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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended: December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0 - 20330
WHOLESOME & HEARTY FOODS, INC.
(Exact name of registrant as specified in its charter)
OREGON 93-0886359
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1411 SW MORRISON STREET, SUITE 400, PORTLAND, OREGON 97205
(Address of principal executive offices)
Registrant's telephone number, including area code: (503)-205-1500
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, NO PAR VALUE
(Title of Class)
_______________
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K, or any amendment to
this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant is $48,259,402 as of February 28, 1997 based upon the last closing
price as reported by the Nasdaq National Market System ($6.75).
The number of shares outstanding of the Registrant's Common Stock as of February
28, 1997 was 8,566,456 shares.
The index to exhibits appears on page 19 of this document.
_______________
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant has incorporated into Part III of Form 10-K by reference portions
of its Proxy Statement, dated March 20, 1997. Portions of the Registrant's
Annual Report to Shareholders for the fiscal year ended December 31, 1996, are
incorporated by reference in Parts II and IV of Form 10-K.
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WHOLESOME & HEARTY FOODS, INC.
1996 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
Page
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PART I
Item 1. Business 2
Item 2. Properties 8
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 9
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters 9
Item 6. Selected Financial Data 10
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 10
Item 8. Financial Statements and Supplementary Data 15
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure 16
PART III
Item 10. Directors and Executive Officers of the Registrant 17
Item 11. Executive Compensation 17
Item 12. Security Ownership of Certain Beneficial Owners and Management 17
Item 13. Certain Relationships and Related Transactions 17
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 18
Signatures 21
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PART I
ITEM 1. BUSINESS
INTRODUCTION
Wholesome & Hearty Foods, Inc. (the "Company" ) was organized in 1985 to provide
a line of food products in response to the public's awareness of the importance
of diet to overall health and fitness. Toward this end, the Company developed
and now produces and distributes products which include a variety of frozen,
meatless items that are low in cholesterol and low in fat. One such product, the
Gardenburger-Registered Trademark- Veggie Patty, contains approximately one-
sixth of the fat and two-thirds of the calories contained in a similar-sized
ground beef patty. In addition, the Company distributes and is continuing to
develop and perfect the GardenDog-Registered Trademark-, a meatless, all natural
hot dog like product made primarily from vital wheat gluten. The Company
divested itself of the AlmondMylk-TM- and AlmondCheeze-TM- products at the
beginning of 1996 and no longer sells these products. The Company registered
its common stock with the Securities and Exchange Commission and completed its
initial public offering in 1992.
PRODUCTS
The Company offers its meatless items, primarily patties, under the trade names
Gardenburger-Registered Trademark-, Gardenburger-Registered Trademark- Zesty
Bean, Gardenburger-Registered Trademark- Veggie Medley, Gardenburger
Sub-Registered Trademark-, GardenSausage-Registered Trademark-, and GardenVegan
- -Registered Trademark-. The patties range in various sizes from 2.5 ounces to
3.4 ounces. The recipes although proprietary, contain commonly known
ingredients including fresh mushrooms, brown rice, onions, rolled oats, low-fat
cheeses, bulgur wheat, egg whites, natural seasonings and spices, are soy-free
and do not contain artificial additives.
The Gardenburger contains the commonly known ingredients mentioned above.
The 1/4 pound Gardenburger-Registered Trademark- patty, is 130 calories, 3 grams
of fat, 19 grams of carbohydrate and 6 grams of protein.
The Gardenburger-Registered Trademark- Zesty Bean contains black beans,
Anaheim chilies, red and yellow bell pepper and cilantro in addition to the
common ingredients which provide a spicy, Mexican flavor and additional protein
and fiber from the beans. A 1/4 pound patty is 120 calories, 2.5 grams of fat,
18 grams of carbohydrate and 6 grams of protein.
The Gardenburger-Registered Trademark- Veggie Medley contains soy cheese in
lieu of low fat dairy cheeses, broccoli, carrots, and red and yellow bell
peppers in addition to the common ingredients. A 1/4 pound patty is 100
calories, zero grams of fat, 17 grams of carbohydrate and 6 grams of protein.
The 3.1 ounce Gardenburger Sub-Registered Trademark-, is 170 calories, 3
grams of fat, 26 grams of carbohydrate and 10 grams of protein. It is oval
shaped to accommodate sub sandwich style buns.
GardenSausage-Registered Trademark- contains maple syrup and natural
seasonings in addition to the common ingredients which provides a light and
fresh breakfast sausage flavor. A 2.5 ounce patty is 140 calories, 2.5 grams of
fat, 20 grams of carbohydrate and 7 grams of protein.
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The GardenVegan-TM- contains water, brown rice, vital wheat gluten, bulgur
wheat, onions, mushrooms, and natural spices. A 1/4 pound patty is 140
calories, zero grams of fat, 23 grams of carbohydrate and 11 grams of protein.
The GardenDog-Registered Trademark- is a meatless, all natural hot dog like
product with approximately one sixth the fat content of a typical meat hot dog
and no preservatives or additives. The primary ingredients in a GardenDog-
Registered Trademark- are water, vital wheat gluten, nutritional yeast, natural
flavors, spices and color.
The Company is currently developing several new products also made from vital
wheat gluten, including analog chicken, beef and pepperoni products.
The Company produces it line of GardenProducts-TM- at its plant in Portland,
Oregon. The Company has also entered into selective co-packing agreements under
which its products are produced by third parties, although no such agreements
are currently in place. The production process involves cleaning, chopping and
mixing ingredients, forming, baking, and quick freezing patties, then packaging.
Products are then shipped fully cooked, frozen and packaged via temperature
controlled truck to distributors throughout North America, and by temperature
controlled container to Europe.
The Company's products may be purchased in restaurants and from other
institutional food preparers throughout the United States, Canada, Mexico and in
selected European food service outlets. Products may also be purchased for home
consumption from grocery stores, natural foods stores, club stores and specialty
food stores in the United States, Canada and the United Kingdom.
ACQUISITION OF GORILLA FOODS, INC. AND WHOLE FOODS MARKETING
In January 1996 the Company completed the acquisition of Ojai, California-based
Gorilla Foods, a privately held developer and manufacturer of wheat protein-
based, meatless food products, including the GardenDog-Registered Trademark-.
The transaction provided for the exchange of 240,000 shares of the Company's
common stock for all outstanding common shares of Gorilla Foods, and $68,750 in
cash. In addition, up to an additional 200,000 certain contingent shares of the
Company could be issued in 50,000 share increments based on sales performance of
wheat protein-based products over the next five years. This transaction has
enabled the Company to broaden its product line by owning the recipe for the
GardenDog-Registered Trademark- and future wheat gluten protein-based products
to be developed for the meat analog product market.
In a separate transaction in January 1996, the Company completed the acquisition
of the assets, for $350,000 in cash, of Whole Food Marketing, a Southern
California-based food broker of the Company's and Gorilla Foods' products, that
was partly owned by Gorilla Foods' executives.
COMPETITION
At present, competing products are sold by Worthington Foods, Inc., Pillsbury's
Green Giant Division which is marketing Archer-Daniels-Midland's meatless patty
products, Boca Burger, Fantastic Foods and Imagine Foods. The Company also
expects to see some additional competition from extreme low-fat meat based
products such as ConAgra's Healthy Choice 96 percent Extra Lean Ground Beef
burger and chicken/turkey based
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patties. Large competitors are positioned to take advantage of their existing
resources, which are substantially greater than the Company's, especially
distribution and marketing resources in order to penetrate the market quickly,
to increase the potential market and to potentially occupy a significant share
of the market.
To the best of the Company's knowledge, the main competing meatless patty
products come from: Worthington Foods, Inc. distributing "Morningstar Farms"
and other products through institutional food service, and distributing
"Morningstar Farms" and "Natural Touch" patties to retail stores; Pillsbury,
distributing "Green Giant Harvest Burgers" for Archer-Daniels-Midland into
institutional food service and retail sectors; Boca Burger, distributing a
growing line of soy-based meat analog burgers in both the food service and
retail sectors; Imagine Foods, Inc. distributing "Ken & Robert's" burgers into
institutional and retail sectors; and a variety of patties and meat substitutes
which bear names such as the "New York Veggie Burger" and come primarily from
smaller health or natural foods producers. The foregoing are believed to be
representative but not inclusive of all existing and potentially competing
products.
The Company believes that its products compare favorably to those offered by
competitors based on taste, quality of its natural ingredients, ease of
preparation, availability and value. Some competing patty products, meat
substitutes, and meat substitute mixes use ingredients and processing methods,
soy for example, which tend to be less expensive and blend into textures and
appearances that are much more uniform and "meat-like" than the Company's
products. The Company believes that its ingredients and processes, although
slightly more costly, tend to produce products in which the major ingredients
are more discernible, and, therefore, more appealing to the consumer. Some
competitors, including Worthington Foods, Inc., are introducing products which
appear to be following the Company's approach but use different ingredients and,
presumably, different processing methods. The Company cannot readily assess the
immediate impact of such products or product introductions.
The Company believes, but cannot assure, that the Gardenburger's-Registered
Trademark- taste and texture are superior to that of soy or tofu-based burgers.
The calorie and fat content of the Gardenburger-Registered Trademark- is
generally equivalent to that of other meatless burger products. While
Gardenburgers-Registered Trademark- generally sell for a slightly higher price
than other meatless patty products, management feels that the higher price
reflects the value of higher quality ingredients and a "premium" product. A
possible competitive risk facing the Company is that others may attempt to copy
or imitate the Company's products using the same or similar ingredients or
methods as the Company. Management cannot assess the likelihood or the impact
of such efforts.
The Company feels that "low fat" meat products compete with meatless patties in
general and, as a result, with the Gardenburger-Registered Trademark- and its
variations. The Company is not able to quantify the specific trade-offs
involved as to when a consumer might choose between meat, "low-fat" meat, "meat-
like" (meat "analog"), non-meat protein concentrate, or non-meat "natural foods"
alternatives in selecting a patty or a meat substitute either over the long run
or at a specific time. However, based on sales over the past few years,
consumers are actively seeking alternatives to meat products.
In a broader sense, the Company competes with frozen, mass produced entrees and
distributed low calorie/low fat national consumer brands such as Healthy Choice,
LeMenu
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and Weight Watchers whose name recognition, advertising budgets and resources
are significantly greater than those of the Company's.
DISTRIBUTION
The Company sells its products in North America and in certain European and
South American markets through sixty independent, commissioned food brokers and
through five hundred active distributors. The Company's line of frozen
GardenProducts-Registered Trade Mark- is shipped by temperature controlled
truck and inventoried for distributors in cold storage warehouses in principal
cities in the United States, Canada and Europe.
The Company's product distribution activities and sales in 1996 were primarily
focused on the west coast of the United States. Approximately 50 percent of net
sales were delivered on the West Coast, 20 percent in the Northeast, 10 percent
in the Southeast, 10 percent in the Midwest and 7 percent in the Southwest. The
remaining 3 percent were shipped outside of the United States, primarily Canada
and some parts of Europe.
The Company's Gardenburger-Registered Trademark- is the most significant product
sold by the Company in terms of both volume and net sales, comprising over 80
percent of each. Variations on the Gardenburger-Registered Trademark- are the
second largest product sales group, comprising approximately 18 percent of net
sales in 1996.
The Company is pursuing expanded European distribution through demonstrating its
products at food shows, exploring strategic partnerships and building a broker
network. At present this "developmental" activity is negligible to the overall
business.
SALES AND MARKETING
The Company's sales objective is to position the original Gardenburger-
Registered Trademark- and its flavor variants, the Zesty Bean and Veggie Medley,
as the number #1 veggie burger in both the retail grocery and food service
distribution channels. The Company intends to aggressively pursue national chain
restaurant accounts and to leverage the sales force with distributor sales
representatives who are educated regarding the unique benefits and features of
our healthy food choices. During 1997 and future years the company also intends
to aggressively expand its distribution in the retail grocery channel. At the
beginning of 1996 the Company's penetration in this channel was less than 30
percent of U.S. retail grocery outlets. It's goal is to penetrate up to 80
percent of the retail grocery channel in the U.S. during 1997 and also to expand
its presence in club stores. The costs of entry and maintenance in these
distribution channels are typically higher than in the food service channel, and
the Company plans to invest heavily in securing additional retail grocery
distribution and follow-up promotional activities during 1997. The Company
believes, but cannot assure, that additional investment in marketing, promotion
and merchandising will increase sales.
Sales activities are organized under an institutional sales division and a
retail sales division. Institutional customers include more than 30,000 food
service outlets such as restaurants, corporate and industrial cafeterias, hotel
chains, colleges, hospitals, airlines and sports stadiums. Retail outlets
include approximately 10,000 grocery and other specialty food stores and over
4,000 natural foods stores. Although complete and accurate meatless patty sales
data is not publicly available at this time, industry analysts have estimated
Wholesome & Hearty Foods has over a fifty percent share of the food service
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meatless patty market and a ten percent share of the supermarket grocery and
natural food meatless patty retail market.
The Company will continue to build its natural foods store base while, as
mentioned above, it continues to seek new opportunities in national chain
restaurants, club stores, school food service and retail grocery distribution.
During 1996 the Company hired additional sales and marketing personnel and will
continue to add personnel as needed in order to promote the Company and its
products and relations with distributors, brokers and customers.
Marketing objectives include increasing market penetration, building brand
awareness and loyalty and establishing a position of leadership in the category
of meatless food choices. Programs are being created and pursued to encourage
the use of the Gardenburger-Registered Trademark- brand in broadcast and print
media, to encourage the use of the Company's other product names, such as
GardenSausage-Registered Trademark-, on restaurant menus and point of sale
displays, to introduce new meatless products and to expand distribution
geographically and into new channels.
In addition to increased promotional activities, the Company will utilize a
variety of methods to solidify and build its business. The Company's
promotional materials and packaging re-design include a complete reformatting to
comply with the Food and Drug Administration nutrition information and label
regulations. The updated materials build brand awareness by providing more
cohesive and consistent visual images across the Company's entire line of
products and communicate to consumers, at the point of purchase, the heart smart
nutritional benefits (less than 30% of calories from fat) of Wholesome & Hearty
products.
In 1996, the Company's advertising and promotional expenses focused primarily on
print ads in food service trade publications, trade shows, off-invoice
promotions with distributors and radio advertising. The Company spent
approximately $1,539,000 in 1996 for advertising and promotions, $871,000 in
1995 and $670,000 in 1994.
RESEARCH AND DEVELOPMENT
The Company's research and development activities include development of new
products, the improvement of existing products and process development. The
GardenDog continues to be sold through the Company's natural foods product
channel while product and process improvements continue to be made to improve
consumer acceptance. In the fourth quarter of 1996 the Company hired a new Vice
President of Research and Development with a significant background in healthy,
frozen food products. Other employees, outside consultants and experts are also
involved on an as needed basis depending on the specific projects at hand. The
Company's research and development resources are focused on creating great
tasting, convenient, healthy center-of-the-plate entrees. Recipes and processes
are being developed for meatless alternatives to chicken, beef and pepperoni.
Development activity is done at the Company's development and production
facilities in Portland, Oregon. In 1996, the Company spent approximately $1.0
million on such activities, including $612,000 of acquired in-process research
and development. The amount spent on such activities during 1995 and 1994 was
immaterial.
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EMPLOYEES
The Company has approximately 147 full-time equivalent employees. The Company
also utilizes a temporary workforce during peak seasonal demand periods that
averages 70 employees. The Company's employees are not represented by a labor
union, and the Company believes its relations with employees are satisfactory.
TRADEMARKS
The Company has registered the trademarks "Gardenburger-Registered Trademark-",
"Wholesome & Hearty Foods, Inc.-Registered Trademark-", "GardenDog-Registered
Trademark-", "GardenSausage-Registered Trademark-", "Gardenburger Sub-Registered
Trademark-", "Gardenburger-Registered Trademark- Veggie Medley" and
"Gardenburger-Registered Trademark- Zesty Bean" with the United States Patent
and Trademark Office. These trademarks expire at different times after the turn
of the century. The Gardenburger-Registered Trademark- trademark has also been
registered in the United Kingdom, Australia, Canada, Germany and Switzerland.
The Company has applied to register the Gardenburger-Registered Trademark- in
Argentina, China, Japan, Mexico, The Philippines and Columbia. The Company has
also applied for various other trademarks in the U.S. related to its wheat-
gluten based products.
The Company is not aware of any significant claims of infringement or other
challenges to any of its trademarks, logos or trademark applications. The
Company did successfully settle such a claim with Worthington Foods during 1996.
SIGNIFICANT CUSTOMERS AND CONCENTRATIONS OF CREDIT RISK
For the fiscal year ended December 31, 1996 one customer accounted for
approximately 22.9 percent of revenue and 32.3 percent of the accounts
receivable balance at December 31, 1996. Another customer accounted for
approximately 11.5 percent of revenue for the year ended December 31, 1996 and
12.7 percent of the accounts receivable balance at December 31, 1996.
For the fiscal year ended December 31, 1995 one customer accounted for
approximately 22.9 percent of revenue and 24.3 percent of the accounts
receivable balance at December 31, 1995. Another customer accounted for 11.5
percent of revenue for the year ended December 31, 1995 and 7.9 percent of the
accounts receivable balance at December 31, 1995.
For the year ended December 31, 1994 one customer accounted for 13.3 percent of
revenue and 10.4 percent of the accounts receivable balance at December 31,
1994. Another customer accounted for 13.0 percent of revenue for the year ended
December 31, 1994 and 29.0 percent of accounts receivable balance at December
31, 1994.
Historically, the Company has not incurred significant losses related to its
accounts receivable.
SOURCES OF SUPPLY
The Company uses natural ingredients such as mushrooms, oats, rice, onions, and
egg whites. These are common agricultural items typically available in most
parts of the United States. In addition, the Company uses packaging and
materials which are common in the food industry. As a result, the Company
believes, but cannot assure, that its sources of supply are reasonably reliable
and that the Company is at no greater risk on supply matters than other similar
food processors and producers.
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SEASONALITY
The Company believes that its industry is seasonal due to the seasonal nature of
consumer demand for its type of products. Historically, the fourth and first
quarters have a decrease in sales from the preceding second and third quarters
due to such seasonality. The Company believes such seasonal variations may be
reflected in future quarterly patterns of its revenues and earnings.
ITEM 2. PROPERTIES
The Company leases 19,000 square feet of administrative office space at 1411 SW
Morrison, Suite 400, Portland, Oregon 97205, pursuant to a two year lease which
terminates on December 31, 1998. The Company also leases 6,600 square feet of
former administrative office space at 975 S.E. Sandy Boulevard, Portland, Oregon
97214, pursuant to a 5-year lease which terminates on June 1, 1999. The Company
is currently seeking to sub-let this space to another tenant.
The Company also leases approximately 20,000 square feet of pre-production,
storage and distribution space at 10264 SE Jennifer, Clackamas, Oregon under a
one-year lease that expires on November 1, 1997, and 15,000 square feet of
distribution space at 215 SE Stark, Portland, Oregon under a one-year lease that
expires on March 14, 1997, with an option to extend the lease for an additional
six months which the Company intends to exercise.
The Company leases additional space for research and development and production
at 1416 S.E. Eighth Avenue in Portland, Oregon. The facility is leased from
Paul F. Wenner, the Company's Chief Creative Officer and Frank S. Card, a
shareholder of the Company, at a rental rate of $1,700 per month, which the
Company considers to be reasonable rent, consistent with rental rates charged by
unaffiliated property owners in the same market area.
The Company owns 40,000 square feet of production facilities at 1005 S.E.
Washington Street, Portland, Oregon, and a 1,200 square foot annex at the same
location.
The Company is actively seeking and planning for additional manufacturing
capacity in the next 12-24 months. Capacity expansion alternatives include:
adding additional equipment to existing facilities, constructing a new plant, or
retrofitting a plant, expanding co-packing (outsourcing production to qualified
food processors), and licensing others to produce and/or distribute the
Company's products. In the event the Company elects to construct a new plant in
Portland, Oregon, an investment estimated currently to be fifteen to twenty
million dollars, including production equipment, would be required. The Company
owns a 16.6 acre parcel of real estate close to Portland International Airport
and intends to build such a facility. Currently, the company is exploring
financing alternatives ranging from working capital, conventional long-term debt
and leasing. However, no firm commitments on such financing have been made at
this date.
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ITEM 3. LEGAL PROCEEDINGS
There are currently no material pending legal proceedings to which the Company
or its subsidiaries are a party. From time to time, the Company becomes
involved in ordinary, routine or regulatory legal proceedings incidental to the
business of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matters to a vote of security holders during the
quarter ended December 31, 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock trades on The Nasdaq National Market System under the
symbol WHFI. The high and low sales prices for the two years in the period
ended December 31, 1996 were as follows:
1996 High Low
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Quarter 4 $ 8.25 $ 6.00
Quarter 3 8.38 6.38
Quarter 2 9.38 7.13
Quarter 1 9.50 6.50
1995 High Low
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Quarter 4 $10.88 $ 7.13
Quarter 3 14.06 10.69
Quarter 2 13.75 10.00
Quarter 1 13.25 10.44
The approximate number of shareholders of record and beneficial shareholders at
December 31, 1996 was 745.
There were no cash dividends declared or paid in 1996 or 1995. The Company does
not anticipate declaring cash dividends in the foreseeable future.
Except for 240,000 shares issued and 200,000 shares put into escrow in
connection with the Gorilla Foods acquisition, there were no sales of
unregistered securities by the Company during the year ended December 31, 1996.
The 440,000 shares were issued in reliance on Rule 505 of Regulation D under the
Securities Act of 1933.
