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SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X]Preliminary Proxy Statement
[ ]Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2))
[ ]Definitive Proxy Statement
[ ]Definitive Additional Materials
[ ]Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Wilmar Industries, Inc.
(Name of Registrant as Specified in Its Charter)
Wilmar Industries, Inc.
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[ ]No fee required.
[X]Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies: common
stock
(2) Aggregate number of securities to which transaction applies: 12,243,442
outstanding shares and 921,632 shares subject to options.
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11: $18.25 per share; the proposed
maximum aggregate value of the transaction is $230,641,702 (the sum of
(i) the product of 12,407,826 outstanding shares of common stock, less
164,384 shares to be converted to preferred stock held by a certain
member of management, and $18.25 per share and (ii) the product of
1,107,538 shares subject to options, 921,632 of which are being cashed
out, and $18.25 per share less the $11.09 per share weighted average
exercise price of the option shares being cashed out). The filing fee
equals 1/50 of 1% of the aggregate value.
(4) Proposed maximum aggregate value of transaction: $230,641,702
(5) Total fee paid: $46,008
[ ]Fee paid previously with preliminary materials
[ ]Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: None
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed
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[LOGO TO COME]
Preliminary Copy
303 Harper Drive
Moorestown, NJ 08057 , 2000
Dear Shareholder:
You are cordially invited to attend a special meeting of the shareholders of
Wilmar Industries, Inc. to be held on , 2000, at 8:30 a.m., local time, at
The DoubleTree Guest Suites, 515 Fellowship Road, Mount Laurel, NJ 08054. At
this meeting, you will be asked to consider and vote on the recapitalization of
Wilmar and the merger of Wilmar with WM Acquisition, Inc., a company organized
at the direction of entities managed by Parthenon Capital, Inc.
If the recapitalization and merger is completed, you will receive $18.25 in
cash for each share of Wilmar common stock you own. Wilmar, the surviving
company in the merger, will become a privately-held company and its common
stock will no longer be publicly traded.
After the merger, Wilmar will be owned by entities managed by Parthenon
Capital, Inc., Chase Capital Partners and its affiliates, The Chase Manhattan
Bank, as Trustee for First Plaza Group Trust (a pension trust managed by
General Motors Investment Management Corporation), and certain other
institutional investors (collectively referred to as the Investors), as well as
William S. Green, Michael J. Grebe, William E. Sanford and Michael T. Toomey,
each of whom is currently an executive of Wilmar. Each of these individuals has
entered into a new employment agreement with Wilmar, which will become
effective after the merger. Following the merger, William Green will own
approximately 7.9% of the common stock and 2.2% of the senior preferred stock
of Wilmar, and the other executives are expected to own in the aggregate
approximately 5.75% of the common stock and 0.6% of the senior preferred stock
of Wilmar.
The attached notice of meeting and proxy statement describe the
recapitalization and the merger. We urge you to read these materials carefully.
An independent special committee formed by Wilmar's board of directors
negotiated the $18.25 per share price and other terms of the transaction with
WM Acquisition. The special committee unanimously approved the merger and
recapitalization agreement and recommended that the entire board of directors
approve it and submit it to Wilmar shareholders for approval.
The board of directors of Wilmar, acting on the recommendation of the special
committee, unanimously approved the merger and recapitalization agreement (with
Ernest K. Jacquet, a managing director of Parthenon Capital, Inc., and William
Green, who will continue to own shares of Wilmar following the merger and
recapitalization, abstaining). The special committee and the board of directors
believe that the terms and conditions of the merger and recapitalization
agreement and the proposed merger and recapitalization are fair to and in the
best interests of the Wilmar shareholders. Therefore, the board of directors
recommends that you vote in favor of the merger and recapitalization agreement.
The recommendation of the special committee and the approval and recommendation
of the board of directors were based on a number of factors described in the
proxy statement, including the opinion of William Blair & Company, LLC, the
financial advisor to the special committee, to the effect that the
consideration to be received in the merger by the public shareholders is fair
from a financial point of view.
The merger is subject to certain conditions to closing in addition to Wilmar
shareholder approval, including completion of the debt financing by the
Investors.
Only holders of Wilmar common stock of record at the close of business on ,
2000 are entitled to
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notice of and to vote at the special meeting and any adjournments and
postponements thereof.
Consideration of the merger and recapitalization is an important matter for
Wilmar and its shareholders. This proxy statement contains detailed information
about the recapitalization and merger which you are encouraged to read
carefully. Whether or not you plan to attend the special meeting, I urge you to
vote by completing, dating, signing and promptly returning the enclosed proxy
card to ensure that your shares will be voted at the meeting.
Sincerely,
Fred B. Gross
Secretary
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SEC
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
THIS TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION
CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL
AND A CRIMINAL OFFENSE.
This proxy statement is being mailed to Wilmar shareholders beginning on or
about , 2000.
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[LOGO TO COME]
303 Harper Drive
Moorestown, NJ 08057
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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
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<CAPTION>
<C> <S>
Date................ , 2000
Time................ 8:30 a.m., local time
Place............... The DoubleTree Guest Suites, 515 Fellowship Road, Mount
Laurel, NJ 08054
Items of Business... 1. To consider and vote on a proposal to approve and
adopt an Agreement and Plan of Merger and
Recapitalization, dated December 22, 1999, by and
between Wilmar Industries, Inc., and WM Acquisition,
Inc.
2. To transact such other business as may properly come
before the special meeting or any adjournment or
postponement.
Record Date......... You can vote if you were a shareholder of record on
, 2000.
Dissenters' Rights.. Under the New Jersey Business Corporation Act, because
Wilmar is a publicly traded corporation and because the
merger consideration for the common stock consists solely
of cash, the common shareholders have no statutory right
of dissent or appraisal.
Voting.............. Your vote is important. Please vote in one of the
following two ways:
. Attending the special meeting and voting in person; or
. Marking, signing, dating and promptly returning the
enclosed proxy card in the postage-paid envelope.
</TABLE>
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TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY TERM SHEET......................................................... 1
The Proposed Transaction ................................................. 1
Reasons for the Merger and Recapitalization............................... 2
Consequences of the Merger ............................................... 2
Interests of Certain Persons in the Merger and Recapitalization........... 2
Recommendations of Wilmar's Board of Directors and the Special Committee.. 3
QUESTIONS AND ANSWERS ABOUT THE MERGER AND RECAPITALIZATION................ 5
QUESTIONS AND ANSWERS ABOUT VOTING AT THE SPECIAL MEETING.................. 7
WHO CAN HELP ANSWER YOUR QUESTIONS......................................... 8
CAUTIONARY STATEMENT CONCERNING FORWARD LOOKING STATEMENTS................. 9
INFORMATION CONCERNING THE SPECIAL MEETING................................. 10
Date, Time and Place; Purpose............................................. 10
Record Date and Voting.................................................... 10
Vote Required............................................................. 10
Voting and Exchange Agreement............................................. 10
Voting, Revocation and Solicitations of Proxies........................... 11
Adjournments or Postponements............................................. 11
Other Matters To Be Considered............................................ 11
The Companies............................................................. 11
SPECIAL FACTORS............................................................ 13
Background of the Merger and Recapitalization............................. 13
Exchange of shares by William Green....................................... 18
Continuing Interests of the Investors and Management Shareholders in
Wilmar.................................................................... 18
Purposes and Reasons for the Merger and Recapitalization; Recommendations
of Wilmar's Board of Directors and the Special Committee.................. 19
Opinion of Financial Advisor to The Special Committee..................... 20
Benefits and Detriments of the Merger to Wilmar and Wilmar's
Shareholders.............................................................. 25
</TABLE>
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<S> <C>
Benefits and Detriments of the Merger to the Investors and the Management
Shareholders.............................................................. 26
ADDITIONAL CONSIDERATIONS.................................................. 27
Interests of Certain Persons in the Merger and Recapitalization; Continued
Ownership of Wilmar After the Merger...................................... 27
Consequences of the Merger and Recapitalization........................... 29
Material Federal Income Tax Considerations................................ 29
Accounting Treatment...................................................... 30
Financing; Source of Funds................................................ 31
Shareholder Lawsuit Challenging the Merger and Recapitalization........... 33
Fees and Expenses......................................................... 33
Regulatory Requirements................................................... 34
Plans for Wilmar After the Merger......................................... 34
Conduct of the Business of Wilmar if the Merger and Recapitalization Is
Not Completed............................................................. 34
THE MERGER AGREEMENT....................................................... 35
The Merger and Recapitalization........................................... 35
Time of Closing........................................................... 35
Exchange and Payment Procedures........................................... 35
Transfers of Shares....................................................... 35
Treatment of Stock Options................................................ 36
Representations and Warranties............................................ 36
Wilmar's Covenants........................................................ 36
WM Acquisition's Covenants................................................ 36
Additional Agreements..................................................... 37
Conditions................................................................ 37
Termination of the Merger Agreement....................................... 37
Termination Fees.......................................................... 38
Expenses.................................................................. 38
Amendments; Waivers....................................................... 38
CERTAIN EXISTING RELATIONSHIPS............................................. 39
THE VOTING AND EXCHANGE AGREEMENT.......................................... 40
Scope of Agreement........................................................ 40
Restrictions on Transfer.................................................. 40
Voting; Proxy............................................................. 40
No Solicitation........................................................... 40
</TABLE>
i
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<TABLE>
<S> <C>
Exchange of Shares......................................................... 40
Termination................................................................ 40
RIGHTS OF DISSENTING SHAREHOLDERS........................................... 41
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA............................. 42
CERTAIN FINANCIAL PROJECTIONS............................................... 44
COMMON STOCK MARKET PRICE AND DIVIDEND INFORMATION.......................... 46
COMMON STOCK PURCHASE INFORMATION........................................... 47
Purchases by Wilmar........................................................ 47
Purchases by Directors, Executive Officers and Affiliates of Wilmar........ 47
</TABLE>
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<S> <C>
CURRENT MANAGEMENT OF WILMAR................................................ 48
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.............. 50
CERTAIN INFORMATION CONCERNING WM ACQUISITION AND ITS AFFILIATES............ 52
OTHER MATTERS............................................................... 53
SHAREHOLDER PROPOSALS....................................................... 53
INDEPENDENT AUDITORS........................................................ 53
WHERE YOU CAN FIND MORE INFORMATION......................................... 53
DOCUMENTS INCORPORATED BY REFERENCE......................................... 54
</TABLE>
Appendices
Appendix A Agreement and Plan of Merger and Recapitalization
Appendix B Fairness Opinion of William Blair & Company, LLC
Appendix C Voting and Exchange Agreement
ii
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SUMMARY TERM SHEET
This summary highlights selected information included in this proxy
statement. Because this is a summary, it may not contain all of the information
that is important to you. To more fully understand the merger and
recapitalization and for a more complete description of the legal terms of the
merger and recapitalization, you should read carefully this entire document and
the other documents to which we have referred you. The actual terms of the
merger and recapitalization are contained in the Agreement and Plan of Merger
and Recapitalization (which is referred to as the merger agreement in this
proxy statement), a copy of which is attached as Appendix A to this proxy
statement.
The Proposed Transaction (page [ ])
You are being asked to vote to approve the recapitalization of Wilmar
Industries, Inc. (which is referred to as Wilmar in this proxy statement) and
the merger of WM Acquisition, Inc. with Wilmar. In connection with the merger
and recapitalization:
. you will be entitled to receive $18.25 in cash in exchange for each of your
shares of Wilmar common stock outstanding at the time of the merger;
. prior to the merger, William Green, Chairman and Chief Executive Officer of
Wilmar, will exchange 164,384 shares of Wilmar common stock for an equal
number of shares of Class C Preferred Stock, a newly created class of
preferred stock of Wilmar. These shares will be converted in the merger into
senior preferred stock and common stock of the surviving company;
. after the merger, approximately 97.2% of the surviving company's senior
preferred stock and 86.1% of the surviving company's common stock will be
owned by entities managed by Parthenon Capital, Inc., Chase Capital Partners
and its affiliates, The Chase Manhattan Bank, as Trustee for First Plaza
Group Trust (a pension trust managed by General Motors Investment Management
Corporation), and certain other institutional investors (which are
collectively referred to as the Investors in this proxy statement) and
approximately 2.8% of the senior preferred stock and 13.9% of the common
stock in the aggregate will be owned by William Green, Michael Grebe,
William Sanford and Michael Toomey (who are collectively referred to as the
Management Shareholders in this proxy statement);
. you are entitled to one vote per share of common stock you own, and approval
by Wilmar's shareholders of the merger agreement will require the
affirmative vote of a majority of the votes cast by the holders of shares of
common stock at the special meeting held to vote on the merger agreement;
. under the New Jersey Business Corporation Act, because Wilmar is a publicly
traded corporation and because the merger consideration for the common stock
consists solely of cash, you will have no statutory dissenters' rights of
appraisal; and
. you will be taxed on your receipt of the $18.25 in cash per share to the
extent that the amount you receive exceeds your tax basis in your shares.
Because determining the tax consequences of the merger can be complicated,
you should consult your tax advisor in order to understand fully how the
merger will affect you.
The merger agreement is attached to the back of this document as Appendix A. We
encourage you to read the merger agreement in its entirety.
1
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Reasons for the Merger and Recapitalization (page [ ])
The special committee of the Wilmar board of directors placed the most weight
on the following five factors, among others, in connection with its approval of
the merger and recapitalization:
. the opportunity for you to receive $18.25 in cash for each share of common
stock held by you, which represents an approximate 30% premium over the
$14.00 per share closing price of Wilmar common stock on December 22, 1999,
the last full trading day before the public announcement of the merger;
. the historical trading prices of Wilmar common stock on the Nasdaq National
Market System, including the decline in Wilmar's price to earnings ratio
over the past year and the prospect of continued undervaluation of Wilmar;
. the special committee's knowledge of Wilmar's business, operations,
properties, assets, financial condition, operating results and prospects and
increased competitive market pressures which may:
. limit Wilmar's internal growth prospects in the apartment housing
market; and
. result in difficulty finding new acquisition targets at prices Wilmar
believes are attractive;
. the presentations and fairness opinion of William Blair & Company, LLC; and
. negotiations with another bidder did not lead to a more favorable offer and,
based upon prior discussions with other potential bidders, a higher offer
was not foreseeable.
The special committee also considered Wilmar's positive long-term growth
prospects, including opportunities arising from, and risks associated with,
entering the institutional facilities maintenance market through Wilmar's
December 1999 acquisition of J.A. Sexauer, a distributor of plumbing and
supplies to institutional customers.
Consequences of the Merger (page [ ])
Upon consummation of the merger:
. you will no longer have any interest in, and will no longer be a shareholder
of Wilmar, and therefore you will not participate in Wilmar's future profits
or losses; and
. Wilmar's common stock will no longer be traded on the Nasdaq National Market
System, price quotations will no longer be available and registration of
Wilmar's common stock under the Securities Exchange Act of 1934 will
terminate, resulting in part in no further public reporting by Wilmar under
that Act; and
. after the merger, approximately 97.2% of the surviving company's senior
preferred stock and 86.1% of the surviving company common stock will be
owned by the Investors and approximately 2.8% of the senior preferred stock
and 13.9% of the common stock will be owned by the Management Shareholders.
Interests of Certain Persons in the Merger and Recapitalization (page [ ])
Certain of Wilmar's officers and directors have interests in the merger and
recapitalization or have certain relationships, including those referred to
below, that present actual or potential conflicts of interest in connection
with the merger and recapitalization, including:
. the continuing equity interest that William S. Green, Chairman and Chief
Executive Officer of Wilmar, and the other Management Shareholders will have
in Wilmar after the consummation of the merger;
. the fact that Ernest K. Jacquet, a director of Wilmar, serves as a managing
director of Parthenon Capital, Inc., which manages entities that are
Investors;
. the fact that Mr. Green will continue to serve as Chairman of the Board and
Chief Executive Officer of Wilmar;
. upon consummation of the merger, the vesting of all options to acquire
shares of Wilmar common stock under Wilmar's stock option plan will be
accelerated and the Management Shareholders, along with the other option
2
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holders, will be entitled to receive, for each share subject to an option,
the difference between $18.25 and the per share exercise price of that
option, if any, regardless of whether the option is fully vested;
. the employment agreements that Wilmar has entered into with each of the
Management Shareholders and which will become effective upon consummation of
the merger; and
. the obligation of Wilmar under the merger agreement to continue to provide
certain indemnification and related insurance coverage to directors and
officers of Wilmar following the merger.
The special committee and the board of directors were aware of these actual or
potential conflicts of interest and considered them along with other matters in
approving the merger and recapitalization.
Recommendations of Wilmar's Board of Directors and the Special Committee (page
[ ])
The Wilmar board of directors and its special committee have taken the
following actions:
. Wilmar's board of directors, based on the unanimous recommendation of the
special committee, has unanimously approved the merger agreement and
recommends that you vote to adopt it;
. Wilmar's board of directors and the special committee believe that the terms
of the merger agreement, including the merger consideration of $18.25 per
share, are fair to and in the best interests of Wilmar's public
shareholders; and
. Because of their continuing interest in Wilmar after the merger, Messrs.
Jacquet and Green refrained from voting on this matter.
The special committee and the board of directors recommend that the
shareholders vote "FOR" the approval of the merger agreement.
3
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QUESTIONS AND ANSWERS ABOUT THE MERGER AND RECAPITALIZATION
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Q: WHAT IS THE PROPOSED TRANSACTION?
A: WM Acquisition will be merged with and into Wilmar. Wilmar will continue as
the surviving company after the merger.
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: You will be entitled to receive $18.25 in cash for each of your shares of
Wilmar common stock outstanding at the time of the merger.
Q: WHO WILL OWN WILMAR AFTER THE MERGER?
A: As a result of the merger, Wilmar will become a privately-held company
owned by the Investors and the Management Shareholders.
For additional information on the ownership and management of Wilmar after
the merger, see page [ ] and page [ ] of this proxy statement.
Q: WHAT RECAPITALIZATION IS OCCURRING IN CONNECTION WITH MERGER?
A: Mr. Green currently owns approximately 15% of Wilmar's common stock.
Immediately prior to the merger, Mr. Green will exchange approximately 8%
of the shares of common stock owned by him (representing approximately 1%
of the outstanding common stock of Wilmar) for shares of Class C Preferred
Stock of Wilmar, a newly created class of preferred stock of Wilmar, to
facilitate the continuation of his equity interest in Wilmar following the
merger. Pursuant to the merger, these shares of Class C Preferred Stock
will be converted into shares of common stock and senior preferred stock of
the surviving company. The other 92% of the shares of common stock owned by
him will be treated identically to the shares of common stock held by other
shareholders and converted into the right to receive $18.25 per share.
Q: WHAT INTERESTS WILL THE MANAGEMENT SHAREHOLDERS RETAIN IN WILMAR AFTER THE
MERGER?
A: William Green will own approximately 7.9% of the common stock and 2.2% of
the senior preferred stock of Wilmar as a result of the merger. In
addition, the other Management Shareholders will purchase in the aggregate
approximately 5.75% of the common stock and 0.6% of the senior preferred
stock upon consummation of the merger and will have the option to purchase
up to an additional 116,533 shares of senior preferred stock.
Q: HOW ELSE WILL THE MANAGEMENT SHAREHOLDERS BE AFFECTED BY THE MERGER?
A: Upon consummation of the merger, the vesting of options to acquire shares
of Wilmar common stock under Wilmar's stock option plan will be accelerated
and the Management Shareholders, along with the other option holders, will
be entitled to receive, for each share subject to an option, the difference
between $18.25 and the per share exercise price of that option, if any,
regardless of whether the option is fully vested.
In addition, the Management Shareholders have each entered into a new
employment agreement with Wilmar, under which they will serve in comparable
positions to their current ones and the material terms of which, including
compensation, are discussed elsewhere in this proxy statement. These
employment agreements are substantially similar to their old agreements and
will become effective upon consummation of the merger.
Q: WHY DO THE INVESTORS WANT THE MANAGEMENT SHAREHOLDERS TO RETAIN AN
OWNERSHIP INTEREST IN WILMAR FOLLOWING THE MERGER?
A: Because the Management Shareholders have been integral to Wilmar's success
in the past and the Investors believe that their involvement is integral to
Wilmar's future success, the Investors want to ensure that the Management
Shareholders have a financial interest in Wilmar after the merger.
Q: WHY WAS THE SPECIAL COMMITTEE OF INDEPENDENT DIRECTORS FORMED?
A: During the summer of 1999, the Company received two serious inquiries to
buy the
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Company. The board of directors formed a special committee consisting of
independent directors to act on behalf of Wilmar's unaffiliated shareholders
because Messrs. Jacquet and Green are Wilmar board members, and had actual
or potential affiliations with the potential buyers. This special committee
was formed for the purpose of negotiating the price and other terms of a
sale or merger with potential bidders and evaluating the fairness of a sale
or merger proposal.
The special committee independently selected and retained legal and
financial advisors to assist it in its deliberations and in its negotiation
of the merger agreement. The special committee unanimously approved the
merger agreement and recommended that the board of directors approve it and
seek approval of the Wilmar shareholders.
Q: Is the board of directors recommending that I vote for the merger agreement?
A: Wilmar's board of directors, based on the unanimous recommendation of the
special committee, believes that the terms of the merger agreement are fair
to, and in the best interests of, Wilmar's public shareholders. Accordingly,
the board of directors unanimously approved the merger agreement (with
Messrs. Green and Jacquet abstaining because of their continuing interest in
Wilmar after the merger) and recommends that you vote for approval of the
merger agreement. To review the background and reasons for the merger and
recapitalization in greater detail, see pages [ ] through [ ] of this
proxy statement.
Q: What are the primary advantages and disadvantages of the merger to me?
A: In the merger, you will receive a cash premium for your Wilmar common stock
over the market price when the proposed merger was announced. The merger
consideration of $18.25 per share represents an approximate 30% premium over
the $14.00 per share closing price of Wilmar common stock on December 22,
1999, the day before the proposed merger agreement was announced.
In addition, you will not bear the risk of any decrease in the value of
Wilmar and you will be able to dispose of your Wilmar shares without
incurring any brokerage fees. You will not, however, have the opportunity to
participate in Wilmar's future profits or losses. Also, you may recognize a
taxable gain as a result of the merger.
Q: What are the potential tax consequences to me of the merger?
A: The exchange of your shares for cash in the merger will be a taxable
transaction for federal income tax purposes and may also be a taxable
transaction under state, local, foreign and other tax laws. For more
information about the tax consequences of the merger, see pages [ ] through
[ ] of this proxy statement.
Q: What are the advantages and disadvantages of the merger to the Investors and
the Management Shareholders in addition to the interests discussed above?
A: Upon completion of the merger and recapitalization, the Investors and the
Management Shareholders will own all of the capital stock of Wilmar. Each
Management Shareholder will also receive $18.25 in cash per share for the
Wilmar common stock owned by him.
The Investors and the Management Shareholders will have the opportunity to
participate in Wilmar's potential future earnings and growth, but they will
bear the risk of any decrease in the value of Wilmar after the merger.
Q: What will happen to the market for Wilmar common stock after the merger?
A: At the effectiveness of the merger, trading in Wilmar common stock on the
Nasdaq National Market System will cease. Price quotations for Wilmar common
stock will no longer be available and the registration of Wilmar's common
stock under the Securities Exchange Act of 1934 will terminate, resulting in
part in no further public reporting under that Act.
5
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Q: When do you expect the merger to be completed?
A: We are working to complete the merger as quickly as possible. We expect to
complete the merger (if it is approved by the shareholders) within several
days after the special meeting of shareholders of the company to vote on
the merger agreement.
Q: What happens if I sell my Wilmar common stock before the special meeting?
A: The record date for the special meeting is earlier than the expected date
of the merger. If you held your Wilmar shares on the record date but have
transferred your Wilmar shares after the record date and before the merger,
you will retain your right to vote at the special meeting but not the right
to receive the $18.25 in cash per share of common stock. This right to
receive $18.25 per share will pass to the person to whom you transferred
your shares.
Q: What do I need to do now?
A: Please complete, date and sign your proxy card and then mail it in the
enclosed postage-paid envelope as soon as possible, so that your shares may
be represented at the special meeting.
Q: Should I send in my stock certificates now?
A: No. Soon after the merger is completed, we will send you written
instructions explaining how to exchange your Wilmar stock certificates for
cash.
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QUESTIONS AND ANSWERS ABOUT VOTING AT THE SPECIAL MEETING
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Q: What is the date, time and place of the meeting?
A: The special meeting of shareholders will be held on , 2000, at
8:30 a.m., local time, at the DoubleTree Guest Suites, 515 Fellowship Road,
Mount Laurel, NJ 08054.
Q: Who is entitled to vote at the special meeting?
A: Shareholders of record as of the close of business on , 2000.
Q: How many shares need to be represented at the meeting?
A: The holders of a majority of the outstanding shares of common stock entitled
to vote at the special meeting must be present in person or represented by
proxy to constitute a quorum for the transaction of business. As of the
record date, there were [12,407,826] shares of common stock outstanding. If
you vote by proxy card or in person at the special meeting, you will be
considered part of the quorum.
Q: What vote is required to approve the merger agreement?
A: Approval of the merger agreement requires the affirmative vote of a majority
of the votes cast by the holders of shares of common stock entitled to vote
at the special meeting.
William Green has agreed under a voting and exchange agreement with WM
Acquisition to vote his shares of common stock to approve the merger
agreement. As of the record date, William Green owned 2,013,536 shares or
approximately 15% of Wilmar common stock outstanding.
Management expects that an aggregate of 6,500 additional shares held by
members of management will also be voted in favor of the merger agreement.
Accordingly, management expects all of the shares of common stock
outstanding which are held by officers or directors of Wilmar to be voted in
favor of the merger. Assuming that all shareholders of record are present in
person or by proxy at the special meeting, approval by the holders of an
additional 4,183,878 shares (approximately 34% of the [12,407,826] shares of
common stock outstanding as of the record date) would be required to approve
the merger agreement.
Q: How do I vote?
A: You can vote by signing and mailing your proxy card. You may also vote in
person at the special meeting.
Q: If my shares are held in "street name" by my broker, will my broker vote my
shares for me?
A: Generally, your broker will not have the power to vote your shares. Your
broker will vote your shares only if you provide him or her with
instructions on how to vote. You should follow the directions provided by
your broker on how to instruct your broker to vote your shares.
Q: May I change my vote after I have mailed my signed proxy card?
A: Yes. You may revoke it any time before the special meeting by:
. giving written notice of your revocation to our Secretary;
. filing a revoking instrument or a duly executed proxy bearing a later
date with the Secretary; or
. attending the special meeting and voting in person.
Q: What rights do I have if I oppose the merger agreement?
A: You can vote against the merger agreement by signing and mailing your proxy
card or by voting against the merger agreement in person at the special
meeting. However, if the merger has been properly approved by the company's
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shareholders (as described above), under New Jersey law, shareholders will
not have any dissenters' rights of appraisal because Wilmar is a publicly
traded corporation and because the merger consideration for the common
stock consists solely of cash.
WHO CAN HELP ANSWER YOUR QUESTIONS
If you have more questions about the merger and recapitalization or would
like additional copies of this proxy statement, you should contact:
William E. Sanford
Wilmar Industries, Inc.
303 Harper Drive
Moorestown, New Jersey 08057
Telephone: 856-439-1222
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CAUTIONARY STATEMENT CONCERNING
FORWARD LOOKING STATEMENTS
- --------------------------------------------------------------------------------
This proxy statement and the documents to which we refer you and incorporate
into this proxy statement by reference contain forward-looking statements. In
addition, from time to time, we or our representatives may make forward-looking
statements orally or in writing. We base these forward-looking statements on
our expectations and projections about future events, which we derive from the
information currently available to us. Such forward-looking statements relate
to future events or our future performance, including:
. our financial performance and projections;
. our growth in revenue and earnings; and
. our business prospects and opportunities.
You can identify forward-looking statements by those that are not historical in
nature, particularly those that use terminology such as "may," "will,"
"should," "expects," "anticipates," "contemplates," "estimates," "believes,"
"plans," "projected," "predicts," "potential" or "continue" or the negative of
these or similar terms. In evaluating these forward-looking statements, you
should consider various factors, including:
. our ability to continue to attract and retain qualified personnel;
. our ability to retain the business of our significant customers;
. our ability to keep pace with new technology and changing market needs;
. the competitive environment of our business.
These and other factors may cause our actual results to differ materially from
any forward-looking statement.
Forward-looking statements are only predictions. The forward-looking events
discussed in this proxy statement, the documents to which we refer you and
other statements made from time to time by us or our representatives, may not
occur, and actual events and results may differ materially and are subject to
risks, uncertainties and assumptions about us. We are not obligated to publicly
update or revise any forward-looking statement, whether as a result of new
information, future events or otherwise. In light of these risks, uncertainties
and assumptions, the forward-looking events discussed in this proxy statement,
the documents to which we refer you and other statements made from time to time
by us or our representatives, might not occur.
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INFORMATION CONCERNING THE SPECIAL MEETING
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Date, Time and Place; Purpose
This proxy statement is being furnished to Wilmar shareholders as part of the
solicitation of proxies by the Wilmar board for use at a special meeting to be
held on , 2000, starting at 8:30 a.m., local time, at The DoubleTree
Guest Suites, 515 Fellowship Road, Mount Laurel, NJ 08054. The purpose of the
special meeting is for Wilmar shareholders to consider and vote upon a proposal
to approve the merger agreement. A copy of the merger agreement is attached to
this proxy statement as Appendix A. This proxy statement and the enclosed form
of proxy are first being mailed to Wilmar shareholders on or about
, 2000.
Record Date and Voting
The holders of record of shares of Wilmar common stock as of the close of
business on , 2000 (referred to as the record date in this proxy
statement), are entitled to receive notice of, and to vote at, the special
meeting. On the record date, there were [12,407,826] shares of Wilmar common
stock outstanding. Holders of common stock are entitled to one vote per share.
The holders of record of a majority of the outstanding shares of Wilmar common
stock on the record date, represented in person or by proxy, will constitute a
quorum for purposes of the special meeting. A quorum is necessary to hold the
special meeting. Once a share is represented at the special meeting, it will be
counted for the purpose of determining a quorum at the special meeting and any
adjournment or postponement of the special meeting, unless the holder is
present solely to object to the special meeting.
Any shareholder of Wilmar has the right to vote against approval of the merger
agreement. However, under the New Jersey Business Corporation Act, because
Wilmar is a publicly traded corporation and because the merger consideration
for the common stock consists solely of cash, the common shareholders have no
statutory dissenters' rights of appraisal. See "Rights of Dissenting
Shareholders."
Vote Required
Approval by Wilmar's shareholders of the merger agreement will require the
affirmative vote of a majority of the votes cast by the holders of shares of
common stock at the special meeting held to vote on the merger agreement.
Abstentions and broker "non-votes" are counted as present and entitled to vote
for purposes of determining a quorum. A broker "non-vote" occurs when a bank,
broker or other nominee holding shares for a beneficial owner does not vote on
a particular proposal because the nominee does not have discretionary voting
power for that particular item and has not received instructions from the
beneficial owner.
If there are insufficient votes to approve the merger agreement at the special
meeting, proxies voted in favor of approval of the merger agreement and proxies
as to which no voting instructions are given may be voted to adjourn the
special meeting in order to solicit additional proxies in favor of approval of
the merger agreement. If the special meeting is adjourned for any purpose, at
any subsequent reconvening of the special meeting, all proxies will be voted in
the same manner as such proxies would have been voted at the original convening
of the meeting (except for any proxies which have been revoked or withdrawn),
even though they may have been voted on the same or any other matter at a
previous meeting.
Approval of at least a majority of Wilmar's unaffiliated shareholders is not
required to consummate the merger and recapitalization.
Voting and Exchange Agreement
William Green has entered into a voting and exchange agreement which provides
that he will vote his shares to approve the merger agreement. The voting and
exchange agreement covers all of the shares of common stock owned by William
Green. As of the record date, he owned 2,013,536 shares of common stock, which
represented approximately 15% of the votes entitled to be cast as of the record
date. The voting and exchange agreement is attached as Appendix C to this proxy
statement.
As a result of the voting and exchange agreement, approximately 15% of the
votes entitled to be cast at the special meeting will be voted in favor of the
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merger agreement. It is expected that an aggregate of 6,500 additional shares
held by members of management will also be voted in favor of the merger
agreement. Assuming that all shareholders of record are present in person or by
proxy at the special meeting, approval by the holders of an additional
4,183,878 shares (approximately 34% of the [12,407,826] shares of common stock
outstanding as of the record date) would be required to approve the merger
agreement.
