<PAGE>
As Filed With the Securities and Exchange Commission on December 8, 1997
Registration No. 333-40305
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Amendment No. 2
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.
If the only securities being registered on this form are being offered
pursuant to a dividend or interest reinvestment plan, check the following
box. [_]
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. [_]
---------------------------
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment 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>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES+
+EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE +
+SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion, Dated December 8, 1997
2,087,580 Shares
[LOGO OF WILD OATS COMMUNITY MARKET(R) APPEARS HERE]
Prospectus Wild Oats Markets, Inc.
Common Stock
Of the 2,087,580 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 887,580 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 and Proceeds to Proceeds to Selling
Price to Public Commissions (1) Company (2) 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 313,137 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.
Smith Barney Inc.
PaineWebber Incorporated
Piper Jaffray Inc.
Dain Bosworth Incorporated
___________________, 1997
<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."
3
<PAGE>
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. 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 priceprogram 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
<TABLE>
<S> <C>
Common Stock offered by the Company................................ 1,200,000 shares
Common Stock offered by the Selling Stockholders................... 887,580 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
</TABLE>
- -------------------------------
(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
------------------------------------------------------- ------------------------------
Balance sheet data: 1992 1993 1994 1995 1996 Actual As Adjusted (7)
---- ---- ---- ---- ---- ------ ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
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 ten 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 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.
7
<PAGE>
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 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.
8
<PAGE>
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 4,845,024 shares (including the 1,680,000
shares sold in the Company's initial public offering and the 2,087,580 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
9
<PAGE>
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 2,909,784 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 2,893,202 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 31.1% 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 2,927,695 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."
11
<PAGE>
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 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
($56.5 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 887,580
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 in full when the
store opens. Pre-opening expenses have averaged approximately $250,000 per
store over the past 18
14
<PAGE>
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.
17
<PAGE>
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
20
<PAGE>
available. In response to increasing supply and demand, larger format natural
foods stores have emerged, offering 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 contributions,
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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 Projected
--------- ------------
Site Name Opening Date Site Name Opening Date
- --------- ------------ --------- ------------
<S> <C> <C> <C>
1. West Denver, CO Q4 1997 7. Kansas City, MO 1998
2. Tempe, AZ 1998 8. Princeton, NJ 1998
3. Westminster, CO 1998 9. Hinsdale, IL 1998
4. Pinecrest, FL 1998 10. Santa Monica, CA 1998
5. Denver, CO 1998 11. Kendall, FL 1998
6. Columbus, OH 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
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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.
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.
[MAP OF THE UNITED STATES APPEARS HERE]
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Arizona Colorado Illinois Oregon
- ------- -------- -------- ------
Phoenix (2) Aurora Buffalo Grove Eugene (2)
Scottsdale (1) Boulder (3)
Colorado Springs Kansas Tennessee
Denver (4) ------ ---------
California Fort Collins (2) Mission Memphis (2)
- ---------- Greenwood Village
Berkeley Littleton Missouri Utah
Mission Viejo Vail -------- ----
Laguna Beach Kansas City Salt Lake City (3)
Los Angeles St. Louis
Pasadena Florida
Sacramento ------- Nevada British Columbia,
San Anselmo Boca Raton ------ ----------------
Santa Monica Fort Lauderdale Las Vegas (2) Canada
Sunnyvale West Palm Beach ------
West Hollywood New Mexico Vancouver (2)
---------- West Vancouver
Albuquerque (2)
Santa Fe (3)
</TABLE>
24
<PAGE>
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.
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;
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<PAGE>
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;
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,
26
<PAGE>
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.
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
27
<PAGE>
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 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
28
<PAGE>
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 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."
29
<PAGE>
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.
30
<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.
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<PAGE>
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.
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.
32
<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>
Number
Beneficial Ownership of Shares Beneficial Ownership
Prior to to be Sold After
the Offering (1) in the the Offering (1)
--------------------- ---------------------
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 7.6 537,392 -0-
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 7.6 537,392 1,667 *
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 47.3 747,392 2,636,655 31.6
</TABLE>
- -----------------------------
* Less than one percent.
33
<PAGE>
- ------------------------------------
* 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. 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, 65,000 shares will be
offered by Mr. Gilliland, 65,000 shares will be offered by Ms. Cook and
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 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 3,316,775 shares and 61,724 shares subject to stock options
that are exercisable within 60 days of October 31, 1997.
34
<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 2,087,580
=============
</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 313,137
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 of
35
<PAGE>
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 quoted on the Nasdaq National
36
<PAGE>
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 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).
37
<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................................................................ 31
Principal and Selling Stockholders........................................ 33
Underwriting.............................................................. 35
Legal Matters............................................................. 36
Experts................................................................... 36
Available Information..................................................... 36
Incorporation of Certain Documents by Reference........................... 37
</TABLE>
2,087,580 Shares
Common Stock
PROSPECTUS
Smith Barney Inc.
Painewebber Incorporated
Piper Jaffray Inc.
Dain Bosworth Incorporated
---------------, 1997
39
<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(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 Amendment No. 2 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 8th 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, Amendment No. 2 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 8, 1997
and Director
(Principal Executive
Officer)
/s/ Mary Beth Lewis
- ---------------------------
Mary Beth Lewis Vice President of December 8, 1997
Finance,
Chief Financial Officer
and Treasurer
(Principal Financial
and Accounting Officer)
/s/ Elizabeth C. Cook*
- ---------------------------
Elizabeth C. Cook Executive Vice December 8, 1997
President, Secretary and
Director
/s/ John A. Shields*
- ---------------------------
John A. Shields Chairman of the Board December 8, 1997
/s/ David M. Chamberlain*
- ---------------------------
David M. Chamberlain Vice Chairman of the December 8, 1997
Board
/s/ David L. Ferguson*
- ---------------------------
David L. Ferguson Director December 8, 1997
/s/ James B. McElwee*
- ---------------------------
James B. McElwee Director December 8, 1997
/s/ Brian K. Devine*
- ---------------------------
Brian K. Devine Director December 8, 1997
- -----------------------------
*By: /s/ Mary Beth Lewis
------------------------
Mary Beth Lewis
Attorney-In-Fact
</TABLE>
II-3
<PAGE>
Exhibit 1.1
2,087,580 Shares
WILD OATS MARKETS, INC.
Common Stock
UNDERWRITING AGREEMENT
----------------------
December , 1997
SMITH BARNEY INC.
PAINEWEBBER INCORPORATED
PIPER JAFFRAY INC.