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ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
IN THOUSANDS:
EXCEPT SHARE AND PER SHARE AMOUNTS 1996 (1) 1995 1994 1993 1992
---------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Net sales $ 39,254 $ 35,754 $ 23,736 $ 12,952 $ 6,946
Gross margin 19,348 17,656 12,345 6,817 3,346
Operating expenses 17,885 13,958 8,754 4,158 2,277
Operating income 1,463 3,698 3,591 2,659 1,069
Net income $ 1,063 $ 2,510 $ 2,391 $ 1,532 $ 575
Net income per share $ 0.12 $ 0.29 $ 0.28 $ 0.19 $ 0.10
Shares used in per share calculations 9,065,969 8,638,691 8,577,907 8,177,222 6,190,341
BALANCE SHEET DATA
Working capital $ 13,393 $ 11,978 $ 11,037 $ 6,710 $ 2,495
Total assets 24,934 19,325 15,320 10,363 5,857
Long-term liabilities - - - - 697
Shareholders' equity 20,979 16,955 14,028 9,151 4,298
GROWTH INDICATORS (UNAUDITED)
Net sales growth 10% 51% 83% 86% 116%
Operating income growth (60%) 3% 35% 149% 64%
Net income growth (58%) 5% 56% 166% 55%
Net income per share growth (59%) 4% 47% 90% (17%)
</TABLE>
(1) Operating expenses in 1996 include a $612,000 one-time charge for acquired
in-process research and development related to the Gorilla Foods
acquisition.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
GENERAL
The following discussion should be read in conjunction with the financial
statements and related notes which follow. The Company's future operating
results are likely to be affected by trends and factors which are beyond the
Company's control. These include, among other factors, unexpected changes in
food manufacturing technology, uncertain business conditions that impact the
general food manufacturing industry, government regulation and general economic
conditions.
The Company's manufacturing processes use certain raw ingredients, including
mushrooms, onions and cheese, supplied from outside sources. Any reduction in
supply or change in costs of these ingredients may affect the Company's ability
to meet customer demand. The Company is not currently aware of any such changes
in supply or costs of its raw material ingredients, other than cheese. During
1996, the prices of cheese were volatile and such volatility may continue in
1997.
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During 1996 the Company continued to broaden its product distribution into new
geographic locations and new sales channels to increase its national presence
and to provide direct sales and support interface with customers. There can be
no assurance that this strategy will be effective or successful or that the
service and support needed to ensure the success of the Company's expansion into
new territories or new sales channels can be achieved cost effectively.
The market price of the Company's Common Stock has been, and is likely to
continue to be, volatile. Many factors, including events affecting the stock
market generally, quarterly fluctuations in the Company's operating results and
general conditions in the economy may affect the price of the Company's stock.
Any shortfall in revenue or earnings from the level anticipated by securities
analysts could have an immediate and adverse impact on the trading price of the
Company's Common Stock in any given period.
Because of all the foregoing factors, as well as other variables, past financial
performance should not be considered a reliable indicator of future performance
and management believes that historical trends should not be relied on to
anticipate results or trends in future periods.
ACQUISITION OF GORILLA FOODS, INC. AND WHOLE FOOD MARKETING
In January 1996 the Company completed the acquisition of Ojai, California-based
Gorilla Foods, Inc., a privately held developer and manufacturer of wheat
protein-based, meatless food products, including the GardenDog. The transaction
provided for the issuance of 240,000 shares of the Company's Common Stock in
exchange for all outstanding common shares of Gorilla Foods, and $68,750 in
cash. In addition, up to an additional 200,000 certain contingent shares of the
Company could be issued in 50,000 share increments contingent upon the Company
achieving certain sales performance levels of wheat protein-based products over
the next five years. This transaction has enabled the Company to broaden its
product line by owning the recipe for the GardenDog and other future wheat
gluten protein-based products to be developed for the meat analog product
market. The Company incurred a one-time charge of $612,000 in the first quarter
of 1996 as a result of the acquisition of in process research and development
associated with this acquisition, with the remainder of the purchase price
principally allocated to goodwill. Pro forma financial information has not been
provided as the pro forma results are not materially different from actual
results.
In a separate transaction in January 1996, the Company completed the acquisition
of the assets of Whole Food Marketing, Inc., a Southern California-based food
broker of the Company's and Gorilla Foods' products. The Company paid $350,000
for the assets of Whole Food Marketing, Inc., all of which was allocated to
goodwill.
11
<PAGE>
RESULTS OF OPERATIONS
The following table is derived from the Company's Statements of Operations for
the periods indicated and presents the results of operations as a percentage of
net sales.
<TABLE>
<CAPTION>
Fiscal year ended December 31, 1996 December 31, 1995 December 31, 1994
- -------------------------------------------- ----------------- ----------------- -----------------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 50.7 50.6 48.0
----------------- ----------------- -----------------
Gross margin 49.3 49.4 52.0
Sales and marketing expense 31.4 28.2 26.8
General and administrative expense 12.6 10.8 10.1
Acquired in-process research and development 1.6 -- --
----------------- ----------------- -----------------
Operating income 3.7 10.4 15.1
Other income (expense) 0.9 0.4 1.1
----------------- ----------------- -----------------
Income before income taxes 4.6 10.8 16.2
Income taxes 1.9 3.8 6.1
----------------- ----------------- -----------------
Net income 2.7 7.0 10.1
----------------- ----------------- -----------------
----------------- ----------------- -----------------
</TABLE>
1996 COMPARED TO 1995
NET SALES. Net sales for 1996 increased 9.8 percent to $39.3 million from $35.8
million for 1995. The Company has increased its sales levels in each of its
major channels, including food service, retail and club stores, such as
PriceCostco. Such increases are primarily a result of increased marketing and
public relations activities which have increased awareness of the Company's
products throughout its channels of distribution. At the beginning of the
second quarter of 1996, the Company started selling to additional large retail
chains in Southern California. In January 1996, the Company discontinued
selling its almond beverage and almond cheese products, which resulted in
natural foods sales declining approximately $1.0 million from the prior year.
GROSS MARGIN. Gross margin increased 9.6 percent to $19.3 million (49.3 percent
of net sales) for 1996 from $17.7 million (49.4 percent of net sales) for 1995.
Gross margin as a percentage of net sales remained constant primarily as a
result of continued upward pressures on pricing in certain raw materials, offset
by process improvements at the Company's manufacturing plant, increased food
service sales, which have higher margins, and start-up costs associated with a
new food service product-type in 1995 that were not duplicated in 1996.
SALES AND MARKETING EXPENSE. Sales and marketing expenses increased to $12.3
million (31.4 percent of net sales) for 1996 from $10.1 million (28.2 percent of
net sales) for 1995. The increase is primarily attributable to increased
expenditures during 1996 related to the promotion of sales for additional retail
chains that the Company began selling to during the first half of 1996,
increased headcount as a result of hiring additional field sales people, costs
associated with the Company's plan to aggressively grow its retail grocery
business in 1997 and increased promotional activities in general to support and
promote the growth of the Company.
12
<PAGE>
GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expense
increased to $5.0 million (12.6 percent of net sales) for 1996 from $3.9 million
(10.8 percent of net sales) for 1995. The increase is primarily a result of non-
recurring costs to defend litigation which was settled in the third quarter of
1996, relocation and recruiting expense in connection with the hiring of
personnel to support the growth of the Company, approximately $400,000 for
management transition costs during the second quarter of 1996 and ongoing costs
related to the overall growth of the Company, including an improved support
infrastructure.
ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT. In connection with the
acquisition of Gorilla Foods, Inc., the Company recorded a one-time pretax
charge of $612,000 ($386,000 net of taxes) related to acquired in-process
research and development costs. The value assigned to the in-process research
and development was determined by an appraisal and represents those efforts in
process at the acquisition date that had not yet established feasibility and
that had no alternative future uses. Accounting rules require that such costs
be charged to expense as incurred. The Company currently believes that these
research and development efforts will result in commercially viable products
over the next several years.
OPERATING INCOME. Operating income (without the one-time charge for purchased
in-process research and development) decreased to $2.1 million (5.3 percent of
net sales) for 1996 compared to $3.7 million (10.4 percent of net sales) for
1995 as a result of the individual line item changes discussed above.
OTHER INCOME (EXPENSE). Other income increased to $327,000 in 1996 from
$153,000 in 1995 primarily as a result of increased cash balances and therefore
increased interest income.
INCOME TAXES. The Company's income tax rate for 1996 was 40.6 percent compared
to 34.8 percent for 1995. The increase from the 34.8 percent rate achieved for
fiscal 1995 is primarily a result of non-deductible goodwill expenditures in
1996, adjustments in 1996 relating to prior years and a one-time tax benefit
received in 1995 from the State of Oregon.
NET INCOME. Net income decreased to $1.1 million (2.7 percent of net sales)
for 1996 compared to $2.5 million (7.0 percent of net sales) for 1995 as a
result of the individual line item changes discussed above. The Company
believes that the impact of inflation on net income was minimal for fiscal years
1996 and 1995.
1995 COMPARED TO 1994
NET SALES. Net sales for 1995 increased 51 percent to $35.8 million from $23.7
million for 1994. The increase was primarily attributable to increased
penetration in the Company's food service distribution channels and in club
stores, such as PriceCostco, and increased marketing and public relations
activities which have increased awareness of the Company's products throughout
its channels of distribution.
13
<PAGE>
GROSS MARGIN. Gross margin increased 43 percent to $17.7 million (49 percent of
net sales) for 1995 from $12.3 million (52 percent of net sales) for 1994. The
decrease as a percentage of net sales primarily resulted from increasing club
store sales, both in absolute dollars and as a percentage of the total sales
mix. In addition, greater promotional discounts due to increased competition
and start-up costs associated with new food service products impacted margins.
SALES AND MARKETING EXPENSE. Sales and marketing expenses increased to $10.1
million (28.2 percent of net sales) for 1995 from $6.4 million (26.8 percent of
net sales) for 1994. The increase is primarily attributable to growth of the
Company and increased marketing efforts which included more product
demonstrations, coupon and other media activities and a new marketing campaign
aimed at the Company's institutional business.
GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expense
increased to $3.9 million (10.8 percent of net sales) for 1995 from $2.4 million
(10.1 percent of net sales) for 1994. The increase is primarily attributable to
growth of the Company, $281,000 to defend current litigation and a company wide
profit sharing plan that was implemented in 1995, offset by cost containment
measures put into place in the third quarter of 1995.
OPERATING INCOME. 1995 operating income remained relatively constant at $3.7
million (10.3 percent of net sales) compared to $3.6 million (15.1 percent of
net sales) for 1994 as a result of the individual line item changes discussed
above.
OTHER INCOME (EXPENSE). Other income decreased to $153,000 in 1995 from
$262,000 in 1994 primarily as a result of increased cash balances and therefore
increased interest income, offset by a $52,000 loss on the sale of fixed assets
in 1995 compared to a gain on sale of fixed assets of $85,000 in 1994.
INCOME TAXES. The Company's income tax rate for 1995 was 34.8 percent compared
to 37.9 percent for 1994. The decrease from 1994 was primarily attributable to
tax exempt interest and dividends received on investments and slightly lower
effective state tax rates in 1995 as a result of a one-time benefit from the
state of Oregon.
NET INCOME. Net income remained relatively constant at $2.5 million (7.0
percent of net sales) for 1995 compared to $2.4 million (10.1 percent of net
sales) for 1994 as a result of the individual line item changes discussed above.
The Company believes that the impact of inflation on net income was minimal for
fiscal years 1995 and 1994.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, the Company had working capital of $13.4 million, which
included $7.8 million of cash and cash equivalents as compared to $12.0 in
working capital at December 31, 1995 and approximately $9.2 million of cash and
cash equivalents at December 31, 1995. The decrease in cash and cash
equivalents is primarily a result of $0.5 million used in operations, including
the building of inventories in anticipation of increased growth in 1997, $2.4
million for the purchase of property and equipment and $0.4 million for the
purchase of Gorilla Foods and Whole Food Marketing, offset by $2.0 million
provided from the exercise of Common Stock options and the income tax benefit of
non-qualified option exercises and disqualifying dispositions.
14
<PAGE>
Accounts receivable decreased $141,000 to $2.8 million at December 31, 1996 from
$2.9 million at December 31, 1995. Days sales outstanding have decreased to
32.0 at December 31, 1996 from 34.6 at December 31, 1995 (calculated based on
average sales per day in the fourth quarter of each respective year). Accounts
80 days or more past due represent less than 2 percent of accounts receivable at
December 31, 1996.
Inventory levels at December 31, 1996 increased $3.2 million to $4.8 million at
December 31, 1996 from $1.6 million at December 31, 1995, due primarily to the
building of finished goods to ensure the Company's ability to meet anticipated
sales demand during the first half of 1997. Inventory turns have decreased to
approximately 5.1 times for the year ended December 31, 1996 from approximately
8.0 times for the year ended December 31, 1995.
Income taxes receivable were $653,000 at December 31, 1996 compared to a payable
of $269,000 at December 31, 1995 primarily as a result of a $1.4 million
benefit which resulted from the exercise of non-qualified stock options and
payments made during 1996.
Accounts payable increased to $2.2 million at December 31, 1996 from $1.0
million at December 31, 1995 primarily as a result of increased inventory
purchases to support an anticipated increase in the Company's sales growth rate
beginning in the first half of 1997.
Capital expenditures of $2.4 million during 1996 primarily resulted from the
purchase of packaging equipment to streamline the Company's retail manufacturing
process, equipment to increase the Company's manufacturing capacity at current
locations and improvements to the Company's information systems infrastructure.
Future capital requirements, other than normal operating expenses, could
include, among other things, the possible construction of a new manufacturing
facility, the purchase of manufacturing equipment to equip such a new facility
or a co-packing facility, the funding of regional or national marketing
campaigns and the implementation of a new information systems infrastructure.
If the Company obtains a new manufacturing facility, it would expect such a
facility to cost between $15 and $20 million, including all production
equipment. The Company is currently researching funding options including
various combinations of cash, conventional debt and lease financings. At
December 31, 1996, the Company had firm obligations of $120,000 related to such
facility. The Company has incurred approximately $468,000 in expenditures to
date on its information systems project and expects the entire project to cost
approximately $550,000, all of which is expected to be paid out of existing cash
balances.
Management believes that the Company's existing working capital, in combination
with cash flow from operations and funds available under credit and capital
lease facilities, should be sufficient to support working capital requirements
over the next year.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and notes thereto required by this item are included on
pages F-1 through F-15 as listed in Item 14 of Part IV of this document.
15
<PAGE>
Unaudited quarterly financial data for each of the eight quarters in the two
year period ended December 31, 1996 is as follows:
<TABLE>
<CAPTION>
IN THOUSANDS, EXCEPT PER SHARE DATA 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
- ----------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1996
Net sales $ 9,164 $ 11,005 $ 11,042 $ 8,043
Gross margin 4,523 5,532 5,434 3,859
Net income 58 (1) 521 778 (294)
Net income per share 0.01 0.06 0.09 (0.03)
1995
Net sales $ 8,281 $ 9,453 $ 10,195 $ 7,825
Gross margin 4,008 4,958 5,067 3,623
Net income 652 746 860 252
Net income per share 0.08 0.09 0.10 0.03
</TABLE>
(1) Operating expenses in 1996 include a $612,000 one-time charge for acquired
in-process research and development related to the Gorilla Foods
acquisition.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On April 13, 1995, Wholesome & Hearty Foods, Inc. (the "Company") dismissed its
independent accountant, Grant Thornton LLP ("Grant Thornton"). Such dismissal
was recommended and approved by the Board of Directors of the Company. Grant
Thornton's report on the Company's financial statements for the fiscal year
ending December 31, 1994 contained no adverse opinion or disclaimer of opinion
and was not qualified or modified as to uncertainty, audit scope or accounting
principles. There were no disagreements with Grant Thornton on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure during this one year period nor in any subsequent period
preceding the dismissal. In addition, there were no such events as described
under Item 304(a)(1)(v)(A) through (D) of Regulation S-K during the two most
recent fiscal years or the subsequent period through April 13, 1995.
Also as of April 13, 1995, the Company engaged Arthur Andersen LLP to be its
independent accountant. Except on a limited basis as disclosed below, at no
time during the two most recent fiscal years or subsequent period prior to
engagement has the Company consulted with Arthur Andersen LLP as to (i) the
application of accounting principles to a specified transaction, either
completed or proposed, (ii) the type of audit opinion that might be rendered on
its financial statements or (iii) any matter that was the subject of a
disagreement (as defined in Item 304(a)(1)(iv) of Regulation S-K) or a
reportable event (as described in Item 304(a)(1)(v) of Regulation S-K). In
anticipation of engaging Arthur Andersen LLP, the Company had limited
discussions with Arthur Andersen LLP regarding the accounting for the proposed
acquisition of Gorilla Foods. Arthur Andersen LLP expressed orally to the
Company that based on the preliminary facts and circumstances the proposed
transaction should be accounted for as a purchase. The Company has also
discussed the proposed transaction with Grant Thornton who also believes the
transaction should be accounted for as a purchase. It is the Company's
understanding that Arthur Andersen LLP has also consulted with Grant Thornton in
the process of reaching their conclusion.
16
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this item is included under the captions ELECTION OF
DIRECTORS, EXECUTIVE OFFICERS AND COMPLIANCE WITH SECTION 16(a) OF THE
SECURITIES EXCHANGE ACT OF 1934, respectively, in the Company's Proxy Statement
for its 1997 Annual Meeting of Shareholders and is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item is included under the caption EXECUTIVE
COMPENSATION in the Company's Proxy Statement for its 1997 Annual Meeting of
Shareholders and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is included under the caption SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT in the Company's Proxy
Statement for its 1997 Annual Meeting of Shareholders and is incorporated herein
by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is included under the caption CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS in the Company's Proxy Statement for its
1997 Annual Meeting of Shareholders and is incorporated herein by reference.
17
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) FINANCIAL STATEMENTS
The Financial Statements, together with the reports thereon of Arthur Andersen
LLP and Grant Thornton LLP, are included on the pages indicated below :
Page
----
Report of Arthur Andersen LLP F-1
Report of Grant Thornton LLP F-2
Balance Sheets - December 31, 1996 and 1995 F-3
Statements of Operations for the years ended December 31, 1996,
1995 and 1994 F-4
Statements of Shareholders' Equity - December 31, 1996, 1995 and 1994 F-5
Statements of Cash Flows for the years ended December 31, 1996, 1995 and
1994 F-6
Notes to Financial Statements F-7
FINANCIAL STATEMENT SCHEDULES
The following schedule and report thereon is filed herewith:
Page
----
Report of Independent Public Accountants on Financial Statement Schedule F-16
Schedule II Valuation and Qualifying Accounts F-17
18
<PAGE>
(a) (3) EXHIBITS INCLUDED HEREIN:
Exhibit No.
- -----------
3a Restated Articles of Incorporation (3) ----
3b Amendment No. 1 to Restated Articles of Incorporation (1) ----
3c Amendment No. 2 to Restated Articles of Incorporation (6) ----
3d 1995 Restated Bylaws (7) ----
4 Instruments defining the rights of security holders.
See Article II, Sections 3, 4 and 5 of Restated
Articles of Incorporation and Article I of 1995
Restated Bylaws (3) (7) ----
10a Business Loan Agreement with Bank of America re: Lines
of Credit, dated March 22, 1996 (6) ----
10b Plant Lease-1416 S.E. 8th, Portland, Oregon (1) ----
10c Office Lease-975 S.E. Sandy Blvd., Portland, Oregon (4) ----
10d Consent to Assignment and Option to purchase 1005 S.E.
Washington, Portland, Oregon (1) ----
10e Morrison Plaza Office Lease, dated October 29, 1996.
10f Purchase and Sale Agreement and Receipt For Earnest
Money Between the Iseli Family Partnership, an Oregon
Partnership (Seller) and the Company (Buyer), as
amended, dated May 8, 1995 (6) ----
10g 1992 Employee Incentive Stock Option Plan (1) ----
10h 1992 First Amended and Restated Combination Stock
Option Plan (4) ----
10i Lyle Hubbard employment agreement, dated April 14, 1996.
10j Employment Agreement and Amendment thereto-Mr. Wenner (1) ----
10k Paul F. Wenner Stock Option Agreement (2) ----
10l Executive Officer Termination Agreement
10m Form of indemnification Agreement between the Company
and its Officers and Directors (3) ----
10n Plan and Agreement of Reorganization by Exchange by
the Company of Its Voting Stock for Substantially All
The Properties of Gorilla Foods, Inc., dated
January 31, 1996 (6) ----
19
<PAGE>
Exhibit No.
- -----------
10o 1997 Executive Bonus Plan
10p Consulting agreement between the Company and E. Kay
Stepp, dated November 1, 1996.
10q Rights Agreement between the Company and First Chicago
Trust Company of New York, dated April 25, 1996 (8) ----
11 Statement regarding computation of per share earnings
16 Letter re: change in certifying accountant (5) ----
23a Consent of Arthur Andersen LLP
23b Consent of Grant Thornton LLP
24a Power of attorney of Thomas D. Henrion
24b Power of attorney of Ralph M. Kovel
24c Power of attorney of Mary O. McWilliams
24d Power of attorney of Michael L. Ray
24e Power of attorney of E. Kay Stepp
24f Power of attorney of Michael D. Wagoner
24g Power of attorney of Paul F. Wenner
27 Financial Data Schedule
(1) Incorporated by reference to the Company's Form S-1 Registration Statement
(Commission File No. 33-46623) as filed with the Securities and Exchange
Commission on May 6, 1992.
(2) Incorporated by reference to the Company's fiscal year ended December 26,
1992 Form 10-K Annual Report as filed with the Securities and Exchange
Commission on March 23, 1993.