Voting, Revocation and Solicitations of Proxies
If you vote your shares of Wilmar's common stock by signing a proxy, your
shares will be voted at the special meeting as you indicate on your proxy card.
If no instructions are indicated on your signed proxy card, your shares of
Wilmar's common stock will be voted FOR the approval of the merger agreement.
You may revoke your proxy at any time before the proxy is voted at the special
meeting. A proxy may be revoked prior to the vote at the special meeting by
submitting a written revocation to the Corporate Secretary of Wilmar at 303
Harper Drive, Moorestown, NJ 08057 or by submitting a new proxy, in either
case, dated after the date of the proxy that is being revoked. In addition, a
proxy may also be revoked by voting in person at the special meeting. However,
simply attending the special meeting will not revoke a proxy.
All expenses incurred in connection with solicitation of the enclosed proxy
will be paid by Wilmar. Officers and employees of Wilmar may solicit proxies by
telephone or in person. However, they will not be paid for soliciting proxies.
Wilmar also will request that persons and entities holding shares in their
names or in the names of their nominees that are beneficially owned by others
send proxy materials to and obtain proxies from those beneficial owners, and
will reimburse those holders for their reasonable expenses in performing those
services.
Adjournments or Postponements
Although it is not expected, the special meeting may be adjourned or postponed
for the purpose of soliciting additional proxies. Any adjournment or
postponement of the special meeting may be made without notice, other than by
an announcement made at the special meeting, by approval of the holders of a
majority of the votes present in person or represented by proxy at the special
meeting, whether or not a quorum exists. Any signed proxies received by Wilmar
will be voted in favor of an adjournment or postponement of the special meeting
in these circumstances, unless either a written note on the proxy delivered by
the shareholder directs otherwise or the shareholder has voted against the
merger agreement. Thus, proxies voting against the merger agreement will not be
used to vote for adjournment of the special meeting for the purpose of
providing additional time to solicit votes to approve the merger agreement. Any
adjournment or postponement of the special meeting for the purpose of
soliciting additional proxies will allow Wilmar shareholders who have already
sent in their proxies to revoke them at any time prior to their use.
Other Matters To Be Considered
Wilmar's board is not currently aware of any other business to be brought
before the special meeting. If, however, other matters are properly brought
before the special meeting or any adjournment or postponement of the special
meeting, the persons appointed as proxies will have discretionary authority to
vote the shares represented by duly executed proxies in accordance with their
discretion and judgment.
The Companies
Wilmar
Wilmar is a national marketer and direct distributor of repair and maintenance
products, principally to the apartment housing market. Through its 1,000+ page
Wilmar Master Catalog, Wilmar has become a "one-stop shopping" resource for
maintenance managers by offering the industry's most extensive selection of
over 15,000 standard and specialty plumbing, hardware, electrical, janitorial
and related products. By purchasing directly from domestic and foreign
manufacturers in relatively large volumes, Wilmar is able to offer customers
competitive prices on both name brand and private label products. Wilmar 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 its proprietary
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software applications to quickly process orders and answer customer inquiries.
Wilmar provides free, same-day delivery in local markets served by its
distribution centers and ships by parcel delivery services to other areas.
Since 1991, Wilmar has expanded from four distribution centers located in
Philadelphia, Washington, D.C., Houston and Indianapolis to 24 distribution
centers located throughout the United States. From November 1995 through
December 1998 Wilmar acquired twelve regional repair and maintenance supply
companies, and in 1999 it acquired a major distributor of plumbing supplies to
the institutional facilities maintenance market.
Our address is:
Wilmar Industries, Inc.
303 Harper Drive
Moorestown, NJ 08057
(856) 439-1222
WM Acquisition
WM Acquisition, a New Jersey corporation, was incorporated on December 17, 1999
for the purpose of completing the merger with Wilmar. It was organized at the
direction of entities managed by Parthenon Capital, Inc., and has not carried
on any activities to date other than those incident to its formation and
completion of the merger. Parthenon Capital, Inc. is a private equity
investment firm which invests in and serves as a partner to the management of
certain middle market companies. Mr. Ernest K. Jacquet, a member of Wilmar's
board of directors, is a managing director of Parthenon Capital, Inc. and a
principal of the entities that Parthenon Capital, Inc. manages which control WM
Acquisition.
WM Acquisition's address is:
WM Acquisition, Inc.
c/o Parthenon Capital, Inc.
200 State Street
Boston, MA 02109
(617) 478-7000
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SPECIAL FACTORS
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Background of the Merger and Recapitalization
Until recently, Wilmar has focused primarily on supplying repair and
maintenance products to the apartment housing market. A principal component of
Wilmar's growth strategy has been to capitalize on acquisition opportunities
presented by the consolidation of the highly fragmented repair and maintenance
supply industry to the apartment housing market. During 1996 and 1997, Wilmar
completed seven acquisitions, and management believes that its stock price
generally traded at favorable multiples to historic earnings. During 1997 and
the early part of 1998, Wilmar's industry began to undergo significant change,
as a number of Wilmar's competitors were acquired by substantially larger
companies. Among the acquisitions of competitors occurring in this time period
were the March 1997 acquisition of Maintenance Warehouse/America Corp. by The
Home Depot, Inc., the July 1997 acquisition of Nationwide Apartment Supply,
Inc. by Century Maintenance Supply, Inc. and the February 1998 acquisition of
Chad Supply, Inc. by Hughes Supply, Inc. These acquisitions substantially
increased the competitive pressures faced by Wilmar and began to constrain the
ability of Wilmar to grow effectively through acquisition. Although Wilmar has
continued to pursue acquisitions to enter new markets or expand in existing
markets, competition for acquisition candidates has intensified in recent
years, making it increasingly difficult for Wilmar to complete acquisitions at
valuations it believes are reasonable. Wilmar's attempts to enter new end
markets through internal initiatives have also proved to be more difficult than
expected. The demands of the public markets for consistent and rapid earnings
growth has also limited Wilmar's ability to incur the near term expenses and
investments necessary to support the long-term growth of the business both in
its core apartment housing market and in new end markets.
As Wilmar's competitive environment changed, Wilmar's board of directors
decided in late 1997 that Wilmar should explore the possibility of a business
combination with companies believed to be logical partners. This determination
led Wilmar and William Blair & Company, Wilmar's financial advisor, to contact
four potential strategic merger partners to evaluate their interest in Wilmar.
Following numerous meetings and exchanges of information, three of these
companies declined to submit an expression of interest in a transaction with
Wilmar. The fourth company expressed a preliminary interest, but this interest
ultimately did not result in a definitive proposal. Wilmar's board then decided
to continue to focus on internally growing the Company. During the fall of
1998, Wilmar experienced earnings difficulties which adversely affected its
stock price. In particular, Wilmar found that it was unable to consummate
acquisitions of sufficient number and size to support the revenue and earnings
growth expectations of investors. As a result, Wilmar's management publicly
disclosed downward adjustments of expected revenue and earnings performance
during 1998 and 1999. This reduction of forecasted results in October 1998
caused the Company's share price to decline from the $19.00--$23.00 per share
range to the $15.00--$18.00 per share range. Soon thereafter the Company made
certain management changes, including the hiring of a new Chief Operating
Officer and, over the next year, the replacement of certain senior executives.
During late 1998 and early 1999 the Company's stock price returned to the
$19.00--$23.00 per share range. Wilmar authorized William Blair to contact
three additional companies that might have a logical strategic interest in a
business combination with Wilmar. Each of the parties contacted declined to
submit an expression of interest in response to such contact. Wilmar's board
again decided to continue to focus on internally growing the Company. By March
1999 the stock price had returned to the $15.00--$18.00 per share range.
In March 1999, Wilmar's management once again reduced its publicly announced
forecasts of expected revenue and earnings as a result of lower than
anticipated internal growth and continuing difficulty with the performance of
one of Wilmar's larger acquisitions. The market price of Wilmar stock dropped
from the $15.00-$18.00 per share level down to the $10.00-$13.00 per share
level by mid-May 1999, resulting from both the Company's reduction of
forecasted earnings and a general reduction in price/earnings multiples for
both the distribution sector and industry consolidators.
Believing that Wilmar's common stock market price was undervaluing the
Company's prospects, in March 1999, the board of Wilmar approved a share
repurchase program authorizing Wilmar to purchase from time to time, in the
open market or through negotiated transactions, up to one million shares of
Wilmar common stock.
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The share repurchase program was completed in June 1999. During the three month
period, the Company purchased 1,000,000 shares at a weighted average price per
share of $12.80. The Board also authorized Wilmar to hire a new Chief Financial
Officer and to further upgrade its sales management. Wilmar also determined to
explore more aggressively possible acquisitions that could favorably impact
Wilmar's stock price and growth prospects.
In May 1999, Wilmar approached the parent of J.A. Sexauer, Inc., a leading
distributor of plumbing specialties to institutional facilities throughout the
United States and Canada, to discuss a possible acquisition of Sexauer by
Wilmar. Wilmar signed a confidentiality agreement regarding due diligence and
in late May and early June 1999 Wilmar together with its counsel, accountants
and other representatives began to evaluate and negotiate the terms of a
possible acquisition transaction.
In early June 1999, William Blair was contacted by one of the potential
strategic acquirers that William Blair had contacted in early 1999 indicating
that it had an interest in arranging a meeting with Wilmar management to
discuss the merits of a possible business combination. This contact was
followed up by a letter on June 15, 1999, confirming a meeting for July 1,
1999. Wilmar code-named this potentially interested party "Viking." Wilmar
continued its due diligence review of Sexauer and on June 17, 1999, submitted a
preliminary proposal to acquire all of the outstanding stock of Sexauer.
On July 1, 1999, Wilmar commenced discussions with Viking regarding a possible
merger transaction. Wilmar entered into a confidentiality agreement on July 20,
1999 with Viking and began to furnish to Viking certain non-public information
relating to Wilmar.
In mid-July, Ernest K. Jacquet, a director of Wilmar and a managing director of
Parthenon Capital, Inc., inquired of William Green, as Wilmar's Chairman and
Chief Executive Officer, whether Wilmar would be willing to consider an all
cash proposal from Parthenon as an alternative to a possible transaction with
Viking. Mr. Green, after discussion with the board and William Blair, indicated
that he would not discourage any proposal at that time, and indicated to the
other board members that the presence of a competing bidder might enhance its
bargaining power with Viking. Wilmar entered into a confidentiality agreement
with Parthenon on July 23, 1999 and furnished Parthenon with the same
confidential financial information provided to Viking.
In early August 1999, representatives of Wilmar and William Blair met with Mr.
Green and other key management personnel of Viking to further discuss a
possible merger transaction with Viking. Wilmar's stock price closed at $13.63
per share on August 18, 1999. On August 19, 1999, Wilmar received a preliminary
expression of interest from Viking for a possible stock merger with Wilmar in
which Wilmar stockholders would receive stock of Viking having a value of
between $20 to $22 per Wilmar share conditioned upon, among other things, the
transaction qualifying for pooling of interests accounting treatment and
completion of due diligence. At that time, Viking indicated orally that with
additional satisfactory due diligence including a visit with Wilmar's
management team, it might submit a definitive proposal at the high end of this
range. The terms of Viking's preliminary proposal were communicated to Wilmar's
board of directors who recommended that Wilmar management provide the
opportunity for Viking to conduct additional due diligence to allow Viking to
submit a definitive proposal. In early September, Wilmar and Viking conducted a
full day of due diligence involving the senior management of both companies.
Wilmar's stock price closed at $12.75 per share on September 14, 1999. On
September 15, 1999 Viking submitted a revised preliminary proposal for a stock-
for-stock exchange valued at $22.00 per Wilmar share, contingent upon the
transaction receiving pooling accounting treatment and completion of additional
due diligence among other conditions.
On September 17, 1999, Parthenon submitted a preliminary expression of interest
to acquire Wilmar for $18.00 per share in cash. Wilmar's stock price closed at
$12.69 per share on the prior day. The expression of interest from Parthenon
indicated that it was contingent, among other things, on Parthenon obtaining
necessary debt and equity financing, completing due diligence and obtaining the
agreement of William Green, to roll over $10 million, or approximately 30% of
his equity in Wilmar, into the surviving company. Mr. Green indicated that this
proposal was unlikely to be considered competitive with the alternative Viking
proposal and encouraged
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Parthenon to improve its proposal. In addition, Mr. Green indicated to
Parthenon that he would be unwilling to roll over the $10 million of equity
that Parthenon had required of him as part of its proposal, but he would
consider a lesser amount.
During this period, discussions with Sexauer continued, but as of mid-
September, Wilmar was uncertain as to whether a transaction with Sexauer would
occur. Given the considerable uncertainty regarding the Sexauer acquisition,
Wilmar then requested that both Viking and Parthenon modify their proposals to
include two scenarios, one assuming that the acquisition of Sexauer was
consummated and the other excluding the Sexauer acquisition. In addition,
Viking was requested to clarify its proposal with respect to the price that it
would be prepared to pay for Wilmar taking into account potential changes in
Viking's stock price. In particular, during the period between Viking's
delivery of its preliminary proposal on August 19 and September 21, Viking's
stock price had declined by approximately 12.0%. Viking had orally indicated
that if its stock price continued to fall, the price that it would be willing
to pay for Wilmar would be reduced. In order to obtain clarification on the
proposal, Viking was asked to provide detail on the price it would be willing
to pay for Wilmar shares at various prices for Viking's stock and the collaring
provisions that would apply to changes in the value of Viking's shares
occurring between signing a definitive agreement and closing.
On September 28, 1999 the board of Wilmar, by unanimous written consent,
decided, in light of Ernest K. Jacquet's affiliation with Parthenon as well as
the possibility that Mr. Green might participate in any proposed acquisition of
Wilmar by Parthenon, to create a special committee of independent directors to
evaluate any acquisition proposals and to negotiate the terms of any such
proposal. Fred B. Gross, Martin E. Hanaka, and Donald M. Wilson were elected as
the initial members of the special committee. It was subsequently determined
that Mr. Gross should not serve as a member of the special committee because of
his role in management of Wilmar, and he thereafter resigned as a member of the
special committee. Both Viking and Parthenon were informed that Wilmar would
have a special committee meeting in early October to discuss their respective
proposals and were requested to deliver their detailed proposals by that date.
On October 1, 1999, Parthenon submitted a revised preliminary expression of
interest to acquire Wilmar for $19.00 per share in cash, contingent upon
obtaining satisfactory financing, completion of due diligence, and execution of
satisfactory definitive agreements including employment agreements with certain
senior executives of the Company. Also, in early October, Viking communicated
the detailed terms of its proposal, including proposed collar provisions, to
William Blair. Wilmar's stock price closed at $12.75 per share on October 1,
1999.
On October 4, 1999, the special committee met and elected Mr. Wilson as its
Chairman. The special committee also retained Morgan, Lewis & Bockius LLP as
its legal advisor and William Blair & Company LLC as its financial advisor. The
special committee met to receive an update on the Parthenon and Viking
proposals and the acquisition of Sexauer. The special committee discussed the
proposed terms and conditions of the Viking and the Parthenon proposals.
Assuming that the pooling method of accounting was available for the Viking
merger, the special committee and William Blair preliminarily estimated that as
of the latest closing price for Vikings, Viking's stock proposal had a value of
approximately $20.93 per Wilmar share with the acquisition of Sexauer, and
$19.59 per Wilmar share without the Sexauer acquisition. These prices were
directly dependent upon Viking's stock price and under no circumstances would
exceed $22.00 per Wilmar share with Sexauer and $20.00 per Wilmar share without
Sexauer respectively. Parthenon's $19.00 per Wilmar share cash proposal was the
same with or without the Sexauer acquisition. The special committee held an
extensive discussion regarding the merits and potential concerns with respect
to the two proposals. Both proposals contained a requirement for Wilmar to
enter into an exclusive period of negotiation and due diligence. The special
committee determined that it believed both proposals had merit, but that given
both the uncertainty regarding the Viking proposal (relating to the likelihood
of completion of the Sexauer acquisition, the volatility in Viking's stock
price and concerns about Viking's ability to receive pooling accounting
treatment) and the uncertainty surrounding Parthenon's proposal (in particular
its
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ability to secure the required amount of equity and debt financing), the
special committee determined that it was not prepared to enter into exclusive
negotiations with either party. Instead the special committee requested that
each of the bidders provide a form of a merger agreement, a detailed list of
due diligence requirements, and that Parthenon provide a description of the
expected sources of financing.
During the period from October 5 to October 27, Wilmar assembled the required
due diligence information, continued due diligence on the Sexauer acquisition,
and requested its outside accountants, Deloitte & Touche, LLP, to determine
whether pooling accounting treatment was available for the Viking transaction.
On October 26, Wilmar's stock price closed at $10.75 per share.
At the next special committee meeting on October 27, Wilmar management updated
the special committee on progress with Sexauer, indicating that while important
issues remained in due diligence and negotiations, it was becoming increasingly
likely that these issues would be resolved and that a transaction would likely
close. The special committee then reviewed the proposals and associated
detailed documentation submitted by each of Viking and Parthenon. Viking's
stock price had remained approximately the same since the prior special
committee meeting and the then-current indicated value of the Viking proposal
was approximately $21.02 per Wilmar share with Sexauer, and $19.67 per Wilmar
share without Sexauer. In addition, prior to the special committee meeting,
Viking insisted that it receive exclusivity or that it would immediately
withdraw its indication of interest. After discussing the merits and risks
associated with the two proposals, the special committee decided to proceed
with Viking's proposal and granted Viking's request for an exclusivity
agreement, subject to certain conditions, including confirmation of the
availability of pooling-of-interests accounting treatment and completion of due
diligence. Viking then received access to review the extensive due diligence
information that had been prepared by Wilmar. The special committee further
determined that, with or without a merger transaction, the acquisition of
Sexauer was in the best interests of the Company.
On November 11, 1999 Wilmar's management determined, based upon consultation
with its independent auditors, Deloitte & Touche, LLP that a transaction with
Viking could not be accounted for using the "pooling of interests" method of
accounting. Wilmar advised Viking that it was terminating the exclusivity
agreement due to its inability to meet this principal condition of Viking's
proposal, but that it remained interested in a transaction with Viking on a
non-pooling basis.
On November 15, 1999, Wilmar entered into a definitive stock purchase agreement
with Sexauer. Wilmar also began to negotiate a revolving credit facility and
term loan with First Union National Bank to finance the Sexauer acquisition and
replace Sexauer's existing line of credit.
On November 16, 1999, Wilmar received a letter from Viking indicating that
Viking was not interested in proceeding with a transaction if it was unable to
receive pooling accounting treatment. On November 19, Viking was specifically
requested by William Blair to put forth a proposal on a non-pooling basis.
Viking indicated that it might consider such a proposal but that because of the
negative impact that a transaction involving purchase accounting would have on
Viking's earnings per share, any such proposal would necessarily be at a
considerably lower price. On November 22, 1999 Wilmar's stock price closed at
$15.06 per share.
On November 23, 1999, the special committee met to discuss the status of the
Viking and Parthenon proposals. William Blair indicated that they were
continuing to solicit Viking to make an offer using the purchase method of
accounting and believed that such an offer was possible but not certain.
William Blair further indicated that Parthenon continued to express interest in
making an offer for Wilmar, but that its offer would be at a price of $18.00
per share in light of concerns regarding the tightening of the credit markets
and certain cost and integration issues associated with the Sexauer
acquisition. Following discussion of Wilmar's current and future business
prospects, the special committee determined that it would be in the interests
of shareholders to encourage Viking to submit a proposal based upon purchase
accounting, and to encourage Parthenon to increase its proposed price above the
$18.00 per share level.
On November 24, 1999, Parthenon, in response to the special committee's
request, indicated that it would increase its offer to $18.25 per share.
Parthenon, however, conditioned the price increase upon the immediate
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execution of an exclusivity letter. The special committee declined to grant
such exclusivity, unless it continued to have the ability to solicit an
alternative proposal from Viking for another week. On November 24, 1999, Wilmar
entered into an exclusivity agreement with Parthenon through December 23, 1999
which provided for, among other things, a $500,000 break-up fee plus actual
expenses up to $500,000 if Wilmar accepted a superior proposal or negotiated
with any other party during the exclusivity period. The exclusivity agreement
allowed Wilmar to continue its discussions with Viking and to accept a proposal
from Viking prior to 5:00 p.m. on November 30, 1999 without paying any break-up
fee or expense reimbursement. Prior to entering into the letter agreement,
Wilmar confirmed with Viking that if Viking were to submit an offer, it would
do so by November 30, 1999.
On November 30, 1999, the special committee met again to review the status of
the potential transactions. The special committee was informed that on November
29, 1999, Viking had indicated that it would not make a proposal. The special
committee was then updated on the status of Parthenon's due diligence
investigation of Wilmar. Mr. Green advised the special committee that he had
been asked to help Parthenon finance the transaction by rolling over up to $10
million of his equity in Wilmar into the surviving company. Mr. Green indicated
that while he believed it to be in the shareholders' interests to facilitate a
possible transaction, he was willing to roll over not more than $3 million, or
approximately 10% of his Wilmar holdings.
During the period from November 30 to December 20, the Investors and their
banks conducted due diligence with respect to Wilmar.
On December 21, 1999, the special committee met to discuss the transaction with
the Investors led by Parthenon. At the meeting William Blair reviewed with the
special committee various terms of an anticipated proposal from the Investors.
It was noted that equity commitment letters had been received from each of the
Investors as well as a draft debt commitment letter from a leading financial
institution providing for an aggregate commitment adequate to finance the debt
required by the transaction, each subject to customary conditions. William
Blair also reviewed the financial terms of the Investors' anticipated proposal.
The special committee reviewed the proposed participation by Wilmar management
in the Investors' bid. It was noted that Mr. Green would roll over $3 million
of his Wilmar holdings by exchanging $3 million of his Wilmar common shares for
shares of a new Class C Preferred Stock immediately prior to the merger. Mr.
Green would also agree to vote his shares in favor of the merger. The Class C
Preferred Stock would be converted in the merger into shares of senior
preferred stock and common stock of the surviving corporation. Counsel reviewed
with the special committee the material provisions of the merger agreement,
including the break-up fee and the expense reimbursement provisions. The
special committee reviewed with its financial advisor its financial analysis of
the proposal. The special committee reviewed and discussed with William Blair
the financial projections prepared by the Investors in their bank presentation
which were substantially identical to management's financial projections in the
first two years and projected higher revenues and earnings in the last three
years but determined that they had no reason to doubt the accuracy of
management's base case projections being relied upon by William Blair. The
special committee also reviewed the proposed compensation package for
management and determined that it was reasonable and did not negatively impact
the price the Investors were willing to pay to Wilmar's stockholders. The
special committee instructed counsel to attempt to negotiate (i) a break-up fee
of no more than $7 million (3% of equity value) compared with Parthenon's
current proposal of $9.3 million (3% of entity value), (ii) to place certain
limits on the Company's obligation to reimburse the Investors' expenses and
(iii) to require the Investors to reimburse Wilmar's expenses if the Investors
breached the merger agreement and to capitalize the merger subsidiary to be
able to satisfy this obligation. The special committee also instructed
management to confirm that all conditions to the debt commitment letters could
be satisfied. Wilmar's stock price closed at $14.50 per share on December 21,
1999.
On December 22, 1999, the special committee held a meeting to consider the
final proposed merger agreement and determine whether to recommend its adoption
to the full board of directors. Counsel advised the members of the special
committee as to their fiduciary duties in considering the proposed transaction.
It was reported that the Investors had agreed to reduce their proposed break-up
fee to $7.5 million (which, after further
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<PAGE>
negotiations, was reduced to $7.0 million), and agreed to fund the merger
subsidiary up to $1 million to reimburse Wilmar for its expenses if the
Investors breached the merger agreement, but that the Investors were not
willing to reimburse the expenses of Wilmar if the debt financing conditions
were not satisfied by Wilmar and proposed that both parties should share that
risk. Representatives of William Blair made a presentation to the special
committee which included the information described under "-Opinion of Financial
Advisor to the Special Committee." William Blair then rendered its oral opinion
(confirmed in writing later that day) to the special committee that, as of such
date, the merger consideration of $18.25 per share was fair, from a financial
point of view, to the Wilmar public shareholders. Management then made a
presentation indicating its comfort that all conditions to the debt commitment
letters would be satisfied.
At the conclusion of these presentations and after discussion, including
concerning the items mentioned under "--Purposes and Reasons for the Merger and
Recapitalization; Recommendations of Wilmar's Board of Directors and the
Special Committee," the special committee unanimously determined to approve the
merger agreement and declare the merger agreement fair to and in the best
interests of the Wilmar public shareholders, and approved resolutions
recommending that Wilmar's board of directors approve the merger agreement.
Immediately following the meeting of the special committee, the board of
directors of Wilmar (with Mr. Jacquer recusing himself from the meeting and Mr.
Green attending the meeting but abstaining from the vote) met and approved the
merger agreement. The merger agreement was then executed by Wilmar and the
Investors, the Voting and Exchange Agreement was executed by Mr. Green and a
press release announcing the merger agreement was issued. Wilmar's stock price
closed at $14.00 per share on December 22, 1999.
Exchange of Shares by William Green
William Green has agreed to a recapitalization exchange in connection with the
merger 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.
Continuing Interests of the Investors and Management Shareholders in Wilmar
When the merger and recapitalization are completed, William Green and the other
Management Shareholders will continue to hold an equity interest in Wilmar as a
result of the conversion of the Class C Preferred Stock held by Mr. Green in
the merger into senior preferred and common stock of Wilmar and the purchase of
common and preferred stock and the receipt of stock options following the
merger by the other Management Shareholders. Mr. Green also will receive cash
proceeds from the merger and recapitalization in the amount of approximately
$33.7 million for his remaining shares of Wilmar common stock and the other
Management Shareholders will also be entitled to receive cash proceeds from the
merger for their Wilmar common stock on the same terms as other shareholders.
As a result of the merger, the Investors will own approximately 86.1% of the
common stock and 97.2% of the senior preferred stock of Wilmar, and the
Management Shareholders will own approximately 13.9% of the common stock and
2.8% of the senior preferred stock of Wilmar. These percentages reflect the
conversion of Mr. Green's Class C Preferred Stock into shares of common stock
and senior preferred stock and the planned purchase by the other Management
Shareholders of 5.75% of the common stock for an aggregate purchase price of
$65,341 and 0.6% of the senior preferred stock for an aggregate purchase price
of $834,659 immediately following the merger. In addition to the shares of
common stock and preferred stock required to be purchased by the Management
Shareholders other than Mr. Green, such Management Shareholders will have the
option to purchase additional shares of senior preferred stock, up to an
aggregate number of 116,533 shares.
The Management Shareholders have each entered into a new employment agreement
with Wilmar (other than Mr. Toomey, who is entering into his first employment
agreement with Wilmar), under which they will serve in comparable positions to
their current positions. These employment agreements are substantially similar
to their old agreements except that Mr. Green is now eligible for a $3 million
retention bonus on the fifth anniversary of the date of the agreement, Mr.
Grebe will receive a signing bonus of $500,000 and Messrs. Grebe and
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<PAGE>
Sanford's employment agreements provide for approximately a 20% increase in
their salaries and improved benefits. These employment agreements will become
effective upon consummation of the merger and will include the grant of options
to the Management Shareholders.
After the merger and recapitalization are completed, Parthenon Capital, Inc.
will receive a $250,000 annual management fee from Wilmar. Mr. Ernest K.
Jacquet, a member of Wilmar's board of directors, is a managing director of
Parthenon Capital, Inc.
Purposes and Reasons for the Merger and Recapitalization; Recommendations of
Wilmar's Board of Directors and the Special Committee
The purpose of the merger and recapitalization is to enable the Investors,
through WM Acquisition, to acquire a controlling interest in Wilmar, and to
provide the public stockholders with the opportunity to receive $18.25 in cash
for each share of common stock held by them.
Wilmar's board of directors, based on the unanimous recommendation of the
special committee, unanimously approved the merger agreement and recommends
that you vote to adopt it. Because of their continuing interest in Wilmar after
the merger, Messrs. Jacquet and Green refrained from voting on this matter.
Wilmar's board of directors and the special committee believe that the terms of
the merger agreement, including the merger consideration of $18.25 per share,
are fair to and in the best interests of Wilmar's public shareholders.
The special committee and the board of directors recommend that the
shareholders vote "FOR" the approval of the merger agreement.
In considering a possible transaction, the special committee, in consultation
with its legal and financial advisors, reviewed Wilmar's business, operations,
properties, assets, financial condition, operating results and prospects; the
historical trading prices of Wilmar common stock on the Nasdaq National Market
System; and the presentations on the status of negotiations with potential
bidders and the fairness opinion of William Blair. The special committee
considered as reasons for remaining an independent public company Wilmar's
long-term growth prospects as an independent public company, including
anticipated growth from entering the institutional facilities maintenance
market in addition to the existing apartment housing market through the J. A.
Sexauer acquisition, and Wilmar's current and potential internal growth
initiatives which could be achieved by remaining independent, and weighed
against those considerations the following factors in favor of the merger:
. the fact that the consideration to be received by Wilmar shareholders in
the merger represents an approximate 30% premium over the $14.00 per
share closing price of Wilmar common stock on December 22, 1999, the
last full trading day before the public announcement of the merger
agreement;
. the historical trading prices of Wilmar common stock on the Nasdaq
National Market System, including the decline in Wilmar's price to
earnings ratio over the past year and the prospect of continued
undervaluation of Wilmar;
. increased competitive market pressures faced by Wilmar which may:
. limit Wilmar's internal growth prospects in the apartment housing
market; and
. result in difficulty finding new acquisition targets at prices
Wilmar believes are attractive;
. the presentations and fairness opinion of William Blair;
. the fact that negotiations with another bidder did not lead to a more
favorable offer and that, based upon prior discussions with other
potential bidders, a higher offer was not foreseeable;
. business risk associated with integrating Sexauer and Wilmar and Wilmar
conducting business in a new end market;
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<PAGE>
. the small market capitalization of Wilmar and diminishing research
attention from market analysts;
. the terms and conditions of the merger agreement, including in
particular the provisions which permit Wilmar's board of directors to
engage in the following activities, subject to certain limitations:
. consider unsolicited third-party offers;
. negotiate with these third parties;
. furnish these parties non-public information about Wilmar; and
. terminate the merger agreement to accept an offer from a third party
that is more favorable from a financial point of view than the offer
from the Investors provided Wilmar pays WM Acquisition a termination
fee of $7.0 million plus reimbursement of up to $1.0 million of out-
of-pocket expenses; and
. the experience and success of the Investors in structuring and closing
transactions similar to the merger and the strength and favorable terms
of the financing commitment letters provided or obtained by the
Investors for the merger.
While the special committee did not rank the factors it considered, it did put
particular weight on the first five factors listed above as factors in favor of
the merger.
Conflicts. The special committee and the board of directors also considered the
conflicts of interest of certain members of Wilmar's management in connection
with the merger. While the Management Shareholders have interests that are
different from, and may conflict with, the interests of the public
shareholders, most of the shares held by them will be converted into the cash
merger consideration on the same basis as all other shareholders. In
particular, 91.8% of the shares held by Mr. Green will be converted into an
aggregate of approximately $33.7 million of cash merger consideration at the
merger price of $18.25 per share.
Based upon the same factors discussed above, the Investors and the Management
Shareholders also believe that the terms of the merger and recapitalization are
fair to and in the best interests of Wilmar's public shareholders.
Opinion of Financial Advisor to the Special Committee
The special committee retained William Blair to act as its financial advisor in
connection with a possible transaction involving Wilmar and asked William Blair
to render an opinion as to whether the merger consideration set forth in the
merger agreement is fair from a financial point of view to the "Holders of
Common Stock". The "Holders of Common Stock" includes all of the shareholders
of Wilmar other than WM Acquisition, any affiliates of WM Acquisition, and
William Green, the Chairman of Wilmar. On December 22, 1999, William Blair
delivered an oral opinion, later confirmed in writing as of that date, to the
special committee that, as of that date and based upon and subject to the
assumptions and qualifications stated in its opinion, the merger consideration
was fair from a financial point of view to the Holders of Common Stock.
THE FULL TEXT OF WILLIAM BLAIR'S OPINION, DATED DECEMBER 22, 1999, IS ATTACHED
AS APPENDIX B TO THIS PROXY STATEMENT. YOU SHOULD READ THE ENTIRE OPINION
CAREFULLY TO LEARN ABOUT THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS
CONSIDERED AND LIMITS OF THE SCOPE OF WILLIAM BLAIR'S REVIEW IN RENDERING ITS
OPINION. THE FOLLOWING SUMMARY OF WILLIAM BLAIR'S OPINION IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE OPINION. WILLIAM BLAIR'S OPINION
WAS ADDRESSED TO THE SPECIAL COMMITTEE FOR THE PURPOSE OF ITS EVALUATION OF THE
MERGER AND RECAPITALIZATION AND IS NOT A RECOMMENDATION TO ANY WILMAR
SHAREHOLDER AS TO HOW TO VOTE ON THE MERGER AGREEMENT.
