<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 24, 1996
REGISTRATION NO. 333-7719
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
WHOLE FOODS MARKET, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
TEXAS 5411 74-1989366
(State of incorporation) (Primary Standard (I.R.S. employer
Industrial Classification identification number)
Code)
</TABLE>
601 N. LAMAR BLVD. #300
AUSTIN, TEXAS 78703
512-477-4455
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
------------------------
GLENDA FLANAGAN
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
WHOLE FOODS MARKET, INC.
601 N. LAMAR BLVD., #300
AUSTIN, TEXAS 78703
512-477-4455
(Name, address including zip code, and telephone number,
including area code, of agent for service)
------------------------
COPY TO:
BRUCE H. HALLETT, ESQ.
CROUCH & HALLETT, L.L.P.
717 N. HARWOOD ST., SUITE 1400
DALLAS, TEXAS 75201
214-953-0053
------------------------
Approximate date of commencement of proposed sale to the public: Upon the
consummation of the merger referred to herein.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
WHOLE FOODS MARKET, INC.
CROSS-REFERENCE SHEET FOR
REGISTRATION STATEMENT ON FORM S-4
<TABLE>
<CAPTION>
ITEM OF FORM S-4 PROSPECTUS CAPTION OR LOCATION
----------------------------------------------------- -----------------------------------------------------
<C> <S> <C>
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement and Outside Front
Cover Page of Prospectus............................ Facing Page of Registration Statement; Outside Front
Cover Page of Proxy Statement/Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus.......................................... Inside Front Cover Page of Proxy
Statement/Prospectus; Available Information; Table
of Contents
3. Risk Factors, Ratio of Earnings to Fixed Charges and
Other Information................................... Inside Front Cover Page of Proxy
Statement/Prospectus; Summary; The Merger; Pro Forma
Financial Information
4. Terms of the Transaction............................. Summary; The Merger; Comparison of Shareholders'
Rights
5. Pro Forma Financial Information...................... Pro Forma Financial Information
6. Material Contacts with the Company Being Acquired.... Summary; The Merger
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to be Underwriters....... Not Applicable
8. Interests of Named Experts and Counsel............... Not Applicable
9. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities...................... Not Applicable
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3
Registrants......................................... Available Information; Incorporation of Certain
Documents by Reference; Summary; The Merger
11. Incorporation of Certain Information by Reference.... Incorporation of Certain Documents by Reference
12. Information with Respect to S-2 or S-3 Registrants... Not Applicable
13. Incorporation of Certain Information by Reference.... Not Applicable
14. Information with Respect to Registrants Other than
S-2 or S-3 Registrants.............................. Not Applicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ITEM OF FORM S-4 PROSPECTUS CAPTION OR LOCATION
----------------------------------------------------- -----------------------------------------------------
<C> <S> <C>
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information with Respect to S-3 Companies............ Not Applicable
16. Information with Respect to S-2 or S-3 Companies..... Not Applicable
17. Information with Respect to Companies Other than S-2
or S-3 Companies.................................... Summary; The Merger; Absence of Market for and
Dividends on the Fresh Fields Shares; Fresh Fields'
Management's Discussion and Analysis of Financial
Condition and Results of Operations; Business of
Fresh Fields; Index to Financial Statements
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or Authorizations
are to be Solicited................................. Available Information; Incorporation of Certain
Documents By Reference; Summary; Special Meeting of
Whole Foods; The Merger; Security Ownership of
Certain Beneficial Owners and Management of Fresh
Fields
19. Information if Proxies, Consents or Authorizations
are not to be Solicited or in an Exchange Offer..... Not Applicable
</TABLE>
<PAGE>
[LETTERHEAD OF WFM]
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of
Whole Foods Market, Inc. ("WFM") to be held on August 30, 1996 at 10:00 a.m.,
local time, at the Omni Hotel, 700 San Jacinto, Austin, Texas.
At this important meeting, the shareholders of WFM are being asked to
approve and adopt a proposed merger pursuant to which Fresh Fields Markets,
Inc., a Delaware corporation ("Fresh Fields"), will become a wholly owned
subsidiary of WFM. Fresh Fields owns and operates 22 multi-department, full
service natural foods supermarkets in seven states and the District of Columbia.
In the proposed merger, holders of the capital stock of Fresh Fields will
receive shares of WFM common stock, depending upon the average market price of
the WFM common stock during the 20-business day period preceding the closing.
The affirmative vote of shareholders owning a majority of the shares of WFM
common stock present at the meeting is needed to approve the proposed merger.
At the Special Meeting, the shareholders will also be asked to approve an
amendment to the Articles of Incorporation of WFM to increase its number of
shares of authorized common stock and a proposal relating to WFM's stock option
plan for team members.
The accompanying Proxy Statement/Prospectus will provide you with a
description of the proposals to be presented at the Special Meeting, including
information concerning the proposed merger.
Your Board of Directors recommends that you vote FOR the merger proposal,
the proposal to increase the authorized number of shares of common stock of WFM
and the proposals relating to the stock option plans.
Whether or not you plan to attend the Special Meeting, please complete, sign
and date the enclosed proxy and return it in the enclosed prepaid envelope. Your
prompt cooperation will be greatly appreciated.
Sincerely,
John Mackey
CHAIRMAN OF THE BOARD
AND CHIEF EXECUTIVE OFFICER
Austin, Texas
July 31, 1996
<PAGE>
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD AUGUST 30, 1996
TO THE SHAREHOLDERS OF
WHOLE FOODS MARKET:
A Special Meeting of shareholders of Whole Foods Market, Inc. ("WFM") will
be held at the Omni Hotel, 700 San Jacinto, Austin, Texas on August 30, 1996 at
10:00 a.m. for the following purposes:
(1) To consider and act upon the proposed merger (the "Merger") and related
Agreement and Plan of Merger pursuant to which a wholly owned subsidiary of WFM
will merge into Fresh Fields Markets, Inc. ("Fresh Fields") as a result of which
Fresh Fields will become a wholly owned subsidiary of WFM, as the Merger is more
particularly described in the enclosed Proxy Statement/ Prospectus;
(2) To consider and act upon the proposed amendment to the Articles of
Incorporation of WFM to increase the authorized number of shares of common stock
of WFM from 30 million to 50 million shares;
(3) To consider and act upon a proposed amendment to the 1992 Stock Option
Plan for Team Members to increase the number of shares of common stock of WFM
issuable upon exercise of stock options under the Plan from 2 million to 3
million shares of common stock; and
(4) To transact such other business as may properly come before the Special
Meeting and any adjournment thereof.
Shareholders of record at the close of business on July 29, 1996 will be
entitled to receive notice of and to vote at the Special Meeting and any
adjournments thereof.
Whether or not you plan to attend the Special Meeting and regardless of the
number of shares you own, please complete, date, sign and return the enclosed
proxy at your earliest convenience in the enclosed self-addressed, stamped
envelope. You are cordially invited to attend the Special Meeting in person, and
if you attend you may withdraw your proxy and vote your shares personally.
BY ORDER OF THE BOARD OF DIRECTORS
Glenda Flanagan
SECRETARY
Dated: July 31, 1996
THE BOARD OF DIRECTORS OF WFM MARKET RECOMMENDS THAT YOU VOTE IN FAVOR OF
THE MERGER, THE AMENDMENT TO THE ARTICLES OF INCORPORATION OF WFM AND THE
AMENDMENT TO THE 1992 STOCK OPTION PLAN FOR TEAM MEMBERS.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED JULY 24, 1996.
PROXY STATEMENT/PROSPECTUS
[LOGO]
This Proxy Statement/Prospectus is being furnished to shareholders of Whole
Foods Market, Inc., a Texas corporation ("WFM" or the "Company"), in connection
with the solicitation of proxies by the Board of Directors of WFM for use at the
Special Meeting of Shareholders to be held at 10:00 a.m., local time, on August
30, 1996 at the Omni Hotel, 700 San Jacinto, Austin, Texas (together with any
adjournment or postponement thereof, the "Special Meeting").
This document also constitutes a Prospectus of WFM under the Securities Act
of 1933, as amended (the "Securities Act"), with respect to the shares of common
stock of WFM, no par value per share (the "Common Stock"), to be issued or
reserved for issuance in connection with a merger (the "WFM Shares") to persons
who hold (and certain persons who have the right to acquire) shares (the "Fresh
Fields Shares") of capital stock of Fresh Fields Markets, Inc., a Delaware
corporation ("Fresh Fields"), which owns and operates 22 natural foods
supermarkets and related facilities in seven states and the District of
Columbia. The WFM Shares will be issued in exchange for all of the outstanding
shares, and reserved for certain options and warrants to acquire such shares, of
all of the five classes of capital stock of Fresh Fields in the merger (the
"Merger") of Whole Foods Market Mid-Atlantic, Inc., a wholly owned subsidiary of
WFM (the "WFM Subsidiary"), into Fresh Fields in accordance with the Agreement
and Plan of Merger, dated as of June 17, 1996, as amended, by and among WFM,
Fresh Fields, and the WFM Subsidiary (the "Merger Agreement"). As a result of
the Merger, the separate corporate existence of the WFM Subsidiary will cease,
and Fresh Fields will continue its existence as a wholly owned subsidiary of
WFM. The Merger is expected to be consummated shortly after the Special Meeting.
The principal executive offices of WFM are located at 601 N. Lamar Blvd., #
300, Austin, Texas 78703 and its telephone number is (512) 477-4455. The
principal executive offices of Fresh Fields are located at 6015 Executive Blvd.,
Rockville, Maryland 20852 and its telephone number is (301) 984-3737.
This Proxy Statement/Prospectus is first being mailed to shareholders of WFM
on or about July 31, 1996.
THE WFM SECURITIES TO BE OFFERED IN CONNECTION WITH THE MERGER HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION
NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
------------------------
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS JULY , 1996.
<PAGE>
AVAILABLE INFORMATION
WFM is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). These reports, proxy statements and other
information filed with the Commission by WFM under the Exchange Act, can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 or at
the Regional Offices of the Commission which are located as follows: Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven
World Trade Center, New York, New York 10049. Copies of such material can also
be obtained from the Commission at prescribed rates. Written requests for such
material should be addressed to the Public Reference Section, Securities and
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549.
Reports, proxy statements and other information concerning WFM can also be
obtained electronically through a variety of databases, including among others,
the Commission's Electronic Data Gathering And Retrieval ("EDGAR") program,
Knight-Ridder Information, Inc., Federal Filings/Dow Jones and Lexis/Nexis.
WFM has filed a Registration Statement on Form S-4 (the "Registration
Statement") with the Commission under the Securities Act with respect to the WFM
Shares that will be issued in the Merger. As permitted by the rules and
regulations of the Commission, this Proxy Statement/Prospectus omits certain
information, exhibits, and undertakings contained in the Registration Statement.
Reference is made to the Registration Statement and to the exhibits thereto for
further information, which may be inspected without charge at the office of the
Commission at 450 Fifth Street, N.W., Washington D.C., and copies of which may
be obtained from the Commission at prescribed rates. Statements contained in
this Proxy Statement/Prospectus or in any document incorporated by reference in
this Proxy Statement/Prospectus relating to the contents of any contract or
other document referred to herein or therein are not necessarily complete and,
in each instance, reference is made to the copy of such document filed as an
exhibit to the Registration Statement or such other document. Each such
statement is qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following WFM documents (File No. 0-19797) filed with the Commission
under the Exchange Act are incorporated by reference in this Proxy
Statement/Prospectus:
1. Annual Report on Form 10-K for the fiscal year ended September 24, 1995;
2. Quarterly Reports on Form 10-Q for the quarterly fiscal periods ending
January 14, 1996 and April 7, 1996; and
3. The description of the WFM Common Stock contained in its Registration
Statement on Form 8-A filed with the Commission on January 14, 1992.
All documents filed by WFM with the Commission pursuant to Sections 13(a),
13(c), 14 and 15(d) of the Exchange Act after the date hereof and before the
date of the Special Meeting shall be deemed to be incorporated by reference
herein and shall be a part hereof from the date of filing of such documents. Any
statements contained in a document incorporated by reference herein or contained
in this Proxy Statement/Prospectus shall be deemed to be modified or superseded
for purposes hereof to the extent that a statement contained herein (or in any
other subsequently filed document which is also incorporated by reference
herein) modifies or supersedes such statement. Any statement so modified or
superseded shall not be deemed to constitute a part hereof except as so modified
or superseded.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (OTHER THAN
APPENDICES TO SUCH DOCUMENTS THAT ARE NOT SPECIFICALLY
2
<PAGE>
INCORPORATED BY REFERENCE HEREIN) ARE AVAILABLE WITHOUT CHARGE UPON REQUEST
FROM: WHOLE FOODS MARKET, INC., 601 N. LAMAR BLVD., #300, AUSTIN, TEXAS 78703,
ATTENTION: SHAREHOLDER SERVICES, (512)477-4455, EXT. 143. TO ENSURE TIMELY
DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY AUGUST 26, 1996.
------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS IN CONNECTION
WITH THE OFFERS MADE HEREBY, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY WFM. THIS
PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THOSE TO WHICH IT
RELATES OR AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER IN SUCH PERSON'S JURISDICTION. NEITHER THE DELIVERY OF THIS PROXY
STATEMENT/PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE AN IMPLICATION THAT, SINCE THE DATE OF THIS PROXY STATEMENT/PROSPECTUS,
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF WFM AND ITS SUBSIDIARIES AND
AFFILIATES OR OF FRESH FIELDS AND ITS AFFILIATES.
3
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Available Information...................................................................................... 2
Incorporation of Certain Documents by Reference............................................................ 2
Summary of Proxy Statement................................................................................. 5
Special Meeting of WFM..................................................................................... 13
The Merger................................................................................................. 14
Pro Forma Financial Information............................................................................ 35
Comparison of Shareholders' Rights......................................................................... 40
Increase in Authorized Number of Shares of WFM Common Stock................................................ 44
Amendment to 1992 Stock Option Plan for Team Members....................................................... 44
Absence of Market for and Dividends on the Fresh Fields Shares............................................. 46
Fresh Fields' Selected Financial Data...................................................................... 47
Fresh Fields Management's Discussion and Analysis of Financial Condition and Results of Operations......... 48
Business of Fresh Fields................................................................................... 52
Security Ownership of Certain Beneficial Owners and Management of Fresh Fields............................. 55
Legal Opinions............................................................................................. 55
Experts.................................................................................................... 55
Shareholders' Proposals.................................................................................... 55
Index to Financial Statements.............................................................................. F-1
Appendix A Agreement and Plan of Merger, as amended........................................................ A-1
Appendix B Opinion of Robertson, Stephens & Co. ........................................................... B-1
Appendix C Section 262 of Delaware General Corporation Law................................................. C-1
Appendix D Articles of Amendment to the Articles of Incorporation of WFM................................... D-1
</TABLE>
4
<PAGE>
SUMMARY OF PROXY STATEMENT/PROSPECTUS
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN
THIS PROXY STATEMENT/PROSPECTUS. THE SUMMARY IS NECESSARILY INCOMPLETE AND
SELECTIVE AND IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION
CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS, INCLUDING THE APPENDICES HERETO,
AND THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN.
RISK FACTORS. The shareholders of WFM and of Fresh Fields should carefully
evaluate certain risk factors relating to WFM and the Merger. See "The Merger --
Risk Factors".
MATTERS TO BE VOTED UPON. At the Special Meeting, the shareholders of WFM
will be asked to approve and adopt a proposal which approves and adopts the
Merger and related Merger Agreement. In addition, the shareholders will be asked
to approve and adopt an amendment to the Articles of Incorporation of WFM to
increase the authorized number of shares of Common Stock from 30 million to 50
million and an amendment to the 1992 Stock Option Plan for Team Members (the
"Team Member Option Plan") to increase the number of shares subject to such plan
from 2 million to 3 million shares.
MERGER. The shareholders of WFM are being asked to consider and act upon
the proposed Merger whereby a wholly owned subsidiary of WFM (the "WFM
Subsidiary") will be merged into Fresh Fields and Fresh Fields will become a
subsidiary of WFM. Upon completion of the Merger, shares of common stock of WFM,
no par value per share (the "Common Stock"), will be issued or reserved for
issuance (the "WFM Shares") to persons who hold and certain persons who have the
right to acquire shares of capital stock of Fresh Fields. Specifically, a
portion of the WFM Shares will be issued to persons who hold issued and
outstanding shares of capital stock of Fresh Fields, and persons who hold
certain in-the-money warrants to acquire shares of capital stock of Fresh Fields
(such shares and warrants collectively, the "Fresh Fields Shares"). The balance
of the WFM Shares will be reserved for issuance to persons who hold certain
in-the-money options to acquire shares of capital stock of Fresh Fields (the
"Included In-The-Money Options"). All other options and warrants to acquire
shares of Fresh Fields capital stock will also be converted into options or
warrants to acquire shares of WFM common stock. The actual number of WFM Shares
issued or reserved in the Merger will be based on the quotient of (a)
$134,500,000, plus (i) the total exercise price of all Included In-The-Money
Options less (ii) the value agreed upon by the parties of certain
out-of-the-money options to acquire shares of Fresh Fields common stock which
value will be $0 provided the Average WFM Share Price (as defined in the Merger
Agreement) is $24 or higher, divided by (b) the average per share closing price
of Common Stock as reported on the Nasdaq National Stock Market ("NSM") over the
twenty trading days immediately preceding the effective date of the Merger (the
"Determination Price"). The Determination Price will not be less than $24.00 per
share nor more than $28.00 per share. The shareholders of WFM will not receive
any consideration in the Merger, nor will the Merger affect the number of shares
held by any shareholder of WFM. See "The Merger". The actual number of WFM
Shares issued to or reserved for the holders of the Fresh Fields Shares and the
holders of the Included In-The-Money Options is subject to the requirement that
a number of such shares that is equal to 5% of $134.5 million, subject to an
adjustment to take into account any Dissenting Fresh Fields Shareholders,
divided by the Determination Price be placed in escrow (the "Escrowed Shares")
and used to satisfy any claims made by WFM under certain indemnification
provisions contained in the Merger Agreement. See "The Merger -- Escrow of
Certain Shares".
BUSINESS OF WFM. WFM owns and operates the country's largest chain of
natural foods supermarkets, featuring food made from natural ingredients free of
unnecessary additives. WFM opened its first store in Austin, Texas in 1980 and
today operates 48 stores in 12 states and the District of Columbia. The
principal executive offices of WFM are located at 601 N. Lamar Blvd., #300,
Austin, Texas 78703 and its telephone number is (512) 477-5566.
5
<PAGE>
BUSINESS OF FRESH FIELDS. Fresh Fields owns and operates 22 natural foods
supermarkets and related facilities in Connecticut, Illinois, Maryland, New
Jersey, New York, Pennsylvania, Virginia and the District of Columbia. Fresh
Fields is one of the country's largest chains of natural foods supermarkets. The
principal executive offices of Fresh Fields, which was founded in 1991, are
located at 6015 Executive Blvd., Rockville, Maryland 20852 and its telephone
number is (301) 984-3737.
EXCHANGE OF FRESH FIELDS SHARES AND INCLUDED OPTIONS FOR WFM SHARES. All of
the Fresh Fields Shares and Included Options outstanding immediately before the
time the Merger becomes effective will be converted into WFM Shares (or in the
case of Included Options the right to receive WFM Shares upon exercise). No
fractional shares will be issued as a result of the Merger. WFM will pay cash to
each shareholder of Fresh Fields who would otherwise be entitled to receive a
fraction of a WFM Share. See "The Merger -- Effective Time and Consequences of
the Merger" and "The Merger -- Effect of Merger on Fresh Fields Options and
Warrants".
VOTES REQUIRED. The affirmative votes of the holders of at least a majority
of the Common Stock represented in person or proxy at the Special Meeting are
required to approve the Merger on behalf of WFM. WFM, the sole shareholder of
the WFM Subsidiary, has also approved and adopted the Merger on behalf of the
WFM Subsidiary. The directors and executive officers of WFM and their affiliates
(who in the aggregate beneficially owned approximately 6.8% of the outstanding
shares of Common Stock as of July 29, 1996, the record date for the Special
Meeting) have advised WFM that they will vote their shares in favor of the
Merger. In addition, John P. Mackey, Peter Roy and Chris Hitt, the Chairman of
the Board and Chief Executive Officer of WFM, the President of WFM and the
President of the Northeast Region for WFM, respectively, who collectively
beneficially own 342,553 shares (2.4%) of the outstanding Common Stock, have
each given Fresh Fields his proxy to vote his shares of Common Stock in favor of
the Merger. The holders of the requisite amount of the voting power of each
class of capital stock of Fresh Fields necessary to approve the Merger are
parties to agreements whereby they have represented to WFM that they will
execute written consents approving and adopting the Merger.
The affirmative votes of the holders of at least a majority of the Common
Stock outstanding on the record date for the Special Meeting are required to
approve and adopt the proposed amendment to the Articles of Incorporation of WFM
to increase the authorized number of WFM Common Stock from 30 million to 50
million shares. The affirmative votes of the holders of at least a majority of
the WFM Common Stock represented in person or proxy at the Special Meeting are
required to approve and adopt the amendment to the Team Member Option Plan. See
"Special Meeting of WFM."
APPRAISAL RIGHTS OF DISSENTING SHAREHOLDERS. The shareholders of WFM are
not entitled to dissenters' rights or an appraisal of their shares in connection
with the Merger.
Subject to certain other conditions, a shareholder of record of Fresh Fields
who does not execute a written consent to the Merger and who files with Fresh
Fields a written objection to the Merger, stating that his or her right to
dissent will be exercised if the Merger is effective and giving his or her name
and address to Fresh Fields, will be eligible to make a written demand on Fresh
Fields pursuant to Delaware law for appraisal rights following the consummation
of the Merger. A Fresh Fields shareholder who files a written objection will not
be entitled to appraisal rights unless such shareholder also makes a written
demand following the consummation of the Merger and takes certain other steps in
the manner required by Delaware law. A vote or consent in favor of the Merger
will constitute a waiver of appraisal rights. See "The Merger -- Appraisal
Rights of Dissenting Shareholders."
FEDERAL INCOME TAX CONSEQUENCES. The Merger is intended to be a tax-free
reorganization under federal income tax laws, and, as such, no gain or loss will
be recognized by the shareholders of Fresh Fields upon their receipt of the WFM
Shares in exchange for their Fresh Fields Shares, except for cash received in
lieu of fractional shares. Gain or loss may be recognized, however, by holders
of Fresh Fields Shares to the extent of any cash received by Fresh Fields
shareholders who perfect their appraisal rights. See "The Merger -- Federal
Income Tax Consequences."
6
<PAGE>
EFFECTIVE TIME OF THE MERGER. It is currently contemplated that the Merger
will be consummated as soon as practicable after the Special Meeting.
CONDITIONS OF THE MERGER; TERMINATION. In addition to approval by the
shareholders of WFM, consummation of the Merger is subject to the satisfaction
or waiver of a number of conditions and to certain regulatory matters, including
the expiration of the relevant waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and the receipt
by WFM and Fresh Fields of a letter from KPMG Peat Marwick LLP concurring with
WFM's determination that the Merger will be accounted for as a
pooling-of-interests. See "The Merger -- Conditions to the Merger".
Other than approval of the Merger by the WFM shareholders and the expiration
of certain waiting periods under the HSR Act, substantially all of the
conditions to the Merger may be waived, in whole or in part, by the parties for
whose benefit they have been created, without the approval of their respective
shareholders. However, after approval by the shareholders of WFM, no amendment
or modification may be made which by law requires further approval by such
shareholders unless such approval is obtained. In addition, the Merger may be
abandoned under certain circumstances, and such abandonment will not require
shareholder approval. See "The Merger -- Conditions to the Merger" and "The
Merger -- Termination of Merger Agreement."
REASONS FOR THE MERGER. Because of the 21 additional natural foods
supermarkets to be acquired by WFM in the Merger, the effectiveness of Fresh
Fields in the geographic areas it serves, the compatibility of the Fresh Fields
store operations with those of WFM's existing stores and the importance of the
eastern and midwest geographic areas of expansion in WFM's operations, WFM views
the Merger as a major step in furthering WFM's expansion strategy and believes
that the Merger will result in long-term benefits to WFM.
WFM believes that Fresh Fields' historical financial results are not
representative of the profitability that WFM expects to obtain following the
Merger. WFM's management believes that Fresh Fields' historical losses in large
part reflect its heavy investment in infrastructure and the expense of new store
openings coupled with the usual comparatively lower sales contribution achieved
from new stores, and are inherent in young, high growth, capital intensive
companies in the supermarket business. WFM believes that Fresh Fields is a
vibrant company whose heavy historical capital investment has left it positioned
to achieve favorable future returns. See "The Merger -- WFM's Reasons for the
Merger."
RECOMMENDATION OF BOARD OF DIRECTORS OF WFM. THE BOARD OF DIRECTORS OF WFM
BELIEVES THAT THE MERGER IS IN THE BEST INTERESTS OF THE WFM SHAREHOLDERS AND
UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE MERGER. See "The Merger --
Background of the Merger" and "The Merger -- WFM's Reasons for the Merger."
OPINION OF FINANCIAL ADVISOR. Robertson, Stephens & Company ("RS&Co.") has
delivered its written opinion, dated as of June 17, 1996, to the Board of
Directors of WFM to the effect that, as of the date of its opinion, the
financial terms of the Merger are fair to WFM from a financial point of view. A
copy of the opinion of RS & Co., which sets forth the assumptions made, is
attached to this Proxy Statement/Prospectus as Appendix B and should be read in
its entirety. See "The Merger -- Fairness Opinion."
MARKET, DIVIDEND AND SHARE PRICE INFORMATION. On July 23, 1996, the last
reported closing price of the Common Stock on the Nasdaq National Stock Market
was $25 1/2 per share. On June 17, 1996, the last day of trading immediately
prior to the public announcement that WFM and Fresh Fields had entered into the
Merger Agreement, the last reported sale price of the Common Stock was $26 7/8
per share. No dividends have been paid to date on the WFM shares of Common
Stock.
No active trading market exists for any of the shares of any class of
capital stock of Fresh Fields.
7
<PAGE>
BOARD OF DIRECTORS OF WFM. Following the Merger and in accordance with the
Merger Agreement, the Board of Directors of WFM will take action to increase the
authorized number of directors by two members, and each of the two principal
shareholders of Fresh Fields will be entitled to designate one representative to
be named to the Board of Directors of WFM to fill the newly created vacancies.
Thereafter, WFM has agreed to nominate and use its reasonable best efforts to
cause the election of each such representative to the WFM Board of Directors so
long as each of the shareholders and their respective affiliates beneficially
owns at least 50% of the WFM Shares issued to the shareholders on the Effective
Date. See "The Merger -- WFM Board Following the Merger."
SUMMARY OF FINANCIAL INFORMATION. The following tables present summary
historical and pro forma financial information for WFM and its subsidiaries and
for Fresh Fields (the tables, which are unaudited and in thousands except for
per share amounts and Operating Data, should be read in conjunction with the
historical and pro forma financial statements and notes thereto included
elsewhere herein):
COMBINED SUMMARY PRO FORMA AND HISTORICAL FINANCIAL INFORMATION
The following tables set forth certain unaudited pro forma combined
condensed and historical financial data for WFM and Fresh Fields. The following
data give effect to the Merger under the pooling-of-interests method of
accounting as if those events had occurred on October 1, 1990 with respect to
the statement of operations data and operating data, and on September 29, 1991
with respect to the balance sheet data. For further information on the manner in
which the summary pro forma financial information was derived, see "Pro Forma
Financial Information." The following data should be read in conjunction with
the consolidated financial statements and notes thereto of WFM, which have been
incorporated by reference, and the financial statements and notes thereto of
Fresh Fields, and with the pro forma combined condensed financial statements
regarding the Merger, appearing elsewhere in this Proxy Statement/Prospectus.
The unaudited pro forma combined condensed financial information is
presented for illustrative purposes only and in the opinion of WFM's management
is not indicative of the operating results or financial position that could have
occurred if the Merger had been consummated on such dates, because the pro forma
financial information does not include pro forma adjustments for certain changes
to be made after the Merger, including reductions in general and administrative
expenses. Nor is the pro forma financial information necessarily indicative of
future operating results or financial position. See "The Merger -- WFM's Reasons
for the Merger."
8
<PAGE>
WHOLE FOODS MARKET, INC.
SUMMARY HISTORICAL FINANCIAL DATA
<TABLE>
<CAPTION>
AS OF OR FOR THE FISCAL YEAR ENDED
AS OF OR FOR THE AS OF OR FOR THE ----------------------------------------------
TWENTY-EIGHT WEEKS TWENTY-EIGHT WEEKS SEPTEM- SEPTEM- SEPTEM- SEPTEM-
ENDED APRIL 7, ENDED APRIL 9, BER 24, BER 25, BER 26, BER 27,
1996 1995 1995 1994 1993 1992
------------------ ------------------ ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
AND OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales.............................. $ 316,597 $ 255,993 $ 496,374 $ 401,685 $ 322,308 $ 205,348
Cost of goods sold and occupancy
costs............................. 213,935 174,401 337,441 272,178 218,540 140,132
---------- ---------- ---------- ---------- ---------- ----------
Gross profit..................... 102,662 81,592 158,933 129,507 103,768 65,216
Direct store expenses.............. 78,033 62,878 122,093 97,270 77,106 48,961
Pre-opening costs.................. 2,052 664 1,599 2,056 1,363 320
General and administrative
expenses.......................... 10,849 9,332 17,852 15,233 13,862 9,865
Store relocation costs............. 2,376 -- 2,332 -- -- --
Non-recurring expenses related to
earthquake........................ -- -- -- 282 -- --
Merger transaction costs........... -- -- -- -- 3,094 --
---------- ---------- ---------- ---------- ---------- ----------
Income from operations........... 9,352 8,718 15,057 14,666 8,343 6,070
Net interest income (expense)...... (1,343) (452) (1,491) 8 72 68
---------- ---------- ---------- ---------- ---------- ----------
Income before income tax
expense......................... 8,009 8,266 13,566 14,674 8,415 6,138
Income tax expense................. 3,404 3,364 5,347 6,035 4,597 2,422
---------- ---------- ---------- ---------- ---------- ----------
Net income....................... $ 4,605 $ 4,902 $ 8,219 $ 8,639 $ 3,818 $ 3,716
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
Net income per common share........ $ 0.32 $ 0.35 $ 0.58 $ 0.61 $ 0.29 $ 0.37
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
Weighted average shares
outstanding....................... 14,560 14,167 14,198 14,221 13,068 9,996
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
OPERATING DATA:
Number of stores at end of
period............................ 46 40 41 35 30 20
Annualized store sales per square
foot.............................. $ 656 $ 642 $ 643 $ 635 $ 603 $ 588
Average weekly sales per store..... $ 259,000 $ 237,000 $ 239,000 $ 235,000 $ 211,000 $ 199,000
BALANCE SHEET DATA:
Working capital (deficit).......... $ 3,574 $ 1,468 $ 1,469 $ 5,236 $ 960 $ 16,003
Total assets....................... 220,841 196,250 196,250 136,165 106,190 58,179
Long-term debt (including current
maturities)....................... 63,922 48,721 48,721 8,389 5,607 3,148
Convertible subordinated debt...... -- -- -- -- -- --
Shareholders' equity............... 112,514 196,250 106,239 97,692 75,465 40,221
<CAPTION>
SEPTEM-
BER 29,
1991
----------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Sales.............................. $ 173,164
Cost of goods sold and occupancy
costs............................. 118,530
----------
Gross profit..................... 54,634
Direct store expenses.............. 40,221
Pre-opening costs.................. 533
General and administrative
expenses.......................... 8,708
Store relocation costs............. --
Non-recurring expenses related to
earthquake........................ --
Merger transaction costs........... --
----------
Income from operations........... 5,172
Net interest income (expense)...... (1,227)
----------
Income before income tax
expense......................... 3,945
Income tax expense................. 1,624
----------
Net income....................... $ 2,321
----------
----------
Net income per common share........ $ 0.31
----------
----------
Weighted average shares
outstanding....................... 7,596
----------
----------
OPERATING DATA:
Number of stores at end of
period............................ 17
Annualized store sales per square
foot.............................. $ 607
Average weekly sales per store..... $ 203,000
BALANCE SHEET DATA:
Working capital (deficit).......... $ (625)
Total assets....................... 34,789
Long-term debt (including current
maturities)....................... 9,255
Convertible subordinated debt...... 5,182
Shareholders' equity............... 8,847
</TABLE>
- ------------------------
9
<PAGE>
FRESH FIELDS MARKETS, INC.
SUMMARY HISTORICAL FINANCIAL DATA
<TABLE>
<CAPTION>
AS OF OR FOR AS OF OR FOR THE FISCAL YEAR ENDED
THE THIRTEEN AS OF OR FOR THE ----------------------------------------------
WEEKS ENDED THIRTEEN WEEKS DECEM- DECEM- JANU- DECEM-
MARCH 30, ENDED APRIL 1, BER 30, BER 31, ARY 1, BER 26,
1996 1995 1995 1994 1994 1992
------------- ---------------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
AND OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales..................................... $ 63,766 $ 47,811 $ 213,561 $ 170,365 $ 116,947 $ 40,336
Cost of goods sold and occupancy costs.... 42,740 31,294 142,491 114,985 78,594 27,548
------------- -------- ---------- ---------- ---------- ----------
Gross profit............................ 21,026 16,517 71,070 55,380 38,353 12,788
Direct store expenses..................... 17,124 12,968 63,325 48,335 36,993 12,497
Pre-opening costs......................... 310 438 1,964 1,033 3,457 766
General and administrative expenses....... 2,978 2,779 12,388 9,176 7,536 3,964
Store relocation/closing costs............ -- -- -- 5,758 2,457 564
------------- -------- ---------- ---------- ---------- ----------
Income (loss) from operations........... 614 332 (6,607) (8,922) (12,090) (5,003)
Net interest income (expense)............. (201) 212 165 256 465 478
------------- -------- ---------- ---------- ---------- ----------
Income (loss) before income tax
expense................................ 413 544 (6,442) (8,666) (11,625) (4,525)
Income tax expense........................ -- -- -- -- 130 --
------------- -------- ---------- ---------- ---------- ----------
Net income (loss)....................... $ 413 $ 544 $ (6,442) $ (8,666) $ (11,755) $ (4,525)
------------- -------- ---------- ---------- ---------- ----------
------------- -------- ---------- ---------- ---------- ----------
Net income (loss) per common share........ $ 0.05 $ 0.06 $ (0.76) $ (1.14) $ (1.80) $ (1.13)
------------- -------- ---------- ---------- ---------- ----------
------------- -------- ---------- ---------- ---------- ----------
Weighted average shares outstanding....... 8,552 8,479 8,499 7,582 6,530 4,003
------------- -------- ---------- ---------- ---------- ----------
------------- -------- ---------- ---------- ---------- ----------
OPERATING DATA:
Number of stores at end of period......... 21 16 19 14 12 5
Annualized store sales per square foot.... $ 530 -- $ 543 $ 548 $ 505 $ 498
Average weekly sales per store............ $ 228,000 -- $ 241,000 $ 249,000 $ 234,000 $ 237,000
BALANCE SHEET DATA:
Working capital (deficit)................. $ (445) $ 11,766 $ (4,891) $ 13,143 $ 10,548 $ 20,954
Total assets.............................. 72,558 67,986 73,240 68,281 56,842 40,384
Long-term debt (including current
maturities).............................. 7,000 -- 5,000 -- -- --
Shareholders' equity...................... 49,982 55,926 49,069 55,383 48,768 35,693
<CAPTION>
DECEM-
BER 28,
1991
----------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Sales..................................... $ 6,577
Cost of goods sold and occupancy costs.... 4,510
----------
Gross profit............................ 2,067
Direct store expenses..................... 3,353
Pre-opening costs......................... 131
General and administrative expenses....... 1,665
Store relocation/closing costs............ --
----------
Income (loss) from operations........... (3,082)
Net interest income (expense)............. 232
----------
Income (loss) before income tax
expense................................ (2,850)
Income tax expense........................ --
----------
Net income (loss)....................... $ (2,850)
----------
----------
Net income (loss) per common share........ $ (1.61)
----------
----------
Weighted average shares outstanding....... 1,768
----------
----------
OPERATING DATA:
Number of stores at end of period......... 2
Annualized store sales per square foot.... $ 443
Average weekly sales per store............ $ 184,000
BALANCE SHEET DATA:
Working capital (deficit)................. $ 5,243
Total assets.............................. 11,839
Long-term debt (including current
maturities).............................. --
Shareholders' equity...................... 9,654
</TABLE>
- ------------------------
10
<PAGE>
PRO FORMA COMBINED CONDENSED WHOLE FOODS MARKET, INC.
<TABLE>
<CAPTION>
AS OF OR FOR THE FISCAL YEAR ENDED
AS OF OR FOR THE AS OF OR FOR THE ----------------------------------------------
TWENTY-EIGHT WEEKS TWENTY-EIGHT WEEKS SEPTEM- SEPTEM- SEPTEM- SEPTEM-
ENDED APRIL 7, ENDED APRIL 9, BER 24, BER 25, BER 26, BER 27,
1996 1995 1995 1994 1993 1992
------------------ ------------------ ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales.............................. $ 439,219 $ 349,715 $ 696,990 $ 572,050 $ 439,254 $ 245,684
Gross profit....................... 145,148 112,452 225,474 184,368 141,607 77,839
Pre-opening costs.................. 2,654 2,012 4,569 3,387 4,985 1,087
Merger transaction costs........... -- -- -- -- 3,094 --
Income (loss) from operations...... 7,083 1,989 3,958 5,407 (4,263) 926
Net income (loss).................. 1,979 (1,580) (2,524) (364) (8,453) (951)
Net income (loss) per common
share............................. $ 0.10 $ (0.08) $ (0.13) $ (0.02) $ (0.50) $ (0.08)
Weighted average shares
outstanding....................... 19,733 18,898 19,200 18,808 17,018 12,418
BALANCE SHEET DATA:
Working capital.................... $ 2,874 $ 15,110 $ 3,676 $ 18,080 $ 11,344 $ 36,957
Total assets....................... 291,139 237,602 264,714 203,417 162,338 98,386
Long-term debt (including current
maturities)....................... 70,922 33,989 53,721 8,389 5,607 3,148
Shareholders' equity............... 161,016 157,525 156,825 152,045 123,540 75,736
<CAPTION>
SEPTEM-
BER 29,
1991
----------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Sales.............................. $ 179,741
Gross profit....................... 56,706
Pre-opening costs.................. 664
Merger transaction costs........... --
Income (loss) from operations...... 2,055
Net income (loss).................. (565)
Net income (loss) per common
share............................. $ (0.07)
Weighted average shares
outstanding....................... 8,665
BALANCE SHEET DATA:
Working capital.................... $ 4,618
Total assets....................... 46,593
Long-term debt (including current
maturities)....................... 9,255
Shareholders' equity............... 18,466
</TABLE>
- ------------------------
11
<PAGE>
COMPARATIVE PER SHARE DATA
The following tables set forth unaudited data concerning the net income
(loss), earnings per share and book value per common share for WFM and Fresh
Fields (i) on a combined pro forma basis after giving effect to the Merger, (ii)
on a historical basis for WFM, (iii) on a historical basis for Fresh Fields per
equivalent share of Common Stock of WFM to be issued in the Merger for the
capital stock of Fresh Fields assuming a Determination Price of $26 (as though
such shares had been issued at the beginning of the period), and (iv) on a
historical basis for Fresh Fields. The following comparative per share data
should be read in conjunction with the historical consolidated financial
statements of WFM, which have been incorporated by reference into this Proxy
Statement/Prospectus, and the historical financial statements of Fresh Fields
and information contained under the caption "Pro Forma Financial Information",
appearing elsewhere in this Proxy Statement/Prospectus.
PRO FORMA COMBINED WHOLE FOODS AND FRESH FIELDS (1)
<TABLE>
<CAPTION>
FOR FISCAL YEAR
ENDED
SEPTEMBER 24,
1995
---------------
<S> <C>
Net loss per share............................................................................................... $ (0.13)
Book value per common share at end of period..................................................................... $ 8.17
Weighted average common shares outstanding....................................................................... 19,200,000
</TABLE>
WHOLE FOODS HISTORICAL
<TABLE>
<CAPTION>
FOR THE
TWENTY-EIGHT WEEKS FOR FISCAL YEAR
ENDED ENDED
APRIL 7, SEPTEMBER 24,
1996 1995
------------------- ---------------
<S> <C> <C>
Net income per share....................................................................... $ 0.32 $ 0.58
Book value per common share at end of period............................................... $ 7.73 $ 7.48
Weighted average common shares outstanding................................................. 14,560,000 14,198,000
</TABLE>
FRESH FIELDS HISTORICAL PER EQUIVALENT SHARE
<TABLE>
<CAPTION>
FOR FISCAL YEAR
ENDED
DECEMBER 30,
1995
---------------
<S> <C>
Net loss per equivalent share.................................................................................... $ (1.25)
Book value per equivalent share at end of period................................................................. $ 9.54
Equivalent shares of Whole Foods Common Stock to be issued in exchange for Capital Stock of Fresh Fields (2)..... 5,141,000
</TABLE>
FRESH FIELDS HISTORICAL
<TABLE>
<CAPTION>
FOR FISCAL YEAR
ENDED
DECEMBER 30,
1995
---------------
<S> <C>
Net loss per share............................................................................................... $ (0.76)
Book value per common share at end of period..................................................................... $ 5.77
Weighted average common shares outstanding....................................................................... 8,499,000
</TABLE>
- --------------------------
(1) Shares used in computing the pro forma combined per share data include the
weighted average common shares outstanding for Whole Foods for the year
ended September 24, 1995, plus the assumed issuance of 5,002,000 shares to
Fresh Fields shareholders as of the beginning of the year. See "Notes to Pro
Forma Combined Condensed Financial Statements," included elsewhere in this
Registration Statement for a description of the estimates made in
determining the number of shares to be issued to Fresh Fields.
(2) Equivalent shares is calculated by multiplying the assumed conversion ratio
(calculated at $26.00 per share) of .6049 by the Fresh Fields weighted
average common shares outstanding at December 31, 1995 of 8,449,000.
12
<PAGE>
SPECIAL MEETING OF WFM
A Special Meeting of Shareholders of WFM will be held at the Omni Hotel, 700
San Jacinto, Austin, Texas, at 10:00 a.m., Austin time, on August 30, 1996. The
WFM proxy being sent to its shareholders is being solicited on behalf of the
Board of Directors of WFM for use at the Special Meeting and any adjournment
thereof.
MATTERS TO BE VOTED ON. At the Special Meeting the shareholders of WFM will
be asked to approve the Merger and related Merger Agreement. A vote for the
Merger will be deemed to be a vote for any related filings made by WFM with the
Secretary of State of Delaware or Texas to consummate the Merger. In addition,
the shareholders of WFM will be asked to approve and adopt (i) an amendment to
the Articles of Incorporation of WFM to increase the authorized number of shares
of Common Stock from 30 million to 50 million and (ii) an amendment to the Team
Member Option Plan to increase the number of shares subject to such plan from 2
million shares to 3 million shares. In addition, any other business as may
properly come before the Special Meeting will be considered and the persons
named in the proxies will vote in accordance with their judgment on such
business. The Board of Directors of WFM knows of no such other business that
will be brought before the Special Meeting as of the date of this Proxy
Statement/Prospectus.
RECORD DATE. WFM has fixed the close of business on July 29, 1996 as the
record date for the determination of shareholders entitled to receive notice of
and to vote at the Special Meeting. At the record date, approximately 14,300,000
shares of the Common Stock of WFM were outstanding.
REQUIRED VOTE. A majority of the Common Stock outstanding on the record
date will constitute a quorum for the transaction of business at the Special
Meeting. Each share of Common Stock outstanding on the record date is entitled
to one vote. The affirmative votes of a majority of the shares of Common Stock
represented in person or by proxy at the Special Meeting will be required to
approve and adopt the Merger and Merger Agreement. The affirmative votes of a
majority of outstanding shares of Common Stock will be required to approve the
amendment to WFM's Articles of Incorporation to increase the authorized number
of shares of Common Stock. The affirmative votes of a majority of the shares of
Common Stock represented in person or by proxy at the Special Meeting will be
required to approve the amendment to the Team Member Option Plan to increase the
number of shares available.
PROXIES. All the shares of Common Stock represented by properly executed
proxies will be voted at the Special Meeting in accordance with the directions
in such proxies. If no contrary instructions are given, the shares of Common
Stock represented thereby will be voted FOR (i) the Merger and Merger Agreement,
(ii) the proposed increase in the authorized number of shares of Common Stock
and (iii) the amendment to the Team Member Option Plan. Any person executing a
proxy may revoke it at any time prior to its exercise. A proxy may be revoked by
delivery of written notice of such revocation to the Secretary of WFM, by a
subsequent proxy executed by the person executing the prior proxy and presented
before or at the Special Meeting, or by attendance at the Special Meeting and
voting in person by the person executing the proxy.
SOLICITATION OF PROXIES. The cost of the solicitation of proxies will be
borne by WFM. In addition to solicitation by mail, some of WFM's directors,
officers and regular employees, without extra compensation, may conduct
additional solicitation by telegraph, telephone and personal interview. WFM may
also enlist the assistance of banks, brokerage houses and nominees in additional
solicitation of proxies, particularly from persons whose shares of Common Stock
are not registered in the beneficial owners' names.
13
<PAGE>
THE MERGER
INTRODUCTION
The terms and conditions of the Merger are set forth in the Merger
Agreement, the text of which is attached to this Proxy Statement as Appendix A.
The summary of the Merger Agreement contained in this Proxy Statement does not
purport to be complete and is qualified in its entirety by reference to the
complete text of such document.