(3) Incorporated by reference to the Company's fiscal year ended December 25,
1993 Form 10-K Annual Report as filed with the Securities and Exchange
Commission on March 23, 1994.
(4) Incorporated by reference to the Company's fiscal year ended December 31
1994 Form 10-K Annual Report as filed with the Securities and Exchange
Commission on March 30, 1995.
(5) Incorporated by reference to the Company's Form 8-K/A dated April 13, 1995
as filed with the Securities and Exchange Commission on May 5, 1995.
(6) Incorporated by reference to the Company's fiscal year ended December 31,
1995 Form 10-K Annual Report as filed with the Securities and Exchange
Commission on March 29, 1996.
(7) Incorporated by reference to the Company's Form 10-Q for the quarter ended
September 30, 1996, as filed with the Securities and Exchange Commission on
November 4, 1996.
(8) Incorporated by reference to the Company's Form 8-K, as filed with the
Securities and Exchange Commission on May 8, 1996.
(b) REPORTS ON FORM 8-K.
No reports on Form 8-K were filed during the quarter ended December 31,
1996.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: March 17, 1997
--------------
WHOLESOME & HEARTY FOODS, INC.
By:/s/ LYLE G. HUBBARD
-------------------
Lyle G. Hubbard
Director, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities on March 17, 1997.
Signature Title
/s/ LYLE G. HUBBARD Director, President and Chief Executive Officer
- ------------------------- (Principal Executive Officer)
Lyle G. Hubbard
/s/ RICHARD C. DIETZ Executive Vice President,
- ------------------------- Chief Financial Officer, Treasurer and Secretary
Richard C. Dietz (Principal Financial and Accounting Officer)
* THOMAS D. HENRION Director
- -------------------------
Thomas D. Henrion
* RALPH M. KOVEL Director
- -------------------------
Ralph M. Kovel
* MARY O. MCWILLIAMS Director
- -------------------------
Mary O. McWilliams
* MICHAEL L. RAY Director
- -------------------------
Michael L. Ray
* E. KAY STEPP Chairman of the Board
- -------------------------
E. Kay Stepp
* MICHAEL D. WAGONER Director
- -------------------------
Michael D. Wagoner
* PAUL F. WENNER Founder, Senior Chairman of the Board
- ------------------------- and Chief Creative Officer
Paul F. Wenner
* BY:/s/ RICHARD C. DIETZ
- -------------------------
Richard C. Dietz, Attorney-in-fact
21
<PAGE>
Report of Independent Public Accountants
To the Board of Directors and Shareholders of
Wholesome & Hearty Foods, Inc.:
We have audited the accompanying balance sheets of Wholesome & Hearty Foods,
Inc. (an Oregon corporation) as of December 31, 1996 and 1995 and the related
statements of operations, shareholders' equity and cash flows for each of the
two years in the period ended December 31, 1996. 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. The
financial statements of Wholesome & Hearty Foods, Inc. for the year ended
December 31, 1994 were audited by other auditors whose report dated February 20,
1995 expressed an unqualified opinion.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 Wholesome & Hearty Foods, Inc.
as of December 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the two years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Portland, Oregon,
February 7, 1997
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Wholesome & Hearty Foods, Inc.
We have audited the accompanying statements of operations, shareholders' equity
and cash flows of Wholesome & Hearty Foods, Inc. (an Oregon corporation) for the
year ended December 31, 1994. 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 results of operations and cash flows of Wholesome &
Hearty Foods, Inc. for the year ended December 31, 1994, in conformity with
generally accepted accounting principles.
GRANT THORNTON LLP
Portland, Oregon
February 20, 1995
F-2
<PAGE>
WHOLESOME AND HEARTY FOODS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents (Note 1) $ 7,755,000 $ 9,247,000
Accounts receivable, net of allowances of
$177,000 and $120,000 (Note 1) 2,800,000 2,941,000
Inventories, net (Notes 1 and 2) 4,790,000 1,562,000
Prepaid expenses 378,000 197,000
Income taxes receivable 653,000 -
Deferred income tax benefit (Note 6) 470,000 156,000
------------ ------------
Total Current Assets 16,846,000 14,103,000
Property, Plant and Equipment, net of accumulated
depreciation of $1,220,000 and $828,000 (Note 3) 6,814,000 4,937,000
Other Assets, net of accumulated amoritization of
$122,000 and zero 1,274,000 285,000
------------ ------------
Total Assets $ 24,934,000 $ 19,325,000
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Income taxes payable (Note 6) $ - $ 269,000
Accounts payable 2,173,000 1,039,000
Payroll and related liabilities payable 458,000 408,000
Accrued employee bonuses 221,000 112,000
Accrued relocation 178,000 -
Accrued brokers' commissions 199,000 205,000
Other current liabilities 224,000 92,000
------------ ------------
Total Current Liabilities 3,453,000 2,125,000
Deferred Income Taxes (Note 6) 502,000 245,000
Commitments and Contingencies (Notes 5 and 12)
Shareholders' Equity:
Preferred Stock, no par value, 5,000,000 shares authorized;
none issued (Note 9) - -
Series A Junior Participating Preferred Stock, no par value,
250,000 shares authorized; none issued (Note 9) - -
Common Stock, no par value, 25,000,000 shares authorized;
shares issued and outstanding: 8,566,456 and 7,701,456 8,468,000 7,603,000
Additional paid-in capital 4,139,000 2,053,000
Retained earnings 8,372,000 7,299,000
------------ ------------
Total Shareholders' Equity 20,979,000 16,955,000
------------ ------------
Total Liabilities and Shareholders' Equity $ 24,934,000 $ 19,325,000
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-3
<PAGE>
WHOLESOME AND HEARTY FOODS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Year Ended December 31,
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Net sales $ 39,254,000 $ 35,754,000 $ 23,736,000
Cost of goods sold 19,906,000 18,098,000 11,391,000
------------- ------------- -------------
Gross margin 19,348,000 17,656,000 12,345,000
Operating expenses:
Sales and marketing 12,310,000 10,087,000 6,357,000
General and administrative 4,963,000 3,871,000 2,397,000
Acquired in-process research & development 612,000 - -
------------- ------------- -------------
------------- ------------- -------------
17,885,000 13,958,000 8,754,000
------------- ------------- -------------
Operating income 1,463,000 3,698,000 3,591,000
Other income (expense):
Interest income 365,000 284,000 164,000
Interest expense - (1,000) (1,000)
------------- ------------- -------------
------------- ------------- -------------
Other, net (38,000) (130,000) 99,000
327,000 153,000 262,000
------------- ------------- -------------
Income before provision for income taxes 1,790,000 3,851,000 3,853,000
Provision for income taxes 727,000 1,341,000 1,462,000
------------- ------------- -------------
Net income $ 1,063,000 $ 2,510,000 $ 2,391,000
------------- ------------- -------------
------------- ------------- -------------
Net income per share $ 0.12 $ 0.29 $ 0.28
------------- ------------- -------------
------------- ------------- -------------
Shares used in per share calculations 9,065,969 8,638,691 8,577,907
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
WHOLESOME AND HEARTY FOODS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Common Stock Additional Total
------------------------ Paid-In Retained Shareholders'
Shares Amount Capital Earnings Equity
--------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance at December 25, 1993 4,887,858 $ 6,743,000 $ 10,000 $ 2,398,000 $ 9,151,000
Three-for-two stock split 2,443,929 - - - -
--------- ------------ ------------ ------------ -------------
Adjusted Balances, December 25, 1993 7,331,787 6,743,000 10,000 2,398,000 9,151,000
Exercise of Common Stock Options 220,335 394,000 - - 394,000
Exercise of Common Stock Warrants 90,000 175,000 - - 175,000
Income tax benefit of non-qualified stock
option exercises and disqualifying
dispositions - - 1,917,000 - 1,917,000
Net income - - - 2,391,000 2,391,000
--------- ------------ ------------ ------------ -------------
Balance at December 31, 1994 7,642,122 7,312,000 1,927,000 4,789,000 14,028,000
Exercise of Common Stock Options 59,334 291,000 - - 291,000
Income tax benefit of non-qualified stock
option exercises and disqualifying
dispositions - - 126,000 - 126,000
Net income - - - 2,510,000 2,510,000
--------- ------------ ------------ ------------ -------------
Balance at December 31, 1995 7,701,456 7,603,000 2,053,000 7,299,000 16,955,000
Exercise of Common Stock Options 625,000 625,000 - - 625,000
Income tax benefit of non-qualified stock
option exercises and disqualifying
dispositions - - 1,336,000 - 1,336,000
Issuance of shares for acquisition
of Gorilla Foods, Inc. 240,000 240,000 750,000 - 990,000
Foreign currency translation - - - 10,000 10,000
Net income - - - 1,063,000 1,063,000
--------- ------------ ------------ ------------ -------------
Balance at December 31, 1996 8,566,456 $ 8,468,000 $ 4,139,000 $ 8,372,000 $ 20,979,000
--------- ------------ ------------ ------------ -------------
--------- ------------ ------------ ------------ -------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
WHOLESOME AND HEARTY FOODS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Year Ended December 31,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,063,000 $ 2,510,000 $ 2,391,000
Effect of exchange rate on operating accounts 10,000 - -
Adjustments to reconcile net income to net cash flows
provided by (used in) operating activities:
Depreciation and amortization 594,000 334,000 190,000
Acquired in-process research and development, net of tax 386,000 - -
(Gain) loss on sale of fixed assets 52,000 52,000 (85,000)
Deferred income taxes (57,000) (154,000) 107,000
(Increase) decrease in:
Investments - 507,000 1,734,000
Accounts receivable, net 141,000 (519,000) (1,172,000)
Inventories, net (3,228,000) 1,398,000 (1,850,000)
Prepaid expenses (181,000) (60,000) (93,000)
Income taxes receivable, net (922,000) 2,559,000 (2,805,000)
Increase (decrease) in:
Accounts payable 1,134,000 409,000 473,000
Payroll and related liabilities 50,000 178,000 81,000
Other accrued liabilities 413,000 239,000 48,000
------------ ------------ ------------
Net cash provided by (used in) operating activities (545,000) 7,453,000 (981,000)
Cash flows from investing activities:
Payments for purchase of property and equipment (2,428,000) (2,219,000) (851,000)
Proceeds from sale of equipment 26,000 1,000 214,000
Cash paid for Gorilla Foods and Whole Food Marketing (419,000) - -
Other assets, net (87,000) (137,000) (110,000)
------------ ------------ ------------
Net cash used in investing activities (2,908,000) (2,355,000) (747,000)
Cash flows from financing activities:
Payment on equipment option - - (100,000)
Proceeds from exercise of common stock options and warrants 625,000 291,000 569,000
Income tax benefit of non-qualified stock option
exercises and disqualifying dispositions 1,336,000 126,000 1,917,000
------------ ------------ ------------
Net cash provided by financing activities 1,961,000 417,000 2,386,000
Increase (decrease) in cash and cash equivalents (1,492,000) 5,515,000 658,000
Cash and cash equivalents:
Beginning of period 9,247,000 3,732,000 3,074,000
------------ ------------ ------------
End of period $ 7,755,000 $ 9,247,000 $ 3,732,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
WHOLESOME & HEARTY FOODS, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND NATURE OF OPERATIONS
Wholesome & Hearty Foods, Inc. was incorporated in Oregon in 1985 to provide a
line of food products in response to the public's awareness of the importance of
diet to overall health and fitness. Toward this end, the Company developed and
now produces and distributes products which include a variety of frozen,
meatless items that are generally low in cholesterol and fat. The Company's
products are principally sold to retail and institutional customers throughout
the United States.
REPORTING PERIOD
In January 1995 the Company changed from a 52-53 week year for reporting
purposes to a calendar year. The year ended December 31, 1994 consists of 53
weeks.
ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent 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. Management believes that the estimates used
are reasonable.
CASH EQUIVALENTS
Cash equivalents consist of highly liquid investments with maturities at the
date of purchase of 90 days or less.
INVENTORIES
Inventories are valued at standard cost, which approximates the lower of cost
(using the first-in, first-out (FIFO) method), or market, and include materials,
labor and manufacturing overhead.
GOODWILL
Goodwill is being amortized using the straight line method over ten years.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation and amortization
are provided using straight-line and accelerated methods over the estimated
useful lives of the assets. Leasehold improvements are amortized over the lease
term or the estimated useful life of the asset, whichever is shorter. Estimated
useful lives are as follows:
BUILDING AND IMPROVEMENTS 3 - 40 YEARS
OFFICE FURNITURE AND EQUIPMENT 3 - 10 YEARS
MACHINERY AND EQUIPMENT 7 - 30 YEARS
VEHICLES 5 YEARS
F-7
<PAGE>
CONCENTRATIONS OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
The Company invests its excess cash with high credit quality financial
institutions which bear minimal risk and, by policy, limits the amount of credit
exposure to any one financial institution.
For the year ended December 31, 1996, two customers accounted for approximately
23 percent and 12 percent of revenue and 32 percent and 13 percent of the
accounts receivable balance at December 31, 1996, respectively.
For the year ended December 31, 1995, two customers accounted for approximately
23 and 12 percent of revenue and 24 and 8 percent of the accounts receivable
balance at December 31, 1995, respectively.
For the year ended December 31, 1994, two customers accounted for approximately
13 and 13 percent of revenue and 10 and 29 percent of the accounts receivable
balance at December 31, 1994. Historically, the Company has not incurred
significant losses related to its accounts receivable.
REVENUE RECOGNITION
Revenue from the sale of products is generally recognized at time of shipment to
the customer. Promotional and other discounts are accrued for at time of
shipment based on historical experience.
ADVERTISING COSTS
Advertising costs are expensed as incurred. Advertising expense was
approximately $1,539,000, $871,000 and $670,000 in 1996, 1995 and 1994,
respectively.
SLOTTING FEES
Slotting costs associated with new products or new territories are deferred and
amortized over the twelve month period following the initial introductions.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred. Research and
development expense was approximately $1.0 million in 1996, which includes a
one-time charge of $612,000 of in-process research and development in
conjunction with the acquisition of Gorilla Foods (see Note 7). The amount spent
on such activities during 1995 and 1994 was immaterial.
NET INCOME PER SHARE
Net income per share is computed using the weighted average number of common and
dilutive common equivalent shares outstanding. Fully diluted earnings per share
is not significantly different from primary earnings per share for the periods
presented.
RECLASSIFICATIONS
Certain amounts in the prior year financial statements have been reclassified to
conform to the current year presentation.
F-8
<PAGE>
2. INVENTORIES
Detail of inventory at December 31, 1996 and 1995 is as follows:
December 31, 1996 1995
- --------------------------------------------- ----------- -----------
Raw materials $ 670,000 $ 391,000
Packaging and supplies 243,000 171,000
Finished goods 3,877,000 1,000,000
----------- -----------
$ 4,790,000 $ 1,562,000
----------- -----------
----------- -----------
3. PROPERTY, PLANT AND EQUIPMENT
December 31, 1996 1995
- --------------------------------------------- ----------- -----------
Land $ 787,000 $ 787,000
Building and improvements 1,968,000 1,175,000
Machinery and equipment 3,825,000 2,809,000
Vehicles 49,000 47,000
Office furniture and equipment 1,405,000 947,000
----------- -----------
8,034,000 5,765,000
Less accumulated depreciation (1,220,000) (828,000)
----------- -----------
$ 6,814,000 $ 4,937,000
----------- -----------
----------- -----------
4. LINE-OF-CREDIT
The Company has a $5,000,000 unsecured line-of-credit agreement with a
commercial bank with interest at the bank's reference rate or, at the Company's
election, LIBOR plus 1.0 percent on amounts of $500,000 or more. This line-of-
credit expires on July 1, 1997. At December 31, 1996, the bank's reference rate
was 8.25 percent. There was no balance outstanding under this line at
December 31, 1996.
5. LEASE COMMITMENTS
Future minimum lease payments at December 31, 1996 were as follows:
Year Ended December 31,
- ---------------------------------------------
1997 $ 498,000
1998 338,000
1999 66,000
-----------
Total $ 902,000
Rental expense for the years ended December 31, 1996, 1995 and 1994 was
$257,000, $180,000 and $80,000, respectively.
F-9
<PAGE>
6. INCOME TAXES
The Company accounts for income taxes under Statement of Financial Accounting
Standards 109, ACCOUNTING FOR INCOME TAXES. The Company realizes tax benefits
as a result of the exercise of nonqualified stock options and the exercise and
subsequent sale of certain incentive stock options (disqualifying dispositions).
For financial reporting purposes, any reduction in income tax obligations as a
result of these tax benefits is credited to paid-in capital. Tax benefits of
$1,336,000, $126,000 and $1,917,000 were credited to paid-in capital in 1996,
1995 and 1994, respectively.
The provision for income taxes is as follows:
December 31, 1996 1995 1994
- ----------------------------------- --------- ----------- -----------
CURRENT:
Federal $ 616,000 $ 1,309,000 $ 1,061,000
State 168,000 186,000 294,000
--------- ----------- -----------
784,000 1,495,000 1,355,000
DEFERRED (57,000) (154,000) 107,000
--------- ----------- -----------
$ 727,000 $ 1,341,000 $ 1,462,000
--------- ----------- -----------
--------- ----------- -----------
Total deferred income tax assets were $507,000 and $342,000 and liabilities were
$539,000 and $431,000, at December 31, 1996 and 1995, respectively.
Individually significant temporary differences include inventory reserves and
UniCap which are booked as deferred tax assets of $105,000 and $133,000 at
December 31, 1996, respectively and book/tax depreciation differences which are
recorded as deferred liabilities of $517,000 and $356,000 at December 31, 1996
and 1995, respectively. There are no other individually significant temporary
differences at December 31, 1996 or 1995. The Company's deferred tax assets are
realizable as a result of past income and available income tax carrybacks.
The reconciliation between the effective tax rate and the statutory federal
income tax rate is as follows:
December 31, 1996 1995 1994
- ---------------------------------------------- ---- ---- ----
Statutory federal income tax rate 34.0% 34.0% 34.0%
State taxes, net of federal income tax benefit 5.9 3.4 4.0
Tax exempt interest and dividends (4.0) (2.3) (1.4)
Trademark and goodwill amortization 2.0 -- --
Revision of prior year estimates 2.0 -- --
Other 0.7 (0.3) 1.3
---- ---- ----
Effective tax rate 40.6% 34.8% 37.9%
---- ---- ----
---- ---- ----
F-10
<PAGE>
7. ACQUISITIONS
In January 1996 the Company completed the acquisition of Ojai, California based
Gorilla Foods, Inc., a privately held developer and manufacturer of wheat
protein-based, meatless food products, including the GardenDog. The
transaction, accounted for under the purchase method, provided for the issuance
of 240,000 shares of the Company's Common Stock in exchange for all outstanding
common shares of Gorilla Foods, and $68,750 in cash. In addition, up to an
additional 200,000 certain contingent shares of the Company could be issued in
50,000 share increments contingent upon meeting certain sales performance levels
of wheat protein-based products over the next five years. This transaction has
enabled the Company to broaden its product line by owning the recipe for the
GardenDog and other future wheat gluten protein-based products to be developed
for the meat analog, whole food product market. Prior to the acquisition of
Gorilla Foods, the Company purchased the GardenDog directly from Gorilla Foods.
The Company incurred a one-time charge of $612,000 in the first quarter of 1996
as a result of the acquisition of in process research and development associated
with this acquisition, with the remainder of the purchase price principally
allocated to goodwill.
In a separate transaction, the Company completed the acquisition of the assets
of Whole Food Marketing, Inc., a Southern California-based food broker of the
Company's and Gorilla Foods' products. The Company paid $350,000 for the assets
of Whole Food Marketing, Inc., all of which was allocated to goodwill. This
acquisition was accounted for under the purchase method.
Pro forma financial information has not been provided for these acquisitions as
the pro forma results are not materially different from actual results.
8. RELATED PARTY TRANSACTIONS
The Company leases its S.E. 8th Avenue plant facility from the Company's Chief
Creative Officer and one other shareholder. This lease agreement provides for a
$1,700 monthly payment. The lease provides for cancellation, without penalty,
by either party with a 60-day notice.
9. SHAREHOLDERS' EQUITY
PREFERRED STOCK
The Company has authorized 5,000,000 shares of preferred stock. Such stock may
be issued by the Board of Directors in one or more series, with the preferences,
limitations and rights of each series to be determined by the Board of
Directors.
PREFERRED SHARE PURCHASE RIGHTS
In April 1996, the Company declared a dividend distribution of one preferred
share purchase right on each outstanding share of the Company's Common Stock.
Each right will entitle shareholders to buy one one-hundredth of a share of
newly created Series A Junior Participating Preferred Stock of the Company at an
exercise price of $47. The rights will be exercisable if a person or group
acquires 15 percent or more of the
F-11
<PAGE>
Company's Common Stock or announces a tender offer for 15 percent or more of the
Common Stock. The Company's Board of Directors is entitled to redeem the rights
at $.01 per right at any time before a person has acquired 15 percent or more of
the outstanding Common Stock.
COMMON STOCK SPLITS
On February 18, 1994, the Company effected a three-for-two Common Stock split.
All share and per share amounts have been retroactively adjusted to reflect the
stock splits.
STOCK OPTIONS AND WARRANTS
On March 10, 1992, the Company granted a non-statutory stock option to its Chief
Executive Officer exercisable for 1,650,000 shares of the Company's Common
Stock. Such option is exercisable for a period of ten years from the date of
grant at an exercise price of $1.00 per share, the fair market value of the
Company's Common Stock on the date of grant. At December 31, 1996, an option to
purchase 1,025,000 shares of Common Stock was outstanding, all of which was
exercisable. At December 31, 1996, 1,025,000 shares of the Company's Common
Stock were reserved for issuance under this option grant.