In connection with its opinion, William Blair, among other things:
. reviewed certain publicly available financial statements and other
business and financial information of Wilmar;
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<PAGE>
. reviewed certain internal financial statements and other financial and
operating data concerning Wilmar prepared by Wilmar's management;
. reviewed drafts dated December 17, 1999 of certain financial forecasts
and other forward looking financial information prepared by Wilmar's
management;
. held discussions with Wilmar's management concerning the business, past
and current operations, financial condition and future prospects for
Wilmar;
. reviewed the financial terms and conditions set forth in the draft of
the merger agreement dated December 22, 1999;
. reviewed the stock price and trading history of Wilmar's common stock;
. compared the financial performance of Wilmar and the prices and trading
activity of Wilmar common stock with that of other publicly traded
companies that it believed were comparable with Wilmar;
. compared the financial terms of the merger and recapitalization with the
financial terms of other publicly disclosed transactions that it deemed
relevant;
. prepared a discounted cash flow analysis of Wilmar;
. prepared a leveraged acquisition analysis of Wilmar;
. participated in discussions with representatives of Wilmar and its legal
advisors; and
. made such other studies and inquiries, and took into account such other
matters, as it deemed relevant, including its assessment of general
economic, market and monetary conditions as of the date of its opinion.
In William Blair's review and analysis, and in arriving at its opinion, it
assumed and relied upon the accuracy and completeness of all of the financial
and other information provided to it (including information furnished to it
orally or otherwise discussed with it by Wilmar's management) or publicly
available and it neither attempted to verify, nor assumed responsibility for
verifying, any of such information. William Blair relied upon the assurances of
Wilmar's management that it is not aware of any facts that would make such
information inaccurate or misleading. Furthermore, it did not obtain or make,
or assume any responsibility for obtaining or making, any independent
evaluation or appraisal of the properties, assets or liabilities (contingent or
otherwise) of Wilmar, nor was it furnished with any such evaluation or
appraisal. With respect to the financial forecasts and projections (and the
assumptions and bases therefore) for Wilmar that it reviewed, upon the advice
of Wilmar's management, it assumed that such forecasts and projections were
reasonably prepared in good faith on the basis of reasonable assumptions and
reflected the best currently available estimates and judgments of management as
to the future financial condition and performance of Wilmar, and it further
assumed that such projections and forecasts would be realized in the amounts
and in the time periods then estimated. All financial results and projections
used by William Blair in rendering its opinion were pro forma for the
acquisition of J. A. Sexauer, Inc. and Trayco of S.C., Inc. William Blair
assumed that the merger and recapitalization would be consummated upon the
terms set forth in the merger agreement without material alteration thereof. In
addition, it assumed that the historical financial statements of Wilmar
reviewed by it had been prepared and fairly presented in accordance with U.S.
generally accepted accounting principles consistently applied.
The fairness opinion was based upon market, economic and other conditions as in
effect on, and information made available to William Blair as of, the date of
such opinion. The opinion noted that subsequent developments might affect the
conclusion expressed in such opinion and that William Blair disclaimed any
undertaking or obligation to advise any person of any change in any matter
affecting this opinion which might come or be brought to its attention after
the date of such opinion. The opinion is limited to the fairness, from a
financial point of view and as to the date of such opinion, of the merger
consideration to the Holders of Common Stock. William Blair did not express any
opinion as to (i) the value of any employee agreement or other arrangement
entered into in connection with the merger or (ii) any tax or other
consequences that might
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<PAGE>
result from the merger. The opinion did not address the relative merits of the
merger and the other business strategies that Wilmar's board of directors or
the special committee thereof had considered or might be considering, nor did
it address the decision of Wilmar's board of directors or the special committee
thereof to proceed with the merger.
The following discussion summarizes the material financial analyses William
Blair performed in arriving at its opinion. William Blair presented the results
of these analyses to the special committee on December 22, 1999.
Stock Price Analysis. William Blair examined the history of the trading prices
and volume for the Wilmar common stock and the relationship between movements
of such common stock and movements in common stock of certain publicly held
companies in businesses William Blair believed to be comparable to Wilmar.
William Blair noted that the twelve-month trading range for Wilmar's stock
price was $10.00--$23.75 and that the higher end of this range was achieved in
early 1999 prior to the disclosure by Wilmar of a downward adjustment of
expected revenues and earnings during 1999. William Blair noted that the market
price of Wilmar's common stock for most of the prior twelve months had been
below the $18.25 merger price, that 87% of the shares traded in the prior
twelve months were traded for less than $18.25 per share and that the weighted
average share price over the previous twelve months was $14.35 per share.
Analysis Of Certain Publicly Traded Companies Comparable to Wilmar. William
Blair reviewed and compared certain Wilmar financial information to
corresponding financial information, ratios and public market multiples for
publicly traded companies that are engaged in business-to-business direct
marketing and distribution. These publicly traded companies included Airgas
Inc., Applied Industrial Technologies, Inc., Barnett Inc., Hughes Supply, Inc.,
Industrial Distribution Group, Inc., JLK Direct Distribution, Inc., Lawson
Products Inc., MSC Industrial Direct Co., Inc., NCH Corp., W.W. Grainger, Inc.,
Watsco, Inc., and Wesco International, Inc. William Blair selected these
companies because they are the publicly traded companies whose operations and
financial condition William Blair deemed most comparable to Wilmar. Although
William Blair compared the trading multiples of the selected companies at the
date of William Blair's opinion to the implied purchase multiples of Wilmar,
none of the selected companies is identical to Wilmar.
Among the information William Blair considered were revenue, operating income
("EBIT"), earnings before interest, taxes, depreciation and amortization
("EBITDA"), net income, earnings per share, gross profit margins, EBIT margins
and net income margins, growth in revenues and net income, return on assets and
equity, and capital structure. The multiples and ratios for the comparable
companies were based on the most recent publicly available financial
information and on earnings per share estimates for 1999 and 2000 from First
Call Corporation, and were based on the closing share prices as of December 22,
1999.
William Blair observed that the multiples of price to earnings per share, as
well as multiples of market equity value plus book value of total debt less
cash and equivalents ("Enterprise Value") to revenues, EBIT and EBITDA implied
by the terms of the merger compared favorably, from the perspective of Wilmar's
Holders of Common Stock, to the relevant range, mean and median of the
corresponding trading multiples of the comparable companies.
Information regarding the multiples implied by the terms of the merger compared
to the multiples derived from William Blair's analysis of selected distribution
companies are set forth in the following table. LTM refers to the latest twelve
months.
<TABLE>
<CAPTION>
The Selected
Proposed Comparable Companies
Wilmar ---------------------------
Multiple Merger Relevant Range Median Mean
- ----------------------- -------- -------------- ------ -----
<S> <C> <C> <C> <C>
Enterprise Value to LTM
Revenues 1.0x 0.50x to 0.70x 0.40x 0.60x
Enterprise Value to LTM
EBIT 10.6x 7.9x to 8.9x 8.0x 8.4x
Enterprise Value to LTM
EBITDA 8.9x 5.8x to 6.8x 5.8x 6.4x
Price to estimated 1999
Earnings Per Share 17.4x 11.5x to 13.0x 10.0x 12.5x
Price to estimated 2000
Earnings Per Share 14.5x 9.5x to 11.0x 8.6x 10.6x
</TABLE>
William Blair then applied a 25% to 35% control premium to the comparable
trading multiples resulting from this analysis, which implied the following
Wilmar equity values per share as compared to the Wilmar merger.
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<PAGE>
<TABLE>
<CAPTION>
Implied Price Using Selected
The Comparable Companies
Proposed with 35% Merger Premium
Wilmar ------------------------------
Multiple Used Merger Relevant Range Median Mean
- ------------------------------------ -------- ---------------- ------ ------
<S> <C> <C> <C> <C>
Enterprise Value to LTM Revenues $18.25 $8.47 to $ 14.55 $ 5.43 $11.51
Enterprise Value to LTM EBIT $18.25 $16.61 to $19.57 $16.91 $18.09
Enterprise Value to LTM EBITDA $18.25 $13.67 to $17.19 $13.67 $15.78
Price to estimated 1999 Earnings Per
Share $18.25 $16.32 to $18.45 $14.19 $17.74
Price to estimated 2000 Earnings Per
Share $18.25 $16.09 to $18.63 $14.56 $17.95
</TABLE>
William Blair noted that the merger price of $18.25 per share was in each case
either within the relevant range or above the relevant range of prices implied
by this analysis even when applying the higher end of the 25% to 35% range of
typical control premiums.
Comparable Acquisitions Analysis. William Blair performed an analysis of
selected recent merger or acquisition transactions in the business to business
direct marketing and distribution industry. The selected transactions were
chosen based on William Blair's judgment that they were generally comparable,
in whole or in part, to the proposed transaction. In total, William Blair
examined ten transactions that were announced between March 28, 1996 and July
22, 1999. The selected transactions were not intended to be representative of
the entire range of possible transactions in the industry. Although William
Blair compared the transaction multiples of these companies to the implied
purchase multiples of Wilmar, none of the selected companies is identical to
Wilmar.
William Blair reviewed the consideration paid in such transactions in terms of
the Enterprise Value of such transactions as a multiple of revenues, EBIT and
EBITDA for the latest twelve months prior to the announcement of such
transactions.
Information regarding the multiples implied by the terms of the merger compared
to the acquisition multiples from William Blair's analysis of selected
distribution companies is set forth in the following table.
<TABLE>
<CAPTION>
Comparable Multiples for
Ten Transactions of Distribution Companies
The Proposed ---------------------------------------------
Multiple Wilmar Merger Relevant Range Median Mean
- ----------------------- ------------- -------------------- ------------ -----------
<S> <C> <C> <C> <C>
Enterprise Value to LTM
Revenues 1.0x 0.55x to0.80x 0.57x 0.77x
Enterprise Value to LTM
EBIT 10.6x 10.0x to 11.5x 11.2x 10.0x
Enterprise Value to LTM
EBITDA 8.9x 8.0x to 9.5x 9.1x 8.5x
</TABLE>
William Blair applied the multiples implied by these transactions to the
operating statistics for Wilmar to indicate an implied price range per share
for Wilmar. These results are set forth in the following table:
<TABLE>
<CAPTION>
Implied Price Using Ten Transactions of
Distribution Companies
The Proposed ---------------------------------------
Multiple Used Wilmar Merger Relevant Range Median Mean
- ----------------------- ------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Low High
-------------------
Enterprise Value to LTM
Revenues $18.25 $ 7.40 to $ 13.03 $ 7.85 $ 12.35
Enterprise Value to LTM
EBIT $18.25 $ 16.90 to $ 20.18 $ 19.53 $ 16.90
Enterprise Value to LTM
EBITDA $18.25 $ 15.86 to $ 19.76 $ 18.72 $ 17.16
</TABLE>
William Blair noted that in each case the $18.25 merger price was either within
or above the relevant range implied by this comparable acquisitions analysis.
Premium Analysis. In addition to evaluating multiples paid in transactions,
William Blair considered, for 194 public company transactions announced between
January 1, 1998 and December 14, 1999 which did not utilize pooling accounting
treatment and whose Enterprise Value ranged from $200 million to $500 million,
the premiums paid over each company's stock price prior to the announcement of
a transaction. The premium analysis conducted by William Blair indicated the
following:
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<PAGE>
<TABLE>
<CAPTION>
Relevant Public Transactions
The Proposed ----------------------------
Premium Wilmar Merger Range Median Mean
- ---------------- ------------- ---------------- ------ ----
<S> <C> <C> <C> <C>
One day premium 30.4% -10.7% to 132.5% 25.9% 31.1%
One week premium 27.0% -29.9% to 141.4% 30.0% 36.5%
</TABLE>
William Blair noted that the merger premiums implied by the $18.25 merger price
were within the range of the mergers considered in this analysis and closely
approximated both the median and mean premiums implied by this analysis.
Discounted Cash Flow Analysis. Using a discounted cash flow analysis, William
Blair estimated the net present value of the free cash flows that Wilmar could
produce on a stand-alone basis over a five year period from 2000 to 2004. Free
cash flows means EBIT after taxes plus depreciation and amortization less
capital expenditures and working capital changes. In estimating these cash
flows, William Blair used the financial projections provided by Wilmar
management. In calculating the "terminal value", William Blair assumed
multiples of Enterprise Value to EBITDA ranging from 7.5x to 8.5x, which
multiples William Blair believed to be appropriate for such an analysis. The
annual and terminal free cash flows were discounted at rates between 12.5% and
14.5% to determine a net present value of the Enterprise Value of Wilmar. The
discounted cash flow analysis conducted by William Blair indicated the
following:
Per Share Value of Wilmar.............$17.38 to $21.76
William Blair noted that the $18.25 merger price fell within the range of
values implied by the discounted cash flow analysis.
Leveraged Acquisition Analysis. William Blair also performed a leveraged
acquisition analysis of Wilmar to ascertain the price that would be attractive
to a potential financial buyer based upon current market conditions. For this
analysis, William Blair used the same financial projections provided by
management that were used in the discounted cash flow analysis. William Blair
assumed a capital structure comprised of approximately $133 million in equity
and $172 million in debt, an exit EBITDA multiple of 8.5x LTM EBITDA, and an
equity investment that would achieve a 25% to 30% rate of return. Based on
these assumptions, the leveraged acquisition analysis conducted by William
Blair indicated the following:
Per Share Value of Wilmar............ $15.25 to $17.00
William Blair noted that the $18.25 merger price was above the range implied by
the leveraged acquisition analysis.
General. This summary is not a complete description of the analysis performed
by William Blair but contains all material elements of the analysis. The
preparation of a fairness opinion involves determinations as to the most
appropriate and relevant methods of financial analysis and the application of
these methods to the particular circumstances. Therefore, such an opinion is
not readily susceptible to summary description. The preparation of a fairness
opinion does not involve a mathematical evaluation or weighing of the results
of the individual analyses performed, but requires William Blair to exercise
its professional judgment, based on its experience and expertise in considering
a wide variety of analyses taken as a whole. Each of the analyses conducted by
William Blair was carried out in order to provide a different perspective on
the merger and add to the total mix of information available. William Blair did
not form a conclusion as to whether any individual analysis, considered in
isolation, supported or failed to support an opinion as to fairness. Rather, in
reaching its conclusion, William Blair considered the results of the analyses
in light of each other and ultimately reached its opinion based on the results
of all analyses taken as a whole. William Blair did not place particular
reliance or weight on any particular analysis, but instead concluded its
analyses, taken as a whole, supported its determination. Accordingly,
notwithstanding the separate factors summarized above, William Blair believes
that its analyses must be considered as a whole and that selecting portions of
its analyses and the factors considered by it, without considering all analyses
and factors, may create an incomplete view of the evaluation process
24
<PAGE>
underlying its opinion. No company or transaction used in the above analyses as
a comparison is directly comparable to Wilmar or the contemplated transaction.
In performing its analyses, William Blair made numerous assumptions with
respect to industry performance, business and economic conditions and other
matters. The analyses performed by William Blair are not necessarily indicative
of future actual values and future results, which may be significantly more or
less favorable than suggested by such analyses.
William Blair is a nationally recognized firm and, as part of its investment
banking activities, is regularly engaged in the valuation of businesses and
their securities in connection with merger transactions and other types of
strategic combinations and acquisitions. William Blair acted as a co-manager
for Wilmar's public equity offerings and received underwriting fees for those
services. William Blair has also received fees from Wilmar for providing
acquisition advisory services. In the ordinary course of its business, William
Blair and its affiliates actively trade shares of Wilmar common stock for their
own accounts and for the accounts of their customers and accordingly may hold a
long or short position in these securities.
Wilmar agreed to pay William Blair a fee equal to one percent (less $250,000)
of the total consideration (including the assumption of debt) received by
Wilmar and its shareholders of which $250,000 was payable upon the delivery of
William Blair's opinion. The remaining fee is contingent upon the consummation
of the merger. In addition, Wilmar has agreed to indemnify William Blair and
its affiliates against certain liabilities, including liabilities arising under
applicable securities laws.
William Blair was not retained as an advisor or agent to Wilmar shareholders or
any other person other than as an advisor to the special committee. The special
committee and the Investors determined the merger consideration in arms-length
negotiations in which William Blair advised the special committee. Wilmar did
not impose any restrictions or limitations upon William Blair with respect to
the investigations made or the procedures that William Blair followed in
rendering its opinion.
Benefits and Detriments of the Merger to Wilmar and Wilmar's Shareholders
Benefits and Detriments of the Merger to Wilmar. Wilmar believes that the
merger and recapitalization will have the following benefits to Wilmar:
. by becoming a private company (which will occur as a result of the merger),
Wilmar's management will be able to react with greater speed and flexibility
to changing conditions and opportunities, increasing the operating
flexibility of Wilmar;
. by becoming a private company, Wilmar's management will be able to make
decisions based on its long-range business interests without the necessary
consideration of the possible adverse short-term effect of such decisions
upon the market price of Wilmar's common stock and without the constraint of
the public market's emphasis on quarterly earnings;
. by becoming a private company, the operational and administrative costs
arising from and in connection with Wilmar's status as a public reporting
company will be eliminated; and
. following the merger, Wilmar will have access to the financial and other
resources of the Investors, which may facilitate Wilmar's future growth.
We believe the detriments to Wilmar, as the surviving company of the completion
of the merger and recapitalization, are:
. the significant cash outlay required to complete the merger and the level of
indebtedness to be incurred in connection with the merger which will require
Wilmar to dedicate a substantial portion of its cash flow from operations to
make payments on the debt, thereby reducing cash flow available for general
corporate purposes, including capital expenditures and acquisitions;
. Wilmar will be unable to use publicly traded securities as acquisition
capital; and
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<PAGE>
. Wilmar will be unable to grant options to its employees exercisable for
publicly traded securities.
Benefits and Detriments of the Merger to Wilmar's Shareholders. We believe that
the merger will result in the following benefits to you:
. you will realize the value of your investment in Wilmar in cash at a price
which represents a significant premium to the market price for Wilmar common
stock before the announcement of the merger agreement. The merger
consideration of $18.25 per share presents an approximate 30% premium over
the $14.00 per share closing price on December 22, 1999, the day before the
merger agreement was announced.
. the risk of any possible decline in the value of your investment in Wilmar
will be eliminated; and
. you will not pay the commissions on brokerage fees you would have incurred
in connection with the sale of your Wilmar common stock.
We believe the detriments to you of the merger are:
. you will cease to have any ownership in Wilmar and will cease to participate
in Wilmar's future earnings or growth, if any, or benefit from increases, if
any, in Wilmar's value; and
. you may recognize a taxable gain as a result of the merger (see "Material
Federal Income Tax Considerations").
Benefits and Detriments of the Merger to the Investors and the Management
Shareholders
We believe that the merger will result in the following benefits to the
Investors and the Management Shareholders:
. they will have the opportunity to participate in Wilmar's future earnings
and growth through their equity stakes in Wilmar;
. all shares of common stock they own will be converted into the merger
consideration on the same basis as all other shareholders (excluding 164,384
shares held by Mr. Green, which he will exchange for shares of Class C
Preferred Stock, which will be converted in the merger into shares of common
stock and senior preferred stock of the surviving company);
. upon consummation of the merger, the vesting of options to acquire shares of
Wilmar common stock under Wilmar's stock option plan shall be accelerated
and the Management Shareholders, along with the other option holders, will
be entitled to receive, for each share subject to an option, the difference
between $18.25 and the per share exercise price of that option, if any,
regardless of whether the option is fully vested;
. each of the Management Shareholders has entered into new employment
agreements with Wilmar (other than Mr. Toomey, who is entering into his
first employment agreement with Wilmar) which will become effective upon
consummation of the merger and which are substantially similar to their old
agreements, except that Mr. Green is now eligible for a $3 million retention
bonus on the fifth anniversary of the date of the agreement, Mr. Grebe will
receive a signing bonus of $500,000 and Messrs. Grebe and Sanford's
employment agreements now provide for approximately a 20% increase in their
salaries and improved benefits;
. the Management Shareholders will purchase in the aggregate approximately
5.75% of the common stock and 0.6% of the senior preferred stock upon
consummation of the merger and, other than Mr. Green, will have the option
to purchase up to an additional 116,553 shares of senior preferred stock;
and
. Parthenon Capital, Inc. will receive a $250,000 annual management fee from
Wilmar after the consummation of the merger.
We believe that the principal detriment to the Investors and the Management
Shareholders of the completion of the merger will be that they will bear the
risk of any decrease in the future value of the equity of Wilmar after the
merger.
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<PAGE>
ADDITIONAL CONSIDERATIONS
- --------------------------------------------------------------------------------
Interests of Certain Persons in the Merger and Recapitalization; Continued
Ownership of Wilmar After the Merger
General. In considering the recommendation of the special committee and the
board of directors, you should be aware that certain of Wilmar's officers and
directors have interests in the merger and recapitalization or have certain
relationships, including those referred to below, that present actual or
potential conflicts of interest in connection with the merger and
recapitalization.
The special committee and the board of directors were aware of these actual or
potential conflicts of interest and considered them along with other matters
described under "Purposes and Reasons for the Merger and Recapitalization;
Recommendations of Wilmar's Board of Directors and the Special Committee."
Equity Arrangements. In letters dated December 22, 1999 addressed to WM
Acquisition, the Investors committed to purchase 12,902,256 shares of WM
Acquisition's preferred stock for an aggregate price of $129,022,556 and
977,444 shares of WM Acquisition's common stock for an aggregate price of
$977,444. As a result of the merger and recapitalization, each share of WM
Acquisition common stock will be automatically converted into a share of
Wilmar's common stock and each share of WM Acquisition's preferred stock will
be automatically converted into a share of Wilmar's senior preferred stock. As
a result of the merger, Mr. Green's 164,384 shares of Class C Preferred Stock
of Wilmar will be converted into 90,190 shares of Wilmar common stock and
290,981 shares of Wilmar's senior preferred stock. Following the merger, Mr.
Green will own approximately 7.9% of the common stock and 2.2% of the senior
preferred stock of Wilmar as a result of the conversion in the merger of his
shares of Class C Preferred Stock. There will be no other holders of Class C
Preferred Stock other than Mr. Green. On the closing date of the merger, the
other Management Shareholders are expected to purchase an aggregate of 83,466
shares of Wilmar's senior preferred stock for a price of $834,659 and an
aggregate of 65,341 shares of Wilmar common stock for a price of $65,341 as
follows:
<TABLE>
<CAPTION>
Common Stock Preferred Stock
--------------------------- ---------------------------
Number of Shares Percentage Number of Shares Percentage
---------------- ---------- ---------------- ----------
<S> <C> <C> <C> <C> <C>
Michael Grebe 34,091 3.0% 36,591 0.28%
William Sanford 22,727 2.0% 37,727 0.28%
Michael Toomey 8,523 0.75% 9,148 0.07%
</TABLE>
Purchases of shares of preferred stock listed above (plus up to an aggregate of
116,533 additional shares of preferred stock that these Management Shareholders
may elect to purchase) may be financed by loans from Wilmar of up to $750,000,
$750,000 and $500,000 to Messrs. Grebe, Sanford and Toomey, respectively. These
loans will bear interest at Wilmar's cost of capital under its senior credit
facility (but no more than 8% per annum), which will accrue and be payable at
maturity or upon prepayment. The loans will be due on the earlier of (a)
termination of employment, (b) the sale or other disposition of the preferred
stock or (c) the fifth anniversary of the loan. Unless the loans are extended
following the fifth anniversary, these Management Shareholders will have the
right to require Wilmar to repurchase the preferred stock at that time at its
then current fair market value, subject to restrictions under the terms of
Wilmar's credit facility and senior subordinated notes.
The Investors and the Management Shareholders will enter into a shareholders
agreement with Wilmar that will restrict their ability to transfer shares of
Wilmar stock following the merger and create certain other rights and
obligations with respect to such shares.
Voting and Exchange Agreement. William Green has entered into a voting and
exchange agreement with WM Acquisition which provides that he will vote his
shares of common stock to approve the merger agreement. These shares represent
approximately 15% of the votes entitled to be cast at the special meeting.
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<PAGE>
Treatment of Options. Certain directors, officers and employees have received
options to acquire shares of Wilmar common stock under Wilmar's stock option
plan and otherwise. Upon consummation of the merger, the vesting of such
options shall be accelerated and each option holder will be entitled to
receive, for each share subject to an option, the difference between $18.25 and
the per share exercise price of that option, if any, regardless of whether the
option is fully vested. The amount received will, however, be reduced to the
extent of any federal and state income and payroll tax withholding that is due.
The table below shows the number of options currently held by each of Wilmar's
executive officers and directors, and all other individuals as a group, and the
amounts to be paid to these individuals at the effective time of the merger in
exchange for cancellation of these options.
<TABLE>
<CAPTION>
Payment at
Outstanding Effective
Name Options Time
---- ----------- ----------
<S> <C> <C>
William S. Green 40,175 $ 167,775
Michael J. Grebe 150,000 450,000
William E. Sanford 130,000 910,000
Fred B. Gross 141,620 1,375,489
Michael T. Toomey 104,975 1,027,321
Martin E. Hanaka 32,500 145,625
Donald M. Wilson 32,500 145,625
Ernest K. Jacquet 30,000 125,000*
All Other Individuals As a Group 445,768 2,240,213
Total 1,107,538 $6,587,048
</TABLE>
- --------
* Mr. Jacquet has advised Wilmar that he will donate the entire amount of his
option payment to a charitable institution.
Employment Agreements. William Green, Michael Grebe and William Sanford have
each entered into new employment agreements with Wilmar which will become
effective upon the completion of the merger. Michael Toomey has entered into
his first employment agreement with Wilmar which will also become effective
upon completion of the merger.
Mr. Green's new employment agreement is substantially similar to his existing
employment agreement except for the $3 million retention bonus discussed below.
Mr. Green's employment agreement provides that he will serve as Chairman of the
Board and Chief Executive Officer of Wilmar, and will receive a base salary of
$260,000 per year, subject to an annual cost of living increase of 5%, and an
annual bonus based on the attainment of certain performance objectives. Mr.
Green's employment agreement also provides that he will receive a retention
bonus of $3 million on the fifth anniversary of the date of the agreement or
earlier if his employment terminates under certain circumstances. The
employment agreement provides that if Mr. Green's employment is terminated by
him for good reason or by Wilmar without cause, he will receive salary and
health benefit continuation for two years.
Messrs. Grebe and Sanford's new employment agreements are substantially similar
to their existing employment agreements except that the new agreements provide
for approximately a 20% increase in their salaries as well as an increase in
some of their benefits. In addition, Mr. Grebe will receive a signing bonus of
$500,000 from Wilmar, payable at the closing of the merger. The employment
agreements with Messrs. Grebe, Sanford and Toomey provide for base salaries
that are subject to annual 5% cost of living increases, and an annual bonus
based on the attainment of certain performance objectives. Under these new
employment agreements, if the employment of any Management Shareholder is
terminated by Wilmar without cause or a Management Shareholder resigns for good
reason, he will receive salary and health benefit continuation for two years.
Indemnification and Insurance. Pursuant to the merger agreement, for six years
after the closing date of the merger, Wilmar will indemnify and hold harmless
Wilmar's present and former officers and directors for acts or
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<PAGE>
omissions occurring before the close of the merger to the extent provided under
Wilmar's articles of incorporation and by-laws in effect on the date of the
merger agreement. For six years after the close of the merger, Wilmar will
provide officers' and directors' liability insurance for acts or omissions
occurring before the close of the merger covering each such person currently
covered by Wilmar's officers' and directors' liability insurance policy on
terms with respect to coverage and amount no less favorable than those of such
policy in effect on December 22, 1999; provided, that the cost of such
insurance will not exceed 150% of the amount per annum we paid in our last
fiscal year prior to December 22, 1999.
Consequences of the Merger and Recapitalization
Pursuant to the merger agreement, following approval of the merger agreement
and subject to the fulfillment or waiver of certain conditions, WM Acquisition
will be merged with Wilmar, and Wilmar will continue as the surviving company.
As a result of the merger and recapitalization, you will be entitled to receive
$18.25 in cash for each of your shares of Wilmar common stock outstanding at
the time of the merger.
Following the merger, Wilmar's shareholders, excluding the Management Group,
will cease to participate in Wilmar's future earnings or growth or benefit from
any increases, if any, in the value of Wilmar stock. Wilmar's common stock will
cease to trade on the NASDAQ and price quotations will no longer be available.
Wilmar common stock is currently registered under the Securities Exchange Act
of 1934. Following the merger and recapitalization, registration of Wilmar
common stock under the Exchange Act will be terminated, and Wilmar will be
relieved of the obligation to comply with the public reporting requirements of
the Exchange Act.
At the close of the merger, unexercised options to purchase common stock under
our stock option plans or otherwise, whether vested or unvested, will be
converted into cash. See "Additional Considerations--Interests of Certain
Persons in the Merger and Recapitalization; Continued Ownership of Wilmar After
the Merger."
Wilmar's certificate of incorporation and by-laws in effect immediately before
the merger and recapitalization will, at the effective time of the merger, be
amended and restated in the form of WM Acquisition's certificate of
incorporation and bylaws.
WM Acquisition's directors and executive officers immediately before the merger
and recapitalization will become Wilmar's directors and executive officers
immediately after the merger.
Material Federal Income Tax Considerations
The following is a summary of the material United States federal income tax
consequences of the merger and recapitalization to shareholders that hold
shares of Wilmar common stock as a capital asset and that exchange those shares
for the right to receive $18.25 in cash for each such share in the merger and
recapitalization. Because it is a summary, it does not include an analysis of
all potential tax effects of the merger and recapitalization.
In particular, this summary:
. does not consider the effect of any applicable state, local or foreign tax
laws;
. does not address all aspects of federal income taxation that may affect
particular shareholders in light of their particular circumstances;
. is not intended for shareholders that may be subject to special federal
income tax rules, such as:
. insurance companies,
. tax-exempt organizations,
. financial institutions or dealers or traders in securities,
. shareholders that hold their common stock as part of a hedge, straddle
or conversion transaction or other arrangement involving more than one
position in respect of Wilmar common stock,
. tax exempt entities,
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<PAGE>
. partnerships,
. shareholders who acquired their common stock pursuant to the exercise of
an employee stock option or otherwise as compensation,
. shareholders who are not citizens or residents of the United States or
that are foreign corporations, estates or trusts as to the United
States,
. does not address tax consequences to holders of stock options; and
. does not address tax consequences to any Investor or any Management
Shareholder or any of their affiliates or any person who would be treated as
constructively owning Wilmar common stock immediately after the merger by
reason of the attribution rules of Section 318 of the Internal Revenue Code.
This summary assumes that shareholders hold their common stock as a "capital
asset" within the meaning of the Internal Revenue Code. This summary is based
on the current provisions of the Internal Revenue Code, applicable Treasury
Regulations, judicial authorities and administrative rulings and practice.
Future legislative, judicial or administrative changes or interpretations could
alter or modify the statements and conclusions set forth in this section. Any
such changes or interpretations could be retroactive and could affect the tax
consequences of the merger and recapitalization to you. It is possible that a
court will not sustain the conclusions reached in this summary if they are
challenged by the Internal Revenue Service. We have not sought and do not
intend to seek a ruling from the Internal Revenue Service with respect to any
aspect of the merger and recapitalization.
You should consult your own tax advisor with respect to the specific tax
consequences of the merger and recapitalization, including the applicability to
your particular situation of the tax considerations contained in this summary
and the applicability and effect of any state, local or foreign tax laws.
Treatment of Holders of Common Stock. The conversion of your shares of common
stock into the right to receive $18.25 in cash for each such share in the
merger and recapitalization will be fully taxable to you. Accordingly, you will
recognize a gain or loss equal in an amount to the difference between (1) the
amount of cash you receive in the merger and recapitalization and (2) your tax
basis in the common stock. Generally, your tax basis in your common stock will
be equal to what you paid for your stock. Such gain or loss will be capital
gain or loss, and generally will be long-term capital gain or loss if you held
your shares for more than one year at the time of the merger.
Backup Withholding Tax. You may be subject to backup withholding tax at the
rate of 31% with respect to the gross proceeds you receive from the conversion
of your common stock unless you:
. are a corporation or other exempt recipient and, when required, establish
this exemption; or
. provide your correct taxpayer identification number, certify that you are
not currently subject to backup withholding tax and otherwise comply with
applicable requirements of the backup withholding tax rules.