DAIN BOSWORTH INCORPORATED
As Representatives of the Several Underwriters
c/o SMITH BARNEY INC.
388 Greenwich Street
New York, New York 10013
Dear Sirs:
Wild Oats Markets, Inc., a Delaware corporation (the "Company"),
proposes to issue and sell an aggregate of 1,200,000 shares of its common stock,
$0.001 par value per share, to the several Underwriters named in Schedule II
hereto (the "Underwriters"), and the persons named in Part A1 of Schedule I
hereto (the "Principal Selling Stockholders") and the persons named in Part A2
of Schedule I hereto (the "Other Selling Stockholders," and together with the
Principal Selling Stockholders, the "Selling Stockholders") propose to sell to
the several Underwriters an aggregate of 887,580 shares of common stock of the
Company. The Company and the Selling Stockholders are hereinafter sometimes
referred to as the "Sellers." The Company's common stock, $0.001 par value, is
hereinafter referred to as the "Common Stock" and the 1,200,000 shares of Common
Stock to be issued and sold to the Underwriters by the Company and the 887,580
shares of Common Stock to be sold to the Underwriters by the Selling
Stockholders are hereinafter referred to as the "Firm Shares." The Company also
proposes to sell to the Underwriters, upon the terms and conditions set forth in
Section 2 hereof, up to an additional 313,137 shares (the "Additional Shares")
of Common Stock. The Firm Shares and the Additional Shares are hereinafter
collectively referred to as the "Shares."
1.
<PAGE>
The Company and the Selling Stockholders wish to confirm as follows
their respective agreements with you (the "Representatives") and the other
several Underwriters on whose behalf you are acting, in connection with the
several purchases of the Shares by the Underwriters.
1. Registration Statement and Prospectus. The Company has prepared and
-------------------------------------
filed with the Securities and Exchange Commission (the "Commission") in
accordance with the provisions of the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder (collectively, the
"Act"), a registration statement on Form S-3 under the Act (the "registration
statement"), including a prospectus subject to completion relating to the
Shares. The term "Registration Statement" as used in this Agreement means the
registration statement (including all financial schedules and exhibits), as
amended at the time it becomes effective, or, if the registration statement
became effective prior to the execution of this Agreement, as supplemented or
amended prior to the execution of this Agreement. If it is contemplated, at the
time this Agreement is executed, that a post-effective amendment to the
registration statement will be filed and must be declared effective before the
offering of the Shares may commence, the term "Registration Statement" as used
in this Agreement means the registration statement as amended by said
post-effective amendment. If an abbreviated registration statement is prepared
and filed with the Commission in accordance with Rule 462(b) under the Act ("an
Abbreviated Registration Statement"), the term "Registration Statement" as used
in this Agreement includes the Abbreviated Registration Statement. The term
"Prospectus" as used in this Agreement means the prospectus in the form included
in the Registration Statement, or, if the prospectus included in the
Registration Statement omits information in reliance on Rule 430A under the Act
and such information is included in a prospectus filed with the Commission
pursuant to Rule 424(b) under the Act, the term "Prospectus" as used in this
Agreement means the prospectus in the form included in the Registration
Statement as supplemented by the addition of the Rule 430A information contained
in the prospectus filed with the Commission pursuant to Rule 424(b). The term
"Prepricing Prospectus" as used in this Agreement means the prospectus subject
to completion in the form included in the registration statement at the time of
the initial filing of the registration statement with the Commission, and as
such prospectus shall have been amended from time to time prior to the date of
the Prospectus. Any reference in this Agreement to the registration statement,
the Registration Statement, any Prepricing Prospectus or the Prospectus shall be
deemed to refer to and include the documents incorporated by reference therein
pursuant to Item 12 of Form S-3 under the Act, as of the date of the
registration statement, the Registration Statement, such Prepricing Prospectus
or the Prospectus, as the case may be, and any reference to any amendment or
supplement to the registration statement, the Registration Statement, any
Prepricing Prospectus or the Prospectus shall be deemed to refer to and include
any documents filed after such date under the Securities Exchange Act of 1934,
as amended (the "Exchange Act") which, upon filing, are incorporated by
reference therein, as required by paragraph (b) of Item 12 of Form S-3. As used
herein, the term
2.
<PAGE>
"Incorporated Documents" means the documents which at the time are incorporated
by reference in the registration statement, the Registration Statement, any
Prepricing Prospectus, the Prospectus, or any amendment or supplement thereto.
2. Agreements to Sell and Purchase. Subject to such adjustments as you
-------------------------------
may determine in order to avoid fractional shares, the Company hereby agrees,
subject to all the terms and conditions set forth herein, to issue and sell to
each Underwriter and, upon the basis of the representations, warranties and
agreements of the Company and the Selling Stockholders herein contained and
subject to all the terms and conditions set forth herein, each Underwriter
agrees, severally and not jointly, to purchase from the Company, at a purchase
price of $_____ per Share (the "purchase price per share"), the number of Firm
Shares which bears the same proportion to the aggregate number of Firm Shares to
be issued and sold by the Company as the number of Firm Shares set forth
opposite the name of such Underwriter in Schedule II hereto (or such number of
Firm Shares increased as set forth in Section 12 hereof) bears to the aggregate
number of Firm Shares to be sold by the Company and the Selling Stockholders.
Subject to such adjustments as you may determine in order to avoid
fractional shares, each Selling Stockholder agrees, subject to all the terms and
conditions set forth herein, to sell to each Underwriter and, upon the basis of
the representations, warranties and agreements of the Company and the Selling
Stockholders herein contained and subject to all the terms and conditions set
forth herein, each Underwriter, severally and not jointly, agrees to purchase
from each Selling Stockholder at the purchase price per share that number of
Firm Shares which bears the same proportion to the number of Firm Shares set
forth opposite the name of such Selling Stockholder in Schedule I hereto as the
number of Firm Shares set forth opposite the name of such Underwriter in
Schedule II hereto (or such number of Firm Shares increased as set forth in
Section 12 hereof) bears to the aggregate number of Firm Shares to be sold by
the Company and the Selling Stockholders.
The Company also agrees, subject to all the terms and conditions set
forth herein, to sell to the Underwriters, and, upon the basis of the
representations, warranties and agreements of the Company and the Selling
Stockholders herein contained and subject to all the terms and conditions set
forth herein, the Underwriters shall have the right to purchase from the
Company, at the purchase price per share, pursuant to an option (the
"over-allotment option") which may be exercised at any time and from time to
time prior to 9:00 P.M., New York City time, on the 30th day after the date of
the Prospectus (or, if such 30th day shall be a Saturday or Sunday or a holiday,
on the next business day thereafter when the New York Stock Exchange is open for
trading), up to an aggregate of 320,788 Additional Shares from the Company.