Also in 1992, the Company granted a non-statutory stock option to a consultant
of the Company exercisable for 150,000 shares of the Company's Common Stock at
$1.50 per share, the fair market value of the Company's Common Stock on the date
of grant. Such option was exercised in full in 1994.
In addition, the Company has a 1992 First Amended and Restated Combination Stock
Option Plan (the "Plan") which provides for the issuance of incentive stock
options ("ISOs") to employees and officers of the Company and non-statutory
stock options ("NSOs") to employees, officers, directors and consultants of the
Company. Under the Plan, the exercise price of an ISO cannot be less than the
fair market value on the date of grant and the exercise price of an NSO cannot
be less than 85 percent of fair market value on the date of grant. Options
granted under the Plan generally vest three to five years from the date of grant
and generally expire ten years from the date of grant. At December 31, 1996,
the Company had 2,132,817 shares of Common Stock reserved for issuance under the
Plan. At December 31, 1996, 549,580 shares were exercisable.
Activity under the Plan is summarized as follows:
<TABLE>
<CAPTION>
Shares Available Shares Subject Exercise Price Per
for Grant to Options Share
---------------- -------------- ------------------
<S> <C> <C> <C>
Balances, December 25, 1993 549,997 212,461 $ 1.00 - 6.87
Options granted (125,800) 125,800 11.00 - 13.25
Options canceled 35,200 (35,200) 4.16 - 5.25
Options exercised -- (70,307) 1.00 - 5.25
---------- ---------- ---------------
Balances December 31, 1994 459,397 232,754 $ 1.00 - 13.25
Additional shares reserved 1,500,000 -- --
Options granted (326,066) 326,066 9.56 - 13.13
Options canceled 13,337 (13,337) 1.00 - 11.75
Options exercised -- (59,334) 1.00 - 11.75
---------- ---------- ---------------
Balances, December 31, 1995 1,646,668 486,149 $ 1.50 - 13.25
Options granted (886,300) 886,300 6.50 - 8.69
Options canceled 15,333 (15,333) 11.50 - 11.75
Options exercised -- -- --
---------- ---------- ---------------
Balances, December 31, 1996 775,701 1,357,116 $ 1.50 - 13.25
---------- ---------- ---------------
---------- ---------- ---------------
</TABLE>
F-12
<PAGE>
The 1,200,000 units sold in the initial public offering (IPO) each included two
shares of Common Stock and one warrant to purchase one share of Common Stock at
$2.25 per share. Also included in the IPO were warrants issued to the
underwriters that provided for the purchase of 120,000 units at $3.60 per unit.
During 1994, the remaining 90,000 warrants were exercised at prices ranging from
$1.80 to $2.25 per share. There were no other warrant transactions during the
three year period ended December 31, 1996 and no warrants were outstanding at
December 31, 1996.
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 123
During 1995, the Financial Accounting Standards Board issued SFAS 123 which
defines a fair value based method of accounting for an employee stock option and
similar equity instruments and encourages all entities to adopt that method of
accounting for all of their employee stock compensation plans. However, it also
allows an entity to continue to measure compensation cost for those plans using
the method of accounting prescribed by APB 25. Entities electing to remain with
the accounting in APB 25 must make pro forma disclosures of net income and, if
presented, earnings per share, as if the fair value based method of accounting
defined in SFAS 123 had been adopted.
The Company has elected to account for its stock-based compensation plans under
APB 25; however, the Company has computed, for pro forma disclosure purposes,
the value of all options granted during 1996 and 1995 using the Black-Scholes
option pricing model as prescribed by SFAS 123 using the following weighted
average assumptions for grants:
For the Year Ended December 31, 1996 1995
------- -------
Risk-free interest rate 6.0% 6.0%
Expected dividend yield 0% 0%
Expected lives 8 years 8 years
Expected volatility 60.94% 64.51%
Using the Black-Scholes methodology, the total value of options granted during
1996 and 1995 was $4,762,000 and $2,721,000, respectively, which would be
amortized on a pro forma basis over the vesting period of the options (typically
four years). The weighted average fair value of options granted during 1996 and
1995 was $5.42 and $8.34, respectively. If the Company had accounted for its
stock-based compensation plans in accordance with SFAS 123, the Company's net
income and net income per share would approximate the pro forma disclosures
below:
For the Year Ended December 31, 1996 1995
-------------------- ----------------------
As Pro As Pro
Reported Forma Reported Forma
---------- --------- ---------- ---------
Net income (loss) $1,063,000 $(299,000) $2,510,000 $1,046,000
Net income (loss) per share $ 0.12 $ (0.04) $ 0.29 $ 0.12
F-13
<PAGE>
The effects of applying SFAS 123 in this pro forma disclosure are not indicative
of future amounts. SFAS 123 does not apply to awards prior to January 1, 1995,
and additional awards are anticipated in future years.
The following table summarizes information about stock options outstanding at
December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ---------------------------------------------------------------- -------------------------
Weighted
Average Weighted Number of Weighted
Range of Number Remaining Average Shares Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices at 12/31/96 Life Price at 12/31/96 Price
- --------------- ----------- ----------- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 1.00 - 1.50 1,047,500 5.0 $ 1.01 1,047,500 $ 1.01
3.08 - 5.00 18,450 6.2 3.76 18,450 3.76
6.51 - 8.69 898,300 9.2 7.89 176,094 7.57
9.56 - 11.75 362,866 7.8 11.58 278,202 11.54
11.76 - 13.25 55,000 8.2 13.00 54,334 13.00
-------------- --------- --- ------ --------- ------
$ 1.00 - 13.25 2,382,116 6.9 $ 5.51 1,574,580 $ 4.05
-------------- --------- --- ------ --------- ------
-------------- --------- --- ------ --------- ------
</TABLE>
10. 401(k) PLAN
The Company has a 401(k) Salary Deferral Plan which covers all employees who
have reached the age of 18. The covered employees may elect to have an amount
deducted from their wages for investment in a retirement plan. The Company
matches 100 percent of employee contributions up to two percent. The Company's
contribution to this plan was approximately $74,000 in 1996, $51,000 in 1995 and
$22,000 in 1994.
11. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosure of cash flow information is as follows:
1996 1995 1994
- --------------------------------------------- ---------- ------- ----------
Cash paid during the period for interest $ -- $ 1,000 $ 5,000
Cash paid during the period for income taxes 1,062,000 96,000 2,266,000
Issuance of Common Stock in exchange for
the assets of Gorilla Foods, Inc. 990,000 -- --
F-14
<PAGE>
12. COMMITMENTS AND CONTINGENCIES
NEW FACILITY
During 1995, the Company purchased a 16.6 acre parcel of real estate in
proximity to Portland International Airport with the intent of building a new
facility that would house both production and administrative functions.
Currently, the company is exploring the feasibility of building such a facility
and financing alternatives ranging from working capital, conventional long-term
debt and leasing. However, no firm commitments on such financing have been made
at this date. The Company had firm purchase commitments of $120,000 related to
such facility at December 31, 1996.
LITIGATION
During the third quarter of 1996, the Company announced the settlement of a
lawsuit brought by a former sales executive, that alleged numerous claims
relating to his employment at the Company. This employee alleged damages of
more than $21 million but settled for $85,000, a substantial portion of which
was paid by the Company's officer and director liability insurance policy. The
Company is currently seeking recovery of its costs incurred in defending the
litigation from its insurance carrier. All defense costs have been expensed as
incurred in the accompanying statement of operations. No anticipated recoveries
have been reflected in the accompanying financial statements given uncertainty
as to the ultimate outcome.
F-15
<PAGE>
Report of Independent Public Accountants
on Financial Statement Schedule
We have audited in accordance with generally accepted auditing standards, the
financial statements included in Wholesome & Hearty Foods, Inc.'s Form 10-K, and
have issued our report thereon dated February 7, 1997. Our audit was made for
the purpose of forming an opinion on those statements taken as a whole. The
schedule listed on page 15 is the responsibility of the Company's management and
is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in our audit of
the basic financial statements and, in our opinion, fairly states, in all
material respects, the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Portland, Oregon,
February 7, 1997
F-16
<PAGE>
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- --------------------------------------------- ------------ -------------------------------- ------------ ---------
Balance Charged Charged to Balance
at Beginning to Costs and Other Accounts - Deductions - at End
Description of Period Expenses Describe Describe (b) of Period
- --------------------------------------------- ------------ ------------ ---------------- ------------ ---------
<S> <C> <C> <C> <C>
Year Ended December 31, 1995 (a):
Reserves deducted from asset accounts:
Allowance for uncollectible accounts $ 50,000 $ 72,000 $ - $ 2,000 $ 120,000
Year Ended December 31, 1996:
Reserves deducted from asset accounts:
Allowance for uncollectible accounts $ 120,000 $ 70,000 $ - $ 13,000 $ 177,000
</TABLE>
(a) Balances and amounts charged to and deducted from such account were not
material for the year ended December 31, 1994.
(b) Charges to the account included in this column are for the purposes for
which the reserve was created.
F-17
<PAGE>
EXHIBIT 10e
MORRISON PLAZA OFFICE LEASE
This lease, made and entered into at Portland, Oregon
this October 29, 1996
by and between
AMERICAN PROPERTY MANAGEMENT CORP., as LESSOR, and
WHOLESOME & HEARTY FOODS, INC. AN OREGON CORPORATION, as LESSEE.
AMERICAN PROPERTY MANAGEMENT CORP. ACCOUNT #C-8923-02
LESSOR hereby leases to LESSEE the following:
SUITE #400 (THE PREMISES) CONSISTING OF 18,850 RENTABLE SQUARE FEET
in the Morrison Plaza Office Building
(the Building) at 1411 S.W. Morrison Street, Portland OR 97205
for a term commencing December 6, 1996
and continuing through December 31, 1998;
at a Base Rental of $18,850.00 (U.S.) per month
payable in advance on the first day of each month at
2154 N.E. Broadway, Suite #200, Portland, Oregon 97232-1561
commencing December 6, 1996.
LESSOR INITIAL_____ LESSEE INITIAL_____
LESSOR and LESSEE covenant and agree as follows:
<PAGE>
1.1 THE PREMISES
The Premises square footage is an approximation only and may vary
from the actual square footage. Prior to occupancy LESSEE may inspect
and measure the Leased Premises to confirm the square footage.
Pursuant to paragraph 2.3 below, however, as of occupancy LESSEE shall
be deemed to have accepted the Leased Premises, and will be deemed to
have waived any objection to the square footage approximations set
forth herein.
The Premises include ten (10) private windowed offices with above
standard relights, desks, returns, upper and lower cabinets. The
built-in furniture is the property of the LESSOR and shall remain
intact and in its present condition, subject to normal wear and tear.
The Premises also contain built-in lockers, which are the
property of the LESSOR and shall remain intact.
2.1 DELIVERY OF POSSESSION
Should LESSOR be unable to deliver possession of the Premises on
the date fixed for the commencement date of the term, commencement
will be deferred and LESSEE shall owe no rent until receiving notice
from LESSOR tendering possession to LESSEE. If possession is not so
tendered within 45 days following commencement of the term, then
LESSEE may elect to cancel this lease by providing written notice to
LESSOR within 10 days following expiration of the 45 day period.
LESSOR shall have no liability to LESSEE for delay in delivering
possession, nor shall such delay extend the term of this lease in any
manner.
2.2 EARLY POSSESSION
If LESSEE occupies the Premises prior to said commencement date,
such occupancy shall be subject to all provisions of this LEASE, such
occupancy shall not advance the termination date, and LESSEE shall pay
rent for such period at the initial monthly rates set forth above.
After a LEASE is fully executed, the LESSOR will provide access
for LESSEE inspections (including but not limited to electrical and
phone capabilities) and wiring in the Premises prior to LESSEE move
in.
2.3 ACCEPTANCE OF LEASED PREMISES
Except as may be provided for in any exhibit, appendix or rider
hereto, occupancy shall be construed to mean that LESSEE expressly
acknowledges that it has fully inspected the Leased Premises and
accepts the Leased Premises in their present condition. LESSEE
further acknowledges LESSOR shall not be responsible for any
alternations, improvements or repairs unless by written agreement of
the parties, attached to and made a part of this Lease.
LESSOR INITIAL_____ LESSEE INITIAL_____
<PAGE>
3.1 RENT PAYMENT
LESSEE shall pay the Base Rent for the Premises and any
additional rent provided herein without deduction or offset. Rent for
any partial month during the lease term shall be prorated to reflect
the number of days during the month that LESSEE occupies the Premises
based on a thirty (30) day month/365 day year. Rent not paid when due
shall bear interest at the rate of one-and-one-half percent (1 1/2%)
per month until paid in full. LESSOR may at its option impose a late
charge of .05 for each $1 of rent or $50.00, whichever is greater, for
rent payments made more than 10 days after its due date in lieu of
interest for the first month of delinquency, without waiving any other
remedies available for default.
4.1 LEASE CONSIDERATION
Upon LESSEE'S execution of the LEASE, LESSEE shall pay the Base
Rent for the first full month of the LEASE term for which rent is
payable and in addition shall pay the sum of $18,850.00, as LEASE
CONSIDERATION. LESSOR may apply the LEASE CONSIDERATION to pay the
cost of performing any obligation which LESSEE fails to perform within
the time required by this LEASE, but such application by LESSOR shall
not be the exclusive remedy for the LESSEE'S default. If the LEASE
CONSIDERATION is applied by LESSOR, LESSEE shall on demand pay the sum
necessary to replenish the LEASE CONSIDERATION to its required amount.
To the extent not applied by LESSOR to cure defaults by LESSEE, the
LEASE CONSIDERATION shall be applied against the rent payable for the
last month of the term. The LEASE CONSIDERATION shall not be
refundable. When the Base Rent is adjusted per the terms of this
LEASE, an additional amount shall be paid to bring the LEASE
CONSIDERATION amount equal to the newly adjusted Base Rent amount.
5.1 USE
LESSEE shall use the Premises for professional business office
use only (see exception below) with no retail sales or manufacturing
and for no other purpose without LESSOR'S consent. In connection with
its use, LESSEE shall at its expense promptly comply with all
applicable laws, ordinances, rules and regulations of any public
authority and shall not annoy, obstruct, or interfere with the rights
of the other tenants of the Building. LESSEE shall create no nuisance
nor allow any objectionable fumes, noise, or vibrations to be emitted
from the Premises. LESSEE shall not conduct any activities that will
increase LESSOR'S insurance rates for any portion of the Building or
that will in any manner degrade or damage the reputation of the
Building.
The LESSOR shall approve a "LESSEE test kitchen" in the Premises
as long as; 1.) the "test kitchen" is in compliance and stays in
compliance with all applicable building codes, fire codes and health
codes, 2.) the "test kitchen" does not disturb other tenants in the
building and 3.) the LESSOR approves the
LESSOR INITIAL_____ LESSEE INITIAL_____
<PAGE>
specifications for the "test kitchen". Approval shall not be
unreasonably withheld.
6.1 EQUIPMENT
LESSEE shall install in the Premises only such office equipment
as is customary for general office use (see exception below) and shall
not overload the weight capacity of the floors or the capacity of the
electrical circuits of the Premises or Building or alter the plumbing
or wiring of the Premises or Building. LESSOR must approve, in
advance, the location and manner of installing any electrical, heat
generating or communication equipment or exceptionally heavy articles.
Any additional air conditioning required because of heat generating
equipment or special lighting installed by the LESSEE shall be
installed at LESSEE'S expense.
The LESSOR shall approve a "LESSEE test kitchen equipment" in the
Premises as long as; 1.) the "test kitchen equipment" is in compliance
and stays in compliance with all applicable building codes, fire codes
and health codes, 2.) the "test kitchen equipment" does not disturb
other tenants in the building and 3.) the LESSOR approves the
specifications of the "test kitchen equipment". Approval shall not be
unreasonably withheld.
7.1 SIGNS
Except for the exterior painted sign described below, no signs,
awnings, antennas, or other apparatus shall be painted on or attached
to the Building or anything placed on any glass or woodwork of the
Premises or positioned so as to be visible from outside the Premises
without LESSOR'S written approval as to design, size, location and
color. All signs installed by LESSEE shall comply with LESSOR'S
standards for signs and all applicable codes and ordinances and all
signs and sign hardware shall be removed upon termination of this
LEASE with the sign location restored to its former state unless
LESSOR elects to retain all or any portion thereof. LESSOR shall
provide and install building standard signage in the name of the
LESSEE as it appears in this lease agreement for the building lobby
and suite entry. Any changes thereafter requested by LESSEE and
approved by LESSOR shall be at LESSEE'S sole expense.
The LESSEE shall be permitted, at their expense, to paint the
name "Wholesome & Hearty Foods, Inc." (color and letter style to be
mutually agreed by LESSOR and LESSEE) directly above the existing
building name on the North side of the building. The letter size
shall be one-half the size of the existing building letters. The
LESSEE shall be responsible for removing their signage at the end of
their Lease term.
8.1 UTILITIES AND SERVICES
LESSOR shall furnish heat, electricity, elevator service, and if
the Premises are air conditioned, air conditioning during the normal
Buildings hours of 7:00 A.M. to 6:00 P.M., Monday through
<PAGE>
Friday, except holidays and 7:00 A.M. to 2:00 P.M. Saturdays, except
holidays. The acceptable temperature range for the Premises is
between 67 degrees to 75 degrees fahrenheit, as measured from the
thermostat level which is approximately sixty inches (60") above the
floor, unless there are extreme weather conditions which create an
unusually hot or cold condition. Janitorial service will be provided
in accordance with the regular schedule of the Building, which
schedule and service may change from time to time. LESSEE shall
comply with all government laws and regulations regarding the use or
reduction of use of utilities on the Premises. Interruption of
services or utilities shall not be deemed an eviction or disturbance
of LESSEE'S use and possession of the Premises, render LESSOR liable
to LESSEE for damages, or relieve LESSEE from performance of LESSEE'S
obligations under this LEASE, but LESSOR shall take all reasonable
steps to correct any interruptions in service. Electrical service
furnished will be 110 volts unless different service already exists in
the Premises. The LESSOR shall only provide repair and maintenance to
building standard florescent light fixtures. The LESSOR shall not be
responsible for repair, maintenance (including light bulb replacement)
for non-building standard light fixtures.
8.2 EXTRA USAGE
If LESSEE uses excessive amounts of LESSOR provided utilities
and/or services of any kind because of operation during normal
Building hours and/or outside of normal Building hours, high demands
from office machinery and equipment, nonstandard lighting or any other
cause, LESSOR may impose a reasonable charge for supplying such extra
utilities and/or services, which charge shall be payable monthly by
LESSEE in conjunction with rent payments. In case of dispute over any
extra charge under this paragraph, LESSOR shall designate a qualified
independent engineer whose decision shall be conclusive on both
parties. LESSOR and LESSEE shall each pay one-half of the cost of
such determination.
LESSEE shall be solely responsible for and promptly pay for the
removal of all debris, cardboard, all and any other refuse generated
in LESSEE'S moving into premises including the replacement of office
furniture and equipment during tenancy and in vacating the premises.
Upon request, LESSOR shall supply LESSEE the name of a recycling
company to remove recyclable items. LESSEE shall pay such additional
charge in full upon receipt of statement.
9.1 MAINTENANCE AND REPAIRS
LESSOR shall have no liability for failure to perform required
maintenance and repair unless written notice of the needed maintenance
or repair is given by LESSEE and LESSOR fails to commence efforts to
remedy the problem in a reasonable time and manner. LESSOR shall have
the right to erect scaffolding and other apparatus necessary for the
purpose of making repairs, and LESSOR shall have no
LESSOR INITIAL_____ LESSEE INITIAL_____
<PAGE>
liability for reasonable interference with LESSEE'S use because of
repairs and installations, nor shall LESSOR be required to provide
LESSEE with advance written notice of LESSOR'S access to the Premises
during the following situations: 1.) in an emergency, 2.) LESSEE
requested repairs, or 3.) during normal building hours. LESSEE shall
have no claim against LESSOR for any interruption or reduction of
services or interference with LESSEE'S occupancy, and no such
interruption or reduction shall be construed as a constructive or
other eviction of LESSEE. Repair of damage caused by negligent or
intentional acts or breach of this lease by LESSEE, its employees, or
invitees shall be at LESSEE'S expense.
10.1 ALTERATIONS
LESSEE shall not make any alterations, additions, or improvements
to the Premises, change the color or character of the interior, or
install any wall or floor covering without LESSOR'S prior written
consent. Any such additions, alterations, or improvements, except for
removable machinery and unattached moveable trade fixtures shall at
once become part of the realty and belong to LESSOR. LESSOR may at
its option require that LESSEE remove any alterations and restore the
Premises to the original condition upon termination of this LEASE.
LESSOR shall have the right to approve the contractor used by LESSEE
for any work in the Premises, and to post notices of nonresponsibility
in connection with any work being performed by LESSEE in the Premises.
LESSEE agrees that any building or fixture modifications within the
LESSEE'S leased space that is required to accommodate the LESSEE,
employees or invitees of the LESSEE, as required by the Americans with
Disabilities Act (ADA), will be at the expense of the LESSEE.
The LESSEE shall not alter any lock or install a new or
additional lock or any bolt on any bolt on any door of the Leased
Premises without prior written consent of the LESSOR. In the event
LESSEE desires to change or modify door locks on the Leased Premises,
LESSEE shall notify LESSOR in advance and shall use LESSOR'S
authorized locksmith and LESSEE shall bear such cost.
11.1 INDEMNITY
LESSEE shall not allow any liens to attach to the Building or
LESSEE'S interest in the Premises as a result of its activities.