At the time the Merger becomes effective, the WFM Subsidiary will be merged
with and into Fresh Fields in accordance with Delaware law. As a result of the
Merger, the separate corporate existence of the WFM Subsidiary will cease, and
Fresh Fields will continue its existence as a separate wholly owned subsidiary
of WFM.
Upon the consummation of the Merger, the Fresh Fields Shares outstanding
immediately prior to the time the Merger becomes effective will be converted,
and the Included In-The-Money Options will become exercisable, into the WFM
Shares, subject to the escrow requirement and the rights of dissenting Fresh
Fields shareholders, if any. The actual number of WFM Shares issued in the
Merger will be based on the quotient of (a) $134,500,000, subject to an
adjustment to take into account any Dissenting Fresh Fields Shareholders, (i)
increased by the total exercise price of all Included In-the-Money Options and
(ii) reduced by the value agreed upon by the parties of certain out-of-the-money
options to acquire shares of Fresh Fields common stock, which value will be $0
provided the Average WFM Share Price (as defined in the Merger Agreement) is $24
or higher, divided by (b) the Determination Price, subject to an adjustment to
take into account any dissenting Fresh Fields shareholders. The Determination
Price will not be less than $24.00 per share nor more than $28.00 per share. Any
fractional shares resulting from such conversion will entitle the holder to
receive cash.
The actual number of WFM Shares issued in the Merger is subject to a
requirement that a number of such shares that is equal to 5% of $134.5 million
(subject to an adjustment to take into account any Dissenting Fresh Fields
Shareholders) divided by the Determination Price be placed in escrow and used to
satisfy any claims made and losses sustained by WFM under certain
indemnification provisions contained in the Merger Agreement. See "The Merger --
Escrow of Certain Shares".
The shareholders of WFM will not receive any consideration in the Merger,
nor will the Merger affect the number of shares held by any shareholder of WFM.
WFM will treat the Merger as a pooling-of-interests for financial reporting
purposes. See "The Merger -- Accounting Treatment".
BACKGROUND OF THE MERGER
Among its strategies to further its growth, WFM pursues the acquisition of
stores in regions where the Company believes it can become a leading natural
foods supermarket retailer. As part of that ongoing strategy, John Mackey, the
Chairman and CEO of WFM, from time to time has had informal contact or
conversations with various parties in the natural foods market business,
including with representatives of Fresh Fields' management, to explore the
possibility of various business combinations.
In April 1996, WFM engaged the investment banking firm of Robertson,
Stephens & Company to assist the Company in evaluating the possible merger or
other business combination from a financial point of view and to assist in
negotiations.
Subsequently, representatives of WFM and Fresh Fields, and their respective
financial advisors, met in Chicago, Illinois to discuss valuation and procedural
issues. Although Fresh Fields and the Company disagreed on a valuation for Fresh
Fields, they agreed with the strategic merits of a merger. Accordingly, Fresh
Fields agreed to provide WFM with additional information concerning its business
and financial and operating results. WFM agreed to review the information and to
reconsider its valuation of Fresh Fields based on the additional information.
14
<PAGE>
Upon receiving and evaluating the additional information provided by Fresh
Fields, WFM submitted an offer based on the additional information. After
negotiations conducted principally through their respective financial advisors,
WFM made a proposal in May of 1996 involving a merger in which the shareholders
of Fresh Fields would receive shares of Common Stock. On or about May 16, 1996,
this proposal was tentatively agreed to as a basis for negotiating a definitive
agreement. Both parties agreed that execution of any definitive agreement
remained subject to due diligence investigations, a review of the accounting
treatment of the proposed transaction, negotiation of customary provisions of a
definitive agreement and the approvals of the respective boards of directors.
Discussions regarding the unresolved issues continued, but the parties
instructed their attorneys to commence definitive documentation regarding a
proposed transaction. The Board of Directors of WFM met on May 22, 1996, to
consider the principal terms of the proposed merger and approved the transaction
in principle. The Board of Directors of Fresh Fields met two days later on May
24, 1996, to consider the principal terms of the proposed merger and authorized
management to proceed with the negotiation of the proposed transaction.
Commencing May 28, 1996, WFM and Fresh Fields began supplying each other
with more extensive due diligence information regarding the respective
companies. During this period, representatives of WFM and Fresh Fields, and
their respective attorneys and financial advisors, negotiated the terms of the
definitive agreements.
The Fresh Fields' Board of Directors met to consider the proposed definitive
agreement on June 13 and 14, 1996. At the conclusion of the Board meeting on
June 14, 1996, the Fresh Fields Board of Directors did not approve the proposed
merger agreement, but instead asked its representatives and financial advisors
to discuss further with WFM the scope of certain closing conditions and other
matters. On June 13, 1996, the WFM Board of Directors met to consider the Merger
and the terms of the proposed definitive agreement. At the meeting RS&Co.
presented its oral opinion as to the fairness of the terms of the Merger to WFM
and its shareholders. The WFM Board of Directors reached a consensus to approve
the Merger because they determined that the transaction was in the best
interests of WFM and its shareholders. However, WFM was notified of Fresh
Fields' objections to the terms of the proposed definitive agreement before the
WFM Board took formal action to approve the Merger. WFM's management and its
advisors were authorized to continue negotiations to determine whether the
objections of Fresh Fields could be resolved on terms that were mutually
acceptable.
Further negotiations ensued, and on June 14, 1996, the parties reached an
agreement in principle concerning the outstanding unresolved issues.
On June 14, 1996, the Board of Directors of WFM reconvened and reviewed the
revised terms of the proposed Merger. After considering reports from WFM's
management and financial advisors, the Board unanimously (i) determined that the
Merger was fair to and in the best interests of WFM and its shareholders; (ii)
approved the Merger Agreement, subject to the drafting of the changes to the
definitive agreement necessary to reflect the agreement in principle; and (iii)
recommended to the shareholders of WFM that they vote in favor of the Merger and
the Merger Agreement. The WFM Board authorized WFM's management to approve the
revisions to the Merger Agreement that incorporated the agreement in principle
which resolved Fresh Fields' objections.
On June 17, 1996, all the changes to the Merger Agreement were completed. On
the same date the Board of Directors of Fresh Fields met and approved the Merger
Agreement. The Merger Agreement was executed by both parties on June 17, 1996.
FAIRNESS OPINION
WFM has retained RS&Co. to act as its financial advisor in connection with
the Merger. RS&Co. was retained based on its experience as a financial advisor
in connection with mergers and acquisitions as well as RS&Co.'s industry
knowledge and familiarity with WFM.
At the June 13, 1996 meeting of WFM's Board of Directors, RS&Co. presented
its opinion, to the effect that, as of such date and based on the matters
described therein, the consideration offered to
15
<PAGE>
Fresh Fields was fair to WFM from a financial point of view. RS&Co.'s opinion to
the WFM Board addresses only the fairness from a financial point of view of the
consideration being offered to Fresh Fields and does not constitute a
recommendation to any shareholder as to how such shareholder should vote at the
Special Meeting. The complete text of that opinion is attached to this Proxy
Statement/Prospectus as Appendix B and the summary of the opinion set forth in
the Proxy Statement/Prospectus is qualified in its entirety by reference to the
opinion. WFM shareholders are urged to read such opinion carefully and in its
entirety for a description of the procedures followed, the factors considered
and the assumptions made by RS&Co.
In connection with the preparation of the opinion presented to WFM's Board
of Directors on June 13, 1996, and its final written opinion dated June 17,
1996, which was updated to reflect the final changes to the Merger Agreement,
RS&Co., among other things: (i) reviewed financial information relating to WFM
and Fresh Fields furnished to it by both companies, including certain internal
financial analyses and forecasts prepared by the management of each company;
(ii) reviewed publicly available information; (iii) held discussions with the
management of WFM and Fresh Fields concerning the businesses, past and current
operations, the financial condition and future prospects of both companies,
independently and combined, including certain information prepared by the
management of WFM and Fresh Fields concerning potential cost savings that could
result from the Merger; (iv) reviewed the Merger Agreement; (v) reviewed the
price and trading history of Common Stock; (vi) reviewed the contribution by
each company to pro forma combined revenue, store operating profit (before
corporate general and administrative expenses), net income, book value, and the
total number of stores; (vii) compared the financial terms of the Merger with
other transactions which it deemed relevant; (viii) prepared a discounted cash
flow analysis of Fresh Fields; (ix) analyzed the pro forma earnings per share of
the combined company; and (x) made such other studies and inquiries, and
reviewed such other data, as it deemed relevant.
Based on past activities, RS&Co. has a substantial degree of familiarity
with WFM. In addition, in the course of its engagement, RS&Co. completed further
investigation of both WFM and Fresh Fields. In arriving at its opinion, however,
RS&Co. did not independently verify any of the foregoing information and has
relied on all such information being complete and accurate in all material
respects. Furthermore, RS&Co. did not obtain any independent appraisal of the
properties or assets and liabilities of WFM or Fresh Fields or of any of their
subsidiaries. With respect to the financial and operating forecasts (and the
assumptions and bases thereof) of WFM and Fresh Fields which RS&Co. reviewed,
RS&Co. assumed that such forecasts have been reasonably prepared and has relied
upon estimates and judgments of WFM's management as to the future financial
performance of both companies, including the cost savings resulting from the
Merger, reflect the best available estimates and judgments of such respective
managements and that such projections and forecasts will be realized in the
amounts and in the time periods currently estimated by the management of WFM.
RS&Co. also assumed that the Merger will be accounted for as a
pooling-of-interests under generally accepted accounting principles and that the
Company will be able to utilize (with certain annual limitations) the net
operating losses of Fresh Fields. While RS&Co. believes that its review, as
described herein, is an adequate basis for the opinion that RS&Co. expresses,
this opinion is necessarily based upon market, economic and other conditions
that exist and can be evaluated as of the date of the opinion, and on
information available to RS&Co. as of such date.
The following paragraphs summarize the significant qualitative and
quantitative analyses performed by RS&Co. in arriving at its opinion presented
to the WFM Board of Directors. The information presented below is based on the
financial condition of WFM and Fresh Fields as of a date or dates shortly before
the Merger Agreement was executed on June 17, 1996.
STOCK PRICE TRADING HISTORY. RS&Co. reviewed the trading activity for WFM
Common Stock for the last 12 months as well as since its initial public offering
(the "IPO"). In addition, RS&Co. compared the indexed performance of the Common
Stock for the last 12 months against the performance of the Standard & Poor's
500 Index ("S&P 500") and an index comprised of a group of companies
16
<PAGE>
deemed comparable to WFM and Fresh Fields (the "Comparable Companies Index").
The Comparable Companies Index consisted of other high-growth, specialty
retailers, including Cost Plus, General Nutrition Centers, Quality Food Centers,
Smart & Final, The Sports Authority, Starbucks and West Marine. In addition,
RS&Co. reviewed selected commentary of research analysts at different points in
the trading history of the Common Stock. RS&Co. noted in its presentation that
WFM Common Stock was trading near its all-time high and trading significantly
above its price of one year ago.
CONTRIBUTION ANALYSIS. RS&Co. compared the contribution of WFM and Fresh
Fields (before accounting for any anticipated store closures) to pro forma
combined revenue, store operating profit (before corporate general and
administrative expenses), net income, book value and the total number of stores.
The relative contribution was analyzed for 1995, 1996 and 1997 (on a pro forma
basis). The pro forma figures adjusted Fresh Fields earnings for expected
reductions in its general and administrative expenses after the Merger. RS&Co.
noted that Fresh Fields contributes approximately 26%-30% of revenue and
approximately 21%-23% of store operating profit during these years. Although
Fresh Fields did not contribute to profitability in historical periods, RS&Co.
also noted that Fresh Fields is expected to contribute to the combined company's
net income in calendar year 1997 (on a pro forma basis) on a basis approximately
equivalent to their ownership. In addition, Fresh Fields contributes 32% of the
combined book value and 32% of the total number of stores currently open. RS&Co.
compared these historical and projected contribution figures with the
approximately 25%-28% ownership position that Fresh Fields shareholders would
have in the combined company on a fully-diluted basis. RS&Co. also noted that
Fresh Fields has a less mature store base that is, in part, responsible for the
lower contribution to the pro forma combined store operating profit.
COMPARABLE COMPANY ANALYSIS. RS&Co. compared certain financial data and
multiples of income statement and historical balance sheet parameters accorded
to other publicly traded companies deemed by RS&Co. to be comparable to Fresh
Fields. Multiples compared included enterprise value to historical and projected
revenue, enterprise value to projected earnings before interest and taxes
("EBIT") (on a pro-forma basis), price per share to projected earnings per share
(on a pro forma basis), and market capitalization to book value. In addition,
price per share to earnings per share divided by the growth rate was examined
for each company and compared to Fresh Fields. Companies used as comparables
included Cost Plus, General Nutrition Centers, Quality Food Centers, Smart &
Final, The Sports Authority, Starbucks, West Marine and WFM. Based on the
selected comparable company multiples deemed most relevant by RS&Co., Fresh
Fields' implied equity value ranged from $145 million to $181 million.
PRECEDENT TRANSACTION ANALYSIS. RS&Co. also analyzed publicly available
information for four selected pending or completed acquisitions and mergers of
natural product retailers since 1992. Multiples analyzed included total
consideration offered (equity value plus net debt assumed) to historical
revenue, and consideration offered to net income and book value. The appropriate
multiples were then applied to Fresh Fields' historical revenue and book value,
and to the pro forma net income adjusted for expected reductions in its general
and administrative expenses. Based on the selected transactions analyzed, Fresh
Fields' implied equity value ranged from $137 million to $143 million. RS&Co.
also examined other acquisitions in speciality retailing and various
acquisitions of traditional grocery store retailers. RS&Co. noted that in
substantially all of the retailing and traditional grocery store transactions
analyzed, the acquired company did not have a historical growth rate as high as
Fresh Fields nor did they participate in the growing natural products market.
Consequently, these transactions were deemed less meaningful by RS&Co. for
purposes of arriving at its opinion.
DISCOUNTED CASH FLOW ANALYSIS. RS&Co. also prepared a discounted cash flow
analysis of Fresh Fields and presented a range of implied equity values for
Fresh Fields, on a stand alone basis, of $127 million to $150 million. Assuming
certain operating efficiencies (such as a reduction in general and
administrative expenses) obtainable in a combination with WFM, a "synergies
case" indicated a range of implied equity values for Fresh Fields of $165
million to $194 million. All discounted cash flow analyses were based on a
terminal value of eight times operating income at the end of the forecast period
and discount rates of between 13% and 15%.
17
<PAGE>
PRO FORMA MERGER ANALYSIS. RS&Co. analyzed the pro forma effect on earnings
per share of WFM Common Stock based upon management's expectations for its
earnings and those achievable by Fresh Fields. The analysis examined fiscal 1996
and fiscal 1997 earnings per share and assumed certain store closures and
various levels of overhead reductions at Fresh Fields. This analysis indicated
that with these assumptions the Merger would be dilutive to the earnings per
share in fiscal 1996 and likely non-dilutive to the earnings per share of WFM in
fiscal 1997. Given the anticipated timing for closure of the Merger, RS&Co.
noted that it believed the impact on fiscal 1997 financial results to be more
relevant than the impact on fiscal 1996 financial results.
RS&Co. also discussed with the Board what it believed to be the
opportunities and risks associated with the transaction. Factors believed to be
opportunities include the addition of Fresh Fields operational expertise, the
opportunity to use the Fresh Fields stores as a platform for further expansion
and the potential for increasing the profitability at Fresh Fields. The risks
associated with the Merger include the ability to successfully implement
anticipated cost-reduction measures with respect to the operations of Fresh
Fields which are believed to be necessary for the Merger to be non-dilutive to
WFM earnings per share in fiscal 1997; the additional management time required
to successfully integrate the new stores and manage the overall growth of WFM;
and the risks associated with the successful development and maturation of the
Fresh Fields' stores, some of which are relatively new and unprofitable.
The preparation of fairness opinions involve various determinations as to
the most appropriate and relevant quantitative and qualitative methods of
financial analyses and the application of those methods to the particular
circumstances and, therefore, such opinions are not readily susceptible to
summary description. Accordingly, RS&Co. believes its analyses must be
considered as a whole and that considering any portion of such analyses and the
factors considered, without considering all analyses and current factors, could
create a misleading or incomplete view of the process underlying opinions. In
its analyses, RS&Co. made numerous assumptions with respect to industry
performance, general business and other conditions and matters, many of which
are beyond the control of WFM and Fresh Fields. Any estimates contained in these
analyses are not necessarily indicative of actual values or predictive of future
results or values, which may be significantly more or less favorable than as set
forth herein. In addition, analyses relating to the value of businesses do not
purport to be appraisals.
RS&Co. was retained based on its experience as financial advisor in
connection with mergers and acquisitions as well as RS&Co.'s investment banking
relationship and familiarity with WFM. RS&Co. has provided financial advisory
and investment banking services to WFM since 1992. RS&Co. acted as managing
underwriter for the initial public offering of WFM in January 1992, as well as
follow-on offerings in January 1993 and December 1993. With respect to these
public offerings of WFM Common Stock, RS&Co. was compensated for such services
in the form of customary underwriting discounts and commissions. In addition,
RS&Co. acted as financial advisor to WFM in its acquisition of Mrs. Gooch's
Natural Food Markets in 1993. RS&Co. makes a market in the Common Stock of WFM
and may continue to provide investment banking services to WFM in the future. In
the course of its market making and other trading activities, RS&Co. may, from
time to time, have a long or short position in, and buy and sell securities of,
WFM.
For RS&Co.'s services as financial advisor to WFM in connection with the
Merger, WFM has agreed to pay RS&Co. a fee of $350,000. WFM also has agreed to
reimburse RS&Co. for its reasonable out-of-pocket expenses and to indemnify it
against certain liabilities relating to or arising out of services performed by
RS&Co. as financial advisor to WFM.
RS&Co. is a nationally recognized investment banking firm. As part of its
investment banking business, RS&Co. is frequently engaged in the valuation of
businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, secondary distributions of securities, private
placements and other purposes.
18
<PAGE>
WFM'S REASONS FOR THE MERGER
WFM has stated that part of its expansion strategy is to acquire stores in
areas where it can become a leading natural foods supermarket retailer. Fresh
Fields is one of the largest chains of natural food supermarkets in the country
and is well respected in the natural foods supermarket industry.
As a result of the Merger, WFM will own 21 additional natural foods
supermarkets in the Mid-Atlantic and Midwest regions (after giving effect to the
anticipated closing of the Fresh Fields' Chicago, Illinois store which is within
two miles of existing WFM stores). The stores acquired in the Merger will
accelerate the growth and expansion of WFM in the eastern United States,
particularly the New York, Philadelphia and Washington, D.C. areas. WFM believes
that these markets have the potential to support additional natural foods
supermarkets.
WFM believes that Fresh Fields' historical financial results are not
representative of the profitability that WFM expects to obtain following the
Merger. WFM's management believes that Fresh Fields' historical losses in large
part reflect its heavy investment in infrastructure and the expense of new store
openings coupled with the usual comparatively lower sales contribution achieved
from new stores, and are inherent in young, high growth, capital intensive
companies in the supermarket business. WFM believes that Fresh Fields is a
vibrant company whose heavy historical investment in capital and infrastructure
has left it positioned to achieve favorable future returns. This investment will
also enable WFM to add to the number of its stores in the Northeastern and
Midwest regions.
With Fresh Fields' solid infrastructure in place, WFM may be able to realize
economies of scale in the distribution facilities and in the commissaries and
store bakeries because of the combined higher concentration of stores in the
eastern and midwest regions. The larger size of the combined company also may
enable WFM to enhance its purchasing efficiencies. In addition, WFM expects to
be able to utilize Fresh Fields' net operating loss carry forwards to reduce its
future income tax burden.
The Fresh Fields' stores operate in a format compatible with WFM's existing
stores and WFM believes that Fresh Fields' operational expertise will provide
opportunities for cross-fertilization of knowledge among the WFM team members
and provide a source of management talent to help fuel future WFM growth.
Although Fresh Fields was not profitable prior to the end of fiscal 1995, most
individual Fresh Fields stores have been profitable. WFM believes that the
profitability of Fresh Fields can be further enhanced by reducing corporate
overhead as the former Fresh Fields' stores are integrated into WFM's
decentralized management structure. WFM believes that other opportunities also
exist which would increase the profitability of Fresh Fields' stores, including
changes in the merchandising mix, reductions in advertising expenditures and
implementation of WFM's gainsharing programs.
Because of the magnitude of the additional stores acquired in the Merger,
the effectiveness of Fresh Fields in the geographic areas it serves, the
compatibility of the Fresh Fields stores' operating formats with those of WFM's
existing stores and the importance of the eastern and midwest geographic area of
expansion in WFM's operations, the WFM Board views the Merger as a major step in
furthering WFM's expansion strategy and believes that the Merger will result in
significant long-term benefits to WFM.
Each of the directors and executive officers of WFM (who in the aggregate
owned beneficially approximately 6.8% of the outstanding shares of Common Stock
as of July 29, 1996) have advised the Company that they intend to vote all of
the shares of Common Stock owned by them for the approval and adoption of the
Merger.
THE BOARD OF DIRECTORS OF WFM BELIEVES THAT THE MERGER IS IN THE BEST
INTERESTS OF THE WFM SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS A VOTE FOR THE
MERGER.
19
<PAGE>
FRESH FIELDS' REASONS FOR THE MERGER
Fresh Fields has determined that, to continue to succeed in the very
competitive supermarket business, it must become significantly larger. By
operating on a larger scale, it can take advantage of economics of scale, reduce
overhead, purchase more efficiently and improve its distribution facilities. A
merger with WFM, which is almost twice as large as Fresh Fields and which in
general does not serve the same geographic markets, will enable it to achieve
these goals on a more expedited basis.
Fresh Fields' strategy for creating value has been to grow rapidly.
Continuation of this strategy will require substantial amounts of capital. By
merging with WFM, which is already a public company, Fresh Fields will have
access to both debt and equity capital in the public markets in larger amounts
and on more favorable terms than Fresh Fields could obtain if it were to remain
independent.
As an alternative to the Merger, Fresh Fields might obtain capital by
conducting additional private placements or undertaking a public offering. Fresh
Fields believes, however, that yet another private placement would be
prohibitively expensive and would substantially dilute existing shareholders. A
public offering, moreover, would involve a number of risks and uncertainties.
The cost and availability of capital in the public markets would depend on Fresh
Fields' performance as well as many external factors, such as interest rates and
the overall performance of the stock market. The multiples of earnings at which
equity could be raised might be less favorable than the multiple reflected in
the Merger.
The Merger will serve the Fresh Fields shareholders' interest in making
their investment more liquid. Because WFM is already a public company, Fresh
Fields shareholders who are not affiliates of Fresh Fields and who do not become
affiliates of WFM may sell their stock in the public markets without
restriction. Fresh Fields shareholders who are now affiliates of Fresh Fields or
who became affiliates of WFM may sell pursuant to Rules 144 and 145 under the
Securities Act, and may also take advantages of certain registration rights
granted by WFM.
Because the Merger is tax free to both Fresh Fields and its shareholders,
the Fresh Fields shareholders will retain the entire amount of their investment
in stock upon completion of the transaction without any tax liability (except to
the extent they receive cash for fractional shares). In addition, the Fresh
Fields shareholders will continue to have the opportunity to benefit from Fresh
Fields' growth, since Fresh Fields will represent a significant portion of the
merged entities' business.
After reviewing the terms of the Merger, consulting with management,
financial and legal advisers, and examining the outlook for Fresh Fields' and
WFM's businesses, the Fresh Fields Board of Directors determined that the Merger
is in the best interest of the Fresh Fields shareholders, and recommended to the
shareholders that they approve the transaction.
RISK FACTORS
THE SHAREHOLDERS OF FRESH FIELDS AND WFM SHOULD CAREFULLY EVALUATE ALL OF
THE INFORMATION CONTAINED AND INCORPORATED BY REFERENCE IN THIS PROXY
STATEMENT/PROSPECTUS, AND IN PARTICULAR, THE FOLLOWING FACTORS:
The Company wishes to caution readers that the following important factors,
among others, could cause the actual results of WFM to differ materially from
those indicated by forward-looking statements made from time to time in news
releases, reports, proxy statements, registration statements and other written
communications, as well as oral forward-looking statements made from time to
time by representatives of the Company. Except for historical information, the
matters discussed in such oral and written communications are forward looking
statements that involve risks and uncertainties, including but not limited to
general business conditions, the timely and successful development and opening
of new stores, the impact of competition and other risks detailed below.
20
<PAGE>
EXPANSION STRATEGY. Whole Food's strategy is to expand through a
combination of new store openings and acquisitions of existing stores.
Successful implementation of this strategy is contingent on numerous conditions,
some of which are described below, and there can be no assurance that the
Company's expansion strategy can be successfully executed.
Continued growth of WFM will depend to a significant degree upon its ability
to open or acquire new stores in existing and new markets and to operate these
stores on a successful basis. Further, the Company's expansion strategy is
dependent on finding suitable locations, and the Company faces intense
competition with other retailers for such sites. There can be no assurance that
the Company will be able to open or acquire new stores in a timely manner and to
operate them on a successful basis. In addition, there can be no assurance that
the Company can successfully hire and train new employees and integrate such
employees into the programs and policies of the Company or adapt its
distribution, management information and other operating systems to the extent
necessary to operate new or acquired stores in a successful and profitable
manner and adequately supply natural foods products to these stores at
competitive prices.
There can be no assurance that WFM will continue to grow through
acquisitions. To the extent the Company further expands by acquiring existing
stores, there can be no assurance that WFM can successfully integrate such
stores into its operations and support systems, and that the operations of
acquired stores will not be adversely affected as the Company's decentralized
approach to store operations is introduced to such stores.
The acquisition of existing stores and the opening of new stores requires
significant amounts of capital. In the past, the Company's growth has been
funded primarily through proceeds from public offerings, bank debt, private
placements of debt, and internally generated cash flow. These and other sources
of capital may not be available to the Company in the future.
QUARTERLY FLUCTUATIONS. The Company's quarterly results of operations may
fluctuate significantly as the result of the timing of new store openings and
the range of operating results which may be generated from newly opened stores.
It is WFM's policy to expense the pre-opening costs associated with a new store
opening during the quarter in which the store is opened. Accordingly, quarter to
quarter comparisons of results of operations have been and will be materially
impacted by the timing of new store openings. In addition, the Company's
quarterly operating results could be adversely affected by losses from new
stores, variations in the mix of product sales, price changes in response to
competitive factors, increases in merchandise costs and possible supply
shortages, as well as by the factors listed below in "Operating Results".
COMPETITION. WFM's competitors currently include other natural foods
stores, large and small traditional and specialty supermarkets and grocery
stores. These stores compete with the Company in one or more product categories.
In addition, traditional and specialty supermarkets are expanding more
aggressively in marketing a broad range of natural foods and thereby competing
directly with the Company for products, customers and locations. Some of these
potential competitors have been in business longer or have greater financial or
marketing resources than WFM and may be able to devote greater resources to the
sourcing, promotion and sale of their products. Increased competition may have
an adverse effect on profitability as the result of lower sales, lower gross
profits, and/or greater operating costs such as marketing.
PERSONNEL MATTERS. WFM is dependent upon a number of key management and
other personnel. The loss of the services of a significant number of key
personnel within a short period of time could have a material adverse effect
upon the Company. WFM's continued success is also dependent upon its ability to
attract and retain qualified employees to meet the Company's future needs. The
Company faces intense competition for qualified personnel, many of whom are
subject to offers from competing employers, and there can be no assurance that
WFM will be able to attract and retain such personnel. WFM does not currently
maintain key person insurance on any employee.
21
<PAGE>
INTEGRATION OF FRESH FIELDS' OPERATIONS. WFM anticipates reducing Fresh
Fields' overhead expenses by adopting WFM's decentralized approach to store
management. WFM will also seek to improve the operating profitability of the
Fresh Fields stores, some of which are relatively unprofitable, through enhanced
purchasing power, improved utilization of distribution facilities and other
economies of scale resulting from the Merger. There can be no assurance that WFM
will be able to achieve the economies of scale and other operating enhancements
it seeks in the Fresh Fields operations, or that these economies of scale can be
achieved in a period of time currently anticipated by management.
The acquisition of Fresh Fields will materially increase the scope of the
Company's operations from 48 to 69 stores, after giving effect to the
anticipated closing of the Fresh Fields' Chicago, Illinois store. The
integration of the Fresh Fields operations into the WFM organization is a
significant undertaking. While WFM has experience in acquiring and integrating
other businesses into WFM's operations, Fresh Fields has a larger number of
stores and employees and substantially greater revenues than any of the
companies previously acquired by WFM. In addition, although the executive
management of Fresh Fields will be available to WFM's transition team to assist
in planning the integration of WFM's and Fresh Fields' operations, after Closing
the integration will be implemented without the benefit of the Fresh Fields'
executive management. There can be no assurance that the operations of Fresh
Fields' stores will not be adversely affected by the introduction of the
Company's team approach to store operations or the response of customers to the
changes in operations and merchandising mix made by the Company. The integration
of Fresh Fields into the Company will require the dedication of management
resources which may temporarily detract from attention to the day-to-day
business of the Company.
CONVERSION TO WFM NAME. The change of the Fresh Fields stores to the WFM
name might cause short term confusion among customers and lead to a reduction in
sales because of the loss of the goodwill associated with the Fresh Fields'
name. Acceptance by customers of the WFM brand may take longer and be more
difficult or expensive than management anticipates.
LEGAL MATTERS. From time to time WFM is the subject of various lawsuits
arising in the ordinary course of business. Although not currently anticipated
by management, there is potential for the Company's results to be materially
impacted by legal and settlement expenses related to such lawsuits.
WFM is a non-subscriber to Worker's Compensation Insurance in the State of
Texas. There is some potential for the Company's results to be materially
impacted by medical, lost time and other costs associated with on-the-job
injuries.
The Company provides partially self-insured, voluntary employee benefits
plans which provide health care and other benefits to participating employees.
The plans are designed to provide specified levels of coverage, with excess
insurance coverage provided by a commercial insurer. There is some potential for
WFM's results to be materially impacted by claims made in excess of reserves
therefore.
INFORMATIONAL PICKETING. Certain of the Company's stores have been
subjected to informational picketing and negative publicity campaigns by members
of various local trade unions. These informational pickets and campaigns may
have the effect of lowering the sales volumes of new or existing stores.
Fresh Fields is not currently a party to any collective bargaining
agreement. Its stores have also been subject to informational picketing and
negative publicity campaigns by members of unions. Because of changes in Fresh
Fields' operations in connection with the Merger, there could be an increased
risk of efforts to organize employees by labor unions or by employees on their
own initiative. Unionization of any material portion of Fresh Fields employees
would adversely affect the operations of the business and could reduce the level
of profitability.
OPERATING RESULTS. The Company's ability to meet expected results for any
period may be negatively impacted by many factors, as described above and
including, but not limited, to the
22
<PAGE>
following: (i) reductions in sales caused by competitive issues, product
availability, weather and other factors; (ii) losses generated by new stores or
higher than expected pre-opening costs; (iii) higher than expected costs and
expenses at store, regional and national levels; (iv) lower than expected gross
margins resulting from the impact of competition or other factors; (v) higher
than expected interest expense due to higher than expected interest rates or
borrowings outstanding; and (vi) delays in new store openings.
WFM's ability to increase same store sales during any period will be
directly impacted by competition, availability of product and other factors
which are often beyond the control of the Company.
EFFECTIVE TIME AND CONSEQUENCES OF THE MERGER
If approved by the requisite votes of the shareholders of WFM and if all
other conditions to the consummation of the Merger are satisfied or waived, the
Merger will become effective, unless the Merger Agreement is terminated as
provided therein, upon the making of certain filings with the Secretary of State
of the State of Delaware pursuant to the Delaware General Corporation Law (the
"Effective Time"). At the Effective Time of the Merger, the WFM Subsidiary will
be merged with and into Fresh Fields, which will be the surviving corporation in
the Merger (the "Surviving Corporation"), and the separate corporate existence
and identity of the WFM Subsidiary will cease. The corporate existence and
identity of Fresh Fields will continue unaffected by the Merger, although it
will become a wholly owned subsidiary of WFM.
It is currently contemplated that the Effective Time of the Merger will
occur as promptly as practicable after the Special Meeting of WFM and any
adjournments of the Special Meeting, subject to the conditions described under
"The Merger -- Conditions to Merger".
If the Merger is consummated, all of the issued Fresh Fields Shares and
Included In-the-Money Options outstanding immediately prior to the Effective
Time will be converted (or exercisable in the case of Included In-the-Money
Options) into the WFM Shares, subject to the escrow requirement and the rights
of dissenting Fresh Fields shareholders, if any. The actual number of WFM Shares
issued in the Merger will be based on the quotient (the "Maximum WFM Merger
Shares") of (a) $134,500,000 (i) increased by the total exercise price of all
Included In-the-Money Options and (ii) reduced by the value agreed upon by the
parties of certain out-of-the-money options (which value will be $0 provided the
Average WFM Share Price (as defined in the Merger Agreement) is $24 or higher),
divided by (b) the Determination Price, subject to an adjustment to take into
account any dissenting Fresh Fields shareholders. The Determination Price will
not be less than $24.00 per share nor more than $28.00 per share. Any fractional
shares resulting from such conversion will entitle the holder to receive cash.
The actual number of WFM Shares issued in the Merger to the holders of the
Fresh Fields Shares is subject to the requirement that a number of such shares
that is equal to 5% of $134.5 million divided by the Determination Price be
placed in escrow and used to satisfy any claims made by WFM under certain
indemnification provisions contained in the Merger Agreement.
The shareholders of WFM will not receive any consideration in the Merger,
nor will the Merger affect the number of shares held by any shareholder of WFM.
Any fractional shares resulting from such conversion will entitle the holder to
receive cash.
Set forth below is a brief summary of the basis on which each class of Fresh
Fields capital stock will be converted in the Merger. THIS SUMMARY DOES NOT
PURPORT TO BE COMPLETE AND IS SUBJECT IN ALL RESPECTS TO THE PROVISIONS OF, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO, THE MERGER AGREEMENT.
Fresh Fields' outstanding capital stock consists of common stock, $0.01 par
value per share (the "Fresh Fields Common Stock"), and four classes of preferred
stock, $0.01 par value per share, designated: Class A Preferred Stock, $5.90 per
share liquidation value (the "Class A Stock"), Class B Preferred Stock, $10.00
per share liquidation value (the "Class B Stock"), Class C Preferred Stock,
$14.00 per share liquidation value (the "Class C Stock"), and Class D Preferred
Stock, $17.50 per share liquidation value (the "Class D Stock"). All of the
classes of Preferred Stock, $0.01 par value, of
23
<PAGE>
Fresh Fields are convertible in shares of Fresh Fields Common Stock. In
addition, Fresh Fields has outstanding warrants and options to purchase Fresh
Fields Common Stock and warrants to purchase additional shares of Class D
Preferred Stock.
CERTAIN DEFINITIONS. Set forth below are certain defined terms which are
used in this Proxy Statement/Prospectus to describe the basis on which the Fresh
Fields capital stock, and options and warrants to acquire such stock, will be
converted in the Merger:
AVERAGE WFM SHARE PRICE means the average per share closing price of the
Common Stock as reported on the Nasdaq NSM over the 20 trading days
immediately before the date the Merger is consummated.
EXCHANGE RATIO means the quotient obtained from dividing the WFM Shares
Available to Fresh Fields Common Equivalents by the Fresh Fields Common
Equivalents.
FRESH FIELDS COMMON EQUIVALENTS means the outstanding shares of Class A
Stock, Class B Stock, Class C Stock and Fresh Fields Common Stock, and the
shares of Fresh Fields Common Stock issuable upon the exercise of Included
In-The-Money Options, subject to adjustment based on the Determination
Price.
FRESH FIELDS COMMON MERGER PRICE means the product obtained by
multiplying the Average WFM Share Price by the Exchange Ratio.
INCLUDED IN-THE-MONEY OPTIONS means the options to acquire Fresh Fields
Common Stock that by their terms are exercisable on the date the Merger is
consummated and have an exercise price that is equal to or less than the
Fresh Fields Common Merger Price, and certain other options specified in the
Merger.
WFM SHARES AVAILABLE TO FRESH FIELDS COMMON EQUIVALENTS means the WFM
Shares remaining after WFM Shares are allocated to the Class D Stock.
CLASS D STOCK. Unless the Fresh Fields Common Merger Price is greater than
$17.50, which is the liquidation preference of the Class D Stock, each share of
Class D Stock, and each outstanding warrant to acquire a share of Class D Stock,
will be converted into the number of shares of Common Stock that is equal to
$17.50 divided by the Determination Price. If the Fresh Fields Common Merger
Price exceeds $17.50, the Class D Stock and the warrants to acquire Class D
Stock will be included as Fresh Fields Common Equivalents for purposes of
allocating the WFM Shares.
OTHER OUTSTANDING FRESH FIELDS SHARES AND INCLUDED IN-THE-MONEY
OPTIONS. After provisions for the Class D Stock (if the Fresh Fields Common
Merger Price is $17.50 or less), the remaining WFM Shares issuable in the
Merger, will be allocated equally among the shares of Fresh Fields Common
Equivalents, subject to reallocation upon the occurrence of certain events. Each
share of Fresh Fields Common Stock, Class A Stock, Class B Stock and Class C
Stock will be in the Merger converted into a number of WFM Shares that is equal
to one multiplied by the Exchange Ratio. Each Included In-the-Money Option to
acquire shares of Fresh Fields Common Stock will be converted into the right to
acquire a number of WFM Shares that is equivalent to the number of shares of
Fresh Fields Common Stock subject to such option multiplied by the Exchange
Ratio.
If the Fresh Fields Common Merger Price falls below $14.00 per share, the
allocation among the classes of Fresh Fields' capital stock is subject to
reallocation to take into consideration the liquidation values of the various
classes of Fresh Fields preferred stock. If the Exchange Ratio multiplied by the
Average WFM Share Price is less than $14.00, the shares of Class C Stock will be
excluded from Fresh Fields Common Equivalents and WFM Shares Available to Fresh
Fields Common Equivalents, and instead will be converted into the number of WFM
Shares that is equal to $14.00 divided by the Determination Price (after
excluding the Class C Stock from the ratio). If the Exchange Ratio multiplied by
the Average WFM Share Price falls below $10.00, the shares of Class B Stock will
be be excluded from Fresh Fields Common Equivalents and WFM Shares Available to
Fresh Fields Common
24
<PAGE>
Equivalents, and instead will be converted into the number of WFM Shares that is
equal to $10.00 divided by the Determination Price (after excluding the Class C
Stock and Class B Stock from the ratio).
EXCEPT AS DESCRIBED BELOW UNDER "THE MERGER -- EFFECT OF MERGER ON FRESH
FIELDS OPTIONS AND WARRANTS", WITH RESPECT TO CERTAIN OPTIONS AND WARRANTS TO
ACQUIRE FRESH FIELDS COMMON STOCK, WFM WILL NOT BE OBLIGATED TO ISSUE ANY SHARES
OF COMMON STOCK IN EXCESS OF THE MAXIMUM WFM MERGER SHARES
EFFECT OF MERGER ON FRESH FIELDS OPTIONS AND WARRANTS
At June 30, 1996, a total of 1,352,917 shares of Fresh Fields Common Stock
were reserved for issuance upon the exercise of outstanding options. The Merger
Agreement provides that all Fresh Field options outstanding at the Effective
Time, whether or not exercisable or vested, will remain outstanding following
the Merger and will thereafter be a right to purchase Common Stock. The shares
of Common Stock issuable upon the exercise of Included In-The-Money Options will
be counted as part of the WFM Shares. Except for appropriate adjustments in the
exercise price to reflect the Merger and the substitution of an adjusted number
of shares of Common Stock for Fresh Fields Common Stock upon exercise, the other
terms of each option, such as the terms of vesting, will remain the same.
INCLUDED IN-THE-MONEY OPTIONS. Each Included In-The-Money Option will be
converted into an option to acquire a number of shares of Common Stock that is
equal to the product obtained by multiplying the number of shares of Fresh
Fields Common Stock subject to the option by the Exchange Ratio. The per share
exercise price of each Included In-The-Money Option shall be adjusted to equal
the quotient obtained from dividing the per share exercise price immediately
before the Effective Time by the Exchange Ratio. WFM will allocate and reserve
from the WFM Shares otherwise issuable in Merger a sufficient number of shares
of Common Stock to permit exercise of the Included In-The-Money Options.
OTHER OPTIONS AND WARRANTS TO PURCHASE FRESH FIELDS COMMON STOCK. All
options and warrants (other than the Included In-The-Money Options) to acquire
Fresh Fields Common Stock will be converted into an option or warrant to acquire
a number of shares of Common Stock equal to the product obtained by multiplying
(i) the number of shares of Fresh Fields Common Stock covered by such option or
warrant by (ii) the Exchange Ratio. As a result of the Merger, the per share
exercise price of each option or warrant that is outstanding immediately before
the Effective Time will be adjusted by dividing the exercise price of such
option or warrant by the Exchange Ratio.
Except for Included In-the-Money Options, WFM's obligation to issue shares
of Common Stock following the Merger upon the exercise of Fresh Fields' options
and warrants is not limited to the WFM Shares and such shares of Common Stock
will not reduce the number of WFM Shares to be issued in the Merger. WFM has
agreed to reserve out of its authorized but unissued Common Stock a sufficient
number of shares to permit the exercise of such converted options or warrants.
The shares of Common Stock that will be issuable upon exercise of the Fresh
Fields options and warrants, other than the Included In-The-Money Options and
the warrants to purchase Class D Stock, have not been included in the
Registration Statement. Accordingly, this Proxy Statement/Prospectus does not
constitute an offer of Common Stock to the holder of any such Fresh Field option
or warrant other than holders of the Included In-The-Money Options and the
holders of warrants to purchase Class D Stock. WFM has agreed to file with the
Commission a registration statement on Form S-8 covering the shares of Common
Stock issuable upon exercise of those Fresh Fields' options that are eligible to
be included in a registration statement on Form S-8.
WFM has granted certain of the holders of warrants and options to purchase
Fresh Fields Common Stock certain registration rights with respect to the shares
of Common Stock to be issued in connection with the Merger, including shares
issuable upon exercise of certain options and warrants. See "The Merger --
Potential Resales of WFM Shares Received in the Merger; Restrictions on WFM
Affiliates; Limitations on Acquisitions of WFM Securities; Registration Rights".
25
<PAGE>
EXCHANGE OF CERTIFICATES REPRESENTING FRESH FIELDS SHARES
As of the Effective Time and until surrendered and exchanged, each
outstanding certificate which prior to the Effective Time of the Merger
represented Fresh Fields Shares will be deemed for all corporate purposes to
evidence ownership of the number of whole WFM Shares into which such Fresh
Fields Shares have been converted.
WFM has authorized Securities Transfer Corp., of Dallas, Texas, its stock
transfer agent, to serve as the exchange agent (the "Exchange Agent").
Instructions regarding the surrender of Fresh Fields stock certificates,
together with a letter of transmittal to be used for this purpose, will be
mailed to the Fresh Fields shareholders as promptly as practicable after the
Effective Time. In order to receive the WFM Shares, the shareholders of Fresh
Fields will be required to surrender their stock certificates after the
Effective Time, together with a duly completed and executed letter of
transmittal, to the Exchange Agent. Promptly after the Effective Time, WFM will
deposit with the Exchange Agent certificates representing the number of whole
WFM Shares which Fresh Fields shareholders are entitled to receive in the Merger
together with cash sufficient to pay for any fractional shares. Upon receipt
from a former shareholder of Fresh Fields of a stock certificate or certificates
and a properly completed letter of transmittal, the Exchange Agent will deliver
certificates representing such holder's WFM Shares to the registered holder.
SHAREHOLDERS OF FRESH FIELDS SHOULD NOT SUBMIT THEIR STOCK CERTIFICATES FOR
EXCHANGE UNTIL THE INSTRUCTIONS AND LETTER OF TRANSMITTAL ARE RECEIVED.
If the WFM Shares are to be delivered to a person other than the person in
whose name the certificates for the shares of Fresh Fields capital stock
surrendered for exchange is registered, it will be a condition to delivery of
the certificates representing the WFM Shares (i) that the stock certificate so
surrendered be properly endorsed and otherwise in proper form for transfer, and
(ii) that the person requesting such delivery pay in advance any transfer or
other taxes required by reason of the delivery of certificates to a person other
than the registered holder of the Fresh Fields shares surrendered, and must
either pay in advance any such transfer or other tax or establish to the
satisfaction of the Exchange Agent that such taxes have been paid or is not
applicable.
From and after the Effective Time of the Merger, the stock transfer books of
Fresh Fields will be closed, and no transfer of Fresh Fields Shares will be made
or consummated thereafter.
ESCROW OF CERTAIN SHARES
Fresh Fields has agreed in the Merger Agreement to indemnify WFM from all
damages and losses incurred by WFM because of (i) the breach of any written
representation, warranty, agreement or covenant of Fresh Fields contained in the
Merger Agreement or (ii) the "Albert Dwoskin" litigation against Fresh Fields
described under the caption "Business of Fresh Fields -- Legal Proceedings",
together with all reasonable costs and expenses (including, without limitation,
attorneys' fees, interest and penalties) incurred by WFM in connection with any
action, suit, proceeding, demand, assessment or judgment incident to any of the
matters for which the Company is indemnified against in the Merger Agreement. In
order to secure the indemnification obligation of Fresh Fields under the Merger
Agreement, the actual number of WFM Shares issued in the Merger to the holders
of the Fresh Fields Shares is subject to the requirement that a number of such
shares that is equal to 5% of $134.5 million divided by the Determination Price,
subject to an adjustment to take into account any dissenting Fresh Fields
shareholders, be placed in escrow and used to satisfy any claims made by WFM,
pursuant to the terms of the Merger Agreement and the Escrow Agreement, to be
dated August 30, 1996 (the "Escrow Agreement"), among WFM, GS Capital Partners,
L.P. (the "Shareholder Representative") and Texas Commerce Bank, N.A., as escrow
agent (the "Escrow Agent").
