<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13E-3
Amendment No. 1
Rule 13e-3 Transaction Statement
(Pursuant to Section 13(e) of the
Securities Exchange Act of 1934)
WILMAR INDUSTRIES, INC.
-----------------------
(Name of the Issuer)
WM Acquisition, Inc.
Parthenon Investors, L.P.
Parthenon Investment Advisors, L.L.C.
Parthenon Investment Partners, L.L.C.
John C. Rutherford
Ernest K. Jacquet
William Green
---------------------------------------------
(Name of Persons Filing Statement)
Common Stock, no par value
--------------------------
(Title of Class of Securities)
971426101
---------
(CUSIP Number of Class of Securities)
James M. Dubin, Esq.
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
(212) 373-3000
- --------------------------------------------------------------------------------
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications
on Behalf of Persons Filing Statement)
This statement is filed in connection with (check the appropriate box):
a. [x] The filing of solicitation materials or an information statement
subject to Regulation 14A, Regulation 14C or Rule 13e-3(c) under the Securities
Exchange Act of 1934.
b. [ ] The filing of a registration statement under the Securities Act of
1933.
c. [ ] A tender offer.
d. [ ] None of the above.
Check the following box if the soliciting materials or information statement
referred to in checking box (a) are preliminary copies: [x]
<PAGE>
Calculation of filing fee:
================================================================================
Transaction Valuation* Amount of Filing Fee
- --------------------------------------------------------------------------------
$230,041,702 $46,008
================================================================================
* For purposes of calculating the filing fee only. This amount assumes the
purchase of 12,407,826 outstanding shares of Common Stock, no par value, of
Wilmar Industries, Inc. ("Common Stock"), less 164,384 shares held by a
member of Wilmar Industries, Inc.'s management, at $18.25 cash per share
and the product of 1,107,538 shares subject to options, 921,632 of which
are being cashed out, at $18.25 per share less the $11.09 per share
weighted average exercise price of the option shares being cashed out. The
amount of the filing fee, calculated in accordance with Regulation 240.0-11
under the Securities Exchange Act of 1934, equals 1/50 of one percentum of
the value of the securities to be purchased.
[X] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form
or Schedule and the date of its filing.
Amount Previously Paid: $46,008
Form or Registration No.: Schedule 14A
Filing Party: Wilmar Industries, Inc.
Date Filed: February 4, 2000
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SEC OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF THIS
TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN
THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL AND A CRIMINAL
OFFENSE.
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Introduction
------------
This Rule 13e-3 Transaction Statement (the "STATEMENT") relates to the
Agreement and Plan of Merger and Recapitalization dated as of December 22, 1999
(as amended, the "MERGER AGREEMENT") between Wilmar Industries, Inc., a New
Jersey corporation ("WILMAR," the "ISSUER" or the "COMPANY") and WM Acquisition,
Inc., a New Jersey corporation ("MERGERCO"). A copy of the Merger Agreement is
attached as Appendix A to the Proxy Statement filed by the Company (the "PROXY
STATEMENT").
The Merger Agreement provides, among other things, for the merger of
MergerCo into the Company (the "MERGER") with the Company continuing as the
surviving corporation (the "SURVIVING CORPORATION"). In the Merger, (a) each
outstanding share of common stock, no par value (the "COMMON STOCK"), of the
Company will be converted into the right to receive $18.25 in cash (except that
any shares held by MergerCo or held in the Company's treasury will be canceled);
(b) each outstanding share of Class C Preferred Stock, par value $.10 per share
(the "CLASS C PREFERRED STOCK"), of the Company will be converted into (i)
.5486558 shares of Common Stock and (ii) 1.7701344 shares of Cumulative Senior
Preferred Stock, par value $.01 per share (the "SENIOR PREFERRED STOCK"), of the
Company; (c) each outstanding share of common stock, no par value, of MergerCo
("MERGERCO COMMON STOCK") will be converted into one share of Common Stock; and
(d) each outstanding share of preferred stock, par value $0.01 per share (the
"MERGERCO PREFERRED STOCK"), of MergerCo will be converted into one share of
Senior Preferred Stock.
Prior to the Merger, William Green, Chairman and Chief Executive
Officer of the Company, will exchange 164,384 shares of Common Stock
(representing approximately 8% of the shares of Common Stock owned by him and
less than 1% of the outstanding Common Stock) for 164,384 shares of Class C
Preferred Stock pursuant to a Voting and Exchange Agreement, dated as of
December 22, 1999, between the Company and Mr. Green (the "EXCHANGE AGREEMENT").
In the Merger, all such shares of Class C Preferred Stock will be converted into
shares of Common Stock and Senior Preferred Stock as described above. In
addition, immediately after the Merger, Michael Grebe, William Sanford and
Michael Toomey, members of Wilmar's management prior to the Merger, will
purchase in the aggregate 65,341 shares of Common Stock and in the aggregate
83,466 shares of Senior Preferred Stock, and may elect, prior to the closing of
the Merger, to purchase an additional 116,533 shares of Senior Preferred Stock.
As a result of the Merger and these related transactions, following the Merger,
(x) Parthenon Investors, L.P., a Delaware limited partnership ("PARTHENON"), CB
Capital Investors, LLC, a Delaware limited liability company, and/or one or more
of its affiliates (collectively, "CHASE"), and The Chase Manhattan Bank, as
Trustee for First Plaza Group Trust, a pension trust managed by General Motors
Investment Management Corporation (the "FIRST PLAZA TRUST," and, together with
Parthenon, Chase and certain other institutional investors, the
3
<PAGE>
"INVESTORS "), will collectively own approximately 86.1% of the outstanding
Common Stock and approximately 97.2% of the Senior Preferred Stock, and (y)
Messrs. Green, Grebe, Sanford and Toomey (together, the "MANAGEMENT
SHAREHOLDERS") will collectively own approximately 13.9% of the outstanding
Common Stock and approximately 2.8% of the outstanding Senior Preferred Stock.
Parthenon is a private investment vehicle formed for the purpose of
investing in acquisition transactions. MergerCo was formed by Parthenon (a
major shareholder of MergerCo) to effect the Merger. Parthenon Investment
Advisors, L.L.C., a Delaware limited liability company ("Advisors"), is the
general partner of Parthenon, Parthenon Investment Partners, L.L.C., a Delaware
limited liability company ("Partners"), is the managing member of Advisors, and
Messrs. Rutherford and Jacquet are each managing members of Partners. Parthenon,
Advisors, Partners and Mr. Rutherford are collectively referred to herein as the
"Parthenon Affilitates." Mr. Jacquet also serves on the Board of Directors of
Wilmar.
The information in the Proxy Statement relating to the Merger filed by
the Company with the Securities and Exchange Commission (the "COMMISSION"),
including all appendices thereto, is hereby expressly incorporated herein by
reference and the responses to each item of this Statement are qualified in
their entirety by the provisions of the Proxy Statement. The Proxy Statement
will be completed and, if appropriate, amended prior to the time it is first
sent or given to stockholders of the Company. This Statement will be amended to
reflect such completion or amendment of the Proxy Statement.
4
<PAGE>
SPECIAL FACTORS
Item 7. Purposes, Alternatives, Reasons and Effects in a Going-Private
- ------ --------------------------------------------------------------
Transaction.
-----------
(a) Purposes. The information set forth in the Sections "Special
--------
Factors--Background of the Merger and Recapitalization," "--Purposes and Reasons
for the Merger and Recapitalization; Recommendations of Wilmar's Board of
Directors and the Special Committee" and "--Opinion of Financial Advisor to the
Special Committee" of the Proxy Statement is incorporated herein by reference.
(b) Alternatives. The information set forth in the Sections "Special
------------
Factors--Background of the Merger and Recapitalization," "--Purposes and
Reasons for the Merger and Recapitalization; Recommendations of Wilmar's Board
of Directors and the Special Committee" and "--Opinion of Financial Advisor to
the Special Committee" of the Proxy Statement is incorporated herein by
reference.
(c) Reasons. The information set forth in the Sections "Special
-------
Factors--Background of the Merger and Recapitalization," "--Purposes and
Reasons for the Merger and Recapitalization; Recommendations of Wilmar's Board
of Directors and the Special Committee," "--Opinion of Financial Advisor to the
Special Committee" and "--Benefits and Detriments of the Merger to Wilmar and
Wilmar's Shareholders" of the Proxy Statement is incorporated herein by
reference.
(d) Effects. The information set forth in the Sections "Questions and
-------
Answers about the Merger and Recapitalization," "Special Factors--Continuing
Interests of the Investors and Management Shareholders in Wilmar," "--Benefits
and Detriments of the Merger to Wilmar and Wilmar's Shareholders," "--Benefits
and Detriments of the Merger to the Investors and the Management Shareholders,"
"Additional Considerations--Interests of Certain Persons in the Merger and
Recapitalization; Continued Ownership of Wilmar after the Merger," "--
Consequences of the Merger and Recapitalization," "--Material Federal Income Tax
Considerations" and "--Financing; Source of Funds" of the Proxy Statement is
incorporated herein by reference.
Item 8. Fairness of the Going-Private Transaction.
- ------ -----------------------------------------
(a) Fairness. The information set forth in the Section "Special
--------
Factors--Purposes and Reasons for the Merger and Recapitalization;
Recommendations of Wilmar's Board of Directors and the Special Committee" of the
Proxy Statement is incorporated herein by reference.
5
<PAGE>
(b) Factors Considered in Determining Fairness. The information set
------------------------------------------
forth in the Sections "Special Factors--Background of the Merger and
Recapitalization," "--Continuing Interests of the Investors and Management
Shareholders in Wilmar," "--Purposes and Reasons for the Merger and
Recapitalization; Recommendations of Wilmar's Board of Directors and the Special
Committee," "--Opinion of Financial Advisor to the Special Committee," and
"Certain Financial Projections" of the Proxy Statement is incorporated herein by
reference.
(c) Approval of Security Holders. No, the transaction is not
----------------------------
structured in such a way that approval of at least a majority of unaffiliated
security holders is required. The information set forth in the Section
"Information Concerning the Special Meeting" of the Proxy Statement is
incorporated herein by reference.
(d) Unaffiliated Representative. The information set forth in the
---------------------------
Section "Special Factors--Background of the Merger and Recapitalization" of the
Proxy Statement is incorporated herein by reference.