LESSEE shall indemnify and defend LESSOR from any claim, liability,
damage, or loss occurring on the Premises, arising out of any activity
by LESSEE, its agents, or invitees or resulting from LESSEE'S failure
to comply with any term or condition of this LEASE. LESSOR shall have
no liability to LESSEE because of loss or damage caused by the acts or
omissions of other tenants of the Building, or by third parties.
12.1 INSURANCE
LESSOR INITIAL_____ LESSEE INITIAL_____
<PAGE>
LESSEE shall carry liability insurance in the amount of no less
than $1,000,000.00 and which insurance shall have an endorsement
naming LESSOR and LESSOR'S agent, if any, as an additional insured and
covering the liability insured under Paragraph 11.1 of this LEASE.
LESSEE shall furnish a certificate evidencing such insurance which
shall state that the coverage shall not be cancelled or materially
changed without 10 days advance written notice to LESSOR and LESSOR'S
agent, if any, and a renewal certificate shall be furnished at least
10 days prior to expiration of any policy. LESSEE is responsible for
their own fire insurance, see Section 14.1.
13.1 FIRE OR CASUALTY
"Major Damage" means damage by fire or other casualty to the
Building or the Premises which causes the Premises or any substantial
portion of the Building to be unusable, or which will cost more than
25 percent (25%) of pre-damage value of the Building to repair, or
which is not covered by insurance. In case of Major Damage, LESSOR
may elect to terminate this LEASE by notice in writing to LESSEE
within 30 days after such date. If this LEASE is not terminated
following Major Damage, LESSOR shall promptly restore the Premises to
the condition existing just prior to the damage. LESSEE shall
promptly restore all damage to tenant improvements or alterations
installed by LESSEE or pay the cost of such restoration to LESSOR if
LESSOR elects to do the restoration of such improvements. Rent shall
be reduced from the date of damage until the date restoration work
being performed by LESSOR is substantially complete, with the
reduction to be in proportion to the area of the Premises not useable
by LESSEE.
14.1 WAIVER OF SUBROGATION
LESSEE shall be responsible for insuring its personal property
and trade fixtures located on the Premises. Neither LESSOR nor LESSEE
shall be liable to the other for any loss or damage caused by fire,
water damage, sprinkler leakage, or any of the risks that are or could
be covered by a standard all risk insurance policy with an extended
coverage endorsement, or for any business interruption, and there
shall be no subrogated claim by one party's insurance carrier against
the other party arising out of any such loss.
15.1 EMINENT DOMAIN
If a condemning authority takes title by eminent domain or by
agreement in lieu thereof to the entire Building or a portion
sufficient to render the Premises unsuitable for LESSEE'S use, then
either party may elect to terminate this LEASE effective on the date
that possession is taken by the condemning authority. Rent shall be
reduced for the remainder of the term in an amount proportionate to
the reduction in the area of the Premises caused by the taking. All
condemnation proceeds shall belong to LESSOR, and LESSEE shall have
LESSOR INITIAL_____ LESSEE INITIAL_____
<PAGE>
no claim against LESSOR or the condemnation award because of the
taking.
16.1 ASSIGNMENT AND SUBLETTING
This LEASE shall bind and inure to the benefit of the parties,
their respective heirs, successors, and assigns, provided that LESSEE
shall not assign its interest under this LEASE or sublet all or any
portion of the Premises without first obtaining LESSOR'S consent in
writing. This provision shall apply to all transfers by operation of
law including but not limited to mergers and changes in control of
LESSEE. No assignment or subletting shall relieve LESSEE of its
obligation to pay rent or perform other obligations required by this
LEASE, and no consent to one assignment or subletting shall be a
consent to any further assignment or subletting. LESSOR shall not
unreasonably withhold its consent to any assignment, or to subletting
provided the subrental rate or effective rental paid by the assignee
is not less than the current scheduled rental rate of the Building for
comparable space and the proposed LESSEE is compatible with LESSOR'S
normal standards for the Building. If LESSEE proposes a subletting or
assignment to which LESSOR is required to consent under this
paragraph, LESSOR shall have the option of terminating this LEASE and
dealing directly with the proposed sublessee or assignee, or any third
party. If an assignment or subletting is permitted, any cash profit,
or the net value of any other consideration received by LESSEE as a
result of such transaction shall be paid to LESSOR promptly following
its receipt by LESSEE unless the assignment or sublease is with an
affiliated or subsidiary company and Wholesome & Hearty Foods, Inc. an
Oregon Corporation remains the LESSEE. In addition, out of pocket
LESSEE tenant improvement costs approved by LESSOR shall be deducted
from any cash profit. LESSEE shall pay any costs incurred by LESSOR
in connection with a request for assignment or subletting, including
reasonable attorneys' fees. The LESSOR'S administrative costs shall
be capped at $500.00.
17.1 DEFAULT
Any of the following shall constitute a default by LESSEE under
this LEASE:
(a) LESSEE'S failure to pay rent or any other charge under this LEASE
within 10 days after it is due, or failure to comply with any other
term or condition within 10 days following written notice from LESSOR
specifying the noncompliance. If such noncompliance cannot be cured
within this 10 day period, the provision shall be satisfied if LESSEE
commences correction within such period and thereafter proceeds in
good faith and with reasonable diligence to effect compliance as soon
as possible. Time is of the essence in the performance of this LEASE.
LESSOR INITIAL_____ LESSEE INITIAL_____
<PAGE>
(b) The making by LESSEE of any general assignment or general
arrangement for the benefit of creditors; or the filing by or against
LESSEE of a petition to have LESSEE adjudged a bankrupt, or a petition
or reorganization or arrangement under any law relating to bankruptcy
(unless, in the case of a petition filed against LESSEE, the same is
dismissed within sixty (60) days); or the appointment of a trustee or
a receiver to take possession of substantially of all LESSEE'S assets
located at the Premises or of LESSEE'S interest in this Lease, where
possession is not restored to LESSEE within thirty (30) days; or the
attachment, execution, or other judicial seizure of substantially all
of LESSEE'S assets located at the Premises or of LESSEE'S interest in
this Lease, where such seizure is not discharged within thirty (30)
days.
(c) Assignment or subletting by LESSEE in violation of Paragraph
16.1.
(d) Vacation or abandonment of the Premises without the written
consent of LESSOR.
17.2 REMEDIES FOR DEFAULT
In case of default as described in Paragraph 17.1, LESSOR shall
have the right to the following remedies which are intended to be
cumulative and in addition to any other remedies provided under
applicable law:
(a) LESSOR may terminate the LEASE and retake possession of the
Premises. Following such retaking of possession, efforts by LESSOR to
relet the Premises shall be sufficient if LESSOR follows its usual
procedure for finding tenants for the space at rates not less than the
current rates for other comparable space in the Building. If LESSOR
has other vacant space in the Building, prospective tenants may be
placed in such other space without prejudice to LESSOR'S claim to
damages or loss of rental from LESSEE.
(b) LESSOR may recover all damages caused by LESSEE'S default which
shall include an amount equal to rentals lost because of the default,
lease commissions paid for this LEASE, the unamortized cost of any
tenant improvements installed by LESSOR to meet LESSEE'S special
requirements and the cost of any clean up, refurbishing, lock changes
and removal of the LESSEE'S property and fixtures. LESSOR may sue
periodically to recover damages as they occur throughout the lease
term, and no action for accrued damages shall bar a later action for
damages subsequently accruing. LESSOR may elect in any one action to
recover accrued damages plus damages attributable to the remaining
term of the lease. Such damages shall be measured by the difference
between the rent under this LEASE and the reasonable rental value of
the Premises for the remainder of the term, discounted to the time of
judgment at the prevailing interest rates on judgments.
LESSOR INITIAL_____ LESSEE INITIAL_____
<PAGE>
(c) LESSOR may make any payment or perform any obligation which
LESSEE has failed to perform, in which case LESSOR shall be entitled
to recover from LESSEE upon demand all amounts so expended, plus
interest from the date of the expenditure at the rate of one-and-one-
half percent (1 1/2%) per month. Any such payment or performance by
LESSOR shall not waive LESSEE'S default.
18.1 SURRENDER
On expiration or early termination of this LEASE, LESSEE shall
deliver all keys to LESSOR to avoid a minimum lock change charge of
$80.00 per lock and surrender the Premises broom clean and in the same
condition as at the commencement date of the term subject only to
reasonable wear from ordinary use. LESSEE shall remove all of its
furnishings and trade fixtures that remain its property and restore
all damage resulting from such removal. Failure to remove shall be an
abandonment of the property and LESSOR may dispose of it in any manner
without liability and LESSEE shall pay a reasonable charge for such
removal and disposal. If LESSEE fails to vacate the Premises when
required, including failure to remove all its personal property,
LESSOR may elect either: (1) to treat LESSEE as a tenant from month
to month, subject to all the provisions of this LEASE except that rent
shall be one-and-one-half (1 1/2) times the total rent being charged
when the lease term expired; or (2) to eject LESSEE from the Premises
and recover damages caused by wrongful holdover. During the period of
sixty (60) days prior to the termination date of this LEASE, the
LESSOR may post on said premises or in the windows thereof signs of
appropriate size notifying the public that the premises are "For
Lease."
19.1 REGULATIONS
LESSOR shall have the right (but shall not be obligated) to make,
revise and enforce regulations or policies consistent with this LEASE
for the purpose of promoting safety, order, economy, cleanliness, and
good service to all tenants of the Building. All such regulations and
policies shall be complied with as if part of this LEASE.
20.1 ACCESS
During times other than normal Building hours LESSEE'S officers
and employees or those having business with LESSEE may be required to
identify themselves or show passes in order to gain access to the
Building. LESSOR shall have no liability for permitting or refusing
to permit access by anyone. The LESSOR shall not be required to give
notice to access the Premises during emergencies, LESSEE requested
repairs or during normal building hours. LESSOR shall have the right
to enter upon the Premises after normal building hours by passkey or
otherwise to determine LESSEE'S compliance with this LEASE, to perform
necessary repairs to the Building or the Premises, examine the
condition of the Leased Space, to show the Premises to any prospective
tenant or purchasers or for any other lawful purpose with at least 24
hours notice. Except in the case of emergency, such entry shall be at
such times and in such manner as to minimize
LESSOR INITIAL_____ LESSEE INITIAL_____
<PAGE>
interference with the reasonable business use of the Premises by
LESSEE.
21.1 FURNITURE AND BULKY ARTICLES
LESSEE shall move furniture and bulky articles in and out of the
Building or make independent use of the elevators only at times
approved by LESSOR following at least 24 hours' advance written notice
to LESSOR of the intended move. LESSOR will not unreasonably withhold
its consent under this paragraph. Items of 1,000 pounds or greater
shall require LESSOR'S approval.
22.1 NOTICES
Notices between the parties relating to this LEASE shall be in
writing, effective when delivered, or if mailed, effective on the
second day following mailing, postage prepaid, to the address for the
party stated in this LEASE or to such other address as either party
may specify by written notice to the other. Notice to LESSEE may
always be delivered to the Premises. Rent shall be payable to LESSOR
at the LESSOR'S address and in the same manner, but shall be
considered paid only when received.
23.1 SUBORDINATION
This LEASE shall be subject and subordinate to any mortgages,
deeds of trust, or land sale contracts (hereafter collectively
referred to as encumbrances) now existing against the Building. At
LESSOR'S option this LEASE shall be subject and subordinate to any
future encumbrance hereafter placed against the Building (including
the underlying land) or any modifications of existing encumbrances,
and LESSEE shall execute such documents as may reasonably be requested
by LESSOR or the holder of the encumbrance to evidence this
subordination.
24.1 TRANSFER OF BUILDING
If the Building is sold or otherwise transferred by LESSOR or any
successor, LESSEE shall attorn to the purchaser or transferee and
recognize it as the LESSOR under this LEASE, and, provided the
purchaser assumes all obligations hereunder, the transferor shall have
no further liability hereunder.
25.1 ESTOPPELS
Either party will within 20 days after written notice from the
other execute, acknowledge and deliver to the other party a
certificate certifying whether or not this LEASE has been modified and
is in full force and effect; whether there are any modifications or
alleged breaches by any other party; the dates to which rent has been
paid in advance, and the amount of any security deposit, LEASE
CONSIDERATION, or prepaid rent; and any other facts that may
reasonably be requested. Failure to deliver the certificate within
the specified time shall be conclusive upon the party of whom the
LESSOR INITIAL_____ LESSEE INITIAL_____
<PAGE>
certificate was requested that the lease is in full force and effect
and has not been modified except as may be represented by the party
requesting the certificate. If requested by the holder of any
Encumbrance, or any ground, LESSOR, LESSEE will agree to give such
holder or LESSOR notice of and an opportunity to cure any default by
LESSOR under this LEASE.
26.1 ATTORNEYS FEES
In any litigation arising out of this LEASE, the prevailing party
shall be entitled to recover, in addition to costs and disbursements,
attorneys' fees at trial and on any appeal.
27.1 QUIET ENJOYMENT
LESSOR warrants that so long as LESSEE complies with all terms of
this LEASE, it shall be entitled to peaceable and undisturbed
possession of the Premises free from any eviction or disturbance by
LESSOR.
28.1 COMPLETE AGREEMENT
This LEASE and the attached Exhibits and Schedules constitute the
entire agreement of the parties and supersede all prior written and
oral agreements and representations. Neither LESSOR nor LESSEE is
relying on any representations other than those expressly set forth
herein.
29.1 CHAIR MATS
N/A DELETED IN ITS ENTIRETY
30.1 PARKING
LESSEE shall have the nonexclusive use of no less than eighteen
(18) spaces for every 18,850 square feet of leased space in the
adjacent lot for use during normal business hours at an initial
monthly rate of $85.00 per space and shall be subject to Provision
#3.1. The cost shall be subject to an annual five percent (5%) fixed
increase. LESSOR has sole control of parking and may designate areas
for patrons of the property/building and assign LESSEE and employees
of the LESSEE to designated parking areas. LESSEE and employees shall
park their cars only in these areas designated for the purpose by the
LESSOR. LESSEE shall furnish to LESSOR license numbers of vehicles
used by the LESSEE and the employees of the LESSEE, and notify LESSOR
of any changes within five (5) days. If LESSEE or its employees fail
to park their vehicles in designated parking areas, then LESSOR may
charge LESSEE an additional twenty dollars ($20.00)
LESSOR INITIAL_____ LESSEE INITIAL_____
<PAGE>
per day per vehicle for each or partial day, in any area other than
those designated, or if the area is signed as a towing area, to have
the vehicle(s) towed at the LESSOR'S option and at the expense of the
LESSEE and its employees.
The LESSEE shall be allowed to have up to eight (8) cars parked
in the adjacent lot evenings and on weekends on a first come first
serve basis. There shall be no overnight storage of vehicles or
trailers in the parking areas or outside of premises. LESSOR may
remove vehicle from property and LESSEE shall bear the cost of such
removal.
The LESSEE acknowledges that the adjacent parking lot may be
developed at which time the LESSOR will not be responsible for
providing the eighteen (18) parking spaces described above. In this
event, the LESSOR will make its best efforts to find parking within a
four (4) block radius of the building.
The LESSEE shall be allowed to use the loading area off of 15th
Street for daily deliveries. The LESSEE agrees to limit
delivery/loading time to 15 minutes per delivery.
31.1 COMMON AREA
LESSOR shall have the right, in LESSOR'S sole discretion, from time to
time:
1.) To make changes to the building interior and exterior and common
areas, including, without limitation, changes in the location, size,
shape, number, and appearance thereof, including but not limited to
the lobbies, windows, stairways, air shafts, elevators, escalators,
restrooms, driveways, entrances, parking spaces, parking areas (not
including adjacent parking), loading and unloading areas, ingress,
egress, direction of traffic, decorative walls, landscaped areas and
walkways;
2.) To close temporarily any of the common areas for maintenance
purposes so long as reasonable access to the premises remains
available;
3.) To designate other land and improvements outside the boundaries
of the building to be a part of the common areas, provided that such
other land and improvements have a reasonable and functional
relationship to the building;
4.) To add additional buildings and improvements to the common area;
5.) To use common areas while engaged in making additional
improvements, repairs or alterations to the building, or any portion
thereof;
6.) To do and perform such other acts and make such other changes in,
to or with respect to the common areas and building as LESSOR may, in
the exercise of sound business judgement deem to be appropriate.
LESSOR INITIAL_____ LESSEE INITIAL_____
<PAGE>
Where the Building has a common entrance or meeting room, the
LESSEE may use these facilities at no cost on a first-come, first-
serve basis by contacting the LESSOR and reserving the room in
advance. Abusing the privilege of the rooms may result in the loss of
said use.
32.1 NOTICE OF NON-RENEWAL
N/A DELETED IN ITS ENTIRETY
33.1 NOTICE TO OWNERS, BUYERS, AND TENANTS REGARDING HAZARDOUS WASTES OR
SUBSTANCES UNDERGROUND STORAGE TANKS
Comprehensive Federal and State laws and regulations have been
enacted in the last few years in an effort to develop controls over
the use, storage, handling, cleanup, removal and disposal of hazardous
wastes or substances. Some of these laws and regulations, such as,
for example, the so-called "Superfund Act", provide for broad
liability schemes wherein an owner, tenant or other user of the
property may be liable for cleanup costs and damages regardless of
fault. Other laws and regulations set standards for the handling of
asbestos or establish requirements for the use, modification,
abandonment or closing of underground storage tanks.
It is not practical or possible to list all such laws and
regulations in this Notice. Therefore, owners, buyers and tenants are
urged to consult legal counsel to determine their respective rights
and liabilities with respect to the issues described in this Notice as
well as all other aspects of the proposed transaction. If
LESSOR INITIAL_____ LESSEE INITIAL_____
<PAGE>
hazardous wastes or substances have been, or are going to be used,
stored, handled or disposed of on the property, or if the property has
or may have underground storage tanks, it is essential that legal and
technical advice be obtained to determine, among other things, what
permits and approvals have been or may be required, if any, the
estimated costs and expenses associated with the use, storage,
handling, cleanup, removal or disposal of the hazardous wastes or
substances and what contractual provisions and protections are
necessary or desirable. It may also be important to obtain expert
assistance for site investigations as to the likelihood of hazardous
wastes or substances, or underground storage tanks being on the
property.
Although AMERICAN PROPERTY MANAGEMENT CORP. will disclose any
knowledge it actually possesses with respect to the existence of
hazardous wastes or substances, or underground storage tanks on the
property, AMERICAN PROPERTY MANAGEMENT CORP. has not made
investigations or obtained reports regarding the subject matter of
this Notice, except as may be described in a separate written document
signed by AMERICAN PROPERTY MANAGEMENT CORP. AMERICAN PROPERTY
MANAGEMENT CORP. makes no representations regarding the existence or
nonexistence of hazardous wastes or substances, or underground storage
tanks on the property. You should contact a professional, such as a
civil engineer, geologist, industrial hygienist or other persons with
experience in these matters to advise you concerning the property.
The term "hazardous wastes or substances" is used in this Notice
in its very broadest sense and includes, but is not limited to
petroleum base products, paints and solvents, lead cyanide, DDT,
printing inks, acids, pesticides, ammonium compounds, asbestos, PCBs
and other chemical products. Hazardous wastes or substances and
underground storage tanks may be present on all types of real
property. This Notice is therefore meant to apply to any transaction
involving any type of real property, whether improved or unimproved.
34.1 MODIFICATION
This LEASE may not be modified except by endorsement in writing
attached to this LEASE, dated and signed by all the parties hereto,
and LESSOR shall not be bound by any oral or written statement of any
servant, agent, or employee modifying this LEASE.
35.1 PARTIES AFFECTED
The rights, liabilities and remedies provided for herein shall
extend to the heirs, legal representatives, successors and, so far as
the terms of this LEASE permit, assigns of the parties hereto, and the
words "LESSOR" and "LESSEE" and their accompanying verbs or pronouns,
wherever used in this LEASE, shall apply equally to all persons,
firms, or corporations which may be or become parties hereto.
LESSOR INITIAL_____ LESSEE INITIAL_____
<PAGE>
36.1 SECURITY
LESSEE and not LESSOR, is responsible for security of the Leased
Space. Any breach in security of the Leased Space, common areas,
common access doors, and/or elevators shall not constitute an eviction
of the LESSEE or relieve LESSEE from any of LESSEE'S obligations under
this LEASE. All tenants shall have the responsibility for maintaining
the security to common access.
37.1 RIGHT TO RELOCATE
N/A DELETED IN ITS ENTIRETY
38.1 RENTAL ADJUSTMENT
The rental will be adjusted on the annual anniversary date of the
LEASE if the LEASE is for a term of one (1) year or longer. On said
anniversary date the rental adjustment will be the lowest of the
following two (2) factors:
(A) A five percent (5%) increase over the yearly rental rate paid the
current year term now expiring.
(B) The percentage increase in the yearly Consumer Price Index for
U.S. City average (all urban consumer), which as of August 1996 was
157.3 and the same Consumer Price Index as of August 1997, and on the
same month of each year of the LEASE term. Such information will be
secured from the U.S. Bureau of Labor Statistics.
An equal amount shall be paid to bring the LEASE CONSIDERATION up to
an equal amount of the current month's rent.
38.2 RENTAL ADJUSTMENT DATES
December 1, 1997
December 1, 1998
LESSOR INITIAL_____ LESSEE INITIAL_____
<PAGE>
39.1 SMOKING - ENTIRE
NON-SMOKING BUILDING
The building in which the LEASED space is located has been
designated as an entire NON-SMOKING building. This includes ALL areas
of the building, both common areas as well as individual tenant
spaces. Thus, smoking in the LEASED area is not permitted. Because
of the fact that some tenants' leases were in existence prior to the
adoption of the entire building non-smoking policy, these tenants have
the right, if they choose, to smoke in their LEASED space only, but do
have a LEASE obligation to provide smokeless ashtrays and/or an air
purification system that will filter air within the space to the
extent that it is economically feasible. LEASES for all new tenants
moving into the building will incorporate the entire non-smoking
building policy and will prohibit these new tenants under their LEASE
from smoking in all areas of the building.