Additional Shares may be purchased only for the purpose of covering
over-allotments made in connection with the offering of the Firm Shares. The
number of Additional Shares which the Underwriters elect to purchase upon any
exercise of the over-allotment option shall be provided by the Company in
proportion to the respective maximum numbers of Additional Shares which
3.
<PAGE>
the Company has agreed to sell. Upon any exercise of the over-allotment option,
each Underwriter, severally and not jointly, agrees to purchase from the Company
the number of Additional Shares (subject to such adjustments as you may
determine in order to avoid fractional shares) which bears the same proportion
to the number of Additional Shares to be sold by the Company as the number of
Firm Shares set forth opposite the name of such Underwriter in Schedule II
hereto (or such number of Firm Shares increased as set forth in Section 12
hereof) bears to the aggregate number of Firm Shares to be sold by the Company
and the Selling Stockholders.
Certificates in transferable form for the Shares which each of the Selling
Stockholders agrees to sell pursuant to this Agreement have been placed in
custody with ____________________________ (the "Custodian") for delivery under
this Agreement pursuant to a Custody Agreement and Power of Attorney (the
"Custody Agreement") executed by each of the Selling Stockholders appointing
_________________ and __________________________ as agents and attorneys-in-fact
(the "Attorneys-in-Fact"). Each Selling Stockholder agrees that (i) the
Shares represented by the certificates held in custody pursuant to the Custody
Agreement are subject to the interests of the Underwriters, the Company and each
other Selling Stockholder, (ii) the arrangements made by the Selling
Stockholders for such custody are, except as specifically provided in the
Custody Agreement, irrevocable, and (iii) the obligations of the Selling
Stockholders hereunder and under the Custody Agreement shall not be terminated
by any act of such Selling Stockholder or by operation of law, whether by the
death or incapacity of any Selling Stockholder or the occurrence of any other
event. If any Selling Stockholder shall die or be incapacitated or if any other
event shall occur before the delivery of the Shares hereunder, certificates for
the Shares of such Selling Stockholder shall be delivered to the Underwriters by
the Attorneys-in-Fact in accordance with the terms and conditions of this
Agreement and the Custody Agreement as if such death or incapacity or other
event had not occurred, regardless of whether or not the Attorneys-in-Fact or
any Underwriter shall have received notice of such death, incapacity or other
event. Each Attorney-in-Fact is authorized, on behalf of each of the Selling
Stockholders, to execute this Agreement and any other documents necessary or
desirable in connection with the sale of the Shares to be sold hereunder by such
Selling Stockholder, to make delivery of the certificates for such Shares, to
receive the proceeds of the sale of such Shares, to give receipts for such
proceeds, to pay therefrom any expenses to be borne by such Selling Stockholder
in connection with the sale and public offering of such Shares, to distribute
the balance thereof to such Selling Stockholder, and to take such other action
as may be necessary or desirable in connection with the transactions
contemplated by this Agreement. Each Attorney-in-Fact agrees to perform his
duties under the Custody Agreement.
3. Terms of Public Offering. The Sellers have been advised by you that
------------------------
the Underwriters propose to make a public offering of their respective portions
of the Shares as soon after the Registration Statement and this Agreement have
become effective as
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in your judgment is advisable and initially to offer the Shares upon the terms
set forth in the Prospectus.
4. Delivery of the Shares and Payment Therefor. Delivery to the
-------------------------------------------
Underwriters of and payment for the Firm Shares shall be made at the office of
Smith Barney Inc., 388 Greenwich Street, New York, NY 10013, at 10:00 A.M., New
York City time, on __________, 1997 (the "Closing Date"). The place of
closing for the Firm Shares and the Closing Date may be varied by agreement
among you, the Company and the Attorneys-in-Fact.
Delivery to the Underwriters of and payment for any Additional Shares to be
purchased by the Underwriters shall be made at the aforementioned office of
Smith Barney Inc. at such time on such date (the "Option Closing Date"), which
may be the same as the Closing Date but shall in no event be earlier than the
Closing Date nor earlier than two nor later than ten business days after the
giving of the notice hereinafter referred to, as shall be specified in a written
notice from you on behalf of the Underwriters to the Company and the Attorneys-
in-Fact of the Underwriters' determination to purchase a number, specified in
such notice, of Additional Shares. The place of closing for any Additional
Shares and the Option Closing Date for such Shares may be varied by agreement
among you, the Company and the Attorneys-in-Fact.
Certificates for the Firm Shares and for any Additional Shares to be
purchased hereunder shall be registered in such names and in such denominations
as you shall request prior to 9:30 A.M., New York City time, on the second
business day preceding the Closing Date or any Option Closing Date, as the case
may be. Such certificates shall be made available to you in New York City for
inspection and packaging not later than 9:30 A.M., New York City time, on the
business day next preceding the Closing Date or the Option Closing Date, as the
case may be. The certificates evidencing the Firm Shares and any Additional
Shares to be purchased hereunder shall be delivered to you on the Closing Date
or the Option Closing Date, as the case may be, against payment of the purchase
price therefor in immediately available funds.
5. Covenants of the Company. The Company agrees with the Several
------------------------
Underwriters as follows:
(a) The Company will use its best efforts to cause the Registration
Statement and any amendment thereof, if not effective at the time and date that
this Agreement is executed and delivered by the parties hereto, to become
effective. If the Registration Statement has become or becomes effective
pursuant to Rule 430A of the Rules and Regulations, or the filing of the
Prospectus is otherwise required under Rule 424(b) of the Rules and Regulations,
the Company will file the Prospectus, properly completed, pursuant to the
applicable paragraph of Rule 424(b) of the Rules and Regulations within the time
period prescribed and will provide evidence satisfactory to you of such timely
filing. The Company will promptly advise you in writing (i) of the
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receipt of any comments of the Commission, (ii) of any request of the Commission
for amendment of or supplement to the Registration Statement (either before or
after it becomes effective), any Prepricing Prospectus or the Prospectus or for
additional information, (iii) when the Registration Statement shall have become
effective and (iv) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or of the institution
of any proceedings for that purpose. If the Commission shall enter any such
stop order at any time, the Company will use its best efforts to obtain the
lifting of such order at the earliest possible moment. The Company will not
file any amendment or supplement to the Registration Statement (either before or
after it becomes effective), any Prepricing Prospectus or the Prospectus of
which you have not been furnished with a copy a reasonable time prior to such
filing or to which you reasonably object or which is not in compliance with the
Act and the Rules and Regulations.
