<PAGE>
As Filed With the Securities and Exchange Commission on December 10, 1997
Registration No. 333-40305
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Post-Effective Amendment No. 1
to
Form S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Wild Oats Markets, Inc.
(Exact name of registrant as specified in its charter)
Delaware 84-1100630
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
1645 Broadway
Boulder, Colorado 80302
(303) 440-5220
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
Michael C. Gilliland
Chief Executive Officer
WILD OATS MARKETS, INC.
1645 Broadway
Boulder, Colorado 80302
(303) 440-5220
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to
Francis R. Wheeler, Esq. Therese A. Mrozek, Esq.
HOLME ROBERTS & OWEN, LLP BROBECK, PHLEGER & HARRISON LLP
1700 Lincoln Street, Suite 4100 Two Embarcadero Place
Denver, Colorado 80203 2200 Geng Road
(303) 861-7000 Palo Alto, California 94303
(415) 424-0160
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the Registration Statement becomes effective.
---------------------------
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 that 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>
PROSPECTUS
SUBJECT TO COMPLETION, DECEMBER 10, 1997
1,550,188 SHARES
[LOGO OF WILD OATS MARKETS, INC. APPEARS HERE]
WILD OATS MARKETS, INC.
COMMON STOCK
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Of the 1,550,188 shares of Common Stock, par value $.001 per share (the
"Common Stock"), being offered hereby, 1,200,000 shares are being sold by Wild
Oats Markets, Inc. ("Wild Oats" or the "Company") and 350,188 shares are being
sold by the Selling Stockholders (as defined herein). See "Principal and
Selling Stockholders." The Company will not receive any of the proceeds from
the sale of Common Stock by the Selling Stockholders.
The Common Stock is traded on the Nasdaq National Market under the symbol
"OATS." On November 19, 1997 the last reported sale price of the Common Stock
on the Nasdaq National Market was $39.50 per share. See "Price Range of Common
Stock."
--------
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK
OFFERED HEREBY.
--------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
================================================================================
<TABLE>
<CAPTION>
UNDERWRITING DISCOUNTS PROCEEDS TO PROCEEDS TO
PRICE TO PUBLIC AND COMMISSIONS(1) COMPANY(2) SELLING STOCKHOLDERS(2)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share...................... $ $ $ $
- -------------------------------------------------------------------------------------------------------------
Total(3)....................... $ $ $ $
=============================================================================================================
</TABLE>
(1) For information concerning indemnification of the Underwriters, see
"Underwriting."
(2) Before deducting expenses of this offering, estimated at $300,000, payable
by the Company.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 232,528 additional shares of Common Stock, solely to cover over-
allotments, if any. See "Underwriting." If such option is exercised in
full, the total Price to Public, Underwriting Discounts and Commissions and
Proceeds to Company will be $ , $ , and $ respectively.
--------
The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if accepted by them and
subject to certain conditions. It is expected that the certificates for the
shares of Common Stock offered hereby will be available for delivery on or
about , 1997, at the offices of Smith Barney Inc., 333 West 34th Street,
New York, New York 10001.
--------
SALOMON SMITH BARNEY
PAINEWEBBER INCORPORATED
PIPER JAFFRAY INC.
DAIN BOSWORTH INCORPORATED
, 1997
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>
[PHOTOGRAPHS]
Nine photographs, including two pictures of exterior store fronts, six pictures
of store interiors and one picture of fruit.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVERALLOTMENT, ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS, AND IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus or incorporated herein by
reference. Except as otherwise specified, all information in this Prospectus
(i) assumes no exercise of the Underwriters' over-allotment option and (ii)
does not reflect a 3-for-2 stock split of the Company's Common Stock, payable
on January 7, 1998, to holders of record on December 22, 1997. Unless otherwise
indicated, references herein to fiscal years of the Company are to the
Company's 52- or 53-week fiscal year, which ends on the Saturday nearest to
December 31 of each year. This Prospectus contains forward-looking statements
which involve risks and uncertainties. See "Risk Factors" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Cautionary Statement Regarding Forward-Looking Statements" for a discussion of
certain risks and their potential impact on the forward-looking statements
contained herein.
THE COMPANY
Wild Oats Markets, Inc. ("Wild Oats" or the "Company") is the second largest
natural foods supermarket chain in North America. The Company currently
operates 51 stores in 12 states: Arizona, California, Colorado, Florida,
Illinois, Kansas, Missouri, Nevada, New Mexico, Oregon, Tennessee and Utah; and
British Columbia, Canada.
According to The Natural Foods Merchandiser, growth in the natural foods
industry has accelerated from a 15% increase in sales in 1992 to a 25% increase
in 1996, representing a compound annual growth rate of 21% from $5.3 billion in
1992 to $11.5 billion in 1996. The Company believes that this growth reflects a
broadening of the natural foods consumer base which is being propelled by
several factors including healthier eating patterns, increasing concern
regarding food purity and safety, and greater environmental awareness. Wild
Oats believes it has developed a differentiated concept that provides this
expanding consumer base with an attractive one-stop, full-service shopping
alternative to both conventional supermarkets and traditional health food
stores.
Since acquiring its first natural foods store in 1987, Wild Oats has pursued
an aggressive growth strategy. The Company has grown from nine natural foods
stores located primarily in Colorado at the end of 1992 to 40 stores in eight
states and Canada at the end of 1996, representing a compound annual growth
rate of 45%. The Company's sales increased from $36.6 million in 1992 to $192.5
million in 1996, representing a compound annual growth rate of 51%. The
Company's annual sales increased 95% in 1996 to $192.5 million and 75% in the
first nine months of 1997 to $226.4 million.
The Company's growth has been driven by the acquisition of independent and
small chain natural foods store operators, the opening of new stores and
positive comparable store sales growth. In 1996, Wild Oats acquired 13 stores,
including 10 stores owned by Alfalfa's, Inc. ("Alfalfa's"), and opened seven
new stores. In the first nine months of 1997, the Company acquired an
additional nine natural foods stores and opened two new stores. As a result of
the Company's aggressive growth, the Company has increased its penetration of
existing markets, entered new geographic markets and created a stronger
platform for future growth. Since the beginning of 1996, the Company has
successfully entered a number of new regions, including Arizona, Florida,
Oregon, Tennessee and Utah. The Company believes its growth has resulted in
operating efficiencies created by: (i) warehousing, distribution and
administrative economies of scale; (ii) improved merchandise buying terms as a
result of the Company's larger size; and (iii) coordinated merchandising and
marketing strategies. See "Recent Acquisitions and New Store Openings."
Wild Oats stores range in size from 5,000 to 35,000 square feet and feature
between 10,000 and 25,000 stock-keeping units ("SKUs") of natural and gourmet
foods and related products in virtually every product category found in a
conventional supermarket. The Company's strict quality standards require
products to be minimally processed, free of preservatives, artificial colors
and chemical additives, and not tested on animals.
3
<PAGE>
The Company emphasizes unique products not typically found in conventional
supermarkets and tailors the product mix to meet the preferences of the local
market. In addition, the Company has implemented a "down to earth" competitive
price program which offers high quality, all-natural items in each product
category at prices competitive with those of similar items in conventional
supermarkets.
Each Wild Oats store strives to create a fun, friendly and educational store
environment that makes grocery shopping enjoyable and encourages shoppers to
spend more time in the store and to purchase new products. The Company trains
its store staff to educate customers as to the benefits and quality of its
products and prominently features educational brochures, newsletters and an in-
store information department. In addition, many of the stores offer cafe
seating areas, espresso and fresh juice bars, in-store nutritional
consultations and in-store massage therapists, all of which emphasize the
comfortable and relaxed nature of the Wild Oats shopping experience. The
Company also seeks to engender customer loyalty by demonstrating its high
degree of commitment to the local community through on-going programs which
provide significant monetary and in-kind contributions to local not-for-profit
organizations.
Wild Oats plans to open or acquire 11 stores in 1998. The Company intends to
continue its national expansion strategy by increasing penetration in existing
markets and expanding into new regions which it believes are currently
underserved by natural foods retailers. The Company believes its flexible store
format strategy, which includes large supermarket format stores and medium-
sized urban format stores, and its store clustering strategy enable it to
increase market penetration, reach a broader customer base, and operate
successfully in a diverse set of markets. The Company periodically evaluates
the location and positioning of its stores and may relocate, consolidate or
close stores from time to time. While the Company believes that most of its
growth will result from new store openings, it continues to evaluate possible
acquisition opportunities in both new and existing markets.
The Company was incorporated in Colorado in 1987 and reincorporated in
Delaware in 1993. In July 1996, in connection with the acquisition of
Alfalfa's, the Company effected a merger into WO Holdings, Inc., a Delaware
corporation, which subsequently changed its name to Wild Oats Markets, Inc. The
Company's executive offices are located at 1645 Broadway, Boulder, Colorado,
and its telephone number is (303) 440-5220.
THE OFFERING
Common Stock offered by the
Company...................... 1,200,000 shares
Common Stock offered by the
Selling Stockholders......... 350,188 shares
Common Stock to be
outstanding after this
offering..................... 8,287,323 shares(1)
Use of Proceeds............... To finance possible future acquisitions, to
fund new store openings and for working capital
and other general corporate purposes. See "Use
of Proceeds."
Nasdaq National Market
symbol....................... OATS
- --------
(1) Based on actual shares of Common Stock outstanding as of October 31, 1997.
Excludes 637,772 shares of Common Stock issuable upon exercise of options
outstanding under the Company's equity incentive and stock option plans (of
which 258,308 shares were vested as of such date), 185,659 shares reserved
for issuance pursuant to the Company's equity incentive and stock option
plans, 3,513 shares of Common Stock reserved for issuance upon exercise of
outstanding warrants and 127,692 shares reserved for issuance under the
Company's employee stock purchase plan. Also excludes shares of Common
Stock which may be issued pursuant to a contingent payment obligation
incurred by the Company in connection with the acquisition of two stores in
early 1997. The weighted average exercise prices of the Company's
outstanding stock options and warrants were $16.36 and $21.32 per share,
respectively. See "Capitalization."
4
<PAGE>
SUMMARY FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT OPERATING AND PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR NINE MONTHS ENDED
--------------------------------------------- ------------------------------
SEPTEMBER 28, SEPTEMBER 27,
1992 1993 1994 1995 1996(1) 1996 1997
-------- ------- ------- ------- -------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Sales................... $36,638 $47,266 $65,219 $98,517 $192,493 $129,132 $226,361
Cost of goods sold and
occupancy costs........ 25,056 32,344 44,637 67,164 130,957 88,035 156,448
-------- ------- ------- ------- -------- -------- --------
Gross profit............ 11,582 14,922 20,582 31,353 61,536 41,097 69,913
Direct store expenses... 8,723 11,007 15,685 25,072 48,317 32,252 52,252
-------- ------- ------- ------- -------- -------- --------
Store contribution...... 2,859 3,915 4,897 6,281 13,219 8,845 17,661
Selling, general and
administrative
expenses............... 1,049 1,824 2,317 4,465 8,977 5,614 8,939
Pre-opening expenses.... 650 416 1,037 1,763 1,244 329
Nonrecurring
expenses(2)............ 7,035 7,297
-------- ------- ------- ------- -------- -------- --------
Income (loss) from
operations............. 1,160 1,675 2,580 779 (4,556) (5,310) 8,393
Interest expense
(income), net.......... 151 350 373 363 904 888 (215)
-------- ------- ------- ------- -------- -------- --------
Income (loss) before
income taxes........... 1,009 1,325 2,207 416 (5,460) (6,198) 8,608
Income tax expense
(benefit)(3)........... 393 521 880 40 (977) (1,295) 3,543
-------- ------- ------- ------- -------- -------- --------
Net income (loss)(3).... $ 616 $ 804 $ 1,327 $ 376 $ (4,483) $ (4,903) $ 5,065
======== ======= ======= ======= ======== ======== ========
Net income per common
share.................. $ 0.71
========
Unaudited pro forma net
income (loss) per
common share(4)........ $ 0.10 $ (0.92)(2) $ (1.14)(2)
======= ======== ========
Weighted average number
of common shares
outstanding............ 7,159
========
Unaudited pro forma
weighted average number
of common shares
outstanding(4)......... 3,864 4,890 4,308
======= ======== ========
SELECTED OPERATING DATA:
Number of stores at end
of period.............. 9 11 14 21 40 38 51
Average square feet per
store.................. 11,800 11,200 11,800 13,700 14,700 15,100 15,000
Average sales per square
foot(5)................ $ 434 $ 383 $ 435 $ 464 $ 463 $ 453 $ 439
Comparable store sales
increase(6)............ 13% 5% 13% 7% 2% 0% 5%
<CAPTION>
AS OF FISCAL YEAR END SEPTEMBER 27, 1997
--------------------------------------------- ------------------------------
1992 1993 1994 1995 1996 ACTUAL AS ADJUSTED(7)
-------- ------- ------- ------- -------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital
(deficit).............. $ (1,400) $ (292) $ 3,278 $ 474 $ 9,932 $ (3,128) $ 41,602
Total assets............ 6,763 9,873 24,053 38,376 107,057 121,081 165,811
Long-term debt
(including capitalized
leases)................ 1,446 2,494 3,078 13,302 971 1,351 1,351
Redeemable convertible
preferred stock........ 2,164 15,018 16,956
Stockholders' equity
(deficit).............. 1,301 (358) (2,645) (4,209) 77,783 85,617 130,347
</TABLE>
- --------
(1) In 1996, the Company acquired the operations of 13 natural foods stores,
including 10 stores owned by Alfalfa's.
(2) In 1996, the Company recorded $7.0 million in nonrecurring expenses as a
result of the Alfalfa's acquisition. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations." Excluding
nonrecurring expenses, unaudited pro forma net income per common share
would have been $0.17 in 1996 and $0.13 for the nine months ended September
28, 1996.
(3) On July 3, 1993, Wild Oats changed its corporate status from an S
corporation to a C corporation. Income tax expense and net income for 1992
and 1993 are shown pro forma to reflect income taxes for Wild Oats as if it
had been a C corporation for all periods presented.
(4) Unaudited pro forma net income (loss) per common share was computed
assuming conversion of all outstanding shares of preferred stock into
Common Stock, which occurred upon the completion of the Company's initial
public offering on October 22, 1996.
(5) Average sales per square foot is calculated by dividing total sales by the
weighted average gross square footage of stores open during the period.
(6) Sales of a store are deemed to be comparable commencing in the thirteenth
full month of operations for both new and acquired stores.
(7) As adjusted to give effect to the sale by the Company of 1,200,000 shares
of Common Stock offered hereby at an assumed public offering price of
$39.50 per share (the last reported sale price on November 19, 1997) and
after deducting the estimated underwriting discounts and offering expenses
payable by the Company. See "Use of Proceeds" and "Capitalization."
5
<PAGE>
RISK FACTORS
An investment in the Common Stock being offered hereby involves a high
degree of risk. In addition to other information contained in this Prospectus
or incorporated herein by reference, prospective investors should carefully
consider the following risk factors before purchasing any of the Common Stock
offered hereby. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Cautionary Statement Regarding Forward-
Looking Statements."
UNCERTAIN ABILITY TO EXECUTE GROWTH STRATEGY
The Company's business has grown considerably in size and geographic scope,
increasing from nine stores located primarily in Colorado in 1992, to its
current size of 51 stores in 12 states and Canada. Year-to-date 1997, the
Company has acquired nine natural foods stores, opened three stores and
relocated one store. The Company anticipates opening one additional new store
in the remainder of 1997. During 1996, the Company opened seven stores,
including one store originally scheduled to open in 1997, and acquired 13
stores. The Company also anticipates that it may acquire one or more operating
natural foods grocery stores during the remainder of 1997. The Company's
ability to implement its growth strategy depends to a significant degree upon
its ability to open or acquire stores in existing and new markets and to
integrate and operate those stores profitably. While the Company plans to
expand primarily through the opening of new stores, it will continue to pursue
acquisitions of natural foods retailers where attractive opportunities exist.
