<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 No Fee Required for the fiscal year ended December 31, 1999 or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 No Fee Required for the transition period from
________ to ________
Commission file number 0-27424
-------
WILMAR INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
New Jersey 22-2232386
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
303 Harper Drive
Moorestown, New Jersey 08057
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (856) 439-1222
--------------
<TABLE>
<CAPTION>
Securities registered pursuant to Section 12(b) of
the Act: Title of each class Name of each exchange on which registered
Common Stock, without par value Nasdaq National Market
------------------------------- ----------------------
<S> <C>
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None
----
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in the definitive proxy statement incorporated
by reference in Part III of this annual report on Form 10-K or any amendment to
this annual report on Form 10-K. [X]
As of March 1, 2000, the aggregate market value of the Common Stock held by non-
affiliates of the registrant was $96,391,275. Such aggregate market value was
computed by reference to the closing sale price of the Common Stock as reported
on the National Market segment of The Nasdaq Stock Market on such date. For
purposes of making this calculation only, the registrant has defined affiliates
as including all directors and beneficial owners of more than ten percent of the
Common Stock of the Company.
As of March 1, 2000, there were 12,407,826 shares of the registrant's Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
None
<PAGE>
WILMAR INDUSTRIES, INC.
FORM 10-K ANNUAL REPORT
For Fiscal Year Ended December 31, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I PAGE
----
<S> <C>
Item 1. Business 1
Item 2. Properties 4
Item 3. Legal Proceedings 5
Item 4. Submission of Matters to a Vote of Security Holders 5
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 5
Item 6. Selected Financial Data 6
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 7
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 11
Item 8. Financial Statements and Supplementary Data 11
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure 11
PART III
Item 10. Directors and Executive Officers of the Registrant 12
Item 11. Executive Compensation 14
Item 12. Security Ownership of Certain Beneficial Owners and Management 17
Item 13. Certain Relationships and Related Transactions 18
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 19
</TABLE>
<PAGE>
This document contains certain forward-looking statements that are subject to
risks and uncertainties. Forward-looking statements include certain information
relating to future growth plans, the anticipated costs associated with those
plans, the Company's liability and capital resources, as well as information
contained elsewhere in this report where statements are preceded by, followed by
or include the words "believes," "expects," "anticipates" or similar
expressions. For such statements the Company claims the protection of the safe
harbor for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995. Actual events or results may differ materially
from those discussed in forward-looking statements as a result of various
factors, including without limitation, general market conditions, increased
competition, failure to locate and acquire acquisition candidates, and factors
discussed elsewhere in this report and in the documents incorporated herein by
reference. The following discussion should be read in conjunction with the
financial statements and the notes thereto contained elsewhere in this report on
Form 10-K.
PART I
Item 1. Business.
- ------ --------
Overview
Wilmar Industries, Inc. ("Wilmar" or the "Company") is a national marketer and
direct distributor of repair and maintenance products to facilities maintenance
markets. Through its 1,000+ page Wilmar Master Catalog, the Company has become a
"one-stop shopping" resource for apartment maintenance managers by offering the
industry's most extensive selection of over 15,000 standard and specialty
plumbing, hardware, electrical, janitorial and related products. Through the
Sexauer Group, the Company markets plumbing specialties products to maintenance
managers in the education, healthcare, commercial real estate, lodging and other
facilities maintenance industries. By purchasing directly from domestic and
foreign manufacturers in relatively large volumes, the Company 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 Wilmar'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 in local
markets served by its distribution centers and ships by parcel delivery services
to other areas. The Company was formed in 1978, initially doing business in the
Philadelphia area. Since 1991, Wilmar has expanded from four distribution
centers located in Philadelphia, Washington, D.C., Houston and Indianapolis to
twenty-six distribution centers, as well as an inventory transfer center,
located throughout the United States and Canada. From 1994 to 1999, the
Company's net sales increased at a compound annual rate of 36.5%. From November
1995 through December 1999, Wilmar has acquired fifteen regional repair and
maintenance supply companies with total annualized net sales of approximately
$162 million. Throughout this report, references to 1997, 1998 and 1999 refer to
the fiscal years ended December 26, 1997, December 25, 1998 and December 31,
1999, respectively.
On December 23, 1999, the Company entered into an Agreement and Plan of Merger
and Recapitalization (as amended, the "Merger Agreement") with WM Acquisition,
Inc., a subsidiary of an investor group led by Parthenon Capital and Chase
Capital Partners. The managing director of Parthenon Capital is also a memeber
of the Board of directors of Wilmar. Pursuant to the terms of the Merger
Agreement, as a result of the merger (the "Merger") contemplated by the Merger
Agreement, WM Acquisition will be merged with and into the Company, each share
of the Company's Common Stock will be exchanged for $18.25 per share and the
Company shall remain as the surviving corporation. The Merger is contingent upon
certain conditions, including approval by the shareholders of the Company. Upon
consummation of the Merger, the Company's Common Stock will no longer be traded
on the Nasdaq National Market System, price quotations will no longer be
available and registration of the Company's Common Stock under the Securities
and Exchange Act of 1934 will terminate, resulting in part in no further public
reporting by Wilmar under such act.
Acquisitions
An important element of the Company's growth strategy has been to take advantage
of the highly fragmented nature of its industry by continuing to explore
strategic acquisitions. The Company made several acquisitions in 1999, as
described below, each of which was accounted for using the purchase method.
In July 1999, the Company acquired certain assets of The Mini Blind Company,
Inc. ("Mini Blind"), a distributor of vertical and mini blinds to the multi-
family or apartment housing market, based in San Antonio, TX. The total
purchase price of the acquisition was paid in cash.
In October 1999, the Company acquired 100% of the capital stock of Ace
Maintenance Mart USA, Inc. ("Ace"), a direct mail distributor of repair and
maintenance supplies, based in San Diego, CA. The purchase price of this
acquisition consisted of cash and has been allocated to the assets acquired
based upon their estimated fair market values.
1
<PAGE>
In December 1999, the Company acquired 100% of the capital stock of J.A.
Sexauer, Inc. ("Sexauer"), based in Scarsdale, NY and its wholly owned
subsidiary Sexauer Ltd. ("Sexauer Ltd."), based in Toronto, Ontario, and 100% of
the capital stock of Trayco of S.C., Inc. ("Trayco"), based in Florence, SC
(Sexauer together with Sexauer Ltd. and Trayco referred to hereafter as the
"Sexauer Group") from The Dyson-Kissner-Moran Corporation ("DKM"). The purchase
price of this acquisition consisted of cash and has been allocated on a
preliminary basis to the assets acquired based upon their estimated fair market
values.
Goodwill and other intangibles recorded in connection with each of the
acquisitions above are being amortized on a straight-line basis over 5 to 40
years.
Products and Merchandising
Wilmar markets over 43,000 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 and paint accessories. Wilmar offers a
broad range of name brands such as Kwikset, Insinkerator, Delta Faucet, Moen,
Philips Lighting, and Briggs Plumbingware. In fiscal 1999, excluding
unassimilated acquisitions, private label products marketed under the "Wilmar"
and "Wilflo" names accounted for 14 % 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 were as follows:
<TABLE>
<CAPTION>
Product Category FISCAL YEAR
---------------- -----------
1997 1998 1999*
--------------------------------
<S> <C> <C> <C>
Plumbing 30% 27% 29%
Electrical 18 18 17
Hardware 15 14 14
Chemical and janitorial 5 6 6
Appliances 5 9 8
Appliance parts 5 5 5
Window and floor coverings 7 6 6
HVAC 8 8 8
Paint and paint accessories 3 3 3
Other 4 4 4
--------------------------------
100% 100% 100%
================================
</TABLE>
__________________
(*) Includes sales by the Sexauer Group, from the date of acquisition (which
was in December 1999.)
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. Wilmar's base
of active customers (customers that have purchased in the preceding 12 months)
has grown to approximately 89,000 at December 31,1999 (including 44,000 active
customers acquired in connection with the Sexauer Group acquisition) from
approximately 43,000 at December 25, 1998. No single property accounted for as
much as 1% of the Company's net sales during fiscal 1999, although approximately
2,200 properties owned or managed by one large property management company
accounted for an aggregate of 7.5% of the Company's net sales during this
period.
2
<PAGE>
Wilmar maintains one of the largest direct sales forces in its industry. At
December 31, 1999, the Company had 431 field sales representatives covering
markets throughout the United States and Canada. The Company has found that it
garners a greater percentage of its customers' overall spending on repair and
maintenance supplies in markets serviced by their local 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's sales force is managed by
the Company's Director of Sales and Marketing and it's regional sales managers.
The Company also employs twelve telesales representatives whose responsibility
is to obtain new customers and maintain regular contact with active customers,
principally in territories where Wilmar does not employ a local field sales
representative.
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" numbers, by fax and internet. 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 promotions information. Customer service personnel
determine immediately whether the product is available at the distribution
center closest to the customer and, if not, the closest distribution center with
availability. As a result, the customer service representative informs the
customer immediately as to when the product can be delivered. Customer service
lines are open from 8:00 a.m. to 8:00 p.m. Eastern Standard Time. Once an order
is entered into the computer system by a customer service representative, a
picking slip is generated at the appropriate distribution center. Items on the
picking slip are automatically arranged by warehouse location sequence to
facilitate ease of picking within the distribution center. Distribution center
personnel pick items from 8:00 a.m. to 6:00 p.m. and all orders received before
3:00 p.m. are readied for shipment on the same day. Wilmar uses bar-coding on
all orders to track shipment and delivery status. Most sales are billed on net
30-day terms, with the 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.
Wilmar attempts to ship its products in the most cost-effective and efficient
manner. For customers located within the local delivery radius of a distribution
center (typically 50 miles), Wilmar's own trucks or a contract 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.
The Company arranges for pick-up of returns at no charge to the customer in the
local delivery radius. For customers outside the local delivery radius, the
Company provides parcel service pick-up of the returns at no charge plus full
refund if the return is the result of Company error. In 1999, the Company's
return rate was approximately 4.3% of sales. The company offers 12-year
warranties on its "Wilflo" faucets and one-year warranties on its "Wilmar"
ceiling fans and "Wilmar" garbage disposals.
Competition
The Company believes that the principal competitive factors in the distribution
of repair and maintenance products to the apartment housing market and similar
markets are the breadth and quality of products offered, reliability of
delivery, customer service, product pricing and sales relationships. The Company
believes it competes favorably with respect to these factors.
Although there are a large number of repair and maintenance distributors in the
United States, based on industry reports and its own experience, the Company
believes that most operate in a single region (often with a single distribution
center) and have significantly less annual sales than the Company. However,
there is a trend toward consolidation in the repair and maintenance distribution
industry, and several competitors are building a national presence and are
marketing to the apartment housing market. In addition, the Company competes
with mail order catalog companies, retail stores including superstores,
specialty suppliers and industrial suppliers. Certain of the Company's
competitors have greater financial resources and sell more products than Wilmar.
3
<PAGE>
Employees
The Company employed 1,338 people as of December 31, 1999. Of these, 431 were in
sales, 12 in telesales, 105 in customer service, 522 in operations and 268 in
management and administration. Forty of the Company's distribution center
employees and truck drivers at the Philadelphia distribution center are covered
by a collective bargaining agreement with Highway Truck Drivers and Helpers
Local 107. This agreement expires in May 2001. Twenty-two of the Company's
distribution center employees and truck drivers at the Washington, D.C.
distribution center are covered by a collective bargaining agreement with
Highway Truck Drivers and Helpers Local 355 which went into effect in March
1999. The Company has never experienced a work stoppage, and believes its
relations with its employees are good. Both local unions are affiliated with the
International Brotherhood of Teamsters.
Item 2. Properties
- ------ ----------
The Company acquired two buildings through the Sexauer Group acquisition, a
17,000 square foot facility in Scarsdale, NY which is used for the Sexauer Group
corporate headquarters and a 58,400 square foot distribution center in
Louisville, KY.
The Company leases approximately 12,500 square feet of office space in
Moorestown, New Jersey from William Green, Chairman, and Chief Executive Officer
of the Company, for its headquarters (see Note 8 to the Consolidated Financial
Statements). The Company also leases the following distribution centers (unless
otherwise noted):
<TABLE>
<CAPTION>
Current Year
Distribution Center Square Footage Opened/Acquired
- ------------------------------------------- -------------- ------------------
<S> <C> <C>
Philadelphia, PA........................... 70,000 1978/(1)/
Washington, D.C............................ 28,500 1982
Houston, TX (Inventory Transfer Center).... 25,000 1987
Indianapolis, IN........................... 16,000 1991
Fresno, CA................................. 14,400 1992
Atlanta, GA................................ 28,800 1993
Tampa, FL.................................. 36,700 1994
Columbus, OH............................... 20,800 1995
Seattle, WA................................ 16,200 1995
Miami, FL.................................. 37,200 1995*
Denver, CO................................. 44,000 1996/(2)/
Houston, TX................................ 55,000 1996*
San Antonio, TX............................ 19,200 1996
Chicago, IL................................ 18,800 1997*
Dallas, TX................................. 50,400 1997
Charlotte, NC.............................. 24,000 1997
Phoenix, AZ................................ 33,300 1997
Farmington Hills, MI....................... 70,000 1997*/(3)/
Las Vegas, NV.............................. 21,600 1998
Boston, MA................................. 48,300 1998
Bronx, NY (Kurzon)......................... 18,600 1998*
Deptford, NJ (Screen shop)................. 5,000 1999
Los Angeles, CA............................ 39,500 1999
San Diego, CA (Ace Maintenance Mart)....... 24,700 1999*
Florence, SC (The Sexauer Group)........... 34,000 1999*
Toronto, Ontario (Sexauer Ltd of Canada)... 17,000 1999*
Edmonton, Alberta (Sexauer Ltd of Canada).. 4,000 1999*
</TABLE>
______________________
* 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 (see Note 8 to the Consolidated
Financial Statements).
/(2)/ In May 1999, the Denver Distribution Center, which was originally
acquired during the Mile High Maintenance Supply, Inc. ("Mile High")
acquisition, was moved to a larger facility.
/(3)/ During 1999, the company closed its Customer will-call center in
Berkley, MI and consolidated it with their facility in Farmington Hills, MI
These properties are leased for periods of three to ten years and generally do
not include tenant renewal options. The Company believes its current facilities
are adequate for its current and reasonably foreseeable needs and that suitable
additional or alternative space will be available as needed to accommodate
future growth and to open additional distribution centers.
4
<PAGE>
Item 3. Legal Proceedings.
- ------ -----------------
The Company is involved in various legal proceedings in the ordinary course of
its business which are not anticipated to have a materially adverse effect on
the Company's results of operations or financial condition.