(b) The Company will prepare and file with the Commission, promptly
upon your request, any amendments or supplements to the Registration Statement
or the Prospectus which in your judgment may be necessary or advisable to enable
the several Underwriters to continue the distribution of the Shares and will use
its best efforts to cause the same to become effective as promptly as possible.
The Company will fully and completely comply with the provisions of Rule 430A of
the Rules and Regulations with respect to information omitted from the
Registration Statement in reliance upon such Rule.
(c) If at any time within the nine-month period referred to in Section
10(a)(3) of the Act during which a prospectus relating to the Shares is required
to be delivered under the Act any event occurs, as a result of which the
Prospectus, including any amendments or supplements, would include an untrue
statement of a material fact, or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, or if
it is necessary at any time to amend the Prospectus, including any amendments or
supplements, to comply with the Act or the Rules and Regulations, the Company
will promptly advise you thereof and will promptly prepare and file with the
Commission, at its own expense, an amendment or supplement which will correct
such statement or omission or an amendment or supplement which will effect such
compliance and will use its best efforts to cause the same to become effective
as soon as possible; and, in case any Underwriter is required to deliver a
prospectus after such nine-month period, the Company upon request, but at the
expense of such Underwriter, will promptly prepare such amendment or amendments
to the Registration Statement and such Prospectus or Prospectuses as may be
necessary to permit compliance with the requirements of Section 10(a)(3) of the
Act.
(d) As soon as practicable, but not later than 45 days after the end of
the first quarter ending after one year following the effective date of the
Registration Statement (as defined in Rule 158(c) of the Rules and Regulations)
the Company will
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make generally available to its security holders an earnings statement (which
need not be audited) covering a period of 12 consecutive months beginning after
the effective date of the Registration Statement which will satisfy the
provisions of the last paragraph of Section 11(a) of the Act.
(e) During such period as a prospectus is required by law to be
delivered in connection with sales by an Underwriter or dealer, the Company, at
its expense, but only for the nine-month period referred to in Section 10(a)(3)
of the Act, will furnish to you and the Selling Stockholders or mail to your
order copies of the Registration Statement, the Prospectus, the Prepricing
Prospectus and all amendments and supplements to any such documents in each case
as soon as available and in such quantities as you and the Selling Stockholders
may request, for the purposes contemplated by the Act.
(f) During the period of five years hereafter, the Company will furnish
to the Representatives and, upon request of any Representative, to each of the
other Underwriters: (i) as soon as practicable after the end of each fiscal
year, copies of the Annual Report of the Company containing the balance sheet of
the Company as of the close of such fiscal year and statements of income,
stockholders' equity and cash flows for the year then ended and the opinion
thereon of the Company's independent public accountants; (ii) as soon as
practicable after the filing thereof, copies of each proxy statement, Annual
Report on Form 10-K, Quarterly Report on Form 10-Q, Current Report on Form 8-K
or other report filed by the Company with the Commission, the National
Association of Securities Dealers, Inc. (the "NASD") or any securities exchange;
and (iii) as soon as available, copies of any report or communication of the
Company mailed generally to holders of its Common Stock.
(g) During the period of 90 days after the first date that any of the
Shares are released by you for sale to the public, without the prior written
consent of Smith Barney Inc. (which consent may be withheld at the sole
discretion of Smith Barney Inc.), the Company will not sell, contract to sell or
otherwise dispose of any Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock. The foregoing sentence shall not
apply to (A) shares of Common Stock issued by the Company upon the exercise of
options granted, or to be granted in the ordinary course, under stock option
plans of the Company or upon the exercise of outstanding warrants, all as
described in footnote (1) to the table under the caption "Capitalization" in the
Prepricing Prospectus, (B) shares of Common Stock purchased pursuant to the
Company's employee stock purchase plan or (C) a maximum aggregate of _______
shares of Common Stock issued by the Company in connection with the acquisition
of assets owned by another Company.
(h) The Company will apply the net proceeds of the sale of the Shares
sold by it substantially in accordance with its statements under the caption Use
of Proceeds in the Prospectus.
7
<PAGE>
(i) The Company will use its best efforts to qualify or register its
Common Stock for sale in non-issuer transactions under (or obtain exemptions
from the application of) the Blue Sky laws of the State of California (and
thereby permit market making transactions and secondary trading in the Company's
Common Stock in California), will comply with such Blue Sky laws and will
continue such qualifications, registrations and exemptions in effect for a
period of five years after the date hereof.
(j) The Company will use its best efforts to maintain (i) the Common
Stock as a national market system security on the Nasdaq National Market or (ii)
the listing of the Common Stock on the New York Stock Exchange or the American
Stock Exchange.
(k) The Company will furnish to you, without charge (i) one copy of the
registration statement as originally filed with the Commission and of each
amendment thereto, including financial statements and all exhibits to the
registration statement, (ii) such number of conformed copies of the registration
statement as originally filed and of each amendment thereto, but without
exhibits, as you may request, (iii) such number of copies of the Incorporated
Documents, without exhibits, as you may request, and (iv) three copies of the
exhibits to the Incorporated Documents.
(l) Prior to the execution and delivery of this Agreement, the Company
has delivered to you, without charge, in such quantities as you have requested,
copies of each form of the Prepricing Prospectus. The Company consents to the
use, in accordance with the provisions of the Act and with the securities or
Blue Sky laws of the jurisdictions in which the Shares are offered by the
several Underwriters and by dealers, prior to the date of the Prospectus, of
each Prepricing Prospectus so furnished by the Company.
(m) Notwithstanding any other provisions hereof, if this Agreement
shall be terminated by you pursuant to Section 10, or if the sale to the
Underwriters of the Shares on the Closing Date is not consummated because of any
refusal, inability or failure on the part of the Company or the Selling
Stockholders to perform any agreement herein or to comply with any provision
hereof, the Company agrees to reimburse you and the other Underwriters upon
demand for all out-of-pocket expenses that shall have been reasonably incurred
by you and them in connection with the proposed purchase and the sale of the
Shares, including but not limited to fees and disbursements of counsel, printing
expenses, travel expenses, postage, telegraph charges and telephone charges
relating directly to the offering contemplated by the Prospectus. Any such
termination shall be without liability of any party to any other party except
that the provisions of this Section 5(m), Section 9 and Section 11 shall at all
times be effective and shall apply.