If you do not provide us with your correct taxpayer identification number, you
may be subject to penalties imposed by the Internal Revenue Service.
Backup withholding tax is not an additional tax. Any amount withheld under
these rules will be creditable against your federal income tax liability.
Accounting Treatment
We expect that the transactions contemplated by the merger agreement will be
accounted for as a recapitalization consisting of an equity investment by
investors and the redemption of shares in the merger and recapitalization. As a
recapitalization, the historical cost bases of our assets and liabilities will
be carried forward to the surviving company with the aggregate cost of the
purchase of Wilmar's stock accounted for as a reduction of shareholders'
equity. Accordingly, the historical bases of our assets and liabilities should
not be affected by the merger and recapitalization. The accounting treatment of
the merger and recapitalization is not a condition to the consummation of the
merger and recapitalization.
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<PAGE>
Financing; Source of Funds
The total amount of funds required to (1) fund the payment of the merger
consideration and the surrender of outstanding stock options, (2) repay and/or
fund our existing indebtedness and other obligations; and (3) pay the fees and
expenses in connection with the merger is estimated to be approximately $303
million. These funds are expected to be available to Wilmar from the following
sources:
(a) term borrowings of approximately $100 million and revolver borrowings
of approximately $33 million under a new $160 million senior secured
term loan and revolving credit facility to be provided by Fleet
National Bank (or a group of banks and other financial institutions
with Fleet National Bank, as agent);
(b) the issuance of $40 million of senior subordinated notes and warrants
to Fleet Corporate Finance, Inc. (and, subject to certain limitations,
any other institutional accredited investor or qualified institutional
buyer to whom Fleet Corporate Finance, Inc. assigns its commitment);
(c) purchases of approximately $130 million of preferred stock and common
stock of WM Acquisition (which proceeds will become assets of Wilmar
upon the effectiveness of the merger and recapitalization) by the
Investors; and
(d) investments of $65,341 by Messrs. Grebe, Sanford and Toomey in Wilmar
common stock.
This funding is expected to be available to consummate the merger and
recapitalization, to pay all fees and expenses incurred in connection with the
merger and recapitalization, to refinance the existing indebtedness and other
obligations of Wilmar and to provide working capital for Wilmar after the
merger and recapitalization.
In addition, as described above, Mr. Green's shares of Class C Preferred Stock
will be converted into shares of preferred and common stock of the surviving
entity of the merger and recapitalization.
Parthenon Investors, L.P., an affiliate of entities managed by Parthenon
Capital, Inc., has obtained commitment letters from Fleet National Bank and
Fleet Corporate Finance, Inc. (each a "Financing Commitment Letter") and WM
Acquisition has obtained commitment letters from each of the Investors (each an
"Equity Commitment Letter" and collectively, with the Financing Commitment
Letters, the "Commitment Letters"), with respect to the terms and conditions of
the financing or, as applicable, the investment, expected to be provided by
each such entity. The Commitment Letters are filed as exhibits to the Schedule
13D filed in connection with the acquisition by WM Acquisition of beneficial
ownership in shares of Wilmar's common stock. The obligations of Fleet National
Bank and Fleet Corporate Finance, Inc., respectively, will terminate if the
respective financings have not been consummated by May 1, 2000 and in respect
of Fleet Corporate Finance, Inc.'s obligation, if a notice of purchase is not
delivered to Fleet Corporate Finance, Inc. on or prior to April 15, 2000. Each
Equity Commitment Letter will expire in accordance with its terms if the merger
and recapitalization has not been consummated by June 30, 2000.
Wilmar expects to repay the debt incurred in connection with the merger and
recapitalization from cash flow from its operations and/or proceeds from new
debt or equity financings. WM Acquisition's obligation to consummate the merger
and recapitalization is conditioned upon its or Wilmar's (as the surviving
company of the merger and recapitalization) having obtained financing, pursuant
to the Financing Commitment Letters or on substantially equivalent terms, in
amounts sufficient to consummate the merger and recapitalization, to pay all
fees and expenses incurred in connection with the merger and recapitalization,
to refinance the existing indebtedness of Wilmar and to provide working capital
for Wilmar after the merger.
No alternative financing arrangements or plans exist in the event the
arrangements discussed in this section are not realized.
Senior Credit Facility. Subject to the terms contained in its Commitment
Letter, Fleet National Bank has committed to provide the surviving company with
a secured senior credit facility (the "Senior Facility") in an aggregate amount
of $160 million consisting of (i) a $50 million senior term loan ("Term Loan
A") with payments amortized over five years, (ii) a $50 million senior term
loan ("Term Loan B") with payments
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<PAGE>
amortized over seven years and (iii) a $60 million revolving credit facility
subject to borrowing base requirements (the "Revolver") maturing five years
from the date of the closing of the Senior Facility. It is anticipated that the
Revolver will have a sublimit available for the issuance of letters of credit.
It is anticipated that Fleet National Bank will seek commitments from other
banks and financial institutions. If commitments from other banks are obtained,
Fleet National Bank will serve as the administrative agent for the bank group.
If certain conditions are met, the proceeds of the senior facility will be used
to fund the transactions related to the merger and recapitalization, refinance
existing indebtedness of Wilmar and finance the working capital needs of Wilmar
and its subsidiaries.
It is anticipated that the Revolver, Term Loan A and Term Loan B will
accumulate interest, at Wilmar's option, at either (a) the higher of the
commercial prime lending rate of Fleet National Bank or the Federal funds
effective rate plus one-half of one percent (the "Prime Rate") or (b) the
applicable LIBOR based rate plus, in either case, a designated margin (the
"Applicable Margin"). It is contemplated that, initially the Applicable Margin
for (a) Prime Rate borrowings will be (1) 200 basis points (2%) under Term Loan
A and the Revolver and (2) 250 basis points (2.5%) under Term Loan B and (b)
LIBOR based loans will be (1) 325 basis points (3.25%) under Term Loan A and
the Revolver and (2) 375 basis points (3.75%) under Term Loan B. After an
initial period, it is anticipated that the Applicable Margin will be calculated
with reference to a grid based on Wilmar's financial performance. The interest
rates described above may be increased if Fleet National Bank determines in
consultation with Wilmar and Parthenon Investors, L.P. that a change is
necessary to ensure the successful syndication of the Senior Facility or an
optimal credit structure for the financings.
It is anticipated that the Senior Facility and any interest rate protection
agreements entered into with a member of the bank group will be guaranteed by
all of Wilmar's direct and indirect subsidiaries (other than foreign
subsidiaries which have not made certain elections under the tax code) and
secured by first priority liens on substantially all of such entities'
property, including all of the capital stock of each domestic subsidiary and
65% of the capital stock of each foreign subsidiary.
Wilmar and Parthenon Investors, L.P. expect that the documents for the Senior
Facility will contain representations, fees, events of default, affirmative
covenants, negative covenants, maintenance of financial ratios and other
covenants customary for credit facilities of a size and type similar to the
Senior Facility, including restrictions on the payment of dividends,
investments, change of control, stock repurchases, other indebtedness and
liens.
The obligation to provide the Senior Facility is subject to the execution of
definitive documentation. Further, borrowings under the Senior Facility will be
subject to the satisfaction by Wilmar and its subsidiaries of certain financial
tests and other customary conditions, some of which are beyond Wilmar's
control, including receipt of regulatory approvals, receipt of the proceeds of
the senior subordinated notes and the equity investments described below and
the absence of material changes or disruptions in the syndication, financial or
capital markets that would be expected to materially impair the syndication of
the Senior Facility. There is no assurance that definitive documentation will
be executed or, if executed, that Wilmar will be able to comply with the
conditions contained therein.
Senior Subordinated Notes. Pursuant to the terms of a commitment letter, Wilmar
expects to issue to Fleet Corporate Finance, Inc. $40.0 million of senior
subordinated notes and detachable warrants to purchase 4% of the fully-diluted
common stock of Wilmar outstanding on the closing date of the merger. Fleet
Corporate Finance, Inc. may, subject to certain limitations, assign its
commitment to other institutional accredited investors or qualified
institutional buyers. It is currently anticipated that the senior subordinated
notes will mature eight years from the date of the consummation of the merger
and recapitalization, that interest will accrue at the rate of 15% per annum,
of which 10% will be paid quarterly in cash and 5% will be paid in kind with
payment deferred for up to five years and that the senior subordinated notes
will be unsecured and subordinate to the Senior Facility. The senior
subordinated notes are expected to be prepayable, at Wilmar's option, at par
plus accrued interest, subject to prepayment penalties ranging from 2%-6% of
the principal amount of the notes outstanding if prepayment is made prior to
the fourth anniversary of the issuance of the
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<PAGE>
notes, and subject to restrictions under Wilmar's senior credit facility. If,
after the merger, there is a change of control (definition to be agreed upon)
of Wilmar, it is anticipated that Wilmar will be required to offer to
repurchase the outstanding senior subordinated notes at 101% of the principal
amount outstanding plus accrued interest. Wilmar expects the documentation
providing for the issuance of the senior subordinated notes to contain
customary representations, events of default, fees and covenants for this type
of financing, including maintenance of certain financial ratios, and
restrictions on indebtedness, investments, dividends, asset sales, mergers and
acquisitions.
The obligation to purchase the senior subordinated notes and warrants is
subject to the execution of definitive documentation and the satisfaction by
Wilmar and its subsidiaries of certain financial tests and other customary
conditions, including certain conditions which are beyond Wilmar's control.
There is no assurance that definitive documentation will be executed or, if
executed, that Wilmar will be able to comply with the conditions contained
therein.
Senior Preferred Stock. Immediately following the merger and recapitalization,
Wilmar's senior preferred stock will be entitled to a cumulative 14% annual
dividend, which will accrue daily and compound quarterly and such dividend will
have a preference over all other dividends payable to holders of Wilmar's
stock. The senior preferred stock will have certain information rights and a
liquidation preference equal to $10 per share plus all accrued and unpaid
dividends. The holders of the senior preferred stock will not have voting
rights other than in certain limited circumstances affecting their rights as
holders of preferred stock. Wilmar will redeem the senior preferred stock
(subject to restrictions under Wilmar's senior credit facility) if Wilmar
undergoes a liquidation, a winding up, a merger, a sale of all or substantially
all of its assets, a change of control, or a qualified public offering. In case
of an event of default, the dividend on the senior redeemable preferred stock
will increase to 16% and the holders of the senior preferred stock will be
entitled to elect two new directors to Wilmar's board of directors.
Shareholder Lawsuit Challenging the Merger and Recapitalization
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. Wilmar and Parthenon deny
all allegations of wrongdoing and intend to defend themselves vigorously
against such claims.
Fees and Expenses
We estimate that merger-related fees and expenses, consisting primarily of
commitment fees under certain debt arrangements, financial advisory fees, SEC
filing fees, fees and expenses of investment bankers, attorneys and accountants
and other related charges, will total approximately $[ ] million, assuming
the merger and recapitalization is completed. This amount consists of the
following estimated fees:
<TABLE>
<CAPTION>
Description Amount
---------------------------------- ----------
<S> <C>
Advisory fees and expenses........ $2,800,000
Debt financing/commitment fees and
expenses
Legal fees and expenses........... $ 700,000
Accounting fees and expenses...... $ 100,000
SEC filing fee.................... $ 46,000
Printing, solicitation and mailing
costs............................ $ 150,000
Miscellaneous expenses............ $ 50,000
----------
Total $
</TABLE>
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<PAGE>
The Company will be responsible for paying all of these expenses. These
expenses will not reduce the merger consideration to be received by Wilmar's
shareholders.
Regulatory Requirements
In connection with the merger and recapitalization, we will be required to make
a number of filings with and obtain a number of approvals from various federal
and state governmental agencies, including:
. filing of a certificate of merger with the Secretary of State of the State
of New Jersey in accordance with the New Jersey General Corporation Law
after the approval of the merger agreement by Wilmar shareholders; and
. complying with federal and state securities laws.
Each state in which Wilmar or WM Acquisition has operations may also review the
merger and recapitalization under state antitrust laws.
Plans for Wilmar After the Merger
Extraordinary Corporate Transactions. Wilmar has not, and Wilmar has been
advised by the Investors they have not, approved any:
. specific plans or proposals for any extraordinary corporate transaction
involving Wilmar, as the surviving company after the completion of the
merger and recapitalization; or
. specific plans or proposals for any sale or transfer of a material amount of
assets currently held by Wilmar after the completion of the merger and
recapitalization.
The Investors reserve the right to sell, transfer or otherwise dispose of all
or any portion of the shares of capital stock of Wilmar owned by them after the
merger or may decide that the surviving company should sell, transfer or
otherwise dispose of all or any portion of its assets or engage in other
extraordinary transactions, including acquisitions, mergers or other business
combinations. The Investors may also make whatever personnel changes to the
present management of Wilmar they deem appropriate after completion of the
merger and recapitalization.
Management. Wilmar has been advised by the Investors that they intend to retain
Wilmar senior management in comparable positions after the merger. Wilmar has
entered into employment agreements with the Management Shareholders which will
become effective upon the completion of the merger and recapitalization. WM
Acquisition's directors immediately before the merger and recapitalization will
become Wilmar's directors immediately after the merger, at which time Mr. Green
and Mr. Grebe will be elected to the board.
Share Ownership. Wilmar has been advised by the Investors and William Green
that after the merger they intend to hold the shares of capital stock of Wilmar
for investment. Following the merger and recapitalization, Wilmar intends to
make available to some of its employees a stock option plan covering []% of the
common equity of Wilmar.
Equity Capitalization. The equity capitalization of the surviving company
following the merger and recapitalization is expected to consist of common
stock, 86.1% of which will be owned by the Investors and 13.9% of which will be
owned by the Management Shareholders, and senior preferred stock, 97.2% of
which will be owned by the Investors and 2.8% of which will be owned by the
Management Shareholders.
Conduct of the Business of Wilmar if the Merger and Recapitalization Is Not
Completed
If the merger and recapitalization is not completed, the board of directors
expects to retain the current management team, although there can be no
assurance it will be successful in doing so. In such event, the board of
directors expects to continue exploring the strategic alternatives available to
Wilmar.
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<PAGE>
THE MERGER AGREEMENT
- --------------------------------------------------------------------------------
On December 22, 1999, Wilmar entered into the merger agreement with WM
Acquisition, Inc., a corporation formed at the direction of Parthenon
Investors, L.P., one of the Investors. The following is a summary of the
material provisions of the merger agreement. Because it is a summary, it does
not include all of the information that is included in the merger agreement.
The text of the merger agreement, which is attached as Appendix A to this proxy
statement, is incorporated into this section by reference. We encourage you to
read the merger agreement carefully in its entirety.
The Merger and Recapitalization
Upon effectiveness of the merger and recapitalization, WM Acquisition will be
merged with Wilmar, and Wilmar will continue as the surviving company. In
connection with the merger and recapitalization,
. you will be entitled to receive $18.25 in cash for each of your shares of
Wilmar common stock;
. William Green, as the sole holder of Class C Preferred Stock of Wilmar, will
receive 90,190 shares of Wilmar common stock and 290,981 shares of Wilmar
senior preferred stock; and
. Mr. Green and each of the other members of the Management Shareholders will
receive merger consideration in the amount of $18.25 for each share of
Wilmar common stock owned by him.
As the surviving company after the merger, Wilmar will have all the property,
rights and powers of both WM Acquisition and Wilmar before the merger and
recapitalization, and it will be liable for all of the debts, liabilities and
obligations of both WM Acquisition and Wilmar before the merger and
recapitalization. After the merger, the separate corporate existence of WM
Acquisition will cease.
Time of Closing
The merger and recapitalization will close on the third business day after
satisfaction or waiver of the conditions to the merger and recapitalization. To
complete the merger and recapitalization, WM Acquisition and Wilmar will make
certain filings with the Secretary of State of the State of New Jersey.
Exchange and Payment Procedures
We have appointed [ ] as our paying agent to handle the exchange of
our share certificates in the merger and recapitalization for cash. Soon after
the merger becomes effective, the paying agent will mail to you a letter of
transmittal and instructions explaining how to exchange your share certificates
for cash. Upon surrender to the paying agent of a valid share certificate and a
properly completed letter of transmittal, along with such other documents as
the paying agent may reasonably require, you will be entitled to receive $18.25
in cash per share. Until surrendered in this manner, each share certificate
will represent only the right to receive the merger consideration. No interest
will be paid or accrue on any amount payable upon the surrender of a share
certificate.
You should not send your stock certificates now. You should send them only
after you receive a letter of transmittal from the exchange agent. A letter of
transmittal will be mailed to you soon after the merger becomes effective.
Any merger consideration made available to the exchange agent that remains
unclaimed by our shareholders for six months after the time the merger and
recapitalization becomes effective will be returned to us, as the surviving
company after the merger, and any of our shareholders who have not by that time
made an exchange must then look to the surviving company for payment of their
claim for merger consideration, subject to state unclaimed property laws.
Transfers of Shares
No transfers of shares of Wilmar common stock will be made on our share
transfer books after the merger becomes effective.
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Treatment of Stock Options
At the time the merger and recapitalization becomes effective, all outstanding
options to purchase shares of Wilmar common stock will be canceled. In
exchange, option holders will receive, for each share subject to an option, the
difference between $18.25 and the per share exercise price of that option, if
any, regardless of whether the option is fully vested.
Representations and Warranties
In the merger agreement, each of Wilmar and WM Acquisition have made customary
representations and warranties to the other party with respect to their
organization, operations and financial and other matters.
The representations and warranties in the merger agreement do not survive the
closing of the merger or, except for breaches that occur prior to termination,
termination of the merger agreement.
Wilmar's Covenants
We have undertaken certain covenants in the merger agreement. The following
summarizes the more significant of these covenants:
Interim Conduct of Our Business. From December 22, 1999 until the merger and
recapitalization becomes effective, we have agreed to conduct our businesses in
the ordinary course and consistent with past practice. We have also agreed to
use commercially reasonable efforts to preserve our business and relationships
with third parties and officers and key employees.
We have also agreed to certain specific restrictions during this period which
are subject to the exceptions described in the merger agreement. These include
restrictions on and our agreement not to commit to do any of the following:
sell, transfer or pledge shares of capital stock or material assets; amend our
organizational documents, declare dividends or recapitalize our stock; make
significant acquisitions, disposals, investments, loans or capital
expenditures; incur or prepay significant debt; adopt new employee compensation
arrangements or materially increase employee compensation or benefits; modify
our material contracts; settle, waive or release material claims; make any tax
elections or settle any material income tax liability; or change our accounting
policies or procedures.
No Solicitation. We have agreed that prior to the effective time of the merger
we will not solicit any alternative business combination, or negotiate any
business combination or provide information about the Company in respect of any
business combination. However, we may enter into such an arrangement and
provide such information in response to any unsolicited superior proposal that
our board of directors determines in good faith must be pursued in order for
the board to fulfill its fiduciary duties to our shareholders. Wilmar has
agreed to pay WM Acquisition a termination fee of $7.0 million and up to $1.0
million of expenses if the merger agreement is terminated by Wilmar to pursue a
superior transaction.
WM Acquisition's Covenants
WM Acquisition has also undertaken certain covenants in the merger agreement.
The following summarizes the more significant of these covenants.
Indemnification and Insurance of Wilmar's Directors, Officers and Employees. WM
Acquisition agreed that all rights to indemnification of its present and former
employees, officers, agents and directors existing at the time of the merger
agreement shall remain in effect for a period of six years. WM Acquisition has
also agreed that for six years after the closing date of the merger, the
surviving company will cause to remain in effect officers' and directors'
liability insurance policies on terms no less favorable than our current
policies. However, Wilmar will not be obligated to pay premiums in excess of
150% of the last annual premium paid by the Company.
Employee Benefits. WM Acquisition has agreed that for a period of one year
following the effective time of that merger, WM Acquisition will continue the
compensation programs and plans and employee benefit and welfare plans and
policies provided by Wilmar immediately prior to the merger (or comparable
programs in the aggregate).
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<PAGE>
Issuance of Class C Preferred Stock. We have undertaken to designate shares of
Class C Preferred Stock and to issue 164,384 shares of such stock upon the
surrender by William Green of the same number of shares of our common stock.
The shares of common stock so exchanged shall be treasury stock.
Additional Agreements
Both parties to the merger agreement have agreed to use all reasonable efforts
to do or cause to be done anything necessary or advisable to consummate the
merger and recapitalization and related transactions, and not to take actions
that could reasonably be believed to lead to any conditions to the merger and
recapitalization not being fulfilled. We have also agreed to cooperate with
each other in relation to certain matters, including making the necessary SEC
filings, obtaining regulatory and other consents, calling and holding a special
meeting of Wilmar shareholders to approve the merger agreement and mailing to
the Wilmar shareholders a proxy statement in connection with that meeting and
making public announcements.
Conditions
Mutual Closing Conditions. Both parties' obligations to consummate the merger
and recapitalization are subject to the satisfaction or waiver at or before the
time the merger and recapitalization becomes effective of the following
conditions:
. the approval by Wilmar shareholders of the merger agreement;
. the expiration of the Hart-Scott-Rodino Act waiting period, if any; and
. there being no proceeding by any governmental body, among other things,
challenging, delaying or prohibiting the merger and recapitalization.
Additional Closing Conditions for the Benefit of WM Acquisition. The obligation
of WM Acquisition to complete the merger and recapitalization is subject to the
following additional conditions:
. the material performance by Wilmar of its obligations under the merger
agreement;
. the obtaining by the surviving company of necessary debt financing;
. Wilmar's representations and warranties being accurate as of the closing
date of the merger to the extent specified in the merger agreement;
. there being no material adverse change in our business; and
. the receipt of consents required by our material agreements.
Additional Closing Conditions for Wilmar's Benefit. Wilmar's obligation to
complete the merger and recapitalization is subject to the following additional
conditions:
. the material performance by WM Acquisition of its obligations under the
merger agreement;
. the representations and warranties of WM Acquisition being accurate as of
the closing date of the merger to the extent specified in the merger
agreement.
Termination of the Merger Agreement
Right to Terminate. The merger agreement may be terminated at any time before
the closing in any of the following ways:
(a) by mutual written consent of Wilmar and WM Acquisition;
(b) by either Wilmar or WM Acquisition if the merger and recapitalization is
not completed by June 30, 2000. However, the party seeking to terminate for
this reason must not be in breach of its obligations under the merger
agreement;
(c) by WM Acquisition if our board of directors withdraws or changes its
approval of the merger agreement in a manner adverse to WM Acquisition,
recommends an alternative transaction or fails to recommend against an
alternative tender offer or exchange offer;
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<PAGE>
(d) by WM Acquisition if Wilmar has failed to promptly mail the proxy to the
shareholders after receiving SEC approval;
(e) by either WM Acquisition or Wilmar if the other breaches in any material
respect any of its respective representations, warranties or covenants
under the merger agreement unless and for so long as such breaches can be
cured and the breaching party is making reasonable best efforts to cure;
(f) by either Wilmar or WM Acquisition if completion of the merger and
recapitalization is prohibited by a court or governmental entity;
(g) by either Wilmar or WM Acquisition if Wilmar's shareholders do not approve
the merger agreement; and
(h) subject to certain conditions, by Wilmar if our board of directors has been
advised by independent legal counsel that failure to so terminate would
result in a breach of the board's fiduciary duties at a time when another
person or entity has made a proposal that is deemed superior to the merger
and recapitalization.
If the merger agreement terminates, it will become void. However, termination
will not affect the rights of any party against any other party for breach of
the merger agreement. Also, certain obligations survive termination of the
agreement, including the obligation to pay the fees described under
"Termination Fees" below.
Termination Fees
Wilmar has agreed to pay WM Acquisition a termination fee of $7 million plus an
expense reimbursement of up to $1 million if the merger agreement is terminated
by Wilmar for the reasons outlined in (h) or by WM Acquisition for either of
the reasons outlined in paragraphs (c) or (d) or, if certain other conditions
are met, (g) above. If such other conditions are not met in connection with a
termination for the reasons outlined in paragraph (g) above, Wilmar must, in
any event, reimburse WM Acquisition for expenses up to $1 million. In addition,
if the agreement is terminated by either Wilmar or WM Acquisition because the
other has breached the merger agreement, the terminating party is entitled to
receive expenses of up to $1 million from the breaching party.
Expenses
Except as described above, all costs and expenses incurred in connection with
the merger agreement will be paid by the party incurring those costs or
expenses.
Amendments; Waivers
Any provision of the merger agreement may be amended or waived before the
merger and recapitalization becomes effective. After approval of the merger
agreement by Wilmar shareholders, no amendment can be made that alters the
consideration to be received for Wilmar common stock.
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<PAGE>
CERTAIN EXISTING RELATIONSHIPS
- --------------------------------------------------------------------------------
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
1998.
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 1998.
These leases shall remain in effect after the consummation of the merger.
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<PAGE>
THE VOTING AND EXCHANGE AGREEMENT
- --------------------------------------------------------------------------------
On December 22, 1999, WM Acquisition entered into a voting and exchange
agreement with William Green. The following is a summary of the material
provisions of the voting and exchange agreement. Because it is a summary, it
does not include all of the information that is included in the voting
agreement. The text of the voting and exchange agreement, which is attached as
Appendix C to this proxy statement, is incorporated into this section by
reference. You should read the voting and exchange agreement carefully in its
entirety.
Scope of Agreement
The voting agreement relates to 2,013,536 shares of Wilmar common stock owned
by William Green.
Restrictions on Transfer
During the period covered by the voting agreement, William Green has agreed
that he will not dispose of his Wilmar shares, except pursuant to the
recapitalization exchange for Class C Preferred Stock of Wilmar.
Voting; Proxy
William Green has agreed to vote his Wilmar shares to approve the merger
agreement. This obligation relates to any shareholder meetings or adjournments
when the merger agreement is voted on. He has also agreed that for the period
covered by the voting and exchange agreement he will not vote his Wilmar shares
in favor of any other merger, consolidation, sale of assets, reorganization,
recapitalization, liquidation or winding up, or any other extraordinary
transaction. He has also agreed not to vote his Wilmar shares in favor of any
action that would either frustrate the purpose of or prevent or delay
completion of the transactions contemplated by the merger agreement. He has
irrevocably agreed to appoint WM Acquisition as his proxy to vote his Wilmar
shares in this manner.
No Solicitation
William Green has agreed that, subject to his fiduciary duties, he will not
during the period covered by the agreement:
. take any action to solicit, initiate or encourage an alternative acquisition
transaction;
. engage in negotiations with or disclose any non-public information relating
to Wilmar or any of our subsidiaries;
. provide access to the properties, books or records of Wilmar or any of our
subsidiaries; or
. otherwise assist, facilitate or encourage any potential bidder.
Exchange of Shares
William 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. Wilmar has agreed to
take all reasonable actions necessary to ensure that this exchange is
completed.
Termination
The voting agreement will terminate at the time the merger and recapitalization
becomes effective, when the merger agreement is terminated, or June 30, 2000,
whichever happens earlier.
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<PAGE>
RIGHTS OF DISSENTING SHAREHOLDERS
- --------------------------------------------------------------------------------
Under the New Jersey Business Corporation Act, because Wilmar is a publicly
traded corporation and because the merger consideration for the common stock
consists solely of cash, the common shareholders have no dissenters' rights of
appraisal.
41
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
- --------------------------------------------------------------------------------
(In thousands, except per share data)
The selected financial and operating data set forth below should be read in
conjunction with the Financial Statements of the Company, including the notes
thereto incorporated by reference. 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. The selected financial data
for the nine months ended September 24, 1999 and September 25, 1998 have been
derived from the Company's unaudited financial statements which have been
prepared on the same basis as the audited financial statements and, in the
opinion of management, contain all adjustments, necessary for a fair
presentation of the financial position and results of operations for these
periods. The results of operations for the nine months ended September 24, 1999
are not necessarily indicative of results to be expected for the entire year
ended December 31, 1999 or any future period.
<TABLE>
<CAPTION>
Nine Month
Period(/2/) Fiscal Year(/1/)
----------------- -----------------------------------------------
1999 1998 1998 1997 1996 1995(/5/) 1994(/5/)
-------- -------- -------- -------- -------- --------- ---------
(In thousands except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net sales $162,380 $145,297 $192,605 $150,792 $100,644 $ 60,823 $47,679
Cost of sales(/4/) 114,931 103,322 136,488 106,605 70,853 41,835 32,787
-------- -------- -------- -------- -------- -------- -------
Gross profit 47,449 41,975 56,117 44,187 29,791 18,988 14,892
Operating and selling
expenses 22,496 19,751 26,357 21,024 14,168 9,099 7,068
General and
administrative
expenses 9,282 8,166 11,114 9,857 6,718 3,985 2,895
Non-recurring severance
expenses -- -- -- 259 -- -- --
-------- -------- -------- -------- -------- -------- -------
Operating income 15,671 14,058 18,646 13,047 8,905 5,904 4,929
Interest (expense)
income, net 901 1,137 1,511 1,580 551 (1,164) (289)
-------- -------- -------- -------- -------- -------- -------
Income before income
taxes 16,572 15,195 20,157 14,627 9,456 4,740 4,640
-------- -------- -------- -------- -------- -------- -------
Income tax provision 6,380 5,782 7,692 5,393 3,593 1,896 1,860
-------- -------- -------- -------- -------- -------- -------
Net income $ 10,192 $ 9,413 $ 12,465 $ 9,234 $ 5,863 $ 2,844 $ 2,780
======== ======== ======== ======== ======== ======== =======
Net income per common
share
Basic $ 0.79 $ 0.70 $ 0.93 $ 0.70 $ 0.53 $ 0.37 $ 0.31
======== ======== ======== ======== ======== ======== =======
Diluted $ 0.79 $ 0.70 $ 0.92 $ 0.69 $ 0.51 $ 0.36 $ 0.31
======== ======== ======== ======== ======== ======== =======
Weighted average share
outstanding(/6/)
Basic 12,836 13,362 13,368 13,165 11,105 7,765 9,071
======== ======== ======== ======== ======== ======== =======
Diluted 12,964 13,504 13,504 13,335 11,458 7,868 9,071
======== ======== ======== ======== ======== ======== =======
Balance Sheet Data:
Working capital
(deficit) $ 70,086 $ 73,198 $ 72,550 $ 64,848 $ 65,300 $ (54) $ 4,367
Total assets 124,494 121,024 121,696 108,115 88,309 26,871 14,561
Long-term debt, less
current portion -- 500 -- 500 -- 5,667 2,693
Mandatorily redeemable
preferred stock -- -- -- -- -- 25,058 --
Total stockholders'
equity
(deficit) $101,335 $100,655 $103,789 $ 90,549 $ 75,500 $(27,062) $ 2,719
</TABLE>
- --------
(/1/The)Company's fiscal year is based on a 52/53 week fiscal period ending on
the last Friday in December. All fiscal years shown above consist of 52
weeks.
(/2/The)nine month period ended on September 25, 1998 and September 24, 1999.
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<PAGE>
(/3/)In March 1995, the Company was recapitalized and, in connection therewith,
incurred significant debt and issued dividend bearing, mandatorily
redeemable preferred stock.
(/4/)Cost of sales includes merchandise, freight, distribution center occupancy
and delivery costs.
(/5/)Prior to March 1, 1995, the Company elected to be taxed as an S Corporation
for federal (and certain state) income tax purposes. For 1994 and 1995,
provision for income taxes and net income per share are presented on a pro
forma basis as if the Company had been subject to federal income taxes and
all applicable state corporate income taxes for each such period. The
income tax provision and net income for 1996 through 1999 are actual
amounts.
(/6/)See Note 2 to the Consolidated Financial Statements for description of the
determination of weighted- average common shares outstanding.
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CERTAIN FINANCIAL PROJECTIONS
- --------------------------------------------------------------------------------
We do not as a matter of course make public projections as to future revenues,
earnings or other financial information. We did, however, prepare certain
projections which we provided to the special committee, Parthenon and William
Blair in connection with their analysis of the Parthenon proposal and their
evaluation of Wilmar's financial position at that time. The projections set
forth below are included in this proxy statement because such information was
provided to Parthenon. The accompanying prospective financial information was
not prepared by us with a view to public disclosure or with a view to complying
with the guidelines established by the American Institute of Certified Public
Accountants with respect to prospective financial information.
Neither Wilmar's independent auditors, nor any other independent accountants,
have compiled, examined, or performed any procedures with respect to the
prospective financial information contained herein, nor have they expressed any
opinion or any other form of assurance on such information or its
achievability, and assume no responsibility for, and disclaim any association
with, the prospective financial information.