The Company's growth strategy is dependent upon a number of factors, including
its ability to: (i) access adequate capital resources; (ii) expand into
regions where it has no operating experience; (iii) identify markets that meet
its site selection criteria; (iv) locate suitable store sites and negotiate
acceptable lease terms; (v) locate acquisition targets and negotiate
acceptable acquisition terms; (vi) hire, train and integrate management and
store employees; (vii) recruit, train and retain regional pre-opening and
support teams; and (viii) expand its distribution and other operating systems.
In addition, the Company pursues a strategy of clustering stores in each of
its markets to increase overall sales, achieve operating efficiencies and
further penetrate markets. In the past, when the Company has opened a store in
a market where it had an existing presence, the Company has experienced a
decline in the sales and operating results at certain of its existing stores
in these markets. The Company intends to continue to pursue its store
clustering strategy and expects the sales and operating result trends for
other stores in an expanded market to continue to experience temporary
declines related to the clustering of stores. Further, acquisitions involve a
number of additional risks, such as short-term negative effects on the
Company's reported operating results, diversion of management's attention,
unanticipated problems or legal liabilities, and the integration of
potentially dissimilar operations, some or all of which could have a material
adverse effect on the Company's business, results of operations and financial
condition. There can be no assurance that the Company will achieve its planned
expansion in existing markets, enter new markets, or operate or integrate its
existing, newly-opened or newly-acquired stores profitably. If the Company
fails to do so, the Company's business, results of operations and financial
condition will be materially and adversely affected. In addition, the
Company's ability to execute its growth strategy is partially dependent upon
the demographic trends and market conditions in the natural foods industry and
any change in those trends and conditions could adversely affect the Company's
future growth rate.
FLUCTUATIONS IN FINANCIAL RESULTS
The Company's results of operations may fluctuate significantly from
period-to-period as the result of a variety of factors, including: (i) the
number, timing, mix and cost of store openings, acquisitions or closings; (ii)
the ratio of stores opened to stores acquired; (iii) the opening of stores by
the Company or its competitors in markets where the Company has existing
stores; (iv) comparable store sales results; and (v) the ratio of urban format
to supermarket format stores. The Company incurs significant pre-opening
expenses and new stores typically experience an initial period of operating
losses. As a result, the opening of a significant number of stores in a single
period will have an adverse effect on the Company's results of operations. For
example, the Company's profitability was lower in 1995 and 1996, due in part
to the opening of a significantly larger number of stores in 1995 and 1996
than in previous years. Due to the foregoing factors, the Company believes
that period-to-period comparisons of its operating results are not necessarily
meaningful and that such comparisons cannot be relied upon as indicators of
future financial performance.
A variety of factors affect the Company's comparable store sales results,
including, among others, the relative proportion of new stores to mature
stores, the opening of stores by the Company or its competitors in
6
<PAGE>
markets where the Company has existing stores, the timing of promotional
events, the Company's ability to execute its operating strategy effectively,
changes in consumer preferences for natural foods and general economic
conditions. Past increases in comparable store sales may not be indicative of
future performance. Comparable store sales results in 1996 were negatively
affected by planned cannibalization (the loss of sales at an existing store
when the Company opens a new store nearby) resulting from the implementation
of the Company's store clustering strategy. Comparable store sales for the
Company's Colorado and Canadian stores were negatively affected in the second
quarter of 1997 resulting from strikes at the Company's major conventional
competitors in those markets in the second quarter of 1996, which resulted in
increased sales in that quarter at the Company's stores in those markets.
There can be no assurance that comparable store sales for any particular
period will not decrease in the future. As a result, following this offering,
the Company's comparable store sales could cause the price of the Common Stock
to fluctuate substantially. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
POSSIBLE INABILITY TO MANAGE GROWTH
The Company's business has grown considerably in size and geographic scope,
increasing from nine stores located primarily in Colorado in 1992, to its
current size of 51 stores in 12 states and Canada. The Company's continued
growth may place a significant strain on the Company's management,
distribution capabilities, working capital, and financial and management
control systems. In order for the Company to manage its expanding store base
successfully, management will be required to anticipate the changing demands
of the Company's growing operations and to adapt systems and procedures
accordingly. There can be no assurance that the Company will anticipate all of
the changing demands that its expanding operations will impose on such
systems. To support its planned store growth, the Company will be required to
hire and train a greater number of store managers and store employees than it
has in the past, and there can be no assurance that the training and
supervision of a larger number of employees will not adversely affect the
performance of the Company's stores or the levels of customer service that the
Company seeks to maintain in such stores. The Company will also need to
continually evaluate the adequacy of its management information systems,
including its accounting, pricing, inventory control and distribution systems.
Currently, certain important functions, including certain store-level
accounting and inventory management systems, are processed manually. There can
be no assurance that the Company's current systems will be adequate for its
future needs, or that the Company will be successful in implementing new
systems. The Company is currently upgrading its point of sale, merchandise
management and accounting software, as well as implementing a wide area
network to establish on-line data communications between the Company's
corporate office and its stores. Failure to successfully complete these
upgrades or unexpected difficulties encountered with these systems could
adversely affect the Company's business, financial condition and results of
operations. The Company's inability to manage growth effectively could have a
material adverse effect on the Company's business, results of operations and
financial condition. See "Business--Management Information Systems."
COMPETITION
The Company's competitors currently include other independent and multi-
unit natural foods supermarkets, smaller traditional natural foods stores,
conventional supermarkets and specialty grocery stores. A number of other
natural foods supermarkets offer a range of natural foods products similar to
those offered in the Company's stores. While certain conventional
supermarkets, smaller traditional natural foods stores and small specialty
stores do not offer as full a range of products as the Company, they do
compete with Wild Oats in one or more product categories. Many of the
Company's competitors have been in business longer and have greater financial
or marketing resources than the Company and may be able to devote greater
resources to securing suitable locations and to the sourcing, promotion and
sale of their products. In addition, should any of the Company's competitors
reduce prices, the Company may be required to implement price reductions in
order to remain competitive, which could have an adverse impact on its
business, financial condition and results of operations. As Wild Oats enters
new geographic markets, its success will depend in part on its ability to gain
market share from established competitors. In addition, traditional and
specialty grocery stores may expand more aggressively in marketing a broader
range of natural foods and related products and thereby compete directly with
the Company for products, customers and locations. The Company expects
competition from both new and existing competitors to increase in its markets,
and there can be no assurance that the Company will be able to compete
effectively in the future. The Company believes its primary competitor in the
natural foods grocery store market is Whole Foods Market, Inc. ("Whole
Foods"), a publicly-traded company based in Texas. Whole Foods
7
<PAGE>
has signed a lease for a 39,000 square-foot store in Boulder, Colorado, the
location of the Company's headquarters and three of its stores. The Whole
Foods Boulder store is projected to open in January 1998, and at this time the
Company cannot evaluate what, if any, impact increased competition from Whole
Foods will have on its overall sales. The Company's Boulder, Colorado stores
account for less than 10% of the Company's overall sales revenues. Whole
Foods' management also has announced that it intends to seek additional store
sites in other cities in which the Company has stores. If Whole Foods is
successful in opening stores in locations in which the Company has or intends
to open stores, the Company's sales and operating results at such stores may
be materially adversely affected. See "Business--Competition."
DEPENDENCE ON KEY PERSONNEL
The Company believes that its continued success will depend to a
significant extent upon the leadership and performance of Michael C.
Gilliland, Wild Oats' co-founder and the Chief Executive Officer of the
Company, and James Lee, the President and Chief Operating Officer of the
Company. The loss of the services of Mr. Gilliland, Mr. Lee or other of the
Company's key personnel could have a material adverse effect upon the Company.
There can be no assurance that the Company will be able to attract and retain
qualified employees. See "Management."
POSSIBLE DISRUPTIONS OF PRODUCT SUPPLY
The Company's business is dependent on its ability to source products from
a small number of distributors and from a large number of relatively small
vendors on a timely basis and at competitive prices. Based on its previous
purchasing patterns, the Company anticipates that it will continue to purchase
approximately 25% of its products through one wholesale distributor. The
Company has no supply contracts with these parties and any vendor or
distributor could discontinue selling to the Company at any time. Any
disruption in its product supply could have a material adverse effect on its
results of operations. In addition, even where the Company has access to
alternative sources of supply, the failure of a vendor or distributor to meet
the Company's demands may temporarily disrupt store-level merchandise
selection. See "Business--Purchasing and Distribution."
OWNERSHIP AND SALE OF REAL PROPERTY
In the fourth quarter of 1996 and in 1997, the Company purchased, or
entered into contracts to purchase, four parcels of real property for the
construction of new stores or the relocation of existing stores. The Company
intends to construct three new stores on real property purchased by the
Company or subject to a ground lease acquired by the Company. There can be no
assurance that the Company will be successful in constructing the planned
stores within the Company's projected budgets or on the schedules currently
anticipated. Failure to complete these projects on time or within budget could
have a material adverse impact on the Company's business, results of
operations and financial condition. The Company anticipates that after
construction of the stores on the acquired properties is completed, it will
sell the land and buildings in one or more sale and leaseback transactions
under which the Company will lease the stores from the purchaser of the
property. There can be no assurance that the Company will be successful in
locating and negotiating acceptable transactions with one or more parties for
the sale and leaseback of the properties currently owned by the Company, which
may result in unplanned long-term uses of the Company's cash that would
otherwise be available to fund operations. See "Business--Properties."
GOVERNMENT REGULATION
The Company is subject to numerous federal, state and local laws,
regulations and ordinances regulating health and sanitation standards, food
labeling and handling, equal employment, minimum wages and licensing for the
sale of food and alcoholic beverages. Difficulties or failures in complying
with these regulations could adversely affect the operations of an existing
store or delay the opening of a new store.
In addition, from time to time, various federal, state and local
legislative and regulatory proposals are made to, among other things, increase
the minimum wage payable to employees, establish minimum store security
requirements and increase taxes on the retail sale of certain products.
Changes to such laws, regulations or ordinances may adversely affect the
Company's performance by increasing the Company's costs or affecting
8
<PAGE>
its sales of certain products. Federal legislation raising the minimum wage in
the future may increase the Company's employee costs and adversely affect the
Company's profitability.
Safety concerns arising from the recall in 1996 of certain fresh juices
sold nationwide because of bacterial contamination may result in additional
governmental regulations regarding the preparation or sale of unprocessed or
minimally processed foods. Such regulations could have an adverse impact on
the Company's ability to offer certain products for sale. Product recalls or
additional government regulation also may erode customer confidence in the
safety of products carried by the Company, resulting in adverse impacts on
sales.
The Company also sells nutritional supplements, some of which are subject
to regulation by several federal, state and local agencies. There can be no
assurance that such agencies will not enact regulations that could have an
adverse effect on the Company's business, results of operations and financial
condition. In addition, recent legislation has required manufacturers of
nutritional supplements to label ingredients in their products. Such
legislation could be enacted in the future which may adversely affect the
Company's results of operations.
NEW MEXICO ANTI-TRUST PROCEEDINGS
In February 1996, Wild Oats received a Civil Investigative Demand and
Request for Production of Documents from the New Mexico Attorney General's
office alleging possible violations of New Mexico's anti-trust laws as a
result of the acquisition of Alfalfa's. The focus of the investigation is on
the effect, if any, of the acquisition on competition in New Mexico. In May
1996, the Company received a letter from the New Mexico Attorney General's
office indicating that it would recommend that Wild Oats divest one of its
three stores in Santa Fe, New Mexico in connection with the acquisition. The
Company replied, refuting the Attorney General's claim but has not received a
response from the Attorney General's office. The Attorney General's office has
not taken any legal action with respect to the acquisition. The Company
believes that the acquisition complies with federal and state anti-trust law
and will continue to vigorously defend its position in New Mexico. However,
there can be no assurance that the state of New Mexico will not take legal
action with respect to the acquisition, including, but not limited to,
demanding the divestiture of one or more stores in the Santa Fe market to a
competitor of the Company. If the Attorney General of New Mexico elects to
take legal action and is successful, such a result could have a material
adverse effect on the Company's business, results of operations and financial
condition.
POTENTIAL VOLATILITY OF STOCK PRICE; NO DIVIDENDS
The market price of the shares of Common Stock could be subject to
significant fluctuations in response to the Company's operating results and
other factors, including announcements by its competitors. In addition, the
stock market in recent years has experienced extreme price and volume
fluctuations that often have been unrelated or disproportionate to the
operating performance of companies. These fluctuations, as well as a shortfall
in sales or earnings compared to public market analysts' expectations, changes
in analysts' recommendations or projections, and general economic and market
conditions, may adversely affect the market price of the Common Stock. The
Company has never paid any cash dividends and does not anticipate paying cash
dividends in the foreseeable future. See "Dividend Policy."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock in the public
market following this offering could adversely affect the market price for the
Company's Common Stock. The number of shares of Common Stock available for
sale in the public market is limited by restrictions under the Securities Act
of 1933, as amended (the "Securities Act"), and by lock-up agreements in
connection with this offering, pursuant to which the Company's executive
officers, directors, the Selling Stockholders (except Edward Burns) and one
other stockholder have entered into agreements with Smith Barney Inc. (the
"Lock-Up Agreements") not to sell or otherwise dispose of any of their shares
of the Company's Common Stock for 90 days following completion of this
offering. Smith Barney Inc. may, however, in its sole discretion at any time
and without notice, release all or any portion of the securities subject to
Lock-Up Agreements.
Upon completion of this offering, the Company will have outstanding
8,287,323 shares of Common Stock, based on actual shares of Common Stock
outstanding as of October 31, 1997. Of these shares 4,307,632
9
<PAGE>
shares (including the 1,680,000 shares sold in the Company's initial public
offering and the 1,550,188 shares sold in this offering) will be available for
immediate sale following the completion of this offering; 481,508 shares will
be eligible for immediate sale following the completion of this offering
pursuant to Rule 701 or Rule 144 under the Securities Act ("Rule 701" and
"Rule 144," respectively) (subject in certain cases to the volume limitations
of Rule 144); 51,007 shares will become eligible for sale on February 23, 1998
pursuant to Rule 144 (subject in certain cases to the volume limitations of
Rule 144); and the remaining 3,447,176 shares will become eligible for sale 90
days after the completion of this offering upon expiration of the Lock-Up
Agreements pursuant to Rule 701 or Rule 144 (subject in certain cases to the
volume limitations of Rule 144).
In addition, the Company has filed a registration statement on Form S-8
with the Securities and Exchange Commission (the "Commission") registering an
aggregate of 951,123 shares of Common Stock reserved for issuance under the
Company's equity incentive and stock option plans and employee stock purchase
plan. Of such shares, 119,783 shares subject to vested outstanding stock
options will be eligible for immediate sale following the completion of this
offering and 65,075 shares subject to vested outstanding options are subject
to the Lock-Up Agreements and will be eligible for sale upon expiration of the
Lock-Up Agreements. The 127,692 shares reserved under the Company's employee
stock purchase plan will be eligible for sale upon issuance, unless issued to
a stockholder who has entered into a Lock-Up Agreement. In addition, the
holders of approximately 3,430,594 shares of Common Stock outstanding have
certain rights to require the Company to register those shares under the
Securities Act. If such holders, by exercising their demand registration
rights, cause a large number of shares to be registered and sold in the public
market, such sales could have a material adverse effect on the market price
for the Company's Common Stock. If the Company were required to include in a
Company-initiated registration shares held by such holders pursuant to the
exercise of their piggyback registration rights, such sales may have an
adverse effect on the Company's ability to raise needed capital.