(n) Except as stated in this Agreement and in the Prepricing Prospectus
and Prospectus, the Company has not taken, nor will it take, directly or
indirectly, any action in violation of law designed to or that might reasonably
be expected to cause or
8
<PAGE>
result in stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Shares.
You, on behalf of the Underwriters, may, in your sole discretion, waive in
writing the performance by the Company of any one or more of the foregoing
covenants or extend the time for their performance.
6. Agreements of the Selling Stockholders. Each of the Selling
--------------------------------------
Stockholders severally agrees with the several Underwriters as follows:
(a) Such Selling Stockholder will cooperate to the extent necessary to
cause the registration statement or any post-effective amendment thereto to
become effective at the earliest possible time.
(b) Such Selling Stockholder will pay all federal and other taxes, if
any on the transfer or sale of the Shares being sold by the Selling Stockholder
to the Underwriters.
(c) Such Selling Stockholder will do or perform all things required to
be done or performed by the Selling Stockholder prior to the Closing Date to
satisfy all conditions precedent to the delivery of the Shares pursuant to this
Agreement.
(d) Such Selling Stockholder has executed or will execute a "lock-up"
letter as provided in Section 10(c)(vii).
(e) Except as stated in this Agreement and in the Prepricing Prospectus
and the Prospectus, such Selling Stockholder will not take, directly or
indirectly, any action in violation of law designed to or that might reasonably
be expected to cause or result in stabilization or manipulation of the price of
the Common Stock to facilitate the sale or resale of the Shares.
(f) Such Selling Stockholder will advise you promptly, and if requested
by you, will confirm such advice in writing, as expeditiously as possible, of
any change in the Company's condition (financial or other), business, prospects,
properties, net worth or results of operations or of any change in information
relating to such Selling Stockholder or the Company or any new information
relating to the Company or relating to any matter stated in the Prospectus or
any amendment or supplement thereto which comes to the attention of such Selling
Stockholder that suggests that any statement made in the Registration Statement
or the Prospectus (as then amended or supplemented, if amended or supplemented)
is or may be untrue in any material respect or that the Registration Statement
or Prospectus (as then amended or supplemented, if amended or supplemented)
omits or may omit to state a material fact or a fact necessary to be stated
therein in order to make the statements therein not misleading in any material
respect, or of the necessity to amend or supplement the Prospectus (as
9
<PAGE>
then amended or supplemented, if amended or supplemented) in order to comply
with the Act or any other law; provided, however, that the foregoing shall not
apply to any change or new information which the Company has previously
communicated in writing to you.
7. Representations and Warranties of the Company and the Principal Selling
-----------------------------------------------------------------------
Stockholders. The Company and each of the Principal Selling Stockholders
- ------------
represents and warrants to each Underwriter that:
(a) A registration statement on Form S-3 (File No. 333-40305) with
respect to the Shares has been prepared by the Company in conformity with the
requirements of the Act, and the Rules and Regulations of the Commission
thereunder, and has been filed with the Commission. The Company has prepared and
has filed or proposes to file prior to the effective date of such registration
statement an amendment or amendments to such registration statement, which
amendment or amendments have been or will be similarly prepared. There have been
delivered to you one copy of such registration statement and amendments,
together with one copy of each exhibit filed therewith. Conformed copies of such
registration statement and amendments (but without exhibits) and of the related
Prepricing Prospectus have been delivered to you in such reasonable quantities
as you have requested for each of the Underwriters. The Company will next file
with the Commission one of the following: (i) prior to effectiveness of such
registration statement, a further amendment thereto, including the form of final
prospectus, (ii) a final prospectus in accordance with Rules 430A and 424(b) of
the Rules and Regulations, or (iii) a term sheet (the "Term Sheet") as
described in and in accordance with Rules 434 and 424(b) of the Rules and
Regulations. As filed, the final prospectus, if one is used, or the Term Sheet
and Prepricing Prospectus, if a final prospectus is not used, shall include all
Rule 430A Information and, except to the extent that you shall agree in writing
to a modification, shall be in all substantive respects in the form furnished to
you prior to the date and time that this Agreement was executed and delivered by
the parties hereto, or, to the extent not completed at such date and time, shall
contain only such specific additional information and other changes (beyond that
contained in the latest Prepricing Prospectus as the Company shall have
previously advised you in writing would be included or made therein.
(b) The Company and the transactions contemplated by this Agreement
meet the requirements for using Form S-3 under the Act. The Commission has not
issued any order preventing or suspending the use of any Prepricing Prospectus,
and each Prepricing Prospectus has conformed in all material respects to the
requirements of the Act and the Rules and Regulations and, as of its date, has
not included any untrue statement of a material fact or omitted to state a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and at the time the
Registration Statement becomes effective, and at all times subsequent thereto up
to and including each Closing Date hereinafter mentioned, the Registration
Statement and the Prospectus, and any amendments or supplements
10
<PAGE>
thereto, will contain all material statements and information required to be
included therein by the Act and the Rules and Regulations and will in all
material respects conform to the requirements of the Act and the Rules and
Regulations, and neither the Registration Statement nor the Prospectus, nor any
amendment or supplement thereto, will include any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading; provided, however, no
representation or warranty contained in this subsection 7(b) shall be applicable
to information contained in or omitted from any Prepricing Prospectus, the
Registration Statement, the Prospectus or any such amendment or supplement in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of any Underwriter, directly or through the
Representatives, specifically for use in the preparation thereof.
(c) The Incorporated Documents heretofore filed, when they were filed
(or, if any amendment with respect to any such document was filed, when such
amendment was filed), conformed in all material respects with the requirements
of the Exchange Act and the rules and regulations thereunder, any further
Incorporated Documents so filed will, when they are filed, conform in all
material respects with the requirements of the Exchange Act and the rules and
regulations thereunder; no such document when it was filed (or, if an amendment
with respect to any such document was filed, when such amendment was filed),
contained an untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein not misleading; and no such further document, when it is filed, will
contain an untrue statement of a material fact or will omit to state a material
fact required to be stated therein or necessary in order to make the statements
therein not misleading.