Following the public announcement of the merger and recapitalization, a
purported shareholders class action complaint was filed by Phronesis Partners,
L.P. on December 27, 1999 against Wilmar, Wilmar's directors and Parthenon
Capital, Inc. in the Superior Court of New Jersey, Chancery Division, Burlington
County (Docket No. BUR-C-171-99). The complaint alleges, among other things,
that Wilmar's directors have breached their fiduciary duties and that Parthenon
Capital has aided and abetted those breaches. The complaint also alleges, among
other things, that the proposed consideration for the merger and
recapitalization is unfair and inadequate. The complaint seeks to enjoin the
merger and recapitalization and also seeks damages. On March 17, 2000, the
plaintiffs filed a motion seeking leave to file an amended complaint adding a
claim alleging Wilmar's directors made misrepresentations in its preliminary
proxy solicitation materials and seeking to preliminarily enjoin Wilmar from
holding a shareholder vote on the merger and recapitalization. The parties have
agreed that the defendants will not object to the filing by the plaintiff of
their amended complaint and that the plaintiffs will reconsider the need for
pursuing their motion to preliminarily enjoin the shareholders vote. Wilmar and
Parthenon believe the allegations are without merit and are vigorously defending
against all claims. If plaintiffs decide to pursue their motion for a
preliminary injunction, it will be opposed. No final date has been set for a
hearing on the motion. Document and deposition discovery is proceeding.
The Company collects sales tax in 35 states and the District of Columbia where
it has the required contacts. From time to time, various states have sought to
impose on direct marketers the burden of collecting use taxes on the sale of
products shipped to residents of these states. The United States Supreme Court
held that it is unlawful for a state to impose use tax collection obligations on
an out-of-state company whose only contacts with the state were the distribution
of catalogs and other advertising materials through the mail and subsequent
delivery of purchased goods by mail or common carrier. In the event legislation
is passed to overturn the Supreme Court's decision, the imposition of a use tax
collection obligation on the Company in states into which it ships products but
with which it has no other contacts would result in additional administrative
expense to the Company and higher prices to customers.
Item 4. Submission of Matters to a Vote of Security Holders.
- ------ ---------------------------------------------------
No matters were submitted to a vote of security holders during the fourth
quarter of 1999.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
- ------ ---------------------------------------------------------------------
Since completing its initial public offering of Common Stock in the first
quarter of 1996, the Company's Common Stock has been listed on the National
Market segment of The Nasdaq Stock Market ("Nasdaq National Market") under the
symbol "WLMR." The following table sets forth the high and low stock prices for
each quarter in 1998 and 1999, as quoted on The Nasdaq National Market.
<TABLE>
<CAPTION>
Fiscal Year 1998 High Low
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<S> <C> <C>
First Quarter $26.00 $20.50
Second Quarter $25.50 $21.50
Third Quarter $28.25 $18.00
Fourth Quarter $25.38 $16.50
Fiscal Year 1999
- ----------------
First Quarter $23.50 $14.50
Second Quarter $17.00 $10.63
Third Quarter $14.88 $12.25
Fourth Quarter $17.38 $10.13
</TABLE>
At March 1, 2000, there were no shares of Preferred Stock outstanding. On March
1, 2000, the closing sale price for a share of Common Stock as reported by The
Nasdaq National Market was $ 17.00. As of March 1, 2000, there were
approximately 1,778 holders of the Company's Common Stock. The Company did not
declare dividends on its Common Stock in fiscal year 1999 or in fiscal year 1998
and does not intend to declare dividends on its Common Stock in the foreseeable
future.
5
<PAGE>
Item 6. Selected Financial Data.
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The selected financial and operating data set forth below should be read in
conjunction with the Consolidated Financial Statements of the Company, including
the notes thereto included elsewhere herein and "Management's Discussion and
Analysis of Financial Condition and Results of Operations." The selected
financial data for the fiscal years presented have been derived from the
Company's financial statements, which have been audited by independent auditors.
<TABLE>
<CAPTION>
Fiscal Year /(1)/
-----------------
(In thousands, except per share data)
1995 1996 1997 1998 1999
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net Sales $ 60,823 $100,644 $150,792 $192,605 $225,937
Cost of Sales /(2)/ 41,835 70,853 106,605 136,488 158,542
-------- -------- -------- -------- --------
Gross Profit 18,988 29,791 44,187 56,117 67,395
Operating and Selling Expenses 9,099 14,168 21,024 26,357 32,287
Corporate General & Admin. Expenses 3,985 6,718 9,857 11,114 13,942
Non-Recurring Severance Expenses -- -- 259 -- --
-------- -------- -------- -------- --------
Operating Income 5,904 8,905 13,047 18,646 21,166
Interest expense (income), net 1,164 (551) (1,580) (1,511) (753)
-------- -------- -------- -------- --------
Income before income taxes 4,740 9,456 14,627 20,157 21,919
-------- -------- -------- -------- --------
Income tax provision /(3)/ 1,896 3,593 5,393 7,692 8,545
-------- -------- -------- -------- --------
Net income /(3)/ $ 2,844 $ 5,863 $ 9,234 $ 12,465 $ 13,374
======== ======== ======== ======== ========
Net income per share /(3)/
- Basic $ 0.37 $ 0.53 $ .70 $ .93 $ 1.05
======== ======== ======== ======== ========
- Diluted $ 0.36 $ 0.51 $ .69 $ .92 $ 1.04
======== ======== ======== ======== ========
Weighted average common shares /(4)/
- Basic 7,765 11,105 13,165 13,368 12,726
======== ======== ======== ======== ========
- Diluted 7,868 11,458 13,335 13,504 12,858
======== ======== ======== ======== ========
Balance Sheet Data
Working capital (deficit) $ (54) $ 65,300 $ 64,848 $ 72,550 $ 50,646
Total assets 26,871 88,309 108,115 121,696 201,968
Long-term debt, less current portion 5,667 -- 500 -- 55,875
Mandatorily-redeemable preferred stock 25,058 -- -- -- --
Total stockholders' equity (deficit) (27,062) 75,500 90,549 103,789 104,573
</TABLE>
/(1)/ The Company's fiscal year is based on a 52/53 week fiscal period ending on
the last Friday in December. The fiscal year 1999 consists of 53 weeks
while all other years consists of 52 weeks.
/(2)/ Cost of sales includes merchandise, freight, distribution center occupancy
and delivery costs.
/(3)/ Prior to March 1, 1995, the Company elected to be taxed as an S
Corporation for federal (and certain state) income tax purposes. Pro forma
information has been computed as if the Company had been subject to
federal income taxes and all applicable state corporate income taxes for
each period presented. The income tax provision and net income for 1996
through 1999 are actual amounts.
/(4)/ See Note 2 to the Consolidated Financial Statements for description of the
determination of weighted-average common shares outstanding.
6
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Result
- ------- ----------------------------------------------------------------------
of Operations
-------------
Overview
Wilmar was founded in 1978 by its current Chief Executive Officer, William
Green, and his father, Martin Green, to provide reliable, next-day delivery of
repair and maintenance products to customers in its original Philadelphia
market. Since its inception, the Company has experienced significant growth. The
Company opened its second distribution center in Washington, D.C. in 1982 and
its third in Houston in 1987. Since 1991, the Company has accelerated its
growth, opening twelve distribution centers: Indianapolis (1991), Fresno (1992),
Atlanta (1993), Tampa (1994), Columbus (1995), Seattle (1995), Dallas (1997),
Charlotte (1997), Phoenix (1997), Las Vegas (1998), Boston (1998), and Cerritos,
CA opened in January 2000. The Company has acquired twelve additional
distribution centers through acquisitions: Miami (November 1995), Denver (May
1996), Houston (July 1996), San Antonio (July 1996), Chicago (January 1997),
Farmington Hills, Michigan (September 1997), Bronx, NY (November 1998), San
Diego, CA (October 1999), Louisville (December 1999), Florence, SC (December
1999), Edmonton, Alberta (December 1999) and Toronto, Ontario (December 1999).
The Company currently operates twenty-six distribution centers, as well as an
inventory transfer center.
On December 23, 1999, the Company entered into an Agreement and Plan of Merger
and Recapitalization (as amended, the "Merger Agreement") with WM Acquisition,
Inc., a subsidiary of an investor group led by Parthenon Capital and Chase
Capital Partners. The managing director of Parthenon Capital is also a member of
the Board of Directors of Wilmar. Pursuant to the terms of the Merger Agreement,
as a result of the merger (the "Merger") contemplated by the Merger Agreement,
WM Acquisition will be merged with and into the Company, each share of the
Company's common stock will be exchanged for $18.25 per share and the Company
shall remain as the surviving corporation. The Merger is contingent upon certain
conditions, including approval by the shareholders of the Company. Upon
consummation of the Merger, the Company's common stock will no longer be traded
on the Nasdaq National Market System, price quotations will no longer be
available and registration of the Company's common stock under the Securities
and Exchange Act of 1934 will terminate, resulting in part in no further public
reporting by Wilmar under such act.
Acquisitions
In July 1999, the Company acquired certain assets of The Mini Blind Company,
Inc. ("Mini Blind"), a distributor of vertical and mini blinds to the multi-
family or apartment housing market, based in San Antonio, TX. The total
purchase price of the acquisition was paid in cash.
In October 1999, the Company acquired 100% of the capital stock of Ace
Maintenance Mart USA, Inc. ("Ace"), a direct mail distributor of repair and
maintenance supplies, based in San Diego, CA. The purchase price of this
acquisition consisted of cash and has been allocated to the assets acquired
based upon their estimated fair market values.
In December 1999, the Company acquired 100% of the capital stock of J.A.
Sexauer, Inc. ("Sexauer"), based in Scarsdale, NY and its wholly owned
subsidiary Sexauer Ltd. ("Sexauer Ltd"), based in Toronto, Ontario, and 100% of
the capital stock of Trayco of S.C., Inc. ("Trayco"), based in Florence, SC
(Sexauer together with Sexauer Ltd and Trayco referred to hereafter as the
"Sexauer Group") from The Dyson-Kissner-Moran Corporation ("DKM"). The purchase
price of this acquisition consisted of cash and has been allocated on a
preliminary basis to the assets acquired based upon their estimated fair market
values.
Each of the acquisitions is being accounted for under the purchase method.
Goodwill and other intangibles recorded in connection with these acquisitions
are being amortized on a straight-line basis over 5 to 40 years.
7
<PAGE>
Results of operations
The following table sets forth statement of operations data as a percentage of
net sales for the periods indicated.
<TABLE>
<CAPTION>
Fiscal Year
--------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0%
Cost of Sales 70.7 70.9 70.2
----- ----- -----
Gross Profit 29.3 29.1 29.8
Operating and Selling Expenses 13.9 13.7 14.3
Corporate General and Administrative Expenses 6.5 5.7 6.1
Non-Recurring Severance Expenses 0.2 -- --
----- ----- -----
Operating Income 8.7 9.7 9.4
Interest expense (income) net (1.0) (0.8) (0.3)
----- ----- -----
Income before income taxes 9.7 10.5 9.7
----- ----- -----
Income tax provision 3.6 4.0 3.8
----- ----- -----
Net Income 6.1% 6.5% 5.9%
===== ===== =====
</TABLE>
Fiscal 1999 Compared to Fiscal 1998
Net Sales. Net sales increased by $33.3 million, or 17.3 %, to $225.9 million
in 1999 from $192.6 million in 1998. This increase was attributable to the
maturation of the existing sales force, the Company's telesales effort,
increased sales to national accounts and a substantial investment in "line-
hauling" (the use of third party trucks to ship multiple orders from a
distribution center to other markets overnight followed by next day local
delivery). Net sales for Fiscal 1999 includes sales of the Sexauer Group, from
the date of acquisition (which the company acquired in December of 1999). Net
sales, excluding the Sexauer Group, increased $24.9 million, or 12.9% from
$192.6 million in 1998.
Gross Profit. Cost of sales includes merchandise, freight, distribution center
occupancy and delivery costs. As a percentage of net sales, gross profit was
29.8% in 1999 compared to 29.1% in 1998. This increase was partly due to the
inclusion of Sexauer Group, which was acquired in December 1999. Sexauer
products generally carry higher gross margins than Wilmar products.
Operating and Selling Expenses. Operating and selling expenses consist of labor
and other costs associated with operating a distribution center, as well as
selling expenses and commissions. Operating and selling expenses increased by
$5.9 million, or 22.5%, to $32.3 million in 1999 from $26.4 million in 1998. Not
including expenses at Sexauer Group, operating and selling expenses increased
$4.1 million or 15.6%. As a percentage of net sales, these expenses represented
14.3% for 1999 compared to 13.7% for 1998.
Corporate General and Administrative Expenses. Corporate general and
administrative expenses increased by $2.8 million or 25.5%, to $13.9 million in
1999 from $11.1 million in 1998. This increase is primarily the result of the
enhanced staffing required to manage a larger volume of business, as well as the
inclusion of Sexauer Group expenses during the month of December. As a
percentage of net sales, corporate general and administrative expenses
represented 6.1% for 1999 compared to 5.7% for 1998.
Operating Income. Operating income increased by $2.5 million, or 13.5%, to
$21.2 million in 1999 from $18.6 million in 1998. As a percentage of net sales,
operating income was 9.4% for 1999 compared to 9.7% for 1998.
Interest Income. Net interest income for 1999 was $753,000 and $1.5 million for
1998. Net interest income for 1999 decreased due to additional interest expense
incurred during 1999.
8
<PAGE>
Fiscal 1998 Compared to Fiscal 1997
Net Sales. Net sales increased by $41.8 million, or 27.7%, to $192.6 million in
1998 from $150.8 million in 1997. This increase was attributable to the
maturation of the existing sales force, sales force additions, the Company's
telesales effort, increased sales to national accounts and a substantial
investment in "line-hauling" (the use of third party trucks to ship multiple
orders from a distribution center to other markets overnight followed by next
day local delivery). The Company's sales force at the end of 1998 was 233, an
increase of 58 when compared with the end of 1997. Sales attributable to the
existing sales force (salesmen employed for all of both periods) increased 17%.
In addition the acquisitions of MSC and certain assets of AMS-CA, AMS-NV, ACSPS
and Kurzon which occurred in September 1997, March 1998, May 1998, June 1998 and
November 1998, respectively, also contributed significantly to the Company's
growth. Price increases during both periods were modest and made only on
selected items. During the year ended December 25, 1998, Wilmar generated
approximately $8.2 million in net sales to new end markets as a result of the
Company's decision to target customers outside its core apartment housing market
beginning in the first quarter of 1995.
