurel
Lease."
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<PAGE>
These properties are leased for periods of three to ten years and generally
do not include tenant renewal options. The Company believes its current
facilities are adequate for its current and reasonably foreseeable needs and
that suitable additional or alternative space will be available as needed to
accommodate future growth and to open additional distribution centers.
SALES OR USE TAX
The Company collects sales tax in the 28 states where it has the required
contacts. From time to time, various states have sought to impose on direct
marketers the burden of collecting use taxes on the sale of products shipped
to residents of these states. The United States Supreme Court held that it is
unlawful for a state to impose use tax collection obligations on an out-of-
state company whose only contacts with the state were the distribution of
catalogs and other advertising materials through the mail and subsequent
delivery of purchased goods by mail or common carrier. In the event
legislation is passed to overturn the Supreme Court's decision, the imposition
of a use tax collection obligation on the Company in states into which it
ships products but with which it has no other contacts would result in
additional administrative expense to the Company and higher prices to
customers.
LEGAL PROCEEDINGS
The Company is involved in various legal proceedings in the ordinary course
of its business which are not anticipated to have a materially adverse effect
on the Company's results of operations or financial condition. See Note 12 of
Notes to the Consolidated Financial Statements.
34
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The directors, executive officers and key employees of the Company are:
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS AND DIRECTORS AGE POSITION
- -------------------------------- --- --------
<S> <C> <C>
William S. Green(1).................. 37 Chairman, President, Chief Executive
Officer and Director
Fred B. Gross........................ 58 Vice President--Corporate Development,
Secretary and Director
Michael T. Toomey.................... 31 Chief Financial Officer and Treasurer
Ernest K. Jacquet(1)(2)(3)........... 48 Director
Joseph F. Trustey(1)(2)(3)........... 33 Director
Donald M. Wilson..................... 56 Director
<CAPTION>
OTHER KEY EMPLOYEES
- -------------------
<S> <C> <C>
Hugh H. Bryan........................ 40 Vice President--Information Systems
Michael A. D'Adamo................... 42 Vice President--Sales
Raymond J. Del Vecchio............... 37 Vice President--Operations
Anthony Petrille..................... 36 Purchasing Manager
</TABLE>
- --------
(1) Member of Compensation Committee
(2) Member of Audit Committee
(3) Member of Stock Option Committee
Mr. Green co-founded the Company in 1978 with his father and has been its
Chairman, President and Chief Executive Officer since 1986. From 1978 until
1986, he served as the Company's Vice President.
Mr. Gross has been a Vice President and Secretary of the Company since March
1994 and Vice President--Corporate Development since November 1995. He was
elected a director in July 1995. From 1989 until February 1994, Mr. Gross was
Regional Vice President of Angelo Brothers Company, a supplier of electrical
products, while also maintaining a private law practice. Before attending law
school, Mr. Gross worked for 22 years in the plumbing supply industry.
Mr. Toomey has been Chief Financial Officer and Treasurer of the Company
since October 1992. Mr. Toomey is a certified public accountant and, from
October 1986 until October 1992, was an accountant with the public accounting
firm of Fishbein & Company, P.C.
Mr. Jacquet has been a director of the Company since March 1995. Since April
1990, he has been a general partner of Summit Partners, a venture capital
partnership that is the general partner of the Summit Investors. Mr. Jacquet
also serves as a director of CIDCO Incorporated, a publicly-held company.
Mr. Trustey has been a director of the Company since April 1995. Mr. Trustey
has been employed by Summit Partners since June 1992, was a Vice President
from December 1994 to January 1996 and since that time has been a general
partner of Summit Partners. From June 1990 to June 1992, Mr. Trustey was a
strategy consultant with Bain & Co., Inc., a management consulting firm. Mr.
Trustey also serves as a director of Home Health Corporation of America, Inc.
a publicly-held company. In accordance with the understanding among the
Company and the Summit Investors, Mr. Trustey intends to resign as a director
following the consummation of this offering.
Mr. Wilson has been a director of the Company since July 1996. Mr. Wilson
was employed by Viking Office Products from December 1979 until his retirement
in December 1995. Most recently, Mr. Wilson served as Viking's Vice
President--Operations from January 1991.
35
<PAGE>
Mr. Bryan has been Vice President--Information Systems of the Company since
September 1995. From August 1986 until September 1995, Mr. Bryan was the
Director of Management Information Systems for Today's Man, Inc., a retailer
of men's clothing.
Mr. D'Adamo has been Vice President--Sales of the Company since September
1992. From May 1990 until August 1992, he was Corporate Vice President of NCH
Corporation, Plumbmaster Division. Mr. D'Adamo has 19 years of experience in
the sale of repair and maintenance products.
Mr. Del Vecchio has been Vice President--Operations of the Company since May
1995. From July 1993 until May 1995, he was Customer Service Manager and
Director of Telemarketing for the Company, and from May 1992 until July 1993,
was Security Products Manager. Before joining the Company in 1992, Mr. Del
Vecchio was employed by the New Jersey Department of Corrections.
Mr. Petrille has been the Purchasing Manager for the Company since June
1990. From September 1989, when he joined the Company, until June 1990, Mr.
Petrille was the Company's buyer for plumbing supplies. Mr. Petrille has 13
years of experience in repair and maintenance product purchasing.
DIRECTORS; COMMITTEES
The Board of Directors is divided into three classes. Each class holds
office until the third annual meeting for the election of directors following
the election of such class, except that the initial terms of the Class I,
Class II and Class III directors expire in 1997, 1998 and 1999, respectively.
Mr. Green and Mr. Wilson are Class I directors, Messrs. Gross and Trustey are
Class II directors, and Mr. Jacquet is a Class III director.
In connection with the Company's initial public offering, the Board of
Directors established a Compensation Committee, a Stock Option Committee and
an Audit Committee. The Compensation Committee, consisting of Messrs. Green,
Jacquet and Trustey, has the authority to approve salaries and bonuses and
other compensation matters for officers of the Company and to approve employee
health and benefit plans. The Stock Option Committee, consisting of the
members of the Compensation Committee other than Mr. Green, administers the
Company's Stock Option Plan. The Audit Committee, consisting of Messrs.
Jacquet and Trustey, has the authority to recommend the appointment of the
Company's independent auditors and review the results and scope of audits,
internal accounting controls and tax and other accounting related matters.
Officers of the Company are elected by the Board of Directors and serve at
the discretion of the Board.
COMPENSATION OF DIRECTORS
Prior to the Company's initial public offering, directors did not receive
compensation for acting as such. Independent directors are now paid directors'
fees of $1,500 for each board meeting attended. In addition, directors are
reimbursed for expenses incurred in connection with attendance at board and
committee meetings.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company did not have a Compensation Committee of the Board of Directors
prior to November 1995. Prior to that date, Mr. Green made executive officer
compensation decisions in consultation with the Board of Directors. The
Compensation Committee consists of Messrs. Jacquet, Trustey and Green.
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<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth individual
compensation paid to the Chief Executive Officer and the other executive
officers of the Company (the "Named Executive Officers") for all services
rendered in all capacities to the Company during fiscal 1995:
<TABLE>
<CAPTION>
1995 ANNUAL COMPENSATION
--------------------------------
ALL OTHER
NAME AND POSITION SALARY BONUS COMPENSATION(1)
----------------- -------- ------- ---------------
<S> <C> <C> <C>
William Green................................. $200,000 $50,000 $2,938
Chairman, President and
Chief Executive Officer
Fred B. Gross................................. 107,726 40,000 1,790
Vice President--Corporate Development
and Secretary
Michael T. Toomey............................. 69,700 40,000 1,693
Chief Financial Officer and Treasurer
</TABLE>
- --------
(1) All other compensation consists of amounts matched by the Company under
its 401(k) Plan with respect to Messrs. Green, Gross and Toomey. The
amount shown for Mr. Gross does not include $12,000 of legal fees paid to
the law firm of Fred Gross, Esq. See "Certain Transactions--Certain
Payments to an Executive Officer."
OPTION GRANTS AND EXERCISES
The following table sets forth the stock option grants made during 1995 to
each of the Company's executive officers named in the Summary Compensation
Table and to all employees as a group. All key employees are eligible for
stock option grants based on individual performance. The Company did not issue
any stock appreciation rights. The table also sets forth the hypothetical
gains that would exist for the options at the end of their ten-year terms,
assuming compound rates of stock appreciation of 5% and 10%. The actual future
value of the options will depend on the market value of the Company's Common
Stock. No stock options were exercised during fiscal 1995 by any of the
Company's executive officers named in the Summary Compensation Table.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION AT
END OF TEN YEAR
INDIVIDUAL GRANTS OPTION TERMS(1)
------------------------------------------- ---------------------
NUMBER OF % OF TOTAL
SHARES OPTIONS
COVERED BY GRANTED TO
OPTION EMPLOYEES IN EXERCISE EXPIRATION
NAME GRANTS(2) FISCAL 1995 PRICE DATE 5% 10%
- ---- ---------- ------------ -------- ---------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
William S. Green........ -- -- -- -- -- --
Fred B. Gross........... 64,400 23% $4.23 3/8/05 $ 171,318 $ 434,155
Michael T. Toomey....... 72,800 26% $4.23 3/8/05 $193,664 $ 490,783
All employees as a
group.................. 280,000 100% $4.23 (3) $744,863 $1,887,629
</TABLE>
- --------
(1) These amounts, based on assumed appreciation rates of the 5% and 10% rates
prescribed by the Securities and Exchange Commission rules are not
intended to forecast possible future appreciation, if any, of the
Company's stock price. The Company did not use an alternative formula for
a grant date valuation as it is not aware of any formula which will
determine with reasonable accuracy a present value based on future unknown
or volatile factors.
(2) Except as otherwise indicated, this column relates to options granted
under the 1995 Stock Option Plan (the "Option Plan"). The options granted
vest in 25% increments on the second through fifth
37
<PAGE>
anniversaries of the date of grant. The options expire on the tenth
anniversary of the date of grant. In general, options terminate (a) at any
time the optionee's employment is terminated by the Company for cause or a
voluntary termination of employment by the employee, and (b) one year
following death or disability of the employee. Options granted under the
Option Plan are not assignable or otherwise transferable except by will or
the laws of descent and distribution. Shares subject to options granted
under the Option Plan which have lapsed or terminated may again be subject
to options granted under the Option Plan.
(3) Options were granted to various employees between March and September
1995. Options expire 10 years from the dates of grant.
The following table sets forth the number and total value of unexercised in-
the-money options at December 29, 1995 for each of the Company's executive
officers named in the Summary Compensation Table. No stock options were
exercised during the last fiscal year by any of the Company's executive
officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND OPTION VALUES AT DECEMBER 29, 1995
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT
AT DECEMBER 29, 1995(#) DECEMBER 29, 1995($)(1)
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- ------------------------- -------------------------
<S> <C> <C>
William S. Green............ --/-- $--/--
Fred B. Gross............... --/64,400 --/435,988
Michael T. Toomey........... --/72,800 --/492,856
</TABLE>
- --------
(1) Based on the fair market value of the Common Stock on December 29, 1995 at
an assumed price of $11.00 (the initial public offering price), which
management believed to be the fair market value on such date, less the
exercise price.
EMPLOYMENT AGREEMENTS
In connection with the 1995 Recapitalization, William Green entered into an
employment agreement with the Company. Under the provisions of the employment
agreement, Mr. Green will serve as President and Chief Executive Officer of
the Company until March 1, 2000, unless earlier terminated by the Company, at
an annual base salary of $200,000, subject to adjustment, and an annual bonus
upon achieving specified financial targets set by the Compensation Committee.
The employment agreement also contains certain non-competition and related
provisions.
The Company has entered into an employment agreement with Fred B. Gross. The
initial term of the agreement expires in April 1997 but will be renewed
automatically for successive one-year terms unless terminated by either party.
The agreement provides that Mr. Gross will receive an annual base salary of
not less than $107,500. The employment agreement also contains certain non-
competition and related provisions.
EMPLOYEE BENEFIT PLANS
401(k) Plan. Effective January 1, 1986, the Company adopted a profit sharing
plan (the "401(k) Plan") covering all of the Company's employees who have
completed ninety days of service and have attained the age of 21. The 401(k)
Plan is intended to be a tax-qualified plan under Section 401(a) of the Code.
The 401(k) Plan enables employees to reduce their taxable compensation by
electing to defer current compensation into the 401(k) Plan, up to the
statutorily prescribed annual limit ($9,240 in 1995). The Company may, but is
not required to, make matching contributions to the 401(k) Plan based on the
38
<PAGE>
amounts participants contribute to the 401(k) Plan up to a maximum of 5% of
compensation. In each of the past three years the Company has made matching
contributions equal to 20% of employee contributions up to the 5% of
compensation maximum. Company matching contributions totalled $6,495 in 1993,
$11,054 in 1994 and $75,290 in 1995.
1995 Stock Option Plan. The 1995 Stock Option Plan (the "Option Plan") was
adopted by the Board of Directors and approved by the shareholders in March
1995. The Option Plan is intended to motivate and reward designated officers
and other key employees of the Company and its subsidiaries who contribute to
the growth of the Company by granting them stock options to acquire shares of
Common Stock.
Grants of stock options under the Option Plan may be made to officers
(including officers who are directors) and other key employees of the Company
and its subsidiaries. Under the Option Plan, the Company may grant options
with respect to a maximum of 800,000 shares of Common Stock ("Options"). The
Option Plan is administered by a committee (the "Committee") appointed by the
Board of Directors. The Committee has the authority to determine the officers
and key employees to whom Options are granted (the "Optionees"), the type,
size and terms of the Options, the grant date, the expiration date, the
vesting schedule and other terms and conditions of the Options. The Committee
has the authority to construe and interpret the provisions of the Option Plan.
Each Option is evidenced by a Grant Letter from the Committee to the Optionee
setting forth the terms and conditions of the Option.
Options intended to qualify as incentive stock options under the Code or
nonqualified stock options may be granted under the Option Plan. No Optionee
may receive Options to purchase more than 150,000 shares under the Option
Plan. The exercise price of incentive stock options granted under the Option
Plan must be at least equal to the fair market value of the Common Stock on
the date of the grant except that the exercise price of an incentive stock
option granted to a person owning more than 10% of the total combined voting
power of all classes of stock of the Company (a "Ten Percent Shareholder")
must be at least 110% of the fair market value of the Common Stock on the date
of grant. The exercise price of nonqualified stock options granted under the
Option Plan may not be less than the fair market value of the Common Stock on
the date of the grant. Options granted under the Option Plan will vest at such
times as are specified by the Committee. An Option granted to an Optionee will
expire on the date determined by the Committee, which date may not exceed 10
years from the date of grant, except that an incentive stock option granted to
a Ten Percent Shareholder must be exercised within five years of the date of
grant.
If an Optionee with outstanding Options dies or becomes disabled while an
employee of the Company or a subsidiary, or dies within thirty days (or within
such period determined by the Committee) after he ceases to be an employee for
any reason other than termination for cause by the Company or voluntary
termination by the employee, any outstanding Option, to the extent it has
vested, may be exercised by the individual or his personal representative
within the period of one year after the date of death or disability (except as
the Committee may otherwise provide). If an individual with outstanding
Options ceases to be an employee on account of a termination for cause by the
Company or a voluntary termination of employment by the employee, any
outstanding Option shall terminate as of the date he ceases to be an employee
(except as the Committee may otherwise provide). If the Company terminates the
employment of an Optionee for any reason other than those previously
described, any outstanding Option, to the extent that it was exercisable on
the date of such termination, may be exercised by the holder within thirty
days (or such shorter time as may be specified by the Committee in the Grant
Letter), but in no event later than the expiration of the Option.
The Board may amend or terminate the Option Plan at any time, except that
the Board cannot amend the plan to materially increase the benefits accruing
to participants under the Option Plan, increase the aggregate number (or
individual limit) of shares of Common Stock that may be issued or transferred
under the Option Plan, or modify the requirements as to the eligibility for
participation in the plan without the approval by the shareholders. In
addition, the Board is prohibited from amending the Option Plan if such
39
<PAGE>
amendment would cause the Option Plan or any Option, or the exercise of any
right under the Option Plan to fail to comply with the requirements of Rule
16b-3 under the Securities Exchange Act of 1934, as amended, or would cause
the Option Plan, the Option, or the exercise of an incentive stock option
under the Option Plan, to fail to comply with the requirements of Section 422
of the Internal Revenue Code of 1986, as amended. No amendment of the Option
Plan may adversely affect any outstanding Options without the consent of each
holder thereof.
The Company currently has outstanding options to purchase an aggregate of
280,000 shares of Common Stock at an exercise price of $4.23 per share. These
options were granted between March and September 1995 and are held by 18
employees of the Company, including Mr. Gross (64,400 shares) and Mr. Toomey
(72,800 shares), and vest in 25% increments on the second through fifth
anniversaries of the date of grant. The Company also has outstanding options
to purchase an aggregate of 100,000 shares of Common Stock at an exercise
price of $11.00 per share. These options are held by 11 employees of the
Company, including Mr. Gross (17,045 shares) and Mr. Toomey (17,045 shares),
and will vest 100% on the first anniversary of the date of grant.
CERTAIN TRANSACTIONS
Mt. Laurel Lease. On April 29, 1996, the Company entered into an operating
lease agreement with a company owned by William Green, Fred Gross and an
unrelated third party, pursuant to which the Company leases approximately
70,000 square feet for a warehouse and customer service center in Mt. Laurel,
New Jersey to replace the Company's existing Philadelphia distribution center
and to provide the Company with additional office space. The Company leases
the space for a minimum monthly rent of $18,500 from September 1, 1996 through
December 31, 1996, of $24,050 from January 1, 1997 through May 31, 2001 and an
increased rent from June 1, 2001 through the end of the lease term based on
the Consumer Price Index. The Company pays, as additional rent, all real
estate taxes and assessments, all utilities and insurance premiums for
casualty insurance and any other public liability insurance relating to the
premises. Under the terms of the lease, the Company is solely responsible for
the costs of maintenance, operation and repair of the leased property. The
Company believes that the terms of the lease are no less favorable to it than
could be obtained from an unaffiliated party. The lease term commenced on June
1, 1996 and will expire May 31, 2006.
Headquarters Lease. The Company's headquarters at 303 Harper Drive,
Moorestown, New Jersey is leased to the Company by William Green. Under the
lease dated March 1, 1994 and amended March 7, 1995, the Company rents
approximately 12,500 square feet at an annual minimum rent of approximately
$137,500. The Company pays, as additional rent, all real estate taxes and
assessments, all utilities and insurance premiums for casualty insurance and
any other public liability insurance relating to the premises. Under the terms
of the lease, the Company is solely responsible for the costs of maintenance,
operation and repair of the headquarters property. The Company paid rent to
Mr. Green in the amount of $145,000 for fiscal 1995. In 1995, the Company made
mortgage payments on the property in the amount of $42,500 in lieu of paying
rent to Mr. Green. The lease expires on February 28, 2004 and does not contain
any renewal terms. The Company believes that the terms of the lease are no
less favorable to it than could be obtained from an unaffiliated party.
Summit Financing and 1995 Recapitalization. In March 1995, the Company
effected a recapitalization (the "1995 Recapitalization"). As an integral part
of the 1995 Recapitalization, the Company made a dividend distribution to
William Green, the sole shareholder of the Company at that time, in the form
of 105,914 shares of Series B Junior Preferred Stock with a redemption value
of $10.6 million, to be amended as described below. The Company issued 129,450
shares of its Series A Senior Preferred Stock to the Summit Investors for a
purchase price of $12.9 million. All of the outstanding Series A Senior
Preferred Stock was redeemed, by its terms, for $12.9 million (plus accrued
dividends estimated at $900,000) upon consummation of the Company's initial
public offering in January 1996. In addition, the Company issued to certain of
the Summit Investors $4.0 million of 11.5% Subordinated Debentures which were
repaid by their terms, along with accrued interest thereon, upon consummation
of the initial
40
<PAGE>
public offering. The Company used the proceeds of the investment by Summit to
redeem 3,584,000 shares of Common Stock held by William Green for $15.1
million. As additional consideration for the redemption of Mr. Green's Common
Stock in the 1995 Recapitalization, the Company issued a $2.0 million note to
Mr. Green on November 22, 1995, payable only if the Company satisfies certain
earnings targets in 1995 and 1996, or upon the earlier consummation of a
qualified liquidity event. The initial public offering constituted a qualified
liquidity event, and the note was repaid with a portion of the proceeds of the
initial public offering. In connection with the 1995 Recapitalization, the
Company issued 3,080,000 shares of its Common Stock to the Summit Investors
for an aggregate purchase price of $55,000. As a result of the 1995
Recapitalization, the Company has incurred significant interest expense and
been required to accrue preferred dividends since March 9, 1995. In connection
with the initial public offering William Green agreed to convert $5.0 million
of his Series B Junior Preferred Stock into Common Stock at the offering
price. Simultaneously with the initial public offering, the terms of the
Series B Junior Preferred Stock were amended to provide that $5.0 million of
his Series B Junior Preferred Stock would be converted into 454,545 shares of
Common Stock, and the balance would be redeemed for $5.6 million (plus accrued
dividends estimated at $700,000).
Martin and Florence Green Stock Redemption. On July 8, 1993, the Company
redeemed all of the outstanding shares of Common Stock held by Martin and
Florence Green, the parents of William Green, for $2.0 million, payable by
promissory notes. The redemption price was subject to upward adjustment if,
within four years of the closing date of the redemption, William Green sold
substantially all of his stock or the Company sold substantially all of its
assets. On November 28, 1994, Mr. and Mrs. Green and the Company agreed to
settle this adjustment obligation, which arose in connection with the 1995
Recapitalization, for $694,000, paid at the closing of the 1995
Recapitalization. The Company used a portion of the proceeds of its initial
public offering to prepay in full the Company's obligations under the
remaining note.
Certain Payments for Collection Services. In 1995, the Company made payments
in the aggregate amount of $12,000 to the law firm of Fred Gross, Esq. for
services in collecting delinquent accounts receivable on behalf of the
Company. This firm, which is owned by Mr. Gross, collects delinquent accounts
receivable for a number of businesses, including the Company. The day-to-day
services of the firm are performed by Mr. Gross's spouse. The Company believes
that the terms of the engagement are no less favorable than could be obtained
by an unaffiliated firm.
Any future transactions between the Company and its officers, directors or
principal shareholders first will be approved by a majority of the then
disinterested members of the Board of Directors.
41
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth information with respect to beneficial
ownership of the Common Stock as of the date of this Prospectus (i) by each
person who beneficially owns more than 5% of the Common Stock, (ii) by each of
the Company's executive officers and directors, and (iii) by all executive
officers and directors of the Company as a group. Unless otherwise noted, each
person named in the table has sole voting and investment power as to shares
shown.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED PRIOR TO SHARES BENEFICIALLY
OFFERING SHARES OWNED AFTER OFFERING
-------------------------- BEING -----------------------
NAME AND ADDRESS NUMBER PERCENT OFFERED NUMBER PERCENT
---------------- ------------ ------------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Summit Partners(1)...... 3,080,000 29.5 1,500,000 1,580,000 12.7
One Boston Place
Boston, MA 02108
William Green(2)........ 2,694,545 25.8 270,000 2,424,545 19.5
303 Harper Drive
Moorestown, NJ 08057...
Fred B. Gross(3)........ 5,000(3) * -- 5,000 *
Michael T. Toomey(4).... -- -- -- -- --
Ernest K. Jacquet(5).... 3,080,000 29.5 1,500,000 1,580,000 12.7
Joseph F. Trustey....... -- -- -- -- --
All executive officers
and directors as a
group (6 persons)...... 5,779,545 55.3 1,770,000 4,009,545 32.2
</TABLE>
- --------
* Less than one percent.
(1) The amount shown consists of 2,902,219, 116,181 and 61,600 shares held of
record by Summit Ventures III, L.P., Summit Subordinated Debt Fund, L.P.
and Summit Investors II, L.P., respectively. Summit Partners SD, L.P. is a
General Partner of Summit Subordinated Debt Fund, L.P. and Summit Partners
III, L.P. is a General Partner of Summit Ventures III, L.P. Stamps,
Woodsum & Co. III is a General Partner of Summit Partners SD, L.P. and
Summit Partners III, L.P., and Ernest K. Jacquet, a director of the
Company, is a General Partner of Stamps, Woodsum & Co. III and Summit
Investors II, L.P. See Note (5).
(2) The amount shown includes 283,509 shares held in trust for the benefit of
Mr. Green's children, for which Mr. Green disclaims beneficial ownership.
(3) Mr. Gross is also the beneficial owner of options to purchase 81,445
shares of Common Stock, none of which is exercisable.
(4) Mr. Toomey is also the beneficial owner of options to purchase 89,845
shares of Common Stock, none of which is exercisable.
(5) Includes shares in Note (1) above. Mr. Jacquet, a director of the Company,
is a general partner of affiliates of Summit Partners, L.P. Mr. Jacquet
exercises shared investment and voting power with respect to such shares,
but disclaims beneficial ownership of such shares.
42
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 50,000,000 shares of
Common Stock, no par value, and 5,000,000 shares of Preferred Stock, par value
$.01 per share. At June 30, 1996, the Company had 10,374,545 shares of Common
Stock and no shares of Preferred Stock outstanding.
COMMON STOCK
Each outstanding share of Common Stock is entitled to one vote on all
matters presented to shareholders. If dividends are declared, whether payable
in cash, property or securities of the Company, all holders of Common Stock
are entitled to share equally, share for share, in such dividends. In the
event of any voluntary or involuntary liquidation, dissolution or winding up
of the Company, after payment has been made to the holders of shares of
Preferred Stock, if any, for the full amount to which they are entitled, the
holders of the shares of Common Stock are entitled to share equally, share for
share, in the assets available for distribution.
All currently outstanding shares of Common Stock are, and upon issuance as
set forth herein, the shares of Common Stock being sold by the Company will
be, duly authorized, validly issued, fully paid and non-assessable.