(d) The Company does not own or control, directly or indirectly, any
corporation, association or other entity other than the subsidiaries listed in
Exhibit 21.1 to the Registration Statement. The Company and each of its
subsidiaries have been duly incorporated and are validly existing as
corporations in good standing under the laws of their respective jurisdictions
of incorporation, with full power and authority (corporate and other) to own and
lease their properties and conduct their respective businesses as described in
the Prospectus; the Company owns all of the outstanding capital stock of its
subsidiaries free and clear of all claims, liens, charges and encumbrances; the
Company and each of its subsidiaries are in possession of and operating in
compliance with all authorizations, licenses, permits, consents, certificates
and orders material to the conduct of their respective businesses taken as a
whole, all of which are valid and in full force and effect; the Company and each
of its subsidiaries are duly qualified to do business and in good standing as
foreign corporations in each jurisdiction in which the ownership or leasing of
properties or the conduct of their respective businesses requires such
qualification, except for jurisdictions in which the failure to so qualify would
not have a material adverse effect upon the Company or the subsidiary; and, to
the best of the Company's and each of the Principal Selling
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Stockholder's knowledge, no proceeding has been instituted in any such
jurisdiction, revoking, limiting or curtailing, or seeking to revoke, limit or
curtail, such power and authority or qualification.
(e) The Company has an authorized and outstanding capital stock as set
forth under the heading Capitalization in the Prospectus; the issued and
outstanding shares of Common Stock have been duly authorized and validly issued,
are fully paid and nonassessable, to the best of the Company's and each of the
Principal Selling Stockholder's knowledge have been issued in material
compliance with all federal and state securities laws, were not issued in
violation of or subject to any preemptive rights or other rights to subscribe
for or purchase securities, and conform to the description thereof contained in
the Prospectus. All issued and outstanding shares of capital stock of each
subsidiary of the Company have been duly authorized and validly issued and are
fully paid and nonassessable. Except as disclosed in or contemplated by the
Prospectus and the financial statements of the Company, and the related notes
thereto, included in the Prospectus, neither the Company nor any subsidiary has
outstanding any options to purchase, or any preemptive rights or other rights to
subscribe for or to purchase, any securities or obligations convertible into, or
any contracts or commitments to issue or sell, shares of its capital stock or
any such options, rights, convertible securities or obligations. The description
of the Company's stock option, stock bonus and other stock plans or
arrangements, and the options or other rights granted and exercised thereunder,
set forth in the Prospectus or incorporated by reference therein accurately and
fairly presents the information with respect to such plans, arrangements,
options and rights.
(f) The Shares to be sold by the Company have been duly authorized and,
when issued, delivered and paid for in the manner set forth in this Agreement,
will be duly authorized, validly issued, fully paid and nonassessable, and will
conform to the description thereof contained in the Prospectus. No preemptive
rights or other rights to subscribe for or purchase exist with respect to the
issuance and sale of the Shares by the Company pursuant to this Agreement. No
stockholder of the Company has any right which has not been waived to require
the Company to register the sale of any shares owned by such stockholder under
the Act in the public offering contemplated by this Agreement. No further
approval or authority of the stockholders or the Board of Directors of the
Company will be required for the transfer and sale of the Shares to be sold by
the Selling Stockholders or the issuance and sale of the Shares to be sold by
the Company as contemplated herein.
(g) The Company has full legal right, power and authority to enter into
this Agreement and perform the transactions contemplated hereby. This Agreement
has been duly authorized, executed and delivered by the Company and constitutes
a valid and binding obligation of the Company in accordance with its terms. The
making and performance of this Agreement by the Company and the consummation of
the transactions herein contemplated will not violate any provisions of the
certificate of incorporation or bylaws, or other organizational documents, of
the Company or any of
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its subsidiaries, and will not conflict with, result in the breach or violation
of, or constitute, either by itself or upon notice or the passage of time or
both, a default under any agreement, mortgage, deed of trust, lease, franchise,
license, indenture, permit or other instrument to which the Company or any of
its subsidiaries is a party or by which the Company or any of its subsidiaries
or any of its respective properties may be bound or affected, any statute or any
authorization, judgment, decree, order, rule or regulation of any court or any
regulatory body, administrative agency or other governmental body applicable to
the Company or any of its subsidiaries or any of their respective properties,
which breach, violation or default would result in a material adverse effect as
to the Company and its subsidiaries taken as a whole. No consent, approval,
authorization or other order of any court, regulatory body, administrative
agency or other governmental body is required for the execution and delivery of
this Agreement or the consummation of the transactions contemplated by this
Agreement, except for compliance with the Act, the Blue Sky laws applicable to
the public offering of the Shares by the several Underwriters and the clearance
of such offering with the NASD.
(h) Price Waterhouse LLP, who have expressed their opinion with respect
to the financial statements and schedules filed with the Commission as a part of
the Registration Statement and included in the Prospectus and in the
Registration Statement, are independent accountants as required by the Act and
the Rules and Regulations.
(i) The financial statements of the Company incorporated by reference
into the Registration Statement and the Prospectus from the Company's Annual
Report on Form 10-K for the year ended December 28, 1996; 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 by reference into the Registration Statement and the
Prospectus from pages F-17 through F-30 and pages F-36 through F-45,
respectively, of the Company's Prospectus dated October 22, 1996; and 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 by reference into the Registration Statement and the Prospectus
from the Registration Statement No. 333-11261 on Form S-1 of the Company,
present fairly the financial position of Wild Oats Markets, Inc. as of the
respective dates of such financial statements and schedules, and present fairly
the results of operations and changes in financial position of Wild Oats
Markets, Inc. for the respective periods covered thereby. Such statements,
schedules and related notes have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis as certified by
Price Waterhouse LLP or Deloitte & Touche LLP, as applicable. The selected
financial data set forth in the Prospectus under the captions "Capitalization"
and "Selected Financial and Operating Data" fairly present the information set
forth therein on the basis stated in the Registration Statement. The pro forma
financial information included in the Prospectus present fairly the information
13
<PAGE>
shown therein, have been prepared in accordance with the Commission's rules and
guidelines with respect to pro forma financial statements, have been properly
compiled on the pro forma basis described therein, and, in the opinion of the
Company, the assumptions used in the preparation thereof are reasonable and the
adjustments used therein are appropriate to give effect to the transactions or
circumstances referred to therein. No other financial statements or schedules
of the Company or any other entity are required to be included in, or
incorporated into, the Registration Statement pursuant to any requirement of the
Act or any Rules and Regulations, including Rule 3-05 of Regulation S-X.
