-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ON+4QlsoRSdnXxZMDl48tasW33DQqX3JYCzB/Ni9NtWohv6WSfm8okCpRaRQ+dgW uPn70bwLozJrOpma3mi3tQ== 0000950109-96-004344.txt : 19960711 0000950109-96-004344.hdr.sgml : 19960711 ACCESSION NUMBER: 0000950109-96-004344 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 12 FILED AS OF DATE: 19960710 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: WILMAR INDUSTRIES INC CENTRAL INDEX KEY: 0001003956 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-HARDWARE & PLUMBING & HEATING EQUIPMENT & SUPPLIES [5070] IRS NUMBER: 222232386 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-07845 FILM NUMBER: 96592633 BUSINESS ADDRESS: STREET 1: 303 HARPER DR CITY: MOORESTOWN STATE: NJ ZIP: 08057 BUSINESS PHONE: 6094391222 S-1 1 FORM S-1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 10, 1996 REGISTRATION NO. 333- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 --------------- FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 WILMAR INDUSTRIES, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) --------------- NEW JERSEY 5074 22-2232386 (STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.) INCORPORATION OR CLASSIFICATION NO.) ORGANIZATION) --------------- 303 HARPER DRIVE MOORESTOWN, NJ 08057 (609) 439-1222 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) --------------- WILLIAM S. GREEN CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER WILMAR INDUSTRIES, INC. 303 HARPER DRIVE MOORESTOWN, NJ 08057 (609) 439-1222 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) --------------- COPIES OF ALL COMMUNICATIONS TO: STEPHEN M. GOODMAN RICHARD C. TILGHMAN, JR. JAMES W. MCKENZIE, JR. PIPER & MARBURY L.L.P. MORGAN, LEWIS & BOCKIUS LLP 36 SOUTH CHARLES STREET 2000 ONE LOGAN SQUARE BALTIMORE, MD 21201 PHILADELPHIA, PA 19103-6993 (410) 539-2530 (215) 963-5000 APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [_] If this Form is filed to register additional securities for an offering pursuant to Rule 426(b) under the Securities Act, check the following box and list the Securities Act registration statement number of earlier effective registration statement the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [_] CALCULATION OF REGISTRATION FEE - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
PROPOSED PROPOSED MAXIMUM TITLE OF EACH CLASS OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF SECURITIES TO BE TO BE OFFERING PRICE OFFERING REGISTRATION REGISTERED REGISTERED(1) PER UNIT(2) PRICE(2) FEE - --------------------------------------------------------------------------------- Common Stock, without par value............. 4,335,500 shares $21.50 $93,213,250 $32,143
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- (1) Includes 565,500 shares which the Underwriters have the option to purchase to cover over-allotments, if any. (2) Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457 under the Securities Act of 1933. --------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- WILMAR INDUSTRIES, INC. CROSS-REFERENCE SHEET PURSUANT TO ITEM 501(B) OF REGULATION S-K
ITEM NUMBER IN FORM S-1 LOCATION OR HEADING IN PROSPECTUS ----------- --------------------------------- 1.Forepart of the Registration Statement and Outside Front Cover Page of Prospectus............................ Outside front cover page of Prospectus 2.Inside Front and Outside Back Cover Pages of Prospectus................... Inside front cover page of Prospectus; Outside back cover page of Prospectus 3.Summary Information, Risk Factors and Ratio of Earnings to Fixed Charges.... Prospectus Summary; Risk Factors 4.Use of Proceeds......................... Prospectus Summary; Use of Proceeds 5.Determination of Offering Price......... Outside Front Cover Page of Prospectus; Underwriting 6.Dilution................................ Not Applicable 7.Selling Security Holders................ Principal and Selling Shareholders 8.Plan of Distribution.................... Outside Front Cover of Prospectus; Underwriting 9.Description of Securities to be Registered............................ Outside Front Cover Page of Prospectus; Prior S Corporation Status and Dividend Policy; Description of Capital Stock 10.Interests of Named Experts and Counsel.. Legal Matters; Experts 11.Information with Respect to the Registrant a.Description of Business............... Prospectus Summary; The Company; Business b.Description of Property............... Business c.Legal Proceedings..................... Business d.Market Price of and Dividends on the Registrant's Common Equity and Related Shareholders Matters....... Outside Front Cover of Prospectus; Prior S Corporation Status and Dividend Policy; Management; Principal and Selling Shareholders; Description of Capital Stock e.Financial Statements.................. Financial Statements f.Selected Financial Data............... Selected Financial Data g.Supplementary Financial Information... Not Applicable h.Management's Discussion and Analysis of Financial Condition and Results of Operations...................... Management's Discussion and Analysis of Financial Condition and Results of Operations i.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............... Not Applicable j.Directors, Executive Officers and Control Persons.................... Management k.Executive Compensation................ Management l.Security Ownership of Certain Beneficial Owners and Management... Principal and Selling Shareholders m.Certain Relationships and Related Transactions....................... Management; Certain Transactions 12.Disclosure of Commission Position on Indemnification for Securities Act Liabilities........................... Not Applicable
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A + +REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE + +SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY + +OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT + +BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR + +THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE + +SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE + +UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF + +ANY SUCH STATE. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION JULY 9, 1996 3,770,000 Shares [LOGO OF WILMAR APPEARS HERE] Common Stock ----------- Of the 3,770,000 shares of Common Stock (the "Common Stock") of Wilmar Industries, Inc. ("Wilmar" or the "Company") offered hereby, 2,000,000 shares are being sold by the Company and 1,770,000 shares are being sold by certain shareholders of the Company (the "Selling Shareholders"). See "Principal and Selling Shareholders." The Company will not receive any of the proceeds from the sale of the shares by the Selling Shareholders. The Common Stock is traded on The Nasdaq Stock Market under the symbol "WLMR." On July 8, 1996, the last reported sale price of the Common Stock on The Nasdaq National Market was $21.50 per share. See "Price Range of Common Stock." ----------- THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.SEE "RISK FACTORS" BEGINNING ON PAGE 7. ----------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
PRICE UNDERWRITING PROCEEDS PROCEEDS TO DISCOUNTS AND TO TO SELLING PUBLIC COMMISSIONS COMPANY(1) SHAREHOLDERS - -------------------------------------------------------------------------------- Per Share......................... $ $ $ $ - -------------------------------------------------------------------------------- Total(2).......................... $ $ $ $
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (1) Before deducting expenses payable by the Company of the offering estimated at $ . (2) The Company has granted the Underwriters a 30-day option to purchase up to an additional 565,500 shares of Common Stock solely to cover over- allotments, if any. To the extent that the option is exercised, the Underwriters will offer the additional shares at the Price to Public shown above. If the option is exercised in full, the total Price to Public, Underwriting Discounts and Commissions and Proceeds to Company will be $ , $ and $ , respectively. See "Underwriting." ----------- The shares of Common Stock are offered by the several Underwriters, subject to prior sale, when, as and if delivered to and accepted by them, and subject to the right of the Underwriters to reject any order in whole or in part. It is expected that delivery of the shares of Common Stock will be made at the offices of Alex. Brown & Sons Incorporated, Baltimore, Maryland, on or about , 1996. Alex. Brown & Sons INCORPORATED William Blair & Company Robertson, Stephens & Company PaineWebber Incorporated THE DATE OF THIS PROSPECTUS IS , 1996. [MAP OF WILMAR DISTRIBUTION CENTERS AND MARKETS SERVED] ---------------- IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE OVER-THE- COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP MEMBERS, IF ANY, MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET, IN ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED ("THE EXCHANGE ACT"). SEE "UNDERWRITING." 2 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and financial statements and the notes thereto appearing elsewhere in this Prospectus. Except as otherwise specified, all information in this Prospectus assumes no exercise of the Underwriters' over-allotment option. This Prospectus contains forward-looking statements which contain risks and uncertainties. Discussions containing such forward-looking statements may be found in the information set forth under the captions "Risk Factors," "Use of Proceeds," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Market Overview" and "Business" as well as in the Prospectus generally. Actual events or results may differ materially from those discussed in the forward-looking statements as a result of various factors, including without limitation the risk factors set forth below and the matters set forth in the Prospectus generally. THE COMPANY Wilmar is a rapidly growing national marketer and direct distributor of repair and maintenance products, principally to the apartment housing market. Through its 1,000+ page Wilmar Master Catalog, the Company has become a "one- stop shopping" resource for maintenance managers by offering the industry's most extensive selection of over 15,000 standard and specialty plumbing, hardware, electrical, janitorial and related products. By purchasing directly from domestic and foreign manufacturers in relatively large volumes, Wilmar is able to offer customers competitive prices on both name brand and private label products. The Company seeks to win new accounts and increase sales to existing accounts through a 112-person direct sales force, six full-time outbound telesales representatives, a national accounts sales program, and monthly direct mail flyers. Customer service representatives located at Wilmar's centralized call center use the Company's proprietary software applications to quickly process orders and answer customer inquiries. The Company provides free, next-day delivery in local markets served by its distribution centers and ships by parcel delivery services to other areas. Since 1991, Wilmar has expanded from four distribution centers located in Philadelphia, Washington, D.C., Houston and Indianapolis to 15 distribution centers located throughout the United States. From 1991 to 1995, the Company's net sales increased at a compound annual rate of 35.3%. Since November 1995, Wilmar has acquired four regional repair and maintenance supply companies with total annualized net sales of approximately $40 million. Based on published industry data, the Company estimates that average annual expenditures on repair and maintenance products by the apartment housing market exceed $2.0 billion. This market is highly fragmented, with repair and maintenance products sold through a variety of channels, including (i) numerous local or regional broad-line suppliers that market their products using a direct sales force and catalog, (ii) mail order catalog companies, (iii) retail stores, (iv) specialty suppliers that focus on a single product category (such as plumbing or electrical supplies), and (v) industrial suppliers that focus primarily on other product categories and end markets but include a limited number of repair and maintenance products in their catalogs. Wilmar believes that it is the only national, broad-line supplier offering next-day delivery of an extensive selection of repair and maintenance products to its targeted markets through a direct sales force and catalog. The Company believes it has gained market share due to the advantages of its distinctive business model. The Wilmar Master Catalog, which offers the industry's most extensive product selection at competitive prices in an easy- to-use format, enables customers to consolidate purchases with a single vendor. Wilmar's experienced and knowledgeable sales force provides technical product advice, shop organization assistance and additional customer services not generally available from mail order catalogs, retail stores or specialty suppliers. Wilmar's high in-stock position and growing network of distribution 3 centers permit reliable, next-day delivery to an increasing number of markets in the United States, allowing maintenance managers to reduce on-hand inventory and save time otherwise spent shopping for supplies. The Company believes that the apartment housing market is consolidating and, as the Company adds distribution centers throughout the United States, it will be well-positioned to develop additional regional and national relationships with large property management companies that are increasingly directing their maintenance managers to purchase from preferred or authorized vendors. Wilmar utilizes multiple marketing strategies to establish and solidify customer relationships. The Company provides an updated edition of the Wilmar Master Catalog to its customers twice yearly and, on a monthly basis, sends direct mail flyers to both existing and prospective customers. Senior executives and regional sales managers call on large property management companies to establish national or regional relationships, while the Company's direct sales force calls on local maintenance and property managers in 59 markets, including the 14 markets with a Wilmar distribution center. In other targeted markets not currently served by local sales representatives, Wilmar relies upon outbound telesales representatives to solicit new accounts and service existing customers. The Company believes it garners a greater percentage of its customers' overall spending on repair and maintenance supplies in markets that are served by local Wilmar sales representatives, particularly where the local sales representatives are supported by a nearby distribution center, enabling free, next-day delivery of the Company's entire product line. The key elements of the Company's strategy to increase sales to the apartment housing market are to (i) increase the direct sales force to win new accounts in new and existing markets and to better serve accounts currently supported by telesales, (ii) open new distribution centers and increase line-hauling to expand the geographic range of the Company's next-day delivery capability, particularly of larger items, (iii) increase the use of direct mail flyers and expand the outbound telesales force to win new customers, and (iv) continue to seek the acquisition of local and regional competitors. The Company believes that it can also expand its sales to other end markets that have customer demands and distribution channels similar to those in the apartment housing market. These end markets include hotels and motels, nursing homes, hospitals, prisons, military bases, schools and universities. As in the apartment housing market, on-site maintenance managers in these end markets typically manage large repair and maintenance budgets and need a broad array of products delivered quickly at competitive prices. In 1995, the Company added 3,000 stock keeping units ("SKUs") to its Wilmar Master Catalog and initiated sales efforts to address these new markets. Wilmar's principal executive office is located at 303 Harper Drive, Moorestown, New Jersey 08057, and its telephone number is 609-439-1222. RECENT DEVELOPMENTS On July 8, 1996, the Company acquired all of the stock of HMA Enterprises, Inc. ("HMA"), a leading supplier of repair and maintenance products to the apartment housing market in Texas ("HMA Acquisition"), for a base purchase price of approximately $6.0 million in cash (including $1.5 million to repay HMA's outstanding bank debt) and $1.6 million in the Company's Common Stock (67,615 shares). The Company has placed $500,000 of the cash portion of the purchase price in escrow to secure any indemnification claims by the Company and any reduction in shareholder's equity between February 28, 1996 and June 30, 1996. In addition, the Company agreed to pay up to an additional $750,000 if HMA achieves specified revenue and EBIT targets between July 1, 1996 and June 30, 1997 (the "Measurement Period"). To facilitate an orderly transition to Wilmar's business model, the Company intends for HMA to operate independently during the Measurement Period (except for product procurement and certain centralized functions such as financial and accounting support, insurance and legal support). Following 4 the Measurement Period, the Company intends to fully implement its business model at HMA. HMA had net sales of approximately $24.8 million for the 12 months ended February 29, 1996 from distribution centers in Dallas, Houston and San Antonio, Texas. The Company used $3.5 million of available cash and borrowed $2.5 million under its bank line of credit to finance the acquisition. See "Unaudited Pro Forma Combined Financial Data" and HMA's Financial Statements included elsewhere in this Prospectus. In May 1996, the Company acquired all of the outstanding stock of Mile High Maintenance Supply, Inc. ("Mile High"), for a purchase price of approximately $1.5 million in cash, with up to an additional $250,000 payable if a specified revenue target is met. Mile High had net sales of $4.1 million for the twelve months ended December 31, 1995. The Mile High warehouse, serving the Colorado market, became Wilmar's eleventh distribution center. Also in May 1996, the Company acquired the assets of Sun Valley Maintenance Supply, Inc. ("Sun Valley"), for a purchase price of approximately $250,000 in cash. Sun Valley had net sales of $954,000 for the twelve months ended December 31, 1995. The Sun Valley warehouse, serving the Las Vegas, Nevada and Phoenix, Arizona markets, became Wilmar's twelfth distribution center. The Company's net sales were approximately $40.7 million for the six months ended June 28, 1996, compared to approximately $28.1 million for the six months ended June 30, 1995. THE OFFERING Common Stock Offered By: The Company.................. 2,000,000 shares The Selling Shareholders..... 1,770,000 shares ---------------- Total...................... 3,770,000 shares Common Stock to be outstanding after the offering(1)......... 12,442,160 Use of proceeds................ To repay indebtedness and for working capital, including possible acquisitions Nasdaq National Market symbol.. WLMR
- -------- (1) Excludes (i) 280,000 shares of Common Stock reserved for issuance upon exercise of outstanding options granted between March and September 1995 with an exercise price of $4.23 per share, (ii) 100,000 shares of Common Stock reserved for issuance upon exercise of outstanding options granted upon the consummation of the initial public offering with an exercise price of $11.00 per share and (iii) 420,000 shares reserved for future option grants under the Company's 1995 Stock Option Plan. See "Management-- Employee Benefit Plans." 5 SUMMARY FINANCIAL AND OPERATING DATA (IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
THREE MONTH FISCAL YEAR(1) PERIOD(2) --------------------------------------- ------------------- 1991 1992 1993 1994 1995 1995(3) 1996 ------- ------- ------- ------- ------- ------- ------- STATEMENT OF OPERATIONS DATA: Net sales............. $18,132 $24,517 $35,640 $47,679 $60,823 $13,458 $19,309 Operating income...... 619 1,063 1,649 4,929 5,904 1,171 1,707 Income before income taxes................ 574 1,014 1,476 4,640 4,740 970 1,626 Pro forma data(4): Income tax provision.......... 229 403 586 1,860 1,896 389 666 Net income.......... 345 611 890 2,780 2,844 581 960 Net income per common share....... $ 0.31 $ 0.36 $ 0.07 $ 0.10 Weighted average common shares outstanding(5)..... 9,071 7,937 8,596 9,946 OPERATING DATA (AT PE- RIOD END): Distribution centers(6)........... 4 5 6 7 10 7 10 Active customers(7)... 4,900 7,200 10,900 14,000 18,500 14,600 20,300 Total customer list... 8,200 13,200 19,400 27,700 39,800 29,800 42,500
MARCH 29, 1996 --------------------------- PRO FORMA(8) AS ADJUSTED(9) ------------ -------------- BALANCE SHEET DATA: Working capital................................... $19,874 $60,158 Total assets...................................... 40,749 78,523 Total debt........................................ 2,567 -- Total stockholders' equity........................ 26,515 66,865
- -------- (1) The Company's fiscal year is based on a 52/53 week fiscal period ending on the last Friday in December. Fiscal 1993 was a 53 week year while all other fiscal years presented consist of 52 weeks. (2) The three month periods ended on March 31, 1995 and March 29, 1996. (3) In March 1995, the Company was recapitalized (the "1995 Recapitalization") and, in connection therewith, incurred significant debt and issued dividend bearing, mandatorily redeemable preferred stock. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Overview" and "Certain Transactions." (4) Prior to March 1, 1995, the Company elected to be taxed as an S Corporation for federal (and certain state) income tax purposes. Pro forma information has been computed as if the Company had been subject to federal income taxes and all applicable state corporate income taxes for each period presented. The income tax provision and net income for the three month period ended March 29, 1996 are actual amounts because the Company was taxed as a C Corporation during the entire period. (5) See Note 3 of Notes to Consolidated Financial Statements for a description of the determination of weighted average common shares outstanding. (6) Subsequent to March 29, 1996, the Company acquired five distribution centers as part of the Mile High, Sun Valley and HMA acquisitions. (7) Number of customers that have purchased products from the Company within the 12 months preceding the relevant period end. (8) Pro forma to reflect the HMA Acquisition as if it had occurred on March 29, 1996. (9) Pro forma further adjusted to reflect the sale of the 2,000,000 shares of Common Stock offered by the Company hereby (at an assumed offering price of $21.50 per share) and application of the estimated net proceeds therefrom. See "Use of Proceeds." 6 RISK FACTORS In addition to the other information contained elsewhere in this Prospectus, the following risk factors should be considered carefully in evaluating an investment in the shares of Common Stock offered by this Prospectus. Integration of HMA Acquisition; Additional Acquisitions. Prior to November 1995, the Company had never made an acquisition. Since that time, the Company has made four acquisitions, two of which, One Source Supply, Inc. ("One Source") and HMA, were substantial in size. Wilmar is restricted in its ability to integrate HMA's operations with Wilmar's operations during the Measurement Period and HMA will be operated by its current management during that time. There can be no assurance that HMA's business or the other acquired businesses can be successfully integrated into Wilmar's or that Wilmar's management will be successful in managing the combined operations. The separate operating results of the Company, One Source and HMA and their pro forma combined operating results may not be indicative of actual future operating results of the combined entity. Also, there is a risk in any acquisition that customers of the acquired company will not continue to do business with the successor company following the acquisition. See "Unaudited Pro Forma Combined Financial Data," "Business," the Company's Financial Statements and HMA's Financial Statements. An important element of the Company's growth strategy is to continue to seek additional acquisitions of businesses that would expand the Company's operations in new geographic regions, complement the Company's existing business or enable the Company to accelerate its entry into new end markets. There can be no assurance that Wilmar will be able to identify attractive acquisition candidates or complete the acquisition of any identified candidates, or that any acquired businesses can be successfully integrated into Wilmar's business. A substantial portion of the Company's capital resources, including a portion of the net proceeds of this offering, will be necessary to finance such acquisitions, and the Company may require additional debt or equity financing for future acquisitions which may not be available on terms favorable to the Company, if at all. See "Business--Business Strategy." Possible Inability to Manage Growth. The Company intends to grow its business in large part by expanding into new geographic regions. When entering new markets, the Company will be required to establish or acquire suitable distribution centers or line-hauling, hire personnel and establish distribution methods. To manage its expansion, the Company must continuously evaluate the adequacy of its existing systems and procedures, including, among others, its data processing, financial and internal control systems and management structure. There can be no assurance that management will adequately anticipate all of the changing demands that growth will impose on the Company's systems, procedures and structure. Any failure to adequately anticipate and respond to such changing demands is likely to have a materially adverse effect on the Company. See "Business--Business Strategy." Dependence on Systems. The Company's operations in each of its distribution centers and its customer service and order-taking operations in its headquarters are dependent on a single integrated computer system located at the Company's headquarters in New Jersey. Each distribution center has a continuous on-line connection to the Company's main computer in order to fill and ship customer orders on a same-day basis. The Company also relies on its computer system for inventory management and replenishment. Any significant disruption or unavailability of the system for any significant time period would have a materially adverse effect on the Company's business and results of operations. Any disruption in telephone service to the Company's primary call center at its New Jersey headquarters could result in the Company being unable to accept orders. Although the Company has taken precautions to protect itself from events that could interrupt its operations, including off-site storage of back-up data, fire protection, physical security systems and an early warning fire detection system, there can be no assurance that a sustained electrical or communications link outage, fire, flood or other natural disaster would not disable the system or prevent the system from communicating with the regional distribution centers. See "Business-- Management Information Systems." 7 Substantial Competition. The Company competes with broad-line suppliers, most of which are local or regional and many of which employ sales representatives and feature catalogs similar to the Company's. The Company also competes with mail order catalogs, retail stores including superstores, specialty suppliers and industrial suppliers. Some of the Company's competitors have greater financial resources than the Company. There can be no assurance that additional competitors with greater resources than the Company will not enter the industry. See "Business--Competition." Possible Inability to Penetrate New End Markets. An element of the Company's growth strategy is to expand its business by offering its repair and maintenance products to other end markets. The Company only recently began to focus on marketing products to these end markets, and sales to customers in these markets represented approximately 1.5% of the Company's net sales for fiscal 1995. There can be no assurance that the Company can successfully penetrate these new end markets to an extent comparable to its penetration of the apartment housing market, and failure to do so could cause the Company's actual revenue growth or profit margins to be less than management's expectations. See "Business--Business Strategy." Sources of Supply. As is customary in its industry, the Company does not have long-term contracts with any of its vendors. Although the Company believes it has access to similar products from competing vendors, any disruption in the Company's sources of supply, particularly of the most commonly sold items, could have a materially adverse effect upon the Company's operations and profitability. In addition, the Company is subject to the risks of obtaining products abroad, including adverse fluctuations in currency exchange rates, increases in import duties, decreases in quotas, increased customs regulations and political turmoil. The occurrence of any one or more of the foregoing could adversely affect the Company's results of operations. In fiscal 1993, 1994 and 1995, 11.0%, 16.2% and 16.5%, respectively, of the Company's net sales were from products manufactured by vendors outside the U.S. See "Business--Products and Merchandising." Customer Concentration. A significant number of the Company's customers are apartment complexes managed by two national property management companies that have designated Wilmar as a preferred vendor. Sales to properties managed by these two companies represented 13.0% of the Company's net sales for fiscal 1995. One of these property management companies also owns and manages Buyers Access, a group purchasing organization ("GPO"), through which member companies purchase products from designated vendors at discount prices. Sales to members of the Buyers Access GPO, other than properties managed by the company that owns Buyers Access, represented an additional 15.3% of the Company's net sales for fiscal 1995. If these property management companies were to eliminate Wilmar as a preferred vendor or if Wilmar were eliminated from the Buyers Access GPO, the Company may lose sales to individual properties managed by these two property management companies or to other members of Buyers Access. See "Business--Sales and Marketing." Reliance on Management. The continued success of the Company will depend to a significant extent upon the efforts and abilities of senior management and key employees, in particular those of William Green, its Chairman, President, Chief Executive Officer and co-founder. The operations of the Company could be affected adversely if for any reason Mr. Green or other executive officers or key employees should no longer remain active in the Company's management. The Company has an employment contract with Mr. Green and currently maintains $2.0 million of key-man life insurance on him. Also, there can be no assurance that the Company will be able to attract and retain the additional qualified management and other personnel it will need to expand. See "Management." Control of the Company by Principal Shareholders. After completion of this offering, William Green will own beneficially 19.5% of the outstanding Common Stock, and Summit Ventures III, L.P., Summit Investors II, L.P. and Summit Subordinated Debt Fund, L.P. (collectively, the "Summit Investors") collectively will own beneficially approximately 12.7% of the outstanding Common Stock. As a result, Mr. Green and the Summit Investors may have the ability effectively to control the election of the Company's 8 directors and the outcome of any other matter submitted to the shareholders for approval, including any amendment to the Company's Certificate of Incorporation or a merger, consolidation or sale of substantially all of the Company's assets. See "Principal and Selling Shareholders" and "Description of Capital Stock." Effects of Recapitalization. As a result of the 1995 Recapitalization, the Company's interest expense increased significantly and it became obligated to accrue dividends on the mandatorily redeemable preferred stock. As a result, the Company reported lower net income for fiscal 1995 than for fiscal 1994. See "Prior S Corporation Status and Dividend Policy," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Certain Transactions--Summit Financing and 1995 Recapitalization." Shares Eligible for Future Sale; Registration Rights. Sales of a significant number of shares of Common Stock in the market following this offering could adversely affect the market price of the Common Stock and make it more difficult for the Company to sell equity securities in the future at a time and price it deems appropriate. Upon completion of this offering, the Company will have 12,442,160 shares of Common Stock outstanding. Of these shares, the 4,600,000 shares issued in the initial public offering are, and the 3,770,000 shares offered hereby (4,335,500 shares if the Underwriters' over-allotment option is exercised in full) will be, eligible for immediate sale in the public market without restriction unless acquired by affiliates of the Company. The Company, its officers, directors and existing shareholders have agreed not to sell, or otherwise dispose of, directly or indirectly, any of their shares for a period of 90 days after the date of this Prospectus without the prior written consent of Alex. Brown & Sons Incorporated. All of the 2,424,545 outstanding shares of Common Stock Mr. Green will own after this offering have been beneficially owned for more than two years and, therefore, are eligible for resale in the public market, subject to this 90-day lock-up agreement and the volume and other restrictions contained in Rule 144 ("Rule 144") promulgated by the Securities and Exchange Commission (the "SEC"). All the 1,580,000 outstanding shares of Common Stock the Summit Investors will own after this offering have been beneficially owned since March 9, 1995 and therefore, will be eligible for resale in the public market, subject to the 90-day lock-up agreement and the volume and other restrictions contained in Rule 144 on March 9, 1997 (or sooner if the SEC's proposed amendments to Rule 144 become effective). See "Description of Capital Stock--Registration Rights Agreement" and "Shares Eligible for Future Sale." Antitakeover Considerations. The Company's Certificate of Incorporation and By-laws contain certain provisions that may have the effect of substantially deterring a future takeover of the Company. These provisions vest more power in the Company's Board of Directors with respect to takeovers of the Company than applicable state anti-takeover laws, and are designed to encourage a potential acquiror to enter into negotiations with the Company's Board of Directors. See "Description of Capital Stock." 9 USE OF PROCEEDS The net proceeds to the Company from the offering of the 2,000,000 shares of Common Stock being offered by the Company are estimated to be $40.4 million ($51.9 million if the Underwriters' over-allotment option is exercised in full), at an assumed public offering price of $21.50 per share, after deducting estimated offering expenses and underwriting discounts and commissions. Of the net proceeds, $2.5 million will be used to repay bank debt used to finance a portion of the HMA Acquisition and the balance of the net proceeds will be used for general working capital purposes and possible acquisitions of companies engaged in the supply of repair and maintenance products. Although the Company regularly evaluates possible acquisition opportunities, it is not currently engaged in any negotiations regarding any material acquisition and is not a party to any letter of intent or other agreement regarding any material acquisition. Pending such uses, the Company intends to invest the net proceeds of this offering in investment grade, short-term, interest-bearing securities. The Company will receive no proceeds from the sale of shares offered by the Selling Shareholders hereby. PRIOR S CORPORATION STATUS AND DIVIDEND POLICY For all taxable periods prior to March 1, 1995, the Company was a corporation subject to taxation under Subchapter S of the Internal Revenue Code of 1986, as amended (the "Code"). As a result, prior to March 1, 1995, the taxable income of the Company was taxed, for Federal and some state income tax purposes, directly to the Company's shareholders rather than to the Company. Upon termination of its S Corporation status on March 1, 1995, the Company became subject to federal income taxes and certain additional state income taxes and, in connection therewith, recorded a deferred tax asset of approximately $230,000 in accordance with FAS 109. William Green, the Company's sole shareholder immediately prior to March 1, 1995, included in his taxable income for 1995 approximately $500,000, which constituted the Company's taxable income for the period January 1, 1995 through February 28, 1995. Although the Company regularly made cash distributions in the form of bonuses and dividends to its shareholders when it was an S Corporation to enable those shareholders to meet their tax obligations, the Company intends to retain earnings to finance future operations and expansion and does not expect to pay any dividends in the foreseeable future. Any future payment of cash dividends will depend upon the financial condition, capital requirements and earnings of the Company, as well as upon other factors that the Board of Directors may deem relevant. 10 PRICE RANGE OF COMMON STOCK The Company completed its initial public offering on January 24, 1996 at $11.00 per share. Beginning on that date, the Company's Common Stock has traded on the Nasdaq National Market under the symbol "WLMR." The following table sets forth the high and low closing sale prices per share for the Common Stock, for the periods indicated, as reported by Nasdaq.
HIGH LOW ------- ------- 1996 First Quarter (from January 24, 1996)..................... $22 1/2 $15 3/4 Second Quarter............................................ 27 3/4 19 5/8 Third Quarter (through July 8, 1996)..................... 25 3/4 21 1/2
CAPITALIZATION The following table sets forth as of March 29, 1996 the short-term debt, long-term debt and capitalization of the Company: (i) actual, (ii) pro forma to reflect the HMA Acquisition and (iii) pro forma further adjusted to reflect the application of the net proceeds from the sale of the 2,000,000 shares of Common Stock offered hereby by the Company pursuant to this offering:
MARCH 29, 1996 --------------------------------- PRO FORMA FOR HMA PRO FORMA ACTUAL ACQUISITION AS ADJUSTED -------- ----------- ----------- (IN THOUSANDS) Total short-term debt........................ $ -- $ 2,501 $ -- ======== ======== ======= Total long-term debt......................... $ -- $ 66 $ -- -------- -------- ------- Stockholders' equity: Preferred Stock, $0.01 par value, 5,000,000 shares authorized, no shares issued and outstanding, actual, pro forma for HMA Acquisition or pro forma as adjusted...... -- -- -- Common Stock, no par value, 50,000,000 shares authorized, 10,374,545 shares issued and outstanding, actual, 10,442,160 shares pro forma for HMA Acquisition and 12,442,160 shares pro forma as adjusted (1)....................................... 51,289 52,897 93,247 Retained earnings (accumulated deficit).... (26,382) (26,382) (26,382) -------- -------- ------- Total stockholders' equity............... 24,907 26,515 66,865 -------- -------- ------- Total capitalization................... $ 24,907 $ 26,581 $66,865 ======== ======== =======
- -------- (1) Excludes (i) 280,000 shares of Common Stock reserved for issuance upon exercise of options outstanding with an exercise price of $4.23 per share, (ii) 100,000 shares of Common Stock reserved for issuance upon exercise of options outstanding within exercise price of $11.00 per share and (iii) 420,000 shares reserved for future option grants under the Company's 1995 Stock Option Plan. See "Management--Employee Benefit Plans." 11 UNAUDITED PRO FORMA COMBINED FINANCIAL DATA The following unaudited pro forma combined balance sheet gives effect to (i) the HMA Acquisition and (ii) the sale of the 2,000,000 shares of Common Stock offered hereby by the Company and application of the estimated net proceeds therefrom, as if each of the foregoing had occurred on March 29, 1996. The unaudited pro forma combined statements of operations for the year ended December 29, 1995 give effect to the One Source and HMA acquisitions as if they had occurred on January 1, 1995. The unaudited pro forma combined statements of operations for the three months ended March 29, 1996 give effect to the HMA Acquisition as if it had occurred on January 1, 1995. Amounts shown for the three months ended February 29, 1996 for HMA are also included in amounts shown for the year ended February 29, 1996. The pro forma combined financial data should be read in conjunction with the notes included herewith, the Company's Financial Statements, One Source's Financial Statements, HMA's Financial Statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations." The pro forma combined data do not purport to represent what the Company's results of operations or financial position actually would have been had such transactions and events occurred on the dates specified, or to project the Company's result of operations or financial position for any future period or date. The pro forma adjustments are based upon available information and certain adjustments that management believes are reasonable. In the opinion of management, all adjustments have been made that are necessary to present fairly the pro forma data. 12 UNAUDITED PRO FORMA BALANCE SHEET AS OF MARCH 29, 1996 (IN THOUSANDS, EXCEPT PER SHARE DATA)
HISTORICAL HISTORICAL ACQUISITION PRO FORMA OFFERING PRO FORMA WILMAR HMA(A) ADJUSTMENTS(B) COMBINED ADJUSTMENTS(C) AS ADJUSTED ---------- ---------- -------------- --------- -------------- ----------- ASSETS Current assets: Cash and cash require- ments................. $ 4,310 $ 212 $(3,564) $ 958 $37,774 $ 38,732 Cash--restricted....... 200 200 200 Short-term investment-- available for sale se- curities.............. 1,765 1,765 1,765 Short-term investment-- trading securities.... 1 1 1 Accounts receivable-- trade, net............ 10,205 3,544 13,749 13,749 Accounts receivable-- related party and other................. 53 53 53 Inventory.............. 12,978 3,074 16,052 16,052 Prepaid expenses and other current assets.. 511 267 778 778 Deferred income taxes.. 486 486 486 -------- ------ ------- -------- ------- -------- Total current as- sets................ 30,455 7,151 (3,564) 34,042 37,774 71,816 Property and equipment, net.................... 1,385 310 1,695 1,695 Deferred income taxes... 116 116 116 Other assets............ 2,152 2,744 4,896 4,896 -------- ------ ------- -------- ------- -------- Total assets............ $ 33,992 $7,577 $ (820) $ 40,749 $37,774 $ 78,523 ======== ====== ======= ======== ======= ======== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Notes payable.......... $1,830 $ 608 $ 2,438 $(2,438) Current portion of long-term debt and capital leases........ 63 63 (63) Accounts payable....... $ 6,514 1,956 8,470 $ 8,470 Accrued expenses and other current liabili- ties.................. 1,622 455 2,077 (9) 2,068 Income taxes payable... 949 171 1,120 1,120 -------- ------ ------- -------- ------- -------- Total current liabil- ities............... 9,085 4,475 608 14,168 (2,510) 11,658 Long-term debt and capi- tal leases............. 66 66 (66) -------- ------ ------- -------- ------- -------- Total liabilities.... 9,085 4,541 608 14,234 (2,576) 11,658 -------- ------ ------- -------- ------- -------- Stockholders' Equity: Preferred stock, $.01 par value, 5,000,000 shares authorized; none issued........... Common stock, no par value--50,000,000 shares authorized; 10,374,545 shares issued and outstanding........... 51,289 1,608 52,897 40,350 93,247 Common stock, $.01 par value, 1,000,000 shares authorized; 115,170 shares issued and outstanding....... 1 (1) Additional paid-in cap- ital.................. 157 (157) Retained earnings (accumulated deficit).............. (26,382) 2,878 (2,878) (26,382) (26,382) -------- ------ ------- -------- ------- -------- Total stockholders' equity (deficit).... 24,907 3,036 (1,428) 26,515 40,350 66,865 -------- ------ ------- -------- ------- -------- Total Liabilities and Stockholders' Equity... $ 33,992 $7,577 $ (820) $ 40,749 $37,774 $ 78,523 ======== ====== ======= ======== ======= ========
13 UNAUDITED PRO FORMA STATEMENT OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA) YEAR ENDED DECEMBER 29, 1995
HISTORICAL PRO HISTORICAL ONE HISTORICAL ACQUISITION FORMA WILMAR SOURCE(D) HMA(E,G) ADJUSTMENTS COMBINED ---------- ---------- ---------- ----------- -------- Net sales............... $60,823 $8,494 $24,858 $1,416 (h) $95,591 Cost of sales........... 41,835 6,322 19,411 1,046 (i) 68,614 ------- ------ ------- ------ ------- Gross profit.......... 18,988 2,172 5,447 370 26,977 Operating expenses Operating and selling expenses............. 9,099 884 2,353 60 (j) 12,396 Corporate general and administrative expenses............. 3,985 1,185 2,030 (443)(k) 6,757 ------- ------ ------- ------ ------- 13,084 2,069 4,383 (383) 19,153 ------- ------ ------- ------ ------- Operating income...... 5,904 103 1,064 753 7,824 Other income............ 53 53 Interest expense, net... (1,164) (85) (155) (361)(l) (1,765) ------- ------ ------- ------ ------- Income before income taxes.................. 4,740 18 962 392 6,112 Pro Forma Data (p): Income tax provision.. 1,896 7 299 243 2,445 ------- ------ ------- ------ ------- Net income............ $ 2,844 $ 11 $ 663 $ 149 $ 3,667 ======= ====== ======= ====== ======= Net income per common share................ $ 0.36 $ 0.46 ======= ======= Weighted average common shares outstanding (q)...... 7,937 68 (r) 8,005 ======= ====== =======
THREE MONTHS ENDED MARCH 29, 1996
PRO HISTORICAL HISTORICAL ACQUISITION FORMA WILMAR HMA (F,G) ADJUSTMENTS COMBINED ---------- ---------- ----------- -------- Net sales........................... $19,309 $5,661 $24,970 Cost of sales....................... 13,373 4,269 $ (2)(m) 17,640 ------- ------ ---- ------- Gross profit...................... 5,936 1,392 2 7,330 ------- ------ ---- ------- Operating expenses Operating and selling expenses.... 2,987 564 (13)(m) 3,538 Corporate general and administrative expenses.......... 1,242 509 7 (n) 1,758 ------- ------ ---- ------- 4,229 1,073 6 5,308 ------- ------ ---- ------- Operating income.................. 1,707 319 (4) 2,022 Other income........................ 13 13 Interest expense, net............... (81) (39) (55)(o) (175) ------- ------ ---- ------- Income before income taxes........ 1,626 293 (59) 1,860 Income tax provision.............. 666 91 2 759 ------- ------ ---- ------- Net income........................ $ 960 $ 202 $(61) $ 1,101 ======= ====== ==== ======= Pro Forma Data: Net income per common share....... $ 0.10 $ 0.11 ======= ======= Weighted average common shares outstanding (q).................. 9,946 68 (r) 10,014 ======= ==== =======
14 - -------- (a) Balance Sheet as of February 29, 1996. (b) Represents adjustments for the HMA Acquisition based on a purchase price of $7,610 (including $1,830 of HMA debt repaid by Wilmar). The HMA Acquisition has been accounted for using the purchase method. The purchase price has been allocated on a preliminary basis to the assets acquired based on the fair values of such assets which are estimated to equal their book value. The balance of the purchase price was allocated as follows: $1,571 to intangible assets (including covenants-not-to-compete and customer lists) and $1,173 to goodwill. This results in total other assets of $2,744. The other assets will be amortized on a straight-line basis over the following lives: the covenants-not-to-compete will be amortized over three years; the customer lists will be amortized over 20 years; and the goodwill will be amortized over 30 years. (c) Represents the sale by the Company of 2,000 shares of Common Stock pursuant to this offering (at an assumed offering price of $21.50 per share) and the application of the net proceeds therefrom as described in "Use of Proceeds." (d) Statement of Operations for the nine months ended September 30, 1995. (e) Statement of Operations for year ended February 29, 1996. (f) Statement of Operations for three months ended February 29, 1996. (g) Certain amounts in the historical financial statements of HMA have been reclassified to conform with the Wilmar presentation. (h) Represents sales of $1,416 for One Source from October 1, 1995 to November 17, 1995 (the effective date of the One Source acquisition). (i) Adjustment to reflect: (i) costs of sales of $1,054 for One Source from October 1, 1995 to November 17, 1995, offset by (ii) $8 of expense related to the HMA Employee Stock Ownership Trust ("HMA ESOP"), which was terminated after the HMA Acquisition. (j) Adjustments to reflect: (i) distribution center payroll expenses of $36 for One Source related to personnel that were terminated after the One Source acquisition and (ii) $51 of expense related to the HMA ESOP, which was terminated after the HMA Acquisition, offset by (iii) operating and selling expenses of $147 for One Source from October 1, 1995 to November 17, 1995. (k) Adjustments to reflect: (i) $780 of expenses and compensation, bonuses and fringe benefit packages paid to management and employees of One Source that were terminated after the One Source Acquisition with no corresponding increase in corporate overhead, (ii) $41 of expense related to the HMA ESOP, which was terminated after the HMA Acquisition, (iii) $100 of compensation paid to an officer of HMA in excess of the compensation due under the officer's employment contract effective after the HMA Acquisition, offset by: (iv) corporate general and administrative expenses of $280 for One Source from October 1, 1995 to November 17, 1995 and (v) additional expenses of $378 which represent the amortization of intangible assets, including goodwill, covenants-not-to-compete and customer lists acquired by Wilmar in the One Source and HMA acquisitions. (l) Represents interest expense on amounts drawn on the Company's line of credit to finance the One Source and HMA acquisitions as if the acquisitions had occurred on January 1, 1995. (m) Adjustments to reflect the HMA ESOP, which was terminated after the HMA Acquisition as follows: (i) $2 of cost of sales (ii) $13 of operating and selling expenses. (n) Adjustments to reflect: (i) $10 of expenses related to the HMA ESOP, which was terminated after the HMA Acquisition and (ii) $25 of compensation paid to an officer of HMA in excess of the compensation due under the officer's employment contract effective after the HMA Acquisition, offset by (iii) additional expenses of $42 which represents the amortization of intangible assets, including goodwill, covenants-not-to-compete and customer lists acquired by Wilmar in the HMA Acquisition. (o) Represents interest expense on amounts drawn on the Company's line of credit to finance the HMA Acquisition as if the acquisition had occurred on January 1, 1995. (p) Prior to March 1, 1995, the Company elected to be taxed as an S Corporation for federal (and certain state) income tax purposes. Pro forma information has been computed as if the Company had been subject to federal income tax and all applicable state corporate income taxes for each period presented. (q) See Note 3 of Notes to Consolidated Financial Statements for a description of the determination of weighted average common shares outstanding. (r) Represents shares of Common Stock issued in connection with the HMA Acquisition as if the acquisition had occurred on January 1, 1995. 15 SELECTED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA) The selected financial and operating data set forth below should be read in conjunction with the Financial Statements of the Company, including the notes thereto included elsewhere herein and "Management's Discussion and Analysis of Financial Condition and Results of Operations." The selected financial data for fiscal 1993, fiscal 1994 and fiscal 1995 have been derived from the Company's financial statements which have been audited by independent auditors. The selected financial data for fiscal years 1991, 1992, the three months ended March 31, 1995 and the three months ended March 29, 1996 have been derived from the Company's unaudited financial statements which have been prepared on the same basis as the audited financial statements and, in the opinion of management, contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the financial position and results of operations for these periods.