PREFERRED STOCK
The Board of Directors is authorized to issue up to 5,000,000 shares of
Preferred Stock in one or more series and has authority to establish the
designations, preferences, qualifications, privileges, limitations,
restrictions, options, conversion rights and other special or relative rights
of any series of Preferred Stock, without any further vote or action by the
shareholders of the Company. The issuance of additional shares of Preferred
Stock could adversely affect the voting power and other rights of holders of
Common Shares. Because the terms of the Preferred Stock may be fixed by Board
of Directors of the Company without shareholder action, the Preferred Stock
could be issued quickly with terms calculated to defeat a proposed takeover of
the Company, or to make the removal of management of the Company more
difficult. The authority to issue Preferred Stock or rights to purchase such
stock could be used to discourage a change in control of the Company.
Management of the Company is not aware of any such threatened transaction to
obtain control of the Company, and the Board of Directors has no current plans
to designate and issue any additional shares of Preferred Stock.
CERTAIN PROVISIONS THAT MAY HAVE AN ANTI-TAKEOVER EFFECT
The provisions of the Company's Certificate of Incorporation, as amended,
(the "Certificate of Incorporation") and Bylaws summarized below may have an
anti-takeover effect and may delay, defer or prevent a tender offer or
takeover attempt not approved by the Board of Directors, including those made
at a premium over the prevailing market price of the Common Stock held by
shareholders.
The Certificate of Incorporation provides for a classified Board of
Directors consisting of three classes as nearly equal in size as practicable.
Each class holds office until the third annual meeting for election of
directors following the election of such class, except that the initial terms
of the three classes expire in 1997, 1998 and 1999, respectively. Any director
may be removed with cause upon the vote of the holders of a majority of the
shares of Common Stock then entitled to vote. Directors may not be removed
without cause.
The rights, preferences, privileges and limitations of the Preferred Stock
as may be established by the Board of Directors could have the effect of
impeding or discouraging the acquisition of control of the Company in a
transaction not approved by the Board of Directors.
The Certificate of Incorporation and the Bylaws further provide that (i)
shareholders may act only at an annual or special meeting or by unanimous
written consent, (ii) special meetings may only be called
43
<PAGE>
by the Chairman of the Board, President or a majority of the Board of
Directors, and (iii) unless approved by two-thirds of the entire Board of
Directors, any action (other than the election of directors) to be taken by
the shareholders (including amendments to the Certificate of Incorporation and
Bylaws and mergers and other business combinations) requires the vote of two-
thirds of the outstanding voting stock, voting as a single class.
The Company's Certificate of Incorporation and Bylaws establish advance
notice procedures with regard to the nomination, other than by or at the
direction of the Board of Directors or a committee thereof, of candidates for
election as directors. These procedures provide that the notice of proposed
shareholder nominations of candidates must be timely given in writing to the
Secretary of the Company prior to the meeting at which directors are to be
elected.
These provisions are intended to encourage persons considering an
acquisition or takeover of the Company to negotiate with the Board of
Directors rather than pursue non-negotiated takeover attempts even though such
takeover might be desired by a majority of the shareholders. These provisions
may also reduce the likelihood of a change in the management or voting control
of the Company without the consent of the then incumbent Board of Directors.
LIMITATION OF LIABILITY; INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Company's Certificate of Incorporation provides that, pursuant to and to
the extent permitted by New Jersey law, the Company's directors shall not be
personally liable for monetary damages for breach of any duty owed to the
Company and its shareholders. This provision does not eliminate the duty of
care, and, in appropriate circumstances, equitable remedies such as an
injunction or other forms of non-monetary relief would remain available under
New Jersey law. In addition, each director will continue to be subject to
liability for breach of the director's duty of loyalty to the Company, for
acts or omissions not in good faith or involving knowing violations of law, or
for actions resulting in improper personal benefit to the director. The
provision also does not affect a director's responsibilities under any other
law, such as the federal securities laws or state or federal environmental
laws. The Company's Bylaws provide that the Company shall indemnify its
officers and directors to the fullest extent permitted by New Jersey law,
including some instances in which indemnification is otherwise discretionary
under New Jersey law.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is American Stock
Transfer & Trust Co., New York, New York.
LISTING
The Company's Common Stock is listed on the Nasdaq National Market under the
symbol "WLMR".
REGISTRATION RIGHTS AGREEMENTS
In connection with the Summit Agreement, the Company entered into a
Registration Rights Agreement with the Summit Investors and William Green. The
Registration Rights Agreement gives William Green and the Summit Investors
holding (a) at least 25% of (i) the outstanding Common Stock or (ii) the
outstanding securities convertible into or exercisable for shares of Common
Stock or (b) an amount of Common Stock or securities convertible into or
exercisable for shares of Common Stock with an aggregate offering price in
excess of $5.0 million, the right to request the Company to effect the
registration of such securities under the Act ("Demand Registration"). In
addition, the Registration Rights Agreement gives the Summit Investors and
William Green the right to have their securities included in offerings of the
Company's securities that are registered under the Act ("Piggyback
Registration") . Securities to be registered pursuant to Piggyback
Registration need only be included, on a pro rata basis, to the extent the
managing underwriter advises the Company that the aggregate number of
securities
44
<PAGE>
which the selling shareholders seek to offer can be sold. The Company is
required to pay all expenses of the holders of securities in connection with
Demand Registration and Piggyback Registration other than underwriting
discounts and commissions.
In connection with the HMA Acquisition, the Company entered into a
Registration Rights Agreement with certain former HMA shareholders who
received 67,615 shares of Common Stock in the HMA Acquisition. The
Registration Rights Agreement gives such former HMA shareholders Piggyback
Registration rights for offerings of the Company's securities following this
offering. Securities to be registered pursuant to Piggyback Registration need
only be included in such registrations pro rata with the securities issued by
the Company in future acquisitions, to the extent the managing underwriter
advises the Company that the aggregate number of securities that the selling
shareholders seek to offer can be sold, after considering all securities to be
sold by the Company, the Summit Investors and Willam Green pursuant to such
offering. The Company is required to pay all expenses of the holders of
securities in connection with Piggyback Registration other than underwriting
discounts and commissions.
Both Registration Rights Agreements require the Company to indemnify each
selling shareholder against certain violations of securities laws in
connection with a registration which results in losses to the selling
shareholder, unless a violation is caused by such shareholder. In turn, the
selling shareholders must indemnify the Company against losses arising from
their violation of securities laws in the registration process.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, assuming no exercise of outstanding
options, the Company will have outstanding 12,442,160 shares of Common Stock.
Of these shares, the 4,600,000 shares of Common Stock issued in the initial
public offering are, and the 3,770,000 shares of Common Stock sold in this
offering will be, freely tradeable without restriction or registration under
the Act. The remaining shares of Common Stock were issued by the Company in
transactions that were exempt from the registration requirements of the Act
and, therefore, are restricted securities under Rule 144 promulgated under the
Act.
In general, under Rule 144 as currently in effect, a person who has
beneficially owned shares for at least two years (or one year if the SEC's
proposed amendments to Rule 144 become effective), including an "affiliate,"
as that term is defined in the Act, is entitled to sell within any three-month
period a number of shares that does not exceed the greater of one percent of
the then outstanding shares of Common Stock (approximately 124,422 shares
after giving effect to this offering), or the average weekly trading volume
during the four calendar weeks preceding filing of notice of such sale. Sales
under Rule 144 are also subject to certain manner of sale provisions, notice
requirements and the availability of current public information about the
Company. A person who is not an affiliate at any time during the 90 days
preceding a sale, and who has beneficially owned shares for at least three
years, is entitled to sell such shares under Rule 144 without regard to the
volume limitations, manner of sale provisions or public information
requirements. All of the 2,424,545 outstanding shares Mr. Green will own after
this offering have been beneficially owned for more than two years and,
therefore, are eligible for resale in the public market, subject to the 90-day
lock-up agreement with Alex. Brown & Sons Incorporated and the volume and
other restrictions contained in Rule 144 promulgated by the SEC. All of the
1,580,000 outstanding shares of Common Stock the Summit Investors will own
after this offering have been beneficially owned since March 9, 1995 and,
therefore, will be eligible for resale in the public market, subject to this
90-day lock-up agreement and the volume and other restrictions contained in
Rule 144 on March 9, 1997 (or sooner if the SEC's proposed amendments to Rule
144 become effective). In addition, Mr. Green and the Summit Investors are
entitled to certain demand and piggyback registration rights. If such holders,
by exercising their registration rights, cause a large number of shares of
Common Stock to be registered and offered for sale in the public market, this
could have an adverse effect on the market price of the Common Stock.
LOCK-UP ARRANGEMENTS
The Company, its officers and directors and the Summit Investors have agreed
not to sell or otherwise dispose of any shares of Common Stock for a period of
90 days after the date of this Prospectus without the prior written consent of
Alex. Brown & Sons Incorporated.
For a description of the rights of the Company's existing shareholders to
effect a registration of their shares, see "Description of Capital Stock--
Registration Rights Agreement."
45
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
underwriters named below (the "Underwriters"), through their Representatives,
Alex. Brown & Sons Incorporated, William Blair & Company, L.L.C., Robertson,
Stephens & Company LLC and PaineWebber Incorporated (collectively, the
"Representatives"), have severally agreed to purchase from the Company the
following respective number of shares of Common Stock at the public offering
price less the underwriting discounts and commissions set forth on the cover
page of this Prospectus:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
Alex. Brown & Sons Incorporated..................................
William Blair & Company, L.L.C. .................................
Robertson, Stephens & Company LLC................................
PaineWebber Incorporated.........................................
---------
Total.......................................................... 3,770,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will
purchase all of the shares of Common Stock offered hereby if any of such
shares are purchased.
The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Common Stock to the public at the public
offering price set forth on the cover page of this Prospectus and to certain
dealers at such price less a concession not in excess of $ per share. The
Underwriters may allow, and such dealers may reallow, a concession not in
excess of $ per share to certain other dealers. After commencement of the
public offering, the offering price and other selling terms may be changed by
the Representatives.
The Company has granted to the Underwriters an option, exercisable not later
than 30 days after the date of this Prospectus, to purchase up to 565,500
additional shares of Common Stock at the initial public offering price less
the underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the
same percentage thereof that the number of shares of Common Stock to be
purchased by it shown in the above table bears to 3,770,000, and the Company
will be obligated, pursuant to the option, to sell such shares to the
Underwriters. The Underwriters may exercise such option only to cover over-
allotments made in connection with the sale of the Common Stock offered
hereby. If purchased, the Underwriters will offer such additional shares on
the same terms as those on which the 3,770,000 shares are being offered
hereby.
The Underwriting Agreement contains covenants of indemnity and contribution
among the Underwriters, the Company and the Selling Shareholders regarding
certain liabilities, including liabilities under the Securities Act.
46
<PAGE>
One or more of the Underwriters currently act as market makers for the
Common Stock and may engage in "passive market making" in such securities on
the Nasdaq National Market in accordance with Rule 10b-6A under the Exchange
Act. Rule 10b-6A permits, upon the satisfaction of certain conditions,
underwriters participating in a distribution that are also Nasdaq market
makers in the security being distributed to engage in limited market making
transactions during the period when Rule 10b-6A under the Exchange Act would
otherwise prohibit such activity. Rule 10b-6A prohibits underwriters engaged
in passive market making generally from entering a bid or effecting a purchase
at a price that exceeds the highest bid for those securities displayed on the
Nasdaq National Market by a market maker that is not participating in the
distribution. Under Rule 10b-6A, each underwriter engaged in passive market
making is subject to a daily net purchase limitation equal to 30% of such
Underwriter's average daily trading volume during the two full consecutive
calendar months immediately preceding the date of the filing of the
registration statement under the Securities Act pertaining to the security to
be distributed.
The Company has agreed that until 90 days after the date of this Prospectus,
it will not, without the prior written consent of Alex. Brown & Sons
Incorporated, sell, offer to sell, issue, or otherwise distribute any shares
of Common Stock or any options, rights or warrants with respect to any Common
Stock, except for shares issued (i) upon the exercise of outstanding options
granted under the Company's Stock Option Plan, and (ii) in connection with
acquisitions. Further, the directors, officers and the Summit Investors have
agreed not to directly or indirectly sell or offer for sale or otherwise
dispose of any Common Stock of the Company for a period of 90 days after the
date of this Prospectus without the prior written consent of Alex. Brown &
Sons Incorporated.
LEGAL MATTERS
The Common Stock being offered hereby is being passed upon for the Company
by Morgan, Lewis & Bockius LLP, Philadelphia, Pennsylvania. Certain legal
matters in connection with the offering will be passed upon for the
Underwriters by Piper & Marbury l.l.p., Baltimore, Maryland.
EXPERTS
The financial statements of the Company as of December 29, 1995 and for the
year then ended and as of December 30, 1994 and for the year then ended,
included in this Prospectus and the related financial statement schedule
included elsewhere in the Registration Statement, have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their reports
appearing herein and elsewhere in the Registration Statement, and have been so
included in reliance upon the reports of such firm given their authority as
experts in accounting and auditing.
The financial statements of the Company for the year ended December 31,
1993, included in this Prospectus and included elsewhere in the Registration
Statement and the related financial statement schedule, have been audited by
Fishbein & Company, P.C., independent auditors, as stated in their report
appearing herein, and have been so included in reliance upon the report of
such firm given their authority as experts in accounting and auditing.
The financial statements of One Source as of September 30, 1995 and for the
nine months then ended, included in this Prospectus and included elsewhere in
the Registration Statement, have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing herein, and have
been so included in reliance upon the report of such firm given their
authority as experts in accounting and auditing.
The financial statements of One Source as of December 31, 1994 and for the
year then ended, included in this Prospectus and included elsewhere in the
Registration Statement, have been audited by Mutnick & Associates, P.A.,
independent auditors, as stated in their report appearing herein, and have
been so included in reliance upon the report of such firm given their
authority as experts in accounting and auditing.
The financial statements of HMA as of February 29, 1996 and for year then
ended, included in this Prospectus and included elsewhere in the Registration
Statement, have been audited by Deloitte & Touche LLP, independent auditors,
as stated in their report appearing herein, and have been so included in
reliance upon the report of such firm given their authority as experts in
accounting and auditing.
The financial statements of HMA as of February 28, 1995 and for the year
then ended, included in this Prospectus and included elsewhere in the
Registration Statement, have been audited by KMG Peat Marwick LLP, independent
auditors, as stated in their report appearing herein, and have been so
included in reliance upon the report of such firm given their authority as
experts in accounting and auditing.
47
<PAGE>
ADDITIONAL INFORMATION
The Company is subject to the information requirements of the Securities
Exchange Act of 1934 and in accordance therewith files reports and other
information with the Securities and Exchange Commission (the "Commission").
Reports, proxy and information statements and other information filed by the
Company can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at its regional offices located a 7 World
Trade Center, New York, New York 10048 and Northwest Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material
can be obtained from the Public Reference Section of the Commission, Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington D.C. 20549 at
prescribed rates. The Company's Common Stock is quoted on The Nasdaq National
Market. Reports, proxy statements and other information concerning the Company
can be inspected at the National Association of Securities Dealers, Inc., 1735
K Street, N.W., Washington, D.C. 20006.
The Company has filed with the SEC a Registration Statement under the Act,
with respect to the shares of Common Stock offered hereby. This Prospectus
does not contain all the information set forth in the Registration Statement
and the exhibits and schedules thereto. For further information with respect
to the Company and such shares of Common Stock, reference is hereby made to
such Registration Statement and to the exhibits and schedules thereto. The
Registration Statement can be inspected without charge at the office of the
SEC at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and
the SEC's Regional Offices at Seven World Trade Center, New York, New York
10048, and Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60621-2511, and copies may be obtained at prescribed rates
from the public reference section of the SEC, Washington, D.C. 20549.
48
<PAGE>
INDEX TO FINANCIAL STATEMENTS
WILMAR INDUSTRIES, INC.
Years ended December 31, 1993, December 30, 1994 and December 29, 1995
Independent Auditors' Report.............................................. F-2
Independent Auditors' Report.............................................. F-3
Consolidated Balance Sheets............................................... F-4
Consolidated Statements of Income......................................... F-5
Consolidated Statements of Cash Flows..................................... F-6
Consolidated Statements of Stockholders' Equity........................... F-7
Notes to Consolidated Financial Statements................................ F-8
Three months ended March 31, 1995 and March 29, 1996
Condensed Consolidated Balance Sheets.................................... F-19
Condensed Consolidated Statements of Income.............................. F-20
Condensed Consolidated Statements of Cash Flows.......................... F-21
Condensed Consolidated Statements of Stockholders' Equity................ F-22
Notes to Condensed Consolidated Financial Statements..................... F-23
ONE SOURCE SUPPLY, INC.
Independent Auditors' Report............................................. F-26
Accountants' Report...................................................... F-27
Balance Sheets........................................................... F-28
Statements of Income and Retained Earnings............................... F-29
Statements of Cash Flows................................................. F-30
Notes to Financial Statements............................................ F-31
HMA ENTERPRISES, INC.
Independent Auditors' Report............................................. F-33
Independent Auditors' Report............................................. F-34
Consolidated Balance Sheets.............................................. F-35
Consolidated Statements of Income........................................ F-36
Consolidated Statements of Cash Flows.................................... F-37
Consolidated Statements of Stockholders' Equity.......................... F-38
Notes to Consolidated Financial Statements............................... F-39
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Wilmar Industries, Inc.
We have audited the accompanying consolidated balance sheets of Wilmar
Industries, Inc. (the "Company"), as of December 29, 1995 and December 30,
1994, and the related consolidated statements of income, stockholders' equity
(deficit) and of cash flows for the fiscal years ended. 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, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of December
29, 1995 and December 30, 1994, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
Philadelphia, Pennsylvania
March 5, 1996
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
Stockholders and Directors
Wilmar Industries, Inc.
We have audited the balance sheet (not included in the Registration
Statement) of Wilmar Idustries, Inc. as of December 31, 1993, and the related
statements of income, stockholders' equity and cash flows for the year ended
December 31, 1993. 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 financial position of Wilmar Industries, Inc. as
of December 31, 1993, and the results of its operations and its cash flows for
the year ended December 31, 1993, in conformity with generally accepted
accounting principles.
Fishbein & Company, P.C.
Elkins Park, Pennsylvania
October 30, 1995
F-3
<PAGE>
WILMAR INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 29,
1994 1995
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash............................................... $ 91,117 $ 25,043
Cash-restricted.................................... 200,000
Accounts receivable--trade, net of allowance for
doubtful accounts of $135,000 in 1994 and $236,070
in 1995........................................... 5,732,453 9,575,307
Inventory.......................................... 7,519,365 12,699,376
Prepaid expenses and other current assets.......... 173,248 244,798
Deferred income taxes.............................. 408,000
----------- -----------
Total current assets........................... 13,516,183 23,152,524
PROPERTY AND EQUIPMENT, Net.......................... 1,007,001 1,337,308
OTHER ASSETS......................................... 37,839 2,380,672
----------- -----------
TOTAL ASSETS......................................... $14,561,023 $26,870,504
=========== ===========
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED
STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Demand notes payable--bank......................... $ 3,514,000 $ 9,922,510
Current portion of long-term debt:
Banks............................................ 486,384 666,668
Related parties.................................. 93,600 2,107,050
Accounts payable................................... 4,208,708 7,889,405
Accrued expenses and other current liabilities..... 830,415 1,387,524
Accrued interest................................... 15,922 212,823
Income taxes payable............................... 1,020,991
----------- -----------
Total current liabilities...................... 9,149,029 23,206,971
LONG-TERM DEBT--Net of current portion:
Banks.............................................. 1,743,250 833,331
Related parties.................................... 949,586 833,872
Subordinated debentures............................ 4,000,000
----------- -----------
Total liabilities.............................. 11,841,865 28,874,174
----------- -----------
COMMITMENTS AND CONTINGENT LIABILITIES
Mandatorily Redeemable Series A Senior Preferred
Stock, $.01 par value; 129,450 shares authorized,
issued and outstanding with a redemption value of
$100 per share, plus accrued dividends.............. 13,782,110
-----------
Mandatorily Redeemable Series B Junior Preferred
Stock, $.01 par value, 105,914 shares authorized,
issued and outstanding with a redemption value of
$100 per share, plus accrued dividends.............. 11,276,311
-----------
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, $.01 par value, 5,000,000 shares au-
thorized; none issued
Common stock, no par value--50,000,000 shares
authorized; 5,824,000 shares issued and outstanding
in 1994, 5,320,000 shares issued and outstanding in
1995................................................ 100,000 124,231
Retained earnings (accumulated deficit).............. 4,619,158 (27,186,322)
Less treasury stock--5,824,000 shares in 1994........ (2,000,000)
----------- -----------
Total stockholders' equity (deficit)................. 2,719,158 (27,062,091)
----------- -----------
TOTAL LIABILITIES, MANDATORILY REDEEMABLE PREFERRED
STOCK AND STOCKHOLDERS' EQUITY...................... $14,561,023 $26,870,504
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
WILMAR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR YEAR YEAR
ENDED ENDED ENDED
DECEMBER 31, DECEMBER 30, DECEMBER 29,
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
SALES................................... $35,639,761 $47,679,227 $60,823,188
COST OF SALES........................... 24,734,939 32,786,779 41,835,284
----------- ----------- -----------
Gross profit........................ 10,904,822 14,892,448 18,987,904
OPERATING EXPENSES:
Operating and selling expenses........ 5,399,766 7,067,785 9,098,440
Corporate general and administrative
expenses............................. 2,392,673 2,895,180 3,984,873
Bonuses to S Corporation
stockholders......................... 1,463,465
----------- ----------- -----------
9,255,904 9,962,965 13,083,313
----------- ----------- -----------
Operating income.................... 1,648,918 4,929,483 5,904,591
INTEREST EXPENSE, NET................... 173,108 289,372 1,164,129
----------- ----------- -----------
Income before income taxes.......... 1,475,810 4,640,111 4,740,462
PROVISION FOR INCOME TAXES.............. 71,461 40,056 1,623,580
----------- ----------- -----------
Net income.......................... $ 1,404,349 $ 4,600,055 $ 3,116,882
=========== =========== ===========
UNAUDITED PRO FORMA DATA:
Income before income taxes............ $ 1,475,810 $ 4,640,111 $ 4,740,462
Provision for income taxes............ 586,000 1,860,000 1,896,000
----------- ----------- -----------
Pro forma net income.................. $ 889,810 $ 2,780,111 $ 2,844,462
=========== =========== ===========
Pro forma net income per share........ $ 0.31 $ 0.36
=========== ===========
Pro forma shares outstanding.......... 9,071,327 7,937,266
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
WILMAR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR YEAR YEAR
ENDED ENDED ENDED
DECEMBER 31, DECEMBER 30, DECEMBER 29,
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income............................ $ 1,404,349 $ 4,600,055 $ 3,116,882
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization......... 157,028 211,941 330,480
Deferred income taxes................. (408,000)
(Gain) loss on sale of equipment...... 618 (2,000)
Changes in assets and liabilities,
net of effects of acquisition:
Accounts receivable.................. (1,124,882) (1,476,186) (2,640,523)
Inventory............................ (1,541,775) (2,585,454) (4,327,986)
Prepaid expenses and other current
assets.............................. (28,007) (69,867) (66,361)
Other assets......................... (5,875) (20,536) (315,966)
Accounts payable..................... (824,719) 1,625,995 2,887,101
Accrued expenses and other current
liabilities......................... 771,175 55,497 483,574
Accrued interest..................... 196,901
Income taxes payable................. (38,820) 1,020,991
----------- ----------- ------------
Net cash provided by (used in)
operating activities............... (1,230,908) 2,339,445 277,093
----------- ----------- ------------
INVESTING ACTIVITIES:
Purchase of property and equipment.... (151,644) (768,472) (507,272)
Acquisition of business, including
escrow............................... (3,572,796)
Proceeds from sale of equipment....... 5,235 2,000
----------- ----------- ------------
Net cash used in investing
activities......................... (146,409) (766,472) (4,080,068)
----------- ----------- ------------
FINANCING ACTIVITIES:
Net proceeds (borrowings) of demand
notes payable--bank.................. 1,632,000 1,682,000 6,408,510
Proceeds of long-term debt--bank...... 940,000 1,600,000 2,000,000
Principal payments on long-term debt:
Banks................................. (216,222) (422,077) (2,729,635)
Related parties....................... (859,528) (97,286) (102,264)
Principal payments on capitalized
lease obligations.................... (144,504)
Issuance of common stock.............. 55,000
Repurchase of common stock............ (15,117,000)
Proceeds from the issuance of
subordinated debentures.............. 4,000,000
Issuance of Series A Preferred Stock.. 12,945,000
Distributions to stockholder.......... (4,349,329) (3,722,710)
----------- ----------- ------------
Net cash provided by (used in)
financing activities............... 1,351,746 (1,586,692) 3,736,901
----------- ----------- ------------
NET DECREASE IN CASH................... (25,571) (13,719) (66,074)
CASH, BEGINNING OF YEAR................ 130,407 104,836 91,117
----------- ----------- ------------
CASH, END OF YEAR...................... $ 104,836 $ 91,117 $ 25,043
=========== =========== ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest.............................. $ 166,904 $ 299,338 $ 967,228
=========== =========== ============
Income taxes.......................... $ 110,283 $ 25,851 $ 642,279
=========== =========== ============
SUPPLEMENTAL SCHEDULE OF NONCASH
FINANCING ACTIVITIES:
Accretion of mandatorily redeemable
Series A Senior and Series B Junior
Preferred Stock redemption values.... $ 1,522,021
Distribution of mandatorily redeemable
Series B Junior Preferred Stock to
stockholders......................... $ 10,591,400
Issuance of subordinated note payable
in connection with repurchase of
common stock-related party........... $ 2,000,000
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
WILMAR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
RETAINED TOTAL
EARNINGS STOCKHOLDERS'
COMMON STOCK (ACCUMULATED TREASURY EQUITY
SHARES AMOUNT DEFICIT) STOCK (DEFICIT)
---------- -------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1,
1993................... 11,648,000 $100,000 $ 2,964,083 $ 3,064,083
Purchase of treasury
stock................ (5,824,000) $(2,000,000) (2,000,000)
Net income............ 1,404,349 1,404,349
---------- -------- ------------ ----------- ------------
BALANCE, DECEMBER 31,
1993................... 5,824,000 100,000 4,368,432 (2,000,000) 2,468,432
Net income............ 4,600,055 4,600,055
Distributions to
stockholder.......... (4,349,329) (4,349,329)
---------- -------- ------------ ----------- ------------
BALANCE, DECEMBER 30,
1994................... 5,824,000 100,000 4,619,158 (2,000,000) 2,719,158
Distributions to
stockholder.......... (3,722,710) (3,722,710)
Capital contribution.. 694,000 (694,000)
Redemption of common
stock................ (3,584,000) (30,769) (17,086,231) (17,117,000)
Dividend of Series B
Preferred Stock...... (10,591,400) (10,591,400)
Issuance of common
stock................ 3,080,000 55,000 55,000
Accretion of
Mandatorily
Redeemable Preferred
Stock................ (1,522,021) (1,522,021)
Retirement of treasury
shares............... (2,694,000) 2,694,000
Net income............ 3,116,882 3,116,882
---------- -------- ------------ ----------- ------------
BALANCE, DECEMBER 29,
1995................... 5,320,000 $124,231 $(27,186,322) $ -- $(27,062,091)
========== ======== ============ =========== ============
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
WILMAR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF THE BUSINESS
Wilmar Industries, Inc., ("Wilmar" or the "Company") is a national marketer
and distributor of repair and maintenance products distributor with ten
distribution centers throughout the United States. The Company sells primarily
to apartment complexes and other institutional customers.