(j) Except as disclosed in the Prospectus, and except as to violations,
breaches and defaults which individually or in the aggregate would not be
material to the Company and its subsidiaries taken as a whole, neither the
Company nor any of its subsidiaries is in violation or default of any provision
of its certificate of incorporation or bylaws, or other organizational
documents, or is in breach of or default with respect to any provision of any
agreement, judgment, decree, order, mortgage, deed of trust, lease, franchise,
license, indenture, permit or other instrument to which it is a party or by
which it or any of its properties are bound; and there does not exist any state
of facts which constitutes an event of default on the part of the Company or any
such subsidiary as defined in such documents or which, with notice or lapse of
time or both, would constitute such an event of default.
(k) There are no contracts or other documents required to be described
in the Registration Statement or to be filed as exhibits to the Registration
Statement by the Act or by the Rules and Regulations which have not been
described or filed as required. The contracts required to be described in the
Registration Statement are in full force and effect on the date hereof; and
neither the Company nor any of its subsidiaries, nor to the best of the
Company's and each of the Principal Selling Stockholder's knowledge, any other
party is in material breach of or default under any of such contracts.
(l) Except as disclosed in the Prospectus, there are no legal or
governmental actions, suits or proceedings pending or, to the best of the
Company's and each of the Principal Selling Stockholder's knowledge, threatened
to which the Company or any of its subsidiaries is or may be a party or of which
property owned or leased by the Company or any of its subsidiaries is or may be
the subject, or related to environmental or discrimination matters, which
actions, suits or proceedings might, individually or in the aggregate, prevent
or adversely affect the transactions contemplated by this Agreement or result in
a material adverse change in the condition (financial or otherwise), properties,
business, results of operations or prospects of the Company and its
subsidiaries; and no labor disturbance by the employees of the Company or any of
its subsidiaries exists or is imminent which might be expected to affect
adversely such condition, properties, business, results of operations or
prospects. Neither the Company nor any of its subsidiaries is a party or
subject to the provisions
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of any material injunction, judgment, decree or order of any court, regulatory
body, administrative agency or other governmental body.
(m) The Company or the applicable subsidiary has good and marketable
title to all the properties and assets reflected as owned in the financial
statements hereinabove described (or elsewhere in the Prospectus), subject to no
lien, mortgage, pledge, charge or encumbrance of any kind except (i) those, if
any, reflected in such financial statements (or elsewhere in the Prospectus), or
(ii) those which are not material in amount and do not adversely affect the use
made and proposed to be made of such property by the Company and its
subsidiaries. The Company or the applicable subsidiary holds its leased
properties under valid and binding leases, with such exceptions as are not
materially significant in relation to the business of the Company. Except as
disclosed in the Prospectus, the Company owns or leases all such properties as
are necessary to its operations as now conducted or as proposed to be conducted.
(n) Since the respective dates as of which information is given in the
Registration Statement and Prospectus, and except as described in or
specifically contemplated by the Prospectus: (i) the Company and its
subsidiaries have not incurred any material liabilities or obligations,
indirect, direct or contingent, or entered into any material verbal or written
agreement or other transaction which is not in the ordinary course of business
or which could result in a material reduction in the future earnings of the
Company and its subsidiaries; (ii) the Company and its subsidiaries have not
sustained any material loss or interference with their respective businesses or
properties from fire, flood, windstorm, accident or other calamity, whether or
not covered by insurance; (iii) the Company has not paid or declared any
dividends or other distributions with respect to its capital stock and the
Company and its subsidiaries are not in default in the payment of principal or
interest on any outstanding debt obligations; (iv) there has not been any change
in the capital stock (other than upon the sale of the Shares hereunder and upon
the exercise of options or warrants described in the Registration Statement) or
indebtedness material to the Company and its subsidiaries (other than in the
ordinary course of business); and (v) there has not been any material adverse
change in the condition (financial or otherwise), business, properties, results
of operations or prospects of the Company and its subsidiaries.
(o) Except as disclosed in or specifically contemplated by the
Prospectus, the Company and its subsidiaries have sufficient trademarks, trade
names, patent rights, mask works, copyrights, licenses, approvals and
governmental authorizations to conduct their businesses as now conducted; the
expiration of any trademarks, trade names, patent rights, mask works,
copyrights, licenses, approvals or governmental authorizations would not have a
material adverse effect on the condition (financial or otherwise), business,
results of operations or prospects of the Company or its subsidiaries; and the
Company has no knowledge of any material infringement by it or its subsidiaries
of trademark, trade name rights, patent rights, mask works, copyrights,
licenses, trade secret or other similar rights of others, and there is no claim
being made
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against the Company or its subsidiaries regarding trademark, trade name, patent,
mask work, copyright, license, trade secret or other infringement which could
have a material adverse effect on the condition (financial or otherwise),
business, results of operations or prospects of the Company and its subsidiaries
taken as a whole.
(p) The Company has not been advised, and has no reason to believe,
that either it or any of its subsidiaries is not conducting business in
compliance with all applicable laws, rules and regulations of the jurisdictions
in which it is conducting business, including, without limitation, all
applicable local, state and federal environmental laws and regulations; except
where failure to be so in compliance would not materially adversely affect the
condition (financial or otherwise), business, results of operations or prospects
of the Company and its subsidiaries taken as a whole.
(q) The Company and its subsidiaries have filed all necessary
federal, state and foreign income and franchise tax returns and have paid all
taxes shown as due thereon; and the Company has no knowledge of any tax
deficiency which has been or might be asserted or threatened against the Company
or its subsidiaries which could materially and adversely affect the business,
operations or properties of the Company and its subsidiaries taken as a whole.
(r) The Company is not an "investment company" within the meaning
of the Investment Company Act of 1940, as amended.
(s) The Company has not distributed and will not distribute prior
to the Closing Date any offering material in connection with the offering and
sale of the Shares other than the Prospectus, the Registration Statement and the
other materials permitted by the Act.
(t) Each of the Company and its subsidiaries maintains insurance of
the types and in the amounts generally deemed adequate for its business,
including, but not limited to, insurance covering real and personal property
owned or leased by the Company and its subsidiaries against theft, damage,
destruction, acts of vandalism and all other risks customarily insured against,
all of which insurance is in full force and effect.
(u) Neither the Company nor any of its subsidiaries has at any time
during the last five years (i) made any unlawful contribution to any candidate
for foreign office, or failed to disclose fully any contribution in violation of
law, or (ii) made any payment to any federal or state governmental officer or
official, or other person charged with similar public or quasi-public duties,
other than payments required or permitted by the laws of the United States of
any jurisdiction thereof.
(v) The Company has not taken and will not take, directly or
indirectly, any action in violation of law designed to or that might be
reasonably expected to cause
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or result in stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Shares.