(e) Approval of Directors. The information set forth in the Sections
---------------------
"Special Factors--Background of the Merger and Recapitalization" and "--Purposes
and Reasons for the Merger and Recapitalization; Recommendations of Wilmar's
Board of Directors and the Special Committee" of the Proxy Statement is
incorporated herein by reference.
(f) Other Offers. The information set forth in the Sections "Special
------------
Factors--Background of the Merger and Recapitalization," "--Purposes and Reasons
for the Merger and Recapitalization; Recommendations of Wilmar's Board of
Directors and the Special Committee," and "--Opinion of Financial Advisor to the
Special Committee" of the Proxy Statement is incorporated herein by reference.
Item 9. Reports, Opinions, Appraisals and Negotiations.
- ------ ----------------------------------------------
(a) Report, Opinion or Appraisal. The information set forth in the
----------------------------
Sections "Special Factors--Background of the Merger and Recapitalization," "--
Opinion of Financial Advisor to the Special Committee," "Certain Financial
Projections" and "Appendix B--Fairness Opinion of William Blair & Company, LLC"
of the Proxy Statement is incorporated herein by reference.
(b) Preparer and Summary of the Report, Opinion or Appraisal. The
--------------------------------------------------------
information set forth in the Sections "Special Factors--Background of the Merger
and Recapitalization," "--Opinion of Financial Advisor to the Special
Committee," "Certain Financial Projections" and "Appendix B--Fairness Opinion of
William Blair & Company, LLC" of the Proxy Statement is incorporated herein by
reference.
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(c) Availability of Documents. Not applicable. The information set
-------------------------
forth in the Sections "Certain Financial Projections" and "Appendix B--Fairness
Opinion of William Blair & Company, LLC" of the Proxy Statement is incorporated
herein by reference.
7
<PAGE>
OTHER DISCLOSURE
Item 1. Summary Term Sheet.
- ------ ------------------
The information set forth in the Section "Summary Term Sheet" of the
Proxy Statement is incorporated herein by reference.
Item 2. Subject Company Information.
- ------ ---------------------------
(a) Name and Address. The name of the issuer is Wilmar Industries,
----------------
Inc., a New Jersey corporation, which has its principal executive offices at 303
Harper Drive, Moorestown, New Jersey 08057, telephone number (853) 439-1222.
The information set forth in the Section "Information Concerning the Special
Meeting--The Companies" of the Proxy Statement is incorporated herein by
reference.
(b) Securities. The class of equity securities that is the subject of
----------
the Rule 13e-3 transaction to which this Statement relates is common stock, no
par value, of the Company. As of February 3, 2000, there were approximately
12,243,442 shares of Common Stock issued and outstanding. The information set
forth in the Sections "Common Stock Market Price and Dividend Information" and
"Information Concerning the Special Meeting--Record Date and Voting" of the
Proxy Statement is incorporated herein by reference.
(c) Trading Market and Price. The information set forth in the
------------------------
Section "Common Stock Market Price and Dividend Information" is incorporated
herein by reference.
(d) Dividends. The information set forth in the Section "Common Stock
---------
Market Price and Dividend Information" is incorporated herein by reference.
(e) Prior Public Offerings. The Company has made no underwritten
----------------------
public offering of the Common Stock for cash during the past three years that
the Common Stock was registered under the Securities Act of 1933, as amended
(the "SECURITIES ACT"), or exempt from registration thereunder pursuant to
Regulation A thereunder.
(f) Prior Stock Purchases. The information set forth in the Section
---------------------
"Common Stock Purchase Information" of the Proxy Statement is incorporated
herein by reference.
8
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Item 3. Identity and Background of Filing Persons.
- ------ -----------------------------------------
(a) Name and Address. This Statement is being filed by WM
----------------
Acquisition, Inc., Parthenon Investors, L.P., Parthenon Investment Advisors,
L.L.C., Parthenon Investment Partners, L.L.C., John C. Rutherford, Ernest K.
Jacquet and William Green. With respect to MergerCo and the Parthenon Affiliates
other than John C. Rutherford, please refer to Schedule A.1. With respect to
William Green, John C. Rutherford and Ernest K. Jacquet, please refer to
Schedule A.2. Schedules A.1 and A.2 to this Statement also set forth certain
information as required by Instruction C regarding each executive officer and
director of MergerCo, each person controlling MergerCo and the Parthenon
Affiliates other than John C. Rutherford and each executive officer and director
of any corporation or other person ultimately in control of MergerCo and the
Parthenon Affiliates other than John C. Rutherford. The information set forth in
the Sections "Information Concerning the Special Meeting--Record Date and
Voting," "Current Management of Wilmar," and "Certain Information Concerning WM
Acquisition and its Affiliates" of the Proxy Statement is incorporated herein by
reference.
(b) Business and Background of Entities. With respect to MergerCo and
-----------------------------------
the Parthenon Affiliates other than John C. Rutherford, please refer
to Schedule A.1. With respect to entities under Instruction C, please
also refer to Schedule A.1. Neither MergerCo, the Parthenon
Affiliates other than John C. Rutherford, nor any of the entities
under Instruction C related to such filing persons, has been
convicted in a criminal proceeding (excluding traffic violations or
similar misdemeanors) or was a party to a civil proceeding of a
judicial or administrative body of competent jurisdiction and as a
result of such proceeding was subject to a judgment, decree or final
order enjoining future violations of, or prohibiting activities
subject to, federal or state securities laws or finding any violation
with respect to such laws during the last five years. The information
set forth in the Sections "Information Concerning the Special
Meeting--Record Date and Voting" and "Certain Information Concerning
WM Acquisition and its Affiliates" of the Proxy Statement is
incorporated herein by reference.
(c) Business and Background of Natural Persons. With respect to
------------------------------------------
William Green, John C. Rutherford and Ernest K. Jacquet, please refer
to Schedule A.2. With respect to natural persons under Instruction C,
please also refer to Schedule A.2. Neither Mr. Green, Mr. Rutherford,
Mr. Jacquet, nor any of the natural persons under Instruction C
related to MergerCo or the Parthenon Affiliates other than John C.
Rutherford, has been convicted in a criminal proceeding (excluding
traffic violations or similar misdemeanors) or was a party to a civil
proceeding of a judicial or administrative body of competent
jurisdiction and as a result of such proceeding was subject to a
judgment, decree or final order enjoining future violations of, or
prohibiting activities subject to, federal or state securities laws
or finding any violation with respect to such laws during the last
five years. The information set forth in the Sections "Information
Concerning the Special Meeting--Record Date and Voting," "Current
Management of Wilmar," and "Certain Information Concerning WM
Acquisition and its Affiliates" of the Proxy Statement is
incorporated herein by reference.
Item 4. Terms of the Transaction.
- ------ ------------------------
9
<PAGE>
(a) Material Terms. The information set forth in the Sections
--------------
"Summary Term Sheet," "Information Concerning the Special Meeting--Vote
Required," "Special Factors--Background of the Merger and Recapitalization," "--
Exchange of Shares by William Green," "--Continuing Interests of the Investors
and Management Shareholders in Wilmar," "--Purposes and Reasons for the Merger
and Recapitalization; Recommendations of Wilmar's Board of Directors and the
Special Committee," "--Opinion of Financial Advisor to the Special Committee,"
"--Benefits and Detriments of the Merger to Wilmar and Wilmar's Shareholders,"
"--Benefits and Detriments of the Merger to the Investors and the Management
Shareholders," "--Material Federal Income Tax Considerations," "--Accounting
Treatment" ,"--Financing; Source of Funds," and "The Merger Agreement" and "The
Voting and Exchange Agreement" of the Proxy Statement is incorporated herein by
reference.
(c) Different Terms. The information set forth in the Sections
---------------
"Special Factors--Exchange of Shares by William Green," "--Continuing Interests
of the Investors and Management Shareholders in Wilmar," "--Benefits and
Detriments of the Merger to Wilmar and Wilmar's Shareholders," "--Benefits and
Detriments of the Merger to the Investors and the Management Shareholders"
and "The Voting and Exchange Agreement" of the Proxy Statement is incorporated
herein by reference.
(d) Appraisal Rights. The information set forth in the Section
----------------
"Rights of Dissenting Shareholders" of the Proxy Statement is incorporated
herein by reference.
(e) Provisions for Unaffiliated Security Holders. None.
--------------------------------------------
(f) Eligibility for Listing or Trading. Not applicable.
----------------------------------
Item 5. Past Contacts, Transactions, Negotiations and Agreements.
- ------ --------------------------------------------------------
(a) Transactions. None.
------------
(b) Significant Corporate Events. The information set forth in the
----------------------------
Sections "Special Factors--Background of the Merger and Recapitalization,"
"--Exchange of Shares by William Green," "--Continuing Interests of the
Investors and Management Shareholders in Wilmar" and "The Voting and Exchange
Agreement" of the Proxy Statement is incorporated herein by reference.
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<PAGE>
(c) Negotiations or Contacts. The information set forth in the
------------------------
Sections "Special Factors--Background of the Merger and Recapitalization,"
"--Exchange of Shares by William Green," "--Continuing Interests of the
Investors and Management Shareholders in Wilmar" and "The Voting and Exchange
Agreement" of the Proxy Statement is incorporated herein by reference.
(e) Agreements Involving the Subject Company's Securities. The
-----------------------------------------------------
information set forth in the Sections "Special Factors--Background of the Merger
and Recapitalization," "--Exchange of Shares by William Green," "--Continuing
Interests of the Investors and Management Shareholders in Wilmar,"
"Additional Considerations--Interests of Certain Persons in the Merger and
Recapitalization; Continued Ownership of Wilmar after the Merger,"
"--Consequences of the Merger and Recapitalization," "--Financing; Source of
Funds," "The Merger Agreement" and "The Voting and Exchange Agreement" of
the Proxy Statement is incorporated herein by reference.
Item 6. Purposes of the Transaction and Plans or Proposals.
- ------ --------------------------------------------------
(b) Use of Securities Acquired. The information set forth in the
--------------------------
Section "Additional Considerations--Plans for Wilmar After the Merger" of the
Proxy Statement is incorporated herein by reference.