2. INITIAL PUBLIC OFFERING
On January 24, 1996, the Company completed an initial public offering of
4,600,000 shares of its Common Stock for $11.00 per share resulting in net
proceeds (after deducting underwriter's issuance costs) of $47,058,000.
The proceeds of the offering were used as follows:
<TABLE>
<S> <C>
Redemption of Preferred Stock and accumulated dividends.......... $20,188,000
Repayment of bank debt and interest.............................. 12,987,000
Repayment of Subordinated Debentures and interest................ 4,037,000
Repayment of notes payable and interest.......................... 2,967,000
Working capital and IPO costs.................................... 6,879,000
-----------
$47,058,000
===========
</TABLE>
Prior to the offering, $5,000,000 of the Mandatorily Redeemable Series B
Junior Preferred Stock was converted into $5,000,000 of Series B Junior
Preferred Stock with conversion rights. Upon consummation of the offering,
$5,000,000 of the Series B Junior Preferred Stock with conversion rights was
converted into 454,545 shares of Common Stock.
The pro forma effects of the above transactions for the related balance
sheet accounts are summarized below. Pro forma balance sheet information is
presented as though the transactions occurred on December 29, 1995 (in 000's):
<TABLE>
<CAPTION>
AS PRO FORMA
REPORTED (UNAUDITED)
-------- -----------
<S> <C> <C>
Current assets......................................... $ 23,153 $30,823
Property and equipment, net............................ 1,337 1,337
Other assets........................................... 2,381 2,133
-------- -------
$ 26,871 $34,293
======== =======
Current liabilities.................................... $ 23,207 $10,297
Long-term debt......................................... 5,667
-------- -------
28,874 10,297
Mandatorily redeemable preferred stock................. 25,059
Stockholders' equity................................... (27,062) 23,996
-------- -------
$ 26,871 $34,293
======== =======
</TABLE>
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation--The consolidated financial statements include
the accounts of Wilmar Industries, Inc. and its subsidiary One Source Supply,
Inc. ("One Source") from November 17, the date of its acquisition. Material
intercompany balances and transactions have been eliminated.
F-8
<PAGE>
WILMAR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Fiscal Year--The Company operates on a 52-53 week fiscal year which ends on
the last Friday in December. The fiscal year ended December 31, 1993 was a
fifty-three week year and the fiscal years ended December 30, 1994 and
December 29, 1995 were fifty-two week years. References herein to 1993, 1994
and 1995 are for the fiscal years ended December 31, 1993, December 30, 1994
and December 29, 1995, respectively.
Cash and Cash Equivalents--Cash and cash equivalents consist of cash and
highly liquid investments with an original maturity of three months or less.
Inventory--Inventory is stated at the lower of cost (first-in, first-out
method) or market.
Property and Equipment--Property, equipment and leasehold improvements are
stated at cost. Expenditures for additions, renewals and betterments are
capitalized; expenditures for maintenance and repairs are charged to expense
as incurred. Upon retirements or disposal of assets, the cost and accumulated
depreciation or amortization are eliminated from the accounts and the
resulting gain or loss is credited or charged to operations. Depreciation is
computed using the straight-line method based upon estimated useful lives of
the assets and amortization is computed using the straight-line method and the
remaining lease term as follows:
<TABLE>
<S> <C>
Machinery and equipment............................... 5-7 years
Office furniture and equipment........................ 5-7 years
Leasehold improvements................................ Remaining lease term
</TABLE>
Long-Lived Assets--In March 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards ("SFAS") No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of. This statement requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying value of the asset may not be recoverable. SFASNo. 121 is effective
for financial statements for fiscal years beginning after December 15, 1995.
The Company does not anticipate that the adoption of SFAS No. 121 will have a
material effect on the Company's operating results.
Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results may differ from those
estimates and assumptions.
Fair Value of Financial Instruments--The carrying value of cash, accounts
receivable, demand notes payable and accounts payable approximate fair value
because of the short maturities of these items. The carrying value of bank
debt, payables to related parties and subordinated debentures reflects the
approximate fair value of these instruments as these instruments were repaid
and satisfied, at their carrying values, in January 1996 with proceeds from
the initial public offering (see Note 2),
Revenue Recognition--Sales are recognized as product is shipped, F.O.B.
point of shipment and are net of sales returns, allowances and credits.
Cost of Sales--Cost of sales includes merchandise costs, freight,
distribution center occupancy and delivery costs.
Pre-Opening Distribution Center Expenses--Pre-opening distribution center
expenses are expensed as incurred.
F-9
<PAGE>
WILMAR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
New Accounting Pronouncement--In October 1995, the Financial Accounting
Standards Board issued SFAS No. 123, Accounting for Stock-Based Compensation,
which will be adopted by the Company in 1996 as required by this statement.
The Company has elected to continue to measure such compensation expense using
the method prescribed by Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, as permitted by SFAS No. 123. When
adopted, SFAS No. 123 will not have any effect on the Company's financial
position or results of operations but will require the Company to provide
expanded disclosure regarding its stock-based employee compensation plans.
Stock Splits--In March 1995 and November 1995, the Company effected a 1,040-
for-1 and a 37.333- for-1 stock split of its Common Stock, respectively. All
share and per share amounts in the accompanying financial statements have been
adjusted retroactively to reflect both splits.
Income Taxes--Prior to February 24, 1995, the Company had elected to be
taxed as a S Corporation under provisions of the Internal Revenue Code. As
such, current taxable income had been included on the income tax returns of
the sole stockholder for federal income tax purposes and no provision had been
made for federal income taxes. (See pro forma presentation below and Note 15).
In anticipation of consummating the Recapitalization (see Note 5), the Company
changed its election to be taxed as a C Corporation under the Internal Revenue
Code. Taxes on income are provided based upon Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes", which
requires an asset and liability approach to financial accounting and reporting
for income taxes. Deferred income tax assets and liabilities are computed for
differences between the financial statement and tax bases of assets and
liabilities that will result in taxable or deductible amounts in the future.
Such deferred income tax asset and liability computations are based on enacted
tax laws and rates applicable to periods in which the differences are expected
to affect taxable income. Valuation allowances are established when necessary
to reduce deferred tax assets to the amounts expected to be realized.
Unaudited Pro Forma Net Income and Pro Forma Net Income Per Common Share--
Pro forma net income per common share represents pro forma net income (after a
pro forma provision for income taxes as if the Company had been subject to
federal and state income taxation as a C Corporation since inception) divided
by the weighted average number of shares of Common Stock and Common Stock
equivalents outstanding during the period plus the number of shares of Common
Stock required to be sold at the assumed initial public offering price to
raise sufficient proceeds to redeem the mandatorily redeemable Preferred Stock
(including accrued but unpaid dividends thereon). Net income is not reduced by
the $1,522,021 provision for accretion of Preferred Stock redemption values
because the calculation assumes the related Common Stock was outstanding in
lieu of the Preferred Stock. (See Note 14).
Common Stock equivalents include shares from the exercise of stock options
(using the treasury stock method). Common stock issued and stock options
granted at prices lower than the assumed initial public offering price within
a one year period prior to an initial public offering are included in the
calculation (using the treasury stock method and the assumed initial public
offering price) as if they were outstanding for all periods presented (see
Notes 3, 5 and 13).
Historical net income per share has not been presented in view of the S
Corporation status in prior periods and the anticipated change in capital
structure upon the closing of the initial public offering.
Reclassifications--Certain 1993 and 1994 amounts have been reclassified to
conform to the 1995 presentation.
F-10
<PAGE>
WILMAR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. ACQUISITION
On November 17, 1995, the Company acquired One Source Supply, Inc., a
supplier of repair and maintenance products to multi-unit apartment complexes
in the South Florida market, for an aggregate consideration of approximately
$3,573,000.
The following presents the unaudited results of operations of the Company
for the years ended December 29, 1995 and December 30, 1994 as if the
acquisition of One Source had been consummated as of the beginning of 1994,
and includes certain pro forma adjustments to reflect the amortization of
intangible assets, reduction of overhead charges, reduction in compensation,
interest expense on amounts drawn on the Company's line of credit to finance
the acquisition as if the acquisition had occurred on January 1, 1994, and
inclusion of a federal income tax provision:
<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
Revenues............................................. $56,990,000 $70,733,000
Net income........................................... 2,755,000 3,094,000
Net income per share................................. 0.30 0.39
</TABLE>
The unaudited pro forma results of operations are prepared for comparative
purposes only and do not necessarily reflect the results that would have
occurred had the acquisition occurred at the beginning of 1994 or the results
which may occur in the future. The above acquisition has been accounted for by
the purchase method of accounting, and accordingly, the net assets and results
of operations have been included in the accompanying consolidated financial
statements since the date of acquisition. The excess of purchase price over
the estimated fair values of the net tangible assets acquired for the above
investment has been allocated to intangible assets and goodwill with
amortization over 3 to 30 years.
5. STOCKHOLDERS' EQUITY
Authorized Shares--On November 20, 1995, the Company's stockholders approved
an increase in authorized shares of common stock to 50,000,000 shares and
preferred stock to 5,235,364 shares.
Recapitalization--On March 6, 1995, the Company declared and subsequently
issued a stock dividend to the stockholder in the form of 105,914 shares of
mandatorily redeemable Series B Junior Preferred Stock with a redemption value
of $10,591,400. On March 9, 1995, the Company entered into a Stock Purchase
and Redemption Agreement (the "Agreement") with certain investors (the
"Investors). Pursuant to the Agreement, the Company repurchased 3,584,000
shares of common stock from its then sole stockholder for $15,117,000 plus a
deferred payment of $2,000,000. The deferred payment is payable in the form of
a subordinated note if the Company satisfies certain 1995 and 1996 earnings
targets or if the Company files a registration statement in 1995 for an
underwritten public offering of its common stock. Upon a qualified liquidity
event, including the consummation of an initial public offering, the Company
must satisfy the former sole stockholder's deferred payment note. In addition,
pursuant to the Agreement, the Company issued 129,450 shares of mandatorily
redeemable Series A Senior Preferred Stock for $12,945,000 (see Note 14) and
then sold 3,080,000 shares of Common Stock to the investors for $55,000, which
represented the fair market value at that time. In addition, the Investors
loaned $4,000,000 to the Company pursuant to a Subordinated Debenture Purchase
Agreement dated March 9, 1995. The Company must pay in full its obligations
under the Subordinated Debentures upon consummation of a qualified liquidity
event, including the consummation of an initial public offering (see Note 2).
Upon consummation of the initial public offering, the Company satisfied the
former sole stockholder's deferred payment note and also satisfied its
obligation under the Subordinated Debentures (see Note 2).
Distribution To Stockholders--In 1993, the Company's stockholder received
compensation and S Corporation stockholder bonuses aggregating $156,000 and
$1,463,465, respectively. In 1994, the
F-11
<PAGE>
WILMAR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
stockholder received compensation and S Corporation distributions of $156,000
and $4,349,329 respectively. In 1995, the stockholder received compensation
and bonuses of $250,000 and S Corporation distributions of $3,722,710,
respectively.
6. OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
1994 1995
------- ----------
<S> <C> <C>
Goodwill................................................. $1,108,490
Intangible assets........................................ 920,052
Less--amortization....................................... (8,638)
----------
2,019,904
Deferred IPO costs....................................... 247,672
Deposits................................................. $36,670 112,043
Other.................................................... 1,169 1,053
------- ----------
$37,839 $2,380,672
======= ==========
</TABLE>
Goodwill (the excess of cost over the fair value of the underlying assets at
the date of acquisition) is amortized on a straight line basis over a useful
life of 30 years. Intangible assets include amounts assigned to customer lists
and non-compete agreements. Intangibles are amortized on a straight-line basis
over useful lives of 20 years for customer lists and 3 to 5 years for non-
compete agreements.
7. BALANCE SHEET COMPONENTS
<TABLE>
<CAPTION>
PROPERTY AND EQUIPMENT 1994 1995
---------------------- ---------- ----------
<S> <C> <C>
Machinery and equipment............................... $ 624,699 $ 952,348
Office furniture and equipment........................ 796,664 1,070,080
Leasehold improvements................................ 351,715 432,321
---------- ----------
1,773,078 2,454,749
Less accumulated depreciation and amortization........ 766,077 1,117,441
---------- ----------
$1,007,001 $1,337,308
========== ==========
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
----------------------------------------------
Sales tax payable..................................... $ 275,120 $ 349,991
Accrued compensation and related benefits............. 290,314 507,193
Other accrued liabilities............................. 264,981 530,340
---------- ----------
$ 830,415 $1,387,524
========== ==========
</TABLE>
Depreciation expense was approximately $157,000, 212,000 and $322,000 for
1993, 1994 and 1995, respectively (see Note 3).
8. DEMAND NOTES PAYABLE--BANK
On March 9, 1995, the Company entered into a $10,000,000 (increased to
$12,000,000 from November 16, 1995 to February 16, 1996) revolving credit
facility with a bank which refinanced the existing $4,000,000 line of credit.
Such facility terminates February 1998. Amounts outstanding bear interest at
the bank's prime rate (8.50% at September 29, 1995) payable monthly and are
collateralized by substantially all assets of the Company. Borrowings under
the line of credit are limited to the sum of 85% of eligible accounts
receivable plus the lessor of 50% of inventory or $4,500,000. Amounts
outstanding
F-12
<PAGE>
WILMAR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
under the lines were $3,514,000 and $9,922,510 at December 30, 1994 and
December 29, 1995, respectively.
On December 30, 1994, the Company entered into a $3,200,000 promissory note
which was utilized for a distribution to the Company's then sole stockholder.
Such borrowing was due on demand, but no later than June 1, 1995 and the note
was guaranteed by a stockholder of the Company. Interest was payable monthly
at a rate of prime less .5%. Such amount was repaid and satisfied on March 9,
1995 with proceeds from the $10,000,000 revolving line of credit.
The weighted average interest rate on short-term borrowings at December 30,
1994 and December 29, 1995 was 8.26% and 8.50%, respectively.
In March 1996, the Company replaced the existing secured bank line of credit
with a $10,000,000 unsecured bank line of credit, which bears interest at 3/4%
below the bank's prime rate and expires in March 1997.
9. LONG-TERM DEBT
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
11.5% Subordinated Debentures, $2,000,000 each due
March 9, 2000 and 2001, interest payable quarterly
on the last day of March, June, September and
December of each year, commencing June 30, 1995 and
until such unpaid balance is due and payable........ $4,000,000
Term loan to a bank, payable in quarterly
installments aggregating $166,667, plus accrued
interest at 8.5% annually, commencing May 1995
collateralized by substantially all assets of the
Company............................................. 1,499,999
Note payable to a bank due in monthly installments
aggregating $53,035 including interest at rates
ranging from 3/4% over the bank's prime rate (an
effective rate of 9.25% at December 30, 1994) to
9.75%; collateralized by substantially all assets of
the Company and guaranteed by a stockholder of the
Company............................................. $2,229,634
---------- ----------
2,229,634 5,499,999
Less current portion................................. 486,384 666,668
---------- ----------
$1,743,250 $4,833,331
========== ==========
</TABLE>
In event the principal amount of the Debentures are not paid when due and
payable, the interest will be increased to 13.5% annually and any unpaid
interest due upon demand by the holder with a late charge of 2% of the amount
of interest payment due. Additionally, the Debentures are due upon the
consummation of a liquidity event such as an initial public offering. The
terms of the Subordinated Debentures prohibit the Company from declaring or
paying dividends on account of its common stock.
The term loan and revolving credit (see Note 8) facilities were entered into
pursuant to a Loan and Security Agreement with a bank, dated March 9, 1995.
The agreement provides, among other covenants, that the Company maintain
certain financial ratios and prohibits the Company from making or declaring
any dividends or distribution to its stockholders, except the Company may pay
cash distributions annually not in excess of the maximum tax liability that
may be assessed against its S Corporation stockholders on the income passed
through and directly taxed to its stockholder.
F-13
<PAGE>
WILMAR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Annual principal payments on long-term notes are due as follows:
<TABLE>
<S> <C>
Fiscal Year Ending:
1996......................................................... 666,668
1997......................................................... 666,668
1998......................................................... 166,663
1999......................................................... --
2000......................................................... 2,000,000
Thereafter................................................... 2,000,000
----------
$5,499,999(1)
==========
</TABLE>
--------
(1) Such amounts were repaid and satisfied on January 29, 1996 with
proceeds from the initial public offering.
10. TRANSACTIONS WITH RELATED PARTIES
In July 1993, the Company purchased 5,824,000 shares of its stock pursuant
to a stock redemption agreement from the former sole stockholder's father for
$2,000,000, of which $800,000 was paid in December 1993. The balance of
$1,200,000 is payable in monthly installments of $12,675 including interest at
5%, with the final payment due in June 2003. The note is guaranteed by the
Company's former sole stockholder. Annual principal payments on the note are
due as follows:
<TABLE>
<S> <C>
Fiscal Year Ending:
1996........................................................... 107,050
1997........................................................... 112,526
1998........................................................... 118,284
1999........................................................... 124,335
2000........................................................... 130,697
Thereafter..................................................... 348,030
--------
$940,922(1)
========
</TABLE>
--------
(1) Such amount was repaid and satisfied on January 29, 1996 with proceeds
from the initial public offering (see Note 2).
The stock redemption agreement also provided for an increase in the purchase
price of the shares if the remaining stockholder of the Company sells all or
substantially all of the Company's assets or all or substantially all of his
stock in the Company prior to July 1997 (see Note 5). In connection with the
Recapitalization, the former sole stockholder made a $694,000 capital
contribution to the Company in order for the Company to satisfy its obligation
under the stock redemption agreement to the former sole stockholder's father.
In November 1995, the Company issued a $2,000,000 subordinated note to the
former sole stockholder, which represents the deferred payment for the
redemption of this stockholder's common stock in connection with the
recapitalization (see Note 5). The Note was repaid and satisfied on January
29, 1996 with proceedings from the initial public offering (see Note 2).
The Company leases its executive offices from a stockholder of the Company
(see Note 12).
11. PROFIT SHARING PLAN
The Company has a qualified profit sharing plan under Section 401(k) of the
Internal Revenue Code. Contributions to the plan by the Company are made at
the discretion of the Company's Board of Directors. Company contributions to
the plan were $6,500, $11,100 and $59,600 for 1993, 1994 and 1995,
respectively.
F-14
<PAGE>
WILMAR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. COMMITMENTS AND CONTINGENT LIABILITIES
Lease Commitments--The Company leases its facilities under operating leases
expiring at various dates through 2004. Minimum future rental payments under
these leases as of December 29, 1995 are as follows:
<TABLE>
<S> <C>
Year Ending:
1996............................................................ 1,106,000
1997............................................................ 1,052,000
1998............................................................ 835,000
1999............................................................ 762,000
2000............................................................ 483,000
Thereafter...................................................... 538,000
----------
$4,776,000
==========
</TABLE>
In April 1994, the Company moved its executive office to a building which is
leased from a stockholder of the Company. In 1994, in lieu of rental payments,
the Company directly paid and expensed the mortgage payments to the bank which
financed the purchase by the stockholder. Such payments amounted to
approximately $5,300 monthly and aggregated approximately $42,500 in 1994. As
amended in March 1995, under the new terms of the lease, the Company is
required to pay approximately $137,500 annually, plus all real estate taxes
and assessments, utilities and insurance related to the premises. The lease
expires on February 28, 2004 and does not contain any renewal terms. The
Company believes that the terms of the lease are no less favorable to it than
could be obtained from an unaffiliated party.
Rent expense under all operating leases was $435,000, $555,000 and $806,000
for 1993, 1994 and 1995, respectively. Certain of the leases provide that the
Company pay taxes, insurance and other operating expenses applicable to the
leased premises.
Employment and Severance Agreements--The Company has an employment agreement
with its President until March 2000 unless terminated earlier by the Company
at an annual base salary of $200,000, subject to adjustments plus bonus.
Contingent Liabilities--At December 29, 1995, the Company was contingently
liable for unused letters of credit aggregating approximately $623,000.
Employment Tax Audit--In March, 1995, the Internal Revenue Service (the
"IRS") indicated to the Company that it intends to examine the Company's
employment tax returns for 1992 and 1993. The IRS has not asserted any
employment tax deficiencies for such years as of the current date. If the IRS
asserts any employment tax deficiencies with respect to such years, the
Company intends to vigorously pursue all available remedies and defenses. The
Company does not believe that the outcome of any such examination will have a
material effect on the Company's financial statements.
Legal Proceedings--The Company is involved in various legal proceedings in
the ordinary course of its business which are not anticipated to have a
material adverse effect on the Company's financial statements.
13. STOCK OPTION PLAN
In March 1995, the Company adopted a stock option plan (the "Stock Option
Plan") under which employees may be granted options to purchase shares of
Common Stock. Options granted were issued at
F-15
<PAGE>
WILMAR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
prices equal to at least fair market value and expire 10 years from the date
of grant. The options vest in 25% increments on the second through fifth
anniversaries of the date of grant. A total of 392,000 shares of Common Stock
were reserved for issuance under the Stock Option Plan. The Stock Option Plan
is administered by the Compensation Committee of the Board of Directors, which
determines the vesting provisions, the form of payment for shares and all
other terms of the options.
The following table summarizes stock option activity under the Stock Option
Plan.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------
SHARES
AVAILABLE PRICE
FOR GRANT SHARES PER SHARE
--------- ---------- -----------
<S> <C> <C> <C>
Shares authorized in March 1995............ 392,000 --
Options granted............................ (280,000) 280,000 $ 4.23
-------- ----------
Balance at December 29, 1995............... 112,000 280,000 $ 4.23
======== ==========
</TABLE>
No options were exercisable at December 29, 1995.
In January 1996, the Company increased the maximum number of shares to be
reserved under the Stock Option Plan from 392,000 shares to 800,000 shares. In
addition, options to purchase 100,000 shares were granted in January at the
initial public offering price of $11.00 per share.
14. MANDATORILY REDEEMABLE PREFERRED STOCK
There are 5,235,364 shares of preferred stock authorized, of which 129,450
shares have been designated as Series A Senior Preferred Stock ("Series A")
and 105,914 shares have been designated as Series B Junior Preferred Stock
("Series B") (See Note 2).
Series A and Series B Preferred Stock issuances are as follows:
<TABLE>
<CAPTION>
SERIES A SERIES B
------------------- -------------------
SHARES AMOUNT SHARES AMOUNT
------- ----------- ------- -----------
<S> <C> <C> <C> <C>
Distribution of Series B to holder
of Common Stock in March 1995
(see Note 5)..................... 105,914 $10,591,400
Issuance of Series A to Investors
for cash in March 1995 (see Note
5)............................... 129,450 $12,945,000
Accretion of Series A and Series B
redemption values................ 837,110 684,911
------- ----------- ------- -----------
Balance at September 29, 1995..... 129,450 $13,782,110 105,914 $11,276,311
======= =========== ======= ===========
</TABLE>
The Series A and Series B ("Outstanding Preferred Stock") have certain
rights, preferences and restrictions with respect to dividends, redemption and
liquidation.
The holders of Outstanding Preferred Stock are entitled to dividends of
$8.00 per share per annum compounded annually prior and in preference to
holders of Common Stock. In addition, the holders of Series A are entitled to
dividends prior and in preference to the holders of Series B. All dividends
are cumulative whether or not declared by the Board of Directors ("Cumulative
Dividends").
On March 1, 2000 and 2001, one-half of the shares of Series A outstanding
must be redeemed by the Company at a redemption price of $100 per share plus
any accrued but unpaid dividends (the
F-16
<PAGE>
WILMAR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
"Redemption Value"). In addition, the Company is required to redeem all shares
of Series A Preferred Stock outstanding at their Redemption Value upon a
liquidity event as defined in the Preferred Stock agreement, including the
closing of an initial public offering. Under certain circumstances, including
the closing of an initial public offering, if all shares of Series A have been
redeemed, the Company must redeem all shares of Series B outstanding at a
redemption price of $100 per share plus any accrued but unpaid dividends.
Through December 29, 1995, Cumulative Dividends totaling $1,522,021 had been
charged as an accretion of the Outstanding Preferred Stock Redemption Value
with a corresponding increase in the value of the Outstanding Preferred Stock.