ANTI-TAKEOVER CONSIDERATIONS
The Company's Certificate of Incorporation and Bylaws contain provisions
which may have the effect of delaying, deferring or preventing a change in
control of the Company, may discourage bids for the Common Stock at a premium
over the market price of the Common Stock and may adversely affect the market
price of the Common Stock and the voting and other rights of the holders of
the Common Stock. These provisions include, but are not limited to, a
classified Board of Directors and the authority of the Board of Directors to
issue up to 5,000,000 shares of preferred stock and to fix the price, rights,
preferences, privileges and restrictions, including voting rights, of those
shares without further vote or action by the stockholders. The rights of the
holders of Common Stock will be subject to, and may be adversely affected by,
the rights of the holders of any preferred stock that may be issued in the
future. The Company has no present plans to issue shares of preferred stock.
In addition, certain provisions of Delaware law applicable to the Company
could have the effect of discouraging certain attempts to acquire the Company
which could deprive the Company's stockholders of the opportunities to sell
their shares of Common Stock at prices higher than prevailing market prices.
CONTROL BY OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS
Following completion of this offering, directors, executive officers and
principal stockholders of the Company, and certain of their affiliates, will
beneficially own approximately 37.6% of the outstanding shares of Common
Stock. Accordingly, these persons, individually and as a group, will be able
to effectively control the Company and direct its affairs and business,
including any determination with respect to the acquisition or disposition of
assets by the Company, future issuances of Common Stock or other securities by
the Company, declaration of dividends in the Common Stock and the election of
directors. Such concentration of ownership may also have the effect of
delaying, deferring or preventing a change in control of the Company.
Pursuant to an agreement between the Company and certain investors, certain
parties holding an aggregate of 3,465,087 shares of Common Stock have agreed
that, under certain circumstances, they will vote their shares in favor of
electing nominees of certain investors to the Board of Directors and to the
Audit and Compensation Committees of the Board.
10
<PAGE>
RECENT ACQUISITIONS AND NEW STORE OPENINGS
The Company has pursued an aggressive growth strategy since acquiring its
first natural foods stores in 1987. The Company has grown from nine natural
foods stores located principally in Colorado at the end of 1992 to 51 stores
in 12 states and Canada as of the date of this Prospectus. Acquisitions have
primarily been structured on a cash-for-assets basis, with a few exceptions.
To date, all of the Company's acquisitions have been accounted for using the
purchase method, resulting in goodwill which is amortized on a straight-line
basis over 40 years. Year-to-date in 1997, the Company has acquired nine
natural foods stores, opened three new stores and relocated one existing
store, and anticipates that it will open one additional new store in the
remainder of 1997.
1997 ACQUISITIONS AND OPENINGS TO DATE
Acquisitions. In February 1997, the Company acquired the assets of two
natural foods stores located in Boca Raton and West Palm Beach, Florida,
operating under the name "Wholly Harvest Market." The stores are 12,800 and
10,000 square feet, respectively. The stores have been remodeled and are now
being operated under the name "Wild Oats Community Market."
In March 1997, the Company acquired the assets of two "Oasis Fine Foods"
natural foods stores located in Eugene, Oregon, and two "Squash Blossom
Market" stores located in Memphis, Tennessee. The stores range in size from
10,400 to 26,500 square feet. The Company has remodeled and renamed the Squash
Blossom stores "Wild Oats Community Market," but plans to continue to operate
the Oregon stores under the "Oasis Fine Foods" name.
In June 1997, the Company acquired the assets of three natural foods stores
located in Phoenix and Scottsdale, Arizona, operating under the name "Reay's
Ranch Market." The stores range in size from 18,000 to 26,000 square feet. In
November 1997, the Company relocated the Scottsdale store. All of the stores
have been renamed "Wild Oats Community Market."
1997 New Store Openings. Year-to-date in 1997, the Company has opened three
stores: (i) a 12,300 square foot store in Sacramento, California in March;
(ii) a 12,900 square foot store in Laguna Beach, California in September; and
(iii) a 25,000 square foot store in Buffalo Grove, Illinois in November; and
relocated its Scottsdale, Arizona store to a new 28,600 square foot facility
in November. The Company plans to open a 25,000 square foot store in West
Denver in December 1997.
1996 ACQUISITIONS AND OPENINGS
Alfalfa's Acquisition. In July 1996, Wild Oats acquired Alfalfa's, a
leading natural foods supermarket chain headquartered in Boulder, Colorado.
Prior to the acquisition, Alfalfa's was a privately-owned company that
operated 10 stores, including seven Alfalfa's stores in Colorado and New
Mexico and three Capers stores in British Columbia, Canada. The Alfalfa's and
Capers stores range in size from 6,200 to 25,000 square feet and offer a broad
selection of natural and gourmet foods and related products. Subsequent to the
acquisition, the Company closed the Alfalfa's Seattle, Washington store.
Management has substantially completed the integration of Alfalfa's
operations into Wild Oats, including: (i) the consolidation and relocation of
the Company's corporate headquarters; (ii) the incorporation of the best
practices of both companies across certain store-level departments,
particularly in the areas of perishables and natural living; (iii) the
creation and implementation of a single marketing and private label strategy;
and (iv) the implementation of combined point-of-sale and pricing information
systems. In connection with the acquisition, the Company recorded goodwill of
approximately $27.8 million which is being amortized on a straight-line basis
over 40 years. The Company continues to operate existing Alfalfa's stores
under their current names and new stores primarily under the name "Wild Oats
Community Market."
Salt Lake City Acquisition. In June 1996, the Company acquired the assets
of three natural foods stores ranging in size from 7,000 to 10,000 square feet
and operating as New Frontiers in Salt Lake City, Utah. All of these stores
have been remodeled and renamed "Wild Oats Community Market."
New Store Openings. In 1996, the Company opened seven stores: (i) a 14,000
square foot store in West Hollywood, California in February; (ii) a 9,000
square foot store in San Francisco, California in April; (iii) a
11
<PAGE>
23,500 square foot store in Mission Viejo, California in May; (iv) a 25,000
square foot store in St. Louis, Missouri in August; (v) a 7,900 square foot
store in West Los Angeles, California in September; (vi) a 24,000 square foot
store in Sunnyvale, California in November; and (vii) a 24,000 square foot
store in Fort Lauderdale, Florida in November. The Company subsequently closed
the San Francisco store in October 1997.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,200,000 shares of
Common Stock offered by the Company hereby are estimated to be $44.7 million
($53.5 million if the Underwriters' over-allotment option is exercised in
full), assuming a public offering price of $39.50 per share and after
deducting the estimated underwriting discounts and offering expenses payable
by the Company. The net proceeds will be used to finance possible future
acquisitions, to fund new store openings and for working capital and general
corporate purposes. The Company has currently identified and is negotiating
with several potential acquisition candidates, although the Company has no
present commitments or agreements with respect to any such acquisitions. If
such negotiations result in executed agreements for the acquisition of stores,
the net proceeds from this offering may be used to consummate such
acquisitions. Pending such uses, the net proceeds of this offering will be
invested in short-term, interest-bearing securities. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources" and "Business--Growth Strategy."
The Company will not receive any proceeds from the sale of the 350,188
shares of Common Stock offered by the Selling Stockholders. See "Principal and
Selling Stockholders."
DIVIDEND POLICY
The Company currently intends to retain any future earnings to finance the
growth and development of its business and therefore does not anticipate
paying any cash dividends in the foreseeable future. The payment of any future
dividends will be at the discretion of the Company's Board of Directors and
will depend upon, among other things, the future earnings, operations, capital
requirements and financial condition of the Company. In addition, the
Company's $40.0 million revolving line of credit (the "Revolving Line")
contains various financial covenants which restrict, among other things, the
Company's ability to pay dividends. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is presently traded on the Nasdaq National
Market under the symbol "OATS." The following table sets forth, for the
periods indicated, the high and low sales prices for the Common Stock, as
quoted on the Nasdaq National Market. Prior to October 22, 1996 there was no
public market in the Company's stock.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
FISCAL YEAR ENDED DECEMBER 28, 1996:
Fourth Quarter (from October 22, 1996)...................... $27.00 $18.00
FISCAL YEAR ENDED DECEMBER 27, 1997:
First Quarter............................................... 19.50 12.875
Second Quarter.............................................. 28.625 13.875
Third Quarter............................................... 31.50 22.125
Fourth Quarter (through November 19, 1997).................. 43.50 29.00
</TABLE>
As of October 31, 1997, there were 253 holders of record of the Company's
Common Stock. On November 19, 1997, the last reported sale price for the
Company's Common Stock on the Nasdaq National Market was $39.50 per share.
12
<PAGE>
CAPITALIZATION
The following table sets forth as of September 27, 1997, the current debt
and capitalized lease obligations as well as the capitalization of the Company
(i) on an actual basis, and (ii) on an as adjusted basis to give effect to the
sale of the 1,200,000 shares of Common Stock being offered by the Company
hereby as described under "Use of Proceeds," and the application of the
estimated net proceeds therefrom.
<TABLE>
<CAPTION>
SEPTEMBER 27, 1997
--------------------
AS
ACTUAL ADJUSTED
-------- ----------
(IN THOUSANDS)
<S> <C> <C>
Notes payable and current portion of long-term debt,
including capitalized lease obligations.................. $ 35 $ 35
======== =========
Long-term debt, including capitalized lease obligations... $ 1,351 $ 1,351
Stockholders' equity(1):
Common stock, $.001 par value, 20,000,000 shares
authorized, 7,071,763 shares issued and outstanding,
actual; and 8,271,763 shares issued and outstanding, as
adjusted............................................... 7 8
Additional paid-in capital.............................. 89,239 133,968
Accumulated deficit..................................... (3,545) (3,545)
Foreign currency translation adjustment................. (84) (84)
-------- ---------
Total stockholders' equity............................ 85,617 130,347
-------- ---------
Total capitalization................................ $ 87,003 $ 131,733
======== =========
</TABLE>
- --------
(1) Based on actual shares of Common Stock outstanding as of September 27,
1997. Excludes 649,992 shares of Common Stock issuable upon exercise of
options outstanding under the Company's equity incentive and stock option
plans (of which 250,727 shares were vested as of such date), 173,439
shares reserved for issuance pursuant to the Company's equity incentive
and stock option plans, 3,513 shares of Common Stock reserved for issuance
upon exercise of outstanding warrants and 127,692 shares reserved for
issuance under the Company's employee stock purchase plan. Also excludes
shares of Common Stock which may be issued pursuant to a contingent
payment obligation incurred by the Company in connection with the
acquisition of two stores in early 1997. The weighted average exercise
prices of the Company's outstanding stock options and warrants were $15.97
and $21.32 per share, respectively.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BACKGROUND
The Company has pursued an aggressive growth strategy since acquiring its
first natural foods stores in 1987. The Company has grown from nine natural
foods stores located principally in Colorado at the end of 1992 to 51 stores
in 12 states and Canada as of the date of this Prospectus.
Store Openings and Acquisitions. Year-to-date in 1997, the Company has (i)
acquired nine stores, three in Phoenix and Scottsdale, Arizona, two in south
Florida, two in Eugene, Oregon, and two in Memphis, Tennessee; (ii) opened
three new stores in Sacramento and Laguna Beach, California and Buffalo Grove,
Illinois, and (iii) relocated one store in Scottsdale, Arizona. The Company
plans to open one additional new store in West Denver, Colorado in the
remainder of 1997. The Company anticipates that it also may acquire one or
more operating natural foods grocery stores during the remainder of 1997. The
Company's results of operations have been and will continue to be affected by,
among other things, the number, timing and mix of store openings, acquisitions
or closings. New stores build their sales volumes and refine their merchandise
selection gradually and, as a result, generally have lower gross margins and
higher operating expenses as a percentage of sales than more mature stores.
The Company anticipates that the new stores opened in 1997 will experience
operating losses for the first six to 12 months of operation, in accordance
with historic trends. Further, acquired stores, while generally profitable as
of the acquisition date, generate lower gross margins and store contribution
margins than the Company average, due to their substantially lower volume
purchase discounts. Over time, typically six months, as the Company sells
through the acquired inventories and implements its volume purchase discounts,
the Company expects that the gross margin and store contribution margin of the
acquired stores will approach the Company average. The Company anticipates
that a high concentration of acquired stores, such as in the first nine months
of 1997, will have a temporary negative impact on the Company's consolidated
gross margin and store contribution margin. The Company will continue to
evaluate the profitability of all its stores on an ongoing basis and may, from
time to time, make decisions regarding relocations, remodels or closures in
accordance with such evaluations. As part of this strategy, in the fourth
quarter of 1997, the Company closed one store and relocated one store.
Store Format and Clustering Strategy. The Company operates two store
formats: supermarket and urban. The supermarket format is generally 15,000 to
35,000 square feet, and typically generates higher sales and store
contribution than the 5,000 to 15,000 square-foot urban format stores. The
Company's results of operations have been and will continue to be affected by
the mix of supermarket and urban format stores opened or acquired and whether
stores are being opened in markets where the Company has an existing presence.
The Company expects to focus primarily on opening or acquiring supermarket
format stores in the future but will consider additional urban stores when
appropriate opportunities exist. In addition, the Company pursues a strategy
of clustering stores in each of its markets to increase overall sales, achieve
operating efficiencies and further penetrate markets. The Company believes
this strategy has resulted in increased overall sales in each of its markets.
In the past, when the Company has opened a store in a market where it had an
existing presence, the Company has experienced a decline in the sales and
operating results at certain of its existing stores in that market. However,
over time, the Company believes the affected stores generally will achieve
store contribution margins comparable to prior levels on the lower base of
sales. The Company intends to continue to pursue its store clustering strategy
and expects the sales and operating results trends for other stores in an
expanded market to continue to experience temporary declines related to the
clustering of stores.
Comparable Store Sales Results. Sales of a store are deemed to be
comparable commencing in the thirteenth full month of operations for both new
and acquired stores. A variety of factors affect the Company's comparable
store sales results, including, among others, the relative proportion of new
stores to mature stores, the opening of stores by the Company or its
competitors in markets where the Company has existing stores, the timing of
promotional events, the Company's ability to execute its operating strategy
effectively, changes in consumer preferences for natural foods and general
economic conditions. Past increases in comparable store sales may not be
indicative of future performance.