Gross Profit. Cost of sales includes merchandise, freight, distribution center
occupancy and delivery costs. As a percentage of net sales, gross profit was
29.1% in 1998 compared to 29.3% in 1997. This expected decrease in the gross
margin resulted from the acquisition of MSC. MSC's gross margins reflect a
product mix that includes a larger volume of major appliance sales, that yield a
lower gross margin percentage. In addition, the increased delivery expenses
associated with "line-hauling" to new markets, as well as higher relative
occupancy costs relating to the operation of the Company's new distribution
centers in Charlotte, San Antonio, Phoenix, Las Vegas and Boston, also
contributed to the decrease in gross margin when compared with 1997.
Operating and Selling Expenses. Operating and selling expenses consist of labor
and other costs associated with operating a distribution center as well as
selling expenses and commissions. Operating and selling expenses increased by
$5.3 million, or 25.4%, to $26.4 million in 1998 from $21.0 million in 1997. As
a percentage of net sales, these expenses represented 13.7% for 1998 compared to
13.9% for 1997. This decrease was primarily attributable to realizing the
benefits of economies of scale through the assimilation of the HMA acquisition
in July 1997 and the assimilation of the MSC acquisition in May 1998.
Corporate General and Administrative Expenses. Corporate general and
administrative expenses increased by $1.3 million or 12.7%, to $11.1 million in
1998 from $9.9 million in 1997. This increase is primarily the result of the
enhanced staffing required to manage a larger volume of business. As a
percentage of net sales, corporate general and administrative expenses
represented 5.8% for 1998 compared to 6.5% for 1997. During 1998, the Company
incurred approximately $182,000 in expenses related to the assimilation of MSC
and pre-opening expenses for its new San Antonio, Las Vegas and Boston
distribution centers, (the "assimilation and pre-opening expenses"). The Company
expenses all distribution center pre-opening and acquisition assimilation costs
when incurred. Excluding these expenses, corporate general and administrative
expenses as a percentage of net sales would have been 5.7% for 1998 compared to
6.3% for 1997.
Operating Income. Operating income increased by $5.6 million, or 42.9%, to
$18.6 million in 1998 from $13.0 million in 1997. As a percentage of net sales,
operating income was 9.7% for 1998 compared to 8.7% for 1997. During the third
quarter of 1997, operating income was negatively impacted by a non-recurring
severance charge of $259,000. Excluding the non-recurring charge, as well as the
assimilation and pre-opening expenses, operating income, as a percentage of net
sales, excluding these expenses, would have been 9.8% for 1998 compared to 9.0%
for 1997.
Interest Income. Net interest income for 1998 was $1.5 million and $1.6 million
for 1997. The interest income occurred as a result of the investment income from
the proceeds of the secondary public offering completed in July 1996.
Seasonality
Generally, the Company's sales volumes are not seasonal, although November and
December sales tend to be lower because customers defer purchases at year end as
their budget limits are met and because of the holiday season between
Thanksgiving and New Year's.
9
<PAGE>
Liquidity and Capital Resources
Historically, Wilmar's primary source of liquidity has been cash flow from
operations, supplemented by borrowings under its bank line of credit to support
increases in accounts receivable and inventory, net of accounts payable, and the
public sale of its securities.
During 1999, the Company repurchased one million shares of its Common Stock at
an average price of $12.80 per share, pursuant to its stock buyback program that
was announced earlier in the year.
Cash provided by operating activities was $23.1 million during 1999 compared to
$6.8 million in 1998. Cash provided by operating activities during 1999
consisted of $13.4 million of net income before adding back depreciation and
amortization and other non-cash charges of $2.8 million. Further offset by the
net changes in operating assets and liabilities of $6.9 million. This difference
primarily resulted from a $10.6 million increase in accounts payable, accrued
expenses, accrued interest and income taxes payable, offset by an increase in
the accounts receivable, inventory and prepaid expenses of $4.4 million, as well
as the change in other assets and deferred compensation of approximately
$700,000.
Cash used in investing activities during 1999 was $95.0 million, which consisted
primarily of approximately $1.9 million for the purchase of property and
equipment and $93.1 million relating to the acquisitions of Mini Blind, Ace and
the Sexauer Group.
Cash provided by financing activities during 1999 was approximately $46.6
million, consisting of approximately $59.4 million of net proceeds received from
additional notes payable, $93,000 of net proceeds received from the exercise of
stock options, offset by the purchase of treasury stock of $12.8 million.
Capital expenditures were $1.9 million for 1999 compared to $1.6 million for
1998. Capital expenditures for 1999 were primarily for the improvement and
updating of the Company's distribution centers, and the integration of its new
supply fulfillment system. The Company spent approximately $ 261,000 during 1999
to equip its new Denver, Chicago and Los Angeles distribution centers. A typical
distribution center requires a capital investment of approximately $150,000 to
$200,000 for equipment and leasehold improvements and an initial commitment of
approximately $250,000 for working capital (net of accounts payable attributable
to new inventory). The Company typically incurs expenses of approximately
$60,000 before a new distribution center becomes operational. The Company
intends to finance its future capital expenditures with cash flow from
operations and possibly with a portion of the term debt or capital leases.
In December 1999, in connection with the Sexauer Group acquisition (See Note 3
to the accompanying financial statements) the Company entered into a new credit
agreement with a syndicate of banks. The credit agreement provides for a five
year secured revolving credit facility of $30 million of borrowings ($5 million
outstanding and $25 million available at December 31, 1999) and a five year term
loan of $55 million ($55 million outstanding as of December 31, 1999), the
proceeds of which were used to purchase the Sexauer Group. Borrowings under the
revolving credit facility and the term loan facility bear interest at a rate
based on certain financial measures. At December 31, 1999 the effective interest
rates for the credit facilities was LIBOR plus 175 basis points (8.2% at
December 31, 1999). The Company is also required to pay a commitment fee of
0.375% per annum on the unused commitment. Interest on outstanding balances
under these credit facilities is due and payable quarterly. Additionally the
Company has an unsecured letter of credit facility of $5 million with one of the
banks in the syndicate, of which $ 98,495 was outstanding as of December 31,
1999.
The credit agreement contains customary affirmative and negative covenants,
including certain covenants requiring the Company to maintain it's debt to cash
flow ratio, fixed charge ratio in addition to meeting a minimum net worth test.
The Company was in compliance with all covenants at December 31, 1999.
Generally, prior to the Sexauer acquisition, cash flow from operations has been
sufficient to fund the Company's growth. The Company believes that funds
generated from operations, together with funds available under the credit
facilities discussed above, will be sufficient to fund the Company's current and
foreseeable operational needs and growth strategy. The Company believes that its
existing cash balances, supplemented by borrowings under existing credit
facilities, are adequate to meet planned operating and capital expenditure needs
at least through 2000. However, if the Company were to make any significant
acquisitions for cash, it may be necessary for the Company to obtain additional
debt or equity financing.
Inflation
The Company does not believe that inflation has had a material effect on its
results of operations in recent years. There can be no assurance, however, that
the Company's business will not be affected by inflation in the future.
10
<PAGE>
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
- ------- ----------------------------------------------------------
The Company does not utilize financial instruments for trading purposes and
holds no derivative financial instruments which could expose the Company to
significant market risk. The Company's primary market risk exposure with regard
to financial instruments is to changes in interest rates.
The table set forth below summarizes the fair values and contract terms of
financial instruments subject to interest rate risk maintained by us at December
31, 1999 (amounts in thousands):
<TABLE>
<CAPTION>
Expected Maturity Date Estimated
---------------------- Fair Value
2000 2001 2002 2003 2004 Total at 12/31/99
---- ---- ---- ---- ---- ----- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Debt
Variable Rate $4,125 $7,563 $10,313 $13,062 $24,937 $60,000 $60,000
Average interest rate 8.2% 8.2% 8.2% 8.2% 8.2%
</TABLE>
At December 25, 1998, the Company had notes payable in the amount of $1.2
million, which were repaid during 1999. Interest on these notes was 8%.
Item 8. Financial Statements and Supplementary Data.
- ------ -------------------------------------------
The consolidated financial statements of the Company and its subsidiaries and
supplementary data required by this item are attached to this report beginning
on page F-1.
Item 9. Changes In and Disagreements with Accountants on Accounting and
- ------ ---------------------------------------------------------------
Financial Disclosures.
---------------------
None.
11
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
- ------- --------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Name Age Position
- ---------------------------------------------------------------------------------------
<S> <C> <C>
William S. Green 41 Chairman and Chief Executive Officer
- ---------------------------------------------------------------------------------------
Fred B. Gross 62 V.P.-Corporate Development, Secretary and Director
- ---------------------------------------------------------------------------------------
Martin E. Hanaka 50 Director
- ---------------------------------------------------------------------------------------
Ernest K. Jacquet 53 Director
- ---------------------------------------------------------------------------------------
Donald M. Wilson 59 Director
- ---------------------------------------------------------------------------------------
</TABLE>
The Board of Directors is currently divided into three classes, each having
three-year terms that expire in successive years and consists of:
Class I William S. Green Term expires at the 2000 Annual Meeting
Class II Fred B. Gross Term expires at the 2001 Annual Meeting
Martin E. Hanaka
Class III Ernest K. Jacquet Term expires at the 2002 Annual Meeting
Donald M. Wilson
Independent directors are paid directors' fees of $1,500 for each Board meeting
they attend. In addition, directors are reimbursed for expenses incurred in
connection with their attendance at meetings of the Board and of committee on
which they serve. Directors are also eligible to participate in the 1996
Directors Stock Option Plan. In May 1999,Mr. Hanaka, Mr. Jacquet, and Mr. Wilson
were each granted options to purchase 20,000 shares at $11.25 per share.
Board of Directors
William S. Green Mr. Green, age 41, co-founded Wilmar in 1978 with his father
and has served as its Chairman, President and Chief
Executive Officer since 1986.
Fred B. Gross Mr. Gross, age 62, has served as Wilmar's Vice President and
Secretary since March 1994 and as Vice President-Corporate
Development since November 1995. He has served as a director
since July 1995. From 1989 until February 1994, Mr. Gross
was Regional Vice President of Angelo Brothers Company, a
supplier of electrical products, while also maintaining a
private law practice. Before attending law school, Mr. Gross
worked for 22 years in the plumbing supply industry.
Martin E. Hanaka Mr. Hanaka, age 50, has been a director since December 1996.
Since September 1998, he has served as Chief Executive
Officer of The Sports Authority, Inc. From October 1997
through August 1998, he served as Vice Chairman of The
Sports Authority, Inc. From August 1994 through October
1997, Mr. Hanaka was President and Chief Operating Officer
of Staples, Inc. From October 1992 until August 1994, he
held the positions of President and Chief Executive Officer
of Lechmere, Inc., and earlier as Executive President-
Marketing. Prior to joining Lechmere, Inc., Mr. Hanaka was
with Sears Roebuck and Co. where, commencing in 1990, he
served in various capacities, including Vice President-Brand
Central.
Ernest K. Jacquet Mr. Jacquet, age 52, has been a director of Wilmar since
March 1995. Since June 1998, he has served as managing
director of Partheon Capital, a venture partnership. From
April 1990 through May 1998, he served as a general partner
of Summit Partners, a venture partnership that is the
general partner of Summit Ventures III, L.P., Summit
Investors II, L.P. and Summit Subordinated Debt, L.P. Mr.
Jacquet also serves as a director of CIDCO Incorporated,
which designs, develops and markets subscriber telephone
equipment.
Donald M. Wilson Mr. Wilson, age 58, has been a director of Wilmar since July
1996. Mr. Wilson was employed by Viking Office Products from
December 1979 until his retirement in December 1995, most
recently serving as its Vice President-Operations.
12
<PAGE>
The Board of Directors currently has three standing committees:
Audit Committee The Audit Committee has the authority to recommend the
appointment of our independent auditors and review the
results and scope of audits, internal accounting
controls and tax and other accounting-related matters.
The Audit Committee consists of Messrs. Jacquet and
Wilson.
Compensation Committee The Compensation Committee has the authority to approve
salaries and bonuses and other compensation matters for
Wilmar's officers. In addition, the Compensation
Committee has the authority to approve employee health
and benefit plans. The Compensation Committee consists
of Messrs. Green, Jacquet and Wilson.
Stock Option Committee The Stock Option Committee administers the Stock Option
Plan. The Stock Option Committee consists of Messrs.
Jacquet and Wilson.
In September of 1999, the Board created a special committee consisting of Martin
E. Hanaka and Donald M. Wilson, for the purpose of considering any and all
proposals with respect to the acquisition of Wilmar.
Executive Officers
Wilmar's executive officers currently are:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Name Age Position
- --------------------------------------------------------------------------------
<S> <C> <C>
William S. Green 41 Chairman and Chief Executive Officer
- --------------------------------------------------------------------------------
Michael J. Grebe 42 President and Chief Operating Officer
- --------------------------------------------------------------------------------
William E. Sanford 40 Senior Vice President and Chief Financial Officer
- --------------------------------------------------------------------------------
Michael T. Toomey 35 Vice President - Finance and Treasurer
- --------------------------------------------------------------------------------
Fred B. Gross 62 V.P.-Corporate Development, Secretary and Director
- --------------------------------------------------------------------------------
</TABLE>
Biographical information about Messrs. Green and Gross can be found under "Board
of Directors".
Michael J. Grebe Mr. Grebe, age 42, joined Wilmar in November of 1998 as
Executive Vice President and Chief Operating Officer.
In October 1999, Mr. Grebe was named President of the
Company. 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.
William E. Sanford Mr. Sanford, age 40, joined Wilmar 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 the Company'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. 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.
Michael T. Toomey, Mr. Toomey, age 35, joined Wilmar 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.
13
<PAGE>
Item 11. Executive Compensation.