40.1 WAIVER
Any waiver by the LESSOR of any breach of any covenant herein
contained to be kept and performed by the LESSEE shall not be deemed
or considered as a continuing waiver, and shall not operate to bar or
prevent the LESSOR from declaring a forfeiture for any succeeding
breach, either of the same condition or covenant otherwise.
41.1 PERSONAL GUARANTY
See Exhibit "A"
X None Required
----------
42.1 INTERIOR DESIGN & MODIFICATION
See Exhibit "B" Space Plan
43.1 LESSOR AGREED TENANT
IMPROVEMENTS
See Exhibit "C" Interior Space Work Agreement
44.1 LESSEE AGREED IMPROVEMENTS
See Exhibit "D"
X None Required
-----------
LESSOR INITIAL_____ LESSEE INITIAL_____
<PAGE>
45.1 TELEPHONES
LESSEE agrees, at its expense, to provide telephone wiring into
each individual office of the premises and appropriate common areas.
LESSEE agrees that LESSOR shall not be liable for any damages or other
liability incurred by LESSEE or any other parties as a result of
LESSEE'S wiring the premises for telephones. LESSEE further agrees to
indemnify and hold harmless LESSOR from any and all liability or
claims of LESSEE or others arising or resulting from LESSEE'S wiring
of the premises for telephones.
46.1 TIME IS OF THE ESSENCE
LESSOR and LESSEE acknowledge that time is of the essence in the
execution of this Lease Agreement in order to allow LESSOR adequate
time to complete the agreed upon Tenant Improvements. If the Lease
Agreement is not signed, returned (with Lease Consideration and
prepaid rent) and accepted by the LESSOR by October 22, 1996, then
LESSEE understands that the Tenant Improvements described in Exhibit
"B" Space Plan and Exhibit "C" Interior Space Work Agreement may not
be completed by the Lease Commencement date and LESSEE shall not take
possession of premises until said Tenant Improvements are completed.
47.1 RENT CONCESSION
The LESSEE shall receive a rental credit equal to $18,850.00,
which shall be applied to January 1997 rent only.
48.1 EXPIRATION OF OFFER
This offer to lease shall be null and void at the sole option of
the LESSOR if not returned to LESSOR signed by LESSEE in an acceptable
form to LESSOR and accompanied by appropriate funds by October 29,
1996.
49.1 OPTION TO RENEW
LESSEE shall be entitled to one (1) option to renew this Lease
Agreement for a term of not less than two (2) years commencing after
the initial lease term expiration under terms and conditions to be
mutually agreed to with a new Lease Agreement fully executed by LESSOR
and LESSEE no later than August 1, 1998. If no mutual agreement can
be made between LESSOR and LESSEE on or before August 1, 1998, this
option to renew shall be null and void.
(a) LESSEE shall have no right to exercise an Option, notwithstanding
any provision in the grant of Option to the contrary; (i) during the
period commencing with the giving of any notice of Default under
LESSOR INITIAL_____ LESSEE INITIAL_____
<PAGE>
Section 17.1 and continuing until the noticed Default is cured, or
(ii) during the period of time any monetary obligation due LESSOR from
LESSEE is unpaid (without regard to whether notice thereof is given to
LESSEE), or (iii) during the time LESSEE is in Breach of this Lease,
or (iv) in the event the LESSOR has given to LESSEE three (3) or more
notices of separate Defaults during the twelve (12) month period
immediately preceding the exercise of the Option, whether or not the
defaults are cured.
(b) The Option granted to LESSEE in this Lease is personal to the
original LESSEE named on Page 1 hereof and cannot be voluntarily or
involuntarily assigned or exercised by any person or entity other than
said original LESSEE while the original LESSEE is in full and actual
possession of the Premises and without the intention of thereafter
assigning or subletting. The Option herein granted to LESSEE is not
assignable, either as a part of an assignment of this Lease or
separately or apart therefrom, and no Option may be separated from
this Lease in any manner, by reservation or otherwise.
In construing of this LEASE, it is understood that the LESSOR or the LESSEE may
be more than one person; that if the context so requires, the singular pronoun
shall be taken to mean and include the plural, the masculine, the feminine, and
the neuter, and that generally all grammatical changes shall be made, assumed
and implied to make the provisions hereof apply equally to corporations and to
individuals.
IN WITNESS WHEREOF, the respective parties have executed this instrument in
duplicate on this, the day and year first hereinabove written, any corporation
signature being by authority of its Board of Directors.
LESSOR: By:________________________________
AMERICAN PROPERTY MANAGEMENT CORP. Name: Rhonda J. Tschida
AS AGENT FOR AND ON BEHALF OF WESTON HOLDING COMPANY, L.L.C.
(Federal Tax ID# 93-1173413*) Title: Vice President Commercial
Property
*Lessee need not supply Lessor a Federal 1099 Form
Address for Notices:
P.O. Box 12127
Portland, Oregon 97212-0127
LESSOR INITIAL_____ LESSEE INITIAL_____
<PAGE>
2154 N.E. Broadway, #200
Portland, Oregon 97232-1561 DATE:______________________________
LESSEE:
WHOLESOME & HEARTY FOODS, INC.
AN OREGON CORPORATION By: _______________________________
Name: ______________________________
Address for Notices:
1411 S.W. Morrison Street
Title:_____________________________
Suite 400
Portland, Oregon 97205
DATE:______________________________
NOTARY:
STATE OF _________________)
) ss.
County of __________________)
The foregoing instrument was acknowledged before me this _____ day of
_______________, 19___, by the above-named_________________________________
___________________________________________________________________________
to be his/her voluntary act and deed.
___________________________________
Notary Public for _________________
My Commission Expires:_____________
EXHIBIT "B" SPACE PLAN
WHOLESOME & HEARTY FOODS, INC.
an Oregon Corporation
1411 S.W. Morrison Street
Suite 400
Portland, Oregon 97205
Account #C-8923-02
LESSOR INITIAL_____ LESSEE INITIAL_____
<PAGE>
ANY CHANGES TO THIS EXHIBIT "B" SPACE PLAN ARE SUBJECT TO LESSOR'S APPROVAL.
ANY CHANGES TO THIS PLAN SHALL BE AT LESSEE'S SOLE COST AND EXPENSE, SHALL NOT
DELAY LEASE COMMENCEMENT, AND MAY DELAY LESSEE'S OCCUPANCY.
EXHIBIT "C" INTERIOR SPACE WORK AGREEMENT
LESSEE: WHOLESOME & HEARTY FOODS, INC. an Oregon Corporation
ACCOUNT #:C-8923-02 BUILDING/SUITE #: Morrison Plaza/400
<TABLE>
<CAPTION>
ACCEPTED AGREED LESSOR LESSEE
ITEM AS-IS IMPROVEMENTS EXPENSE EXPENSE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PAINTING: ------- Repaint the premises. Color to be Weston X
-------
(Building Standard Color) ------- White. Existing wall cover to remain "as-is".
FLOORCOVERING: X NONE
(Building Standard Carpet ------- ------
Color/Cove Base Color)
VINYL FLOORCOVERING: X NONE
(Building Standard Vinyl) ------- ------ -------
LESSOR INITIAL_____ LESSEE INITIAL_____
<PAGE>
LIGHTING: X NONE
(Building Standard Fixtures) ----- ----------
ELECTRICAL: X NONE
(Building Standard 110 Volt) ----- ----------
CEILING: X NONE
(Building Standard ----- ----------
Acoustical Tile)
PARTITIONS: X NONE
(Building Standard Sheetrock) ----- ----------
DOORS/FRAMES ----- The Lessor shall provide one six foot
sliding glass X
(Building Standard Quality) ----- door where indicated on Exhibit "B" Space Plan
as long as a six foot opening can be made and
nothing in the said opening needs to be relocated
(ie; plumbing, conduits, vents, etc.).
LOCKS/HARDWARE ----- All interior doors are to be supplied X
(Building Standard Quality) ----- with passage door knobs only (no locks). -------
RELIGHTS: X NONE
(Building Standard Interior) ----- -----------
WINDOWCOVERING: X NONE
(Building Standard Exterior) ----- -----------
TELEPHONE: X NONE
(Building Standard Mud Rings) ----- -----------
PLUMBING: X NONE
----- -----------
OTHER: NONE
</TABLE>
If LESSEE is modifying their existing space layout, or expanding their leased
premises it is understood and agreed that all work will be performed during
normal business hours and will not be deemed as an interruption of LESSEE'S
business and that AMERICAN PROPERTY MANAGEMENT CORP. assumes no liability for
damage to any existing hidden electrical located in the walls, ceiling and/or
floors (i.e., electrical for phones, fax, computers, office equipment, etc.)
that is not indicated on this agreement and brought to the attention of
AMERICAN PROPERTY MANAGEMENT CORP. prior to the office remodel or is not
equipped with an appropriate power surge protection device.
<PAGE>
EXHIBIT 10i
EMPLOYMENT AGREEMENT
DATE: April 14, 1996
PARTIES: WHOLESOME & HEARTY FOODS, INC. (the "Company")
975 S.E. Sandy Boulevard, Suite 201
Portland, OR 97214
LYLE G. HUBBARD ("Employee")
1959 North Burling Street
Chicago, IL 60614
RECITAL:
The Company is engaged in the business of manufacturing and selling food
products. The Company desires to employ and retain the unique experience,
abilities, and services of Employee as its Chief Executive Officer.
AGREEMENT:
The parties agree as follows:
SECTION 1. EMPLOYMENT
1.1 TERM. The Company agrees to employ Employee as its Chief Executive
Officer for a term of three years, commencing on April 14, 1996, and terminating
on April 13, 1999, or until an earlier termination in accordance with Section 5.
The Board of Directors of the Company shall review Employee's performance within
60 days of the end of the second year of the employment term and, in the event
this Agreement is extended at the end of the second year, within 60 days of the
end of each subsequent one-year period thereafter. After completing each such
review, the Board of Directors may elect, in its sole and absolute discretion,
to extend this Agreement for an additional one-year period. For example, at the
conclusion of the second year of the employment term, the Board of Directors may
elect to extend the term of this Agreement until April 13, 2000. The Board of
Directors shall promptly notify Employee, after completing each such review,
whether the Board of Directors elects to extend this Agreement for an additional
one-year term. The Board of Directors shall be under no obligation to extend
the term of this Agreement, either at the end of the second year of the
employment term, or at the end of any subsequent one-year period thereafter, and
no extension shall be valid and binding unless set forth in writing and signed
by both parties.
1.2 DUTIES. Employee accepts employment with the Company on the terms and
conditions set forth in this Agreement, and agrees to devote his full time and
attention (reasonable periods of illness excepted) to the performance of his
duties under this Agreement. In general, Employee shall perform such duties as
are customarily performed by a chief executive officer of a publicly held
company engaged in a business similar to the Company's business. Employee shall
perform such specific duties and shall exercise such specific authority as may
be assigned to Employee from time to time by the Board of Directors of the
Company. In performing such
Page 1 - EMPLOYMENT AGREEMENT
<PAGE>
duties, Employee shall be subject to the direction and control of the Board of
Directors of the Company. Employee further agrees that in all aspects of such
employment, Employee shall comply with the instructions, policies, and rules of
the Company established from time to time, and shall perform his duties
faithfully, intelligently, to the best of his ability, and in the best interest
of the Company. Employee shall serve as an officer of the Company without
additional compensation if so requested. The devotion of reasonable periods of
time by Employee for personal purposes, outside business activities, or
charitable activities shall not be deemed a breach of this Agreement, provided
that such purposes or activities do not materially interfere with the services
required to be rendered to or on behalf of the Company.
SECTION 2. COMPENSATION
2.1 BASE COMPENSATION. In consideration of all services to be rendered by
Employee to the Company, the Company shall pay to Employee a base compensation
of $225,000 per year, payable in equal biweekly installments. The Board of
Directors shall formally review Employee's base compensation in February, 1997
and, in the event the Board of Directors, in its sole and absolute discretion,
decides to increase such base compensation, such increase shall be made
retroactively effective to January 1, 1997.
2.2 BONUS COMPENSATION. The Board of Directors recognizes that the
success of the Company is based on the collective efforts of all of its
employees. The Board of Directors has approved the concept of a success sharing
plan, whereby management would establish, subject to approval of the Board of
Directors, annual performance and financial targets in three areas, namely Net
Sales, Income Before Provision For Income Taxes As Percentage of Net Sales
(hereinafter referred to as "PBT"), and after-tax percent return on equity
(hereinafter referred to as "ROE"), and employee bonuses would be awarded based
on the Company's success in achieving such targets. The Board of Directors of
the Company is willing to consider input from Employee in refining the success
sharing plan, provided, however, the Board of Directors shall retain sole and
absolute discretion and control over the final form of such plan. Employee
shall be entitled to participate in the success sharing plan, as established and
amended from time to time by the Board of Directors, the same as any other
employee of the Company in 1996 and 1997 and, in the event this Agreement is
extended, during the term of any extensions. Management has established the
following targets for Net Sales, PBT and ROE for calendar year 1996 and the
Company shall pay Employee a bonus in each such category, based on the Company's
highest level of achievement within the category, if the Company achieves such
targets in 1996:
1996 % x 33% of Non-Cumulative
Achievement Targets Base Compensation Bonus Amounts
- ------------------- ----------------- -------------
Net Sales
---------
Less than $50 MM -0- -0-
$50MM to less than
$54 MM 30% x $74,925 $22,478
$54MM to less than
$58 MM 40% x 74,925 29,970
$58MM or greater 60% x 74,925 44,955
Page 2 - EMPLOYMENT AGREEMENT
<PAGE>
Income Before Provision
For Income Taxes
As Percentage of Net Sales
- --------------------------
PBT of 10% x Net Sales 30% x $74,925 $22,478
PBT of 12% x Net Sales 40% x 74,925 29,970
PBT of 14% x Net Sales 60% x 74,925 44,955
Percent Return
On Equity
- --------------
ROE of 12% 30% x $74,925 $22,478
ROE of 16% 40% x 74,925 29,970
ROE of 18.5% 60% x 74,925 44,955
The foregoing bonuses within each objective category are NOT cumulative
and, in the event the Company is successful in achieving more than one level of
achievement within any one category, the Company shall only be obligated to pay
Employee a bonus based on the highest level of achievement. The Company's
accountants shall, as soon as reasonably practical after December 31, 1996,
determine the Company's Net Sales, PBT and ROE for calendar year 1996, which
determination shall be based on the figures set forth by the Company in its 1996
Annual Report to Shareholders and shall be final and binding on all parties.
The Company shall, in the event Employee is entitled to any bonuses for 1996
based on the foregoing schedule, pay the same to Employee within 30 days of
receipt of the accountants' final determination of Net Sales, PBT and ROE.
2.3 NONSTATUTORY STOCK OPTIONS. The Company granted Employee the
following nonstatutory stock options under the Company's 1992 First Amended and
Restated Combination Stock Option Plan (the "Plan") on April 14, 1996, the date
of commencement of Employee's employment:
2.3.1. The Company granted Employee a nonstatutory stock option
to purchase 300,000 shares of the Company's common stock at an exercise price of
$8.69 per share. The terms and conditions of such nonstatutory stock option are
set forth in the Nonstatutory Stock Option Agreement attached as Exhibit 1,
which the parties shall execute contemporaneously with the execution of this
Agreement.
2.3.2. The Company granted Employee a nonstatutory stock option
to purchase 150,000 shares of the Company's common stock at an exercise price of
$8.69 per share. The terms and conditions of such nonstatutory stock options
are set forth in the Nonstatutory Stock Option Agreement attached as Exhibit 2,
which the parties shall execute contemporaneously with the execution of this
Agreement.
2.4 RELOCATION EXPENSES. The Company shall pay Employee a lump sum of
$180,000 upon mutual execution of this Agreement to be used by Employee, in
Employee's sole discretion, to cover relocation-related expenses, including but
not limited to temporary housing, air transportation, real estate transaction
costs, and household moving expenses. Employee acknowledges that this lump sum
payment is a grossed-up amount and includes reimbursement to Employee for the
tax liability that Employee will incur as a result of the funds being paid to
him for relocation expenses.
Page 3 - EMPLOYMENT AGREEMENT
<PAGE>
2.5 OTHER BENEFITS. The Company shall provide to Employee and Employee's
family the same benefits that the Company provides to other management employees
and their families, subject to Employee's satisfaction of the normal eligibility
conditions for such benefits.
2.6 TAXES. All compensation payable to Employee under this Section 2 or
Section 5 below shall be subject to the customary withholding of income and
other taxes as required by federal and state law with respect to compensation
paid by a corporation to an employee.
2.7 VACATION. Employee shall be entitled to four weeks paid vacation
during each full year of employment and to the number of paid holidays provided
for under the current policies and procedures of Employer in effect from time to
time.
SECTION 3. CONFIDENTIALITY AGREEMENT
Employee agrees to execute contemporaneously with this Agreement the
Employee Proprietary Rights, Confidentiality and Inventions Agreement attached
hereto as Exhibit 3, and to strictly comply with the terms and conditions
thereof.
SECTION 4. NONCOMPETITION COVENANT
4.1 NEED FOR NONCOMPETITION COVENANT. Employee recognizes and
acknowledges that the business contacts he will make, and the knowledge and
proprietary information that he will gain, as a result of his employment with
the Company, is special and unique and that a covenant on his part not to
compete against the Company upon termination of his employment is essential to
protect the properties, assets and business of the Company. Employee
acknowledges and agrees that the noncompetition covenant set forth in this
Section 4 is being entered into in connection with his initial employment by the
Company.
4.2 NONCOMPETITION COVENANT. In consideration of his initial employment
by the Company, Employee agrees that he will not, during the period of his
employment with the Company and for a period of two years from the date of
termination of such employment, within any state or country in which the Company
conducts its business or sells or distributes its products: (i) directly or
indirectly, whether as an owner, partner, principal, member, stockholder (other
than a stockholder in a corporation whose stock is publicly traded and in which
Employee owns less than five percent (5%) of the issued and outstanding voting
stock), officer, director, employee, agent, representative, associate,
consultant or otherwise, engage in, or assist in any manner, any business that
competes with the Company in the production, marketing, or sale of meat
substitute vegetarian food products; (ii) induce, or attempt to induce, any
person who is in the employment of the Company to leave such employment and
engage in any business that is competitive with the Company; or (iii) directly
or indirectly, suggest, request or encourage any suppliers or customers of the
Company to curtail, reduce or cancel their business done with the Company, or
otherwise solicit for himself or any other person or entity any business of the
Company.
4.3 REMEDIES; EQUITABLE RELIEF. Employee acknowledges that a breach of
any of the provisions of this Noncompetition Covenant will cause the Company
irreparable and continuing injury and damage, for which there will be no
adequate remedy at law. By reason thereof, Employee agrees that the Company
shall be entitled to specific performance, including immediate issuance of a
temporary restraining order and/or preliminary or permanent injunctive relief
Page 4 - EMPLOYMENT AGREEMENT
<PAGE>
enforcing this Noncompetition Covenant, without the necessity of proof of actual
damages and without posting bond for such relief, in addition to any and all
other remedies provided by applicable law or equity.
4.4 SEVERABILITY. While Employee acknowledges that the restrictions
contained herein are reasonable, if any term or condition of this Noncompetition
Covenant is determined to be unenforceable because of its scope, duration,
geographical area or similar factor, the court making such determination shall
have the power to reduce or limit such scope, duration, area or other factor,
and such covenant shall then be enforceable in its reduced or limited form.
4.5 EXCEPTION TO NONCOMPETITION COVENANT. Notwithstanding the provisions
of this Section 4, Employee shall not be prohibited, directly or indirectly, as
an officer, director, employee, agent, representative, associate, consultant or
otherwise, from working for, or associating with, a public company involved in
producing, marketing or selling meat substitute vegetarian food products,
PROVIDED (i) such company has gross annual revenues of not less than $500
million, (ii) the portion of the company's business involved in the meat
substitute vegetarian food product business does not constitute more than 5% of
the total gross annual revenues of such company, and (iii) Employee does not
work in, and is not directly involved with, the portion of the company's
business that is involved in the meat substitute vegetarian food product
business.
SECTION 5. TERMINATION OF EMPLOYMENT
5.1 TERMINATION FOR CAUSE. Employee's employment under the terms of this
Agreement may be terminated immediately, at the option and in the sole
discretion of the Company, for "Cause." For purposes of this Agreement,
termination of Employee's employment for "Cause" shall be limited to (a)
Employee's conviction by a court with proper jurisdiction of a felony; (b)
objective evidence of a material act of dishonesty by Employee related to his
employment; (c) Employee's drunkenness or intoxication on the job, use of
illegal drugs, or use of lawful drugs or alcohol in a manner violative of
Company policy; (d) any material breach of Employee's obligations under this
Agreement, provided, however, if the breach is of such nature that can be cured,
Employee shall be given 15 days (the "Cure Period") after Employee's receipt of
notice of such breach to cure the same, and if such breach cannot be cured
within the Cure Period and if Employee has commenced to cure such breach within
the Cure Period and thereafter proceeds with reasonable diligence and in good
faith to effect a cure as soon as practicable, then the Cure Period shall be
extended to such time as Employee can reasonably cure such breach; (e)
Employee's diversion of any corporate opportunity of the Company for the
Employee's direct or indirect benefit; or (f) inaccuracy of any representation
made by Employee at Section 7 of this Agreement.