Upon liquidation, holders of Series A are entitled to receive $100 per share
plus any Cumulative Dividends before any distributions may be made to holders
of Series B and Common Stock. After the Company has made payment to the
holders of Series A, the holders of Series B are entitled to receive $100 per
share plus Cumulative Dividends before any distributions may be made to the
holders of Common Stock.
On January 29, 1996 all of the Series A Preferred Stock and accumulated
dividends were redeemed from proceeds of the initial public offering (see Note
2 ). In addition, $5,591,400 of the Series B Junior Preferred Stock and
accumulated dividends were redeemed. The $5,000,000 balance of the Series B
Stock was converted into 454,545 shares of Common Stock (at the $11.00 public
offering price).
15. PROVISION FOR INCOME TAXES
The corporate income tax provision for the C Corporation period is as
follows:
<TABLE>
<CAPTION>
1995
----------
<S> <C>
Current:
Federal...................................................... $1,723,680
State........................................................ 307,900
----------
2,031,580
----------
Deferred:
Federal...................................................... (365,000)
State........................................................ (43,000)
----------
(408,000)
----------
$1,623,580
==========
</TABLE>
The difference between income taxes at the statutory federal income tax rate
and income taxes in the income statement are as follows:
<TABLE>
<CAPTION>
1995
----
<S> <C>
Federal statutory tax rate........................................... 34.0%
State income, taxes, net of federal benefit.......................... 4.3
Non-deductible expenses.............................................. 0.6
Other................................................................ 4.5
Benefit of change in tax status...................................... (4.9)
S Corporation earnings............................................... (4.3)
----
34.2%
====
</TABLE>
Deferred income taxes result primarily from temporary differences in the
recognition of certain expenses for financial and income tax reporting
purposes.
F-17
<PAGE>
WILMAR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
At December 29, 1995, the components of the Company's net deferred tax asset
consisted of the following:
<TABLE>
<S> <C>
Inventory......................................................... $285,000
Bad debt reserves................................................. 61,000
State taxes....................................................... 43,000
Other............................................................. 19,000
--------
$408,000
========
</TABLE>
Prior to February 24, 1995, the Company elected to be taxed under Subchapter
S of the Internal Revenue Code. An S Corporation is a corporation which
generally does not pay income taxes but whose income is passed on through to
its shareholders who report such amounts on their individual tax returns.
Effective February 24, 1995 the Company's Subchapter S status was terminated
and, as a result of such change in status, the Company established a deferred
tax asset of approximately $230,000, which is reflected in the deferred
provision, for the year ended December 29, 1995.
16. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
1995
-------------------------------
FIRST SECOND THIRD FOURTH
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales.................................. $13,458 $14,625 $16,381 $16,359
Gross profit............................... 4,246 4,534 5,107 5,101
Operating income........................... 1,171 1,455 1,838 1,440
Pro forma net income....................... 581 689 920 654
Pro forma net income per share ............ $ 0.07 $ 0.09 $ 0.12 $ 0.08
<CAPTION>
1994
-------------------------------
FIRST SECOND THIRD FOURTH
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales.................................. $10,281 $11,895 $13,766 $11,737
Gross profit............................... 3,260 3,743 4,297 3,591
Operating income........................... 1,216 1,283 1,594 836
Pro forma net income....................... 693 722 903 462
Pro forma net income per share ............ $ 0.08 $ 0.08 $ 0.10 $ 0.05
</TABLE>
The Company's sales volumes tend to be lower in the fourth quarter because
customers defer purchases at year end as their budget limits are met. In
addition, net sales in the fourth quarter are reduced because of the holidays
during the period. For 1995, however, the fourth quarter included
approximately $900,000 in sales of One Source, which was acquired on November
17, 1995.
F-18
<PAGE>
WILMAR INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 29, MARCH 29,
1995 1996
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents........................ $ 25,043 $ 4,310,483
Cash-restricted.................................. 200,000 200,000
Short term investment............................ 1,765,035
Accounts receivable-trade, net of allowance for
doubtful accounts of $236,070 and $300,000,
respectively.................................... 9,575,307 10,204,716
Inventory........................................ 12,699,376 12,978,101
Prepaid expenses and other current assets........ 244,798 510,526
Deferred income taxes............................ 408,000 486,000
------------ ------------
Total current assets........................... 23,152,524 30,454,861
PROPERTY AND EQUIPMENT, Net........................ 1,337,308 1,385,164
OTHER ASSETS....................................... 2,380,672 2,151,843
------------ ------------
TOTAL ASSETS....................................... $ 26,870,504 $ 33,991,868
============ ============
LIABILITIES MANDATORILY REDEEMABLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Demand notes payable-bank........................ $ 9,922,510
Current portion of long-term debt:
Banks.......................................... 666,668
Related parties................................ 2,107,050
Accounts payable................................. 7,889,405 $ 6,513,785
Accrued expenses and other current liabilities... 1,387,524 1,622,222
Accrued interest................................. 212,823
Income taxes payable............................. 1,020,991 949,091
------------ ------------
Total current liabilities.................... 23,206,971 9,085,098
LONG-TERM DEBT-Net of current portion:
Banks............................................ 833,331
Related parties.................................. 833,872
Subordinated debentures.......................... 4,000,000
------------ ------------
Total liabilities............................ 28,874,174 9,085,098
------------ ------------
COMMITMENTS AND CONTINGENT LIABILITIES
Mandatorily Redeemable Series A Senior Preferred
Stock, $.01 par value; 129,450 shares, authorized,
issued and outstanding at December 29, 1995 with a
redemption value of $100 per share, plus accrued
dividends......................................... 13,782,110
------------ ------------
Mandatorily Redeemable Series B Junior Preferred
Stock, $.01 par value, 105,914 shares, authorized,
issued and outstanding at December 29, 1995 with a
redemption value of $100 per share, plus accrued
dividends......................................... 11,276,311
------------ ------------
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, $.01 par value, 5,000,000 shares
authorized; none issued Common stock, no par
value-50,000,000 shares authorized; 10,374,545
shares issued and outstanding in 1996, 5,320,000
shares issued and outstanding in 1995............. 124,231 51,289,412
Retained earnings (accumulated deficit)............ (27,186,322) (26,382,642)
------------ ------------
Total stockholders' equity (deficit)......... (27,062,091) 24,906,770
------------ ------------
TOTAL LIABILITIES, MANDATORILY REDEEMABLE PREFERRED
STOCK AND STOCKHOLDERS' EQUITY.................... $ 26,870,504 $ 33,991,868
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-19
<PAGE>
WILMAR INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 1995 MARCH 29, 1996
-------------- --------------
<S> <C> <C>
SALES.......................................... $13,457,519 $19,308,559
COST OF SALES.................................. 9,212,037 13,372,953
----------- -----------
Gross profit................................. 4,245,482 5,935,606
OPERATING EXPENSES:
Operating and selling expenses............... 2,015,424 2,987,245
Corporate general and administrative ex-
penses...................................... 1,059,813 1,242,045
----------- -----------
3,075,237 4,229,290
----------- -----------
Operating income........................... 1,170,245 1,706,316
INTEREST EXPENSE, NET.......................... 200,969 80,704
----------- -----------
Income before income taxes................. 969,276 1,625,612
PROVISION (CREDIT) FOR INCOME TAXES............ (54,629)(1) 666,000
----------- -----------
Net income................................. $ 1,023,905 $ 959,612
=========== ===========
Net income per share.........................
Weighted average shares outstanding..........
UNAUDITED PRO FORMA DATA
Income before income taxes................... $ 969,276
Provision for income taxes................... 388,000(2)
-----------
Pro forma net income......................... $ 581,276(2)
===========
Pro forma net income per share............... $ 0.07(2) $ 0.10
=========== ===========
Weighted average shares outstanding.......... 8,596,307 9,946,286
=========== ===========
</TABLE>
- --------
(1) Upon termination of its S Corporation status on March 1, 1995, the Company
became subject to federal income taxes and certain additional state income
taxes and, in connection therewith, recorded a deferred tax asset of
approximately $230,000 in accordance with FAS 109.
(2) Prior to March 1, 1995, the Company elected to be taxed as an S
Corporation for federal (and certain state) income tax purposes. Pro forma
information has been computed as if the Company had been subject to
federal income taxes and all applicable state corporate income taxes for
each period presented.
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-20
<PAGE>
WILMAR INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 1995 MARCH 29, 1996
-------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income..................................... $ 1,023,905 $ 959,612
Adjustments to reconcile net income net cash
provided by (used in) operating activities:
Depreciation and amortization................ 60,000 112,144
Deferred income taxes........................ (230,000) (78,000)
Changes in assets and liabilities:
Accounts receivable........................ (812,285) (629,409)
Inventory.................................. (485,299) (278,725)
Prepaid expenses and other current assets.. (37,541) (265,728)
Other assets............................... 1,131 202,792
Accounts Payable........................... 307,168 (1,375,620)
Accrued expenses and other current liabili-
ties...................................... 117,376 234,698
Accrued interest........................... 9,078 (212,823)
Income taxes payable....................... 170,921 (71,900)
------------ ------------
Net cash provided by (used in) operating
activities.............................. 124,454 (1,402,959)
------------ ------------
INVESTING ACTIVITIES:
Purchase of property and equipment............. (90,339) (133,963)
Purchase of short term investment.............. (1,765,035)
------------ ------------
Net cash used in investing activities...... (90,339) (1,898,998)
------------ ------------
FINANCING ACTIVITIES:
Net Proceeds (borrowings) of demand notes pay-
able--Bank.................................... 2,059,606 (9,922,510)
Principal payments on long-term debt:
Banks........................................ (229,634) (1,499,999)
Related parties.............................. (25,090) (2,940,922)
Issuance of Common Stock....................... 55,000
Repurchase of Common Stock..................... (15,117,000)
Repurchase of Series A Preferred Stock, plus
accrued dividends............................. (13,870,928)
Repurchase of Series B Preferred Stock, plus
accrued dividends............................. (6,343,425)
Proceeds from the issuance (repayment) of
subordinated debentures....................... 4,000,000 (4,000,000)
Net proceeds from issuance of Common Stock--
initial public offering....................... 46,165,181
Issuance of Series A Preferred Stock........... 12,945,000
Distributions to stockholders.................. (3,721,809)
------------ ------------
Net cash provided by (used in) financing
activities................................ (33,927) 7,587,397
------------ ------------
NET INCREASE IN CASH............................. 188 4,285,440
CASH, BEGINNING OF PERIOD........................ 91,117 25,043
------------ ------------
CASH, END OF PERIOD.............................. 91,305 $ 4,310,483
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest..................................... 192,239 $ 344,599
============ ============
Income taxes................................. 4,449 $ 815,900
============ ============
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING AC-
TIVITIES
Accretion of mandatorily redeemable Series A
Senior and Series B Junior Preferred Stock
redemption values............................. $ 109,837 $ 155,932
Conversion of Series B Junior Preferred stock
into 454,545 shares of Common Stock........... $ -- $ 5,000,000
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements
F-21
<PAGE>
WILMAR INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (UNAUDITED)
<TABLE>
<CAPTION>
RETAINED TOTAL
EARNINGS STOCKHOLDERS'
COMMON STOCK (ACCUMULATED TREASURY EQUITY
SHARES AMOUNT DEFICIT) STOCK (DEFICIT)
---------- ----------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 29,
1995................... 5,320,000 $ 124,231 $(27,186,322) $-- $(27,062,091)
Accretion of
Mandatorily
Redeemable Preferred
Stock................ (155,932) (155,932)
Conversion of Series B
Preferred Stock...... 454,545 5,000,000 5,000,000
Issuance of common
stock-initial public
offering............. 4,600,000 46,165,181 46,165,181
Net income............ 959,612 959,612
---------- ----------- ------------ --- ------------
BALANCE MARCH 29, 1996.. 10,374,545 $51,289,412 $(26,382,642) $-- $ 24,906,770
========== =========== ============ === ============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-22
<PAGE>
WILMAR INDUSTRIES, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of
Wilmar Industries, Inc. ("Wilmar" or the "Company") and its subsidiary One
Source Supply, Inc. ("One Source") from November 17, 1995 the date of its
acquisition. Material intercompany balances and transactions have been
eliminated.
These financial statements have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10-01 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, such interim statements reflect all adjustments
(consisting of normal recurring adjustments) necessary to present fairly the
financial position and the results of operations and cash flows for the
interim periods presented. The results of operations for these interim periods
are not necessarily indicative of the results to be expected for the full year
ending December 27, 1996. These financial statements should be read in
conjunction with the audited consolidated financial statements and footnotes
included in the Company's Form 10-K for the year ended December 29, 1995.
NOTE 2--ACCOUNTING POLICIES
Impairment of Long-Lived Assets--On January 1, 1996, the Company adopted
Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of". This statement requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment
whenever events or circumstances indicate that the carrying amount of an asset
may not be recoverable. Adoption of this standard had no impact on the
Company's financial statements.
Accounting for Stock-Based Compensation--In October 1995, the Financial
Accounting Standards Board issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which was effective for the Company beginning January 1, 1996.
SFAS No. 123 requires expanded disclosures of stock-based compensation
arrangements with employees and encourages (but does not require) compensation
cost to be measured based on the fair value of the equity instrument awarded.
Companies are permitted, however, to continue to apply APB Opinion No. 25,
which recognizes compensation cost based on the intrinsic value of equity
instrument awarded. The Company will continue to apply APB Opinion No. 25 to
its stock based compensation awards to employees and will disclose the
required pro forma effect on net income in the fiscal year end December 27,
1996 financial statements.
NOTE 3--INITIAL PUBLIC OFFERING
On January 24, 1996, the Company completed an initial public offering of
4,600,000 shares of its Common Stock for $11.00 per share resulting in net
proceeds (after deducting underwriters' issuance costs) of $47,058,000.
The proceeds of the offering were used as follows:
<TABLE>
<S> <C>
Redemption of Preferred Stock and accumulated dividends......... $20,188,000
Repayment of bank debt and interest............................. 12,987,000
Repayment of Subordinated Debentures and interest............... 4,037,000
Repayment of notes payable and interest......................... 2,967,000
Working capital and IPO costs................................... 6,879,000
-----------
$47,058,000
===========
</TABLE>
F-23
<PAGE>
WILMAR INDUSTRIES, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Prior to the offering, $5,000,000 of the Mandatorily Redeemable Series B
Junior Preferred Stock was converted into $5,000,000 of Series B Junior
Preferred Stock with conversion rights. Upon consummation of the offering,
$5,000,000 of the Series B Junior Preferred Stock with conversion rights was
converted into 454,545 shares of Common Stock.
The pro forma effects of the above transactions for the related balance
sheet accounts are summarized below. Pro forma balance sheet information is
presented as though the transactions occurred on December 29, 1995 (in 000's):
<TABLE>
<CAPTION>
AS PRO FORMA
REPORTED (UNAUDITED)
-------- -----------
<S> <C> <C>
Current assets......................................... $ 23,153 $30,823
Property and equipment, net............................ 1,337 1,337
Other assets........................................... 2,381 2,133
-------- -------
$ 26,871 $34,293
======== =======
Current liabilities.................................... $ 23,207 $10,297
Long-term debt......................................... 5,667 --
-------- -------
28,874 10,297
Mandatorily redeemable preferred stock................. 25,059 --
Stockholders' equity................................... (27,062) 23,996
-------- -------
$ 26,871 $34,293
======== =======
</TABLE>
NOTE 4--INVESTMENT
At March 29, 1996 the Company has an investment in a United States Treasury
bill with a cost basis of $1,765,035. The Company has designated this
investment as available for sale. At March 29, 1996, the cost basis
approximates the market value of this security.
NOTE 5--INCOME TAXES
Prior to February 24, 1995, the Company had elected to be taxed as an S
Corporation under provisions of the Internal Revenue Code. As such, current
taxable income had been included on the income tax returns of the sole
stockholder for federal income tax purposes and no provision had been made for
federal income taxes. However, the Company changed its election to be taxed as
a C Corporation under the Internal Revenue Code, and in connection with this
change in tax reporting, taxes on income are provided based upon Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes",
which requires an asset and liability approach to financial accounting and
reporting for income taxes.
NOTE 6--COMPUTATION OF NET INCOME PER COMMON SHARE AND PRO FORMA NET INCOME
PER SHARE
Net income per share and pro forma net income per common share represents
net income and pro forma net income (after a pro forma provision for income
taxes as if the Company had been subject to federal and state income taxation
as a C Corporation since inception) divided by the weighted average number of
shares of Common Stock and Common Stock equivalents outstanding during the
period plus
F-24
<PAGE>
WILMAR INDUSTRIES, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the number of shares of Common Stock required to be sold at the assumed
initial public offering price to raise sufficient proceeds to redeem the
mandatorily redeemable Preferred Stock (including accrued but unpaid dividends
thereon). Net income and proforma net income are not reduced by the provision
for accretion of Preferred Stock redemption values of $109,837 in 1995 and
$155,932 in 1996 because the calculation assumes the related Common Stock was
outstanding in lieu of the Preferred Stock.
Common Stock equivalents include shares from the exercise of stock options
(using the treasury stock method). Pursuant to the rules of the Securities and
Exchange Commission, common stock issued and stock options granted at prices
lower than the assumed initial public offering price within a one year period
prior to an initial public offering are included in the calculation (using the
treasury stock method and the assumed initial public offering price) as if
they were outstanding for all periods presented.
NOTE 7--CONTINGENCIES
The Company is involved in various legal proceedings in the ordinary course
of its business which are not anticipated to have a material adverse effect on
the Company's financial statements.
NOTE 8--SUBSEQUENT EVENTS
On April 29, 1996 Wilmar entered into an operating lease agreement with a
company, owned by certain stockholders of Wilmar, to lease a warehouse and
customer service center. The original term of the lease is ten years with an
option to terminate the lease after five years, exercisable by Wilmar, subject
to a termination fee. The lease requires annual payments of $288,625 plus all
real estate taxes and assessments, cost of repairs, utilities and insurance
related to the leased premises. The Company believes that the terms of the
lease are no less favorable to it than could be obtained from an unaffiliated
party.
On May 6, 1996, the Company entered into a definitive agreement to acquire
100% of the capital stock of Mile High Maintenance Supply, Inc. based in
Denver, Colorado for a cash payment of $1.5 million, plus contingent
consideration to the owner based on future performance.
F-25
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
One Source Supply, Inc.
We have audited the accompanying balance sheet of One Source Supply, Inc.
(the "Company") as of September 30, 1995, and the related statements of income
and retained earnings and of cash flows for the nine months then ended. 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, such financial statements present fairly, in all material
respects, the financial position of the Company as of September 30, 1995 and
the results of its operations and its cash flows for the nine months then
ended in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Miami, Florida
November 17, 1995
F-26
<PAGE>
ACCOUNTANTS' REPORT
To The Shareholders
One Source Supply, Inc.
Hollywood, Florida
We have audited the accompanying balance sheet of One Source Supply Inc. as
of December 31, 1994 and the related statement of income and retained earnings
and cash flows for the period then ended. 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 financial position of One Source Supply, Inc. as
of December 31, 1994, and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting
principles.
Mutnick & Associates, P.A.
Pembroke Pines, Florida
May 2, 1995
F-27
<PAGE>
ONE SOURCE SUPPLY, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1994 1995
------------ -------------
<S> <C> <C>
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents......................... $ 121,760 $ 35,791
Accounts receivable, net of allowances of $17,437
in 1994 and 1995................................. 1,202,132 1,489,481
Inventory......................................... 1,069,886 1,134,808
Prepaid assets.................................... 24,009 33,897
---------- ----------
Total current assets............................ 2,417,787 2,693,977
PROPERTY AND EQUIPMENT, NET......................... 66,711 146,543
OTHER ASSETS........................................ 28,987 50,270
---------- ----------
TOTAL ASSETS.................................... $2,513,485 $2,890,790
========== ==========
CURRENT LIABILITIES:
Notes payable--current portion.................... $ 603,500 $1,404,326
Accounts payable.................................. 845,111 895,217
Accrued expenses.................................. 26,023 72,704
Payroll & sales tax payable....................... 18,360 21,609
Income taxes payable.............................. 18,500 3,704
---------- ----------
Total current liabilities....................... 1,511,494 2,397,560
LONG-TERM DEBT, NET OF CURRENT PORTION.............. 522,531
---------- ----------
Total liabilities............................... 2,034,025 2,397,560
---------- ----------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 50,000 shares
authorized,
100 shares issued and outstanding................ 1 1
Additional paid in capital........................ 101,499 101,499
Retained earnings................................. 377,960 391,730
---------- ----------
Total stockholders' equity...................... 479,460 493,230
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.......... $2,513,485 $2,890,790
========== ==========
</TABLE>
See notes to financial statements.
F-28
<PAGE>
ONE SOURCE SUPPLY, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1994 1995
------------ -------------
<S> <C> <C>
NET SALES............................................ $9,311,355 $8,494,140
COST OF SALES........................................ 7,149,059 6,322,349
---------- ----------
Gross profit..................................... 2,162,296 2,171,791
---------- ----------
OPERATING EXPENSES:
Operating and selling expenses..................... 630,983 884,236
Corporate general and administrative expenses...... 1,390,954 1,185,171
---------- ----------
2,021,937 2,069,407
---------- ----------
Operating income................................. 140,359 102,384
INTEREST EXPENSE, NET................................ 62,995 85,114
---------- ----------
Income before income taxes......................... 77,364 17,270
PROVISION FOR INCOME TAXES........................... 18,500 3,500
---------- ----------
Net income......................................... 58,864 13,770
RETAINED EARNINGS, Beginning of period............... 319,096 377,960
---------- ----------
RETAINED EARNINGS, End of period..................... $ 377,960 $ 391,730
========== ==========
</TABLE>
See notes to financial statements.
F-29
<PAGE>
ONE SOURCE SUPPLY, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1994 1995
------------ -------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income......................................... $ 58,864 $ 13,770
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation...................................... 13,127 10,000
Changes in assets and liabilities which provided
(used) cash:
Accounts receivable.............................. (333,413) (287,349)
Inventory........................................ (141,176) (64,922)
Prepaid assets................................... (24,009) (9,888)
Other assets..................................... (7,520) (21,283)
Accounts payable................................. 298,932 50,106
Accrued expenses................................. 31,750 46,679
Payroll and sales tax payable.................... 6,808 3,249
Income tax payable............................... (18,957) (14,796)
--------- ---------
Net cash used in operating activities........... (115,594) (274,434)
--------- ---------
INVESTING ACTIVITIES:
Purchase of property and equipment................. (14,990) (50,577)
--------- ---------
FINANCING ACTIVITIES:
Net borrowings on line of credit................... 246,852 312,290
Net repayments on shareholder notes................ (35,080) (52,000)
Repayments on other notes payable.................. (20,159) (21,250)
--------- ---------
Net cash provided by financing activities....... 191,613 239,040
--------- ---------
NET INCREASE (DECREASE) IN CASH..................... 61,029 (85,971)
Cash and cash equivalents, beginning of period...... 60,731 121,760
--------- ---------
Cash and cash equivalents, end of period............ $ 121,760 $ 35,789
--------- ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during period for:
Interest paid..................................... $ 62,995 $ 78,033
--------- ---------
Income taxes paid................................. $ 40,964 $ 18,000
--------- ---------
</TABLE>
See notes to financial statements.
F-30
<PAGE>
ONE SOURCE SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization--One Source Supply, Inc. (the "Company") was incorporated under
the laws of the State of Florida on January 11, 1978 and sells repair and
maintenance products primarily to the apartment housing market in Florida. The
Company operates a single distribution center in Miami.
Inventory--Inventory is recorded at the lower of cost (first in, first out
method) or market. Inventory is reported net of consigned inventory held of
$33,847 and $23,618 at December 31, 1994 and September 30, 1995.
Property and Equipment--Property and equipment consist of leasehold
improvements, furniture, fixtures, and equipment recorded at cost.
Depreciation is provided over the estimated useful lives of the assets,
ranging from 5 to 10 years, and is computed using the straight-line method.
Accumulated depreciation was $20,882 and $30,882 at December 31, 1994 and
September 30, 1995, respectively.
Revenue Recognition--Sales are recognized at the product is shipped, F.O.B.
point of shipment, and are net of sales returns and allowances.
Cost of Sales--Cost of sales includes merchandise costs, freight,
distribution center occupancy and delivery costs.
Income Taxes--The Company accounts for income taxes using the liability
method. There are no significant temporary differences in the bases of assets
and liabilities for income tax purposes as compared to financial reporting
purposes. The provision for income taxes consists of current Federal and State
income taxes.
Cash and Cash Equivalents--For the purposes of the statement of cash flows,
the Company considers all cash accounts and investments with a maturity of
three months or less at the time of purchase to be cash equivalents. A cash
overdraft resulting from outstanding checks of $207,809 is included in
accounts payable as of September 30, 1995.
Reclassifications--Certain amounts in the 1994 financial statements have
been reclassified to conform to the 1995 presentation.
2. LEASE COMMITMENTS
The Company conducts its operations in facilities that are leased from a
related party owned by the Company's shareholders under an agreement which
provided for annual lease payments of approximately $175,000 and had an
expiration date of May 1, 2003. Rent expense totaled $151,163 and $154,267,
respectively, for 1994 and 1995, of which $128,592 and $128,916, respectively,
was to the related party. As of September 30, 1995, the Company was a
guarantor of a loan, with a balance of $1,045,665, collateralized by a
mortgage on the leased facilities.
In connection with the Stock Purchase Agreement discussed in Note 5, this
lease was terminated and replaced with a lease agreement with the related
party which requires minimum annual lease payments of $167,400 and expires
November 30, 2000.
During 1995, the Company acquired certain leasehold improvements, furniture,
fixtures, and equipment from, and sold certain equipment to, the related party
at a net cost of $39,255 in exchange for notes payable to the Company's
stockholders.