- ------- ----------------------
Summary Compensation Table
The following table shows, for the last three fiscal years, the cash and other
compensation paid to Wilmar's Chief Executive Officer and Wilmar's four other
most highly compensated executive officers.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Annual Compensation Long Term
Compensation
---------------------------------------------
Securities
Name Year Salary Bonus Underlying All Other
Options Compensation/(1)/
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
William S. Green 1999 $240,703 $ -0- 20,000 $3,611
Chairman and Chief Executive 1998 $245,111 $ -0- 10,050 $3,677
Officer 1997 $229,031 $ -0- 10,125 $3,435
- ----------------------------------------------------------------------------------------------------------
Michael J. Grebe/(2)/ 1999 $205,382 $100,000 50,000 $ -0-
President and Chief Operating 1998 $ 26,923 $ -0- 100,000 $ -0-
Officer
- ----------------------------------------------------------------------------------------------------------
William E. Sanford/(3)/ 1999 $127,500 $ 42,500 130,000 $ -0-
Senior Vice President and
Chief Financial Officer
- ----------------------------------------------------------------------------------------------------------
Fred B. Gross 1999 $132,597 $ 20,000 55,000 $3,315
Vice President - Corporate 1998 $120,730 $ 8,000 10,050 $3,018
Development and Secretary 1997 $112,809 $ -0- 5,125 $2,820
- ----------------------------------------------------------------------------------------------------------
Michael T. Toomey 1999 $123,925 $ 20,000 35,000 $3,098
Vice President - Finance and 1998 $103,670 $ 13,500 10,050 $2,704
Treasurer 1997 $102,345 $ -0- 5,125 $2,371
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(1) "All Other Compensation" consists of amounts matched by Wilmar under
its 401(k) Plan.
(2) Mr. Grebe joined Wilmar in November 1998. Under his employment
agreement, his annual base salary is $200,000.
(3) Mr. Sanford joined Wilmar in May 1999. Under his employment agreement,
his annual base salary is $195,000.
14
<PAGE>
Options Granted in Last Fiscal Year
The following table includes information on option grants during the 1999 fiscal
year to the executive officers named in the Summary Compensation Table.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Potential Realizable Value
at Assumed Annual Rates of
Stock Price Appreciation
Individual Grants (1) for Option Term (2)
----------------------------------------------------------------------------------
Percent of
Total
Options
Options Granted to Exercise Expiration
Name Granted Employees Price Date 5% 10%
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
William S. Green 20,000 3.41% $11.25 5/27/2009 141,500 358,590
- -------------------------------------------------------------------------------------------------------
Michael J. Grebe 50,000 8.53% $11.25 5/27/2009 353,750 896,480
- -------------------------------------------------------------------------------------------------------
William E. Sanford 130,000 22.18% $11.25 5/27/2009 919,760 2,330,850
- -------------------------------------------------------------------------------------------------------
Fred B. Gross 55,000 9.28% $11.25 5/27/2009 389,130 986,130
- -------------------------------------------------------------------------------------------------------
Michael T. Toomey 35,000 5.97% $11.25 5/27/2009 247,630 627,540
- -------------------------------------------------------------------------------------------------------
</TABLE>
(1) Except as otherwise noted, options were granted pursuant to the Stock
Option Plan. The options expire on the tenth anniversary of the date of
grant. In general, options terminate (a) at any time the optionee's
employment is terminated by Wilmar for cause or a voluntary termination of
employment by the employee, or (b) one year following the death or
disability of the employee. Options granted under the Stock Option Plan are
not assignable or otherwise transferrable except by will or the laws of
descent and distribution.
(2) The dollar amounts under these columns reflect the 5% and 10% rates of
appreciation prescribed by the Securities and Exchange Commission. These
dollar amounts are not intended to forecast future appreciation of Wilmar's
stock price. The Named Executive Officers will not benefit unless Wilmar's
stock price increases above the exercise price. Any gain to the Named
Executive Officers resulting from an increase in Wilmar's stock price would
benefit all shareholders.
Aggregated Option Exercised During Fiscal 1999
and Fiscal Year End Values
The following table shows the exercise of stock options in fiscal 1999 and the
number and value of options held as of December 31, 1999 by the executive
officers named in the Summary Compensation Table.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Number of Number of Securities Value of Unexercised
Shares Underlying Unexercised In-the-Money Options at
Acquired Value Options at Fiscal Year End Fiscal Year End
Upon Realized -------------------------------------------------------------
Exercise Upon
Name of Option Exercise Exercisable Unexercisable Exercisable Unexercisable
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
William S. Green - - 20,031 20,144 18,797 122,641
- ----------------------------------------------------------------------------------------------------------
Michael J. Grebe - - 150,000 318,750
- ----------------------------------------------------------------------------------------------------------
William E. Sanford - - 130,000 796,250
- ----------------------------------------------------------------------------------------------------------
Fred B. Gross - - 70,376 71,244 711,737 548,650
- ----------------------------------------------------------------------------------------------------------
Michael T. Toomey - - 51,631 53,344 490,529 453,755
- ----------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
William S. Green entered into an employment agreement with Wilmar in March 1995.
Under the terms of the agreement, Mr. Green will serve as Wilmar's Chief
Executive Officer until March 1, 2001, unless earlier terminated by Wilmar. His
annual base salary is $200,000, subject to adjustment, and an annual bonus upon
achieving specified financial targets set by the Compensation Committee. The
agreement contains certain non-competition and related provisions. The agreement
will be replaced by a new employment agreement following the Merger
Fred B. Gross entered into an employment agreement with Wilmar in March 1996.
The term of the agreement expires in April 2000, but is renewed automatically
for successive one-year terms unless terminated by either party. The agreement
provides that Mr. Gross will receive an annual base salary of not less than
$107,500. The agreement contains certain non-competition and related provisions.
The Board of Directors created the Compensation Committee and the Stock Option
Committee to have responsibility for implementing and administrating Wilmar's
compensation policies and programs for its executive officers.
The Compensation Committee is responsible for setting the base salaries and the
total compensation levels of the Chief Executive Officer and Wilmar's other
executive officers. Mr. Green does not participate in the approval of his
compensation. The Stock Option Committee is responsible for determining which
executives, including the Chief Executive Officer, will be granted stock options
and the size of such grants.
Compensation Policies
Wilmar's compensation policies for executive officers are designed to:
(a) provide competitive compensation packages that will attract and retain
superior executive talent,
(b) link a significant portion of compensation to financial results, so as to
reward successful performance, and
(c) provide long-term equity compensation, to further align the interests of
the executive officers with those of Wilmar's shareholders and further
reward successful performance.
The principal components of Wilmar's executive officer compensation program are
base salary, annual cash incentive awards and grants of stock options.
Base salary levels for Wilmar's executive officers are reviewed on an annual
basis by the Compensation Committee and are set generally to be competitive with
other companies of comparable size and geographic location, taking into
consideration the position's complexity, responsibility and need for special
expertise. Individual salaries also take into account individual experience and
performance.
The annual cash incentive award for 1999 was based on individual responsibility
and contribution to the Company's performance.
Wilmar granted stock options to its executive officers in 1999. The issuance of
stock options was based on Wilmar meeting certain earnings targets established
by the Board of Directors.
Long-Term Compensation
The Stock Option Committee annually considers the desirability of granting stock
options to Wilmar's officers and other employees. The objective of the Stock
Option Plan is to align senior management and shareholder long-term interests by
creating a strong and direct link between the executive's accumulation of wealth
and shareholder return to enable executives to develop and maintain a
significant, long-term stock ownership position in Wilmar's common stock.
Individual grants of stock options under the Stock Option Plan are based upon
individual performance. The Stock Option Committee believes that its past grants
of stock options have successfully focused Wilmar's executive officers and other
members of senior management on building profitability and shareholder value.
In May 1999, the Compensation Committee approved an Amendment to the 1995 Stock
Option Plan in the form of an Equity Participation Program with the goals of:
(i) retaining critical senior management during a time of management transition,
(ii) providing incentives to senior managers to accelerate earnings growth,
(iii) providing for significant equity appreciation for senior managers if
aggressive earnings growth targets were met and (iv) to follow-up the original
options awarded in 1995 which were already substantially vested to provide the
remaining senior managers with continuing equity incentives. The Equity
Participation Program consisted of a one time grant of a total of 250,000
options to seven senior executives. These options expire 10 years from the date
of issuance and vest 100% upon the sooner of: (a) achievement by the Company of
an annual earnings per share of $1.80, (b) the sale of the Company or (c) five
years from the date of issuance.
16
<PAGE>
In determining the compensation of Mr. Green, the Compensation Committee has
taken into consideration pay levels of chief executive officers of other
companies, his contributions to the profitable growth and increased return on
equity over the past several years and Mr. Green's overall management strengths
and business acumen. It noted that the earnings per share, assuming dilution, of
Wilmar's common stock increased 13% over last year and the return to
shareholders, as measured by the December 31, 1999 closing price of Wilmar's
common stock, has increased 55% from the IPO price of $11.00 per share. Mr.
Green's total annual compensation increased 10% over the same period. The
Compensation Committee and the Stock Option Committee determined that Mr. Green
should be granted additional options since Wilmar had achieved the earnings
target established by the Board of Directors. Therefore, Mr. Green was granted
stock options to purchase 20,000 shares of common stock in May 1999.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
- ------- --------------------------------------------------------------
The following table sets forth, as of December 31, 1999, beneficial ownership of
shares of Common Stock of Wilmar by (1) each person known to have beneficial
ownership of more than five percent of Wilmar's common stock, (2) each director
and named executive officer, (3) all directors and executive officers as a group
and (4) each of the Management Shareholders.
<TABLE>
<CAPTION>
Total Number of Shares
of Common Stock Exercisable Percentage of
Shareholder Beneficially Owned Options(1) Common Stock(2)
- -------------------------------------------- ---------------------- ------------ ---------------
<S> <C> <C> <C>
William S. Green (3),(4) 2,013,536 40,175 16.5%
Ernest K. Jacquet (4),(5) 2,013,536 30,000 16.4%
WM Acquisition, Inc. (4) 2,013,536 16.2%
Dresdner RCM Global Investors LLC (6) 1,949,800 15.7%
T. Rowe Price Associates, Inc. (7) 1,404,364 11.3%
Brown Investment Advisory and Trust Co. (8) 1,370,051 11.0%
The Kaufman Fund (9) 900,000 7.3%
The TCW Group, Inc. (10) 681,000 5.5%
Denver Investment Advisors LLC (11) 627,350 5.1%
Fred B. Gross (12) 48,009 141,620 1.5%
Michael J. Grebe - 150,000 1.2%
William E. Sanford 500 130,000 1.0%
Martin E. Hanaka 1,000 32,500 *
Michael T. Toomey - 104,975 *
Donald M. Wilson - 32,500 *
Directors and Officers as a Group
(8 Persons) 2,063,045 661,770 20.8%
</TABLE>
_____________________
* Less than 1% of Wilmar's outstanding shares of common stock.
(1) Assumes acceleration of vesting upon consummation of the merger.
(2) All percentages are based on 12,407,826 shares outstanding on December 31,
1999. If a person holds options that are currently exercisable or
exercisable within 60 days, the number of shares underlying the options are
considered outstanding and beneficially owned for the purpose of computing
that person's percentage ownership. Such shares are not considered
outstanding for the purpose of computing the beneficial ownership of others
listed in the table.
(3) Include 3,800 shares of common stock held by the William S. Green
Irrevocable Sibling Trust dated December 31, 1998, but excludes 43,009
shares of common stock held by Green Family Associates, L.P. Mr. Green
disclaims beneficial ownership of the shares held by Green Family
Associates, L.P.
(4) As a result of the voting and exchange agreement entered into by William S.
Green and WM Acquisition, Inc. on December 22, 1999, the indicated
individuals and entities, Parthenon Investors, L.P., Parthenon Investment
Advisors, L.L.C., Parthenon Investment Partners, L.L.C., and John C.
Rutherford, have shared voting power with respect to 2,013,536 shares of
common stock beneficially owned by William S. Green, and, therefore
beneficial ownership as defined by the applicable rules of the Securities
and Exchange Commission. This information is based upon the Schedule 13 D
filed on December 22, 1999 jointly by the individuals and entities, the
principal business address of each of whom is c/o Parthenon Capital, Inc.,
200 State Street, Boston, MA 02109.
(5) Mr. Jacquet received options to purchase 10,000 shares on May 7, 1998 and
options to purchase 20,000 shares on May 6, 1999.
(6) This information is based upon the Schedule 13G/A filed February 16, 1999
with the Securities and Exchange Commission by Dresdner RCM Global
Investors LLC, which is located at Four Embarcadero Center, San Francisco,
California 94111, and is a wholly-owned subsidiary of Dresdner RCM US
Holdings LLC.
17
<PAGE>
(7) This information is based upon the Schedule 13G filed June 8, 1999 with the
Securities and Exchange Commission by T. Rowe Price Associates, Inc., which
is located at 100 E. Pratt Street, Baltimore, Maryland 21202, and includes
850,000 shares of common stock held by T. Rowe Price New Horizons Fund,
Inc.
(8) This information is based upon the Schedule 13G/A filed April 13, 1999 with
the Securities and Exchange Commission by Brown Investment Advisory & Trust
Company, which is located at 19 South Street, Baltimore, Maryland 21202,
and includes 1,016,000 shares of common stock held by Brown Advisory
Incorporated.
(9) This information is as of December 31, 1998 and is based on available
public information. The Kaufman Fund is located at 140 East 45th Street,
43rd Floor, New York, New York 10017.
(10) This information is based upon the Schedule 13G filed February 12, 1999
filed with the Securities and Exchange Commission by The TCW Group, Inc.,
which is located at 865 South Figueroa Street, Los Angeles, California
90017.
(11) This information is based upon the Schedule 13G/A filed February 12, 1999
with the Securities and Exchange Commission by Denver Investment Advisors
LLC, which is located at 1225 17/th/ Street, 26/th/ Floor, Denver, Colorado
80202.
(12) Includes 43,009 shares of common stock held by Green Family Associates,
L.P., of which Mr. Gross is an officer of its general partner, ALA Green
Corporation.
Item 13. Certain Relationships and Related Transactions.
- ------- ----------------------------------------------
Exchange of Shares by William Green
On December 23, 1999, the Company entered into an Agreement and Plan of Merger
and Recapitalization (as amended, the "Merger Agreement") with WM Acquisition,
Inc., a subsidiary of an investor group led by Parthenon Capital and Chase
Capital Partners. Pursuant to the terms of the Merger Agreement, as a result of
the merger (the "Merger") contemplated by the Merger Agreement, WM Acquisition
will be merged with and into the Company, each share of the Company's common
stock will be exchanged for $18.25 per share and the Company shall remain as the
surviving corporation. The Merger is contingent upon certain conditions,
including approval by the shareholders of the Company. Upon consummation of the
Merger, the Company's common stock will no longer be traded on the Nasdaq
National Market System, price quotations will no longer be available and
registration of the Company's common stock under the Securities and Exchange Act
of 1934 will terminate, resulting in part in no further public reporting by
Wilmar under such act.
In connection with the Merger, William S. Green has agreed to a recapitalization
exchange in which an aggregate of 164,384 of his shares of Wilmar common stock
will be exchanged for an equal number of shares of new Class C Preferred Stock
of Wilmar. Mr. Green will, however, receive merger consideration in the amount
of $18.25 per share for the remaining 1,849,152 shares of common stock owned by
him. Wilmar has agreed to take all reasonable actions necessary to ensure that
this exchange is completed.