THREE MONTH FISCAL YEAR(1) PERIOD(2) --------------------------------------- -------------------- 1991 1992 1993 1994 1995 1995(3) 1996 ------- ------- ------- ------- ------- ------- ------- STATEMENT OF OPERATIONS DATA: Net sales.............. $18,132 $24,517 $35,640 $47,679 $60,823 $13,458 $19,309 Cost of sales (4)...... 12,293 16,847 24,735 32,787 41,835 9,212 13,373 ------- ------- ------- ------- ------- ------- ------- Gross profit........... 5,839 7,670 10,905 14,892 18,988 4,246 5,936 Operating and selling expenses.............. 3,260 3,909 5,400 7,068 9,099 2,015 2,987 Corporate general and administrative expenses.............. 1,765 2,054 2,393 2,895 3,985 1,060 1,242 Bonuses to S Corporation shareholders (5)...... 195 644 1,463 -- -- -- -- ------- ------- ------- ------- ------- ------- ------- Operating income....... 619 1,063 1,649 4,929 5,904 1,171 1,707 Interest expense, net.. 45 49 173 289 1,164 201 81 ------- ------- ------- ------- ------- ------- ------- Income before income taxes................. 574 1,014 1,476 4,640 4,740 970 1,626 ------- ------- ------- ------- ------- ------- ------- PRO FORMA DATA (6): Income tax provision... 229 403 586 1,860 1,896 389 666 ------- ------- ------- ------- ------- ------- ------- Net income............. $ 345 $ 611 $ 890 $ 2,780 $ 2,844 581 $ 960 ======= ======= ======= ======= ======= ======= ======= Net income per common share................. $ 0.31 $ 0.36 $ 0.07 $ 0.10 ======= ======= ======= ======= Weighted average common shares outstanding (7)................... 9,071 7,937 8,596 9,946 ======= ======= ======= ======= BALANCE SHEET DATA: Working capital (deficit)............. $ 1,916 $ 2,880 $ 3,818 $ 4,367 (54) $ 3,075 $21,370 Total assets........... 5,058 7,192 9,866 14,561 26,871 16,155 33,992 Long-term debt, less current portion....... 234 290 1,817 2,693 5,667 6,244 Mandatorily redeemable preferred stock....... 25,058 23,646 Total stockholders' equity (deficit)...... 2,128 3,064 2,468 2,719 (27,062) (25,742) 24,907
- -------- (1) The Company's fiscal year is based on a 52/53 week fiscal period ending on the last Friday in December. Fiscal 1993 was a 53 week year while all other fiscal years consist of 52 weeks. (2) The three month periods ended on March 31, 1995 and March 29, 1996. (3) In March 1995, the Company was recapitalized and, in connection therewith, incurred significant debt and issued dividend bearing, mandatorily redeemable preferred stock. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Overview" and "Certain Transactions." (4) Cost of sales includes merchandise, freight, distribution center occupancy and delivery costs. (5) See Note 5 of Notes to Consolidated Financial Statements. (6) Prior to March 1, 1995, the Company elected to be taxed as an S Corporation for federal (and certain state) income tax purposes. Pro forma information has been computed as if the Company had been subject to federal income taxes and all applicable state corporate income taxes for each period presented. The income tax provision and net income for the three month period ended March 29, 1996 are actual amounts because the Company was taxed as a C Corporation during that period. (7) See Note 3 of Notes to Consolidated Financial Statements for description of the determination of weighted average common shares outstanding. 16 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Wilmar was founded in 1978 by its current Chief Executive Officer, William Green, and his father, Martin Green, to provide reliable, next-day delivery of repair and maintenance products to customers in its original Philadelphia market. Since its inception, the Company has experienced significant growth. The Company opened its second distribution center in Washington, D.C. in 1982 and its third in Houston in 1987. Since 1991, the Company has accelerated its growth, opening six distribution centers: Indianapolis (1991), Fresno (1992), Atlanta (1993), Tampa (December 1994), Columbus (July 1995) and Seattle (October 1995). Since 1995, the Company has acquired three additional distribution centers through acquisitions: Miami (November 1995), Denver (May 1996) and Las Vegas (May 1996). In addition, HMA, which the Company acquired on July 8, 1996, operates distribution centers in Dallas, Houston and San Antonio, Texas. The Company typically opens a distribution center in a territory after sales generated by local sales representatives and by telesales have reached a level sufficient to support the distribution center. Newly opened distribution centers typically become profitable within six months after opening. The introduction of a distribution center into a market allows the Company to increase sales to existing customers and add new customers at a more rapid rate because the Company can offer free, next-day delivery of all products to its customers in the local market. The 1995 Recapitalization. In March 1995, the Company effected a recapitalization (the "1995 Recapitalization"). As an integral part of the 1995 Recapitalization, the Company made a dividend distribution to William Green, the sole shareholder of the Company at that time, in the form of 105,914 shares of Series B Junior Preferred Stock with a redemption value of $10.6 million, to be amended as described below. The Company issued 129,450 shares of its Series A Senior Preferred Stock to the Summit Investors for a purchase price of $12.9 million. All of the outstanding Series A Senior Preferred Stock was redeemed, by its terms, for $12.9 million (plus accrued dividends estimated at $900,000) upon consummation of the Company's initial public offering in January 1996. The Company used the proceeds of the investment by Summit to redeem 3,584,000 shares of Common Stock held by William Green for $15.1 million. As deferred consideration for the redemption of Mr. Green's Common Stock in connection with the 1995 Recapitalization, the Company issued a $2.0 million note to Mr. Green on November 22, 1995, payable only if the Company satisfies certain earnings targets in 1995 and 1996, or upon the earlier consummation of a qualified liquidity event, including the initial public offering. The Company paid the note with a portion of the proceeds of its initial public offering in January 1996. In connection with the 1995 Recapitalization, the Company issued 3,080,000 shares of its Common Stock to the Summit Investors for an aggregate purchase price of $55,000. As a result of the 1995 Recapitalization, the Company incurred significant interest expense and was required to accrue preferred dividends from March 9, 1995 through the initial public offering in January 1996. In connection with Wilmar's initial public offering, William Green agreed to convert $5.0 million of his Series B Junior Preferred Stock into Common Stock at the initial public offering price of $11.00. Simultaneously with the initial public offering, the terms of the Series B Junior Preferred Stock were amended to provide that $5.0 million of Mr. Green's Series B Junior Preferred Stock would be converted into 454,545 shares of Common Stock, and the balance would be redeemed for $5.6 million (plus accrued dividends of approximately $700,000). S Corporation Status. From its inception until March 1, 1995, the Company was subject to federal income taxation under Subchapter S of the Code. As a result, for federal and certain state income tax purposes, the net income of the Company was reported by and taxed directly to its shareholders, rather than to the Company. Accordingly, the Company has calculated pro forma income tax provision, pro forma net income and pro forma income per share for each year presented as if the Company were a C Corporation subject to all federal and applicable state income taxes. The effective tax rate used in 17 calculating the pro forma income tax provision was approximately 40% for all periods. In connection with the termination of its S Corporation status, the Company distributed to William Green, the Company's then sole shareholder, an aggregate of approximately $5.2 million between late 1994 and early 1995. These distributions represented the Company's income previously taxed to Mr. Green, net of prior distributions to him. Acquisitions. In November 1995, the Company acquired One Source for approximately $3.6 million in cash. During 1996 to date, the Company has completed three additional acquisitions--Mile High, Sun Valley and HMA--for an aggregate purchase price of approximately $7.75 million in cash and $1.6 million in Common Stock. The Company accounted for all four acquisitions as purchases for financial reporting purposes. The resulting goodwill of approximately $3.7 million is amortized on a straight-line basis over 30 years and other intangible assets of approximately $2.2 million is amortized over three to 20 years. RESULTS OF OPERATIONS The following table sets forth statement of operations data as a percentage of net sales for the periods indicated.
THREE MONTH FISCAL YEAR ENDED PERIOD ------------------- ------------ 1993 1994 1995 1995 1996 ----- ----- ----- ----- ----- Net sales.................................. 100.0% 100.0% 100.0% 100.0% 100.0% Cost of sales.............................. 69.4 68.8 68.8 68.5 69.3 ----- ----- ----- ----- ----- Gross profit............................. 30.6 31.2 31.2 31.5 30.7 Operating and selling expenses............. 15.2 14.8 15.0 15.0 15.5 Corporate general and administrative ex- penses.................................... 6.7 6.1 6.5 7.8 6.4 Bonuses to S Corporation shareholders...... 4.1 -- -- -- -- ----- ----- ----- ----- ----- Operating income......................... 4.6 10.3 9.7 8.7 8.8 Interest expense, net...................... 0.5 0.6 1.9 1.5 0.4 ----- ----- ----- ----- ----- Income before income taxes............... 4.1 9.7 7.8 7.2 8.4 ----- ----- ----- ----- ----- Pro forma data(1): Income tax provision..................... 1.6 3.9 3.1 2.9 3.4 ----- ----- ----- ----- ----- Net income............................... 2.5% 5.8% 4.7% 4.3% 5.0% ===== ===== ===== ===== =====
- -------- (1) The income tax provision and net income for the three month period ended March 29, 1996 are actual amounts because the Company was taxed as a C Corporation during the period. THREE MONTHS ENDED MARCH 29, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31, 1995 Net Sales. Net sales increased by $5.8 million, or 43.5%, to $19.3 million for the quarter ended March 29, 1996 from $13.5 million for the corresponding quarter in 1995. Of this increase, 36.9% was attributable to higher sales volumes shipped from distribution centers open for all of both periods, and the balance was attributable to the three distribution centers (Tampa, Columbus and Seattle) opened between December 1, 1994 and December 29, 1995 and the acquisition of One Source Supply, Inc. which occurred on November 17, 1995. The higher net sales from distribution centers open during all of both periods resulted primarily from the increased experience of the Company's direct sales and telesales forces and increased sales to national accounts. The Company's sales force at the end of the first quarter of 1996 was 86, an increase of 35 when compared with the corresponding quarter of 1995. Price increases during both quarters were modest and made only on selected items. During the quarter ended March 29, 1996, Wilmar generated approximately $436,000 in net sales to new end markets as a result of the Company's decision to target customers outside its core apartment housing market beginning in the first quarter of 1995. 18 Gross Profit. Cost of sales include merchandise, freight, distribution center occupancy and delivery costs. As a percentage of net sales, gross profit was 30.7% for the quarter ended March 29, 1996 compared to 31.5% for the corresponding quarter in 1995. This decrease in the gross margin resulted from increased delivery expenses associated with "line-hauling" (the use of third party trucks to ship multiple orders from a distribution center to other markets overnight followed by next day local delivery) to new markets, higher relative occupancy costs relating to the operation of two immature, less efficient distribution centers opened after the first quarter of 1995 (Columbus and Seattle) and a decrease in vendor allowances and early payment discounts when compared with the first quarter of 1995. Operating and Selling Expenses. Operating and selling expenses consist of labor and other costs associated with opening and operating a distribution center as well as selling expenses and commissions. The Company expenses all distribution center pre-opening costs when incurred. Operating and selling expenses increased by $1.0 million, or 48.2%, to $3.0 million for the quarter ended March 29, 1996 from $2.0 million for the corresponding quarter in 1995. As a percentage of net sales, these expenses represented 15.5% for the quarter ended March 29, 1996 compared to 15.0% for the corresponding quarter in 1995. These increases resulted primarily from increased commissions related to higher sales volumes, higher relative costs associated with the distribution centers opened after the first quarter of 1995, the distribution center acquired from One Source (Miami) in November 1995 and an expanded sales force and higher operating costs associated with increased sales volumes at the other distribution centers. Corporate General and Administrative Expenses. Corporate general and administrative expenses increased by $182,000, or 17.2%, to $1.2 million for the quarter ended March 29, 1996 from $1.0 million for the corresponding quarter in 1995, as a result of the increased staffing required to manage a larger volume of business. During the first quarter of 1995 the Company incurred $207,000 in expenses related to the 1995 Recapitalization. Excluding the expenses associated with the 1995 Recapitalization, corporate general and administrative expenses as a percentage of net sales were 6.4% for the quarter ended March 29, 1996 compared to 6.3% for the corresponding quarter in 1995. Operating Income. Operating income increased by $536,000, or 45.8%, to $1.7 million for the quarter ended March 29, 1996 from $1.2 million for the corresponding quarter in 1995. As a percentage of net sales, operating income was 8.8% for the quarter ended March 29, 1996 compared to 8.7% for the corresponding quarter in 1995. Excluding the one-time expenses associated with the 1995 Recapitalization, operating income would have increased by $329,000, or 23.9%, from the first quarter of 1995 to the first quarter of 1996. As a percentage of net sales, operating income (excluding the 1995 Recapitalization expenses) would have been 10.2% for the first quarter in 1995 compared to 8.8% for the first quarter of 1996. Interest Expense, Net. Net interest expense decreased by $120,000 to $81,000 for the quarter ended March 29, 1996 from $201,000 for the corresponding quarter in 1995 as a result of the reduction in debt made from the proceeds of the initial public offering. FISCAL 1995 COMPARED TO FISCAL 1994 Net Sales. Net sales increased by $13.1 million, or 27.5%, to $60.8 million in fiscal 1995 from $47.7 million in fiscal 1994. Of this increase, 51.9% was attributable to higher sales volumes shipped from distribution centers open for all of both periods, and the balance was attributable to the three distribution centers (Tampa, Columbus and Seattle) opened between December 1, 1994 and December 29, 1995 and the One Source acquisition which occurred on November 17, 1995. The higher net sales from distribution centers open during all of both periods resulted primarily from the increased experience of the Company's direct sales and telesales forces and increased sales to national accounts. In addition, the Company added 26 local sales representatives during fiscal 1995, the majority of whom were hired in the second half of the year and ten of whom joined the Company as part of the One Source acquisition in November 1995. 19 Price increases during fiscal 1995 were modest and made only on selected items. During fiscal 1995, Wilmar generated approximately $940,000 in net sales to new end markets as a result of the Company's decision to target customers outside its core apartment housing market beginning in 1995. Gross Profit. As a percentage of net sales, gross profit was 31.2% in fiscal 1995, which was unchanged from fiscal 1994. Operating and Selling Expenses. Operating and selling expenses increased by $2.0 million, or 28.2%, to $9.1 million in fiscal 1995 from $7.1 million in fiscal 1994. This increase resulted primarily from increased commissions related to higher sales volumes, costs associated with the new Tampa, Columbus and Seattle distribution centers and higher operating costs associated with increased sales volumes at the other distribution centers. As a percentage of net sales, these expenses represented 15.0% in fiscal 1995 compared to 14.8% in fiscal 1994, due to the effects of operating three immature, less efficient distribution centers and higher pre-opening expenses in fiscal 1995. Corporate General and Administrative Expenses. Corporate general and administrative expenses increased by $1.1 million, or 37.9%, to $4.0 million in fiscal 1995 from $2.9 million in fiscal 1994. During fiscal 1995, the Company incurred $207,000 in expenses related to the 1995 Recapitalization and a full year of expenses associated with the Company's new corporate headquarters in Moorestown, New Jersey. Until May 1994, the Company had operated its headquarters within its Philadelphia distribution center. During fiscal 1995, the Company significantly increased its corporate staff to manage the Company's greater base of operations. Excluding the expenses associated with the 1995 Recapitalization, corporate general and administrative expenses as a percentage of net sales would have increased to 6.3% in fiscal 1995 from 6.1% in fiscal 1994. Operating Income. Operating income increased by $975,000, or 19.8%, to $5.9 million in fiscal 1995 from $4.9 million in fiscal 1994. Excluding the one- time expenses associated with the 1995 Recapitalization, operating income would have increased by $1.2 million, or 24.4%, to $6.1 million in fiscal 1995 from $4.9 million in fiscal 1994. As a percentage of net sales, operating income (excluding the 1995 Recapitalization expenses) would have decreased to 10.0% in fiscal 1995 from 10.3% in 1994 due primarily to the effects of operating three immature, less efficient distribution centers, increases in the corporate staff and the operation of the Company's new corporate headquarters for all of 1995. Interest Expense, Net. Net interest expense increased by $875,000 to $1.2 million in fiscal 1995 from $289,000 in fiscal 1994 as a result of the approximately $9.3 million of additional indebtedness incurred in connection with the 1995 Recapitalization. FISCAL 1994 COMPARED TO FISCAL 1993 Net Sales. Fiscal 1994 consisted of 52 weeks and fiscal 1993 consisted of 53 weeks. Net sales increased by $12.0 million, or 33.8%, to $47.7 million in 1994 from $35.6 million in 1993. Of this increase, approximately 71.6% was attributable to higher sales volumes shipped from distribution centers open for all of both years, and the balance was attributable to distribution centers opened after January 1, 1993. Higher net sales from existing distribution centers was primarily the result of the increased experience of the Company's direct sales and telesales forces. In addition, the Company added 10 local sales representatives during 1994, increased sales to its national accounts and initiated a full-time, outbound telesales effort, all of which resulted in increased sales to existing customers and an increase in new customers. During 1994, price increases were modest and made only on selected items. Gross Profit. As a percentage of net sales, gross profit increased to 31.2% in 1994 from 30.6% in 1993. This margin improvement was attributable primarily to higher merchandise margins in 1994 resulting from increased sourcing of products manufactured overseas, partially offset by higher delivery and freight costs. The higher delivery costs were the result of greater use of third party delivery services 20 from the Company's newer distribution centers where the Company had not established the sales volumes to justify operating its own trucks. The higher freight costs were the result of increased sourcing of products manufactured overseas. Operating and Selling Expenses. Operating and selling expenses increased by $1.7 million, or 30.9%, to $7.1 million in 1994 from $5.4 million in 1993. This increase was due primarily to increased commissions related to higher sales volumes, and a full year's operation of the Atlanta distribution center which opened in July 1993. As a percentage of net sales, these expenses decreased to 14.8% in 1994 from 15.2% in 1993, due primarily to the spreading of relatively fixed costs over higher sales volumes. Corporate General and Administrative Expenses. Corporate general and administrative expenses increased by $502,000, or 21.0%, to $2.9 million in 1994 from $2.4 million in 1993. The dollar increase resulted primarily from the opening of the new corporate headquarters in Moorestown, New Jersey in May 1994. As a percentage of net sales, these expenses decreased to 6.1% in 1994 from 6.7% in 1993, primarily due to the spreading of relatively fixed corporate overhead expenses over higher sales volumes. Bonuses to S Corporation Shareholders. Prior to 1994, the Company paid bonuses to S Corporation shareholders to enable them to pay income taxes on the Company's taxable income. In 1993, bonuses paid were $1.5 million. In 1994, the Company changed its tax strategy and distributed dividends to its shareholders rather than bonuses. Operating Income. Operating income increased by $3.3 million, or 198.9%, to $4.9 million in 1994 from $1.6 million in 1993. Excluding bonuses to S Corporation shareholders in 1993, operating income would have increased by $1.8 million, or 58.4%, to $4.9 million in 1994 from $3.1 million in 1993. As a percentage of net sales, operating income would have increased to 10.3% in 1994 from 8.7% in 1993 (excluding bonuses to S Corporation shareholders). This increase in the operating margin was attributable to continued spreading of relatively fixed distribution center and corporate overhead expenses over higher sales volumes. Interest Expense, Net. Net interest expense increased to $289,000 in 1994 from $173,000 in 1993. This increase was primarily due to higher borrowings under the Company's line of credit to finance increased working capital needs. 21 QUARTERLY RESULTS AND SEASONALITY The following table sets forth statements of operations data for the first quarter of fiscal 1996, the four quarters of fiscal 1995 and the four quarters of fiscal 1994. These quarterly data are unaudited but have been prepared on a basis consistent with the Company's audited financial statements presented elsewhere herein and, in the Company's opinion, include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the information for the quarters presented. The operating results for any quarter are not necessarily indicative of results for any future period.
THREE MONTHS ENDED ------------------------------------------------------- MARCH 31, JUNE 30, SEPTEMBER 29, DECEMBER 29, MARCH 29, 1995 1995 1995 1995 1996 --------- -------- ------------- ------------ --------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Net sales............... $13,458 $14,625 $16,381 $16,359 $19,309 Cost of sales........... 9,212 10,091 11,274 11,258 13,373 ------- ------- ------- ------- ------- Gross profit.......... 4,246 4,534 5,107 5,101 5,936 Operating and selling expenses............... 2,015 2,186 2,374 2,524 2,987 Corporate general and administrative expenses............... 1,060 893 895 1,137 1,242 ------- ------- ------- ------- ------- Operating income...... 1,171 1,455 1,838 1,440 1,707 Interest expense, net... 201 305 303 355 81 ------- ------- ------- ------- ------- Income before income taxes.................. 970 1,150 1,535 1,085 1,626 ------- ------- ------- ------- ------- Pro forma data: Income tax provision(1)......... 389 461 615 431 666 ------- ------- ------- ------- ------- Net income(1)......... $ 581 $ 689 $ 920 $ 654 $ 960 ======= ======= ======= ======= ======= Net income per common share................ $ 0.07 $ 0.09 $ 0.12 $ 0.08 $ 0.10 ======= ======= ======= ======= ======= Weighted average common shares outstanding..... 8,596 7,675 7,718 7,760 9,946 ======= ======= ======= ======= ======= THREE MONTHS ENDED --------------------------------------------- MARCH 25, JUNE 24, SEPTEMBER 30, DECEMBER 30, 1994 1994 1994 1994 --------- -------- ------------- ------------ (IN THOUSANDS, EXCEPT PER SHARE DATA) Net sales............... $10,281 $11,895 $13,766 $11,737 Cost of sales........... 7,021 8,152 9,469 8,146 ------- ------- ------- ------- Gross profit.......... 3,260 3,743 4,297 3,591 Operating and selling expenses............... 1,465 1,773 1,947 1,882 Corporate general and administrative expenses............... 579 687 756 873 ------- ------- ------- ------- Operating income...... 1,216 1,283 1,594 836 Interest expense, net... 60 78 87 64 ------- ------- ------- ------- Income before income taxes.................. 1,156 1,205 1,507 772 ------- ------- ------- ------- Pro forma data: Income tax provision.. 463 483 604 310 ------- ------- ------- ------- Net income............ $ 693 $ 722 $ 903 $ 462 ======= ======= ======= ======= Net income per common share................ $ 0.08 $ 0.08 $ 0.10 $ 0.05 ======= ======= ======= ======= Weighted average common shares outstanding..... 9,071 9,071 9,071 9,071 ======= ======= ======= =======
- -------- (1) The income tax provision and net income for the three month period ended March 29, 1996 are actual amounts because the Company was taxed as a C Corporation during the period. 22 The Company's net sales were approximately $40.7 million for the six months ended June 28, 1996, compared to approximately $28.1 million for the six months ended June 30, 1995. The Company's sales volumes tend to be lower in the fourth quarter because customers defer purchases at year end as their budget limits are met. In addition, net sales in the fourth quarter are reduced because of the holidays during the period. LIQUIDITY AND CAPITAL RESOURCES Historically, Wilmar's primary source of liquidity has been cash flow from operations, supplemented by borrowings under its revolving bank line of credit to support increases in accounts receivable and inventory, net of accounts payable. During the first quarter of 1996, the Company completed an initial public offering of 4,600,000 shares of its Common Stock for $11.00 per share, resulting in net proceeds of $47,058,000. Cash used in operating activities was $1.4 million during the first quarter of 1996 compared to $124,000 of cash provided by operating activities during the first quarter of 1995. Cash used in operating activities during the first quarter of 1996 consisted of $1.0 million of net income before depreciation and amortization and other non-cash charges, offset by $2.4 million of changes in operating assets and liabilities primarily resulting from a $1.4 million decrease in accounts payable and increases in the Company's accounts receivable and inventory of $908,000, consistent with its higher volume of business. Cash used in investing activities for the first quarter of 1996 was $1.9 million, related to the purchase of short-term investments and the purchase of property and equipment compared to $90,000 for the first quarter of 1995. Cash provided by financing activities during the first quarter of 1996 was $7.6 million, consisting primarily of the net proceeds of an initial public offering less the repayment of all debt and the redemption of the outstanding preferred stock. Capital expenditures were $134,000 for the first quarter of 1996 compared to $90,000 for the first quarter of 1995. The Company expects to spend approximately $326,000 on capital expenditures in the remaining three quarters of fiscal 1996 primarily for office, computer and distribution center equipment. Additionally, the Company expects to spend approximately $500,000 to equip its new Philadelphia distribution center in connection with a lease agreement entered into on April 29, 1996. Historically, capital expenditures have been primarily for similar items, except for 1994 when the Company made additional capital expenditures related to the relocation of its headquarters to its present Moorestown, New Jersey location. A typical distribution center requires a capital investment of approximately $75,000 to $80,000 for equipment and leasehold improvements and an initial commitment of approximately $250,000 for working capital (net of accounts payable attributable to new inventory). The Company typically incurs expenses of approximately $50,000 before a new distribution center becomes operational. Since 1991, the Company's distribution centers have generated average sales of $3.1 million and operating income (before corporate overhead expenses) of $495,000 in the first full calendar year of operation. The Company expects that newer distribution center operating margins will continue to improve over time as the Company leverages fixed costs of operations over higher sales of products shipped from these distribution centers. The Company intends to finance its future capital expenditures with cash flow from operations and possibly with a portion of the proceeds of this offering, term debt or capital leases. Cash provided by operating activities was $277,000 during fiscal 1995 compared to $2.3 million during fiscal 1994. This decline was primarily the result of a $616,000 increase in income taxes paid because the Company terminated its S Corporation status in March 1995 and increases in the Company's accounts receivable and inventory, net of accounts payable, consistent with its higher volume of business. Cash provided by operating activities in fiscal 1995 consisted of $3.4 million of net income before depreciation and amortization and other non-cash charges, offset by $3.1 million of changes in operating assets and liabilities. 23 Cash used in investing activities for fiscal 1995 was $4.1 million, related to the acquisition of One Source and the purchase of property and equipment. Cash provided by financing activities for fiscal 1995 was $3.7 million, consisting primarily of borrowings in connection with the acquisition of One Source and the Recapitalization. Cash provided by operating activities was $2.3 million in fiscal 1994. This was the result of $4.8 million of net income before depreciation and amortization and other non-cash charges offset by $2.5 million of changes in operating assets and liabilities. Cash used by investing activities in fiscal 1994 was $768,000, primarily related to the purchase of property and equipment. Net cash used in financing activities of $1.6 million resulted primarily from bank borrowings offset by the payment of S Corporation dividends. Capital expenditures were $507,000, $768,000 and $152,000 in fiscal 1995, 1994 and 1993, respectively. These expenditures were primarily for office, computer and distribution center equipment, except for 1994, when the Company made additional capital expenditures related to the relocation of its headquarters to its present Moorestown, New Jersey location. Wilmar's credit facility consists of a $10.0 million unsecured bank line of credit. The line of credit had a zero balance as of March 29, 1996, having been repaid with a portion of the proceeds of the initial public offering. In March 1996, the Company replaced its existing secured bank line of credit with the $10.0 million unsecured bank line of credit, which bears interest at three quarters of one percent below the bank's prime rate and expires in March 1997. A portion of the net proceeds of the initial public offering was used to repay the revolving bank line of credit and the term debt and to redeem the $4.0 million of 11.5% Subordinated Debentures issued to certain of the Summit Investors. The reduction in these borrowings and the increase in shareholders' equity as a result of the initial public offering and this offering will decrease the Company's financial leverage. The Company expects to renew its revolving line of credit when it expires in March 1997 and believes it could increase the amount of this credit facility if needed. The Company believes that its existing cash balances, supplemented by borrowings under the revolving line of credit, are adequate to meet planned operating and capital expenditure needs at least through 1996. However, if the Company were to make any significant acquisitions for cash, it may be necessary for the Company to obtain additional debt or equity financing. INFLATION The Company does not believe that inflation has had a material effect on its results of operations in recent years. There can be no assurance, however, that the Company's business will not be affected by inflation in the future. 24 MARKET OVERVIEW The Company broadly defines its industry as the sale of repair and maintenance products to residential or temporary stay facilities that are large enough to employ a full time maintenance manager. Through 1994, the Company focused its marketing efforts on the apartment housing market. In 1995, the Company began to target other end markets, such as hotels and motels, hospitals, nursing homes, prisons, military bases, schools and universities. Customers in these new end markets accounted for approximately 1.5% of net sales in fiscal 1995. Based on published industry data, the Company estimates that there are more than 94,000 apartment complexes in the United States large enough to have a maintenance manager and that annual expenditures by these apartment complexes on repair and maintenance supplies exceed $2 billion. The Company believes that the other end markets it has recently begun to target are also of substantial size. Maintenance managers have traditionally purchased repair and maintenance supplies through a variety of distribution channels, including: Local or Regional Broad-Line Suppliers. There are numerous broad-line suppliers offering product categories similar to those found in the Wilmar Master Catalog. Most of these suppliers are local or regional in scope. Although these competitors typically use a direct sales force, often supported by a proprietary catalog, they are smaller and tend to offer fewer product categories, or a narrower range of products within categories, and fewer services than offered by Wilmar. These competitors typically cannot effectively serve national accounts. Mail Order Catalogs. There are a few mail order catalog companies that offer a broad selection of repair and maintenance products (typically 6,000 to 8,000 SKUs), have multiple warehouses and offer next-day or two-day delivery via parcel delivery services on most items. Although these catalog companies sell products to maintenance managers, they do not employ local sales representatives and cannot provide many of the services offered by Wilmar. Retail Stores. Traditional hardware stores and home-improvement superstores such as Home Depot sell repair and maintenance products. Their product selection and marketing efforts, however, are primarily targeted to individual homeowners and contractors. Retail stores generally do not provide extensive catalogs, sales representatives, convenient phone ordering or free, next-day delivery and most do not provide the depth of products offered by Wilmar. Specialty Suppliers. Specialty suppliers focus on a single product category, such as plumbing or electrical supplies. Specialty suppliers are typically local or regional in scope and cannot provide the one-stop shopping sought by maintenance managers. Industrial Suppliers. There are a few industrial suppliers that include a limited selection of maintenance and repair products in their merchandise mix but that do not focus on Wilmar's target markets. For example, W.W. Grainger, a leading industrial supplier, carries fewer than one-half of Wilmar's top 100 items and has fewer than 100 catalog pages dedicated to plumbing items, compared to more than 500 pages in the Wilmar Master Catalog. Wilmar believes it is the only national, broad-line supplier to its targeted markets offering next-day delivery of an extensive selection of repair and maintenance products through a direct sales force and catalog. Maintenance managers are primarily responsible for making repairs and generally do not have time to shop with multiple vendors. Maintenance managers value extensive product selection, convenient ordering, reliable, next-day delivery and other value-added services. In addition, maintenance departments typically operate within budgetary constraints, making competitive pricing important. Although maintenance managers typically make day-to-day purchasing decisions, many property management companies with multiple sites attempt to gain volume purchasing advantages by establishing "preferred" or "required" vendor arrangements with suppliers. Some property management companies have joined group purchasing organizations ("GPOs") to gain increased purchasing power. Competition for these national or regional accounts requires a significant national presence in addition to a broad product selection, competitive pricing and a sophisticated billing system. 