(c) Plans. The information set forth in the Sections "Additional
-----
Considerations--Plans for Wilmar After the Merger," "--Interests of Certain
Persons in the Merger and Recapitalization; Continued Ownership of Wilmar After
the Merger," "--Consequences of the Merger and Recapitalization" and "--
Financing; Source of Funds" of the Proxy Statement is incorporated herein by
reference.
Item 10. Source and Amount of Funds or Other Consideration.
- ------- -------------------------------------------------
(a) Source of Funds. The information set forth in the Sections
---------------
"Additional Considerations--Financing; Source of Funds," and "--Fees and
Expenses" of the Proxy Statement is incorporated herein by reference.
(b) Conditions. The information set forth in the Section "Additional
----------
Considerations--Financing; Source of Funds" of the Proxy Statement is
incorporated herein by reference.
11
<PAGE>
(c) Expenses. The information set forth in the Section "Additional
--------
Considerations--Fees and Expenses" of the Proxy Statement is incorporated herein
by reference.
(d) Borrowed Funds. The information set forth in the Sections
--------------
"Additional Considerations--Financing; Source of Funds" and "--Fees and
Expenses" of the Proxy Statement is incorporated herein by reference.
Item 11. Interest in Securities of the Subject Company.
- ------- ---------------------------------------------
(a) Securities Ownership. The information set forth in the Sections
--------------------
"Security Ownership of Certain Beneficial Owners and Management" and Common
Stock Purchase Information" of the Proxy Statement is incorporated herein by
reference. Also, the information set forth in the Schedule 13D filed with the
Commission by certain of the Investors, the entities listed on Schedule A-1
hereto, Ernest K. Jacquet and John C. Rutherford on December 22, 1999 and the
information set forth in Amendment No. 3 to Schedule 13D filed with the
Commission by William Green on December 22, 1999 is incorporated herein by
reference.
(b) Securities Transactions. The information set forth in the
-----------------------
Sections "Special Factors--Background of the Merger and Recapitalization,"
"--Exchange of Shares by William Green," "The Voting and Exchange Agreement,"
"Common Stock Market Price and Dividend Information" and "Common Stock Purchase
Information" of the Proxy Statement is incorporated herein by reference.
Item 12. The Solicitation or Recommendation.
- ------- ----------------------------------
(d) Intent to Tender or Vote in a Going-Private Transaction. The
-------------------------------------------------------
information set forth in the Sections "Questions and Answers about the Merger
and Recapitalization," "Information Concerning the Special Meeting," "Special
Factors--Background of the Merger and Recapitalization," "--Exchange of
Shares by William Green," "--Continuing Interests of the Investors and
Management Shareholders in Wilmar," "--Purposes and Reasons for the Merger and
Recapitalization; Recommendations of Wilmar's Board of Directors and the Special
Committee," "Additional Considerations--Interests of Certain Persons in the
Merger and Recapitalization; Continued Ownership of Wilmar after the Merger" and
"The Voting and Exchange Agreement" of the Proxy Statement is incorporated
herein by reference.
12
<PAGE>
(e) Recommendations of Others. The information set forth in the
-------------------------
Sections "Questions and Answers about the Merger and Recapitalization,"
"Information Concerning the Special Meeting," "Special Factors--Exchange of
Shares by William Green," "--Purposes and Reasons for the Merger and
Recapitalization; Recommendations of Wilmar's Board of Directors and the Special
Committee" and "The Voting and Exchange Agreement" of the Proxy Statement is
incorporated herein by reference.
Item 13. Financial Statements.
- ------- --------------------
(a) Financial Information. The information set forth in the Sections
---------------------
"Selected Historical Consolidated Financial Data" and "Documents Incorporated by
Reference" of the Proxy Statement is incorporated herein by reference.
(b) Pro Forma Information. Not applicable.
---------------------
Item 14. Persons/Assets Retained, Employed, Compensated or Used.
- ------- ------------------------------------------------------
(a) Solicitations or Recommendations. The information set forth in
--------------------------------
the Section "Information Concerning The Special Meeting--Voting, Revocation and
Solicitations of Proxies" of the Proxy Statement is incorporated herein by
reference.
(b) Employees and Corporate Assets. The information set forth in the
------------------------------
Sections "Questions and Answers about the Merger and Recapitalization,"
"Information Concerning the Special Meeting," "Special Factors--Exchange of
Shares by William Green," "--Purposes and Reasons for the Merger and
Recapitalization; Recommendations of Wilmar's Board of Directors and the Special
Committee," "Additional Considerations--Interests of Certain Persons in the
Merger and Recapitalization; Continued Ownership of Wilmar after the Merger" and
"The Voting and Exchange Agreement" of the Proxy Statement is incorporated
herein by reference.
Item 15. Additional Information.
- ------- ----------------------
(b) Other Material Information. The information set forth in the
--------------------------
Sections "Certain Financial Projections" and "Additional Considerations--
Shareholder Lawsuit Challenging the Merger and Recapitalization" of the Proxy
Statement is incorporated herein by reference.
13
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Item 16. Exhibits.
- ------- --------
(a) (2) Proxy Statement.
(c) The Fairness Opinion of William Blair & Company, LLC is attached as
Appendix B to the Proxy Statement.
Preliminary Discussion Materials for Financing Sources, dated as of
December 4, 1999, prepared by PaineWebber Incorporated.
(d) The Merger Agreement is attached as Appendix A to the Proxy Statement.
The Voting and Exchange Agreement is attached as Appendix C to the
Proxy Statement.
14
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After due inquiry and to the best of its knowledge and belief, the
undersigned certify that the information set forth in this Statement is true,
complete and correct.
WM ACQUISITION, INC.
By:
---------------------------
Name: Drew Sawyer
Title: Vice President
PARTHENON INVESTORS, L.P.
By: PARTHENON INVESTMENT ADVISORS L.L.C.
its general partner
By: PARTHENON INVESTMENT PARTNERS L.L.C.
its Managing Member
By:
---------------------------
Name: Ernest K. Jacquet
Title: Managing Member
PARTHENON INVESTMENT ADVISORS, L.L.C.
By: PARTHENON INVESTMENT PARTNERS L.L.C.
its Managing Member
By:
---------------------------
Name: Ernest K. Jacquet
Title: Managing Member
PARTHENON INVESTMENT PARTNERS, L.L.C.
By:
---------------------------
Name: Ernest K. Jacquet
Title: Managing Member
------------------------------
John C. Rutherford
------------------------------
Ernest K. Jacquet
------------------------------
William Green
Date: , 2000
<PAGE>
SCHEDULE A.1
------------
Entities
--------
<TABLE>
<CAPTION>
Name, Business Address and State of
Business Telephone Number Principal Business Organization Nature of Affiliation
- ----------------------------- -------------------------------------- ------------- --------------------------
<C> <S> <C> <C>
1. WM Acquisition, Inc. Nonsubstantive transitory merger New Jersey Indirectly under common
c/o Parthenon Capital, Inc. vehicle. control with the Issuer.
200 State Street
Boston, MA 02109
(617) 478-7000
2. Parthenon Investors, L.P. Private investment vehicle which Delaware Parent of WM
c/o Parthenon Capital, Inc. invests in and acquires businesses. Acquisition, Inc.
200 State Street
Boston, MA 02109
(617) 478-7000
3. Parthenon Investment Private investment vehicle which Delaware General Partner of
Advisors, L.L.C. invests in and acquires businesses. Parthenon Investors, L.P.
c/o Parthenon Capital, Inc.
200 State Street
Boston, MA 02109
(617) 478-7000
4. Parthenon Investment Private investment vehicle which Delaware Managing Member of
Partners, L.L.C. invests in and acquires businesses. Parthenon Investment
c/o Parthenon Capital, Inc. Advisors, L.L.C.
200 State Street
Boston, MA 02109
(617) 478-7000
</TABLE>
<PAGE>
SCHEDULE A.2
------------
Natural Persons
---------------
<TABLE>
<CAPTION>
Current Principal
Occupation or Prior Material
Name and Address Employment and Name Occupations,
of Occupation and Principal Positions, Offices or
or Employment Citizenship Business of Employer Employment Nature of Affiliation
-------------------- ------------- --------------------------------- --------------------- -------------------------
<S> <C> <C> <C> <C>
1. William Green United States Chairman and Chief Executive Same for the past Chairman and Chief
303 Harper Drive Officer of Wilmar Industries, five years. Executive Officer of
Moorestown, NJ Inc., a marketer and distributor the Issuer.
08057 of repair and maintenance
products.
2. John C. Rutherford New Zealand Managing Director of Chairman and Indirectly controls WM
200 State Street Parthenon Capital, Inc., a Founder of The Acquisition, Inc.
Boston, MA 02109 private equity investment firm Parthenon Group,
(5/98 to present). Boston, MA, a
management
consulting firm
(1991 - present).
3. Ernest K. Jacquet United States Managing Director of General Partner of Indirectly controls WM
200 State Street Parthenon Capital, Inc., a Summit Partners, Acquisition, Inc. and is
Boston, MA 02109 private equity investment firm Boston, MA, a also a director of the
(5/98 to present). venture capital firm Issuer.
(5/90 - 5/98). Also
a director of the
Issuer from 1995 -
1998 and 1998 -
present.
4. Drew Sawyer United States Principal of Parthenon Capital, Principal of The Officer and Director of
200 State Street Inc., a private equity Parthenon Group, WM Acquisition, Inc.
Boston, MA 02109 investment firm (5/98 to Boston, MA, a
present). management
consulting firm
(7/95-5/98), and
MBA student at
Harvard Business
School, Cambridge,
MA (9/94-6/95).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Current Principal
Occupation or Prior Material
Name and Address Employment and Name Occupations,
of Occupation and Principal Positions, Offices or
or Employment Citizenship Business of Employer Employment Nature of Affiliation
-------------------- ------------- --------------------------------- --------------------- -------------------------
<S> <C> <C> <C> <C>
5. Samantha Trotman United States Principal of Parthenon Capital, Chief Financial Officer and Director of
200 State Street Inc., a private equity Officer of WM Acquisition, Inc.
Boston, MA 02109 investment firm (11/98 - Physicians Quality
present). Care, Waltham,
MA, a physician
management
company (12/96 -
11/98), and Associate
of Bain Capital,
Boston, MA, a
private equity
investment firm
(8/93 - 12/96).