Lease
On April 29, 1996, Wilmar entered into an operating lease agreement with 804
Eastgate Associates, LLC, an entity owned by William S. Green, Fred B. Gross and
an unrelated third party, pursuant to which Wilmar leases approximately 70,000
square feet for a warehouse and customer service center in Mount Laurel, New
Jersey. The minimum monthly rent is $24,052 from January 1, 1997 through May 31,
2001; from June 1, 2001 through the end of the lease term, the rent will
increase based on the Consumer Price Index. Wilmar pays, as additional rent,
all real estate taxes and assessments, all utilities and insurance premiums for
casualty insurance and any other public liability insurance relating to the
premises. Under the terms of the lease, Wilmar is solely responsible for the
costs of maintenance, operation and repair of the property. The lease expires
on May 31, 2006. Wilmar believes that the terms of the lease are no less
favorable to it than could be obtained from an unaffiliated third party. Wilmar
paid rent under this lease of approximately $289,000 in fiscal 1999.
Wilmar's headquarters in Moorestown, New Jersey, is leased to Wilmar by William
S. Green. Under the lease dated March 1, 1994, and amended March 7, 1995,
Wilmar rents approximately 12,500 square feet at an annual minimum rent of
$137,500. Wilmar pays, as additional rent, all real estate taxes and
assessments, all utilities and insurance premiums for casualty insurance and any
other public liability insurance relating to the premises. Under the terms of
the lease, Wilmar is solely responsible for the costs of maintenance, operation
and repair of the property. The lease expires on February 28, 2004 and does not
contain any renewal terms. Wilmar believes that the terms of the lease are no
less favorable to it than could be obtained from an unaffiliated third party.
Wilmar paid rent under this lease in the amount of $137,500 in fiscal 1999.
These leases shall remain in effect after the consummation of the Merger.
18
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
- ------- ----------------------------------------------------------------
(a) 1. Financial Statements. Financial Statements listed in the
--------------------
accompanying Index to Financial Statements and Financial Statement Schedules
appearing on page F-1 are filed as part of this annual report on Form 10-K.
2. Financial Statement Schedules. Financial Statement Schedules
-----------------------------
listed in the accompanying Index to Financial Statements and Financial Statement
Schedules appearing on page F-1 are filed as part of this annual report on Form
10-K.
(b) Reports on Form 8-K.
-------------------
On December 20, 1999 the Company filed Form 8-K pertaining to the stock
purchase agreement with Dyson-Kissner-Moran Corporation for the acquisition
of the Sexauer Group.
On December 29,1999 the Company filed Form 8-K pertaining to the plan of
merger and recapitalization entered into with WM Acquisition, Inc., a
subsidiary of an investor group led by Parthenon Capital and Chase Capital
Partners.
(c) Exhibits.
--------
The following is a list of exhibits filed as part of this annual report on
Form 10-K. Where so indicated by footnote, exhibits which were previously filed
are incorporated by reference.
Exhibit No. Description
- ---------- ------------
3.1(a)+ Certificate of Incorporation.
3.2+ Bylaws.
9 Voting and Exchange Agreement dated December 22, 1999 between
William S Green and WM Acquisition, Inc.
10.1+ Amended and Restated 1995 Stock Option Plan.
10.2++ Lease Agreement, dated April 29, 1996, between the Company and
804 Eastgate Associates, L.L.C.
10.3++ Assumption Agreement, dated as of June 1, 1996, between the
Company and 804 Eastgate Associates, L.L.C.
10.4+ Amended and Restated Registration Rights Agreement, dated as of
March 9, 1996, among the Company, William Green and the Summit
Investors.
10.5+ Registration Rights Agreement, dated as of July 8, 1996, among
the Company and the shareholders of HMA Enterprises, Inc.
10.6+ Amended and Restated Employment Agreement, dated as of April 12,
1994 between the Company and Fred B. Gross, Esq.
10.7+ Employment Agreement, dated as of March 9, 1995, between the
Company and William S. Green.
10.8+++ Agreement and Plan of Merger and Recapitalization dated December
23, 1999 by and among the Company and WM Acquisition, Inc., a
subsidiary of an investor group led by Parthenon Capital and
Chase Partners
21 Subsidiaries of the Company.
23 Consent of Deloitte & Touche, LLP.
27 Financial Data Schedule
+ Incorporated by reference to the Company's Registration Statement on Form
S-1 (No. 33-99750), filed with the Securities and Exchange Commission on
November 22, 1995.
++ Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 29, 1996.
+++ Incorporated by reference to the Company's filing form 8-K, filed December
29, 1999.
19
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
WILMAR INDUSTRIES, INC.
Date: March 24, 2000 By /s/ William S. Green
----------------------
William S. Green
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Each person, in so signing also makes, constitutes and appoints William S.
Green, Chairman and Chief Executive Officer of Wilmar Industries, Inc., and Fred
B. Gross, Vice President - Corporate Development and Secretary of Wilmar
Industries, Inc., and each of them acting alone, as his true and lawful
attorneys-in-fact, in his name, place and stead, to execute and cause to be
filed with the Securities and Exchange Commission any or all amendments to this
report.
Signature Capacity Date
- --------------------------------------------------------------------------------
/s/ William S. Green Chairman and Chief Executive Officer March 24, 2000
- -------------------- (principal executive officer) and
William S. Green Director
/s/ Michael J. Grebe President and Chief Operating Officer March 24, 2000
- --------------------
Michael J. Grebe
/s/ William E. Sanford Senior Vice President and Chief March 24, 2000
- ---------------------- Financial Officer (principal financial
William E. Sanford and accounting officer)
/s/ Fred B. Gross Vice President - Corporate Development, March 24, 2000
- ----------------- Secretary and Director
Fred B. Gross
/s/ Michael T. Toomey Vice President - Finance and Treasurer March 24, 2000
- ---------------------
Michael T. Toomey
/s/ Martin E. Hanaka Director March 24, 2000
- ---------------------
Martin E. Hanaka
/s/ Ernest K. Jacquet Director March 24, 2000
- ---------------------
Ernest K. Jacquet
/s/ Donald M. Wilson Director March 24, 2000
- --------------------
Donald M. Wilson
20
<PAGE>
Wilmar Industries, Inc.
Index to Consolidated Financial Statements and Financial Statement Schedules
<TABLE>
<CAPTION>
<S> <C>
Independent Auditors' Report.......................................... F-2
Consolidated Balance Sheets........................................... F-3
Consolidated Statements of Income..................................... F-4
Consolidated Statements of Stockholders' Equity....................... F-5
Consolidated Statements of Cash Flows................................. F-6
Notes to Consolidated Financial Statements............................ F-7
Schedule II - Valuation and Qualifying Accounts....................... F-17
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Wilmar Industries, Inc.
Moorestown, NJ
We have audited the accompanying consolidated balance sheets of Wilmar
Industries, Inc. and its subsidiaries (the "Company") as of December 31, 1999
and December 25, 1998, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three fiscal years in the
period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
December 31, 1999 and December 25, 1998, and the results of their operations and
their cash flows for each of the three fiscal years in the period ended December
31, 1999, in conformity with accounting principles generally accepted in the
United States of America.
DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
March 6, 2000
F-2
<PAGE>
ITEM 1 - FINANCIAL STATEMENTS
WILMAR INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
December 31, December 25,
1999 1998
---------------- -----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 5,445,468 $ 30,611,955
Cash - restricted 309,054 297,236
Accounts Receivable - trade, net of allowance for doubtful
accounts of $2,130,807 in 1999 and $1,399,200 in 1998. 39,442,711 27,535,016
Inventory 40,911,232 30,128,680
Prepaid expenses and other current assets 3,432,122 385,992
Deferred income taxes 2,188,206 1,498,000
---------------- -----------------
Total current assets 91,728,793 90,456,879
PROPERTY AND EQUIPMENT, net of accumulated depreciation
of $10,128,061 in 1999 and $4,740,501 in 1998. 8,972,008 4,183,348
GOODWILL, net of accumulated amortization of $1,746,467 in 1999 and $973,445 in 1998. 84,779,524 22,133,860
INTANGIBLE ASSETS AND OTHER, Net 16,487,886 4,921,704
---------------- -----------------
TOTAL ASSETS $ 201,968,211 $ 121,695,791
================ =================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ - $ 1,208,518
Current portion of long-term debt 4,125,000
Accounts payable 21,884,606 11,991,661
Accrued expenses and other current liabilities 13,898,073 4,294,425
Accrued interest 315,100
Income taxes payable 860,113 412,160
---------------- -----------------
Total current liabilities 41,082,892 17,906,764
LONG-TERM LIABILITIES
Deferred Compensation 437,676
Long-term debt - net of current portion 55,875,000 -
---------------- ----------------
Total liabilities 97,395,568 17,906,764
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, 5,000,000 shares authorized; none issued Common
stock, no par value - 50,000,000 shares authorized;
12,407,826 shares issued and outstanding in 1999
13,389,827 shares issued and outstanding in 1998 103,725,914 103,568,743
Accumulated other comprehensive income 56,383
Retained earnings 13,593,909 220,284
---------------- ----------------
117,376,206 103,789,027
Less: Treasury stock, at cost (1,000,000 shares in 1999) 12,803,563)
---------------- ----------------
Total stockholders' equity 104,572,643 103,789,027
---------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 201,968,211 $ 121,695,791
================ ================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
WILMAR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Year Year
Ended Ended Ended
December 31, December 25, December 26,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
NET SALES $ 225,937,584 $ 192,605,005 $ 150,792,516
COST OF SALES 158,542,170 136,488,192 106,604,587
------------- ------------- -------------
Gross profit 67,395,414 56,116,813 44,187,929
OPERATING EXPENSES:
Operating and selling expenses 32,287,060 26,356,579 21,024,183
Corporate general and administrative expenses 13,942,617 11,113,491 9,857,340
------------- ------------- -------------
Total operating expenses 46,229,677 37,470,070 30,881,523
------------- ------------- -------------
Operating income 21,165,737 18,646,743 13,306,406
INTEREST INCOME, NET 752,793 1,510,941 1,580,056
------------- ------------- -------------
Income before income taxes 21,918,530 20,157,684 14,886,462
PROVISION FOR INCOME TAXES 8,544,905 7,692,500 5,393,200
------------- -------------- -------------
Net income $ 13,373,625 $ 12,465,184 $ 9,493,262
============= ============= =============
Net income per share - Basic $ 1.05 $ 0.93 $ 0.72
============= ============= =============
Net income per share - Diluted $ 1.04 $ 0.92 $ 0.71
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
WILMAR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Accumulated Accumulated
Deficit) / Other Total
Common Stock Retained Comprehensive Treasury Stockholders'
Shares Amount Earnings Income Stock Equity
---------- ------------ ------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 27, 1996 13,048,371 $ 96,978,776 $ (21,479,162) $ -- $ 75,499,614
Exercised Stock Options 131,485 1,305,796 1,305,796
Tax Benefit from Exercised Stock Options 660,000 660,000
Issuance of Common Stock - Mile High 4,652 100,024 100,024
Issuance of Common Stock - Management Supply 151,246 3,749,388 3,749,388
Comprehensive income - Net income 9,234,262 9,234,262
---------- ------------ ------------- ------------ ------------ --------------
BALANCE, DECEMBER 26, 1997 13,335,754 $102,793,984 $ 12,244,900) $ - $ - $ 90,549,084
Exercised Stock Options 48,350 360,446 360,446
Tax Benefit from Exercised Stock Options 283,600 283,600
Issuance of Common Stock - Apartment Cleaning 5,723 130,713 130,713
Comprehensive income - Net income 12,465,184 12,465,184
---------- ------------ ------------- ------------ ------------ --------------
BALANCE, DECEMBER 25, 1998 13,389,827 $103,568,743 $ 220,284 $ - $ - $ 103,789,027
Exercised Stock Options 17,999 93,041 93,041
Tax Benefit from Exercised Stock Options 64,130 64,130
Repurchase of Common Stock (1,000,000) (12,803,563) (12,803,563)
Comprehensive income
Net income 13,373,625
Foreign currency translation 56,383
Total comprehensive income 13,430,008
---------- ------------ ------------- ------------ ------------ --------------
BALANCE, DECEMBER 31, 1999 12,407,826 $103,725,914 $ 13,593,909 $ 56,383 $(12,803,563) $ 104,572,643
========== ============ ============= ============ ============ ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
WILMAR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -----------------------------------------------------------------------------------------------------------------------------
For the Year For the Year For the Year
Ending Ending Ending
December 31, 1999 December 25, 1998 December 26, 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 13,373,625 $ 12,465,184 $ 9,234,262
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,455,559 1,971,872 1,391,884
Deferred income taxes 374,518 (271,000) (205,000)
Loss (gain) on disposition of property and equipment 12,939 16,504 (2,012)
Changes in assets and liabilities, net of effects of
acquisition:
Accounts receivable (2,207,096) (2,803,543) (2,767,229)
Inventory (52,163) (4,278,081) (4,342,521)
Prepaid expenses and other current assets (2,115,052) 501,327 (623,110)
Other 1,081,311 (15,432) 121,584
Accounts payable 5,117,281 (1,253,257) 2,787,491
Accrued expenses and other current liabilities 4,815,947 (29,315) 123,009
Accrued interest 315,100
Deferred Compensation (404,350)
Income taxes payable 347,914 474,941 (1,524,797)
--------------- --------------- -----------------
Net cash provided by operating activities 23,115,533 6,779,200 4,193,561
--------------- --------------- -----------------
INVESTING ACTIVITIES :
Purchase of property and equipment, net (1,924,478) (1,559,686) (1,679,103)
Proceeds from sale of property and equipment 2,500 4,400 7,958
Proceeds from sale of short-term investments - - 3,927,276
Acquisition of businesses, including escrow (93,075,900) (5,596,151) (15,000,452)
--------------- --------------- -----------------
Net cash used in investing activities (94,997,878) (7,151,437) (12,744,321)
--------------- --------------- -----------------
FINANCING ACTIVITIES :
(Repayment of) proceeds from notes payable 59,359,482 (100,000) (260,000)
Purchases of stock for treasury (12,803,563)
Net proceeds from exercise of stock options 93,041 360,446 1,305,796
--------------- --------------- -----------------
Net cash provided by financing activities 46,648,960 260,446 1,045,796
--------------- --------------- -----------------
Effect of exchange rate changes on cash 66,898 - -
--------------- --------------- -----------------
NET DECREASE IN CASH (25,166,487) (111,791) (7,504,964)
CASH, BEGINNING OF PERIOD 30,611,955 30,723,746 38,228,710
--------------- --------------- -----------------
CASH, END OF PERIOD $ 5,445,468 $ 30,611,955 $ 30,723,746
=============== =============== =================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for
Interest $ 159,972 $ 11,328 35,329
=============== =============== =================
Income taxes $ 7,849,737 $ 5,765,843 $ 6,872,600
=============== =============== =================
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Issuance of Common Stock in connection with the purchase of :
Apartment Cleaning Supply and Pool Supply, Inc. $ 130,713
Management Supply Company $ 3,749,388
Mile High Maintenance Supply, Inc. $ 100,024
Issuance of Notes and other liabilities recorded in connection with the
purchase of :
Ace Maintenance Mart USA, Inc. $ 120,000
Apartment Cleaning Supply and Pool Supply, Inc. $ 529,350
Kurzon Supply Company $ 658,125
American Maintenance Supply, Inc. - CA $ 109,164
American Maintenance Supply, Inc. - NV $ 150,013
Pier-Angeli Group, Inc. $ 75,000
Management Supply Company $ 1,125,000
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-6
<PAGE>
WILMAR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE FISCAL YEARS IN THE PERIOD ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
1. DESCRIPTION OF THE BUSINESS
Wilmar Industries, Inc. ("Wilmar" or the "Company") is a national marketer
and distributor of repair and maintenance products with twenty-six
distribution centers throughout the United States. The Company sells
primarily to apartment complexes and other institutional customers.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The consolidated financial statements include
the accounts of Wilmar Industries, Inc. and its subsidiaries. Inter-company
balances and transactions have been eliminated.