25 BUSINESS OVERVIEW Wilmar is a rapidly growing national marketer and direct distributor of repair and maintenance products, principally to the apartment housing market. Through its 1,000+ page Wilmar Master Catalog, the Company has become a "one- stop shopping" resource for maintenance managers by offering the industry's most extensive selection of over 15,000 standard and specialty plumbing, hardware, electrical, janitorial and related products. By purchasing directly from domestic and foreign manufacturers in relatively large volumes, Wilmar is able to offer customers competitive prices on both name brand and private label products. The Company seeks to win new accounts and increase sales to existing accounts through a 112-person direct sales force, six full-time outbound telesales representatives, a national accounts sales program, and monthly direct mail flyers. Customer service representatives located at Wilmar's centralized call center use the Company's proprietary software applications to quickly process orders and answer customer inquiries. The Company provides free, next-day delivery in local markets served by its distribution centers and ships by parcel delivery services to other areas. Since 1991, Wilmar has expanded from four distribution centers located in Philadelphia, Washington, D.C., Houston and Indianapolis to 15 distribution centers located throughout the United States. From 1991 to 1995, the Company's net sales increased at a compound annual rate of 35.3%. Since November 1995, Wilmar has acquired four regional repair and maintenance supply companies with total annualized net sales of approximately $40 million. BUSINESS STRATEGY The Company's goal is to become the nation's leading supplier of repair and maintenance products to the apartment housing market and to leverage its expanding national infrastructure to increase its sales of these products to other end markets that also rely upon on-site maintenance staffs. These other end markets include hotels and motels, hospitals, nursing homes, prisons, military bases, schools and universities. The following are critical elements of Wilmar's business strategy: Broadest Product Selection. Wilmar's objective is to supply virtually all of the items a maintenance manager needs to maintain and repair the property. Through its 1,000+ page Wilmar Master Catalog, the Company has become a "one- stop shopping" resource for maintenance managers by offering its customers the industry's most extensive selection of over 15,000 standard and specialty plumbing, hardware, electrical, janitorial and related products. Wilmar's merchandise consists of both name brand and private label products. Reliable Next-Day Delivery. Through its large in-stock inventory and growing network of distribution centers, Wilmar is able to provide reliable, next-day delivery to an increasing number of markets in the United States. This permits customers to reduce on-hand inventory and save time otherwise spent shopping for supplies. The Company's goal is to provide free, next-day delivery of all in-stock items to customers in most major markets in the United States. Volume Purchasing Power; Private Label; Competitive Pricing. Wilmar's relatively large size and ability to purchase directly from manufacturers enable the Company to procure products at prices generally lower than those available to smaller competitors. The Company's eight years of experience with Asian sourcing of the Company's private label products and its ongoing relationships with manufacturers in that region have strengthened its ability to import many of its products at prices below those that prevail in the U.S. market. Private label sales constituted 18.4% of Wilmar's net sales in fiscal 1995. The Company's volume purchasing power, foreign sourcing capability and private label program permit it to provide its customers with competitive prices on a broad array of products. Superior Customer Service. A central tenet of Wilmar's business strategy is to provide service levels superior to those that have historically characterized its industry. In addition to providing "one-stop 26 shopping" and reliable delivery, Wilmar provides high levels of customer service through its knowledgeable direct sales force. The experienced and knowledgeable sales force maintains regular contact with active accounts to solve problems and provides technical product advice, shop organization assistance and customer services not generally available from mail order catalogs, retail stores and specialty suppliers. Ease of ordering is provided via the Company's toll-free "800" number, which is staffed by customer service representatives from 8:00 am to 8:00 pm Eastern Time. These customer service representatives utilize Wilmar's proprietary software applications to quickly process orders and answer customer inquiries. The Company also offers customized billing and usage reports to meet the individual accounting and management needs of its customers. Centralized Operations. An important part of the Company's operating strategy is to enhance efficiency and service levels through a centrally controlled, computerized management system. The Company maintains its management-intensive, relatively fixed-cost administrative functions at its Moorestown, New Jersey headquarters. These functions include merchandising, purchasing, catalog production, outbound telesales, order entry and customer service, management information systems, administration, finance and accounting and legal services. The Company is able to spread its administrative costs over a greater volume of business than its smaller local and regional competitors. GROWTH STRATEGY The Company utilizes multiple marketing strategies to win new accounts and retain active accounts. Wilmar's direct sales force calls on prospective and existing customers in assigned territories while senior management and regional sales managers call on large property management companies to establish national or regional relationships designating Wilmar as a preferred or authorized vendor. In targeted markets currently not covered by local sales representatives, Wilmar's outbound telesales representatives win new accounts and service existing customers. Key elements of the Company's growth strategy include: Expand Direct Sales Force. Management believes there is significant opportunity for Wilmar to win new accounts and increase sales to existing accounts by expanding the Company's direct sales force. The Company will add local sales representatives in existing markets, permitting it to further capitalize on the name recognition created by the Wilmar Master Catalog. In addition, the Company will locate sales representatives in new markets after sufficient sales volumes have been generated through outbound telesales or national account relationships to support a direct sales effort. The Company has found that local sales representatives generate higher average orders than telesales representatives because of the effectiveness of in-person contact and suggestive selling techniques. Expand Geographic Penetration in the United States. The Company garners a higher share of customers' overall spending on repair and maintenance supplies when it can provide free, next-day delivery on all in-stock products. The Company plans to increase its ability to deliver its full line of products on a next-day basis by opening distribution centers in new markets and by increasing the Company's recently established practice of "line-hauling" (the use of third party trucks to ship multiple orders from a distribution center to other markets overnight followed by next-day, local delivery). Expand Sales to New End Markets. The Company believes it can expand its sales to other end markets that have customer demands and distribution channels similar to those in the apartment housing market. These end markets include hotels and motels, hospitals, nursing homes, prisons, military bases, schools and universities. On-site maintenance managers in these end markets also typically manage large repair and maintenance budgets and need a broad array of products delivered quickly at competitive prices. In 1995, the Company added 3,000 SKUs to its Wilmar Master Catalog and initiated sales efforts to target these markets. 27 Continue to Seek Strategic Acquisitions. The Company plans to take advantage of the highly fragmented nature of its industry by exploring strategic acquisitions. In November 1995, the Company completed its first acquisition, One Source the leading direct supplier of repair and maintenance products to the apartment housing market in south Florida. In May 1996, the Company acquired Mile High, a direct supplier of repair and maintenance products to the apartment housing market in Colorado and Sun Valley, a direct supplier of repair and maintenance products to the apartment housing markets in Las Vegas and Phoenix. In July 1996, the Company completed the acquisition of HMA, a large regional direct supplier of repair and maintenance products to the apartment housing market in Texas. The Company believes that there are additional attractive acquisition candidates in both new and existing markets. Acquisitions in new geographic markets should permit the Company to acquire established accounts and gain market presence quickly. In addition to increasing sales, the Company believes the acquisition of companies serving Wilmar's newly targeted end markets will accelerate the Company's growth in these end markets. It is the Company's strategy to implement its business model at each acquired company as soon as practicable after each acquisition is completed. PRODUCTS AND MERCHANDISING Wilmar markets over 15,000 repair and maintenance products. These items constitute a full range of standard and specialty products in the following product categories: plumbing, hardware, electrical, chemical and janitorial, appliance parts, window and floor coverings, heating, ventilating and air conditioning ("HVAC"), and paint and paint accessories. Wilmar offers a broad range of name brands such as Kwikset, Insinkerator, Delta Faucet, Moen, Philips Lighting, and Briggs Plumbingware. In fiscal 1995, private label products marketed under the "Wilmar" and "Wilflo" names accounted for 16.3% of net sales, and no single product accounted for more than 1.3% of the Company's net sales. Through its inventory management system, the Company is able to identify sales trends and adjust the Company's merchandise mix accordingly. Product Categories. For the periods presented, the approximate percentages of the Company's net sales by product category were as follows:
FISCAL YEAR ---------------- PRODUCT CATEGORY 1993 1994 1995 ---------------- ---- ---- ---- Plumbing................................................... 35% 35% 34% Electrical................................................. 20 20 19 Hardware................................................... 15 16 18 Chemical and janitorial.................................... 7 6 6 Appliance parts............................................ 5 5 5 Window and floor coverings................................. 8 6 7 HVAC....................................................... 3 4 5 Paint and paint accessories................................ 3 3 3 Other...................................................... 4 5 3 --- --- --- 100% 100% 100% === === ===
28 The following is an illustrative listing of the types of products sold by Wilmar in each of its major product categories: PLUMBING APPLIANCE PARTS Faucets and sink repair parts Range elements, drip pans and Faucets, sinks and garbage disposals accessories Tub and shower repair parts Refrigerator accessories Medicine cabinets and bath accessories Dishwasher parts Toilets and toilet tank repair parts Washer and dryer accessories Institutional plumbing parts Copper and PVC pipe and fittings WINDOW AND FLOOR COVERINGS Water heaters Drain cleaning tools Window blinds and shades Floor tile ELECTRICAL HVAC Light bulbs Lighting fixtures and replacement glass Grills and vents Ceiling fans Thermostats Smoke detectors Compressors, motors and repair Wiring devices and circuit breakers parts Ballasts and fuses Condensing units Refrigerants and recovery units Filters HARDWARE PAINT AND PAINT ACCESSORIES Replacement window hardware Paint Storm window and patio door parts Paint sundries Custom screens and accessories Caulks, adhesives, sealants and Locksets and custom keying tape Closet, cabinet and drawer hardware Brushes Door hardware Rollers, roller pans and scrapers Hand and power tools CHEMICAL AND JANITORIAL OTHER Soaps, disinfectants, cleaners and Pool supplies detergents Cleaning tools, machines Safety products and accessories Insecticides and pest Lawn and garden tools control products Paper products and Office supplies supplies The Wilmar Master Catalog. The foundation of the Company's merchandising strategy is its proprietary Wilmar Master Catalog, which serves as a widely- used reference tool among maintenance managers. This 1,000+ page catalog, offering more than 15,000 SKUs, provides the industry's most extensive product selection. By comparison, the Company believes that most of its regional and local competitors produce catalogs offering approximately 6,000 SKUs. At Wilmar, a merchandise committee composed of the managers of the sales, marketing and purchasing departments selects the products to be included in the catalog, based on sales trends, customer requests, new product introductions and price changes. Important differentiating features of the Wilmar Master Catalog include many actual-size drawings as well as schematics of over 300 faucets and other plumbing products. These drawings and schematics enable customers to easily identify and order proper parts for their maintenance and repair needs. The Company publishes its prices in the Wilmar Master Catalog including a three-tier pricing structure for quantity discounts. 29 Wilmar produces the catalog in-house to streamline the production process and achieve savings in production costs. The Wilmar Master Catalog is produced twice a year. In the first three months of 1996, approximately 45,000 copies were distributed to customers and prospective customers. Special Services. In addition to the 15,000 SKUs the Company offers through its Wilmar Master Catalog, the Company will supply virtually any product on a special order basis. The Company's four-person special order department accommodates customers' desire for "one-stop shopping" by sourcing requested products from any of the Company's regular 550 vendors or other vendors if necessary. The Company reviews its entire special order file annually to consider whether any items were ordered with sufficient frequency to warrant inclusion in the Wilmar Master Catalog. Special orders accounted for 2.5% of the Company's total sales in fiscal 1995. The Company also operates custom screening and keying services. During fiscal 1995, the Company custom manufactured approximately 66,000 screens and sold approximately 74,000 master-keyed locks. SALES AND MARKETING The Company markets and sells through all levels of the customer's organization, including senior managers of property management companies, local and regional property managers and, most importantly, on-site maintenance managers. The Company's sales and marketing efforts are designed to establish and solidify customer relationships through frequent contact, and to emphasize on the Company's broad product selection, reliable next-day delivery, high level of customer service and competitive pricing. The Company's base of active customers (customers that have purchased in the preceding 12 months) has grown from 7,200 at December 31, 1992 to 20,300 at March 29, 1996. No single property accounted for as much as 1.0% of the Company's net sales during fiscal 1995 although approximately 1,800 properties managed by two large property management companies accounted for an aggregate of 13.0% of Wilmar's net sales during this period. Direct Sales Force. Wilmar maintains one of the largest direct sales forces in its industry with 112 local sales representatives covering 59 markets nationwide. The Company has found that it garners a greater percentage of its customers' overall spending on repair and maintenance supplies in markets serviced by local Wilmar sales representatives, particularly where local sales representatives are supported by a nearby distribution center, enabling free, next-day delivery of the Company's entire product line. In the first three months of 1996, the average order placed with sales representatives was approximately twice as large as those placed with telesales representatives. To generate new customers, the Company provides its sales representatives with lists of prospective customers and generally expects them to call on existing customers approximately every two weeks. In servicing existing customers, local sales representatives are expected not only to generate orders but also to be problem solvers. Typical problem-solving services include shop organization, special orders, part identification and complaint resolution. Local sales representatives are compensated based on a combination of salary and commission. The Company's sales force is managed by Wilmar's Vice President of Sales and three regional sales managers. Telesales. The Company employs six full-time telesales representatives whose responsibility is to obtain new customers and maintain regular contact with active customers, principally in territories where the Company does not employ a local sales representative. In these territories, the Company rents lists of prospective customers and distributes to them monthly direct mail flyers which highlight promotions and new product introductions. The Company mails approximately 85,000 sales flyers per month to existing and prospective customers. Telesales representatives make follow-up calls to prospective customers in targeted markets. Operating from the Company's New Jersey headquarters, telesales representatives also service approximately 7,800 accounts by assisting their active customers with purchasing decisions, processing orders and responding to customer inquiries. In fiscal 1995, telesales accounted for approximately 25% of Wilmar's net sales. Compensation for telesales representatives consists of a salary and bonus (based on performance versus budget). 30 National Accounts; Group Purchasing Organizations ("GPOs"). Wilmar senior management supports the local calling efforts of the direct sales force by calling on the senior management of large national or regional property management companies to establish national account relationships whereby Wilmar becomes an authorized or preferred vendor for all or a portion of the management company's properties. Once Wilmar has been named an authorized or preferred vendor, Wilmar's local sales representatives and telesales representatives target the individual properties managed by that company to build relationships with maintenance managers. Similarly, Wilmar targets selected GPOs. Property management companies typically pay a fee to join a GPO, which entitles them to purchase products at discount prices from the GPO's designated vendors. Wilmar is currently one of three repair and maintenance suppliers in Buyers Access, a GPO owned and managed by NHP Incorporated, the nation's second largest property management company. Sales to Buyers Access participants constituted 23.2% of the Company's net sales for fiscal 1995. The Company has found that in instances where a customer leaves a GPO, the Company has normally retained the customer's account. OPERATIONS Order Entry. During fiscal 1995, Wilmar's average order was $164. The Company receives all orders placed by customers or customers' local sales representatives at its centralized customer service center within the Company's New Jersey headquarters. Approximately 94% of orders are placed via telephone through the Company's toll-free "800" number, with the remaining 6% placed by fax. Calls are received by 36 customer service representatives who utilize on-line terminals to enter customer orders into a fully computerized order processing system. Through this system, customer service representatives access product availability, product location, pricing and promotions information. Customer service personnel determine immediately whether the product is available at the distribution center closest to the customer and, if not, the closest distribution center with availability. As a result, the customer service representative informs the customer immediately as to when the product can be delivered. Customer service lines are open from 8:00 am to 8:00 pm Eastern Time. During fiscal 1995, the Company received an average of approximately 2,000 calls per day. Fulfillment. Once an order is entered into the computer system by a customer service representative, a picking slip is generated at the appropriate distribution center. Items on the picking slip are automatically arranged by warehouse location sequence to facilitate ease of picking within the distribution center. Distribution center personnel pick items from 8:00 am to 6:00 pm and all orders received before 3:00 pm are readied for shipment on the same day. Wilmar uses bar-coding on all orders to track shipment and delivery status. Most sales are billed on net 30 day terms, with the balance paid by credit card at the time of sale. The Company seeks to carefully manage inventory to assure product availability and minimize inventory shrinkage. The Company regularly cycle counts key inventory items. Delivery. Wilmar attempts to ship its products in the most cost-effective and efficient manner. For customers located within the local delivery radius of a distribution center (typically 50 miles), Wilmar's own trucks or a contract service will deliver the products directly to the customer the next day, at no charge for orders over $25. For customers located outside the local delivery radius of a distribution center, the Company will deliver products via UPS or another parcel delivery company or, in the case of large orders, by less-than-truckload common carrier. For these customers, the Company imposes a $25 minimum order size and does not charge delivery costs if the customer's order exceeds $50, except for heavy or oversized products marked in the catalog with a "plus freight" symbol. Customized Reports. Wilmar maintains a two-year purchase history for all customers and uses this sales information to produce customized reports. The Company is able to provide customers with usage reports identifying each product purchased by the customer during any given period, the quantity, number of times purchased and total price paid. These usage reports enable customers to manage supply requirements, maintain inventory levels and prepare forecasts and budgets. Management companies can also track product purchases on either a property or company-wide basis. The Company also provides 31 customers with budget reports, showing a property's spending by product category, detailed by month-to-date, year-to-date and per apartment unit. Management reports show the same information for the entire management company, detailed by property. Wilmar's standard invoices contain a summary of purchases detailed by product category. To fit customer needs, Wilmar will develop upon request customized invoices, using customers' general ledger numbers. Wilmar's Electronic Shop. Wilmar's Electronic Shop is a free service that allows customers to electronically access Wilmar's computer through their own computers to place orders, check product pricing and availability, check order status and inquire about previous invoices. Return Policy; Warranty. The Company arranges for pick-up of returns at no charge to the customer in local delivery areas. For customers outside local delivery zones, the Company provides parcel service pick-up of the returns at no charge plus full refund if the return is the result of Company error. In fiscal 1995, the Company's return rate was approximately 4.0% of sales. The Company offers 12-year warranties on its "Wilflo" faucets and one-year warranties on its "Wilmar" ceiling fans and "Wilmar" garbage disposals. In June 1996, the Consumer Products Safety Commission ("CPSC") announced that some imported, non-glossy vinyl mini-blinds, including mini-blinds of the type sold by the Company, have lead added to stabilize the plastic in the blinds which presents a lead poisoning hazard for young children. The Company, in accordance with its standard return policy, will accept any mini-blinds returned by a customer in unopened packages. The CPSC has not announced a recall of the mini-blinds. The Company intends to sell a low lead mini-blind beginning in September 1996. PURCHASING Wilmar currently purchases products from approximately 550 vendors. In fiscal 1995, 83.5% of the Company's net sales were from products purchased directly from manufacturers in the United States and the balance (approximately 5% of total SKUs sold) directly from manufacturers in Asia. In fiscal 1995, sales of the Company's 100 highest volume SKUs accounted for 26.6% of the Company's net sales, with no single product accounting for more than 1.3% of net sales. Domestic manufacturers deliver most merchandise directly to the Company's distribution centers. The Company's volume purchasing has enabled it to benefit from favorable pricing, payment and delivery terms and promotional allowances from its manufacturers. The Company believes it has good relationships with its vendors and, to date, has not experienced any difficulty in obtaining products in sufficient quantities. The Company purchases certain products directly from suppliers in Taiwan, China and Korea, enabling it to source certain products at lower prices than those generally prevailing in the U.S. market. Most products sourced overseas are in the electrical, window and floor covering, plumbing and hardware categories and are sold under the Company's private label "Wilflo" and "Wilmar" brand names. Most of the Company's overseas purchases are financed by letters of credit and all payment terms are dollar denominated. Although the Company has no long-term contracts with its Asian suppliers, it believes that multiple sources exist for each product it purchases overseas. The Company's management information system assists buyers in monitoring and managing the Company's inventory in order to minimize out-of-stock positions. Generally, the Company has been able to return unsold inventory, and inventory write-offs have not been material. MANAGEMENT INFORMATION SYSTEMS The Company has invested substantial resources to develop proprietary computer software applications. The Company believes that these applications enable it to deliver superior customer service, centrally manage its operations and achieve cost savings. The Company uses proprietary software applications for customer service and order fulfillment and uses third party developed software programs for its inventory management and purchasing operations. Each distribution center has a continuous on-line connection to the Company's IBM RS/6000 computer system to support immediate order transmission, 32 on-line query capability and full system reporting. The Company has also installed a computerized imaging system that allows investigation of shipping status for its customers through automatic retrieval of picking and shipping document images and status queries placed through computerized access to some of its delivery services' systems. The Company manages its customer service and telesales efforts through automated routing of incoming calls. The Company has adopted procedures to protect its investment in its computer systems and to provide for recovery in the event of equipment failures. All production systems are backed up to tape daily with backup tapes stored off-site. End-of- month tapes, tape archives and production software kept on-site are stored in a fire-proof safe. COMPETITION The Company believes that the principal competitive factors in the distribution of repair and maintenance products to the apartment housing market and similar markets are the breadth and quality of products offered, reliability of delivery, customer service, product pricing and sales relationships. The Company believes it competes favorably with respect to these factors. Although there are a large number of repair and maintenance distributors in the United States, based on industry reports and its own experience, the Company believes that most of them operate in a single region (often with a single distribution center) and have significantly less annual sales than the Company. In addition, the Company competes with mail order catalog companies, retail stores including superstores, specialty suppliers and industrial suppliers. Certain of these companies have greater financial resources and sell more products than Wilmar. EMPLOYEES The Company employed 397 people as of June 30, 1996. Of these, 89 were in sales, six in telesales, 36 in customer service, 202 in operations and 64 in management and administration. At June 30, 1996, HMA employed 117 people, including 23 direct sales people. Fifty of the Company's distribution center employees and truck drivers at the Philadelphia distribution center are covered by a collective bargaining agreement with Highway Truck Drivers and Helpers Local 107, which is affiliated with the International Brotherhood of Teamsters. This agreement expires in May 1998. The Company has never experienced a work stoppage. The Company believes its relations with its employees are good. PROPERTIES The Company leases approximately 12,500 square feet of office space in Moorestown, New Jersey from William Green for its headquarters. See "Certain Transactions--Headquarters Lease." The Company leases the following distribution centers:
CURRENT YEAR DISTRIBUTION CENTER SQUARE FOOTAGE OPENED/ACQUIRED ------------------- -------------- --------------- Philadelphia(1)........................... 43,200 1978 Washington, D.C........................... 28,500 1982 Houston................................... 12,700 1987 Indianapolis.............................. 16,000 1991 Fresno.................................... 14,400 1992 Atlanta................................... 12,200 1993 Tampa..................................... 36,700 1994 Columbus.................................. 20,800 1995 Seattle................................... 16,200 1995 Miami (One Source)........................ 37,000 1995* Denver (Mile High)........................ 27,100 1996* Las Vegas (Sun Valley).................... 3,300 1996* Dallas (HMA).............................. 26,900 1996* Houston (HMA) ............................ 55,000 1996* San Antonio (HMA)......................... 5,700 1996*
- -------- * Distribution center acquired. (1) The Company has recently leased approximately 70,000 square feet of office and warehouse space in Mt. Laurel, New Jersey to replace its existing Philadelphia distribution center. See "Certain Transactions--Mt. Laurel Lease." 33 These properties are leased for periods of three to ten years and generally do not include tenant renewal options. The Company believes its current facilities are adequate for its current and reasonably foreseeable needs and that suitable additional or alternative space will be available as needed to accommodate future growth and to open additional distribution centers. SALES OR USE TAX The Company collects sales tax in the 28 states where it has the required contacts. From time to time, various states have sought to impose on direct marketers the burden of collecting use taxes on the sale of products shipped to residents of these states. The United States Supreme Court held that it is unlawful for a state to impose use tax collection obligations on an out-of- state company whose only contacts with the state were the distribution of catalogs and other advertising materials through the mail and subsequent delivery of purchased goods by mail or common carrier. In the event legislation is passed to overturn the Supreme Court's decision, the imposition of a use tax collection obligation on the Company in states into which it ships products but with which it has no other contacts would result in additional administrative expense to the Company and higher prices to customers. LEGAL PROCEEDINGS The Company is involved in various legal proceedings in the ordinary course of its business which are not anticipated to have a materially adverse effect on the Company's results of operations or financial condition. See Note 12 of Notes to the Consolidated Financial Statements. 34 MANAGEMENT EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES The directors, executive officers and key employees of the Company are:
EXECUTIVE OFFICERS AND DIRECTORS AGE POSITION - -------------------------------- --- -------- William S. Green(1).................. 37 Chairman, President, Chief Executive Officer and Director Fred B. Gross........................ 58 Vice President--Corporate Development, Secretary and Director Michael T. Toomey.................... 31 Chief Financial Officer and Treasurer Ernest K. Jacquet(1)(2)(3)........... 48 Director Joseph F. Trustey(1)(2)(3)........... 33 Director Donald M. Wilson..................... 56 Director OTHER KEY EMPLOYEES - ------------------- Hugh H. Bryan........................ 40 Vice President--Information Systems Michael A. D'Adamo................... 42 Vice President--Sales Raymond J. Del Vecchio............... 37 Vice President--Operations Anthony Petrille..................... 36 Purchasing Manager
- -------- (1) Member of Compensation Committee (2) Member of Audit Committee (3) Member of Stock Option Committee Mr. Green co-founded the Company in 1978 with his father and has been its Chairman, President and Chief Executive Officer since 1986. From 1978 until 1986, he served as the Company's Vice President. Mr. Gross has been a Vice President and Secretary of the Company since March 1994 and Vice President--Corporate Development since November 1995. He was elected a director in July 1995. From 1989 until February 1994, Mr. Gross was Regional Vice President of Angelo Brothers Company, a supplier of electrical products, while also maintaining a private law practice. Before attending law school, Mr. Gross worked for 22 years in the plumbing supply industry. Mr. Toomey has been Chief Financial Officer and Treasurer of the Company since October 1992. Mr. Toomey is a certified public accountant and, from October 1986 until October 1992, was an accountant with the public accounting firm of Fishbein & Company, P.C. Mr. Jacquet has been a director of the Company since March 1995. Since April 1990, he has been a general partner of Summit Partners, a venture capital partnership that is the general partner of the Summit Investors. Mr. Jacquet also serves as a director of CIDCO Incorporated, a publicly-held company. Mr. Trustey has been a director of the Company since April 1995. Mr. Trustey has been employed by Summit Partners since June 1992, was a Vice President from December 1994 to January 1996 and since that time has been a general partner of Summit Partners. From June 1990 to June 1992, Mr. Trustey was a strategy consultant with Bain & Co., Inc., a management consulting firm. Mr. Trustey also serves as a director of Home Health Corporation of America, Inc. a publicly-held company. In accordance with the understanding among the Company and the Summit Investors, Mr. Trustey intends to resign as a director following the consummation of this offering. Mr. Wilson has been a director of the Company since July 1996. Mr. Wilson was employed by Viking Office Products from December 1979 until his retirement in December 1995. Most recently, Mr. Wilson served as Viking's Vice President--Operations from January 1991. 35 Mr. Bryan has been Vice President--Information Systems of the Company since September 1995. From August 1986 until September 1995, Mr. Bryan was the Director of Management Information Systems for Today's Man, Inc., a retailer of men's clothing. Mr. D'Adamo has been Vice President--Sales of the Company since September 1992. From May 1990 until August 1992, he was Corporate Vice President of NCH Corporation, Plumbmaster Division. Mr. D'Adamo has 19 years of experience in the sale of repair and maintenance products. Mr. Del Vecchio has been Vice President--Operations of the Company since May 1995. From July 1993 until May 1995, he was Customer Service Manager and Director of Telemarketing for the Company, and from May 1992 until July 1993, was Security Products Manager. Before joining the Company in 1992, Mr. Del Vecchio was employed by the New Jersey Department of Corrections. Mr. Petrille has been the Purchasing Manager for the Company since June 1990. From September 1989, when he joined the Company, until June 1990, Mr. Petrille was the Company's buyer for plumbing supplies. Mr. Petrille has 13 years of experience in repair and maintenance product purchasing. DIRECTORS; COMMITTEES The Board of Directors is divided into three classes. Each class holds office until the third annual meeting for the election of directors following the election of such class, except that the initial terms of the Class I, Class II and Class III directors expire in 1997, 1998 and 1999, respectively. Mr. Green and Mr. Wilson are Class I directors, Messrs. Gross and Trustey are Class II directors, and Mr. Jacquet is a Class III director. In connection with the Company's initial public offering, the Board of Directors established a Compensation Committee, a Stock Option Committee and an Audit Committee. The Compensation Committee, consisting of Messrs. Green, Jacquet and Trustey, has the authority to approve salaries and bonuses and other compensation matters for officers of the Company and to approve employee health and benefit plans. The Stock Option Committee, consisting of the members of the Compensation Committee other than Mr. Green, administers the Company's Stock Option Plan. The Audit Committee, consisting of Messrs. Jacquet and Trustey, has the authority to recommend the appointment of the Company's independent auditors and review the results and scope of audits, internal accounting controls and tax and other accounting related matters. Officers of the Company are elected by the Board of Directors and serve at the discretion of the Board. COMPENSATION OF DIRECTORS Prior to the Company's initial public offering, directors did not receive compensation for acting as such. Independent directors are now paid directors' fees of $1,500 for each board meeting attended. In addition, directors are reimbursed for expenses incurred in connection with attendance at board and committee meetings. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Company did not have a Compensation Committee of the Board of Directors prior to November 1995. Prior to that date, Mr. Green made executive officer compensation decisions in consultation with the Board of Directors. The Compensation Committee consists of Messrs. Jacquet, Trustey and Green. 36 EXECUTIVE COMPENSATION Summary Compensation Table. The following table sets forth individual compensation paid to the Chief Executive Officer and the other executive officers of the Company (the "Named Executive Officers") for all services rendered in all capacities to the Company during fiscal 1995:
1995 ANNUAL COMPENSATION -------------------------------- ALL OTHER NAME AND POSITION SALARY BONUS COMPENSATION(1) ----------------- -------- ------- --------------- William Green................................. $200,000 $50,000 $2,938 Chairman, President and Chief Executive Officer Fred B. Gross................................. 107,726 40,000 1,790 Vice President--Corporate Development and Secretary Michael T. Toomey............................. 69,700 40,000 1,693 Chief Financial Officer and Treasurer
- -------- (1) All other compensation consists of amounts matched by the Company under its 401(k) Plan with respect to Messrs. Green, Gross and Toomey. The amount shown for Mr. Gross does not include $12,000 of legal fees paid to the law firm of Fred Gross, Esq. See "Certain Transactions--Certain Payments to an Executive Officer." OPTION GRANTS AND EXERCISES The following table sets forth the stock option grants made during 1995 to each of the Company's executive officers named in the Summary Compensation Table and to all employees as a group. All key employees are eligible for stock option grants based on individual performance. The Company did not issue any stock appreciation rights. The table also sets forth the hypothetical gains that would exist for the options at the end of their ten-year terms, assuming compound rates of stock appreciation of 5% and 10%. The actual future value of the options will depend on the market value of the Company's Common Stock. No stock options were exercised during fiscal 1995 by any of the Company's executive officers named in the Summary Compensation Table.
POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL RATES OF STOCK PRICE APPRECIATION AT END OF TEN YEAR INDIVIDUAL GRANTS OPTION TERMS(1) ------------------------------------------- --------------------- NUMBER OF % OF TOTAL SHARES OPTIONS COVERED BY GRANTED TO OPTION EMPLOYEES IN EXERCISE EXPIRATION NAME GRANTS(2) FISCAL 1995 PRICE DATE 5% 10% - ---- ---------- ------------ -------- ---------- --------------------- William S. Green........ -- -- -- -- -- -- Fred B. Gross........... 64,400 23% $4.23 3/8/05 $ 171,318 $ 434,155 Michael T. Toomey....... 72,800 26% $4.23 3/8/05 $193,664 $ 490,783 All employees as a group.................. 280,000 100% $4.23 (3) $744,863 $1,887,629
- -------- (1) These amounts, based on assumed appreciation rates of the 5% and 10% rates prescribed by the Securities and Exchange Commission rules are not intended to forecast possible future appreciation, if any, of the Company's stock price. The Company did not use an alternative formula for a grant date valuation as it is not aware of any formula which will determine with reasonable accuracy a present value based on future unknown or volatile factors. (2) Except as otherwise indicated, this column relates to options granted under the 1995 Stock Option Plan (the "Option Plan"). The options granted vest in 25% increments on the second through fifth 37 anniversaries of the date of grant. The options expire on the tenth anniversary of the date of grant. In general, options terminate (a) at any time the optionee's employment is terminated by the Company for cause or a voluntary termination of employment by the employee, and (b) one year following death or disability of the employee. Options granted under the Option Plan are not assignable or otherwise transferable except by will or the laws of descent and distribution. Shares subject to options granted under the Option Plan which have lapsed or terminated may again be subject to options granted under the Option Plan. (3) Options were granted to various employees between March and September 1995. Options expire 10 years from the dates of grant. The following table sets forth the number and total value of unexercised in- the-money options at December 29, 1995 for each of the Company's executive officers named in the Summary Compensation Table. No stock options were exercised during the last fiscal year by any of the Company's executive officers. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND OPTION VALUES AT DECEMBER 29, 1995
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT AT DECEMBER 29, 1995(#) DECEMBER 29, 1995($)(1) NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE - ---- ------------------------- ------------------------- William S. Green............ --/-- $--/-- Fred B. Gross............... --/64,400 --/435,988 Michael T. Toomey........... --/72,800 --/492,856
- -------- (1) Based on the fair market value of the Common Stock on December 29, 1995 at an assumed price of $11.00 (the initial public offering price), which management believed to be the fair market value on such date, less the exercise price. EMPLOYMENT AGREEMENTS In connection with the 1995 Recapitalization, William Green entered into an employment agreement with the Company. Under the provisions of the employment agreement, Mr. Green will serve as President and Chief Executive Officer of the Company until March 1, 2000, unless earlier terminated by the Company, at an annual base salary of $200,000, subject to adjustment, and an annual bonus upon achieving specified financial targets set by the Compensation Committee. The employment agreement also contains certain non-competition and related provisions. The Company has entered into an employment agreement with Fred B. Gross. The initial term of the agreement expires in April 1997 but will be renewed automatically for successive one-year terms unless terminated by either party. The agreement provides that Mr. Gross will receive an annual base salary of not less than $107,500. The employment agreement also contains certain non- competition and related provisions. EMPLOYEE BENEFIT PLANS 401(k) Plan. Effective January 1, 1986, the Company adopted a profit sharing plan (the "401(k) Plan") covering all of the Company's employees who have completed ninety days of service and have attained the age of 21. The 401(k) Plan is intended to be a tax-qualified plan under Section 401(a) of the Code. The 401(k) Plan enables employees to reduce their taxable compensation by electing to defer current compensation into the 401(k) Plan, up to the statutorily prescribed annual limit ($9,240 in 1995). The Company may, but is not required to, make matching contributions to the 401(k) Plan based on the 38 amounts participants contribute to the 401(k) Plan up to a maximum of 5% of compensation. In each of the past three years the Company has made matching contributions equal to 20% of employee contributions up to the 5% of compensation maximum. Company matching contributions totalled $6,495 in 1993, $11,054 in 1994 and $75,290 in 1995. 1995 Stock Option Plan. The 1995 Stock Option Plan (the "Option Plan") was adopted by the Board of Directors and approved by the shareholders in March 1995. The Option Plan is intended to motivate and reward designated officers and other key employees of the Company and its subsidiaries who contribute to the growth of the Company by granting them stock options to acquire shares of Common Stock. Grants of stock options under the Option Plan may be made to officers (including officers who are directors) and other key employees of the Company and its subsidiaries. Under the Option Plan, the Company may grant options with respect to a maximum of 800,000 shares of Common Stock ("Options"). The Option Plan is administered by a committee (the "Committee") appointed by the Board of Directors. The Committee has the authority to determine the officers and key employees to whom Options are granted (the "Optionees"), the type, size and terms of the Options, the grant date, the expiration date, the vesting schedule and other terms and conditions of the Options. The Committee has the authority to construe and interpret the provisions of the Option Plan. Each Option is evidenced by a Grant Letter from the Committee to the Optionee setting forth the terms and conditions of the Option. Options intended to qualify as incentive stock options under the Code or nonqualified stock options may be granted under the Option Plan. No Optionee may receive Options to purchase more than 150,000 shares under the Option Plan. The exercise price of incentive stock options granted under the Option Plan must be at least equal to the fair market value of the Common Stock on the date of the grant except that the exercise price of an incentive stock option granted to a person owning more than 10% of the total combined voting power of all classes of stock of the Company (a "Ten Percent Shareholder") must be at least 110% of the fair market value of the Common Stock on the date of grant. The exercise price of nonqualified stock options granted under the Option Plan may not be less than the fair market value of the Common Stock on the date of the grant. Options granted under the Option Plan will vest at such times as are specified by the Committee. An Option granted to an Optionee will expire on the date determined by the Committee, which date may not exceed 10 years from the date of grant, except that an incentive stock option granted to a Ten Percent Shareholder must be exercised within five years of the date of grant. If an Optionee with outstanding Options dies or becomes disabled while an employee of the Company or a subsidiary, or dies within thirty days (or within such period determined by the Committee) after he ceases to be an employee for any reason other than termination for cause by the Company or voluntary termination by the employee, any outstanding Option, to the extent it has vested, may be exercised by the individual or his personal representative within the period of one year after the date of death or disability (except as the Committee may otherwise provide). If an individual with outstanding Options ceases to be an employee on account of a termination for cause by the Company or a voluntary termination of employment by the employee, any outstanding Option shall terminate as of the date he ceases to be an employee (except as the Committee may otherwise provide). If the Company terminates the employment of an Optionee for any reason other than those previously described, any outstanding Option, to the extent that it was exercisable on the date of such termination, may be exercised by the holder within thirty days (or such shorter time as may be specified by the Committee in the Grant Letter), but in no event later than the expiration of the Option. The Board may amend or terminate the Option Plan at any time, except that the Board cannot amend the plan to materially increase the benefits accruing to participants under the Option Plan, increase the aggregate number (or individual limit) of shares of Common Stock that may be issued or transferred under the Option Plan, or modify the requirements as to the eligibility for participation in the plan without the approval by the shareholders. In addition, the Board is prohibited from amending the Option Plan if such 39 amendment would cause the Option Plan or any Option, or the exercise of any right under the Option Plan to fail to comply with the requirements of Rule 16b-3 under the Securities Exchange Act of 1934, as amended, or would cause the Option Plan, the Option, or the exercise of an incentive stock option under the Option Plan, to fail to comply with the requirements of Section 422 of the Internal Revenue Code of 1986, as amended. No amendment of the Option Plan may adversely affect any outstanding Options without the consent of each holder thereof. The Company currently has outstanding options to purchase an aggregate of 280,000 shares of Common Stock at an exercise price of $4.23 per share. These options were granted between March and September 1995 and are held by 18 employees of the Company, including Mr. Gross (64,400 shares) and Mr. Toomey (72,800 shares), and vest in 25% increments on the second through fifth anniversaries of the date of grant. The Company also has outstanding options to purchase an aggregate of 100,000 shares of Common Stock at an exercise price of $11.00 per share. These options are held by 11 employees of the Company, including Mr. Gross (17,045 shares) and Mr. Toomey (17,045 shares), and will vest 100% on the first anniversary of the date of grant. CERTAIN TRANSACTIONS Mt. Laurel Lease. On April 29, 1996, the Company entered into an operating lease agreement with a company owned by William Green, Fred Gross and an unrelated third party, pursuant to which the Company leases approximately 70,000 square feet for a warehouse and customer service center in Mt. Laurel, New Jersey to replace the Company's existing Philadelphia distribution center and to provide the Company with additional office space. The Company leases the space for a minimum monthly rent of $18,500 from September 1, 1996 through December 31, 1996, of $24,050 from January 1, 1997 through May 31, 2001 and an increased rent from June 1, 2001 through the end of the lease term based on the Consumer Price Index. The Company pays, as additional rent, all real estate taxes and assessments, all utilities and insurance premiums for casualty insurance and any other public liability insurance relating to the premises. Under the terms of the lease, the Company is solely responsible for the costs of maintenance, operation and repair of the leased property. The Company believes that the terms of the lease are no less favorable to it than could be obtained from an unaffiliated party. The lease term commenced on June 1, 1996 and will expire May 31, 2006. Headquarters Lease. The Company's headquarters at 303 Harper Drive, Moorestown, New Jersey is leased to the Company by William Green. Under the lease dated March 1, 1994 and amended March 7, 1995, the Company rents approximately 12,500 square feet at an annual minimum rent of approximately $137,500. The Company pays, as additional rent, all real estate taxes and assessments, all utilities and insurance premiums for casualty insurance and any other public liability insurance relating to the premises. Under the terms of the lease, the Company is solely responsible for the costs of maintenance, operation and repair of the headquarters property. The Company paid rent to Mr. Green in the amount of $145,000 for fiscal 1995. In 1995, the Company made mortgage payments on the property in the amount of $42,500 in lieu of paying rent to Mr. Green. The lease expires on February 28, 2004 and does not contain any renewal terms. The Company believes that the terms of the lease are no less favorable to it than could be obtained from an unaffiliated party. Summit Financing and 1995 Recapitalization. In March 1995, the Company effected a recapitalization (the "1995 Recapitalization"). As an integral part of the 1995 Recapitalization, the Company made a dividend distribution to William Green, the sole shareholder of the Company at that time, in the form of 105,914 shares of Series B Junior Preferred Stock with a redemption value of $10.6 million, to be amended as described below. The Company issued 129,450 shares of its Series A Senior Preferred Stock to the Summit Investors for a purchase price of $12.9 million. All of the outstanding Series A Senior Preferred Stock was redeemed, by its terms, for $12.9 million (plus accrued dividends estimated at $900,000) upon consummation of the Company's initial public offering in January 1996. In addition, the Company issued to certain of the Summit Investors $4.0 million of 11.5% Subordinated Debentures which were repaid by their terms, along with accrued interest thereon, upon consummation of the initial 40 public offering. The Company used the proceeds of the investment by Summit to redeem 3,584,000 shares of Common Stock held by William Green for $15.1 million. As additional consideration for the redemption of Mr. Green's Common Stock in the 1995 Recapitalization, the Company issued a $2.0 million note to Mr. Green on November 22, 1995, payable only if the Company satisfies certain earnings targets in 1995 and 1996, or upon the earlier consummation of a qualified liquidity event. The initial public offering constituted a qualified liquidity event, and the note was repaid with a portion of the proceeds of the initial public offering. In connection with the 1995 Recapitalization, the Company issued 3,080,000 shares of its Common Stock to the Summit Investors for an aggregate purchase price of $55,000. As a result of the 1995 Recapitalization, the Company has incurred significant interest expense and been required to accrue preferred dividends since March 9, 1995. In connection with the initial public offering William Green agreed to convert $5.0 million of his Series B Junior Preferred Stock into Common Stock at the offering price. Simultaneously with the initial public offering, the terms of the Series B Junior Preferred Stock were amended to provide that $5.0 million of his Series B Junior Preferred Stock would be converted into 454,545 shares of Common Stock, and the balance would be redeemed for $5.6 million (plus accrued dividends estimated at $700,000). Martin and Florence Green Stock Redemption. On July 8, 1993, the Company redeemed all of the outstanding shares of Common Stock held by Martin and Florence Green, the parents of William Green, for $2.0 million, payable by promissory notes. The redemption price was subject to upward adjustment if, within four years of the closing date of the redemption, William Green sold substantially all of his stock or the Company sold substantially all of its assets. On November 28, 1994, Mr. and Mrs. Green and the Company agreed to settle this adjustment obligation, which arose in connection with the 1995 Recapitalization, for $694,000, paid at the closing of the 1995 Recapitalization. The Company used a portion of the proceeds of its initial public offering to prepay in full the Company's obligations under the remaining note. Certain Payments for Collection Services. In 1995, the Company made payments in the aggregate amount of $12,000 to the law firm of Fred Gross, Esq. for services in collecting delinquent accounts receivable on behalf of the Company. This firm, which is owned by Mr. Gross, collects delinquent accounts receivable for a number of businesses, including the Company. The day-to-day services of the firm are performed by Mr. Gross's spouse. The Company believes that the terms of the engagement are no less favorable than could be obtained by an unaffiliated firm. Any future transactions between the Company and its officers, directors or principal shareholders first will be approved by a majority of the then disinterested members of the Board of Directors. 41 PRINCIPAL AND SELLING SHAREHOLDERS The following table sets forth information with respect to beneficial ownership of the Common Stock as of the date of this Prospectus (i) by each person who beneficially owns more than 5% of the Common Stock, (ii) by each of the Company's executive officers and directors, and (iii) by all executive officers and directors of the Company as a group. Unless otherwise noted, each person named in the table has sole voting and investment power as to shares shown.
SHARES BENEFICIALLY OWNED PRIOR TO SHARES BENEFICIALLY OFFERING SHARES OWNED AFTER OFFERING -------------------------- BEING ----------------------- NAME AND ADDRESS NUMBER PERCENT OFFERED NUMBER PERCENT ---------------- ------------ ------------------- ------------ ---------- Summit Partners(1)...... 3,080,000 29.5 1,500,000 1,580,000 12.7 One Boston Place Boston, MA 02108 William Green(2)........ 2,694,545 25.8 270,000 2,424,545 19.5 303 Harper Drive Moorestown, NJ 08057... Fred B. Gross(3)........ 5,000(3) * -- 5,000 * Michael T. Toomey(4).... -- -- -- -- -- Ernest K. Jacquet(5).... 3,080,000 29.5 1,500,000 1,580,000 12.7 Joseph F. Trustey....... -- -- -- -- -- All executive officers and directors as a group (6 persons)...... 5,779,545 55.3 1,770,000 4,009,545 32.2
- -------- * Less than one percent. (1) The amount shown consists of 2,902,219, 116,181 and 61,600 shares held of record by Summit Ventures III, L.P., Summit Subordinated Debt Fund, L.P. and Summit Investors II, L.P., respectively. Summit Partners SD, L.P. is a General Partner of Summit Subordinated Debt Fund, L.P. and Summit Partners III, L.P. is a General Partner of Summit Ventures III, L.P. Stamps, Woodsum & Co. III is a General Partner of Summit Partners SD, L.P. and Summit Partners III, L.P., and Ernest K. Jacquet, a director of the Company, is a General Partner of Stamps, Woodsum & Co. III and Summit Investors II, L.P. See Note (5). (2) The amount shown includes 283,509 shares held in trust for the benefit of Mr. Green's children, for which Mr. Green disclaims beneficial ownership. (3) Mr. Gross is also the beneficial owner of options to purchase 81,445 shares of Common Stock, none of which is exercisable. (4) Mr. Toomey is also the beneficial owner of options to purchase 89,845 shares of Common Stock, none of which is exercisable. (5) Includes shares in Note (1) above. Mr. Jacquet, a director of the Company, is a general partner of affiliates of Summit Partners, L.P. Mr. Jacquet exercises shared investment and voting power with respect to such shares, but disclaims beneficial ownership of such shares. 42 DESCRIPTION OF CAPITAL STOCK The authorized capital stock of the Company consists of 50,000,000 shares of Common Stock, no par value, and 5,000,000 shares of Preferred Stock, par value $.01 per share. At June 30, 1996, the Company had 10,374,545 shares of Common Stock and no shares of Preferred Stock outstanding. COMMON STOCK Each outstanding share of Common Stock is entitled to one vote on all matters presented to shareholders. If dividends are declared, whether payable in cash, property or securities of the Company, all holders of Common Stock are entitled to share equally, share for share, in such dividends. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, after payment has been made to the holders of shares of Preferred Stock, if any, for the full amount to which they are entitled, the holders of the shares of Common Stock are entitled to share equally, share for share, in the assets available for distribution. All currently outstanding shares of Common Stock are, and upon issuance as set forth herein, the shares of Common Stock being sold by the Company will be, duly authorized, validly issued, fully paid and non-assessable. PREFERRED STOCK The Board of Directors is authorized to issue up to 5,000,000 shares of Preferred Stock in one or more series and has authority to establish the designations, preferences, qualifications, privileges, limitations, restrictions, options, conversion rights and other special or relative rights of any series of Preferred Stock, without any further vote or action by the shareholders of the Company. The issuance of additional shares of Preferred Stock could adversely affect the voting power and other rights of holders of Common Shares. Because the terms of the Preferred Stock may be fixed by Board of Directors of the Company without shareholder action, the Preferred Stock could be issued quickly with terms calculated to defeat a proposed takeover of the Company, or to make the removal of management of the Company more difficult. The authority to issue Preferred Stock or rights to purchase such stock could be used to discourage a change in control of the Company. Management of the Company is not aware of any such threatened transaction to obtain control of the Company, and the Board of Directors has no current plans to designate and issue any additional shares of Preferred Stock. CERTAIN PROVISIONS THAT MAY HAVE AN ANTI-TAKEOVER EFFECT The provisions of the Company's Certificate of Incorporation, as amended, (the "Certificate of Incorporation") and Bylaws summarized below may have an anti-takeover effect and may delay, defer or prevent a tender offer or takeover attempt not approved by the Board of Directors, including those made at a premium over the prevailing market price of the Common Stock held by shareholders. The Certificate of Incorporation provides for a classified Board of Directors consisting of three classes as nearly equal in size as practicable. Each class holds office until the third annual meeting for election of directors following the election of such class, except that the initial terms of the three classes expire in 1997, 1998 and 1999, respectively. Any director may be removed with cause upon the vote of the holders of a majority of the shares of Common Stock then entitled to vote. Directors may not be removed without cause. The rights, preferences, privileges and limitations of the Preferred Stock as may be established by the Board of Directors could have the effect of impeding or discouraging the acquisition of control of the Company in a transaction not approved by the Board of Directors. The Certificate of Incorporation and the Bylaws further provide that (i) shareholders may act only at an annual or special meeting or by unanimous written consent, (ii) special meetings may only be called 43 by the Chairman of the Board, President or a majority of the Board of Directors, and (iii) unless approved by two-thirds of the entire Board of Directors, any action (other than the election of directors) to be taken by the shareholders (including amendments to the Certificate of Incorporation and Bylaws and mergers and other business combinations) requires the vote of two- thirds of the outstanding voting stock, voting as a single class. The Company's Certificate of Incorporation and Bylaws establish advance notice procedures with regard to the nomination, other than by or at the direction of the Board of Directors or a committee thereof, of candidates for election as directors. These procedures provide that the notice of proposed shareholder nominations of candidates must be timely given in writing to the Secretary of the Company prior to the meeting at which directors are to be elected. These provisions are intended to encourage persons considering an acquisition or takeover of the Company to negotiate with the Board of Directors rather than pursue non-negotiated takeover attempts even though such takeover might be desired by a majority of the shareholders. These provisions may also reduce the likelihood of a change in the management or voting control of the Company without the consent of the then incumbent Board of Directors. LIMITATION OF LIABILITY; INDEMNIFICATION OF OFFICERS AND DIRECTORS The Company's Certificate of Incorporation provides that, pursuant to and to the extent permitted by New Jersey law, the Company's directors shall not be personally liable for monetary damages for breach of any duty owed to the Company and its shareholders. This provision does not eliminate the duty of care, and, in appropriate circumstances, equitable remedies such as an injunction or other forms of non-monetary relief would remain available under New Jersey law. In addition, each director will continue to be subject to liability for breach of the director's duty of loyalty to the Company, for acts or omissions not in good faith or involving knowing violations of law, or for actions resulting in improper personal benefit to the director. The provision also does not affect a director's responsibilities under any other law, such as the federal securities laws or state or federal environmental laws. The Company's Bylaws provide that the Company shall indemnify its officers and directors to the fullest extent permitted by New Jersey law, including some instances in which indemnification is otherwise discretionary under New Jersey law. TRANSFER AGENT AND REGISTRAR The Transfer Agent and Registrar for the Common Stock is American Stock Transfer & Trust Co., New York, New York. LISTING The Company's Common Stock is listed on the Nasdaq National Market under the symbol "WLMR". REGISTRATION RIGHTS AGREEMENTS In connection with the Summit Agreement, the Company entered into a Registration Rights Agreement with the Summit Investors and William Green. The Registration Rights Agreement gives William Green and the Summit Investors holding (a) at least 25% of (i) the outstanding Common Stock or (ii) the outstanding securities convertible into or exercisable for shares of Common Stock or (b) an amount of Common Stock or securities convertible into or exercisable for shares of Common Stock with an aggregate offering price in excess of $5.0 million, the right to request the Company to effect the registration of such securities under the Act ("Demand Registration"). In addition, the Registration Rights Agreement gives the Summit Investors and William Green the right to have their securities included in offerings of the Company's securities that are registered under the Act ("Piggyback Registration") . Securities to be registered pursuant to Piggyback Registration need only be included, on a pro rata basis, to the extent the managing underwriter advises the Company that the aggregate number of securities 44 which the selling shareholders seek to offer can be sold. The Company is required to pay all expenses of the holders of securities in connection with Demand Registration and Piggyback Registration other than underwriting discounts and commissions. In connection with the HMA Acquisition, the Company entered into a Registration Rights Agreement with certain former HMA shareholders who received 67,615 shares of Common Stock in the HMA Acquisition. The Registration Rights Agreement gives such former HMA shareholders Piggyback Registration rights for offerings of the Company's securities following this offering. Securities to be registered pursuant to Piggyback Registration need only be included in such registrations pro rata with the securities issued by the Company in future acquisitions, to the extent the managing underwriter advises the Company that the aggregate number of securities that the selling shareholders seek to offer can be sold, after considering all securities to be sold by the Company, the Summit Investors and Willam Green pursuant to such offering. The Company is required to pay all expenses of the holders of securities in connection with Piggyback Registration other than underwriting discounts and commissions. Both Registration Rights Agreements require the Company to indemnify each selling shareholder against certain violations of securities laws in connection with a registration which results in losses to the selling shareholder, unless a violation is caused by such shareholder. In turn, the selling shareholders must indemnify the Company against losses arising from their violation of securities laws in the registration process. SHARES ELIGIBLE FOR FUTURE SALE Upon completion of this offering, assuming no exercise of outstanding options, the Company will have outstanding 12,442,160 shares of Common Stock. Of these shares, the 4,600,000 shares of Common Stock issued in the initial public offering are, and the 3,770,000 shares of Common Stock sold in this offering will be, freely tradeable without restriction or registration under the Act. The remaining shares of Common Stock were issued by the Company in transactions that were exempt from the registration requirements of the Act and, therefore, are restricted securities under Rule 144 promulgated under the Act. In general, under Rule 144 as currently in effect, a person who has beneficially owned shares for at least two years (or one year if the SEC's proposed amendments to Rule 144 become effective), including an "affiliate," as that term is defined in the Act, is entitled to sell within any three-month period a number of shares that does not exceed the greater of one percent of the then outstanding shares of Common Stock (approximately 124,422 shares after giving effect to this offering), or the average weekly trading volume during the four calendar weeks preceding filing of notice of such sale. Sales under Rule 144 are also subject to certain manner of sale provisions, notice requirements and the availability of current public information about the Company. A person who is not an affiliate at any time during the 90 days preceding a sale, and who has beneficially owned shares for at least three years, is entitled to sell such shares under Rule 144 without regard to the volume limitations, manner of sale provisions or public information requirements. All of the 2,424,545 outstanding shares Mr. Green will own after this offering have been beneficially owned for more than two years and, therefore, are eligible for resale in the public market, subject to the 90-day lock-up agreement with Alex. Brown & Sons Incorporated and the volume and other restrictions contained in Rule 144 promulgated by the SEC. All of the 1,580,000 outstanding shares of Common Stock the Summit Investors will own after this offering have been beneficially owned since March 9, 1995 and, therefore, will be eligible for resale in the public market, subject to this 90-day lock-up agreement and the volume and other restrictions contained in Rule 144 on March 9, 1997 (or sooner if the SEC's proposed amendments to Rule 144 become effective). In addition, Mr. Green and the Summit Investors are entitled to certain demand and piggyback registration rights. If such holders, by exercising their registration rights, cause a large number of shares of Common Stock to be registered and offered for sale in the public market, this could have an adverse effect on the market price of the Common Stock. LOCK-UP ARRANGEMENTS The Company, its officers and directors and the Summit Investors have agreed not to sell or otherwise dispose of any shares of Common Stock for a period of 90 days after the date of this Prospectus without the prior written consent of Alex. Brown & Sons Incorporated. For a description of the rights of the Company's existing shareholders to effect a registration of their shares, see "Description of Capital Stock-- Registration Rights Agreement." 45 UNDERWRITING Subject to the terms and conditions of the Underwriting Agreement, the underwriters named below (the "Underwriters"), through their Representatives, Alex. Brown & Sons Incorporated, William Blair & Company, L.L.C., Robertson, Stephens & Company LLC and PaineWebber Incorporated (collectively, the "Representatives"), have severally agreed to purchase from the Company the following respective number of shares of Common Stock at the public offering price less the underwriting discounts and commissions set forth on the cover page of this Prospectus:
NUMBER UNDERWRITER OF SHARES ----------- --------- Alex. Brown & Sons Incorporated.................................. William Blair & Company, L.L.C. ................................. Robertson, Stephens & Company LLC................................ PaineWebber Incorporated......................................... --------- Total.......................................................... 3,770,000 =========
The Underwriting Agreement provides that the obligations of the Underwriters are subject to certain conditions precedent and that the Underwriters will purchase all of the shares of Common Stock offered hereby if any of such shares are purchased. The Company has been advised by the Representatives that the Underwriters propose to offer the shares of Common Stock to the public at the public offering price set forth on the cover page of this Prospectus and to certain dealers at such price less a concession not in excess of $ per share. The Underwriters may allow, and such dealers may reallow, a concession not in excess of $ per share to certain other dealers. After commencement of the public offering, the offering price and other selling terms may be changed by the Representatives. The Company has granted to the Underwriters an option, exercisable not later than 30 days after the date of this Prospectus, to purchase up to 565,500 additional shares of Common Stock at the initial public offering price less the underwriting discounts and commissions set forth on the cover page of this Prospectus. To the extent that the Underwriters exercise such option, each of the Underwriters will have a firm commitment to purchase approximately the same percentage thereof that the number of shares of Common Stock to be purchased by it shown in the above table bears to 3,770,000, and the Company will be obligated, pursuant to the option, to sell such shares to the Underwriters. The Underwriters may exercise such option only to cover over- allotments made in connection with the sale of the Common Stock offered hereby. If purchased, the Underwriters will offer such additional shares on the same terms as those on which the 3,770,000 shares are being offered hereby. The Underwriting Agreement contains covenants of indemnity and contribution among the Underwriters, the Company and the Selling Shareholders regarding certain liabilities, including liabilities under the Securities Act. 46 One or more of the Underwriters currently act as market makers for the Common Stock and may engage in "passive market making" in such securities on the Nasdaq National Market in accordance with Rule 10b-6A under the Exchange Act. Rule 10b-6A permits, upon the satisfaction of certain conditions, underwriters participating in a distribution that are also Nasdaq market makers in the security being distributed to engage in limited market making transactions during the period when Rule 10b-6A under the Exchange Act would otherwise prohibit such activity. Rule 10b-6A prohibits underwriters engaged in passive market making generally from entering a bid or effecting a purchase at a price that exceeds the highest bid for those securities displayed on the Nasdaq National Market by a market maker that is not participating in the distribution. Under Rule 10b-6A, each underwriter engaged in passive market making is subject to a daily net purchase limitation equal to 30% of such Underwriter's average daily trading volume during the two full consecutive calendar months immediately preceding the date of the filing of the registration statement under the Securities Act pertaining to the security to be distributed. The Company has agreed that until 90 days after the date of this Prospectus, it will not, without the prior written consent of Alex. Brown & Sons Incorporated, sell, offer to sell, issue, or otherwise distribute any shares of Common Stock or any options, rights or warrants with respect to any Common Stock, except for shares issued (i) upon the exercise of outstanding options granted under the Company's Stock Option Plan, and (ii) in connection with acquisitions. Further, the directors, officers and the Summit Investors have agreed not to directly or indirectly sell or offer for sale or otherwise dispose of any Common Stock of the Company for a period of 90 days after the date of this Prospectus without the prior written consent of Alex. Brown & Sons Incorporated. LEGAL MATTERS The Common Stock being offered hereby is being passed upon for the Company by Morgan, Lewis & Bockius LLP, Philadelphia, Pennsylvania. Certain legal matters in connection with the offering will be passed upon for the Underwriters by Piper & Marbury l.l.p., Baltimore, Maryland. EXPERTS The financial statements of the Company as of December 29, 1995 and for the year then ended and as of December 30, 1994 and for the year then ended, included in this Prospectus and the related financial statement schedule included elsewhere in the Registration Statement, have been audited by Deloitte & Touche LLP, independent auditors, as stated in their reports appearing herein and elsewhere in the Registration Statement, and have been so included in reliance upon the reports of such firm given their authority as experts in accounting and auditing. The financial statements of the Company for the year ended December 31, 1993, included in this Prospectus and included elsewhere in the Registration Statement and the related financial statement schedule, have been audited by Fishbein & Company, P.C., independent auditors, as stated in their report appearing herein, and have been so included in reliance upon the report of such firm given their authority as experts in accounting and auditing. The financial statements of One Source as of September 30, 1995 and for the nine months then ended, included in this Prospectus and included elsewhere in the Registration Statement, have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report appearing herein, and have been so included in reliance upon the report of such firm given their authority as experts in accounting and auditing. The financial statements of One Source as of December 31, 1994 and for the year then ended, included in this Prospectus and included elsewhere in the Registration Statement, have been audited by Mutnick & Associates, P.A., independent auditors, as stated in their report appearing herein, and have been so included in reliance upon the report of such firm given their authority as experts in accounting and auditing. The financial statements of HMA as of February 29, 1996 and for year then ended, included in this Prospectus and included elsewhere in the Registration Statement, have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report appearing herein, and have been so included in reliance upon the report of such firm given their authority as experts in accounting and auditing. The financial statements of HMA as of February 28, 1995 and for the year then ended, included in this Prospectus and included elsewhere in the Registration Statement, have been audited by KMG Peat Marwick LLP, independent auditors, as stated in their report appearing herein, and have been so included in reliance upon the report of such firm given their authority as experts in accounting and auditing. 47 ADDITIONAL INFORMATION The Company is subject to the information requirements of the Securities Exchange Act of 1934 and in accordance therewith files reports and other information with the Securities and Exchange Commission (the "Commission"). Reports, proxy and information statements and other information filed by the Company can be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at its regional offices located a 7 World Trade Center, New York, New York 10048 and Northwest Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can be obtained from the Public Reference Section of the Commission, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington D.C. 20549 at prescribed rates. The Company's Common Stock is quoted on The Nasdaq National Market. Reports, proxy statements and other information concerning the Company can be inspected at the National Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006. The Company has filed with the SEC a Registration Statement under the Act, with respect to the shares of Common Stock offered hereby. This Prospectus does not contain all the information set forth in the Registration Statement and the exhibits and schedules thereto. For further information with respect to the Company and such shares of Common Stock, reference is hereby made to such Registration Statement and to the exhibits and schedules thereto. The Registration Statement can be inspected without charge at the office of the SEC at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and the SEC's Regional Offices at Seven World Trade Center, New York, New York 10048, and Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60621-2511, and copies may be obtained at prescribed rates from the public reference section of the SEC, Washington, D.C. 20549. 48 INDEX TO FINANCIAL STATEMENTS WILMAR INDUSTRIES, INC. Years ended December 31, 1993, December 30, 1994 and December 29, 1995 Independent Auditors' Report.............................................. F-2 Independent Auditors' Report.............................................. F-3 Consolidated Balance Sheets............................................... F-4 Consolidated Statements of Income......................................... F-5 Consolidated Statements of Cash Flows..................................... F-6 Consolidated Statements of Stockholders' Equity........................... F-7 Notes to Consolidated Financial Statements................................ F-8 Three months ended March 31, 1995 and March 29, 1996 Condensed Consolidated Balance Sheets.................................... F-19 Condensed Consolidated Statements of Income.............................. F-20 Condensed Consolidated Statements of Cash Flows.......................... F-21 Condensed Consolidated Statements of Stockholders' Equity................ F-22 Notes to Condensed Consolidated Financial Statements..................... F-23 ONE SOURCE SUPPLY, INC. Independent Auditors' Report............................................. F-26 Accountants' Report...................................................... F-27 Balance Sheets........................................................... F-28 Statements of Income and Retained Earnings............................... F-29 Statements of Cash Flows................................................. F-30 Notes to Financial Statements............................................ F-31 HMA ENTERPRISES, INC. Independent Auditors' Report............................................. F-33 Independent Auditors' Report............................................. F-34 Consolidated Balance Sheets.............................................. F-35 Consolidated Statements of Income........................................ F-36 Consolidated Statements of Cash Flows.................................... F-37 Consolidated Statements of Stockholders' Equity.......................... F-38 Notes to Consolidated Financial Statements............................... F-39 F-1 INDEPENDENT AUDITORS' REPORT To the Board of Directors Wilmar Industries, Inc. We have audited the accompanying consolidated balance sheets of Wilmar Industries, Inc. (the "Company"), as of December 29, 1995 and December 30, 1994, and the related consolidated statements of income, stockholders' equity (deficit) and of cash flows for the fiscal years ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 29, 1995 and December 30, 1994, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. Deloitte & Touche LLP Philadelphia, Pennsylvania March 5, 1996 F-2 INDEPENDENT AUDITORS' REPORT Stockholders and Directors Wilmar Industries, Inc. We have audited the balance sheet (not included in the Registration Statement) of Wilmar Idustries, Inc. as of December 31, 1993, and the related statements of income, stockholders' equity and cash flows for the year ended December 31, 1993. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Wilmar Industries, Inc. as of December 31, 1993, and the results of its operations and its cash flows for the year ended December 31, 1993, in conformity with generally accepted accounting principles. Fishbein & Company, P.C. Elkins Park, Pennsylvania October 30, 1995 F-3 WILMAR INDUSTRIES, INC. CONSOLIDATED BALANCE SHEETS
DECEMBER 30, DECEMBER 29, 1994 1995 ------------ ------------ ASSETS CURRENT ASSETS: Cash............................................... $ 91,117 $ 25,043 Cash-restricted.................................... 200,000 Accounts receivable--trade, net of allowance for doubtful accounts of $135,000 in 1994 and $236,070 in 1995........................................... 5,732,453 9,575,307 Inventory.......................................... 7,519,365 12,699,376 Prepaid expenses and other current assets.......... 173,248 244,798 Deferred income taxes.............................. 408,000 ----------- ----------- Total current assets........................... 13,516,183 23,152,524 PROPERTY AND EQUIPMENT, Net.......................... 1,007,001 1,337,308 OTHER ASSETS......................................... 37,839 2,380,672 ----------- ----------- TOTAL ASSETS......................................... $14,561,023 $26,870,504 =========== =========== LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES: Demand notes payable--bank......................... $ 3,514,000 $ 9,922,510 Current portion of long-term debt: Banks............................................ 486,384 666,668 Related parties.................................. 93,600 2,107,050 Accounts payable................................... 4,208,708 7,889,405 Accrued expenses and other current liabilities..... 830,415 1,387,524 Accrued interest................................... 15,922 212,823 Income taxes payable............................... 1,020,991 ----------- ----------- Total current liabilities...................... 9,149,029 23,206,971 LONG-TERM DEBT--Net of current portion: Banks.............................................. 1,743,250 833,331 Related parties.................................... 949,586 833,872 Subordinated debentures............................ 4,000,000 ----------- ----------- Total liabilities.............................. 11,841,865 28,874,174 ----------- ----------- COMMITMENTS AND CONTINGENT LIABILITIES Mandatorily Redeemable Series A Senior Preferred Stock, $.01 par value; 129,450 shares authorized, issued and outstanding with a redemption value of $100 per share, plus accrued dividends.............. 13,782,110 ----------- Mandatorily Redeemable Series B Junior Preferred Stock, $.01 par value, 105,914 shares authorized, issued and outstanding with a redemption value of $100 per share, plus accrued dividends.............. 11,276,311 ----------- STOCKHOLDERS' EQUITY (DEFICIT): Preferred stock, $.01 par value, 5,000,000 shares au- thorized; none issued Common stock, no par value--50,000,000 shares authorized; 5,824,000 shares issued and outstanding in 1994, 5,320,000 shares issued and outstanding in 1995................................................ 100,000 124,231 Retained earnings (accumulated deficit).............. 4,619,158 (27,186,322) Less treasury stock--5,824,000 shares in 1994........ (2,000,000) ----------- ----------- Total stockholders' equity (deficit)................. 2,719,158 (27,062,091) ----------- ----------- TOTAL LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY...................... $14,561,023 $26,870,504 =========== ===========
See notes to consolidated financial statements. F-4 WILMAR INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF INCOME
YEAR YEAR YEAR ENDED ENDED ENDED DECEMBER 31, DECEMBER 30, DECEMBER 29, 1993 1994 1995 ------------ ------------ ------------ SALES................................... $35,639,761 $47,679,227 $60,823,188 COST OF SALES........................... 24,734,939 32,786,779 41,835,284 ----------- ----------- ----------- Gross profit........................ 10,904,822 14,892,448 18,987,904 OPERATING EXPENSES: Operating and selling expenses........ 5,399,766 7,067,785 9,098,440 Corporate general and administrative expenses............................. 2,392,673 2,895,180 3,984,873 Bonuses to S Corporation stockholders......................... 1,463,465 ----------- ----------- ----------- 9,255,904 9,962,965 13,083,313 ----------- ----------- ----------- Operating income.................... 1,648,918 4,929,483 5,904,591 INTEREST EXPENSE, NET................... 173,108 289,372 1,164,129 ----------- ----------- ----------- Income before income taxes.......... 1,475,810 4,640,111 4,740,462 PROVISION FOR INCOME TAXES.............. 71,461 40,056 1,623,580 ----------- ----------- ----------- Net income.......................... $ 1,404,349 $ 4,600,055 $ 3,116,882 =========== =========== =========== UNAUDITED PRO FORMA DATA: Income before income taxes............ $ 1,475,810 $ 4,640,111 $ 4,740,462 Provision for income taxes............ 586,000 1,860,000 1,896,000 ----------- ----------- ----------- Pro forma net income.................. $ 889,810 $ 2,780,111 $ 2,844,462 =========== =========== =========== Pro forma net income per share........ $ 0.31 $ 0.36 =========== =========== Pro forma shares outstanding.......... 9,071,327 7,937,266 =========== ===========