The assumptions and estimates underlying the prospective financial information
are inherently uncertain and, though considered reasonable by management as of
the date hereof, are subject to a wide variety of significant business,
economic, and competitive risks and uncertainties that could cause actual
results to differ materially from those contained in the prospective financial
information, including, among others, risks and uncertainties. See "Cautionary
Statement Concerning Forward Looking Statements" on page of this proxy
statement. Accordingly, there can be no assurance that the prospective results
are indicative of the future performance of Wilmar or that actual results will
not differ materially from those presented in the prospective financial
information. Inclusion of the prospective financial information in this proxy
statement should not be regarded as a representation by any person that the
results contained in the prospective financial information will be achieved.
The financial projections set forth below are not meant to be a complete
presentation of prospective financial statements, but in the view of
management, were prepared on a reasonable basis, reflected the best currently
available estimates and judgments and presented, to the best of management's
knowledge and belief, as of the date they were provided, the expected course of
action and the expected future financial performance of Wilmar. However, this
information is not fact and should not be relied upon as necessarily indicative
of future results, and readers of this proxy statement are cautioned not to
place undue reliance on the financial projections contained herein.
We have assumed that revenue in 2000 will equal approximately $324.0 million
comprised of approximately $243.5 million of revenues contributed by the core
Wilmar business and an additional $80.5 million from our recent acquisition of
Sexauer. For the period 2001 to 2004 we have assumed that the core Wilmar
revenues will grow at a rate of 11.5%, 11.0%, 10.5%, and 10.0% respectively in
each year. Wilmar's internal growth rate declined from 16.0% for fiscal year
1998 to approximately 10.0% during 1999. Two major factors contributing to this
decline were: a) declining revenues at Wilmar's Michigan branch due to problems
experienced during the integration of The Management Supply acquisition and b)
a cyclical downturn in Wilmar's new construction segment based in Houston,
Texas. Excluding the effects of these two trends during 1999, Wilmar internal
growth rate was approximately 11.5%. Our projections for the period 2001 to
2004 assume that revenues in both Michigan and in the new construction
subsidiary will improve beginning fourth quarter 1999. We also project that
revenues for Sexauer will grow by 8.0% in each year beginning in 2001 through
2004, an increase from Sexauer's historical growth rate of approximately 3.0%.
We anticipate this improved revenue growth as we begin stocking Sexauer items
at Wilmar's distribution centers in the Western United States, Chicago, Miami
and the Northeastern United States. Our experience has shown that revenue grows
at a higher rate in "next day" shipping zones than in zones that require a 2-3
day delivery lead-time. Revenues for Wilmar on a consolidated basis including
Sexauer are expected to grow at a compound annual rate of 10.1% from 2000 to
2004.
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<PAGE>
We have assumed improving margins for the core Wilmar business with operating
income before depreciation and amortization (EBITDA) margins increasing
gradually from 10.8% in 2000 to 11.7% by 2004 reflecting our assumption of
constant gross margins and leveraging of certain of our fixed overhead
expenses. We have assumed for Sexauer that we are able to sustain Sexauer's
13.9% EBITDA margins estimated for 2000 in each year through 2004, with
additional anticipated expenditures required to accelerate Sexauer's revenue
growth approximately offset by expected cost savings and leverage of certain
fixed expenses. EBITDA for Wilmar on a consolidated basis including Sexauer is
expected to grow at a compound annual rate of 11.5% from 2000 to 2004.
Our operating income (EBIT) projections for 2000 to 2004 are based on our
EBITDA projections for those years less depreciation and amortization.
Amortization for Wilmar (including Sexauer) is expected to be approximately
$3.8 million annually for 2000 to 2004. We assumed that depreciation would
equal approximately 0.6% of revenue for the core Wilmar business and
approximately 0.5% for the Sexauer business, which is based on the historical
levels of depreciation for both businesses.
We have incorporated into our net income estimates the incremental non tax
deductible goodwill and other intangible amortization of approximately $2.1
million annually relating to the approximately $68.5 million in incremental
intangible assets resulting from the Sexauer acquisition. We have also
incorporated into the estimates for net income the impact of reduced interest
income and the additional interest expense associated with our use of
approximately $23 million of cash and our borrowing of approximately $64
million to finance the Sexauer acquisition. Excess cash flow generated from the
business over the period from 2000 to 2004 is projected to be deployed to repay
indebtedness causing a reduction in interest expense in each year from $5.0
million in 2000 to $0.0 in 2004, when the debt from the acquisition is expected
to be completely retired. We have also employed an estimated 38% tax rate on
items that are deductible for tax purposes. Net income for Wilmar on a
consolidated basis reflecting the core Wilmar operating assumptions, the
Sexauer operating assumptions, and the acquisition-related costs associated
with the Sexauer transaction, is expected to result in compound annual net
income growth of 18.3% over the period from 2000 to 2004.
The projections set forth above should be read together with the "Selected
Historical Consolidated Financial Data" included in this proxy statement and
our historical financial statements and other financial information and the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" as set forth in Wilmar's Annual Report on Form 10-K, and Wilmar's
Quarterly Report on Form 10-Q for the quarter ended September 24, 1999, and the
pro forma financial information reflecting the acquisition of Sexauer and
Trayco beginning on December 20, 1999 in our Current Report on Form 8-K dated
December 20, 1999, each of which is incorporated by reference into this proxy
statement. Note that these projections reflect ongoing operations as a public
company and do not reflect the debt incurred in the Parthenon transaction.
The following table summarizes the projections that were provided:
(All amounts in millions)
<TABLE>
<CAPTION>
2000 2001 2002 2003 2004
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Revenue $324.0 $358.4 $395.3 $434.4 $475.8
Gross Profit 109.7 121.0 133.1 145.9 159.5
EBIT 31.9 36.3 41.0 46.0 51.5
EBITDA 37.5 42.1 47.0 52.3 58.0
Net Income 15.8 19.1 22.7 26.6 30.9
</TABLE>
45
<PAGE>
COMMON STOCK MARKET PRICE AND
DIVIDEND INFORMATION
- --------------------------------------------------------------------------------
Our common stock was traded on the Nasdaq National Market System under the
symbol "WLMR." The table below sets forth the high and low sales prices per
share for each quarterly period for the two most recent fiscal years and for
the current fiscal year to date. These prices do not include adjustments for
retail markups, markdowns or commissions.
<TABLE>
<CAPTION>
High Low
------- -------
<S> <C> <C>
Fiscal Year 1999
Fourth Quarter $17.375 $10.125
Third Quarter $14.875 $12.25
Second Quarter $17.00 $10.625
First Quarter $23.50 $14.50
Fiscal Year 1998
Fourth Quarter $25.375 $16.50
Third Quarter $28.25 $18.00
Second Quarter $25.50 $21.50
First Quarter $26.00 $20.50
Fiscal Year 1997
Fourth Quarter $27.875 $22.00
Third Quarter $29.75 $23.50
Second Quarter $26.75 $15.25
First Quarter $27.50 $15.50
</TABLE>
On December 22, 1999, the day before the announcement of the merger agreement,
the high, low and closing sales prices per share of our common stock were
$14.9375, $14.00 and $14.00, respectively. On , 2000, the last
trading day before the date of this proxy statement, the high, low and closing
sales prices per share of our common stock on the Nasdaq National Market System
were $ , $ and $ , respectively. You should obtain current market price
quotations for Wilmar common stock in connection with voting your shares.
On the record date for the special meeting, there were approximately
holders of record of our common stock. During the periods presented above, we
have not paid any dividends. The merger agreement and our credit agreements
limit our ability to pay dividends on our common stock.
46
<PAGE>
COMMON STOCK PURCHASE INFORMATION
- --------------------------------------------------------------------------------
Purchases by Wilmar
During fiscal year 1999, we repurchased 1,000,000 shares of our common stock at
an aggregate cost of $12,803,563. The table below sets forth the purchases by
us of our common stock since January 1, 1997, including: (1) the date we
purchased these shares; (2) the number of shares we purchased; (3) the range of
prices we paid for these shares and (4) the weighted average purchase price per
share for each quarterly period:
<TABLE>
<CAPTION>
Price Per Weighted
Share and Average Price
Purchase Date Number of Shares Range per Quarter
- ------------- ---------------- -------------- -------------
<S> <C> <C> <C>
3/22/1999 100,000 $14.938 --
3/30/1999 87,000 $14.875 $14.908
4/5/1999 100,000 $14.250 --
5/4/1999 320,000 $12.375 --
5/6/1999 69,000 $11.938 --
5/10/1999 200,000 $11.750 --
5/11/1999 124,000 $11.750 $12.319
--------- -------------- -------
1,000,000 $11.750-14.938
========= ==============
</TABLE>
Purchases by Directors, Executive Officers and Affiliates of Wilmar
The table below sets forth the purchases by each of our directors and executive
officers and affiliates of our common stock since January 1, 1997 (or the date
that the individual became an affiliate of Wilmar, if this date is later)
including: (1) the type of purchase (cash purchase or option exercise); (2) the
date the individual purchased shares; (3) the number of shares he or she
purchased; and (4) the price per share the individual paid for the shares.
<TABLE>
<CAPTION>
Type of Number Price per
Name Purchase Purchase Date of Shares Share
- ------------------ --------------- -------------- --------- ---------
<S> <C> <C> <C> <C>
Martin E. Hanaka Cash September 1998 1,000 $19.25
William E. Sanford Cash November 1998 500 $14.25
Michael T. Toomey Option Exercise May 1997 17,045 $11.00
Option Exercise March 1998 18,000 $ 4.23
Fred B. Gross Option Exercise August 1997 5,000 $15.50
Option Exercise August 1997 5,000 $11.00
</TABLE>
47
<PAGE>
CURRENT MANAGEMENT OF WILMAR
- --------------------------------------------------------------------------------
The table below sets forth: (1) the name of each of our directors and executive
officers; (2) the present principal occupation or employment of each person;
and (3) the name of the employer of each person. In addition, the table below
sets forth the material occupations, positions, offices and employment of each
of these persons and the name, principal business and address of any entity in
which any material occupation, position, office or employment of each person
was held during the last five years.
<TABLE>
<CAPTION>
Name Principal Occupation
------------------ -----------------------------------------------------------
<C> <S>
William S. Green Mr. Green co-founded Wilmar in 1977 with his father and has
served as its Chairman and Chief Executive Officer since
1986. He also served as President from 1986 to October
1999.
Michael J. Grebe Mr. Grebe has served as Wilmar's President since October
1999 and joined Wilmar in November of 1998 as Executive
Vice President and Chief Operating Officer. Mr. Grebe
previously served as a Group Vice President of Airgas, Inc.
where he was employed from April 1986 through November
1998.
William E. Sanford Mr. Sanford has served as Wilmar's Senior Vice President
and Chief Financial Officer since April 1999. Previously,
Mr. Sanford was Vice President--Corporate Development for
MSC Industrial Direct, where he was recruited in 1997 to
develop MSC's acquisition program. Mr. Sanford began his
career in 1983 with Airgas Inc., where he served in various
positions including Executive Vice President, Vice
President--Sales & Marketing, and President of Airgas's
Pacific Northwest subsidiary.
Fred B. Gross Mr. Gross 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.
Michael T. Toomey Mr. Toomey has served as Wilmar's Vice President--Finance
since April 1999. Mr. Toomey joined Wilmar in October 1992
as its Controller and Treasurer and served as its Chief
Financial Officer from 1995 to April 1999.
Martin E. Hanaka Mr. Hanaka 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.
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
<C> <S>
Ernest K. Jacquet Mr. Jacquet first became a director of Wilmar in March 1995
as a representative of Summit Partners, which held an equity
interest in Wilmar. Mr. Jacquet resigned from the board as
such representative after his affiliation with Summit
Partners ceased, and he rejoined the board shortly
thereafter. Since May 1998, he has served as a managing
director of Parthenon Capital, Inc., 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 and
e-mail equipment.
Donald M. Wilson Mr. Wilson 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.
</TABLE>
49
<PAGE>
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 Percentage of
Stock Beneficially Exercisable Common
Shareholder Owned Options(1) Stock(2)
- --------------------------------- ------------------ ----------- -------------
<S> <C> <C> <C>
William S. Green (3) 2,013,536 40,175 16.6%
Dresdner RCM Global Investors
LLC(4) 1,949,800 15.7%
T. Rowe Price Associates, Inc.(5) 1,404,364 11.3%
Brown Investment Advisory and
Trust Company(6) 1,370,051 11.0%
The Kaufman Fund (7) 900,000 7.3%
The TCW Group, Inc. (8) 681,000 5.5%
Denver Investment Advisors LLC(9) 627,350 5.0%
Michael J. Grebe -- 150,000 *
William E. Sanford 500 130,000 *
Fred B. Gross (10) 48,009 141,620 *
Martin E. Hanaka 1,000 32,500 *
Ernest K. Jacquet (11) -- 30,000 *
Michael T. Toomey -- 104,975 *
Donald M. Wilson -- 32,500 *
Directors and Officers as a Group
(8 Persons) 2,162,045 661,770 22.6%
</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/)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.
(/5/)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.
(/6/)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.
50
<PAGE>
(/7/)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.
(/8/)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.
(/9/)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 17th Street, 26th Floor, Denver, Colorado
80202.
(/10/)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.
(/11/)Mr. Jacquet received options to purchase 10,000 shares on May 7, 1998 and
options to purchase 20,000 shares on May 6, 1999.
51
<PAGE>
CERTAIN INFORMATION CONCERNING WM ACQUISITION AND ITS AFFILIATES
- --------------------------------------------------------------------------------
WM Acquisition. WM Acquisition is a newly formed New Jersey corporation which
was organized at the direction of entities managed by Parthenon Capital, Inc.
in connection with the transactions contemplated by the merger agreement. WM
Acquisition is a nonsubstantive transitory merger vehicle which will be merged
out of existence at the effective time of the merger. Accordingly, it is not
expected to have significant assets or liabilities (other than arising under
the merger agreement or in connection with the merger and recapitalization) or
to engage in any activities other than those incident to its formation and the
merger and recapitalization. The authorized capital stock of WM Acquisition
will consist at the effective time of the merger of 27,000,000 shares of common
stock, no par value per share, and 2,500,000 shares of senior preferred stock,
$0.01 par value per share, of which no shares are currently outstanding.
The principal executive offices of WM Acquisition are c/o Parthenon Capital,
Inc., 200 State Street, Boston, Massachusetts 02109.
Parthenon Capital, Inc. Parthenon Capital, Inc. is a private equity investment
firm which invests in and serves as a partner to the management of certain
middle market companies. Parthenon Investors, L.P., a Delaware corporation, is
a major shareholder of WM Acquisition, and was organized at the direction of
Parthenon Capital, Inc. Parthenon Capital, Inc. will receive a $250,000 annual
management fee from Wilmar after the consummation of the merger. Mr. Ernest K.
Jacquet, a member of Wilmar's board of directors, is a managing director of
Parthenon Capital, Inc. and a principal of the entities that Parthenon Capital,
Inc. manages which control WM Acquisition.
52
<PAGE>
OTHER MATTERS
- --------------------------------------------------------------------------------
Wilmar's management knows of no other business to be presented at the special
meeting. If other matters do properly come before the meeting, or any
adjournment or postponement of the meeting, the persons named in the proxy
intend to vote on those matters according to their best judgment unless the
authority to do so is withheld in the proxy.
SHAREHOLDER PROPOSALS
- --------------------------------------------------------------------------------
If the merger and recapitalization is not completed for any reason, shareholder
proposals intended to be included in our proxy statement in connection with our
2000 Annual Meeting of Shareholders must be submitted in writing (i) by
, 2000 if the meeting will be held between , 2000 and
, 2000, or (ii) within ten days of the announcement of the annual
meeting date, if the meeting will be held , 2000 or after
, 2000, to:
Fred B. Gross
Corporate Secretary
Wilmar Industries, Inc.
303 Harper Drive
Moorestown, NJ 08057
The Company does not intend to hold a 2000 Annual Meeting if the merger and
recapitalization is approved.
INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
The financial statements of Wilmar Industries, Inc. as of December 25, 1998 and
December 26, 1997 and for each of the three fiscal years in the period ended
December 25, 1998, incorporated by reference in this proxy statement, have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report incorporated by reference herein.
WHERE YOU CAN FIND MORE INFORMATION
- --------------------------------------------------------------------------------
We file annual, quarterly and current reports, proxy statements, and other
documents with the Securities and Exchange Commission under the Securities
Exchange Act of 1934. The Exchange Act file number for our SEC filings is 0-
27424. Our SEC filings made through the SEC's EDGAR system are available to the
public at the SEC's website at http://www.sec.gov. You may also read and copy
any document we file with the SEC at the following SEC public reference rooms:
Judiciary Plaza Citicorp Center 7 World Trade Center
450 Fifth Street, 500 West Madison Street Suite 1300
N.W. Washington, D.C. 20549 Chicago, Illinois 60621 New York, New York
10048
You may obtain information regarding the operation of the SEC's public
reference rooms by calling the SEC at 1-800-SEC-0330.
Wilmar, WM Acquisition and Mr. Green have filed a Rule 13e-3 Transaction
Statement on Schedule 13E-3 with the SEC with respect to the merger and
recapitalization. As permitted by the SEC, this proxy statement omits certain
information contained in the Schedule 13E-3. The Schedule 13E-3, including any
amendments and exhibits filed or incorporated by reference as a part thereof,
is available for inspection or copying as set forth above.
53
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
- --------------------------------------------------------------------------------
The SEC allows us to "incorporate by reference" certain documents, which means
that we can disclose important information to you by referring you to those
documents. The information in the documents incorporated by reference is
considered to be part of this proxy statement, except to the extent that this
proxy statement updates or supersedes the information. We incorporate by
reference the documents listed below which we have previously filed with the
SEC (SEC file no. 0-27424):
.Our Annual Report on Form 10-K for the fiscal year ended December 25,
1998;
.Our Quarterly Reports on Form 10-Q for the quarters ended March 26, 1999,
June 25, 1999 and September 24, 1999;
.Our Proxy Statement on Schedule 14A dated April 22, 1999; and
.Our Current Reports on Form 8-K dated December 20, 1999 and December 27,
1999.
We also incorporate by reference the information contained in all other
documents we file with the SEC under Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act after the date of this proxy statement and before the date of the
special meeting. The information will be considered part of this proxy
statement from the date the document is filed and will supplement or amend the
information contained in this proxy statement.
We will provide you, at no charge, a copy of the documents we incorporate by
reference in this proxy statement. To obtain timely delivery, requests for
copies should be made no later than , 2000 (five business days before the date
of the special meeting). To request a copy of any or all of these documents,
you should write us at:
Wilmar Industries, Inc.
303 Harper Drive
Moorestown, NJ 08057
Telephone: 856-439-1222
These documents are also included in our SEC filings which are made
electronically through the SEC's EDGAR system and are available to the public
at the SEC's website at http://www.sec.gov.
----------------
You should rely only on the information contained in this proxy statement or to
which we have referred you to vote your shares at the special meeting. We have
not authorized anyone to provide you with information that is different. This
proxy statement is dated , 2000. You should not assume that the information
contained in this proxy statement is accurate as of any date other than that
date, and the mailing of this proxy statement to shareholders does not create a
solicitation of a proxy in any jurisdiction where, or to or from any person to
whom, it is unlawful to make such proxy solicitation in such jurisdiction.
BY ORDER OF THE BOARD OF DIRECTORS
Fred B. Gross
Corporate Secretary
, 2000
----------------
- --------------------------------------------------------------------------------
54
<PAGE>
APPENDIX A
================================================================================
AGREEMENT AND PLAN OF MERGER
AND RECAPITALIZATION
between
WM ACQUISITION, INC.
and
WILMAR INDUSTRIES, INC.
Dated as of December 22, 1999
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
RECITALS............................................................................................. 1
ARTICLE.............................................................................................. 1
THE MERGER........................................................................................... 2
Section 1.1 The Merger....................................................................... 2
Section 1.2 Closing.......................................................................... 2
Section 1.3 Effective Time................................................................... 2
Section 1.4 The Certificate of Incorporation................................................. 2
Section 1.5 The By-Laws...................................................................... 2
Section 1.6 Directors of Surviving Corporation............................................... 3
Section 1.7 Officers of Surviving Corporation................................................ 3
CONVERSION OR CANCELLATION OF SHARES
IN THE MERGER AND THE RECAPITALIZATION EXCHANGE...................................................... 3
Section 2.1 Conversion or Cancellation of Shares and the Recapitalization Exchange........... 3
Section 2.2 Payment for Shares............................................................... 4
Section 2.3 Transfer of Shares After the Effective Time...................................... 5
Section 2.4 Stock Options.................................................................... 5
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY........................................................ 5
Section 3.1 Organization and Qualification; Subsidiaries..................................... 5
Section 3.2 Certificate of Incorporation and By-Laws......................................... 6
Section 3.3 Capitalization................................................................... 6
Section 3.4 Authority........................................................................ 7
Section 3.5 No Conflict...................................................................... 8
Section 3.6 Required Filings and Consents.................................................... 9
Section 3.7 Permits; Compliance with Law..................................................... 9
Section 3.8 SEC Filings; Financial Statements................................................ 10
Section 3.9 Absence of Certain Changes or Events............................................. 11
Section 3.10 Employee Benefit Plans; Labor Matters............................................ 11
Section 3.11 Contracts; Debt Instruments...................................................... 14
Section 3.12 Litigation....................................................................... 14
Section 3.13 Environmental Matters............................................................ 15
Section 3.14 Intellectual Property............................................................ 15
Section 3.15 Taxes............................................................................ 16
Section 3.16 Non-Competition Agreements....................................................... 17
Section 3.17 Assets........................................................................... 17
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 3.18 Opinion of Financial Advisor.................................................... 17
Section 3.19 Brokers......................................................................... 18
Section 3.20 Certain Statutes................................................................ 18
Section 3.21 Information..................................................................... 18
Section 3.22 Vote Required................................................................... 18
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
OF MERGER SUB....................................................................................... 18
Section 4.1 Organization.................................................................... 18
Section 4.2 Binding Obligation.............................................................. 19
Section 4.3 No Authorization or Consents Required........................................... 19
Section 4.4 Financing Commitments........................................................... 19
Section 4.5 No Conflict..................................................................... 20
Section 4.6 Information..................................................................... 20
Section 4.7 Brokers......................................................................... 20
ARTICLE 5
COVENANTS........................................................................................... 21
Section 5.1 Conduct of Business of the Company.............................................. 21
Section 5.2 Other Actions................................................................... 23
Section 5.3 Notification of Certain Matters................................................. 23
Section 5.4 Proxy Statement................................................................. 24
Section 5.5 Stockholders' Meeting........................................................... 25
Section 5.6 Access to Information; Confidentiality.......................................... 26
Section 5.7 No Solicitation................................................................. 26
Section 5.8 Directors' and Officers' Indemnification and Insurance.......................... 28
Section 5.9 Reasonable Best Efforts......................................................... 29
Section 5.10 Consents; Filings; Further Action............................................... 29
Section 5.11 Public Announcements............................................................ 30
Section 5.12 Stock Exchange Listings and De-Listings......................................... 30
Section 5.13 Expenses........................................................................ 30
Section 5.14 Takeover Statutes............................................................... 30
Section 5.15 Employee Benefit Arrangements................................................... 31
Section 5.16 Issuance of Class C Preferred Stock............................................. 31
Section 5.17 Solvency Matters................................................................ 31
ARTICLE 6
CONDITIONS.......................................................................................... 32
Section 6.1 Conditions to Each Party's Obligation to Effect the Merger...................... 32
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
(a) Stockholder Approval................................................................... 32
(b) Governmental Consents.................................................................. 32
(c) Litigation............................................................................. 32
Section 6.2 Conditions to Obligations of Merger Sub......................................... 32
(a) Representations and Warranties......................................................... 32
(b) Performance of Obligations of the Company.............................................. 33
(c) Material Adverse Effect................................................................ 33
(d) Financing.............................................................................. 33
(e) Consents Under Agreements.............................................................. 33
(f) Company Voting Agreement............................................................... 33
Section 6.3 Conditions to Obligation of the Company......................................... 33
(a) Representations and Warranties......................................................... 33
(b) Performance of Obligations of Merger Sub............................................... 34
(c) Material Adverse Effect................................................................ 34
(d) Consents Under Agreements.............................................................. 34
ARTICLE 7
TERMINATION......................................................................................... 34
Section 7.1 Termination..................................................................... 34
Section 7.2 Effect of Termination........................................................... 36
Section 7.3 Amendment....................................................................... 36
Section 7.4 Waiver.......................................................................... 36
Section 7.5 Expenses following Termination.................................................. 36
ARTICLE 8
MISCELLANEOUS....................................................................................... 38
Section 8.1 Certain Definitions............................................................. 38
Section 8.2 Non-Survival of Representations, Warranties and Agreements...................... 38
Section 8.3 Counterparts.................................................................... 39
Section 8.4 Governing Law and Venue; Waiver of Jury Trial................................... 39
Section 8.5 Notices......................................................................... 40
Section 8.6 Entire Agreement................................................................ 41
Section 8.7 No Third Party Beneficiaries.................................................... 41
Section 8.8 Severability.................................................................... 42
Section 8.9 Interpretation.................................................................. 42
Section 8.10 Assignment...................................................................... 42
</TABLE>
iii
<PAGE>
INDEX OF DEFINED TERMS
----------------------
Term Section
---- -------
Acquisition Agreement.......................... 5.7(e)(ii)
affiliate...................................... 8.1(a)
Agreement...................................... Title
Benefit Plan................................... 3.10(a)
business day................................... 8.1(b)
Certificate of Merger.......................... 1.3
Class C Preferred Stock........................ Recitals
Claims......................................... 3.12
Closing........................................ 1.2
Closing Date................................... 1.2
COBRA.......................................... 3.10(a)
Common Stock................................... Recitals
Company........................................ Title
Company Benefit Plan........................... 3.10(a)
Company Charter Documents...................... 3.2
Company Disclosure Letter...................... Article 3 (introduction)
Company Financial Advisor...................... 3.18
Company Permits................................ 3.7
Company Principal.............................. Recitals
Company SEC Reports............................ 3.8(a)
Company Stockholders Meeting................... 5.4
Company Subsidiaries........................... 3.1(a)
Company Voting Agreement....................... Recitals
Confidentiality Agreement...................... 5.6
control........................................ 8.1(a)
controlled by.................................. 8.1(a)
controlling.................................... 8.1(a)
Debt Financing Commitments..................... 4.4
Effective Time................................. 1.3
Employee....................................... 3.10(a)
Environmental Law.............................. 3.13
Equity Financing Commitments................... 4.4
ERISA.......................................... 3.10(a)
Exchange Act................................... 3.6
Expenses....................................... 7.5(a)
GAAP........................................... 3.8(b)
Governmental Entity............................ 3.6
group.......................................... 8.1(e)
Hazardous Substance............................ 3.13
HSR Act........................................ 3.6
iv
<PAGE>
Term Section
---- -------
including...................................... 8.1(c)
Indemnified Parties............................ 5.8(a)
Intellectual Property.......................... 3.14(a)
knowledge...................................... 8.1(d)
Law............................................ 3.5(a)(ii)
Liens.......................................... 3.3
Material Adverse Effect on the Company......... 3.1(a)
Material Assets................................ 3.17(a)
Merger......................................... Recitals
Merger Consideration........................... 2.1(a)
Merger Sub..................................... Title
Merger Sub Material Adverse Effect............. 4.1
NASD........................................... 5.4(a)
NJBC........................................... Recitals
Option......................................... 2.4
Option Plans................................... 2.4
Other Filings.................................. 5.4(a)
Paying Agent................................... 2.2
PBGC........................................... 3.10(a)
Permitted Liens................................ 3.17
person......................................... 8.1(e)
Preferred Stock................................ 3.3(a)
Proxy Statement................................ 5.4(a)
Representatives................................ 5.6
Requisite Company Vote......................... 3.4(a)
Retiree Welfare Plan........................... 3.10(a)
SEC............................................ 3.8
Securities Act................................. 3.8
Senior Preferred Stock......................... 2.1(b)
Shares......................................... 2.1(a)
Software....................................... 3.14(a)
subsidiary..................................... 8.1(f)
subsidiaries................................... 8.1(f)
Superior Proposal.............................. 5.7(e)(i)
Surviving By-Laws.............................. 1.5
Surviving Charter.............................. 1.4
Surviving Corporation.......................... 1.1
Systems........................................ 3.14(c)
Takeover Proposal.............................. 5.7(a)
Takeover Statute............................... 3.20
Taxes.......................................... 3.15
Technology..................................... 3.14(a)
v
<PAGE>
Term Section
---- -------
Terminating Company Breach..................... 7.1(f)
Terminating Merger Sub Breach.................. 7.1(g)
Termination Amount............................. 7.5(b)
under common control with...................... 8.1(a)
Welfare Plan................................... 3.10(a)
Year 2000 Compliant............................ 3.14(c)
vi
<PAGE>
AGREEMENT AND PLAN OF MERGER AND RECAPITALIZATION
AGREEMENT AND PLAN OF MERGER AND RECAPITALIZATION (the "Agreement"),
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dated as of December 22, 1999 by and between WM Acquisition, Inc., a New Jersey
corporation (the "Merger Sub"), and Wilmar Industries, Inc., a New Jersey
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corporation (the "Company").
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RECITALS:
WHEREAS, the respective boards of directors of each of the Merger Sub
and the Company each have approved this Agreement pursuant to which, among other
things, Merger Sub will be merged with and into the Company (the "Merger") on
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the terms and conditions contained herein and in accordance with the New Jersey
Business Corporation Act (the "NJBC").
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WHEREAS, concurrently with the execution of this Agreement, as a
condition to the willingness of Merger Sub to enter into this Agreement, (i) Mr.
William Green (the "Company Principal") is entering into a Voting and Exchange
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Agreement with Merger Sub and the Company (the "Company Voting Agreement"),
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providing for, among other things, the agreement of the Company Principal to
vote all shares of the Company's common stock, no par value (the "Common
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Stock"), beneficially owned by him on the date hereof in favor of approval and
adoption of this Agreement and the Merger, and to exchange certain shares of
Common Stock owned by him for newly issued shares of Class C Preferred Stock,
par value $.10 per share, of the Company (the "Class C Preferred Stock") prior
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to the Merger, and (ii) the Company Principal has delivered to the Merger Sub an
irrevocable proxy to vote such shares as described above.
WHEREAS, certain terms used in this Agreement which are not
capitalized have the meanings specified in Section 8.1.
WHEREAS, the Company and Merger Sub desire to make certain
representations, warranties, covenants and agreements in connection with this
Agreement.
NOW, THEREFORE, in consideration of the premises, and of the
representations, warranties, covenants and agreements contained in this
Agreement, the parties agree as follows:
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2
ARTICLE 1
THE MERGER
Section 1.1 The Merger. Upon the terms and subject to the conditions
set forth in this Agreement, at the Effective Time (as defined in Section 1.3),
Merger Sub shall be merged with and into the Company and the separate corporate
existence of Merger Sub shall cease. The Company shall be the surviving
corporation in the Merger (sometimes referred to as the "Surviving Corporation")
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and shall continue to be governed by the laws of New Jersey, and the separate
corporate existence of the Company with all its rights, privileges, immunities,
powers, purposes and franchises, both public and private, shall continue
unaffected by the Merger. The Merger shall have the effects set forth in Section
14A:10-6 of the NJBC.
Section 1.2 Closing. The closing of the Merger (the "Closing")
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shall take place (a) at the offices of Paul, Weiss, Rifkind, Wharton & Garrison,
New York, New York at 10:00 a.m. on the third business day after the last to be
fulfilled or waived of the conditions set forth in Article 6 (other than those
conditions that by their nature are to be satisfied at the Closing, but subject
to the fulfillment or waiver of those conditions) shall be satisfied or waived
in accordance with this Agreement or (b) at such other place and time and/or on
such other date as the Company and the Merger Sub may agree in writing (the
"Closing Date").
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Section 1.3 Effective Time. As soon as practicable following the
Closing, the Company and Merger Sub will cause a Certificate of Merger (the
"Certificate of Merger") to be signed, acknowledged and delivered for filing
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with the Secretary of the State of New Jersey as provided in Section 14A:10-4.1
of the NJBC. The Merger shall become effective at the time when a Certificate of
Merger has been duly filed with the Secretary of State of the State of New
Jersey or such other time as shall be agreed upon by the parties and set forth
in the Certificate of Merger (the "Effective Time").
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Section 1.4 The Certificate of Incorporation. The certificate of
incorporation of the Surviving Corporation shall be amended and restated in the
form of the certificate of incorporation of Merger Sub in effect immediately
prior to the Effective Time (the "Surviving Charter"), until duly amended as
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provided in the Surviving Charter or by applicable law, except that, as of the
Effective Time, Article I of such certificate of incorporation shall be amended
to read as follows: "The name of the corporation is Wilmar Industries, Inc."