5.2 TERMINATION ON DEATH OR DISABILITY. Employee's employment under the
terms of this Agreement shall automatically terminate upon Employee's death or
"Disability." For purposes of this Agreement, "Disability" shall mean a health
condition or other circumstance which renders Employee unable to perform the
essential functions of his position with or without reasonable accommodation.
The Company and Employee acknowledge (without limitation to their right to
assert that other circumstances constitute a disability) that Employee's
inability due to a physical or mental injury or illness to perform his duties
for a consecutive period of 90 days or for at least 120 days in a 12-month
period shall satisfy the requirements of this provision. Provided such
requirements are satisfied, Employee acknowledges that the nature of his
position is such that no reasonable accommodation is possible without undue
hardship to the Company.
Page 5 - EMPLOYMENT AGREEMENT
<PAGE>
5.3 TERMINATION ON CHANGE IN CONTROL. Employee's employment under the
terms of this Agreement may be terminated immediately, at the option and in the
sole discretion of the Company, during the period commencing 30 days prior to
and ending 180 days following a "Change in Control" of the Company. For
purposes of this Agreement, "Change in Control" of the Company shall be deemed
to have occurred upon the earlier of:
(a) The date that any "person" (as that term is defined in
Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934,
as amended (the "Act")), other than a trustee or other fiduciary
holding securities under an employee benefit plan of the Company,
becomes a beneficial owner (within the meaning of Rule 13d-3
promulgated under the Act), directly or indirectly, of securities of
the Company representing twenty-five percent (25%) or more of the
combined voting power of the Company's then outstanding securities; or
(b) The date of any annual or special meeting of stockholders at
which a majority of the directors then elected are not individuals
nominated by the Company's then incumbent Board of Directors; or
(c) The date of approval by the stockholders of the Company
of a plan of merger or consolidation of the Company in which such
stockholders will not hold at least seventy-five percent (75%) of the
combined voting power of the resulting entity immediately following
such merger or consolidation, or the approval by the stockholders of
the Company of a plan of complete liquidation of the Company or an
agreement for the sale of substantially all of the Company's assets.
5.4 TERMINATION BY EMPLOYER WITHOUT CAUSE. Employee's employment under
the term of this Agreement may be terminated by Employer, in the exercise of
Employer's sole discretion, at any time without Cause, provided Employer pays
Employee the compensation and severance pay provided in Section 5.5.2.
5.5 EFFECT OF TERMINATION; PAYMENTS UPON TERMINATION.
5.5.1 In the event of the termination of Employee's employment
for Cause pursuant to Section 5.1, the Company shall pay to Employee the then
current base compensation payable to Employee under Section 2.1, prorated
through the effective date of such termination. No other compensation, benefits
or payments of any nature whatsoever shall be due and payable under this
Agreement in the event of termination of Employee's employment by the Company
for Cause.
5.5.2 In the event of the termination of Employee's employment
pursuant to Section 5.2 (Death or Disability) or Section 5.3 (Change of
Control), or Section 5.4 (termination of Employee's employment by the Company
without Cause), the Company shall pay to Employee:
(a) The then current base compensation payable to Employee under
Section 2.1 prorated through the effective date of the termination.
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<PAGE>
(b) If Employee is entitled to a bonus in the year in which his
employment is terminated, the Company shall, as soon as the Company's
accountants have determined the amount of the bonus, prorate the same
through the effective date of Employee's termination and pay Employee
his prorata share thereof based on the effective date of his
termination.
(c) Severance pay equal to the greater of (i) 18 months of the
base compensation payable to Employee under Section 2.1, or (ii) the
base compensation remaining to be paid to Employee under Section 2.1
between the effective date of such termination and the end of the
employment term under this Agreement. Employee agrees, as a condition
to payment and receipt of such severance pay, to execute a full and
complete release, in form and substance satisfactory to the Company,
of any and all claims of every kind and nature whatsoever against the
Company.
(d) No other compensation, benefits or payments of any nature
whatsoever shall be due and payable under this Agreement in the event
of termination of Employee's employment by the Company pursuant to
Sections 5.2, 5.3, or 5.4. without Cause.
5.6 DECISION OF COMPANY NOT TO EXTEND TERM; DECISION OF EMPLOYEE NOT TO
ACCEPT EXTENSION.
5.6.1 DECISION OF COMPANY NOT TO EXTEND TERM. The Company is
required under Section 1.1 above to notify Employee at the end of the second
year of the employment term and, in the event this Agreement is extended, at the
end of each subsequent one-year period thereafter, whether the Company elects to
extend this Agreement for an additional one-year term. If the Company, in its
sole and absolute discretion, decides not to extend this Agreement for an
additional one-year term, then the Company shall, in the event it has not
already paid severance pay to Employee under Section 5.5.2 above, pay to
Employee at the end of the final year of Employee's employment, as severance
pay, 18 months of the then current base compensation payable to Employee under
Section 2.1, provided, however, the Company shall have no obligation to pay such
severance pay if the reason for not extending this Agreement is Employee's
retirement. Employee agrees, as a condition of payment and receipt of such
severance pay, to execute a full and complete release, in form and substance
satisfactory to the Company, of any and all claims of every kind and nature
whatsoever against the Company. The Board of Directors shall be under no
obligation, in the event it elects not to extend the term of this Agreement, to
review Employee's performance, or offer Employee another extension, at the end
of the final year of Employee's employment.
5.6.2 DECISION OF EMPLOYEE NOT TO ACCEPT EXTENSION. If the
Company, in its sole and absolute discretion, decides to extend this Agreement
at any time for an additional one-year term and Employee decides not to accept
such extension, then the Company shall have no obligation to pay, and shall not
pay, any severance pay to Employee.
5.7 OUTPLACEMENT SERVICES. In the event of the termination of Employee's
employment pursuant to Section 5.3 (Change of Control) or Section 5.4
(Termination of Employee's employment by the Company without cause), or in the
event the Company elects not to extend the term of this Agreement and Employee's
employment ceases due to expiration of the
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<PAGE>
employment term, the Company shall retain a reputable outplacement agency,
acceptable to Employee, to assist Employee in finding another job, provided,
however, the maximum amount that the Company shall be obligated to expend in
outplacement services for Employee shall be $25,000.
SECTION 6. FACILITIES AND PERSONNEL
Employee shall be provided a private office, secretarial services, and such
other facilities, supplies, and services as shall be required for the
performance of Employee's duties under this Agreement.
SECTION 7. REPRESENTATIONS AND WARRANTIES OF EMPLOYEE
Employee represents and warrants to the Company that there is no employment
contract or any other contractual obligation to which Employee is subject which
prevents Employee from entering into this Agreement or from performing fully
Employee's duties under this Agreement and that Employee has accurately stated
his educational background, employment history and experience in the
pre-employment process.
SECTION 8. MISCELLANEOUS PROVISIONS
8.1 RESTRICTION ON ASSIGNMENT. Employee acknowledges that the services to
be rendered hereunder are special, unique and of extraordinary character and
that he may not assign any of his rights, or delegate any of his duties or
obligations hereunder without the prior written consent of the Company.
8.2 ENTIRE AGREEMENT. This document (including the exhibits attached
hereto) is the entire, final and complete Agreement and understanding of the
parties with respect to the subject matter hereof, and supersedes and replaces
all written and oral agreements and understandings heretofore made or existing
by and between the parties or their representatives with respect thereto,
specifically including without limitation that certain letter, dated April 12,
1996, from The Pringle Company to Employee.
8.3 WAIVER. No waiver of any provision of this Agreement shall be deemed,
or shall constitute, a waiver of any other provision, whether or not similar,
nor shall any waiver constitute a continuing waiver. No waiver shall be binding
unless executed in writing by the party making the waiver.
8.4 BINDING EFFECT. All rights, remedies and liabilities herein given to
or imposed upon the parties shall extend to, inure to the benefit of and bind,
as the circumstances may require, the parties and their respective heirs,
personal representatives, administrators, successors and permitted assigns.
8.5 NOTICES. Any notice or other communication required or permitted
under this Agreement shall be in writing and shall be deemed given on the date
of transmission when sent by telex or facsimile transmission, on the third
business day after the date of mailing when mailed by certified mail, postage
prepaid, return receipt requested, from within the United States, or on the date
of actual delivery, whichever is the earliest, and shall be sent to the parties
at the addresses shown on the first page of this Agreement, or at such other
address as either party may hereafter
Page 8 - EMPLOYMENT AGREEMENT
<PAGE>
designate by written notice to the other.
8.6 AMENDMENT. No supplement, modification or amendment of this Agreement
shall be valid, unless the same is in writing and signed by all parties hereto.
8.7 SEVERABILITY. In the event any provision or portion of this Agreement
is held to be unenforceable or invalid by any court of competent jurisdiction,
the remainder of this Agreement shall remain in full force and effect and shall
in no way be affected or invalidated thereby.
8.8 ATTORNEY'S FEES. In the event any suit, action or other legal
proceeding shall be instituted to declare or enforce any right created by this
Agreement, or by reason of any breach of this Agreement, the prevailing party
shall be entitled to recover reasonable attorney fees as fixed by the trial
court and all appellate courts.
8.9 LEGAL REPRESENTATION. This Agreement was prepared by Garvey, Schubert
& Barer as attorneys for the Company. Employee acknowledges that Garvey,
Schubert & Barer has acted as attorneys only for the Company and does not
represent Employee. Employee acknowledges that he has exercised his right to
independent legal counsel and is freely and voluntarily entering into this
Agreement having exercised such right.
8.10 GOVERNING LAW AND VENUE. This Agreement shall be deemed to have been
executed and entered into in Portland, Oregon, and this Agreement, and its
formation, operation and performance, shall be governed, construed and enforced
in accordance with the laws of the State of Oregon, without regard to its
conflict of law principles. If any suit or action is filed by any party to
enforce this Agreement or otherwise with respect to the subject matter of this
Agreement, venue shall be in the federal court or state court in Portland,
Oregon, and the parties hereby waive their right to change such venue and submit
to the jurisdiction of such courts.
8.11 COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed to be an original instrument and all of which together
shall constitute a single agreement.
8.12 INDEMNIFICATION. The Company shall indemnify Employee, in the event
Employee is made, or threatened to be made, a party to an action, suit or
proceeding, whether civil, criminal, administrative, investigative or otherwise
by reason of the fact that Employee is or was an officer or employee of the
Company, to the fullest extent permitted by the Oregon Business Corporation Act,
and shall, upon request of Employee, advance expenses to Employee in any such
action, suit or proceeding, subject to the terms, conditions and limitations set
forth in the Oregon Business Corporation Act.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
respective dates set forth below, retroactively effective as of April 14, 1996.
EMPLOYEE: COMPANY:
WHOLESOME & HEARTY FOODS, INC.
- ------------------------- an Oregon corporation
Lyle G. Hubbard
Date: By:
------------------------- -------------------------------------
Title:
----------------------------------
Date:
---------------------------------
Page 9 - EMPLOYMENT AGREEMENT
<PAGE>
EXHIBIT 10L
SEVERANCE AGREEMENT
This Agreement (this "Agreement") is made and entered into as of this _____ day
of September, 1996 by and between Wholesome & Hearty Foods, Inc., an Oregon
corporation (the "Employer"), and _________________________ (the "Employee").
WHEREAS, Employer currently employs Employee in the capacity of
_________________________ and Employee is one of Employer's key executives;
WHEREAS, Employer considers it in the best interest of the shareholders to give
Employee a severance agreement at this time;
NOW, THEREFORE, in consideration of the promises and mutual covenants herein
contained, the parties agree as follows:
1. DEFINITIONS. As used in this Agreement, the following terms shall have the
following meanings:
1.1 TERMINATION OF EMPLOYMENT. Termination of Employment shall mean the
termination of Employee's employment by Employer for other than "Cause."
Employee's termination of the employment relationship shall not constitute a
Termination of Employment under this Agreement; PROVIDED, HOWEVER, if Employee
voluntarily terminates his or her employment within two weeks of receiving a
salary reduction, such voluntary termination SHALL constitute an exception to
this rule and shall be considered a Termination of Employment under this
Agreement and Employee shall be entitled to severance based on the non-reduced
salary rate.
1.2 CAUSE. Termination of Employee's employment for "Cause" shall mean a
termination due to (a) Employee's conviction of a felony; (b) objective evidence
of dishonesty by Employee related to his or her employment; (c) Employee's use
of illegal drugs, or use of lawful drugs or alcohol in a manner violative of
Employer's written policies; (d) objective evidence of Employee's wrongful
discrimination against or harassment of another person(e) gross insubordination
or gross dereliction of duty by Employee (i.e. egregious conduct such as
repeated refusal to follow direct orders of Employer or refusal to perform
minimum duties after repeated warning); or (f) Employee's diversion of any
corporate opportunity or other similarly serious conflict of interest inuring to
the Employee's direct or indirect benefit and the company's detriment.
1.3 NEW EMPLOYMENT. New Employment shall mean Employee's
- ---------------
(1) Sworn statements shall satisfy this requirement of objective evidence.
- 1 -
<PAGE>
performance of services for another person or entity for compensation or for the
future expectation of compensation.
1.4 GROSS SALARY. Gross Salary shall mean the gross amount of weekly
wages paid to Employee as of the Termination of Employment. Gross Salary does
not include the value of any other non-wage benefits provided to Employee, such
as medical insurance, vacation, sick leave, or retirement benefits.
2. SEVERANCE PAYMENT. In the event of a Termination of Employment as defined
herein, Employer agrees to pay Employee six months Gross Salary as severance
pay. In addition, if Employee has not accepted New Employment by the conclusion
of the six-month period following Termination of Employment, Employee shall be
entitled to receive, as additional severance pay, payment of up to a maximum of
an additional six months of Gross Salary for the time which Employee remains
unemployed after the expiration of the first six-month period. The payments
shall be made in equal bi-weekly installments, and shall be subject to all
normal state, federal or other withholding and/or deductions. Acceptance of New
Employment shall terminate Employee's entitlement to all severance pay. With
the exception of constraints posed by the Employer Proprietary Rights and
Confidentiality Agreement, the decision to accept or not accept New Employment
rests solely with Employee.
3. OUTPLACEMENT SERVICES. In the event of a Termination of Employment,
Employer agrees to pay for the actual cost of outplacement services incurred by
Employee up to a maximum of $15,000. In order to be eligible to receive payment
for outplacement services, Employee must seek and obtain such services within
sixty (60) days of Termination of Employment. Acceptance of New Employment will
terminate Employee's entitlement to payment for outplacement services under this
Agreement.
4. CONTINUATION OF BENEFITS. In the event of a Termination of Employment,
Employer agrees to continue to pay Employee's medical/health insurance benefit
premiums on the same terms and conditions as generally are provided to other
employees of Employer until the earlier of (a) one year following Termination of
Employment or (b) Employee becomes eligible for payment of medical/health
insurance premiums related to New Employment. Payment of such premiums shall be
accomplished through Employer's normal premium payment procedures if Employee
remains eligible for coverage without regard to the COBRA program. If Employee
is not eligible, or ceases to be eligible, for coverage under Employer's
medical/health insurance plan, except for eligibility under the COBRA benefit
program, then Employer shall pay the premiums by paying Employee's share of his
or her COBRA obligations. In no event shall Employer's duty to pay
medical/health insurance premiums exceed the period of one year after
Termination of Employment.
5. STOCK OPTIONS. In the event of a Termination of Employment, Employer
agrees to amend Employee's incentive stock option agreements, immediately prior
to such termination, as follows:
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<PAGE>
5.1 ACCELERATION OF VESTING. The incentive stock option agreements shall
be amended to provide that all options granted thereunder, to the extent not
already vested, shall vest and become fully exercisable by Employee as of the
date of Termination of Employment.
5.2 CONVERSION OF ISOS TO NONSTATUTORY STOCK OPTIONS. The incentive stock
option agreements shall be amended as necessary to convert the incentive stock
options granted thereunder into nonstatutory stock options.
5.3 EXTENSION OF PERIOD OF TIME FOR EXERCISING NONSTATUTORY STOCK OPTIONS.
The incentive stock option agreements shall be amended to provide that Employee
shall have a period of five years from the date of Termination of Employment to
exercise the nonstatutory stock options.
6. RELEASE OF CLAIMS. As a precondition to receipt of the benefits provided
in this Agreement, Employee acknowledges and understands that he or she must
sign a Waiver and Release of Claims Agreement. Such Agreement shall be
substantially similar to the Agreement attached as Exhibit A.
7. EMPLOYMENT AT WILL. Employee acknowledges that his or her employment with
Employer is "at-will." At-will employment means that either Employee or
Employer may terminate the employment relationship without notice or Cause at
any time. Employee understands that this Agreement is not intended to change
the "at-will" character of his or her employment in any manner.
8. NON-COMPETITION. Employee acknowledges that Employer is not obligated to
provide him or her with the benefits set forth in this Agreement, and that such
benefits, particularly the provisions for severance pay, continuation of
benefits, paid outplacement and modification of his or her incentive stock
option agreements, constitute a bona fide advancement for Employee. Employee
hereby waives any right to assert or claim otherwise. In return for the right
to receive such benefits and this advancement, Employee hereby agrees that,
during the term of this Agreement and for a period of one year following the
termination of Employee's employment with the Company, without Employer's prior
written consent, Employee shall not, directly or indirectly, own, have any
interest in, act as an officer, director, agent, employee or consultant of, or
assist in any way or in any capacity any person, firm, association, partnership,
corporation or other entity which is a creator, manufacturer, distributor,
seller or provider of non-meat or vegetarian food products or otherwise engaged
in a business that is substantially similar to and/or competes with the business
then engaged in by Employer (a "Competitive Entity") in any geographical area
where Employer engages in such business. The restrictions of this section
prohibiting ownership in a Competitive Entity shall not apply to Employee's
ownership of less than five percent (5%) of publicly-traded securities of any
Competitive Entity.
While the Employee and Employer acknowledge that the restrictions contained
in this section are reasonable, in the unlikely event that any court should
determine that
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<PAGE>
any of the restrictive covenants contained in this section, or any part thereof,
is unenforceable because of the duration of such provision, the area covered
thereby or any other basis, such court shall have the power to reduce the
duration or area of such provision or otherwise amend it and, in its reduced
form, such provision shall then be enforceable and shall be enforced.
9. MISCELLANEOUS PROVISIONS.
9.1 CONFIDENTIALITY. Employee agrees to keep the terms of this Agreement,
specifically including without limitation, the amount of the severance pay, and
the fact that he/she may receive or has received severance pay, strictly
confidential. Employee may disclose the terms of this Agreement to his or her
accountant, attorney, and taxing or other governmental authorities only as may
be necessary for his or her financial affairs or as required by law.
9.2 NON-DISPARAGEMENT. Except as necessary to perform his or her job
duties, Employee shall not make any derogatory remarks of any nature whatsoever
about Employer or its products either publicly or privately, unless required by
law during and after his or her employment with the Company.
9.3 EMPLOYEE PROPRIETARY RIGHTS AND CONFIDENTIALITY AGREEMENT. Employee
acknowledges and reaffirms his or her obligations under the Employee Proprietary
Rights and Confidentiality Agreement, attached hereto as Exhibit B, and agrees
to strictly comply with the terms of such agreement.
9.4 ENTIRE AGREEMENT. This document is the entire, final, and complete
agreement and understanding of the parties with respect to the topics discussed
herein and, if this Agreement directly conflicts with any other written and oral
agreements made or executed by and between the parties or their representatives,
this Agreement shall supersede all such agreements.
9.5 WAIVER. A waiver of any provision of this Agreement shall not be
deemed, or shall not constitute, a waiver of any other provision, whether or not
similar, nor shall any waiver constitute a continuing waiver. No waiver shall
be binding unless executed in writing by the parties making the waiver.
9.6 BINDING EFFECT. All rights, remedies, and liabilities herein given to
or imposed upon the parties shall extend to, inure to the benefit of, and bind,
as the circumstances may require, the parties or their representative heirs,
personal representatives, administrators, successors and assigns.
9.7 AMENDMENTS. No supplement, modification, or amendment of this
Agreement shall be valid, unless the same is in writing and signed by all
parties thereto.
9.8 SEVERABILITY. In the event any provision or portion of this Agreement
is
- 4 -
<PAGE>
held to be unenforceable or invalid by any court of competent jurisdiction, the
remainder of this Agreement shall remain in full force and effect and shall in
no way be affected or invalidated thereby.
9.9 ATTORNEYS' FEES. If litigation is commenced by either party to
enforce any provision of this Agreement, or by reason of any breach of this
Agreement, the prevailing party shall be entitled to recover reasonable costs
and attorneys' fees, both at trial and on appeal.
9.10 GOVERNING LAW. This Agreement shall be deemed to have been executed
and entered into in Portland, Oregon and shall be governed, construed, performed
and enforced in accordance with the laws of the State of Oregon, without regard
to its conflict of law principles.
IN WITNESS THEREOF, the parties have executed this Agreement on the
respective dates set forth below, retroactively effective as of _______________,
19___.
EMPLOYEE: EMPLOYER:
WHOLESOME & HEARTY FOODS,
_______________________________ INC., an Oregon corporation
Name: _________________________
By__________________________
Date: _________________________
Name: ______________________
Title: _____________________
Date: ______________________
<PAGE>
EXHIBIT 10.O
WHOLESOME & HEARTY FOODS, INC.
1997 EXECUTIVE BONUS PLAN
INTENT
Wholesome & Hearty Foods, Inc. recognizes the contributions made by the
company's senior management team and wishes to recognize and reward these
contributions through implementation of a 1997 Executive Bonus Plan ("Plan").