Pre-Opening Expenses. Pre-opening expenses include labor, rent, utilities,
supplies and certain other costs incurred prior to a store's opening. The
costs are accrued during the pre-opening period and are expensed
14
<PAGE>
in full when the store opens. Pre-opening expenses have averaged approximately
$250,000 per store over the past 18 months, although the amount per store may
vary depending on the store format and whether the store is the first to be
opened in a market, or is part of a cluster of stores in that market.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated, certain selected
income statement data expressed as a percentage of sales:
<TABLE>
<CAPTION>
FISCAL YEAR NINE MONTHS ENDED
------------------- ---------------------------
SEPTEMBER 28, SEPTEMBER 27,
1994 1995 1996 1996 1997
----- ----- ----- ------------- -------------
<S> <C> <C> <C> <C> <C>
Sales........................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold and
occupancy costs............. 68.4 68.2 68.0 68.2 69.1
----- ----- ----- ----- -----
Gross profit................. 31.6 31.8 32.0 31.8 30.9
Direct store expenses........ 24.0 25.4 25.1 25.0 23.1
----- ----- ----- ----- -----
Store contribution........... 7.6 6.4 6.9 6.8 7.8
Selling, general and
administrative expenses..... 3.5 4.4 4.7 4.3 4.0
Pre-opening expenses......... 1.1 0.9 1.0 0.1
Nonrecurring expenses........ 3.7 5.7
----- ----- ----- ----- -----
Income (loss) from
operations.................. 4.1 0.9 (2.4) (4.2) 3.7
Interest expense (income),
net......................... 0.6 0.4 0.4 0.7 (0.1)
----- ----- ----- ----- -----
Income (loss) before income
taxes....................... 3.5 0.5 (2.8) (4.9) 3.8
Income tax expense (benefit). 1.4 (0.5) (1.0) 1.6
----- ----- ----- ----- -----
Net income (loss)............ 2.1% 0.5% (2.3)% (3.9)% 2.2%
===== ===== ===== ===== =====
</TABLE>
NINE MONTHS ENDED SEPTEMBER 27, 1997 AND SEPTEMBER 28, 1996
Sales. Sales for the nine months ended September 27, 1997 increased 75.3%
to $226.4 million from $129.1 million for the same period in 1996. The
increase was primarily due to the acquisition of nine stores and the opening
of two new stores in the first nine months of 1997, as well as the inclusion
of the 13 stores acquired and seven new stores opened in 1996. Comparable
store sales increased 5% for the nine months then ended, based on both new and
acquired stores that have been operating longer than 12 months. The comparable
store sales increase for the nine months includes a comparison against
significant sales increases in the Company's Colorado and Vancouver, British
Columbia store bases in the second quarter of 1996 resulting from a strike at
conventional supermarkets in those regions. Exclusive of the strike
comparison, comparable stores sales increased 6% for the nine months.
Gross Profit. Gross profit for the nine months ended September 27, 1997
increased 70.1% to $69.9 million from $41.1 million for the same period in
1996. The increase in gross profit is primarily attributable to the
acquisition of nine stores and the opening of two new stores during the first
nine months of 1997, as well as the inclusion of the 13 stores acquired and
seven new stores opened in 1996. Gross profit as a percentage of sales for the
nine months ended September 27, 1997 decreased to 30.9% from 31.8% for the
same period in 1996. The decrease is attributable to lower initial gross
margins contributed by the nine stores acquired and the two new stores opened
in the nine months, as well as pricing discounts related to the Company's
expanded product promotion program begun in the first quarter of 1997. The
Company expects this lower gross margin trend to continue for the remainder of
1997.
Direct Store Expenses. Direct store expenses for the nine months ended
September 27, 1997 increased 62.0% to $52.3 million from $32.3 million for the
same period in 1996. The increase in direct store expenses is attributable to
the increase in the number of stores operated by the Company. Direct store
expenses as a percentage of sales for the nine months ended September 27, 1997
decreased to 23.1% from 25.0% for the same period in 1996. The decrease is due
to the matured performance of the new stores opened in 1996, as well as
greater leverage of payroll and certain fixed costs over higher sales volumes.
15
<PAGE>
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the nine months ended September 27, 1997 increased
59.2% to $8.9 million from $5.6 million for the same period in 1996. The
increase is the result of the additional central and regional support staff
and infrastructure that the Company has added to support its increased number
of stores. For the nine months ended September 27, 1997, selling, general and
administrative expenses as a percentage of sales decreased to 4.0% from 4.3%
as compared to the same period in 1996. The decrease is the result of the
reduction of certain marketing expenses as well as greater leverage of
overhead expenses over higher sales volumes.
Pre-Opening Expenses. Pre-opening expenses for the nine months ended
September 27, 1997 decreased 73.6% to $329,000 from $1.2 million for the same
period in 1996. The decrease is attributed to the opening of two new stores in
the first nine months of 1997 as compared to the opening of five new stores in
the same period in 1996.
Interest Expense (Income), Net. Net interest income for the nine months
ended September 27, 1997 increased to $215,000 from $888,000 of net interest
expense for the same period in 1996. The change is attributable to the
investment of the net proceeds from the Company's initial public offering in
October 1996 and to the repayment of substantially all of the Company's long-
term debt.
FISCAL 1996 COMPARED TO FISCAL 1995
Sales. Sales for the fiscal year ended December 28, 1996 increased 95.4% to
$192.5 million from $98.5 million in 1995. The increase was primarily due to
the acquisition of the 10 Alfalfa's stores, the acquisition of three stores in
Salt Lake City, Utah, the opening of seven new Wild Oats Markets stores, and
the reporting of a full year of operations for the five new stores opened in
1995. Comparable store sales were 1.5% for 1996, as compared to 7.4% for 1995
and contributed $1.6 million to the increase in sales. Comparable store sales
results for the fiscal year ended December 28, 1996, were negatively affected
primarily by planned cannibalization (the loss of sales at an existing store
when the Company opens a new store nearby) resulting from the implementation
of the Company's store-clustering strategy. See "Risk Factors--Uncertain
Ability to Execute Growth Strategy" and "--Fluctuations in Financial Results."
Gross Profit. Gross profit for the fiscal year ended December 28, 1996,
increased 96.3% to $61.5 million from $31.3 million in 1995. The increase in
gross profit on a dollar basis is primarily attributable to the acquisition of
10 Alfalfa's stores and the opening of new stores. There was no material
change in gross profit as a percentage of sales during the fiscal year.
Direct Store Expenses. Direct store expenses for the fiscal year ended
December 28, 1996, increased 92.7% to $48.3 million from $25.1 million in
1995. The increase in direct store expenses is attributable to the increase in
the number of stores operated by the Company. As a percentage of sales, direct
store expenses decreased to 25.1% from 25.4% in the same period in 1995 due to
the matured performance of the new stores opened in 1995.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the fiscal year ended December 28, 1996, increased
101.1% to $9.0 million from $4.5 million in 1995. The increase is primarily
attributable to the acquisition of Alfalfa's and the opening of seven new
stores during 1996. For the fiscal year, selling, general and administrative
expenses as a percentage of sales increased to 4.7% from 4.4% in 1995 as a
result of combining and then beginning the consolidation of the overhead
structure of Alfalfa's.
Pre-Opening Expenses. Pre-opening expenses for the fiscal year ended
December 28, 1996 increased 70.0% to $1.8 million from $1.0 million in 1995.
The increase in pre-opening expenses is attributable to an increase in the
number of new stores opened (seven in 1996, as compared to five in 1995), as
well as to increased costs for travel for pre-opening arrangements and staff
training for those stores opened in new or less-developed geographic regions.
Interest Expense (Income), Net. Net interest expense for the fiscal year
ended December 28, 1996, increased 149.0% to $904,000 from $363,000 in 1995.
The increase is attributable to the higher levels of indebtedness incurred to
fund store openings and acquisitions.
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<PAGE>
Nonrecurring Expenses. During late August 1996, the Company performed a
thorough analysis of its operations subsequent to the acquisition of Alfalfa's
and made certain decisions relating to its operations which resulted in a $7.0
million nonrecurring charge being recorded, of which $5.7 million were non-
cash write-offs. The charge is attributable to (i) closing the Wild Oats
Community Market in Lawrence, Kansas, resulting in approximately $800,000 in
lease-cancellation costs and asset write-offs, as well as closing a regional
bakery and kitchen resulting in approximately $200,000 in asset write-offs and
lease adjustment costs; (ii) moving out of the Company's existing corporate
headquarters and relocating to the former Alfalfa's corporate headquarters,
resulting in approximately $700,000 in lease-cancellation costs, relocation
costs and asset write-offs; and (iii) consolidating certain information
systems resulting in approximately $300,000 in asset write-offs. In addition,
after operating the combined companies, management closed the Alfalfa's
Seattle, Washington store, resulting in approximately $4.5 million of
severance costs, lease-cancellation costs and asset write-offs, and a
restaurant in a Vancouver, British Columbia, Capers store, resulting in
approximately $500,000 of severance costs, lease-cancellation costs and asset
write-offs. At the time of the Alfalfa's acquisition, the Company had planned
to retain the Seattle store and Vancouver restaurant operation. The Company
believes that closing the two stores did not have a material effect on the
Company's future operating results.
FISCAL 1995 COMPARED TO FISCAL 1994
Sales. Sales in 1995 increased 51.1% to $98.5 million from $65.2 million in
1994. This increase was primarily due to the opening of five stores and the
acquisition of two additional stores in 1995, and also to reporting a full
year of operations for two stores which had been open for only part of 1994.
Comparable store sales increased 7.4% in 1995 as compared to 12.5% for 1994
and accounted for $5.3 million of the increase in sales. Wild Oats believes
comparable store sales results were negatively affected in the second half of
1995 by the entry of a competitor into the Santa Fe, New Mexico, market, as
well as by planned cannibalization of existing stores sales in Albuquerque,
New Mexico, Denver, Colorado, and Kansas City, Missouri.
Gross Profit. Gross profit in 1995 increased 52.3% to $31.3 million from
$20.6 million in 1994. As a percentage of sales, gross profit increased
slightly to 31.8% in 1995 from 31.6% in 1994. Both merchandise gross profit
and occupancy costs remained relatively flat as a percentage of sales in 1995,
reflecting operating efficiencies at mature stores which were offset by lower
merchandise margins and higher occupancy costs as a percentage of sales at the
five stores opened in 1995 and the Company's Santa Fe, New Mexico, stores.
Direct Store Expenses. Direct store expenses in 1995 increased 59.8% to
$25.1 million from $15.7 million in 1994. This increase was primarily due to
expenses of five stores opened and two stores acquired in 1995 and to
reporting of a full year of operations for two stores which had been open for
only part of 1994. As a percentage of sales, direct store expenses increased
to 25.4% in 1995 from 24.0% in 1994, primarily due to higher expenses as a
percentage of sales at the five stores opened in 1995.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 92.7% to $4.5 million in 1995 from $2.3
million in 1994. As a percentage of sales, selling, general and administrative
expenses increased to 4.4% in 1995 from 3.5% in 1994 due to the addition of
central and regional support staff to support store growth and expansion into
new geographic markets.
Pre-Opening Expenses. Wild Oats incurred $1.0 million in pre-opening
expenses in 1995 related to the five stores that opened during the year. No
pre-opening expenses were incurred in 1994 as pre-opening expenses for the one
store opened in January 1994 were expensed in December 1993 since the store
was ready to open at that time.
Interest Expense (Income), Net. Net interest expense in 1995 decreased 2.7%
to $363,000 from $373,000 in 1994 as a result of lower average levels of
indebtedness.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of capital have been cash flow from
operations, trade payables, bank indebtedness, and the sale of equity
securities. Primary uses of cash have been the financing of new store
development, the purchase of real property, new store openings and
acquisitions.
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Net cash provided by operating activities was $14.6 million during the nine
months ended September 27, 1997 and $6.5 million during the comparable period
in 1996. Cash provided by operating activities increased during this period
primarily as a result of increases in net income before depreciation expense,
offset by decreases in trade payables due to accelerated payments on certain
accounts to take advantage of payment discounts. Net cash provided by
operating activities was $9.5 million during 1996 and $4.6 million during
1995. Net income decreased during 1996 as compared to 1995, but cash provided
by operating activities increased during this period primarily as a result of
non-cash asset write-offs, an increase in depreciation and amortization
expense related to assets acquired during 1996, an increase in accrued
liabilities related to the nonrecurring expenses during the period and an
increase in trade payables related to new store openings for which the Company
typically receives extended payment terms from vendors. The Company has not
required significant external financing to support inventory requirements at
its existing and new stores because it has been able to rely on vendor
financing for most of the inventory costs, and anticipates that vendor
financing will continue to be available for new store openings.
Net cash used by investing activities was $26.2 million during the nine
months ended September 27, 1997 as compared to $22.3 million during the
comparable period in 1996. The increase is due to the acquisition of nine
stores and the opening of two new stores during the first nine months of 1997,
as well as the construction costs incurred for new stores in development which
are expected to open later in 1997 and in the first half of 1998. Net cash
used by investing activities was $27.3 million during 1996 as compared to
$17.0 million during 1995 due to the Alfalfa's acquisition, other minor
acquisitions and the opening of seven new stores during 1996.
Net cash provided by financing activities was $1.4 million during the nine
months ended September 27, 1997 and $18.0 million during the comparable period
in 1996. The decrease results from the Company funding its growth with the
proceeds of its October 1996 initial public offering of common stock, rather
than reliance on bank debt. Net cash provided by financing activities was
$33.1 million during 1996 and $7.2 million during 1995. The increase is due to
net proceeds of $31.4 million from the sale of 1.4 million shares of the
Company's common stock during its initial public offering in October 1996 and
net proceeds of $16.5 million from the July 1996 sale of Series E convertible
preferred stock, the proceeds of which were used to fund a portion of the
purchase price of Alfalfa's.
On April 15, 1997, the Company increased its Revolving Line to $40.0
million from $20.0 million. The facility has a seven-year term and bears
interest, at the Company's option, at the prime rate or LIBOR plus 1.25%. The
Revolving Line agreement includes certain financial and other covenants, as
well as restrictions on payments of dividends. As of November 13, 1997, there
was $1.0 million outstanding under this facility.
The Company anticipates that it will spend approximately $30 million
(inclusive of acquisitions) during 1997, and approximately $25 million
(exclusive of acquisitions) during 1998 for new store construction,
development, remodels and maintenance capital expenditures. The Company's
average capital expenditures to open a store, including leasehold
improvements, equipment and fixtures, have ranged from approximately $1.0
million to $2.0 million over the past 24 months, excluding inventory costs and
initial operating losses. The Company expects to increase the average size of
its new stores and increase the number of its new store openings over time,
and is using a greater proportion of new and custom equipment in its stores.
This may result in an increase in the Company's average capital expenditures
per new store as early as the fourth quarter of 1997. The cost of initial
inventory for a new store has historically been approximately $500,000;
however, the Company relies on vendor financing for most of this cost. Pre-
opening costs are approximately $250,000 per store and are expensed when the
new store opens. The amounts and timing of such pre-opening costs will depend
upon the availability of new store sites and other factors, including the
location of the store and whether it is in a new or existing market for the
Company, the size of the store, and the required build-out at the site. Costs
to acquire future stores, if any, are impossible to predict and could vary
materially from the cost to open new stores or the purchase prices of previous
acquisitions.
The Company believes that the net proceeds of this offering, together with
cash generated from operations and funds available under the Revolving Line
will be sufficient to satisfy its cash requirements, exclusive of
acquisitions, through fiscal 1998.
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Prospectus, including statements contained in
the Prospectus Summary, under the captions "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business" and elsewhere in this Prospectus constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995, that involve known and unknown risks. Such forward-looking statements
include, without limitation, statements as to the Company's plans to acquire
or open additional stores, the anticipated performance of new or acquired
stores and other statements containing the words "believes," "anticipates,"
"estimates," "expects," "may," "intends" and words of similar import or
statements of managements' opinion. These forward-looking statements and
assumptions involve known and unknown risks, uncertainties and other factors
that may cause the actual results, market performance or achievements of the
Company to differ materially from any future results, performance or
achievements expressed or implied by such forward-looking statements.
Important factors that could cause such differences include, but are not
limited to, changes in economic or business conditions in general or affecting
the natural foods industry in particular, changes in product supply, changes
in the competitive environment in which the Company operates, the availability
of sites for new stores and potential acquisition candidates, changes in the
Company's management information needs, changes in customer needs and
expectations and governmental actions.
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BUSINESS
INTRODUCTION
Wild Oats is the second largest natural foods supermarket chain in North
America. As of the date of this Prospectus, the Company operates 51 stores
under the names "Wild Oats Community Markets," "Alfalfa's Markets" and "Oasis
Fine Foods" in 12 states: Arizona, California, Colorado, Florida, Illinois,
Kansas, Missouri, Nevada, New Mexico, Oregon, Tennessee and Utah and under the
name "Capers Whole Foods Markets" in British Columbia, Canada. The Company is
dedicated to providing a broad selection of high quality natural and gourmet
foods and related products at "down to earth" competitive prices in an
inviting and educational store environment emphasizing customer service. The
Company's stores range in size from 5,000 to 35,000 square feet and feature
natural alternatives in virtually every product category found in conventional
supermarkets, providing consumers with a one-stop, full-service shopping
alternative to both conventional supermarkets and traditional health food
stores.