6. Bruce MacRae United States General Partner of Parthenon Chief Executive Officer of WM
200 State Street Capital, Inc., a private equity Officer and director, Acquisition, Inc.
Boston, MA 02109 investment firm (8/98 - Flow Control
present). Equipment, Inc.,
Houston, TX, an oil
field equipment
company (8/96 -
6/98), and Principal
of The Parthenon
Group, Boston,
MA, a management
consulting firm
(8/91 - 8/96).
</TABLE>
<PAGE>
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Confidential
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Exhibit 16.C
Project Two and Tanga
PRELIMINARY DISCUSSION MATERIALS FOR
FINANCING SOURCES
December 4, 1999
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Project Two
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Table of Contents
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I EXECUTIVE SUMMARY
II INVESTMENT CONSIDERATIONS
III SUMMARY BUSINESS DESCRIPTION
IV TRANSACTION TERMS
V FINANCIAL MODEL
EXHIBIT I MANAGEMENT OVERVIEW
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Project Two
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Section I
Executive Summary
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Project Two
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Executive Summary
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Parthenon Capital proposes to sponsor a leveraged recapitalization of Two, a
leading national marketer and direct distributor of repair and maintenance
products principally to the apartment and institutional markets. Through its
1,000+ page "Two" Master Catalog (print and electronic), 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. In November of
1999, Two agreed to acquire Tanga and certain of its affiliates. Tanga is the
number one distributor of specialty plumbing products to institutional building
owners and maintenance engineers throughout the United States and Canada. The
Tanga acquisition opens a new customer base for Two's extensive product line.
Together, the two companies will be the market leader in distribution of
specialty MRO products, with strong historical and projected growth (organic
growth as well as growth through consolidation of a large, fragmented industry);
high operating margins; revenues diversified by product, end-market, customer,
and geography; a business which is largely resistant to economic cycles; a
strong, proven management team; competitive prices and high caliber product and
service offerings.
Parthenon proposes to purchase Two in a transaction whose sources and uses are
set forth below:
Uses Sources
- ------------------------------------------ -----------------------------------
Common Stock Purchase $230.7 Revolver $ 20.0
Equity Rollover 3.0 Senior Secured Term Debt 113.0
------
Total Equity 233.7 Subordinated Debt 40.0
Refinance Tanga Acquisition Debt 64.5 Management Restricted Stock 0.1
Transaction Costs 7.5 Redeemable Preferred Stock 132.0
Cash for Working Capital 0.4 Common Stock 1.0
------- -------
$306.1 Total Equity 133.0
======= -------
$306.1
=======
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Executive Summary
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Accordingly, Parthenon proposes to invest approximately $132 million in
Redeemable Preferred Stock and Common Stock. To supplement this equity
contribution, Parthenon is soliciting commitments for the underwriting and
arrangement of:
. A $40 million Revolving Credit Facility, of which $20 million will be drawn
down at closing
. $113 million of Senior Secured Term Debt
. $40 million of Subordinated Indebtedness
Parthenon has signed a letter of intent to purchase Two and is currently
proceeding with its acquisition proposal under an exclusivity agreement.
Parthenon must receive financing commitments and have signed a definitive
purchase agreement by December 23, 1999.
Parthenon's proposed purchases price for Two is $18.25 per share, for an
aggregate equity purchase price of $233.7 million (including the exercise of
certain options of the Company).
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Project Two
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Section II
Investment Considerations
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Project Two
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Investment Considerations
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Leading Market Position
Two is a leading supplier in the highly fragmented apartment MRO industry,
holding an estimated 10% market share of the $2 billion apartment MRO market.
Historically, the Company has primarily focused on supplying MRO products to the
apartment housing market. This market share compares favorably with the
Company's national competitors: Century, with an approximately 10% share,
Maintenance Warehouse with an approximately 7% share, and Chad Supply, with an
approximately 4% share.
The acquisition of Tanga allows Two to gain access to much larger MRO end-
markets, including the institutional market of schools and universities,
hospitals, nursing homes, military bases, prisons, office buildings, and
hotels/motels. With the acquisition of Tanga, management believes that Two now
targets approximately $8 billion of the overall MRO market. After the
acquisition of Tanga, Two will hold a market leading share of approximately 2%
of the highly-fragmented Institutional MRO market, which has thousands of "mom
and pop" suppliers operating without the benefit of the efficiencies and
infrastructure enjoyed by Two. Two believes that its product quality, extensive
sales force, customer service, experienced distribution network, and reputation
for leadership in product development and improvement provide significant
competitive advantages in the Institutional market.
Strong Historical Growth
The Company has experienced historically high growth rates. Sales have grown
from $172.0 million in 1996 to $268.5 million in 1998, for a CAGR of 24.9%.
Over the same period, EBITDA has increased from $24.3 million to $32.1 million,
for a CAGR of 14.9%.
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Investment Considerations
Strong Historical Growth (Cont'd)
[GRAPH] [GRAPH]
Historical Revenues Historical EBITDA
($ in millions) ($ in millions)
1996 $172.0 1996 $24.3
1997 $226.9 1997 $26.2
1998 $268.5 1998 $32.1
9/99 LTM $286.0 9/99 LTM $32.6
Growth has been driven by a variety of factors, including:
. Strong growth in average sales per distribution center from $6.1 million in
1996 to $10.0 million for the twelve months ended September 30, 1999,
representing a CAGR of 13.1%.
. Rapid expansion of distribution centers through new development and through
acquisition, averaging three additional distribution centers per year since
1994. In 1991, the Company had four distribution centers. Today the Company
has 21 distribution centers throughout the United States.
. Successful execution of disciplined acquisition program
. High quality customer experience (selection, efficient fulfillment, etc.)
driving customer acquisition and retention (approximately 95% retention
rate)
. Strong cash flow permitting internal financing of growth
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Project Two
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Investment Considerations
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Fragmented Industry Ripe for Consolidation
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 continue to gain market
share. In addition to increasing sales, the Company believes that the
acquisition of companies serving Two's newly targeted institutional end-markets
will accelerate the Company's growth in these end-markets. The Company has
closely followed the strategy of implementing its own business model at each
acquired company as soon as is practical, and has found that this results in a
timely and efficient integration process. Competitive advantages accruing to
scale players in the industry include purchasing power, diversity of product
offerings, increased geographic reach, enhanced financial resources, and
distribution technology and sophistication. The Tanga acquisition moves Two
into the institutional MRO segment of the distribution market, which is even
more fragmented than the apartment MRO market.
Track Record of Successful Growth Through Acquisitions
A key part of the Company's growth has been through acquisitions. The Company
has made 14 acquisitions in the past four years. The Company has demonstrated a
high degree of skill in sourcing, consummating and integrating acquisitions.
Most recently, the Company successfully completed four key acquisitions during
1998, including the purchase of various assets of American Maintenance Supply,
Inc., assets of Apartment Cleaning Supply and Pool Supply, Inc., assets of
Kurzon Supply Co., Inc., and Management Supply Company Inc. With regards to
fold-in acquisitions, Two has historically reduced administrative expenses at
the acquired companies by up to 50%. Average IRR on the acquisitions is
typically in the high teens within the first year.
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Investment Considerations
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Reputation for Quality
The Company's competitive pricing and first-rate brand name offerings, which
include Kwikset, Insinkerator, Delta Faucet, Moen, Philips Lighting, and Briggs
Plumbingware, have enabled the Company to establish itself as a source for high
quality products. The Company's ability to deliver customized and private
labeled products enhances this reputation.
Strong Fulfillment Capabilities
The Company's sophisticated national distribution and MIS infrastructure provide
it with significant competitive advantages by permitting same-day and next-day
delivery of products to customers across much of the United States.
Furthermore, the Company's ability to fulfill under different brand names from
the same fulfillment infrastructure enhances its ability to leverage recent and
future acquisitions. The Company receives and efficiently processes orders via
telephone, facsimile, or electronic transmittal. The Company uses its own fleet
of trucks in order to better maintain the high quality of its delivery services.
E-Business Opportunity
A portion of industrial distribution business is expected to migrate towards an
Internet-enabled model in the near future. Two's extensive national
distribution network and sophisticated MIS systems provide it with a
fulfillment capability ideally suited for e-commerce. In July 1999, Two
announced developments regarding its e-business initiative. Two intends to
launch its business-to-business website in December 1999. Factors including the
large number of SKUs, the content-intensive nature of the sales process and the
"replenishment" aspect of the sales cycle will render the Company's business
ideal for e-business applications. The brand recognition of the 1,000+ page
"Two" Master Catalogue (print and electronic) gives Two an immediate advantage
in growing an e-business.
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Project Two
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Investment Considerations
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Opportunity for International Growth
The vast bulk of the Company's sales are currently made domestically. Parthenon
believes, however, that many of the same dynamics which contribute to the
Company's growth prospects in the domestic market apply as well to the
international market. Parthenon believes that the Company can achieve
substantial international sales by 2004.
Multi-regional Footprint with Opportunity for National Expansion
The Company operates twenty-one distribution centers in sixteen states and the
District of Columbia. These distribution centers contain an aggregate of
678,900 square feet and enable the company to distribute to approximately 75% of
the United States. The Company believes that this breadth of distribution
allows it to service national accounts more effectively than its competitors,
the majority of whom are regional players who operate only a single distribution
center.
Core Business Largely Resistant to Cyclical Pressures
The Company's results are largely resistant to cyclical pressures. The MRO
market is driven, as its name implies, by ongoing maintenance programs which do
not typically represent a significant expenditure for the consumer and are
usually non-discretionary in nature. Customers are required to maintain their
properties in order to attract tenants and support occupancy rates. Sales from
maintenance and repair products and services accounted for over 98% of the
Company's revenues in 1998, with under 2% of revenues derived from new
construction. Since part of Two's value-proposition to customers relates to
cost savings provided by the Company, Two's appeal to potential customers, and
therefore its financial results, may actually increase during difficult economic
environments, when new construction tends to decline and renovation and
remodeling increase.