See notes to consolidated financial statements. F-5 WILMAR INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR YEAR YEAR ENDED ENDED ENDED DECEMBER 31, DECEMBER 30, DECEMBER 29, 1993 1994 1995 ------------ ------------ ------------ OPERATING ACTIVITIES: Net income............................ $ 1,404,349 $ 4,600,055 $ 3,116,882 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization......... 157,028 211,941 330,480 Deferred income taxes................. (408,000) (Gain) loss on sale of equipment...... 618 (2,000) Changes in assets and liabilities, net of effects of acquisition: Accounts receivable.................. (1,124,882) (1,476,186) (2,640,523) Inventory............................ (1,541,775) (2,585,454) (4,327,986) Prepaid expenses and other current assets.............................. (28,007) (69,867) (66,361) Other assets......................... (5,875) (20,536) (315,966) Accounts payable..................... (824,719) 1,625,995 2,887,101 Accrued expenses and other current liabilities......................... 771,175 55,497 483,574 Accrued interest..................... 196,901 Income taxes payable................. (38,820) 1,020,991 ----------- ----------- ------------ Net cash provided by (used in) operating activities............... (1,230,908) 2,339,445 277,093 ----------- ----------- ------------ INVESTING ACTIVITIES: Purchase of property and equipment.... (151,644) (768,472) (507,272) Acquisition of business, including escrow............................... (3,572,796) Proceeds from sale of equipment....... 5,235 2,000 ----------- ----------- ------------ Net cash used in investing activities......................... (146,409) (766,472) (4,080,068) ----------- ----------- ------------ FINANCING ACTIVITIES: Net proceeds (borrowings) of demand notes payable--bank.................. 1,632,000 1,682,000 6,408,510 Proceeds of long-term debt--bank...... 940,000 1,600,000 2,000,000 Principal payments on long-term debt: Banks................................. (216,222) (422,077) (2,729,635) Related parties....................... (859,528) (97,286) (102,264) Principal payments on capitalized lease obligations.................... (144,504) Issuance of common stock.............. 55,000 Repurchase of common stock............ (15,117,000) Proceeds from the issuance of subordinated debentures.............. 4,000,000 Issuance of Series A Preferred Stock.. 12,945,000 Distributions to stockholder.......... (4,349,329) (3,722,710) ----------- ----------- ------------ Net cash provided by (used in) financing activities............... 1,351,746 (1,586,692) 3,736,901 ----------- ----------- ------------ NET DECREASE IN CASH................... (25,571) (13,719) (66,074) CASH, BEGINNING OF YEAR................ 130,407 104,836 91,117 ----------- ----------- ------------ CASH, END OF YEAR...................... $ 104,836 $ 91,117 $ 25,043 =========== =========== ============ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for: Interest.............................. $ 166,904 $ 299,338 $ 967,228 =========== =========== ============ Income taxes.......................... $ 110,283 $ 25,851 $ 642,279 =========== =========== ============ SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES: Accretion of mandatorily redeemable Series A Senior and Series B Junior Preferred Stock redemption values.... $ 1,522,021 Distribution of mandatorily redeemable Series B Junior Preferred Stock to stockholders......................... $ 10,591,400 Issuance of subordinated note payable in connection with repurchase of common stock-related party........... $ 2,000,000
See notes to consolidated financial statements. F-6 WILMAR INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
RETAINED TOTAL EARNINGS STOCKHOLDERS' COMMON STOCK (ACCUMULATED TREASURY EQUITY SHARES AMOUNT DEFICIT) STOCK (DEFICIT) ---------- -------- ------------ ----------- ------------- BALANCE, JANUARY 1, 1993................... 11,648,000 $100,000 $ 2,964,083 $ 3,064,083 Purchase of treasury stock................ (5,824,000) $(2,000,000) (2,000,000) Net income............ 1,404,349 1,404,349 ---------- -------- ------------ ----------- ------------ BALANCE, DECEMBER 31, 1993................... 5,824,000 100,000 4,368,432 (2,000,000) 2,468,432 Net income............ 4,600,055 4,600,055 Distributions to stockholder.......... (4,349,329) (4,349,329) ---------- -------- ------------ ----------- ------------ BALANCE, DECEMBER 30, 1994................... 5,824,000 100,000 4,619,158 (2,000,000) 2,719,158 Distributions to stockholder.......... (3,722,710) (3,722,710) Capital contribution.. 694,000 (694,000) Redemption of common stock................ (3,584,000) (30,769) (17,086,231) (17,117,000) Dividend of Series B Preferred Stock...... (10,591,400) (10,591,400) Issuance of common stock................ 3,080,000 55,000 55,000 Accretion of Mandatorily Redeemable Preferred Stock................ (1,522,021) (1,522,021) Retirement of treasury shares............... (2,694,000) 2,694,000 Net income............ 3,116,882 3,116,882 ---------- -------- ------------ ----------- ------------ BALANCE, DECEMBER 29, 1995................... 5,320,000 $124,231 $(27,186,322) $ -- $(27,062,091) ========== ======== ============ =========== ============
See notes to consolidated financial statements. F-7 WILMAR INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. DESCRIPTION OF THE BUSINESS Wilmar Industries, Inc., ("Wilmar" or the "Company") is a national marketer and distributor of repair and maintenance products distributor with ten distribution centers throughout the United States. The Company sells primarily to apartment complexes and other institutional customers. 2. INITIAL PUBLIC OFFERING On January 24, 1996, the Company completed an initial public offering of 4,600,000 shares of its Common Stock for $11.00 per share resulting in net proceeds (after deducting underwriter's issuance costs) of $47,058,000. The proceeds of the offering were used as follows: Redemption of Preferred Stock and accumulated dividends.......... $20,188,000 Repayment of bank debt and interest.............................. 12,987,000 Repayment of Subordinated Debentures and interest................ 4,037,000 Repayment of notes payable and interest.......................... 2,967,000 Working capital and IPO costs.................................... 6,879,000 ----------- $47,058,000 ===========
Prior to the offering, $5,000,000 of the Mandatorily Redeemable Series B Junior Preferred Stock was converted into $5,000,000 of Series B Junior Preferred Stock with conversion rights. Upon consummation of the offering, $5,000,000 of the Series B Junior Preferred Stock with conversion rights was converted into 454,545 shares of Common Stock. The pro forma effects of the above transactions for the related balance sheet accounts are summarized below. Pro forma balance sheet information is presented as though the transactions occurred on December 29, 1995 (in 000's):
AS PRO FORMA REPORTED (UNAUDITED) -------- ----------- Current assets......................................... $ 23,153 $30,823 Property and equipment, net............................ 1,337 1,337 Other assets........................................... 2,381 2,133 -------- ------- $ 26,871 $34,293 ======== ======= Current liabilities.................................... $ 23,207 $10,297 Long-term debt......................................... 5,667 -------- ------- 28,874 10,297 Mandatorily redeemable preferred stock................. 25,059 Stockholders' equity................................... (27,062) 23,996 -------- ------- $ 26,871 $34,293 ======== =======
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation--The consolidated financial statements include the accounts of Wilmar Industries, Inc. and its subsidiary One Source Supply, Inc. ("One Source") from November 17, the date of its acquisition. Material intercompany balances and transactions have been eliminated. F-8 WILMAR INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Fiscal Year--The Company operates on a 52-53 week fiscal year which ends on the last Friday in December. The fiscal year ended December 31, 1993 was a fifty-three week year and the fiscal years ended December 30, 1994 and December 29, 1995 were fifty-two week years. References herein to 1993, 1994 and 1995 are for the fiscal years ended December 31, 1993, December 30, 1994 and December 29, 1995, respectively. Cash and Cash Equivalents--Cash and cash equivalents consist of cash and highly liquid investments with an original maturity of three months or less. Inventory--Inventory is stated at the lower of cost (first-in, first-out method) or market. Property and Equipment--Property, equipment and leasehold improvements are stated at cost. Expenditures for additions, renewals and betterments are capitalized; expenditures for maintenance and repairs are charged to expense as incurred. Upon retirements or disposal of assets, the cost and accumulated depreciation or amortization are eliminated from the accounts and the resulting gain or loss is credited or charged to operations. Depreciation is computed using the straight-line method based upon estimated useful lives of the assets and amortization is computed using the straight-line method and the remaining lease term as follows: Machinery and equipment............................... 5-7 years Office furniture and equipment........................ 5-7 years Leasehold improvements................................ Remaining lease term
Long-Lived Assets--In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of. This statement requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. SFASNo. 121 is effective for financial statements for fiscal years beginning after December 15, 1995. The Company does not anticipate that the adoption of SFAS No. 121 will have a material effect on the Company's operating results. Estimates--The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates and assumptions. Fair Value of Financial Instruments--The carrying value of cash, accounts receivable, demand notes payable and accounts payable approximate fair value because of the short maturities of these items. The carrying value of bank debt, payables to related parties and subordinated debentures reflects the approximate fair value of these instruments as these instruments were repaid and satisfied, at their carrying values, in January 1996 with proceeds from the initial public offering (see Note 2), Revenue Recognition--Sales are recognized as product is shipped, F.O.B. point of shipment and are net of sales returns, allowances and credits. Cost of Sales--Cost of sales includes merchandise costs, freight, distribution center occupancy and delivery costs. Pre-Opening Distribution Center Expenses--Pre-opening distribution center expenses are expensed as incurred. F-9 WILMAR INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) New Accounting Pronouncement--In October 1995, the Financial Accounting Standards Board issued SFAS No. 123, Accounting for Stock-Based Compensation, which will be adopted by the Company in 1996 as required by this statement. The Company has elected to continue to measure such compensation expense using the method prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, as permitted by SFAS No. 123. When adopted, SFAS No. 123 will not have any effect on the Company's financial position or results of operations but will require the Company to provide expanded disclosure regarding its stock-based employee compensation plans. Stock Splits--In March 1995 and November 1995, the Company effected a 1,040- for-1 and a 37.333- for-1 stock split of its Common Stock, respectively. All share and per share amounts in the accompanying financial statements have been adjusted retroactively to reflect both splits. Income Taxes--Prior to February 24, 1995, the Company had elected to be taxed as a S Corporation under provisions of the Internal Revenue Code. As such, current taxable income had been included on the income tax returns of the sole stockholder for federal income tax purposes and no provision had been made for federal income taxes. (See pro forma presentation below and Note 15). In anticipation of consummating the Recapitalization (see Note 5), the Company changed its election to be taxed as a C Corporation under the Internal Revenue Code. Taxes on income are provided based upon Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes", which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future. Such deferred income tax asset and liability computations are based on enacted tax laws and rates applicable to periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. Unaudited Pro Forma Net Income and Pro Forma Net Income Per Common Share-- Pro forma net income per common share represents pro forma net income (after a pro forma provision for income taxes as if the Company had been subject to federal and state income taxation as a C Corporation since inception) divided by the weighted average number of shares of Common Stock and Common Stock equivalents outstanding during the period plus the number of shares of Common Stock required to be sold at the assumed initial public offering price to raise sufficient proceeds to redeem the mandatorily redeemable Preferred Stock (including accrued but unpaid dividends thereon). Net income is not reduced by the $1,522,021 provision for accretion of Preferred Stock redemption values because the calculation assumes the related Common Stock was outstanding in lieu of the Preferred Stock. (See Note 14). Common Stock equivalents include shares from the exercise of stock options (using the treasury stock method). Common stock issued and stock options granted at prices lower than the assumed initial public offering price within a one year period prior to an initial public offering are included in the calculation (using the treasury stock method and the assumed initial public offering price) as if they were outstanding for all periods presented (see Notes 3, 5 and 13). Historical net income per share has not been presented in view of the S Corporation status in prior periods and the anticipated change in capital structure upon the closing of the initial public offering. Reclassifications--Certain 1993 and 1994 amounts have been reclassified to conform to the 1995 presentation. F-10 WILMAR INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 4. ACQUISITION On November 17, 1995, the Company acquired One Source Supply, Inc., a supplier of repair and maintenance products to multi-unit apartment complexes in the South Florida market, for an aggregate consideration of approximately $3,573,000. The following presents the unaudited results of operations of the Company for the years ended December 29, 1995 and December 30, 1994 as if the acquisition of One Source had been consummated as of the beginning of 1994, and includes certain pro forma adjustments to reflect the amortization of intangible assets, reduction of overhead charges, reduction in compensation, interest expense on amounts drawn on the Company's line of credit to finance the acquisition as if the acquisition had occurred on January 1, 1994, and inclusion of a federal income tax provision:
1994 1995 ----------- ----------- Revenues............................................. $56,990,000 $70,733,000 Net income........................................... 2,755,000 3,094,000 Net income per share................................. 0.30 0.39
The unaudited pro forma results of operations are prepared for comparative purposes only and do not necessarily reflect the results that would have occurred had the acquisition occurred at the beginning of 1994 or the results which may occur in the future. The above acquisition has been accounted for by the purchase method of accounting, and accordingly, the net assets and results of operations have been included in the accompanying consolidated financial statements since the date of acquisition. The excess of purchase price over the estimated fair values of the net tangible assets acquired for the above investment has been allocated to intangible assets and goodwill with amortization over 3 to 30 years. 5. STOCKHOLDERS' EQUITY Authorized Shares--On November 20, 1995, the Company's stockholders approved an increase in authorized shares of common stock to 50,000,000 shares and preferred stock to 5,235,364 shares. Recapitalization--On March 6, 1995, the Company declared and subsequently issued a stock dividend to the stockholder in the form of 105,914 shares of mandatorily redeemable Series B Junior Preferred Stock with a redemption value of $10,591,400. On March 9, 1995, the Company entered into a Stock Purchase and Redemption Agreement (the "Agreement") with certain investors (the "Investors). Pursuant to the Agreement, the Company repurchased 3,584,000 shares of common stock from its then sole stockholder for $15,117,000 plus a deferred payment of $2,000,000. The deferred payment is payable in the form of a subordinated note if the Company satisfies certain 1995 and 1996 earnings targets or if the Company files a registration statement in 1995 for an underwritten public offering of its common stock. Upon a qualified liquidity event, including the consummation of an initial public offering, the Company must satisfy the former sole stockholder's deferred payment note. In addition, pursuant to the Agreement, the Company issued 129,450 shares of mandatorily redeemable Series A Senior Preferred Stock for $12,945,000 (see Note 14) and then sold 3,080,000 shares of Common Stock to the investors for $55,000, which represented the fair market value at that time. In addition, the Investors loaned $4,000,000 to the Company pursuant to a Subordinated Debenture Purchase Agreement dated March 9, 1995. The Company must pay in full its obligations under the Subordinated Debentures upon consummation of a qualified liquidity event, including the consummation of an initial public offering (see Note 2). Upon consummation of the initial public offering, the Company satisfied the former sole stockholder's deferred payment note and also satisfied its obligation under the Subordinated Debentures (see Note 2). Distribution To Stockholders--In 1993, the Company's stockholder received compensation and S Corporation stockholder bonuses aggregating $156,000 and $1,463,465, respectively. In 1994, the F-11 WILMAR INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) stockholder received compensation and S Corporation distributions of $156,000 and $4,349,329 respectively. In 1995, the stockholder received compensation and bonuses of $250,000 and S Corporation distributions of $3,722,710, respectively. 6. OTHER ASSETS Other assets consist of the following:
1994 1995 ------- ---------- Goodwill................................................. $1,108,490 Intangible assets........................................ 920,052 Less--amortization....................................... (8,638) ---------- 2,019,904 Deferred IPO costs....................................... 247,672 Deposits................................................. $36,670 112,043 Other.................................................... 1,169 1,053 ------- ---------- $37,839 $2,380,672 ======= ==========
Goodwill (the excess of cost over the fair value of the underlying assets at the date of acquisition) is amortized on a straight line basis over a useful life of 30 years. Intangible assets include amounts assigned to customer lists and non-compete agreements. Intangibles are amortized on a straight-line basis over useful lives of 20 years for customer lists and 3 to 5 years for non- compete agreements. 7. BALANCE SHEET COMPONENTS
PROPERTY AND EQUIPMENT 1994 1995 ---------------------- ---------- ---------- Machinery and equipment............................... $ 624,699 $ 952,348 Office furniture and equipment........................ 796,664 1,070,080 Leasehold improvements................................ 351,715 432,321 ---------- ---------- 1,773,078 2,454,749 Less accumulated depreciation and amortization........ 766,077 1,117,441 ---------- ---------- $1,007,001 $1,337,308 ========== ========== ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES ---------------------------------------------- Sales tax payable..................................... $ 275,120 $ 349,991 Accrued compensation and related benefits............. 290,314 507,193 Other accrued liabilities............................. 264,981 530,340 ---------- ---------- $ 830,415 $1,387,524 ========== ==========
Depreciation expense was approximately $157,000, 212,000 and $322,000 for 1993, 1994 and 1995, respectively (see Note 3). 8. DEMAND NOTES PAYABLE--BANK On March 9, 1995, the Company entered into a $10,000,000 (increased to $12,000,000 from November 16, 1995 to February 16, 1996) revolving credit facility with a bank which refinanced the existing $4,000,000 line of credit. Such facility terminates February 1998. Amounts outstanding bear interest at the bank's prime rate (8.50% at September 29, 1995) payable monthly and are collateralized by substantially all assets of the Company. Borrowings under the line of credit are limited to the sum of 85% of eligible accounts receivable plus the lessor of 50% of inventory or $4,500,000. Amounts outstanding F-12 WILMAR INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) under the lines were $3,514,000 and $9,922,510 at December 30, 1994 and December 29, 1995, respectively. On December 30, 1994, the Company entered into a $3,200,000 promissory note which was utilized for a distribution to the Company's then sole stockholder. Such borrowing was due on demand, but no later than June 1, 1995 and the note was guaranteed by a stockholder of the Company. Interest was payable monthly at a rate of prime less .5%. Such amount was repaid and satisfied on March 9, 1995 with proceeds from the $10,000,000 revolving line of credit. The weighted average interest rate on short-term borrowings at December 30, 1994 and December 29, 1995 was 8.26% and 8.50%, respectively. In March 1996, the Company replaced the existing secured bank line of credit with a $10,000,000 unsecured bank line of credit, which bears interest at 3/4% below the bank's prime rate and expires in March 1997. 9. LONG-TERM DEBT
1994 1995 ---------- ---------- 11.5% Subordinated Debentures, $2,000,000 each due March 9, 2000 and 2001, interest payable quarterly on the last day of March, June, September and December of each year, commencing June 30, 1995 and until such unpaid balance is due and payable........ $4,000,000 Term loan to a bank, payable in quarterly installments aggregating $166,667, plus accrued interest at 8.5% annually, commencing May 1995 collateralized by substantially all assets of the Company............................................. 1,499,999 Note payable to a bank due in monthly installments aggregating $53,035 including interest at rates ranging from 3/4% over the bank's prime rate (an effective rate of 9.25% at December 30, 1994) to 9.75%; collateralized by substantially all assets of the Company and guaranteed by a stockholder of the Company............................................. $2,229,634 ---------- ---------- 2,229,634 5,499,999 Less current portion................................. 486,384 666,668 ---------- ---------- $1,743,250 $4,833,331 ========== ==========
In event the principal amount of the Debentures are not paid when due and payable, the interest will be increased to 13.5% annually and any unpaid interest due upon demand by the holder with a late charge of 2% of the amount of interest payment due. Additionally, the Debentures are due upon the consummation of a liquidity event such as an initial public offering. The terms of the Subordinated Debentures prohibit the Company from declaring or paying dividends on account of its common stock. The term loan and revolving credit (see Note 8) facilities were entered into pursuant to a Loan and Security Agreement with a bank, dated March 9, 1995. The agreement provides, among other covenants, that the Company maintain certain financial ratios and prohibits the Company from making or declaring any dividends or distribution to its stockholders, except the Company may pay cash distributions annually not in excess of the maximum tax liability that may be assessed against its S Corporation stockholders on the income passed through and directly taxed to its stockholder. F-13 WILMAR INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Annual principal payments on long-term notes are due as follows: Fiscal Year Ending: 1996......................................................... 666,668 1997......................................................... 666,668 1998......................................................... 166,663 1999......................................................... -- 2000......................................................... 2,000,000 Thereafter................................................... 2,000,000 ---------- $5,499,999(1) ==========
-------- (1) Such amounts were repaid and satisfied on January 29, 1996 with proceeds from the initial public offering. 10. TRANSACTIONS WITH RELATED PARTIES In July 1993, the Company purchased 5,824,000 shares of its stock pursuant to a stock redemption agreement from the former sole stockholder's father for $2,000,000, of which $800,000 was paid in December 1993. The balance of $1,200,000 is payable in monthly installments of $12,675 including interest at 5%, with the final payment due in June 2003. The note is guaranteed by the Company's former sole stockholder. Annual principal payments on the note are due as follows: Fiscal Year Ending: 1996........................................................... 107,050 1997........................................................... 112,526 1998........................................................... 118,284 1999........................................................... 124,335 2000........................................................... 130,697 Thereafter..................................................... 348,030 -------- $940,922(1) ========
-------- (1) Such amount was repaid and satisfied on January 29, 1996 with proceeds from the initial public offering (see Note 2). The stock redemption agreement also provided for an increase in the purchase price of the shares if the remaining stockholder of the Company sells all or substantially all of the Company's assets or all or substantially all of his stock in the Company prior to July 1997 (see Note 5). In connection with the Recapitalization, the former sole stockholder made a $694,000 capital contribution to the Company in order for the Company to satisfy its obligation under the stock redemption agreement to the former sole stockholder's father. In November 1995, the Company issued a $2,000,000 subordinated note to the former sole stockholder, which represents the deferred payment for the redemption of this stockholder's common stock in connection with the recapitalization (see Note 5). The Note was repaid and satisfied on January 29, 1996 with proceedings from the initial public offering (see Note 2). The Company leases its executive offices from a stockholder of the Company (see Note 12). 11. PROFIT SHARING PLAN The Company has a qualified profit sharing plan under Section 401(k) of the Internal Revenue Code. Contributions to the plan by the Company are made at the discretion of the Company's Board of Directors. Company contributions to the plan were $6,500, $11,100 and $59,600 for 1993, 1994 and 1995, respectively. F-14 WILMAR INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 12. COMMITMENTS AND CONTINGENT LIABILITIES Lease Commitments--The Company leases its facilities under operating leases expiring at various dates through 2004. Minimum future rental payments under these leases as of December 29, 1995 are as follows: Year Ending: 1996............................................................ 1,106,000 1997............................................................ 1,052,000 1998............................................................ 835,000 1999............................................................ 762,000 2000............................................................ 483,000 Thereafter...................................................... 538,000 ---------- $4,776,000 ==========
In April 1994, the Company moved its executive office to a building which is leased from a stockholder of the Company. In 1994, in lieu of rental payments, the Company directly paid and expensed the mortgage payments to the bank which financed the purchase by the stockholder. Such payments amounted to approximately $5,300 monthly and aggregated approximately $42,500 in 1994. As amended in March 1995, under the new terms of the lease, the Company is required to pay approximately $137,500 annually, plus all real estate taxes and assessments, utilities and insurance related to the premises. The lease expires on February 28, 2004 and does not contain any renewal terms. The Company believes that the terms of the lease are no less favorable to it than could be obtained from an unaffiliated party. Rent expense under all operating leases was $435,000, $555,000 and $806,000 for 1993, 1994 and 1995, respectively. Certain of the leases provide that the Company pay taxes, insurance and other operating expenses applicable to the leased premises. Employment and Severance Agreements--The Company has an employment agreement with its President until March 2000 unless terminated earlier by the Company at an annual base salary of $200,000, subject to adjustments plus bonus. Contingent Liabilities--At December 29, 1995, the Company was contingently liable for unused letters of credit aggregating approximately $623,000. Employment Tax Audit--In March, 1995, the Internal Revenue Service (the "IRS") indicated to the Company that it intends to examine the Company's employment tax returns for 1992 and 1993. The IRS has not asserted any employment tax deficiencies for such years as of the current date. If the IRS asserts any employment tax deficiencies with respect to such years, the Company intends to vigorously pursue all available remedies and defenses. The Company does not believe that the outcome of any such examination will have a material effect on the Company's financial statements. Legal Proceedings--The Company is involved in various legal proceedings in the ordinary course of its business which are not anticipated to have a material adverse effect on the Company's financial statements. 13. STOCK OPTION PLAN In March 1995, the Company adopted a stock option plan (the "Stock Option Plan") under which employees may be granted options to purchase shares of Common Stock. Options granted were issued at F-15 WILMAR INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) prices equal to at least fair market value and expire 10 years from the date of grant. The options vest in 25% increments on the second through fifth anniversaries of the date of grant. A total of 392,000 shares of Common Stock were reserved for issuance under the Stock Option Plan. The Stock Option Plan is administered by the Compensation Committee of the Board of Directors, which determines the vesting provisions, the form of payment for shares and all other terms of the options. The following table summarizes stock option activity under the Stock Option Plan.
OPTIONS OUTSTANDING ---------------------- SHARES AVAILABLE PRICE FOR GRANT SHARES PER SHARE --------- ---------- ----------- Shares authorized in March 1995............ 392,000 -- Options granted............................ (280,000) 280,000 $ 4.23 -------- ---------- Balance at December 29, 1995............... 112,000 280,000 $ 4.23 ======== ==========
No options were exercisable at December 29, 1995. In January 1996, the Company increased the maximum number of shares to be reserved under the Stock Option Plan from 392,000 shares to 800,000 shares. In addition, options to purchase 100,000 shares were granted in January at the initial public offering price of $11.00 per share. 14. MANDATORILY REDEEMABLE PREFERRED STOCK There are 5,235,364 shares of preferred stock authorized, of which 129,450 shares have been designated as Series A Senior Preferred Stock ("Series A") and 105,914 shares have been designated as Series B Junior Preferred Stock ("Series B") (See Note 2). Series A and Series B Preferred Stock issuances are as follows:
SERIES A SERIES B ------------------- ------------------- SHARES AMOUNT SHARES AMOUNT ------- ----------- ------- ----------- Distribution of Series B to holder of Common Stock in March 1995 (see Note 5)..................... 105,914 $10,591,400 Issuance of Series A to Investors for cash in March 1995 (see Note 5)............................... 129,450 $12,945,000 Accretion of Series A and Series B redemption values................ 837,110 684,911 ------- ----------- ------- ----------- Balance at September 29, 1995..... 129,450 $13,782,110 105,914 $11,276,311 ======= =========== ======= ===========
The Series A and Series B ("Outstanding Preferred Stock") have certain rights, preferences and restrictions with respect to dividends, redemption and liquidation. The holders of Outstanding Preferred Stock are entitled to dividends of $8.00 per share per annum compounded annually prior and in preference to holders of Common Stock. In addition, the holders of Series A are entitled to dividends prior and in preference to the holders of Series B. All dividends are cumulative whether or not declared by the Board of Directors ("Cumulative Dividends"). On March 1, 2000 and 2001, one-half of the shares of Series A outstanding must be redeemed by the Company at a redemption price of $100 per share plus any accrued but unpaid dividends (the F-16 WILMAR INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) "Redemption Value"). In addition, the Company is required to redeem all shares of Series A Preferred Stock outstanding at their Redemption Value upon a liquidity event as defined in the Preferred Stock agreement, including the closing of an initial public offering. Under certain circumstances, including the closing of an initial public offering, if all shares of Series A have been redeemed, the Company must redeem all shares of Series B outstanding at a redemption price of $100 per share plus any accrued but unpaid dividends. Through December 29, 1995, Cumulative Dividends totaling $1,522,021 had been charged as an accretion of the Outstanding Preferred Stock Redemption Value with a corresponding increase in the value of the Outstanding Preferred Stock. Upon liquidation, holders of Series A are entitled to receive $100 per share plus any Cumulative Dividends before any distributions may be made to holders of Series B and Common Stock. After the Company has made payment to the holders of Series A, the holders of Series B are entitled to receive $100 per share plus Cumulative Dividends before any distributions may be made to the holders of Common Stock. On January 29, 1996 all of the Series A Preferred Stock and accumulated dividends were redeemed from proceeds of the initial public offering (see Note 2 ). In addition, $5,591,400 of the Series B Junior Preferred Stock and accumulated dividends were redeemed. The $5,000,000 balance of the Series B Stock was converted into 454,545 shares of Common Stock (at the $11.00 public offering price). 15. PROVISION FOR INCOME TAXES The corporate income tax provision for the C Corporation period is as follows:
1995 ---------- Current: Federal...................................................... $1,723,680 State........................................................ 307,900 ---------- 2,031,580 ---------- Deferred: Federal...................................................... (365,000) State........................................................ (43,000) ---------- (408,000) ---------- $1,623,580 ==========
The difference between income taxes at the statutory federal income tax rate and income taxes in the income statement are as follows:
1995 ---- Federal statutory tax rate........................................... 34.0% State income, taxes, net of federal benefit.......................... 4.3 Non-deductible expenses.............................................. 0.6 Other................................................................ 4.5 Benefit of change in tax status...................................... (4.9) S Corporation earnings............................................... (4.3) ---- 34.2% ====
Deferred income taxes result primarily from temporary differences in the recognition of certain expenses for financial and income tax reporting purposes. F-17 WILMAR INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) At December 29, 1995, the components of the Company's net deferred tax asset consisted of the following: Inventory......................................................... $285,000 Bad debt reserves................................................. 61,000 State taxes....................................................... 43,000 Other............................................................. 19,000 -------- $408,000 ========
Prior to February 24, 1995, the Company elected to be taxed under Subchapter S of the Internal Revenue Code. An S Corporation is a corporation which generally does not pay income taxes but whose income is passed on through to its shareholders who report such amounts on their individual tax returns. Effective February 24, 1995 the Company's Subchapter S status was terminated and, as a result of such change in status, the Company established a deferred tax asset of approximately $230,000, which is reflected in the deferred provision, for the year ended December 29, 1995. 16. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
1995 ------------------------------- FIRST SECOND THIRD FOURTH ------- ------- ------- ------- Net sales.................................. $13,458 $14,625 $16,381 $16,359 Gross profit............................... 4,246 4,534 5,107 5,101 Operating income........................... 1,171 1,455 1,838 1,440 Pro forma net income....................... 581 689 920 654 Pro forma net income per share ............ $ 0.07 $ 0.09 $ 0.12 $ 0.08 1994 ------------------------------- FIRST SECOND THIRD FOURTH ------- ------- ------- ------- Net sales.................................. $10,281 $11,895 $13,766 $11,737 Gross profit............................... 3,260 3,743 4,297 3,591 Operating income........................... 1,216 1,283 1,594 836 Pro forma net income....................... 693 722 903 462 Pro forma net income per share ............ $ 0.08 $ 0.08 $ 0.10 $ 0.05
The Company's sales volumes tend to be lower in the fourth quarter because customers defer purchases at year end as their budget limits are met. In addition, net sales in the fourth quarter are reduced because of the holidays during the period. For 1995, however, the fourth quarter included approximately $900,000 in sales of One Source, which was acquired on November 17, 1995. F-18 WILMAR INDUSTRIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
DECEMBER 29, MARCH 29, 1995 1996 ------------ ------------ ASSETS CURRENT ASSETS Cash and cash equivalents........................ $ 25,043 $ 4,310,483 Cash-restricted.................................. 200,000 200,000 Short term investment............................ 1,765,035 Accounts receivable-trade, net of allowance for doubtful accounts of $236,070 and $300,000, respectively.................................... 9,575,307 10,204,716 Inventory........................................ 12,699,376 12,978,101 Prepaid expenses and other current assets........ 244,798 510,526 Deferred income taxes............................ 408,000 486,000 ------------ ------------ Total current assets........................... 23,152,524 30,454,861 PROPERTY AND EQUIPMENT, Net........................ 1,337,308 1,385,164 OTHER ASSETS....................................... 2,380,672 2,151,843 ------------ ------------ TOTAL ASSETS....................................... $ 26,870,504 $ 33,991,868 ============ ============ LIABILITIES MANDATORILY REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES Demand notes payable-bank........................ $ 9,922,510 Current portion of long-term debt: Banks.......................................... 666,668 Related parties................................ 2,107,050 Accounts payable................................. 7,889,405 $ 6,513,785 Accrued expenses and other current liabilities... 1,387,524 1,622,222 Accrued interest................................. 212,823 Income taxes payable............................. 1,020,991 949,091 ------------ ------------ Total current liabilities.................... 23,206,971 9,085,098 LONG-TERM DEBT-Net of current portion: Banks............................................ 833,331 Related parties.................................. 833,872 Subordinated debentures.......................... 4,000,000 ------------ ------------ Total liabilities............................ 28,874,174 9,085,098 ------------ ------------ COMMITMENTS AND CONTINGENT LIABILITIES Mandatorily Redeemable Series A Senior Preferred Stock, $.01 par value; 129,450 shares, authorized, issued and outstanding at December 29, 1995 with a redemption value of $100 per share, plus accrued dividends......................................... 13,782,110 ------------ ------------ Mandatorily Redeemable Series B Junior Preferred Stock, $.01 par value, 105,914 shares, authorized, issued and outstanding at December 29, 1995 with a redemption value of $100 per share, plus accrued dividends......................................... 11,276,311 ------------ ------------ STOCKHOLDERS' EQUITY (DEFICIT): Preferred stock, $.01 par value, 5,000,000 shares authorized; none issued Common stock, no par value-50,000,000 shares authorized; 10,374,545 shares issued and outstanding in 1996, 5,320,000 shares issued and outstanding in 1995............. 124,231 51,289,412 Retained earnings (accumulated deficit)............ (27,186,322) (26,382,642) ------------ ------------ Total stockholders' equity (deficit)......... (27,062,091) 24,906,770 ------------ ------------ TOTAL LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY.................... $ 26,870,504 $ 33,991,868 ============ ============
The accompanying notes are an integral part of these condensed consolidated financial statements. F-19 WILMAR INDUSTRIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS THREE MONTHS ENDED ENDED MARCH 31, 1995 MARCH 29, 1996 -------------- -------------- SALES.......................................... $13,457,519 $19,308,559 COST OF SALES.................................. 9,212,037 13,372,953 ----------- ----------- Gross profit................................. 4,245,482 5,935,606 OPERATING EXPENSES: Operating and selling expenses............... 2,015,424 2,987,245 Corporate general and administrative ex- penses...................................... 1,059,813 1,242,045 ----------- ----------- 3,075,237 4,229,290 ----------- ----------- Operating income........................... 1,170,245 1,706,316 INTEREST EXPENSE, NET.......................... 200,969 80,704 ----------- ----------- Income before income taxes................. 969,276 1,625,612 PROVISION (CREDIT) FOR INCOME TAXES............ (54,629)(1) 666,000 ----------- ----------- Net income................................. $ 1,023,905 $ 959,612 =========== =========== Net income per share......................... Weighted average shares outstanding.......... UNAUDITED PRO FORMA DATA Income before income taxes................... $ 969,276 Provision for income taxes................... 388,000(2) ----------- Pro forma net income......................... $ 581,276(2) =========== Pro forma net income per share............... $ 0.07(2) $ 0.10 =========== =========== Weighted average shares outstanding.......... 8,596,307 9,946,286 =========== ===========
- -------- (1) Upon termination of its S Corporation status on March 1, 1995, the Company became subject to federal income taxes and certain additional state income taxes and, in connection therewith, recorded a deferred tax asset of approximately $230,000 in accordance with FAS 109. (2) Prior to March 1, 1995, the Company elected to be taxed as an S Corporation for federal (and certain state) income tax purposes. Pro forma information has been computed as if the Company had been subject to federal income taxes and all applicable state corporate income taxes for each period presented. The accompanying notes are an integral part of these condensed consolidated financial statements. F-20 WILMAR INDUSTRIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS THREE MONTHS ENDED ENDED MARCH 31, 1995 MARCH 29, 1996 -------------- -------------- OPERATING ACTIVITIES: Net Income..................................... $ 1,023,905 $ 959,612 Adjustments to reconcile net income net cash provided by (used in) operating activities: Depreciation and amortization................ 60,000 112,144 Deferred income taxes........................ (230,000) (78,000) Changes in assets and liabilities: Accounts receivable........................ (812,285) (629,409) Inventory.................................. (485,299) (278,725) Prepaid expenses and other current assets.. (37,541) (265,728) Other assets............................... 1,131 202,792 Accounts Payable........................... 307,168 (1,375,620) Accrued expenses and other current liabili- ties...................................... 117,376 234,698 Accrued interest........................... 9,078 (212,823) Income taxes payable....................... 170,921 (71,900) ------------ ------------ Net cash provided by (used in) operating activities.............................. 124,454 (1,402,959) ------------ ------------ INVESTING ACTIVITIES: Purchase of property and equipment............. (90,339) (133,963) Purchase of short term investment.............. (1,765,035) ------------ ------------ Net cash used in investing activities...... (90,339) (1,898,998) ------------ ------------ FINANCING ACTIVITIES: Net Proceeds (borrowings) of demand notes pay- able--Bank.................................... 2,059,606 (9,922,510) Principal payments on long-term debt: Banks........................................ (229,634) (1,499,999) Related parties.............................. (25,090) (2,940,922) Issuance of Common Stock....................... 55,000 Repurchase of Common Stock..................... (15,117,000) Repurchase of Series A Preferred Stock, plus accrued dividends............................. (13,870,928) Repurchase of Series B Preferred Stock, plus accrued dividends............................. (6,343,425) Proceeds from the issuance (repayment) of subordinated debentures....................... 4,000,000 (4,000,000) Net proceeds from issuance of Common Stock-- initial public offering....................... 46,165,181 Issuance of Series A Preferred Stock........... 12,945,000 Distributions to stockholders.................. (3,721,809) ------------ ------------ Net cash provided by (used in) financing activities................................ (33,927) 7,587,397 ------------ ------------ NET INCREASE IN CASH............................. 188 4,285,440 CASH, BEGINNING OF PERIOD........................ 91,117 25,043 ------------ ------------ CASH, END OF PERIOD.............................. 91,305 $ 4,310,483 ============ ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the period for: Interest..................................... 192,239 $ 344,599 ============ ============ Income taxes................................. 4,449 $ 815,900 ============ ============ SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING AC- TIVITIES Accretion of mandatorily redeemable Series A Senior and Series B Junior Preferred Stock redemption values............................. $ 109,837 $ 155,932 Conversion of Series B Junior Preferred stock into 454,545 shares of Common Stock........... $ -- $ 5,000,000
The accompanying notes are an integral part of these condensed consolidated financial statements F-21 WILMAR INDUSTRIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (UNAUDITED)
RETAINED TOTAL EARNINGS STOCKHOLDERS' COMMON STOCK (ACCUMULATED TREASURY EQUITY SHARES AMOUNT DEFICIT) STOCK (DEFICIT) ---------- ----------- ------------ -------- ------------- BALANCE, DECEMBER 29, 1995................... 5,320,000 $ 124,231 $(27,186,322) $-- $(27,062,091) Accretion of Mandatorily Redeemable Preferred Stock................ (155,932) (155,932) Conversion of Series B Preferred Stock...... 454,545 5,000,000 5,000,000 Issuance of common stock-initial public offering............. 4,600,000 46,165,181 46,165,181 Net income............ 959,612 959,612 ---------- ----------- ------------ --- ------------ BALANCE MARCH 29, 1996.. 10,374,545 $51,289,412 $(26,382,642) $-- $ 24,906,770 ========== =========== ============ === ============