Since acquiring its first natural foods store in 1987, Wild Oats has
pursued an aggressive growth strategy. The Company has grown from nine natural
foods stores located primarily in Colorado at the end of 1992 to 40 stores in
eight states and Canada at the end of 1996, representing a compound annual
growth rate of 45%. The Company's sales increased from $36.6 million in 1992
to $192.5 million in 1996, representing a compound annual growth rate of 51%.
The Company's annual sales increased 95% in 1996 to $192.5 million and 75% in
the first nine months of 1997 to $226.4 million.
The Company's growth has been driven by the acquisition of independent and
small chain natural foods store operators, the opening of new stores and
positive comparable store sales growth. In 1996, Wild Oats acquired 13 stores,
including 10 stores owned by Alfalfa's and opened seven new stores. In the
first nine months of 1997, the Company acquired an additional nine natural
foods stores and opened two new stores. As a result of the Company's
aggressive growth, the Company has increased its penetration of existing
markets, entered new geographic markets and created a stronger platform for
future growth. Since the beginning of 1996, the Company has successfully
entered a number of new regions, including Arizona, Florida, Oregon, Tennessee
and Utah. The Company believes its growth has resulted in operating
efficiencies created by: (i) warehousing, distribution and administrative
economies of scale; (ii) improved merchandise buying terms as a result of the
Company's larger size; and (iii) coordinated merchandising and marketing
strategies.
NATURAL FOODS INDUSTRY
Natural foods are defined as foods which are minimally processed, free of
artificial ingredients, preservatives and other non-naturally occurring
chemicals and, in general, are as near to their whole, natural state as
possible. Most natural products fall into the food category, but the natural
foods industry also encompasses a number of other categories such as
naturally-based cosmetics, toiletries and personal care items, vitamins and
herbal supplements, naturally-based cleaning agents, and natural and
homeopathic medicines. While sales growth in the traditional supermarket
industry remained relatively flat, from 1992 to 1996, the natural foods
industry grew at a 21% compound annual growth rate. According to The Natural
Foods Merchandiser, a leading industry publication, growth in the natural
foods industry has accelerated from a 15% increase in sales in 1992 to a 25%
increase in 1996, when the market reached $11.5 billion. The Company believes
that this growth reflects a broadening of the natural foods consumer base
which is being propelled by several factors, including healthier eating
patterns, increasing concern regarding food purity and safety, and greater
environmental awareness. While natural products generally have higher costs of
production and correspondingly higher retail prices, the Company believes that
a growing segment of the population now attributes added value to high quality
natural products and is willing to pay a premium for such products. Indeed,
while early growth in the industry was attributed to more educated, wealthier
consumers, there is increasing evidence that the mainstream consumer is
driving much of the recent growth. Further, according to industry data, the
natural foods industry comprises less than 3% of the total supermarket
industry, allowing for significant potential to continue to expand the
customer base.
Traditional natural foods stores, offering only vitamins, dietary
supplements, herbs and a limited selection of natural foods product lines,
first emerged over 50 years ago. Over the years, as consumer demand for
natural foods has increased, the number of natural foods stores has grown and
the product mix has expanded. More distributors and vendors have entered the
natural foods industry and many more natural products have become available.
In response to increasing supply and demand, larger format natural foods
stores have emerged, offering
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virtually every product category found in a conventional supermarket,
including grocery, produce, meat, poultry, seafood, dairy, frozen, deli,
bakery, health and body care and household items. Today natural foods stores
offer a one-stop, full-service grocery shopping alternative to conventional
supermarkets and appeal to a broader, more mainstream customer base than the
traditional natural foods store.
The Company believes that the appeal of natural foods supermarkets is based
on the quality of the total shopping experience. Many natural foods stores
develop a personal relationship with their customers because there is
typically more interaction between the customer and the store staff than in a
conventional supermarket. The Company believes that conventional supermarkets
historically have had only limited success in competing in the natural foods
segment because they are largely dependent on national brands. As a result,
while conventional supermarkets may carry a limited selection of natural foods
products, it is difficult for them to duplicate the inventory of natural foods
stores which carry a more comprehensive selection of natural products sourced
from a large number of independent vendors.
The natural foods industry is highly fragmented. According to The Natural
Foods Merchandiser, there were approximately 6,700 independent natural/health
foods stores in 1996, and management believes that only 12% of these stores
were full-service, natural foods stores (defined as stores having a minimum of
8,000 square feet and generating at least 40% of their sales from food.) The
Company believes that the two largest natural foods retailers (Wild Oats and
Whole Foods) represented approximately 10% of the total natural foods dollars
spent by consumers in 1996. There has been considerable consolidation in the
industry as natural foods supermarket chains have acquired smaller independent
competitors. The Company believes natural foods supermarkets, with their
extensive product offerings and broad customer appeal, will continue to lead
the overall growth and consolidation in the natural foods industry.
OPERATING STRATEGY
The Company's objective is to become the grocery store of choice both for
natural foods shoppers and quality-conscious consumers in each of its markets
by emphasizing the following key elements of its operating strategy:
Destination Format. The Company's stores are one-stop, full-service
supermarkets for customers seeking high quality natural and gourmet foods and
related products. In most of its stores, the Company offers between 10,000 and
25,000 SKUs of natural products in virtually every product category found in a
conventional supermarket. The Company's stores carry a much broader selection
of natural and gourmet foods and related products than those offered by
typical independent natural foods stores or conventional supermarkets.
High Quality, Unique Products. The Company seeks to offer the highest
quality products throughout its merchandise categories and emphasizes unique
products and brands not typically found in conventional supermarkets. The
Company's strict quality standards require products to be minimally processed,
free of preservatives, artificial colors and chemical additives, and not
tested on animals. Each store tailors its product mix to meet the preference
of the local market, in particular sourcing produce from local organic growers
whenever possible. The Company also operates regional commissary kitchens and
bakeries that provide its stores with fresh bakery items and a unique
assortment of prepared foods for the quality and health-conscious consumer.
Educational and Entertaining Store Environment. At Wild Oats, shopping is
"theater." Each store strives to create a fun, friendly and educational
environment that makes grocery shopping enjoyable and encourages shoppers to
spend more time in the store and to purchase new products. In order to enhance
customers' understanding of natural foods and how to prepare them, the Company
trains its store staff to educate customers as to the benefits and quality of
its products and prominently features educational brochures and newsletters as
well as an in-store consumer information department. In addition, many stores
offer cafe seating areas, espresso and fresh juice bars, and in-store massage
therapists, all of which emphasize the comfortable, relaxed nature of the
shopping experience. The Company believes its knowledgeable store staff and
high ratio of store staff to customers results in significantly higher levels
of customer service than in a conventional supermarket.
Extensive Community Involvement. The Company seeks to engender customer
loyalty by demonstrating its high degree of commitment to the local community.
In addition to the Company's national charitable
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contributions, each store makes significant monetary and in-kind contributions
to local not-for-profit organizations through programs such as "5% Days,"
where each store donates 5% of its gross sales one day each month to a local
not-for-profit group, and a "Charity Work Benefit" where the Company pays
employees for time spent working for local charities.
Flexible Store Format. The Company's flexible store format enables it to
customize its stores to specific site characteristics and to meet the unique
needs of a variety of markets. The Company's supermarket format stores are
adapted in size and product selection to suburban markets and its urban format
stores are designed to appeal in size and product selection to more densely
populated urban markets. The Company believes that this flexible store format
strategy allows it to operate successfully in a diverse set of markets,
enabling it to reach a broader customer base and increase market penetration.
Competitive Pricing. The Company seeks to offer products at prices which
are at or below those of other natural foods stores. The Company has
implemented a "down to earth" competitive price program designed to ensure
that high quality, all natural items in each product category are offered at
prices that are competitive with those offered on similar items in
conventional supermarkets. The Company believes these pricing programs broaden
its consumer appeal and encourage its customers to fill more of their shopping
needs at the Company's stores.
Motivated Staff. The Company has developed a unique culture by encouraging
active participation and communication among all staff members, advocating
store-level participation in a variety of marketing, merchandising and
operating decisions and rewarding staff based upon the achievement of targeted
store-level sales and other financial performance criteria. In addition, the
Company generally hires individuals dedicated to the concept of natural foods
and a healthy lifestyle. The Company believes that these practices translate
into a satisfied and motivated staff and a high level of customer service.
GROWTH STRATEGY
Wild Oats is the second largest natural foods supermarket chain in North
America. The Company has grown from nine natural foods stores located
primarily in Colorado at the end of 1992 to 51 stores in 12 states and Canada
as of the date of this Prospectus. The Company's growth strategy is to
increase sales and income through: (i) new store expansion; (ii) acquisitions
of existing compatible stores; and (iii) increased sales at existing stores.
The Company plans to open one additional new store in the remainder of 1997
and to open or acquire 11 stores in 1998. The Company intends to continue its
expansion strategy by increasing penetration in existing markets and expanding
into new regions which it believes are currently underserved by natural foods
retailers. While the Company believes that most of its new store expansion
will result from new store openings, it continues to evaluate acquisition
opportunities in both existing and new markets. The Company has currently
identified and is negotiating with several potential acquisition candidates,
although the Company has no present commitments or agreements with respect to
any such acquisitions.
The Company currently has leases signed for 11 new stores and one
relocation as follows:
<TABLE>
<CAPTION>
PROJECTED
SITE NAME OPENING DATE
- --------- ------------
<S> <C>
1. West Denver, CO...... Q41997
2. Tempe, AZ............ 1998
3. Westminster, CO...... 1998
4. Pinecrest, FL........ 1998
5. Denver, CO........... 1998
6. Columbus, OH......... 1998
</TABLE>
<TABLE>
<CAPTION>
PROJECTED
SITE NAME OPENING DATE
- --------- ------------
<S> <C>
7. Kansas City, MO..... 1998
8. Princeton, NJ....... 1998
9. Hinsdale, IL........ 1998
10. Santa Monica, CA.... 1998
11. Kendall, FL......... 1998
12. Ft. Collins, CO*.... 1998
</TABLE>
- --------
* Relocation
New Store Expansion. Year-to-date in 1997, the Company has opened three new
stores in Sacramento and Laguna Beach, California; and Buffalo Grove,
Illinois. In 1996, the Company opened seven new stores in West Hollywood, San
Francisco, Mission Viejo, Los Angeles and Sunnyvale, California; St. Louis,
Missouri; and Fort Lauderdale, Florida. The Company subsequently closed the
San Francisco store in October 1997.
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Acquisitions of Existing Compatible Stores. During the first nine months of
1997, the Company acquired nine natural foods stores: two in Eugene, Oregon;
two in South Florida; two in Memphis, Tennessee; and three in Phoenix and
Scottsdale, Arizona. In 1996, the Company acquired 13 natural foods stores,
including 10 Alfalfa's stores.
Increased Sales at Existing Stores. The Company believes that historical
growth in sales at the Company's existing stores reflects continued strong
growth in the natural foods industry as well as improved execution of the
Company's operating strategy. The Company continually seeks to increase sales
at its existing stores and has undertaken several initiatives designed to
increase comparable store sales. The Company is seeking to attract new
customers, generate repeat business and gradually increase the size of the
average transaction by introducing, expanding and improving key merchandise
categories such as perishables (produce, deli and prepared foods) and private
label products, as well as implementing expanded marketing programs and
expanding customer service.
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STORE LOCATIONS
The following map and store list show the number of stores that the Company
operates in each state and the cities in which the Company's stores are
located as of the date of this Prospectus.
[U.S. MAP APPEARS HERE]
ARIZONA COLORADO ILLINOIS OREGON
Phoenix (2) Aurora Buffalo Grove Eugene (2)
Scottsdale (1) Boulder (3)
Colorado Springs KANSAS TENNESSEE
CALIFORNIA Denver (4) Mission Memphis (2)
Berkeley Fort Collins (2)
Mission Viejo Greenwood Village MISSOURI UTAH
Laguna Beach Littleton Kansas City Salt Lake City (3)
Los Angeles Vail St. Louis
Pasadena BRITISH COLUMBIA,
CANADA
Sacramento FLORIDA NEVADA
San Anselmo Boca Raton Las Vegas (2) Vancouver (2)
Santa Monica Fort Lauderdale West Vancouver
Sunnyvale West Palm Beach NEW MEXICO
West Hollywood Albuquerque (2)
Santa Fe (3)
SITE SELECTION AND STORE FORMAT
Prior to opening or acquiring a store, the Company analyzes the local
market, including: (i) certain demographic data, such as education level,
average income, population density and age distribution; (ii) certain
lifestyle data, such as the levels of cultural awareness, physical exercise,
health consciousness and environmental awareness in the community; and (iii)
the existing competition. In addition to performing internal market analysis,
the Company frequently engages an outside consultant to conduct additional
market studies and validate internal sales forecasts. The Company's flexible
strategy allows it to open stores in a variety of locations and adapt its
store layout and merchandise selection to accommodate specific site
characteristics, regional themes and local cultural traditions. The Company
seeks locations of approximately 15,000 to 35,000 square feet for its
supermarket format stores and generally seeks to be either an anchor tenant in
a regional neighborhood shopping center or a stand-alone store with high
visibility, easy access and plenty of parking. The Company seeks locations of
approximately 5,000 to 15,000 square feet for urban format stores and
generally seeks to be in the commercial district of densely populated
residential areas with convenient parking and a high level of foot traffic.
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When the Company acquires a store, it remodels the store in accordance with
the Company's specifications. These acquired stores remain in operation while
they are being remodeled and, if the stores are to be renamed "Wild Oats
Community Market," they are not renamed until the remodeling is completed. The
timing and cost of the remodel of each store varies depending on the location
of the store and whether it is in a new or existing market for the Company,
the size of the store and the required build-out. The Company typically
requires eight to 16 weeks to remodel a store.
PRODUCTS
The Company offers its customers a broad selection of unique, high-quality
products that are natural alternatives to those found in conventional
supermarkets. The Company typically does not offer well known national brands
and focuses instead on a comprehensive selection of natural products within
each category. Although the core merchandise assortment is similar at each of
the Company's stores, individual stores adapt the product mix to reflect local
and regional preferences. Stores source produce from local organic growers
whenever possible and typically offer a variety of local products unique to
the region. In addition, in certain markets, stores may offer more food
service, gourmet and ethnic items as well as feature more value-added services
such as gift baskets, catering and home delivery, and in other markets, a
store may focus more on bulk foods, produce and staple grocery items. The
Company and its stores regularly introduce new high-quality and locally grown
products in its merchandise selection to minimize overlap with products
carried by conventional supermarkets.
In addition, the Company intends to continue to expand and enhance its
prepared food and in-store cafe environment. The Company believes that
consumers are increasingly seeking convenient, healthy, "ready-to-eat" meals
and that by increasing its commitment to this category it can provide an added
service to its customers, broaden its customer base, and further differentiate
itself from conventional supermarkets and traditional natural foods stores.
Quality Standards. The Company's objective is to offer products which meet
the following standards: free of preservatives, artificial colors, chemical
additives and added hormones; organically grown, whenever possible; minimally
processed; and not tested on animals. The Company continually evaluates new
products, quality issues and controversial ingredients and frequently counsels
store managers on compliance with the Company's strict product standards.