Promptly upon the occurrence of the Merger, WFM will deposit with the Escrow
Agent certificates representing the Escrowed Shares. The Escrow Agent will hold
the Escrowed Shares for twelve months from the date of the Effective Time (the
"Escrow Period"). During the Escrow Period, WFM may make a claim for a return of
all or a portion of the Escrowed Shares to satisfy any Fresh
26
<PAGE>
Fields' indemnification obligation. The number of Escrowed Shares subject to
return to WFM will be based on the Determination Price without regard to the
market price of the Common Stock at the time of any particular claim. At the
expiration of the Escrow Period, all remaining Escrow Shares with a value
(determined in accordance with the Merger Agreement) in excess of (i) any claims
made by WFM
or (ii) any expenses owed to or claims made by the Shareholder Representative
will be released to the former shareholders, warrant holders and option holders
of Fresh Fields. Any Escrowed Shares that are the subject of any dispute as to
whether there exists a valid claim for indemnification will remain in the
custody of the Escrow Agent until the dispute is resolved. The fees of the
Escrow Agent will be paid by WFM.
WFM's sole recourse with respect to the satisfaction of any indemnification
obligation of Fresh Fields is limited to making claim against the WFM Shares
that are to be escrowed pursuant to the Merger Agreement and the Escrow
Agreement. No shareholder of Fresh Fields shall have any personal liability in
connection with such indemnification obligation.
CONDITIONS TO MERGER
In addition to customary conditions, there are several additional
significant conditions that must be fulfilled (or waived by the party entitled
to the benefit thereof) under the terms of the Merger Agreement, before each of
the parties becomes obligated to consummate the Merger. WFM's obligation to
consummate the Merger is conditioned upon the following, among other things: (a)
Fresh Fields shall have performed all of its covenants under the Merger
Agreement in all material respects; (b) all of Fresh Fields' representatives and
warranties in the Merger Agreement shall be true and correct in all material
respects as if made on the Closing Date; (c) there shall have been no material
adverse change in the condition, business, financial condition, operations or
assets of Fresh Fields; (d) the Merger Agreement shall have been approved by the
holders of a majority of all of the outstanding shares of WFM common stock; (e)
Fresh Fields shall have received certain third party consents; (f) receipt of
certain governmental approvals or the termination of certain waiting periods
described in "The Merger -- Regulatory Approvals Required for the Merger"; (g)
the absence of any statute, rule, regulation, executive order, decree or
injunction which prohibits the consummation of the Merger; (h) no more than 8%
of the outstanding shares of Fresh Fields capital stock qualify as dissenting
shares under applicable Delaware law; (i) the receipt by WFM of a letter from
KPMG Peat Marwick LLP addressed to WFM concurring with WFM's managements'
determination that the Merger will be accounted for as a pooling-of-interests;
and (j) the receipt by WFM of a letter from Coopers & Lybrand L.L.P. addressed
to WFM (i) confirming certain matters relating to Fresh Fields' operating
results subsequent to April 30, 1996, and (ii) stating that they concur with
Fresh Fields' managements' conclusion that Fresh Fields is an entity that
qualifies for pooling-of-interest treatment.
Fresh Fields' obligation to consummate the Merger is conditioned upon the
following, among other things: (a) WFM shall have performed all of its covenants
under the Merger Agreement in all material respects; (b) all of WFM's
representations and warranties in the Merger Agreement shall be true and correct
in all material respects as if made on the Closing Date; (c) there shall have
been no material adverse change in the business, financial condition, operations
or assets of WFM; (d) the WFM Shares shall be authorized for listing on the
Nasdaq National Stock Market; (e) the Merger Agreement shall have been approved
by the separate votes of the holders of each class of Fresh Fields capital stock
and by the holders of a majority of all of the outstanding shares of WFM common
stock; (f) WFM shall have received certain third party consents; (g) the receipt
of certain governmental approval or the termination of certain waiting periods
described in "The Merger -- Regulatory Approvals Required for the Merger"; (h)
the absence of any statute, rule, regulation, executive order, decree or
injunction which prohibits the consummation of the Merger; (i) the Registration
Statement shall have become effective; (j) Fresh Fields shall have received a
tax opinion from counsel to WFM to the effect that the Merger will be treated
for federal income tax purposes as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code and that Fresh Fields and WFM will
be
27
<PAGE>
treated as parties to the reorganization within the meaning of Section 368(b) of
the Internal Revenue Code; (k) Fresh Fields shall have received a copy of the
KPMG letter referred to above; and (l) WFM shall have entered into the
Registration Rights Agreement with certain Fresh Fields stockholders.
Before the approval of the merger by the shareholders of WFM, any party to
the Merger Agreement has the option to waive any of the conditions to its
obligations without shareholder approval. It is possible that prior to the
consummation of the Merger matters will occur which will require consideration
by one of the parties of a waiver as to the conditions to such party's
obligations to consummate the Merger. However, after approval by the
shareholders of WFM, no amendment or modification may be made which by law
requires further approval by such shareholders unless such approval is obtained
in accordance with the Merger Agreement.
REGULATORY APPROVAL REQUIRED FOR MERGER
Consummation of the Merger is conditioned upon receipt by WFM and Fresh
Fields of such regulatory and other approvals as are required under applicable
law. Other than as discussed below and any consents of state or local government
alcoholic beverage commissions, WFM knows of no such regulatory or other
approvals required by law.
Under the HSR Act, certain acquisition transactions, including the proposed
Merger, may not be consummated unless certain information has been furnished to
the Federal Trade Commission (the "FTC") and the Antitrust Division of the
Justice Department (the "Antitrust Division") and certain waiting period
requirements have expired or been terminated. In accordance with the HSR Act,
WFM and Fresh Fields each filed Notification and Report Forms and certain
supplementary materials with the Antitrust Division and the FTC for review in
connection with the proposed Merger. The waiting period under the HSR Act will
expire on August 2, 1996, unless extended by a request for additional
information or unless early termination of the waiting period is granted.
POTENTIAL RESALES OF WFM SHARES RECEIVED IN THE MERGER; RESTRICTIONS ON WFM
AFFILIATES; LIMITATIONS ON ACQUISITION OF WFM SECURITIES; REGISTRATION RIGHTS
The WFM Shares that will be issued if the Merger is consummated have been
registered under the Securities Act and will be freely transferable, except for
WFM Shares issued to any person who may be deemed to be an "affiliate" of Fresh
Fields within the meaning of Rule 145 under the Securities Act. In general,
affiliates of Fresh Fields include any person or entity who controls, is
controlled by, or is under common control with Fresh Fields. Generally,
directors and executive officers are presumed to be affiliates. Rule 145, among
other provisions, imposes certain restrictions upon the resale of securities
received by affiliates of the acquired company in connection with certain
mergers and other related transactions. The WFM Shares received by affiliates of
Fresh Fields in the Merger will be subject to the applicable resale limitations
of Rule 145.
Additionally, consistent with the requirements of a pooling-of-interests
transaction, affiliates of WFM and Fresh Fields will be restricted from
disposing of any shares of WFM Common Stock until the publication of financial
statements by WFM which include at least 30 days of post-Merger operating
results. WFM has agreed to publish the appropriate financial information as soon
as practicable following the Merger. WFM has received a written undertaking from
the principal shareholders of Fresh Fields not to sell any shares of WFM Common
Stock owned directly or indirectly by them until after the publication of these
post-Merger financial statements.
It is a condition to Fresh Fields' obligation to consummate the Merger that
WFM enter into a Registration Rights Agreement with certain of the Fresh Fields
shareholders associated with Goldman, Sachs & Co., The Carlyle Group and Tiger
Management Corp. Under this Agreement, commencing 90 days after the Effective
Date parties to the agreement who hold at least 800,000 shares of Common Stock
received in connection with the Merger have the right to require the Company, at
its expense (other than underwriting discounts and selling commissions), to file
a registration statement with the Commission under the Securities Act covering
all or part of their shares of Common Stock in order to permit such persons to
resell their respective shares. In addition,
28
<PAGE>
shareholders associated with Tiger Management Corp. have the right to require
WFM to register their shares of Common Stock received in the Merger if they
agree to pay WFM's registration related expenses. WFM's obligation under the
agreement is limited to three demand registrations. The agreement also gives
each of the parties and other shareholders, warrant holders and certain option
holders unlimited "piggyback" registration rights, subject to customary
underwriters' outs and carve-backs.
Carlyle-FFM Partners, L.P., Carlyle-FFM Partners II, L.P., Carlyle-FFM
Partners III, L.P., Carlyle-FFM Investors, L.P., Carlyle-FFM Partners VI, L.P.,
GS Capital Partners, L.P., Stone Street Fund 1992, L.P., Stone Street Fund 1993,
L.P., Bridge Street Fund 1992, L.P. and Bridge Street Fund 1993, L.P., Lynx
Capital, L.P., Lynx Overseas Capital, L.P., Puma, L.P. and Stephen F. Mandel,
Jr., shareholders of Fresh Fields who collectively beneficially hold 67.8% of
the Fresh Fields Shares on a fully diluted basis, have agreed with WFM not to
acquire, or assist, advise or encourage any other persons in acquiring, directly
or indirectly, control of WFM or any of the Company's securities (other than the
WFM Shares), businesses or assets for a period of three years, without the prior
consent of WFM.
ACCOUNTING TREATMENT
WFM will account for the business combination of WFM and Fresh Fields in its
financial statements by the pooling-of-interests method of accounting. Receipt
by WFM and Fresh Fields of a letter from KPMG Peat Marwick LLP, independent
certified public accountants, concurring with WFM's management's conclusion
that, as of the date of the Merger, no conditions exist which would preclude WFM
from accounting for the Merger with Fresh Fields as a pooling-of-interests is a
condition precedent to the Merger. See "The Merger -- Conditions to the Merger."
INDEMNIFICATION AND DIRECTORS' AND OFFICERS' INSURANCE FOR FRESH FIELDS
Fresh Fields, WFM and the Surviving Corporation will indemnify the former
officers and directors of Fresh Fields from liabilities arising out of their
former positions with Fresh Fields or certain entities affiliated with Fresh
Fields, unless such indemnification is prohibited by law or, in the case of an
director or officer who is also a Fresh Fields shareholder, the matter being
indemnified constitutes a breach by Fresh Fields of a representation and
warranty contained in the Merger Agreement. See "The Merger -- Escrow of Certain
Shares". WFM has agreed for six years following the Effective Time either (i) to
maintain Fresh Fields' current directors' and officers' liability insurance for
the current directors and officers of Fresh Fields who were covered on the date
of the Merger Agreement, or (ii) to cause WFM's directors' and officers'
liability insurance to cover the Fresh Fields directors and officers. WFM and
the Surviving Corporation have this obligation only as long as the incremental
cost of such extended insurance does not more than double the rate paid by WFM
immediately before the date of the Merger Agreement and such insurance is
otherwise reasonably available on terms consistent with the Merger Agreement.
WFM BOARD FOLLOWING THE MERGER
WFM will issue shares of Common Stock, the exact number of which will depend
on the Determination Price and other factors, to the shareholders of Fresh
Fields in the Merger. Carlyle-FFM Partners, L.P., Carlyle-FFM Partners II, L.P.,
Carlyle-FFM Partners III, L.P., Carlyle-FFM Investors, L.P., and Carlyle-FFM
Partners VI, L.P. (collectively the "Carlyle Group") collectively are the
holders of approximately 25.3% of the Fresh Fields Shares. GS Capital Partners,
L.P. and certain affiliates are collectively the holders of approximately 33% of
the Fresh Fields Shares.
As a result of the Merger and based on a Determination Price of $28.00 per
share, the Carlyle Group will hold a minimum of 1,461,723 shares, or
approximately 7.4% of the then outstanding Common Stock. If the Determination
Price is reduced to $24.00, the maximum number of WFM Shares acquired by the
Carlyle Group will be 1,705,345 shares, or approximately 8.2% of the Common
Stock.
As a result of the Merger and based on a Determination Price of $28.00 per
share, GS Capital Partners, L.P. will hold a minimum of 1,358,754 shares, or
approximately 8% of the then outstanding
29
<PAGE>
Common Stock. If the Determination Price is reduced to $24.00, the maximum
number of WFM Shares acquired by GS Capital Partners, L.P. will be 1,584,240
shares, or approximately 9% of the Common Stock.
In accordance with the terms of the Merger Agreement, following the Merger
the Board of Directors of WFM will take action to increase the authorized number
of directors by two members, and the Carlyle Group and GS Capital Partners, L.P.
each will be entitled to designate one representative to be named to the Board
of Directors of WFM to fill the newly created vacancies. Thereafter, WFM has
agreed to nominate and use its best reasonable efforts to cause the election of
a representative for each of the Carlyle Group and GS Capital Partners, L.P. to
the WFM Board of Directors so long as the Carlyle Group and the Goldman Sachs
Partners, L.P. and certain affiliates beneficially owns at least 50% of the WFM
Shares issued to such shareholder or group in connection with the Merger.
Fresh Fields has notified WFM that David W. Dupree and Elizabeth Cogan
Fascitelli have been designated as the initial representatives of the Carlyle
Group and GS Capital Partners, L.P., respectively, for election to the WFM Board
of Directors following the Merger.
DAVID W. DUPREE, age 43, is a Managing Director of The Carlyle Group, a
Washington, D.C. based merchant banking concern, where he has been employed
since 1992. From 1990 to 1992, Mr. Dupree was a Principal in Corporate Finance
with Montgomery Securities, and from 1988 to 1990 he was a Vice
President-Corporate Finance at Alex. Brown & Sons. Mr. Dupree is a director of
Care Systems, Inc.
ELIZABETH COGAN FASCITELLI, age 38, has been employed by the investment
banking firm of Goldman, Sachs & Co. since 1984, and since 1988 has served as a
Vice President in that concern's Investment Banking Division, Principal
Investment Area. Ms. Fascitelli serves on the Boards of Directors of Globe
Manufacturing Co., Neuromedical Systems, Inc., and The Cosmetics Plus Group Ltd.
WFM's Restated Articles of Incorporation provide that a director of WFM
shall not be liable to WFM or its shareholders for an act or omission in such
capacity as a director, except for liability as a result of (i) a breach of the
director's duty of loyalty to WFM or its shareholders; (ii) acts or omissions
not in good faith that involve intentional misconduct or a knowing violation of
law; (iii) transactions from which the director received an improper benefit,
whether or not the benefit resulted from an action taken within the scope of the
director's office; (iv) acts or omissions for which the liability of a director
is expressly provided by law; or (v) an act related to the unlawful stock
repurchase or payment of a dividend.
TERMINATION AND AMENDMENT OF MERGER AGREEMENT
The Merger Agreement may be terminated and the Merger abandoned at any time
prior to the Effective Time of the Merger (a) by the mutual consent of Fresh
Fields and WFM; (b) by WFM if there has been a material misrepresentation or
breach of warranty in the representations and warranties of Fresh Fields set
forth in the Merger Agreement or a failure to perform in any material respect a
covenant on the part of Fresh Fields with respect to its representations,
warranties and covenants set forth in the Merger Agreement or any condition
precedent to WFM's obligation to close has not been satisfied by the closing
date (unless the failure to perform a covenant is capable of cure, and Fresh
Fields cures such failure within the ten days from the date it receives notice
of the failure from WFM); (c) by Fresh Fields if there has been a material
misrepresentation or breach of warranty in the representations and warranties of
WFM set forth in the Merger Agreement or a failure to perform in any material
respect a covenant on the part of WFM with respect to its representations,
warranties and covenants set forth in the Merger Agreement, or any condition
precedent to Fresh Field's obligation to close has not been satisfied by the
closing date (unless the failure to perform a covenant is capable of cure, and
WFM cures such failure within ten days from the date it receives notice of the
failure from Fresh Fields); (d) by either WFM or Fresh Fields if the Merger has
not been consummated by the later of 60 days following mailing of this Proxy
Statement/Prospectus or October 31, 1996
30
<PAGE>
(which date will be extended to December 31, 1996 if all conditions precedent to
the obligations of the parties have been satisfied by October 31, 1996, other
than the receipt of approvals under the HSR Act), unless such failure of
consummation is due to the failure of the terminating party to perform or
observe the covenants, agreements, and conditions of the Merger Agreement to be
performed or observed by it at or before the closing date; (e) by either WFM or
Fresh Fields if the Merger violates any nonappealable final order, decree or
judgment of any court or governmental body or agency; (f) by Fresh Fields, if in
the exercise of the good faith judgment of its Board of Directors (which
judgment is based upon the advice of independent, outside legal counsel) as to
its fiduciary duties to its shareholders such termination is required by reason
of another acquisition proposal; or (g) by WFM, if the Fresh Fields' Board of
Directors withdraws or materially modifies or changes its recommendation to the
shareholders of Fresh Fields to approve the Merger Agreement and the Merger and
if there exists at such time an acquisition proposal.
EXPENSES OF THE MERGER
If the Merger is consummated, WFM will generally bear the expenses of the
Merger. See Note 6 under the caption "Pro Forma Financial Information." If the
Merger is not consummated, the Merger Agreement provides that WFM and Fresh
Fields will generally bear their respective costs and expenses of the Merger.
If, however, the Merger Agreement is terminated by Fresh Fields because of
another acquisition proposal or if Fresh Fields enters into a definitive
agreement with respect to any acquisition proposal with any party other than WFM
on or before October 31, 1996, and such acquisition proposal is consummated on
or before October 30, 1997, Fresh Fields has agreed to pay WFM a cash fee of $5
million dollars. If the Merger Agreement is terminated because the shareholders
of WFM fail to approve the Merger, WFM has agreed to reimburse Fresh Fields for
its expenses incurred in connection with the transaction up to $650,000. If
Fresh Fields terminates the Merger Agreement because WFM fails to call a meeting
of its shareholders, recommend the Merger for approval by its shareholders or
furnish its shareholders a proxy statement relating to the Merger, WFM has
agreed to pay Fresh Fields a fee of $5 million dollars in lieu of the $650,000.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a general summary of certain material federal
income tax consequences anticipated to occur as a result of the Merger and is
based on relevant provisions of the Internal Revenue Code of 1986, as amended
(the "Code"), Treasury regulations promulgated thereunder and published
positions of the Internal Revenue Service ("IRS"), all of which are subject to
change. In addition, the conclusions expressed herein are based solely on a
review of the Merger Agreement and related documents, and certain factual
assumptions with respect to the Fresh Fields shareholders have been made. The
Merger is not conditioned upon the receipt by WFM, the WFM Subsidiary or Fresh
Fields of a ruling of the IRS with respect to the tax treatment of the Merger.
The IRS is not being requested to issue a ruling as to the tax consequences of
the Merger. It is, however, a condition to Fresh Field's obligation to
consummate the Merger that it has received an opinion from counsel to WFM with
respect to the tax treatment of the Merger.
The Merger will be treated as a tax-free reorganization for federal income
tax purposes so that no gain or loss will be recognized by the Fresh Fields
shareholders, except for cash received in lieu of fractional shares.
The federal income tax consequences of the Merger to the Fresh Fields
shareholders are expected to be as follows:
(i) The Merger will constitute a reorganization within the meaning of
Section 368(a)(1)(A), as described in Section 368(a)(2)(e), of the Code;
(ii) No gain or loss will be recognized to the shareholders of Fresh
Fields upon their receipt of the WFM Shares in exchange for their Fresh
Fields Shares;
31
<PAGE>
(iii) The basis of the WFM Shares to be received by the shareholders of
Fresh Fields in the Merger will be the same as the basis of such
shareholders in the shares of Fresh Fields exchanged for such WFM Shares;
and
(iv) The holding period of the WFM Shares to be received by the
shareholders of Fresh Fields will include the period during which they held
their Fresh Fields Shares exchanged for the WFM Shares.
A shareholder of Fresh Fields who perfects his or her appraisal rights under
the laws of Delaware and receives payment in cash for the "fair value" of his or
her Fresh Fields Shares will be treated as having received such payment in a
redemption of Fresh Fields Shares subject to the provisions of Section 302 of
the Code. In general, a dissenting shareholder of Fresh Fields will recognize
capital gain or loss measured by the difference between the amount of cash
received by such Fresh Fields shareholder in payment for their Fresh Fields
Shares and the basis of such shareholder's Fresh Fields Shares.
THE FOREGOING DISCUSSION IS FOR GENERAL INFORMATION ONLY AND IS INTENDED TO
BE A SUMMARY OF THE PRINCIPAL FEDERAL INCOME TAX CONSIDERATIONS OF THE
TRANSACTION. IT IS NOT INTENDED AS AN ALTERNATIVE FOR INDIVIDUAL TAX PLANNING.
EACH SHAREHOLDER OF FRESH FIELDS SHOULD CONSULT HIS OR HERS OWN TAX ADVISOR
CONCERNING FEDERAL, STATE, LOCAL AND OTHER TAX CONSEQUENCES OF THE MERGER TO
SUCH HOLDER.
APPRAISAL RIGHTS OF DISSENTING SHAREHOLDERS
SHAREHOLDERS OF WFM. The shareholders of WFM will not have under the Texas
Business Corporation Act ("TBCA") any right to seek an appraisal of their shares
on account of the Merger.
SHAREHOLDERS OF FRESH FIELDS. Holders of Fresh Fields Shares are entitled
to appraisal rights under Section 262 of the Delaware General Corporation Law
("DGCL") ("Section 262"). Section 262 is reprinted in its entirety as Appendix C
to this Proxy Statement/Prospectus. All references in Section 262 and in this
summary to a "shareholder" are to the record holder of the shares of Fresh
Fields capital stock as to which appraisal rights are asserted. A person having
a beneficial interest in Fresh Fields Shares that are held of record in the name
of another person, such as a broker or nominee, must act promptly to cause the
record holder to follow the steps summarized below properly and in a timely
manner to perfect whatever appraisal rights the beneficial owner may have.
The following discussion is not a complete statement of the law relating to
appraisal rights and is qualified in its entirety by reference to Appendix C.
THIS DISCUSSION AND APPENDIX C SHOULD BE REVIEWED CAREFULLY BY ANY HOLDER WHO
WISHES TO EXERCISE STATUTORY APPRAISAL RIGHTS OR WHO WISHES TO PRESERVE THE
RIGHT TO DO SO BECAUSE FAILURE STRICTLY TO COMPLY WITH THE PROCEDURES SET FORTH
HEREIN AND THEREIN WILL RESULT IN THE LOSS OF APPRAISAL RIGHTS.
Each shareholder electing to demand the appraisal of his shares shall
deliver to Fresh Fields a written demand for appraisal of his or her Fresh
Fields Shares within 20 days after the date Fresh Fields has timely mailed, as
required pursuant to Delaware law, to the shareholders of Fresh Fields notice of
the Effective Time of the Merger, that appraisal rights are available and that a
copy of the applicable section of the Delaware law is enclosed. The demand must
reasonably inform Fresh Fields of the identity of the shareholder and that the
shareholder intends thereby to demand the appraisal of his Fresh Fields Shares.
This written demand for appraisal of the Fresh Fields Shares must be in addition
to and separate from any proxy or vote against the Merger. Voting against,
abstaining from voting or failing to vote on the Merger will not constitute a
demand for appraisal within the meaning of Section 262. Any shareholder electing
to demand his appraisal rights will not be granted appraisal rights under
Section 262 if such shareholder has either voted in favor of the Merger or
consented
32
<PAGE>
thereto in writing. Additionally, appraisal rights will not be granted under
Section 262 if the shareholder does not continuously hold through the Effective
Time his or her Fresh Fields Shares with respect to which he or she demands
appraisal.
A demand for appraisal must be executed by or for the shareholder of record,
fully and correctly, as such shareholder's name appears on the certificate or
certificates representing Fresh Fields Shares. If the Fresh Fields Shares are
owned of record in a fiduciary capacity, such as by a trustee, guardian or
custodian, such demand must be executed by the fiduciary. If the Fresh Fields
Shares are owned of record by more than one person, as in a joint tenancy or
tenancy in common, such demand must be executed by all joint owners. An
authorized agent, including an agent for two or more joint owners, may execute
the demand for appraisal for a shareholder of record; however, the agent must
identify the record owner and expressly disclose the fact that, in exercising
the demand, such person is acting as agent for the record owner.
A record owner, such as a broker, who holds Fresh Fields Shares as a nominee
for others, may exercise appraisal rights with respect to the Fresh Fields
Shares held for all or less than all beneficial owners of Fresh Fields Shares as
to which such person is the record owner. In such case the written demand must
set forth the number of shares of Fresh Fields Shares covered by such demand.
Where the number of Fresh Fields Shares is not expressly stated, the demand will
be presumed to cover all Fresh Fields Shares outstanding in the name of such
record owner. Beneficial owners who are not record owners and who intend to
exercise appraisal rights should instruct the record owner to comply strictly
with the statutory requirements with respect to the exercise of appraisal rights
before the date of the Special Meeting.
A shareholder who elects to exercise appraisal rights must mail or deliver
his or her written demand to the Secretary of Fresh Fields. The written demand
for appraisal must specify the shareholder's name and mailing address, the
number of Fresh Fields Shares owned, and that the shareholder is thereby
demanding appraisal of his or her Fresh Fields Shares. Within ten days after the
Effective Time, Fresh Fields must provide notice to all shareholders who are
entitled to appraisal rights that the Merger is effective and that appraisal
rights are available.
Within 120 days after the Effective Time, either Fresh Fields or any
shareholder who has complied with the required conditions of Section 262 may
file a petition in the Delaware Court of Chancery (the "Delaware Chancery
Court") demanding a determination of the value of the Fresh Fields Shares of the
dissenting shareholders. If a petition for an appraisal is timely filed, after a
hearing on such petition, the Delaware Chancery Court will determine which
shareholders are entitled to appraisal rights and will appraise the Fresh Fields
Shares owned by such shareholders, determining the fair value of such Fresh
Fields Shares, exclusive of any element of value arising from the accomplishment
or expectation of the Merger, together with a fair rate of interest to be paid,
if any, upon the amount determined to be the fair value. In determining such
fair value, the Delaware Chancery Court is to take into account all relevant
factors.
Shareholders considering seeking appraisal should have in mind that the
"fair value" of their Fresh Fields Shares determined under Section 262 could be
more than, the same as or less than the Merger Consideration to be received by
Fresh Fields shareholders in the Merger, and that opinions of investment banking
firms as to fairness, from a financial point of view, are not opinions as to
fair value under Section 262. The cost of the appraisal proceeding may be
determined by the Delaware Chancery Court and taxed against the parties as the
Delaware Chancery Court deems equitable in the circumstances. Upon application
of a dissenting shareholder, the Delaware Chancery Court may order that all or a
portion of the expenses incurred by any dissenting shareholder in connection
with the appraisal proceeding, including without limitation, reasonable
attorneys' fees and the fees and expenses of experts, be charged pro rata
against the value of all Fresh Fields Shares entitled to appraisal.
Any shareholder who has duly demanded appraisal in compliance with Section
262 will not, from and after the Effective Time, be entitled to vote for any
purpose the Fresh Fields Shares subject to
33
<PAGE>
such demand or to receive payment of dividends or other distributions on such
Fresh Fields Shares, except for dividends or distributions payable to
shareholders of record at a date prior to the Effective Time.
At any time within 60 days after the Effective Time, any shareholder shall
have the right to withdraw his or her demand for appraisal and to accept the
terms offered in the Merger; after this period, the shareholder may withdraw his
or her demand for appraisal only with the consent of Fresh Fields. If no
petition for appraisal is filed with the Delaware Chancery Court within 120 days
after the Effective Time, shareholders' rights to appraisal shall cease, and all
holders of Fresh Fields Shares shall be entitled to receive the Merger
Consideration as provided for in the Merger Agreement. Inasmuch as Fresh Fields
has no obligation to file such a petition, and has no present intention to do
so, any shareholder who desires such a petition to be filed is advised to file
it on a timely basis. However, no petition timely filed in the Delaware Chancery
Court demanding appraisal shall be dismissed as to any shareholder without the
approval of the Delaware Chancery Court, and such approval may be conditioned
upon such terms as the Delaware Chancery Court deems just.
For a discussion of certain federal income tax consequences resulting from
the exercise of dissenters' appraisal rights see "The Merger -- Federal Income
Tax Consequences".
34
<PAGE>
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma combined condensed financial statements
assume a business combination between WFM and Fresh Fields accounted for on a
pooling-of-interests basis. The pro forma combined condensed financial
statements are based on the respective historical financial statements and the
notes thereto, which are incorporated by reference or included elsewhere herein.
The pro forma combined condensed balance sheet combines WFM's April 7, 1996
unaudited condensed consolidated balance sheet with Fresh Fields' March 30, 1996
unaudited condensed balance sheet. The pro forma combined condensed statements
of operations combine WFM's historical condensed consolidated statements of
operations for the three fiscal years ended September 24, 1995, September 25,
1994 and September 26, 1993 and the unaudited twenty-eight week periods ended
April 7, 1996 and April 9, 1995 with the corresponding Fresh Fields historical
condensed statements of operations for the three fiscal years ended September
30, 1995, December 31, 1994 and January 1, 1994 and the unaudited twenty-six
week periods ended March 30, 1996 and April 1, 1995, respectively. The amounts
included as Fresh Fields historical amounts have been reclassified to conform to
classifications used by WFM.
The pro forma information is presented for illustrative purpose only and is
not, in the opinion of WFM's management, indicative of the operating results or
financial position that would have occurred if the business combination had been
consummated at the beginning of the periods presented, because the pro forma
financial information does not include pro forma adjustments for certain changes
to be made after the Merger, including reductions in general and administrative
expenses. Nor is the pro forma financial information necessarily indicative of
future operating results or financial position.
These pro forma combined condensed financial statements and the related
notes should be read in conjunction with the consolidated historical financial
statements and the related notes thereto of WFM, which have been incorporated by
reference, and the historical financial statements and the related notes thereto
of Fresh Fields included elsewhere herein. See "Index to Financial Statements."
35
<PAGE>
WHOLE FOODS MARKET, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
APRIL 7, 1996
ASSETS
<TABLE>
<S> <C>
Current assets:
Cash and cash equivalents.................................................. $ 6,294,000
Merchandise inventories.................................................... 36,018,000
Trade accounts receivable and other current assets......................... 11,705,000
-------------
Total current assets..................................................... 54,017,000
Net property and equipment................................................... 186,117,000
Excess of cost over net assets acquired...................................... 37,050,000
Other assets................................................................. 13,955,000
-------------
$ 291,139,000
-------------
-------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liaibilities:
Current installments of long-term debt and capital lease obligations....... $ 1,305,000
Trade accounts payable..................................................... 20,855,000
Accrued expenses and other................................................. 28,983,000
-------------
Total current liabilities................................................ 51,143,000
Long-term debt and capital lease obligations, less current installments...... 69,617,000
Other long-term liabilities.................................................. 9,363,000
-------------
Total liabilities........................................................ 130,123,000
Shareholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares authorized, none
outstanding --
Common stock, no par value; 30,000,000 shares authorized; 19,311,987 shares
issued and outstanding.................................................... 164,733,000
Retained deficit........................................................... (3,717,000)
-------------
Total shareholders' equity............................................... 161,016,000
Commitments and contingencies
-------------
$ 291,139,000
-------------
-------------
</TABLE>
36
<PAGE>
WHOLE FOODS MARKET, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
TWENTY-EIGHT WEEKS ENDED APRIL 7, 1996 AND APRIL 9, 1995 AND FISCAL YEARS ENDED
SEPTEMBER 24, 1995, SEPTEMBER 25, 1994 AND SEPTEMBER 26, 1993
<TABLE>
<CAPTION>
FISCAL YEAR FISCAL YEAR FISCAL YEAR
TWENTY-EIGHT TWENTY-EIGHT ENDED ENDED ENDED
WEEKS ENDED WEEKS ENDED SEPTEMBER 24, SEPTEMBER 25, SEPTEMBER 26,
APRIL 7, 1996 APRIL 9, 1995 1995 1994 1993
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Sales................................. $ 439,219,000 $ 349,715,000 $696,990,335 $572,050,213 $439,254,437
Cost of goods sold and occupancy
costs................................ 294,071,000 237,263,000 471,516,589 387,682,184 297,647,419
------------- ------------- ------------- ------------- -------------
Gross profit...................... 145,148,000 112,452,000 225,473,746 184,368,029 141,607,018
Direct store expenses................. 115,100,000 87,567,000 178,534,824 144,383,254 113,690,274
Pre-opening costs..................... 2,654,000 2,012,000 4,568,982 3,386,557 4,985,346
General and administrative expenses... 17,935,000 14,454,000 30,321,318 25,151,336 21,643,628
Store relocation costs................ 2,376,000 6,430,000 8,090,348 5,757,670 2,456,998
Non-recurring expenses related to
earthquake........................... -- -- -- 281,919 --
Merger transaction costs.............. -- -- -- -- 3,093,620
------------- ------------- ------------- ------------- -------------
Income (loss) from operations..... 7,083,000 1,989,000 3,958,274 5,407,293 (4,262,848)
------------- ------------- ------------- ------------- -------------
Other income (expense):
Interest income (expense), net...... (1,700,000) (205,000) (1,135,114) 263,253 535,998
------------- ------------- ------------- ------------- -------------
Income (loss) before income tax
expense.......................... 5,383,000 1,784,000 2,823,160 5,670,546 (3,726,850)
Income tax expense.................... 3,404,000 3,364,000 5,347,446 6,035,000 4,726,527
------------- ------------- ------------- ------------- -------------
Net income (loss)................. $ 1,979,000 $ (1,580,000) $(2,524,286) $ (364,454) $(8,453,377)
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Income (loss) per common and common
equivalent share:
Primary............................. $ 0.10 $ (0.08) $ (0.13) $ (0.02) $ (0.50)
------------- ------------- ------------- ------------- -------------
Fully diluted....................... $ 0.10 $ (0.08) $ (0.13) $ (0.02) $ (0.50)
------------- ------------- ------------- ------------- -------------
Weighted average numbers of shares
outstanding:
Primary............................. 19,716,000 18,898,000 19,200,000 18,808,000 17,018,000
------------- ------------- ------------- ------------- -------------
Fully diluted....................... 19,733,000 18,898,000 19,200,000 18,808,000 17,018,000
------------- ------------- ------------- ------------- -------------
</TABLE>
37
<PAGE>
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The unaudited pro forma combined condensed financial statements give effect
to the business combination between Whole Foods Market, Inc. and Fresh Fields
Markets, Inc. accounted for on a pooling-of-interests basis. The pro forma
combined condensed financial statements are based on the respective historical
financial statements and the notes thereto. The pro forma combined condensed
balance sheet combines WFM's April 7, 1996 unaudited condensed balance sheet
with Fresh Fields' March 30, 1996 unaudited condensed balance sheet. The pro
forma combined condensed statements of operations combine WFM's historical
condensed consolidated statements of operations for the three fiscal years ended
September 24, 1995, September 25, 1994 and September 26, 1993 and the unaudited
twenty-eight week periods ended April 7, 1996 and April 9, 1995 with Fresh
Fields' corresponding historical condensed unaudited condensed statements of
operations for the three fiscal years ended September 30, 1995, December 31,
1994 and January 1, 1994 and the unaudited twenty-six week periods ended March
30, 1996 and April 1, 1995. The amounts included as Fresh Fields' historical
amounts have been reclassified to conform to classifications used by WFM.
The pro forma information is presented for illustrative purposes only and is
not necessarily indicative of the operating results or financial position that
would have occurred if the business combination had been consummated at the
beginning of the periods presented nor is it necessarily indicative of future
operating results or financial position.
These pro forma combined condensed financial statements should be read in
conjunction with the historical financial statements and the related notes
thereto of WFM and Fresh Fields included or incorporated elsewhere herein. See
"Index to Financial Statements".
Adjustments to the pro forma combined condensed balance sheet and statements
of operation assume the merger of WFM and Fresh Fields was consummated on
September 28, 1992. The transaction has been accounted for using the
pooling-of-interests method of accounting. The following adjustments have been
provided in connection with the merger in accordance with Accounting Principles
Board Opinion No. 16:
(1) Reclassifying additional paid-in capital of Fresh Fields to common
stock of WFM.
(2) Reflecting the estimated number of shares of WFM Common Stock to be
issued in exchange for all common and preferred stock of Fresh Fields on the
conversion ratio of .6049 new shares of Whole Foods for every existing share
of Fresh Fields common and preferred stock, or 5,173,000 shares of WFM
Common Stock for 8,552,000 shares of Fresh Fields common equivalent shares
assumed to be outstanding at the date of the Merger. The number of shares of
WFM Common Stock to be issued in the exchange was based on the assumption
that the Determination Price is $26 per share, which is the average per
share closing price of WFM Common Stock over the twenty days immediately
preceding June 17, 1996, the date the Merger Agreement was signed. The
Merger Agreement provides that the Determination Price used to compute the
number of WFM common shares to be exchanged will not be less than $24 per
share nor more than $28 per share. Using these prices, and assuming the
value agreed to by parties of the out-of-the-money options is zero, the
range of shares that could be issued is 4,804,000 to 5,604,000, plus
additional shares to be reserved for Included In-The-Money Options.
(3) Prior to the combination, Fresh Fields' fiscal year ended on a
fifty-two or fifty-three week period ending on the Saturday closest to
December 31. In recording the pooling-of-interests combination, Fresh
Fields' financial statements for the 52-week period ended September 30, 1995
were combined with the Company's financial statements for the fiscal year
ended September 24, 1995, and Fresh Fields' financial statements for the
fifty-two week period ended December 31, 1994 and the fifty-three week
period ended January 1, 1994 were combined with the Company's financial
statements for the fiscal years ended September 25, 1994 and September 26,
1993, respectively. Fresh Fields' unaudited results of operations for the
thirteen weeks ended December 31, 1994 included sales of approximately
$45,911,000 and a net loss of approximately
38
<PAGE>
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
$6,895,000. An adjustment has been made to shareholders' equity as of
September 24, 1995, to eliminate the effect of including Fresh Fields'
results of operations for the three months ended December 31, 1994, in both
years ended September 24, 1995 and September 25, 1994.
(4) Fresh Fields has incurred net operating losses for federal income
tax purposes of approx-
imately $29.1 million through December 31, 1995. The income tax expense for
all years shown in the accompanying pro forma combined condensed financial
statements is the expense associated with WFM's income before taxes. Based
on Fresh Fields past history of operating losses and the limitations on
utilizing net operating losses in any one year as a result of certain
changes in control, it does not appear more likely than not on a historical
basis that any of the net operating losses would have been able to have been
utilized. Therefore, for income tax purposes the losses incurred by Fresh
Fields cannot be used to offset the income earned by WFM and no deferred tax
asset has been recorded in the accompanying pro forma combined condensed
financial statements.
(5) In preparing the unaudited pro forma combined condensed financial
statements, certain accounting policies of Fresh Fields related to asset
capitalization and deferred rent were conformed to those used by WFM.
(6) The estimated merger transaction expenses of approximately
$10,000,000 have not been recorded in the accompanying pro forma combined
condensed financial statements. Such expenses will be deferred when incurred
and charged to expense upon consummation of the transaction. These expenses
exclude the anticipated costs associated with the closing of the Fresh
Fields Elston store in Chicago, Illinois, as well as any other costs that
may be incurred in connection with any additional store closing.
39
<PAGE>
COMPARISON OF SHAREHOLDERS' RIGHTS
WFM is incorporated under the laws of the State of Texas and Fresh Fields is
incorporated under the laws of the State of Delaware. The Fresh Fields
shareholders, whose rights as shareholders are currently governed by Delaware
law and Fresh Fields' Amended and Restated Certificate of Incorporation and
Bylaws, will become upon consummation of the Merger shareholders of WFM, and
their rights will be governed by Texas law and WFM's Restated Articles of
Incorporation and Bylaws. Certain differences between the rights of holders of
Common Stock and the Fresh Fields capital stock are summarized below.
The following summary does not purport to be a complete statement of the
rights of WFM shareholders under applicable Texas law and WFM's Restated
Articles of Incorporation and Bylaws, or the rights of shareholders of Fresh
Fields under applicable Delaware law and Fresh Fields' Amended and Restated
Certificate of Incorporation and Bylaws. The summary is qualified in its
entirety by reference to the TBCA and the Delaware General Corporation Law
("DGCL") and the WFM Restated Articles of Incorporation and Fresh Fields'
Amended and Restated Certificate of Incorporation.
AUTHORIZED CAPITAL STOCK
WFM is authorized to issue 30,000,000 shares of Common Stock, no par value,
of which approximately 14,273,911 shares were outstanding as of June 30, 1996,
and 5,000,000 shares of Preferred Stock, $.01 par value ("Preferred Stock"),
none of which are outstanding. A proposal will be made at the Special Meeting to
increase the number of shares of Common Stock to 50 million. See "Increase in
Authorized Number of Shares of WFM Common Stock."
WFM may issue Preferred Stock in one or more series and the Board of
Directors may designate the dividend rate, voting rights and other rights,
preferences and restrictions of each series. It is not possible to state the
actual effect of the issuance of any shares of Preferred Stock upon the rights
of holders of the Common Stock until the Board of Directors of WFM determines
the specific rights of holders of such Preferred Stock. However, such effects
might include, among other things, restricting dividends on the Common Stock,
diluting the voting power of the Common Stock, impairing the liquidation rights
of the Common Stock and delaying or preventing a change in control of WFM
without further action by the shareholders.
Fresh Fields is authorized to issue (i) 15,000,000 shares of Common Stock,
$0.01 par value per share (the "Fresh Fields Common Stock"); (ii) 1,953,390
shares of Class A Preferred Stock, $0.01 par value per share (the "Class A
Stock"); (iii) 3,000,000 shares of Class B Preferred Stock, $0.01 par value per
share (the "Class B Stock"); (iv) 1,810,032 shares of Class C Preferred Stock,
$0.01 par value per share (the "Class C Stock"); (v) 1,085,780 shares of Class D
Preferred Stock, $0.01 par value per share (the "Class D Stock"); and (vi)
400,000 shares of Class E Preferred Stock, $0.01 par value per share (the "Class
E Stock"). As of June 30, 1996, 603,821 shares of Fresh Fields Common Stock,
1,953,390 shares of Class A Stock, 3,000,000 shares of Class B Stock, 1,810,032
shares of Class C Stock, 877,207 shares of Class D Stock, and no shares of Class
E Stock were outstanding.
VOTING RIGHTS
Holders of Common Stock are entitled to one vote per share on any matter
submitted to the vote or consent of shareholders, and cumulative voting is
prohibited in the election of directors.
The holders of Fresh Fields Common Stock are entitled to one vote per share
on all matters on which shareholders of Fresh Fields are entitled to vote or
consent. The shares of the Fresh Fields Preferred Stock are convertible into
Fresh Fields Common Stock and each outstanding share of Fresh Fields Preferred
Stock has the number of votes equal to the number of shares of Fresh Fields
Common Stock into which such share of Preferred Stock may be converted. In
addition, the Class A Stock, Class B Stock, Class C Stock and Class D Stock vote
separately as a class when considering (i) any changes to the Amended and
Restated Certificate of Incorporation that may affect adversely that class of
Fresh Fields Preferred Stock, (ii) authorizing the issuance of capital stock
ranking senior to or on
40
<PAGE>
parity with that particular class, or (iii) to approve any merger, consolidation
or sale of all or substantially all of the assets of Fresh Fields in a
transaction in which the holders of voting securities of Fresh Fields do not
continue to own at least 51% of the voting securities of the surviving entity.
Approval of any of the above enumerated events, where applicable, requires
separate approval of each of the following: a majority of the issued and
outstanding shares of Class A Stock, 75% of the issued and outstanding Class B
Stock, 75% of the issued and outstanding Class C Stock and 75% of the issued and
outstanding Class D Stock.
DIVIDEND AND RELATED ISSUES
Subject to preferences that may be applicable to any outstanding Preferred
Stock, the holders of Common Stock of WFM are entitled to receive ratably such
dividends, if any, as may be declared from time to time by the Board of
Directors out of funds legally available therefor. The Common Stock is
non-assessable, not redeemable, does not have any conversion rights and is not
subject to call. Holders of shares of Common Stock have no preemptive rights to
maintain their respective percentage of ownership in future offerings or sales
of stock by WFM.
Under Delaware law, dividends may be paid by Fresh Fields out of either (1)
surplus or (2) out of its net profits for the fiscal year in which the dividend
is declared and/or the preceding fiscal year, except when the capital is
diminished to an amount less than the aggregate amount of the capital
represented by issued and outstanding stock having a preference on the
distribution of assets. Unless the certificate of incorporation provides
otherwise, the shareholders of a Delaware corporation do not have preemptive
rights. The Fresh Fields Certificate of Incorporation does not provide for any
preemptive rights to the holders of Fresh Fields Common Stock, but does provide
certain preemptive rights to the holders of its Preferred Stock.
AMENDMENTS TO CHARTER AND BYLAWS
The TBCA permits a corporation to amend its articles of incorporation so
long as the amended articles of incorporation contain only provisions
permissible in original articles of incorporation filed at the time when the
amendment is filed. Any amendment to the articles of incorporation requires the
approval of at least two-thirds of the shareholders entitled to vote, unless the
articles of incorporation permits a lesser amount. The Restated Articles of
Incorporation of WFM permits charter amendments to be approved by a vote or
consent of a majority of all of the outstanding shares of Common Stock.