The accompanying notes are an integral part of these condensed consolidated financial statements. F-22 WILMAR INDUSTRIES, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1--BASIS OF PRESENTATION The condensed consolidated financial statements include the accounts of Wilmar Industries, Inc. ("Wilmar" or the "Company") and its subsidiary One Source Supply, Inc. ("One Source") from November 17, 1995 the date of its acquisition. Material intercompany balances and transactions have been eliminated. These financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, such interim statements reflect all adjustments (consisting of normal recurring adjustments) necessary to present fairly the financial position and the results of operations and cash flows for the interim periods presented. The results of operations for these interim periods are not necessarily indicative of the results to be expected for the full year ending December 27, 1996. These financial statements should be read in conjunction with the audited consolidated financial statements and footnotes included in the Company's Form 10-K for the year ended December 29, 1995. NOTE 2--ACCOUNTING POLICIES Impairment of Long-Lived Assets--On January 1, 1996, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". This statement requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. Adoption of this standard had no impact on the Company's financial statements. Accounting for Stock-Based Compensation--In October 1995, the Financial Accounting Standards Board issued SFAS No. 123, "Accounting for Stock-Based Compensation," which was effective for the Company beginning January 1, 1996. SFAS No. 123 requires expanded disclosures of stock-based compensation arrangements with employees and encourages (but does not require) compensation cost to be measured based on the fair value of the equity instrument awarded. Companies are permitted, however, to continue to apply APB Opinion No. 25, which recognizes compensation cost based on the intrinsic value of equity instrument awarded. The Company will continue to apply APB Opinion No. 25 to its stock based compensation awards to employees and will disclose the required pro forma effect on net income in the fiscal year end December 27, 1996 financial statements. NOTE 3--INITIAL PUBLIC OFFERING On January 24, 1996, the Company completed an initial public offering of 4,600,000 shares of its Common Stock for $11.00 per share resulting in net proceeds (after deducting underwriters' issuance costs) of $47,058,000. The proceeds of the offering were used as follows: Redemption of Preferred Stock and accumulated dividends......... $20,188,000 Repayment of bank debt and interest............................. 12,987,000 Repayment of Subordinated Debentures and interest............... 4,037,000 Repayment of notes payable and interest......................... 2,967,000 Working capital and IPO costs................................... 6,879,000 ----------- $47,058,000 ===========
F-23 WILMAR INDUSTRIES, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Prior to the offering, $5,000,000 of the Mandatorily Redeemable Series B Junior Preferred Stock was converted into $5,000,000 of Series B Junior Preferred Stock with conversion rights. Upon consummation of the offering, $5,000,000 of the Series B Junior Preferred Stock with conversion rights was converted into 454,545 shares of Common Stock. The pro forma effects of the above transactions for the related balance sheet accounts are summarized below. Pro forma balance sheet information is presented as though the transactions occurred on December 29, 1995 (in 000's):
AS PRO FORMA REPORTED (UNAUDITED) -------- ----------- Current assets......................................... $ 23,153 $30,823 Property and equipment, net............................ 1,337 1,337 Other assets........................................... 2,381 2,133 -------- ------- $ 26,871 $34,293 ======== ======= Current liabilities.................................... $ 23,207 $10,297 Long-term debt......................................... 5,667 -- -------- ------- 28,874 10,297 Mandatorily redeemable preferred stock................. 25,059 -- Stockholders' equity................................... (27,062) 23,996 -------- ------- $ 26,871 $34,293 ======== =======
NOTE 4--INVESTMENT At March 29, 1996 the Company has an investment in a United States Treasury bill with a cost basis of $1,765,035. The Company has designated this investment as available for sale. At March 29, 1996, the cost basis approximates the market value of this security. NOTE 5--INCOME TAXES Prior to February 24, 1995, the Company had elected to be taxed as an S Corporation under provisions of the Internal Revenue Code. As such, current taxable income had been included on the income tax returns of the sole stockholder for federal income tax purposes and no provision had been made for federal income taxes. However, the Company changed its election to be taxed as a C Corporation under the Internal Revenue Code, and in connection with this change in tax reporting, taxes on income are provided based upon Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes", which requires an asset and liability approach to financial accounting and reporting for income taxes. NOTE 6--COMPUTATION OF NET INCOME PER COMMON SHARE AND PRO FORMA NET INCOME PER SHARE Net income per share and pro forma net income per common share represents net income and pro forma net income (after a pro forma provision for income taxes as if the Company had been subject to federal and state income taxation as a C Corporation since inception) divided by the weighted average number of shares of Common Stock and Common Stock equivalents outstanding during the period plus F-24 WILMAR INDUSTRIES, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) the number of shares of Common Stock required to be sold at the assumed initial public offering price to raise sufficient proceeds to redeem the mandatorily redeemable Preferred Stock (including accrued but unpaid dividends thereon). Net income and proforma net income are not reduced by the provision for accretion of Preferred Stock redemption values of $109,837 in 1995 and $155,932 in 1996 because the calculation assumes the related Common Stock was outstanding in lieu of the Preferred Stock. Common Stock equivalents include shares from the exercise of stock options (using the treasury stock method). Pursuant to the rules of the Securities and Exchange Commission, common stock issued and stock options granted at prices lower than the assumed initial public offering price within a one year period prior to an initial public offering are included in the calculation (using the treasury stock method and the assumed initial public offering price) as if they were outstanding for all periods presented. NOTE 7--CONTINGENCIES The Company is involved in various legal proceedings in the ordinary course of its business which are not anticipated to have a material adverse effect on the Company's financial statements. NOTE 8--SUBSEQUENT EVENTS On April 29, 1996 Wilmar entered into an operating lease agreement with a company, owned by certain stockholders of Wilmar, to lease a warehouse and customer service center. The original term of the lease is ten years with an option to terminate the lease after five years, exercisable by Wilmar, subject to a termination fee. The lease requires annual payments of $288,625 plus all real estate taxes and assessments, cost of repairs, utilities and insurance related to the leased premises. The Company believes that the terms of the lease are no less favorable to it than could be obtained from an unaffiliated party. On May 6, 1996, the Company entered into a definitive agreement to acquire 100% of the capital stock of Mile High Maintenance Supply, Inc. based in Denver, Colorado for a cash payment of $1.5 million, plus contingent consideration to the owner based on future performance. F-25 INDEPENDENT AUDITORS' REPORT To the Board of Directors One Source Supply, Inc. We have audited the accompanying balance sheet of One Source Supply, Inc. (the "Company") as of September 30, 1995, and the related statements of income and retained earnings and of cash flows for the nine months then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 1995 and the results of its operations and its cash flows for the nine months then ended in conformity with generally accepted accounting principles. Deloitte & Touche LLP Miami, Florida November 17, 1995 F-26 ACCOUNTANTS' REPORT To The Shareholders One Source Supply, Inc. Hollywood, Florida We have audited the accompanying balance sheet of One Source Supply Inc. as of December 31, 1994 and the related statement of income and retained earnings and cash flows for the period then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of One Source Supply, Inc. as of December 31, 1994, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. Mutnick & Associates, P.A. Pembroke Pines, Florida May 2, 1995 F-27 ONE SOURCE SUPPLY, INC. BALANCE SHEETS
DECEMBER 31, SEPTEMBER 30, 1994 1995 ------------ ------------- ASSETS: CURRENT ASSETS: Cash and cash equivalents......................... $ 121,760 $ 35,791 Accounts receivable, net of allowances of $17,437 in 1994 and 1995................................. 1,202,132 1,489,481 Inventory......................................... 1,069,886 1,134,808 Prepaid assets.................................... 24,009 33,897 ---------- ---------- Total current assets............................ 2,417,787 2,693,977 PROPERTY AND EQUIPMENT, NET......................... 66,711 146,543 OTHER ASSETS........................................ 28,987 50,270 ---------- ---------- TOTAL ASSETS.................................... $2,513,485 $2,890,790 ========== ========== CURRENT LIABILITIES: Notes payable--current portion.................... $ 603,500 $1,404,326 Accounts payable.................................. 845,111 895,217 Accrued expenses.................................. 26,023 72,704 Payroll & sales tax payable....................... 18,360 21,609 Income taxes payable.............................. 18,500 3,704 ---------- ---------- Total current liabilities....................... 1,511,494 2,397,560 LONG-TERM DEBT, NET OF CURRENT PORTION.............. 522,531 ---------- ---------- Total liabilities............................... 2,034,025 2,397,560 ---------- ---------- STOCKHOLDERS' EQUITY: Common stock, $.01 par value, 50,000 shares authorized, 100 shares issued and outstanding................ 1 1 Additional paid in capital........................ 101,499 101,499 Retained earnings................................. 377,960 391,730 ---------- ---------- Total stockholders' equity...................... 479,460 493,230 ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.......... $2,513,485 $2,890,790 ========== ==========
See notes to financial statements. F-28 ONE SOURCE SUPPLY, INC. STATEMENTS OF INCOME AND RETAINED EARNINGS
DECEMBER 31, SEPTEMBER 30, 1994 1995 ------------ ------------- NET SALES............................................ $9,311,355 $8,494,140 COST OF SALES........................................ 7,149,059 6,322,349 ---------- ---------- Gross profit..................................... 2,162,296 2,171,791 ---------- ---------- OPERATING EXPENSES: Operating and selling expenses..................... 630,983 884,236 Corporate general and administrative expenses...... 1,390,954 1,185,171 ---------- ---------- 2,021,937 2,069,407 ---------- ---------- Operating income................................. 140,359 102,384 INTEREST EXPENSE, NET................................ 62,995 85,114 ---------- ---------- Income before income taxes......................... 77,364 17,270 PROVISION FOR INCOME TAXES........................... 18,500 3,500 ---------- ---------- Net income......................................... 58,864 13,770 RETAINED EARNINGS, Beginning of period............... 319,096 377,960 ---------- ---------- RETAINED EARNINGS, End of period..................... $ 377,960 $ 391,730 ========== ==========
See notes to financial statements. F-29 ONE SOURCE SUPPLY, INC. STATEMENTS OF CASH FLOWS
DECEMBER 31, SEPTEMBER 30, 1994 1995 ------------ ------------- OPERATING ACTIVITIES: Net income......................................... $ 58,864 $ 13,770 Adjustments to reconcile net income to net cash used in operating activities: Depreciation...................................... 13,127 10,000 Changes in assets and liabilities which provided (used) cash: Accounts receivable.............................. (333,413) (287,349) Inventory........................................ (141,176) (64,922) Prepaid assets................................... (24,009) (9,888) Other assets..................................... (7,520) (21,283) Accounts payable................................. 298,932 50,106 Accrued expenses................................. 31,750 46,679 Payroll and sales tax payable.................... 6,808 3,249 Income tax payable............................... (18,957) (14,796) --------- --------- Net cash used in operating activities........... (115,594) (274,434) --------- --------- INVESTING ACTIVITIES: Purchase of property and equipment................. (14,990) (50,577) --------- --------- FINANCING ACTIVITIES: Net borrowings on line of credit................... 246,852 312,290 Net repayments on shareholder notes................ (35,080) (52,000) Repayments on other notes payable.................. (20,159) (21,250) --------- --------- Net cash provided by financing activities....... 191,613 239,040 --------- --------- NET INCREASE (DECREASE) IN CASH..................... 61,029 (85,971) Cash and cash equivalents, beginning of period...... 60,731 121,760 --------- --------- Cash and cash equivalents, end of period............ $ 121,760 $ 35,789 --------- --------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during period for: Interest paid..................................... $ 62,995 $ 78,033 --------- --------- Income taxes paid................................. $ 40,964 $ 18,000 --------- ---------
See notes to financial statements. F-30 ONE SOURCE SUPPLY, INC. NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization--One Source Supply, Inc. (the "Company") was incorporated under the laws of the State of Florida on January 11, 1978 and sells repair and maintenance products primarily to the apartment housing market in Florida. The Company operates a single distribution center in Miami. Inventory--Inventory is recorded at the lower of cost (first in, first out method) or market. Inventory is reported net of consigned inventory held of $33,847 and $23,618 at December 31, 1994 and September 30, 1995. Property and Equipment--Property and equipment consist of leasehold improvements, furniture, fixtures, and equipment recorded at cost. Depreciation is provided over the estimated useful lives of the assets, ranging from 5 to 10 years, and is computed using the straight-line method. Accumulated depreciation was $20,882 and $30,882 at December 31, 1994 and September 30, 1995, respectively. Revenue Recognition--Sales are recognized at the product is shipped, F.O.B. point of shipment, and are net of sales returns and allowances. Cost of Sales--Cost of sales includes merchandise costs, freight, distribution center occupancy and delivery costs. Income Taxes--The Company accounts for income taxes using the liability method. There are no significant temporary differences in the bases of assets and liabilities for income tax purposes as compared to financial reporting purposes. The provision for income taxes consists of current Federal and State income taxes. Cash and Cash Equivalents--For the purposes of the statement of cash flows, the Company considers all cash accounts and investments with a maturity of three months or less at the time of purchase to be cash equivalents. A cash overdraft resulting from outstanding checks of $207,809 is included in accounts payable as of September 30, 1995. Reclassifications--Certain amounts in the 1994 financial statements have been reclassified to conform to the 1995 presentation. 2. LEASE COMMITMENTS The Company conducts its operations in facilities that are leased from a related party owned by the Company's shareholders under an agreement which provided for annual lease payments of approximately $175,000 and had an expiration date of May 1, 2003. Rent expense totaled $151,163 and $154,267, respectively, for 1994 and 1995, of which $128,592 and $128,916, respectively, was to the related party. As of September 30, 1995, the Company was a guarantor of a loan, with a balance of $1,045,665, collateralized by a mortgage on the leased facilities. In connection with the Stock Purchase Agreement discussed in Note 5, this lease was terminated and replaced with a lease agreement with the related party which requires minimum annual lease payments of $167,400 and expires November 30, 2000. During 1995, the Company acquired certain leasehold improvements, furniture, fixtures, and equipment from, and sold certain equipment to, the related party at a net cost of $39,255 in exchange for notes payable to the Company's stockholders. F-31 ONE SOURCE SUPPLY, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 3. NOTES PAYABLE Notes payable consists of the following:
DECEMBER 31, SEPTEMBER 30, 1994 1995 ------------ ------------- Note payable--bank, secured by all Company assets, with interest at 1% over the bank's prime rate, principal and interest payable $1,250 monthly, due November 1999.............. $ 72,500 $ 61,250 Note payable--stockholder, subordinated to all other bank financing with interest at 7%, payable on demand, with the approval of the Company's primary lender....................... 179,000 179,000 Note payable--bank, secured by all the Company assets, with interest at 1.5% over the bank's prime rate, principal payable $6,000 monthly plus interest, due May 1995.................... 10,000 Notes payable to stockholders, uncollateralized, interest at 7%, payable on demand with the approval of the Company's primary lender....... 336,031 323,286 $1,000,000 line of credit ($550,000 at December 31, 1994), secured by all Company assets, interest payable monthly at 0.875% over the bank's prime rate, due on demand............... 528,500 840,790 ---------- ---------- Total........................................... 1,126,031 1,404,326 Less: Current portion........................... 603,500 1,404,326 ---------- ---------- Long-term debt.................................. $ 522,531 $ -- ========== ==========
The note payable--bank and line of credit are guaranteed by the Company's shareholders. Interest expense on notes payable to stockholders for 1994 and 1995 amounted to $46,120 and $25,606, respectively. In connection with the Stock Purchase Agreement discussed in Note 5, the Company agreed to repay all of the above notes payable in 1995. 4. LEASED EMPLOYEES The Company has executed a leased employee agreement, whereby all of its employees, are provided by a leasing company for a monthly service fee. This fee provides for complete payroll processing and reporting, human resources management services, workers compensation and risk management services and employee benefits and benefits administration, including a 401(k) Long-term Savings Plan. In connection with the Stock Purchase Agreement discussed in Note 5, the Company intends to terminate this agreement. 5. SALE OF THE COMPANY'S COMMON STOCK On November 17, 1995, the stockholders of the Company sold all of the outstanding common stock of the Company to Wilmar Industries, Inc., pursuant to a Stock Purchase Agreement. F-32 INDEPENDENT AUDITORS' REPORT The Board of Directors HMA Enterprises, Inc.: We have audited the accompanying consolidated balance sheet of HMA Enterprises, Inc., and subsidiaries (the "Company") as of February 29, 1996, and the related consolidated statements of income, stockholders equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of HMA Enterprises, Inc., and subsidiaries as of February 29, 1996, and the results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles. Deloitte & Touche LLP Houston, Texas May 30, 1996 F-33 INDEPENDENT AUDITORS REPORT The Board of Directors HMA Enterprises, Inc.: We have audited the accompanying consolidated balance sheet of HMA Enterprises, Inc., and subsidiaries (the "Company") as of February 28, 1995, and the related consolidated statements of income, stockholders, equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of HMA Enterprises, Inc., and subsidiaries as of February 28, 1995, and the results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP April 21, 1995 F-34 HMA ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
FEBRUARY 28, FEBRUARY 29, 1995 1996 ------------ ------------ ASSETS CURRENT ASSETS: Cash............................................... $ 206,973 $ 211,876 Accounts receivable: Trade, less allowance for doubtful accounts of $213,518 and $239,832, respectively............. 2,412,686 3,543,773 Related party and other.......................... 101,003 53,281 Inventory.......................................... 2,509,905 3,073,661 Investment in trading securities................... 150,892 1,166 Prepaid expenses and other current assets.......... 147,892 267,526 ---------- ---------- Total current assets............................. 5,529,351 7,151,283 PROPERTY AND EQUIPMENT, NET.......................... 316,564 310,023 DEFERRED TAX ASSETS.................................. 48,482 115,500 ---------- ---------- TOTAL................................................ $5,894,397 $7,576,806 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable...................................... $1,430,100 $1,830,100 Trade accounts payable............................. 1,496,651 1,955,688 Accrued expenses................................... 379,848 454,617 Current portion of long-term debt and capital leases............................................ 76,591 63,499 Federal income taxes payable....................... 33,801 170,795 ---------- ---------- Total current liabilities........................ 3,416,991 4,474,699 LONG-TERM DEBT AND CAPITAL LEASES, EXCLUDING CURRENT PORTION............................................. 105,147 65,664 ---------- ---------- Total liabilities................................ 3,522,138 4,540,363 ---------- ---------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Common stock, $.01 par value; 1,000,000 shares authorized; 115,170 shares issued and outstanding....................................... 1,152 1,152 Additional paid-in capital......................... 156,656 156,656 Retained earnings.................................. 2,214,451 2,878,635 ---------- ---------- Total stockholders' equity....................... 2,372,259 3,036,443 ---------- ---------- TOTAL................................................ $5,894,397 $7,576,806 ========== ==========
See notes to consolidated financial statements. F-35 HMA ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED YEAR ENDED FEBRUARY 28, FEBRUARY 29, 1995 1996 ------------ ------------ SALES............................................... $20,641,719 $24,858,213 COST OF SALES....................................... 15,381,560 18,530,571 ----------- ----------- GROSS PROFIT........................................ 5,260,159 6,327,642 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES........ 4,997,868 5,262,985 ----------- ----------- 262,291 1,064,657 ----------- ----------- OTHER INCOME (EXPENSE): Interest expense, net............................. (130,729) (154,941) Other income...................................... 159,998 44,272 Gain on sale of property and equipment, net....... 8,696 ----------- ----------- Total........................................... 29,269 (101,973) ----------- ----------- INCOME BEFORE INCOME TAXES.......................... 291,560 962,684 INCOME TAXES........................................ (98,119) (298,500) ----------- ----------- NET INCOME.......................................... $ 193,441 $ 664,184 =========== ===========
See notes to consolidated financial statements. F-36 HMA ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR YEAR ENDED ENDED FEBRUARY 28, FEBRUARY 29, 1995 1996 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income.......................................... $ 193,441 $ 664,184 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation...................................... 160,070 144,383 Employee stock ownership plan contribution........ 156,700 Gain on sale of property and equipment............ (8,696) (Gain) writedown on investment in trading securities....................................... 10,620 (19,055) Deferred income taxes............................. (48,482) (67,018) Change in assets and liabilities: Accounts receivable--trade........................ (154,425) (1,131,087) Accounts receivable--related party and other...... 472 47,722 Inventory......................................... (749,101) (563,756) Prepaid expenses and other current assets......... (36,592) (119,634) Federal income tax receivable..................... 120,485 Trade accounts payable............................ 424,577 459,037 Accrued expenses.................................. 51,776 74,769 Federal income taxes payable...................... 33,801 136,994 --------- ----------- Net cash provided by (used in) operating activities..................................... 163,342 (382,157) --------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures, net of proceeds of disposals.. (35,838) (129,146) Purchase of trading securities...................... (161,512) Sales of trading securities......................... 168,781 --------- ----------- Net cash (used in) provided by investing activities..................................... (197,350) 39,635 --------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Purchase of treasury shares......................... (200,000) Principal payments on notes payable................. (103,400) (400,000) Principal payments on long-term debt and capital leases............................................. (56,541) (70,056) Proceeds from notes payable......................... 7,500 800,000 Proceeds from long-term debt and capital leases..... 17,481 --------- ----------- Net cash provided by (used in) financing activities..................................... (352,441) 347,425 --------- ----------- NET INCREASE (DECREASE) IN CASH....................... (386,449) 4,903 CASH AT BEGINNING OF YEAR............................. 593,422 206,973 --------- ----------- CASH AT END OF YEAR................................... $ 206,973 $ 211,876 ========= =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest payments................................... $ 139,136 $ 191,253 Income tax payments................................. 102,500 228,524 NONCASH INVESTING AND FINANCING ACTIVITIES: Capital leases assumed in acquisitions of property and equipment...................................... $ 89,354 Retirement of treasury shares....................... 210,000
See notes to consolidated financial statements. F-37 HMA ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED FEBRUARY 29, 1996 AND FEBRUARY 28, 1995 -------------------------------------------------------- ADDITIONAL TOTAL COMMON PAID-IN RETAINED TREASURY STOCKHOLDERS' STOCK CAPITAL EARNINGS STOCK EQUITY ------- ---------- ---------- --------- ------------- BALANCE AT FEBRUARY 28, 1994................... $ 2,204 $2,229,914 $ (10,000) $2,222,118 Net income............ 193,441 193,441 Issuance of common stock................ 44 $156,656 156,700 Purchase of treasury shares............... (200,000) (200,000) Retirement of 1,096 treasury shares...... (1,096) (208,904) 210,000 ------- -------- ---------- --------- ---------- BALANCE AT FEBRUARY 28, 1995................... 1,152 156,656 2,214,451 2,372,259 Net income............ 664,184 664,184 ------- -------- ---------- --------- ---------- BALANCE AT FEBRUARY 29, 1996................... $ 1,152 $156,656 $2,878,635 $ $3,036,443 ======= ======== ========== ========= ==========
See notes to consolidated financial statements F-38 HMA ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED FEBRUARY 29, 1996 AND FEBRUARY 28, 1995 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of Business--HMA Enterprises, Inc. was incorporated in the state of Texas in May 1983. Operating primarily in Texas, HMA Enterprises, Inc., and subsidiaries (the "Company") acquire and distribute fixtures, hardware, household items and supplies to apartment complexes and building contractors. The Company's locations include Houston, Arlington and, as of April 1996, San Antonio, Texas. Most of the Company's customers are located in Texas. No single customer accounted for more than five percent of the Company's sales, and no accounts receivable from any customer exceeded $186,000 at February 29, 1996. Principles of Consolidation--The consolidated financial statements include the accounts of HMA Enterprises, Inc., and its wholly owned subsidiaries, Gulf Coast Supply, Inc., and One Stop Supply, Inc. All intercompany accounts and transactions have been eliminated in consolidation. Investment in Equity Securities--The Company adopted the provisions of Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities," ("Statement 115") effective March 1, 1994. Under Statement 115, marketable investment securities are classified in three categories: trading, available for sale, or held to maturity. Trading securities are bought and held principally for the purpose of selling them in the near term. Held-to-maturity securities are those securities which the Company has the ability and intent to hold until maturity. All other securities not included in trading or held to maturity are classified as available for sale. In accordance with Statement 115, the Company classifies its investments in equity securities as trading securities. Trading securities are recorded at fair value. Unrealized holding gains and losses on trading securities, net of the related tax effect, are included in earnings. A decline in the market value of any trading security below cost is charged to earnings, resulting in the establishment of a new cost basis for the security. Dividend and interest income are recognized when earned. Realized gains and losses for securities classified as trading are included in earnings and are derived using the specific identification method for determining the cost of securities sold. Inventory--Inventory is stated at the lower of cost or market using the average cost method. Inventory consists entirely of finished goods. Property and Equipment--Property and equipment are stated at cost. Equipment under capital lease is stated at the present value of future minimum lease payments at the date of acquisition. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, which range from 3 to 7 years. Equipment under capital leases and leasehold improvements are amortized over the shorter of the lease term or estimated useful life of the asset. Federal Income Taxes--The Company accounts for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. F-39 HMA ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Use of Estimates--The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Reclassifications--Certain reclassifications have been made to the prior year financial statements to conform to the presentation and classification used in fiscal 1996. 2. PROPERTY AND EQUIPMENT Property and equipment consisted of the following:
1995 1996 -------- ---------- Vehicles................................................ $474,881 $ 478,945 Furniture and equipment................................. 356,988 418,746 Leasehold improvements.................................. 120,496 130,973 -------- ---------- Total............................................... 952,365 1,028,664 Less accumulated depreciation and amortization.......... 635,801 718,641 -------- ---------- Property and equipment, net............................. $316,564 $ 310,023 ======== ==========
3. NOTES PAYABLE Notes payable consisted of the following:
1995 1996 ---------- ---------- Notes payable to bank, interest at prime plus 0.5% (8.75% at February 29, 1996), due September 1, 1996.. $1,400,000 $1,800,000 Notes payable to related parties, interest at 10%, maturities vary through February 1997................ 30,100 30,100 ---------- ---------- Total............................................. $1,430,100 $1,830,100 ========== ==========
At February 29, 1996, $1,800,000 was outstanding under the Company's $2,500,000 revolving line of credit which matures on September 1, 1996. Interest payments are due monthly on the first day of each month and accrue at the bank's prime rate plus 0.5%. The Company has pledged its accounts receivable, inventory, and property and equipment as collateral for this obligation. The line of credit facility contains certain financial covenants which require the Company to maintain a minimum net worth and ratio of debt to net worth. Compliance with covenants has been met. 4. LONG-TERM DEBT AND CAPITAL LEASES Long-term debt and capital leases consist of the following:
1995 1996 -------- -------- Obligations under capital leases, interest rates ranging from 6.0% to 13.6%, varying payments..................... $166,334 $129,163 Long-term debt collateralized by certain equipment, interest at prime plus 1%, payable in monthly installments of $483..................................... 15,404 -------- -------- Total long-term debt and capital leases............... 181,738 129,163 Less current portion...................................... 76,591 63,499 -------- -------- Long-term debt and capital leases, excluding current portion.................................................. $105,147 $ 65,664 ======== ========
F-40 HMA ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The aggregate maturities of long-term debt and capital leases for each year subsequent to February 29, 1996 are: 1997, $63,499; 1998, $50,018; and 1999, $15,646. 5. INCOME TAXES The Company's income tax provision for the years ended February 29, 1996 and February 28, 1995 comprised the following:
1995 1996 -------- -------- Current.................................................. $146,601 $365,518 Deferred................................................. (48,482) (67,018) -------- -------- Total.................................................. $ 98,119 $298,500 ======== ========
The provision for income taxes differs from the amount of income taxes computed by applying the U.S. federal income tax rate of 34% to pretax income as a result of limitations on the deductibility of meals and entertainment and the nontaxable income on officers' life insurance policies for fiscal 1995 and 1996. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets at February 29, 1996 and February 28, 1995 are presented below:
1995 1996 -------- -------- Deferred tax assets: Allowance for doubtful accounts........................ $ 72,596 $ 81,543 Differences between book and tax depreciation.......... 24,858 25,718 Accrued vacation....................................... 14,067 8,239 -------- -------- Total gross deferred tax assets...................... 111,521 115,500 Less valuation allowance................................. (63,039) -------- -------- Net deferred tax assets.................................. $ 48,482 $115,500 ======== ========
6. EMPLOYEE STOCK OWNERSHIP PLAN The Company adopted the Employee Stock Ownership Plan (the "Plan") during 1995 to enable eligible employees to participate in the growth of the Company. Employees who have been employed with the Company for one or more years and have completed a minimum of 1,000 hours of service are eligible to become participants in the Plan. Employer contributions to the Plan are held in trust in each participants individual account. The contributions are allocated to the participant accounts based on each participant's covered compensation, which is the total wages paid to the participant by the Company for each plan year. The realized and unrealized gain or loss on the Plan's assets, as well as dividends on the Company's stock not distributed to participants, are allocated to each participant's account in the same manner. In fiscal 1995, the company recognized $156,700 in compensation expense related to the Plan, which represents the estimated fair market value of the 43.7 shares (prior to stock split--see Note 8) of Company stock contributed to the Plan. In fiscal 1996 the Company recognized $100,000 in compensation expense related to a cash contribution. 7. RELATED-PARTY TRANSACTIONS Included in trade receivables as of February 28, 1995 and February 29, 1996 was $255,845 and $249,717, respectively, from a related party which has common shareholders with the Company. Sales to this related party for fiscal 1995 and 1996 were $255,845 and $94,916, respectively. F-41 HMA ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 8. COMMON STOCK In June 1994 the Company purchased 96 shares of its common stock from a shareholder at a cost of $200,000. In December 1994 the Company retired 1,096 shares of common stock previously held in treasury. In December 1994 the Company effected a 100 for 1 stock split for each issued and outstanding share of its common stock, and decreased the par value per share of common stock from $1 to $.01. There was no change in the authorized number of shares. 9. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of cash, investment in trading securities, accounts receivable, accounts payable and accrued expenses approximate fair value because of the short maturities of these items. Interest rates which are currently available to the Company for new issuances of debt with similar terms and maturities are used to estimate the fair value of long-term debt and capital leases which at February 29, 1996 approximated the recorded amount. 10. COMMITMENTS AND CONTINGENCIES Until December 1995 the Company participated in a self-insurance pool for health care costs. The Company is liable for claims up to $12,500 per employee annually and Company claims aggregate up to $45,000 annually. The Company has funded the insurance pool to cover the annual aggregate claims. Claims exceeding these limits are covered by a stop loss policy covering claims up to $2,000,000 annually. Based on historical experience, management does not anticipate potential future claims would have a material impact on the Company's consolidated financial statements. The Company is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a materially adverse effect on the Company's consolidated financial statements. The Company is obligated under certain noncancelable operating leases (with initial or remaining lease terms in excess of one year). These leases generally contain renewal options for periods ranging from three to five years and require the Company to pay executory costs such as maintenance and insurance. The future minimum lease payments under such leases as of February 29, 1996 are:
YEARS ENDING ------------ 1997........................................................ $ 315,704 1998........................................................ 265,236 1999........................................................ 188,686 2000........................................................ 162,000 2001........................................................ 162,000 ---------- Total..................................................... $1,093,626 ==========
The Company recognized rent expense of $227,062 and $233,044 during fiscal 1995 and 1996, respectively. 11. SUBSEQUENT EVENT Subsequent to February 29, 1996 the shareholders of the Company entered into a letter of intent to sell all of the common stock to a publicly held company for an amount in excess of book value. Closing is expected to be the end of June 1996. F-42 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- NO DEALER, SALES PERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN- FORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRIT- ERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SO- LICITATION WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM IT IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT THE INFORMATION CONTAINED HEREIN IS COR- RECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. ------------ TABLE OF CONTENTS
PAGE ---- Prospectus Summary....................................................... 3 Recent Developments...................................................... 4 Risk Factors............................................................. 7 Use of Proceeds.......................................................... 10 Prior S Corporation Status and Dividend Policy........................... 10 Price Range of Common Stock.............................................. 11 Capitalization........................................................... 11 Unaudited Pro Forma Combined Financial Data.............................. 12 Selected Financial Data.................................................. 16 Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................... 17 Market Overview.......................................................... 25 Business................................................................. 26 Management............................................................... 35 Certain Transactions..................................................... 40 Principal and Selling Shareholders....................................... 42 Description of Capital Stock............................................. 43 Shares Eligible for Future Sale.......................................... 45 Underwriting............................................................. 46 Legal Matters............................................................ 47 Experts.................................................................. 47 Additional Information................................................... 48 Index to Financial Statements............................................ F-1
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 3,770,000 Shares [LOGO OF WILMAR APPEARS HERE] Common Stock ------------ PROSPECTUS ------------ Alex. Brown & Sons INCORPORATED William Blair & Company Robertson, Stephens & Company PaineWebber Incorporated July , 1996 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table shows all expenses of the issuance and distribution of the securities offered hereby, other than underwriting discounts and commissions: Securities and Exchange Commission filing fee.................... $ 32,200 National Association of Securities Dealers, Inc. filing fee...... 9,900 Nasdaq listing fee............................................... 40,000 Transfer agent's and registrar's fees............................ 5,000 Printing expenses................................................ 100,000 Legal fees....................................................... 100,000 Accounting fees and expenses..................................... 150,000 Blue sky filing fees and expenses (including counsel fees)....... 5,000 Miscellaneous expenses........................................... 57,900 -------- Total.......................................................... $500,000 ========
The Securities and Exchange Commission filing fee, National Association of Securities Dealers, Inc. filing fee and Nasdaq listing fee are exact. All other amounts are estimates. All the above expenses will be paid by the Company. 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS Reference is made to Section 14A:3-5 of the New Jersey Business Corporation Act, as amended, which sets forth the extent to which a corporation may indemnify its directors, officers and employees. More specifically, such law empowers a corporation to indemnify a corporate agent against his or her expenses and liabilities incurred in connection with any proceeding (other than a derivative law suit) involving the corporate agent by reason of his or her being or having been a corporate agent if (a) the corporate agent acted in good faith or in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation, and (b) with respect to any criminal proceeding, the corporate agent had no reasonable cause to believe his or her conduct was unlawful. For purposes of such law the term "corporate agent" includes any present or former director, officer, employee or agent of the corporation, and a person serving as a "corporate agent" at the request of the corporation for any other enterprise, or the legal representative of any such director, officer, trustee, employee or agent. For purposes of this section, "proceeding" means any pending, threatened or completed civil, criminal, administrative or arbitrative action, suit or proceeding, and any appeal therein and any inquiry or investigation which could lead to such action, suit or proceeding. With respect to any derivative action, the corporation is empowered to indemnify a corporate agent against his or her expenses (but not his or her liabilities) incurred in connection with any proceeding involving the corporate agent by reason of his or her being or having been a corporate agent if the agent acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation. However, a court may, upon application, empower a corporation to indemnify a corporate agent, to the extent such court deems proper in view of the circumstances, against expenses with respect to any claim, issue or matter as to which the agent was adjudged liable to the corporation. The Company's Bylaws permit it to purchase insurance on behalf of any corporate agents against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, II-1 whether or not the Company would have the power to indemnify him against such liability under the foregoing provision of the Bylaws. The Underwriting Agreement, filed as Exhibit 1 hereto, provides that each of the Underwriters will indemnify the directors and officers of the Company against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the "Act"). 15. RECENT SALES OF UNREGISTERED SECURITIES Described below are the only transactions within the past three years since in which securities which the Company issued securities which were not registered under the Act. On March 9, 1995, in connection with the 1995 Recapitalization, the Company issued 126,861 and 2,589 shares of Series A Senior Preferred Stock to Summit Ventures III, L.P. and Summit Investors II, L.P., respectively, for aggregate consideration of $12,945,000. Also on March 9, the Company issued 2,902,219, 61,600 and 116,181 shares of Common Stock to Summit Ventures III, L.P., Summit Investors II, L.P. and Summit Subordinated Debt Fund, L.P., respectively, for aggregate consideration of $55,000. Between March 8, 1995 and September 29, 1995, the Company granted options to purchase an aggregate of 280,000 shares of Common Stock at an exercise price of $4.23 per share currently held by 18 employees. The Company has granted, subject to the closing of this offering, options to purchase 100,000 shares of Common Stock at an exercise price equal to the initial public offering price, currently held by 11 employees. On July 8, 1996, Wilmar issued 67,615 shares of its Common Stock to the former shareholders of HMA Enterprises, Inc. d/b/a Gulf Coast Supply and the Supply Depot ("HMA") as partial consideration in connection with its acquisition of all of the stock of HMA, calculated on a per share basis equal to $23.79 per share. The Company believes that the sales described above were exempt from registration under Section 4(2) of the Act because such sales were made to a limited group of persons, each of whom was believed to have been a sophisticated investor or had a pre-existing business or personal relationship with the Company or its management and since each such person was purchasing for investment without a view to further distribution. Restrictive legends were placed on stock certificates evidencing the shares and/or agreements relating to the right to purchase such shares described above. 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES The pages contained in the registration statement filed with exhibits thereto have been numbered sequentially in the lower right hand corner of each page. The exhibits described below may be found in such registration statement at the relevant page described under the column "Sequential Page Number." (a) Exhibits:
EXHIBIT NUMBER DESCRIPTION ------- ----------- 1* Form of Underwriting Agreement. 3.1+ Certificate of Incorporation. 3.2+ Bylaws. 4+ Specimen Stock Certificate. 5* Opinion of Morgan, Lewis & Bockius LLP regarding legality of securities being registered. 10.1+ Amended and Restated 1995 Stock Option Plan. 10.2++ Lease Agreement, dated April 29, 1996, between the Company and 804 Eastgate Associates, L.L.C.
II-2
EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.3++ Assumption Agreement, dated as of June 1, 1996, between the Company and 804 Eastgate Associates, L.L.C. 10.4+ Lease Agreement, dated as of March 1, 1994, between William Green and the Company, including Lease Rider, dated as of March 7, 1995, between the Company and William Green. 10.5+ Amended and Restated Employment Agreement, dated as of April 12, 1994, between the Company and Fred B. Gross, Esq. 10.6+ Employment Agreement, dated as of March 9, 1995, between the Company and William Green. 10.7+ Stock Purchase and Redemption Agreement, dated as of March 9, 1995, among the Company, William Green and the Summit Investors. 10.8+ Shareholders' Agreement, dated as of March 9, 1995, among the Company, William Green and the Summit Investors. 10.9+ Amended and Restated Registration Rights Agreement, dated as of January 19, 1996, among the Company, William Green and the Summit Investors. 10.10+ Subordinated Debenture Purchase Agreement, dated as of March 9, 1995, among the Company, Summit Subordinated Debt Fund, L.P. and Summit Investors II, L.P. 10.11+ Loan and Security Agreement, dated as of March 9, 1995, between the Company and New Jersey National Bank. 10.12+ Amendment to Loan and Security Agreement, dated November 16, 1995, between the Company and New Jersey National Bank. 10.13+ Installment Note, dated July 8, 1993, by the Company to Martin H. Green and Florence J. Green in the aggregate principal amount of $1,200,000. 10.14+ Amendment Agreement No. 1 to Stock Purchase and Redemption Agreement, dated as of November 21, 1995, among the Company, William Green and the Summit Investors. 10.15+++ Stock Purchase Agreement, dated as of June 28, 1996, among the Company and the shareholders of HMA Enterprises, Inc. 10.16+++ Registration Rights Agreement, dated as of July 8, 1996, among the Company and the shareholders of HMA Enterprises, Inc. 11* Statement re: Computation of Per Share Earnings. 21* Subsidiaries of the Company. 23.1* Consent of Deloitte & Touche LLP. 23.2* Consent of Deloitte & Touche LLP. 23.3* Consent of Deloitte & Touche LLP. 23.4* Consent of Fishbein & Company, P.C. 23.5* Consent of Mutnick & Associates, P.A. 23.6* Consent of KPMG Peat Marwick LLP. 23.7* Consent of Morgan, Lewis & Bockius LLP (included in its opinion filed as Exhibit 5 hereto) . 24* Powers of Attorney (included on Signature Page). 27* Financial Data Schedule.