F-31
<PAGE>
ONE SOURCE SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. NOTES PAYABLE
Notes payable consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1994 1995
------------ -------------
<S> <C> <C>
Note payable--bank, secured by all Company
assets, with interest at 1% over the bank's
prime rate, principal and interest payable
$1,250 monthly, due November 1999.............. $ 72,500 $ 61,250
Note payable--stockholder, subordinated to all
other bank financing with interest at 7%,
payable on demand, with the approval of the
Company's primary lender....................... 179,000 179,000
Note payable--bank, secured by all the Company
assets, with interest at 1.5% over the bank's
prime rate, principal payable $6,000 monthly
plus interest, due May 1995.................... 10,000
Notes payable to stockholders, uncollateralized,
interest at 7%, payable on demand with the
approval of the Company's primary lender....... 336,031 323,286
$1,000,000 line of credit ($550,000 at December
31, 1994), secured by all Company assets,
interest payable monthly at 0.875% over the
bank's prime rate, due on demand............... 528,500 840,790
---------- ----------
Total........................................... 1,126,031 1,404,326
Less: Current portion........................... 603,500 1,404,326
---------- ----------
Long-term debt.................................. $ 522,531 $ --
========== ==========
</TABLE>
The note payable--bank and line of credit are guaranteed by the Company's
shareholders. Interest expense on notes payable to stockholders for 1994 and
1995 amounted to $46,120 and $25,606, respectively.
In connection with the Stock Purchase Agreement discussed in Note 5, the
Company agreed to repay all of the above notes payable in 1995.
4. LEASED EMPLOYEES
The Company has executed a leased employee agreement, whereby all of its
employees, are provided by a leasing company for a monthly service fee. This
fee provides for complete payroll processing and reporting, human resources
management services, workers compensation and risk management services and
employee benefits and benefits administration, including a 401(k) Long-term
Savings Plan. In connection with the Stock Purchase Agreement discussed in
Note 5, the Company intends to terminate this agreement.
5. SALE OF THE COMPANY'S COMMON STOCK
On November 17, 1995, the stockholders of the Company sold all of the
outstanding common stock of the Company to Wilmar Industries, Inc., pursuant
to a Stock Purchase Agreement.
F-32
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
HMA Enterprises, Inc.:
We have audited the accompanying consolidated balance sheet of HMA
Enterprises, Inc., and subsidiaries (the "Company") as of February 29, 1996,
and the related consolidated statements of income, stockholders equity and
cash flows for the year then ended. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of HMA
Enterprises, Inc., and subsidiaries as of February 29, 1996, and the results
of their operations and their cash flows for the year then ended in conformity
with generally accepted accounting principles.
Deloitte & Touche LLP
Houston, Texas
May 30, 1996
F-33
<PAGE>
INDEPENDENT AUDITORS REPORT
The Board of Directors
HMA Enterprises, Inc.:
We have audited the accompanying consolidated balance sheet of HMA
Enterprises, Inc., and subsidiaries (the "Company") as of February 28, 1995,
and the related consolidated statements of income, stockholders, equity and
cash flows for the year then ended. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of HMA
Enterprises, Inc., and subsidiaries as of February 28, 1995, and the results
of their operations and their cash flows for the year then ended in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
April 21, 1995
F-34
<PAGE>
HMA ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 29,
1995 1996
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash............................................... $ 206,973 $ 211,876
Accounts receivable:
Trade, less allowance for doubtful accounts of
$213,518 and $239,832, respectively............. 2,412,686 3,543,773
Related party and other.......................... 101,003 53,281
Inventory.......................................... 2,509,905 3,073,661
Investment in trading securities................... 150,892 1,166
Prepaid expenses and other current assets.......... 147,892 267,526
---------- ----------
Total current assets............................. 5,529,351 7,151,283
PROPERTY AND EQUIPMENT, NET.......................... 316,564 310,023
DEFERRED TAX ASSETS.................................. 48,482 115,500
---------- ----------
TOTAL................................................ $5,894,397 $7,576,806
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable...................................... $1,430,100 $1,830,100
Trade accounts payable............................. 1,496,651 1,955,688
Accrued expenses................................... 379,848 454,617
Current portion of long-term debt and capital
leases............................................ 76,591 63,499
Federal income taxes payable....................... 33,801 170,795
---------- ----------
Total current liabilities........................ 3,416,991 4,474,699
LONG-TERM DEBT AND CAPITAL LEASES, EXCLUDING CURRENT
PORTION............................................. 105,147 65,664
---------- ----------
Total liabilities................................ 3,522,138 4,540,363
---------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 1,000,000 shares
authorized; 115,170 shares issued and
outstanding....................................... 1,152 1,152
Additional paid-in capital......................... 156,656 156,656
Retained earnings.................................. 2,214,451 2,878,635
---------- ----------
Total stockholders' equity....................... 2,372,259 3,036,443
---------- ----------
TOTAL................................................ $5,894,397 $7,576,806
========== ==========
</TABLE>
See notes to consolidated financial statements.
F-35
<PAGE>
HMA ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
FEBRUARY 28, FEBRUARY 29,
1995 1996
------------ ------------
<S> <C> <C>
SALES............................................... $20,641,719 $24,858,213
COST OF SALES....................................... 15,381,560 18,530,571
----------- -----------
GROSS PROFIT........................................ 5,260,159 6,327,642
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES........ 4,997,868 5,262,985
----------- -----------
262,291 1,064,657
----------- -----------
OTHER INCOME (EXPENSE):
Interest expense, net............................. (130,729) (154,941)
Other income...................................... 159,998 44,272
Gain on sale of property and equipment, net....... 8,696
----------- -----------
Total........................................... 29,269 (101,973)
----------- -----------
INCOME BEFORE INCOME TAXES.......................... 291,560 962,684
INCOME TAXES........................................ (98,119) (298,500)
----------- -----------
NET INCOME.......................................... $ 193,441 $ 664,184
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-36
<PAGE>
HMA ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
FEBRUARY 28, FEBRUARY 29,
1995 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................................... $ 193,441 $ 664,184
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation...................................... 160,070 144,383
Employee stock ownership plan contribution........ 156,700
Gain on sale of property and equipment............ (8,696)
(Gain) writedown on investment in trading
securities....................................... 10,620 (19,055)
Deferred income taxes............................. (48,482) (67,018)
Change in assets and liabilities:
Accounts receivable--trade........................ (154,425) (1,131,087)
Accounts receivable--related party and other...... 472 47,722
Inventory......................................... (749,101) (563,756)
Prepaid expenses and other current assets......... (36,592) (119,634)
Federal income tax receivable..................... 120,485
Trade accounts payable............................ 424,577 459,037
Accrued expenses.................................. 51,776 74,769
Federal income taxes payable...................... 33,801 136,994
--------- -----------
Net cash provided by (used in) operating
activities..................................... 163,342 (382,157)
--------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net of proceeds of disposals.. (35,838) (129,146)
Purchase of trading securities...................... (161,512)
Sales of trading securities......................... 168,781
--------- -----------
Net cash (used in) provided by investing
activities..................................... (197,350) 39,635
--------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury shares......................... (200,000)
Principal payments on notes payable................. (103,400) (400,000)
Principal payments on long-term debt and capital
leases............................................. (56,541) (70,056)
Proceeds from notes payable......................... 7,500 800,000
Proceeds from long-term debt and capital leases..... 17,481
--------- -----------
Net cash provided by (used in) financing
activities..................................... (352,441) 347,425
--------- -----------
NET INCREASE (DECREASE) IN CASH....................... (386,449) 4,903
CASH AT BEGINNING OF YEAR............................. 593,422 206,973
--------- -----------
CASH AT END OF YEAR................................... $ 206,973 $ 211,876
========= ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest payments................................... $ 139,136 $ 191,253
Income tax payments................................. 102,500 228,524
NONCASH INVESTING AND FINANCING ACTIVITIES:
Capital leases assumed in acquisitions of property
and equipment...................................... $ 89,354
Retirement of treasury shares....................... 210,000
</TABLE>
See notes to consolidated financial statements.
F-37
<PAGE>
HMA ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FEBRUARY 29, 1996 AND FEBRUARY
28, 1995
--------------------------------------------------------
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED TREASURY STOCKHOLDERS'
STOCK CAPITAL EARNINGS STOCK EQUITY
------- ---------- ---------- --------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE AT FEBRUARY 28,
1994................... $ 2,204 $2,229,914 $ (10,000) $2,222,118
Net income............ 193,441 193,441
Issuance of common
stock................ 44 $156,656 156,700
Purchase of treasury
shares............... (200,000) (200,000)
Retirement of 1,096
treasury shares...... (1,096) (208,904) 210,000
------- -------- ---------- --------- ----------
BALANCE AT FEBRUARY 28,
1995................... 1,152 156,656 2,214,451 2,372,259
Net income............ 664,184 664,184
------- -------- ---------- --------- ----------
BALANCE AT FEBRUARY 29,
1996................... $ 1,152 $156,656 $2,878,635 $ $3,036,443
======= ======== ========== ========= ==========
</TABLE>
See notes to consolidated financial statements
F-38
<PAGE>
HMA ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business--HMA Enterprises, Inc. was incorporated in the state
of Texas in May 1983. Operating primarily in Texas, HMA Enterprises, Inc., and
subsidiaries (the "Company") acquire and distribute fixtures, hardware,
household items and supplies to apartment complexes and building contractors.
The Company's locations include Houston, Arlington and, as of April 1996, San
Antonio, Texas.
Most of the Company's customers are located in Texas. No single customer
accounted for more than five percent of the Company's sales, and no accounts
receivable from any customer exceeded $186,000 at February 29, 1996.
Principles of Consolidation--The consolidated financial statements include
the accounts of HMA Enterprises, Inc., and its wholly owned subsidiaries, Gulf
Coast Supply, Inc., and One Stop Supply, Inc. All intercompany accounts and
transactions have been eliminated in consolidation.
Investment in Equity Securities--The Company adopted the provisions of
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," ("Statement 115") effective March
1, 1994. Under Statement 115, marketable investment securities are classified
in three categories: trading, available for sale, or held to maturity. Trading
securities are bought and held principally for the purpose of selling them in
the near term. Held-to-maturity securities are those securities which the
Company has the ability and intent to hold until maturity. All other
securities not included in trading or held to maturity are classified as
available for sale. In accordance with Statement 115, the Company classifies
its investments in equity securities as trading securities.
Trading securities are recorded at fair value. Unrealized holding gains and
losses on trading securities, net of the related tax effect, are included in
earnings. A decline in the market value of any trading security below cost is
charged to earnings, resulting in the establishment of a new cost basis for
the security.
Dividend and interest income are recognized when earned. Realized gains and
losses for securities classified as trading are included in earnings and are
derived using the specific identification method for determining the cost of
securities sold.
Inventory--Inventory is stated at the lower of cost or market using the
average cost method. Inventory consists entirely of finished goods.
Property and Equipment--Property and equipment are stated at cost. Equipment
under capital lease is stated at the present value of future minimum lease
payments at the date of acquisition.
Depreciation is calculated using the straight-line method over the estimated
useful lives of the assets, which range from 3 to 7 years. Equipment under
capital leases and leasehold improvements are amortized over the shorter of
the lease term or estimated useful life of the asset.
Federal Income Taxes--The Company accounts for income taxes using the asset
and liability method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.
F-39
<PAGE>
HMA ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,
the 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.
Reclassifications--Certain reclassifications have been made to the prior
year financial statements to conform to the presentation and classification
used in fiscal 1996.
2. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
1995 1996
-------- ----------
<S> <C> <C>
Vehicles................................................ $474,881 $ 478,945
Furniture and equipment................................. 356,988 418,746
Leasehold improvements.................................. 120,496 130,973
-------- ----------
Total............................................... 952,365 1,028,664
Less accumulated depreciation and amortization.......... 635,801 718,641
-------- ----------
Property and equipment, net............................. $316,564 $ 310,023
======== ==========
</TABLE>
3. NOTES PAYABLE
Notes payable consisted of the following:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Notes payable to bank, interest at prime plus 0.5%
(8.75% at February 29, 1996), due September 1, 1996.. $1,400,000 $1,800,000
Notes payable to related parties, interest at 10%,
maturities vary through February 1997................ 30,100 30,100
---------- ----------
Total............................................. $1,430,100 $1,830,100
========== ==========
</TABLE>
At February 29, 1996, $1,800,000 was outstanding under the Company's
$2,500,000 revolving line of credit which matures on September 1, 1996.
Interest payments are due monthly on the first day of each month and accrue at
the bank's prime rate plus 0.5%. The Company has pledged its accounts
receivable, inventory, and property and equipment as collateral for this
obligation. The line of credit facility contains certain financial covenants
which require the Company to maintain a minimum net worth and ratio of debt to
net worth. Compliance with covenants has been met.
4. LONG-TERM DEBT AND CAPITAL LEASES
Long-term debt and capital leases consist of the following:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Obligations under capital leases, interest rates ranging
from 6.0% to 13.6%, varying payments..................... $166,334 $129,163
Long-term debt collateralized by certain equipment,
interest at prime plus 1%, payable in monthly
installments of $483..................................... 15,404
-------- --------
Total long-term debt and capital leases............... 181,738 129,163
Less current portion...................................... 76,591 63,499
-------- --------
Long-term debt and capital leases, excluding current
portion.................................................. $105,147 $ 65,664
======== ========
</TABLE>
F-40
<PAGE>
HMA ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The aggregate maturities of long-term debt and capital leases for each year
subsequent to February 29, 1996 are: 1997, $63,499; 1998, $50,018; and 1999,
$15,646.
5. INCOME TAXES
The Company's income tax provision for the years ended February 29, 1996 and
February 28, 1995 comprised the following:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Current.................................................. $146,601 $365,518
Deferred................................................. (48,482) (67,018)
-------- --------
Total.................................................. $ 98,119 $298,500
======== ========
</TABLE>
The provision for income taxes differs from the amount of income taxes
computed by applying the U.S. federal income tax rate of 34% to pretax income
as a result of limitations on the deductibility of meals and entertainment and
the nontaxable income on officers' life insurance policies for fiscal 1995 and
1996.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets at February 29, 1996 and February 28, 1995
are presented below:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts........................ $ 72,596 $ 81,543
Differences between book and tax depreciation.......... 24,858 25,718
Accrued vacation....................................... 14,067 8,239
-------- --------
Total gross deferred tax assets...................... 111,521 115,500
Less valuation allowance................................. (63,039)
-------- --------
Net deferred tax assets.................................. $ 48,482 $115,500
======== ========
</TABLE>
6. EMPLOYEE STOCK OWNERSHIP PLAN
The Company adopted the Employee Stock Ownership Plan (the "Plan") during
1995 to enable eligible employees to participate in the growth of the Company.
Employees who have been employed with the Company for one or more years and
have completed a minimum of 1,000 hours of service are eligible to become
participants in the Plan. Employer contributions to the Plan are held in trust
in each participants individual account. The contributions are allocated to
the participant accounts based on each participant's covered compensation,
which is the total wages paid to the participant by the Company for each plan
year. The realized and unrealized gain or loss on the Plan's assets, as well
as dividends on the Company's stock not distributed to participants, are
allocated to each participant's account in the same manner. In fiscal 1995,
the company recognized $156,700 in compensation expense related to the Plan,
which represents the estimated fair market value of the 43.7 shares (prior to
stock split--see Note 8) of Company stock contributed to the Plan. In fiscal
1996 the Company recognized $100,000 in compensation expense related to a cash
contribution.
7. RELATED-PARTY TRANSACTIONS
Included in trade receivables as of February 28, 1995 and February 29, 1996
was $255,845 and $249,717, respectively, from a related party which has common
shareholders with the Company. Sales to this related party for fiscal 1995 and
1996 were $255,845 and $94,916, respectively.
F-41
<PAGE>
HMA ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. COMMON STOCK
In June 1994 the Company purchased 96 shares of its common stock from a
shareholder at a cost of $200,000. In December 1994 the Company retired 1,096
shares of common stock previously held in treasury.
In December 1994 the Company effected a 100 for 1 stock split for each
issued and outstanding share of its common stock, and decreased the par value
per share of common stock from $1 to $.01. There was no change in the
authorized number of shares.
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, investment in trading securities, accounts
receivable, accounts payable and accrued expenses approximate fair value
because of the short maturities of these items. Interest rates which are
currently available to the Company for new issuances of debt with similar
terms and maturities are used to estimate the fair value of long-term debt and
capital leases which at February 29, 1996 approximated the recorded amount.
10. COMMITMENTS AND CONTINGENCIES
Until December 1995 the Company participated in a self-insurance pool for
health care costs. The Company is liable for claims up to $12,500 per employee
annually and Company claims aggregate up to $45,000 annually. The Company has
funded the insurance pool to cover the annual aggregate claims. Claims
exceeding these limits are covered by a stop loss policy covering claims up to
$2,000,000 annually. Based on historical experience, management does not
anticipate potential future claims would have a material impact on the
Company's consolidated financial statements.
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a materially adverse effect on the
Company's consolidated financial statements.
The Company is obligated under certain noncancelable operating leases (with
initial or remaining lease terms in excess of one year). These leases
generally contain renewal options for periods ranging from three to five years
and require the Company to pay executory costs such as maintenance and
insurance. The future minimum lease payments under such leases as of February
29, 1996 are:
<TABLE>
<CAPTION>
YEARS ENDING
------------
<S> <C>
1997........................................................ $ 315,704
1998........................................................ 265,236
1999........................................................ 188,686
2000........................................................ 162,000
2001........................................................ 162,000
----------
Total..................................................... $1,093,626
==========
</TABLE>
The Company recognized rent expense of $227,062 and $233,044 during fiscal
1995 and 1996, respectively.
11. SUBSEQUENT EVENT
Subsequent to February 29, 1996 the shareholders of the Company entered into
a letter of intent to sell all of the common stock to a publicly held company
for an amount in excess of book value. Closing is expected to be the end of
June 1996.
F-42
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALES PERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRIT-
ERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SO-
LICITATION WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM IT IS UNLAWFUL. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE
IN THE AFFAIRS OF THE COMPANY OR THAT THE INFORMATION CONTAINED HEREIN IS COR-
RECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Recent Developments...................................................... 4
Risk Factors............................................................. 7
Use of Proceeds.......................................................... 10
Prior S Corporation Status and Dividend Policy........................... 10
Price Range of Common Stock.............................................. 11
Capitalization........................................................... 11
Unaudited Pro Forma Combined Financial Data.............................. 12
Selected Financial Data.................................................. 16
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 17
Market Overview.......................................................... 25
Business................................................................. 26
Management............................................................... 35
Certain Transactions..................................................... 40
Principal and Selling Shareholders....................................... 42
Description of Capital Stock............................................. 43
Shares Eligible for Future Sale.......................................... 45
Underwriting............................................................. 46
Legal Matters............................................................ 47
Experts.................................................................. 47
Additional Information................................................... 48
Index to Financial Statements............................................ F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
3,770,000 Shares
[LOGO OF WILMAR APPEARS HERE]
Common Stock
------------
PROSPECTUS
------------
Alex. Brown & Sons
INCORPORATED
William Blair & Company
Robertson, Stephens & Company
PaineWebber Incorporated
July , 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table shows all expenses of the issuance and distribution of
the securities offered hereby, other than underwriting discounts and
commissions:
<TABLE>
<S> <C>
Securities and Exchange Commission filing fee.................... $ 32,200
National Association of Securities Dealers, Inc. filing fee...... 9,900
Nasdaq listing fee............................................... 40,000
Transfer agent's and registrar's fees............................ 5,000
Printing expenses................................................ 100,000
Legal fees....................................................... 100,000
Accounting fees and expenses..................................... 150,000
Blue sky filing fees and expenses (including counsel fees)....... 5,000
Miscellaneous expenses........................................... 57,900
--------
Total.......................................................... $500,000
========
</TABLE>
The Securities and Exchange Commission filing fee, National Association of
Securities Dealers, Inc. filing fee and Nasdaq listing fee are exact. All
other amounts are estimates. All the above expenses will be paid by the
Company.
14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Reference is made to Section 14A:3-5 of the New Jersey Business Corporation
Act, as amended, which sets forth the extent to which a corporation may
indemnify its directors, officers and employees. More specifically, such law
empowers a corporation to indemnify a corporate agent against his or her
expenses and liabilities incurred in connection with any proceeding (other
than a derivative law suit) involving the corporate agent by reason of his or
her being or having been a corporate agent if (a) the corporate agent acted in
good faith or in a manner he or she reasonably believed to be in or not
opposed to the best interests of the corporation, and (b) with respect to any
criminal proceeding, the corporate agent had no reasonable cause to believe
his or her conduct was unlawful. For purposes of such law the term "corporate
agent" includes any present or former director, officer, employee or agent of
the corporation, and a person serving as a "corporate agent" at the request of
the corporation for any other enterprise, or the legal representative of any
such director, officer, trustee, employee or agent. For purposes of this
section, "proceeding" means any pending, threatened or completed civil,
criminal, administrative or arbitrative action, suit or proceeding, and any
appeal therein and any inquiry or investigation which could lead to such
action, suit or proceeding.
With respect to any derivative action, the corporation is empowered to
indemnify a corporate agent against his or her expenses (but not his or her
liabilities) incurred in connection with any proceeding involving the
corporate agent by reason of his or her being or having been a corporate agent
if the agent 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 corporation. However, a
court may, upon application, empower a corporation to indemnify a corporate
agent, to the extent such court deems proper in view of the circumstances,
against expenses with respect to any claim, issue or matter as to which the
agent was adjudged liable to the corporation.
The Company's Bylaws permit it to purchase insurance on behalf of any
corporate agents against any liability asserted against him and incurred by
him in any such capacity, or arising out of his status as such,
II-1
<PAGE>
whether or not the Company would have the power to indemnify him against such
liability under the foregoing provision of the Bylaws.
The Underwriting Agreement, filed as Exhibit 1 hereto, provides that each of
the Underwriters will indemnify the directors and officers of the Company
against certain liabilities, including liabilities under the Securities Act of
1933, as amended (the "Act").
15. RECENT SALES OF UNREGISTERED SECURITIES
Described below are the only transactions within the past three years since
in which securities which the Company issued securities which were not
registered under the Act.
On March 9, 1995, in connection with the 1995 Recapitalization, the Company
issued 126,861 and 2,589 shares of Series A Senior Preferred Stock to Summit
Ventures III, L.P. and Summit Investors II, L.P., respectively, for aggregate
consideration of $12,945,000. Also on March 9, the Company issued 2,902,219,
61,600 and 116,181 shares of Common Stock to Summit Ventures III, L.P., Summit
Investors II, L.P. and Summit Subordinated Debt Fund, L.P., respectively, for
aggregate consideration of $55,000.
Between March 8, 1995 and September 29, 1995, the Company granted options to
purchase an aggregate of 280,000 shares of Common Stock at an exercise price
of $4.23 per share currently held by 18 employees. The Company has granted,
subject to the closing of this offering, options to purchase 100,000 shares of
Common Stock at an exercise price equal to the initial public offering price,
currently held by 11 employees.
On July 8, 1996, Wilmar issued 67,615 shares of its Common Stock to the
former shareholders of HMA Enterprises, Inc. d/b/a Gulf Coast Supply and the
Supply Depot ("HMA") as partial consideration in connection with its
acquisition of all of the stock of HMA, calculated on a per share basis equal
to $23.79 per share.
The Company believes that the sales described above were exempt from
registration under Section 4(2) of the Act because such sales were made to a
limited group of persons, each of whom was believed to have been a
sophisticated investor or had a pre-existing business or personal relationship
with the Company or its management and since each such person was purchasing
for investment without a view to further distribution. Restrictive legends
were placed on stock certificates evidencing the shares and/or agreements
relating to the right to purchase such shares described above.
16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The pages contained in the registration statement filed with exhibits
thereto have been numbered sequentially in the lower right hand corner of each
page. The exhibits described below may be found in such registration statement
at the relevant page described under the column "Sequential Page Number."
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1* Form of Underwriting Agreement.
3.1+ Certificate of Incorporation.
3.2+ Bylaws.
4+ Specimen Stock Certificate.
5* Opinion of Morgan, Lewis & Bockius LLP regarding legality of
securities being registered.
10.1+ Amended and Restated 1995 Stock Option Plan.
10.2++ Lease Agreement, dated April 29, 1996, between the Company and 804
Eastgate Associates, L.L.C.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.3++ Assumption Agreement, dated as of June 1, 1996, between the Company
and 804 Eastgate Associates, L.L.C.
10.4+ Lease Agreement, dated as of March 1, 1994, between William Green and
the Company, including Lease Rider, dated as of March 7, 1995,
between the Company and William Green.
10.5+ Amended and Restated Employment Agreement, dated as of April 12,
1994, between the Company and Fred B. Gross, Esq.
10.6+ Employment Agreement, dated as of March 9, 1995, between the Company
and William Green.
10.7+ Stock Purchase and Redemption Agreement, dated as of March 9, 1995,
among the Company, William Green and the Summit Investors.
10.8+ Shareholders' Agreement, dated as of March 9, 1995, among the
Company, William Green and the Summit Investors.
10.9+ Amended and Restated Registration Rights Agreement, dated as of
January 19, 1996, among the Company, William Green and the Summit
Investors.
10.10+ Subordinated Debenture Purchase Agreement, dated as of March 9, 1995,
among the Company, Summit Subordinated Debt Fund, L.P. and Summit
Investors II, L.P.
10.11+ Loan and Security Agreement, dated as of March 9, 1995, between the
Company and New Jersey National Bank.
10.12+ Amendment to Loan and Security Agreement, dated November 16, 1995,
between the Company and New Jersey National Bank.
10.13+ Installment Note, dated July 8, 1993, by the Company to Martin H.
Green and Florence J. Green in the aggregate principal amount of
$1,200,000.
10.14+ Amendment Agreement No. 1 to Stock Purchase and Redemption Agreement,
dated as of November 21, 1995, among the Company, William Green and
the Summit Investors.
10.15+++ Stock Purchase Agreement, dated as of June 28, 1996, among the
Company and the shareholders of HMA Enterprises, Inc.
10.16+++ Registration Rights Agreement, dated as of July 8, 1996, among the
Company and the shareholders of HMA Enterprises, Inc.
11* Statement re: Computation of Per Share Earnings.