Fiscal Year - The Company operates on a 52-53 week fiscal year, which ends on
the last Friday in December. The fiscal year ended December 31, 1999 was a
fifty-three week year. The fiscal years ended December 25, 1998 and December
26, 1997 were fifty-two week years. References herein to 1999, 1998 and 1997
are for the fiscal years ended December 31, 1999, December 25, 1998 and
December 26, 1997, respectively.
Cash and Cash Equivalents - Cash and cash equivalents consist of cash and
highly liquid investments with an original maturity of three months or less.
Inventory - Inventory is stated at the lower of cost (first-in, first-out
method) or market.
Property and Equipment - Property, equipment and leasehold improvements are
stated at cost. Expenditures for additions, renewals and betterments are
capitalized; expenditures for maintenance and repairs are charged to expense
as incurred. Upon the retirement or disposal of assets, the cost and
accumulated depreciation or amortization is eliminated from the accounts and
the resulting gain or loss is credited or charged to operations.
Depreciation is computed primarily using the straight-line method based upon
estimated useful lives of the assets, and amortization is computed using the
straight-line method based upon the remaining terms of the associated leases,
as follows:
Buildings 40 years
Machinery and equipment 5-7 years
Office furniture and equipment 5-7 years
Leasehold improvements Remaining lease term
Goodwill - Goodwill, which represents the excess of cost over the fair value
of net assets acquired, is being amortized on a straight-line basis over
estimated useful lives ranging from 30 to 40 years. The Company assesses the
recoverability and the amortization period of goodwill by determining whether
the amounts can be recovered through undiscounted net cash flows of the
businesses acquired over the remaining respective amortization period.
Long-Lived Assets - Intangible assets include amounts assigned to customer
lists and non-compete agreements. Intangibles are amortized on a straight-
line basis over their useful lives, 20 to 25 years for customer lists and 3
to 10 years for non-compete agreements. The Company analyzes the carrying
value of its recorded intangible assets and other long-lived assets
periodically or when facts or circumstances indicate that the carrying value
may be impaired. The review includes an assessment of customer retention,
cash flow projections and other factors the Company believes are relevant.
The Company uses the discounted future expected net cash flows of each
identifiable asset to measure impairment losses. The Company has not
identified any impairment losses with respect to long-lived assets for all
fiscal years presented.
Deferred Financing Costs - Costs incurred in connection with the issuance of
debt are deferred and amortized as a component of interest expense over the
term of the related debt using the straight-line method.
Foreign Currency Translation - Assets and liabilities of the Company's
foreign subsidiary, where the functional currency is the local currency, is
translated into United States dollars at the fiscal year end exchange rate.
The related translation adjustments are recorded as a component of other
comprehensive income. Revenues and expenses are translated using average
exchange rates prevailing during the year. Foreign currency transaction
gains and losses are included in other (income) expense.
F-7
<PAGE>
Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results may differ from those estimates and
assumptions.
Fair Value of Financial Instruments - The carrying value of cash and cash
equivalents, accounts receivable, and accounts payable approximate fair value
because of the short maturities of these items. The carrying values of notes
payable and long-term debt are a reasonable estimates of their fair values.
The estimated fair values of notes payable and long-term debt were determined
by discounting the future cash flows using rates currently available to the
Company for similar instruments.
Revenue Recognition- Sales are recognized as product is shipped, F.O.B. point
of shipment and are net of sales returns, allowances and credits.
Cost of Sales - Cost of sales includes merchandise costs, freight,
distribution center occupancy and delivery costs.
Pre-Opening Distribution Center Expenses - Pre-opening distribution center
expenses are expensed as incurred.
Advertising Costs - The Company expenses advertising costs as incurred.
Advertising expenses were approximately $652,000, $492,500 and $ 448,000 in
1999, 1998 and 1997, respectively.
Stock-Based Compensation - Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock Based Compensation," encourages, but
does not require companies to record compensation cost for stock-based
employee compensation plans at fair value. The Company has chosen to
continue to account for stock-based compensation using the intrinsic method
prescribed in Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees," and related Interpretations. Accordingly,
compensation cost for stock options is measured as the excess, if any, of the
quoted market price of the Company's stock at the date of the grant over the
amount an employee must pay to acquire the stock (see Note 9).
Income Taxes - Taxes on income are provided in accordance with SFAS No. 109,
"Accounting for Income Taxes," which requires an asset and liability approach
to financial accounting and reporting for income taxes. Deferred income tax
assets and liabilities are computed for differences between the financial
statement and tax bases of assets and liabilities that will result in taxable
or deductible amounts in the future. Such deferred income tax asset and
liability computations are based on enacted tax laws and rates applicable to
periods in which the differences are expected to affect taxable income.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amounts expected to be realized.
Net Income per Share Data - Net income per share for all periods have been
computed in accordance with SFAS No. 128, "Earnings per Share." Basic net
income per share is computed by dividing net income by the weighted-average
number of shares outstanding during the year. Diluted net income per share is
computed by dividing net income by the weighted-average number of shares
outstanding during the year, assuming dilution.
The amounts used in calculating net income per share data are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net Income $13,373,625 $12,465,184 $ 9,234,262
=========== =========== ===========
Weighted Average Shares Outstanding - Basic 12,725,630 13,367,815 13,165,416
Effect of Dilutive Stock Options 132,389 136,140 169,214
----------- ----------- -----------
Weighted Average Shares Outstanding - Diluted 12,858,019 13,503,955 13,334,630
=========== =========== ===========
</TABLE>
Options to purchase 386,156, 90,625 and 25,900 shares of common stock which
were outstanding during 1999, 1998 and 1997, respectively, were not included
in the computation of weighted average shares outstanding - Diluted because
the options' exercise price was greater than the average market price of
common shares.
F-8
<PAGE>
Segment Information - The Company is in one industry, the distribution of
repair and maintenance products. In accordance with SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information", the
Company aggregates all of its distribution centers and reports one
operating segment.
Approximate sales by product category are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------------ ------------------ ------------------
<S> <C> <C> <C>
Plumbing $ 65,522,000 $ 55,855,000 $ 45,238,000
Electrical 38,409,000 38,521,000 27,143,000
Hardware 31,631,000 30,817,000 22,619,000
Appliance and Appliance Parts 29,372,000 26,965,000 15,079,000
Other 61,003,584 40,447,005 40,713,516
------------------ ------------------ ------------------
$225,937,584 $192,605,005 $150,792,516
================== ================== ==================
</TABLE>
The Company's revenues and assets outside the United States are not
significant
Recent Accounting Pronouncements - In June 1998, the Financial Accounting
Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities", which establishes accounting and reporting
standards for derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively referred to as
"derivatives") and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the statement
of financial position and measure those instruments at fair value. This
statement, as amended by SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities -Deferral of the Effective Date of FASB
Statement No. 133", is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. Management has not yet determined what
effect, if any, this statement will have on the Company.
3. SIGNIFICANT TRANSACTIONS
Merger Agreement - In December 1999, the Company entered into an Agreement
and Plan of Merger and Recapitalization (as amended, the "Merger
Agreement") with WM Acquisition, Inc., a subsidiary of an investor group
led by Parthenon Capital and Chase Capital Partners. The managing director
of Parthenon Capital is also a member of the Board of Directors of Wilmar.
Pursuant to the terms of the Merger Agreement, as a result of the merger
(the "Merger") contemplated by the Merger Agreement, WM Acquisition will be
merged with and into the Company, each share of the Company's common stock
will be exchanged for $18.25 per share and the Company shall remain as the
surviving corporation. The Merger is contingent upon certain conditions,
including approval by the shareholders of the Company. Upon consummation of
the Merger, the Company's common stock will no longer be traded on the
Nasdaq National Market System, price quotations will no longer be available
and registration of the Company's common stock under the Securities and
Exchange Act of 1934 will terminate, resulting in part in no further public
reporting by Wilmar under such act.
Acquisitions - During 1999, the Company completed three acquisitions (Ace
Maintenance Mart USA, Inc., The Mini Blind Company, Inc., and the Sexauer
Group) for an aggregate purchase price of $93.1 million, including costs of
acquisition. Goodwill recorded in connection with these acquisitions
totaled approximately $ 63.8 million. The allocation of the purchase price
for the Sexauer Group has not been finalized; the accompanying financial
statements reflect the preliminary allocations.
During 1998, the Company completed four acquisitions (The California-based
American Maintenance Supply, Inc., Apartment Cleaning Supply and Pool
Supply, Inc., the Nevada-based American Maintenance Supply, Inc., and
Kurzon Supply Company, Inc.) for an aggregate base purchase price of
approximately $7.2 million, including costs of acquisition. Goodwill
recorded in connection with these acquisitions was approximately $ 4.5
million.
During 1997, the Company completed three acquisitions (Management Supply
Company, Pier-Angeli Group, Inc. and Lindley Plumbing and Supply Company)
for an aggregate base purchase price of approximately $20.1 million,
including costs of acquisition. Goodwill recorded in connection with these
acquisitions was $12.6 million.
The above acquisitions have been accounted for under the purchase method of
accounting, and accordingly, the net assets and results of operations have
been included in the accompanying consolidated financial statements since
the dates of acquisition. The excess of purchase price over the estimated
fair values of the net assets acquired for the above investment has been
allocated to intangible assets and goodwill with amortization over 3 to 40
years.
F-9
<PAGE>
The following table presents the unaudited results of operations of the
Company for each of the three fiscal years in the period ended December 31,
1999 as if the acquisitions had been consummated as of the beginning of the
prior fiscal year, and include certain pro forma adjustments to reflect the
amortization of intangible assets, reduction of overhead charges, reduction
in compensation, interest expense on amounts drawn on the Company's line of
credit to finance the acquisition as if the acquisitions had occurred on the
dates described above and inclusion of a federal income tax provision:
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------ -------------
<S> <C> <C> <C>
Revenues $302,556,000 $195,909,000 $172,376,000
Net income 14,979,000 12,904,000 10,018,000
Net income per share - Basic 1.18 0.97 0.75
Net income per share - Diluted 1.16 0.96 0.75
</TABLE>
The unaudited pro forma results of operations are prepared for comparative
purposes only and do not necessarily reflect the results that would have
occurred had the acquisitions occurred at the dates described above or the
results which may occur in the future.
4. INTANGIBLE ASSETS AND OTHER
Intangible assets and other consist of the following:
<TABLE>
<CAPTION>
1999 1998
------------------ -----------------
<S> <C> <C>
Intangible assets $18,603,692 $5,502,000
Less accumulated amortization (2,581,365) (829,887)
------------------ -----------------
16,022,327 4,672,113
Deposits 307,427 249,591
Other 158,132 --
------------------ -----------------
$16,487,886 $4,921,704
================== =================
</TABLE>
5. Balance Sheet Components
<TABLE>
<CAPTION>
Property and equipment 1999 1998
------------------ -----------------
<S> <C> <C>
Land $ 1,060,004 $
Building 3,773,893
Machinery and equipment 4,374,067 3,513,458
Office furniture and equipment 6,402,433 3,489,494
Vehicles 975,717 953,282
Leasehold improvements 1,133,568 967,615
------------------ -----------------
17,719,682 8,923,849
Less accumulated depreciation and amortization (8,747,674) (4,740,501)
------------------ -----------------
$ 8,972,008 $ 4,183,348
================== =================
Depreciation expense was approximately $1,165,216, $1,005,000 and $786,000 for 1999, 1998 and 1997, respectively.
Accrued Expenses and Other Current Liabilities
Sales tax payable $ 1,109,154 $ 759,798
Accrued compensation and related benefits 5,065,598 934,320
Other accrued liabilities 7,723,321 2,600,307
------------------ -----------------
$13,898,073 $ 4,294,425
================== =================
</TABLE>
F-10
<PAGE>
6. DEBT
Notes Payable - At December 25, 1998, the Company had notes payable to the
former shareholders of Management Supply Company, which totaled $1,125,000.
Also, at December 25, 1998, the Company had current notes payable to former
shareholders of other acquired companies, totaling $83,518. These notes
were repaid during 1999.
Long-term Debt - In December 1999, in connection with the Sexauer Group
acquisition, the Company entered into a new credit agreement with a
syndicate of banks. The credit agreement provides for a five year revolving
credit facility of $30 million of borrowings ($5 million outstanding at
December 31, 1999) and a five year term loan of $55 million ($55 million
outstanding as of December 31, 1999), the proceeds of which were used to
purchase the Sexauer Group. Borrowings under these credit facilities are
secured by substantially all assets of the Company and bear interest at a
rate which varies based on certain financial measures as defined in the
credit agreement. At December 31, 1999 the effective interest rates for the
credit facilities was LIBOR plus 175 basis points (8.2% at December 31,
1999). The Company is also required to pay a commitment fee of 0.375% per
annum on the unused commitment. Interest on outstanding balances under
these credit facilities is due and payable quarterly. Additionally the
Company has an unsecured letter of credit facility of $5 million with one
of the banks in the syndicate.