Product Categories. The Company's stores typically feature the following
product categories:
PRODUCT CATEGORY DESCRIPTION
Grocery Pastas, canned goods, cereals, cooking oils, juices,
salad dressings, crackers, chips, pretzels, cookies,
baking items, sodas, bottled waters, and beer and wine in
selected stores. Many products are formulated for special
diets and are identified as fat-free, low-sodium, wheat-
free or dairy-free;
Natural Living Vitamins, supplements, herbs and body care items such as
shampoos, lotions, cosmetics, deodorants, dental care
products, nutritional supplements, herbal tinctures, bulk
herbs and homeopathic remedies as well as a selection of
health-related books and magazines;
Prepared Foods Hot entrees, salads, sushi, wraps, pizza and pasta which
can be taken out or, in the larger stores, eaten in the
store's cafe seating area. Most stores feature full-
service delis as well as espresso and fresh juice bars;
Produce Majority of produce is organically grown, although the
availability varies, and is sourced seasonally from local
organic farmers whenever possible. All produce is clearly
labeled as to whether it was grown organically or
commercially;
Dairy/Frozen Dairy products, both organic and commercial, such as
yogurt, milk, cheese, eggs, soy milk, soy foods, and
fresh juices, and frozen products such as ice cream,
frozen yogurt, entrees, vegetables, desserts, juices,
meat and meat substitutes;
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PRODUCT CATEGORY DESCRIPTION
Meat/Poultry/Seafood Fresh beef, lamb, pork, seafood and free-range poultry,
as well as value-added meat products such as stuffed
peppers, marinated meats and home-made sausages;
Baked Goods Muffins, cakes, breads and pies, which are supplied by
both the Company's bakeries and outside vendors, and
signature items including a proprietary line of private
label gourmet breads;
Bulk Products Generally between 200 and 500 SKUs of bulk products,
including beans, pastas, grains, rice, coffee, granolas,
snacks, nuts, flours, seeds, dried fruits, soaps,
detergents, shampoos and conditioners; and
General Merchandise Environmentally-friendly cleaning compounds, housewares,
kitchen tools, recycled paper products and other natural
household items, as well as selected gift items, such as
natural fiber clothing, greeting cards and decorative
glassware.
Private Label. The natural foods industry is highly fragmented and
characterized by many small independent vendors. As a result, the Company
believes that its customers do not have strong loyalty to particular brands of
natural foods products. In contrast to conventional supermarkets whose private
label products are intended to be low cost alternatives to name-brand
products, the Company has developed a private label program in order to build
brand loyalty to specific products based on its relationship with its
customers and its reputation as a natural foods authority. Through this
program, Wild Oats has successfully introduced a number of high quality,
unique private label products, such as chocolate bars, gourmet breads, salsa,
salad dressings, vitamins, chips, pretzels, tortillas, fresh juices, pasta,
pasta sauces, oils, and canned fruit. The Company intends to continue to
expand its private label product offerings on a selected basis, and
anticipates doubling the number of private label SKUs in the next twelve to
eighteen months.
Pricing. In general, natural and gourmet foods and related products have
higher costs of production and correspondingly higher retail prices than
conventional grocery items. The Company's pricing strategy has been to
maintain prices that are at or below those of its natural foods competitors
while educating its customers as to the higher quality and added value of its
products so as to differentiate them from conventional products. Like most
conventional supermarkets, the Company regularly features dozens of sale
items, including "buy one-get one free" items, that are rotated periodically.
In addition, the Company has an ongoing "down to earth" competitive pricing
program that consistently features a natural foods item in each major product
category at a price that is competitive with or lower than its conventional
equivalent. The Company regularly monitors the prices at its natural foods and
conventional supermarket competitors to ensure its prices remain competitive.
STORE ENVIRONMENT
At Wild Oats, shopping is "theater." Each store strives to create a fun,
friendly and educational environment that makes grocery shopping enjoyable and
encourages shoppers to spend more time in the store and to purchase new
products. In order to enhance customers' understanding of natural foods and
how to prepare them, the Company trains its store staff to educate customers
as to the benefits and quality of its products and prominently features
educational brochures and newsletters as well as an in-store consumer
information department. Product brochures, recipe card areas, food sampling
stations and informational signage are used extensively throughout the store.
Most stores offer cafe seating areas, espresso and fresh juice bars, in-store
nutritional consultants, and in-store massage therapists, all of which
emphasize the comfortable, relaxed nature of the Wild Oats shopping
experience. In addition, each store features a monthly calendar of special
events such as educational presentations, children's events, cooking classes,
live music, prize drawings and dog washes. Certain departments are
remerchandised several times a year according to seasonal themes or different
marketing campaigns, such as Rain Forest Month or Organic Harvest Month. The
stores also sponsor many community-related activities such as presentations on
health and safety as well as fund-raising drives for local organizations. The
Company encourages and receives feedback from its customers through its
suggestion boxes and posts responses on the stores' community bulletin board.
26
<PAGE>
COMPANY CULTURE AND STORE OPERATIONS
Company Culture. The Company's culture is embodied in its "Four Areas of
Responsibility": responsibility to its customers, its staff, its community and
its bottom line. In particular, Wild Oats believes that knowledgeable,
satisfied and motivated staff members have a direct impact on store
performance and overall profitability. Wild Oats encourages active
participation and open communication among all staff members and advocates
store-level participation in a variety of marketing, merchandising and
operating decisions. The Company has made a substantial commitment to staff
education and has created an in-house training program which consists of an
intensive orientation for new hires and mandatory monthly and quarterly
education programs for the general staff. The Company generally hires
individuals dedicated to the concept of natural foods and a healthy lifestyle
and seeks to promote store-level employees to positions of increasing
responsibility.
Management and Employees. The Company's stores are organized into 10
geographic regions, each of which has a regional director who is responsible
for the store operations within his or her region and who reports to the
Company's senior management. The Company's regional directors are responsible
for, and frequently visit, their cluster of stores to monitor financial
performance and ensure adherence to the Company's operating standards. The
typical staff of a Wild Oats store consists of one store manager, ten
department managers and between 25 to 200 additional hourly staff members,
most of whom work full time. Store and department managers are responsible for
the operations of individual stores including recruiting and hiring store
personnel, communicating financial results nightly, coordinating merchandise
ordering, distribution and receiving, and to a limited extent, supplementing
their stores' merchandise mix with regional and other products suited for
their specific market. The accounting department provides a detailed monthly
financial analysis of every department in each store which is reviewed by both
the store and regional managers. The Company maintains a staff of corporate
level department specialists including Natural Living, Prepared Foods,
Produce, Meat/Poultry/Seafood and Grocery coordinators who manage centralized
buying programs and assist in store-level merchandising, pricing and staff
training to ensure Company-wide adherence to product standards and store
concept.
All regional directors and store managers and certain store-level staff
participate in an incentive plan that ties compensation awards to the
achievement of specified store-level sales, profitability and other financial
performance criteria. The Company also seeks to foster enthusiasm and
dedication in its staff members through comprehensive benefits packages
including health insurance and wellness programs as well as an employer
matching 401(k) plan and equity incentive plans.
PURCHASING AND DISTRIBUTION
The Company has a centralized purchasing function which sets product
standards, approves products and negotiates volume purchase discount
arrangements with distributors and vendors. Individual store purchases are
handled through its department managers who make purchasing decisions within
these established parameters. This approach enables each store to customize
its product mix to meet the needs and preferences of its customers while
adhering to the Company's established product standards and allowing each
store to benefit from the Company's volume purchasing discounts.
The wholesale segment of the natural foods industry provides a large and
growing array of product choices across the full range of grocery product
categories. Although the Company purchases products from more than 3,000
suppliers, the Company purchases approximately 25% of its products from a
single wholesale distributor that operates multiple warehouses nationwide. The
Company believes that this distributor is able to service all of the Company's
existing stores as well as most of its future sites. As a result of its rapid
growth, the Company has been able to negotiate greater volume discounts with
this distributor and certain other vendors. The Company has no supply
contracts with these parties and any vendor or distributor could discontinue
selling to the Company at any time. The Company believes that it could develop
alternative sources of supply; however, any such termination may create a
short-term disruption in store-level merchandise selection. See "Risk
Factors--Possible Disruption of Product Supply." The Company is a party to an
interim buying agreement with a distributor in Vancouver, British Columbia,
Canada under which the Company is obligated to purchase certain products from
the distributor for its Canadian stores, provided the purchase price is the
lowest price offered from the Company's various distributors in that region.
Most products are delivered directly to the stores by vendors and
distributors. The Company currently operates a consolidated warehouse facility
in Denver which receives and distributes truck load purchases of
27
<PAGE>
produce and grocery items and distributes products that cannot be delivered
directly to the stores by outside vendors. The Company maintains a small fleet
of local delivery vans and over-the-road trucks. As the Company enters new
markets it will review the need for additional warehouse and distribution
facilities.
The Company operates five commissary kitchens in Santa Fe, New Mexico,
Denver, Colorado, Phoenix, Arizona and Los Angeles and San Francisco,
California as well as a bakery in Denver, Colorado. These facilities produce
deli food, take out food, bakery products and certain private label items
exclusively for sale in the Company's stores. Each kitchen can make daily
deliveries to stores within a hundred mile radius of the facility. The Company
intends to add new kitchens as it expands into new markets.
MARKETING
The Company's marketing programs are primarily focused on in-store customer
education and information. The Company believes that its customers are more
responsive to the quality of the shopping experience, issue-based marketing
and word-of-mouth advertising than to price-based marketing and traditional
media advertising. As a result, the Company focuses on consumer education and
emphasizes the benefits and quality of its products such as the fact that an
item is organic or grown locally. The Company uses a variety of media,
including in-store fliers, newspaper inserts and promotional brochures in
which it promotes the depth of its merchandise selection, benefits of natural
products, and "down to earth" competitive prices, including "buy one-get one
free" and "two for one" pricing promotions. The Company also plans to
introduce the "Wild Shopper Program(TM)," a customer loyalty program that will
give frequent customers discounts on purchases when they use their "Wild
Shopper Card," at its Colorado stores in the fourth quarter of 1997 and, if
such program is well received, nationwide in 1998. When the Company first
enters a new market, the Company executes an intense marketing campaign to
build awareness of its new store and its selection of natural products. After
the initial campaign, this advertising is replaced by the marketing strategies
described above.
The Company's advertising costs historically have been less than 1.5% of
sales. The Company recently introduced a multifaceted promotional program to
its vendors for 1998 which allows for different degrees of promotional
participation and commits vendors to full year expenditures in advance. In
exchange for participation in the Company's new promotional program,
commencing in 1998 vendors will receive access to national advertising
programs, detailed feedback on volume movement and the ability for longer term
production planning.
MANAGEMENT INFORMATION SYSTEMS
The Company's management information systems have been designed to provide
detailed store-level financial data, including sales, gross margin, payroll
and store contribution, to regional and store managers and to the Company's
headquarters on a timely basis. Currently, certain store-level accounting and
inventory management systems are processed manually. The Company purchased a
software system to convert the store level point-of-sale and pricing systems
to one system, and is in the process of implementing such system. The Company
has converted more than half of its stores to the new system and anticipates
that the remaining stores will be converted by the first half of 1998. All new
stores will be using the system going forward. Certain Wild Oats stores are
not currently on an automated point-of-sale and pricing system. The Company is
currently implementing new, faster credit card processing systems Company-wide
to reduce transaction time at the cash register and the cost to the Company of
individual credit card transactions. The Company also has purchased a software
system to track product movement and allow for centralized pricing input to
the stores. These new systems are expected to be operational in all of the
Company's stores by third quarter of 1998. The Company is also in the process
of ensuring that its software systems are year 2000 compliant. The financial
impact to the Company of such compliance is not expected to be material in any
single year. See "Risk Factors--Possible Inability to Manage Growth."
COMPETITION
The Company's competitors currently include other independent and multi-
unit natural foods supermarkets, smaller traditional natural foods stores,
conventional supermarkets and specialty grocery stores. While certain
conventional supermarkets, smaller traditional natural foods stores and small
specialty stores do not offer as full a range of products as the Company, they
do compete with Wild Oats in one or more product
28
<PAGE>
categories. A number of other natural foods supermarkets offer a range of
natural foods products similar to those offered in the Company's stores. The
Company believes that the principal competitive factors in the natural foods
industry include customer service, quality and variety of selection, store
location and convenience, price and store atmosphere. The Company believes
that its primary competitor is Whole Foods, a publicly-traded company based in
Texas which, as of September 28, 1997, had 75 stores and gross annual sales of
approximately $1.1 billion. The Company currently competes with Whole Foods in
California, Florida and Illinois. Whole Foods has signed a lease for a 39,000
square foot store in Boulder, Colorado, where the Company's headquarters and
three of its stores are currently located. The Whole Foods Boulder store is
projected to open in January 1998, and at this time the Company cannot
evaluate what, if any, impact increased competition from Whole Foods will have
on its overall sales. The Company's Boulder, Colorado stores account for less
than 10% of the Company's overall sales revenues. See "Risk Factors--
Competition."
EMPLOYEES
As of September 27, 1997, the Company employed 2,218 full-time individuals
and 1,958 part-time individuals. Approximately 3,961 of the Company's
employees are engaged at the store-level and 215 are devoted to regional
administrative and corporate activities. The Company believes that it
maintains a good relationship with its employees. One small group of employees
at one of its acquired stores was unionized at the time of the store's
acquisition and continues to be unionized. The Company anticipates that in the
future one or more of its stores may be the subject of attempted
organizational campaigns by labor unions representing grocery industry
workers, and that from time to time certain of its stores may be picketed by
local labor unions relating to area wage and benefit standards.
PROPERTIES
The Company currently leases an aggregate of approximately 14,500 square
feet for its corporate offices in Boulder, Colorado. The lease for the
corporate headquarters expires in October 2006 and has a renewal option for an
additional six year term. The rental payment is a fixed base rate. The lease
for the Company's 13,500 square foot warehouse in Denver expires in August
1999 and is subject to two renewal options of three years each. The rental
payment is a fixed base rate.
The Company leases the majority of its currently operating stores. The
Company currently has leases signed for 11 new stores and one relocation
projected to be opened in 1997 and 1998. In 1997, the Company purchased real
property in Westminster, Colorado and Hinsdale, Illinois, for the construction
of new stores projected to be opened in the first half and third quarter of
1998, respectively. The Company also purchased the real property underlying
its Fort Collins, Colorado, Alfalfa's Market store, and has executed a
contract to purchase additional property in Fort Collins, Colorado. The
Company anticipates that it will sell all or substantially all of the real
property it currently owns under sale and leaseback transactions, where the
purchaser will lease the properties back to the Company under market terms.
The Company's leases typically provide for a ten-year base term and generally
have several renewal periods. The rental payments are either fixed base rates
or percentages of sales with minimum rentals. All of the leases are accounted
for as operating leases. See "Risk Factors--Ownership and Sale of Real
Property."
TRADEMARKS
Wild Oats(R), and Wild Oats Community Markets(R) are federally registered
trademarks and Alfalfa's Market(TM), Oasis Fine Foods(TM) and Capers Whole
Foods Market(TM) are trademarks owned by the Company.
29
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Michael C. Gilliland(1). 39 Chief Executive Officer and Director
James W. Lee............ 46 President and Chief Operating Officer
Elizabeth C. Cook(1).... 38 Executive Vice President, Secretary and Director
Mary Beth Lewis......... 39 Vice President of Finance, Chief Financial Officer and Treasurer
Freya R. Brier.......... 39 Vice President of Legal
Ronald J. Feldman....... 50 Vice President of Real Estate
John E. Lauderbach...... 47 Vice President of Information Technology
Peter F. Williams....... 40 Vice President of Human Resources
John A. Shields(3)...... 54 Chairman of the Board
David M. Chamberlain(3). 54 Vice Chairman of the Board
Brian K. Devine......... 55 Director
David L. Ferguson(2)(3). 42 Director
James B. McElwee(2)(3).. 45 Director
</TABLE>
- --------
(1) Michael C. Gilliland and Elizabeth C. Cook are husband and wife.