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Project Two
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Investment Considerations
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Diversification of Business by Product and End-Market
Two markets over 15,000 repair and maintenance products in a broad range of
product categories, including plumbing, hardware, electrical, chemical and
janitorial. This breadth of offerings reduces the Company's reliance on
specific end-markets. The following chart sets forth the Company's product mix
pro forma for the Tanga acquisition:
[GRAPH]
Appliances and Parts 10%
Plumbing 44%
Electrical/HVAC 20%
Hardware 12%
Other 14%
Diversification of Business by Customer
Two's base of active customers has grown to approximately 44,800 for the twelve
months ended September 30, 1999, from approximately 18,500 in fiscal 1995,
representing a CAGR of 24.7%. The acquisition of Tanga will provide the Company
with access to approximately 45,000 new customers in the Institutional MRO
market, to whom many of the Company's other products can be cross-marketed. No
single property accounted for as much as 1% of the Company's net sales during
fiscal 1998, although one large property management company which manages
approximately 2,300 properties accounted for approximately 8% of the Company's
net sales during this period. Two's top ten customers include seven of the 50
largest property management companies in the United States.
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Project Two
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Investment Considerations
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Diversification of Business by Geography
Two's customer diversity also produces a high level of geographic diversity in
its business. From its 21 distribution centers, the Company services a broad
cross-section of the United States, with no region accounting for a
disproportionate amount of revenues. The following chart sets forth the
Company's regional revenue breakdown for the twelve months ending September 30,
1999:
[GRAPH]
Nothwest 18%
West 13%
Southeast 18%
Midwest 23%
Northeast 28%
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Project Two
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Investment Considerations
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Strong, Proven Management Team
Two's management team has been instrumental in the Company's success. Together,
the top five managers of the Company have over 68 years of experience in the
apartment MRO industry and have successfully integrated 14 acquisitions over the
past four years. Moreover, the management group has demonstrated the ability to
work well together as a team, and to work well with the principals of Parthenon.
The management team will hold a substantial portion of the fully-diluted
ownership of the Company and will accordingly be highly incented to perform
well.
The team is led by William S. Green, Chairman, Chief Executive Officer of the
Company, who co-founded the Company with his father in 1978. He has served in
his current capacity since 1986 and oversaw the Company's period of most rapid
growth. Michael J. Grebe, the Company's President and Chief Operating Officer,
joined the Company in November of 1998 from Airgas, Inc., where he had worked
since 1986, most recently as a Group Vice President.
Strong Credit Statistics
The proposed transaction is predicated upon modest leverage, as set forth in the
chart below. Additionally, the transaction will be capitalized with over $133
million of equity. This accounts for over 43% of the pro forma capitalization
of the Company.
- --------------------------------------------------------------------------------
Fiscal Year Ending December 31,
-------------------------------------------
Closing 2000 2001 2002 2003 2004
- --------------------------------------------------------------------------------
Total Debt / EBITDA 5.1x 4.4x 3.5x 2.7x 2.1x 1.6x
Senior Debt/EBITDA 3.9 3.4 2.6 2.0 1.4 1.0
EBITDA/Interest Expense 2.0 2.3 2.8 3.4 4.1 5.1
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Project Two
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Section III
Summary Business Description
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Project Two
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Summary Business Description
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During November 1999, Two agreed to merge with Tanga in order to create the
leading distributor to apartment and institutional MRO markets. The transaction
is scheduled to close this month. Separate descriptions of stand-alone Two and
Tanga follow.
Company Overview-Two
Two ("Two" or the "Company") is a national marketer and direct distributor of
repair and maintenance products, principally to the apartment housing market.
Through its 1,000+ page Two 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, Two 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 direct sales force, outbound telesales representatives, a
national accounts sales program and monthly direct mail flyers. Customer
service representatives located at Two's regional call centers use the Company's
proprietary software applications to quickly process orders and answer customer
inquiries. The Company provides free, same-day or next-day delivery services to
other areas. Since 1991, Two has expanded from four distribution centers
located in Philadelphia, Washington, D.C., Houston and Indianapolis to twenty
distribution centers located throughout the United States. From 1993 to 1998,
the Company's net sales increased at a compound annual rate of 40.1%. From
November 1995 through December 1998, Two has acquired twelve regional repair and
maintenance supply companies with total annualized net sales of approximately
$82 million.
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 its 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 practical after
each acquisition is completed.
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Project Two
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Summary Business Description
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Products and Merchandising
Two 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, appliances,
appliance parts, window and floor coverings, heating, ventilating and air
conditioning ("HVAC"), and paint accessories. The Company offers a broad range
of name brands such as Kwikset, Insinkerator, Delta Faucet, Moen, Philips
Lighting, and Briggs Plumbingware. In fiscal 1998, excluding assimilated
acquisitions, private label products marketed under the "Two" and "Wilflo" names
accounted for 14.4% of net sales, and no single product accounted for more than
1% 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, excluding unassimilated
acquisitions, were as follows:
- --------------------------------------------------------------------------------
Fiscal Year
------------------------------------------------
Product Category 1996 1997 1998
- --------------------------------------------------------------------------------
Plumbing 29% 30% 27%
Electrical 20 18 18
Hardware 16 15 14
Chemical and janitorial 6 5 6
Appliances - 5 9
Appliance parts 7 5 5
Window and floor coverings 6 7 6
HVAC 7 8 8
Paint and paint accessories 3 3 3
Other 6 4 4
--- --- ---
100% 100% 100%
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Project Two
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Summary Business Description
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Sales and Marketing
The Company markets and sells through a direct sales force to 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 the Company's broad product selection, reliable same-day or 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 to approximately 43,000 at December 25, 1998. No single
property accounted for as much as 1% of the Company's net sales during fiscal
1998, although approximately 2,300 properties owned and managed by one large
property management company accounted for an aggregate of 7.9% of the Company's
net sales during this period.
Two maintains one of the largest direct sales forces in its industry. At
December 25, 1998, the Company had 233 field sales representatives covering 173
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 Two sales representatives, particularly where local sales
representatives are supported by a nearby distribution center, thus enabling
free, same-day or next-day delivery of the Company's entire product line. 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 also employs nine 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 field sales
representative.
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Project Two
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Summary Business Description
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Operations
The Company receives all orders placed by customers or customers' local sales
representatives at its regional customer service centers via telephone through
the Company's toll-free "800" number and by fax. Calls are received by 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 promoting 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 a.m. to 6:00 p.m., and all orders received before 3:00 p.m. are
readied for shipment on the same day. Two uses bar-coding on all orders to
track shipment and delivery status. Most sales are billed on net 30-day terms,
with the remaining 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 performs cycle counts of key
inventory items.
Two 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), Two's own trucks or a contract
delivery service will deliver the products directly to the customer either the
same day or 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.
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Project Two
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Summary Business Description
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Two Distribution Centers
(The company leases the following distribution centers for periods of three to
ten years)
- --------------------------------------------------------------------------------
Current Year
Location Square Footage Open / Acquired
- --------------------------------------------------------------------------------
Philadelphia, PA 70,000 1978 (1)
Washington, D.C. 28,500 1982
Indianapolis, IN 16,000 1991
Fresno, CA 14,400 1992
Atlanta, GA 28,800 1993 (3)
Tampa, FL 36,700 1994
Columbus, OH 20,800 1995
Seattle, WA 16,200 1995
Miami, FL 37,200 1995*
Denver, CO 27,100 1996*
Houston, TX 55,000 1996*
San Antonio, TX 19,200 1996 (3)
Chicago, IL 18,300 1997*
Dallas, TX 50,400 1997
Charlotte, NC 24,000 1997
Phoenix, AZ 33,700 1997
Farmington Hills, MI 70,000 1997*
Las Vegas, NV 21,600 1998
Boston, MA 48,300 1998
Bronx, NY (Kurzon) 18,600 1998*
San Diego, CA 15,000 1999*
- --------------------------------------------------------------------------------
Additionally, the Company leases approximately 12,500 square feet of office
space in Morristown, New Jersey
- ----------
* Distribution Center acquired.
(1) In September 1996, the company moved its Philadelphia distribution center
to a new 70,000 square foot facility, which also houses the company's
national call center. This distribution center is leased from 804 Eastgate
Associates LLC, a related party.
(2) In December 1997, the company moved its Atlanta Distribution Center to a
larger facility.
(3) In April 1998, the San Antonio Distribution Center, which was originally
acquired during the HMA acquisition, was moved to a larger facility.
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Project Two
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Summary Business Description
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Company Overview -- Tanga
Founded in 1935, Tanga is a leading distributor of specialty plumbing products
in addition to heating and electrical parts to institutional building owners and
maintenance engineers throughout the United States and Canada. Tanga has two
distribution centers in the United States (in New York and South Carolina) and
two in Canada (in Ontario and Edmonton) through which it distributes its more
than 30,000 SKUs. The company's 200 sales people cover 10 territories in
Canada, all fifty United States, and Puerto Rico.
For the twelve months ended September 30, 1999, Tanga's pro forma revenues and
EBITDA were $76.4 million and $10.2 million, respectively. The company's
revenues by end-market in fiscal year 1998 were as follows:
Tanga FY 1998 -- End Market Sales (% of Total Sales)
[GRAPH]
Prison 3%
Government 7%
Hospital 17%
Hotels 14%
Housing 4%
Mfg/Utility 7%
Plumber 5%
Realty 14%
Education 22%
Nursing Home 7%
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Summary Business Description
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Company Overview -- Tanga (Cont'd)
Domestic revenues represent approximately 90% of sales, with 34% in the
Southeast region. Canadian revenues represented approximately $8 million of
fiscal year 1998 revenues. The following chart illustrates Tanga's revenues by
domestic geographic region in fiscal year 1998:
Tanga FY 1998 Revenue by Region
[GRAPH]
Southwest 3%
Northeast 23%
Southeast 34%
West 13%
Midwest 27%
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Project Two
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Summary Business Description
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Company Overview -- Tanga (Cont'd)
Approximately 87% of Tanga's revenues are related to specialty plumbing
products, with the remainder of revenues consisting of the following:
Tanga's FY 1998 Revenues by Product Line
[GRAPH]
Electrical HVAC 6%
Hardware 5%
Plumbing Supplies 87%
Chemicals 2%
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Project Two
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Summary Business Description
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Industry Overview
The Company historically competed primarily in the $2 billion apartment market
(1), which is a subset of the overall $100 billion maintenance, repair, and
operating ("MRO") market of the distribution industry. With the acquisition of
Tanga, the Company gains access to healthcare, lodging, and educational
facilities (collectively the "Institutional") MRO market, which is approximately
$8 billion in annual sales.