21* Subsidiaries of the Company.
23.1* Consent of Deloitte & Touche LLP.
23.2* Consent of Deloitte & Touche LLP.
23.3* Consent of Deloitte & Touche LLP.
23.4* Consent of Fishbein & Company, P.C.
23.5* Consent of Mutnick & Associates, P.A.
23.6* Consent of KPMG Peat Marwick LLP.
23.7* Consent of Morgan, Lewis & Bockius LLP (included in its opinion filed
as Exhibit 5 hereto) .
24* Powers of Attorney (included on Signature Page).
27* Financial Data Schedule.
</TABLE>
- --------
* Filed herewith.
+ Incorporated by reference to the Company's Registration Statement on Form
S-1 (No. 33-99750), filed with the Securities and Exchange Commission on
November 22, 1995.
++ Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 29, 1996.
+++ Incorporated by reference to the Company's Current Report on Form 8-K
dated July 8, 1996.
II-3
<PAGE>
(b) Financial Statement Schedules
Schedule II--Valuation and Qualifying Accounts
17. UNDERTAKINGS.
A. The undersigned Company hereby undertakes to provide to the Underwriter
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriter to
permit prompt delivery to each purchaser.
B. Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the company
pursuant to its Certificate of Incorporation, its Bylaws, the Underwriting
Agreement, or otherwise, the Company 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 Company of expenses incurred or paid by a director, officer or
controlling person of the Company in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Company 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.
C. The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act 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 Act 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 Act, 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 as such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Moorestown, New Jersey, on July 8,
1996.
Wilmar Industries, Inc.
/s/ William S. Green
By: _________________________________
WILLIAM S. GREEN CHAIRMAN,
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS
IN THE CAPACITIES AND ON THE DATE INDICATED.
EACH PERSON WHOSE SIGNATURE APPEARS BELOW IN SO SIGNING APPOINTS WILLIAM
GREEN AND FRED B. GROSS, AND EACH OF THEM ACTING ALONE, HIS TRUE AND LAWFUL
ATTORNEY-IN-FACT, WITH FULL POWER OF SUBSTITUTION, FOR HIM IN ANY AND ALL
CAPACITIES, TO EXECUTE AND CAUSE TO BE FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION ANY AND ALL AMENDMENTS AND POST-EFFECTIVE AMENDMENTS TO THIS
REGISTRATION STATEMENT, WITH EXHIBITS THERETO AND OTHER DOCUMENTS IN
CONNECTION THEREWITH, AND HEREBY RATIFIES AND CONFIRMS ALL THAT SAID ATTORNEY-
IN-FACT OR HIS SUBSTITUTE OR SUBSTITUTES MAY DO OR CAUSE TO BE DONE BY VIRTUE
HEREOF.
SIGNATURE TITLE DATE
/s/ William S. Green Chairman, President, July 8, 1996
- ------------------------------------- Chief Executive
WILLIAM S. GREEN Officer and
Director (Principal
Executive Officer)
/s/ Fred B. Gross Vice President-- July 8, 1996
- ------------------------------------- Corporate
FRED B. GROSS Development,
Secretary and
Director
/s/ Michael T. Toomey Chief Financial July 8, 1996
- ------------------------------------- Officer and
MICHAEL T. TOOMEY Treasurer
(Principal
Financial and
Accounting Officer)
/s/ Ernest K. Jacquet Director July 8, 1996
- -------------------------------------
ERNEST K. JACQUET
/s/ Joseph F. Trustey Director July 8, 1996
- -------------------------------------
JOSEPH F. TRUSTEY
/s/ Donald M. Wilson Director July 8, 1996
- -------------------------------------
DONALD M. WILSON
<PAGE>
SCHEDULE II
WILMAR INDUSTRIES, INC.
VALUATION ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED BALANCE
BEGINNING (CREDITED) OTHER AT END
OF YEAR TO EXPENSE DEDUCTIONS(1) CHANGES OF YEAR
---------- ---------- ------------- ---------- --------
<S> <C> <C> <C> <C> <C>
DESCRIPTION
Year Ended December 31,
1993
Allowance for doubtful
accounts............. $ 0 $177,725 $ 72,725 $ $105,000
Year Ended December 30,
1994
Allowance for doubtful
accounts............. $105,000 $163,407 $133,407 $135,000
Year Ended December 29,
1995
Allowance for doubtful
accounts............. $135,000 $186,727 $167,657 $82,000(2) $236,070
</TABLE>
- --------
(1) Accounts Receivable written off as uncollectible, net of recoveries.
(2) Represents reserve established in connection with acquisition of One
Source Supply, Inc. See Notes 2 and 4 of Notes to Consolidated Financial
Statements.
S-1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NO.
------- ----------- ----
<C> <S> <C>
1* Form of Underwriting Agreement.
3.1+ Certificate of Incorporation.
3.2+ Bylaws.
4+ Specimen Stock Certificate.
5* Opinion of Morgan, Lewis & Bockius LLP regarding legality of
securities being registered.
10.1+ Amended and Restated 1995 Stock Option Plan.
10.2++ Lease Agreement, dated April 29, 1996, between the Company and
804 Eastgate Associates, L.L.C.
10.3++ Assumption Agreement, dated as of June 1, 1996, between the
Company and 804 Eastgate Associates, L.L.C.
10.4+ Lease Agreement, dated as of March 1, 1994, between William
Green and the Company, including Lease Rider, dated as of
March 7, 1995, between the Company and William Green.
10.5+ Amended and Restated Employment Agreement, dated as of April
12, 1994, between the Company and Fred B. Gross, Esq.
10.6+ Employment Agreement, dated as of March 9, 1995, between the
Company and William Green.
10.7+ Stock Purchase and Redemption Agreement, dated as of March 9,
1995, among the Company, William Green and the Summit
Investors.
10.8+ Shareholders' Agreement, dated as of March 9, 1995, among the
Company, William Green and the Summit Investors.
10.9+ Amended and Restated Registration Rights Agreement, dated as
of January 19, 1996, among the Company, William Green and the
Summit Investors.
10.10+ Subordinated Debenture Purchase Agreement, dated as of March
9, 1995, among the Company, Summit Subordinated Debt Fund,
L.P. and Summit Investors II, L.P.
10.11+ Loan and Security Agreement, dated as of March 9, 1995,
between the Company and New Jersey National Bank.
10.12+ Amendment to Loan and Security Agreement, dated November 16,
1995, between the Company and New Jersey National Bank.
10.13+ Installment Note, dated July 8, 1993, by the Company to Martin
H. Green and Florence J. Green in the aggregate principal
amount of $1,200,000.
10.14+ Amendment Agreement No. 1 to Stock Purchase and Redemption
Agreement, dated as of November 21, 1995, among the Company,
William Green and the Summit Investors.
10.15+++ Stock Purchase Agreement, dated as of June 28, 1996, among the
Company and the shareholders of HMA Enterprises, Inc.
10.16+++ Registration Rights Agreement, dated as of July 8, 1996, among
the Company and the shareholders of HMA Enterprises, Inc.
11* Statement re: Computation of Per Share Earnings.
21* Subsidiaries of the Company.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NO.
- ------- ----------- ----
<S> <C> <C>
23.1* Consent of Deloitte & Touche LLP.
23.2* Consent of Deloitte & Touche LLP.
23.3* Consent of Deloitte & Touche LLP.
23.4* Consent of Fishbein & Company, P.C.
23.5* Consent of Mutnick & Associates, P.A.
23.6* Consent of KPMG Peat Marwick LLP.
23.7* Consent of Morgan, Lewis & Bockius LLP (included in its opinion filed as Exhibit 5 hereto).
24* Powers of Attorney (included on Signature Page).
27* Financial Data Schedule.
</TABLE>
- --------
* Filed herewith.
+ Incorporated by reference to the Company's Registration Statement on Form
S-1 (No. 33-99750), filed with the Securities and Exchange Commission on
November 22, 1995.
++ Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 29, 1996.
+++Incorporated by reference to the Company's Current Report on Form 8-K dated
July 8, 1996.
<PAGE>
___________________ Shares
WILMAR INDUSTRIES, INC.
Common Stock
UNDERWRITING AGREEMENT
----------------------
July_____, 1996
Alex. Brown & Sons Incorporated
William Blair & Company L.L.C.
Robertson, Stephens & Company LLC
PaineWebber Incorporated
As Representatives of the
Several Underwriters
c/o Alex. Brown & Sons Incorporated
135 East Baltimore Street
Baltimore, Maryland 21202
Gentlemen:
Wilmar Industries, Inc., a New Jersey corporation (the "Company"), and
certain stockholders of the Company named in Schedule II hereto (the "Selling
Shareholders") propose to sell to the several underwriters (the "Underwriters")
named in Schedule I hereto for whom you are acting as representatives (the
"Representatives") an aggregate of ___________ shares of the Company's Common
Stock, without par value (the "Firm Shares"), of which ___________ shares will
be sold by the Company and ___________ shares will be sold by the Selling
Shareholders. The respective amounts of the Firm Shares to be so purchased by
the several Underwriters are set forth opposite their names in Schedule I
hereto, and the respective amounts to be sold by the Selling Shareholders are
set forth opposite their names in Schedule II hereto. The Company and the
Selling Shareholders are sometimes referred to herein collectively as the
"Sellers." The Company and the Selling Shareholders also propose to sell at the
Underwriters' option an aggregate of up to ___________ additional shares of the
Company's Common Stock (the "Option Shares") as set forth below.
-1-
<PAGE>
As the Representatives, you have advised the Company (a) that you are
authorized to enter into this Agreement on behalf of the several Underwriters,
and (b) that the several Underwriters are willing, acting severally and not
jointly, to purchase the numbers of Firm Shares set forth opposite their
respective names in Schedule I, plus their pro rata portion of the Option Shares
if you elect to exercise the over-allotment option in whole or in part for the
accounts of the several Underwriters. The Firm Shares and the Option Shares (to
the extent the aforementioned option is exercised) are herein collectively
called the "Shares."
In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLING
-------------------------------------------------------------
STOCKHOLDERS.
------------
(a) The Company represents and warrants to each of the Underwriters
as follows:
(i) A registration statement on Form S-1 (File No. 333-________)
with respect to the Shares has been carefully prepared by the Company in
conformity with the requirements of the Securities Act of 1933, as amended
(the "Act"), and the Rules and Regulations (the "Rules and Regulations") of
the Securities and Exchange Commission (the "Commission") thereunder and
has been filed with the Commission. Copies of such registration statement,
including any amendments thereto, the preliminary prospectuses (meeting the
requirements of the Rules and Regulations) contained therein and the
exhibits, financial statements and schedules, as finally amended and
revised, have heretofore been delivered by the Company to you. Such
registration statement, together with any registration statement filed by
the Company pursuant to Rule 462 (b) under the Act, herein referred to as
the "Registration Statement," which shall be deemed to include all
information omitted therefrom in reliance upon Rule 430A and contained in
the Prospectus referred to below, has become effective under the Act and no
post-effective amendment to the Registration Statement has been filed as of
the date of this Agreement. "Prospectus" means (a) the form of prospectus
first filed with the Commission pursuant to Rule 424(b), or (b) the last
preliminary prospectus included in the Registration Statement filed prior
to the time it becomes effective or filed pursuant to Rule 424(a) under the
Act that is delivered by the Company to the Underwriters for delivery to
purchasers of the Shares, together with the term sheet or abbreviated term
sheet filed with the Commission pursuant to Rule 424(b)(7) under the Act.
Each preliminary prospectus included in the Registration Statement prior to
the time it becomes effective is herein referred to as a "Preliminary
Prospectus."
(ii) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of New Jersey,
with corporate power and authority to own or lease its properties and
conduct its business as described in the Registration Statement. One
Source, Inc., a Florida corporation ("One Source"), Sun
-2-
<PAGE>
Valley Maintenance Supply Inc., a [Arizona][Nevada] corporation ("Sun Valley"),
HMA Enterprises, Inc., a Texas corporation ("HMA"), Mile High Maintenance
Supply, Inc., a Colorado corporation ("Mile High"), and Rainbow Sales Co., Inc.,
a Virginia corporation ("Rainbow Sales") and each other subsidiary of the
Company listed in Exhibit 21 to Item 16(a) of the Registration Statement
(collectively, with One Source, Sun Valley, HMA, Mile High and Rainbow Sales,
the "Subsidiaries") each has been duly organized and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, with corporate power and authority to own or lease its properties
and conduct its business as described in the Registration Statement. The
Subsidiaries are the only subsidiaries, direct or indirect, of the Company. The
Company and the Subsidiaries are duly qualified to transact business in all
jurisdictions in which the conduct of their business requires such
qualification, except where the failure to so qualify would not have a
materially adverse effect on the business and operations of the Company and the
Subsidiaries, taken as a whole. The outstanding shares of capital stock of each
of the Subsidiaries have been duly authorized and validly issued, are fully paid
and non-assessable and are owned by the Company free and clear of all liens,
encumbrances and equities and claims; and no options, warrants or other rights
to purchase, agreements or other obligations to issue or other rights to convert
any obligations into shares of capital stock or ownership interests in the
Subsidiaries are outstanding.
(iii) The outstanding shares of Common Stock of the Company, including the
Shares to be sold by the Selling Shareholders, have been duly authorized and
validly issued and are fully paid and non-assessable; the Shares to be issued
and sold by the Company have been duly authorized and when issued and paid for
as contemplated herein will be validly issued, fully paid and non-assessable;
and no preemptive rights of stockholders exist with respect to any of the Shares
or the issue and sale thereof. Neither the filing of the Registration Statement
nor the offering or sale of the Shares as contemplated by this Agreement gives
rise to any rights, other than those which have been waived or satisfied, for or
relating to the registration of any shares of Common Stock.
(iv) The information set forth under the caption "Capitalization" in the
Prospectus is true and correct. All of the Shares conform to the description
thereof contained in the Registration Statement. The form of certificates for
the Shares conforms to the corporate law of the jurisdiction of the Company's
incorporation.
(v) The Commission has not issued an order preventing or suspending the
use of any Prospectus relating to the proposed offering of the Shares nor
instituted proceedings for that purpose. The Registration Statement contains,
and the Prospectus and any amendments or supplements thereto will contain, all
statements which are required to be stated therein by, and will conform, to the
requirements of the Act and the Rules and Regulations. The Registration
Statement and any amendment thereto do not contain, and will not contain, any
untrue statement of a material fact and do not omit, and will not
-3-
<PAGE>
omit, to state any material fact required to be stated therein or necessary to
make the statements therein not misleading. The Prospectus and any supplements
thereto do not contain, and will not contain, any untrue statement of a material
fact and do not omit, and will not omit, to state any material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading; provided, however, that the Company makes
no representations or warranties as to information contained in or omitted from
the Registration Statement or the Prospectus, or any such amendment or
supplement, in reliance upon, and in conformity with, written information
furnished to the Company by or on behalf of any Underwriter through the
Representatives, specifically for use in the preparation thereof.
(vi) The financial statements of the Company and the separate financial
statements of One Source, Sun Valley, HMA, Mile High and Rainbow Sales, in each
case together with related notes and schedules, as set forth in the Registration
Statement, present fairly in all material respects the financial position and
the results of operations and cash flows of the Company and of One Source, Sun
Valley, HMA, Mile High and Rainbow Sales, respectively, at the indicated dates
and for the indicated periods. Such financial statements and related schedules
have been prepared in accordance with generally accepted principles of
accounting, consistently applied throughout the periods involved, except as
disclosed therein, and all adjustments necessary for a fair presentation of
results for such periods have been made. The summary financial and statistical
data included in the Registration Statement present fairly the information shown
therein and such data have been compiled on a basis consistent with the
financial statements presented therein and the books and records of the Company
and One Source, Sun Valley, HMA, Mile High and Rainbow Sales, as applicable.
The pro forma combined financial statements of the Company and One Source, Sun
Valley, HMA, Mile High and Rainbow Sales, together with the related notes, as
set forth in the Registration Statement, present fairly the information shown
therein, have been prepared in accordance with the Commission's rules and
guidelines with respect to pro forma financial statements and have been properly
compiled on the pro forma bases described therein, and in the opinion of the
Company, the assumptions used in the preparation thereof are reasonable and the
adjustments used therein are appropriate to give effect to the transactions or
circumstances referred to therein.
(vii) Deloitte & Touche, LLP, Fishbein & Co., P.C., Mutnick & Associates,
P.A., [the accountants for Sun Valley], Charles W. Mueller, C.P.A., a
Professional Corporation, [the accountants for Mile High], and W. Scott Huzek,
CPA, P.C., who have certified certain of the financial statements filed with the
Commission as part of the Registration Statement, are each independent public
accountants as required by the Act and the Rules and Regulations.
(viii) There is no action, suit, claim or proceeding pending or, to the
knowledge of the Company, threatened against the Company or any of the
Subsidiaries before any
-4-
<PAGE>
court or administrative agency or otherwise, which if determined adversely to
the Company or such Subsidiary is reasonably likely to result in any material
adverse change in the earnings, business, management, properties, assets,
rights, operations, condition (financial or otherwise) or prospects of the
Company and of the Subsidiaries taken as a whole or to prevent the consummation
of the transactions contemplated hereby, except as set forth in the Registration
Statement.
(ix) The Company and the Subsidiaries have good and marketable title to
all of the properties and assets reflected in the financial statements (or as
described in the Registration Statement) hereinabove described, subject to no
lien, mortgage, pledge, charge or encumbrance of any kind except those reflected
in such financial statements (or as described in the Registration Statement) or
which are not material in amount. The Company and the Subsidiaries occupy their
leased properties under valid and binding leases conforming in all material
respects to the description thereof set forth in the Registration Statement.
(x) The Company and the Subsidiaries have filed all Federal, state, local
and foreign income tax returns which have been required to be filed and have
paid all taxes indicated by said returns and all assessments received by them or
any of them to the extent that such taxes have become due and are not being
contested in good faith. All tax liabilities have been adequately provided for
in the financial statements of the Company or of One Source, Sun Valley, HMA,
Mile High and Rainbow Sales, as applicable.
(xi) Since the respective dates as of which information is given in the
Registration Statement, as it may be amended or supplemented, there has not been
any material adverse change or any development involving a prospective material
adverse change in or affecting the earnings, business, management, properties,
assets, rights, operations, condition (financial or otherwise), or prospects of
the Company and its Subsidiaries taken as a whole, whether or not occurring in
the ordinary course of business, and there has not been any material transaction
entered into or any material transaction that is probable of being entered into
by the Company or the Subsidiaries, other than transactions in the ordinary
course of business and changes and transactions described in the Registration
Statement, as it may be amended or supplemented. The Company and the
Subsidiaries have no material contingent obligations which are not disclosed in
the financial statements of the Company or of One Source, Sun Valley, HMA, Mile
High and Rainbow Sales, as applicable, included in the Registration Statement.
(xii) Neither the Company nor any of the Subsidiaries is or with the giving
of notice or lapse of time or both, will be, in violation of or in default under
its Charter or By-Laws or under any agreement, lease, contract, indenture or
other instrument or obligation to which it is a party or by which it, or any of
its properties, is bound and which default is of material significance in
respect of the condition (financial or
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<PAGE>
otherwise) of the Company and the Subsidiaries taken as a whole or the business,
management, properties, assets, rights, operations, condition (financial or
otherwise) or prospects of the Company and the Subsidiaries taken as a whole.
The execution and delivery of this Agreement and the consummation of the
transactions herein contemplated and the fulfillment of the terms hereof will
not conflict with or result in a breach of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust or other
agreement or instrument to which the Company or any of the Subsidiaries is a
party, or of the Charter or By-Laws of the Company or any order, rule or
regulation applicable to the Company or any of the Subsidiaries of any court or,
assuming compliance with all applicable state securities or blue sky laws, of
any regulatory body or administrative agency or other governmental body having
jurisdiction.
(viii) Each approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body necessary in connection with the execution and delivery by the
Company of this Agreement and the consummation of the transactions herein
contemplated (except such additional steps as may be required by the Commission,
the National Association of Securities Dealers, Inc. (the "NASD") or such
additional steps as may be necessary to qualify the Shares for public offering
by the Underwriters under state securities or Blue Sky laws) has been obtained
or made and is in full force and effect.
(xiv) The Company and each of the Subsidiaries hold all material
licenses, certificates and permits from governmental authorities which are
necessary to the conduct of their businesses; and neither the Company nor any of
the Subsidiaries has infringed any patents, patent rights, trade names,
trademarks or copyrights, which infringement is material to the business of the
Company and the Subsidiaries taken as a whole. The Company knows of no material
infringement by others of patents, patent rights, trade names, trademarks or
copyrights owned by or licensed to the Company or any of the Subsidiaries.
(xv) Neither the Company, nor to the Company's best knowledge, any of
its affiliates, has taken or may take, directly or indirectly, any action
designed to cause or result in, or which has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of the
price of the shares of Common Stock to facilitate the sale or resale of the
Shares.
(xvi) Neither the Company nor any of the Subsidiaries is an "investment
company" within the meaning of such term under the Investment Company Act of
1940 and the rules and regulations of the Commission thereunder.
(xvii) The Company and each of the Subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurances that
(i) transactions are executed in accordance with management's general or
specific authorization; (ii)
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<PAGE>
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(xviii) The Company and each of the Subsidiaries carry, or are covered by,
insurance in such amounts and covering such risks as is adequate for the conduct
of their respective businesses and the value of their respective properties and
as is customary for companies engaged in similar industries.
(xix) The Company and each of the Subsidiaries are in compliance in all
material respects with all presently applicable provisions of the Employee
Retirement Income Security Act of 1974, as amended, including the regulations
and published interpretations thereunder ("ERISA"); no "reportable event" (as
defined in ERISA) has occurred with respect to any "pension plan" (as defined in
ERISA) for which the Company or any of the Subsidiaries would have any
liability; neither the Company nor any of the Subsidiaries has incurred nor
expects to incur liability under (i) Title IV of ERISA with respect to
termination of, or withdrawal from, any "pension plan," or (ii) Sections 412 or
4971 of the Internal Revenue Code of 1986, as amended, including the regulations
and published interpretations thereunder (the "Code"); and each "pension plan"
for which the Company or any of the Subsidiaries would have any liability that
is intended to be qualified under Section 401(a) of the Code is so qualified in
all material respects and nothing has occurred, whether by action or by failure
to act, which would cause the loss of such qualification.
(xx) The Company confirms as of the date hereof that it and each of the
Subsidiaries is in compliance with all provisions of Section 1 of Laws of
Florida, Chapter 92-198, An Act Relating to Disclosure of Doing Business with
----------------------------------------------------
Cuba, and the Company further agrees that if it or any of the Subsidiaries
- ----
commences engaging in business with the government of Cuba or with any person or
affiliate located in Cuba after the date the Registration Statement becomes or
has become effective with the Commission or with the Florida Department of
Banking and Finance (the "Department"), whichever date is later, or if the
information reported or incorporated by reference in the Prospectus, if any,
concerning the Company's business with Cuba or with any person or affiliate
located in Cuba changes in any material way, the Company will provide the
Department notice of such business or change, as appropriate, in a form
acceptable to the Department.
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<PAGE>
(b) Each of the Selling Shareholders severally represents and warrants to
each of the Underwriters and the Company that:
(i) Such Selling Shareholder has and at the Closing Date and, if
applicable, the Option Closing Date, as the case may be (as such dates are
hereinafter defined) will have good and valid title to the Firm Shares and,
if applicable, the Option Shares to be sold by such Selling Shareholder,
free of any liens, encumbrances, equities and claims, and full right, power
and authority to effect the sale and delivery of such Firm Shares and, if
applicable, Option Shares; and upon the delivery of and payment for such
Firm Shares and, if applicable, Option Shares pursuant to this Agreement,
good and valid title thereto, free of any liens, encumbrances, equities and
claims, will be transferred to the several Underwriters.
(ii) The consummation by such Selling Shareholder of the transactions
herein contemplated and the fulfillment by such Selling Shareholder of the
terms hereof will not result in a material breach of any of the terms and
provisions of, or constitute a material default under, any indenture,
mortgage, deed of trust or other agreement or instrument to which such
Selling Shareholder is a party, or of any order, rule or regulation
applicable to such Selling Shareholder of any court or of any regulatory
body or administrative agency or other governmental body having
jurisdiction which breach or default is material to such Selling
Shareholder.
(iii) Such Selling Shareholder has not taken and will not take,
directly or indirectly, any action designed to, or which has constituted,
or which might reasonably be expected to cause or result in stabilization
or manipulation of the price of the Common Stock of the Company.
(iv) No offering, sale, short sale or other disposition of any Common
Stock of the Company, any options or warrants to purchase shares of Common
Stock or any securities convertible into or exchangeable for shares of
Common Stock and no request for registration for the offer or sale of any
of the foregoing will be made for a period of _____ days after the date of
this Agreement, directly or indirectly, by such Selling Shareholder
otherwise than hereunder or with the prior written consent of Alex. Brown &
Sons Incorporated.
(v) Without having undertaken to determine independently the
accuracy or completeness of either the representations and warranties of
the Company contained herein or the information contained in the
Registration Statement, such Selling Shareholder has no reason to believe
that the representations and warranties of the Company contained in this
Section 1 are not true and correct, is familiar with the Registration
Statement and has no knowledge of any material fact, condition or
information not disclosed in the Registration Statement which has
materially adversely affected or may materially adversely affect the
business of the Company or any of the
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<PAGE>
Subsidiaries, taken as a whole; and the sale of the Firm Shares and, if
applicable, the Option Shares by such Selling Shareholder pursuant hereto is not
prompted by any information concerning the Company or any of the Subsidiaries
which is not set forth in the Registration Statement.
In order to document the Underwriters' compliance with the reporting and
withholding provisions of the Tax Equity and Fiscal Responsibility Act of 1982
and the Interest and Dividend Tax Compliance Act of 1983 with respect to the
transactions herein contemplated, each of the Selling Shareholders agrees to
deliver to you prior to or at the Closing Date a properly completed and executed
United States Treasury Department Form W-9 (or other applicable from or
statement specified by Treasury Department regulations in lieu thereof).