Under the TBCA, the power to adopt, amend, or repeal bylaws rests with the
board of directors unless (i) the articles of incorporation reserves the power
exclusively to the shareholders in whole or in part or (ii) the shareholders
expressly reserve the power to amend or repeal a particular bylaw. Under the
TBCA, unless the articles of incorporation or a bylaw adopted by the
shareholders provides otherwise, the shareholders' power to amend, repeal or
adopt bylaws is concurrent with that of the directors. The WFM Bylaws expressly
authorize the Board of Directors of WFM to adopt, alter, amend or repeal the WFM
Bylaws by a majority vote at and meeting at which a quorum is present.
Amendments to the Fresh Fields Restated Certificate of Incorporation
generally require the approval of the holders of a majority of all outstanding
shares of Fresh Fields capital stock (with, in each case, each shareholder being
entitled to one vote for each share so held). However, the holders of the Fresh
Fields Common Stock and each class of Fresh Fields preferred stock are entitled
to vote separately as a class in the case of amendments to the Fresh Fields
Restated Certificate that alter or change the powers, preferences or special
rights of a class of stock so as to adversely affect the holders thereof, on
certain matters related to the specific rights of a class or series of capital
stock, and on all matters where a separate class vote is required by Delaware
law. Amendments to the Fresh Fields Certificate that may adversely affect the
rights of either the Class B Stock, Class C Stock or Class D Stock require the
approval of 75% of the issued and outstanding shares of that class. Amendments
to the Fresh Fields Certificate that may adversely affect the rights of the
Class A Stock or the Fresh Fields Common Stock require the approval of a
majority of the total shares of the issued and outstanding shares of that class.
Matters on which a class vote is required include amendments to change the
authorized number of shares of such class, dividend rights, liquidation rights
and to
41
<PAGE>
change the par value per share of such class. The Bylaws of Fresh Fields may be
amended by the shareholders of Fresh Fields and by the Board of Directors of
Fresh Fields, subject to the rights of the shareholders to amend such Bylaws.
APPROVAL OF, AND SPECIAL RIGHTS WITH RESPECT TO, MERGERS OR CONSOLIDATIONS AND
CERTAIN OTHER TRANSACTIONS; APPRAISAL RIGHTS
Fresh Fields is not subject to Section 203 of the DGCL, governing business
combinations with affiliated parties and does not otherwise have any particular
anti-takeover or other provisions in its Certificate of Incorporation, other
than class voting on such transactions, or Bylaws.
Under Delaware law, appraisal rights are generally available for the shares
of any class or series of stock of Fresh Fields in a merger or consolidation,
provided that no appraisal rights are available for the shares of any class or
series of stock which, at the record date for the meeting held to approve such
transaction, were either (i) listed on a national security exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. ("NASD") or (ii)
held of record by more than 2,000 shareholders. Even if the shares of any class
or series of stock meet the requirements of clause (i) or (ii) above, appraisal
rights are available for such class or series if the holders thereof receive in
the merger or consolidation anything except: (i) shares of stock of the
corporation surviving or resulting from such merger or consolidation; (ii)
shares of stock of any other corporation which at the effective date of the
merger or consolidation is either listed on a national securities change, or
designated as a national market system security on an interdealer quotation
system by the NASD or held of record by more than 2,000 shareholders; (iii) cash
in lieu of fractional shares; or (iv) any combination of the foregoing. No
appraisal rights are available to shareholders of the surviving corporation if
the merger did not require their approval.
The TBCA does not regulate business combinations with interested
shareholders and no comparable provisions have been adopted by WFM in its
Articles of Incorporation or Bylaws.
Except as indicated below, under the TBCA, a merger or consolidation
generally must be approved by the holders of at least two-thirds of all of the
outstanding shares of each constituent corporation entitled to vote. The merger
or consolidation of a wholly-owned subsidiary into or with a third corporation
does not require shareholder approval. The sale of all or substantially all of
the assets of a corporation must be approved by the holders of at least
two-thirds of the outstanding stock entitled to vote. The TBCA does not require
a shareholder vote of the surviving corporation in a merger, unless required by
the surviving corporation's articles of incorporation, if (i) the merger
agreement does not amend the existing articles of incorporation, (ii) each
shareholder of the surviving corporation whose shares were outstanding
immediately before the effective date of the merger will hold the same number of
shares, with identical designations, preferences, limitations, and relative
rights, immediately after the merger; (iii) the voting power of the number of
voting shares of stock issued and issuable as a result of the merger does not
exceed by more than 20% the voting power of the shares of stock outstanding
immediately prior to the effective date of the merger; (iv) the number of
participating shares outstanding immediately after the merger plus those
issuable as a result of the merger does not exceed by more than 20% the
outstanding pre-merger total, and (v) the board of directors recommends the
plan. As permitted by the TBCA, WFM Articles of Incorporation have altered this
provision to permit approval by a majority of the outstanding shares of Common
Stock.
Under the TBCA, any shareholder of a domestic corporation has the right to
dissent from (i) any plan of merger on which he was entitled under the TBCA to
vote, (ii) any sale, lease, exchange, or other disposition of all, or
substantially all, of the property and assets of the corporation which required
shareholder approval, and (iii) any plan of exchange pursuant to Article 5.02 of
the TBCA in which the shares of the shareholder are to be acquired. This right
is not available with regard to a plan of merger in which there is a single
surviving corporation, or from a plan of exchange, if (i) the affected shares
are listed on a national securities exchange or held by more than 2,000
shareholders and (ii) the shareholder is not required to accept anything other
than shares of the surviving corporation or another publicly held corporation
(except for payments in lieu of fractional shares).
42
<PAGE>
SPECIAL MEETINGS; ACTION WITHOUT MEETING
Under the TBCA, special meetings of shareholders may be called by (i) the
president, (ii) the board of directors, (iii) those persons authorized by the
corporation's articles of incorporation or bylaws, and (iv) the holders of at
least 10% of the shares entitled to vote, unless the charter specifics a greater
(but not more than 50%) or lesser number. The WFM Bylaws also authorizes the
chief executive officer to call a special meeting of shareholders at any time.
Any action required or permitted to be taken by shareholder vote may, under
the TBCA, be taken without a meeting by written consent describing the action
taken and signed by the holders of all of the shares entitled to vote on the
action. The TBCA permits the articles of incorporation to permit action by
written consent of the minimum number of votes that would be necessary to
authorize or take the action at a meeting. The WFM Restated Articles of
Incorporation does not permit shareholder action without a meeting by less than
unanimous consent.
Under Delaware law, special meetings of the shareholders may be called by
the Board of Directors or such other person as may be authorized by the
certificate of incorporation or the bylaws.
Under Delaware law, unless otherwise provided in the certificate of
incorporation, any action which may be taken or is required to be taken at any
annual or special meeting of shareholders, may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, is signed by the holders of outstanding stock having not
less than the minimum number of votes that would be necessary to authorize or
take such action at a meeting at which all shares entitled to vote thereon were
present and voted.
LIMITATIONS OF LIABILITY AND INDEMNIFICATION MATTERS
The TBCA allows corporations to indemnify a director, officer, agent, or
employee against civil or criminal liability if such person acted in good faith
and in a manner he reasonably believed to be in, or not opposed to, the best
interests of the corporation, and, with respect to any criminal action, if he
had no reasonable cause to believe his conduct was unlawful. A director may not
be indemnified in respect of a proceeding if he is held liable to the
corporation or received an improper personal benefit, except to the extent of
reasonable expenses actually incurred, and no indemnification shall be made in
respect of any proceeding in which the person was guilty of willful or
intentional misconduct. In any action in which the director, officer, agent, or
employee has been successful, on the merits or otherwise, the corporation must
indemnify him against reasonable expenses. The indemnification provisions of the
TBCA provide that they are not exclusive of additional rights to
indemnification.
The WFM Articles of Incorporation and Bylaws provide that directors,
officers, employees, agents, and persons serving in similar capacities at the
request of the corporation are indemnified to the fullest extent permitted by
the TBCA.
The TBCA also allows a corporation's articles of incorporation to eliminate
or limit a director's personal liability to the corporation or its shareholders
for monetary damages for the director's breach of his fiduciary duty as a
director. However, the corporation may not eliminate or limit a director's
liability for (i) any breach of the director's duty of loyalty to the
corporation or its shareholders, (ii) acts or omissions not in good faith or
involving intentional misconduct or a knowing violation of law, (iii) any
transaction from which the director derived an improper personal benefit, or
(iv) an act or omission for which the liability of a director is expressly
provided by an applicable statute.
The WFM Restated Articles of Incorporation limit the liability of WFM
directors to the full extent permitted by Texas law now or in the future, and
state that any repeal or modification of the TBCA provision will not adversely
affect any right or protection of any WFM director that exists immediately prior
to such repeal or modification.
Fresh Fields's Restated Certificate of Incorporation provides that, to the
fullest extent permitted by Delaware Law, Fresh Fields's directors will not be
liable for monetary damages for breach of the directors' fiduciary duty of care
to Fresh Fields and its shareholders. The provision in Fresh Fields's
43
<PAGE>
Certificate of Incorporation does not eliminate the duty of care, and in
appropriate circumstances equitable remedies such as an injunction or other
forms of non-monetary relief would remain available under the DGCL.
INCREASE IN AUTHORIZED NUMBER OF SHARES OF WFM COMMON STOCK
WFM is authorized to issue 30,000,000 shares of Common Stock, no par value,
of which approximately 14,273,911 shares were outstanding as of June 30, 1996,
and 2,056,795 shares reserved for outstanding unexercised options and 5,000,000
shares of Preferred Stock, $.01 par value ("Preferred Stock"), none of which is
outstanding. If the Merger is consummated, WFM will issue in excess of 5,000,000
additional shares of Common Stock. See "The Merger."
The Board of Directors recommends that shareholders vote for the proposed
amendment to increase WFM's authorized shares of Common Stock. It is necessary
to increase the Common Stock to provide for continued flexibility to declare
stock splits or stock dividends in the future when appropriate or the issuance
of additional shares (in financings or acquisitions) when appropriate. Aside
from the issuances of Common Stock pursuant to employee stock options and the
Merger, WFM does not currently have plans for the issuance of additional shares
of Common Stock.
Approval of the proposed amendment (the text of which is attached as
Appendix D hereto) requires the affirmative vote of the holders of a majority of
the shares of Common Stock issued and outstanding as of the record date of the
Special Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE PROPOSED
ADOPTION AMENDMENT TO INCREASE WFM'S AUTHORIZED SHARES OF COMMON STOCK.
AMENDMENT TO THE 1992 STOCK OPTION PLAN FOR TEAM MEMBERS
The proposed amendment to the Team Member Option Plan would increase the
number of shares of common stock subject to the plan from 2 million shares to 3
million shares. Approval of this amendment requires the affirmative vote of the
holders of a majority of the shares of common stock represented at the Annual
Meeting. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDMENT
TO THE TEAM MEMBER OPTION PLAN.
The purpose of the Team Member Option Plan is to encourage an ownership
attitude among Team Members at WFM. All Team Members are eligible to participate
in the Team Member Option Plan, subject to length of service criteria which are
generally five years or 10,000 hours of employment with the Company. The
intention of the Company in administering the Team Member Option Plan is to
provide Team Members with an ongoing incentive to increase earnings and
productivity, to acknowledge superior service contributions by Team Members to
WFM and to recognize promotions of Team Members. The Board of Directors has
approved the increase of shares subject to the Team Member Option Plan in view
of the significant increase in the number of Team Members as a result of the
Merger and to enable WFM to fulfill its obligations under the Merger Agreement
to assume Fresh Fields' outstanding options to its employees. In order to
continue to obtain the beneficial effects of the Team Member Option Plan, it
will be necessary to increase the number of shares available under the plan to
provide for future options that may be granted to the Team Members at the stores
to be acquired in the Merger who were formerly employees of Fresh Fields.
As of June 30, 1996, options to purchase an aggregate of 1,771,145 shares of
common stock (net of options canceled) had been granted pursuant to the Team
Member Option Plan, options to purchase 180,170 shares had been exercised,
options to purchase 1,590,975 shares remained outstanding, and only 228,855
shares remained available for future grant. As of June 30, 1996, the market
value of all shares of common stock subject to outstanding options was
approximately $42,161,000.00 (based upon the closing sale price of the Common
Stock as reported on the Nasdaq NSM on June 28, 1996). During the 1995 fiscal
year, options covering 363,400 shares of Common Stock were granted to employees
of WFM.
44
<PAGE>
As of June 30, 1996, the following current executive officers named in its
proxy statement for its 1996 annual meeting of shareholders have been granted
options under the Team Member Option Plan in the amount indicated: John Mackey,
Chief Executive Officer, 26,000 shares; Peter Roy, President, 51,000 shares;
Chris Hitt, Regional President, 71,700 shares; and Don Moffitt, Regional
President, 23,700 shares. Since adoption of the Team Member Option Plan, all
current executive officers, as a group, have been granted options covering
410,550 shares of common stock which represents approximately 23.2% of the total
number of options granted pursuant to the Team Member Option Plan. The foregoing
amounts do not include options granted under the 1987 Option and Incentive Plan
which was terminated in 1992, except as to options previously granted.
Stock options currently issued under the Team Member Option Plan are
currently entitled to "incentive stock option" treatment for federal income tax
purposes provided by Section 422A of the Internal Revenue Code. An optionee,
upon exercise of an option under the Team Member Option Plan, will not realize
taxable income (but may generate a tax preference item which may result in tax
liability under alternative minimum tax provisions), nor will WFM then be
entitled to a deduction. The gain realized upon the subsequent disposition of
the stock acquired upon exercise of the options will be entitled to capital gain
treatment, provided that no such disposition is made within two years after the
option was granted and one year after the option was exercised. If such holding
period requirements are not satisfied, the optionee will realize ordinary income
equal to the lesser of (i) the fair market value of the stock on the date of
exercise minus the exercise price or (ii) the amount realized on disposition
minus the exercise price, and will receive a credit against income tax to the
extent alternative minimum tax liability was incurred upon exercise. If the
optionee must recognize ordinary income, WFM will be entitled to a corresponding
deduction. The foregoing statements are based upon current federal income tax
laws and regulations and are subject to change if the tax laws and regulations,
or interpretations thereof, change.
In addition, the Team Member Option Plan may establish for officers and
directors of WFM an exemption from the provisions of Section 16(b) of the
Exchange Act for the grants of options. Section 16(b) provides for recovery by
WFM of profits made by officers and directors on short-term trading in shares of
Common Stock. Grants of options to purchase common stock under the Team Member
Option Plan by officers and employee-directors of WFM may be entitled to an
exemption from the operation of Section 16(b), provided certain conditions are
met under the rules and regulations of the Commission.
45
<PAGE>
ABSENCE OF MARKET FOR AND DIVIDENDS ON THE
FRESH FIELDS' SHARES
No active trading market exists with respect to any of the shares of any
class of capital stock of Fresh Fields. Such shares are not listed on any
exchange and are not traded in the over-the-counter market. No dividends have
been declared or paid by Fresh Fields on any class of its capital stock. It has
been the policy of Fresh Fields to retain all funds for investment in the
business. Fresh Fields' agreement with its lenders restricts the payment of
dividends. Fresh Fields has 218 shareholders of record.
46
<PAGE>
FRESH FIELDS' SELECTED FINANCIAL DATA
The following table present selected historical financial data for Fresh
Fields for each of the five fiscal years ended December 30, 1995, December 31,
1994, January 1, 1994, December 26, 1992, and December 28, 1991, and for the
thirteen weeks ended March 30, 1996. The data presented are derived from the
financial statements of Fresh Fields and should be read in conjunction with the
more detailed information and financial statements and notes thereto, of Fresh
Fields, which are included elsewhere in this Proxy Statement/Prospectus. In the
opinion of the management of Fresh Fields, the interim financial information
includes all adjustments (consisting only of normal recurring accruals) that are
considered necessary for a fair presentation of the results of operations for
such periods. Results for the interim periods are not necessarily indicative of
results for the year.
<TABLE>
<CAPTION>
AS OF OR FOR THE FISCAL YEAR ENDED
AS OF OR FOR AS OF OR FOR THE -----------------------------------------------------
THE THIRTEEN THIRTEEN WEEKS DECEM- DECEM- JANU- DECEM- DECEM-
WEEKS ENDED ENDED APRIL 1, BER 30, BER 31, ARY 1, BER 26, BER 28,
MARCH 30, 1996 1995 1995 1994 1994 1992 1991
-------------- ------------------ --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Sales..................... $ 63,766 $ 47,811 $ 213,561 $ 170,365 $ 116,947 $ 40,336 $ 6,577
Cost of goods sold and
occupancy costs.......... 42,740 31,294 142,491 114,985 78,594 27,548 4,510
-------------- ---------- --------- --------- --------- --------- ---------
Gross profit............ 21,026 16,517 71,070 55,380 38,353 12,788 2,067
Direct store expenses..... 17,124 12,968 63,325 48,335 36,993 12,947 3,353
Pre-opening costs......... 310 438 1,964 1,033 3,457 766 131
General and administrative
expenses................. 2,978 2,779 12,388 9,176 7,536 3,964 1,665
Store relocation/closing
costs.................... -- -- 5,758 2,457 564 --
-------------- ---------- --------- --------- --------- --------- ---------
Income (loss) from
operations............. 614 332 (6,607) (8,922) (12,090) (5,003) (3,082)
Net interest income
(expense)................ (201) 212 165 256 465 478 232
-------------- ---------- --------- --------- --------- --------- ---------
Income (loss) before
income tax expense..... 413 544 (6,442) (8,666) (11,625) (4,525) (2,850)
Income tax expense........ -- -- -- 130 -- --
-------------- ---------- --------- --------- --------- --------- ---------
Net income (loss)....... $ 413 $ 544 $ (6,442) $ (8,666) $ (11,755) $ (4,525) $ (2,850)
-------------- ---------- --------- --------- --------- --------- ---------
-------------- ---------- --------- --------- --------- --------- ---------
Net income (loss) per
common share............. $ 0.05 $ 0.06 $ (0.76) $ (1.14) $ (1.80) $ (1.13) $ (1.61)
-------------- ---------- --------- --------- --------- --------- ---------
-------------- ---------- --------- --------- --------- --------- ---------
Weighted average shares
outstanding.............. 8,552 8,479 8,499 7,582 6,530 4,003 1,768
-------------- ---------- --------- --------- --------- --------- ---------
-------------- ---------- --------- --------- --------- --------- ---------
OPERATING DATA:
Number of shares at end of
period................... 21 16 19 14 12 5 2
Annualized store sales per
square foot.............. $ 530 -- $ 543 $ 548 $ 505 $ 498 $ 443
Average weekly sales per
store.................... $ 228,000 -- $ 241,000 $ 249,000 $ 234,000 $ 237,000 $ 184,000
BALANCE SHEET DATA:
Working capital
(deficit)................ $ (445) $ 11,766 $ (4,891) $ 13,143 $ 10,548 $ 20,954 $ 5,243
Total assets.............. 71,778 67,986 73,240 68,281 56,842 40,384 11,839
Long-term debt (including
current maturities)...... 7,000 -- 5,000 -- -- -- --
Shareholders' equity...... 49,982 55,926 49,069 55,383 48,768 35,693 9,654
</TABLE>
- ------------------------
47
<PAGE>
FRESH FIELDS' MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Fresh Fields' Financial Statements and Notes thereto appearing elsewhere in this
Proxy Statement/Prospectus.
GENERAL
At June 30, 1996, Fresh Fields operated twenty-two stores. The table below
shows the store openings by year.
<TABLE>
<CAPTION>
BEGINNING OPENED CLOSED/RELOCATED ENDING
------------- ----------- ------------------- -----------
<S> <C> <C> <C> <C>
1991.................................................... -- 2 -- 2
1992.................................................... 2 3 -- 5
1993.................................................... 5 8 1 12
1994.................................................... 12 3 1 14
1995.................................................... 14 6 1 19
1996 (through June 30).................................. 19 3 -- 22
</TABLE>
The average square footage of the stores opened in 1991 and 1992 was
approximately 20,000. In 1993, larger stores were opened having an average store
size of 26,000 square feet. The average store size for the 1994, 1995 and 1996
openings was approximately 25,000 square feet. Fresh Fields operated in the
Washington, D.C. metropolitan area until 1993, when two stores were opened in
suburban Philadelphia and two in suburban Chicago. In 1994, two additional
stores were opened in the Chicago market. In 1995, three stores were opened in
the New York market. At the end of March 1996, there were nine stores in the
Washington, D.C. metropolitan area, one in Charlottesville, Virginia, three in
Philadelphia, four in Chicago and four in the New York City area. In May 1996,
Fresh Fields' twenty-second store was opened in Baltimore, Maryland. Fresh
Fields operates two warehouses and commissaries, one each in Rockville, Maryland
and in Palatine, Illinois. The Rockville facilities support and supply the
stores on the east coast and the Palatine facilities supply the Chicago stores.
The operating results are impacted by the number of store openings and the
relative maturity level of the stores. In the first four to six months, a store
typically incurs start up losses until the associates become experienced in
ordering and the operating routine and the staffing level is adjusted to the
post grand opening sales level. Generally, preopening expenses are incurred
during the two months leading up to a store opening and charged to operations
when incurred. General and administrative costs fluctuate depending on the
number of planned openings. These expenses vary based on the number of "managers
in training" and payroll and related expenses of associates who are responsible
for setting up a new store and training. Also, preopening and corporate new
store related expenses vary depending on whether the new stores are located in
existing or new markets.
Fresh Fields operates on a 52 or 53 week fiscal year ending on the last
Saturday in December. The fiscal years for the financial statements presented
for the years ended on December 30, 1995 (fiscal 1995) and December 31, 1994
(fiscal 1994) both comprised 52 weeks. The year that ended on January 1, 1994
(fiscal 1993) included 53 weeks. The financial statements for the first quarters
ended on March 30, 1996 and April 1, 1995, comprised thirteen weeks.
RESULTS OF OPERATIONS FOR THE 1996 FIRST QUARTER (THIRTEEN WEEKS ENDED MARCH 30,
1996)
COMPARED TO THE 1995 FIRST QUARTER (THIRTEEN WEEKS ENDED APRIL 1, 1995)
On a 33% sales increase, operating income improved to $1,026,000 in the
first thirteen weeks of 1996. Sales for stores open for a full thirteen periods
(comparable store sales) were down 5.5% in the 1996 first quarter. The 1996
first quarter comparable store sales were impacted by cannibalization of six of
the thirteen comparable stores. The first quarter comparable store sales
excluding cannibalized stores increased 6.6%.
48
<PAGE>
Fresh Fields opened two stores in the 1996 first quarter, one in Washington,
D.C. and a second in Manhasset (Long Island), New York. Both stores experienced
strong openings. The high level of sales resulted in these two stores being
profitable, before preopening expenses, in their first month of operation.
The ratio of gross profit to sales after occupancy, decreased by 150 basis
points to 33.0% in the 1996 first quarter compared to the same quarter of the
prior year. The decrease in the gross profit rate was due to price reductions
and higher occupancy costs offset in part by lower warehouse and commissary
operating costs. The gross margin on products sold decreased by 1.3 percentage
points from the lower prices in Chicago for the entire quarter and the lowering
of prices in New Jersey and Philadelphia beginning in late February. Higher
occupancy costs were primarily associated with the New York market where there
were four stores in operation in the first quarter of 1996.
Total operating expenses were $20,000,000 in the 1996 first quarter, an
increase of 23.6% over the 1995 period. As a percent of sales, total operating
expenses decreased to 31.4% for the 1996 first quarter from 33.9% for the same
period last year. Store expenses were reduced to 24.0% of sales in the 1996
first quarter from 24.6% for the same period of the prior year. Additionally,
general and administrative expenses were reduced to 3.6% from 5.3%, an absolute
dollar reduction of $219,000. (Both the store expenses and general and
administrative costs exclude depreciation and amortization.)
Preopening expenses were $310,000 in the quarter, down $128,000 from the
1995 first quarter even though two stores were opened in each of the 1996 and
1995 first quarters. The 1995 preopening expenses were higher because they
included the cost of entry into the New York market and a second store in
Philadelphia, while the 1996 openings were in existing markets, one of which was
in the Washington, D.C. market. Operating income improved to $1.0 million in the
quarter from $332,000 for the first thirteen weeks of 1995. First quarter
financing costs totaled $613,000 compared to interest income of $212,000 for the
1995 first quarter. Financing costs include $250,000 of amortization of the
value of warrants issued to two shareholders in connection with obtaining
extended financing. Additionally, there are approximately $300,000 in
unamortized financing costs associated with the extended financing which will be
fully amortized by the end of the 1996 second quarter.
RESULTS OF OPERATIONS FOR 1995 (FIFTY-TWO WEEKS ENDED DECEMBER 30, 1995)
COMPARED TO 1994
(FIFTY-TWO WEEKS ENDED DECEMBER 31, 1994)
Sales in 1995 grew to $213.6 million, a 25% increase over the 1994 sales.
Comparable store sales grew by 2.3% and 15.6% in 1995 and 1994, respectively.
The 1995 comparable store sales increase moderated in part due to the
cannibalization of three of the twelve stores in the comparable total by three
new stores opened during the year.
The 1995 gross margin after occupancy costs was 33.3%, an increase of 80
basis points over 1994. In spite of a generally younger store base and higher
occupancy costs, the combination of better inventory shrinkage control and
improved commissary and warehouse operations resulted in an improved 1995 gross
margin. However, due to pricing initiatives that began in Chicago in the 1995
fourth quarter, the gross margin after occupancy was 30 basis points lower than
the same period of the previous year.
<TABLE>
<CAPTION>
QUARTERS
--------------------------------------------------
FIRST SECOND THIRD FOURTH
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Gross profit after occupancy
1995............................................... 34.5% 34.4% 32.8% 31.7%
1994............................................... 33.0 33.5 31.6 32.0
</TABLE>
After the prices were lowered in November, Chicago market comparable store
sales increases were in excess of 10% where they had been flat to down in the
second and third quarter.
Total operating expenses were $77,062,000 in 1995, an increase of 31.6% over
1994 total operating expenses. As a percentage of total sales, total operating
expenses increased to 36.0% in 1995 from 34.4% in 1994. Store expenses were
$56,526,000 in 1995, an increase of 30% over 1994. Personnel
49
<PAGE>
costs decreased as a percent of sales compared to 1994, while store operating
expenses and advertising grew at a rate faster than sales. The ratio of store
expenses to sales was 26.4% in 1995 and 25.4% in 1994. The 1994 expense ratio
was lower because only three stores opened in that year; the ratio increased in
1995 when six stores were opened and incurred start up losses.
General and administrative expenses were $11,773,000 in 1995, an increase of
28.3% over the 1994 expense. The ratio of general and administrative expense to
sales was 5.5% and 5.4% in 1995 and 1994, respectively. Excluding the training
and development costs associated with staffing new stores, the administrative
cost ratio would have decreased by 20 basis points rather than increased by 10
basis points from 1994. The 1995 general and administrative expense includes a
$250,000 fourth quarter charge for fees associated with renegotiation of the
credit facility.
Preopening expenses were $1,964,000 and $1,033,000 in 1995 and 1994,
respectively. In 1995, six stores were opened compared to three openings in
1994. The average store preopening expense was $320,000 in 1995 and $344,000 in
1994. The lower average preopening expense in 1995 was achieved despite opening
the New York region. Depreciation and amortization totaled $6,799,000 in 1995
and $4,986,000 in 1994. The depreciation and amortization, which excludes
depreciation on warehouse and commissary fixtures and equipment that is included
in the determination of gross profit, increased by 36% due to the increased
number of stores in operation.
In late 1995, the corporate office was relocated to a larger facility. The
old office space adjoins the Maryland warehouse and was converted back into
warehouse space. In connection with the corporate office relocation, a $615,000
charge was taken for writing off certain leasehold improvements and other assets
in the old office and moving related expenses. In 1994, a $5.76 million charge
was taken relating to relocating the Rockville store and establishing a closing
reserve for the Fairfax store.
Fresh Fields had net interest income in both 1995 and 1994 of $165,000 and
$256,000, respectively. The 1995 interest income is net of $262,000 in interest
expense relating to a credit facility established in July 1995.
RESULTS OF OPERATIONS FOR 1994 (FIFTY-TWO WEEKS ENDED DECEMBER 31, 1994)
COMPARED TO 1993
(FIFTY-THREE WEEKS ENDED JANUARY 1, 1994)
Sales in 1994 grew to $170 million, a 46% increase over the prior 52 week
period. The 1994 sales growth was a combination of an increase in store sales of
15.6% and new store growth. The gross profit after occupancy decreased to 32.5%
of sales from 32.8% in 1994. The lower gross profit rate was attributable to a
generally younger mix of stores and to increasing the number of stores in
Chicago to four where the product margins were lower than in other markets.
Total operating expenses were $58,545,000 in 1994, an increase of 22% over
1993. As a percentage of sales, total expenses were 34.4% in 1994 and 41% in
1993. Store expenses were $43,349,000, or 28.5% higher than 1993. The ratio of
store expenses to sales improved to 25.4% in 1994 from 28.8% in 1993. The 1993
ratio was high because of the effect of opening eight new stores on a base of
only five open at the beginning of the year. The 1994 ratio correspondingly
decreased because only three stores were opened.
General and administrative expenses were $9,176,000 in 1994 and $7,536,000
in 1993 or 5.4% of sales and 6.4% of sales, respectively. The ratio to sales
grew, despite a 48% increase in sales, due to higher spending for training and
staffing for the planned growth for 1995. Depreciation and amortization totaled
$4,986,000 in 1994 and $3,258,000 in 1993. Depreciation and amortization, which
excludes depreciation on warehouse and kitchen fixtures and equipment that is
included in gross profit, increased by 53% due to the increased number of stores
in operation. The loss before store relocation and closing costs was reduced to
$3,165,000 in 1994 from $9,633,000 in 1993. The store relocation and closing
costs in 1994 related to the relocation of the Rockville store and writing down
the Fairfax store assets in anticipation of a future relocation. The 1993 charge
related to closing the Richmond, Virginia store.
50
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Fresh Fields' primary capital requirements have been for funding the new
store expansion plan. Capital is required for new store fixtures and equipment,
preopening costs and funding new store start up losses, which occur in each
store's first four to six months of operations. The working capital requirements
for a new store are not significant.
Capital expenditures were $23.2 million, $14.6 million, and $27.3 million in
1995, 1994 and 1993, respectively. The new store capital requirements for
leasehold improvements vary depending on the condition of the facility Fresh
Fields is leasing and the funds the landlord is contributing toward
improvements. The average per store capital expended in 1995, 1994 and 1993 was
$2.8 million, $3.4 million and $3.0 million, respectively. (The 1995 per store
average excludes one store from the calculated average that was entirely funded
by the landlord.) The cost per a standard store where the landlord has provided
"built-to-suit" space has decreased in each of 1994 and 1995, with the last
several stores' expenditures for leasehold improvements, fixtures and equipment
totaling on average approximately $2.5 million. The remaining capital expended
in each year was for store maintenance, systems, warehouse and commissary
fixtures and equipment and office equipment and fixtures.
Operations provided cash of $3.3 million in 1995 and $5.9 million in 1994,
and used $9.0 million of cash in 1993. Fresh Fields' expansion programs have
been financed primarily with equity. In December 1994, Fresh Fields sold 874,000
shares of Class D Stock for aggregate proceeds of $14.8 million. In July 1993,
it sold 1,786,000 Class C Stock for $24.8 million. In July 1995, Fresh Fields
entered into a revolving credit agreement which provides for borrowings up to
$10.0 million and increases as Fresh Fields' cash flow increases. The credit
facility is secured by a lien on substantially all of Fresh Fields' assets, and
includes various restrictive covenants. Fresh Fields breached certain covenants
in November 1995. The lender agreed to forbear from taking any action until June
30, 1996, and subsequently extended their forbearance to November 30, 1996. At
the end of the 1996 first quarter, borrowings under the credit facility totaled
$7.0 million.
INFLATION
Fresh Fields does not believe its operations are materially impacted by
inflation. Generally, Fresh Fields has been able to lower its product costs as
its volume of purchases has increased by selectively committing to promotional
arrangements and by utilizing alternative suppliers. The remaining material
operating cost is payroll, which is indexed to prevailing wage rates in each
market in which Fresh Fields operates, and is only to a smaller degree affected
by inflation.
SEASONALITY AND QUARTERLY PERIODS
The business is somewhat seasonal, with the highest sales occurring in the
spring, or the second quarter, when fruits and vegetables are "coming into
season." The next most important sales periods are the fall, or the fourth
quarter, and the winter, or the first quarter. The fall quarter is benefitted by
the Thanksgiving, Christmas and Hanukkah holidays. Fresh Fields believes that
the first quarter is relatively strong because it is a time when individuals are
reaffirming their "eat healthy" resolutions. The lowest sales period is the
summer, or third quarter, when many customers take vacations and food
consumption is generally reduced by warmer weather.
In the past, the profitability of the business has been affected
significantly by the number of store openings in the current and prior quarter.
However, it is also affected by seasonality. In periods of higher sales, the
fixed costs of the business are leveraged for improved profitability. Management
believes the fixed costs in this business are higher than most food retailing
because of the central commissary, in-store bakeries and the higher per square
foot store capital and maintenance costs. The third quarter that includes July,
August and September is the least profitable on a same store basis due to lower
sales and higher produce and other perishable product shrinkage that occurs
during the warmer weather.
51
<PAGE>
BUSINESS OF FRESH FIELDS
Fresh Fields owns and operates twenty-two large format, full service
supermarkets specializing in fresh and natural foods in the eastern and midwest.
In addition to these stores, Fresh Fields maintains separate facilities for its
corporate office, commissaries and warehouses.
Fresh Fields, which was founded in 1991, is one of the country's largest
chains of fresh and natural foods supermarkets. The principal executive office
of Fresh Fields is located at 6015 Executive Boulevard, Rockville, Maryland
20852, and its telephone number is 301-984-3737.
Fresh Fields opened its first store in Rockville, Maryland in 1991 and today
operates stores in seven states and the District of Columbia. Fresh Fields'
stores are generally in excess of 20,000 square feet and offer a wide selection
of high quality, natural foods, perishables and grocery items. They are designed
to feel like supermarkets with a dedication to fresh, healthy eating, as opposed
to a large health food store. The stores strive to carry a wide variety of
organic and conventionally grown produce, fresh fish and seafood and hormone
free meats. They feature the following departments: in-house bakery, bulk,
dairy, fish and seafood, floral, frozen foods, prepared foods/deli, general
merchandise, grocery, meat, cheese and pasta, produce and nutrition and body
care. Many of the stores also have an in-store cafe, which is a self-serve
eating area where shoppers can enjoy a meal from the deli or a snack from the
bakery.
PRODUCTS
Generally, the products sold in Fresh Fields' stores meet the following
guiding principles: (i) foods that are organically produced whenever feasible,
(ii) foods that are free of synthetic preservatives, artificial colors and
flavors, (iii) foods that are free of synthetic sweeteners, (iv) foods that are
free of hydrogenated oils, tropical oils and cottonseed oil, (v) grain products
that are never bleached or bromated, (vi) meats that are obtained from animals
raised without hormones and other growth-promoting drugs, (vii) foods that are
never irradiated, (viii) products that are not tested on animals, and (ix)
household products that do not contain phosphates or chlorine.
Each department is designed to present a wide assortment of products. In
addition to traditionally popular items, Fresh Fields carries many harder to
find products that fall within its guiding principles. Special emphasis is
placed on items that are low in fat, low in calories, milk free or wheat free.
Fresh Fields carries many vegetarian and organic selections. To meet its
customers' needs, Fresh Fields has also started to carry some "cross-over
products" that are high quality conventional products that do not meet the
guiding principles. These products account for approximately 1% of the items
Fresh Fields carries.
STORES
Fresh Fields has 22 stores chain-wide. It has 11 stores in the greater
Washington metropolitan area including the District of Columbia and suburbs of
Virginia and Maryland. Fresh Fields has three Philadelphia stores. The stores on
the east coast are served through a central warehouse and commissary in
Rockville, Maryland.
Fresh Fields also has four stores in the greater Chicago metropolitan area,
which are served through a central warehouse and commissary in Palatine,
Illinois.
In 1995, Fresh Fields entered the greater New York City metropolitan area
and now has stores in Connecticut, New Jersey and Long Island.
52
<PAGE>
The location, size and date opened of each of Fresh Fields' stores are set
forth below:
<TABLE>
<CAPTION>
APPROXIMATE GROSS
STORE SQUARE FOOTAGE DATE OPENED
- ------------------------------------------------------------ ----------------- -------------
<S> <C> <C>
Rockville, MD............................................... 23,000 05/91
Bethesda, MD................................................ 14,000 11/91
Falls Church, VA............................................ 14,000 02/92
Alexandria, VA.............................................. 29,000 09/92
Charlottesville, VA......................................... 27,000 11/92
North Wales, PA............................................. 21,000 04/93
Devon, PA................................................... 28,000 05/93
Annapolis, MD............................................... 26,000 06/93
Palatine, IL................................................ 29,000 07/93
Naperville, IL.............................................. 30,000 07/93
Springfield, VA............................................. 24,000 10/93
Evanston, IL................................................ 25,000 05/94
Chicago, IL................................................. 24,000 06/94
Greenwich, CT............................................... 28,000 03/95
Wynnewood, PA............................................... 28,000 04/95
Millburn, NJ................................................ 29,000 06/95
Montclair, NJ............................................... 18,000 06/95
Gaithersburg, MD............................................ 26,000 09/95
Reston, VA.................................................. 26,000 11/95
Washington, D.C............................................. 30,000 01/96
Manhasset, NY............................................... 21,000 02/96
Baltimore, MD............................................... 25,000 05/96
</TABLE>
In October 1993, Fresh Fields closed its Richmond, Virginia store due to
poor prospects for profitable operations, and in November 1995, replaced its
Fairfax, Virginia store with the Reston, Virginia Store and subsequently closed
the Fairfax store in April 1996.
COMPETITION
Fresh Fields' competitors currently include other natural food supermarkets,
conventional and specialty supermarkets, natural food stores and small specialty
shops. Conventional and specialty supermarkets compete with Fresh Fields in one
or more product categories. However, they are expanding aggressively into
marketing a broad range of natural foods and are thereby competing more directly
with Fresh Fields for products, customers and locations. Some of Fresh Fields'
competitors have been in business longer or have greater financial or marketing
resources than Fresh Fields, and they may be able to devote greater resources to
securing suitable locations and to sourcing, promoting and selling their
products.
EMPLOYEES
Fresh Fields invests heavily in a well-trained, service oriented group of
associates. It employs over 2,600 full- and part-time employees. Fresh Fields'
service-intensive operations require consistent management dedication, skill and
a sense of ownership. Department managers and higher-level managers are granted
stock options or restricted stock to compensate them for performance that
promotes Fresh Fields' long-term success. Employees may participate in certain
employee benefit programs which in some instances are tied to store performance.
Fresh Fields' employees are not represented by a labor union or collective
bargaining agreement. Some of Fresh Fields' stores are from time to time
targeted by union representatives in an effort to encourage Fresh Fields'
employees to organize.
53
<PAGE>
TRADEMARKS
The name "Fresh Fields" and Fresh Fields' stylized logos are registered
service marks of Fresh Fields.
LEGAL PROCEEDINGS
From time to time, Fresh Fields is involved in lawsuits that Fresh Fields
considers to be in the normal course of its business. These lawsuits have not
resulted in any material losses to date. In ALBERT J. DWOSKIN V. FRESH FIELDS
MARKETS, INC., plaintiff, the Fairfax landlord, filed an action in the Circuit
Court of Fairfax County, Virginia, alleging that because Fresh Fields scaled
back its store operations in November 1995, it had breached the lease and the
covenant of good faith and fair dealing. The plaintiff is seeking over $3
million in damages. Fresh Fields believes that this suit is without merit and is
aggressively defending itself in this matter.
PROPERTIES
All of Fresh Fields' stores, including its headquarters in Rockville,
Maryland, are leased from unaffiliated parties.
MARKETING
Fresh Fields' stores are supported by advertising and marketing programs.
The type of programs vary depending on the individual market. Traditionally,
Fresh Fields has favored print and radio, as well as direct mail. The corporate
office has a marketing department that works with several agencies. Fresh Fields
is also dedicated to the education of its customers through a variety of product
literature, including a guide to the store and its guiding principles,
information about its products and helpful hints and recipes.
BUYING, REPLENISHMENT AND DISTRIBUTION
The buying and merchandising teams of Fresh Fields source a constantly
changing array of fresh and natural foods, along with basic supermarket items.
The buyers have the responsibility for establishing the product assortment,
determining the method of distribution and frequency of ordering, negotiating
the costs, setting the selling prices, and setting the merchandising plan and
any promotional plan. In the last year, a great deal of effort has been placed
on expanding the assortment, especially for bringing in "crossover" products.
Organic and conventional fruits, vegetables and herbs are supplied
predominantly through the Rockville or Chicago warehouses. Produce is generally
bought direct from the growers and shipped direct to the warehouses. Coffee,
grains, beans, nuts, seeds, cereals, mixes and dried fruits are also supplied
predominantly through one of the two warehouses.
The buyers source fish and seafood and arrange shipment directly to the
store.
Fresh Fields' stores also order many items directly from vendors which
deliver them directly to the store. Grocery, frozen and diary items are ordered
and received directly from the vendors. Certain high volume and cube items, such
as bottled water, paper and certain cleaning products, are supplied through
Fresh Fields' Rockville warehouse. Nutrition and body care products are shipped
directly to each store. Beef, pork and poultry products are also ordered and
received directly by the store.
Certain prepared foods, pasta, pasta sauces and various other products are
prepared by the commissaries daily.
54
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT OF FRESH FIELDS, INC.
<TABLE>
<CAPTION>
AMOUNT AND
AMOUNT AND NATURE OF
NATURE OF BENEFICIAL
BENEFICIAL OWNERSHIP:
OWNERSHIP PERCENT OF COMMON % OF CLASS:
FULLY CLASS FULLY OPTIONS AND COMMON OPTIONS
TITLE OF CLASS NAME AND ADDRESS OF BENEFICIAL OWNER DILUTED DILUTED(1) WARRANTS(2) AND WARRANTS(3)
- ---------------------- ---------------------------------------- ------------ --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Common Shares Carlyle Group Interests(4) 2,651,067(5) 25.3% 613,710 30.5%
Goldman, Sachs Interests(6) 3,498,320(7) 33.3 703,028 34.9
Tiger Management Interests(8) 963,007(9) 9.2 40,358 2.0
Peter Bernon 112,873(10) 1.2 7,500 *
Director
David W. Dupree 572(11) * 286 *
Director
David Fuente 34,000(12) * 24,000 1.1
Director
Janet Hoffman 9,375(13) * 1,875 *
Director of Human Resources
Stephen F. Mandel, Jr. 5,932(14) * 0 *
Director
Edward Mathias 4,000(15) * 2,000 *
Director
Jack Murphy 268,287(16) 2.6 137,384 6.8
Chief Operating Officer
Mark S. Ordan 536,573(17) 5.1 274,768 13.6
CEO and Director
Howard Schultz 37,614(18) * 20,000 *
Director
Mark Smiley 25,000(19) * 6,250 *
Chief Financial Officer
Vasiliki Tsaganos 10,000(20) * 0 *
All Officers and Directors as a Group 1,604,226 10.0 474,063 23.5
Class A Preferred Carlyle Group Interests 766,950 39.3
Shares
Tiger Management Interests 338,983 17.4
Sutler Hill Ventures(21) 123,293 6.3
Peter Bernon 42,373 2.2
Stephen F. Mandel, Jr. 5,932 *
Class B Preferred Carlyle Group Interests 724,535 24.2
Shares
Goldman Sachs Interests 1,405,465 46.8
Tiger Management Interests 310,000 10.3
Peter Bernon 3,500 *
Class C Preferred Carlyle Group Interests 522,926 28.9
Shares
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
AMOUNT AND
AMOUNT AND NATURE OF
NATURE OF BENEFICIAL
BENEFICIAL OWNERSHIP:
OWNERSHIP PERCENT OF COMMON % OF CLASS:
FULLY CLASS FULLY OPTIONS AND COMMON OPTIONS
TITLE OF CLASS NAME AND ADDRESS OF BENEFICIAL OWNER DILUTED DILUTED(1) WARRANTS(2) AND WARRANTS(3)
- ---------------------- ---------------------------------------- ------------ --------------- ----------- ---------------
Goldman Sachs Interests 666,570 36.8
<S> <C> <C> <C> <C> <C>
Tiger Management Interests 214,285 11.8
Peter Bernon 28,000 1.5
David Fuente 10,000 *
Howard Schultz 14,286 1.6
Class D Preferred Goldman Sachs Interests 723,257(22) 78.3
Shares
Carlyle Group Interests 10,486(23) 1.1
David W. Dupree 286 *
David Fuente 2,000 *
Edward Mathias 2,000 *
Howard Schultz 1,664 *
</TABLE>
- ------------------------
* Less than 1%.
(1) In the case of the Common Shares, the Percent of Class fully diluted
fraction was calculated as follows. For each Beneficial Owner, the numerator
represents all common shares which such holder owns plus all common shares
the holder presently has the right to acquire or will have the right to
acquire, by virtue of warrants or options, if the Merger is consummated. The
denominator is 10,478,503 common shares which represent the total common
shares that would be outstanding if all outstanding warrants and options
were exercised and all classes of preferred stock were, pursuant to their
terms, converted into common shares.
(2) This column lists all common shares owned and all common shares the
Beneficial Owner currently has the right to acquire pursuant to options
and/or warrants to purchase common shares that are currently exercisable.