$2 Billion Apartment Market Share
[GRAPH]
Wilmar 10%
Century Maintenance 10%
Maintenance Warehouse 7%
Chad Supply 4%
Other 69%
Large national distributors, including the Company, hold several competitive
advantages over the smaller independents, including purchasing power, diverse
product offerings, geographic reach, financial resources, and distribution
technology and sophistication. These advantages allow the national chains to
meet the needs of customers with nationwide presence and fill large orders that
require carrying significant amounts of credit.
- ----------
(1) The Company's estimate which was arrived at using industry averages for
maintenance expenditures per unit ($110 per year) multiplied by the total
number of units, as supplied by the National Multi-Housing Council.
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Project Two
- --------------------------------------------------------------------------------
Summary Business Description
- --------------------------------------------------------------------------------
Industry Overview (Cont'd)
The Company and other "new generation" distributors will continue to grow as
they take share from regional independent distributors. The strength of the
Company's business model, its same day distribution network and ability to serve
national accounts is the primary growth driver for the Company and its
competitors. The acquisition of Tanga gives Two the ability to access other
institutional markets which have yet to go to same day service and should fuel
the Company's growth over the next five to seven years.
Tanga is the number one specialty plumbing supplier to the Institutional MRO
market with its nearest competitor, Creed and P&M, generating $27 million in
annual revenues. The balance of the market share consists of private
individuals who generate approximately $1 million in annual revenues.
- --------------------------------------------------------------------------------
pwinc 23
<PAGE>
- --------------------------------------------------------------------------------
Project Two
- --------------------------------------------------------------------------------
Section IV
Transaction Terms
- --------------------------------------------------------------------------------
pwinc 24
<PAGE>
- --------------------------------------------------------------------------------
Project Two
- --------------------------------------------------------------------------------
Transaction Terms
- --------------------------------------------------------------------------------
Projected Sources and Uses
- --------------------------------------------------------------------------------
(Dollars in Millions)
Uses: Sources:
Common Stock Purchase $230.7 Revolver $ 20.0
Equity Rollover 3.0 Senior Secured Term Debt 113.0
Total Equity 233.7 Sub Debt 40.0
Refinance Tanga Acquisition Debt 64.5 Management Restricted Stock 0.1
Transaction Costs 7.5 Redeemable Preferred 132.0
Cash for Working Capital 0.4 Common Stock 1.0
------ ------
Total Equity 133.1
------
$306.1 $306.1
====== ======
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
pwinc 25
<PAGE>
- --------------------------------------------------------------------------------
Project Two
- --------------------------------------------------------------------------------
Transaction Terms
- --------------------------------------------------------------------------------
Issuer: Newco, a corporation formed by Parthenon Capital to acquire
the outstanding stock of Two
Facility: $153 million of senior secured indebtedness, comprised of a
working capital revolver and one or more term loan tranches:
Revolver (Drawn) $20.0 million
Senior Secured Term Debt 113.0 million
Use of Proceeds: To finance the leveraged recapitalization of Two, including
any required repayment of existing debt; to pay transaction
fees and expenses; other general corporate purposes,
including working capital.
- --------------------------------------------------------------------------------
pwinc 26
<PAGE>
- --------------------------------------------------------------------------------
Project Two
- --------------------------------------------------------------------------------
Transaction Terms
- --------------------------------------------------------------------------------
Issuer: Newco
Facility: $40 million of subordinated indebtedness
Use of Proceeds: To finance the leveraged recapitalization of Two, including
any required repayment of existing debt; to pay transaction
fees and expenses; other general corporate purposes,
including working capital.
- --------------------------------------------------------------------------------
pwinc 27
<PAGE>
Project Two
Section V
Financial Model
- --------------------------------------------------------------------------------
pwinc 28
<PAGE>
PROJECT TWO & TANGA
(FYE December 31)
($000'S)
- --------------------------------------------------------------------------------
OBJECTIVE: Execute a leveraged buyout to go private
- --------------------------------------------------------------------------------
USES OF FUNDS
- -------------
Common Stock Purchase $230,695
Seller Note 0
Non-Compete 0
Seller Earnout 0
Equity Rolled By Manager 3,000 (1)
---------
Equity Purchase Price $233,695
Debt Retired 64,500
Debt Assumed 0
Cash Infusion 416
Transaction Costs 7,500
---------
TOTAL USES $306,111
=========
SOURCES OF FUNDS
- ----------------
%
-------
WC Revolver $ 20,000 6.5%
Debt Assumed 0 na
Senior Term Debt 113,000 36.9%
Mezzanine Debt 40,000 13.1%
Seller Note 0 na
Seller Earnout 0 na
Redeemable Preferred Stock 132,000 43.1%
Common Equity:
Equity - Current Owners 0 na
Common Stock 1,000 0.3%
Management Restricted Stock 111 0.0%
Management Options 0 na
Excess Cash on Balance Sheet 0 na
-------- -------
TOTAL RESOURCES $306,111 100.0%
======== =======
ACQUISITION MULTIPLES
- ---------------------
PURCHASE
- --------
Enterprise Price Paid $305,695
Price in 1999 Op Inc 9.9x
Price in 2000 Op Inc 8.7x
1999 P/EBITDA 9.0x
2000 P/Est. EBITDA 8.0x
Price in Closing BV 3.1x
Un- % of Sale Fully
EQUITY ALLOCATION Diluted Proceeds Diluted
- ----------------- ------- -------- -------
Senior Sub Debt * 5.0% 5.0%
Junior Sub Debt * 0.0% 0.0%
Seller's Note * 0.0% 0.0%
Preferred Stock * 0.0% 0.0%
Equity - Current Owners 0.0% 0.0% 0.0%
Common Stock Equity 90.0% 81.5% 81.0%
Management Restricted Stock Equity 10.0% 9.1% 9.0%
Management Options Equity 0.0% 4.4% 5.0%
-------- -------- -------
TOTAL ALLOCATION 100.0% 100.0% 100.0%
======== ======== =======
GOODWILL CALCULATION
- --------------------
Purchase Price $233,695
Less:
Net Worth 97,500
Asset Write-Ups 0
Non-Compete 0
Deferred Taxes 0
---------
GOODWILL $136,195
=========
<PAGE>
(FYE December 31)
($000's)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
HISTORICAL(1) PROJECTED
CONSOLIDATED -----------------------------------------------------------------------------------------------------
INCOME STATEMENT 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
*************************
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Revenue $60,800 100,644 150,793 268,505 295,600 324,100 359,720 402,174 449,736 503,107
Cost of Goods Sold 41,800 70,853 106,605 176,188 194,600 214,338 236,482 263,979 295,888 331,738
------- ------- ------- ------- -------- -------- -------- -------- -------- --------
GROSS PROFIT $19,000 $29,791 $44,188 $92,317 $101,000 $109,762 $123,238 $138,195 $153,848 $171,369
Operating Expenses:
- ------------------
S, G & A $13,000 $20,886 $30,882 $63,570 $ 70,000 $ 74,706 $ 80,885 $ 87,437 $ 95,916 $106,052
------- ------- ------- ------- -------- -------- -------- -------- -------- --------
OPERATING PROFIT $ 5,900 $ 8,905 $13,306 $28,747 $ 31,000 $ 35,056 $ 42,354 $ 50,758 $ 57,932 $ 65,317
Other Income (Expense) 0 0 0 0 0 ($13) ($27) ($30) ($34) ($35)
Management Fee 0 0 0 0 0 (250) (250) (250) (250) (250)
Transaction Cost Amort. 0 0 0 0 0 (1,500) (1,500) (1,500) (1,500) (1,500)
Goodwill Amortization 0 0 0 0 0 (13,560) (13,560) (13,560) (13,560) (13,560)
------- ------- ------- ------- -------- -------- -------- -------- -------- --------
E.B.I.T. $ 5,900 $ 8,905 $13,306 $28,747 $ 31,000 $ 19,733 $ 27,017 $ 35,418 $ 42,588 $ 49,972
Interest Expense:
- ----------------
WC Revolver 1,758 1,759 1,763 1,766 1,767
Senior Term Debt 9,888 9,492 8,998 8,009 6,526
Magazine Debt 5,200 5,200 5,200 5,200 5,200
-------- -------- -------- -------- --------
TOTAL INTEREST EXPENSE $ 16,846 $ 16,451 $ 15,960 $ 14,975 $13,493
Pre-Tax Income $ 2,888 $ 10,566 $ 19,458 $ 27,612 $ 36,479
Provision for Income Taxes 6,352 9,318 12,751 15,901 19,325
-------- -------- -------- -------- --------
NET INCOME ($3,464) $1,249 $6,707 $11,712 $17,154
======== ======== ======== ======== ========
Preferred Dividends (Non-Cash) 18,840 21,067 24,017 27,379 31,212
-------- -------- -------- -------- --------
NET TO RETAINED EARNINGS ($21,944) ($19,818) ($17,310)($15,667)($14,058)
======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------------------
E.B.I.T $ 5,900 $ 8,905 $13,306 $28,747 $31,000 $19,733 $27,017 $35,418 $42,588 $49,972
Add backs
- ---------
Management Fee $250 $250 $250 $250 $250
Transaction Cost Amor. 1,500 1,500 1,500 1,500 1,500
Goodwill Amortization 300 735 1,392 2,472 2,800 3,000 3,300 3,500 3,700 4,000
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
E.B.I.T.D.A. $ 6,200 $ 9,640 $14,698 $31,319 $33,800 $38,403 $45,627 $54,228 $61,597 $69,282