2. PURCHASE, SALE AND DELIVERY OF THE FIRM SHARES.
-----------------------------------------------
(a) On the basis of the representations, warranties and covenants herein
contained, and subject to the conditions herein set forth, the Sellers agree to
sell to the Underwriters and each Underwriter agrees, severally and not jointly,
to purchase, at a price of $_________ per share, the number of Firm Shares set
forth opposite the name of each Underwriter in Schedule I hereof, subject to
adjustments in accordance with Section 9 hereof. The number of Firm Shares to
be purchased by each Underwriter from each Seller shall be as nearly as
practicable in the same proportion to the total number of Firm Shares being sold
by each Seller as the number of Firm Shares being purchased by each Underwriter
bears to the total number of Firm Shares to be sold hereunder. The obligations
of the Company and of each of the Selling Shareholders shall be several and not
joint.
(b) Payment for the Firm Shares to be sold hereunder is to be made in New
York Clearing House funds by certified or bank cashier's checks drawn to the
order of the Company in the case of the Firm Shares being sold by the Company
and to the order of ____________ in the case of the Firm Shares being sold by
the Selling Shareholders, in each case against delivery of certificates therefor
to the Representatives for the several accounts of the Underwriters. Such
payment and delivery are to be made at the offices of Alex. Brown & Sons
Incorporated, 135 East Baltimore Street, Baltimore, Maryland, at 10:00 a.m.,
Baltimore time, on the third business day after the date of this Agreement or at
such other time and date not later than five business days thereafter as you and
the Company shall agree upon, such time and date being herein referred to as the
"Closing Date." (As used herein, "business day" means a day on which the New
York Stock Exchange is open for trading and on which banks in New York are open
for business and are not permitted by law or executive order to be closed.) The
certificates for the Firm Shares will be delivered in such denominations and in
such registrations as the Representatives request in writing not later than the
second full business day prior to the Closing Date, and will be made available
for inspection by the Representatives at least
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<PAGE>
one business day prior to the Closing Date.
(c) In addition, on the basis of the representations and warranties
herein contained and subject to the terms and conditions herein set forth, the
Company and the Selling Shareholders listed on Schedule III hereto hereby grant
an option to the several Underwriters to purchase the Option Shares at the price
per share as set forth in paragraph (a) of this Section 2. The maximum number of
Option Shares to be sold by the Company and each Selling Shareholder is set
forth opposite their respective names on Schedule III hereto. The option granted
hereby may be exercised in whole or in part by giving written notice (i) at any
time before the Closing Date and (ii) only once thereafter within 30 days after
the date of this Agreement, by you, as Representatives of the several
Underwriters, to the Company setting forth the number of Option Shares as to
which the several Underwriters are exercising the option, the names and
denominations in which the Option Shares are to be registered and the time and
date at which such certificates are to be delivered. If the option granted
hereby is exercised for less than the maximum number of Option Shares being
offered by the Selling Shareholders, the respective number of Option Shares to
be sold by each of the Selling Shareholders listed on Schedule III hereto shall
be determined on a pro rata basis in accordance with the percentages set forth
opposite their names on Schedule III hereto, adjusted by you in such manner as
to avoid fractional shares. The time and date at which certificates for Option
Shares are to be delivered shall be determined by the Representatives but shall
not be earlier than three nor later than 10 full business days after the
exercise of such option, nor in any event prior to the Closing Date (such time
and date being herein referred to as the "Option Closing Date"). If the date of
exercise of the option is three or more days before the Closing Date, the notice
of exercise shall set the Closing Date as the Option Closing Date. The number of
Option Shares to be purchased by each Underwriter shall be in the same
proportion to the total number of Option Shares being purchased as the number of
Firm Shares being purchased by such Underwriter bears to __________, adjusted by
you in such manner as to avoid fractional shares. The option with respect to the
Option Shares granted hereunder may be exercised only to cover over-allotments
in the sale of the Firm Shares by the Underwriters. You, as Representatives of
the several Underwriters, may cancel such option at any time prior to its
expiration by giving written notice of such cancellation to the Company. To the
extent, if any, that the option is exercised, payment for the Option Shares
shall be made on the Option Closing Date in New York Clearing House funds by
certified or bank cashier's check drawn to the order of the Company in the case
of the Firm Shares being sold by the Company and to the order of ____________ in
the case of the Firm Shares being sold by the Selling Shareholders, in each case
against delivery of certificates therefor at the offices of Alex. Brown & Sons
Incorporated, 135 East Baltimore Street, Baltimore, Maryland.
3. OFFERING BY THE UNDERWRITERS.
----------------------------
It is understood that the several Underwriters are to make a public offering of
the Firm
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<PAGE>
Shares as soon as the Representatives deem it advisable to do so. The Firm
Shares are to be initially offered to the public at the initial public offering
price set forth in the Prospectus. The Representatives may from time to time
thereafter change the public offering price and other selling terms. To the
extent, if at all, that any Option Shares are purchased pursuant to Section 2
hereof, the Underwriters will offer them to the public on the foregoing terms.
It is further understood that you will act as the Representatives for the
Underwriters in the offering and sale of the Shares in accordance with a Master
Agreement Among Underwriters entered into by you and the several other
Underwriters.
4. COVENANTS OF THE COMPANY.
------------------------
The Company covenants and agrees with the several Underwriters that:
(a) The Company will (A) use its best efforts to cause the
Registration Statement to become effective or, if the procedure in Rule
430A of the Rules and Regulations is followed, to prepare and timely file
with the Commission under Rule 424(b) of the Rules and Regulations a
Prospectus in a form approved by the Representatives containing
information previously omitted at the time of effectiveness of the
Registration Statement in reliance on Rule 430A of the Rules and
Regulations, and (B) not file any amendment to the Registration Statement
or supplement to the Prospectus of which the Representatives shall not
previously have been advised and furnished with a copy or to which the
Representatives shall have reasonably objected in writing or which is not
in compliance with the Rules and Regulations.
(b) The Company will advise the Representatives promptly (A) when the
Registration Statement or any post-effective amendment thereto shall have
become effective, (B) of receipt of any comments from the Commission, (C)
of any request of the Commission for amendment of the Registration
Statement or for supplement to the Prospectus or for any additional
information, and (D) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the use of
the Prospectus or of the institution of any proceedings for that purpose.
The Company will use its best efforts to prevent the issuance of any such
stop order preventing or suspending the use of the Prospectus and to
obtain as soon as possible the lifting thereof, if issued.
(c) The Company will cooperate with the Representatives in
endeavoring to qualify the Shares for sale under the securities laws of
such jurisdictions as the Representatives may reasonably have designated
in writing and will make such applications, file such documents, and
furnish such information as may be reasonably required for that purpose,
provided the Company shall not be required to qualify as a foreign
corporation or to file a general consent to service of process in any
jurisdiction where it is not now so qualified or required to file such a
consent. The Company will,
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<PAGE>
from time to time, prepare and file such statements, reports, and other
documents, as are or may be required to continue such qualifications in effect
for so long a period as the Representatives may reasonably request for
distribution of the Shares.
(d) The Company will deliver to, or upon the order of, the
Representatives, from time to time, as many copies of any Preliminary Prospectus
as the Representatives may reasonably request. The Company will deliver to, or
upon the order of, the Representatives during the period when delivery of a
Prospectus is required under the Act, as many copies of the Prospectus in final
form, or as thereafter amended or supplemented, as the Representatives may
reasonably request. The Company will deliver to the Representatives at or before
the Closing Date, three signed copies of the Registration Statement and all
amendments thereto including all exhibits filed therewith, and will deliver to
the Representatives such number of copies of the Registration Statement
(including such number of copies of the exhibits filed therewith that may
reasonably be requested), including documents incorporated by reference therein,
and of all amendments thereto, as the Representatives may reasonably request.
(e) The Company will comply with the Act and the Rules and Regulations
and the Securities Exchange Act of 1934, as amended (the "Exchange Act") and the
rules and regulations of the Commission thereunder, so as to permit the
completion of the distribution of the Shares as contemplated in this Agreement
and the Prospectus. If during the period in which a prospectus is required by
law to be delivered by an Underwriter or dealer, any event shall occur as a
result of which, in the judgment of the Company or in the reasonable opinion of
the Underwriters, it becomes necessary to amend or supplement the Prospectus in
order to make the statements therein, in the light of the circumstances existing
at the time the Prospectus is delivered to a purchaser, not misleading, or, if
it is necessary at any time to amend or supplement the Prospectus to comply with
any law, the Company promptly will prepare and file with the Commission an
appropriate amendment to the Registration Statement or supplement to the
Prospectus so that the Prospectus as so amended or supplemented will not, in the
light of the circumstances when it is so delivered, be misleading, or so that
the Prospectus will comply with the law.
(f) The Company will make generally available to its security holders, as
soon as it is practicable to do so, but in any event not later than 15 months
after the effective date of the Registration Statement, an earnings statement
(which need not be audited) in reasonable detail, covering a period of at least
12 consecutive months beginning after the effective date of the Registration
Statement, which earnings statement shall satisfy the requirements of Section
11(a) of the Act and Rule 158 of the Rules and Regulations and will advise you
in writing when such statement has been so made available.
(g) The Company will, for a period of five years from the Closing Date,
deliver to the Representatives copies of annual reports and copies of all other
documents, reports
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<PAGE>
and information furnished by the Company to its stockholders or filed with any
securities exchange pursuant to the requirements of such exchange or with the
Commission pursuant to the Act or the Exchange Act. The Company will deliver to
the Representatives similar reports with respect to significant Subsidiaries, as
that term is defined in the Rules and Regulations, which are not consolidated in
the Company's financial statements.
(h) No offering, sale, short sale or other disposition of any shares of
Common Stock of the Company or other securities convertible into or exchangeable
or exercisable for shares of Common Stock or derivative of Common Stock (or
agreement for such) will be made for a period of _____ days after the date of
the Prospectus, directly or indirectly, by the Company otherwise than hereunder
or with the prior written consent of Alex. Brown & Sons Incorporated, except
that the Company may, without such consent, issue shares (i) upon exercise of
options granted under its stock option plans, (ii) upon exercise of warrants
outstanding on the date of this Agreement, (iii) in connection with acquisitions
of businesses, or (iv) pursuant to employee benefit or compensation plans
existing on the date hereof.
(i) The Company will use its best efforts to list, subject to notice of
issuance, the Shares on the the Nasdaq Stock Market (National Market).
(j) The Company has caused each executive officer and director and
shareholder of the Company (other than the Selling Shareholders) to furnish to
you, on or prior to the date of this Agreement, a letter or letters, in form and
substance satisfactory to the Underwriters, pursuant to which each such person
has agreed not to offer, sell, sell short or otherwise dispose of any shares of
Common Stock of the Company owned by such person (or as to which such person has
the right to direct the disposition of) or request the registration for the
offer or sale of any of the foregoing for a period of _____ days after the date
of the Prospectus, directly or indirectly, except with the prior written consent
of Alex. Brown & Sons Incorporated ("Lockup Agreements").
(k) The Company shall apply the net proceeds of its sale of the Shares as
set forth in the Prospectus and shall file such reports with the Commission with
respect to the sale of the Shares and the application of the proceeds therefrom
as may be required in accordance with Rule 463 under the Act.
(l) The Company shall not invest, or otherwise use the proceeds received
by the Company from its sale of the Shares in such a manner as would require the
Company or any of the Subsidiaries to register as an investment company under
the Investment Company Act of 1940, as amended (the "1940 Act").
(m) The Company will maintain a transfer agent and, if necessary under
the jurisdiction of incorporation of the Company, a registrar for the Common
Stock.
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<PAGE>
(n) The Company will not take, directly or indirectly, any action
designed to cause or result in, or that has constituted or might reasonably
be expected to constitute, the stabilization or manipulation of the price
of any securities of the Company.
5. COSTS AND EXPENSES.
------------------
The Company will pay all costs, expenses and fees incident to the
performance of the obligations of the Company and the Selling Shareholders under
this Agreement, including, without limiting the generality of the foregoing, the
following: accounting fees of the Company; the fees and disbursements of counsel
for the Company and the Selling Shareholders; the cost of printing and
delivering to, or as requested by, the Underwriters copies of the Registration
Statement, Preliminary Prospectuses, the Prospectus, this Agreement, the
Underwriters' Invitation Letter, the Blue Sky Survey and any supplements or
amendments thereto; the filing fees of the Commission; the filing fees and
expenses (including disbursements but excluding legal fees of counsel to the
Underwriters) incident to securing any required review by the National
Association of Securities Dealers, Inc. (the "NASD") of the terms of the sale of
the Shares; the Listing Fee of The Nasdaq Stock Market; and the expenses,
including the fees and disbursements of counsel for the Underwriters, incurred
in connection with the qualification of the Shares under State securities or
Blue Sky laws. The Company shall not, however, be required to pay for any of the
Underwriters' expenses (other than those related to qualification under NASD
regulations and State securities or Blue Sky laws) except that, if this
Agreement shall not be consummated because the conditions in Section 6 hereof
are not satisfied, or because this Agreement is terminated by the
Representatives pursuant to Section 11 hereof, or by reason of any failure,
refusal or inability on the part of the Company to perform any undertaking or
satisfy any condition of this Agreement or to comply with any of the terms
hereof on its part to be performed, unless such failure to satisfy said
condition or to comply with said terms be due to the default or omission of any
Underwriter, then the Company shall reimburse the several Underwriters for
reasonable out-of-pocket expenses, including fees and disbursements of counsel,
reasonably incurred in connection with investigating, marketing and proposing to
market the Shares or in contemplation of performing their obligations hereunder;
but the Company shall not in any event be liable to any of the several
Underwriters for damages on account of loss of anticipated profits from the sale
by them of the Shares.
6. CONDITIONS OF OBLIGATIONS OF THE UNDERWRITERS.
---------------------------------------------
The several obligations of the Underwriters to purchase the Firm Shares on
the Closing Date and the Option Shares, if any, on the Option Closing Date are
subject to the accuracy, as of the Closing Date or the Option Closing Date, as
the case may be, of the representations and warranties of the Company and the
Selling Shareholders contained herein, and to the performance by the Company and
the Selling Shareholders of their covenants and obligations hereunder and to the
following additional conditions:
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(a) The Registration Statement and all post-effective amendments thereto
shall have become effective and any and all filings required by Rule 424 and
Rule 430A of the Rules and Regulations shall have been made, and any request of
the Commission for additional information (to be included in the Registration
Statement or otherwise) shall have been disclosed to the Representatives and
complied with to their reasonable satisfaction. No stop order suspending the
effectiveness of the Registration Statement, as amended from time to time, shall
have been issued and no proceedings for that purpose shall have been taken or,
to the knowledge of the Company or the Selling Shareholders, shall be
contemplated by the Commission and no injunction, restraining order, or order of
any nature by a Federal or state court of competent jurisdiction shall have been
issued as of the Closing Date or the Option Closing Date, as the case may be,
which would prevent the issuance of the Shares.
(b) The Representatives shall have received on the Closing Date or the
Option Closing Date, as the case may be, the opinion of Morgan, Lewis & Bockius
LLP, counsel for the Company and the Selling Shareholders, dated the Closing
Date or the Option Closing Date, as the case may be, addressed to the
Underwriters (and stating that it may be relied upon by counsel to the
Underwriters) to the effect that:
(i) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of New Jersey,
with corporate power and authority to own or lease its properties and
conduct its business as described in the Registration Statement; each of
the Subsidiaries has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, with corporate power and authority to own or lease its
properties and conduct its business as described in the Registration
Statement; the Company and each of the Subsidiaries are duly qualified to
transact business in each of the jurisdictions set forth on a schedule to
such opinion; and the outstanding shares of capital stock of each of the
Subsidiaries have been duly authorized and validly issued and are fully
paid and non-assessable and are owned by the Company; and, to the best of
such counsel's knowledge, the outstanding shares of capital stock of each
of the Subsidiaries is owned free and clear of all liens, encumbrances and
equities and claims, and no options, warrants or other rights to purchase,
agreements or other obligations to issue or other rights to convert any
obligations into any shares of capital stock or of ownership interests in
any of the Subsidiaries are outstanding.
(ii) The Company has authorized capital stock as set forth under the
caption "Capitalization" in the Prospectus; the authorized shares of the
Company's Preferred Stock and Common Stock have been duly authorized; the
outstanding shares of the Company's Common Stock have been duly authorized
and validly issued and are fully paid and non-assessable; all of the Shares
conform to the description thereof contained in the Prospectus; the
certificates for the Shares,
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assuming they are in the form filed with the Commission, are in due and proper
form; the Shares, including the Firm Shares to be sold by the Selling
Shareholders and the Option Shares, if any, to be sold by the Company and the
Selling Shareholders pursuant to this Agreement have been duly authorized and
will be validly issued, fully paid and non-assessable when issued and paid for
as contemplated by this Agreement; and no preemptive rights of stockholders
exist under statute or under agreements known to such counsel with respect to
any of the Shares or the issue or sale thereof.
(iii) Except as described in or contemplated by the Prospectus, to the
knowledge of such counsel, there are no outstanding securities of the Company
convertible or exchangeable into or evidencing the right to purchase or
subscribe for any shares of capital stock of the Company and there are no
outstanding or authorized options, warrants or rights of any character
obligating the Company to issue any shares of its capital stock or any
securities convertible or exchangeable into or evidencing the right to purchase
or subscribe for any shares of such stock; and except as described in the
Prospectus, to the knowledge of such counsel, no holder of any securities of the
Company or any other person has the right, contractual or otherwise, which has
not been satisfied or effectively waived, to cause the Company to sell or
otherwise issue to them, or to permit them to underwrite the sale of, any of the
Shares or the right to have any shares of Common Stock or other securities of
the Company included in the Registration Statement or the right, as a result of
the filing of the Registration Statement, to require registration under the Act
of any shares of Common Stock or other securities of the Company.
(iv) The Registration Statement has become effective under the Act and,
to the best of the knowledge of such counsel, no stop order proceedings with
respect thereto have been instituted or are pending or threatened under the Act.
(v) The Registration Statement, the Prospectus and each amendment or
supplement thereto comply as to form in all material respects with the
requirements of the Act and the applicable rules and regulations thereunder
(except that such counsel need express no opinion as to the financial
statements, notes thereto and related schedules and other financial and
statistical information included therein or any information furnished by the
Underwriters for use therein).
(vi) The statements under the captions "Certain Transactions,"
"Description of Capital Stock" and "Shares Eligible for Future Sale" in the
Prospectus, insofar as such statements constitute a summary of documents
referred to therein or matters of law, are accurate summaries and fairly present
in all material respects the information called for with respect to such
documents and
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matters.
(vii) Such counsel does not know of any contracts or documents required to
be filed as exhibits to the Registration Statement or described in the
Registration Statement or the Prospectus which are not so filed or described as
required, and the descriptions of such contracts and documents required to be
described in the Registration Statement or the Prospectus are correct in all
material respects.
(viii) Such counsel knows of no material legal or governmental proceedings
pending or threatened against the Company or any of the Subsidiaries except as
set forth in the Prospectus.
(ix) The execution and delivery of this Agreement and the consummation of
the transactions herein contemplated do not and will not conflict with or result
in a breach of any of the terms or provisions of, or constitute a default under,
the Charter or By-Laws of the Company, or, in any respect material to the
Company or any Subsidiary or the transactions contemplated hereby, any agreement
or instrument known to such counsel to which the Company or any of the
Subsidiaries is a party or by which the Company or any of the Subsidiaries may
be bound.
(x) This Agreement has been duly authorized, executed and delivered by
the Company, except that such counsel need express no opinion as to the
enforceability of the obligations of the Company for indemnity or contribution.
(xi) No approval, consent, order, authorization, designation, declaration
or filing by or with any regulatory, administrative or other governmental body
is necessary in connection with the execution and delivery of this Agreement and
the consummation of the transactions herein contemplated (other than as may be
required by the NASD or as required by State securities and Blue Sky laws as to
which such counsel need express no opinion), except such as have been obtained
or made, specifying the same.
(xii) The Company is not, and will not become, as a result of the
consummation of the transactions contemplated by this Agreement, and application
of the net proceeds therefrom as described in the Prospectus, required to
register as an investment company under the 1940 Act.
(xiii) This Agreement has been duly authorized, executed and delivered on
behalf of the Selling Shareholders.
(xiv) Each Selling Shareholder has full legal right, power and authority,
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and any approval required by law (other than as required by State
securities and Blue Sky laws as to which such counsel need express no
opinion), to sell assign, transfer and deliver the portion of the Shares to
be sold by such Selling Shareholder.
(xv) The Custodian Agreement executed and delivered by each Selling
Shareholder is a valid, irrevocable instrument legally sufficient for the
purposes intended.
(xvi) The Underwriters (assuming that they are bona fide purchasers
within the meaning of the Uniform Commercial Code) have acquired good and
marketable title to the Shares being sold by each Selling Shareholder on
the Closing Date or the Option Closing Date, as the case may be, free and
clear of all claims, liens, encumbrances and security interests whatsoever.
In rendering such opinion, Morgan, Lewis & Bockius LLP may rely on counsel
to one or more of the Selling Shareholders, and may provide that its opinion is
limited to matters governed by the laws of New Jersey, Pennsylvania and the
Federal securities laws of the United States. In addition to the matters set
forth above, such opinion shall also include a statement of belief to the effect
that nothing has come to the attention of such counsel which leads them to
believe that (i) the Registration Statement, at the time it became effective
under the Act (but after giving effect to any modifications incorporated therein
pursuant to Rule 430A under the Act) and as of the Closing Date or the Option
Closing Date, as the case may be, contained an untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, and (ii) the
Prospectus, or any supplement thereto, on the date it was filed pursuant to the
Rules and Regulations and as of the Closing Date or the Option Closing Date, as
the case may be, contained an untrue statement of a material fact or omitted to
state a material fact necessary in order to make the statements, in the light of
the circumstances under which they are made, not misleading (except that such
counsel need express no view as to financial statements, schedules or other
financial and statistical information therein). With respect to such statement
of belief, Morgan, Lewis & Bockius LLP may state that their belief is based upon
the procedures set forth therein, but is without independent check and
verification.
(c) The Representatives shall have received from Piper & Marbury l.l.p.,
counsel for the Underwriters, an opinion dated the Closing Date or the Option
Closing Date, as the case may be, substantially to the effect specified in
subparagraphs (ii), (iii), (iv) and (ix) of Paragraph (b) of this Section 6, and
that the Company is a duly organized and validly existing corporation under the
laws of the State of New Jersey. In rendering such opinion, Piper & Marbury
l.l.p. may rely as to the matters relating to the laws of the State of New
Jersey and the Commonwealth of Pennsylvania on the opinion of counsel referred
to in Paragraph (b) of this Section 6. In addition to the matters set forth
above,
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<PAGE>
such opinion shall also include a statement to the effect that nothing has come
to the attention of such counsel which leads them to believe that (i) the
Registration Statement, or any amendment thereto, as of the time it became
effective under the Act (but after giving effect to any modifications
incorporated therein pursuant to Rule 430A under the Act) as of the Closing Date
or the Option Closing Date, as the case may be, contained an untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, and (ii) the
Prospectus, or any supplement thereto, on the date it was filed pursuant to the
Rules and Regulations and as of the Closing Date or the Option Closing Date, as
the case may be, contained an untrue statement of a material fact or omitted to
state a material fact, necessary in order to make the statements, in the light
of the circumstances under which they are made, not misleading (except that such
counsel need express no view as to financial statements, schedules and
statistical information therein). With respect to such statement, Piper &
Marbury l.l.p. may state that their belief is based upon the procedures set
forth therein, but is without independent check and verification.
(d) The Representatives shall have received at or prior to the Closing
Date from Piper & Marbury l.l.p. a memorandum or summary, in form and substance
satisfactory to the Representatives, with respect to the qualification for
offering and sale by the Underwriters of the Shares under the State securities
or Blue Sky laws of such jurisdictions as the Representatives may reasonably
have designated to the Company.
(e) The Representatives shall have received, on each of the dates hereof,
the Closing Date and the Option Closing Date, as the case may be, letters dated
the date hereof, the Closing Date or the Option Closing Date, as the case may
be, in form and substance satisfactory to you, of Deloitte & Touche L.L.P.,
Fishbein & Co., P.C., Mutnick & Associates, P.A., [the accountants for Sun
Valley], Charles W. Mueller, C.P.A., a Professional Corporation, [the
accountants for Mile High], and W. Scott Huzek, CPA, P.C., confirming that they
are independent public accountants within the meaning of the Act and the
applicable published Rules and Regulations thereunder and stating that in their
opinion the financial statements and schedules examined by them and included in
the Registration Statement comply in form in all material respects with the
applicable accounting requirements of the Act and the related published Rules
and Regulations; and containing such other statements and information as is
ordinarily included in accountants' "comfort letters" to Underwriters with
respect to the financial statements and certain financial and statistical
information contained in the Registration Statement and Prospectus.
(f) The Representatives shall have received on the Closing Date or the
Option Closing Date, as the case may be, a certificate or certificates of the
Chief Executive Officer and the Chief Financial Officer of the Company to the
effect that, as of the Closing Date or the Option Closing Date, as the case may
be, each of them severally represents as follows:
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(i) The Registration Statement has become effective under the Act
and no stop order suspending the effectiveness of the Registration
Statement has been issued, and no proceedings for such purpose have been
taken or are, to his knowledge, contemplated by the Commission;
(ii) The representations and warranties of the Company contained in
Section 1 hereof are true and correct in all material respects as of the
Closing Date or the Option Closing Date, as the case may be;
(iii) All filings required to have been made pursuant to Rules 424 or
430A under the Act have been made;
(iv) He has carefully examined the Registration Statement and the
Prospectus and, in his opinion, as of the effective date of the
Registration Statement, the statements contained in the Registration
Statement were true and correct in all material respects, and such
Registration Statement and Prospectus did not omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein not misleading, and since the effective date of the Registration
Statement, no event has occurred which should have been set forth in a
supplement to or an amendment of the Prospectus which has not been so set
forth in such supplement or amendment; and
(v) Since the respective dates as of which information is given in
the Registration Statement and Prospectus, there has not been any material
adverse change or any development involving a prospective material adverse
change in or affecting the condition, financial or otherwise, of the
Company and its Subsidiaries taken as a whole or the earnings, business,
management, properties, assets, rights, operations, condition (financial or
otherwise) or prospects of the Company and the Subsidiaries taken as a
whole, whether or not arising in the ordinary course of business, except as
set forth in, or contemplated by, the Prospectus or as described in such
certificate.