(3) This column is calculated as follows. The numerator represents all common
shares owned by the Beneficial Owner plus all common shares which the
Beneficial Owner has the right to acquire currently by exercising options or
warrants to acquire common shares.
The denominator represents all common shares owned by Beneficial Holders
plus all common shares any holders of options or warrants have the right to
acquire by virtue of currently exercisable options and/or warrants to
purchase common shares.
(4) The Carlyle Group Interests consists of holdings by Carlyle-FFM Partners,
L.P., Carlyle-FFM Partners II, L.P., Carlyle-FFM Partners III, L.P.,
Carlyle-FFM Partners IV, L.P. and Carlyle-FFM Investors L.L.P. The address
is c/o The Carlyle Group, 1001 Pennsylvania Avenue, N.W., Suite 200 South,
Washington, D.C. 20004
(5) Consists of options to purchase 7,500 common shares, warrants to purchase
12,460 common shares, warrants to purchase 10,486 Class D Preferred Shares,
766,950 Class A Preferred Shares and 522,926 Class C Preferred Shares.
(6) The Goldman, Sachs Interests consist of holdings by GS Capital Partners,
L.P., Bridge Street Fund 1992, L.P., Stone Street Fund 1993, L.P., Stone
Street Fund 1992, L.P. and Stone Street Fund 1993, L.P. The address is c/o
Goldman, Sachs & Co., 85 Broad Street, New York 10004.
(7) Consists of 1,405,465 Class B Preferred Shares, 666,570 Class C Preferred
Shares, 705,171 Class D Preferred Shares, warrants to purchase 18,086 Class
D Preferred Shares, options to purchase 15,000 common shares and warrants to
purchase 688,028 common shares.
56
<PAGE>
(8) The Tiger Management Interests consist of holdings by Lynx Capital, L.P.,
Lynx Overseas Capital Ltd., and Puma, L.P. The address is c/o Tiger
Management, 101 Park Avenue, 47th Floor, New York, NY 10178.
(9) Consists of 360,169 Class A Preferred Shares, 310,000 Class B Preferred
Shares, 219,622 Class C Preferred Shares, 32,858 Class D Preferred Shares,
options to purchase 7,500 common shares, and warrants to purchase 32,858
common shares.
(10) Includes 42,373 Class A Preferred Shares, 3,500 Class B Preferred Shares,
28,000 Class C Preferred Shares and options to purchase 7,500 common shares.
(11) Includes 286 Class D Preferred Shares and warrants to purchase 286 common
shares.
(12) Includes 10,000 Class C Preferred Shares, 2,000 Class D Preferred Shares,
warrants to purchase 2,000 common shares, and options to purchase 20,000
common shares.
(13) Represents options to acquire 9,375 common shares.
(14) Represents 5,932 Class A Preferred Shares.
(15) Represents 2,000 Class D Preferred Shares and options to purchase 2,000
common shares.
(16) Represents options to purchase 268,287 common shares.
(17) Represents options to purchase 536,673 common shares.
(18) Includes 14,286 Class C Preferred Shares, 1,664 Class D Preferred Shares
and 1,664 warrants and 20,000 options to purchase common shares.
(19) Represents option to purchase 25,000 common shares.
(20) Represents options to purchase 10,000 common shares.
(21) Its address is 755 Page Mill Road, Suite A-200, Palo Alto, CA 94304.
(22) Includes warrants to purchase 18,086 Class D Preferred Shares.
(23) Includes warrants to purchase 10,486 Class D Preferred Shares.
LEGAL OPINIONS
The validity of the shares of Common Stock of WFM to be issued in connection
with the Merger is being passed upon for WFM by Crouch & Hallett, L.L.P.,
Dallas, Texas.
EXPERTS
The consolidated financial statements of WFM as of September 24, 1995 and
September 25, 1994, and for each of the fiscal years in the three-year period
ended September 24, 1995, have been incorporated by reference herein and in the
Registration Statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated by reference herein and
in the Registration Statement, and upon the authority of such firm as experts in
accounting and auditing.
The financial statements of Fresh Fields as of December 30, 1995 and
December 31, 1994, and for each of the fiscal years ending December 30, 1995,
December 31, 1994 and January 1, 1994 included herein, have been audited by
Coopers & Lybrand L.L.P., independent certified public accountants, as stated in
their report appearing herein.
SHAREHOLDERS' PROPOSALS
Any proposals that shareholders of WFM desire to have presented at the 1997
annual meeting of shareholders must be received by WFM at its principal
executive offices no later than October 1, 1996.
57
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Fresh Fields Markets, Inc.:
Report of Independent Accountants.................................................. F-2
Balance Sheets at December 30, 1995 and December 31, 1994.......................... F-3
Statements of Operations for the fifty-two weeks ended December 30, 1995, December
31, 1994 and January 1, 1994...................................................... F-4
Statements of Shareholders' Equity for the fifty-two weeks ended December 30, 1995,
December 31, 1994 and January 1, 1994............................................. F-5
Statements of Cash Flows for the fifty-two weeks ended December 30, 1995, December
31, 1994 and January 1, 1994...................................................... F-6
Notes to Financial Statements...................................................... F-7
Unaudited Balance Sheet as of March 30, 1996....................................... F-13
Unaudited Income Statements for the thirteen weeks ended March 30, 1996 and April
1, 1995........................................................................... F-14
Unaudited Cash Flow Statements for the thirteen weeks ended March 30, 1996 and
April 1, 1995..................................................................... F-15
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
Fresh Fields Markets, Inc.
We have audited the accompanying balance sheets of Fresh Fields Markets,
Inc. as of December 30, 1995 and December 31, 1994, and the related statements
of operations, shareholders' equity, and cash flows for each of the fiscal years
in the three-year period ended December 30, 1995. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Fresh Fields Markets, Inc.
as of December 30, 1995 and December 31, 1994, and the results of its operations
and its cash flows for each of the fiscal years in the three-year period ended
December 30, 1995 in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Rockville, Maryland
March 22, 1996 (except as to
paragraph 2 of Note 3
for which the date is
July 2, 1996)
F-2
<PAGE>
FRESH FIELDS MARKETS, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 31,
1995 1994
--------------- ---------------
<S> <C> <C>
Current assets:
Cash and cash equivalents.................................................... $ 3,442,805 $ 17,646,976
Inventories.................................................................. 7,580,349 5,345,311
Other current assets......................................................... 1,109,486 1,159,900
--------------- ---------------
Total current assets....................................................... 12,132,640 24,152,187
Property and equipment, net.................................................... 59,341,785 43,006,672
Other assets................................................................... 1,765,301 1,122,393
--------------- ---------------
$ 73,239,726 $ 68,281,252
--------------- ---------------
--------------- ---------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses........................................ $ 11,212,782 $ 7,630,205
Accrued compensation and benefits............................................ 3,384,173 2,097,333
Other current liabilities.................................................... 2,426,357 1,282,140
--------------- ---------------
Total current liabilities.................................................. 17,023,312 11,009,678
Deferred rent.................................................................. 2,147,532 1,888,997
Long-term note payable......................................................... 5,000,000 --
Contingencies (note 10)
Shareholders' equity:
Convertible preferred stock, $.01 par value; authorized, issued and
outstanding 7,616,343 and 7,613,425 shares, respectively (liquidation
preference of $81,876,568 at December 30, 1995)............................. 76,164 76,134
Common stock, $.01 par value; authorized 15,000,000 shares; issued and
outstanding; 624,182 and 618,036 shares, respectively....................... 6,242 6,180
Additional paid-in capital................................................... 83,693,136 83,565,183
Accumulated deficit.......................................................... (34,706,660) (28,264,920)
--------------- ---------------
Total shareholders' equity................................................. 49,068,882 55,382,577
--------------- ---------------
$ 73,239,726 $ 68,281,252
--------------- ---------------
--------------- ---------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
FRESH FIELDS MARKETS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FIFTY-TWO FIFTY-TWO FIFTY-THREE
WEEKS ENDED WEEKS ENDED WEEKS ENDED
DECEMBER 30, DECEMBER 31, JANUARY 1,
1995 1994 1994
---------------- ---------------- ----------------
<S> <C> <C> <C>
Sales....................................................... $ 213,560,717 $ 170,365,485 $ 116,946,714
Cost of goods sold and occupancy costs...................... 142,491,073 114,985,527 78,593,819
---------------- ---------------- ----------------
Gross profit.............................................. 71,069,644 55,379,958 38,352,895
Operating expenses:
Store expenses............................................ 56,525,772 43,349,428 33,733,696
General and administrative................................ 11,773,171 9,176,356 7,536,036
Preopening expenses....................................... 1,963,607 1,032,415 3,457,416
Depreciation and amortization............................. 6,799,365 4,986,462 3,258,498
---------------- ---------------- ----------------
(5,992,271) (3,164,703) (9,632,751)
Loss on disposal of assets.................................. 615,111 -- --
Store relocation and closing costs.......................... -- 5,757,670 2,456,998
---------------- ---------------- ----------------
Operating loss............................................ (6,607,382) (8,922,373) (12,089,749)
Interest expense............................................ 262,156 2,489 --
Interest income............................................. 427,798 258,460 464,439
---------------- ---------------- ----------------
Loss before income taxes.................................. (6,441,740) (8,666,402) (11,625,310)
Provision for state income taxes............................ -- -- 130,000
---------------- ---------------- ----------------
Net loss.................................................. $ (6,441,740) $ (8,666,402) $ (11,755,310)
---------------- ---------------- ----------------
---------------- ---------------- ----------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
FRESH FIELDS MARKETS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
CLASS D CLASS C CLASS B CLASS A COMMON
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK STOCK
---------------------- -------------------- -------------------- -------------------- ---------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
--------- ----------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 26, 1992.. 3,000,000 30,000 1,953,390 19,534 500,000
Issuance of 1,785,746 shares
of Class C preferred stock,
$14.00 per share, net of
offering costs............... 1,785,746 17,857
Fiscal 1993 net loss..........
--------- ----------- --------- --------- --------- --------- --------- --------- ---------
Balance at January 1, 1994.... 1,785,746 17,857 3,000,000 30,000 1,953,390 19,534 500,000
Exercise of non-qualified
stock options................ 93,750
Issuance of 24,286 shares of
Common stock, $14.00 per
share........................ 24,286
Issuance of 874,289 shares of
Class D preferred stock,
$17.50 per share, net of
offering costs............... 874,289 8,743
Fiscal 1994 net loss..........
--------- ----------- --------- --------- --------- --------- --------- --------- ---------
Balance at December 31, 1994.. 874,289 8,743 1,785,746 17,857 3,000,000 30,000 1,953,390 19,534 618,036
Issuance of 2,918 shares of
Class D preferred stock,
$17.50 per share, net of
offering costs............... 2,918 30
Exercise of incentive stock
options...................... 625
Issuance of 5,521 shares of
restricted stock, $15.00 per
share........................ 5,521
Fiscal 1995 net loss..........
--------- ----------- --------- --------- --------- --------- --------- --------- ---------
Balance at December 30, 1995.. 877,207 $ 8,773 1,785,746 $ 17,857 3,000,000 $ 30,000 1,953,390 $ 19,534 624,182
--------- ----------- --------- --------- --------- --------- --------- --------- ---------
--------- ----------- --------- --------- --------- --------- --------- --------- ---------
<CAPTION>
ADDITIONAL
PAID-IN ACCUMULATED
AMOUNT CAPITAL DEFICIT TOTAL
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Balance at December 26, 1992.. 5,000 43,481,285 (7,843,208) 35,692,611
Issuance of 1,785,746 shares
of Class C preferred stock,
$14.00 per share, net of
offering costs............... 24,813,137 24,830,994
Fiscal 1993 net loss.......... (11,755,310) (11,755,310)
----------- ----------- ------------ ------------
Balance at January 1, 1994.... 5,000 68,294,422 (19,598,518) 48,768,295
Exercise of non-qualified
stock options................ 937 139,688 140,625
Issuance of 24,286 shares of
Common stock, $14.00 per
share........................ 243 339,761 340,004
Issuance of 874,289 shares of
Class D preferred stock,
$17.50 per share, net of
offering costs............... 14,791,312 14,800,055
Fiscal 1994 net loss.......... (8,666,402) (8,666,402)
----------- ----------- ------------ ------------
Balance at December 31, 1994.. 6,180 83,565,183 (28,264,920) 55,382,577
Issuance of 2,918 shares of
Class D preferred stock,
$17.50 per share, net of
offering costs............... 39,887 39,917
Exercise of incentive stock
options...................... 6 5,306 5,312
Issuance of 5,521 shares of
restricted stock, $15.00 per
share........................ 56 82,760 82,816
Fiscal 1995 net loss.......... (6,441,740) (6,441,740)
----------- ----------- ------------ ------------
Balance at December 30, 1995.. $ 6,242 $83,693,136 $(34,706,660) $ 49,068,882
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
FRESH FIELDS MARKETS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FIFTY-TWO FIFTY-TWO FIFTY-THREE
WEEKS ENDED WEEKS ENDED WEEKS ENDED
DECEMBER 30, DECEMBER 31, JANUARY 1,
1995 1994 1994
---------------- ---------------- ----------------
<S> <C> <C> <C>
Cash flows provided by (used in) operating activities:
Net loss.................................................. $ (6,441,740) $ (8,666,402) $ (11,755,310)
Adjustments for noncash items:
Depreciation and amortization........................... 7,696,670 5,738,818 3,565,350
Store relocation and closing costs...................... -- 5,553,850 1,863,519
Loss on disposal of assets.............................. 615,111 -- --
Deferred rent........................................... 258,535 158,784 515,785
---------------- ---------------- ----------------
2,128,576 2,785,050 (5,810,656)
Changes in operating assets and liabilities:
Inventories............................................. (2,235,038) (1,608,685) (2,278,675)
Other current assets.................................... 50,414 1,044,569 (1,944,934)
Accounts payable and accrued expenses................... 872,709 3,090,356 (353,489)
Accrued compensation and benefits....................... 1,286,840 449,079 1,126,908
Other current liabilities............................... 1,174,191 144,746 291,142
---------------- ---------------- ----------------
Net cash provided by (used in) operating activities... 3,277,692 5,905,115 (8,969,704)
Cash flows used in investing activities:
Capital expenditures...................................... (23,247,593) (14,640,691) (27,345,919)
Increase in other assets.................................. (181,647) (478,980) (114,625)
Proceeds on disposal of equipment......................... 31,000 -- --
---------------- ---------------- ----------------
Net cash used in investing activities................. (23,398,240) (15,119,671) (27,460,544)
Cash flows provided by financing activities:
Proceeds from issuance of stock......................... 122,733 15,280,684 24,830,994
Book overdraft............................................ 1,378,878 -- --
Proceeds from issuance of long-term debt.................. 5,000,000 -- --
Debt issuance costs....................................... (590,546) -- --
Proceeds from exercise of options......................... 5,312 -- --
---------------- ---------------- ----------------
5,916,377 15,280,684 24,830,994
Net increase (decrease) in cash and cash equivalents........ (14,204,171) 6,066,128 (11,599,254)
Cash and cash equivalents:
Beginning of year......................................... 17,646,976 11,580,848 23,180,102
---------------- ---------------- ----------------
End of year............................................... $ 3,442,805 $ 17,646,976 $ 11,580,848
---------------- ---------------- ----------------
---------------- ---------------- ----------------
Supplemental cash flow information:
Interest paid............................................. 131,997 -- --
State income taxes paid................................... $ -- 56,500 --
---------------- ---------------- ----------------
---------------- ---------------- ----------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
FRESH FIELDS MARKETS, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Fresh Fields Markets, Inc. (the "Company") is a specialty retail grocery
chain operating stores in the Washington, D.C., Chicago, Philadelphia, and New
York markets. The financial statements for fiscal 1993 include the accounts of
the Company and its wholly-owned subsidiaries. All intercompany accounts and
transactions have been eliminated. The subsidiaries were liquidated at the
beginning of fiscal 1994.
FISCAL YEAR
The fiscal years ended December 30, 1995 ("1995"), December 31, 1994
("1994") and January 1, 1994 ("1993") include 52, 52 and 53 weeks, respectively.
CASH AND CASH EQUIVALENTS
The Company has invested the majority of its excess cash in a money market
fund, which invests primarily in securities of the U.S. Government and
high-grade commercial paper. The fund was paying interest at 4.8% in December
1995. The Company considers these highly liquid investments having maturities of
three months or less at the time of purchase to be cash equivalents. The fund
manager is affiliated with a major shareholder of the Company.
INVENTORIES
Inventories are stated at the lower of cost or market using the first-in,
first-out (FIFO) method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are depreciated using the
straight-line method over the estimated useful lives of the assets as follows:
<TABLE>
<S> <C>
Computer equipment and software...... 5 years
Store equipment and fixtures......... 7 years
Leasehold improvements............... Lesser of its useful life or the life
of the lease
</TABLE>
OTHER ASSETS
Other assets consist of deposits, organization costs and financing fees and
expenses related to the credit agreement. Organization costs are being amortized
over five years and financing fees are being amortized over the life of the
Credit Agreement. At December 30, 1995, there is $592,000 of unamortized
financing and organization costs.
PREOPENING EXPENSES
Preopening expenses, consisting of advertising, payroll and other direct
costs, are expensed as incurred.
INCOME TAXES
Deferred tax liabilities and assets are determined based on the difference
between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to reverse. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized. Income tax expense is
the tax payable for the period and the change during the period in deferred tax
assets and liabilities.
RECLASSIFICATIONS
Certain amounts in the fiscal 1994 and 1993 financial statements were
reclassified to conform to the fiscal 1995 presentation.
F-7
<PAGE>
FRESH FIELDS MARKETS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ACCOUNTING 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 assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reported
period. Actual results could differ from these estimates.
2. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 31,
1995 1994
--------------- --------------
<S> <C> <C>
Leasehold improvements.......................................................... $ 43,817,483 $ 28,731,440
Fixtures and equipment.......................................................... 31,411,155 23,041,569
--------------- --------------
75,228,638 51,773,009
Accumulated depreciation and amortization....................................... (15,886,853) (8,766,337)
--------------- --------------
$ 59,341,785 $ 43,006,672
--------------- --------------
--------------- --------------
</TABLE>
Amounts due for capital expenditures of $1,673,000 and $1,016,000 in 1995
and 1994, respectively, are included in accounts payable. The Company has
construction commitments of $4.97 million at December 30, 1995.
3. CREDIT AGREEMENT
In July 1995, the Company entered into a Credit Agreement with several banks
providing for direct borrowings and the issuance of standby letters of credit.
Borrowings under the Credit Agreement bear interest at either LIBOR plus 2.0% or
Prime plus 0.5% at Company's option, and are collateralized by the real,
personal and intangible property of the Company. The long term note payable of
$5.0 million at December 31, 1995 represents borrowings under the Credit
Agreement.
The Credit Agreement contains affirmative covenants including maintaining
certain financial ratios. The Company was not in compliance with several
financial ratios at the end of the year. The banks agreed to "forbear" from
exercising their collection rights under the Credit Agreement until November 30,
1996 depending on, among other things, borrowing levels, in exchange for
affiliates of two shareholders, Goldman, Sachs & Co. and The Carlyle Group ("Two
Shareholders") entering into a credit support agreement ("Agreement"). The
Agreement, executed January 12, 1996, provides for shareholders to purchase up
to $10.0 million in Class E Preferred stock from the Company, the proceeds of
which can be solely used to repay debt from the banks.
The Class E Preferred Stock, to the extent it is issued, is non-convertible
having a liquidation value of $25 per share and is senior to all other preferred
and common shares. The shares pay monthly dividends of 12.0% annually,
increasing by 1.0 percentage points each quarter to a maximum of 16.0% per
annum. No dividends can be paid nor can any preferred stock be redeemed until
the Company has repaid all amounts due under the Credit Agreement.
In consideration for entering into the Agreement, the Two Shareholders
received 28,572 warrants ("Commitment Warrants") to purchase Class D Preferred
Stock at $17.50 per share. The Commitment Warrants are exercisable upon the
sale, merger or liquidation of the Company. At the time the Commitment Warrants
are exercisable, the Company will pay the two shareholders an amount equal to
the total exercise price of the Commitment Warrants, which totals $500,010. Upon
F-8
<PAGE>
FRESH FIELDS MARKETS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. CREDIT AGREEMENT (CONTINUED)
the purchase of any Class E Preferred Stock, the Two Shareholders will receive
an additional 28,572 Class D warrants ("Additional Commitment Warrants"), having
the same terms as the Commitment Warrants, i.e., a minimum value of $500,010
under various circumstances described above.
The offering size of the Class E Preferred Stock will be the lesser of $10.0
million or the amount of bank debt then outstanding. At funding, the Two
Shareholders will receive a further number of warrants equal to dividing the
actual proceeds from the Class E Preferred offering by $10.0 million times
28,572, i.e., assuming the Class E Preferred offering totals $10.0 million these
warrants will have a minimum value of $500,010 under various circumstances.
If and when the Class E Preferred Stock are offered, all shareholders may
purchase the Shares, however, the Two Shareholders are obligated to purchase any
unfunded portion of the Class E Preferred offering. There are up to 122,857
Warrants ("Funding Warrants") on Class D Preferred Stock to be issued to
shareholders purchasing Class E Preferred Stock. These Funding Warrants have the
same terms as the Commitment Warrants, i.e., assuming the Class E Preferred
offering totals $10.0 million, these warrants will have a minimum value of
$2,150,000 under various circumstances described above. If the proceeds are less
than $10.0 million the number of Funding Warrants will be proportionally
reduced. The number of Funding Warrants a shareholder will receive is equal to
122,857 times the ratio of their total purchase price for Class E Preferred
Shares divided by $10.0 million.
The availability under the Credit Agreement was $8.3 million as of January
12, 1996. Several banks have issued letters of credit totaling $720,000 on
behalf of the Company. The letters of credit expire between November 30, 1996
and January 19, 1997 and are for the benefit of an insurance company in support
of the Company's workers' compensation program.
4. PREFERRED STOCK
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 31,
1995 1994
------------ ------------
<S> <C> <C>
Class D, $.01 par value; 1,085,780 and 874,289 shares authorized,
respectively; 877,207 and 874,289 shares issued and outstanding,
respectively (liquidation preference of $17.50 per share)................. $ 8,773 $ 8,743
Class C, $.01 par value; authorized, issued and outstanding 1,785,746
shares (liquidation preference of $14.00 per shares)...................... 17,857 17,857
Class B, $.01 par value; authorized, issued and outstanding 3,000,000
shares (liquidation preference of $10.00 per share)....................... 30,000 30,000
Class A, $.01 par value; authorized issued and outstanding 1,953,390 shares
(liquidation preference of $5.90 per share)............................... 19,534 19,534
------------ ------------
$ 76,164 $ 76,134
------------ ------------
------------ ------------
</TABLE>
In December 1994, the Company completed a private placement stock offering
of 428,573 units consisting of Class D convertible Preferred Stock and Common
Stock Warrants. Each unit consisted of (a) two shares of Class D Preferred
Stock, $.01 par value, (b) a warrant to purchase one share of the Company's
Common Stock for $17.50, (subject to antidilution adjustments) at any time until
December 31, 1996 and (c) a warrant to purchase one share of Common Stock for
$21.00, (subject to antidilution adjustments) at any time until December 31,
1996. The Company received $14,800,055 in
F-9
<PAGE>
FRESH FIELDS MARKETS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. PREFERRED STOCK (CONTINUED)
proceeds, net of cash offering expenses of $200,000. None of the proceeds were
allocated to the warrants. In connection with the stock offering, the Company
also issued, at a discount of $300,003, 17,143 shares of Class D Preferred Stock
without warrants pursuant to a stand by commitment received from one of its
shareholders.
Each share of preferred stock is convertible, at the holder's option, into
one share of common stock, and is entitled to vote together as a single class.
The Class D shares have a liquidation preference over the Class C shares, which
have a liquidation preference over the Class B shares, which have a liquidation
preference over the Class A shares. Preferred shareholders are entitled to
receive cash dividends per share equal to the cash dividends per share declared
and payable to common shareholders. The Company may elect to have all preferred
shares converted into common stock upon the closing of a public offering of at
least $25 million. At December 30, 1995, December 31, 1994 and January 1, 1994,
7,616,343, 7,613,425 and 6,739,136 shares, respectively, of common stock were
reserved for conversion of preferred stock.
5. STOCK OPTIONS
The Company has adopted Stock Option Plans (the "Plans") providing for the
grant of options to purchase an aggregate of 3.1 million shares of the Company's
common stock. The Plans cover certain key employees and directors. The purchase
price for options granted is determined by the Plans' committee. The grant price
for incentive stock options is not less than the fair market value of the common
stock on the date of grant. Generally, options granted under the Plans become
exercisable on a cumulative basis at 25% per year beginning two years after the
date of grant. The activity under the Plans is as follows:
<TABLE>
<CAPTION>
NON-QUALIFIED STOCK
INCENTIVE STOCK OPTIONS OPTIONS TOTAL
----------------------- ----------------------- -----------------------
NUMBER OF OPTION PRICE NUMBER OF OPTION PRICE NUMBER OF OPTION PRICE
SHARES PER SHARE SHARES PER SHARE SHARES PER SHARE
--------- ------------ --------- ------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 26, 1992........... 436,250 .50-8.50 93,750 1.50 530,000 .50-8.50
Granted................................ 243,500 8.50-12.50 243,500 8.50-12.50
Exercised..............................
Canceled............................... (81,000) 8.50-12.50 -- (81,000) 8.50-12.50
--------- --------- ---------
Balance at January 1, 1994............. 598,750 .50-12.50 93,750 1.50 692,500 .50-12.50
Granted................................ 161,400 12.50-15.00 608,610 14.00-15.00 770,010 12.50-15.00
Exercised.............................. (93,750) 1.50 (93,750) 1.50
Canceled............................... (96,950) 8.50-14.00 -- (96,950) 8.50-14.00
--------- --------- ---------
Balance at December 31, 1994........... 663,200 .50-15.00 608,610 14.00-15.00 1,271,810 .50-15.00
Granted................................ 127,898 14.00-15.00 89,603 .50-15.00 217,501 14.00-15.00
Exercised.............................. (625) 8.50 -- (625) 8.50
Canceled............................... (47,688) 8.50-15.00 (23,393) .50-15.00 (71,081) .50-15.00
--------- --------- ---------
Balance at December 30, 1995........... 742,785 $ .50-15.00 674,820 $ .50-15.00 1,417,605 $ .50-15.00
--------- --------- ---------
--------- --------- ---------
</TABLE>
There were 1,682,395 options available for future grants as of December 30,
1995.
F-10
<PAGE>
FRESH FIELDS MARKETS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES
The tax effects of the temporary differences between income for financial
reporting and tax purposes giving rise to the Company's deferred tax asset and
liability are as follows:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 31,
1995 1994
--------------- ---------------
<S> <C> <C>
Deferred tax asset:
Net operating loss carryforwards................................... $ 11,060,000 $ 8,569,000
Store closing costs................................................ 1,091,000 1,072,000
Capitalized startup costs.......................................... 148,000 122,000
Deferred rent...................................................... 255,000 348,000
Accrued liabilities................................................ 771,000 458,000
Other.............................................................. 127,000 201,000
Valuation allowance................................................ (12,460,000) (10,138,000)
--------------- ---------------
992,000 632,000
Deferred tax liability:
Depreciation and amortization...................................... (992,000) (632,000)
--------------- ---------------
Net deferred tax asset............................................... $ -- $ --
--------------- ---------------
--------------- ---------------
</TABLE>
The Company has provided a full valuation allowance for the deferred tax
asset. As of December 30, 1995, the Company has the following tax net operating
loss carryforwards available:
<TABLE>
<CAPTION>
EXPIRATION
- ------------------------------------------------------------------------------
<S> <C>
2006.......................................................................... $ 1,208,000
2007.......................................................................... 3,702,000
2008.......................................................................... 10,784,000
2009.......................................................................... 8,678,000
2010.......................................................................... 4,734,000
--------------
Total......................................................................... $ 29,106,000
--------------
--------------
</TABLE>
Utilization of these net operating loss carryforwards in any one year may be
limited as a result of certain changes in ownership of the Company.
The provision for state income taxes of $130,000 for fiscal 1993 arises from
taxable income reported in the Company's Maryland subsidiaries. These
subsidiaries were liquidated at the beginning of fiscal 1994.
7. LEASES
The Company leases its stores, offices, warehouse, and kitchen facilities
under operating leases. The store lease agreements provide for initial lease
terms ranging between seven and 20 years. Certain leases provide for future rent
increases. The Company recognizes rent expense on a straight-line basis and any
differences between the scheduled payments and expense recognized are reflected
in deferred rent. The Company pays all taxes, utilities, and insurance costs
related to the properties.
F-11
<PAGE>
FRESH FIELDS MARKETS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. LEASES (CONTINUED)
Future minimum payments under noncancelable operating leases with initial
terms of one year or more are as follows:
<TABLE>
<S> <C>
1996......................................................... $ 8,818,000
1997......................................................... 9,701,000
1998......................................................... 10,496,000
1999......................................................... 10,824,000
2000......................................................... 11,046,000
Thereafter................................................... 97,483,000
-------------
Total...................................................... $ 148,368,000
-------------
-------------
</TABLE>
Rent expense was approximately $6,807,000, $5,191,000 and $3,478,000 in
fiscal 1995, 1994 and 1993, respectively.
8. RELATED PARTY TRANSACTIONS
The Company has paid fees to a firm affiliated with a shareholder for
consulting and training services, and electrical contracting services totaling
$177,000, $40,000 and $139,000, for fiscal 1995, 1994 and 1993, respectively.
9. EMPLOYEE BENEFIT PLAN
In 1992, the Company established a defined contribution 401(k) plan.
Employees with a minimum of six months of service and 21 years of age are
eligible to participate and may contribute up to 15% of base compensation, with
the Company matching 25% of the first 4% of employee contributions. The Company
contribution and administrative expenses totalled approximately $137,000,
$98,000 and $42,000 for fiscal 1995, 1994 and 1993, respectively.
10. CONTINGENCIES
The Company is a party to certain legal proceedings arising in the ordinary
course of business. Management believes that any damages arising from these
proceedings will not be material to the financial position of the Company. A
landlord has filed a lawsuit for $3.5 million under a lease agreement for a
store that is scheduled to be closed in the first half of 1996. The landlord
alleges that the Company breached the lease "by abandoning the premises" once
the operations of the store were reduced due to the shopping center's poor
business climate. While the Company believes it has meritorious defenses against
the suit, the ultimate resolution of the matter is uncertain.
11. STORE RELOCATION AND CLOSING COSTS
The store relocation and closing costs for 1994 represent the cost
associated with relocating the Rockville, Maryland store and costs associated
with the planned closing of the Fairfax, Virginia store. Relocation and closing
costs consist of the remaining investment in property and equipment, net of
expected salvage and the present value of the estimated remaining lease
liability. Sales for 1995 and 1994 for the Fairfax store totalled $4,937,000 and
$6,340,000, respectively.
F-12
<PAGE>
FRESH FIELDS MARKETS, INC.
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
MARCH 30, DECEMBER 31,
1996 1995
---------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................................ $ 3,730 $ 3,443
Inventories.......................................................................... 7,868 7,580
Other current assets................................................................. 1,093 1,109
---------- ------------
Total current assets............................................................... 12,691 12,132
Property and equipment, net............................................................ 57,909 59,342
Deposits and other assets.............................................................. 1,958 1,765
---------- ------------
$ 72,558 $ 73,239
---------- ------------
---------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses................................................ $ 6,518 $ 11,213
Accrued compensation and benefits.................................................... 4,089 3,384
Other current liabilities............................................................ 2,529 2,427
---------- ------------
Total current liabilities.......................................................... 13,136 17,024
Long term note payable................................................................. 7,000 5,000
Deferred rent.......................................................................... 2,440 2,147
Shareholders' equity:
Warrants............................................................................. 500 --
Preferred stock...................................................................... 76 76
Common stock......................................................................... 6 6
Additional paid-in capital........................................................... 83,693 83,693
Accumulated deficit.................................................................. (34,293) (34,707)
---------- ------------
Total shareholders' equity......................................................... 49,982 49,066
---------- ------------
$ 72,556 $ 73,239
---------- ------------
---------- ------------
</TABLE>
F-13
<PAGE>
FRESH FIELDS MARKETS, INC.
INCOME STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
----------------------
MARCH 30, APRIL 1,
1996 1995
----------- ---------
<S> <C> <C>
Sales.................................................................... $ 63,766 $ 47,811
Cost of goods sold and occupancy costs................................... 42,740 31,294
----------- ---------
Gross profit........................................................... 21,026 16,517
Operating expenses:
Store expenses......................................................... 15,301 11,767
General and administrative............................................. 2,325 2,544
Preopening expenses.................................................... 310 438
Depreciation and amortization.......................................... 2,084 1,436
----------- ---------
Operating income (loss).............................................. 1,026 332
Interest income (expense)................................................ (201) 212
Financing fees........................................................... (412) --
----------- ---------
Income (loss) before income tax........................................ 413 544
Income taxes, net of NOL benefit......................................... -- --
----------- ---------
Net income (loss)...................................................... $ 413 $ 544
----------- ---------
----------- ---------
Ratio of sales:
Cost of sales and occupancy............................................ 67.0% 65.5%
Store expenses......................................................... 24.0% 24.6%
General and administrative............................................. 3.6% 5.3%
Preopening Expenses.................................................... 0.5% 0.9%
Depreciation and amortization.......................................... 3.2% 3.0%
Number of stores opened in the period.................................... 2 1
</TABLE>
F-14
<PAGE>
FRESH FIELDS MARKETS, INC.
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
----------------------
MARCH 30, APRIL 1,
1996 1995
----------- ---------
<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net income (loss)...................................................... $ 413 $ 544
Adjustment for noncash items:
Depreciation and amortization........................................ 2,587 1,630
Deferred rent........................................................ 293 (97)
----------- ---------
3,293 2,077
Changes in operating assets and liabilities:
Inventories.......................................................... (288) (144)
Other current assets................................................. 16 12
Accounts payable and accrued expenses................................ (4,695) (2,089)
Accrued compensation and benefits.................................... 705 1,177
Other current liabilities............................................ 102 633
----------- ---------
Net cash provided by operating activities.......................... (867) 1,866
Cash flows from (used in)investing activities:
Purchase of property, fixtures & equipment............................. (844) (3,362)
Other assets........................................................... (502) (91)
----------- ---------
(1,346) (3,453)
Cash flows provided by financing activities:
Proceeds form issuance of long-term debt............................... 2,000 --
Proceeds from Class D Warrants......................................... 500 --
----------- ---------
2,500
Net decrease in cash and cash equivalents................................ 287 (1,787)
Cash and cash equivalents:
Beginning of period.................................................... 3,443 17,647
----------- ---------
End of period.......................................................... $ 3,730 $ 15,860
----------- ---------
----------- ---------
</TABLE>
F-15
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER, AS AMENDED,
AMONG
WHOLE FOODS MARKET, INC.
(A TEXAS CORPORATION)
WHOLE FOODS MARKET MID-ATLANTIC, INC.
(A DELAWARE CORPORATION)
AND
FRESH FIELDS MARKETS, INC.
(A DELAWARE CORPORATION)
DATED AS OF JUNE 17, 1996
<PAGE>
This Agreement and Plan of Merger (the "Agreement"), as amended, is made as
of the 17th day of June, 1996, among Whole Foods Market, Inc., a Texas
corporation ("WFM"); Whole Foods Market Mid-Atlantic, Inc., a Delaware
corporation (the "Merger Corp."), which is wholly owned, directly or indirectly,
by WFM; and Fresh Fields Markets, Inc., a Delaware corporation ("Fresh Fields").
In consideration of the mutual covenants and agreements contained herein,
the parties hereto covenant and agree as follows:
ARTICLE 1.
THE MERGER
1.1. MERGER. Upon the terms and conditions set forth in this Agreement,
and in accordance with the provisions of the Delaware General Corporation Law
(the "DGCL"), at the Effective Date (as hereinafter defined), Merger Corp. shall
be merged (the "Merger") with and into Fresh Fields, and Fresh Fields shall be
the surviving corporation (the "Surviving Corporation") and as such shall
continue to be governed by the laws of the State of Delaware. The Merger shall
have the effects set forth in Section 259 of the DGCL.
1.2. CONTINUING OF CORPORATE EXISTENCE. Except as may otherwise be set
forth herein, the corporate existence and identity of Fresh Fields, with all its
purposes, powers, franchises, privileges, rights and immunities, shall continue
unaffected and unimpaired by the Merger, and the corporate existence and
identity of Merger Corp., with all its purposes, powers, franchises, privileges,
rights and immunities, at the Effective Date shall be merged with and into that
of Fresh Fields, and the Surviving Corporation shall be vested fully therewith
and the separate corporate existence and identity of Merger Corp. shall
thereafter cease except to the extent continued by statute.
1.3. EFFECTIVE DATE. The Merger shall become effective on the day on which
the certificate of merger (the "Certificate of Merger") is issued (the
"Effective Date") by the Secretary of State of the State of Delaware upon filing
on the Closing Date (as defined herein) of the Certificate of Merger with the
Secretary of State of the State of Delaware pursuant to Section 103 of the DGCL.
1.4. CORPORATE GOVERNANCE.
(a) The Certificate of Incorporation of Merger Corp., as in effect on
the Effective Date, shall continue in full force and effect and shall be the
Certificate of Incorporation of the Surviving Corporation, and the name of
the Surviving Corporation shall be "Whole Foods Market Mid-Atlantic, Inc."
(b) The Bylaws of Merger Corp., as in effect as of the Effective Date,
shall continue in full force and effect and shall be the Bylaws of the
Surviving Corporation.
(c) The members of the Board of Directors of the Surviving Corporation
and the officers of the Surviving Corporation shall be the persons holding
such offices in Merger Corp. as of the Effective Date.
1.5. RIGHTS AND LIABILITIES OF THE SURVIVING CORPORATION. The Surviving
Corporation shall have the following rights and obligations:
(a) The Surviving Corporation shall have all the rights, privileges,
immunities and powers and shall be subject to all the duties and liabilities
of a corporation organized under the laws of the State of Delaware.
(b) The Surviving Corporation shall possess all of the rights,
privileges immunities and franchises, of either a public or private nature,
of Fresh Fields and Merger Corp. and all property, real, personal and mixed,
and all debts due on whatever account, including subscription to shares, and
all other choses in action, and every other interest of or belonging or due
to Fresh Fields and Merger Corp. shall be taken and deemed to be transferred
or invested in the Surviving Corporation without further act or deed.
A-1
<PAGE>
(c) At the Effective Date, the Surviving Corporation shall thenceforth
be responsible and liable for all liabilities and obligations of Fresh
Fields and Merger Corp. (including, but not limited to, the liabilities and
obligations set forth in Sections 5.9, 5.11 and 5.12) and any claim existing
or action or proceeding pending by or against Merger Corp. or Fresh Fields
may be prosecuted against the Surviving Corporation as if the Merger had not
occurred, or the Surviving Corporation may be substituted in its place.
Neither the rights of creditors nor any liens upon the property of Merger
Corp. or Fresh Fields shall be impaired by the Merger.
1.6. CLOSING. Consummation of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of WFM in Austin,
Texas, commencing at 10:00 a.m., local time, on the date (i) on which the
meeting of WFM's shareholders described in Sections 5.8 occurs or (ii) as soon
as possible thereafter when each of the other conditions set forth in Articles 6
and 7 have been satisfied or waived, and shall proceed promptly to conclusion,
or at such other place, time and date as shall be fixed by mutual agreement
between WFM and Fresh Fields. The day on which the Closing shall occur is
referred to herein as the "Closing Date." Each party will cause to be prepared,
executed and delivered the Certificate of Merger to be filed with the Secretary
of State of Delaware and all other appropriate and customary documents as any
party or its counsel may reasonably request for the purpose of consummating the
transactions contemplated by this Agreement. All actions taken at the Closing
shall be deemed to have been taken simultaneously at the time the last of any
such actions is taken or completed.
1.7. TAX CONSEQUENCES. It is intended that the Merger shall constitute a
reorganization within the meaning of Section 368(a)(2)(E) of the Internal
Revenue Code of 1986, as amended (the "Code"), and that this Agreement shall
constitute a "plan of reorganization" for the purposes of Section 368 of the
Code.
1.8. POOLING OF INTERESTS. It is the intention of the parties hereto that
the Merger will be treated for financial reporting purposes as a pooling of
interests.
ARTICLE 2.
CONVERSION OF SHARES
2.1. CONVERSION OF FRESH FIELDS CAPITAL STOCK. The manner and basis of
converting shares of the capital stock of Fresh Fields (the "Fresh Fields
Capital Stock") into shares of Common Stock, no par value, of WFM ("WFM Common
Stock"), shall be as follows:
(a) The outstanding shares of Fresh Fields common stock, par value $.01
(the "Fresh Fields Common Stock"), the outstanding shares of Fresh Fields
Class A preferred stock, par value $.01 (the "Fresh Fields Class A
Preferred"), the outstanding shares of Fresh Fields Class B preferred stock,
par value $.01 (the "Fresh Fields Class B Preferred"), the outstanding
shares of Fresh Fields Class C preferred stock, par value $.01 (the "Fresh
Fields Class C Preferred"), the outstanding shares of Fresh Fields Class D
preferred stock, par value $.01 (the "Fresh Fields Class D Preferred"), the
options to acquire shares of Fresh Fields Common Stock (the "Fresh Fields
Options") which are Included In-the-Money Fresh Fields Options (as defined
below), and the warrants to acquire shares of Fresh Fields Class D Preferred
(the "Fresh Fields Class D Warrants") (all as more fully described in
Section 3.7 hereof) shall at the Effective Date, by virtue of the Merger and
without any action on the part of the holders thereof, be converted into
such number of shares (the "WFM Merger Shares") of WFM Common Stock as is
equal to (i) the sum of $134.5 million, less an adjustment to take into
account any dissenting Fresh Fields shareholders, plus (A) the aggregate
exercise price of the Included In-the-Money Fresh Fields Options minus (B)
the Agreed Value of the Included Out-of-the-Money Fresh Fields Options,
divided by (ii) the "Determination Price" (as defined herein).
A-2
<PAGE>
(b) For the purposes of this Agreement, the terms below shall have the
following meanings:
"Average WFM Share Price" means the average per share closing price of
WFM Common Stock as reported on the NASDAQ National Market System ("NMS")
over the twenty trading days immediately preceding the Effective Date.
"Determination Price" means the Average WFM Share Price; provided,
however, that if the Average WFM Share Price is greater than $28.00, the
Determination Price shall be $28.00, and if the Average WFM Share Price
is less than $24.00, the Determination Price shall be $24.00.
"Fresh Fields Common Stock Equivalents" means the number of shares of
Fresh Fields Common Stock, Fresh Fields Class A Preferred, Fresh Fields
Class B Preferred and Fresh Fields Class C Preferred outstanding on the
Effective Date, and the number of shares of Fresh Fields Common Stock
subject to Included In-the-Money Fresh Fields Options; provided, however,
that the Fresh Fields Common Stock Equivalents shall be recomputed in
accordance with subsection (c)(v) below in the event any of the
circumstances set forth therein shall occur.
"Included Fresh Fields Options" means Fresh Fields Options that are
exercisable by their terms on the Effective Date. For purposes of this
definition, Included Fresh Fields Options shall also include the total
options held by the persons listed on Schedule 2.1 of the Fresh Fields
Disclosure Schedule.
"Included In-the-Money Fresh Fields Options means Included Fresh Fields
Options that have an exercise price less than or equal to the Fresh
Fields Common Stock Merger Price.
"Included Out-of-the-Money Fresh Fields Options" means Included Fresh
Fields Options that have an exercise price greater than the Fresh Fields
Common Stock Merger Price.
"Agreed Value of Included Out-of-the-Money Fresh Fields Options" shall be
the fair market value of the Included Out-of-the-Money Fresh Fields
Options as agreed upon by Fresh Fields and WFM after consultation with
their financial advisors in accordance with such traditional option
valuation methodologies as they select; provided, however, that the
Agreed Value of Included Out-of-the-Money Options shall not be greater
than the number that is the result of (i) the number of shares of Fresh
Fields Common Stock covered by such options times (ii) the sum of the
difference, for each such option, between (A) the exercise price of such
option and (B) the Fresh Fields Common Stock Merger Price. If Fresh
Fields and WFM do not mutually agree on an Agreed Value of Included
Out-of-the-Money Fresh Fields Options, each party's financial advisors to
this transaction (Goldman, Sachs & Co. and Robertson Stephens & Company)
shall select a third investment banker which, within 15 days of the date
of selection, shall determine the Agreed Value of Included
Out-of-the-Money Fresh Fields Options and notify Fresh Fields and WFM of
such conclusive determination (subject to the terms of this definition,
including without limitation the proviso hereof).
"WFM Merger Shares Available to Fresh Fields Common Stock Equivalents"
means the total number of WFM Merger Shares minus the number of WFM
Merger Shares allocable to the outstanding Fresh Fields Series D
Preferred and the Fresh Fields Series D Warrants, as determined in
accordance with subsection (c)(i) below; provided, however, that the
Shares Available to Fresh Fields Common Stock Equivalents shall be
recomputed in accordance with subsection (c)(v) below in the event any of
the circumstances set forth therein shall occur.
"Exchange Ratio" means the quotient of WFM Merger Shares Available to
Fresh Fields Common Stock Equivalents divided by the number of Fresh
Fields Common Stock Equivalents; provided, however, that the Exchange
Ratio shall be recomputed in accordance with subsection (c)(v) below in
the event any of the circumstances set forth therein shall occur.