The Plan is tied to the company's overall annual operating performance for 1997
with Plan payouts based on achievement of key performance targets as established
by the Board of Directors and included in the annual operating plan. The Plan
will be divided into specific operating segments as follows: retail segment;
food service segment; overall business; and chief executive officer. Payouts
will be determined as appropriate by each segment's achievement of identified
key performance targets.
BONUS CALCULATIONS
Bonus calculations under the Plan will be based on meeting targets in three key
performance areas: revenue growth, operating income and share price. These
targets and associated bonus payouts are summarized in EXHIBIT A. The first
bonus target is tied to company revenue growth and is split between retail
managers, food service managers and overall corporate managers (see EXHIBIT A).
Based on the targets identified in EXHIBIT A, bonus amounts are adjusted per the
sliding scale included in EXHIBIT B. Bonus levels as determined by achievement
of revenue growth targets are then modified based on operating income
performance (see EXHIBIT A). Finally, for any bonus payment to occur, the
company's share price at 12/31/97 must be no lower than the price at 12/31/96
(see EXHIBIT A).
SERVICE & ELIGIBILITY
All managers identified as senior-level executives and who are actively employed
by the company at the end of the Plan year will be eligible for participation in
the program. For those qualifying participants that join the company during the
plan year, the bonus payout will be prorated for number of months actually
employed during the plan year.
VESTING
Each Plan year is fully vested at the end of the Plan year. However, as
identified in EXHIBIT A, if an operating loss occurs during the fiscal year,
one-half of such bonus will be deferred until two consecutive profitable fiscal
quarters are achieved in fiscal year 1998.
1
<PAGE>
All participant payments will be made as soon as possible after the end of the
Plan year, when full results can be determined and all administration completed.
PAYMENT
Each participant will be paid their annual plan value in a lump sum amount.
Executive bonus amounts are not considered a form of base pay for determining
any company benefits or other conditions.
ADMINISTRATION
The Wholesome & Hearty Foods, Inc. 1997 Executive Bonus Plan will be
administered by the Human Resources Department. The Plan year will be the
normal company fiscal period. Once performance targets have been set, they will
not be revised unless there is a significant event that management and the Board
of Directors believes must be recognized.
2
<PAGE>
EXHIBIT 10P
INDEPENDENT CONSULTANT AGREEMENT
DATE: November 1, 1996
PARTIES: WHOLESOME & HEARTY FOODS, INC. ("WHFI")
an Oregon corporation
975 S.E. Sandy Boulevard, Suite 201
Portland, Oregon 97214
E. KAY STEPP ("Stepp")
c/o Executive Solutions
25-6 N.W. 23rd Place, No. 185
Portland, Oregon 97210-3534
RECITALS:
A. Stepp is a member, and currently serves as Chair, of the Board of
Directors of WHFI (the "Board of Directors");
B. Stepp, who owns and operates her own independent management consulting
business, has been providing certain management services to the Board of
Directors over the past year;
C. Stepp's current contract with WHFI expires on October 31, 1996; and
D. WHFI desires to continue to retain Stepp as an independent consultant
to provide management services to the Board of Directors;
NOW, THEREFORE, in consideration of the mutual promises and conditions
contained herein, the parties agree as follows:
1. MANAGEMENT SERVICES. WHFI hereby retains Stepp as an independent
contractor to provide management services to the Board of Directors, and Stepp
hereby agrees to provide such services in accordance with the terms and
conditions set forth herein.
2. TERM. This Agreement shall commence on November 1, 1996 and shall
terminate on the earlier of (i) the date Stepp resigns as Chair of the Board of
Directors, (ii) the date Stepp is removed as Chair of the Board of Directors,
(iii) the date of Stepp's death, or (iv) April 30, 1998.
3. DUTIES. Stepp shall perform the following duties and responsibilities as
an independent consultant to the Board of Directors:
3.1 Stepp shall, as Chair of the Board of Directors, preside at all
meetings of the Board of Directors and all meetings of its shareholders. Stepp
shall prepare agendas for, and
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<PAGE>
convene and conduct, all regular and special meetings of the Board of Directors.
3.2 Stepp shall provide leadership to the Board of Directors in reviewing
and deciding upon matters which exert major influence on the manner in which
WHFI's business is conducted.
3.3 Stepp shall act in a general advisory capacity, and shall give counsel
to, the CEO and other officers of WHFI on all matters concerning the management
and interests of WHFI. Stepp shall review all major corporate activities and
plans with the CEO so as to insure conformity with the Board of Directors' view
on corporate policy.
3.4 Stepp shall work to insure regular communication, and facilitate
mutual understanding, between the officers and directors of WHFI.
3.5 Stepp shall individually and collectively counsel with members of the
Board of Directors so as to utilize their capacities to the fullest extent
necessary to secure optimum benefits for WHFI.
3.6 Stepp shall make nominations to the Board of Directors with respect to
who should serve as members of all committees of the Board of Directors. Stepp
shall serve as an ex-officio member of all committees of the Board of Directors
and shall assist the respective Chairs of all committees as necessary and
appropriate. Stepp shall serve as Chair of the Executive Committee.
3.7 Stepp shall make nominations to the Board of Directors with respect to
who should serve as officers of WHFI.
3.8 Stepp shall participate in outside activities which will enhance
WHFI's prestige and fulfill WHFI's public obligations as a member of the
industry and the community.
3.9 Stepp shall carry out special assignments in collaboration with the
CEO, and perform such other duties and responsibilities as may be assigned to
her from time to time by the CEO or Board of Directors.
4. COMPENSATION.
4.1 MONTHLY FEE. WHFI shall pay Stepp, as compensation for the consulting
services rendered hereunder, a flat monthly fee of $4,083.33, which is the
equivalent of $49,000 per year, payable on the last business day of each
calendar month, commencing November 30, 1996. WHFI and Stepp agree that such
flat monthly fee shall be subject to review and adjustment as provided in
Section 4.2 below.
4.2 REVIEW/ADJUSTMENT OF MONTHLY FEE. WHFI and Stepp acknowledge that the
flat monthly fee set forth in Section 4.1 above is based on the assumption that
Stepp will be expending approximately 350 hours per year in the performance of
her duties hereunder. Stepp has been keeping time records over the past six
months, and shall continue to keep time records over the next three months as to
the hours spent in performing her duties hereunder, and provide a copy of such
time records to the Board of Directors. The Board of Directors and Stepp shall
review such time records at the Board of Directors meeting in February, 1997 and
shall, in the event they determine, based on such review, that the flat monthly
fee needs to be adjusted,
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<PAGE>
mutually adjust the same as appropriate, effective April 1, 1997. Stepp shall
not be required to keep time records after said initial three-month period, as
WHFI recognizes and acknowledges that the hours rendered by Stepp will fluctuate
from month to month and desire to compensate Stepp on a flat monthly fee basis,
rather than requiring Stepp to maintain time records throughout the term of this
Agreement and paying her on a hourly basis. In the event the Board of Directors
and Stepp are unable to reach mutual agreement at their meeting in February,
1997 as to the adjustment, if any, to the flat monthly fee, then either party
may, notwithstanding any other provision herein to the contrary, terminate this
Agreement, effective April 1, 1997, by sending written notice of termination to
the other.
5. STOCK OPTIONS.
5.1 AUTOMATIC GRANT OF DIRECTOR STOCK OPTIONS. Pursuant to the provisions
of Section 4 of the WHFI 1992 First Amended and Restated Combination Stock
Option Plan, Stepp shall receive, so long as she remains a member of the Board
of Directors of WHFI and does not become an employee of WHFI, an automatic grant
of a nonstatutory stock option each year, as of the date of WHFI's annual
meeting of shareholders, to purchase 3,000 shares of common stock of WHFI.
5.2 IMMEDIATE GRANT OF ADDITIONAL STOCK OPTIONS. WHFI shall grant Stepp a
nonstatutory stock option under the WHFI 1992 First Amended and Restated
Combination Stock Option Plan, effective as of the date of mutual execution of
this Agreement, to purchase 7,500 shares of common stock of WHFI. The exercise
price of such option shall be the fair market of the common stock of WHFI on the
last trading date immediately preceding November 1, 1996. Such option shall vest
and become fully exercisable six months after the date of grant. The terms and
conditions of such option are set forth in the Nonstatutory Stock Option
Agreement attached hereto as Exhibit A, which the parties shall execute
simultaneously herewith.
5.3 FUTURE CONTINGENT GRANT OF STOCK OPTION. WHFI shall, subject to the
review and approval of the Executive Personnel and Compensation Committee of the
Board of Directors, grant Stepp a nonstatutory stock option under the WHFI 1992
First Amended and Restated Combination Stock Option Plan on November 1, 1997 to
purchase 7,500 shares of the common stock of WHFI, provided Stepp is still
serving as Chair of the Board of Directors, and this Agreement is still in
effect, on November 1, 1997. The exercise price of such option shall be the
fair market of the common stock of WHFI on the last trading date immediately
preceding November 1, 1997. Such option shall vest and become fully exercisable
six months after the date of grant. The terms and conditions of such option
shall be substantially the same as those set forth in the Nonstatutory Stock
Option Agreement attached hereto as Exhibit A.
6. INDEPENDENT CONTRACTOR RELATIONSHIP.
6.1 Notwithstanding anything express or implied herein to the contrary,
the parties acknowledge and agree that Stepp is acting as an independent
contractor, and for all purposes shall be deemed to be an independent contractor
within the meaning of the Internal Revenue Code of 1986, as now in effect or as
may hereafter be amended, in providing the management consulting services under
this Agreement.
6.2 Stepp accepts full and complete responsibility for filing all tax
returns and paying all taxes which may be required or due for compensation
received from WHFI under the terms of
Page 3 - INDEPENDENT CONSULTANT AGREEMENT
<PAGE>
this Agreement, including by way of illustration but not limitation, all federal
and state income taxes, Social Security taxes, unemployment insurance taxes, and
any and all other taxes required by law.
6.3 Stepp represents and warrants to WHFI that she is regularly engaged in
the business of providing management consulting services. Stepp shall
determine, and shall be in sole control of, the methods, details and means used
in providing the management consulting services under this Agreement. Stepp
shall choose the time and manner for performing such services according to her
own routines and schedules, independent from WHFI's business operations.
7. MISCELLANEOUS.
7.1 ENTIRE AGREEMENT. This document is the entire, final and complete
Agreement and understanding of the parties with respect to the subject matter
hereof, and supersedes and replaces all written and oral agreements and
understandings heretofore made or existing by and between the parties or their
representatives with respect thereto.
7.2 WAIVER. No waiver of any provision of this Agreement shall be deemed,
or shall constitute, a waiver of any other provision, whether or not similar,
nor shall any waiver constitute a continuing waiver. No waiver shall be binding
unless executed in writing by the party making the waiver.
7.3 BINDING EFFECT. All rights, remedies and liabilities herein given to
or imposed upon the parties shall extend to, inure to the benefit of and bind,
as the circumstances may require, the parties and their respective heirs,
personal representatives, administrators and successors.
7.4 NOTICES. Any notice of other communication required or permitted
under this Agreement shall be in writing and shall be deemed given on the date
of transmission when sent by telex or facsimile transmission, on the third
business day after the date of mailing when mailed by certified mail, postage
prepaid, return receipt requested, from within the United States, or on the date
of actual delivery, whichever is the earliest, and shall be sent to the parties
at the addresses shown on the first page of this Agreement, or at such other
address as either party may hereafter designate by written notice to the other.
7.5 AMENDMENT. No supplement, modification or amendment to this Agreement
shall be valid, unless the same is in writing and signed by all parties hereto.
7.6 SEVERABILITY. In the event any provision or portion of this Agreement
is held to be unenforceable or invalid by any court of competent jurisdiction,
the remainder of this Agreement shall remain in full force and effect and shall
in no way be affected or invalidated thereby.
7.7 ATTORNEY'S FEES. In the event any suit, action or other legal
proceeding shall be instituted to declare or enforce any right created by this
Agreement, or by reason of any breach of this Agreement, the prevailing party
shall be entitled to recover reasonable attorney fees as fixed by the trial
court and all appellate courts.
7.8 GOVERNING LAW. This Agreement, and its formation, operation and
performance, shall be governed, construed and enforced in accordance with the
laws of the State of Oregon, without regard to its conflict of law principles.
Page 4 - INDEPENDENT CONSULTANT AGREEMENT
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement in duplicate
on December ___, 1996, retroactively effective November 1, 1996.
WHOLESOME & HEARTY FOODS, INC., an
Oregon corporation
By:
---------------------------
------------------------------
E. Kay Stepp
Page 5 - INDEPENDENT CONSULTANT AGREEMENT
<PAGE>
EXHIBIT 11
WHOLESOME AND HEARTY FOODS, INC.
CALCULATIONS OF NET INCOME PER SHARE
<TABLE>
<CAPTION>
The Year Ended December 31,
---------------------------------------------------------------------------------------
1996 1995 1994
-------------------------- ------------------------- --------------------------
Primary Fully Diluted Primary Fully Diluted Primary Fully Diluted
-------------------------- ------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
Weighted Average Shares
Outstanding for the Period 8,455,623 8,455,623 7,670,322 7,670,322 7,566,245 7,566,245
Dilutive Common Stock
Options Using the Treasury
Stock Method 610,346 609,721 968,369 968,918 1,011,662 1,011,662
--------------------------- ---------------------------- ----------------------------
Total Shares Used for Per
Share Calculations 9,065,969 9,065,344 8,638,691 8,639,240 8,577,907 8,577,907
--------------------------- ---------------------------- ----------------------------
--------------------------- ---------------------------- ----------------------------
Net Income $ 1,063,000 $1,063,000 $ 2,510,000 $ 2,510,000 $ 2,391,000 $2,391,000
--------------------------- ---------------------------- ----------------------------
--------------------------- ---------------------------- ----------------------------
Net Income Per Share $ 0.12 $ 0.12 $ 0.29 $ 0.29 $ 0.28 $ 0.28
--------------------------- ---------------------------- ----------------------------
--------------------------- ---------------------------- ----------------------------
</TABLE>
<PAGE>
EXHIBIT 23a
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As Independent public accountants, we hereby consent to the incorporation of our
reports dated February 7, 1997, included in this Form 10-K into the Company's
previously filed Registration Statements No. 33-64622 on Form S-8, No. 33-64624
on Form S-8 and No. 33-76764 on Form S-8.
ARTHUR ANDERSEN LLP
Portland, Oregon,
March 17, 1997
<PAGE>
EXHIBIT 23b
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have issued our report dated February 20, 1995, accompanying the financial
statements included in Wholesome & Hearty Foods, Inc.'s Annual Report on Form
10-K for the year ended December 31, 1996. We hereby consent to the
incorporation by reference of said report in the Registration Statements of
Wholesome & Hearty Foods, Inc. on Forms S-8 (File No. 33-64622, effective June
18, 1993, File No. 33-64624, effective June 18, 1993 and File No. 33-76764,
effective March 22, 1994).
GRANT THORNTON LLP
Portland, Oregon
March 17, 1997
<PAGE>
EXHIBIT 24a
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of
WHOLESOME & HEARTY FOODS, INC., an Oregon corporation (the "Company"), hereby
constitutes and appoints RICHARD C. DIETZ his true and lawful attorney-in-fact
and agent, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign the Form 10-K
Annual Report, with all exhibits and amendments thereto, of Wholesome & Hearty
Foods, Inc. for the fiscal year ended December 31, 1996, and to file this Power
of Attorney and the Form 10-K, and all exhibits thereto and other documents in
connection with the Securities and Exchange Commission and the National
Association of Securities Dealers, Inc., granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that each of said attorney-in-fact and agent, or his substitute
or substitutes, may do or cause to be done by virtue hereof.
Dated this 3rd day of December, 1996.
/s/ THOMAS D. HENRION , Director
-----------------------
Thomas D. Henrion
<PAGE>
EXHIBIT 24b
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of
WHOLESOME & HEARTY FOODS, INC., an Oregon corporation (the "Company"), hereby
constitutes and appoints RICHARD C. DIETZ his true and lawful attorney-in-fact
and agent, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign the Form 10-K
Annual Report, with all exhibits and amendments thereto, of Wholesome & Hearty
Foods, Inc. for the fiscal year ended December 31, 1996, and to file this Power
of Attorney and the Form 10-K, and all exhibits thereto and other documents in
connection with the Securities and Exchange Commission and the National
Association of Securities Dealers, Inc., granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that each of said attorney-in-fact and agent, or his substitute
or substitutes, may do or cause to be done by virtue hereof.
Dated this 3rd day of December, 1996.
/s/ RALPH M. KOVEL , Director
--------------------
Ralph M. Kovel
<PAGE>
EXHIBIT 24c
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of
WHOLESOME & HEARTY FOODS, INC., an Oregon corporation (the "Company"), hereby
constitutes and appoints RICHARD C. DIETZ his true and lawful attorney-in-fact
and agent, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign the Form 10-K
Annual Report, with all exhibits and amendments thereto, of Wholesome & Hearty
Foods, Inc. for the fiscal year ended December 31, 1996, and to file this Power
of Attorney and the Form 10-K, and all exhibits thereto and other documents in
connection with the Securities and Exchange Commission and the National
Association of Securities Dealers, Inc., granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that each of said attorney-in-fact and agent, or his substitute
or substitutes, may do or cause to be done by virtue hereof.
Dated this 3rd day of December, 1996.
/s/MARY O. MCWILLIAMS , Director
-------------------------
Mary O. McWilliams
<PAGE>
EXHIBIT 24d
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of
WHOLESOME & HEARTY FOODS, INC., an Oregon corporation (the "Company"), hereby
constitutes and appoints RICHARD C. DIETZ his true and lawful attorney-in-fact
and agent, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign the Form 10-K
Annual Report, with all exhibits and amendments thereto, of Wholesome & Hearty
Foods, Inc. for the fiscal year ended December 31, 1996, and to file this Power
of Attorney and the Form 10-K, and all exhibits thereto and other documents in
connection with the Securities and Exchange Commission and the National
Association of Securities Dealers, Inc., granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that each of said attorney-in-fact and agent, or his substitute
or substitutes, may do or cause to be done by virtue hereof.
Dated this 3rd day of December, 1996.
/s/MICHAEL L. RAY , Director
-------------------
Michael L. Ray
<PAGE>
EXHIBIT 24e
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of
WHOLESOME & HEARTY FOODS, INC., an Oregon corporation (the "Company"), hereby
constitutes and appoints RICHARD C. DIETZ his true and lawful attorney-in-fact
and agent, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign the Form 10-K
Annual Report, with all exhibits and amendments thereto, of Wholesome & Hearty
Foods, Inc. for the fiscal year ended December 31, 1996, and to file this Power
of Attorney and the Form 10-K, and all exhibits thereto and other documents in
connection with the Securities and Exchange Commission and the National
Association of Securities Dealers, Inc., granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that each of said attorney-in-fact and agent, or his substitute
or substitutes, may do or cause to be done by virtue hereof.
Dated this 3rd day of December, 1996.
/s/E. KAY STEPP , Director
-----------------
E. Kay Stepp
<PAGE>
EXHIBIT 24f
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of
WHOLESOME & HEARTY FOODS, INC., an Oregon corporation (the "Company"), hereby
constitutes and appoints RICHARD C. DIETZ his true and lawful attorney-in-fact
and agent, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign the Form 10-K
Annual Report, with all exhibits and amendments thereto, of Wholesome & Hearty
Foods, Inc. for the fiscal year ended December 31, 1996, and to file this Power
of Attorney and the Form 10-K, and all exhibits thereto and other documents in
connection with the Securities and Exchange Commission and the National
Association of Securities Dealers, Inc., granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that each of said attorney-in-fact and agent, or his substitute
or substitutes, may do or cause to be done by virtue hereof.
Dated this 3rd day of December, 1996.
/s/MICHAEL D. WAGONER , Director
-----------------------
Michael D. Wagoner
<PAGE>
EXHIBIT 24g
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of
WHOLESOME & HEARTY FOODS, INC., an Oregon corporation (the "Company"), hereby
constitutes and appoints RICHARD C. DIETZ his true and lawful attorney-in-fact
and agent, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign the Form 10-K
Annual Report, with all exhibits and amendments thereto, of Wholesome & Hearty
Foods, Inc. for the fiscal year ended December 31, 1996, and to file this Power
of Attorney and the Form 10-K, and all exhibits thereto and other documents in
connection with the Securities and Exchange Commission and the National
Association of Securities Dealers, Inc., granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that each of said attorney-in-fact and agent, or his substitute
or substitutes, may do or cause to be done by virtue hereof.
Dated this 3rd day of December, 1996.
/s/PAUL F. WENNER , Director
-------------------
Paul F. Wenner
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 7,755,000
<SECURITIES> 0
<RECEIVABLES> 2,800,000
<ALLOWANCES> 177,000
<INVENTORY> 4,790,000
<CURRENT-ASSETS> 16,846,000
<PP&E> 6,814,000
<DEPRECIATION> 1,220,000
<TOTAL-ASSETS> 24,934,000
<CURRENT-LIABILITIES> 3,453,000
<BONDS> 0
0
0
<COMMON> 8,468,000
<OTHER-SE> 12,511,000
<TOTAL-LIABILITY-AND-EQUITY> 24,934,000
<SALES> 39,254,000
<TOTAL-REVENUES> 39,254,000
<CGS> 19,906,000
<TOTAL-COSTS> 19,906,000
<OTHER-EXPENSES> 17,885,000
<LOSS-PROVISION> 35,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,790,000
<INCOME-TAX> 727,000
<INCOME-CONTINUING> 1,063,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,063,000
<EPS-PRIMARY> 0.12
<EPS-DILUTED> 0.12
</TABLE>