Section 1.5 The By-Laws. The by-laws of the Surviving Corporation
shall be amended and restated in the form of the by-laws of Merger Sub in effect
at the Effective Time (the "Surviving By-Laws"), until duly amended as provided
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in the Surviving By-Laws or by applicable law.
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Section 1.6 Directors of Surviving Corporation. The directors of
Merger Sub at the Effective Time shall, from and after the Effective Time, be
the directors of the Surviving Corporation until their successors have been duly
elected or appointed and qualified or until their earlier death, resignation or
removal in accordance with the Surviving Charter and the Surviving By-Laws.
Section 1.7 Officers of Surviving Corporation. The officers of the
Company at the Effective Time shall, from and after the Effective Time, be the
officers of the Surviving Corporation until their successors have been duly
elected or appointed and qualified or until their earlier death, resignation or
removal in accordance with the Surviving Charter and the Surviving By-Laws.
ARTICLE 2
CONVERSION OR CANCELLATION OF SHARES
IN THE MERGER AND THE RECAPITALIZATION EXCHANGE
Section 2.1 Conversion or Cancellation of Shares and the
Recapitalization Exchange. The manner of converting, retaining or canceling
shares of the Company and Merger Sub in the Merger shall be as follows:
(a) At the Effective Time, except as otherwise provided in
Section 2.1(c), each share of Common Stock issued and outstanding immediately
prior to the Effective Time (other than Shares owned by Merger Sub,
collectively, the "Shares"), shall by virtue of the Merger and without any
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action on the part of the holder thereof, be converted into the right to
receive, without interest, an amount in cash (the "Merger Consideration") equal
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to $18.25. All such Shares, by virtue of the Merger and without any action on
the part of the holders thereof, shall no longer be outstanding and shall be
canceled and retired and shall cease to exist, and each holder of a certificate
representing any such Shares shall thereafter cease to have any rights with
respect to such Shares, except the right to receive the Merger Consideration for
such Shares upon the surrender of such certificate in accordance with Section
2.2.
(b) At the Effective Time, each share of Class C Preferred
Stock issued and outstanding immediately prior to the Effective Time shall, by
virtue of the Merger and without any action on the part of the holder thereof,
shall be converted into (i) .5486558 shares of Common Stock and (ii) 1.7701344
shares of Cumulative Senior Preferred Stock, par value $0.01 per share of the
Company (the "Senior Preferred Stock").
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(c) At the Effective Time, each share of Common Stock issued
and outstanding at the Effective Time and owned by Merger Sub, and each Share
issued and held in the Company's treasury at the Effective Time, shall, by
virtue of the Merger
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4
and without any action on the part of the holder thereof, cease to be
outstanding, shall be canceled and retired without payment of any consideration
therefor and shall cease to exist.
(d) At the Effective Time, (i) each share of common stock, no
par value, of Merger Sub issued and outstanding immediately prior to the
Effective Time shall, by virtue of the Merger and without any action on the part
of Merger Sub or the holders of such shares, be converted into one share of
Common Stock and (ii) each share of preferred stock, par value $0.01 per share,
of Merger Sub issued and outstanding immediately prior to the Effective Time
shall, by virtue of the Merger and without any action on the part of Merger Sub
or the holders of such shares, be converted into one share of Senior Preferred
Stock.
Section 2.2 Payment for Shares. The Surviving Corporation shall make
available or cause to be made available to the paying agent appointed by Merger
Sub with the Company's prior approval (the "Paying Agent") amounts sufficient in
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the aggregate to provide all funds necessary for the Paying Agent to make
payments pursuant to Section 2.1(a) hereof to holders of Shares issued and
outstanding immediately prior to the Effective Time. At the Effective Time, the
Surviving Corporation shall instruct the Paying Agent to promptly, and in any
event not later than three business days following the Effective Time, mail to
each person who was, at the Effective Time, a holder of record (other than
Merger Sub) of issued and outstanding Shares a form (mutually agreed to by
Merger Sub and the Company) of letter of transmittal and instructions for use in
effecting the surrender of the certificates which, immediately prior to the
Effective Time, represented any of such Shares in exchange for payment therefor.
Upon surrender to the Paying Agent of such certificates, together with such
letter of transmittal, duly executed and completed in accordance with the
instructions thereto, the Surviving Corporation shall instruct the Paying Agent
to promptly, and in any event not later than three business days following
receipt of properly tendered certificates and letters of transmittal, pay to the
persons entitled thereto a check in the amount to which such persons are
entitled, after giving effect to any required tax withholdings. No interest will
be paid or will accrue on the amount payable upon the surrender of any such
certificate. If payment is to be made to a person other than the registered
holder of the certificate surrendered, it shall be a condition of such payment
that the certificate so surrendered shall be properly endorsed or otherwise in
proper form for transfer and that the person requesting such payment shall pay
any transfer or other taxes required by reason of the payment to a person other
than the registered holder of the certificate surrendered or establish to the
satisfaction of the Surviving Corporation or the Paying Agent that such tax has
been paid or is not applicable. One hundred and eighty days following the
Effective Time, the Surviving Corporation shall be entitled to cause the Paying
Agent to deliver to it any funds (including any interest received with respect
thereto) made available to the Paying Agent which have not been disbursed to
holders of certificates formerly representing Shares outstanding on the
Effective Time, and thereafter such holders shall be entitled to look to the
Surviving Corporation only as general creditors thereof with respect to the
Merger
<PAGE>
5
Consideration payable upon due surrender of their certificates. Notwithstanding
the foregoing, neither the Paying Agent nor any party hereto shall be liable to
any holder of certificates formerly representing Shares for any amount paid to a
public official pursuant to any applicable abandoned property, escheat or
similar law.
Section 2.3 Transfer of Shares After the Effective Time. No transfer
of Shares shall be made on the stock transfer books of the Surviving Corporation
at or after the Effective Time.
Section 2.4 Stock Options. Immediately prior to the Effective Time,
each outstanding option to purchase shares of Common Stock (an "Option") granted
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under the Company's Amended and Restated 1995 Stock Option Plan and any similar
plan or arrangement providing for the issuance of options (collectively, the
"Option Plans"), whether or not then exercisable or vested, shall become fully
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exercisable and vested. At the Effective Time (A) each Option which is then
outstanding shall be canceled and (B) in consideration of such cancellation, and
except to the extent that Merger Sub and the holder of any such Option otherwise
agree, immediately following consummation of the Offer, the Company shall pay to
such holders of Options an amount in respect thereof equal to the product of (x)
the excess of the Merger Consideration over the exercise price thereof, if any,
and (y) the number of shares of Common Stock subject thereto (such payment to be
net of taxes required by law to be withheld with respect thereto). No payment
shall be made with respect to any Option having a per share exercise price, as
in effect at the Effective Time, equal to or greater than the Merger
Consideration.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Merger Sub that, except as set
forth in the corresponding sections of the Disclosure Letter delivered to Merger
Sub by the Company prior to the execution of this Agreement (the "Company
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Disclosure Letter"):
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Section 3.1 Organization and Qualification; Subsidiaries.
(a) Each of the Company and each subsidiary of the Company
(collectively, the "Company Subsidiaries") is a corporation duly incorporated,
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validly existing and in good standing under the laws of the jurisdiction of its
incorporation or organization, as the case may be, and has the requisite power
and authority and all necessary governmental approvals to own, lease and operate
its properties and to carry on its business as it is now being conducted, except
where the failure to be so organized, existing or in good standing or to have
such power, authority and governmental
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6
approvals, individually or in the aggregate, have not resulted and could not
reasonably be expected to result in a Material Adverse Effect on the Company.
Each of the Company and each Company Subsidiary is duly qualified or licensed to
do business, and is in good standing, in each jurisdiction where the character
of the properties owned, leased or operated by it or the nature of its business
makes such qualification or licensing necessary, except for such failures to be
so qualified or licensed and in good standing that, individually or in the
aggregate, have not resulted and could not reasonably be expected to result in a
Material Adverse Effect on the Company. For purposes of this Agreement,
"Material Adverse Effect on the Company" means any change in or effect on the
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business, assets, properties, results of operations or condition (financial or
otherwise) of the Company or any Company Subsidiary that is or could reasonably
be expected to be materially adverse to the Company and the Company
Subsidiaries, taken as a whole, or that could reasonably be expected to
materially impair the ability of the Company to perform its obligations under
this Agreement or consummate the Merger and the other transactions contemplated
hereby.
(b) The Company Disclosure Letter sets forth a complete and
correct list of all of the Company Subsidiaries, their respective jurisdictions
of organization and percentage ownership by the Company. Neither the Company nor
any Company Subsidiary holds any interest in any person other than the Company
Subsidiaries so listed.
Section 3.2 Certificate of Incorporation and By-Laws. The copies
Company's certificate of incorporation and by-laws, each as amended through the
date of this Agreement (collectively, the "Company Charter Documents") that are
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incorporated by reference in, as exhibits to the Company's annual report on Form
10-K for the year ended December 25, 1998 are complete and correct copies of
those documents. The Company Charter Documents and all comparable corporate
organizational documents of the Company Subsidiaries are in full force and
effect. The Company is not in violation of any of the provisions of the Company
Charter Documents.
Section 3.3 Capitalization.
(a) The authorized capital stock of the Company consists of
50,000,000 shares of Common Stock, 5,000,000 shares of Preferred Stock, par
value $0.01 per share, 129,450 shares of Series A Senior Preferred Stock, par
value $0.01 per share and 105,914 shares of Series B Senior Preferred Stock, par
value $0.01 per share (collectively, the "Preferred Stock"). As of the date of
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this Agreement, (i) 12,407,826 shares of Common Stock were issued and
outstanding, all of which were validly issued and are fully paid, nonassessable
and not subject to preemptive rights, (ii) 1,000,000 shares of Company Common
Stock were held in the treasury of the Company and (iii) 1,502,166 shares of
Common Stock were reserved for issuance upon exercise of Options that are
outstanding or available for grant. As of the date of this Agreement, no shares
of Preferred Stock are issued and outstanding.
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(b) As of the date of this Agreement, an aggregate of
1,135,376 Options granted by the Company under the Option Plans are issued and
outstanding. Except for the Options, there are no options, warrants, conversion
rights, stock appreciation rights, redemption rights, repurchase rights or other
rights, agreements, arrangements or commitments of any character to which the
Company is a party or by which the Company is bound relating to the issued or
unissued capital stock of the Company or any Company Subsidiary or obligating
the Company or any Company Subsidiary to issue or sell any shares of capital
stock of, or other equity interests in, the Company or any Company Subsidiary.
The Company Disclosure Letter sets forth, as of the date of this Agreement, (x)
the persons to whom Options have been granted and (y) the exercise price for the
Options held by each such person. No consent of the holder of any Options is
required in connection with the cancellation thereof pursuant to Section 2.4.
(c) All shares of Common Stock subject to issuance, upon
issuance prior to the Effective Time on the terms and conditions specified in
the instruments under which they are issuable, will be duly authorized, validly
issued, fully paid, nonassessable and will not be subject to preemptive rights.
There are no outstanding contractual obligations of the Company or any Company
Subsidiary to repurchase, redeem or otherwise acquire any shares of Common Stock
or any capital stock of any Company Subsidiary. Each outstanding share of
capital stock of each Company Subsidiary is duly authorized, validly issued,
fully paid, nonassessable and not subject to preemptive rights and each such
share owned by the Company or a Company Subsidiary is free and clear of all
security interests, liens, claims, pledges, options, rights of first refusal,
agreements, limitations on the Company's or such other Company Subsidiary's
voting rights, charges and other encumbrances or any nature whatsoever
(collectively, "Liens"). There are no outstanding contractual obligations of
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the Company or any Company Subsidiary to provide funds to, or make any
investment (in the form of a loan, capital contribution or otherwise) in, any
Company Subsidiary that is not wholly owned by the Company or in any other
person.
Section 3.4 Authority.
(a) The Company has all necessary corporate power and
authority to execute and deliver this Agreement, to perform its obligations
under this Agreement and to consummate the Merger and the other transactions
contemplated by this Agreement to be consummated by the Company. The execution
and delivery of this Agreement by the Company and the consummation by the
Company of such transactions have been duly and validly authorized by all
necessary corporate action and no other corporate proceedings on the part of the
Company are necessary to authorize this Agreement or to consummate such
transactions, other than, with respect to the Merger, the adoption of this
Agreement by the holders of a majority of the outstanding shares of Common Stock
(the "Requisite Company Vote"). This Agreement has been duly authorized and
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validly executed and delivered by the Company and, assuming that this
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8
Agreement constitutes a valid and binding obligation of the other party,
constitutes a legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, except as may be limited by
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and
other similar laws affecting creditors' rights generally and by equitable
principles of general applicability.
(b) The Special Committee of the Board of Directors of the
Company and the full Board of Directors of the Company (i) has unanimously
adopted the plan of merger set forth in Articles I and II of this Agreement and
approved this Agreement and the other transactions contemplated by this
Agreement and (ii) has unanimously agreed to recommend to the stockholders the
approval of this Agreement, the Merger, and the other transactions contemplated
hereby.
Section 3.5 No Conflict.
(a) The execution and delivery of this Agreement by the
Company do not, and the performance of this Agreement by the Company will not:
(i) conflict with or violate any provision of any
Company Charter Document or any equivalent organizational documents of any
Company Subsidiary;
(ii) assuming that all consents, approvals,
authorizations and other actions described in Section 3.6 have been
obtained and all filings and obligations described in Section 3.6 have been
made, conflict with or violate any foreign or domestic law, statute,
ordinance, rule, regulation, order, judgment or decree ("Law") applicable
---
to the Company or any Company Subsidiary or by which any property or asset
of the Company or any Company Subsidiary is or may be bound or affected,
except for any such conflicts or violations that, individually or in the
aggregate, have not resulted and could not reasonably be expected to result
in a Material Adverse Effect on the Company; or
(iii) result in any breach of or constitute a default
(or an event which with or without notice or lapse of time or both would
become a default) under, or give to others any right of termination,
amendment, acceleration or cancellation of, or result in the creation of a
Lien on any property or asset of the Company or any Company Subsidiary
under any note, bond, mortgage, indenture, contract, agreement, commitment,
lease, license, permit, franchise or other instrument or obligation
(collectively, "Contracts") to which the Company or any Company Subsidiary
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is a party or by which any of them or their assets or properties is or may
be bound or affected, except for any such breaches, defaults, rights or
Liens that, individually or in the aggregate, have not resulted and could
not reasonably be expected to result in a Material Adverse Effect on the
Company.
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(b) The Company Disclosure Letter sets forth a correct and
complete list of all material Contracts to which the Company or any Company
Subsidiaries are a party or by which they or their assets or properties is or
may be bound or affected under which consents or waivers are or may be required
prior to consummation of the transactions contemplated by this Agreement.
Section 3.6 Required Filings and Consents. The execution and delivery
of this Agreement by the Company do not, and the performance of this Agreement
by the Company will not, require any consent, approval, authorization or permit
of, or filing with or notification to, any domestic or foreign national,
federal, state, provincial or local governmental, regulatory or administrative
authority, agency, commission, court, tribunal or arbitral body or self-
regulated entity (each, a "Governmental Entity"), other than (i) compliance with
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applicable requirements of the Securities Exchange Act of 1934, as amended
(together with the rules and regulations promulgated thereunder, the "Exchange
--------
Act"), (ii) compliance with the pre-merger notification requirements of the
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Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules
and regulations promulgated thereunder (the "HSR Act"), (iii) the filing of a
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Certificate of Designation relating to the Series C Preferred Stock; (iv) the
filing of the Certificate of Merger in accordance with the NJBC; and (v) where
the failure to obtain such consent, approval, authorization or permit, or to
provide such notice or make such filing, individually or in the aggregate, has
not and could not reasonably be expected to result in a Material Adverse Effect.
Section 3.7 Permits; Compliance with Law. Each of the Company and
the Company Subsidiaries is in possession of all franchises, grants,
authorizations, licenses, permits, easements, variances, exceptions, consents,
certificates, approvals and orders of any Governmental Entity necessary for the
Company or any Company Subsidiary to own, lease and operate its properties or to
carry on its business as it is now being conducted (collectively, the "Company
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Permits"), except where the failure to have, or the suspension or cancellation
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of, any of the Company Permits, individually or in the aggregate, has not
resulted and could not reasonably be expected to result in a Material Adverse
Effect on the Company, and, as of the date of this Agreement, no suspension or
cancellation of any of the Company Permits is pending or, to the knowledge of
the Company, threatened, except where the failure to have, or the suspension or
cancellation of, any of the Company Permits, individually or in the aggregate,
has not resulted and could not reasonably be expected to result in a Material
Adverse Effect on the Company. Neither the Company nor any Company Subsidiary is
in conflict with, or in default or violation of, (i) any Law applicable to the
Company or any Company Subsidiary or by which any property or asset of the
Company or any Company Subsidiary is or may be bound or affected or (ii) any
Company Permits, except for any such conflicts, defaults or violations that,
individually or in the aggregate, have not resulted and could not reasonably be
expected to result in a Material Adverse Effect on the Company.
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Section 3.8 SEC Filings; Financial Statements.
(a) The Company has filed all forms, reports, statements and
other documents (including all exhibits, annexes, supplements and amendments to
such documents) required to be filed by it under the Exchange Act and the
Securities Act since January 1, 1998 (collectively, including any such documents
filed subsequent to the date of this Agreement, the "Company SEC Reports") and
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the Company has made available to the Merger Sub each Company SEC Report filed
with the Securities and Exchange Commission (the "SEC"). The Company SEC
---
Reports, including any financial statements or schedules included or
incorporated by reference, (i) comply in all material respects with the
requirements of the Exchange Act or the Securities Act of 1933, as amended (the
"Securities Act") or both, as the case may be, applicable to those Company SEC
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Reports and (ii) did not at the time they were filed contain any untrue
statement of a material fact or omit to state a material fact required to be
stated or necessary in order to make the statements made in those Company SEC
Reports, in the light of the circumstances under which they were made, not
misleading. No Company Subsidiary is subject to the periodic reporting
requirements of the Exchange Act or is otherwise required to file any documents
with the SEC or any national securities exchange or quotation service or
comparable Governmental Entity.
(b) Each of the consolidated balance sheets included in or
incorporated by reference into the Company SEC Reports (including the related
notes and schedules) fairly presented or will fairly present, in all material
respects, the consolidated financial position of the Company or a Company
Subsidiary as the case may be, as of the dates set forth in those consolidated
balance sheets. Each of the consolidated statements of income and of cash flows
included in or incorporated by reference into the Company SEC Reports (including
any related notes and schedules), fairly presented or will fairly present, in
all material respects, the consolidated results of operations and cash flows, as
the case may be, of the Company and the consolidated Company Subsidiaries (or of
any Company Subsidiary, as the case may be) for the periods set forth in those
consolidated statements of income and of cash flows (subject, in the case of
unaudited quarterly statements, to notes and normal year-end audit adjustments
that will not be material in amount or effect), in each case in conformity with
United States generally accepted accounting principles ("GAAP") (except, in the
----
case of unaudited quarterly statements, as permitted by Form 10-Q of the SEC)
consistently applied throughout the periods indicated.
(c) Except as and to the extent set forth on the consolidated
balance sheet of the Company and the consolidated Company Subsidiaries as of
December 25, 1998, including the related notes, neither the Company nor any
Company Subsidiary has any liabilities or obligations of any nature (whether
accrued, absolute, contingent or otherwise) that would be required to be
reflected on a balance sheet or in the related notes prepared in accordance with
GAAP, except for liabilities or obligations incurred in the ordinary course of
business since December 25, 1998, that, individually or
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11
in the aggregate, have not resulted and could not reasonably be expected to
result in a Material Adverse Effect on the Company.
Section 3.9 Absence of Certain Changes or Events. Since December 25,
1998, the Company and the Company Subsidiaries have conducted their businesses
only in the ordinary course and in a manner consistent with past practice and,
since such date, there has not been:
(a) any Material Adverse Effect on the Company;
(b) any damage, destruction or other casualty loss with
respect to any asset or property owned, leased or otherwise used by it or any
Company Subsidiaries, whether or not covered by insurance, which damage,
destruction or loss, individually or in the aggregate, has resulted or could
reasonably be expected to result in a Material Adverse Effect on the Company;
(c) any material change by the Company in its or any Company
Subsidiary's accounting methods, principles or practices;
(d) any declaration, setting aside or payment of any dividend
or distribution in respect of Company Shares or any redemption, purchase or
other acquisition of any of the Company's securities;
(e) any event, occurrence or action described in Section
5.1(a)-(l).
Section 3.10 Employee Benefit Plans; Labor Matters.
(a) For purposes of this Agreement:
(i) "Benefit Plan" means any employee benefit plan,
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arrangement, policy or commitment, including, without limitation, any
employment, consulting or deferred compensation agreement, executive
compensation, bonus, incentive, pension, profit-sharing, savings,
retirement, stock option, stock purchase or severance pay plan, any life,
health, disability or accidental death and dismemberment insurance plan,
any holiday or vacation practice or any other employee benefit plan within
the meaning of section 3(3) of ERISA, as to which the Company has any
direct or indirect, actual or contingent liability;
(ii) "Company Benefit Plan" means any Benefit Plan
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that provides benefits with respect to current or former Employees;
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(iii) "Welfare Plan" means and Benefit Plan that is a welfare
------------
plan within the meaning of and subject to ERISA section 3(1);
(iv) "Retiree Welfare Plan" means any Welfare Plan that
--------------------
provides benefits to current or former employees beyond their retirement or
other termination of service (other than coverage mandated by COBRA, the
cost of which is fully paid by the current or former employee or his
dependents);
(v) "ERISA" means the Employee Retirement Income Security Act
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of 1974, as amended;
(vi) "COBRA" means the provisions of Code section 4980B and
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Part 6 of Title I of ERISA;
(vii) "Employee" means any individual employed by the Company or
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any of its subsidiaries; and
(viii) "PBGC" means the Pension Benefit Guaranty Corporation.
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(b) The Company Disclosure Letter sets forth all Company Benefit
Plans. With respect to each such plan, the Company has delivered to the Merger
Sub correct and complete copies of: (i) all plan texts and agreements and
related trust agreements or annuity contracts; (ii) all summary plan
descriptions and material Employee communications; (iii) the most recent annual
report (including all schedules thereto); (iv) the most recent annual audited
financial statement and opinion applicable to a plan intended to qualify under
Code section 401(a) or 403(a); (v) if the plan is intended to qualify under Code
section 401(a) or 403(a), the most recent determination letter, if any, received
from the IRS; and (vi) all material communications with any governmental entity
or agency (including, without limitation, the PBGC and the IRS).
(c) The Company has no direct or indirect, actual or contingent
liability with respect to any Benefit Plan other than to make payments pursuant
to Company Benefit Plans in accordance with the terms of such plans.
(d) Each of the Company and its subsidiaries has made all material
payments due from it to date with respect to each Benefit Plan.
(e) All material amounts properly accrued as liabilities to, or
expenses of, any Benefit Plan that have not been paid have been properly
reflected on the Financial Statements.
(f) There are no Benefit Plans that are subject to any of Code
section 412, ERISA section 302 or Title IV or ERISA.
<PAGE>
13
(g) Each Benefit Plan conforms in all material respects to, and its
administration is in all material respects in compliance with, all applicable
laws and regulations.
(h) There are no actions, liens, suits or claims pending or
threatened (other than routine claims for benefits) with respect to any Benefit
Plan.
(i) Each Benefit Plan which is intended to qualify under Code
section 401(a) or 403(a) so qualifies.
(j) Each Benefit Plan which is a "group health plan" (as defined in
ERISA section 607(1)) has been operated in all material respects in compliance
with the provisions of COBRA and any applicable, similar state law.
(k) There is no contract or arrangement in existence with respect to
any Employee that would result in the payment of any amount that by operation of
Code section 280G would not be deductible to the Company or any of its
subsidiaries.
(l) No assets of the Company are allocated to or held in a
"rabbi trust" or similar funding vehicle.
(m) Except as disclosed on Schedule 3.10, there are no: (i) unfunded
benefit obligations with respect to any Employee that are not fairly reflected
by reserves shown on the Financial Statements, (ii) reserves, assets, surpluses
or prepaid premiums with respect to any Welfare Plan or (iii) Retiree Welfare
Plans.
(n) The consummation of the transactions contemplated by this
Agreement will not: (i) entitle any current or former Employee to severance
pay, unemployment compensation or any similar payment; (ii) accelerate the time
of payment or vesting, or increase the amount of any compensation due to, any
current or former Employee; or (iii) constitute or involve a prohibited
transaction (as defined in ERISA section 406 or Code section 4975), constitute
or involve a breach of fiduciary responsibility within the meaning of ERISA
section 502(1) or otherwise violate Part 4 of Title I of ERISA.
(o) No Benefit Plan is a "multiple employer plan" or a "multiemployer
plan" within the meaning of the Code or ERISA.
(p) The Company does not and has not maintained a plan that is or was
subject to Title IV of ERISA, and has no liability in respect of any such plan;
no filing of a notice of intent to terminate such a Benefit Plan has been made;
and the PBGC has not initiated any proceeding to terminate any such Benefit
Plan. No event has occurred, and no condition or circumstance exists, that
presents a material risk that any
<PAGE>
14
Benefit Plan has or is likely to experience a "partial termination" (within the
meaning of Code section 411(d)(3)).
(q) As of the Effective Time, the Company, its subsidiaries and any
entity under common control with the Company within the meaning of Code section
414(b), (c), (m) or (o) has not incurred any liability or obligation under the
Worker Adjustment and Retraining Notification Act, as it may be amended from
time to time, and within six-month period immediately following the Effective
Time, will not incur any such liability or obligation if, during such six-month
period, only terminations of employment in the normal course of operations
occur.
Section 3.11 Contracts; Debt Instruments. Neither the Company nor any
Company Subsidiary is in violation of or in default under (nor does there exist
any condition which with the passage of time or the giving of notice would cause
such a violation of or default under) any Contract to which it is a party or by
which it or any of its properties or assets is or may be bound or affected,
except for violations or defaults that, individually or in the aggregate, have
not resulted and could not reasonably be expected to result in a Material
Adverse Effect on the Company. Set forth in the Company Disclosure Letter is a
description of any material changes to the amount and terms of the indebtedness
of the Company and the consolidated Company Subsidiaries as described in the
notes to the financial statements set forth as incorporated by reference in the
Company's quarterly report on Form 10-Q for the period ended September 24, 1999.
Section 3.12 Litigation. There is no suit, claim, action, proceeding or
investigation (collectively, "Claims") pending or, to the knowledge of the
------
Company, threatened against the Company or any Company Subsidiary before any
Governmental Entity that, if adversely determined, individually or in the
aggregate, has resulted or could reasonably be expected to result in a Material
Adverse Effect on the Company. Neither the Company nor any Company Subsidiary
is subject to any outstanding order, writ, injunction or decree which,
individually or in the aggregate, has resulted or could reasonably be expected
to result in a Material Adverse Effect on the Company.
Section 3.13 Environmental Matters. Except as set forth in Section 3.13
of the Disclosure Schedule, (i) no real property currently or, to the Company's
knowledge, formerly owned or operated by the Company or any Subsidiary is
contaminated with any Hazardous Substances (as defined herein) to an extent or
in a manner or condition now requiring remediation under any Environmental Law
(as defined herein), (ii) no judicial or administrative proceeding is pending
or, to the knowledge of the Company, threatened relating to liability for any
off-site disposal or contamination and (iii) the Company and its Subsidiaries
have not received in writing any claims or notices alleging liability under any
Environmental Law. Neither the Company nor any Subsidiary is in violation of any
applicable Environmental Law and no condition or event has occurred with respect
to the Company or any Subsidiary that would constitute a violation of such
Environmental Law, excluding in any event, such
<PAGE>
15
violations, conditions and events that would not have a Material Adverse Effect.
"Environmental Law" means any applicable federal, state or local law,
-----------------
regulation, order, decree or judicial opinion or other agency requirement having
the force and effect of law and relating to Hazardous Substances or the
protection of the environment. "Hazardous Substance" means any toxic or
-------------------
hazardous substance that is regulated by or under authority of any Environmental
Law.
Section 3.14 Intellectual Property.
(a) Definitions. For purposes of this Agreement, "Intellectual
------------
Property" means all of the following as they exist in all jurisdictions
- --------
throughout the world, in each case, to the extent owned by, licensed to, or
otherwise used by the Company or the Merger Sub: (A) patents, patent
applications, and other patent rights (including any divisions, continuations,
continuations-in-part, substitutions, or reissues thereof, whether or not
patents are issued on any such applications and whether or not any such
applications are modified, withdrawn, or resubmitted); (B) registered and
material unregistered trademarks, service marks, trade dress, trade names, brand
names, Internet domain names, designs, logos, or corporate names, whether
registered or unregistered, and all registrations and applications for
registration thereof; (C) copyrights, including all renewals and extensions,
copyright registrations and applications for registration, and material non-
registered copyrights; (D) trade secrets, concepts, ideas, designs, research,
processes, procedures, techniques, methods, know-how, data, mask works,
discoveries, inventions, modifications, extensions, improvements, and other
proprietary rights (whether or not patentable or subject to copyright, mask
work, or trade secret protection) (collectively, "Technology"); and (E) computer
----------
software programs, including all source code, object code, and documentation
related thereto (the "Software").
--------
(b) Ownership and Claims. The Company owns, free and clear of
all Liens, and has the unrestricted right to use, sell, or license, all
Intellectual Property, except for failures that, individually or in the
aggregate, have not resulted and could not reasonably be expected to result in a
Material Adverse Effect on the Company. The Company has not been, during the
three years preceding the date of this Agreement, a party to any Claim, nor, to
the knowledge of the Company, is any Claim threatened, that challenges the
validity, enforceability, ownership, or right to use, sell, or license any
Intellectual Property, except for Claims that, individually or in the aggregate,
have not resulted and could not reasonably be expected to result in a Material
Adverse Effect on the Company. To the knowledge of the Company, no third party
is infringing upon any Intellectual Property, except for infringements that,
individually or in the aggregate, have not resulted and could not reasonably be
expected to result in a Material Adverse Effect on the Company.
(c) Year 2000 Compliance. All Software, hardware, databases, and
embedded control systems (collectively, the "Systems") used by the Company are
-------
Year 2000 Compliant, except for failures to be Year 2000 Compliant that,
<PAGE>
16
individually or in the aggregate, have not resulted and could not reasonably be
expected to result in a Material Adverse Effect on the Company. For purposes of
this Agreement, "Year 2000 Compliant" means that the Systems (i) accurately
-------------------
process date and time data (including calculating, comparing, and sequencing)
from, into, and between the twentieth and twenty-first centuries, the years 1999
and 2000, and leap year calculations and (ii) operate accurately with other
software and hardware that use standard date format for representation of the
year.
(d) Effect of Transaction. The Company is not, nor, as a
result of the execution and delivery of this Agreement or the performance of its
obligations under this Agreement, will be, in violation of any agreement
relating to any Intellectual Property, except for violations that, individually
or in the aggregate, have not resulted and could not reasonably be expected to
result in a Material Adverse Effect on the Company. After the completion of the
transactions contemplated by this Agreement, the Merger Sub will own all right,
title, and interest in and to or have a license to use all Intellectual Property
on identical terms and conditions as the Company enjoyed immediately prior to
such transactions, except for failures to own or have available for use that,
individually or in the aggregate, have not resulted and could not reasonably be
expected to result in a Material Adverse Effect on the Company.
Section 3.15 Taxes. Except to the extent that failure to do so,
individually or in the aggregate, has not resulted and could not reasonably be
expected to result in a Material Adverse Effect on the Company, the Company and
the Company Subsidiaries have filed all Tax returns and reports to be filed by
them and have paid, or established adequate reserves for, all Taxes required to
be paid by them. Except as, individually or in the aggregate, has not resulted
and could not reasonably be expected to result in a Material Adverse Effect on
the Company, no deficiencies for any Taxes have been proposed, asserted or
assessed against the Company or any Company Subsidiaries, and no requests for
waivers of the time to assess any such Taxes are pending. As used in this
Agreement, "Taxes" shall mean all federal, state, local and foreign income,
-----
property, sales, excise and other taxes, tariffs or governmental charges of any
nature whatsoever.
Section 3.16 Non-Competition Agreements. Neither the Company nor any
Company Subsidiary is a party to any agreement which purports to restrict or
prohibit in any material respect the Company and the Company Subsidiaries
collectively from, directly or indirectly, engaging in any business currently
engaged in by the Company, any Company Subsidiary. None of the Company's
officers, directors or key employees is a party to any agreement which, by
virtue of such person's relationship with the Company, restricts in any material
respect the Company or any Company Subsidiary from, directly or indirectly,
engaging in any of such businesses.