A-3
<PAGE>
"Fresh Fields Common Stock Merger Price" means the product of the
Exchange Ratio multiplied by the Average WFM Share Price; provided,
however, that the Fresh Fields Common Stock Merger Price shall be
recomputed in accordance with subsection (c)(v) below in the event any of
the circumstances set forth therein shall occur.
"Excluded Fresh Fields Options" means all Fresh Fields Options other than
the Included Fresh Fields Options outstanding on the Effective Date.
"Fresh Fields Common Stock Warrants" means all warrants to acquire Fresh
Fields Common Stock outstanding on the Effective Date.
(c) The WFM Merger Shares shall be allocated among the shares of Fresh
Fields Common Stock, Fresh Fields Class A Preferred, Fresh Fields Class B
Preferred, Fresh Fields Class C Preferred and Fresh Fields Class D Preferred
and the Fresh Fields Class D Warrants outstanding on the Effective Date and
Included In-the-Money Fresh Fields Options, and such shares and options
shall be converted into WFM Merger Shares or the right to acquire WFM Merger
Shares, on the basis set forth below. The Excluded Fresh Fields Options and
Fresh Fields Common Stock Warrants shall be converted into options or
warrants to acquire shares of WFM Common Stock on the basis set forth below.
(i) Each outstanding share of Fresh Fields Class D Preferred and each
Fresh Fields Class D Warrant shall be converted into a number of shares
of WFM Common Stock equal to $17.50 divided by the Determination Price.
(ii) Each outstanding share of Fresh Fields Common Stock, Fresh
Fields Class A Preferred, Fresh Fields Class B Preferred and Fresh Fields
Class C Preferred shall be converted into a number of shares of WFM
Common Stock equal to one multiplied by the Exchange Ratio.
(iii) Each Included In-the-Money Fresh Fields Option shall be
converted into a number of options or warrants to purchase WFM Common
Stock equal to one multiplied by the Exchange Ratio. The per share
exercise price of each Included In-the-Money Option shall be adjusted to
equal the quotient of the per share exercise price divided by the
Exchange Ratio. WFM shall allocate and reserve a sufficient number of the
WFM Merger Shares to permit the exercise of such Included In-the-Money
Fresh Fields Options.
(iv) Each Included Out-of-the-Money Fresh Fields Option, Excluded
Fresh Fields Option and Fresh Fields Common Stock Warrant shall be
converted into a number of options or warrants of WFM Common Stock equal
to one multiplied by the Exchange Ratio. The per share exercise price of
such option or warrant shall be adjusted to equal the exercise price of
such option or warrant divided by the Exchange Ratio. WFM shall reserve a
sufficient number of shares of WFM Common Stock to permit the exercise of
such converted options and warrants.
(v) The foregoing allocations and conversions are subject to the
following exceptions:
(A) If the Exchange Ratio multiplied by the Average WFM Share Price
is greater than $17.50, then the allocation required by
subsection (c)(i) alone shall not be made, the number of shares
of Fresh Fields Class D Preferred and the Fresh Fields Class D
Warrants outstanding on the Effective Date shall be treated as
Fresh Fields Common Stock Equivalents, the WFM Merger Shares
Available to Common Stock Equivalents, Exchange Ratio and Fresh
Fields Common Stock Merger Price shall be recomputed on this
basis, and each share of Fresh Fields Class D Preferred and the
Fresh Fields Class D warrants outstanding on the Effective Date
shall be converted into a number of WFM Merger Shares equal to
the product of one multiplied by the Exchange Ratio.
A-4
<PAGE>
(B) If the Exchange Ratio multiplied by the Average WFM Share Price
is less than $14.00, the number of shares of Class C Preferred
outstanding on the Effective Date shall be converted into a
number of WFM Merger Shares equal to $14.00 divided by the
Determination Price. The Fresh Fields Common Stock Equivalents,
the WFM Merger Shares Available to Fresh Fields Common Stock
Equivalents, the Exchange Ratio and Fresh Fields Common Stock
Merger Price shall be recomputed by excluding the number of
shares of Fresh Fields Class C Preferred outstanding on the
Effective Date from the Fresh Fields Common Stock Equivalents.
(C) If the Exchange Ratio multiplied by the Average WFM Share Price
is less than $10.00, then each share of Fresh Fields Class B
Preferred outstanding on the Effective Date shall be converted
into a number of WFM Merger Shares equal to $10.00 divided by
the Determination Price. The Fresh Fields Common Stock
Equivalents, the WFM Merger Shares Available to Fresh Fields
Common Stock Equivalents, the Exchange Ratio and Fresh Fields
Common Stock Merger Price shall be recomputed by excluding the
number of shares of Fresh Fields Class B Preferred outstanding
on the Effective Date from the Fresh Fields Common Stock
Equivalents.
(D) If the Exchange Ratio multiplied by the Average WFM Share Price
is less than $5.90, then each share of Fresh Fields Class A
Preferred shall be converted into a number of WFM Merger Shares
equal to $5.90 divided by the Determination Price. The Fresh
Fields Common Stock Equivalents, the WFM Merger Shares Available
to Fresh Fields Common Stock Equivalents, the Exchange Ratio and
Fresh Fields Merger Share Price shall be recomputed by excluding
the number of shares of Fresh Fields Class A Preferred
outstanding on the Effective Date from the Fresh Fields Common
Stock Equivalents.
(d) The adjustment to the exercise price of any Included Fresh Fields
Option, Excluded Fresh Fields Option or Fresh Fields Common Stock Warrant
made pursuant to subsection (c) above shall be rounded to next whole cent.
The assumption by WFM of the Included Fresh Fields Options, Excluded Fresh
Fields Options and the Fresh Fields Common Stock Warrants shall not
terminate or modify (except as required hereunder) any right, vesting
schedule or restriction on transferability relating to such options or
warrants, or give the holders of such options or warrants any additional
benefits which they did not have immediately prior to the Effective Time.
Continuous employment with Fresh Fields shall be credited to an optionee for
vesting purposes after the Effective Date. Promptly after the adjustments to
the Fresh Fields Options and Fresh Fields Common Stock Warrants required
under this Section 2.1 have been computed, WFM shall mail a notice to the
holders of such options and warrants describing the adjustments. Nothing
contained in this Section shall require WFM to offer or sell shares of WFM
Common Stock upon the exercise of options assumed by WFM hereunder if, in
the reasonable judgment of WFM and its counsel, such offer or sale would not
be in accordance with the applicable federal or state securities laws. On
the Effective Date, WFM shall file with the Commission a registration
statement on Form S-8 covering the shares of WFM Common Stock issuable upon
the exercise of all Fresh Fields Options assumed by WFM and shall use its
best efforts to maintain the effectiveness of such registration statement
for so long as the Fresh Fields Options remain outstanding. WFM shall use
reasonable best efforts to take any actions that may be necessary so that
any Fresh Fields Options qualified as incentive stock options for the
purposes of Section 422 of the Internal Revenue Code continue to be
qualified as incentive stock options following the Effective Date and
assumption by WFM.
(e) Each share of Fresh Fields Capital Stock held in the treasury of
Fresh Fields and each share of Fresh Fields Capital Stock owned by WFM or
any direct or indirect wholly-owned subsidiary of WFM or of Fresh Fields
shall automatically be canceled and extinguished without any conversion
thereof and no payment will be made with respect thereto.
A-5
<PAGE>
2.2. FRACTIONAL SHARES. No scrip or fractional shares of WFM Common Stock
shall be issued in the Merger. All fractional shares of WFM Common Stock to
which a holder of Fresh Fields Capital Stock immediately prior to the Effective
Date would otherwise be entitled at the Effective Date shall be aggregated
(except shares acquired pursuant to Section 2.1(c)(iii) and (iv)). If a
fractional share results from such aggregation, such shareholder shall be
entitled, after the later of (a) the Effective Date or (b) the surrender of such
shareholder's "Certificate" (as defined in Section 2.5) or Certificates that
represent such shares of Fresh Fields Capital Stock, to receive from WFM an
amount in cash in lieu of such fractional share, based on the Determination
Price. WFM will make available to the "Exchange Agent" (as defined in Section
2.5) the cash necessary for the purpose of paying cash for fractional shares.
2.3. DISSENTING SHARES. To the extent that appraisal rights are available
under the DGCL, shares of Fresh Fields Capital Stock that are issued and
outstanding immediately prior to the Effective Date and that have not been voted
for adoption of the Merger and in respect of which appraisal rights have been
properly demanded in accordance with the applicable provisions of the DGCL
("Dissenting Shares") shall not be converted into the right to receive the
consideration provided for in Sections 2.1 and 2.2 at or after the Effective
Date unless and until the holder of such shares withdraws his demand for such
appraisal (in accordance with the applicable provisions of the DGCL) or becomes
ineligible for such appraisal. If a holder of Dissenting Shares withdraws his
demand for such appraisal (in accordance with the applicable provisions of the
DGCL) or becomes ineligible for such appraisal, then, as of the Effective Date
or the occurrence of such event, whichever later occurs, such holder's
Dissenting Shares shall cease to be Dissenting Shares and shall be converted
into and represent the right to receive the consideration provided for in
Sections 2.1 and 2.2. If any holder of Fresh Fields Capital Stock shall assert
the right to be paid the fair value of such Fresh Fields Capital Stock as
described above, Fresh Fields shall give WFM notice thereof, and WFM shall have
the right to participate in all negotiations and proceedings with respect to any
such demands. Fresh Fields shall not, except with the prior written consent of
WFM, voluntarily make any payment with respect to, or settle or offer to settle,
any such demand for payment. After the Effective Date, WFM will cause the
Surviving Corporation to pay its statutory obligations to holders of Dissenting
Shares.
2.4. CONVERSION OF MERGER CORP. SHARES. Each share of Common Stock, $.01
par value, of Merger Corp. which shall be outstanding immediately prior to the
Effective Date shall at the Effective Date, by virtue of the Merger and without
any action on the part of the holder thereof, be converted into one share of
newly issued common stock of the Surviving Corporation.
2.5. EXCHANGE AGENT.
(a) WFM shall authorize Securities Transfer Corp., Dallas, Texas, to
serve as exchange agent hereunder (the "Exchange Agent"). Promptly after the
Effective Date, WFM shall deposit or shall cause to be deposited in trust
with the Exchange Agent certificates representing 95% of the number of whole
shares of WFM Common Stock equal to the quotient of (i) $134.5 million by
(ii) the Determination Price, together with cash sufficient to pay for
fractional shares then known to WFM (such cash amounts and certificates
being hereinafter referred to as the "Exchange Fund"). The Exchange Agent
shall, pursuant to irrevocable instructions received from WFM, deliver the
number of shares of WFM Common Stock and pay the amounts of cash provided
for in this Article 2 out of the Exchange Fund. Additional amounts of cash,
if any, needed from time to time by the Exchange Agent to make payments for
fractional shares shall be provided by WFM and shall become part of the
Exchange Fund. The Exchange Fund shall not be used for any other purpose,
except as provided in this Agreement, or as otherwise agreed to by WFM,
Merger Corp. and Fresh Fields prior to the Effective Date.
(b) As soon as practicable after the Effective Date, the Exchange Agent
shall mail and otherwise make available to each record holder (other than
holders of Dissenting Shares) who, as of the Effective Date, was a holder of
an outstanding certificate or certificates which immediately
A-6
<PAGE>
prior to the Effective Date represented shares of Fresh Fields Capital Stock
(the "Certificates"), a form of letter of transmittal and instructions for
use in effecting the surrender of the Certificates for payment therefor and
conversion thereof, which letter of transmittal shall comply with all
applicable rules of the NMS. Delivery shall be effected, and risk of loss
and title to the Certificates shall pass, only upon proper delivery of the
Certificates to the Exchange Agent and the form of letter of transmittal
shall so reflect. Upon surrender to the Exchange Agent of a Certificate,
together with such letter of transmittal duly executed, the holder of such
Certificate shall be entitled to receive, notwithstanding Section 2.1
hereof, in exchange therefor (i) one or more certificates as requested by
the holder (properly issued, executed and countersigned, as appropriate)
representing 95% of that number of whole shares of WFM Common Stock equal to
the quotient of (i) $134.5 million by (ii) the Determination Price, and (ii)
as to any fractional share, a check representing the cash consideration to
which such holder shall have become entitled pursuant to Section 2.2, and
the Certificate so surrendered shall forthwith be cancelled. No interest
will be paid or accrued on the cash payable upon surrender of the
Certificates. WFM shall pay any transfer or other taxes required by reason
of the issuance of a certificate representing shares of WFM Common Stock;
provided, however, that such certificate is issued in the name of the person
in whose name the Certificate surrendered in exchange therefor is
registered; provided further, however, that WFM shall not pay any transfer
or other tax if the obligation to pay such tax under applicable law is
solely that of the shareholders and if payment of any such tax by WFM
otherwise would cause the Merger to fail to qualify as a tax free
reorganization under the Code. If any portion of the consideration to be
received pursuant to this Article 2 upon exchange of a Certificate (whether
a certificate representing shares of WFM Common Stock or a check
representing cash for a fractional share) is to be issued or paid to a
person other than the person in whose name the Certificate surrendered in
exchange therefor is registered, it shall be a condition of such issuance
and payment that the Certificate so surrendered shall be properly endorsed
or otherwise in proper form for transfer and that the person requesting such
exchange shall pay in advance any transfer or other taxes required by reason
of the issuance of a certificate representing shares of WFM Common Stock or
a check representing cash for a fractional share to such other person, or
establish to the satisfaction of the Exchange Agent that such tax has been
paid or that no such tax is applicable. From the Effective Date until
surrender in accordance with the provisions of this Section 2.5, each
Certificate (other than Certificates representing treasury shares of Fresh
Fields and Certificates representing Dissenting Shares) shall represent for
all purposes only the right to receive the consideration provided in
Sections 2.1 and 2.2. No dividends that are otherwise payable on WFM Common
Stock will be paid to persons entitled to receive WFM Common Stock until
such persons surrender their Certificates. After such surrender, there shall
be paid to the person in whose name WFM Common Stock shall be issued any
dividends on such WFM Common Stock that shall have a record date on or after
the Effective Date and prior to such surrender. If the payment date for any
such dividend is after the date of such surrender, such payment shall be
made on such payment date. In no event shall the persons entitled to receive
such dividends be entitled to receive interest on such dividends. All
payments in respect of shares of Fresh Fields Capital Stock that are made in
accordance with the terms hereof shall be deemed to have been made in full
satisfaction of all rights pertaining to such securities.
(c) In the case of any lost, mislaid, stolen or destroyed Certificates,
the holder thereof may be required, as a condition precedent to the delivery
to such holder of the consideration described in this Article 2, to deliver
to WFM a bond or other reasonably satisfactory security in such reasonable
sum as WFM may direct as indemnity against any claim that may be made
against the Exchange Agent, WFM or the Surviving Corporation with respect to
the Certificate alleged to have been lost, mislaid, stolen or destroyed.
A-7
<PAGE>
(d) After the Effective Date, there shall be no transfers on the stock
transfer books of the Surviving Corporation of the shares of Fresh Fields
Capital Stock that were outstanding immediately prior to the Effective Date.
If, after the Effective Date, Certificates are presented to the Surviving
Corporation for transfer, they shall be cancelled and exchanged for the
consideration described in this Article 2.
(e) Any portion of the Exchange Fund that remains unclaimed by the
shareholders of Fresh Fields for one year after the Effective Date shall be
returned to WFM, upon demand, and any holder of Fresh Fields Capital Stock
who has not theretofore complied with Section 2.5(b) shall thereafter look
only to WFM for issuance of the number of shares of WFM Common Stock and
other consideration to which such holder has become entitled pursuant to
this Article 2; provided, however, that neither the Exchange Agent nor any
party hereto shall be liable to a holder of shares of Fresh Fields Capital
Stock for any amount required to be paid to a public official pursuant to
any applicable abandoned property, escheat or similar law.
2.6. ESCROW FUND. In order to secure the indemnification obligations of
Fresh Fields set forth in Section 8.3, (i) on or before the Effective Date,
Fresh Fields will cause certain representatives (as defined below) of its former
shareholders (the "Fresh Fields Shareholders") to enter into the Escrow
Agreement, with WFM and Texas Commerce Bank, N.A., as escrow agent (the "Escrow
Agent"), in the form of Exhibit A hereto (the "Escrow Agreement") and (ii)
promptly upon the occurrence of the Merger, WFM shall deposit with the Escrow
Agent certificates representing 5% of the number of whole shares of WFM Common
Stock equal to the quotient of $134.5 million divided by the Determination
Price, less an adjustment to take into account any dissenting Fresh Fields
shareholders. The representatives of the Fresh Fields Shareholders (the
"Shareholders' Representatives) are to be identified in a written notice to WFM
signed by a majority in interest of the Fresh Fields Shareholders no later than
the Closing Date (provided, however, that if no such notice is given, GS Capital
Partners L.P. shall be the sole Shareholders' Representative). The Shareholders'
Representatives are authorized by this Agreement to act hereunder and under the
Escrow Agreement with the powers and authority provided for herein and therein,
as representatives of the Fresh Fields Shareholders and their successors.
Approval of this Agreement and the Merger by the Fresh Fields Shareholders shall
constitute (i) approval of the terms and conditions of the Escrow Agreement and
ratification of the selection of the Shareholders' Representatives by a majority
in interest of the Fresh Fields Shareholders and of the Shareholders'
Representatives' authority to act hereunder and under the Escrow Agreement on
behalf of the Fresh Fields Shareholders and their successors and (ii) the
agreement of each Fresh Fields Shareholder that the Shareholders'
Representatives may use the WFM Merger Shares subject to the Escrow Agreement
(or the proceeds from the sale thereof), in order to pay any expenses incurred
in connection with any disputes or obligations relating to the Escrow Agreement
or to Article 8 of this Agreement relating to indemnification and defenses and
disputes related thereto. To the extent available for distribution to Fresh
Fields Shareholders pursuant to the Escrow Agreement to advance funds, the
Shareholders' Representatives may attach and dispose of, on a pro rata basis any
such available shares of WFM Common Stock in the Escrow Fund held for the
benefit of Fresh Fields Shareholders.
2.7. ADJUSTMENT. If, between the date of this Agreement and the later of
the Closing Date or the Effective Date, as the case may be, the outstanding
shares of Fresh Fields Capital Stock or WFM Common Stock shall have been changed
into (i) a different number of shares, (ii) a different class or (iii) both a
different number and different class by reason of any classification,
recapitalization, split-up, combination, exchange of shares, or readjustment or
a stock dividend thereon shall be declared with a record date within such period
the number of shares of WFM Common Stock issued pursuant to the Merger shall be
adjusted to accurately reflect such change (it being acknowledged that Fresh
Fields elsewhere herein covenants not to take any of such actions described
above).
A-8
<PAGE>
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES OF FRESH FIELDS
Fresh Fields represents and warrants to WFM and Merger Corp. that the
statements contained in this Article 3 are true and correct in all material
respects, except as set forth in the disclosure schedule delivered to WFM by
Fresh Fields on or before the date of this Agreement (the "Fresh Fields
Disclosure Schedule"). The Fresh Fields Disclosure Schedule shall be arranged in
paragraphs corresponding to the numbered Sections contained in this Article 3
and the disclosures in any paragraph shall qualify only the corresponding
Section in this Article 3. As used in this Article 3 and elsewhere in this
Agreement, the phrase "to Fresh Fields' knowledge" or "to Fresh Fields' actual
knowledge" shall mean to the knowledge of Mark Ordan, President and Chief
Executive Officer of Fresh Fields, John Murphy, Chief Operating Officer and
Secretary of Fresh Fields, Mark Smiley, Chief Financial Officer and Treasurer of
Fresh Fields, and Vasiliki Tsaganos, Vice President, General Counsel and
Assistant Secretary of Fresh Fields.
3.1. ORGANIZATION AND GOOD STANDING OF FRESH FIELDS. Each of Fresh Fields
and the "Fresh Fields Subsidiaries" (as defined in Section 3.2) is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation.
3.2. CAPITAL STOCK OF FRESH FIELDS SUBSIDIARIES AND OTHER OWNERSHIP
INTERESTS. The Fresh Fields Disclosure Schedule sets forth a true and complete
list of all corporations, partnerships and other entities in which Fresh Fields
owns any material equity interest (the "Fresh Fields Subsidiaries"), the
jurisdiction in which each Fresh Fields Subsidiary is incorporated or organized,
and all shares of capital stock or other ownership interests authorized, issued
and outstanding of each Fresh Fields Subsidiary. The shares of capital stock or
other equity interests of each Fresh Fields Subsidiary have been duly authorized
and are validly issued, fully paid and nonassessable and free of any preemptive
right. All shares of capital stock or other equity interests of each Fresh
Fields Subsidiary owned by Fresh Fields or any of its subsidiaries are set forth
on the Fresh Fields Disclosure Schedule and are owned by Fresh Fields, either
directly or indirectly, free and clear of all material liens, encumbrances,
equities or claims.
3.3. FOREIGN QUALIFICATION. Fresh Fields and each of the Fresh Fields
Subsidiaries are duly qualified or licensed to do business and are in good
standing as a foreign corporation in every jurisdiction where the failure so to
qualify would have a material adverse effect on (a) the business, operations,
assets or financial condition of Fresh Fields and the Fresh Fields Subsidiaries
taken as a whole or (b) the validity or enforceability of, or the ability of
Fresh Fields to perform its obligations under, this Agreement and the other
documents contemplated hereby (an "Fresh Fields Material Adverse Effect"). An
Fresh Fields Material Adverse Effect under this Agreement shall not include (i)
the existence or threatened existence of any collective bargaining agreement
between Fresh Fields or any of the Fresh Fields Subsidiaries and any labor union
or similar organization, any union organizational activity, labor strike,
dispute, slowdown, stoppage or similar acts actually pending or threatened
against or involving or affecting Fresh Fields or any of the Fresh Fields
Subsidiaries, (ii) the presence of any representation question or other labor
dispute before the National Labor Relations Board or other labor relations
agency or other body or (iii) any proceeding, investigation or other related
inquiry, except in each case to the extent that the existence of the same
constituted a breach of the representation contained in Section 3.16 hereof on
the date of this Agreement.
3.4. CORPORATE POWER AND AUTHORITY. Each of Fresh Fields and the Fresh
Fields Subsidiaries has the corporate power and authority and all material
licenses and permits required by governmental authorities to own, lease and
operate its properties and assets and to carry on its business as currently
being conducted. Fresh Fields has the corporate power and authority to execute
and deliver this Agreement and the agreements, documents and instruments
contemplated hereby and, subject to the approval of this Agreement and the
Merger by its shareholders, to perform its obligations under this Agreement and
the other documents executed or to be executed by Fresh Fields in connection
with this Agreement and to consummate the Merger. The execution, delivery and
performance by Fresh
A-9
<PAGE>
Fields of this Agreement and the other documents executed or to be executed by
Fresh Fields in connection with this Agreement have been duly authorized by all
necessary corporate action, other than the approval of this Agreement and the
Merger by its shareholders.
3.5. BINDING EFFECT. This Agreement and the other documents executed or to
be executed by Fresh Fields in connection with this Agreement have been or will
have been duly executed and delivered by Fresh Fields and are or will be, when
executed and delivered, the legal, valid and binding obligations of Fresh Fields
enforceable in accordance with their terms except that:
(a) enforceability may be limited by bankruptcy, insolvency or other
similar laws affecting creditors' rights;
(b) the availability of equitable remedies may be limited by equitable
principles of general applicability; and
(c) rights to indemnification may be limited by considerations of public
policy.
3.6. ABSENCE OF RESTRICTIONS AND CONFLICTS. Subject only to the approval
of the adoption of this Agreement and the Merger by Fresh Fields' shareholders,
the execution, delivery and performance of this Agreement and the other
documents executed or to be executed by Fresh Fields in connection with this
Agreement and the consummation of the Merger and the other transactions
contemplated by this Agreement and the fulfillment of and compliance with the
terms and conditions of this Agreement do not and will not, with the passing of
time or the giving of notice or both, violate or conflict with, constitute a
breach of or default under, result in the loss of any material benefit under, or
permit the acceleration of any obligation under, (i) any term or provision of
the Articles or Certificate of Incorporation or Bylaws of Fresh Fields or any
Fresh Fields Subsidiary, (ii) any "Fresh Fields Material Contract" (as defined
in Section 3.12), (iii) any judgment, decree or order of any court or
governmental authority or agency to which Fresh Fields or any Fresh Fields
Subsidiary is a party or by which Fresh Fields, any Fresh Fields Subsidiary or
any of their respective properties is bound, or (iv) subject to compliance with
the applicable requirements of the Hart-Scott-Rodino Antitrust Improvements Act
of 1976 (the "HSR Act"), the Securities Act, the Securities and Exchange Act of
1934, as amended (the "Exchange Act"), and applicable state securities laws, any
statute, law, regulation or rule applicable to Fresh Fields or any Fresh Fields
Subsidiary. Except for compliance with the applicable requirements of the HSR
Act, the Securities Act, the Exchange Act and applicable state securities laws,
no consent, approval, order or authorization of, or registration, declaration or
filing with, any governmental agency or public or regulatory unit, agency, body
or authority with respect to Fresh Fields or any of the Fresh Fields
Subsidiaries is required in connection with the execution, delivery or
performance of this Agreement by Fresh Fields or the consummation of the
transactions contemplated hereby and the ownership and operation by Fresh Fields
of its business and properties after the Effective Date in substantially the
same manner as now owned and operated, except where the failure to obtain such
consent, approval, order or authorization of or the failure to make such
registration, declaration or filing, would not have an Fresh Fields Material
Adverse Effect.
3.7. CAPITALIZATION OF FRESH FIELDS.
(a) The authorized capital stock of Fresh Fields consists of 15,000,000
shares of common stock, $.01 par value, and 8,249,202 shares of preferred
stock, $.01 par value. As of the date hereof, there were 599,927 shares of
Fresh Fields Common Stock issued and outstanding, 1,953,390 shares of Fresh
Fields Class A Preferred, 3,000,000 shares of Fresh Fields Class B
Preferred, 1,810,032 shares of Fresh Fields Class C Preferred, 877,207
shares of Fresh Fields Class D Preferred and no shares of Fresh Fields Class
E Preferred outstanding; 2,284,553 shares of Fresh Fields Common Stock
reserved for issuance upon the exercise of outstanding stock options and
warrants to purchase Fresh Fields Common Stock; and 208,573 shares of Fresh
Fields Class D Preferred reserved for issuance upon the exercise of
outstanding warrants to purchase Fresh Fields Class D Preferred.
A-10
<PAGE>
(b) All of the issued and outstanding shares of Fresh Fields Capital
Stock have been duly authorized and validly issued and are fully paid,
nonassessable and free of preemptive rights.
(c) To Fresh Fields' knowledge, there are no voting trusts, shareholder
agreements or other voting arrangements by the shareholders of Fresh Fields.
(d) Except as set forth in subsections (a), (b) and (c) above or the
portions of the Fresh Fields Disclosure Schedule corresponding to these
sections, there is no outstanding subscription, contract, convertible or
exchangeable security, option, warrant, call or other right obligating Fresh
Fields or any of Fresh Fields Subsidiaries to issue, sell, exchange, or
otherwise dispose of, or to purchase, redeem or otherwise acquire, shares
of, or securities convertible into or exchangeable for, capital stock of
Fresh Fields or Fresh Fields Subsidiaries.
3.8. FINANCIAL STATEMENTS AND RECORDS OF FRESH FIELDS. Fresh Fields has
made available to WFM and Merger Corp. true, correct and complete copies of (i)
the consolidated balance sheets of Fresh Fields and the Fresh Fields
Subsidiaries as of December 31, 1994 and 1995 and the consolidated statements of
income, shareholders' equity and cash flows for the fiscal years then ended,
including the notes thereto, in each case examined by and accompanied by the
report of Coopers & Lybrand, (ii) the unaudited consolidated balance sheet of
Fresh Fields and the Fresh Fields Subsidiaries as of April 30, 1996 and the
unaudited consolidated statements of income for the four months then ended and
(iii) the unaudited store level statements of operations for the four months
ended April 30, 1996 (collectively the "Fresh Fields Financial Statements"). The
Fresh Fields Financial Statements have been prepared from, and are in accordance
with, the books and records of Fresh Fields and the Fresh Fields Subsidiaries
and present fairly, in all material respects, the assets, liabilities and
financial position of Fresh Fields as of the dates thereof and the results of
operations and changes in financial position thereof for the periods then ended
(subject to normal year-end audit adjustments in the case of Fresh Fields'
Financial Statements as of April 30, 1996 or for the four-month period then
ended), in each case in conformity with generally accepted accounting
principles, consistently applied, except as noted therein (or with respect to
Fresh Fields' Financial Statements as of April 30, 1996, or for the four-month
period then ended, except for the absence of notes to the financial statements
as required by generally accepted accounting principles). Since April 30, 1996,
there has been no change in accounting principles applicable to, or methods of
accounting utilized by, Fresh Fields, except as noted in the Fresh Fields
Financial Statements. The books and records of Fresh Fields have been and are
being maintained in accordance with acceptable business practice, reflect only
valid transactions, are complete and correct in all material respects, and
present fairly in all material respects the basis for the financial position and
results of operations of Fresh Fields set forth in Fresh Fields Financial
Statements. On a weekly basis following the date of this Agreement, Fresh Fields
shall deliver to WFM unaudited weekly sales reports for its stores; and within
20 days following the end of each fiscal month following the date of this
Agreement, Fresh Fields shall deliver to WFM unaudited financial statements as
of the end of the previous fiscal month and for the year to date.
3.9. ABSENCE OF CERTAIN CHANGES. Since April 30, 1996, Fresh Fields and
the Fresh Fields Subsidiaries have not, except as may result from the
transactions contemplated by this Agreement:
(a) suffered any change in the business, results of operations or the
manner of conducting the business of Fresh Fields and Fresh Fields
Subsidiaries taken as a whole, except such change (i) reflected on the Fresh
Fields Financial Statements; or (ii) that would not have an Fresh Fields
Material Adverse Effect;
(b) suffered any damage or destruction to or loss of the assets of Fresh
Fields or any Fresh Fields Subsidiary, not covered by insurance, which
property or assets are material to the operations or business of Fresh
Fields and Fresh Fields Subsidiaries taken as a whole;
(c) forgiven, compromised, canceled, released, waived or permitted to
lapse any material rights or claims;
A-11
<PAGE>
(d) entered into or terminated any material agreement, commitment or
transaction, or agreed or made any changes in material leases or agreements,
other than renewals or extensions thereof and leases, agreements,
transactions and commitments entered into in the ordinary course of
business;
(e) written up, written down or written off the book value of any
material amount of assets, except such charges and adjustments made in the
normal course of business and in accordance with generally accepted
accounting principles consistently applied;
(f) declared, paid or set aside for payment any dividend or distribution
with respect to Fresh Fields' capital stock;
(g) redeemed, purchased or otherwise acquired, or sold, granted or
otherwise disposed of, directly or indirectly, any of Fresh Fields' capital
stock or securities (other than shares issued upon exercise of options and
warrants granted prior to the date hereof) or any rights to acquire such
capital stock or securities, or agreed to changes in the terms and
conditions of any such rights outstanding as of the date of this Agreement;
(h) increased the compensation of or paid any bonuses (other than
bonuses accrued and reflected in the financial statements prior to April 30,
1996) to any officers of Fresh Fields or any employee of Fresh Fields whose
annual cash compensation exceeded $50,000 during the 12 month period ended
April 30, 1996 or contributed to any employee benefit plan, other than in
accordance with established policies, practices or requirements and as
provided in Section 5.1 hereof;
(i) entered into any employment, consulting, compensation or collective
bargaining agreement with any person or group;
(j) entered into, adopted or amended in any material respect any
employee benefit plan;
(k) entered into any material transaction other than in the ordinary
course of business; or
(l) entered into any agreement to do any of the foregoing.
3.10. NO MATERIAL UNDISCLOSED LIABILITIES. To Fresh Fields' actual
knowledge, there are no material liabilities of Fresh Fields or the Fresh Fields
Subsidiaries of any nature other than the liabilities that are fully reflected,
accrued, or reserved against in the Fresh Fields Financial Statements, for which
the reserves are appropriate and reasonable, or incurred in the ordinary course
of business and consistent with past practices since April 30, 1996.
3.11. TAX RETURNS; TAXES. Each of Fresh Fields and the Fresh Fields
Subsidiaries have duly filed all material federal, state, county, local and
foreign tax returns and reports required to be filed by it, including those with
respect to income, payroll, property, withholding, social security, employee
benefit plans, unemployment, franchise, excise and sales taxes and all such
returns and reports are true and correct in all material respects; have either
paid in full all taxes that have become due as reflected on any such return or
report and any interest and penalties with respect thereto or have fully accrued
on its books or have established adequate reserves for all taxes payable but not
yet due; and have made cash deposits with appropriate governmental authorities
representing estimated payments of taxes, including income taxes and employee
withholding tax obligations. To Fresh Fields' actual knowledge, no extension or
waiver of any statute of limitations or time within which to file any return has
been granted to or requested by Fresh Fields or the Fresh Fields Subsidiaries
with respect to any tax. To Fresh Fields' actual knowledge, no unsatisfied
material deficiency, delinquency or default for any tax, assessment or
governmental charge has been claimed, proposed or assessed against Fresh Fields
or the Fresh Fields Subsidiaries, nor has Fresh Fields or the Fresh Fields
Subsidiaries received notice of any such deficiency, delinquency or default.
Fresh Fields and the Fresh Fields Subsidiaries have no material tax liabilities
other than those reflected on the Fresh Fields Financial Statements and those
arising in the ordinary course of business since April 30, 1996. Fresh
A-12
<PAGE>
Fields will make available to WFM true, complete and correct copies of Fresh
Fields' consolidated federal tax returns for the last five years and make
available such other tax returns reasonably requested by WFM.
3.12. MATERIAL CONTRACTS. Fresh Fields will furnish or make available
accurate and complete copies of the Fresh Fields Material Contracts (as defined
herein) applicable to Fresh Fields or any of the Fresh Fields Subsidiaries to
WFM. All of the Fresh Fields Material Contracts are valid and binding
obligations of Fresh Fields. There is not under any of the Fresh Fields Material
Contracts any existing breach, default or event of default by Fresh Fields or
any of the Fresh Fields Subsidiaries nor event that with notice or lapse of time
or both would constitute a material breach, default or event of default by Fresh
Fields or any of the Fresh Fields Subsidiaries which would in either case,
severally or in the aggregate, constitute an Fresh Fields Material Adverse
Effect nor does Fresh Fields know of, and Fresh Fields has not received notice
of, or made a claim with respect to, any breach or default by any other party
thereto which would, severally or in the aggregate, have an Fresh Fields
Material Adverse Effect. As used herein, the term "Fresh Fields Material
Contracts" shall mean any of the following categories of contracts and
commitments (including summaries of oral contracts) to which Fresh Fields or any
of the Fresh Fields Subsidiaries is a party or bound:
(i) contracts with any labor union; employee benefit plans or contracts;
and employment, consulting or similar contracts, including confidentiality
agreements;
(ii) leases, whether as lessor or lessee, other than any lease of
personal property under which the aggregate required lease payments
remaining unpaid at April 30, 1996 are less than $100,000; loan agreements,
mortgages, indentures, instruments of indebtedness or commitments (including
any forbearance agreements thereunder) in each case involving indebtedness
for borrowed money or money loaned to others; and guaranty or suretyship,
performance bond, indemnification or contribution agreements involving
obligations;
(iii) contracts with third parties that involve aggregate payments
remaining unpaid at April 30, 1996 by Fresh Fields or any Fresh Fields
Subsidiary of more than $100,000;
(iv) insurance policies material to the business of Fresh Fields and the
Fresh Fields Subsidiaries taken as a whole; and
(v) other contracts that are material to the operations, business or
financial condition of Fresh Fields and the Fresh Fields Subsidiaries taken
as a whole.
Further, there are no contracts or commitments currently in effect granting
any person any right to develop, franchise, license, own, manage or operate
Fresh Fields' existing stores or stores under development.
3.13. LITIGATION AND GOVERNMENT CLAIMS. There is no pending suit, claim,
action or litigation, or administrative, arbitration or other proceeding or, to
Fresh Fields' actual knowledge, any governmental investigation or any inquiry
involving Fresh Fields or any Fresh Fields Subsidiaries as to which their
businesses or assets are subject which would have an Fresh Fields Material
Adverse Effect. To Fresh Fields' actual knowledge, there is no pending change in
any environmental, zoning or building laws, regulations or ordinances involving
Fresh Fields, the Fresh Fields Subsidiaries or their businesses or assets which
would, severally or in the aggregate, have an Fresh Fields Material Adverse
Effect. To the knowledge of Fresh Fields, there are no such proceedings
threatened or contemplated, or any unasserted claims (whether or not the
potential claimant may be aware of the claim) of any nature that might be
asserted against Fresh Fields or the Fresh Fields Subsidiaries which would,
severally or in the aggregate, have an Fresh Fields Material Adverse Effect.
Neither Fresh Fields nor any Fresh Fields Subsidiary is subject to any judgment,
decree, injunction, rule or order of any court, or, to the knowledge of Fresh
Fields, any governmental restriction applicable to Fresh Fields or any Fresh
Fields Subsidiary which is reasonably likely to have an Fresh Fields Material
Adverse Effect.
A-13
<PAGE>
3.14. COMPLIANCE WITH LAWS. To Fresh Fields' actual knowledge, Fresh
Fields and the Fresh Fields Subsidiaries each have all material authorizations,
approvals, licenses and orders to carry on their respective businesses as they
are now being conducted, to own or hold under lease the properties and assets
they own or hold under lease and to perform all of their obligations under the
agreements to which they are a party, except for instances which would not have
an Fresh Fields Material Adverse Effect. Fresh Fields and the Fresh Fields
Subsidiaries have been and are, to the knowledge of Fresh Fields, in compliance
with all applicable laws, regulations and administrative orders of any country,
state or municipality or of any subdivision of any thereof to which their
respective businesses and their employment of labor or their use or occupancy of
properties or any part hereof are subject, the failure to obtain or the
violation of which would an Fresh Fields Material Adverse Effect.
3.15. EMPLOYEE BENEFIT PLANS. Each employee benefit plan, as such term is
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), of Fresh Fields or the Fresh Fields Subsidiaries
(collectively the "Fresh Fields Employee Plans") complies in all material
respects with all applicable requirements of ERISA and the Internal Revenue Code
of 1986, as amended (the "Code"), and other applicable laws. None of the Fresh
Fields Employee Plans is an employee pension benefit plan, which is subject to
Title IV of ERISA, or a multiemployer plan, as such terms are defined in ERISA.
Neither Fresh Fields nor any Fresh Fields Subsidiary, nor any of their
respective directors, officers, employees or agents has, with respect to any
Fresh Fields Employee Plan, engaged in any "prohibited transaction," as such
term is defined in the Code or ERISA, nor has any Fresh Fields Employee Plan
engaged in such prohibited transaction which could result in any taxes or
penalties or other prohibited transactions, which in the aggregate could have an
Fresh Fields Material Adverse Effect.
3.16. LABOR RELATIONS. Each of Fresh Fields and the Fresh Fields
Subsidiaries is in compliance in all material respects with all laws (including
federal and state laws and the laws of another country or governmental entity
thereof) respecting employment and employment practices, terms and conditions of
employment, wages and hours, and to Fresh Fields' actual knowledge is not
engaged in any unfair labor or unlawful employment practice. There is no
unlawful employment practice discrimination charge pending before the United
States Equal Opportunities Commission ("EEOC") or EEOC recognized state
"referral agency." There is no unfair labor practice charge or complaint against
Fresh Fields or any of the Fresh Fields Subsidiaries pending before the National
Labor Relations Board. Except as set forth on the Fresh Fields Disclosure
Schedule, to Fresh Fields' actual knowledge there is no union organizational
activity, labor strike, dispute, slowdown or stoppage actually pending or, to
the actual knowledge of Fresh Fields, threatened against or involving or
affecting Fresh Fields or any of the Fresh Fields Subsidiaries and no National
Labor Relations Board representation question exists respecting their respective
employees. No grievances or arbitration proceeding is pending and no written
claim therefor exists. There is no collective bargaining agreement that is
binding on Fresh Fields or any of the Fresh Fields Subsidiaries.
3.17. INTELLECTUAL PROPERTY. Fresh Fields and the Fresh Fields
Subsidiaries own or have valid, binding and enforceable rights to use all
material trademarks, trade names, service marks, service names, copyrights,
applications therefor and licenses or other rights in respect thereof ("Fresh
Fields Intellectual Property") used or held for use in connection with the
business of Fresh Fields or the Fresh Fields Subsidiaries, without any known
conflict with the rights of others, except for such conflicts as do not have an
Fresh Fields Material Adverse Effect. Neither Fresh Fields nor any of the Fresh
Fields Subsidiaries has received any notice from any other person pertaining to
or challenging the right of Fresh Fields or any of the Fresh Fields Subsidiaries
to use any Fresh Fields Intellectual Property or any trade secrets, proprietary
information, inventions, know-how, processes and procedures owned or used or
licensed to Fresh Fields or the Fresh Fields Subsidiaries, except with respect
to rights the loss of which, individually or in the aggregate, would not have an
Fresh Fields Material Adverse Effect.
A-14
<PAGE>
3.18. PROPERTIES.
(a) Fresh Fields and the Fresh Fields Subsidiaries have good and
marketable title, free and clear of all liens, claims or encumbrances (other
than "Permitted Liens" as defined below) to all of their material properties
and assets whether tangible or intangible, real, personal or mixed,
reflected on the Fresh Fields Financial Statements as being owned by Fresh
Fields or the Fresh Fields Subsidiaries. All buildings and all fixtures,
equipment and other property and assets which are material to its business
held under leases or subleases by any of Fresh Fields or the Fresh Fields
Subsidiaries are held under valid instruments enforceable in accordance with
their respective terms. As used herein, the term "Permitted Liens" includes
(i) liens for taxes, assessments or other governmental charges not yet due
and payable or the subject of a good faith dispute, to the extent liability
is fully reserved for in the Fresh Fields Financial Statements; (ii)
statutory liens incurred in the ordinary course of business with respect to
liabilities that are not yet due and payable; (iii) landlord liens contained
in leases in the ordinary course of business; and (iv) such imperfections of
title and/or encumbrances as are not material in character, amount or extent
and do not materially detract from the value or interfere with the use of
the properties and assets subject thereto or affected thereby.
(b) At the Effective Date, none of the shareholders of Fresh Fields nor
any Affiliate (as defined below) of such shareholders will have any material
interest in, or own, any material property or right used principally in the
conduct of the business of Fresh Fields and the Fresh Fields Subsidiaries.
The Fresh Fields Disclosure Schedule lists all such interest and/or
ownership (other than ownership of securities of Fresh Fields) by the
shareholders and their Affiliates as of the date hereof. The term
"Affiliate" shall mean any of the shareholders of Fresh Fields, or any
member of the immediate family of a natural person shareholder, or any
corporation, partnership, trust or other entity in which any such
shareholder or family member has a substantial interest or is a director,
officer, partner or trustee.
(c) Substantially all of Fresh Fields' and the Fresh Fields
Subsidiaries' equipment and properties have been well maintained and are in
good and serviceable condition, reasonable wear and tear excepted and
suitable for continued use without an Fresh Fields Material Adverse Effect.
3.19. USE AND CONDITION OF STORES.
(a) (i) Applicable zoning ordinances permit the operation of Fresh
Fields' business as currently conducted at its store locations or the
operation of Fresh Fields' business at its store locations is a prior
non-conforming use; (ii) Fresh Fields and the Fresh Fields Subsidiaries have
all easements and rights, including easements for all utilities, services,
roadways and other means of ingress and egress, material to the operation of
their business as currently conducted; and (iii) neither the whole nor any
portion of the real property on which such stores are located has been
condemned, requisitioned or otherwise taken by any public authority, and no
notice of any such condemnation, requisition or taking has been received by
Fresh Fields or the Fresh Fields Subsidiaries. No such condemnation,
requisition or taking is threatened or contemplated to Fresh Fields' actual
knowledge, and there are no pending public improvements which may result in
special assessments against or which may otherwise materially and adversely
affect Fresh Fields' stores. To the actual knowledge of Fresh Fields, none
of such store locations has been used for deposit or disposal of hazardous
wastes or substances in violation of any past or current law in any material
respect and there is no material liability under past or current law with
respect to any hazardous wastes or substances which have been deposited or
disposed of on or in such store locations.
(b) Fresh Fields has received no notice of, and has no actual knowledge
of, any material violation of any zoning, building, health, fire, water use
or similar statute, ordinance, law, regulation or code in connection with
any store location of Fresh Fields or the Fresh Fields Subsidiaries.
A-15
<PAGE>
(c) To Fresh Fields' actual knowledge, Fresh Fields and the Fresh Fields
Subsidiaries are in compliance with all applicable federal, state and local
laws relating to emissions, discharges and releases of hazardous or toxic
materials into the environment, except as would not cause an Fresh Fields
Material Adverse Effect. To Fresh Fields' actual knowledge, no hazardous or
toxic material (as hereinafter defined) exists in any structure located on,
or exists on or under the surface of, any real property owned or operated by
Fresh Fields or any Fresh Fields Subsidiary which is, in any case, in
material violation of applicable environmental law. For purposes of this
Section, "hazardous or toxic material" shall mean waste, substance,
materials, smoke, gas or particulate matter designated as hazardous, toxic
or dangerous under any applicable environmental law. For purposes of this
Section, "environmental law" shall include the Comprehensive Environmental
Response Compensation and Liability Act, the Clean Air Act, the Clean Water
Act and any other applicable federal, state or local environmental, health
or safety law, rule or regulation relating to or imposing liability or
standards concerning or in connection with hazardous, toxic or dangerous
waste, substance, materials, smoke, gas or particulate matter.