- ------------------------------------------------------------------------------------------------------------------------------------
TWO ONLY TWO & TANGA COMBINED
---------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
(FYE December 31)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
($000'S)
HISTORICAL PROJECTED
--------------------------------------------------------------------------------------------------
CASH FLOW STATEMENT 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
************************** ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET TO RETAINED EARNINGS $0 $0 $0 $0 $0 $0 ($21,944) ($19,818) ($17,310) ($15,667) ($14,058)
Non-Cash Adjustments:
- ---------------------
Depreciation .. .. .. .. .. .. $3,000 $3,300 $3,500 $3,700 $4,000
Transaction Cost Amort. .. .. .. .. .. .. 1,500 1,500 1,500 1,500 1,500
Goodwill Amortization .. .. .. .. .. .. 13,560 13,560 13,560 13,560 13,560
Accrued Deferred Dividends .. .. .. .. .. .. 18,480 21,067 24,017 27,379 31,212
------ ------ ------ ------ ------
FUNDS FROM OPERATIONS .. .. .. .. .. .. $14,595 $19,609 $25,266 $30,471 $36,214
Net Working Capital Requirements:
- ---------------------------------
Accounts Receivable .. .. .. .. .. .. ($5,290) ($6,363) ($5,391) ($6,160) ($8,034)
Inventory .. .. .. .. .. .. (4,179) (4,688) (5,822) (6,756) (7,590)
Other Current Assets .. .. .. .. .. .. (357) (446) (531) (595) (668)
Accounts Payable .. .. .. .. .. .. 2,363 2,651 3,292 3,821 4,292
Accrued Expenses .. .. .. .. .. .. 811 910 1,130 1,312 1,474
------ ------ ------ ------ ------
(INCREASE) IN NET WORKING CAPITAL .. .. .. .. .. ($6,631) ($7,935) ($7,321) ($8,379) ($10,526)
CASH FROM OPERATIONS .. .. .. .. .. .. $7,945 $11,673 $17,945 $22,093 $25,688
Capital Expenditures .. .. .. .. .. .. ($3,241) ($3,597) ($4,022) ($4,497) ($5,031)
------ ------ ------ ------ ------
CASH AFTER INVESTMENT ACTIVITIES .. .. .. .. .. $4,704 $8,076 $13,923 $17,595 $20,656
====== ====== ====== ====== ======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PROJECT TWO & TANGA
(FYE December 31)
------------------------------------------------------------------------
($000's) PROJECTED
------------------------------------------------------------------------
2000 2001 2002 2003 2004
---- ---- ---- ---- ----
FINANCING ACTIVITIES Year B.... 1 2 3 4 5
- ---------------------
<S> <C> <C> <C> <C> <C> <C>
CASH FLOW TO FINANCING ACTIVITIES $4,704 $8,076 $13,923 $17,595 $20,656
Existing Debt Retired 0 0 0 0 0
---- ---- ---- ---- ----
Cash For Retirement of Senior Debt $4,704 $8,076 $13,923 $17,595 $20,656
Senior Debt Retired (4,520) (5,650) (11,300) (16,950) (20,340)
---- ---- ---- ---- ----
Cash For Retirement of Senior Subordinated Debt $184 $2,426 $2,623 $645 $316
Senior Subordinated Debt Retired 0 0 0 0 0
---- ---- ---- ---- ----
Cash For Redemption of Preferred Stock $184 $2,426 $2,623 $645 $316
Preferred Stock Redeemed 0 0 0 0 0
---- ---- ---- ---- ----
Excess Cash 184 2,426 2,623 645 316
Increase(Decrease) in W/C Revolver (500) (2,426) (2,623) (645) (316)
---- ---- ---- ---- ----
FREE CASH FLOW ($316) $0 $0 $0 $0
======= ======= ======= ======= =======
CASH BALANCE BEGINNING OF PERIOD 416 100 100 100 100
CASH BALANCE AT END OF PERIOD $100 $100 $100 $100 $100
======= ======= ======= ======= =======
W/C Revolver Availability 20,500 22,926 25,549 26,194 26,511
Percent of Revolver Unused 29.5% 29.5% 29.8% 27.5% 24.9%
TERM CALCULATION
- ----------------
Percent Paid Down:
Senior Term Debt 4.0% 9.0% 19.0% 34.0% 52.0%
</TABLE>
<PAGE>
PROJECT TWO & TANGA
(FYE December 31)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
($000'S)
HISTORICAL PROJECTED
----------------------------------------------------------------------------------------------------
12/31/1999
ASSETS 1998(1) 1999 Closing Adjust Opening 2000 2001 2002 2003 2004
************************** ------- ---- ------- ------ ------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Current Assets:
- ---------------
Cash & Marketable Securities $30,909 $0 $0 $416 $416 $100 $100 $100 $100 $100
Accounts Receivable 27,535 44,500 44,500 44,500 49,790 56,153 61,544 67,704 75,738
Inventory 30,129 41,200 41,200 41,200 45,379 50,067 55,889 62,644 70,234
Other Current Assets 1,884 3,700 3,700 3,700 4,057 4,503 5,034 5,629 6,297
------ ------ ------ ------ ------ ------ ------ ------ ------
TOTAL CURRENT ASSETS $90,457 $89,400 $89,400 $89,816 $99,326 $110,823 $122,567 $136,078 $152,370
Fixed Assets:
- -------------
Net PPE $4,183 $7,500 $7,500 $7,500 $7,741 $8,038 $8,560 $9,357 $10,388
Other Non Current 0 1,600 1,600 1,600 1,600 1,600 1,600 1,600 1,600
Transaction Costs 0 0 0 7,500 7,500 6,000 4,500 3,000 1,500 0
Goodwill 27,056 95,200 95,200 136,195 231,395 217,835 204,276 190,716 177,156 163,597
------ ------ ------ ------ ------ ------ ------ ------ ------
TOTAL FIXED ASSETS $31,239 $104,300 $104,300 $247,995 $233,176 $218,414 $203,876 $189,614 $175,585
------ ------ ------ ------ ------ ------ ------ ------ ------
TOTAL ASSETS 121,696 $193,700 $193,700 $144,111 $337,811 $332,502 $329,236 $326,442 $325,691 $327,955
======== ======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
(1) 1998 Balance sheet data represents TWO only.
<PAGE>
<TABLE>
<CAPTION>
($000's) -----------------------------------
HISTORICAL
-----------------------------------
12/31/1999
LIABILITIES & EQUITY 1998(1) 1999 Closing
- ----------------------------- ------- ---- -------
<S> <C> <C> <C>
Current Liabilities:
- --------------------
Accounts Payable $ 11,992 $ 23,300 $ 23,300
Accrued Expenses 4,707 8,000 8,000
Note Payable - Bank 1,209 64,500 64,500
-------- -------- --------
TOTAL CURRENT LIABILITIES $ 17,907 $ 95,800 $ 95,800
Other Non-current Liabilities 0 400 400
Long Term Debt:
- --------------
Existing Debt $ 0 $ 0 $ 0
WC Revolver 0 0 0
Senior Term Debt 0 0 0
Mezzanine Debt 0 0 0
-------- -------- --------
TOTAL LONG TERM DEBT $ 0 $ 0 $ 0
-------- -------- --------
TOTAL LIABILITIES $ 17,907 $ 96,200 $ 96,200
Net Worth:
- ---------
Equity - Common $103,569 $ 97,500 $ 97,500
- Preferred 0 0 0
Retained Earnings 220 0 0
-------- -------- --------
NET WORTH $103,789 $ 97,500 $ 97,500
-------- -------- --------
LIABILITIES & NET WORTH $121,696 $193,700 $193,700
======== ======== ========
BALANCE SHEET CHECK** 0 0 0
<CAPTION>
($000's)a --------------------------------------------------------------------------------------
PROJECTED
--------------------------------------------------------------------------------------
LIABILITIES & EQUITY Adjust Opening 2000 2001 2002 2003 2004
- ----------------------------- ------ ------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Current Liabilities:
- --------------------
Accounts Payable $ 23,300 $ 25,663 $ 28,315 $ 31,607 $ 35,428 $ 39,720
Accrued Expenses 8,000 8,811 9,722 10,852 12,164 13,638
Note Payable - Bank ($64,500) 0 0 0 0 0 0
-------- -------- -------- -------- -------- --------
TOTAL CURRENT LIABILITIES $ 31,300 $ 34,475 $ 38,036 $ 42,459 $ 47,591 $ 53,358
Other Non-current Liabilities 400 400 400 400 400 400
Long Term Debt:
- --------------
Existing Debt $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
WC Revolver 20,000 20,000 19,500 17,074 14,451 13,806 13,489
Senior Term Debt 113,000 113,000 108,480 102,830 91,530 74,580 54,240
Mezzanine Debt 40,000 40,000 40,000 40,000 40,000 40,000 40,000
-------- -------- -------- -------- -------- --------
TOTAL LONG TERM DEBT $173,000 $167,980 $159,904 $145,981 $128,386 $107,729
-------- -------- -------- -------- -------- --------
TOTAL LIABILITIES $204,700 $202,855 $198,341 $188,840 $176,377 $161,487
Net Worth:
- ---------
Equity - Common $ 96,389 $ 1,111 $ 1,111 $ 1,111 $ 1,111 $ 1,111 $ 1,111
- Preferred 132,000 132,000 150,480 171,547 195,564 222,943 254,155
Retained Earnings 0 0 (21,944) (41,762) (59,072) (74,740) (88,797)
-------- -------- -------- -------- -------- --------
NET WORTH $133,111 $129,647 $130,896 $137,603 $149,314 $166,468
-------- -------- -------- -------- -------- --------
LIABILITIES & NET WORTH $144,111 $337,811 $332,502 $329,236 $326,442 $325,691 $327,955
======== ======== ======== ======== ======== ========
BALANCE SHEET CHECK** 0 0 0 0 0 0 0
(1) 1998 Balance sheet data represents TWO only.
</TABLE>
<PAGE>
TWO Forecast
(FYE December 31)
($000'S)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
HISTORICAL PROJECTED
----------------------------------------------------------------------------------------------------
INCOME STATEMENT 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
- --------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue
Total Net Revenue $60,800 $100,644 $150,793 $192,605 $217,400 $243,500 $272,720 $308,174 $348,236 $393,507
Cost of Goods Sold 41,800 70,853 106,605 136,488 153,700 172,138 190,931 215,710 243,779 275,471
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
GROSS PROFIT $19,000 $29,791 $44,188 $56,117 $63,700 $71,362 $81,789 $92,464 $104,457 $118,036
Margin 31.3% 29.6% 29.3% 29.1% 29.3% 29.3% 30.0% 30.0% 30.0% 30.0%
Operating Expenses:
S, G & A(1) 31,100 20,886 30,882 37,470 43,100 46,899 51,740
------ ------ ------ ------ ------ ------ ------
OPERATING PROFIT $5,900 $8,905 $13,306 $18,647 $20,600 $24,463 $30,050
Margin 9.7% 8.8% 8.8% 9.7% 9.5% 10.0% 11.0%
Growth 50.9% 49.4% 40.1% 10.5% 18.8% 22.8%
</TABLE>
- -------------------
(1) Operating expenses for Two & Tanga will be shared as integration occurs.