(g) The Company and the Selling Shareholders shall have furnished to the
Representatives such further certificates and documents confirming the
representations and warranties, covenants and conditions contained herein and
related matters as the Representatives may reasonably have requested.
(h) The Firm Shares and Option Shares, if any, shall have been approved
for designation upon notice of issuance on The Nasdaq Stock Market (National
Market).
(i) The Lockup Agreements described in Section 4(j) shall be in full force
and effect.
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The opinions and certificates mentioned in this Agreement shall be deemed
to be in compliance with the provisions hereof only if they are in all material
respects satisfactory to the Representatives and to Piper & Marbury l.l.p.,
counsel for the Underwriters.
If any of the conditions hereinabove provided for in this Section 6 shall
not have been fulfilled when and as required by this Agreement to be fulfilled,
the obligations of the Underwriters hereunder may be terminated by the
Representatives by notifying the Company and the Selling Shareholders of such
termination in writing or by telegram at or prior to the Closing Date or the
Option Closing Date, as the case may be. In such event, the Company, the Selling
Shareholders and the Underwriters shall not be under any obligation to each
other (except to the extent provided in Sections 5 and 8 hereof).
7. CONDITIONS OF THE OBLIGATIONS OF THE SELLERS.
--------------------------------------------
The obligations of the Company and the Selling Shareholders to sell and
deliver the portion of the Shares required to be delivered as and when specified
in this Agreement are subject to the condition that at the Closing Date or the
Option Closing Date, as the case may be, no stop order suspending the
effectiveness of the Registration Statement shall have been issued and in effect
or proceedings therefor initiated or threatened.
8. INDEMNIFICATION.
---------------
(a) The Company and the Selling Shareholders, jointly and severally,
agree to indemnify and hold harmless each Underwriter and each person, if
any, who controls any Underwriter within the meaning of the Act, against
any losses, claims, damages or liabilities to which such Underwriter or any
such controlling person may become subject under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise out of or are based upon (i) any
untrue statement or alleged untrue statement of any material fact contained
in the Registration Statement, any Preliminary Prospectus, the Prospectus
or any amendment or supplement thereto, or (ii) 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; and will reimburse
each Underwriter and each such controlling person upon demand for any legal
or other expenses reasonably incurred by such Underwriter or such
controlling person in connection with investigating or defending any such
loss, claim, damage or liability, action or proceeding or in responding to
a subpoena or governmental inquiry related to the offering of the Shares,
whether or not such Underwriter or controlling person is a party to any
action or proceeding; provided, however, that the Company and the Selling
Shareholders will not be liable in any such case to the extent that any
such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement, or omission or alleged
omission made in the Registration Statement, any Preliminary Prospectus,
the Prospectus, or such amendment or supplement, in reliance
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upon and in conformity with written information furnished to the Company by or
through the Representatives specifically for use in the preparation thereof. In
no event, however, shall the liability of any Selling Shareholder for
indemnification under this Section 8(a) exceed the lesser of (i) that proportion
of the total of such losses, claims, damages or liabilities indemnified against
equal to the proportion to the total Shares sold hereunder which is being sold
by such Selling Shareholder, or (ii) the proceeds received by such Selling
Shareholder from the Underwritiers in the offering. This indemnity agreement
will be in addition to any liability which the Company or the Selling
Shareholders may otherwise have.
(b) Each Underwriter severally and not jointly will indemnify and hold
harmless the Company, each of its directors, each of its officers who have
signed the Registration Statement, each of the Selling Shareholders and each
person, if any, who controls the Company or the Selling Shareholders within the
meaning of the Act against any losses, claims, damages or liabilities to which
the Company or any such director, officer, Selling Shareholder or controlling
person may become subject under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement, any
Preliminary Prospectus, the Prospectus or any amendment or supplement thereto,
or (ii) the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances under which they were made; and
will reimburse any legal or other expenses reasonably incurred by the Company or
any such director, officer, Selling Shareholder or controlling person in
connection with investigating or defending any such loss, claim, damage,
liability, action or proceeding; provided, however, that each Underwriter will
be liable in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission has been
made in the Registration Statement, any Preliminary Prospectus, the Prospectus
or such amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by or through the Representatives
specifically for use in the preparation thereof. This indemnity agreement will
be in addition to any liability which such Underwriter may otherwise have.
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to this Section 8, such person (the "indemnified party") shall
promptly notify the person against whom such indemnity may be sought (the
"indemnifying party") in writing. No indemnification provided for in Section
8(a) or (b) shall be available to any party who shall fail to give notice as
provided in this Section 8(c) if the party to whom notice was not given was
unaware of the proceeding to which such notice would have related and was
materially prejudiced by the failure to give such notice, but the failure to
give such notice shall not relieve the indemnifying party or parties from any
liability which it or
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they may have to the indemnified party for contribution or otherwise than on
account of the provisions of Section 8(a) or (b). In case any such proceeding
shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party and shall pay as
incurred the fees and disbursements of such counsel related to such proceeding.
In any such proceeding, any indemnified party shall have the right to retain its
own counsel at its own expense. Notwithstanding the foregoing, the indemnifying
party shall pay as incurred (or within 30 days of presentation) the fees and
expenses of the counsel retained by the indemnified party in the event (i) the
indemnifying party and the indemnified party shall have mutually agreed to the
retention of such counsel, (ii) the named parties to any such proceeding
(including any impleaded parties) include both the indemnifying party and the
indemnified party and representation of both parties by the same counsel would
be inappropriate due to actual or potential differing interests between them or
(iii) the indemnifying party shall have failed to assume the defense and employ
counsel acceptable to the indemnified party within a reasonable period of time
after notice of commencement of the action. It is understood that the
indemnifying party shall not, in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the reasonable fees and
expenses of more than one separate firm for all such indemnified parties. Such
firm shall be designated in writing by you in the case of parties indemnified
pursuant to Section 8(a) and by the Company in the case of parties indemnified
pursuant to Section 8(b). The indemnifying party shall not be liable for any
settlement of any proceeding effected without its written consent but if settled
with such consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party from and against
any loss or liability by reason of such settlement or judgment. In addition,
the indemnifying party will not, without the prior written consent of the
indemnified party, settle or compromise or consent to the entry of any judgment
in any pending or threatened claim, action or proceeding of which
indemnification may be sought hereunder (whether or not any indemnified party is
an actual or potential party to such claim, action or proceeding) unless such
settlement, compromise or consent includes an unconditional release of each
indemnified party from all liability arising out of such claim, action or
proceeding.
(d) If the indemnification provided for in this Section 8 is unavailable
to or insufficient to hold harmless an indemnified party under Section 8(a) or
(b) above (other than by reason of the exceptions provided in such paragraphs)
in respect of any losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) referred to therein, then each indemnifying
party shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) in such proportion as is appropriate to reflect
the relative benefits received by the Company and the Selling Shareholders on
the one hand and the Underwriters on the other from the offering of the Shares.
If, however, the
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allocation provided by the immediately preceding sentence is not permitted by
applicable law then each indemnifying party shall contribute to such amount paid
or payable by such indemnified party in such proportion as is appropriate to
reflect not only such relative benefits but also the relative fault of the
Company and the Selling Shareholders on the one hand and the Underwriters on the
other in connection with the statements, omissions or breaches of
representations and warranties which resulted in such losses, claims, damages or
liabilities, (or actions or proceedings in respect thereof), as well as any
other relevant equitable considerations. The relative benefits received by the
Company and the Selling Shareholders on the one hand and the Underwriters on the
other shall be deemed to be in the same proportion as the total net proceeds
from the offering (before deducting expenses) received by the Company bears to
the total underwriting discounts and commissions received by the Underwriters,
in each case as set forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company and the Selling Shareholders on the one hand or the Underwriters on the
other and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The Company, the Selling Shareholders, and the Underwriters agree that it
would not be just and equitable if contributions pursuant to this Section 8(d)
were determined by pro rata allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above in this Section
8(d). The amount paid or payable by an indemnified party as a result of the
losses, claims, damages or liabilities (or actions or proceedings in respect
thereof) referred to above in this Section 8(d) shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection (d), (i) no Underwriter shall
be required to contribute any amount in excess of the underwriting discounts and
commissions applicable to the Shares purchased by such Underwriter, and (ii) no
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation, and (iii) no Selling Shareholder
shall be required to contribute any amount in excess of the lesser of (A) that
proportion of the total of such losses, claims, damages or liabilities
indemnified or contributed against equal to the proportion of the total Shares
sold hereunder which is being sold by such Selling Shareholder, or (B) the
proceeds received by such Selling Shareholder form the Underwriters in the
offering. The Underwriters' obligations in this Section 8(d) to contribute are
several in proportion to their respective underwriting obligations and not
joint.
(e) In any proceeding relating to the Registration Statement, any
Preliminary Prospectus, the Prospectus or any supplement or amendment thereto,
each party against
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whom contribution may be sought under this Section 8 hereby consents to the
jurisdiction of any court having jurisdiction over any other contributing
party, agrees that process issuing from such court may be served upon him
or it by any other contributing party and consents to the service of such
process and agrees that any other contributing party may join him or it as
an additional defendant in any such proceeding in which such other
contributing party is a party.
(f) Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 8 shall be paid by the indemnifying party to the indemnified party
as such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 8 and the
representations and warranties of the Company and the Selling Shareholders
set forth in this Agreement shall remain operative and in full force and
effect, regardless of (i) any investigation made by or on behalf of any
Underwriter or any person controlling any Underwriter, the Company, its
directors or officers, any persons controlling the Company or any Selling
Shareholder, (ii) acceptance of any Shares and payment therefor hereunder,
and (iii) any termination of this Agreement. A successor to any
Underwriter, or to the Company, its directors or officers, any Selling
Shareholder, any person controlling the Company or any Selling Shareholder
shall be entitled to the benefits of the indemnity, contribution and
reimbursement agreements contained in this Section 8.
9. DEFAULT BY UNDERWRITERS.
-----------------------
If on the Closing Date or the Option Closing Date, as the case may be, any
Underwriter shall fail to purchase and pay for the portion of the Shares which
such Underwriter has agreed to purchase and pay for on such date (otherwise than
by reason of any default on the part of the Company or a Selling Shareholder),
you, as Representatives of the Underwriters, shall use your reasonable efforts
to procure within 36 hours thereafter one or more of the other Underwriters, or
any others, to purchase from the Company and the Selling Shareholders such
amounts as may be agreed upon and upon the terms set forth herein, the Firm
Shares or Option Shares, as the case may be, which the defaulting Underwriter or
Underwriters failed to purchase. If during such 36 hours you, as such
Representatives, shall not have procured such other Underwriters, or any others,
to purchase the Firm Shares or Option Shares, as the case may be, agreed to be
purchased by the defaulting Underwriter or Underwriters, then (a) if the
aggregate number of shares with respect to which such default shall occur does
not exceed 10% of the Firm Shares or Option Shares, as the case may be, covered
hereby, the other Underwriters shall be obligated, severally, in proportion to
the respective numbers of Firm Shares or Option Shares, as the case may be,
which they are obligated to purchase hereunder, to purchase the Firm Shares or
Option Shares, as the case may be, which such defaulting Underwriter or
Underwriters failed to purchase, or (b) if the aggregate number of shares of
Firm Shares or Option Shares, as the case may be, with respect to which such
default shall occur exceeds 10% of the Firm Shares or Option Shares, as the case
may be, covered hereby, the Company or you as the Representatives of the
Underwriters will
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have the right, by written notice given within the next 36-hour period to the
parties to this Agreement, to terminate this Agreement without liability on the
part of the non-defaulting Underwriters or of the Company or of the Selling
Shareholders except to the extent provided in Section 8 hereof. In the event of
a default by any Underwriter or Underwriters, as set forth in this Section 9,
the Closing Date or Option Closing Date, as the case may be, may be postponed
for such period, not exceeding seven days, as you, as Representatives, may
determine in order that the required changes in the Registration Statement or in
the Prospectus or in any other documents or arrangements may be effected. The
term "Underwriter" includes any person substituted for a defaulting Underwriter.
Any action taken under this Section 9 shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
10. NOTICES.
-------
All communications hereunder shall be in writing and, except as otherwise
provided herein, will be mailed, delivered, telecopied or telegraphed and
confirmed as follows: if to the Underwriters, to Alex. Brown & Sons
Incorporated, 135 East Baltimore Street, Baltimore, Maryland 21202, Attention:
Phillip A. Clough, with a copy to Alex. Brown & Sons Incorporated, 135 East
Baltimore Street, Baltimore, Maryland 21202 Attention: General Counsel; if to
the Company, to Wilmar Industries, Inc., 303 Harper Drive, Moorestown, New
Jersey 08057, Attention: William S. Green, Chairman, President and Chief
Executive Officer; and if to the Selling Shareholders, to [William S. Green, 303
Harper Drive, Moorestown, New Jersey 08057 and to] Summit Partners SD, L.P., One
Boston Place, Boston, Massachusetts 02108, Attention: Ernest K. Jacquet.
11. TERMINATION.
-----------
This Agreement may be terminated by you by notice to the Company and the
Selling Shareholders as follows:
(a) at any time prior to the earlier of (i) the time the Shares are
released by you for sale by notice to the Underwriters, or (ii) 11:30 a.m.
on the first business day following the date of this Agreement;
(b) at any time prior to the Closing Date if any of the following has
occurred: (i) since the respective dates as of which information is given
in the Registration Statement and the Prospectus, any material adverse
change or any development involving a prospective material adverse change
in or affecting the condition, financial or otherwise, of the Company and
its Subsidiaries taken as a whole or the earnings, business, management,
properties, assets, rights, operations, condition (financial or otherwise)
or prospects of the Company and its Subsidiaries taken as a whole, whether
or not arising in the ordinary course of business, (ii) any outbreak or
escalation of hostilities or declaration of war or national emergency or
other national or international calamity or crisis or change in economic or
political conditions if the effect of such outbreak, escalation,
declaration, emergency, calamity, crisis or
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change on the financial markets of the United States would, in your
reasonable judgment, make it impracticable to market the Shares or to
enforce contracts for the sale of the Shares, (iii) suspension of trading
in securities generally on the New York Stock Exchange or the American
Stock Exchange or limitation on prices (other than limitations on hours or
numbers of days of trading) for securities on either such Exchange, (iv)
the enactment, publication, decree or other promulgation of any statute,
regulation, rule or order of any court or other governmental authority
which in your opinion materially and adversely affects or may materially
and adversely affect the business or operations of the Company, (v)
declaration of a banking moratorium by United States or New York State
authorities, (vi) the suspension of trading of the Company's Common Stock
by the Commission on the Nasdaq Stock Market, or (vii) the taking of any
action by any governmental body or agency in respect of its monetary or
fiscal affairs which in your reasonable opinion has a material adverse
effect on the securities markets in the United States; or
(c) as provided in Sections 6 and 9 of this Agreement.
12. SUCCESSORS.
----------
This Agreement has been and is made solely for the benefit of the
Underwriters, the Company and the Selling Shareholders and their respective
successors, executors, administrators, heirs and assigns, and the officers,
directors and controlling persons referred to herein, and no other person will
have any right or obligation hereunder. No purchaser of any of the Shares from
any Underwriter shall be deemed a successor or assign merely because of such
purchase.
13. INFORMATION PROVIDED BY UNDERWRITERS.
------------------------------------
The Company, the Selling Shareholders and the Underwriters acknowledge and
agree that the only information furnished or to be furnished by any Underwriter
to the Company for inclusion in any Prospectus or the Registration Statement
consists of the information set forth in the last paragraph on the front cover
page (insofar as such information relates to the Underwriters), legends required
by Item 502(d) of Regulation S-K under the Act and the information under the
caption "Underwriting" in the Prospectus.
14. MISCELLANEOUS.
-------------
The reimbursement, indemnity and contribution agreements contained in this
Agreement and the representations and warranties of the Company and the Selling
Shareholders set forth in this Agreement shall remain operative and in full
force and effect, regardless of (i) any investigation made by or on behalf of
any Underwriter or any person controlling any Underwriter, the Company, its
directors or officers, the Selling Shareholders or any persons controlling the
Company or any Selling Shareholder, (ii) acceptance of any Shares and payment
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therefor hereunder, and (iii) any termination of this Agreement.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of Maryland.
-28-
<PAGE>
If the foregoing letter is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company, the Selling
Shareholders, and the several Underwriters in accordance with its terms.
Very truly yours
WILMAR INDUSTRIES, INC.
By_______________________________________________
William S. Green,
Chairman, President and Chief Executive Officer
SELLING SHAREHOLDERS:
By_______________________________________________
William S. Green, [for himself
and] as Attorney-in-Fact
The foregoing Underwriting Agreement
is hereby confirmed and accepted as
of the date first above written.
ALEX. BROWN & SONS INCORPORATED
WILLIAM BLAIR & COMPANY L.L.C.
ROBERTSON, STEPHENS & COMPANY LLC
PAINEWEBBER INCORPORATED
As Representatives of the several
Underwriters listed on Schedule I
.
By: Alex. Brown & Sons Incorporated
By__________________________________
Authorized Officer
-29-
<PAGE>
SCHEDULE I
Schedule of Underwriters
Number of Firm Shares
Underwriter to be Purchased
----------- ---------------
Alex. Brown & Sons Incorporated...........................................______
William Blair & Company L.L.C.............................................______
Robertson Stephens & Company LLC..........................................______
PaineWebber Incorporated..................................................______
Total...............................................................______
-30-
<PAGE>
SCHEDULE II
SCHEDULE OF SELLING SHAREHOLDERS
Schedule of Selling Shareholders
Number of Firm Shares
Selling Shareholder to be Sold
- ------------------- ----------------
_______________
Total
-31-
<PAGE>
SCHEDULE III
Schedule of Option Shares
Number of Option Shares
Name of Seller to be Sold Percentage
-------------- ----------------------- ----------
Wilmar Industries, Inc. %
%
%
%
%
%
%
%
%
______________ _______
Total ______________ 100 %
-----
-32-
<PAGE>
Morgan, Lewis & Bockius LLP
COUNSELORS AT LAW
July 9, 1996
Wilmar Industries, Inc.
303 Harper Drive
Moorestown, NJ 08057
Re: Registration Statement on Form S-1
----------------------------------
Ladies and Gentlemen:
We have acted as counsel to Wilmar Industries, Inc., a New Jersey corporation
(the "Company"), in connection with the preparation of the subject registration
statement on Form S-1 (the "Registration Statement") filed with the Securities
and Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Act"), relating to the registration by the Company of up to
4,335,500 shares (the "Shares") of Common Stock, no par value, of the Company
(the "Common Stock"), which includes 565,500 shares purchasable by the
underwriters, solely for the purpose of covering overallotments, if any.
In connection with this opinion, we have examined the Registration Statement and
the Exhibits thereto, the draft of the Underwriting Agreement, the Company's
Certificate of Incorporation and Bylaws, and certain of the Company's corporate
proceedings as reflected in its minute books. In our examination, we have
assumed the genuineness of all signatures, the authenticity of all documents
submitted to us as originals, and the conformity with the originals of all
documents submitted to us as copies thereof. In addition, we have made such
other examinations of law and fact as we have deemed relevant in order to form a
basis for the opinion hereinafter expressed.
In our opinion the Shares will be legally issued, fully paid and non-assessable
shares of Common Stock of the Company when and to the extent issued by the
Company in the manner contemplated in the Registration Statement.
We hereby consent to the use of this opinion as Exhibit 5 to the Registration
Statement and to all references to our firm in the Registration Statement. In
giving such consent, we do not thereby admit that we are acting within the
category of persons whose consent is required under Section 7 of the Act and the
rules and regulations of the Commission thereunder.
Very truly yours,
/s/ Morgan, Lewis & Bockius LLP
<PAGE>
EXHIBIT 11.1
Wilmar Industries, Inc.
Statement Regarding Computation of Net Income Per Share
<TABLE>
<CAPTION>
PRIMARY EARNINGS PER SHARE
<S> <C> <C>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 29, 1996 MARCH 31, 1995
-------------- --------------
Income Before Income Taxes (2) $1,625,612 $ 969,276
Provision for Income Taxes (2) 666,000 389,000
---------- ----------
Net Income 959,612 $ 580,276
========== ==========
Weighted Average Shares Outstanding 8,985,934 5,656,001
Common Stock Equivalents:
Preferred Stock 731,972 717,979
Items issued within one year of IPO: (1)
Common Stock 2,050,000
Stock Options 228,380 172,327
Total Weighted Average Shares Outstanding 9,946,286 8,596,307
========== ==========
Net Income Per Share (2) $.10 $.07
========== ==========
</TABLE>
(1) Common stock issued and stock options granted at prices lower than the
assumed initial public offering price within a one year period prior to an
initial public offering are included in the calculation (using the treasury
stock method and the assumed initial public offering price) as if they were
outstanding for all periods presented (see Notes 2 and 4).
(2) The provision for income taxes, net income, and net income per share
amounts reflected for the period ended March 31, 1995 represent pro forma
amounts as if the Company had been subject to federal and state income taxation
as a C Corporation since inception.
FULLY DILUTED EARNINGS PER SHARE
Fully diluted earnings per share differs from primary earnings per share by less
than 3%.
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
SUBSIDIARY STATE OF INCORPORATION
---------- ----------------------
<S> <C>
One Source Supply, Inc. Florida
HMA Enterprises, Inc.
d/b/a Gulf Coast Supply and the Supply Depot Texas
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE
We consent to the use in this Registration Statement on Form S-1 of Wilmar
Industries, Inc., of our report date March 5, 1996, appearing in the Prospectus,
which is part of this Registration Statement, and to the reference to us under
the heading "Experts" in such Prospectus.
Our audits of the financial statements referred to in our aforementioned report
also included the financial statement schedule for the fiscal years ended
December 29, 1995 and December 30, 1994 of the Wilmar Industries Inc. listed in
Item 16(b). This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, such financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
July 9 1996
23.1
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Wilmar Industries, Inc.
on Form S-1 of our report on the financial statements of One Source Supply, Inc.
for the nine month period ending September 30, 1995, dated November 17, 1995,
appearing in the Prospectus, which is part of this Registration Statement, and
to the reference to us under the heading "Experts" in such Prospectus.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Miami, Florida
July 9, 1996
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement on Form S-1 of Wilmar
Industries, Inc., of our report on the financial statements of HMA Enterprises,
Inc. and Subsidiaries, for the year ended February 29, 1996, dated May 30, 1996,
appearing in the Prospectus, which is part of this Registration Statement, and
to the reference to us under the heading "Experts" in such Prospectus.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Houston, Texas
July 9, 1996
23.3
<PAGE>
INDEPENDENT AUDITOR'S CONSENT AND REPORT ON SCHEDULE
We hereby consent to the use in this Registration Statement of Wilmar
Industries, Inc. of our report dated October 30, 1995, accompanying the
financial statements of Wilmar Industries, Inc. contained in such Registration
Statement, and to the use of our name, and the statement with respect to us, as
appearing under the heading "Experts" in the Prospectus.
Our audit of the financial statements referred to in our aforementioned report
also included the financial statement schedule of Wilmar Industries, Inc. listed
in Item 16(b). This financial statement schedule is the responsibility of the
company's management. Our responsibility is to express an opinion based on our
audit. In our opinion, such financial statements taken as a whole, present
fairly in all material respects the information set forth therein.
/s/ Fishbein & Company, P.C.
Fishbein & Company, P.C.
Elkins Park, PA
July 9, 1996
23.4
<PAGE>
Mutnick & Associates, P.A. Dade (305) 945-7233
Mutnick & Associates, P.A. Broward (305) 432-4322
Mutnick & Associates, P.A. Fax (305) 432-5018
Certified Public Accountants
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion of this Form S-1 being filed under the Securities
Act of 1933 by Wilmar Industries, Inc. of our report dated May 2, 1995, relating
to our examination of the financial statements of One Source Supply, Inc. as of
December 31, 1994 and for the period then ended appearing in the Prospectus. We
also consent to the reference to our firm appearing under the caption "Experts"
in the Prospectus
/s/ Mutnick & Associates, P.A.
MUTNICK & ASSOCIATES, P.A.
Certified Public Accountants
Pembroke Pines, Florida
July 9, 1996
[ADDRESSES APPEAR HERE]
<PAGE>
The Board of Directors
HMA Enterprises, Inc.:
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Houston, Texas
July 8, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-29-1995
<PERIOD-END> MAR-29-1996
<CASH> 4,510,483
<SECURITIES> 1,765,035
<RECEIVABLES> 10,504,716
<ALLOWANCES> (300,000)
<INVENTORY> 12,978,101
<CURRENT-ASSETS> 30,454,861
<PP&E> 2,588,712
<DEPRECIATION> (1,203,548)
<TOTAL-ASSETS> 33,991,868
<CURRENT-LIABILITIES> 9,085,098
<BONDS> 0
0
0
<COMMON> 51,289,412
<OTHER-SE> (26,382,642)
<TOTAL-LIABILITY-AND-EQUITY> 24,906,770
<SALES> 19,308,559
<TOTAL-REVENUES> 19,308,559
<CGS> 13,372,953
<TOTAL-COSTS> 4,229,290
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 65,951
<INTEREST-EXPENSE> 80,704
<INCOME-PRETAX> 1,625,612
<INCOME-TAX> 666,000
<INCOME-CONTINUING> 959,612
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 959,612
<EPS-PRIMARY> 0
<EPS-DILUTED> 0.10
</TABLE>