3.20. ACCURACY OF DISCLOSURES. None of the information supplied by Fresh
Fields or any Fresh Fields Subsidiary for inclusion in the Registration
Statement or Proxy Statement (as such terms are defined in Section 5.7), and as
such information is supplemented or amended from time to time, will, in the case
of the Proxy Statement or any amendments or supplements thereto, at the time of
mailing of the Proxy Statement and any amendments or supplements thereto, and at
the time of the meeting of the shareholders of WFM in accordance therewith or,
in the case of the Registration Statement at the time it becomes effective and
at the Effective Date, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not misleading.
3.21. BROKERS AND FINDERS. None of Fresh Fields, the Fresh Fields
Subsidiaries or, to Fresh Fields' knowledge, any of their respective officers,
directors and employees has employed any broker, finder or investment bank or
incurred any liability for any investment banking fees, financial advisory fees,
brokerage fees or finders' fees in connection with the transactions contemplated
hereby, except that Fresh Fields has engaged Goldman, Sachs & Co. as financial
advisor pursuant to a written agreement, a true and complete copy of which has
been delivered to WFM. Other than the foregoing arrangements and other than
certain fees that may be paid to WFM's financial advisor as contemplated by
Section 4.14 hereof, Fresh Fields is not aware of any claim for payment of any
finder's fees, brokerage or agent's commissions or other like payments in
connection with the negotiations leading to this Agreement or the consummation
of the transactions contemplated hereby. Fresh Fields has delivered to WFM all
contracts, agreements and documents, including summaries of oral agreements,
that relate to the engagement of and the payment of fees to its financial
advisors.
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES OF WFM AND MERGER CORP.
WFM and Merger Corp. represent and warrant to Fresh Fields that the
statements contained in this Article 4 are true and correct in all material
respects, except as set forth in the disclosure schedule delivered to Fresh
Fields by WFM on or before the date of this Agreement (the "WFM Disclosure
Schedule"). The WFM Disclosure Schedule shall be arranged in paragraphs
corresponding to the numbered Sections contained in this Article 4 and the
disclosures in any paragraph shall qualify only the corresponding Section in
this Article 4.
4.1. ORGANIZATION AND GOOD STANDING OF WFM; OWNERSHIP OF WFM
SUBSIDIARIES. Each of WFM, Merger Corp. and all corporations, partnerships and
other entities in which WFM owns any equity interest (the "WFM Subsidiaries") is
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization. All shares of capital or
other equity interests of each of the material WFM Subsidiaries are owned by
WFM, either directly or indirectly, free and clear of all material liens,
encumbrances, equities or claims.
A-16
<PAGE>
4.2. FOREIGN QUALIFICATION. WFM and each of the WFM Subsidiaries are duly
qualified or licensed to do business and are in good standing as a foreign
corporation in every jurisdiction where the failure so to qualify would have a
material adverse effect on (a) the business, operations, prospects, assets or
financial condition of WFM and the WFM Subsidiaries taken as a whole or (b) the
validity or enforceability of, or the ability of WFM to perform its obligations
under, this Agreement and the other documents contemplated hereby (a "WFM
Material Adverse Effect").
4.3. CORPORATE POWER AND AUTHORITY. Each of WFM and the WFM Subsidiaries
has the corporate power and authority and all material licenses and permits
required by governmental authorities to own, lease and operate its properties
and assets and to carry on its business as currently being conducted. Each of
WFM and Merger Corp. has the corporate power and authority to execute and
deliver this Agreement and, subject to the approval of this Agreement and the
Merger by its shareholders, to perform its obligations under this Agreement and
the other documents executed or to be executed by WFM in connection with this
Agreement and to consummate the Merger. The execution, delivery and performance
by WFM and Merger Corp. of this Agreement and the other documents executed or to
be executed by WFM or Merger Corp., as applicable, in connection with this
Agreement have been duly authorized by all necessary corporate action, other
than the approval of this Agreement and the Merger by the shareholders of WFM.
4.4. BINDING EFFECT. This Agreement and the other documents executed or to
be executed by WFM and Merger Corp. in connection with this Agreement have been
or will have been duly executed and delivered by WFM and Merger Corp. and are or
will be, when executed and delivered, the legal, valid, and binding obligations
of WFM and Merger Corp., enforceable in accordance with their terms except that:
(a) enforceability may be limited by bankruptcy, insolvency, or other
similar laws affecting creditors' rights;
(b) the availability of equitable remedies may be limited by equitable
principles of general applicability; and
(c) rights to indemnification may be limited by considerations of public
policy.
4.5. ABSENCE OF RESTRICTIONS AND CONFLICTS. Subject only to the approval
of the adoption of this Agreement and the Merger by WFM's shareholders, the
execution, delivery or performance of this Agreement and the other documents
executed in connection with the Agreement, and the consummation of the Merger
and the other transactions contemplated by this Agreement and the fulfillment of
and compliance with the terms and conditions of this Agreement do not and will
not, with the passing of time or the giving of notice or both, violate or
conflict with, constitute a breach of or default under, result in the loss of
any material benefit under, or permit the acceleration of any obligation under,
(i) any term or provision of the Articles or Certificate of Incorporation or
Bylaws of WFM or any WFM Subsidiary, (ii) any "WFM Material Contract" (as
defined in Section 4.11), (iii) any judgment, decree or order of any court or
governmental authority or agency to which WFM or any WFM Subsidiary is a party
or by which WFM, any WFM Subsidiary or any of their respective properties is
bound, or (iv) subject to compliance with the HSR Act, the Securities Act, the
Exchange Act and applicable state securities laws, any statute, law, regulation
or rule applicable to WFM or any WFM Subsidiary. Except for compliance with the
applicable requirements of the HSR Act, the Securities Act, the Exchange Act and
applicable state securities laws, no consent, approval, order or authorization
of, or registration, declaration or filing with, any governmental agency or
public or regulatory unit, agency, body or authority with respect to WFM or any
of the WFM Subsidiaries is required in connection with the execution, delivery
or performance of this Agreement by WFM or the consummation of the transactions
contemplated hereby and the ownership and operation of Fresh Fields by WFM after
the Effective Date in substantially the same manner as now owned and operated,
except where the failure to obtain such consent, approval, order or
authorization of or the failure to make such registration, declaration or
filing, would not have a WFM Material Adverse Effect.
A-17
<PAGE>
4.6. CAPITALIZATION OF WFM.
(a) The authorized capital stock of WFM consists of 30.0 million shares
of WFM Common Stock and 5.0 million shares of preferred stock, $.01 par
value. As of April 7, 1996, there were (i) 14,138,921 shares of Common Stock
outstanding and (ii) no shares of the Preferred Stock outstanding. All of
the issued and outstanding shares of WFM Common Stock have been duly
authorized and validly issued and are fully paid and nonassessable.
(b) All of the issued and outstanding shares of WFM Common Stock have
been, and the Merger Shares when issued will be, duly authorized and validly
issued and are fully paid, nonassessable and free of preemptive rights.
(c) To WFM's knowledge, there are no voting trusts, shareholder
agreements or other voting arrangements by the shareholders of WFM.
(d) Except as described in the WFM SEC Reports (defined herein), there
is no outstanding subscription, contract, convertible or exchangeable
security, option, warrant, call or other right obligating WFM or any of the
WFM Subsidiaries to issue, sell, exchange, or otherwise dispose of, or to
purchase, redeem or otherwise acquire, shares of, or securities convertible
into or exchangeable for, capital stock of WFM or the WFM Subsidiaries.
4.7. WFM SEC REPORTS. WFM has made available to Fresh Fields (i) WFM's
Annual Reports on Form 10-K, including all exhibits filed thereto and items
incorporated therein by reference, (ii) WFM's Quarterly Reports on Form 10-Q,
including all exhibits thereto and items incorporated therein by reference,
(iii) proxy statements relating to WFM's meetings of shareholders and (iv) all
other reports or registration statements (as amended or supplemented prior to
the date hereof), filed by WFM with the SEC since September 25, 1994, including
all exhibits thereto and items incorporated therein by reference (items (i)
through (iv) being referred to as the "WFM SEC Reports"). As of their respective
dates, the WFM SEC Reports did not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading. Since September 25, 1994, WFM has filed all material
forms, reports and documents with the SEC required to be filed by it pursuant to
the federal securities laws and the SEC rules and regulations thereunder, each
of which complied as to form, at the time such form, report or document was
filed, in all material respects with the applicable requirements of the
Securities Act and the Exchange Act and the applicable rules and regulations
thereunder.
4.8. FINANCIAL STATEMENTS AND RECORDS OF WFM. The WFM SEC Reports include
(i) the consolidated balance sheets of WFM and the WFM Subsidiaries as of
September 24, 1995, and the consolidated statements of income, shareholders'
equity and cash flows for the fiscal year then ended, including the notes
thereto, examined by and accompanied by the report of KPMG Peat Marwick LLP and
(ii) the unaudited consolidated balance sheet of WFM and the WFM Subsidiaries as
of April 7, 1996 and the consolidated statements of income and cash flows for
the 28 weeks then ended (collectively the "WFM Financial Statements"). The WFM
Financial Statements have been prepared from, and are in accordance with, the
books and records of WFM and the WFM Subsidiaries and present fairly, in all
material respects, the assets, liabilities and financial position of WFM as of
the dates thereof and the results of operations and changes in financial
position thereof for the periods then ended, in each case in conformity with
generally accepted accounting principles, consistently applied, except as noted
therein. Since April 7, 1996, there has been no change in accounting principles
applicable to, or methods of accounting utilized by, WFM, except as noted in the
WFM Financial Statements. The books and records of WFM have been and are being
maintained in accordance with good business practice, reflect only valid
transactions, are complete and correct in all material respects, and present
fairly in all material respects the basis for the financial position and results
of operations of WFM set forth in WFM Financial Statements.
A-18
<PAGE>
4.9. ABSENCE OF CERTAIN CHANGES. Since April 7, 1996, WFM and the WFM
Subsidiaries have not, except as may result from the transactions contemplated
by this Agreement, (i) suffered any change in the business, results of
operations, working capital, assets, liabilities or condition (financial or
otherwise) or the manner of conducting the business of WFM and WFM Subsidiaries
taken as a whole, except as reflected on the WFM Financial Statements and except
for such changes that would not have a WFM Material Adverse Effect; or (ii)
suffered any damage or destruction to or loss of the assets of WFM or any WFM
Subsidiary not covered by insurance, which property or assets are material to
the operations or business of WFM and WFM Subsidiaries taken as a whole.
4.10. NO MATERIAL UNDISCLOSED LIABILITIES. To WFM's knowledge, there are
no material liabilities of WFM or the WFM Subsidiaries of any nature, whether
absolute, accrued, contingent or otherwise, other than the liabilities and
obligations that are fully reflected, accrued or reserved against in the WFM
Financial Statements, for which the reserves are appropriate and reasonable, or
incurred in the ordinary course of business and consistent with past practices
since April 7, 1996.
4.11. MATERIAL CONTRACTS. WFM will furnish or make available accurate and
complete copies of the WFM Material Contracts, as defined below, to Fresh
Fields. All of the WFM Material Contracts are valid and binding obligations of
WFM. There is not under any of the WFM Material Contracts any existing breach,
default or event of default by WFM or any of the WFM Subsidiaries nor event that
with notice or lapse of time or both would constitute a breach, default or event
of default by WFM or any of the WFM Subsidiaries nor does WFM know of, and WFM
has not received notice of, or made a claim with respect to, any breach or
default by any other party thereto which would, in either case, severally or in
the aggregate, have a WFM Material Adverse Effect. As used herein, the term "WFM
Material Contracts" shall mean all contracts and agreements filed, or required
to be filed, as exhibits to WFM's Annual Report on Form 10-K for the year ended
September 24, 1995 and any contract or agreement entered into since September
24, 1995 which would be required to be filed as an exhibit to WFM's Annual
Report on Form 10-K for the fiscal year ending in September 1996.
4.12. LITIGATION AND GOVERNMENT CLAIMS. Except as disclosed in the WFM SEC
Reports, there is no pending suit, claim, action or litigation, or
administrative, arbitration or other proceeding or, to WFM's knowledge, any
governmental investigation or inquiry. To WFM's knowledge, there is no pending
change in any environmental, zoning or building laws, regulations or ordinances
against WFM or the WFM Subsidiaries to which their businesses or assets are
subject which would, severally or in the aggregate, reasonably be expected to
result in a WFM Material Adverse Effect. To the knowledge of WFM, there are no
such proceedings threatened or contemplated, or any unasserted claims (whether
or not the potential claimant may be aware of the claim) of any nature that
might be asserted against WFM or the WFM Subsidiaries which would, severally or
in the aggregate, have a WFM Material Adverse Effect. Neither WFM nor any WFM
Subsidiary is subject to any judgment, decree, injunction, rule or order of any
court, or, to the knowledge of WFM, any governmental restriction applicable to
WFM or any WFM Subsidiary which is reasonably likely (i) to have a WFM Material
Adverse Effect or (ii) to cause a material limitation on WFM's ability to
operate the business of Fresh Fields after the Closing.
4.13. COMPLIANCE WITH LAWS. To WFM's knowledge, WFM and the WFM
Subsidiaries each have all material authorizations, approvals, licenses and
orders to carry on their respective businesses as they are now being conducted,
to own or hold under lease the properties and assets they own or hold under
lease and to perform all of their obligations under the agreements to which they
are a party, except for instances which would not have a WFM Material Adverse
Effect. WFM and the WFM Subsidiaries have been and are, to the knowledge of WFM,
in compliance with all applicable laws, regulations and administrative orders of
any country, state or municipality or of any subdivision of any thereof to which
their respective businesses and their employment of labor or their use or
occupancy of properties or any part hereof are subject, the failure to obtain or
the violation of which would have a WFM Material Adverse Effect.
A-19
<PAGE>
4.14. BROKERS AND FINDERS. None of WFM, the WFM Subsidiaries or, to WFM's
knowledge, any of their respective officers, directors and employees has
employed any broker, finder or investment bank or incurred any liability for any
investment banking fees, financial advisory fees, brokerage fees or finders'
fees in connection with the transactions contemplated hereby, except that WFM
has engaged Robertson Stephens & Company and Leo Kahn and Fulham & Co. as its
financial advisors. Other than the foregoing arrangements and other than certain
fees that may be paid to Fresh Fields' financial advisors as contemplated by
Section 3.21 hereof, WFM is not aware of any claim for payment of any finder's
fees, brokerage or agent's commissions or other like payments in connection with
the negotiations leading to this Agreement or the consummation of the
transactions contemplated hereby.
4.15. TAX RETURNS; TAXES. Each of WFM and the WFM Subsidiaries have duly
filed all material federal, state, county, local and foreign tax returns and
reports required to be filed by it, including those with respect to income,
payroll, property, withholding, social security, employee benefit plans,
unemployment, franchise, excise and sales taxes and all such returns and reports
are true and correct in all material respects; have either paid in full all
taxes that have become due as reflected on any such return or report and any
interest and penalties with respect thereto or have fully accrued on its books
or have established adequate reserves for all taxes payable but not yet due; and
have made cash deposits with appropriate governmental authorities representing
estimated payments of taxes, including income taxes and employee withholding tax
obligations. To WFM's actual knowledge, no extension or waiver of any statute of
limitations or time within which to file any return has been granted to or
requested by WFM or the WFM Subsidiaries with respect to any tax. To WFM's
actual knowledge, no unsatisfied material deficiency, delinquency or default for
any tax, assessment or governmental charge has been claimed, proposed or
assessed against WFM or the WFM Subsidiaries, nor has WFM or the WFM
Subsidiaries received notice of any such deficiency, delinquency or default. WFM
and the WFM Subsidiaries have no material tax liabilities other than those
reflected on the WFM Financial Statements and those arising in the ordinary
course of business. WFM will make available to Fresh Fields between the date
hereof and the Closing true, complete and correct copies of WFM's consolidated
federal tax returns for the last five years and make available such other tax
returns reasonably requested by Fresh Fields.
4.16. LABOR RELATIONS. Each of WFM and the WFM Subsidiaries is in
compliance in all material respects with all laws (including federal and state
laws and the laws of another country or governmental entity thereof) respecting
employment and employment practices, terms and conditions of employment, wages
and hours, and is not engaged in any unfair labor or unlawful employment
practice. There is no unlawful employment practice discrimination charge pending
before the EEOC or any EEOC recognized state "referral agency." There is no
unfair labor practice charge or complaint against WFM or any of the WFM
Subsidiaries pending before the National Labor Relations Board. There is no
labor strike, dispute, slowdown or stoppage actually pending or, to WFM's
knowledge, threatened against or involving or affecting WFM or any of the WFM
Subsidiaries and no National Labor Relations Board representation question
exists respecting their respective employees. No grievances or arbitration
proceeding is pending and no written claim therefor exists. There is no
collective bargaining agreement that is binding on WFM or any of the WFM
Subsidiaries.
4.17. PROPERTIES.
(a) Except as set forth in the WFM SEC Reports, WFM and the WFM
Subsidiaries have good and marketable title, free and clear of all material
liens, claims or encumbrances (other than "Permitted Liens" as defined
below) to all of their material properties and assets whether tangible or
intangible, real, personal or mixed, reflected on the WFM Financial
Statements as being owned by WFM or the WFM Subsidiaries. All buildings and
all fixtures, equipment and other property and assets which are material to
its business held under leases or subleases by any of WFM or the WFM
Subsidiaries are held under valid instruments enforceable in accordance with
their respective terms. As used herein, the term "Permitted Liens" includes
(i) liens for taxes, assessments or other governmental charges not yet due
and payable or the subject of a good faith dispute, to the extent the
disputed liability is fully reserved for in the WFM Financial
A-20
<PAGE>
Statements; (ii) statutory liens incurred in the ordinary course of business
with respect to liabilities that are not yet due and payable; (iii) landlord
liens contained in leases in the ordinary course of business; (iv) liens
arising in the ordinary course of business in connection with the collection
of negotiable instruments; and (v) such imperfections of title and/or
encumbrances as are not material in character, amount or extent and do not
materially detract from the value or interfere with the use of the
properties and assets subject thereto or affected thereby.
(b) At the Effective Date, none of the officers or directors of WFM nor
any Affiliate (as defined below) of such officers or directors will have any
material interest in, or own any material property or right used principally
in the conduct of the business of WFM and the WFM Subsidiaries. The WFM
Disclosure Schedule lists all such interest and/or ownership (other than
ownership of securities of WFM) by the officers and directors and their
Affiliates as of the date hereof. The term "Affiliate," as used in this
Section 4.17(b), shall mean any of the officers or directors of WFM, or any
member of the immediate family of a natural person officer or director, or
any corporation, partnership, trust or other entity in which any such
officer or director or family member has a substantial interest or is a
director, officer, partner, or trustee.
(c) Substantially all of WFM's and the WFM Subsidiaries' equipment and
properties have been well maintained and are in good and serviceable
condition, reasonable wear and tear excepted, and suitable for continued use
without a WFM Material Adverse Effect.
4.18. USE AND CONDITION OF STORES.
(a) (i) Applicable zoning ordinances permit the operation of WFM's
business as currently conducted at its store locations or the operation of
WFM's business at its stores is a prior non-conforming use; (ii) WFM and the
WFM Subsidiaries have all easements and rights, including easements for all
utilities, services, roadways and other means of ingress or egress, material
to the operation of their business as currently conducted; and (iii) neither
the whole nor any portion of the real property on which such stores are
located has been condemned, requisitioned or otherwise taken by any public
authority, and no notice of any such condemnation, requisition or taking has
been received by WFM or the WFM Subsidiaries. No such condemnation,
requisition or taking is threatened or contemplated to WFM's actual
knowledge, and there are no pending public improvements which may result in
special assessments against or which may otherwise materially and adversely
affect WFM's stores. To the actual knowledge of WFM, none of such store
locations has been used for deposit or disposal of hazardous wastes or
substances in violation of any past or current law in any material respect
and there is no material liability under past or current law with respect to
any hazardous wastes or substances which have been deposited or disposed of
on or in such store locations.
(b) WFM has received no notice of, and has no actual knowledge of, any
material violation of any zoning, building, health, fire, water use or
similar statute, ordinance, law, regulation or code in connection with any
store location of WFM or the WFM Subsidiaries.
(c) To WFM's actual knowledge, WFM and the WFM Subsidiaries are in
compliance with all applicable federal, state and local laws relating to
emissions, discharges and releases of hazardous or toxic materials into the
environment, except as would not cause a WFM Material Adverse Effect. To
WFM's actual knowledge, no hazardous or toxic material (as hereinafter
defined) exists in any structure located on, or exists on or under the
surface of, any real property owned or operated by WFM of the WFM
Subsidiaries which is, in any case, in material violation of applicable
environmental law. For purposes of this Section, "hazardous or toxic
material" shall mean waste, substance, materials, smoke, gas or particulate
matter designated as hazardous, toxic or dangerous under any applicable
environmental law. For purposes of this section, "environmental law" shall
include the Comprehensive Environmental Response Compensation and Liability
Act,
A-21
<PAGE>
the Clear Air Act, the Clean Water Act and any other applicable federal,
state or local environmental, health or safety law, rule or regulation
relating to or imposing liability or standards concerning or in connection
with hazardous, toxic or dangerous waste, substance, materials, smoke, gas
or particulate matter.
4.19. EMPLOYEE BENEFIT PLANS. Each employee benefit plan, as such term is
defined in Section 3(3) of ERISA, of WFM or the WFM Subsidiaries (collectively
the "WFM Employee Plans") complies in all material respects with all applicable
requirements of ERISA and the Code, and other applicable laws. None of the WFM
Employee Plans is an employee pension benefit plan, which is subject to Title IV
of ERISA, or a multiemployer plan, as such terms are defined in ERISA. Neither
WFM nor any WFM Subsidiary, nor any of their respective directors, officers,
employees or agents has, with respect to any WFM Employee Plan, engaged in any
"prohibited transaction," as such term is defined in the Code or ERISA, nor has
any WFM Employee Plan engaged in such prohibited transaction which could result
in any taxes or penalties or other prohibited transactions, which in the
aggregate could have a WFM Material Adverse Effect.
4.20. REGISTRATION STATEMENT. The Registration Statement (as defined below
in Section 5.7) will comply as to form in all material respects with the
provisions of the Securities Act, and the rules and regulations promulgated
thereunder. The Proxy Statement will comply as to form in all material respects
with the provisions of the Exchange Act and the rules and regulations
thereunder.
ARTICLE 5.
CERTAIN COVENANTS AND AGREEMENTS
5.1. CONDUCT OF BUSINESS BY FRESH FIELDS. From the date hereof to the
Effective Date, Fresh Fields will, and will cause each Fresh Fields Subsidiary
to, except as required in connection with the Merger and the other transactions
contemplated by this Agreement and except as otherwise disclosed in Fresh
Fields' Disclosure Schedule or consented to in writing by WFM:
(a) Carry on its business in the ordinary and regular course in
substantially the same manner as heretofore conducted and not engage in any
new line of business or enter into any material agreement, transaction or
activity or make any material commitment except those in the ordinary and
regular course of business and not otherwise prohibited under this Section
5.1;
(b) Neither change nor amend its Certificate or Articles of
Incorporation or Bylaws;
(c) Other than pursuant to the exercise of the options and warrants
outstanding on the date hereof, not issue, sell or grant options, warrants
or rights to purchase or subscribe to, or enter into any arrangement or
contract with respect to the issuance or sale of capital stock of Fresh
Fields or any of Fresh Fields' Subsidiaries or rights or obligations
convertible into or exchangeable for any shares of the capital stock of
Fresh Fields or any of Fresh Fields' subsidiaries and not alter the terms of
any presently outstanding options or warrants (or plans pursuant to which
they were granted) or make any changes (by split-up, combination,
reorganization or otherwise) in the capital structure of Fresh Fields or any
of Fresh Fields' Subsidiaries.
(d) Not declare, pay or set aside for payment any dividend or other
distribution in respect of the capital stock or other equity securities of
Fresh Fields and not redeem, purchase or otherwise acquire any shares of the
capital stock or other securities of Fresh Fields or any of the Fresh Fields
Subsidiaries or rights or obligations convertible into or exchangeable for
any shares of the capital stock or other securities of Fresh Fields or any
of the Fresh Fields Subsidiaries or obligations convertible into such, or
any options, warrants or other rights to purchase or subscribe to any of the
foregoing;
(e) Not acquire or enter into any agreement to acquire, by merger,
consolidation or purchase of stock or assets, any business or entity;
A-22
<PAGE>
(f) Use its reasonable efforts to preserve intact the corporate
existence, goodwill and business organization of Fresh Fields and the Fresh
Fields Subsidiaries, to keep the officers and employees of Fresh Fields and
the Fresh Fields Subsidiaries available to Fresh Fields and to preserve the
relationships of Fresh Fields and the Fresh Fields Subsidiaries with
suppliers, customers and others having business relations with any of them,
except for such instances which would not have a WFM Material Adverse
Effect;
(g) Not (i) create, incur or assume any long-term debt (including
obligations in respect of capital leases which in the aggregate involve
annual payments in excess of $100,000) or, except in the ordinary course of
business under existing lines of credit (including that certain agreement
dated July 19, 1995 among Fresh Fields, NatWest N.A. and First Union
National Bank (the "NatWest Line"), create, incur or assume any short-term
debt for borrowed money in excess of $100,000, (ii) assume, guarantee,
endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other person other
than the Fresh Fields Subsidiaries in excess of $100,000, (iii) make any
loans or advances to any other person other than the Fresh Fields
Subsidiaries, except in the ordinary course of business and consistent with
past practice or in aggregate amounts not in excess of $10,000, (iv) enter
into any new store or facilities leases or modify or renew any existing
store or facilities lease, or (v) make any capital contributions to, or
investments in, any person other than the Fresh Fields Subsidiaries or in
the aggregate in excess of $10,000; or
(h) Not (i) enter into, modify or extend in any manner the terms of any
employment, severance or similar agreements with officers and directors,
(ii) grant any increase in the compensation of officers or directors,
whether now or hereafter payable, (iii) grant any increase in the
compensation of any other employees except for compensation increases in the
ordinary course of business and consistent with past practice, or (iv) make
any material change in wage structure or employee benefit plans taking into
account the benefits to Fresh Fields and the Fresh Fields Subsidiaries
resulting from such changes.
In connection with the continued operation of the business of Fresh Fields
and the Fresh Fields Subsidiaries between the date of this Agreement and the
Effective Date, Fresh Fields shall confer in good faith and on a regular and
frequent basis with one or more representatives of WFM designated in writing to
report operational matters of materiality and the general status of ongoing
operations and to review the financial information furnished pursuant to Section
3.8. In addition, Fresh Fields will allow WFM to send a transition team (the
"Transition Team") headed by Peter Roy (President of WFM) to Fresh Fields'
corporate office to consult with Mark Ordan and John Murphy regarding (i) the
day-to-day operations of Fresh Fields and the Fresh Fields Subsidiaries through
the Closing Date and (ii) the transition strategy for post-Merger operations,
with particular emphasis on human resource matters. Mr. Roy and one or more
assistants shall be entitled to office space at Fresh Fields' corporate office
for such purposes. Messrs. Ordan and Murphy shall reasonably consider the input
and advice of the Transition Team. The Transition Team shall also be entitled to
have a reasonable number of WFM employees or agents to be present at the Fresh
Fields stores through the Closing Date to observe the business and operations of
Fresh Fields and the Fresh Fields Subsidiaries during normal business hours and
in such manner as not to interfere with Fresh Fields' business or Fresh Fields'
relations with its employees and customers. Fresh Fields shall establish a
subcommittee of two directors (the "Special Committee") of its Board of
Directors to administer any disputes regarding operational and/or transition
issues between Fresh Fields management and the Transition Team. The Special
Committee shall be vested with the full authority of the Fresh Fields Board of
Directors at all times through the Closing Date to resolve any such disputes;
that the Special Committee shall be comprised of one director of Fresh Fields
designated by GS Capital Partners, L.P. and one director of Fresh Fields
designated by the Carlyle Interests (as defined in Section 5.19 hereof).
A-23
<PAGE>
5.2. CONDUCT OF BUSINESS BY WFM. From the date hereof to the Effective
Date, WFM will, and will cause Merger Corp. and each of the WFM Subsidiaries to,
except as required in connection with the Merger and the other transactions
contemplated by this Agreement and except as otherwise disclosed in WFM's
Disclosure Schedule or consented to in writing by Fresh Fields:
(a) Carry on its businesses in the ordinary and regular course in
substantially the same manner as heretofore conducted and not engage in any
new line of business or enter into any agreement, transaction or activity or
make any commitment except in the ordinary and regular course of business
and not otherwise prohibited under this Section 5.2;
(b) Neither change nor amend its Certificate or Articles of
Incorporation or Bylaws;
(c) Not make any adverse changes (by split-up, combination,
reorganization or otherwise) in the capital structure of WFM, Merger Corp.
or any of the WFM Subsidiaries (it being understood that WFM will be
increasing its authorized capital stock and the shares available for
issuance under its stock option plans effective as of the WFM shareholders'
meeting referenced in Section 5.8);
(d) Not declare, pay or set aside for payment any dividend or other
distribution in respect of the capital stock or other equity securities of
WFM and not redeem, purchase or otherwise acquire any shares of the capital
stock or other securities of WFM or any of the WFM Subsidiaries, or rights
or obligations convertible into or exchangeable for any shares of the
capital stock or other securities of WFM, Merger Corp. or any of the WFM
Subsidiaries or obligations convertible into such, or any options, warrants
or other rights to purchase or subscribe to any of the foregoing;
(e) Not acquire or enter into any agreement to acquire, by merger,
consolidation or purchase of stock or assets, any business or entity which
would have a WFM Material Adverse Effect; and
(f) Use its reasonable efforts to preserve intact the corporate
existence, goodwill and business organization of WFM and the WFM
Subsidiaries, to keep the officers and employees of WFM and the WFM
Subsidiaries available to WFM and to preserve the relationships of WFM and
the WFM Subsidiaries with suppliers, customers and others having business
relations with any of them, except for such instances which would not have a
WFM Material Adverse Effect;
In connection with the continued operation of the business of WFM and the
WFM Subsidiaries between the date of this Agreement and the Effective Date, WFM
shall confer in good faith and on a regular and frequent basis with one or more
representatives of Fresh Fields designated in writing to report operational
matters of materiality and the general status of ongoing operations and shall on
a timely basis on request by Fresh Fields provide Fresh Fields with WFM's weekly
report of sales by store, and shall also provide on a timely basis monthly
financial reports. WFM acknowledges that Fresh Fields does not and will not
waive any rights it may have under this Agreement as a result of such
consultations nor shall Fresh Fields be responsible for any decisions made by
WFM's officers and directors with respect to matters which are the subject of
such consultation.
5.3. NOTICE OF ANY MATERIAL CHANGE. Each of Fresh Fields and WFM shall,
promptly after the first notice or occurrence thereof but not later than the
Closing Date, advise the other in writing of any event or the existence of any
state of facts that would (i) make any of its representations and warranties in
this Agreement untrue in any material respect, or (ii) otherwise constitute an
Fresh Fields Material Adverse Effect or WFM Material Adverse Effect, as the case
may be.
5.4. INSPECTION AND ACCESS TO INFORMATION.
(a) Between the date of this Agreement and the Effective Date, each
party hereto will, and will cause each of its subsidiaries to, provide each
other party and its accountants, counsel and other authorized
representatives full access, during reasonable business hours and under
reasonable circumstances, to any and all of its premises, properties,
contracts, commitments, books, records and other information (including tax
returns filed and those in preparation) and will
A-24
<PAGE>
cause their respective officers to furnish to the other party and its
authorized representatives any and all financial, technical and operating
data and other information pertaining to its business, as each other party
shall from time to time request.
(b) Each of the parties hereto and their respective representatives
shall maintain the confidentiality of all information (other than
information which is generally available to the public) concerning the other
parties hereto acquired pursuant to the transactions contemplated hereby in
the event that the Merger is not consummated. Each of the parties hereto and
their representatives shall not use such information so obtained to the
detriment or competitive disadvantage of the other party hereto. All files,
records, documents, information, data and similar items relating to the
confidential information of Fresh Fields, whether prepared by WFM or
otherwise coming into WFM's possession, shall remain the exclusive property
of Fresh Fields and shall be promptly delivered to Fresh Fields upon
termination of this Agreement. All files, records, documents, information,
data and similar items relating to the confidential information of WFM,
whether prepared by Fresh Fields or otherwise coming into Fresh Fields'
possession, shall remain the exclusive property of WFM and shall be promptly
delivered to WFM upon termination of this Agreement.
5.5. ANTITRUST LAWS. As soon as practicable but in no event later than 15
days from the date hereof, each of WFM and Fresh Fields shall make any and all
filings which are required under the HSR Act. Each of WFM and Fresh Fields will
assist the other (and Fresh Fields' principal shareholders) as may be reasonably
requested in connection with the preparation of such filings.
5.6. POOLING. From and after the date hereof and until the Effective Date,
neither WFM nor Fresh Fields nor any of their respective subsidiaries shall (i)
knowingly take any action, or knowingly fail to take any action, that would
jeopardize the treatment of the Merger as a "pooling of interest" for accounting
purposes or (ii) knowingly take any action, or knowingly fail to take any
action, that would jeopardize qualification of the Merger as a reorganization
within the meaning of Section 368(a)(2)(E) of the Code.
5.7. REGISTRATION STATEMENT AND PROXY STATEMENT.
(a) WFM shall promptly prepare and file, and make and file any necessary
amendments, a registration statement on Form S-4 (which registration
statement, in the form it is declared effective by the SEC, together with
any and all amendments and supplements thereto and all information
incorporated by reference therein, is referred to herein as the
"Registration Statement") under and pursuant to the provisions of the
Securities Act for the purpose of registering WFM Common Stock to be issued
in the Merger. WFM will use its best efforts to receive and respond to the
comments of the SEC and to cause the Registration Statement to be declared
effective by the SEC and shall promptly mail to its shareholders the proxy
statement in its definitive form contained in the Registration Statement
(the "Proxy Statement"). Such Proxy Statement shall also serve as the
prospectus to be included in the Registration Statement.
(b) Each of WFM and Fresh Fields agrees to provide as promptly as
practicable to the other such information concerning its business and
financial statements and affairs as, in the reasonable judgment of the other
party, may be required or appropriate for inclusion in the Registration
Statement and the Proxy Statement or in any amendments or supplements
thereto, and to cause its counsel and auditors to cooperate with the other's
counsel and auditors in the preparation of the Registration Statement and
the Proxy Statement.
(c) WFM agrees that at the time the Registration Statement becomes
effective and at the Effective Date, as such Registration Statement is then
amended or supplemented, and at the time the Proxy Statement is mailed to
WFM's shareholders, such Registration Statement and Proxy Statement will (i)
not contain any untrue statement of a material fact, or omit to state any
material fact required to be stated therein as necessary, in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading or necessary and
A-25
<PAGE>
(ii) comply in all material respects with the provisions of the Securities
Act and Exchange Act, as applicable, and the rules and regulations
thereunder; provided, however, no representation is made by WFM with respect
to statements made in the Registration Statement and Proxy Statement based
on information supplied by Fresh Fields expressly for inclusion or
incorporation by reference in the Proxy Statement or Registration Statement
or information omitted with respect to and at the request of the other
party.
5.8. APPROVAL BY SHAREHOLDERS. Each of Fresh Fields and WFM shall call a
meeting of its respective shareholders to be held as soon as practicable after
the date hereof for the purpose of voting upon matters relating to this
Agreement. Each of Fresh Fields and WFM will use its reasonable efforts to hold
its respective shareholders' meeting as promptly as practicable and will,
through its Board of Directors, (subject to the provisions of Section 5.18
regarding certain Acquisition Proposals) recommend to its shareholders approval
of the Merger and this Agreement at the shareholders' meeting. At the election
of Fresh Fields in its sole discretion, Fresh Fields may, in lieu of a
shareholders' meeting, obtain the approval of its shareholders by written
consent without a meeting.
5.9. EXPENSES OF FRESH FIELDS. On or promptly after the Effective Date,
WFM shall, or shall cause Surviving Corporation to pay financial adviser's fees
in the amount of $1,400,000 to Goldman, Sachs & Co., described in a written
agreement, a copy of which has been delivered to WFM, and also pay other out of
pocket expenses, including but not limited to attorneys' fees and financial
adviser's fees, incurred by Fresh Fields in connection with the Merger, which
other expenses shall not exceed $550,000 without WFM's approval. This covenant
shall not obligate WFM or the WFM Subsidiaries to pay any expenses incurred by
Fresh Fields' shareholders in connection with the Merger.
5.10. REGISTRATION STATEMENT ON FORM S-8. On the Effective Date, WFM shall
file with the Commission a registration statement on Form S-8 covering the
shares of WFM Common Stock issuable upon the exercise of all Fresh Fields
Options assumed by WFM and shall use its best efforts to maintain the
effectiveness of such registration statement for so long as the Fresh Fields
Options remain outstanding.
5.11. SEVERANCE AND EMPLOYMENT CONTRACTS. WFM shall pay, or shall cause
Surviving Corporation to pay, all severance obligations and liabilities owed to
present and former Fresh Fields employees, including all such liabilities owed
pursuant to all employment contracts and retention, severance or similar
agreements existing on the date hereof and disclosed in writing to WFM, without
any reduction in the number of WFM Merger Shares to be issued.
5.12. PREPAYMENT OF BANK LOAN. WFM shall pay, or shall cause Surviving
Corporation to pay, all obligations, including prepayment fees or penalties,
that become due or owing at or after the Effective Date pursuant to the NatWest
Line without any reduction in the number of WFM Merger Shares to be issued.
5.13. CONTINUATION OF THE BUSINESS. WFM shall continue, or shall cause
Surviving Corporation to, continue, at least one significant business line of
Fresh Fields or shall use, or cause Surviving Corporation to use, at least a
significant portion of Fresh Fields' historic business assets in a trade or
business, in each case within the meaning of section 1.368-1(d) of the Federal
Income Tax Regulations.
5.14. LISTING APPLICATION. WFM will file a listing application with the
NMS to approve for listing, subject to official notice of issuance, the shares
of WFM Common Stock to be issued in the Merger. WFM shall use its reasonable
efforts to cause the shares of WFM Common Stock to be issued in the Merger to be
approved for listing on the NMS, subject to official notice of issuance, prior
to the Effective Date.
5.15. AFFILIATES. At least 30 days prior to the Closing Date, Fresh Fields
shall deliver to WFM a letter identifying all persons who are, at the time the
Merger is submitted to a vote to the shareholders of Fresh Fields, "affiliates"
of Fresh Fields for purposes of Rule 145 under the Securities Act. Fresh Fields
shall use its reasonable efforts to cause each person who is identified as an
"affiliate" in such letter to deliver to WFM on or prior to the Effective Date a
written statement, in form satisfactory to
A-26
<PAGE>
WFM and Fresh Fields, that such person will not offer to sell, transfer or
otherwise dispose of any of the shares of WFM Common Stock issued to such person
pursuant to the Merger, except (i) in accordance with the applicable provisions
of the Securities Act and the rules and regulations thereunder and (ii) until
such time as financial results covering at least 30 days of combined operations
of WFM and Fresh Fields have been published (the "Publication Date"). WFM hereby
covenants to file a Form 10-Q (or Form 10-K, if such 30 day period is completed
during the last fiscal quarter of WFM's fiscal year) satisfying such publication
requirement as promptly as practicable after the Closing.
5.16. REASONABLE EFFORTS; FURTHER ASSURANCES; COOPERATION. Subject to the
other provisions of this Agreement, the parties hereby shall each use their
reasonable efforts to perform their obligations herein and to take, or cause to
be taken or do, or cause to be done, all things necessary, proper or advisable
under applicable law to obtain all regulatory approvals and satisfy all
conditions to the obligations of the parties under this Agreement and to cause
the Merger and the other transactions contemplated herein to be carried out
promptly in accordance with the terms hereof and shall cooperate fully with each
other and their respective officers, directors, employees, agents, counsel,
accountants and other designees in connection with any steps required to be
taken as a part of their respective obligations under this Agreement, including
without limitation:
(a) Fresh Fields and WFM shall promptly make their respective filings
and submissions and shall take, or cause to be taken, all actions and do, or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to comply with the provisions of the HSR Act.
(b) In the event any claim, action, suit, investigation or other
proceeding by any governmental body or other person is commenced which
questions the validity or legality of the Merger or any of the other
transactions contemplated hereby or seeks damages in connection therewith,
the parties agree to cooperate and use all reasonable efforts to defend
against such claim, action, suit, investigation or other proceeding and, if
an injunction or other order is issued in any such action, suit or other
proceeding, to use all reasonable efforts to have such injunction or other
order lifted, and to cooperate reasonably regarding any other impediment to
the consummation of the transactions contemplated by this Agreement.
(c) Each party shall give prompt written notice to the other of (i) the
occurrence, or failure to occur, of any event which occurrence or failure
would be likely to cause any representation or warranty of Fresh Fields or
WFM, as the case may be, contained in this Agreement to be untrue or
inaccurate in any material respect at any time from the date hereof to the
Effective Date or that will or may result in the failure to satisfy any of
the conditions specified in Article 6 and (ii) any failure of Fresh Fields
or WFM, as the case may be, to comply with or satisfy in any material
respect any covenant, condition or agreement to be complied with or
satisfied by it hereunder.
(d) Fresh Fields has obtained (and will promptly deliver copies to WFM)
agreements, substantially in the form of Exhibit B hereto, from the entities
listed on Exhibit G hereto, (i) not to perfect appraisal rights with respect
to the Merger (to the extent applicable) and (ii) granting an irrevocable
proxy to WFM to vote their shares of Fresh Fields Capital Stock in favor of
the approval of this Agreement and the Merger at any meeting of the
shareholders of Fresh Fields referenced in Section 5.8.
(e) WFM has obtained (and will promptly forward to Fresh Fields)
agreements, substantially in the form of Exhibit H hereto, from Messrs. John
Mackey, Peter Roy and Chris Hitt, granting an irrevocable proxy to Fresh
Fields to vote their shares of WFM in favor of the approval of this
Agreement and the Merger at the meeting of the shareholders of WFM
referenced in Section 5.8.
5.17. PUBLIC ANNOUNCEMENTS. The timing and content of all announcements
regarding any aspect of this Agreement or the Merger to the financial community,
government agencies, employees or the general public shall be mutually agreed
upon in advance (unless WFM or Fresh Fields is advised
A-27
<PAGE>
by counsel that any such announcement or other disclosure not mutually agreed
upon in advance is required to be made by law or applicable stock exchange rule
and then only after making a reasonable attempt to comply with the provisions of
this Section).
5.18. NO SOLICITATIONS. From the date hereof until the Effective Date or
until this Agreement is terminated or abandoned as provided in this Agreement,
neither Fresh Fields nor any of the Fresh Fields Subsidiaries shall directly or
indirectly (i) solicit or initiate discussion with or (ii) enter into
negotiations or agreements with, or furnish any information that is not publicly
available to, any corporation, partnership, person or other entity or group
(other than WFM, an affiliate of WFM or their authorized representatives
pursuant to this Agreement) concerning any proposal for a merger, sale of
substantial assets, sale of shares of stock or securities or other takeover or
business combination transaction (the "Acquisition Proposal") involving Fresh
Fields or any of the Fresh Fields Subsidiaries, and Fresh Fields will instruct
its officers, directors, advisors and its financial and legal representatives
and consultants not to take any action contrary to the foregoing provisions of
this sentence; provided, however, that Fresh Fields, its officers, directors,
advisors and its financial and legal representatives and consultants shall not
be prohibited from taking any action described in (ii) above to the extent such
action is taken by, or upon the authority of, the Board of Directors of Fresh
Fields in the exercise of good faith judgment as to its fiduciary duties to the
shareholders of Fresh Fields, which judgment is based upon the advice of
independent, outside legal counsel that a failure of the Board of Directors of
Fresh Fields to take such action would be likely to constitute a breach of its
fiduciary duties to such shareholders. Fresh Fields will notify WFM promptly in
writing if Fresh Fields becomes aware that any inquiries or proposals are
received by, any information is requested from or any negotiations or
discussions are sought to be initiated with, Fresh Fields with respect to an
Acquisition Proposal, and Fresh Fields shall promptly deliver to WFM any written
inquiries or proposals received by Fresh Fields relating to an Acquisition
Proposal. Each time, if any, that the Board of Directors of Fresh Fields
determines, upon advice of such legal counsel and in the exercise of its good
faith judgment as to its fiduciary duties to shareholders, that it must enter
into negotiations with, or furnish any information that is not publicly
available to, any corporation, partnership, person or other entity or group
(other than WFM, an affiliate of WFM or their authorized representatives)
concerning any Acquisition Proposal, Fresh Fields will give WFM prompt notice of
such determination.
5.19. WFM BOARD OF DIRECTORS' DESIGNEES. Each of (a) GS Capital Partners,
L.P. and (b) Carlyle-FFM Partners, L.P., Carlyle-FFM Partners II, L.P.,
Carlyle-FFM Partners III, L.P., Carlyle-Investors, L.P., T.C. Group, L.L.C. and
Carlyle-FFM Partners VI, L.P. acting collectively (the "Carlyle Interests"),
shall be entitled to designate one representative to the WFM Board of Directors.
WFM hereby covenants to cause each of the two representatives to be named to the
WFM Board of Directors (by action of the WFM Board of Directors increasing its
size by two persons) promptly after the Effective Date, to serve until the next
annual meeting of WFM's shareholders. Thereafter, WFM shall nominate and use its
best reasonable efforts to cause the election of each such representative to the
WFM Board of Directors so long as the group of affiliated shareholders
designating such representative beneficially owns at least 50% of the WFM Merger
Shares issued to such group of affiliated shareholders on the Effective Date.