The credit agreement contains customary affirmative and negative covenants,
including certain covenants requiring the Company to maintain it's debt to
cash flow ratio, fixed charge ratio in addition to meeting a minimum net
worth test. The Company was in compliance with all covenants at December
31, 1999.
The maturities of long-term debt for the five fiscal years subsequent to
December 31, 1999 are as follows:
<TABLE>
<S> <C>
2000 $ 4,125,000
2001 7,562,500
2002 10,312,500
2003 13,062,500
2004 24,937,500
---------------
$60,000,000
===============
</TABLE>
Interest expense was $ 475,072, $ 68,792, and $ 17,099 for 1999, 1998 and
1997, respectively.
7. PROFIT SHARING PLAN
The Company has qualified profit sharing plans under Section 401(k) of the
Internal Revenue Code. Contributions to the plan by the Company are made at
the discretion of the Company's Board of Directors. Company contributions
to the plan were approximately $326,678, $208,600 and $151,300 for 1999,
1998 and 1997, respectively.
8. COMMITMENTS AND CONTINGENT LIABILITIES
Lease Commitments - The Company leases its facilities under operating
leases expiring at various dates through 2006. Minimum future rental
payments under these leases as of December 31, 1999 are as follows:
<TABLE>
<S> <C>
2000 4,399,690
2001 4,013,565
2002 3,505,030
2003 2,492,983
2004 1,360,971
Thereafter 207,246
---------------
Total $15,979,485
===============
</TABLE>
The Company operates a distribution center, which is leased from an entity,
which is partially owned by two officers of the Company. Minimum annual
rent payable under this lease is approximately $289,000, plus all real
estate taxes and assessments, utilities and insurance related to the
premises. Total rent expense for this lease was approximately $289,000 for
each fiscal year in the period ended December 31, 1999. This lease expires
on May 31, 2006 and does not contain any renewal terms. The Company
believes that the terms of the lease are no less favorable to it than could
be obtained from an unaffiliated party.
F-11
<PAGE>
The Company maintains its executive office, which is leased from a
stockholder of the Company. As amended in March 1995, under the terms of the
lease, the Company is required to pay approximately $137,500 annually, plus
all real estate taxes and assessments, utilities and insurance related to the
premises. Total rental expense for this lease was $ 137,500, for each fiscal
year in the period ended December 31, 1999. The lease expires on February 28,
2004 and does not contain any renewal terms. The Company believes that the
terms of the lease are no less favorable to it than could be obtained from an
unaffiliated party.
Rent expense under all operating leases was approximately $3.3 million, $3.9
million and $2.2 million for 1999, 1998 and 1997, respectively. Certain of
the leases provide that the Company pays taxes, insurance and other operating
expenses applicable to the leased premises.
Employment Agreement - The Company has an employment agreement with its Chief
Executive Officer until March 2001, unless terminated earlier by the Company,
at an annual base salary of $200,000, subject to adjustments plus bonus.
Contingent Liabilities - At December 31,1999, the Company was contingently
liable for unused letters of credit aggregating approximately $717,273.
Legal Proceedings - The Company is involved in various legal proceedings in
the ordinary course of its business, which are not anticipated to have a
material adverse effect on the Company's results of operations or financial
position.
Following the public announcement of the merger and recapitalization, a
purported shareholders class action complaint was filed by Phronesis
Partners, L.P. on December 27, 1999 against Wilmar, Wilmar's directors and
Parthenon Capital, Inc. in the Superior Court of New Jersey, Chancery
Division, Burlington County (Docket No. BUR-C-171-99). The complaint alleges,
among other things, that Wilmar's directors have breached their fiduciary
duties and that Parthenon Capital has aided and abetted those breaches. The
complaint also alleges, among other things, that the proposed consideration
for the merger and recapitalization is unfair and inadequate. The complaint
seeks to enjoin the merger and recapitalization and also seeks damages. On
March 17, 2000, the plaintiffs filed a motion seeking leave to file an
amended complaint adding a claim alleging Wilmar's directors made
misrepresentations in its preliminary proxy solicitation materials and
seeking to preliminarily enjoin Wilmar from holding a shareholder vote on the
merger and recapitalization. The parties have agreed that the defendants will
not object to the filing by the plaintiffs of their amended complaint and
that the plaintiffs will reconsider the need for pursuing their motion to
preliminarily enjoin the shareholders vote. Wilmar and Parthenon believe the
allegations are without merit and are vigorously defending against all
claims. If plaintiffs decide to pursue their motion for a preliminary
injunction, it will be opposed. No final date has been set for a hearing on
the motion. Document and deposition discovery is proceeding.
The Company collects sales tax in 35 states and the District of Columbia
where it has the required contacts. From time to time, various states have
sought to impose on direct marketers the burden of collecting use taxes on
the sale of products shipped to residents of these states. The United States
Supreme Court held that it is unlawful for a state to impose use tax
collection obligations on an out-of-state company whose only contacts with
the state were the distribution of catalogs and other advertising materials
through the mail and subsequent delivery of purchased goods by mail or common
carrier. In the event legislation is passed to overturn the Supreme Court's
decision, the imposition of a use tax collection obligation on the Company in
states into which it ships products but with which it has no other contacts
would result in additional administrative expense to the Company and higher
prices to customers.
F-12
<PAGE>
9. STOCK OPTION PLAN
The Company has a stock option plan (the "1995 Plan") under which employees
may be granted options to purchase shares of Common Stock. The Company also
has a plan (the "Director Plan") under which non-employee directors may be
granted options to purchase shares of Common Stock. The 1995 Plan and the
Director Plan, together, are referred to hereafter as the Option Plans.
Options granted are to be issued at prices equal to at least fair market
value and expire up to ten years after the grant date. The stock option
plans are administered by the Compensation Committee of the Board of
Directors, which determines the vesting provisions, the form of payment for
shares and all other terms of the options. The maximum number of shares to
be reserved under the 1995 Plan (as amended in 1999) and Director Plan is
1,600,000 and 100,000 shares, respectively. At December 31, 1999, 394,628
shares were available for future grants. Stock option transactions are
summarized as follows:
<TABLE>
<CAPTION>
Weighted
Number Exercise Price Average Exercise
of Shares Per Share Price Per Share
--------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding at December 27, 1996: 398,200 $ 4.23 - $24.25 $ 6.72
1997:
Granted 187,900 $15.25 - $29.75 $18.83
Exercised (131,485) $ 4.23 - $15.50 $10.00
Forfeited (17,600) $ 4.23 - $29.75 $19.23
---------
Outstanding at December 26, 1997: 437,015 $ 4.23 - $29.75 $10.43
1998:
Granted 291,138 $16.50 - $25.88 $19.96
Exercised (48,350) $ 4.23 - $21.00 $ 7.46
Forfeited (35,050) $15.50 - $29.75 $21.93
---------
Outstanding at December 25, 1998: 644,753 $ 4.23 - $28.75 $14.33
1999:
Granted 585,700 $11.25 - $23.50 $11.52
Exercised (17,999) $ 4.23 - $15.50 $ 5.17
Forfeited (102,793) $ 4.23 - $28.75 $14.96
Expired (2,123) $15.50 - $26.25 $16.95
---------
Outstanding at December 31, 1999: 1,107,538 $ 4.23 - $28.75 $12.91
---------
</TABLE>
The following table summarizes information about the stock options
outstanding under the Option Plans as of December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- -------------------
Number Weighted Average Weighted- Number Weighted-
Range of Outstanding at Remaining Average Exercisable Average
Exercise Prices 12/31/99 Contractual Life Exercise Price at 12/31/99 Exercise Price
- --------------- -------------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 4.23 188,337 5.2 years $ 4.23 121,366 $ 4.23
$11.00 - $16.50 605,820 9.1 years 11.90 56,395 14.31
$16.88 - $25.25 308,381 8.3 years 19.99 78,796 21.36
$25.38 - $28.75 5,000 7.9 years 26.32 1,000 26.52
--------- ------- ------
1,107,538 257,557 $11.76
========= ======= ======
</TABLE>
F-13
<PAGE>
All stock options are granted at a price not less than the fair market value
of the Common Stock at the grant date. The weighted average fair value of the
stock options granted during 1999, 1998 and 1997 were $6.42, $10.70 and
$10.06, respectively. The fair value of each stock option granted is
estimated on the date of grant using the Black-Scholes option pricing model
with the following weighted average assumptions used for grants in 1999, 1998
and 1997:
1999 1998 1997
--------- --------- ---------
Risk-free interest rate 5.5 % 5.1 % 6.5 %
Expected volatility 63.0 % 60.0 % 57.3 %
Expected life 4.5 years 4.5 years 4.5 years
Contractual life 10 years 10 years 10 years
Dividend yield 0.0 % 0.0 % 0.0 %
The Company accounts for the Option Plans in accordance with APB Opinion No.
25, under which no compensation cost has been recognized for stock option
awards. Had compensation cost for the Option Plans been determined with SFAS
No. 123, "Accounting for Stock-Based Compensation", the Company's pro forma
net income and earnings per share for each of the fiscal years in the period
ended December 31, 1999 would have been as follows (in thousands, except per
share amounts):
1999 1998 1997
------- ------- -------
Net Income:
As reported $13,374 $12,465 $ 9,234
Pro forma $12,842 $11,765 $ 8,579
Net Income per share:
As reported $ 1.05 $ 0.93 $ 0.70
Pro forma $ 1.01 $ 0.88 $ 0.65
Net Income per share, assuming dilution:
As reported $ 1.04 $ 0.92 $ 0.69
Pro forma $ 1.00 $ 0.87 $ 0.64
F-14
<PAGE>
10. PROVISION FOR INCOME TAXES
The income tax provision for each of the fiscal years in the period ended
December 31, 1999 is as follows:
1999 1998 1997
---------- ---------- ----------
Current:
Federal $7,202,900 $6,812,800 $4,733,500
State 901,600 1,150,700 864,700
Foreign 65,905
---------- ---------- ----------
8,170,405 7,963,500 5,598,200
---------- ---------- ----------
Deferred:
Federal 210,565 (247,600) (181,000)
State 163,953 (23,400) (24,000)
---------- ---------- ----------
374,518 (271,000) (205,000)
---------- ---------- ----------
$8,544,923 $7,692,500 $5,393,200
========== ========== ==========
The reconciliation of the provision for income taxes at the federal statutory
tax rate to the provision for income taxes is as follows:
1999 1998 1997
-------- -------- --------
Federal statutory tax rate 34.0 % 34.0 % 34.0 %
State income taxes, net of federal benefit 3.0 3.8 4.8
Non-deductible expenses 1.7 1.1 1.0
Non-taxable investment income (0.2) (0.7) (2.3)
Other 0.5 - (0.6)
-------- -------- --------
39.0 % 38.2 % 36.9 %
======== ======== ========
Deferred income taxes result primarily from temporary differences in the
recognition of certain expenses for financial and income tax reporting
purposes.
The components of the Company's net deferred tax asset consisted of the
following as of:
December 31, December 25,
1999 1998
-------------- --------------
Inventory $ 1,421,500 $ 935,000
Bad debt reserves 712,626 483,000
State taxes 218,208 146,000
Other (164,128) (66,000)
-------------- --------------
$ 2,188,206 $ 1,498,000
============== ==============
F-15
<PAGE>
11. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Unaudited quarterly financial information for 1999 and 1998 are as follows
(amounts are in thousands, except per share data):
<TABLE>
<CAPTION>
1999
---------------------------------------------------------------------
First Second Third Fourth
(13 Weeks) (13 Weeks) (13 Weeks) (14 Weeks)
<S> <C> <C> <C> <C>
Net sales $48,747 $55,017 $58,616 $63,557
Gross profit 14,695 15,921 16,833 19,946
Operating income 4,610 5,154 5,907 5,495
Net income 3,052 3,351 3,789 3,182
Net income per share - Basic $ 0.23 $ 0.26 $ 0.30 $ 0.26
Net income per share - Diluted $ 0.23 $ 0.26 $ 0.30 $ 0.25
1998
---------------------------------------------------------------------
First Second Third Fourth
(13 Weeks) (13 Weeks) (13 Weeks) (13 Weeks)
<S> <C> <C> <C> <C>
Net sales $43,545 $49,659 $52,093 $47,308
Gross profit 12,609 14,303 15,063 14,142
Operating income 3,854 4,662 5,542 4,589
Net income 2,673 3,109 3,631 3,052
Net income per share - Basic $ 0.20 $ 0.23 $ 0.27 $ 0.23
Net income per share - Diluted $ 0.20 $ 0.23 $ 0.27 $ 0.23
</TABLE>
The total of the quarterly information presented above may not equal the
annual results presented in the Consolidated Statement of Income as a
result of rounding.
The Company's quarters end on the last Friday of each calendar quarter.
The Company's sales volumes tend to be lower in the fourth quarter because
customers defer purchases at year end as their budget limits are met. In
addition, net sales in the fourth quarter are reduced because of the
holidays during the period.
F-16
<PAGE>
SCHEDULE II
WILMAR INDUSTRIES, INC.
VALUATION ACCOUNTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Balance at Balance at
Beginning Charged to Other End
of Year Expense Deductions/1/ Changes of Year
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended December 26, 1997:
Allowance for doubtful accounts $ 806,300 586,025 525,675 493,150/2/ $1,359,800
------------ --------- --------- ------------ ===========
Year ended December 25, 1998:
Allowance for doubtful accounts $1,359,800 305,002 265,602 - $1,399,200
------------ --------- --------- ------------ ===========
Year ended December 31, 1999:
Allowance for doubtful accounts $1,399,200 240,000 365,680 857,287/3/ $2,130,807
------------ --------- --------- ------------ ===========
</TABLE>
1. Accounts receivable written off as uncollectible, net of
recoveries.
2. Represents reserves established in connection with acquisitions of
Management Supply Company, Pier-Angeli Group and Lindley Supply
Company. See Note 3 to Consolidated Financial Statements.
3. Represents reserves established in connection with acquisitions of
The Mini Blind Co, Ace Maintenance USA and the Sexauer Group. See
Note 3 to Consolidated Financial Statements.
F-17
<PAGE>
EXHIBIT 9
VOTING AND EXCHANGE AGREEMENT
VOTING AND EXCHANGE AGREEMENT, dated as of December 22, 1999 (this
"Agreement"), by and between WM Acquisition, Inc., a New Jersey corporation
(the "Merger Sub"), and Mr. William Green, a stockholder (the "Stockholder") of
Wilmar Industries, Inc., a New Jersey corporation (the "Company").