(2) Member of Audit Committee.
(3) Member of Compensation Committee.
Michael C. Gilliland co-founded the Company and has been the Chief
Executive Officer and a Director of the Company since its inception in July
1987. Mr. Gilliland also served as its President and Chairman of the Board
from inception until July 1996. Prior to forming the Company in 1987, Mr.
Gilliland was involved in several entrepreneurial ventures.
James W. Lee joined the Company as its Chief Operating Officer in September
1996 and became President of the Company in January 1997. Mr. Lee was Group
Vice President, Store Operations--Central Division of Ralphs Grocery Company
("Ralphs") from February 1993 to September 1996. He was also Group Vice
President, Store Operations--Southern Division from February 1991 to January
1993 and Vice President, Store Operations--Northern Division from February
1988 to January 1991 with Ralphs.
Elizabeth C. Cook co-founded the Company and has been a Vice President,
Secretary and Director of the Company since its inception in July 1987 and has
been Executive Vice President since July 1997. Ms. Cook was General Counsel
until December 1996. Prior to that, from 1983 to 1987, Ms. Cook was tax
counsel on staff with the Atlantic Richfield Company.
Mary Beth Lewis joined the Company as its Chief Financial Officer and
Treasurer in September 1992 and has been Vice President of Finance since July
1997. From August 1986 until August 1992, Ms. Lewis worked for Price
Waterhouse LLP, most recently as an audit manager. Ms. Lewis is a Certified
Public Accountant.
Freya R. Brier joined the Company as General Counsel in December 1996 and
has been Vice President of Legal since July 1997. Ms. Brier was Corporate
Counsel for Synergen, Inc. from January 1993 through January 1995, and a legal
consultant to Amgen, Inc. from February 1995 to November 1996. Prior to
joining Synergen, Ms. Brier was a partner with the Denver law firm of Holme
Roberts & Owen LLP.
Ronald J. Feldman joined the Company as Vice President of Real Estate in
October 1997. From 1994 to September 1997, Mr. Feldman was Vice President of
Real Estate Development for Quizno's Corporation. From 1991 to 1994, Mr.
Feldman was Vice President Restaurant Services of Retail One.
John E. Lauderbach joined the Company as Vice President of Information
Technology in August 1997. From 1974 to 1997, Mr. Lauderbach was with Wolohan
Lumber Co., serving as Director of Management Information Systems from 1992 to
July 1997.
30
<PAGE>
Peter F. Williams joined the Company as Vice President of Human Resources
in May 1997. From 1992 to 1997, Mr. Williams was with Boston Chicken, Inc.,
serving as Senior Director of Human Resources from 1993 to April 1997.
John A. Shields joined the Company as Chairman of the Board of the Company
in July 1996. Mr. Shields was a member of the Board of Directors of Alfalfa's
from June 1995 to July 1996. He has been Chairman of the Board and Chief
Executive Officer of Delray Farms Markets, a chain of produce, meat and deli
markets, since January 1994. From 1983 until 1993, Mr. Shields was President
and Chief Executive Officer of First National Supermarkets. He is currently a
director of DIY Home Warehouse, Inc., Homeland Stores, Inc. and Shore Bank and
Trust Company.
David M. Chamberlain has been the Vice Chairman of the Board of the Company
since July 1996 and joined the Company as Director of the Company in July
1994. Mr. Chamberlain is Chairman of Genesco, Inc., a men's shoe
wholesaler/retailer company and has been with Genesco since 1994. From May
1994 to October 1994, Mr. Chamberlain was a principal of Consumer Focus
Partners, a private investment firm. Prior to that, from October 1983 until
May 1993, he was with Shaklee Corp., a nutritional products company, serving
as President and Chief Executive Officer from December 1985 to May 1992 and as
Chairman thereafter. From 1969 to 1983, Mr. Chamberlain held various general
management and marketing positions with Nabisco Brands, Inc. and the Quaker
Oats Company. He is currently a Director of Mrs. Fields, Inc.
Brian K. Devine has been a Director of the Company since October 1997. Mr.
Devine is Chairman, President and Chief Executive Officer of Petco Animal
Supplies, Inc., and has been with Petco since August 1990. Prior to joining
Petco, Mr. Devine was President of Krause's Sofa Factory, a furniture retailer
and manufacturer, from 1988 to 1989.
David L. Ferguson has been a Director of the Company since November 1994
and has been a general partner of Chase Capital Partners (the general partner
of Chase Venture Capital Associates, L.P.) since 1989. Prior to joining Chase
Capital Partners, he was a member of the mergers and acquisitions groups of
Prudential Securities, Inc. from 1987 to 1989 and Bankers Trust New York
Corporation from 1985 to 1987. Mr. Ferguson currently serves as a director of
Thompson PBE, Inc.
James B. McElwee has been a Director of the Company since July 1993. Since
November 1992, Mr. McElwee has been a general partner of Weston Presidio
Capital (the general partner of Weston Presidio Offshore Capital C.V.). From
July 1979 until November 1992, he was Senior Vice President and a Managing
Director of the Security Pacific Venture Capital Group.
31
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of October 31, 1997, and
as adjusted to reflect the sale of the Common Stock being offered hereby by:
(i) each person (or group of affiliated persons) who is known by the Company
to own beneficially more than 5% of the Common Stock; (ii) each of the
Company's directors and executive officers, (iii) all directors and executive
officers of the Company as a group and (iv) each Selling Stockholder.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP NUMBER BENEFICIAL OWNERSHIP
PRIOR TO OF SHARES AFTER
THE OFFERING (1) TO BE SOLD THE OFFERING (1)
----------------------- IN THE -----------------------
NAME NUMBER PERCENT OFFERING NUMBER PERCENT
- ---- ------------ ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Michael C. Gilliland
(2)..................... 1,489,256 21.0% 210,000 1,279,256 15.4%
Wild Oats Markets, Inc.
1645 Broadway
Boulder, CO 80302
Elizabeth C. Cook (3)... 1,489,256 21.0 210,000 1,279,256 15.4
Wild Oats Markets, Inc.
1645 Broadway
Boulder, CO 80302
Chase Capital Partners
(4)..................... 1,247,086 17.6 -0- 1,247,086 15.0
380 Madison Avenue, 12th
Floor
New York, NY 10017
Mark R. Clapp (5)....... 464,853 6.6 130,000 334,853 4.0
2147 Kincaid
Boulder, CO 80304
Weston Presidio Offshore
Capital C.V. (6)........ 537,392 7.6 -0- 537,392 6.5
343 Sansome Street,
Suite 1210
San Francisco, CA 94104-
1316
John A. Shields (7)..... 43,770 * -0- 43,770 *
David M. Chamberlain
(8)..................... 27,971 * -0- 27,971 *
Brian K. Devine......... -0- * -0- -0- *
David L. Ferguson (9)... 1,256,753 17.7 -0- 1,256,753 15.2
James B. McElwee (10)... 539,059 7.6 -0- 539,059 6.5
James W. Lee (11)....... 8,141 * -0- 8,141 *
Mary Beth Lewis (12).... 17,001 * -0- 17,001 *
Freya R. Brier (13)..... 2,096 * -0- 2,096 *
Ronald J. Feldman....... -0- * -0- -0- *
John E. Lauderbach...... -0- * -0- -0- *
Peter F. Williams....... -0- * -0- -0- *
David Burns (14)........ 5,094 * 5,094 -0- *
Edward Burns (14)....... 12,394 * 5,094 7,300 *
All directors and
executive officers as a
group (13 persons)
(15)................... 3,384,047 47.3 210,000 3,174,047 38.0
</TABLE>
- --------
* Less than one percent.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of Common Stock subject
to options, warrants and convertible notes currently exercisable or
convertible, or exercisable or convertible within 60 days of October 31,
1997 are deemed outstanding for computing the percentage of the person or
entity holding such securities but are not outstanding for computing the
percentage of any other person or entity. Except as indicated by footnote,
and subject to community property laws where applicable, the persons named
in the table above have sole voting and investment power with respect to
all shares of Common Stock shown as beneficially owned by them.
(2) Consists of 483,635 shares held by Mr. Gilliland, 483,635 shares held by
Elizabeth C. Cook, 6,860 shares held by the Ian Patrick Gilliland 1993
Trust, 496,146 shares held by the Gilliland Cook Family Investments,
L.P., 4,140 shares held by Mr. Gilliland and Ms.
32
<PAGE>
Cook as joint tenants and 6,860 shares held by the Stella Elizabeth
Gilliland 1993 Trust. Also includes 7,980 shares subject to stock options
that are exercisable within 60 days of October 31, 1997, held by Mr.
Gilliland. Mr. Gilliland disclaims beneficial ownership to the 509,866
shares held by the trusts. Of the 210,000 shares shown in this table as
being offered by Mr. Gilliland, 80,000 shares will be offered by Mr.
Gilliland, 80,000 shares will be offered by Ms. Cook, 25,000 shares will be
offered by the Wild Oats Community Foundation (formed after October 31,
1997 and owns 25,000 shares prior to the sale of shares in this offering),
12,500 shares will be offered by the Michael C. Gilliland 1997 Charitable
Remainder Trust (formed after October 31, 1997 and owns 12,500 shares prior
to the sale of shares in this offering) and 12,500 shares will be offered
by the Elizabeth C. Cook 1997 Charitable Remainder Trust (formed after
October 31, 1997 and owns 12, 500 shares prior to the sale of shares in
this offering).
(3) Consists of 483,635 shares held by Ms. Cook, 483,635 shares held by Mr.
Gilliland, 6,860 shares held by the Ian Patrick Gilliland 1993 Trust,
496,146 shares held by the Gilliland Cook Family Investments, L.P., 4,140
shares held by Ms. Cook and Mr. Gilliland as joint tenants and 6,860 shares
held by the Stella Elizabeth Gilliland 1993 Trust. Also includes 7,980
shares subject to stock options that are exercisable within 60 days of
October 31, 1997, held by Mr. Gilliland. Ms. Cook disclaims beneficial
ownership of the 509,866 shares held by the trusts. Of the 210,000 shares
shown in this table as being offered by Ms. Cook, 80,000 shares will be
offered by Mr. Gilliland, 80,000 shares will be offered by Ms. Cook, 25,000
shares will be offered by the Wild Oats Community Foundation (formed after
October 31, 1997 and owns 25,000 shares prior to the sale of shares in this
offering), 12,500 shares will be offered by the Michael C. Gilliland 1997
Charitable Remainder Trust (formed after October 31, 1997 and owns 12,500
shares prior to the sale of shares in this offering) and 12,500 shares will
be offered by the Elizabeth C. Cook 1997 Charitable Remainder Trust (formed
after October 31, 1997 and owns 12, 500 shares prior to the sale of shares
in this offering).
(4) Consists of 1,247,086 shares held of record by Chase Venture Capital
Associates, L.P., a California limited partnership ("CVCA"). The general
partner of CVCA is Chase Capital Partners, a New York general partnership
("CCP"), of which Mr. Ferguson is one of several general partners. Mr.
Ferguson disclaims beneficial ownership of the shares owned by CVCA except
to the extent of his pecuniary interest therein arising from his general
partnership interest therein.
(5) Consists of 464,853 shares held by Mr. Clapp. Of the 130,000 shares shown
in this table as being offered by Mr. Clapp, 85,000 shares will be offered
by Mr. Clapp and 45,000 shares will be offered by the Mark R. Clapp 1997
Charitable Remainder Unitrust (formed after October 31, 1997 and owns
45,000 shares prior to the sale of shares in this offering).
(6) Consists of 537,392 shares held of record by Weston Presidio Offshore
Capital C.V. ("Weston"). Mr. McElwee is a general partner of Weston
Presidio Capital, the general partner of Weston. Mr. McElwee disclaims
beneficial ownership of the shares held by Weston except to the extent of
his pecuniary interest therein arising from his general partnership
interest therein.
(7) Consists of 32,530 shares and 11,240 shares subject to stock options that
are exercisable within 60 days of October 31, 1997 held by Mr. Shields.
(8) Consists of 13,619 shares held by Mr. Chamberlain, 600 shares held by Mr.
Chamberlain as custodian for Pamela Chamberlain, 600 shares held by Mr.
Chamberlain as custodian for Kathryn Chamberlain and 13,152 shares subject
to stock options that are exercisable within 60 days of October 31, 1997.
(9) Consists of 1,247,086 shares held of record by Chase Venture Capital
Associates, L.P., a California limited partnership ("CVCA"). The general
partner of CVCA is Chase Capital Partners, a New York general partnership
("CCP"), of which Mr. Ferguson is one of several general partners. Mr.
Ferguson disclaims beneficial ownership of the shares owned by CVCA except
to the extent of his pecuniary interest therein arising from his general
partnership interest therein. Also includes 8,000 shares held by Mr.
Ferguson and 1,667 shares subject to stock options that are exercisable
within 60 days of October 31, 1997, held by Mr. Ferguson. Mr. Ferguson's
business address is 380 Madison Avenue, 12th Floor, New York, NY 10017.
(10) Consists of 537,392 shares held of record by Weston Presidio Offshore
Capital C.V. ("Weston"). Mr. McElwee is a general partner of Weston
Presidio Capital, the general partner of Weston. Mr. McElwee disclaims
beneficial ownership of the shares held by Weston except to the extent of
his pecuniary interest therein arising from his general partnership
interest therein. Also includes 1,667 shares subject to stock options that
are exercisable within 60 days of October 31, 1997, held by Mr. McElwee.
Mr. McElwee's business address is 343 Sansome Street, Suite 1210, San
Francisco, CA 94104-1316.
(11) Consists of 603 shares and 7,538 shares subject to stock options that are
exercisable within 60 days of October 31, 1997 held by Mr. Lee.
(12) Consists of 295 shares and 16,706 shares subject to stock options that are
exercisable within 60 days of October 31, 1997 held by Ms. Lewis.
(13) Consists of 322 shares and 1,774 shares subject to stock options that are
exercisable within 60 days of October 31, 1997 held by Ms. Brier.
(14) These Selling Stockholders were the two of the stockholders of Wholly
Harvest of Boca Raton, Inc., from which the Company purchased its store in
Boca Raton, Florida in February 1997.
(15) Consists of 3,112,323 shares and 61,724 shares subject to stock options
that are exercisable within 60 days of October 31, 1997.
33
<PAGE>
UNDERWRITING
Upon the terms and subject to the conditions stated in the Underwriting
Agreement dated , each Underwriter named below has severally agreed to
purchase, and the Company and the Selling Stockholders have agreed to sell to
such Underwriter, the respective number of shares of Common Stock set forth
opposite the name of such Underwriter.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
----------- ----------------
<S> <C>
Smith Barney Inc. .........................................
PaineWebber Incorporated...................................
Piper Jaffray Inc..........................................
Dain Bosworth Incorporated.................................
---------
Total.................................................... 1,550,188
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares offered hereby are
subject to approval of certain legal matters by their counsel and to certain
other conditions. The Underwriters are obligated to take and pay for all
shares of Common Stock offered hereby (other than those covered by the over-
allotment option described below) if any such shares are taken.
The Underwriters, for whom Smith Barney Inc., PaineWebber Incorporated,
Piper Jaffray Inc. and Dain Bosworth Incorporated are acting as the
Representatives, propose to offer part of the shares of Common Stock directly
to the public at the public offering price set forth on the cover page of this
Prospectus and part of the shares of Common Stock to certain dealers at a
price which represents a concession not in excess of $ per share under the
public offering price. The Underwriters may allow, and such dealers may re-
allow, a concession not in excess of $ per share to certain other dealers.