Section 3.17 Assets.
<PAGE>
17
(a) The Company and its Subsidiaries own, or otherwise have sufficient
and legally enforceable rights to use, all of the properties and assets (real,
personal or mixed, tangible or intangible), reasonably necessary for the conduct
of, or otherwise material to, their business and operations (the "Material
--------
Assets"). The Company and its Subsidiaries have good, valid and marketable
- ------
title to, or in the case of leased property have good and valid leasehold
interests in, all Material Assets, including but not limited to all such
Material Assets reflected in the balance sheet dated as of September 24, 1999,
constituting a portion of the Company's Quarterly Report on Form 10-Q for the
period ended September 24, 1999 or acquired since the date thereof (except as
may have been disposed of in the ordinary course of business consistent with
past practices prior to the date hereof or in accordance herewith), in each case
free and clear of any Lien (as defined below), except Permitted Liens.
"Permitted Liens" means (a) Liens reserved against in the September 24, 1999
---------------
Balance Sheet, to the extent so reserved, (b) Liens for Taxes not yet due and
payable or that are being contested in good faith by appropriate proceedings and
for which adequate reserves have been provided in accordance with GAAP or that
are statutory Liens for Taxes not yet delinquent, (c) those Liens that are set
forth in Schedule 3.17 of the Company Disclosure Letter and (d) those Liens
that, in the aggregate with all other Permitted Liens, do not and will not
materially detract from the value of the properties and assets of any of the
Company and its Subsidiaries or materially interfere with the present use
thereof.
Section 3.18 Opinion of Financial Advisor. William Blair & Company
L.L.C. (the "Company Financial Advisor") has delivered to the Board of Directors
-------------------------
of the Company its opinion to the effect that, as of the date of this Agreement,
the Merger Consideration is fair to the Company's stockholders from a financial
point of view (other than the Company Principal), accompanied by an
authorization to include a copy of such opinion in the Proxy Materials.
Section 3.19 Brokers. No broker, finder or investment banker other
than the Company Financial Advisor is entitled to any brokerage, finder's or
other fee or commission in connection with the Merger or the other transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
the Company. Prior to the date of this Agreement, the Company has made available
to the Merger Sub a complete and correct copy of all agreements between the
Company and the Company Financial Advisor under which the Company Financial
Advisor would be entitled to any payment relating to the Merger or any other
transactions.
Section 3.20 Certain Statutes. No "interested shareholder," "fair
price," "moratorium," "control share acquisition" or other similar state or
federal anti-takeover statute or regulation (each a "Takeover Statute") is, as
----------------
of the date of this Agreement, applicable to the Merger or any other
transactions contemplated by this Agreement. No holder of shares of Common Stock
is entitled to exercise dissenters' or appraisal rights pursuant to (S) 14A:11-1
of the NJBC or otherwise.
<PAGE>
18
Section 3.21 Information. None of the information to be supplied by
the Company for inclusion or incorporation by reference in the Proxy Statement
(as defined in Section 5.4) will, at the time of the mailing of the Proxy
Statement and any amendments or supplements of the Proxy Statement and at the
time of the Company Stockholders Meeting (as defined in Section 5.4), contain
any untrue statement of a material fact or omit to state any material fact
required to be stated in that Proxy Statement or necessary in order to make the
statements in that Proxy Statement, in light of the circumstances under which
they are made, not misleading. The Proxy Statement (except for those portions of
the Proxy Statement that relate only to Merger Sub or subsidiaries or affiliates
of the Merger Sub) will comply as to form in all material respects with the
provisions of the Exchange Act.
Section 3.22 Vote Required. The Requisite Company Vote is the only
vote of the holders of any class or series of the Company's capital stock
necessary (under the Company Charter Documents, the NJBC, other applicable Law
or otherwise) to approve this Agreement, the Merger or the other transactions
contemplated by this Agreement.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
OF MERGER SUB
Merger Sub represents and warrants to the Company as follows:
Section 4.1 Organization. Merger Sub is a corporation duly
incorporated, validly existing and in good standing under the laws of New
Jersey. Since the date of its incorporation, Merger Sub has not engaged in
any activities other than in connection with arranging any financing required to
consummate the transaction contemplated hereby. For purposes of this Agreement,
"Merger Sub Material Adverse Effect" means any change in or effect on the
----------------------------------
business, assets, properties, results of operations or condition (financial or
otherwise) of Merger Sub that is or could reasonably be expected to be
materially adverse to Merger Sub, taken as a whole, or that could reasonably be
expected to materially impair the ability of Merger Sub to perform their
respective obligations under this Agreement or consummate the Merger and the
other transactions contemplated hereby.
Section 4.2 Binding Obligation. Merger Sub has all necessary
corporate power and authority to execute and deliver this Agreement, to perform
its obligations hereunder and to consummate the Merger and the other
transactions contemplated by this Agreement to be consummated by it. This
Agreement has been duly authorized, executed and delivered by Merger Sub and,
assuming this Agreement constitutes a valid and binding obligation of the other
party hereto, constitutes the legal,
<PAGE>
19
valid and binding obligation of Merger Sub, enforceable against Merger Sub in
accordance with its terms, except as may be limited by bankruptcy, insolvency,
fraudulent, fraudulent conveyance, reorganization, moratorium or similar laws
from time to time in effect affecting generally the enforcement of creditors'
rights and remedies and by equitable principles of general applicability.
Section 4.3 No Authorization or Consents Required. No authorization
or approval or other action by, and no notice to or filing with, any
Governmental Entity will be required to be obtained or made by Merger Sub in
connection with the due execution and delivery by Merger Sub of this Agreement
and the consummation by Merger Sub of the Merger as contemplated hereby other
than (i) compliance with applicable requirements of the Exchange Act, (ii)
compliance with the HSR Act, (iii) filings with the Secretary of State of New
Jersey to effect a recapitalization of Merger Sub prior to the Effective Time,
(iv) the filing of the Certificate of Merger in accordance with the NJBC, and
(v) where the failure to obtain such authorization, approval or action, or to
provide such notice or make such filing, individually or in the aggregate, has
not resulted and could not reasonably be expected to result in a Merger Sub
Material Adverse Effect.
Section 4.4 Financing Commitments. Merger Sub has delivered to the
Company true and complete copies of written commitments of (a) Parthenon
Investors, L.P., Chase Capital Partners and The Chase Manhattan Bank, as Trustee
for First Plaza Group Trust to provide equity financing in connection with the
transactions contemplated hereby (the "Equity Financing Commitments") and (b)
----------------------------
Fleet Boston Robertson Stephens Inc. and Fleet National Bank to provide debt
financing in connection with the transactions contemplated hereby (the "Debt
----
Financing Commitments"), each in amounts sufficient to consummate the
- ---------------------
transactions contemplated hereby. The commitment fees set forth in such
financing documents which are due and payable as of the date hereof have been
paid.
Section 4.5 No Conflict. The execution and delivery of this
Agreement by Merger Sub do not, and the performance of this Agreement by each of
Merger Sub will not:
(a) conflict with or violate any provision of any Merger Sub
Charter Document;
(b) assuming that all consents, approvals, authorizations and
other actions described in Section 4.3 have been obtained and all filings and
obligations described in Section 4.3 have been made, conflict with or violate
any foreign or domestic Law applicable to Merger Sub or by which any property or
asset of Merger Sub is or may be bound or affected, except for any such
conflicts or violations which, individually or in the aggregate, have not
resulted and could not reasonably be expected to result in a Merger Sub Material
Adverse Effect; or
<PAGE>
20
(c) result in any breach of or constitute a default (or an event
which with or without notice or lapse of time or both would become a default)
under, or give to others any right of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or other encumbrance on any
property or asset of Merger Sub under, any Contract to which Merger Sub is a
party or by which it or its assets or Properties is or may be bound or affected,
except for any such breaches, defaults or other occurrences which, individually
or in the aggregate, have not resulted and could not reasonably be expected to
result in a Merger Sub Material Adverse Effect;
Section 4.6 Information. None of the information to be supplied by
Merger Sub for inclusion or incorporation by reference in the Proxy Statement
(as defined in Section 5.4) will, at the time of the mailing of the Proxy
Statement and any amendments or supplements of the Proxy Statement and at the
time of the Company Stockholders Meeting (as defined in Section 5.4), contain
any untrue statement of a material fact or omit to state any material fact
required to be stated in that Proxy Statement or necessary in order to make the
statements in that Proxy Statement, in light of the circumstances under which
they are made, not misleading.
Section 4.7 Brokers. No broker, finder or investment banker other
than PaineWebber is entitled to any brokerage, finder's or other fee or
commission in connection with the Merger or the other transactions contemplated
hereby based upon arrangements made by or on behalf of Merger Sub.
ARTICLE 5
COVENANTS
Section 5.1 Conduct of Business of the Company. Except as
contemplated by this Agreement or with the prior written consent of Merger Sub,
during the period from the date of this Agreement to the Effective Time, the
Company will, and will cause each of the Company Subsidiaries to, conduct its
operations only in the ordinary course of business consistent with past practice
and will use its commercially reasonable efforts to, and to cause each Company
Subsidiary to, preserve intact the business organization of the Company and each
of the Company Subsidiaries, to keep available the services of the present
officers and key employees of the Company and the Company Subsidiaries, and to
preserve the good will of customers, suppliers and all other persons having
business relationships with the Company and the Company Subsidiaries. Without
limiting the generality of the foregoing, and except as otherwise contemplated
by this Agreement or disclosed in the Company Disclosure Letter, prior to the
Effective Time, the Company will not, and will not permit any Company Subsidiary
to, without the prior written consent of Merger Sub:
<PAGE>
21
(a) adopt any amendment to the Company Charter Documents or the
comparable organizational documents of any Company Subsidiary;
(b) except for issuances of capital stock of Company Subsidiaries to
the Company or a wholly owned Company Subsidiary, issue, reissue or sell, or
authorize the issuance, reissuance or sale of (i) additional shares of capital
stock of any class, or securities convertible into capital stock of any class,
or any rights, warrants or options to acquire any convertible securities or
capital stock, other than the issue of Company Shares, in accordance with the
terms of the instruments governing such issuance on the date hereof, pursuant to
the exercise of Company Stock Options outstanding on the date hereof, or (ii)
any other securities in respect of, in lieu of, or in substitution for, Company
Shares outstanding on the date hereof;
(c) declare, set aside or pay any dividend or other distribution
(whether in cash, securities or property or any combination thereof) in respect
of any class or series of its capital stock other than between the Company and
any wholly owned Company Subsidiary;
(d) split, combine, subdivide, reclassify or redeem, purchase or
otherwise acquire, or propose to redeem or purchase or otherwise acquire, any
shares of its capital stock, or any of its other securities;
(e) except for (i) increases in salary, wages and benefits of officers
or employees of the Company or the Company Subsidiaries in accordance with past
practice, (ii) increases in salary, wages and benefits granted to officers and
employees of the Company or the Company Subsidiaries in conjunction with new
hires, promotions or other changes in job status or increases in salary, wages
and benefits to employees of the Company or the Company Subsidiaries pursuant to
collective bargaining agreements entered into in the ordinary course of
business, increase the compensation or fringe benefits payable or to become
payable to its directors, officers or employees (whether from the Company or any
Company Subsidiaries) except for year-end bonuses in accordance with past
practice, or pay any benefit not required by any existing plan or arrangement
(including the granting of stock options, stock appreciation rights, shares of
restricted stock or performance units) or grant any severance or termination pay
to (except pursuant to existing agreements, plans or policies), or enter into
any employment or severance agreement with, any director, officer or other
employee of the Company or any Company Subsidiaries or establish, adopt, enter
into, or materially amend any collective bargaining, bonus, profit sharing,
thrift, compensation, stock option, restricted stock, pension, retirement,
savings, welfare, deferred compensation, employment, termination, severance or
other employee benefit plan, agreement, trust, fund, policy or arrangement for
the benefit or welfare of any directors, officers or current or former
employees, except in each case to the extent required by applicable Law;
provided, however, that nothing in this Agreement will be deemed to prohibit the
payment of benefits as they become payable;
<PAGE>
22
(f) acquire, sell, lease, license, transfer, pledge, encumber, grant
or dispose of (whether by merger, consolidation, purchase, sale or otherwise)
any material assets, including capital stock of Company Subsidiaries (other than
the acquisition and sale of inventory or the disposition of used or excess
equipment and the purchase of supplies and equipment, in either case in the
ordinary course of business consistent with past practice), or enter into any
material commitment or transaction outside the ordinary course of business,
other than transactions between a wholly owned Company Subsidiary and the
Company or another wholly owned Company Subsidiary;
(g) (i) incur, assume or prepay any long-term indebtedness or incur
or assume any short-term indebtedness (including, in either case, by issuance of
debt securities), except that the Company and the Company Subsidiaries may
incur, assume or prepay indebtedness in the ordinary course of business
consistent with past practice under existing lines of credit and pursuant to the
Credit Agreement, dated as of December 6, 1999, between the Company and certain
other parties thereto, (ii) assume, guarantee, endorse or otherwise become
liable or responsible (whether directly, contingently or otherwise) for the
obligations of any other person except in the ordinary course of business, or
(iii) make any loans, advances or capital contributions to, or investments in,
any other person; or
(h) terminate, cancel or request any material change in, or agree to
any material change in any Contract which is material to the Company and the
Company Subsidiaries taken as a whole, or enter into any Contract which would be
material to the Company and the Company Subsidiaries taken as a whole, in either
case other than in the ordinary course of business consistent with past
practice; or make or authorize any capital expenditure or acquisition, other
than capital expenditures that are provided for in the Company's budget for the
Company and the Company Subsidiaries taken as a whole for such fiscal year (a
copy of which budget has been provided to Merger Sub);
(i) take any action with respect to accounting policies or procedures,
other than actions in the ordinary course of business and consistent with past
practice or as required pursuant to applicable Law or GAAP;
(j) waive, release, assign, settle or compromise any material
rights, claims or litigation;
(k) make any Tax election or settle or compromise any material
federal, state, local or foreign income Tax liability; or
(l) authorize or enter into any formal or informal written or other
agreement or otherwise make any commitment to do any of the foregoing.
<PAGE>
23
Section 5.2 Other Actions. During the period from the date hereof to
the Effective Time, the Company and Merger Sub shall not, and shall not permit
any of their respective subsidiaries to, take any action that would, or that
could reasonably be expected to, result in any of the conditions to the Merger
set forth in Article 6 hereof not being satisfied.
Section 5.3 Notification of Certain Matters. Merger Sub and the
Company shall promptly notify each other of (a) the occurrence or non-occurrence
of any fact or event which could reasonably be expected (i) to cause any
representation or warranty contained in this Agreement to be untrue or
inaccurate in any material respect at any time from the date hereof to the
Effective Time, (ii) to cause any material covenant, condition or agreement
hereunder not to be complied with or satisfied in all material respects or (iii)
to result in, in the case of Merger Sub, a Merger Sub Material Adverse Effect;
and, in the case of the Company, a Material Adverse Effect on the Company, (b)
any failure of the Company or Merger Sub, as the case may be, to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it hereunder in any material respect; provided, however, that no such
notification shall affect the representations or warranties of any party or the
conditions to the obligations of any party hereunder, (c) any notice or other
material communications from any Governmental Entity in connection with the
transactions contemplated by this Agreement and (d) the commencement of any
suit, action or proceeding that seeks to prevent or seek damages in respect of,
or otherwise relates to, the consummation of the transactions contemplated by
this Agreement.
Section 5.4 Proxy Statement.
(a) As promptly as practicable after the execution of this
Agreement, Merger Sub and the Company shall jointly prepare and the Company
shall file with the SEC the proxy statement of the Company (the "Proxy
-----
Statement") relating to the special meeting of the Company's stockholders (the
- --------- ---
"Company Stockholders Meeting") to be held to consider approval and adoption of
----------------------------
this Agreement and the Merger. Substantially contemporaneously with the filing
of the Proxy Statement with the SEC, copies of the Proxy Statement shall be
provided to the National Association of Securities Dealers, Inc. ("NASD").
----
Merger Sub or the Company, as the case may be, shall furnish all information
concerning Merger Sub or the Company as the other party may reasonably request
in connection with such actions and the preparation of the Proxy Statement and
any other filings required to be made in connection within this Agreement and
the transactions contemplated hereby, including, without limitation, a
Transaction Statement on Schedule 13E-3 (collectively, the "Other Filings"). As
-------------
promptly as practicable the Proxy Statement will be mailed to the stockholders
of the Company. The Company shall cause the Proxy Statement and the Other
Filings to be filed by it to comply as to form and substance in all material
respects with the applicable requirements of (i) the Exchange Act, including
Sections 14(a) and 14(d) thereof and the respective
<PAGE>
24
regulations promulgated thereunder, (ii) the Securities Act, (iii) the rules and
regulations of the NASD and (iv) the NJBC.
(b) The Proxy Statement shall include the recommendation of the Board
of Directors of the Company to the stockholders of the Company that they vote in
favor of the adoption of this Agreement and the Merger; provided, however, that
subject to Section 7.5(b), the Board of Directors of the Company may, at any
time prior to the Effective Time, withdraw, modify or change any such
recommendation if the Board of Directors of the Company determines in good faith
that failure to so withdraw, modify or change its recommendation would cause the
Board of Directors of the Company to breach its fiduciary duties to the
Company's stockholders under applicable Laws after receipt of advice to such
effect from independent legal counsel (who may be the Company's regularly
engaged independent legal counsel). In addition, the Proxy Statement and the
Proxy Materials will include a copy of the written opinion of the Company
Financial Advisor referred to in Section 3.18.
(c) No amendment or supplement to the Proxy Statement will be made
without the approval of each of Merger Sub and the Company, which approval shall
not be unreasonably withheld or delayed, unless such amendment or supplement to
the Proxy Statement is required to be made by the Company under applicable Laws.
Each of Merger Sub and the Company will advise the other, promptly after it
receives notice thereof, or of any request by the SEC or the NASD for amendment
of the Proxy Statement and the Other Filings or comments thereon and responses
thereto or requests by the SEC for additional information.
(d) The information supplied by the Company for inclusion in the Proxy
Statement shall not, at (i) the time the Proxy Materials (or any amendment
thereof or supplement thereto) is first mailed to the stockholders of the
Company, (ii) the time of the Company Stockholders' Meeting, and (iii) the
Effective Time, contain any untrue statement of a material fact or fails to
state any material fact required to be stated in the Proxy Statement or
necessary in order to make the statements in the Proxy Statement not misleading.
If at any time prior to the Effective Time any event or circumstance relating to
the Company or any Company Subsidiary, or their respective officers or
directors, should be discovered by the Company that should be set forth in an
amendment or a supplement to the Proxy Statement, the Company shall promptly
inform Merger Sub. All documents that the Company is responsible for filing
with the SEC in connection with the transactions contemplated hereby will comply
as to form and substance in all material respects with the applicable
requirements of the NJBC, the Securities Act and the Exchange Act.
(e) The information supplied by Merger Sub for inclusion in the Proxy
Statement shall not, at (i) the time the Proxy Materials (or any amendment of or
supplement to the Proxy Materials) are first mailed to the stockholders the
Company, (ii) the time of the Company Stockholders Meeting, and (iii) the
Effective Time, contain
<PAGE>
25
any untrue statement of a material fact or fail to state any material fact
required to be stated in the Proxy Statement or necessary in order to make the
statements in the Proxy Statement not misleading. If, at any time prior to the
Effective Time, any event or circumstance relating to Merger Sub or any Merger
Sub Subsidiary, or their respective officers or directors, should be discovered
by Merger Sub that should be set forth in an amendment or a supplement to the
Proxy Statement, Merger Sub shall promptly inform the Company. All documents
that Merger Sub is responsible for filing in connection with the transactions
contemplated by this Agreement will comply as to form and substance in all
material aspects with the applicable requirements of NJBC, the Securities Act
and the Exchange Act.
(f) The information supplied by any party for inclusion in
another party's Other Filing will be true and correct in all material respects.
Section 5.5 Stockholders' Meeting. The Company shall call and hold
the Company Stockholders Meeting as promptly as practicable for the purpose of
voting upon the adoption of this Agreement and Merger Sub and the Company will
cooperate with each other to cause the Company Stockholders Meeting to be held
as soon as practicable following the mailing of the Proxy Materials to the
stockholders of the Company. The Company shall use its best efforts (through its
agents or otherwise) to solicit from its stockholders proxies in favor of the
adoption of this Agreement, and shall take all other action necessary or
advisable to secure Requisite Company Vote, except, subject to 7.5(b), to the
extent that the Board of Directors of the Company determines in good faith that
doing so would cause the Board of Directors of the Company to breach its
fiduciary duties to the Company's stockholders under applicable Law after
receipt of advice to such effect from independent legal counsel (who may be the
Company's regularly engaged independent legal counsel).
Section 5.6 Access to Information; Confidentiality. From the date of
this Agreement to the Effective Time, the Company shall (and shall cause
subsidiaries to): (i) provide to Merger Sub and Merger Sub (and its respective
officers, directors, employees, accountants, consultants, legal counsel,
financial advisors, investment bankers, financing sources and their respective
advisors, agents and other representatives (collectively, "Representatives"))
---------------
access at reasonable times upon prior notice to the officers, employees, agents,
properties, offices and other facilities of the Company and its subsidiaries and
to the books and records thereof; and (ii) furnish promptly such information
concerning the business, properties, Contracts, assets, liabilities, personnel
and other aspects of the Company and its subsidiaries as Merger Sub or its
Representatives may reasonably request. No investigation conducted under this
Section 5.6 shall affect or be deemed to modify any representation or warranty
made in this Agreement. Merger Sub agrees that any information furnished
pursuant to this Section 5.6 will be subject to the letter agreement, dated July
29, 1999, between the Company and Parthenon Capital (the "Confidentiality
---------------
Agreement").
- ---------
<PAGE>
26
Section 5.7 No Solicitation.
(a) The Company agrees that, prior to the Effective Time, it
shall not, and shall not authorize or permit any Company Subsidiaries or any of
its or the Company Subsidiaries' directors, officers, employees, investment
bankers, attorneys or other agents or representatives, directly or indirectly,
to solicit, initiate or encourage any inquiries or the making of any proposal or
provide any information about the Company or the Company Subsidiaries with
respect to any merger, consolidation or other business combination involving the
Company or the Company Subsidiaries or their respective assets or capital stock
(a "Takeover Proposal") or negotiate, explore or otherwise engage in discussions
-----------------
with any person (other than Merger Sub or its directors, officers, employees,
agents and representatives) with respect to any Takeover Proposal or enter into
any agreement, arrangement or understanding requiring it to abandon, terminate
or fail to consummate the Merger or any other transactions contemplated by this
Agreement; provided, however, that if the Board of Directors of the Company
determines in good faith, after consultation with outside counsel, that it is
necessary to do so in order to act in a manner consistent with its fiduciary
duties to the Company's stockholders under applicable law, the Company may, in
response to any Superior Proposal (as defined below), which proposal was not
solicited by it and which did not otherwise result from a breach of this Section
5.7, and subject to providing prior written notice of its decision to take such
action to Merger Sub and compliance with the other requirements of this Section
5.7, (i) furnish information with respect to the Company and the Company
Subsidiaries to any person making a Superior Proposal pursuant to a customary
confidentiality agreement no less favorable to the Company than the
confidentiality agreement previously entered into by the Company and Merger Sub
(as determined in good faith by the Company based on the advice of its outside
counsel) and (ii) participate in discussions or negotiations regarding such
Superior Proposal.
(b) Except as expressly permitted by this Agreement, neither
the Board of Directors of the Company nor any committee thereof shall (i)
withdraw or modify, or propose publicly to withdraw or modify, in a manner
adverse to Merger Sub, the approval or recommendation by the Board of Directors
of the Company or such committee of the Merger or this Agreement, (ii) approve
or recommend, or propose publicly to approve or recommend, any Takeover
Proposal, or (iii) cause the Company to enter into any Acquisition Agreement.
(c) In addition to the obligations of the Company set forth
in paragraphs (a) and (b) of this Section 5.7, the Company shall promptly advise
Merger Sub orally and in writing of any request for information or any Takeover
Proposal, the material terms and conditions of such request or Takeover Proposal
(and any amendments or proposed amendments thereto) and the identity of the
person making such request or Takeover Proposal.
<PAGE>
27
(d) Nothing contained in this Section 5.7 shall prohibit the
Company from taking and disclosing to its stockholders a position contemplated
by Rule 14e-2(a) promulgated under the Exchange Act or from making any
disclosure to the Company's stockholders if, in the good faith judgment of the
Board of Directors of the Company, after consultation with outside counsel and
based as to legal matters on the written advice of the Company's independent
legal counsel, failure so to disclose would be inconsistent with its obligations
under applicable law; provided, however, that, except as contemplated by clause
(b) of this Section 5.7, neither the Company nor the Board of Directors of the
Company nor any committee thereof shall withdraw or modify, or propose publicly
to withdraw or modify, its position with respect to this Agreement or the Merger
or approve or recommend, or propose publicly to approve or recommend, a Takeover
Proposal.
(e) For purposes of this Agreement:
(i) "Superior Proposal" means any proposal made by a third
-----------------
party to acquire, directly or indirectly, including pursuant to a tender
offer, exchange offer, merger, consolidation, business combination,
recapitalization, reorganization, liquidation, dissolution or similar
transaction, for consideration to the Company's stockholders consisting of
cash and/or securities, all of the shares of the Company's capital stock
then outstanding or all or substantially all the assets of the Company, on
terms which the Board of Directors of the Company determines in its good
faith judgment to be more favorable to the Company's stockholders than the
Merger and for which financing, to the extent required, is then committed
or which, in the good faith judgment of the Board of Directors of the
Company, is reasonably capable of being obtained by such third party.
(ii) "Acquisition Agreement" means any letter of intent,
---------------------
agreement in principle, acquisition agreement or other similar agreement,
contract or commitment related to any Takeover Proposal.
Section 5.8 Directors' and Officers' Indemnification and Insurance.
(a) Merger Sub agrees that all rights to indemnification now
existing in favor of any employee, agent, director or officer of the Company and
the Company Subsidiaries (the "Indemnified Parties") as provided in their
-------------------
respective charters or by-laws, in an agreement between an Indemnified Party and
the Company or one of the Company Subsidiaries, or otherwise in effect on the
date hereof shall survive the Merger and shall continue in full force and effect
for a period of not less than six years from the Effective Time; provided that
in the event any claim or claims are asserted or made within such six-year
period, all rights to indemnification in respect of any such claim or claims
shall continue until final disposition of any and all such claims. Merger Sub
also agrees that the Surviving Corporation shall indemnify all Indemnified
Parties to the fullest extent permitted by applicable law with respect to all
acts and omissions
<PAGE>
28
arising out of such individuals' services as officers, directors, employees or
agents of the Company or any of the Company Subsidiaries or as trustees or
fiduciaries of any plan for the benefit of employees, or otherwise on behalf of,
the Company or any of the Company Subsidiaries, occurring prior to the Effective
Time including the transactions contemplated by this Agreement. Without limiting
of the foregoing, in the event any such Indemnified Party is or becomes involved
in any capacity in any action, proceeding or investigation in connection with
any matter, including the transactions contemplated by this Agreement, occurring
prior to, and including, the Effective Time, the Surviving Corporation will pay
as incurred such Indemnified Party's legal and other expenses (including the
cost of any investigation and preparation) incurred in connection therewith.
(b) Merger Sub agrees that from and after the Effective Time,
the Surviving Corporation shall cause to be maintained in effect for not less
than six years from the Effective Time the current policies of the directors'
and officers' liability insurance maintained by the Company; provided that the
Surviving Corporation may substitute therefor policies of at least the same
coverage containing terms and conditions which are no less advantageous and
provided that such substitution shall not result in any gaps or lapses in
coverage with respect to matters occurring prior to the Effective Time; and
provided, further, that the Surviving Corporation shall not be required to pay
an annual premium in excess of 150% of the last annual premium paid by the
Company prior to the date hereof and if the Surviving Corporation is unable to
obtain the insurance required by this Section 5.8(b) it shall obtain as much
comparable insurance as possible for an annual premium equal to such maximum
amount.
Section 5.9 Reasonable Best Efforts. Subject to the terms and
conditions provided in this Agreement and to applicable legal requirements, each
of the parties hereto agrees to use its reasonable best efforts to take, or
cause to be taken, all action, and to do, or cause to be done, in the case of
the Company, consistent with the fiduciary duties of the Company's Board of
Directors, and to assist and cooperate with the other parties hereto in doing,
as promptly as practicable, (i) all things necessary, proper or advisable under
applicable laws and regulations to ensure that the conditions set forth in
Article 6 are satisfied; (ii) to consummate and make effective the transactions
contemplated by this Agreement; and (iv) cause the Effective Time to take place
promptly following shareholder approval of the Merger and in no instance later
than the date referred to in Section 7.1(b). If at any time after the Effective
Time any further action is necessary or desirable to carry out the purposes of
this Agreement, including the execution of additional instruments, the proper
officers and directors of each party to this Agreement shall take all such
necessary action.
<PAGE>
29
Section 5.10 Consents; Filings; Further Action.
(a) Upon the terms and subject to the conditions hereof,
each of the parties hereto shall use its reasonable best efforts to (i) take, or
cause to be taken, all appropriate action, and do, or cause to be done, all
things necessary, proper or advisable under applicable Law or otherwise to
consummate and make effective the Merger and the other transactions contemplated
hereby, (ii) obtain from Governmental Entities any consents, licenses, permits,
waivers, approvals, authorizations or orders required to be obtained or made by
Merger Sub or the Company or any of their subsidiaries in connection with the
authorization, execution and delivery of this Agreement and the consummation of
the Merger and the other transactions contemplated hereby, (iii) make all
necessary filings, and thereafter make any other submissions either required or
deemed appropriate by each of the parties, with respect to this Agreement and
the Merger and the other transactions contemplated hereby required under (A) the
Securities Act, the Exchange Act and any other applicable federal or Blue Sky
Laws, (B) the HSR Act, (C) the NJBC, (D) any other applicable Law and (E) the
rules and regulations of NASD. The parties hereto shall cooperate and consult
with each other in connection with the making of all such filings, including by
providing copies of all such documents to the nonfiling party and its advisors
prior to filing, and none of the parties will file any such document if any of
the other parties shall have reasonably objected to the filing of such document.
No party to this Agreement shall consent to any voluntary extension of any
statutory deadline or waiting party or to any voluntary delay of the
consummation of the Merger and the other transactions contemplated hereby at the
behest of any Governmental Entity without the consent and agreement of the other
parties to this Agreement, which consent shall not be unreasonably withheld or
delayed.
(b) Notwithstanding the foregoing, nothing in this Section
5.10 shall require, or be construed to require, Merger Sub or the Company, in
connection with the receipt of any regulatory approval, to proffer to, or agree
to (A) sell or hold separate and agree to sell, divest or to discontinue to or
limit, before or after the Effective Time, any assets, businesses, or interest
in any assets or businesses of Merger Sub, the Company or any of their
respective affiliates (or to the consent to any sale, or agreement to sell, or
discontinuance or limitation by Merger Sub or the Company, as the case may be,
of any of its assets or businesses) or (B) agree to any conditions relating to,
or changes or restriction in, the operations of any such asset or businesses
which, in either case, could reasonably be expected to result in a Merger Sub
Material Adverse Effect or a Material Adverse Effect on the Company or to
materially and adversely impact the economic or business benefits to such party
of the transactions contemplated by this Agreement.
Section 5.11 Public Announcements. The initial press release
concerning the Merger shall be a joint press release and, thereafter, Merger Sub
and the Company shall consult with each other before issuing any press release
or otherwise making any public statements with respect to this Agreement or any
of the transactions contemplated hereby and shall not issue any such press
release or make any such public
<PAGE>
30
statement prior to such consultation, except to the extent required by
applicable Law or the requirements of NASD, in which case the issuing party
shall use its reasonable best efforts to consult with the other parties before
issuing any such release or making any such public statement.
Section 5.12 Stock Exchange Listings and De-Listings. The parties
shall use their reasonable best efforts to cause the Surviving Corporation to
cause the Company Common Stock to be de-listed from NASD and de-registered under
the Exchange Act as soon as practicable following the Effective Time.
Section 5.13 Expenses. Except as otherwise provided in Section 7.5(b)
and (d), whether or not the Merger is consummated, all Expenses incurred in
connection with this Agreement and the Merger and the other transactions
contemplated hereby shall be paid by the party incurring those Expenses.