5.20. BENEFITS TO FRESH FIELDS EMPLOYEES. WFM shall or shall cause
Surviving Corporation to take the following action with respect to each Fresh
Fields store employee, employed on the date hereof and continuously employed
until the date of Closing, whose position is eliminated during the twelve months
following Closing: (a) offer a comparable position at a comparable rate of pay
at another Fresh Fields or WFM store located no farther than twenty miles, in a
direct line, from the store in which the employee had previously been employed
or (b) if the employee is terminated, (i) pay to such employee cash severance
benefits equivalent to at least 60 days at the employee's current rate of base
pay, and (ii) vest all options immediately. Terminated non-officer employees at
the Fresh Fields corporate office will also receive cash severance benefits
equivalent to at least 60 days' pay at the employee's current rate of base pay,
and their Fresh Fields Options will vest immediately upon
A-28
<PAGE>
termination. Nothing in this section shall be construed as creating any
employment contract between any employee and WFM or Surviving Corporation or to
diminish or restrict in any way WFM's or Surviving Corporation's right to
terminate without the payment of severance benefits any employee for poor job
performance, unexcused absences or other good cause. WFM will maintain the
existing pay ranges for Fresh Fields employees and recognize the time of service
of Fresh Fields employees with respect to the granting of and eligibility for
WFM benefits. Further, upon assumption of the option plans and option agreements
relating to the Fresh Fields Options, WFM shall not exercise any rights under
such plans or agreements to reduce the number of shares subject to an Fresh
Fields Option by reason of the demotion in the employment of the holder of such
Fresh Fields Option; provided, however, that the provisions relating to the
expiration of such Fresh Fields Options as a result of the termination of
employment shall remain in effect.
ARTICLE 6.
CONDITIONS PRECEDENT TO OBLIGATIONS OF FRESH FIELDS
Except as may be waived by Fresh Fields, the obligations of Fresh Fields to
consummate the transactions contemplated by this Agreement shall be subject to
the satisfaction on or before the Closing Date of each of the following
conditions:
6.1. COMPLIANCE. WFM shall have, or shall have caused to be, satisfied or
complied with and performed in all material respects all terms, covenants and
conditions of this Agreement to be complied with or performed by WFM on or
before the Closing Date.
6.2. REPRESENTATIONS AND WARRANTIES. All of the representations and
warranties made by WFM in this Agreement and in all certificates and other
documents delivered by WFM to Fresh Fields pursuant hereto or in connection with
the transactions contemplated hereby, shall have been true and correct in all
material respects as of the date hereof, and shall be true and correct in all
material respects at the Closing Date with the same force and effect as if such
representations and warranties had been made at and as of the Closing Date,
except for changes permitted or contemplated by this Agreement.
6.3. MATERIAL ADVERSE CHANGES. Subsequent to April 7, 1996, there shall
not have occurred any WFM Material Adverse Effect.
6.4. NMS LISTING. The WFM Common Stock issuable pursuant to the Merger
after the Effective Date shall have been authorized for listing on the NMS.
6.5. CERTIFICATES. Fresh Fields shall have received a certificate or
certificates, executed on behalf of WFM by an executive officer of WFM, to the
effect that the conditions contained in Sections 6.1, 6.2 and 6.3 hereof have
been satisfied.
6.6. SHAREHOLDER APPROVAL. This Agreement shall have been approved and
adopted by the affirmative vote of the holders of such percentage of each class
of Fresh Fields Capital Stock as may be required by the instruments and
agreements governing such class and by the affirmative vote of the holders of a
majority of all of the outstanding shares of WFM Common Stock.
6.7. EFFECTIVENESS OF REGISTRATION STATEMENT. The Registration Statement
shall have become effective and no stop order shall been issued by the SEC or
any other governmental authority suspending the effectiveness of the
Registration Statement or preventing or suspending the use thereof or any
related prospectus and no proceeding for such purpose shall have been initiated.
6.8. CONSENTS; LITIGATION. Other than the filing of Certificate of Merger
as described in Article 1, all authorizations, consents, orders or approvals of,
or declarations or filings with, or expirations or terminations of waiting
periods (including the waiting period under the HSR Act) imposed by any
governmental entity, and all required third-party consents, the failure to
obtain which would have a WFM Material Adverse Effect, shall have been filed,
occurred or been obtained. WFM shall have received all state securities or Blue
Sky permits and other authorizations necessary to issue WFM
A-29
<PAGE>
Common Stock pursuant to the Merger and the other terms of this Agreement. In
addition, no action, suit or proceeding shall have been instituted before any
court or other governmental entity to restrain, modify, enjoin or prohibit the
carrying out of the transactions contemplated hereby.
6.9. TAX OPINION. Fresh Fields shall have received the opinion of Crouch &
Hallett, LLP, dated the Closing Date, to the effect that the Merger will be
treated for federal income tax purposes as a reorganization within the meaning
of Section 368(a) of the Code, and that Fresh Fields and WFM will each be a
party to that reorganization within the meaning of Section 368(b) of the Code.
6.10. CORPORATE LAW OPINION. Fresh Fields shall have received the opinion
of Crouch & Hallett, LLP, dated the Closing Date, with respect to the
enforceability of this Agreement and the validity of the WFM Merger Shares in
substantially the form attached hereto as Exhibit D.
6.11. RECEIPT OF POOLING LETTER. Fresh Fields shall have received a copy
of the letter referenced in Section 7.8.
6.12. REGISTRATION RIGHTS AGREEMENT. WFM shall have executed and delivered
the Registration Rights Agreement substantially in the form of Exhibit F hereto,
which agreement shall be for the benefit of all persons receiving WFM Merger
Shares pursuant to the Merger or owning, or acquiring as a result of the Merger,
options, warrants or any other right to acquire WFM Merger Shares.
ARTICLE 7.
CONDITIONS PRECEDENT TO OBLIGATIONS OF WFM AND MERGER CORP.
Except as may be waived by WFM and Merger Corp., the obligations of WFM and
Merger Corp. to consummate the transactions contemplated by this Agreement shall
be subject to the satisfaction, on or before the Closing Date, of each of the
following conditions:
7.1. COMPLIANCE. Fresh Fields shall have, or shall have caused to be,
satisfied or complied with and performed in all material respects all terms,
covenants and conditions of this Agreement to be complied with or performed by
it on or before the Closing Date.
7.2. REPRESENTATIONS AND WARRANTIES. All of the representations and
warranties made by Fresh Fields in this Agreement and in all certificates and
other documents delivered by Fresh Fields pursuant hereto or in connection with
the transactions contemplated hereby, shall have been true and correct in all
material respects as of the date hereof after giving effect to the delivery of
Fresh Fields' Disclosure Schedule, and shall be true and correct in all material
respects at the Closing Date with the same force and effect as if such
representations and warranties had been made at and as of the Closing Date,
except for changes permitted or contemplated by this Agreement and, as of the
Closing Date, for those representations and warranties set forth in Section 3.16
hereof (other than the first and second sentences thereof).
7.3. MATERIAL ADVERSE CHANGES. Since April 30, 1996, there shall have not
occurred any Fresh Fields Material Adverse Effect.
7.4. CERTIFICATES. WFM shall have received a certificate or certificates,
executed on behalf of Fresh Fields by an executive officer of Fresh Fields, to
the effect that the conditions in Sections 7.1, 7.2 and 7.3 hereof have been
satisfied.
7.5. DISSENTERS' RIGHTS. To the extent appraisal rights are available to
Fresh Fields' shareholders in connection with the Merger, no more than 8% of the
outstanding shares of Fresh Fields Capital Stock shall qualify as Dissenting
Shares.
7.6. SHAREHOLDER APPROVAL. This Agreement shall have been approved and
adopted by the affirmative vote of the holders of a majority of all of the
outstanding shares of WFM Common Stock.
7.7. CONSENTS; LITIGATION. Other than the filing of Articles of Merger as
described in Article 1, all authorizations, consents, orders or approvals of, or
declarations or filings with, or expirations or
A-30
<PAGE>
terminations of waiting periods (including the waiting period under the HSR Act)
imposed by, any governmental entity, and all required third-party consents, the
failure to obtain which would have a WFM Material Adverse Effect, shall have
been filed, occurred or been obtained. WFM shall have received all state
securities or Blue Sky permits and other authorizations necessary to issue WFM
Common Stock pursuant to the Merger and the other terms of this Agreement. In
addition, no action, suit or proceeding shall have been instituted before any
court or other governmental entity to restrain, modify, enjoin or prohibit the
carrying out of the transactions contemplated hereby.
7.8. RECEIPT OF POOLING LETTER. WFM shall have received a letter from KPMG
Peat Marwick LLP, dated the Effective Date and addressed to WFM, stating
substantially to the effect that, based on such firm's review of this Agreement
and the other procedures set forth in such letter, such firm concurs that the
Merger will qualify as a pooling of interests transaction under Opinion 16 of
the Accounting Principles Board.
7.9. COMFORT LETTERS. WFM shall have received from Coopers & Lybrand,
independent auditors for Fresh Fields, (i) a letter dated the date of the Proxy
Statement and, if requested by WFM, as of the Effective Date, as to the absence
of any decrease in store contribution or operating income from April 30, 1996 to
the most recent practicable date, as compared to the same period in the prior
fiscal year of Fresh Fields; and (ii) a letter to the effect that Fresh Fields
qualifies as an entity for a "pooling of interests" transaction under generally
accepted accounting principles.
7.10. CORPORATE LAW OPINION. WFM shall have received the opinions of
Fried, Frank, Harris, Shriver & Jacobson, and Morris, Nichols, Arsht & Tunnell,
respectively, dated the Closing Date, with respect to the validity of the Fresh
Fields Capital Stock and the enforceability of this Agreement, substantially in
the form attached hereto as Exhibit E.
ARTICLE 8.
INDEMNIFICATION AND INSURANCE
8.1. INDEMNIFICATION OF FRESH FIELDS MANAGERS. In the event of any
threatened or actual claim, action, suit, proceeding or investigation, whether
civil, criminal or administrative, including, without limitation, any such
claim, action, suit, proceeding or investigation in which any of the present or
former officers or directors (the "Managers") of Fresh Fields or any of the
Fresh Fields Subsidiaries is, or is threatened to be, made a party by reason of
the fact that he or she is or was a shareholder, director, officer, employee or
agent of Fresh Fields or any of the Fresh Fields Subsidiaries, or is or was
serving at the request of Fresh Fields or any of the Fresh Fields Subsidiaries
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, whether before or after the Effective
Date, Fresh Fields shall indemnify and hold harmless, and from and after the
Effective Date each of the Surviving Corporation and WFM shall indemnify and
hold harmless, as and to the full extent permitted by applicable law (including
by advancing expenses promptly as statements therefor are received), each such
Manager against any losses, claims, damages, liabilities, costs, expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement in
connection with any such claim, action, suit, proceeding or investigation, and
in the event of any such claim, action, suit proceeding or investigation
(whether arising before or after the Effective Date), (i) if Fresh Fields (prior
to the Effective Date) or WFM or the Surviving Corporation (after the Effective
Date) have not promptly assumed the defense of such matter, the Managers may
retain counsel satisfactory to them, and Fresh Fields, or the Surviving
Corporation and WFM after the Effective Date, shall pay all fees and expenses of
such counsel for the Managers promptly, as statements therefor are received, and
(ii) Fresh Fields, or the Surviving Corporation and WFM after the Effective
Date, will use their respective best efforts to assist in the vigorous defense
of any such matter; provided that neither Fresh Fields nor the Surviving
Corporation or WFM shall be liable for any settlement effected without its prior
written consent (which consent shall not be unreasonably withheld); and provided
further that the Surviving Corporation and WFM shall have no obligation under
the foregoing provisions of this Section 8.1 to any Manager when and if a court
of competent
A-31
<PAGE>
jurisdiction shall ultimately determine, and such determination shall have
become final and non-appealable, that indemnification of such Manager in the
manner contemplated hereby is prohibited by applicable law. Upon the finality of
any such determination that the Surviving Corporation or WFM is not liable for
any such indemnification claims, the Manager will reimburse WFM and the
Surviving Corporation for any fees, expenses and costs incurred by WFM or the
Surviving Corporation in connection with the defense of such claims. Any Manager
wishing to claim indemnification under this Section 8.1, upon learning of any
such claim, action, suit, proceeding or investigation, shall notify Fresh Fields
and, after the Effective Date, the Surviving Corporation and WFM, thereof
(provided that the failure to give such notice shall not affect any obligations
hereunder, except to the extent that the indemnifying party is actually and
materially prejudiced thereby). WFM and Merger Corp. agree that all rights to
indemnification existing in favor of the Managers as provided in Fresh Fields'
Certificate of Incorporation or Bylaws as in effect as of the date hereof, and
in any agreement between Fresh Fields and any Manager with respect to matters
occurring prior to the Effective Date shall survive the Merger. WFM further
covenants not to amend or repeal any provisions of the Certificate of
Incorporation or Bylaws of Fresh Fields in any manner which would adversely
affect the indemnification or exculpatory provisions contained therein. The
provisions of this Section 8.1 are intended to be for the benefit of, and shall
be enforceable by, each indemnified party and his or her heirs and
representatives and shall survive the Closing for a period of six years from the
Effective Date.
8.2. DIRECTORS' AND OFFICERS' INSURANCE. For a period of six years from
the Effective Date, the Surviving Corporation shall either (x) maintain in
effect Fresh Fields' current directors' and officers' liability insurance
covering those Managers who are currently covered on the date of this Agreement
by Fresh Fields' directors' and officers' liability insurance policy (a copy of
which has been heretofore delivered to WFM) the "Indemnified Parties");
PROVIDED, HOWEVER, that the Surviving Corporation may substitute for such Fresh
Fields policies, policies with at least the same coverage containing terms and
conditions which are no less advantageous to the Managers and provided that said
substitution does not result in any gaps or lapses in coverage with respect to
matters occurring prior to the Effective Date or (y) cause WFM's directors' and
officers' liability insurance then in effect to cover those persons who are
covered on the date of this Agreement by Fresh Fields' directors' and officers'
liability insurance policy with respect to those matters covered by Fresh
Fields' directors' and officers' liability insurance policy (provided that such
policy offers the same coverage on terms and conditions no less advantageous to
the Managers than provided in Fresh Fields' current directors' and officers'
liability insurance). In no event, however, shall the Surviving Corporation or
WFM be required by this Section 8.2 to expend a premium for such insurance in an
amount exceeding double the rate paid by Fresh Fields for the policy period
immediately preceding the date of execution of this Agreement; provided,
however, that if any insurance meeting the requirements of (x) or (y) of this
Section 8.2 bears a cost exceeding the maximum provided for in this sentence,
then WFM shall purchase such insurance with the same coverages as provided by
Fresh Fields' current policy but with such lower limits of coverage as are
commercially available at a cost not exceeding the maximum provided for in this
sentence. The provisions of this Section 8.2 are intended to be for the benefit
of, and shall be enforceable by, each Manager and his or her heirs and
representatives. Notwithstanding the foregoing, WFM shall have no liability or
obligation under this Section 8.2 to the extent the policy referred to in this
Section is not reasonably available on the terms set forth in this Section.
8.3. INDEMNIFICATION OF WFM. Fresh Fields shall indemnify and hold WFM
harmless from, against, for and in respect of (i) any and all damages, losses,
settlement payments, obligations, liabilities, claims, actions or causes of
action and encumbrances suffered, sustained, incurred or required to be paid by
WFM, net of any resulting income tax benefits to WFM and net of any reserves
reflected on Fresh Fields' balance sheet at April 30, 1996, because of (A) the
breach of any written representation, warranty, agreement or covenant of Fresh
Fields contained in this Agreement or (B) the "Albert Dwoskin" litigation
against Fresh Fields described on the Fresh Fields Disclosure Schedule (the
"Dwoskin Litigation"); and (ii) all reasonable costs and expenses (including,
without limitation, attorneys' fees, interest and penalties) incurred by WFM in
connection with any action, suit, proceeding, demand, assessment or judgment
incident to any of the matters indemnified against
A-32
<PAGE>
in this Section 8.3. WFM's sole recourse with respect to the satisfaction of
this indemnification obligation of Fresh Fields shall be limited to claims which
may be made by WFM under the Escrow Agreement, and no shareholder of Fresh
Fields shall have any personal liability in connection with such indemnification
obligation. WFM shall have the right to make a claim against Fresh Fields under
the Escrow Agreement for breaches of representations or warranties or other
matters set forth in this Section 8.3 for a period of one year only from the
date of Closing. The representations and warranties shall survive for this
purpose for one year from the date of Closing. Except with respect to the
Dwoskin Litigation, WFM may not make any claims under the Escrow Agreement
unless and until the cumulative amount of such claims exceeds a deductible of
$200,000, and such claims shall not include individual claims of $10,000 or less
("Minor Claims") unless and until such Minor Claims exceed $50,000 in the
aggregate. Notwithstanding anything herein to the contrary, in no event shall
WFM have the right to make any claim under the Escrow Agreement with respect to
any damages, losses, settlement payments, obligations, liabilities, claims,
actions or course of action arising out or relating to FF's lease dated February
24, 1995 with Orix TMK Northbrook Venture II, for a portion of the Market Square
at Northbrook Shopping Center located in Northbrook, Illinois (the "Northbrook
Lease").
ARTICLE 9.
MISCELLANEOUS
9.1. TERMINATION. In addition to the provisions regarding termination set
forth elsewhere herein, this Agreement and the transactions contemplated hereby
may be terminated at any time on or before the Closing Date:
(a) by mutual consent of Fresh Fields and WFM;
(b) by WFM if there has been a material misrepresentation or breach of
warranty in the representations and warranties of Fresh Fields set forth
herein or a failure to perform in any material respect a covenant on the
part of Fresh Fields with respect to its representations, warranties and
covenants set forth in this Agreement or any condition precedent to WFM's
obligation to close has not been satisfied by the Closing Date; provided,
however, that if a failure to perform a covenant is capable of cure, and
Fresh Fields cures such failure within the lesser of ten days from the date
it receives notice of the failure from WFM, or the period ending on the
Closing Date, then WFM may not terminate this Agreement and the transactions
contemplated hereby by reason of such failure.
(c) by Fresh Fields if there has been a material misrepresentation or
breach of warranty in the representations and warranties of WFM set forth
herein or a failure to perform in any material respect a covenant on the
part of WFM with respect to its representations, warranties and covenants
set forth in this Agreement, or any condition precedent to Fresh Fields'
obligation to close has not been satisfied by the Closing Date; provided,
however, that if a failure to perform a covenant is capable of cure, and WFM
cures such failure within the lesser of ten days from the date it receives
notice of the failure from Fresh Fields, or the period ending on the Closing
Date, then Fresh Fields may not terminate this Agreement and the
transactions contemplated hereby by reason of such failure.
(d) by either WFM or Fresh Fields if the transactions contemplated by
this Agreement have not been consummated by the later of 60 days following
mailing of the Proxy Statement or October 31, 1996 (which date shall be
extended to December 31, 1996 if all conditions precedent to the obligations
of the parties have been satisfied by October 31, 1996, other than the
receipt of approvals under the HSR Act), unless such failure of consummation
is due to the failure of the terminating party to perform or observe the
covenants, agreements, and conditions hereof to be performed or observed by
it at or before the Closing Date;
A-33
<PAGE>
(e) by either Fresh Fields or WFM if the transactions contemplated
hereby violate any nonappealable final order, decree, or judgment of any
court or governmental body or agency having competent jurisdiction;
(f) by Fresh Fields, if in the exercise of the good faith judgment of
its Board of Directors (which judgment is based upon the advice of
independent, outside legal counsel) as to its fiduciary duties to its
shareholders such termination is required by reason of an Acquisition
Proposal; or
(g) by WFM, if the Fresh Fields Board of Directors withdraws or
materially modifies or changes its recommendation to the shareholders of
Fresh Fields to approve this Agreement and the Merger and if there exists at
such time an Acquisition Proposal.
9.2. EXPENSES.
(a) Except as provided in (b) and (c) below, if the transactions
contemplated by this Agreement are not consummated, each party hereto shall
pay its own expenses incurred in connection with this Agreement and the
transactions contemplated hereby.
(b) If, (i) this Agreement is terminated by Fresh Fields pursuant to
Section 9.1(f) hereof, (ii) this Agreement is terminated by WFM pursuant to
Section 9.1(g) or (iii) on or before October 31, 1996, Fresh Fields enters
into a definitive agreement with respect to an Acquisition Proposal with any
corporation, partnership, person or other entity or group (other than WFM or
any affiliate of WFM), and such transaction (including any revised
transaction based upon the Acquisition Proposal) is thereafter consummated
(before October 31, 1997), then Fresh Fields shall pay to WFM a cash fee
equal to the sum of $5.0 million, which shall be payable in same day funds
to an account specified by WFM.
(c) If this Agreement is terminated by WFM because the shareholders of
WFM fail to approve this Agreement and the Merger then WFM will reimburse
Fresh Fields for any legal, accounting, counsel, adviser and other fees and
expenses it may have incurred in connection with the transaction, in an
aggregate amount of up to $650,000; provided, however, if this Agreement is
terminated by Fresh Fields because WFM breaches Section 5.8 hereof or fails
either to mail or deliver the Proxy Statement to its shareholders generally,
submit this Agreement and Merger for shareholder approval or to recommend to
its shareholders that they approve this Agreement and the Merger, then WFM
shall pay to Fresh Fields, in lieu of such expenses and not in lieu of Fresh
Fields' remedies at law or in equity, a cash fee equal to the sum of $5.0
million which shall be payable in same day funds to an account specified by
Fresh Fields.
(d) In the event that this Agreement is terminated for any reason, WFM
shall be liable for all claims, damages and expenses incurred by Fresh
Fields on and after July 23, 1996 in connection with the Northbrook Lease.
9.3. ENTIRE AGREEMENT. This Agreement, the Schedules and the exhibits
hereto contain the complete agreement among the parties with respect to the
transactions contemplated hereby and supersede all prior agreements and
understandings among the parties with respect to such transactions. Section and
other headings are for reference purposes only and shall not affect the
interpretation or construction of this Agreement. The parties hereto have not
made any representation or warranty except as expressly set forth in this
Agreement or in any certificate or schedule delivered pursuant hereto. The
obligations of any party under any agreement executed pursuant to this Agreement
shall not be affected by this section.
9.4. SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND COVENANTS. Except as
provided in Section 8.3, the representations and warranties of each party
contained herein or in any exhibit, certificate, document or instrument
delivered pursuant to this Agreement shall not survive the Closing, and the
covenants and agreements of the parties (other than those contained in Sections
2.5, 2.6, 5.9, 5.11, 5.12, 5.13, 5.16, 5.19 and Article 8) shall not survive the
Closing.
A-34
<PAGE>
9.5. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original, and such counterparts together shall constitute only one original.
9.6. NOTICES. All notices, demands, requests, or other communications that
may be or are required to be given, served or sent by any party to any other
party pursuant to this Agreement shall be in writing (and shall be deemed to
have been duly given upon receipt) and shall be mailed by first-class,
registered or certified mail, return receipt requested, postage prepaid, or
transmitted by hand delivery or facsimile transmission, addressed as follows:
(i) If to WFM:
601 North Lamar Blvd., Suite 300
Austin, Texas 78703
Attention: John Mackey, Chairman and CEO
Facsimile: 512-477-1301
with a copy (which shall not constitute notice) to:
Crouch & Hallett, L.L.P.
717 North Harwood Street
Suite 1400
Dallas, Texas 75201
Attention: Bruce H. Hallett
Facsimile: 214-953-3154
(ii) If to Fresh Fields:
6015 Executive Blvd.
Rockville, Maryland 20852
Attention: Mark Ordan
Facsimile: 301-984-2070
with a copy (which shall not constitute notice) to:
Fried, Frank, Harris, Shriver & Jacobson
1001 Pennsylvania Avenue, N.W., Suite 800
Washington, D.C. 20004-2505
Attention: Richard A. Steinwurtzel
Facsimile: 202-639-7003
Each party may designate by notice in writing a new address to which any notice,
demand, request or communication may thereafter be so given, served or sent.
Each notice, demand, request or communication that is mailed, delivered or
transmitted in the manner described above shall be deemed sufficiently given,
served, sent and received for all purposes at such time as it is delivered to
the addressee (with the return receipt, the delivery receipt or the affidavit of
messenger being deemed conclusive evidence of such delivery) or at such time as
delivery is refused by the addressee upon presentation.
9.7. SUCCESSORS; ASSIGNMENTS. This Agreement and the rights, interests and
obligations hereunder shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and assigns. Neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned, by operation of law or otherwise, by any of the parties hereto without
the prior written consent of the other.
9.8. GOVERNING LAW. The construction and performance of this Agreement
shall be governed by the laws of the State of Delaware without regard to its
principles of conflict of laws, and the state and federal courts of Delaware
shall have exclusive jurisdiction over, and venue with respect to, any
controversy or claim arising out of or relating to this Agreement.
A-35
<PAGE>
9.9. WAIVER AND OTHER ACTION. This Agreement may be amended, modified or
supplemented only by a written instrument executed by the parties against which
enforcement of the amendment, modification or supplement is sought.
9.10. SEVERABILITY. If any provision of this Agreement is held to be
illegal, invalid or unenforceable, such provision shall be fully severable, and
this Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision were never a part hereof; the remaining provisions
hereof shall remain in full force and effect and shall not be affected by the
illegal, invalid or unenforceable provision or by its severance; and in lieu of
such illegal, invalid or unenforceable provision, there shall be added
automatically as part of this Agreement, a provision as similar in its terms to
such illegal, invalid or unenforceable provision as may be possible and be
legal, valid, and enforceable.
9.11. NO THIRD PARTY BENEFICIARIES. Sections 8.1 and 8.2 are intended for
the benefit of each "Manager" (as defined in Article 8) and may be enforced by
such persons. Other than as expressly set forth in this Section 9.11 and in
Sections 5.5 and 5.19, nothing expressed or implied in this Agreement is
intended, or shall be construed, to confer upon or give any person, firm or
corporation other than the parties hereto, any rights, remedies, obligations or
liabilities under or by reason of this Agreement or result in such person, firm
or corporation being deemed a third party beneficiary of this Agreement.
9.12. MUTUAL CONTRIBUTION. The parties to this Agreement and their counsel
have mutually contributed to its drafting. Consequently, no provision of this
Agreement shall be construed against any party on the ground that such party
drafted the provision or caused it to be drafted or the provision contains a
covenant of such party.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
FRESH FIELDS MARKETS, INC.
By: /s/ MARK ORDAN
---------------------------------------
Mark Ordan
Chief Executive Officer
WHOLE FOODS MARKET, INC.
By: /s/ JOHN MACKEY
---------------------------------------
John Mackey
Chief Executive Officer
WHOLE FOODS MARKET MID-ATLANTIC, INC.
By: /s/ JOHN MACKEY
---------------------------------------
John Mackey
Chief Executive Officer
A-36
<PAGE>
APPENDIX B
[LETTERHEAD]
June 17, 1996
Board of Directors
Whole Foods Market, Inc.
601 N. Lamar Blvd., Suite 300
Austin, TX 78703
Members of the Board:
You have asked our opinion with respect to the fairness to Whole Foods
Market, Inc. ("Whole Foods"), from a financial point of view and as of the date
hereof, of the Consideration (as defined below) to be paid in the proposed
merger of Fresh Fields Market, Inc. ("Fresh Fields") and a wholly-owned
subsidiary of Whole Foods, pursuant to the Agreement and Plan of Merger, dated
as of June 17, 1996 (the "Agreement"). Under the terms of the Agreement, a
wholly-owned subsidiary of Whole Foods will merge with and into Fresh Fields
(the "Merger"), and upon consummation of the Merger, Fresh Fields will become a
wholly-owned subsidiary of Whole Foods. In the Merger, Whole Foods will issue a
minimum of approximately 4.8 million shares (the "Minimum") and a maximum of
approximately 5.6 million shares (the "Maximum") of Whole Foods Common Stock
(the "Consideration") in exchange for substantially all of the outstanding Fresh
Fields preferred stock, common stock, options and warrants. The actual number of
shares issued will be computed by dividing $134.5 million by the "Determination
Price" and may vary slightly from the Minimum and Maximum depending on the
manner in which options are exercised. The "Determination Price" shall be
defined as the average per share closing price of Whole Foods Common Stock over
the twenty trading days immediately preceding the closing. If the "Determination
Price" is less than $24 per share, then the "Determination Price" shall be
deemed to be $24; if the "Determination Price" is greater than $28 per share,
then the "Determination Price" shall be deemed to be $28. Five percent of the
aggregate shares of Whole Foods Common Stock to be issued in the Merger will be
placed in escrow to secure certain obligations of Fresh Fields under the
Agreement. The Merger is intended to qualify as a tax-free reorganization within
the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended,
and to be accounted for as a "pooling of interests." The terms and conditions of
the Merger are set forth more fully in the Agreement.
For purposes of this opinion we have: (i) reviewed financial information on
Whole Foods and Fresh Fields furnished to us by both companies, including
certain internal financial analyses and forecasts prepared by the management of
Whole Foods and Fresh Fields; (ii) reviewed publicly available information;
(iii) held discussions with the management of Whole Foods and Fresh Fields
concerning the businesses, past and current business operations, financial
condition and future prospects of both companies, independently and combined;
(iv) reviewed the Agreement; (v) reviewed the stock price and trading history of
Whole Foods; (vi) reviewed the contribution by each company to pro forma
combined revenue, store operating income, net income, book value and total
number of stores; (vii) reviewed the valuations of publicly traded companies
which we deemed comparable to Fresh Fields; (viii) compared the financial terms
of the Merger with other transactions which we deemed relevant; (ix) analyzed
the pro forma earnings per share of the combined company; (x) prepared a
discounted cash flow analysis of Fresh Fields; and (xi) made such other studies
and inquiries, and reviewed such other data, as we deemed relevant.
B-1
<PAGE>
Board of Directors
Whole Foods Market, Inc.
June 17, 1996
Page Two
In connection with our opinion, we have not however independently verified
any of the foregoing information and have relied on all such information being
complete and accurate in all material respects. Furthermore, we did not obtain
any independent appraisal of the properties or assets and liabilities of Whole
Foods or Fresh Fields. With respect to the financial and operating forecasts
(and the assumptions and bases therefor) of Whole Foods and Fresh Fields which
we have reviewed, we have assumed that such forecasts have been reasonably
prepared in good faith on the basis of reasonable assumptions, reflect the best
available estimates and judgments of such respective managements and that such
projections and forecasts will be realized in the amounts and in the time
periods currently estimated by the managements of Whole Foods and Fresh Fields.
In addition, we have relied upon estimates and judgments of Whole Foods and
Fresh Fields managements as to the future financial performance of both
companies, and, in particular, the judgement of Whole Foods management regarding
its ability to reduce general and administrative expenses at Fresh Fields. We
have also assumed that the Merger will be accounted for as a "pooling of
interests" under GAAP, and we have assumed, based on preliminary analysis
prepared for Whole Foods, that the net operating losses of Fresh Fields will be
available (with certain annual limitations) to Whole Foods. While we believe
that our review, as described herein, is an adequate basis for the opinion that
we express, this opinion is necessarily based upon market, economic, and other
conditions that exist and can be evaluated as of the date of this letter, and on
information available to us as of the date hereof.
Robertson, Stephens & Company has provided certain investment banking
services to Whole Foods from time to time, including acting as managing
underwriter for the initial public offering and two follow-on offerings of Whole
Foods Common Stock and acting as financial advisor to Whole Foods in its
acquisition of Mrs. Gooch's Natural Food Markets. In addition, Robertson,
Stephens & Company has acted as financial advisor to Whole Foods in connection
with the Merger for which a portion of our fees is due and payable contingent
upon closing of the Merger.
Based upon and subject to the foregoing considerations, it is our opinion,
as investment bankers, that, as of the date hereof, the Consideration to be paid
is fair to Whole Foods from a financial point of view.
Very truly yours,
ROBERTSON, STEPHENS & COMPANY, LLC
By: Robertson, Stephens & Company,
Inc.
--------------------------------------
Authorized Signatory
B-2
<PAGE>
APPENDIX C
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
262 APPRAISAL RIGHTS (a) Any stockholder of a corporation of this State
who holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to 228 of this title shall be entitled to an appraisal by the Court of
Chancery of the fair value of his shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section 251, 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall be
available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders;
and further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger did not
require for its approval the vote of the holders of the surviving corporation as
provided in subsections (f) or (g) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights under
this section shall be available for the shares of any class or series of stock
of a constituent corporation if the holders thereof are required by the terms of
an agreement of merger or consolidation pursuant to SectionSection 251, 252,
254, 257, 258, 263 and 264 of this title to accept for such stock anything
except:
a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation, or depository receipts in respect thereof:
b. Shares of stock of any other corporation, or depository receipts in
respect thereof, which shares of stock or depository receipts at the effective
date of the merger or consolidation will be either listed on a national
securities exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities Dealers,
Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository receipts and cash in
lieu of fractional shares or fractional depository receipts described in the
foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation party
to a merger effected under Section 253 of this title is not owned by the parent
corporation immediately prior to the merger, appraisal rights shall be available
for the shares of the subsidiary Delaware corporation.
C-1
<PAGE>
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting, shall
notify each of its stockholders who was such on the record date for such meeting
with respect to shares for which appraisal rights are available pursuant to
subsections (b) or (c) hereof that appraisal rights are available for any or all
of the shares of the constituent corporations, and shall include in such notice
a copy of this section. Each stockholder electing to demand the appraisal of his
shares shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to demand
the appraisal of his shares. A proxy or vote against the merger or consolidation
shall not constitute such a demand. A stockholder electing to take such action
must do so by a separate written demand as herein provided. Within 10 days after
the effective date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent corporation who
has complied with this subsection and has not voted in favor of or consented to
the merger or consolidation of the date that the merger or consolidation has
become effective; or
(2) If the merger or consolidation was approved pursuant to Section 228 or
253 of this title, the surviving or resulting corporation, either before the
effective date of the merger or consolidation or within 10 days thereafter,
shall notify each of the stockholders entitled to appraisal rights of the
effective date of the merger or consolidation and that appraisal rights are
available for any or all of the shares of the constituent corporation, and shall
include in such notice a copy of this section. The notice shall be sent by
certified or registered mail, return receipt requested, addressed to the
stockholder at his address as it appears on the records of the corporation. Any
stockholder entitled to appraisal rights may, within 20 days after the date of
mailing of the notice, demand in writing from the surviving or resulting
corporation the appraisal of his shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the stockholder and that
the stockholder intends thereby to demand the appraisal of his shares.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw his demand for
appraisal and to accept the terms offered upon the merger or consolidation.
Within 120 days after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of subsections (a) and (d)
hereof, upon written request, shall be entitled to receive from the corporation
surviving the merger or resulting from the consolidation a statement setting
forth the aggregate number of shares not voted in favor of the merger or
consolidation and with respect to which demands for appraisal have been received
and the aggregate number of holders of such shares. Such written statement shall
be mailed to the stockholder within 10 days after his written request for such a
statement is received by the surviving or resulting corporation or within 10
days after expiration of the period for delivery of demands for appraisal under
subsection (d) hereof, whichever is later.
C-2
<PAGE>
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders, entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to
C-3
<PAGE>
the effective date of the merger or consolidation); provided, however, that if
no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
C-4
<PAGE>
APPENDIX D
PROPOSED AMENDMENT TO THE
RESTATED ARTICLES OF INCORPORATION
OF
WHOLE FOODS MARKET, INC.
Article IV of the Company's restated Articles of Incorporation is proposed
to be amended to read in its entirety as follows:
A. The corporation is authorized to issue two classes of shares of
capital stock, designated "Common Stock" and "Preferred Stock",
respectively. The aggregate number of shares of Common Stock authorized to
be issued is 50,000,000 shares with no par value. The aggregate number of
shares of shares of Preferred Stock authorized to be issued is 5,000,000
shares with a par value of $.01 per share. Shares of the Preferred Stock may
be issued from time to time in one or more series, each such series to have
such distinctive designation or title as may be fixed by the Board of
Directors prior to the issuance of any shares thereof. Each such series
shall have such designations, preferences, limitations and relative rights,
including voting rights, as shall be stated in the resolution or resolutions
providing for the issuance of such series of Preferred Stock, as may be
adopted from time to time by the Board of Directors prior to the issuance of
any shares thereof, in accordance with the laws of the State of Texas. The
Board of Directors, in such resolution or resolutions, may increase or
decrease the number of shares within each such series; provided, however,
the Board of Directors may not decrease the number of shares within a series
to less than the number of shares within such series that are then issued.
B. No shareholder of the corporation will, by reason of his holding
shares of stock of the corporation, have any preemptive or preferential
rights to purchase or subscribe to any shares of any class of stock of the
corporation, or any notes, debentures, bonds, warrants, options or other
securities of the corporation, whether now or hereafter authorized.
D-1
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article 2.02-1 of the Texas Business Corporation Act ("TBCA") provides for
indemnification of directors and officers in certain circumstances. Reference is
made to Article IX of the Bylaws of the registrant previously filed with the
Commission.
The Company's Restated Articles of Incorporation provide that no director
shall be liable to the registrant or its shareholders for an act or omission in
such capacity as a director, except for liability as a result of (i) a breach of
the director's duty of loyalty to the registrant or its shareholders, (ii) an
act or omission not in good faith or which involve intentional misconduct or
knowing violation of law, (iii) a transaction from which such director derived
an improper personal benefit, (iv) an act or omission for which the liability of
a director is expressly provided by law or (v) an act related to an unlawful
stock repurchase of payment of a dividend.
An insurance policy obtained by the registrant provides for indemnification
of officers and directors of the registrant and certain other persons against
liabilities and expenses incurred by any of them in certain stated proceedings
and under certain stated conditions.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<C> <C> <S>
2.1 -- Agreement and Plan of Merger, as amended, dated as of June 17, 1996, by and
among the Registrant, Whole Foods Market Mid-Atlantic, Inc., and Fresh Fields
Markets, Inc. (included as Appendix A to the Proxy Statement/Prospectus)(1)
2.2 -- Form of Escrow Agreement, to be dated August 30, 1996, among the Registrant,
GS Capital Partners, L.P., as attorney-in-fact for the former stockholders of
Fresh Fields Markets, Inc. and Texas Commerce Bank, N.A., as escrow agent.(2)
2.3 -- Form of Agreement, dated as of June 17, 1996, between the Registrant and each
of and certain stockholders of Fresh Fields Markets, Inc.(2)
2.4 -- Form of Registration Rights Agreement, to be dated August 30, 1996, among the
Registrant, and certain stockholders of Fresh Fields Markets, Inc.(2)
5 -- Opinion of Crouch & Hallett, L.L.P.(2)
8 -- Opinion of Crouch & Hallett, L.L.P. regarding tax matters described in the
Proxy Statement/Prospectus (2)
23.1 -- Consent of KPMG Peat Marwick LLP(2)
23.2 -- Consent of Coopers & Lybrand L.L.P.(2)
23.3 -- Consent of Crouch & Hallett, L.L.P. (included in opinion filed as Exhibit 5
hereto)
24 -- Power of Attorney (2)
99.1 -- Form of Whole Foods Market, Inc. Proxy for Special Meeting(1)
</TABLE>
- ------------------------
(1) Filed herewith.
(2) Previously filed.
(b) Financial Statement Schedules
None filed herewith.
ITEM 22. UNDERTAKINGS.
(a) The registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the registrant's
annual report pursuant to section 13(a) or
II-1
<PAGE>
section 15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to section
15(d) of the Securities Exchange Act of 1934) that is incorporated by reference
in the Registration Statement shall be deemed to be a new Registration Statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer, or controlling person of the registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(c) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
(d) The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (c) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
the offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(e) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 in this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(f) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment to this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Austin
and State of Texas on the 24th day of July, 1996.
WHOLE FOODS MARKET, INC.
By: /s/ GLENDA FLANAGAN
-----------------------------------
Glenda Flanagan
VICE PRESIDENT AND CHIEF FINANCIAL
OFFICER
Pursuant to the requirements of the Securities Act of 1933, as amended, this
amendment to this registration statement has been signed below by the following
persons in the capacities and on the date indicated.
<TABLE>
<C> <S> <C>
SIGNATURE TITLE DATE
- ------------------------------------------------------ --------------------------------------- ----------------
*
------------------------------------------- Chairman of the Board (Chief Executive July 24, 1996
John Mackey Officer) and Director
/s/ GLENDA FLANAGAN
------------------------------------------- Vice President (Chief Financial and July 24, 1996
Glenda Flanagan Accounting Officer)
*
------------------------------------------- Director July 24, 1996
Cristina G. Banks
*
------------------------------------------- Director July 24, 1996
Dr. John B. Elstrott
*
------------------------------------------- Director July 24, 1996
Avram J. Goldberg
*
------------------------------------------- Director July 24, 1996
Fred Lager
------------------------------------------- Director July 24, 1996
Linda A. Mason
*
------------------------------------------- Director July 24, 1996
Dr. Ralph Z. Sorenson
*
------------------------------------------- Director July 24, 1996
James P. Sud
/s/ GLENDA FLANAGAN
- -------------------------------------------
By: Glenda Flanagan July 24, 1996
Attorney-in-Fact
</TABLE>
II-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
- ----------- ---------------------------------------------------------------------------------------- -------------
<C> <C> <S> <C>
2.1 -- Agreement and Plan of Merger, as amended, dated as of June 17, 1996, by and among the
Registrant, Whole Foods Market Mid-Atlantic, Inc., and Fresh Fields Markets,
Inc.(included as Appendix A to the Proxy Statement/Prospectus)(1)
2.2 -- Form of Escrow Agreement, to be dated August 30, 1996, among the Registrant, GS Capital
Partners, L.P., as attorney-in-fact for the former stockholders of Fresh Fields Markets,
Inc. and Texas Commerce Bank, N.A., as escrow agent.(2)
2.3 -- Form of Agreement, dated as of June 17, 1996, between the Registrant and each of and
certain stockholders of Fresh Fields Markets, Inc.(2)
2.4 -- Form of Registration Rights Agreement, to be dated August 30, 1996, among the
Registrant, and certain stockholders of Fresh Fields Markets, Inc.(2)
5 -- Opinion of Crouch & Hallett, L.L.P.(2)
8 -- Opinion of Crouch & Hallett, L.L.P. regarding tax matters described in the Proxy
Statement/Prospectus (2)
23.1 -- Consent of KPMG Peat Marwick LLP(2)
23.2 -- Consent of Coopers & Lybrand L.L.P.(2)
23.3 -- Consent of Crouch & Hallett, L.L.P. (included in opinion filed as Exhibit 5 hereto)
24 -- Power of Attorney (2)
99.1 -- Form of Whole Foods Market, Inc. Proxy for Special Meeting(1)
</TABLE>
- ------------------------
(1) Filed herewith.
(2) Previously filed.
<PAGE>
EXHIBIT 99.1
PROXY
WHOLE FOODS MARKET, INC.
The undersigned hereby (a) acknowledges receipt of the Notice of the
Special Meeting of Shareholders of Whole Foods Market, Inc. (the "Company")
to be held on August 30, 1996, at 10:00 a.m., local time, and the Proxy
Statement/Prospectus in connection therewith, and (b) appoints John Mackey
and Glenda Flanagan, and each of them, his proxies with full power of
substitution and revocation, for and in the name, place and stead of the
undersigned, to vote upon and act with respect to all of the shares of Common
Stock of the Company standing in the name of the undersigned or with respect
to which the undersigned is entitled to vote and act at such meeting or at
any adjournment thereof, and the undersigned directs that his proxy be voted
as follows:
PROPOSAL TO APPROVE THE MERGER OF A WHOLLY OWNED SUBSIDIARY OF THE COMPANY
INTO FRESH FIELDS MARKETS, INC. AND THE RELATED AGREEMENT AND PLAN OF MERGER.
/ / FOR / / AGAINST / / ABSTAIN
PROPOSAL TO APPROVE THE AMENDMENT TO THE ARTICLES OF INCORPORATION OF THE
COMPANY TO INCREASE THE AUTHORIZED NUMBER OF SHARES OF THE COMPANY'S COMMON
STOCK FROM 30 MILLION TO 50 MILLION.
/ / FOR / / AGAINST / / ABSTAIN
PROPOSAL TO APPROVE THE AMENDMENT TO THE 1992 STOCK OPTION PLAN FOR TEAM
MEMBERS.
/ / FOR / / AGAINST / / ABSTAIN
<PAGE>
If more than one of the proxies listed on the reverse side shall be
present in person or by substitute at the meeting or any adjournment thereof,
the majority of said proxies so present and voting, either in person or by
substitute, shall exercise all of the powers hereby given.
THIS PROXY WILL BE VOTED AS SPECIFIED ON THE REVERSE SIDE. IF NO
SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED FOR THE NAMED PROPOSALS.
The undersigned hereby revokes any proxy or proxies heretofore given to
vote upon or act with respect to such stock and hereby ratifies and confirms
all that said proxies, their substitutes, or any of them, may lawfully do by
virtue hereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE
COMPANY.
Dated:
--------------------------------
--------------------------------------
Signature
--------------------------------------
(Signature if held jointly)
Please date the proxy and sign your
name exactly as it appears hereon.
Where there is more than one owner,
each should sign. When signing as an
attorney, administrator, executor,
guardian or trustee, please add your
title as such. If executed by a
corporation, the proxy should be signed
by a duly authorized officer. Please
sign the proxy and return it promptly
whether or not you expect to attend the
meeting. You may nevertheless vote in
person if you do attend.