- -------- * Filed herewith. + Incorporated by reference to the Company's Registration Statement on Form S-1 (No. 33-99750), filed with the Securities and Exchange Commission on November 22, 1995. ++ Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended March 29, 1996. +++ Incorporated by reference to the Company's Current Report on Form 8-K dated July 8, 1996. II-3 (b) Financial Statement Schedules Schedule II--Valuation and Qualifying Accounts 17. UNDERTAKINGS. A. The undersigned Company hereby undertakes to provide to the Underwriter at the closing specified in the Underwriting Agreement certificates in such denominations and registered in such names as required by the Underwriter to permit prompt delivery to each purchaser. B. Insofar as indemnification for liabilities arising under the Act may be permitted to directors, officers and controlling persons of the company pursuant to its Certificate of Incorporation, its Bylaws, the Underwriting Agreement, or otherwise, the Company has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Company of expenses incurred or paid by a director, officer or controlling person of the Company in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Company will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. C. The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Act the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering as such securities at that time shall be deemed to be the initial bona fide offering thereof. II-4 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Moorestown, New Jersey, on July 8, 1996. Wilmar Industries, Inc. /s/ William S. Green By: _________________________________ WILLIAM S. GREEN CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATE INDICATED. EACH PERSON WHOSE SIGNATURE APPEARS BELOW IN SO SIGNING APPOINTS WILLIAM GREEN AND FRED B. GROSS, AND EACH OF THEM ACTING ALONE, HIS TRUE AND LAWFUL ATTORNEY-IN-FACT, WITH FULL POWER OF SUBSTITUTION, FOR HIM IN ANY AND ALL CAPACITIES, TO EXECUTE AND CAUSE TO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ANY AND ALL AMENDMENTS AND POST-EFFECTIVE AMENDMENTS TO THIS REGISTRATION STATEMENT, WITH EXHIBITS THERETO AND OTHER DOCUMENTS IN CONNECTION THEREWITH, AND HEREBY RATIFIES AND CONFIRMS ALL THAT SAID ATTORNEY- IN-FACT OR HIS SUBSTITUTE OR SUBSTITUTES MAY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF. SIGNATURE TITLE DATE /s/ William S. Green Chairman, President, July 8, 1996 - ------------------------------------- Chief Executive WILLIAM S. GREEN Officer and Director (Principal Executive Officer) /s/ Fred B. Gross Vice President-- July 8, 1996 - ------------------------------------- Corporate FRED B. GROSS Development, Secretary and Director /s/ Michael T. Toomey Chief Financial July 8, 1996 - ------------------------------------- Officer and MICHAEL T. TOOMEY Treasurer (Principal Financial and Accounting Officer) /s/ Ernest K. Jacquet Director July 8, 1996 - ------------------------------------- ERNEST K. JACQUET /s/ Joseph F. Trustey Director July 8, 1996 - ------------------------------------- JOSEPH F. TRUSTEY /s/ Donald M. Wilson Director July 8, 1996 - ------------------------------------- DONALD M. WILSON SCHEDULE II WILMAR INDUSTRIES, INC. VALUATION ACCOUNTS
BALANCE AT CHARGED BALANCE BEGINNING (CREDITED) OTHER AT END OF YEAR TO EXPENSE DEDUCTIONS(1) CHANGES OF YEAR ---------- ---------- ------------- ---------- -------- DESCRIPTION Year Ended December 31, 1993 Allowance for doubtful accounts............. $ 0 $177,725 $ 72,725 $ $105,000 Year Ended December 30, 1994 Allowance for doubtful accounts............. $105,000 $163,407 $133,407 $135,000 Year Ended December 29, 1995 Allowance for doubtful accounts............. $135,000 $186,727 $167,657 $82,000(2) $236,070
- -------- (1) Accounts Receivable written off as uncollectible, net of recoveries. (2) Represents reserve established in connection with acquisition of One Source Supply, Inc. See Notes 2 and 4 of Notes to Consolidated Financial Statements. S-1 EXHIBIT INDEX
EXHIBIT PAGE NUMBER DESCRIPTION NO. ------- ----------- ---- 1* Form of Underwriting Agreement. 3.1+ Certificate of Incorporation. 3.2+ Bylaws. 4+ Specimen Stock Certificate. 5* Opinion of Morgan, Lewis & Bockius LLP regarding legality of securities being registered. 10.1+ Amended and Restated 1995 Stock Option Plan. 10.2++ Lease Agreement, dated April 29, 1996, between the Company and 804 Eastgate Associates, L.L.C. 10.3++ Assumption Agreement, dated as of June 1, 1996, between the Company and 804 Eastgate Associates, L.L.C. 10.4+ Lease Agreement, dated as of March 1, 1994, between William Green and the Company, including Lease Rider, dated as of March 7, 1995, between the Company and William Green. 10.5+ Amended and Restated Employment Agreement, dated as of April 12, 1994, between the Company and Fred B. Gross, Esq. 10.6+ Employment Agreement, dated as of March 9, 1995, between the Company and William Green. 10.7+ Stock Purchase and Redemption Agreement, dated as of March 9, 1995, among the Company, William Green and the Summit Investors. 10.8+ Shareholders' Agreement, dated as of March 9, 1995, among the Company, William Green and the Summit Investors. 10.9+ Amended and Restated Registration Rights Agreement, dated as of January 19, 1996, among the Company, William Green and the Summit Investors. 10.10+ Subordinated Debenture Purchase Agreement, dated as of March 9, 1995, among the Company, Summit Subordinated Debt Fund, L.P. and Summit Investors II, L.P. 10.11+ Loan and Security Agreement, dated as of March 9, 1995, between the Company and New Jersey National Bank. 10.12+ Amendment to Loan and Security Agreement, dated November 16, 1995, between the Company and New Jersey National Bank. 10.13+ Installment Note, dated July 8, 1993, by the Company to Martin H. Green and Florence J. Green in the aggregate principal amount of $1,200,000. 10.14+ Amendment Agreement No. 1 to Stock Purchase and Redemption Agreement, dated as of November 21, 1995, among the Company, William Green and the Summit Investors. 10.15+++ Stock Purchase Agreement, dated as of June 28, 1996, among the Company and the shareholders of HMA Enterprises, Inc. 10.16+++ Registration Rights Agreement, dated as of July 8, 1996, among the Company and the shareholders of HMA Enterprises, Inc. 11* Statement re: Computation of Per Share Earnings. 21* Subsidiaries of the Company.
EXHIBIT PAGE NUMBER DESCRIPTION NO. - ------- ----------- ---- 23.1* Consent of Deloitte & Touche LLP. 23.2* Consent of Deloitte & Touche LLP. 23.3* Consent of Deloitte & Touche LLP. 23.4* Consent of Fishbein & Company, P.C. 23.5* Consent of Mutnick & Associates, P.A. 23.6* Consent of KPMG Peat Marwick LLP. 23.7* Consent of Morgan, Lewis & Bockius LLP (included in its opinion filed as Exhibit 5 hereto). 24* Powers of Attorney (included on Signature Page). 27* Financial Data Schedule.
- -------- * Filed herewith. + Incorporated by reference to the Company's Registration Statement on Form S-1 (No. 33-99750), filed with the Securities and Exchange Commission on November 22, 1995. ++ Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended March 29, 1996. +++Incorporated by reference to the Company's Current Report on Form 8-K dated July 8, 1996. EX-1 2 FORM OF UNDERWRITING AGREEMENT ___________________ Shares WILMAR INDUSTRIES, INC. Common Stock UNDERWRITING AGREEMENT ---------------------- July_____, 1996 Alex. Brown & Sons Incorporated William Blair & Company L.L.C. Robertson, Stephens & Company LLC PaineWebber Incorporated As Representatives of the Several Underwriters c/o Alex. Brown & Sons Incorporated 135 East Baltimore Street Baltimore, Maryland 21202 Gentlemen: Wilmar Industries, Inc., a New Jersey corporation (the "Company"), and certain stockholders of the Company named in Schedule II hereto (the "Selling Shareholders") propose to sell to the several underwriters (the "Underwriters") named in Schedule I hereto for whom you are acting as representatives (the "Representatives") an aggregate of ___________ shares of the Company's Common Stock, without par value (the "Firm Shares"), of which ___________ shares will be sold by the Company and ___________ shares will be sold by the Selling Shareholders. The respective amounts of the Firm Shares to be so purchased by the several Underwriters are set forth opposite their names in Schedule I hereto, and the respective amounts to be sold by the Selling Shareholders are set forth opposite their names in Schedule II hereto. The Company and the Selling Shareholders are sometimes referred to herein collectively as the "Sellers." The Company and the Selling Shareholders also propose to sell at the Underwriters' option an aggregate of up to ___________ additional shares of the Company's Common Stock (the "Option Shares") as set forth below. -1- As the Representatives, you have advised the Company (a) that you are authorized to enter into this Agreement on behalf of the several Underwriters, and (b) that the several Underwriters are willing, acting severally and not jointly, to purchase the numbers of Firm Shares set forth opposite their respective names in Schedule I, plus their pro rata portion of the Option Shares if you elect to exercise the over-allotment option in whole or in part for the accounts of the several Underwriters. The Firm Shares and the Option Shares (to the extent the aforementioned option is exercised) are herein collectively called the "Shares." In consideration of the mutual agreements contained herein and of the interests of the parties in the transactions contemplated hereby, the parties hereto agree as follows: 1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLING ------------------------------------------------------------- STOCKHOLDERS. ------------ (a) The Company represents and warrants to each of the Underwriters as follows: (i) A registration statement on Form S-1 (File No. 333-________) with respect to the Shares has been carefully prepared by the Company in conformity with the requirements of the Securities Act of 1933, as amended (the "Act"), and the Rules and Regulations (the "Rules and Regulations") of the Securities and Exchange Commission (the "Commission") thereunder and has been filed with the Commission. Copies of such registration statement, including any amendments thereto, the preliminary prospectuses (meeting the requirements of the Rules and Regulations) contained therein and the exhibits, financial statements and schedules, as finally amended and revised, have heretofore been delivered by the Company to you. Such registration statement, together with any registration statement filed by the Company pursuant to Rule 462 (b) under the Act, herein referred to as the "Registration Statement," which shall be deemed to include all information omitted therefrom in reliance upon Rule 430A and contained in the Prospectus referred to below, has become effective under the Act and no post-effective amendment to the Registration Statement has been filed as of the date of this Agreement. "Prospectus" means (a) the form of prospectus first filed with the Commission pursuant to Rule 424(b), or (b) the last preliminary prospectus included in the Registration Statement filed prior to the time it becomes effective or filed pursuant to Rule 424(a) under the Act that is delivered by the Company to the Underwriters for delivery to purchasers of the Shares, together with the term sheet or abbreviated term sheet filed with the Commission pursuant to Rule 424(b)(7) under the Act. Each preliminary prospectus included in the Registration Statement prior to the time it becomes effective is herein referred to as a "Preliminary Prospectus." (ii) The Company has been duly organized and is validly existing as a corporation in good standing under the laws of the State of New Jersey, with corporate power and authority to own or lease its properties and conduct its business as described in the Registration Statement. One Source, Inc., a Florida corporation ("One Source"), Sun -2- Valley Maintenance Supply Inc., a [Arizona][Nevada] corporation ("Sun Valley"), HMA Enterprises, Inc., a Texas corporation ("HMA"), Mile High Maintenance Supply, Inc., a Colorado corporation ("Mile High"), and Rainbow Sales Co., Inc., a Virginia corporation ("Rainbow Sales") and each other subsidiary of the Company listed in Exhibit 21 to Item 16(a) of the Registration Statement (collectively, with One Source, Sun Valley, HMA, Mile High and Rainbow Sales, the "Subsidiaries") each has been duly organized and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, with corporate power and authority to own or lease its properties and conduct its business as described in the Registration Statement. The Subsidiaries are the only subsidiaries, direct or indirect, of the Company. The Company and the Subsidiaries are duly qualified to transact business in all jurisdictions in which the conduct of their business requires such qualification, except where the failure to so qualify would not have a materially adverse effect on the business and operations of the Company and the Subsidiaries, taken as a whole. The outstanding shares of capital stock of each of the Subsidiaries have been duly authorized and validly issued, are fully paid and non-assessable and are owned by the Company free and clear of all liens, encumbrances and equities and claims; and no options, warrants or other rights to purchase, agreements or other obligations to issue or other rights to convert any obligations into shares of capital stock or ownership interests in the Subsidiaries are outstanding. (iii) The outstanding shares of Common Stock of the Company, including the Shares to be sold by the Selling Shareholders, have been duly authorized and validly issued and are fully paid and non-assessable; the Shares to be issued and sold by the Company have been duly authorized and when issued and paid for as contemplated herein will be validly issued, fully paid and non-assessable; and no preemptive rights of stockholders exist with respect to any of the Shares or the issue and sale thereof. Neither the filing of the Registration Statement nor the offering or sale of the Shares as contemplated by this Agreement gives rise to any rights, other than those which have been waived or satisfied, for or relating to the registration of any shares of Common Stock. (iv) The information set forth under the caption "Capitalization" in the Prospectus is true and correct. All of the Shares conform to the description thereof contained in the Registration Statement. The form of certificates for the Shares conforms to the corporate law of the jurisdiction of the Company's incorporation. (v) The Commission has not issued an order preventing or suspending the use of any Prospectus relating to the proposed offering of the Shares nor instituted proceedings for that purpose. The Registration Statement contains, and the Prospectus and any amendments or supplements thereto will contain, all statements which are required to be stated therein by, and will conform, to the requirements of the Act and the Rules and Regulations. The Registration Statement and any amendment thereto do not contain, and will not contain, any untrue statement of a material fact and do not omit, and will not -3- omit, to state any material fact required to be stated therein or necessary to make the statements therein not misleading. The Prospectus and any supplements thereto do not contain, and will not contain, any untrue statement of a material fact and do not omit, and will not omit, to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that the Company makes no representations or warranties as to information contained in or omitted from the Registration Statement or the Prospectus, or any such amendment or supplement, in reliance upon, and in conformity with, written information furnished to the Company by or on behalf of any Underwriter through the Representatives, specifically for use in the preparation thereof. (vi) The financial statements of the Company and the separate financial statements of One Source, Sun Valley, HMA, Mile High and Rainbow Sales, in each case together with related notes and schedules, as set forth in the Registration Statement, present fairly in all material respects the financial position and the results of operations and cash flows of the Company and of One Source, Sun Valley, HMA, Mile High and Rainbow Sales, respectively, at the indicated dates and for the indicated periods. Such financial statements and related schedules have been prepared in accordance with generally accepted principles of accounting, consistently applied throughout the periods involved, except as disclosed therein, and all adjustments necessary for a fair presentation of results for such periods have been made. The summary financial and statistical data included in the Registration Statement present fairly the information shown therein and such data have been compiled on a basis consistent with the financial statements presented therein and the books and records of the Company and One Source, Sun Valley, HMA, Mile High and Rainbow Sales, as applicable. The pro forma combined financial statements of the Company and One Source, Sun Valley, HMA, Mile High and Rainbow Sales, together with the related notes, as set forth in the Registration Statement, present fairly the information shown therein, have been prepared in accordance with the Commission's rules and guidelines with respect to pro forma financial statements and have been properly compiled on the pro forma bases described therein, and in the opinion of the Company, the assumptions used in the preparation thereof are reasonable and the adjustments used therein are appropriate to give effect to the transactions or circumstances referred to therein. (vii) Deloitte & Touche, LLP, Fishbein & Co., P.C., Mutnick & Associates, P.A., [the accountants for Sun Valley], Charles W. Mueller, C.P.A., a Professional Corporation, [the accountants for Mile High], and W. Scott Huzek, CPA, P.C., who have certified certain of the financial statements filed with the Commission as part of the Registration Statement, are each independent public accountants as required by the Act and the Rules and Regulations. (viii) There is no action, suit, claim or proceeding pending or, to the knowledge of the Company, threatened against the Company or any of the Subsidiaries before any -4- court or administrative agency or otherwise, which if determined adversely to the Company or such Subsidiary is reasonably likely to result in any material adverse change in the earnings, business, management, properties, assets, rights, operations, condition (financial or otherwise) or prospects of the Company and of the Subsidiaries taken as a whole or to prevent the consummation of the transactions contemplated hereby, except as set forth in the Registration Statement. (ix) The Company and the Subsidiaries have good and marketable title to all of the properties and assets reflected in the financial statements (or as described in the Registration Statement) hereinabove described, subject to no lien, mortgage, pledge, charge or encumbrance of any kind except those reflected in such financial statements (or as described in the Registration Statement) or which are not material in amount. The Company and the Subsidiaries occupy their leased properties under valid and binding leases conforming in all material respects to the description thereof set forth in the Registration Statement. (x) The Company and the Subsidiaries have filed all Federal, state, local and foreign income tax returns which have been required to be filed and have paid all taxes indicated by said returns and all assessments received by them or any of them to the extent that such taxes have become due and are not being contested in good faith. All tax liabilities have been adequately provided for in the financial statements of the Company or of One Source, Sun Valley, HMA, Mile High and Rainbow Sales, as applicable. (xi) Since the respective dates as of which information is given in the Registration Statement, as it may be amended or supplemented, there has not been any material adverse change or any development involving a prospective material adverse change in or affecting the earnings, business, management, properties, assets, rights, operations, condition (financial or otherwise), or prospects of the Company and its Subsidiaries taken as a whole, whether or not occurring in the ordinary course of business, and there has not been any material transaction entered into or any material transaction that is probable of being entered into by the Company or the Subsidiaries, other than transactions in the ordinary course of business and changes and transactions described in the Registration Statement, as it may be amended or supplemented. The Company and the Subsidiaries have no material contingent obligations which are not disclosed in the financial statements of the Company or of One Source, Sun Valley, HMA, Mile High and Rainbow Sales, as applicable, included in the Registration Statement. (xii) Neither the Company nor any of the Subsidiaries is or with the giving of notice or lapse of time or both, will be, in violation of or in default under its Charter or By-Laws or under any agreement, lease, contract, indenture or other instrument or obligation to which it is a party or by which it, or any of its properties, is bound and which default is of material significance in respect of the condition (financial or -5- otherwise) of the Company and the Subsidiaries taken as a whole or the business, management, properties, assets, rights, operations, condition (financial or otherwise) or prospects of the Company and the Subsidiaries taken as a whole. The execution and delivery of this Agreement and the consummation of the transactions herein contemplated and the fulfillment of the terms hereof will not conflict with or result in a breach of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust or other agreement or instrument to which the Company or any of the Subsidiaries is a party, or of the Charter or By-Laws of the Company or any order, rule or regulation applicable to the Company or any of the Subsidiaries of any court or, assuming compliance with all applicable state securities or blue sky laws, of any regulatory body or administrative agency or other governmental body having jurisdiction. (viii) Each approval, consent, order, authorization, designation, declaration or filing by or with any regulatory, administrative or other governmental body necessary in connection with the execution and delivery by the Company of this Agreement and the consummation of the transactions herein contemplated (except such additional steps as may be required by the Commission, the National Association of Securities Dealers, Inc. (the "NASD") or such additional steps as may be necessary to qualify the Shares for public offering by the Underwriters under state securities or Blue Sky laws) has been obtained or made and is in full force and effect. (xiv) The Company and each of the Subsidiaries hold all material licenses, certificates and permits from governmental authorities which are necessary to the conduct of their businesses; and neither the Company nor any of the Subsidiaries has infringed any patents, patent rights, trade names, trademarks or copyrights, which infringement is material to the business of the Company and the Subsidiaries taken as a whole. The Company knows of no material infringement by others of patents, patent rights, trade names, trademarks or copyrights owned by or licensed to the Company or any of the Subsidiaries. (xv) Neither the Company, nor to the Company's best knowledge, any of its affiliates, has taken or may take, directly or indirectly, any action designed to cause or result in, or which has constituted or which might reasonably be expected to constitute, the stabilization or manipulation of the price of the shares of Common Stock to facilitate the sale or resale of the Shares. (xvi) Neither the Company nor any of the Subsidiaries is an "investment company" within the meaning of such term under the Investment Company Act of 1940 and the rules and regulations of the Commission thereunder. (xvii) The Company and each of the Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurances that (i) transactions are executed in accordance with management's general or specific authorization; (ii) -6- transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management's general or specific authorization; and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (xviii) The Company and each of the Subsidiaries carry, or are covered by, insurance in such amounts and covering such risks as is adequate for the conduct of their respective businesses and the value of their respective properties and as is customary for companies engaged in similar industries. (xix) The Company and each of the Subsidiaries are in compliance in all material respects with all presently applicable provisions of the Employee Retirement Income Security Act of 1974, as amended, including the regulations and published interpretations thereunder ("ERISA"); no "reportable event" (as defined in ERISA) has occurred with respect to any "pension plan" (as defined in ERISA) for which the Company or any of the Subsidiaries would have any liability; neither the Company nor any of the Subsidiaries has incurred nor expects to incur liability under (i) Title IV of ERISA with respect to termination of, or withdrawal from, any "pension plan," or (ii) Sections 412 or 4971 of the Internal Revenue Code of 1986, as amended, including the regulations and published interpretations thereunder (the "Code"); and each "pension plan" for which the Company or any of the Subsidiaries would have any liability that is intended to be qualified under Section 401(a) of the Code is so qualified in all material respects and nothing has occurred, whether by action or by failure to act, which would cause the loss of such qualification. (xx) The Company confirms as of the date hereof that it and each of the Subsidiaries is in compliance with all provisions of Section 1 of Laws of Florida, Chapter 92-198, An Act Relating to Disclosure of Doing Business with ---------------------------------------------------- Cuba, and the Company further agrees that if it or any of the Subsidiaries - ---- commences engaging in business with the government of Cuba or with any person or affiliate located in Cuba after the date the Registration Statement becomes or has become effective with the Commission or with the Florida Department of Banking and Finance (the "Department"), whichever date is later, or if the information reported or incorporated by reference in the Prospectus, if any, concerning the Company's business with Cuba or with any person or affiliate located in Cuba changes in any material way, the Company will provide the Department notice of such business or change, as appropriate, in a form acceptable to the Department. -7- (b) Each of the Selling Shareholders severally represents and warrants to each of the Underwriters and the Company that: (i) Such Selling Shareholder has and at the Closing Date and, if applicable, the Option Closing Date, as the case may be (as such dates are hereinafter defined) will have good and valid title to the Firm Shares and, if applicable, the Option Shares to be sold by such Selling Shareholder, free of any liens, encumbrances, equities and claims, and full right, power and authority to effect the sale and delivery of such Firm Shares and, if applicable, Option Shares; and upon the delivery of and payment for such Firm Shares and, if applicable, Option Shares pursuant to this Agreement, good and valid title thereto, free of any liens, encumbrances, equities and claims, will be transferred to the several Underwriters. (ii) The consummation by such Selling Shareholder of the transactions herein contemplated and the fulfillment by such Selling Shareholder of the terms hereof will not result in a material breach of any of the terms and provisions of, or constitute a material default under, any indenture, mortgage, deed of trust or other agreement or instrument to which such Selling Shareholder is a party, or of any order, rule or regulation applicable to such Selling Shareholder of any court or of any regulatory body or administrative agency or other governmental body having jurisdiction which breach or default is material to such Selling Shareholder. (iii) Such Selling Shareholder has not taken and will not take, directly or indirectly, any action designed to, or which has constituted, or which might reasonably be expected to cause or result in stabilization or manipulation of the price of the Common Stock of the Company. (iv) No offering, sale, short sale or other disposition of any Common Stock of the Company, any options or warrants to purchase shares of Common Stock or any securities convertible into or exchangeable for shares of Common Stock and no request for registration for the offer or sale of any of the foregoing will be made for a period of _____ days after the date of this Agreement, directly or indirectly, by such Selling Shareholder otherwise than hereunder or with the prior written consent of Alex. Brown & Sons Incorporated. (v) Without having undertaken to determine independently the accuracy or completeness of either the representations and warranties of the Company contained herein or the information contained in the Registration Statement, such Selling Shareholder has no reason to believe that the representations and warranties of the Company contained in this Section 1 are not true and correct, is familiar with the Registration Statement and has no knowledge of any material fact, condition or information not disclosed in the Registration Statement which has materially adversely affected or may materially adversely affect the business of the Company or any of the -8- Subsidiaries, taken as a whole; and the sale of the Firm Shares and, if applicable, the Option Shares by such Selling Shareholder pursuant hereto is not prompted by any information concerning the Company or any of the Subsidiaries which is not set forth in the Registration Statement. In order to document the Underwriters' compliance with the reporting and withholding provisions of the Tax Equity and Fiscal Responsibility Act of 1982 and the Interest and Dividend Tax Compliance Act of 1983 with respect to the transactions herein contemplated, each of the Selling Shareholders agrees to deliver to you prior to or at the Closing Date a properly completed and executed United States Treasury Department Form W-9 (or other applicable from or statement specified by Treasury Department regulations in lieu thereof). 2. PURCHASE, SALE AND DELIVERY OF THE FIRM SHARES. ----------------------------------------------- (a) On the basis of the representations, warranties and covenants herein contained, and subject to the conditions herein set forth, the Sellers agree to sell to the Underwriters and each Underwriter agrees, severally and not jointly, to purchase, at a price of $_________ per share, the number of Firm Shares set forth opposite the name of each Underwriter in Schedule I hereof, subject to adjustments in accordance with Section 9 hereof. The number of Firm Shares to be purchased by each Underwriter from each Seller shall be as nearly as practicable in the same proportion to the total number of Firm Shares being sold by each Seller as the number of Firm Shares being purchased by each Underwriter bears to the total number of Firm Shares to be sold hereunder. The obligations of the Company and of each of the Selling Shareholders shall be several and not joint. (b) Payment for the Firm Shares to be sold hereunder is to be made in New York Clearing House funds by certified or bank cashier's checks drawn to the order of the Company in the case of the Firm Shares being sold by the Company and to the order of ____________ in the case of the Firm Shares being sold by the Selling Shareholders, in each case against delivery of certificates therefor to the Representatives for the several accounts of the Underwriters. Such payment and delivery are to be made at the offices of Alex. Brown & Sons Incorporated, 135 East Baltimore Street, Baltimore, Maryland, at 10:00 a.m., Baltimore time, on the third business day after the date of this Agreement or at such other time and date not later than five business days thereafter as you and the Company shall agree upon, such time and date being herein referred to as the "Closing Date." (As used herein, "business day" means a day on which the New York Stock Exchange is open for trading and on which banks in New York are open for business and are not permitted by law or executive order to be closed.) The certificates for the Firm Shares will be delivered in such denominations and in such registrations as the Representatives request in writing not later than the second full business day prior to the Closing Date, and will be made available for inspection by the Representatives at least -9- one business day prior to the Closing Date. (c) In addition, on the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Company and the Selling Shareholders listed on Schedule III hereto hereby grant an option to the several Underwriters to purchase the Option Shares at the price per share as set forth in paragraph (a) of this Section 2. The maximum number of Option Shares to be sold by the Company and each Selling Shareholder is set forth opposite their respective names on Schedule III hereto. The option granted hereby may be exercised in whole or in part by giving written notice (i) at any time before the Closing Date and (ii) only once thereafter within 30 days after the date of this Agreement, by you, as Representatives of the several Underwriters, to the Company setting forth the number of Option Shares as to which the several Underwriters are exercising the option, the names and denominations in which the Option Shares are to be registered and the time and date at which such certificates are to be delivered. If the option granted hereby is exercised for less than the maximum number of Option Shares being offered by the Selling Shareholders, the respective number of Option Shares to be sold by each of the Selling Shareholders listed on Schedule III hereto shall be determined on a pro rata basis in accordance with the percentages set forth opposite their names on Schedule III hereto, adjusted by you in such manner as to avoid fractional shares. The time and date at which certificates for Option Shares are to be delivered shall be determined by the Representatives but shall not be earlier than three nor later than 10 full business days after the exercise of such option, nor in any event prior to the Closing Date (such time and date being herein referred to as the "Option Closing Date"). If the date of exercise of the option is three or more days before the Closing Date, the notice of exercise shall set the Closing Date as the Option Closing Date. The number of Option Shares to be purchased by each Underwriter shall be in the same proportion to the total number of Option Shares being purchased as the number of Firm Shares being purchased by such Underwriter bears to __________, adjusted by you in such manner as to avoid fractional shares. The option with respect to the Option Shares granted hereunder may be exercised only to cover over-allotments in the sale of the Firm Shares by the Underwriters. You, as Representatives of the several Underwriters, may cancel such option at any time prior to its expiration by giving written notice of such cancellation to the Company. To the extent, if any, that the option is exercised, payment for the Option Shares shall be made on the Option Closing Date in New York Clearing House funds by certified or bank cashier's check drawn to the order of the Company in the case of the Firm Shares being sold by the Company and to the order of ____________ in the case of the Firm Shares being sold by the Selling Shareholders, in each case against delivery of certificates therefor at the offices of Alex. Brown & Sons Incorporated, 135 East Baltimore Street, Baltimore, Maryland. 3. OFFERING BY THE UNDERWRITERS. ---------------------------- It is understood that the several Underwriters are to make a public offering of the Firm -10- Shares as soon as the Representatives deem it advisable to do so. The Firm Shares are to be initially offered to the public at the initial public offering price set forth in the Prospectus. The Representatives may from time to time thereafter change the public offering price and other selling terms. To the extent, if at all, that any Option Shares are purchased pursuant to Section 2 hereof, the Underwriters will offer them to the public on the foregoing terms. It is further understood that you will act as the Representatives for the Underwriters in the offering and sale of the Shares in accordance with a Master Agreement Among Underwriters entered into by you and the several other Underwriters. 4. COVENANTS OF THE COMPANY. ------------------------ The Company covenants and agrees with the several Underwriters that: (a) The Company will (A) use its best efforts to cause the Registration Statement to become effective or, if the procedure in Rule 430A of the Rules and Regulations is followed, to prepare and timely file with the Commission under Rule 424(b) of the Rules and Regulations a Prospectus in a form approved by the Representatives containing information previously omitted at the time of effectiveness of the Registration Statement in reliance on Rule 430A of the Rules and Regulations, and (B) not file any amendment to the Registration Statement or supplement to the Prospectus of which the Representatives shall not previously have been advised and furnished with a copy or to which the Representatives shall have reasonably objected in writing or which is not in compliance with the Rules and Regulations. (b) The Company will advise the Representatives promptly (A) when the Registration Statement or any post-effective amendment thereto shall have become effective, (B) of receipt of any comments from the Commission, (C) of any request of the Commission for amendment of the Registration Statement or for supplement to the Prospectus or for any additional information, and (D) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the use of the Prospectus or of the institution of any proceedings for that purpose. The Company will use its best efforts to prevent the issuance of any such stop order preventing or suspending the use of the Prospectus and to obtain as soon as possible the lifting thereof, if issued. (c) The Company will cooperate with the Representatives in endeavoring to qualify the Shares for sale under the securities laws of such jurisdictions as the Representatives may reasonably have designated in writing and will make such applications, file such documents, and furnish such information as may be reasonably required for that purpose, provided the Company shall not be required to qualify as a foreign corporation or to file a general consent to service of process in any jurisdiction where it is not now so qualified or required to file such a consent. The Company will, -11- from time to time, prepare and file such statements, reports, and other documents, as are or may be required to continue such qualifications in effect for so long a period as the Representatives may reasonably request for distribution of the Shares. (d) The Company will deliver to, or upon the order of, the Representatives, from time to time, as many copies of any Preliminary Prospectus as the Representatives may reasonably request. The Company will deliver to, or upon the order of, the Representatives during the period when delivery of a Prospectus is required under the Act, as many copies of the Prospectus in final form, or as thereafter amended or supplemented, as the Representatives may reasonably request. The Company will deliver to the Representatives at or before the Closing Date, three signed copies of the Registration Statement and all amendments thereto including all exhibits filed therewith, and will deliver to the Representatives such number of copies of the Registration Statement (including such number of copies of the exhibits filed therewith that may reasonably be requested), including documents incorporated by reference therein, and of all amendments thereto, as the Representatives may reasonably request. (e) The Company will comply with the Act and the Rules and Regulations and the Securities Exchange Act of 1934, as amended (the "Exchange Act") and the rules and regulations of the Commission thereunder, so as to permit the completion of the distribution of the Shares as contemplated in this Agreement and the Prospectus. If during the period in which a prospectus is required by law to be delivered by an Underwriter or dealer, any event shall occur as a result of which, in the judgment of the Company or in the reasonable opinion of the Underwriters, it becomes necessary to amend or supplement the Prospectus in order to make the statements therein, in the light of the circumstances existing at the time the Prospectus is delivered to a purchaser, not misleading, or, if it is necessary at any time to amend or supplement the Prospectus to comply with any law, the Company promptly will prepare and file with the Commission an appropriate amendment to the Registration Statement or supplement to the Prospectus so that the Prospectus as so amended or supplemented will not, in the light of the circumstances when it is so delivered, be misleading, or so that the Prospectus will comply with the law. (f) The Company will make generally available to its security holders, as soon as it is practicable to do so, but in any event not later than 15 months after the effective date of the Registration Statement, an earnings statement (which need not be audited) in reasonable detail, covering a period of at least 12 consecutive months beginning after the effective date of the Registration Statement, which earnings statement shall satisfy the requirements of Section 11(a) of the Act and Rule 158 of the Rules and Regulations and will advise you in writing when such statement has been so made available. (g) The Company will, for a period of five years from the Closing Date, deliver to the Representatives copies of annual reports and copies of all other documents, reports -12- and information furnished by the Company to its stockholders or filed with any securities exchange pursuant to the requirements of such exchange or with the Commission pursuant to the Act or the Exchange Act. The Company will deliver to the Representatives similar reports with respect to significant Subsidiaries, as that term is defined in the Rules and Regulations, which are not consolidated in the Company's financial statements. (h) No offering, sale, short sale or other disposition of any shares of Common Stock of the Company or other securities convertible into or exchangeable or exercisable for shares of Common Stock or derivative of Common Stock (or agreement for such) will be made for a period of _____ days after the date of the Prospectus, directly or indirectly, by the Company otherwise than hereunder or with the prior written consent of Alex. Brown & Sons Incorporated, except that the Company may, without such consent, issue shares (i) upon exercise of options granted under its stock option plans, (ii) upon exercise of warrants outstanding on the date of this Agreement, (iii) in connection with acquisitions of businesses, or (iv) pursuant to employee benefit or compensation plans existing on the date hereof. (i) The Company will use its best efforts to list, subject to notice of issuance, the Shares on the the Nasdaq Stock Market (National Market). (j) The Company has caused each executive officer and director and shareholder of the Company (other than the Selling Shareholders) to furnish to you, on or prior to the date of this Agreement, a letter or letters, in form and substance satisfactory to the Underwriters, pursuant to which each such person has agreed not to offer, sell, sell short or otherwise dispose of any shares of Common Stock of the Company owned by such person (or as to which such person has the right to direct the disposition of) or request the registration for the offer or sale of any of the foregoing for a period of _____ days after the date of the Prospectus, directly or indirectly, except with the prior written consent of Alex. Brown & Sons Incorporated ("Lockup Agreements"). (k) The Company shall apply the net proceeds of its sale of the Shares as set forth in the Prospectus and shall file such reports with the Commission with respect to the sale of the Shares and the application of the proceeds therefrom as may be required in accordance with Rule 463 under the Act. (l) The Company shall not invest, or otherwise use the proceeds received by the Company from its sale of the Shares in such a manner as would require the Company or any of the Subsidiaries to register as an investment company under the Investment Company Act of 1940, as amended (the "1940 Act"). (m) The Company will maintain a transfer agent and, if necessary under the jurisdiction of incorporation of the Company, a registrar for the Common Stock. -13- (n) The Company will not take, directly or indirectly, any action designed to cause or result in, or that has constituted or might reasonably be expected to constitute, the stabilization or manipulation of the price of any securities of the Company. 5. COSTS AND EXPENSES. ------------------ The Company will pay all costs, expenses and fees incident to the performance of the obligations of the Company and the Selling Shareholders under this Agreement, including, without limiting the generality of the foregoing, the following: accounting fees of the Company; the fees and disbursements of counsel for the Company and the Selling Shareholders; the cost of printing and delivering to, or as requested by, the Underwriters copies of the Registration Statement, Preliminary Prospectuses, the Prospectus, this Agreement, the Underwriters' Invitation Letter, the Blue Sky Survey and any supplements or amendments thereto; the filing fees of the Commission; the filing fees and expenses (including disbursements but excluding legal fees of counsel to the Underwriters) incident to securing any required review by the National Association of Securities Dealers, Inc. (the "NASD") of the terms of the sale of the Shares; the Listing Fee of The Nasdaq Stock Market; and the expenses, including the fees and disbursements of counsel for the Underwriters, incurred in connection with the qualification of the Shares under State securities or Blue Sky laws. The Company shall not, however, be required to pay for any of the Underwriters' expenses (other than those related to qualification under NASD regulations and State securities or Blue Sky laws) except that, if this Agreement shall not be consummated because the conditions in Section 6 hereof are not satisfied, or because this Agreement is terminated by the Representatives pursuant to Section 11 hereof, or by reason of any failure, refusal or inability on the part of the Company to perform any undertaking or satisfy any condition of this Agreement or to comply with any of the terms hereof on its part to be performed, unless such failure to satisfy said condition or to comply with said terms be due to the default or omission of any Underwriter, then the Company shall reimburse the several Underwriters for reasonable out-of-pocket expenses, including fees and disbursements of counsel, reasonably incurred in connection with investigating, marketing and proposing to market the Shares or in contemplation of performing their obligations hereunder; but the Company shall not in any event be liable to any of the several Underwriters for damages on account of loss of anticipated profits from the sale by them of the Shares. 