(After the initial offering of the shares to the public, the public offering
price and such concessions may be changed by the Representatives.)
The Company has granted to the Underwriters an option, exercisable for
thirty days from the date of this Prospectus, to purchase up to 232,528
additional shares of Common Stock at the price to public set forth on the
cover page of this Prospectus minus the underwriting discounts and
commissions. The Underwriters may exercise such option solely for the purpose
of covering over-allotments, if any, in connection with the offering of the
shares offered hereby. To the extent such option is exercised, each
Underwriter will be obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional shares as the number of
shares set forth opposite each Underwriter's name in the preceding table bears
to the total number of shares listed in such table.
The Company, its officers and directors, the Selling Stockholders (except
Edward Burns) and one other stockholder of the Company designated by the
Representatives have agreed that, for a period of 90 days from the date of
this Prospectus, they will not, without the prior written consent of Smith
Barney Inc., sell, offer to sell, solicit an offer to buy, contract to sell,
grant any option to purchase or otherwise transfer or dispose of any shares of
Common Stock of the Company or any securities convertible into or exercisable
or exchangeable for Common Stock of the Company, other than pursuant to the
Company's stock option plans.
The Company, the Selling Stockholders, and the Underwriters have agreed to
indemnify each other against liabilities, including liabilities under the
Securities Act of 1933.
In connection with this offering and in compliance with applicable law, the
Underwriters may over-allot (i.e., sell more Common Stock than the total
amount shown on the list of Underwriters and participations that appears
above) and may effect transactions that stabilize, maintain or otherwise
affect the market price of the Common Stock at levels above those that might
otherwise prevail in the open market. Such transactions may include placing
bids for the Common Stock or effecting purchases of the Common Stock for the
purpose of pegging, fixing or maintaining the prices of the Common Stock or
for the purpose of reducing a syndicate short position created with this
offering. A syndicate short position may be covered by exercise of the option
described above rather than by open market purchases. In addition, the
contractual arrangements among the Underwriters include a provision whereby,
if the Representatives purchase Common Stock in the open market for the
account
34
<PAGE>
of the underwriting syndicate and the securities purchased can be traced to a
particular Underwriter or member of the selling group, the underwriting
syndicate may require the Underwriter or selling group member in question to
purchase the Common Stock in question at the cost price to the syndicate or
may recover from (or decline to pay to) the Underwriter or selling group
member in question the selling concession applicable to the securities in
question. The Underwriters are not required to engage in any of these
activities and any such activities, if commenced, may be discontinued at any
time.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Holme Roberts & Owen llp, Denver, Colorado. Certain legal matters
relating to this offering will be passed upon for the Underwriters by Brobeck,
Phleger & Harrison LLP, Palo Alto, California.
EXPERTS
The financial statements of Wild Oats incorporated in this Prospectus by
reference to the Company's Annual Report on Form 10-K for the year ended
December 28, 1996 have been so incorporated in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm
as experts in auditing and accounting. The consolidated financial statements
of Alfalfa's, Inc. as of June 30, 1996 and for the year then ended and the
combined financial statements of New Frontiers as of December 31, 1995 and
1994 and for each of the three years in the period ended December 31, 1995
incorporated in this Prospectus by reference to pages F-17 through F-30 and
pages F-36 through F-45, respectively of the Company's Prospectus dated
October 22, 1996 have been so incorporated in reliance on the reports of Price
Waterhouse LLP, independent accountants, given on the authority of said firm
as experts in auditing and accounting.
The consolidated financial statements of Alfalfa's, Inc. and its
subsidiaries as of June 25, 1995 and for the years ended June 25, 1995 and
June 26, 1994 incorporated in this Prospectus by reference from the
Registration Statement No. 333-11261 on Form S-1 of Wild Oats Markets, Inc.
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their report which is incorporated herein by reference, and have been so
incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Commission a registration statement on Form
S-3 (the "Registration Statement," which term encompasses all amendments,
exhibits, annexes and schedules thereto) under the Securities Act with respect
to the Common Stock offered hereby. This Prospectus, which constitutes a part
of the Registration Statement, does not contain all the information set forth
in the Registration Statement, to which reference is hereby made. Statements
made in this Prospectus as to the contents of any contract, agreement or other
document referred to are not necessarily complete. With respect to each such
contract, agreement or other document filed as an exhibit to the Registration
Statement and the exhibits thereto, reference is hereby made to the exhibit
for a more complete description of the matter involved, and each statement
made herein shall be deemed qualified in its entirety by such reference.
The Company is subject to the informational requirements of the Exchange
Act and in accordance therewith files periodic reports, proxy and information
statements and other information filed with the Commission. The Registration
Statement filed by the Company with the Commission, as well as such reports,
proxy and information statements and other information filed by the Company
with the Commission, are available at the web site that the Commission
maintains at http:\\www.sec.gov and can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional
offices of the Commission located at 7 World Trade Center, New York, New York
10048, and the Central Regional Office, 1801 California Street, Suite 4800,
Denver, CO 80202-2648. Copies of such material, when filed, may also be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. The Common Stock is
35
<PAGE>
quoted on the Nasdaq National Market and such reports, proxy and information
statements and other information concerning the Company are available at the
offices of the Nasdaq National Market located at 1735 K Street, N.W.,
Washington, D.C. 20006.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Incorporated by reference in this Prospectus are (i) the Company's Annual
Report on Form 10-K for the fiscal year ended December 28, 1996; (ii) the
Company's Quarterly Reports on Form 10-Q for the quarters ended March 29,
1997, June 28, 1997 and September 27, 1997; (iii) the Company's Definitive
Proxy Statement dated March 28, 1997; (iv) the Company's Current Report on
Form 8-K filed on November 14, 1997; (v) the description of the Company's
Common Stock contained in the Company's Registration Statement on Form 8-A
dated October 17, 1996; and (vi) Pages F-17 through F-30 and Pages F-36
through F-45 of the Company's Prospectus dated October 22, 1996. All documents
filed by the Company pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act after the date of this Prospectus and prior to the termination of
this offering shall be deemed to be incorporated by reference herein and to be
a part of this Prospectus from the date of filing of such documents. Any
statement contained in a document incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner of Common Stock, to whom a copy of this Prospectus has been
delivered, on the written or oral request of such person, a copy of any or all
of the foregoing documents incorporated by reference in this Prospectus, other
than exhibits to such documents unless such exhibits are specifically
incorporated by reference into the information that this Prospectus
incorporates. Written or oral requests for such copies should be directed to
Wild Oats Markets, Inc., 1645 Broadway, Boulder, Colorado 80302 (telephone:
(303) 440-5220).
36
<PAGE>
[PHOTOGRAPHS]
Sixteen photographs, including three pictures of exterior store fronts, three
pictures of store interiors, one picture of a shopping cart with a flower, six
pictures of food items, one picture of a cow, one picture of a woman and a baby,
and one picture of a tincture.
38
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR BY ANY OF THE UNDERWRITERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT
RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THOSE TO
WHICH IT RELATES IN ANY STATE TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE
SUCH OFFER IN SUCH STATE. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT
IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS
DATE.
-------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 6
Recent Acquisitions and New Store Openings................................ 11
Use of Proceeds........................................................... 12
Dividend Policy........................................................... 12
Price Range of Common Stock............................................... 12
Capitalization............................................................ 13
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 14
Business.................................................................. 20
Management................................................................ 30
Principal and Selling Stockholders........................................ 32
Underwriting.............................................................. 34
Legal Matters............................................................. 35
Experts................................................................... 35
Available Information..................................................... 35
Incorporation of Certain Documents by Reference........................... 36
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1,550,188 SHARES
[LOGO OF WILD OATS APPEARS HERE]
COMMON STOCK
--------
PROSPECTUS
, 1997
--------
SALOMON SMITH BARNEY
PAINEWEBBER INCORPORATED
PIPER JAFFRAY INC.
DAIN BOSWORTH INCORPORATED
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth all expenses, other than the underwriting
discounts and commissions, payable by the Registrant in connection with the sale
of the Common Stock being registered. All the amounts shown are estimates
except for the SEC registration fee, the NASD filing fee and the Nasdaq listing
fee.
<TABLE>
<CAPTION>
<S> <C>
SEC registration fee..................................... $ 28,414
NASD filing fee.......................................... 9,877
Nasdaq listing fee....................................... 17,500
Blue sky qualification fee and expenses.................. 5,000
Printing and engraving expenses.......................... 60,000
Legal fees and expenses.................................. 80,000
Accounting fees and expenses............................. 60,000
Transfer agent, custodian and registrar fees............. 5,000
Miscellaneous............................................ 34,209
--------
Total.................................................... $300,000
========
</TABLE>
Item 15. Indemnification of Officers and Directors.
Under Section 145 of the Delaware General Corporation Law, the Registrant
has broad powers to indemnify its directors and officers against liabilities
they may incur in such capacities, including liabilities under the Securities
Act of 1933, as amended (the "Securities Act"). The Registrant's Bylaws also
provide that the Registrant will indemnify its directors and officers and may
indemnify its employees and other agents to the fullest extent not prohibited by
Delaware law, provided that such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of the
Registrant and, with respect to any criminal proceeding, had no reasonable cause
to believe his or her conduct was unlawful.
The Registrant's Certificate of Incorporation provides for the elimination
of liability for monetary damages for breach of the directors' fiduciary duty of
care to the Registrant and its stockholders. These provisions do not eliminate
the directors' duty of care and, in appropriate circumstances, equitable
remedies such an injunctive or other forms of non-monetary relief will remain
available under Delaware law. In addition, each director will continue to be
subject to liability for breach of the director's duty of loyalty to the
Registrant, for acts or omissions not in good faith or involving intentional
misconduct, for knowing violations of law, for any transaction from which the
director derived an improper personal benefit, and for payment of dividends or
approval of stock repurchases or redemptions that are unlawful under Delaware
law. The provision does not affect a director's responsibilities under any
other laws, such as the federal securities laws or state or federal
environmental laws.
The Registrant has entered into agreements with its directors and executive
officers that require the Registrant to indemnify such persons against expenses,
judgments, fines, settlements and other amounts actually and reasonably incurred
(including expenses of a derivative action) in connection with any proceeding,
whether actual or threatened, to which any such person may be made a party by
reason of the fact that such person is or was a director or officer of the
Registrant, provided that such person's conduct was not knowingly fraudulent or
deliberately dishonest and did not constitute willful misconduct. The
indemnification agreements also set forth certain procedures that will apply in
the event of a claim for indemnification thereunder.
The Underwriting Agreement to be filed as Exhibit 1.1 to this Registration
Statement will provide for indemnification by the Underwriters of the Registrant
and its officers and directors for certain liabilities arising under the
Securities Act or otherwise.
II-1
<PAGE>
Item 16. Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
- ------ -----------------------
<C> <S>
1.1 Form of Underwriting Agreement.(4)
4(i).1.(a) Amended and Restated Certificate of Incorporation of the
Registrant. (1)
4(i).1.(b) Certificate of Correction to Amended and Restated Certificate of
Incorporation of the Registrant. (1)
4(ii).1 Amended and Restated By-Laws of the Registrant. (1)
4.2 Specimen stock certificate. (2)
5.1 Opinion of Holme Roberts & Owen LLP. (4)
12.1 Statement re Computation of Ratios. (1)
21.1 List of subsidiaries. (4)
*23.1 Consent of Price Waterhouse LLP.
*23.2 Consent of Deloitte & Touche LLP.
23.3 Consent of Holme Roberts & Owen. Reference is made to Exhibit
5.1.
24.1 Power of Attorney. (4)
</TABLE>
- --------------------
*Filed herewith.
(1) Incorporated by reference to the Registrant's Annual Report on Form 10-K for
the year ended December 28, 1996 (File Number 0-21577).
(2) Incorporated by reference to the Registrant's Registration Statement on Form
S-1 (Number 333-11261).
(3) To be filed by amendment.
(4) Filed previously.
Item 17. Undertakings.
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.
The undersigned Registrant undertakes that: (1) for purposes of determining
any liability under the Securities Act of 1933, the information omitted from the
form of prospectus as filed as part of the registration statement in reliance
upon Rule 430A and contained in the form of prospectus filed by the Registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be
deemed to be part of the registration statement as of the time it was declared
effective, and (2) for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets the
requirements for filing on Form S-3 and has caused Post-Effective Amendment No.
1 to this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Boulder, County of Boulder, State of
Colorado, on the 10th of December, 1997.
Wild Oats Markets, Inc.
By /s/ Mary Beth Lewis
--------------------
Mary Beth Lewis
Vice President of Finance,
Chief Financial Officer and Treasurer
Pursuant to the requirements of the Securities Act of 1933, Post-Effective
Amendment No. 1 to this Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Michael C. Gilliland*
- ---------------------------
Michael C. Gilliland Chief Executive Officer December 10, 1997
and Director
(Principal Executive
Officer)
/s/ Mary Beth Lewis
- ---------------------------
Mary Beth Lewis Vice President of December 10, 1997
Finance,
Chief Financial Officer
and Treasurer
(Principal Financial
and Accounting Officer)
/s/ Elizabeth C. Cook*
- ---------------------------
Elizabeth C. Cook Executive Vice December 10, 1997
President, Secretary and
Director
/s/ John A. Shields*
- ---------------------------
John A. Shields Chairman of the Board December 10, 1997
/s/ David M. Chamberlain*
- ---------------------------
David M. Chamberlain Vice Chairman of the December 10, 1997
Board
/s/ David L. Ferguson*
- ---------------------------
David L. Ferguson Director December 10, 1997
/s/ James B. McElwee*
- ---------------------------
James B. McElwee Director December 10, 1997
/s/ Brian K. Devine*
- ---------------------------
Brian K. Devine Director December 10, 1997
- -----------------------------
*By: /s/ Mary Beth Lewis
------------------------
Mary Beth Lewis
Attorney-In-Fact
</TABLE>
II-3
<PAGE>
Exhibit 23.1
Consent of Independent Accountants
----------------------------------
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3:
. Our report dated January 31, 1997, which appears on page 31 of the 1996 Annual
Report to Shareholders of Wild Oats Markets, Inc., which is incorporated in
the Wild Oats Markets, Inc.'s Annual Report on Form 10-K for the year ended
December 28, 1996,
. Our report dated August 15, 1996, except for Note 1, paragraph three, as to
which the date is October 15, 1996, which appears on page F-17 of the
Company's Prospectus dated October 22, 1996, of the financial statements of
Alfalfa's, Inc. for the year ended June 30, 1996, and
. Our report dated August 27, 1996, which appears on page F-36 of the Company's
Prospectus dated October 22, 1996, of the financial statements of New
Frontiers for the year ended December 31, 1995.
We also consent to the reference to us under the heading "Experts" in such
prospectus.
PRICE WATERHOUSE LLP
Boulder, Colorado
December 10, 1997
<PAGE>
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Post-Effective Amendment
No. 1 to Registration Statement No. 333-40305 of Wild Oats Markets, Inc. on Form
S-3 of our report dated September 6, 1995 (October 15, 1996 as to the third
paragraph of Note 1) relating to the consolidated balance sheet of Alfalfa's,
Inc. and subsidiaries as of June 25, 1995, and the related consolidated
statements of operations, stockholders' equity, and cash flows for the years
ended June 25, 1995 and June 26, 1994, appearing in the Registration Statement
No. 333-11261 of Wild Oats Markets, Inc. on Form S-1, and to the reference to us
under the heading "Experts" in the Prospectus, which is part of this
Registration Statement.
DELOITTE & TOUCHE LLP
Denver, Colorado
December 10, 1997