WHEREAS, the Company and Merger Sub propose to enter into an Agreement and
Plan of Merger and Recapitalization, dated as of the date hereof (the "Merger
Agreement"), which provides for, among other things, the merger of Merger Sub
with and into the Company (the "Merger");
WHEREAS, as of the date hereof, the Stockholder is a holder of record or
Beneficially Owns (as defined herein) shares of common stock, no par value per
share, of the Company ("Company Common Stock"); and
WHEREAS, as a condition to the willingness of Merger Sub to enter into the
Merger Agreement, Merger Sub has required that the Stockholder agree, and in
order to induce Merger Sub to enter into the Merger Agreement, the Stockholder
has agreed to enter into this Agreement with respect to all of the shares of
Company Common Stock and shares of Class C Preferred Stock, par value $.10 per
share, of the Company now held of record or Beneficially Owned and which may
hereafter be acquired by such Stockholder (collectively, the "Shares").
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements contained herein, and intending to be legally bound hereby, the
parties hereto hereby agree as follows:
ARTICLE I
Certain Definitions
Section 1.1 General. Capitalized terms used and not defined herein have the
respective meanings ascribed to them in the Merger Agreement.
Section 1.2 Beneficial Ownership. For purposes of this Agreement,
"Beneficially Own" or "Beneficial Ownership" with respect to any securities
shall mean "beneficial ownership" of such securities (as determined pursuant to
Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")), including pursuant to any agreement, arrangement or understanding,
whether or not in writing.
ARTICLE II
Voting
Section 2.1 Voting Agreement. The Stockholder hereby agrees as follows:
(a) to appear, or cause the holder of record on any applicable record
date with respect to any Shares Beneficially Owned by such Stockholder (the
"Record Holder") to appear, in person or by proxy, for the purpose of
obtaining a quorum at any annual or special meeting of stockholders of the
Company and at any adjournment thereof at which matters relating to the
Merger, the Merger Agreement or any transaction contemplated thereby are
considered; and
(b) at any meeting of the stockholders of the Company, however called,
and in any action by consent of the stockholders of the Company, to vote,
or cause to be voted by the Record Holder, in person or by proxy, the
Shares held of record or Beneficially Owned by the Stockholder: (i) in
favor of the Merger, the Merger Agreement (as amended from time to time)
and the transactions contemplated by the Merger
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<PAGE>
Agreement and (ii) against any proposal for any extraordinary corporate
transaction, such as a recapitalization, dissolution, liquidation, or sale
of assets of the Company or any merger, consolidation or other business
combination (other than the Merger) between the Company and any Person
(other than Merger Sub) or any other action or agreement in each case that
is intended or which reasonably could be expected to (x) result in a breach
of any covenant, representation or warranty or any other obligation or
agreement of the Company under the Merger Agreement, (y) result in any of
the conditions to the Company's obligations under the Merger Agreement not
being fulfilled or (z) impede, interfere with, delay, postpone or adversely
affect the Merger and the transactions contemplated by the Merger
Agreement.
Section 2.2 Proxy. The Stockholder hereby revokes any and all prior proxies
or powers-of-attorney in respect of any of the Shares and constitutes and
appoints Merger Sub or any nominee of Merger Sub, with full power of
substitution and resubstitution, at any time during the term of this Agreement,
as its true and lawful attorney and proxy (its "Proxy"), for and in its name,
place and stead, to demand that the Secretary of the Company call a special
meeting of the stockholders of the Company for the purpose of considering any
matter referred to in Section 2.1 (if permitted under the Company's Certificate
of Incorporation or By-Laws) and to vote all of the Stockholder's Shares as its
Proxy, at every annual, special, adjourned or postponed meeting of the
stockholders of the Company, including the right to sign his name (as
Stockholder) to any consent, certificate or other document relating to the
Company that New Jersey law may permit or require as provided in Section 2.1.
Section 2.3 No Ownership Interest. Except as set forth in Section 2.1 and
Section 2.2, nothing contained in this Voting Agreement shall be deemed to vest
in Merger Sub any direct or indirect ownership or incidence of ownership of or
with respect to any Shares. All rights, ownership and economic benefits of and
relating to the Shares shall remain and belong to the Stockholder.
Section 2.4 Evaluation of Investment. The Stockholder, by reason of his
knowledge and experience in financial and business matters, believes himself
capable of evaluating the merits and risks of the investment in shares of the
Class C Preferred Stock of the Company and shares of preferred stock and common
stock of Surviving Corporation, contemplated by this Agreement and the Merger
Agreement. The Stockholder acknowledges receipt and review of a copy of the
Merger Agreement.
ARTICLE III
Representations and Warranties of the Stockholder
The Stockholder hereby represents and warrants to Merger Sub as follows:
Section 3.1 Authority Relative to This Agreement. The Stockholder has all
necessary power and authority to execute and deliver this Agreement, to perform
his obligations hereunder and to consummate the transactions contemplated
hereby. Such Stockholder is an individual with the capacity to enter into this
Agreement. This Agreement has been duly and validly executed and delivered by
the Stockholder and, assuming the due authorization, execution and delivery by
the other parties hereto, constitutes a legal, valid and binding obligation of
the Stockholder, enforceable against the Stockholder in accordance with its
terms, except to the extent enforceability may be limited by bankruptcy,
insolvency, moratorium or other similar laws affecting creditors' rights
generally or by general principles governing the availability of equitable
remedies.
Section 3.2 No Conflict. (a) The execution and delivery of this Agreement by
the Stockholder does not, and the performance of this Agreement by the
Stockholder shall not, (i) conflict with or violate any agreement, arrangement,
law, rule, regulation, order, judgment or decree to which the Stockholder is a
party or by which the Stockholder (or the Shares held of record or Beneficially
Owned by such Stockholder) is bound or affected or (ii) result in any breach of
or constitute a default (or an event that with notice or lapse or time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation
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<PAGE>
of, or result in the creation of a lien or encumbrance on any of the Shares
held of record or Beneficially Owned by the Stockholder pursuant to any note,
bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which the Stockholder is a party
or by which the Stockholder (or the Shares held of record or Beneficially Owned
by the Stockholder) is bound or affected.
(b) The execution and delivery of this Agreement by the Stockholder does not,
and the performance of this Agreement by the Stockholder shall not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any governmental entity except for applicable requirements, if any, of
federal or state securities and antitrust laws.
Section 3.3 Title to the Shares. As of the date hereof, the Stockholder is
the record or Beneficial Owner of the Shares listed opposite the name of the
Stockholder on the signature page hereto. The Shares listed opposite the name
of the Stockholder on the Stockholder's signature page hereto are all the
securities of the Company either held of record or Beneficially Owned by the
Stockholder. Except as set forth in Section 2.2, the Stockholder has not
appointed or granted any proxy, which appointment or grant is still effective,
with respect to the Shares held of record or Beneficially owned by the
Stockholder. The Shares listed opposite the name of the Stockholder on the
signature page hereto are owned free and clear of all security interests,
liens, claims, pledges, options, rights of first refusal, limitations on the
Stockholder's voting rights, charges and other encumbrances of any nature
whatsoever.
ARTICLE IV
Covenants of the Stockholder
Section 4.1 No Inconsistent Agreements. The Stockholder hereby represents,
warrants, covenants and agrees that, except as contemplated by this Agreement
and the Merger Agreement, the Stockholder has not and shall not enter into any
voting agreement or grant a proxy or power of attorney with respect to the
Shares held of record or Beneficially Owned by the Stockholder.
Section 4.2 Transfer of Title. The Stockholder hereby covenants and agrees
that the Stockholder will not, prior to the termination of this Agreement,
either directly or indirectly, offer or otherwise agree to sell, assign,
pledge, hypothecate, transfer, exchange, or dispose of any Shares or options,
warrants or other convertible securities to acquire or purchase Company Common
Stock or Series C Preferred Stock (collectively, "Derivative Securities") or
any other securities or rights convertible into or exchangeable for Company
Common Stock, owned either directly or indirectly by the Stockholder or with
respect to which the Stockholder has the power of disposition, whether now or
hereafter acquired without the prior written consent of Merger Sub (provided
nothing contained herein will be deemed to restrict the exercise or conversion
of Derivative Securities outstanding on the date hereof). The Stockholder
hereby agrees and consents to the entry of stop transfer instructions by the
Company against the transfer of any Shares inconsistent with the terms of this
Section 4.2.
Section 4.3 Exchange of Shares. Prior to the Effective Time, the Stockholder
shall exchange 164,384 shares of Common Stock for an equal number of Shares of
Class C Preferred Stock as contemplated by Section 5.16 of the Merger Agreement
pursuant to a plan of recapitalization adopted by the Company.
ARTICLE V
Miscellaneous
Section 5.1 No Solicitation. From the date hereof until the Effective Time
or, if earlier, the termination of the Merger Agreement in accordance with its
terms, the Stockholder (a) shall not have, or shall immediately terminate any
discussions with, any third party concerning a Takeover Proposal and (b) shall
not, and shall not
C-3
<PAGE>
authorize any officer, director, employee, controlled affiliate, investment
banker or other agents (in such agency capacity), or the Stockholder to,
directly or indirectly, (i) solicit, engage in discussions or negotiate with
any Person (whether such discussions or negotiations are initiated by the
Stockholder or otherwise) or take any other action intended or designed to
facilitate the efforts of any Person, other than Merger Sub, relating to a
Takeover Proposal, (ii) provide information with respect to the Company or any
of its subsidiaries to any Person, other than Merger Sub, relating to a
possible Takeover Proposal by any person other than Merger Sub, (iii) enter
into an agreement with any person, other than Merger Sub, providing for a
possible Takeover Proposal, or (iv) make or authorize any statement,
recommendation or solicitation in support of any possible Takeover Proposal by
any Person, other than by Merger Sub.
Section 5.2 Termination. This Agreement shall terminate upon the earlier to
occur of (i) the Effective Time, (ii) the termination of the Merger Agreement
in accordance with its terms or (iii) unless extended by agreement of each of
the parties hereto, [June 30, 2000]. Upon such termination, no party shall have
any further obligations or liabilities hereunder; provided, however, that
nothing in this Agreement shall relieve any party from liability for the breach
of any of its representations, warranties, covenants and agreements set forth
in this Agreement prior to such termination.
Section 5.3 Additional Shares. If, after the date hereof, the Stockholder
acquires the right to vote any additional shares of the Common Stock or Class C
Preferred Stock (any such shares shall be referred to herein as "Additional
Shares"), including, without limitation, upon exercise or conversion of any
Derivative Security or through any stock dividend or stock split, the
provisions of this Agreement applicable to the Shares shall be applicable to
such Additional Shares as if such Additional Shares had been outstanding Shares
as of the date hereof. The provisions of the immediately preceding sentence
shall be effective with respect to Additional Shares without action by any
Person immediately upon the acquisition by a Stockholder of record or
Beneficial Ownership of such Additional Shares.
Section 5.4 Specific Performance. The parties hereto agree that irreparable
damage would occur in the event any provision of this Agreement was not
performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or in equity.
Section 5.5 Entire Agreement. This Agreement, if and to the extent entered
into by the Stockholder and Merger Sub, constitutes the entire agreement
between Merger Sub and the Stockholder with respect to the subject matter
hereof and supersedes all prior agreements and understandings, both written and
oral, between the Merger Sub and the Stockholder with respect to the subject
matter hereof.
Section 5.6 Amendment. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto.
Section 5.7 Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule or law, or public
policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of this Agreement is not affected in any manner materially adverse to
any party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereby shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible to the fullest extent permitted by applicable
law in a mutually acceptable manner in order that the terms of this Agreement
remain as originally contemplated.
Section 5.8 Notices. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made and shall be effective upon receipt, if delivered personally, upon
receipt of a transmission confirmation if sent by facsimile (with a confirming
copy sent by overnight courier) and on the next business day if sent by Federal
Express, United Parcel Service, Express Mail
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<PAGE>
or other reputable overnight courier to the parties at the following addresses
(or at such other address for a party as shall be specified by notice):
If to the Stockholder to:
William Green
Wilmar Industries, Inc.
303 Harper Drive
Moorestown, New Jersey 08057
with a copy to:
Drinker, Biddle & Reath LLP
1345 Chestnut Street
Philadelphia, Pennsylvania 19107
Attention: William M. Goldstein, Esq.
Fax No.: 215-988-2757
If to Merger Sub, to:
WM Acquisition, Inc.
c/o Parthenon Capital
200 State Street
Boston, Massachusetts 02109
Attention: John Rutherford
Fax No.: (617) 478-7010
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019
Attention: James M. Dubin, Esq.
Fax No.: (617) 478-7010
and
Chase Capital Partners
380 Madison Avenue
New York, New York 10017
Attention: Christopher C. Behrens
Fax No.: (212) 622-3755
with copies to:
O'Sullivan, Graev & Karabell
30 Rockefeller Plaza
New York, New York 10112
Attention: William B. Kuesel, Esq.
Fax No.: (212) 408-2420
Section 5.9 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York applicable to agreements
made and to be performed entirely within such state without giving effect to
the provisions thereof relating to conflicts of law.
Section 5.10 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be an original and all of which, when taken
together, shall constitute one and the same instrument.
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<PAGE>
IN WITNESS WHEREOF, the Stockholder and Merger Sub have caused this Agreement
to be duly executed on the date hereof.
WM Acquisition, Inc.
/s/ Drew Sawyer
By:__________________________________
Name: Drew Sawyer
Title: Vice President
/s/ William Green Number of Shares: 2,013,536
By:__________________________________
William Green
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<PAGE>
Exhibit 21
- ----------
Wilmar Industries, Inc.
List of Subsidiaries
State or Jurisdiction
Name of Subsidiary of Incorporation
------------------ ----------------
Wilmar Financial, Inc. Delaware
Wilmar Holdings, Inc. Delaware
Ace Maintenance Mart, Inc. California
J.A. Sexauer, Inc. Delaware
Trayco of S.C., Inc. Delaware
Sexauer Ltd. Ontario, Canada
<PAGE>
Exhibit 23
- ----------
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE
To the Board of Directors
Wilmar Industries, Inc.
Moorestown, New Jersey
We consent to the incorporation by reference in Registration Statement No. 333-
19563 of Wilmar Industries, Inc. on Form S-8 of our report dated March 6, 2000
appearing in this Annual Report on Form 10-K of Wilmar Industries, Inc. for the
year ended December 31, 1999 and to the reference to us under the heading
"Experts" in the Prospectus, which is part of this Registration Statement.
Our audits of the financial statements referred to in our aforementioned report
also included the financial statement schedule of Wilmar Industries, Inc.,
listed in Item 14. This financial statement schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion based on
our audit. In our opinion, such financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
March 23, 2000
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<FISCAL-YEAR-END> DEC-31-1999
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