6. CONDITIONS OF OBLIGATIONS OF THE UNDERWRITERS. --------------------------------------------- The several obligations of the Underwriters to purchase the Firm Shares on the Closing Date and the Option Shares, if any, on the Option Closing Date are subject to the accuracy, as of the Closing Date or the Option Closing Date, as the case may be, of the representations and warranties of the Company and the Selling Shareholders contained herein, and to the performance by the Company and the Selling Shareholders of their covenants and obligations hereunder and to the following additional conditions: -14- (a) The Registration Statement and all post-effective amendments thereto shall have become effective and any and all filings required by Rule 424 and Rule 430A of the Rules and Regulations shall have been made, and any request of the Commission for additional information (to be included in the Registration Statement or otherwise) shall have been disclosed to the Representatives and complied with to their reasonable satisfaction. No stop order suspending the effectiveness of the Registration Statement, as amended from time to time, shall have been issued and no proceedings for that purpose shall have been taken or, to the knowledge of the Company or the Selling Shareholders, shall be contemplated by the Commission and no injunction, restraining order, or order of any nature by a Federal or state court of competent jurisdiction shall have been issued as of the Closing Date or the Option Closing Date, as the case may be, which would prevent the issuance of the Shares. (b) The Representatives shall have received on the Closing Date or the Option Closing Date, as the case may be, the opinion of Morgan, Lewis & Bockius LLP, counsel for the Company and the Selling Shareholders, dated the Closing Date or the Option Closing Date, as the case may be, addressed to the Underwriters (and stating that it may be relied upon by counsel to the Underwriters) to the effect that: (i) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of New Jersey, with corporate power and authority to own or lease its properties and conduct its business as described in the Registration Statement; each of the Subsidiaries has been duly incorporated and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, with corporate power and authority to own or lease its properties and conduct its business as described in the Registration Statement; the Company and each of the Subsidiaries are duly qualified to transact business in each of the jurisdictions set forth on a schedule to such opinion; and the outstanding shares of capital stock of each of the Subsidiaries have been duly authorized and validly issued and are fully paid and non-assessable and are owned by the Company; and, to the best of such counsel's knowledge, the outstanding shares of capital stock of each of the Subsidiaries is owned free and clear of all liens, encumbrances and equities and claims, and no options, warrants or other rights to purchase, agreements or other obligations to issue or other rights to convert any obligations into any shares of capital stock or of ownership interests in any of the Subsidiaries are outstanding. (ii) The Company has authorized capital stock as set forth under the caption "Capitalization" in the Prospectus; the authorized shares of the Company's Preferred Stock and Common Stock have been duly authorized; the outstanding shares of the Company's Common Stock have been duly authorized and validly issued and are fully paid and non-assessable; all of the Shares conform to the description thereof contained in the Prospectus; the certificates for the Shares, -15- assuming they are in the form filed with the Commission, are in due and proper form; the Shares, including the Firm Shares to be sold by the Selling Shareholders and the Option Shares, if any, to be sold by the Company and the Selling Shareholders pursuant to this Agreement have been duly authorized and will be validly issued, fully paid and non-assessable when issued and paid for as contemplated by this Agreement; and no preemptive rights of stockholders exist under statute or under agreements known to such counsel with respect to any of the Shares or the issue or sale thereof. (iii) Except as described in or contemplated by the Prospectus, to the knowledge of such counsel, there are no outstanding securities of the Company convertible or exchangeable into or evidencing the right to purchase or subscribe for any shares of capital stock of the Company and there are no outstanding or authorized options, warrants or rights of any character obligating the Company to issue any shares of its capital stock or any securities convertible or exchangeable into or evidencing the right to purchase or subscribe for any shares of such stock; and except as described in the Prospectus, to the knowledge of such counsel, no holder of any securities of the Company or any other person has the right, contractual or otherwise, which has not been satisfied or effectively waived, to cause the Company to sell or otherwise issue to them, or to permit them to underwrite the sale of, any of the Shares or the right to have any shares of Common Stock or other securities of the Company included in the Registration Statement or the right, as a result of the filing of the Registration Statement, to require registration under the Act of any shares of Common Stock or other securities of the Company. (iv) The Registration Statement has become effective under the Act and, to the best of the knowledge of such counsel, no stop order proceedings with respect thereto have been instituted or are pending or threatened under the Act. (v) The Registration Statement, the Prospectus and each amendment or supplement thereto comply as to form in all material respects with the requirements of the Act and the applicable rules and regulations thereunder (except that such counsel need express no opinion as to the financial statements, notes thereto and related schedules and other financial and statistical information included therein or any information furnished by the Underwriters for use therein). (vi) The statements under the captions "Certain Transactions," "Description of Capital Stock" and "Shares Eligible for Future Sale" in the Prospectus, insofar as such statements constitute a summary of documents referred to therein or matters of law, are accurate summaries and fairly present in all material respects the information called for with respect to such documents and -16- matters. (vii) Such counsel does not know of any contracts or documents required to be filed as exhibits to the Registration Statement or described in the Registration Statement or the Prospectus which are not so filed or described as required, and the descriptions of such contracts and documents required to be described in the Registration Statement or the Prospectus are correct in all material respects. (viii) Such counsel knows of no material legal or governmental proceedings pending or threatened against the Company or any of the Subsidiaries except as set forth in the Prospectus. (ix) The execution and delivery of this Agreement and the consummation of the transactions herein contemplated do not and will not conflict with or result in a breach of any of the terms or provisions of, or constitute a default under, the Charter or By-Laws of the Company, or, in any respect material to the Company or any Subsidiary or the transactions contemplated hereby, any agreement or instrument known to such counsel to which the Company or any of the Subsidiaries is a party or by which the Company or any of the Subsidiaries may be bound. (x) This Agreement has been duly authorized, executed and delivered by the Company, except that such counsel need express no opinion as to the enforceability of the obligations of the Company for indemnity or contribution. (xi) No approval, consent, order, authorization, designation, declaration or filing by or with any regulatory, administrative or other governmental body is necessary in connection with the execution and delivery of this Agreement and the consummation of the transactions herein contemplated (other than as may be required by the NASD or as required by State securities and Blue Sky laws as to which such counsel need express no opinion), except such as have been obtained or made, specifying the same. (xii) The Company is not, and will not become, as a result of the consummation of the transactions contemplated by this Agreement, and application of the net proceeds therefrom as described in the Prospectus, required to register as an investment company under the 1940 Act. (xiii) This Agreement has been duly authorized, executed and delivered on behalf of the Selling Shareholders. (xiv) Each Selling Shareholder has full legal right, power and authority, -17- and any approval required by law (other than as required by State securities and Blue Sky laws as to which such counsel need express no opinion), to sell assign, transfer and deliver the portion of the Shares to be sold by such Selling Shareholder. (xv) The Custodian Agreement executed and delivered by each Selling Shareholder is a valid, irrevocable instrument legally sufficient for the purposes intended. (xvi) The Underwriters (assuming that they are bona fide purchasers within the meaning of the Uniform Commercial Code) have acquired good and marketable title to the Shares being sold by each Selling Shareholder on the Closing Date or the Option Closing Date, as the case may be, free and clear of all claims, liens, encumbrances and security interests whatsoever. In rendering such opinion, Morgan, Lewis & Bockius LLP may rely on counsel to one or more of the Selling Shareholders, and may provide that its opinion is limited to matters governed by the laws of New Jersey, Pennsylvania and the Federal securities laws of the United States. In addition to the matters set forth above, such opinion shall also include a statement of belief to the effect that nothing has come to the attention of such counsel which leads them to believe that (i) the Registration Statement, at the time it became effective under the Act (but after giving effect to any modifications incorporated therein pursuant to Rule 430A under the Act) and as of the Closing Date or the Option Closing Date, as the case may be, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and (ii) the Prospectus, or any supplement thereto, on the date it was filed pursuant to the Rules and Regulations and as of the Closing Date or the Option Closing Date, as the case may be, contained an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements, in the light of the circumstances under which they are made, not misleading (except that such counsel need express no view as to financial statements, schedules or other financial and statistical information therein). With respect to such statement of belief, Morgan, Lewis & Bockius LLP may state that their belief is based upon the procedures set forth therein, but is without independent check and verification. (c) The Representatives shall have received from Piper & Marbury l.l.p., counsel for the Underwriters, an opinion dated the Closing Date or the Option Closing Date, as the case may be, substantially to the effect specified in subparagraphs (ii), (iii), (iv) and (ix) of Paragraph (b) of this Section 6, and that the Company is a duly organized and validly existing corporation under the laws of the State of New Jersey. In rendering such opinion, Piper & Marbury l.l.p. may rely as to the matters relating to the laws of the State of New Jersey and the Commonwealth of Pennsylvania on the opinion of counsel referred to in Paragraph (b) of this Section 6. In addition to the matters set forth above, -18- such opinion shall also include a statement to the effect that nothing has come to the attention of such counsel which leads them to believe that (i) the Registration Statement, or any amendment thereto, as of the time it became effective under the Act (but after giving effect to any modifications incorporated therein pursuant to Rule 430A under the Act) as of the Closing Date or the Option Closing Date, as the case may be, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and (ii) the Prospectus, or any supplement thereto, on the date it was filed pursuant to the Rules and Regulations and as of the Closing Date or the Option Closing Date, as the case may be, contained an untrue statement of a material fact or omitted to state a material fact, necessary in order to make the statements, in the light of the circumstances under which they are made, not misleading (except that such counsel need express no view as to financial statements, schedules and statistical information therein). With respect to such statement, Piper & Marbury l.l.p. may state that their belief is based upon the procedures set forth therein, but is without independent check and verification. (d) The Representatives shall have received at or prior to the Closing Date from Piper & Marbury l.l.p. a memorandum or summary, in form and substance satisfactory to the Representatives, with respect to the qualification for offering and sale by the Underwriters of the Shares under the State securities or Blue Sky laws of such jurisdictions as the Representatives may reasonably have designated to the Company. (e) The Representatives shall have received, on each of the dates hereof, the Closing Date and the Option Closing Date, as the case may be, letters dated the date hereof, the Closing Date or the Option Closing Date, as the case may be, in form and substance satisfactory to you, of Deloitte & Touche L.L.P., Fishbein & Co., P.C., Mutnick & Associates, P.A., [the accountants for Sun Valley], Charles W. Mueller, C.P.A., a Professional Corporation, [the accountants for Mile High], and W. Scott Huzek, CPA, P.C., confirming that they are independent public accountants within the meaning of the Act and the applicable published Rules and Regulations thereunder and stating that in their opinion the financial statements and schedules examined by them and included in the Registration Statement comply in form in all material respects with the applicable accounting requirements of the Act and the related published Rules and Regulations; and containing such other statements and information as is ordinarily included in accountants' "comfort letters" to Underwriters with respect to the financial statements and certain financial and statistical information contained in the Registration Statement and Prospectus. (f) The Representatives shall have received on the Closing Date or the Option Closing Date, as the case may be, a certificate or certificates of the Chief Executive Officer and the Chief Financial Officer of the Company to the effect that, as of the Closing Date or the Option Closing Date, as the case may be, each of them severally represents as follows: -19- (i) The Registration Statement has become effective under the Act and no stop order suspending the effectiveness of the Registration Statement has been issued, and no proceedings for such purpose have been taken or are, to his knowledge, contemplated by the Commission; (ii) The representations and warranties of the Company contained in Section 1 hereof are true and correct in all material respects as of the Closing Date or the Option Closing Date, as the case may be; (iii) All filings required to have been made pursuant to Rules 424 or 430A under the Act have been made; (iv) He has carefully examined the Registration Statement and the Prospectus and, in his opinion, as of the effective date of the Registration Statement, the statements contained in the Registration Statement were true and correct in all material respects, and such Registration Statement and Prospectus did not omit to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading, and since the effective date of the Registration Statement, no event has occurred which should have been set forth in a supplement to or an amendment of the Prospectus which has not been so set forth in such supplement or amendment; and (v) Since the respective dates as of which information is given in the Registration Statement and Prospectus, there has not been any material adverse change or any development involving a prospective material adverse change in or affecting the condition, financial or otherwise, of the Company and its Subsidiaries taken as a whole or the earnings, business, management, properties, assets, rights, operations, condition (financial or otherwise) or prospects of the Company and the Subsidiaries taken as a whole, whether or not arising in the ordinary course of business, except as set forth in, or contemplated by, the Prospectus or as described in such certificate. (g) The Company and the Selling Shareholders shall have furnished to the Representatives such further certificates and documents confirming the representations and warranties, covenants and conditions contained herein and related matters as the Representatives may reasonably have requested. (h) The Firm Shares and Option Shares, if any, shall have been approved for designation upon notice of issuance on The Nasdaq Stock Market (National Market). (i) The Lockup Agreements described in Section 4(j) shall be in full force and effect. -20- The opinions and certificates mentioned in this Agreement shall be deemed to be in compliance with the provisions hereof only if they are in all material respects satisfactory to the Representatives and to Piper & Marbury l.l.p., counsel for the Underwriters. If any of the conditions hereinabove provided for in this Section 6 shall not have been fulfilled when and as required by this Agreement to be fulfilled, the obligations of the Underwriters hereunder may be terminated by the Representatives by notifying the Company and the Selling Shareholders of such termination in writing or by telegram at or prior to the Closing Date or the Option Closing Date, as the case may be. In such event, the Company, the Selling Shareholders and the Underwriters shall not be under any obligation to each other (except to the extent provided in Sections 5 and 8 hereof). 7. CONDITIONS OF THE OBLIGATIONS OF THE SELLERS. -------------------------------------------- The obligations of the Company and the Selling Shareholders to sell and deliver the portion of the Shares required to be delivered as and when specified in this Agreement are subject to the condition that at the Closing Date or the Option Closing Date, as the case may be, no stop order suspending the effectiveness of the Registration Statement shall have been issued and in effect or proceedings therefor initiated or threatened. 8. INDEMNIFICATION. --------------- (a) The Company and the Selling Shareholders, jointly and severally, agree to indemnify and hold harmless each Underwriter and each person, if any, who controls any Underwriter within the meaning of the Act, against any losses, claims, damages or liabilities to which such Underwriter or any such controlling person may become subject under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, any Preliminary Prospectus, the Prospectus or any amendment or supplement thereto, or (ii) the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; and will reimburse each Underwriter and each such controlling person upon demand for any legal or other expenses reasonably incurred by such Underwriter or such controlling person in connection with investigating or defending any such loss, claim, damage or liability, action or proceeding or in responding to a subpoena or governmental inquiry related to the offering of the Shares, whether or not such Underwriter or controlling person is a party to any action or proceeding; provided, however, that the Company and the Selling Shareholders will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement, or omission or alleged omission made in the Registration Statement, any Preliminary Prospectus, the Prospectus, or such amendment or supplement, in reliance -21- upon and in conformity with written information furnished to the Company by or through the Representatives specifically for use in the preparation thereof. In no event, however, shall the liability of any Selling Shareholder for indemnification under this Section 8(a) exceed the lesser of (i) that proportion of the total of such losses, claims, damages or liabilities indemnified against equal to the proportion to the total Shares sold hereunder which is being sold by such Selling Shareholder, or (ii) the proceeds received by such Selling Shareholder from the Underwritiers in the offering. This indemnity agreement will be in addition to any liability which the Company or the Selling Shareholders may otherwise have. (b) Each Underwriter severally and not jointly will indemnify and hold harmless the Company, each of its directors, each of its officers who have signed the Registration Statement, each of the Selling Shareholders and each person, if any, who controls the Company or the Selling Shareholders within the meaning of the Act against any losses, claims, damages or liabilities to which the Company or any such director, officer, Selling Shareholder or controlling person may become subject under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, any Preliminary Prospectus, the Prospectus or any amendment or supplement thereto, or (ii) the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made; and will reimburse any legal or other expenses reasonably incurred by the Company or any such director, officer, Selling Shareholder or controlling person in connection with investigating or defending any such loss, claim, damage, liability, action or proceeding; provided, however, that each Underwriter will be liable in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission has been made in the Registration Statement, any Preliminary Prospectus, the Prospectus or such amendment or supplement, in reliance upon and in conformity with written information furnished to the Company by or through the Representatives specifically for use in the preparation thereof. This indemnity agreement will be in addition to any liability which such Underwriter may otherwise have. (c) In case any proceeding (including any governmental investigation) shall be instituted involving any person in respect of which indemnity may be sought pursuant to this Section 8, such person (the "indemnified party") shall promptly notify the person against whom such indemnity may be sought (the "indemnifying party") in writing. No indemnification provided for in Section 8(a) or (b) shall be available to any party who shall fail to give notice as provided in this Section 8(c) if the party to whom notice was not given was unaware of the proceeding to which such notice would have related and was materially prejudiced by the failure to give such notice, but the failure to give such notice shall not relieve the indemnifying party or parties from any liability which it or -22- they may have to the indemnified party for contribution or otherwise than on account of the provisions of Section 8(a) or (b). In case any such proceeding shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party and shall pay as incurred the fees and disbursements of such counsel related to such proceeding. In any such proceeding, any indemnified party shall have the right to retain its own counsel at its own expense. Notwithstanding the foregoing, the indemnifying party shall pay as incurred (or within 30 days of presentation) the fees and expenses of the counsel retained by the indemnified party in the event (i) the indemnifying party and the indemnified party shall have mutually agreed to the retention of such counsel, (ii) the named parties to any such proceeding (including any impleaded parties) include both the indemnifying party and the indemnified party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them or (iii) the indemnifying party shall have failed to assume the defense and employ counsel acceptable to the indemnified party within a reasonable period of time after notice of commencement of the action. It is understood that the indemnifying party shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees and expenses of more than one separate firm for all such indemnified parties. Such firm shall be designated in writing by you in the case of parties indemnified pursuant to Section 8(a) and by the Company in the case of parties indemnified pursuant to Section 8(b). The indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment. In addition, the indemnifying party will not, without the prior written consent of the indemnified party, settle or compromise or consent to the entry of any judgment in any pending or threatened claim, action or proceeding of which indemnification may be sought hereunder (whether or not any indemnified party is an actual or potential party to such claim, action or proceeding) unless such settlement, compromise or consent includes an unconditional release of each indemnified party from all liability arising out of such claim, action or proceeding. (d) If the indemnification provided for in this Section 8 is unavailable to or insufficient to hold harmless an indemnified party under Section 8(a) or (b) above (other than by reason of the exceptions provided in such paragraphs) in respect of any losses, claims, damages or liabilities (or actions or proceedings in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) in such proportion as is appropriate to reflect the relative benefits received by the Company and the Selling Shareholders on the one hand and the Underwriters on the other from the offering of the Shares. If, however, the -23- allocation provided by the immediately preceding sentence is not permitted by applicable law then each indemnifying party shall contribute to such amount paid or payable by such indemnified party in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Company and the Selling Shareholders on the one hand and the Underwriters on the other in connection with the statements, omissions or breaches of representations and warranties which resulted in such losses, claims, damages or liabilities, (or actions or proceedings in respect thereof), as well as any other relevant equitable considerations. The relative benefits received by the Company and the Selling Shareholders on the one hand and the Underwriters on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company bears to the total underwriting discounts and commissions received by the Underwriters, in each case as set forth in the table on the cover page of the Prospectus. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company and the Selling Shareholders on the one hand or the Underwriters on the other and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company, the Selling Shareholders, and the Underwriters agree that it would not be just and equitable if contributions pursuant to this Section 8(d) were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this Section 8(d). The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions or proceedings in respect thereof) referred to above in this Section 8(d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this subsection (d), (i) no Underwriter shall be required to contribute any amount in excess of the underwriting discounts and commissions applicable to the Shares purchased by such Underwriter, and (ii) no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation, and (iii) no Selling Shareholder shall be required to contribute any amount in excess of the lesser of (A) that proportion of the total of such losses, claims, damages or liabilities indemnified or contributed against equal to the proportion of the total Shares sold hereunder which is being sold by such Selling Shareholder, or (B) the proceeds received by such Selling Shareholder form the Underwriters in the offering. The Underwriters' obligations in this Section 8(d) to contribute are several in proportion to their respective underwriting obligations and not joint. (e) In any proceeding relating to the Registration Statement, any Preliminary Prospectus, the Prospectus or any supplement or amendment thereto, each party against -24- whom contribution may be sought under this Section 8 hereby consents to the jurisdiction of any court having jurisdiction over any other contributing party, agrees that process issuing from such court may be served upon him or it by any other contributing party and consents to the service of such process and agrees that any other contributing party may join him or it as an additional defendant in any such proceeding in which such other contributing party is a party. (f) Any losses, claims, damages, liabilities or expenses for which an indemnified party is entitled to indemnification or contribution under this Section 8 shall be paid by the indemnifying party to the indemnified party as such losses, claims, damages, liabilities or expenses are incurred. The indemnity and contribution agreements contained in this Section 8 and the representations and warranties of the Company and the Selling Shareholders set forth in this Agreement shall remain operative and in full force and effect, regardless of (i) any investigation made by or on behalf of any Underwriter or any person controlling any Underwriter, the Company, its directors or officers, any persons controlling the Company or any Selling Shareholder, (ii) acceptance of any Shares and payment therefor hereunder, and (iii) any termination of this Agreement. A successor to any Underwriter, or to the Company, its directors or officers, any Selling Shareholder, any person controlling the Company or any Selling Shareholder shall be entitled to the benefits of the indemnity, contribution and reimbursement agreements contained in this Section 8. 9. DEFAULT BY UNDERWRITERS. ----------------------- If on the Closing Date or the Option Closing Date, as the case may be, any Underwriter shall fail to purchase and pay for the portion of the Shares which such Underwriter has agreed to purchase and pay for on such date (otherwise than by reason of any default on the part of the Company or a Selling Shareholder), you, as Representatives of the Underwriters, shall use your reasonable efforts to procure within 36 hours thereafter one or more of the other Underwriters, or any others, to purchase from the Company and the Selling Shareholders such amounts as may be agreed upon and upon the terms set forth herein, the Firm Shares or Option Shares, as the case may be, which the defaulting Underwriter or Underwriters failed to purchase. If during such 36 hours you, as such Representatives, shall not have procured such other Underwriters, or any others, to purchase the Firm Shares or Option Shares, as the case may be, agreed to be purchased by the defaulting Underwriter or Underwriters, then (a) if the aggregate number of shares with respect to which such default shall occur does not exceed 10% of the Firm Shares or Option Shares, as the case may be, covered hereby, the other Underwriters shall be obligated, severally, in proportion to the respective numbers of Firm Shares or Option Shares, as the case may be, which they are obligated to purchase hereunder, to purchase the Firm Shares or Option Shares, as the case may be, which such defaulting Underwriter or Underwriters failed to purchase, or (b) if the aggregate number of shares of Firm Shares or Option Shares, as the case may be, with respect to which such default shall occur exceeds 10% of the Firm Shares or Option Shares, as the case may be, covered hereby, the Company or you as the Representatives of the Underwriters will -25- have the right, by written notice given within the next 36-hour period to the parties to this Agreement, to terminate this Agreement without liability on the part of the non-defaulting Underwriters or of the Company or of the Selling Shareholders except to the extent provided in Section 8 hereof. In the event of a default by any Underwriter or Underwriters, as set forth in this Section 9, the Closing Date or Option Closing Date, as the case may be, may be postponed for such period, not exceeding seven days, as you, as Representatives, may determine in order that the required changes in the Registration Statement or in the Prospectus or in any other documents or arrangements may be effected. The term "Underwriter" includes any person substituted for a defaulting Underwriter. Any action taken under this Section 9 shall not relieve any defaulting Underwriter from liability in respect of any default of such Underwriter under this Agreement. 10. NOTICES. ------- All communications hereunder shall be in writing and, except as otherwise provided herein, will be mailed, delivered, telecopied or telegraphed and confirmed as follows: if to the Underwriters, to Alex. Brown & Sons Incorporated, 135 East Baltimore Street, Baltimore, Maryland 21202, Attention: Phillip A. Clough, with a copy to Alex. Brown & Sons Incorporated, 135 East Baltimore Street, Baltimore, Maryland 21202 Attention: General Counsel; if to the Company, to Wilmar Industries, Inc., 303 Harper Drive, Moorestown, New Jersey 08057, Attention: William S. Green, Chairman, President and Chief Executive Officer; and if to the Selling Shareholders, to [William S. Green, 303 Harper Drive, Moorestown, New Jersey 08057 and to] Summit Partners SD, L.P., One Boston Place, Boston, Massachusetts 02108, Attention: Ernest K. Jacquet. 11. TERMINATION. ----------- This Agreement may be terminated by you by notice to the Company and the Selling Shareholders as follows: (a) at any time prior to the earlier of (i) the time the Shares are released by you for sale by notice to the Underwriters, or (ii) 11:30 a.m. on the first business day following the date of this Agreement; (b) at any time prior to the Closing Date if any of the following has occurred: (i) since the respective dates as of which information is given in the Registration Statement and the Prospectus, any material adverse change or any development involving a prospective material adverse change in or affecting the condition, financial or otherwise, of the Company and its Subsidiaries taken as a whole or the earnings, business, management, properties, assets, rights, operations, condition (financial or otherwise) or prospects of the Company and its Subsidiaries taken as a whole, whether or not arising in the ordinary course of business, (ii) any outbreak or escalation of hostilities or declaration of war or national emergency or other national or international calamity or crisis or change in economic or political conditions if the effect of such outbreak, escalation, declaration, emergency, calamity, crisis or -26- change on the financial markets of the United States would, in your reasonable judgment, make it impracticable to market the Shares or to enforce contracts for the sale of the Shares, (iii) suspension of trading in securities generally on the New York Stock Exchange or the American Stock Exchange or limitation on prices (other than limitations on hours or numbers of days of trading) for securities on either such Exchange, (iv) the enactment, publication, decree or other promulgation of any statute, regulation, rule or order of any court or other governmental authority which in your opinion materially and adversely affects or may materially and adversely affect the business or operations of the Company, (v) declaration of a banking moratorium by United States or New York State authorities, (vi) the suspension of trading of the Company's Common Stock by the Commission on the Nasdaq Stock Market, or (vii) the taking of any action by any governmental body or agency in respect of its monetary or fiscal affairs which in your reasonable opinion has a material adverse effect on the securities markets in the United States; or (c) as provided in Sections 6 and 9 of this Agreement. 12. SUCCESSORS. ---------- This Agreement has been and is made solely for the benefit of the Underwriters, the Company and the Selling Shareholders and their respective successors, executors, administrators, heirs and assigns, and the officers, directors and controlling persons referred to herein, and no other person will have any right or obligation hereunder. No purchaser of any of the Shares from any Underwriter shall be deemed a successor or assign merely because of such purchase. 13. INFORMATION PROVIDED BY UNDERWRITERS. ------------------------------------ The Company, the Selling Shareholders and the Underwriters acknowledge and agree that the only information furnished or to be furnished by any Underwriter to the Company for inclusion in any Prospectus or the Registration Statement consists of the information set forth in the last paragraph on the front cover page (insofar as such information relates to the Underwriters), legends required by Item 502(d) of Regulation S-K under the Act and the information under the caption "Underwriting" in the Prospectus. 14. MISCELLANEOUS. ------------- The reimbursement, indemnity and contribution agreements contained in this Agreement and the representations and warranties of the Company and the Selling Shareholders set forth in this Agreement shall remain operative and in full force and effect, regardless of (i) any investigation made by or on behalf of any Underwriter or any person controlling any Underwriter, the Company, its directors or officers, the Selling Shareholders or any persons controlling the Company or any Selling Shareholder, (ii) acceptance of any Shares and payment -27- therefor hereunder, and (iii) any termination of this Agreement. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Maryland. -28- If the foregoing letter is in accordance with your understanding of our agreement, please sign and return to us the enclosed duplicates hereof, whereupon it will become a binding agreement among the Company, the Selling Shareholders, and the several Underwriters in accordance with its terms. Very truly yours WILMAR INDUSTRIES, INC. By_______________________________________________ William S. Green, Chairman, President and Chief Executive Officer SELLING SHAREHOLDERS: By_______________________________________________ William S. Green, [for himself and] as Attorney-in-Fact The foregoing Underwriting Agreement is hereby confirmed and accepted as of the date first above written. ALEX. BROWN & SONS INCORPORATED WILLIAM BLAIR & COMPANY L.L.C. ROBERTSON, STEPHENS & COMPANY LLC PAINEWEBBER INCORPORATED As Representatives of the several Underwriters listed on Schedule I . By: Alex. Brown & Sons Incorporated By__________________________________ Authorized Officer -29- SCHEDULE I Schedule of Underwriters Number of Firm Shares Underwriter to be Purchased ----------- --------------- Alex. Brown & Sons Incorporated...........................................______ William Blair & Company L.L.C.............................................______ Robertson Stephens & Company LLC..........................................______ PaineWebber Incorporated..................................................______ Total...............................................................______ -30- SCHEDULE II SCHEDULE OF SELLING SHAREHOLDERS Schedule of Selling Shareholders Number of Firm Shares Selling Shareholder to be Sold - ------------------- ---------------- _______________ Total -31- SCHEDULE III Schedule of Option Shares Number of Option Shares Name of Seller to be Sold Percentage -------------- ----------------------- ---------- Wilmar Industries, Inc. % % % % % % % % % ______________ _______ Total ______________ 100 % ----- -32- EX-5 3 OPINION OF MORGAN LEWIS & BOCKIUS LLP Morgan, Lewis & Bockius LLP COUNSELORS AT LAW July 9, 1996 Wilmar Industries, Inc. 303 Harper Drive Moorestown, NJ 08057 Re: Registration Statement on Form S-1 ---------------------------------- Ladies and Gentlemen: We have acted as counsel to Wilmar Industries, Inc., a New Jersey corporation (the "Company"), in connection with the preparation of the subject registration statement on Form S-1 (the "Registration Statement") filed with the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended (the "Act"), relating to the registration by the Company of up to 4,335,500 shares (the "Shares") of Common Stock, no par value, of the Company (the "Common Stock"), which includes 565,500 shares purchasable by the underwriters, solely for the purpose of covering overallotments, if any. In connection with this opinion, we have examined the Registration Statement and the Exhibits thereto, the draft of the Underwriting Agreement, the Company's Certificate of Incorporation and Bylaws, and certain of the Company's corporate proceedings as reflected in its minute books. In our examination, we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals, and the conformity with the originals of all documents submitted to us as copies thereof. In addition, we have made such other examinations of law and fact as we have deemed relevant in order to form a basis for the opinion hereinafter expressed. In our opinion the Shares will be legally issued, fully paid and non-assessable shares of Common Stock of the Company when and to the extent issued by the Company in the manner contemplated in the Registration Statement. We hereby consent to the use of this opinion as Exhibit 5 to the Registration Statement and to all references to our firm in the Registration Statement. In giving such consent, we do not thereby admit that we are acting within the category of persons whose consent is required under Section 7 of the Act and the rules and regulations of the Commission thereunder. Very truly yours, /s/ Morgan, Lewis & Bockius LLP EX-11 4 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11.1 Wilmar Industries, Inc. Statement Regarding Computation of Net Income Per Share
PRIMARY EARNINGS PER SHARE THREE MONTHS THREE MONTHS ENDED ENDED MARCH 29, 1996 MARCH 31, 1995 -------------- -------------- Income Before Income Taxes (2) $1,625,612 $ 969,276 Provision for Income Taxes (2) 666,000 389,000 ---------- ---------- Net Income 959,612 $ 580,276 ========== ========== Weighted Average Shares Outstanding 8,985,934 5,656,001 Common Stock Equivalents: Preferred Stock 731,972 717,979 Items issued within one year of IPO: (1) Common Stock 2,050,000 Stock Options 228,380 172,327 Total Weighted Average Shares Outstanding 9,946,286 8,596,307 ========== ========== Net Income Per Share (2) $.10 $.07 ========== ==========
(1) Common stock issued and stock options granted at prices lower than the assumed initial public offering price within a one year period prior to an initial public offering are included in the calculation (using the treasury stock method and the assumed initial public offering price) as if they were outstanding for all periods presented (see Notes 2 and 4). (2) The provision for income taxes, net income, and net income per share amounts reflected for the period ended March 31, 1995 represent pro forma amounts as if the Company had been subject to federal and state income taxation as a C Corporation since inception. FULLY DILUTED EARNINGS PER SHARE Fully diluted earnings per share differs from primary earnings per share by less than 3%. EX-21 5 SUBSIDIARIES OF THE COMPANY EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT
SUBSIDIARY STATE OF INCORPORATION ---------- ---------------------- One Source Supply, Inc. Florida HMA Enterprises, Inc. d/b/a Gulf Coast Supply and the Supply Depot Texas
EX-23.1 6 CONSENT OF DELOITTE & TOUCHE LLP INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE We consent to the use in this Registration Statement on Form S-1 of Wilmar Industries, Inc., of our report date March 5, 1996, appearing in the Prospectus, which is part of this Registration Statement, and to the reference to us under the heading "Experts" in such Prospectus. Our audits of the financial statements referred to in our aforementioned report also included the financial statement schedule for the fiscal years ended December 29, 1995 and December 30, 1994 of the Wilmar Industries Inc. listed in Item 16(b). This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ Deloitte & Touche LLP DELOITTE & TOUCHE LLP Philadelphia, Pennsylvania July 9 1996 23.1 EX-23.2 7 CONSENT OF DELOITTE & TOUCHE LLP INDEPENDENT AUDITORS' CONSENT We consent to the use in this Registration Statement of Wilmar Industries, Inc. on Form S-1 of our report on the financial statements of One Source Supply, Inc. for the nine month period ending September 30, 1995, dated November 17, 1995, appearing in the Prospectus, which is part of this Registration Statement, and to the reference to us under the heading "Experts" in such Prospectus. /s/ Deloitte & Touche LLP DELOITTE & TOUCHE LLP Miami, Florida July 9, 1996 EX-23.3 8 CONSENT OF DELOITTE & TOUCHE LLP INDEPENDENT AUDITORS' CONSENT We consent to the use in this Registration Statement on Form S-1 of Wilmar Industries, Inc., of our report on the financial statements of HMA Enterprises, Inc. and Subsidiaries, for the year ended February 29, 1996, dated May 30, 1996, appearing in the Prospectus, which is part of this Registration Statement, and to the reference to us under the heading "Experts" in such Prospectus. /s/ Deloitte & Touche LLP Deloitte & Touche LLP Houston, Texas July 9, 1996 23.3 EX-23.4 9 CONSENT OF FISHBEIN & COMPANY, P.C. INDEPENDENT AUDITOR'S CONSENT AND REPORT ON SCHEDULE We hereby consent to the use in this Registration Statement of Wilmar Industries, Inc. of our report dated October 30, 1995, accompanying the financial statements of Wilmar Industries, Inc. contained in such Registration Statement, and to the use of our name, and the statement with respect to us, as appearing under the heading "Experts" in the Prospectus. Our audit of the financial statements referred to in our aforementioned report also included the financial statement schedule of Wilmar Industries, Inc. listed in Item 16(b). This financial statement schedule is the responsibility of the company's management. Our responsibility is to express an opinion based on our audit. In our opinion, such financial statements taken as a whole, present fairly in all material respects the information set forth therein. /s/ Fishbein & Company, P.C. Fishbein & Company, P.C. Elkins Park, PA July 9, 1996 23.4 EX-23.5 10 CONSENT OF MUTNICK & ASSOCIATES, P.A. Mutnick & Associates, P.A. Dade (305) 945-7233 Mutnick & Associates, P.A. Broward (305) 432-4322 Mutnick & Associates, P.A. Fax (305) 432-5018 Certified Public Accountants CONSENT OF INDEPENDENT AUDITORS We consent to the inclusion of this Form S-1 being filed under the Securities Act of 1933 by Wilmar Industries, Inc. of our report dated May 2, 1995, relating to our examination of the financial statements of One Source Supply, Inc. as of December 31, 1994 and for the period then ended appearing in the Prospectus. We also consent to the reference to our firm appearing under the caption "Experts" in the Prospectus /s/ Mutnick & Associates, P.A. MUTNICK & ASSOCIATES, P.A. Certified Public Accountants Pembroke Pines, Florida July 9, 1996 [ADDRESSES APPEAR HERE] EX-23.6 11 CONSENT OF KPMG PEAT MARWICK LLP The Board of Directors HMA Enterprises, Inc.: We consent to the use of our report included herein and to the reference to our firm under the heading "Experts" in the prospectus. /s/ KPMG Peat Marwick LLP KPMG Peat Marwick LLP Houston, Texas July 8, 1996 EX-27.1 12 FINANCIAL DATA SCHEDULE
5 3-MOS DEC-29-1995 MAR-29-1996 4,510,483 1,765,035 10,504,716 (300,000) 12,978,101 30,454,861 2,588,712 (1,203,548) 33,991,868 9,085,098 0 0 0 51,289,412 (26,382,642) 24,906,770 19,308,559 19,308,559 13,372,953 4,229,290 0 65,951 80,704 1,625,612 666,000 959,612 0 0 0 959,612 0 0.10
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