Section 5.14 Takeover Statutes. If any Takeover Statute is or may
become applicable to the Merger or the other transactions contemplated hereby,
each of Merger Sub and the Company and its board of directors shall grant such
approvals and take such actions as are necessary so that such transactions may
be consummated as promptly as practicable on the terms contemplated by this
Agreement and otherwise act to eliminate or minimize the effects of such statute
or regulation on such transactions.
Section 5.15 Employee Benefit Arrangements.
(a) Merger Sub agrees that the Company and the Company
Subsidiaries will honor, and, from and after the Effective Time, the Surviving
Corporation will honor, in accordance with their respective terms as in effect
on the date hereof, the employment, severance and bonus agreements and
arrangements to which the Company and the Company Subsidiaries, as applicable,
are a party and which are set forth on Schedule 3.10.
(b) Merger Sub agrees that for a period of one year following the
Effective Time, the Surviving Corporation shall continue the (i) compensation
(including bonus and incentive awards) programs and plans and (ii) employee
benefit and welfare plans, programs, contracts, agreements and policies
(including insurance and pension plans but not including stock option or any
other equity-based plan or program), fringe benefits and vacation policies which
are currently provided by the Company; provided that notwithstanding anything in
--------
this Agreement to the contrary the Surviving Corporation shall not be required
to maintain any individual plan or program so long as the benefit plan and
agreements maintained by the Surviving Corporation are, in the aggregate, not
materially less favorable than those provided by the Company immediately prior
to the date of this Agreement; and, provided, further, that nothing in this
-------- -------
sentence shall be deemed to limit or otherwise affect the right of the Surviving
Corporation to terminate employment or change the place of work,
responsibilities, status or designation
<PAGE>
31
of any employee or group of employees as the Surviving Corporation may determine
in the exercise of its business judgment and in compliance with applicable laws.
Section 5.16 Issuance of Class C Preferred Stock. The Company shall
promptly adopt and file with the Secretary of State of New Jersey a resolution
establishing and designating 200,000 shares of the Class C Preferred Stock
having the relative rights, preferences and limitations set forth in Exhibit A
hereto. As part of the Company's plan of recapitalization, upon the surrender of
shares of Common Stock by the Principal Stockholder, the Company shall promptly
issue an equal number of shares of Class C Preferred Stock, without any
additional consideration therefor, such shares of Class C Preferred Stock to be
validly issued, fully paid and non-assessable. The shares of Common Stock so
exchanged shall be treasury shares.
Section 5.17 Solvency Matters. The Company shall provide to its Board
of Directors and Merger Sub any reports or opinions relating to the solvency of
the Surviving Corporation that are prepared in connection with the financing
pursuant to the Debt Financing Commitments and shall cause such reports and
opinions to be addressed to the Board of Directors of the Company.
ARTICLE 6
CONDITIONS
Section 6.1 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligation of each party to effect the Merger and
consummate the other transactions contemplated hereby to be consummated on the
Closing Date is subject to the satisfaction or waiver at or prior to the
Effective Time of each of the following conditions:
(a) Stockholder Approval. This Agreement and consummation of the
Merger shall have been duly approved and adopted by the holders of outstanding
Common Stock by the Requisite Company Vote.
(b) Governmental Consents. The waiting period applicable to the
consummation of the Merger under the HSR Act shall have expired or been
terminated.
(c) Litigation. No court or Governmental Entity of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered any
Law, order injunction or decree (whether temporary, preliminary or permanent)
that is in effect and restrains, enjoins or otherwise prohibits consummation of
the Merger or the other
<PAGE>
32
transactions contemplated hereby or that, individually or in the aggregate with
all other such Laws, orders injunctions or decrees, could reasonably be expected
to result in a Merger Sub Material Adverse Effect or a Material Adverse Effect
on the Company, and no Governmental Entity shall have instituted any proceeding
or threatened to institute any proceeding seeking any such Law, order injunction
or decree.
Section 6.2 Conditions to Obligations of Merger Sub. The obligation
of Merger Sub to effect the Merger and consummate the other transactions
contemplated hereby to be consummated on the Closing Date are also subject to
the satisfaction or waiver by Merger Sub at or prior to the Effective Time of
the following conditions:
(a) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement that are qualified as to
materiality shall be true and correct in all respects, and the representations
and warranties of the Company set forth in this Agreement that are not so
qualified shall be true and correct in all material respects, in each case as of
the date of this Agreement and as of the Closing Date, as though made on and as
of the Closing Date, except to the extent the representation or warranty is
expressly limited by its terms to another date, and Merger Sub shall have
received a certificate (which certificate may be qualified by knowledge to the
same extent as the representations and warranties of the Company contained in
this Agreement are so qualified) signed on behalf of the Company by an executive
officer of the Company to such effect.
(b) Performance of Obligations of the Company. The Company shall
have performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Closing Date, and the Merger Sub
shall have received a certificate signed on behalf of the Company by an
executive officer of the Company to such effect.
(c) Material Adverse Effect. Since the date of this Agreement,
there shall have been no Material Adverse Effect on the Company and Merger Sub
shall have received a certificate of an executive officer of the Company to such
effect.
(d) Financing. The Surviving Corporation shall have obtained the
debt financing necessary to consummate the Merger, to pay all fees and expenses
in connection therewith, refinance existing indebtedness of the Company and to
provide working capital for the Surviving Corporation pursuant to the Debt
Financing Commitments or other substantially equivalent financing.
(e) Consents Under Agreements. The Company shall have obtained
the consent, approval or waiver of each person whose consent, approval or waiver
shall be required in order to consummate the transactions contemplated by this
<PAGE>
33
Agreement, except those for which the failure to obtain such consent, approval
or waiver, individually or in the aggregate, could not reasonably be expected to
result in a Material Adverse Effect on the Company.
(f) Company Voting Agreement. The Company Principal shall have
performed in all material respects all obligations required to be performed by
him under the Company Voting Agreement prior to the Closing Date.
Section 6.3 Conditions to Obligation of the Company. The obligation
of the Company to effect the Merger and consummate the other transactions
contemplated hereby to be consummated on the Closing Date is also subject to the
satisfaction or waiver by the Company at or prior to the Effective Time of the
following conditions:
(a) Representations and Warranties. The representations and
warranties of Merger Sub set forth in this Agreement that are qualified as to
materiality shall be true and correct in all respects, and the representations
and warranties of Merger Sub set forth in this Agreement that are not so
qualified shall be true and correct in all material respects, in each case as of
the date of this Agreement and as of the Closing Date, as though made on and as
of the Closing Date, except to the extent the representation or warranty is
expressly limited by its terms to another date, and the Company shall have
received a certificate (which certificate may be qualified by knowledge to the
same extent as the representations and warranties of Merger Sub contained in
this Agreement are so qualified) signed on behalf of Merger Sub by an executive
officer of Merger Sub to such effect.
(b) Performance of Obligations of Merger Sub. Merger Sub shall
have performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Closing Date, and the Company
shall have received a certificate signed on behalf of Merger Sub by an executive
officer of Merger Sub to such effect.
(c) Material Adverse Effect. Since the date of this Agreement,
there shall have been no Merger Sub Material Adverse Effect and the Company
shall have received a certificate of an executive officer of Merger Sub to such
effect.
(d) Consents Under Agreements. Merger Sub shall have obtained the
consent, approval or waiver of each person whose consent, approval or waiver
shall be required in order to consummate the transactions contemplated by this
Agreement, except those for which failure to obtain such consents, approval or
waiver, individually or in the aggregate, could not reasonably be expected to
result in a Merger Sub Material Adverse Effect.
<PAGE>
34
ARTICLE 7
TERMINATION
Section 7.1 Termination. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, notwithstanding
any requisite approval and adoption of this Agreement, as follows:
(a) by mutual written consent of Merger Sub and the Company
duly authorized by their respective boards of directors;
(b) by either Merger Sub or the Company, if the Effective
Time shall not have occurred on or before June 30, 2000; provided, however, that
the right to terminate this Agreement under this Section 7.1(b) shall not be
available to the party whose failure to fulfill any obligation under this
Agreement shall have been the cause of, or resulted in, the failure of the
Effective Time to occur on or before such date;
(c) by either Merger Sub or the Company, if any order
injunction or decree preventing the consummation of the Merger shall have been
entered by any court of competent jurisdiction or Governmental Entity and shall
have become final and nonappealable;
(d) by Merger Sub, if (i) the Board of Directors of the
Company withdraws, modifies or changes its approval or recommendation of this
Agreement in a manner adverse to Merger Sub or shall have resolved to do so,
(ii) the Board of Directors of the Company shall have recommended to the
stockholders of the Company a Takeover Proposal or shall have resolved to do so,
or (iii) a tender offer or exchange offer for any outstanding shares of capital
stock of the Company is commenced and the Board of Directors of the Company
fails to recommend against acceptance of such tender offer or exchange offer by
its stockholders (including by taking no position with respect to the acceptance
of such tender offer or exchange offer by its stockholders); or (iv) the Company
fails to promptly mail the Proxy to the stockholders after receiving SEC
approval;
(e) by Merger Sub or the Company, if this Agreement shall
fail to receive the Requisite Vote for adoption at the Company Stockholders
Meeting or any adjournment or postponement thereof;
(f) by Merger Sub, upon a breach of any material
representation, warranty, covenant or agreement on the part of the Company set
forth in this Agreement, or if any representation or warranty of the Company
shall have become untrue, in either case such that the conditions set forth in
either of Section 6.2(a) or 6.2(b) would not be satisfied (a "Terminating
-----------
Company Breach"); provided, however, that, if such Terminating Company Breach
- --------------
is curable by the Company through the exercise of its
<PAGE>
35
reasonable best efforts and for so long as the Company continues to exercise
such reasonable best efforts, the Merger Sub may not terminate this Agreement
under this Section 7.1(f);
(g) by the Company, upon breach of any material
representation, warranty, covenant or agreement on the part of Merger Sub set
forth in this Agreement, or if any representation or warranty of Merger Sub
shall have become untrue, in either case such that the conditions set forth in
either of Section 6.3(a) or 6.3(b) would not be satisfied (a "Terminating Merger
------------------
Sub Breach"); provided, however, that, if such Terminating Merger Sub Breach
- -----------
is curable by Merger Sub through its reasonable best efforts and for so long as
Merger Sub continues to exercise such reasonable best efforts, the Company may
not terminate this Agreement under this Section 7.1(g);
(h) by the Company, if the Board of Directors of the Company
shall, following receipt of advice of independent legal counsel (who may be the
Company's regularly engaged independent legal counsel) that failure to so
terminate would cause the Board of Directors of the Company to breach its
fiduciary duties under applicable Laws and, on or prior to such date, any person
or group (other than Merger Sub) shall have made a public announcement or
otherwise communicated to the Company and its stockholders with respect to a
Superior Proposal; provided, however, that the Company may not terminate this
Agreement pursuant to this Section 7.1(h) until five business days have elapsed
following delivery to Merger Sub of written notice of such determination of the
Company (which written notice will inform Merger Sub of the material terms and
conditions of the Superior Proposal); provided, further, however, that such
termination under this Section 7.1(h) shall not be effective until the Company
has made payment to Merger Sub of the amounts required to be paid pursuant to
Section 7.5(b).
Section 7.2 Effect of Termination. Except as provided in Section 8.2,
in the event of termination of this Agreement pursuant to Section 7.1, this
Agreement shall forthwith become void, there shall be no liability under this
Agreement on the part of Merger Sub or the Company or any of their respective
Representatives, and all rights and obligations of each party hereto shall
cease, subject to the remedies of the parties set forth in Sections 7.5(b) and
(c); provided, however, that nothing in this Agreement shall relieve any party
from liability for the breach of any of its representations and warranties or
any of its covenants or agreements set forth in this Agreement.
Section 7.3 Amendment. This Agreement may be amended by the parties
hereto by action taken by or on behalf of their respective Boards of Directors
at any time prior to the Effective Time; provided that, after the approval of
this Agreement by the stockholders of the Company, no amendment may be made that
would reduce the amount or change the type of consideration into which each
Company Share shall be converted upon consummation of the Merger. This Agreement
may not be amended except by an instrument in writing signed by the parties
hereto.
<PAGE>
36
Section 7.4 Waiver. At any time prior to the Effective Time, any
party hereto may (a) extend the time for the performance of any obligation or
other act of any other party hereto, (b) waive any inaccuracy in the
representations and warranties contained in this Agreement or in any document
delivered pursuant hereto, and (c) waive compliance with any agreement or
condition contained in this Agreement. Any waiver of a condition set forth in
Section 6.1, or any determination that such a condition has been satisfied, will
be effective only if made in writing by each of the Company and Merger Sub and,
unless otherwise specified in such writing, shall thereafter operate as a waiver
(or satisfaction) of such conditions for any and all purposes of this Agreement.
Any such extension or waiver shall be valid if set forth in an instrument in
writing signed by the party or parties to be bound thereby.
Section 7.5 Expenses following Termination.
(a) Except as set forth in this Section 7.5, all Expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid in accordance with the provisions of Section 5.13. For
purposes of this Agreement, "Expenses" consist of all out-of-pocket expenses
--------
(including all fees, commitment fees and expenses of counsel, accountants,
commercial and investment bankers, lenders, experts and consultants to a party
hereto and its affiliates) incurred by a party or on its behalf to the extent
directly related to the authorization, preparation, negotiation, execution and
performance of this Agreement, the preparation, printing, filing and mailing of
the Proxy Statement, the solicitation of stockholder approvals and all other
matters related to the closing of the transactions contemplated hereby up to a
maximum of $1,000,000.
(b) The Company agrees that, if (i) the Company shall
terminate this Agreement pursuant to Section 7.1(h), (ii) Merger Sub shall
terminate this Agreement pursuant to Section 7.1(d), or (iii) (A) Merger Sub
shall terminate this Agreement pursuant to Section 7.1(e) due to the failure to
obtain the approval of the Company's stockholders at the Company Stockholders'
Meeting and (B) at the time of such failure, any person shall have made a public
announcement or otherwise communicated to the Company and its stockholders with
respect to a Takeover Proposal with respect to the Company, then in accordance
with Section 7.5(c), after such termination, or in the case of clause (iii)
after the consummation of such Takeover Proposal, the Company shall pay to
Merger Sub an amount equal to Merger Sub's documented Expenses in connection
with this Agreement and the transactions contemplated hereby and a termination
fee in the amount of $7,000,000 (collectively, such Expenses and such fee, the
"Termination Amount"), which Termination Amount shall be exclusive of any
- -------------------
Expenses paid pursuant to Section 5.13.
(c) Any payment required to be made pursuant to Section
7.5(b) shall be made to Merger Sub by the Company not later than two business
days after delivery to the Company by Merger Sub of notice of demand for payment
and
<PAGE>
37
shall be made by wire transfer of immediately available funds to an account
designated by Merger Sub.
(d) The Company agrees that it shall pay to Merger Sub an amount
equal to Merger Sub's documented Expenses directly related to this Agreement and
the transactions contemplated hereby if this Agreement is terminated pursuant to
7.1(e) or 7.1(f), and Merger Sub agrees that it shall pay to the Company an
amount equal to the Company's documented Expenses directly related to this
Agreement and the transactions contemplated hereby if this Agreement is
terminated pursuant to Section 7.1(g).
(e) The Company acknowledges that the agreements contained in
this Section 7.5 are an integral part of the transactions contemplated by this
Agreement, and that, without these agreements, Merger Sub would not enter into
this Agreement; accordingly, if the Company fails to pay promptly the
Termination Amount, and, in order to obtain such payment, Merger Sub commences a
suit which results in a judgment against the Company for the Termination Amount,
the Company shall pay to Merger Sub's Expenses in connection with such suit,
together with interest on the amount of the Termination Amount at the prime rate
of Fleet National Bank in effect on the date such payment was required to be
made.
ARTICLE 8
MISCELLANEOUS
Section 8.1 Certain Definitions. For purposes of this Agreement:
(a) The term "affiliate," as applied to any person, means any
---------
other person directly or indirectly controlling, controlled by, or under common
control with, that person. For the purposes of this definition, "control"
-------
(including, with correlative meanings, the terms "controlling," "controlled by"
----------- -------------
and "under common control with"), as applied to any person, means the
-------------------------
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of that person, whether through the
ownership of voting securities, by contract or otherwise.
(b) The term "business day" means any day, other than Saturday,
------------
Sunday or a federal holiday, and shall consist of the time period from 12:01
a.m. through 12:00 midnight Eastern time. In computing any time period under
this Agreement, the date of the event which begins the running of such time
period shall be included except that if such event occurs on other than a
business day such period shall begin to run on and shall include the first
business day thereafter.
<PAGE>
38
(c) The term "including" means, unless the context clearly
---------
requires otherwise, including but not limited to the things or matters named or
listed after that term.
(d) The term "knowledge," as applied to the Company or the Merger
---------
Sub, means the knowledge of the executive officers of the Company or the Merger
Sub, as the case may be.
(e) The term "person" shall include individuals, corporations,
------
limited and general partnerships, trusts, limited liability companies,
associations, joint ventures, Governmental Entities and other entities and
groups (which term shall include a "group" as such term is defined in Section
13(d)(3) of the Exchange Act).
(f) The term "subsidiary" or "subsidiaries" means, with respect
---------- ------------
to the Merger Sub, the Company or any other person, any entity of which the
Merger Sub, the Company or such other person, as the case may be (either alone
or through or together with any other subsidiary), owns, directly or indirectly,
stock or other equity interests constituting more than 50% of the voting or
economic interest in such entity.
Section 8.2 Non-Survival of Representations, Warranties and
Agreements. The representations, warranties and agreements in this Agreement and
in any certificate delivered under this Agreement shall terminate at the
Effective Time or upon the termination of this Agreement under Section 7.1, as
the case may be, except that the agreements set forth in Articles 1 and 2 and
Sections 5.8 and 5.13 shall survive the Effective Time, those set forth in
Sections 5.6, 7.2 and 7.5 and this Article 8 shall survive termination of this
Agreement and those set forth in Section 5.13 shall survive for a period of one
year after termination of this Agreement. Each party agrees that, except for the
representations and warranties contained in this Agreement and the Company
Disclosure Letter, no party to this Agreement has made any other representations
and warranties, and each party disclaims any other representations and
warranties, made by itself or any of its officers, directors, employees, agents,
financial and legal advisors or other Representatives with respect to the
execution and delivery of this Agreement or the transactions contemplated by
this Agreement, notwithstanding the delivery of disclosure to any other party or
any party's representatives of any documentation or other information with
respect to any one or more of the foregoing.
Section 8.3 Counterparts. This Agreement may be executed in any
number of counterparts, each such counterpart being deemed to be an original
instrument, and all such counterparts shall together constitute the same
agreement.
<PAGE>
39
Section 8.4 Governing Law and Venue; Waiver of Jury Trial.
(a) THIS AGREEMENT SHALL BE DEEMED TO BE MADE IN AND IN ALL
RESPECTS SHALL BE INTERPRETED, CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH
THE LAW OF THE STATE OF NEW YORK WITHOUT REGARD TO THE CONFLICT OF LAW
PRINCIPLES, EXCEPT THAT NEW JERSEY LAW SHALL APPLY TO THE EXTENT REQUIRED IN
CONNECTION WITH THE EFFECTUATION OF THE MERGER. The parties irrevocably submit
to the jurisdiction of the federal courts of the United States of America
located in the State of New York solely in respect of the interpretation and
enforcement of the provisions of this Agreement and of the documents referred to
in this Agreement, and in respect of the transactions contemplated by this
Agreement and by those documents, and hereby waive, and agree not to assert, as
a defense in any action, suit or proceeding for the interpretation or
enforcement of this Agreement or of any such document, that it is not subject to
this Agreement or that such action, suit or proceeding may not be brought or is
not maintainable in said courts or that the venue thereof may not be appropriate
or that this Agreement or any such document may not be enforced in or by such
courts, and the parties hereto irrevocably agree that all claims with respect to
such action or proceeding shall be heard and determined in such a federal court.
The parties hereby consent to and grant any such court jurisdiction over the
person of such parties and over the subject matter of such dispute and agree
that mailing of process or other papers in connection with any such action or
proceeding in the manner provided in Section 8.5 or in such other manner as may
be permitted by law, shall be valid and sufficient service thereof.
(b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH
MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT
ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDI TIONALLY
WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT,
OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND
ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH SUCH PARTY
UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH SUCH
PARTY MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH SUCH PARTY HAS BEEN INDUCED
TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SEC TION 8.4.
<PAGE>
40
Section 8.5 Notices. Any notice, request, instruction or other
document to be given hereunder by any party to the others shall be in writing
and delivered personally or sent by registered or certified mail, postage
prepaid, or by facsimile:
if to Merger Sub:
WM Acquisition, Inc.
c/o Parthenon Capital
200 State Street
Boston, MA 02109
Attention: John Rutherford
Fax: (617) 478-7010
with copies to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: James M. Dubin, Esq.
Fax: (212) 757-3990
and
<PAGE>
41
Chase Capital Partners
380 Madison Avenue
New York, New York 10017
Attention: Christopher C. Behrens
Fax: (212) 622-3755
with copies to:
O'Sullivan, Graev & Karabell
30 Rockefeller Plaza
New York, New York 10112
Attention: William B. Kuesel, Esq.
Fax: (212) 408-2420
if to the Company:
Fred B. Gross
333 Harper Drive
Moorestown, NJ 08057
Attention:
Fax: (856) 533-3104
with copies to:
Morgan, Lewis & Bockius, LLP
502 Carnegie Center
Princeton, New Jersey 08540
Attention: Steven M. Cohen, Esq.
Fax: (609) 919-6639
or to such other persons or addresses as may be designated in writing by the
party to receive such notice as provided above.
Section 8.6 Entire Agreement. This Agreement (including any exhibits
and annexes to this Agreement), the Company Disclosure Letter and the Merger Sub
Disclosure Letter constitute the entire agreement and supersede all other prior
agreements, understandings, representations and warranties, both written and
oral, among the parties, with respect to the subject matter of this Agreement.
Section 8.7 No Third Party Beneficiaries. Except as provided in Sec
tion 5.8 this Agreement is not intended to confer upon any person other than the
parties to this Agreement any rights or remedies under this Agreement.
<PAGE>
42
Section 8.8 Severability. The provisions of this Agreement shall be
deemed severable and the invalidity or unenforceability of any provision shall
not affect the validity or enforceability or the other provisions of this
Agreement. If any provision of this Agreement, or the application of that
provision to any person or any circumstance, is invalid or unenforceable, (a) a
suitable and equitable provision shall be substituted for that provision in
order to carry out, so far as may be valid and enforceable, the intent and
purpose of the invalid or unenforceable provision and (b) the remainder of this
Agreement and the application of the provision to other persons or circumstances
shall not be affected by such invalidity or unenforceability, nor shall such
invalidity or unenforceability affect the validity or enforceability of the
provision, or the application of that provision, in any other jurisdiction.
Section 8.9 Interpretation. The table of contents and headings in
this Agreement are for convenience of reference only, do not constitute part of
this Agreement and shall not be deemed to limit or otherwise affect any of the
provisions of this Agreement. Where a reference in this Agreement is made to a
section, exhibit or annex, that reference shall be to a section of or exhibit or
annex to this Agreement unless otherwise indicated. Wherever the words
"include," "includes" or "including" are used in this Agreement, they shall be
deemed to be followed by the words "without limitation."
Section 8.10 Assignment. This Agreement shall not be assignable by
operation of law or otherwise without the prior written consent of the other
party hereto.
[The remainder of this page has been left intentionally blank]
<PAGE>
43
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officers of the parties to this Agreement as of
the date first written above.
WM ACQUISITION, INC.
By: /s/ Drew Sawyer
---------------------------
Name: Drew Sawyer
Title: Vice President
WILMAR INDUSTRIES, INC.
By: /s/ Fred B. Gross
---------------------------
Name: Fred B. Gross
Title: Vice President
<PAGE>
EXHIBIT A
---------
Terms of Class C Preferred Stock
Liquidation Preference: $.10 per share
- ----------------------
Dividend: Shares pro rata with Common Stock
- -------- --- ----
Voting: On any matter submitted to stockholders, one vote per
- ------ share,voting with Common Stock, except as otherwise
required by the NJBC.
<PAGE>
APPENDIX B
William Blair & Company
Limited Liability Company
December 22, 1999
Special Committee of the Board of Directors
Board of Directors
Wilmar Industries, Inc.
303 Harper Drive
Moorestown, NJ 08057
Gentlemen:
We understand that Wilmar Industries, Inc. (the "Company") and W
Acquisitions, Inc. ("Merger Sub") are proposing to enter into an Agreement and
Plan of Merger (the "Agreement") which will provide, among other things, for the
merger (the "Merger") of Merger Sub with and into the Company. Under the terms
set forth in a draft of the Agreement dated December 22, 1999, at the effective
time of the Merger (the "Effective Time"), each share of common stock, no par
value, of the Company (the "Common Stock") issued and outstanding immediately
prior to the Effective Time (other than Shares owned by Merger Sub shall by
virtue of the Merger and without any action on the part of the holder thereof,
be converted into the right to receive, without interest, an amount in cash
equal to $18.25 (the "Merger Consideration"). The terms and conditions of the
Merger are set out more fully in the Agreement.
You have asked us whether, in our opinion, the Merger Consideration is fair
from a financial point of view and as of the date hereof to the "Holders of
Common Stock". The "Holders of Common Stock" shall be defined as all holders of
Common Stock outstanding as of the date hereof, other than Merger Sub, any
affiliates of Merger Sub, and the Chairman of the Company (the "Chairman").
For purposes of this opinion we have, among other things:
(i) reviewed certain publicly available financial statements and other
business and financial information of the Company;
<PAGE>
2
(ii) reviewed certain internal financial statements and other financial
and operating data concerning the Company prepared by the Company's
management;
(iii) reviewed drafts dated December 17, 1999 of certain financial
forecasts and other forward looking financial information prepared by the
Company's management;
(iv) held discussions with the management of the Company concerning the
business, past and current operations, financial condition and future
prospects of the Company;
(v) reviewed the financial terms and conditions set forth in the draft
of the Agreement furnished to us;
(vi) reviewed the stock price and trading history of Company Common
Stock;
(vii) compared the financial performance of the Company and the prices and
trading activity of Company Common Stock with that of certain other
publicly traded companies comparable with the Company;
(viii) compared the financial terms of the Merger with the financial terms,
to the extent publicly available, of other transactions that we deemed
relevant;
(ix) prepared a discounted cash flow analysis of the Company;
(x) prepared a leveraged acquisition analysis of the Company;
(xi) participated in discussions among representatives of the Company and
its legal advisors; and
(xii) made such other studies and inquiries, and took into account such
other matters, as we deemed relevant, including our assessment of general
economic, market and monetary conditions as of the date hereof.
In our review and analysis, and in arriving at our opinion, we have assumed
and relied upon the accuracy and completeness of all of the financial and other
information provided to us (including information furnished to us orally or
otherwise discussed with us by the Company's management) or publicly available
and have neither attempted to verify, nor assumed responsibility for verifying,
any of such
<PAGE>
3
information. We have relied upon the assurances of the Company's management that
it is not aware of any facts that would make such information inaccurate or
misleading. Furthermore, we did not obtain or make, or assume any responsibility
for obtaining or making, any independent evaluation or appraisal of the
properties, assets or liabilities (contingent or otherwise) of the Company, nor
were we furnished with any such evaluation or appraisal. With respect to the
financial forecasts and projections (and the assumptions and bases therefore)
for the Company that we have reviewed, upon the advice of the Company's
management, we have assumed that such forecasts and projections have been
reasonably prepared in good faith on the basis of reasonable assumptions and
reflect the best currently available estimates and judgments of management as to
the future financial condition and performance of the Company, and we have
further assumed that such projections and forecasts will be realized in the
amounts and in the time periods currently estimated. We have assumed that the
Merger will be consummated upon the terms set forth in the Agreement without
material alteration thereof. In addition, we have assumed that the historical
financial statements of the Company reviewed by us have been prepared and fairly
presented in accordance with U.S. generally accepted accounting principles
consistently applied. We have relied as to all legal matters relevant to
rendering our opinion on the advice of counsel.
This opinion is necessarily based upon market, economic and other
conditions as in effect on, and information made available to us as of, the date
hereof. It should be understood that subsequent developments may affect the
conclusion expressed in this opinion and that we disclaim any undertaking or
obligation to advise any person of any change in any matter affecting this
opinion which may come or be brought to our attention after the date of this
opinion. Our opinion is limited to the fairness, from a financial point of view
and as to the date hereof, of the Merger Consideration to the Holders of Common
Stock. We do not express any opinion as to (i) the value of any employee
agreement or other arrangement entered into in connection with the Merger or
(ii) any tax or other consequences that might result from the Merger. Our
opinion does not address the relative merits of the Merger and the other
business strategies that the Company's Board of Directors or the Special
Committee thereof has considered or may be considering, nor does it address the
decision of the Company's Board of Directors or the Special Committee thereof to
proceed with the Merger.
In connection with the preparation of our opinion, we were requested to
approach, and held discussions with certain third parties to solicit indications
of interest in a possible business combination with the Company.
William Blair & Company is nationally recognized investment banking firm
that
<PAGE>
4
has been engaged in the investment banking business since 1935. We continually
undertake the valuation of investment securities in connection with public
offerings, private placements, business combinations, estate and gift tax
valuations and similar transactions. We have acted as the investment banker to
the Company in connection with the Merger and will receive a fee from the
Company for our services, a significant portion of which is contingent upon
consummation of the Merger. In addition, the Company has agreed to indemnify us
for certain liabilities that may arise out of the rendering of this opinion.
In the past, we have provided certain investment banking services to the
Company for which we have been paid fees, including acting as co-managing
underwriter for two offerings of the Company's securities and providing advice
with respect to certain acquisitions. We maintain a market in the shares of
Company Common Stock. In the ordinary course of business, we may trade in the
Company's securities for our own account and the account of our customers and,
accordingly, may at any time hold a long or short position in the Company's
securities.
Our opinion expressed herein is provided for the information of the Board
of Directors of the Company and the Special Committee thereof in connection with
its evaluation of the Merger. Our opinion is not intended to be and does not
constitute a recommendation to any stockholder of the Company as to how such
stockholder should vote, or take any other action, with respect to the Merger.
This opinion may not be summarized, described or referred to or furnished to any
party except with our express prior written consent.
Based upon and subject to the foregoing considerations, it is our opinion
that, as of the date hereof, the Merger Consideration is fair to the Holders of
Common Stock, from a financial point of view.
Very truly yours,
/s/ William Blair & Company, L.L.C.
----------------------------------
WILLIAM BLAIR & COMPANY, L.L.C.
<PAGE>
APPENDIX C
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
<PAGE>
2
"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 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
-----
<PAGE>
3
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.
<PAGE>
4
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 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
<PAGE>
5
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 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
<PAGE>
6
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 an 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
<PAGE>
7
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 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
<PAGE>
8
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.
IN WITNESS WHEREOF, the Stockholder and Merger Sub have caused this
Agreement to be duly executed on the date hereof.
WM ACQUISITION, INC.
<PAGE>
9
By: /s/ Drew Sawyer
-----------------------------
Name: Drew Sawyer
Title: Vice President
/s/ William Green Number of Shares: 2,013,536
- -------------------------------
William Green
<PAGE>
WILMAR INDUSTRIES, INC.
303 HARPER DRIVE
MOORESTOWN, NEW JERSEY 08057
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints William E. Sanford proxy to vote, as
indicated below and in his discretion upon such other matters as may properly
come before the meeting, all shares which the undersigned would be entitled to
vote at the Special Meeting of the Shareholders of the Company to be held on
________, 2000, at 8:30 a.m., local time, and at any adjournment or postponement
thereof.
To consider and vote on a proposal to approve and adopt an Agreement and
Plan of Merger and Recapitalization, dated December 22, 1999, by and
between Wilmar Industries, Inc. and WM Acquisition, Inc.
[_] FOR [_] AGAINST [_] ABSTAIN
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. THIS PROXY
ALSO DELEGATES DISCRETIONARY AUTHORITY WITH RESPECT TO ANY OTHER BUSINESS WHICH
MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT OR POSTPONEMENT THEREOF
AND MATTERS INCIDENT TO THE CONDUCT OF THE SPECIAL MEETING.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL
MEETING AND PROXY STATEMENT.
PLEASE SIGN, PRINT YOUR NAME AND DATE THIS PROXY BELOW
Date: , 2000
____________________________________
(SIGNATURE)
____________________________________
(PRINT NAME)
WHEN SIGNING AS ATTORNEY, EXECUTOR,
ADMINISTRATOR, GUARDIAN OR CORPORATE
OFFICIAL, PLEASE GIVE FULL TITLE.