<PAGE>
TWO Forecast
(FYE December 31)
($000'S)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
DETAILED
INCOME STATEMENT HISTORICAL PROJECTED
************************** ----------------------------------------------------------------------------------------------------
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
% Growth
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Net Revenue na 65.5% 49.8% 27.7% 12.9% 12.0% 12.0% 13.0% 13.0% 13.0%
Cost of Goods Sold na 69.5% 50.5% 28.0% 12.6% 12.0% 10.9% 13.0% 13.0% 13.0%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
GROSS PROFIT na 56.8% 48.3% 27.0% 13.5% 12.0% 14.6% 13.1% 13.0% 13.0%
Operating Expenses:
S, G & A(1) na 59.4% 47.9% 21.3% 15.0% 8.8% 10.3%
------ ------ ------ ------ ------ ------ ------
OPERATING PROFIT na 50.9% 49.4% 40.1% 10.5% 18.8% 22.8%
- -----------------------------------------------------------------------------------------------------------------------------------
% of Total Revenue
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Net Revenue 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of Goods Sold 68.8% 70.4% 70.7% 70.9% 70.7% 70.7% 70.0% 70.0% 70.0% 70.0%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
GROSS PROFIT 31.3% 29.6% 29.3% 29.1% 29.3% 29.3% 30.0% 30.0% 30.0% 30.0%
Operating Expenses:
S, G & A(1) 21.5% 20.8% 20.5% 19.5% 19.8% 19.3% 19.0%
------ ------ ------ ------ ------ ------ ------
OPERATING MARGIN 9.7% 8.8% 8.8% 9.7% 9.5% 10.0% 11.0%
</TABLE>
- ----------------------------
(1) Operating expenses for Two & Tanga will be shared as integration occurs.
<PAGE>
Page 1
<TABLE>
<CAPTION>
TANGA FORECAST
(FYE December 31)
($000's)
-----------------------------------------------------------------------------------------------------
Historical PROJECTED
-----------------------------------------------------------------------------------------------------
1998 1999 2000 2001 2002 2003 2004
INCOME STATEMENT
- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue
Total Net Revenue $75,900 $78,200 $80,600 $87,000 $94,000 $101,500 $109,600
Cost of Goods Sold 39,700 40,900 42,200 45,551 48,269 52,109 56,267
------- ------- ------- ------- ------- ------- -------
GROSS PROFIT $36,200 $37,300 $38,400 $41,449 $45,731 $49,391 $53,333
Margin 47.7% 47.7% 47.6% 47.6% 48.7% 48.7% 48.7%
Operating Expenses
S. G & A(1) 26,100 26,900 27,807 29,145
------- ------- ------- -------
OPERATING PROFIT $10,100 $10,400 $10,593 $12,304
Margin 13.3% 13.3% 13.1% 14.1%
GROWTH 3.0% 1.9% 16.2%
</TABLE>
- ---------------------------
(1) Operating expenses for Two & Tanga will be shared as integration occurs.
<PAGE>
Page 2
<TABLE>
<CAPTION>
TANGA Forecast
(FYE December 31)
($000's)
-----------------------------------------------------------------------------------------------------
DETAILED
INCOME STATEMENT Historical PROJECTED
- ---------------- -----------------------------------------------------------------------------------------------------
1998 1999 2000 2001 2002 2003 2004
<S> <C> <C> <C> <C> <C> <C> <C>
% Growth
------- ------- ------- ------- ------- ------- -------
Total Net Revenue na 3.0% 3.1% 7.9% 8.0% 8.0% 8.0%
Cost of Goods Sold na 3.0% 3.2% 7.9% 6.0% 8.0% 8.0%
------- ------- ------- ------- ------- ------- -------
GROSS PROFIT na 3.0% 2.9% 7.9% 10.3% 8.0% 8.0%
Operating Expenses:
S, G & A(1) na 3.1% 3.4% 4.8%
------- ------- ------- -------
OPERATING PROFIT na 3.0% 1.9% 16.2%
- ---------------------------------------------------------------------------------------------------------------------------------
% of Total Revenue
------- ------- ------- ------- ------- ------- -------
Total Net Revenue 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of Goods Sold 52.3% 52.3% 52.4% 52.4% 51.3% 51.3% 51.3%
------- ------- ------- ------- ------- ------- -------
GROSS PROFIT 47.7% 47.7% 47.6% 47.6% 48.7% 48.7% 48.7%
Operating Expenses:
S, G & A(1) 34.4% 34.4% 34.5% 33.5%
------- ------- ------- -------
OPERATING MARGIN 13.3% 13.3% 13.1% 14.1%
</TABLE>
- ---------------------------
(1) Operating expenses for Two & Tanga will be shared as integration occurs.
<PAGE>
- --------------------------------------------------------------------------------
Project Two
- --------------------------------------------------------------------------------
Exhibit I
Management Overview
- --------------------------------------------------------------------------------
pwinc 29
<PAGE>
- --------------------------------------------------------------------------------
Project Two
- --------------------------------------------------------------------------------
Management Overview
- --------------------------------------------------------------------------------
The Company's executive management team is as follows:
- --------------------------------------------------------------------------------
Name Age Title
- --------------------------------------------------------------------------------
William S. Green 40 Chairman, President and Chief Executive Officer
Michael J. Grebe 41 President and Chief Operating Officer
William Sanford 39 Senior Vice President and Chief Financial Officer
Michael T. Toomey 34 Treasurer
Gil V. Silva 63 President -- Tanga, Inc.
Carmen J. Sbezzi 63 Vice President, Sale -- Tanga, Inc.
Vincent A. Pescosolido 48 Vice President, Finance -- Tanga, Inc.
- --------------------------------------------------------------------------------
WILLIAM S. GREEN, age 40, co-founded Two in 1978 with his father and has served
as its Chairman, President and Chief Executive Officer since 1986.
MICHAEL J. GREBE, age 41, joined Two in November of 1998 as Executive Vice
President and Chief Operating Officer. In October 1999, Mr. Grebe was named
President of Two. Mr. Grebe previously served as a Group Vice President of
Airgas, Inc, the nation's largest distributor of industrial gases. Mr. Grebe
joined Airgas via the acquisition of IPCO Safety, Inc., a national alternate
channel marketer of industrial safety supplies, where he served as President.
Prior to joining IPCO Safety in 1991, Mr. Grebe worked for AB Bonnierforetagen,
a Swedish multinational. While at Bonnier, Mr. Grebe held several key positions
including President of Kent Dental, Inc., a national distributor of supplies to
the dental and beauty industries. Mr. Grebe has served in the distribution
industry since 1985. Mr. Grebe attended the University of Michigan on a Navy
ROTC scholarship and graduated with honors from Michigan's business school. Mr.
Grebe then served as a Naval Officer until 1984.
- --------------------------------------------------------------------------------
pwinc 30
<PAGE>
- --------------------------------------------------------------------------------
Project Two
- --------------------------------------------------------------------------------
Management Overview
- --------------------------------------------------------------------------------
WILLIAM SANFORD, age 39, joined Two in April 1999, having spent 16 years with
public industrial distribution companies. In addition to his corporate
responsibilities for Finance and Administration, Mr. Sanford oversees Two's
acquisition program, long range planning and shareholder relations. Mr. Sanford
previously was Vice President Corporate Development at MSC Industrial Direct, a
distributor of industrial supplies, and was responsible for seven acquisitions
during the period. Prior to 1997, Mr. Sanford spent 14 years at Airgas, Inc,
where he most recently served as Executive Vice President with responsibilities
in strategy and business development as well as line responsibility for the
company's manufacturing and rental equipment divisions. Previously, Mr. Sanford
served as Vice President of Sales and Marketing, President of the company's
Pacific Northwest subsidiary, and Vice President of Sales for Airgas's
manufacturing division. Mr. Sanford is an outside director of Western
International Gas, Need in Deed Philadelphia and a Trustee of Virginia Episcopal
School. Mr. Sanford earned a Bachelor of Science degree from Vanderbilt
University and completed graduate studies at the University of Madrid and the
Wharton School.
MICHAEL T. TOOMEY, age 34, joined Two in 1992 as the company's Controller and
Treasurer. In 1995 Mr. Toomey was promoted to the position of Chief Financial
Officer, a position he held until 1999. Recently, with the addition of Bill
Sanford, Mr. Toomey was transitioned into the role of Vice President of Finance
and Treasurer. From October 1986 until October 1992, Mr. Toomey was an
accountant and supervisor with the public accounting firm of Fishbein & Company,
P.C. Mr. Toomey is a certified public accountant and earned a Bachelor of
Science degree in Accounting from Villanova University.
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Project Two
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Management Overview
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GIL V. SILVA, President, joined Tanga in 1966 as Manager of Accounting. During
the period 1966 through 1974, he held several management positions within the
company and was named Vice President, Finance in 1974. In 1975, he was elected
President of the company and has been active in this position since that time.
Prior to joining the company, he held positions with a CPA firm and The Chase
Manhattan Bank. He received his BS degree in Accounting from Fordham
University.
CARMEN J. SBEZZI, Vice President, Sales, joined Tanga. in 1963 as Purchasing
Assistant. In 1976, he became Vice President, Purchasing and in 1982, Vice
President Sales, his current position. Prior to joining the company, he was in
purchasing with Western Union Telegraph Company. He received a BS degree in
Labor Management from Manhattan College.
VINCENT A. PESCOSOLIDO, Vice President, Finance, joined Tanga in 1992. Prior to
joining Tanga, he was Vice President, Administrator and Controller in the
Mailing Systems Division of Pitney Bowes Inc. and previously held several
management positions with that company, including controller of its Dictaphone
subsidiary. Before joining Pitney Bowes, he spent five years with Coopers &
Lybrand. He received his BBS Degree from Iona College and is a Certified Public
Accountant.
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