(w) The Common Stock has been approved for quotation as a national
market system security on the Nasdaq National Market, and the Company has taken
the actions required by the published rules of the Nasdaq Stock Market to
qualify the Shares for inclusion in the Nasdaq National Market.
8. Representations and Warranties of the Selling Stockholders. Each
----------------------------------------------------------
Selling Stockholder severally represents and warrants to each Underwriter that:
(a) Such Selling Stockholder has, and on the Closing Date will
have, good and marketable title to the Shares proposed to be sold by such
Selling Stockholder hereunder on the Closing Date and full right, power and
authority to enter into this Agreement and to sell, assign, transfer and deliver
such Shares hereunder, free and clear of all voting trust arrangements, liens,
encumbrances, equities, security interests, restrictions and claims whatsoever;
and upon delivery of and payment for such Shares hereunder, the Underwriters
will acquire good and marketable title thereto, free and clear of all liens,
encumbrances, equities, claims, restrictions, security interests, voting trusts
or other defects of title whatsoever.
(b) Such Selling Stockholder has executed and delivered a Custody
Agreement and in connection herewith such Selling Stockholder further
represents, warrants and agrees that such Selling Stockholder has deposited in
custody, under the Custody Agreement with the Agent named therein (the "Agent"),
as custodian, certificates in negotiable form for the Shares to be sold
hereunder by such Selling Stockholder, for the purpose of further delivery
pursuant to this Agreement. Such Selling Stockholder agrees that the Shares to
be sold by such Selling Stockholder on deposit with the Agent are subject to the
interests of the Company and the Underwriters, that the arrangements made for
such custody are to that extent irrevocable, and that the obligations of such
Selling Stockholder hereunder shall not be terminated, except as provided in
this Agreement or in the Custody Agreement, by any act of such Selling
Stockholder, by operation of law, by the death or incapacity of such Selling
Stockholder or by the occurrence of any other event. If the Selling Stockholder
should die or become incapacitated, or if any other event should occur, before
the delivery of the Shares hereunder, the documents evidencing Shares then on
deposit with the Agent shall be delivered by the Agent in accordance with the
terms and conditions of this Agreement as if such death, incapacity or other
event had not occurred, regardless of whether or not the Agent shall have
received notice thereof. This Agreement and the Custody Agreement have been duly
executed and delivered by or on behalf of such Selling Stockholder and the form
of such Custody Agreement has been delivered to you.
(c) The performance of this Agreement and the Custody Agreement and
the consummation of the transactions contemplated hereby and by the Custody
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Agreement will not result in a breach or violation by such Selling Stockholder
of any of the terms or provisions of, or constitute a default by such Selling
Stockholder under, any indenture, mortgage, deed of trust, trust (constructive
or other), loan agreement, lease, franchise, license or other agreement or
instrument to which such Selling Stockholder is a party or by which such Selling
Stockholder or any of its properties is bound, any statute, or any judgment,
decree, order, rule or regulation of any court or governmental agency or body
applicable to such Selling Stockholder or any of its properties.
(d) Such Selling Stockholder has not taken and will not take,
directly or indirectly, any action in violation of law designed to or which has
constituted or which might reasonably be expected to cause or result in
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Shares.
(e) Each Prepricing Prospectus and the Prospectus, insofar as it
has related to such Selling Stockholder, has conformed in all material respects
to the requirements of the Act and the Rules and Regulations and has not
included any untrue statement of a material fact or omitted to state a material
fact necessary to make the statements therein not misleading in light of the
circumstances under which they were made; and neither the Registration Statement
nor the Prospectus, nor any amendment or supplement thereto, as it relates to
such Selling Stockholder, will include any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading.
Each of the Other Selling Stockholders severally represents and warrants
to, and agrees with, the several Underwriters that it is not aware that any of
the representations and warranties set forth in Section 7 above is untrue or
inaccurate in any material respect.
9. Indemnification and Contribution.
--------------------------------
(a) The Company and each of the Principal Selling Stockholders,
jointly and severally, agree to indemnify and hold harmless each of you and each
other Underwriter and each person, if any, who controls any Underwriter within
the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act from
and against any and all losses, claims, damages, liabilities and expenses
(including reasonable costs of investigation) arising out of or based upon any
untrue statement or alleged untrue statement of a material fact contained in any
Prepricing Prospectus or in the Registration Statement or the Prospectus or in
any amendment or supplement thereto, or arising out of or based upon any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages, liabilities or expenses arise
out of or are based upon any untrue statement or omission or alleged untrue
statement or omission which has been made therein or omitted therefrom in
reliance upon and in conformity with the information furnished to the Company
pursuant to Section 14 hereof;
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provided, however, that the indemnification contained in this paragraph (a) with
respect to any Prepricing Prospectus shall not inure to the benefit of any
Underwriter (or to the benefit of any person controlling such Underwriter) on
account of any such loss, claim, damage, liability or expense arising from the
sale of the Shares by such Underwriter to any person if a copy of the Prospectus
shall not have been delivered or sent to such person within the time required by
the Act and the regulations thereunder, and the untrue statement or alleged
untrue statement or omission or alleged omission of a material fact contained in
such Prepricing Prospectus was corrected in the Prospectus, provided that the
Company has delivered the Prospectus to the several Underwriters in requisite
quantity on a timely basis to permit such delivery or sending. The foregoing
indemnity agreement shall be in addition to any liability which the Company or
any Principal Selling Stockholder may otherwise have. The Company and the
Principal Selling Stockholders may agree, as among themselves and without
limiting the rights of the Underwriters under this Agreement, as to their
respective amounts of such liability for which they each shall be responsible.
In no event shall the liability of any Principal Selling Stockholder for
indemnification under this Section 9(a) or for breach of representations and
warranties under this Agreement exceed the proceeds received by such Principal
Selling Stockholder from the Underwriters in the offering.
(b) If any action, suit or proceeding shall be brought against any
Underwriter or any person controlling any Underwriter in respect of which
indemnity may be sought against the Company or any Selling Stockholder, such
Underwriter or such controlling person shall promptly notify the parties against
whom indemnification is being sought (the "indemnifying parties"), and such
indemnifying parties shall assume the defense thereof, including the employment
of counsel and payment of all fees and expenses. Such Underwriter or any such
controlling person shall have the right to employ separate counsel in any such
action, suit or proceeding and to participate in the defense thereof, but the
fees and expenses of such counsel shall be at the expense of such Underwriter or
such controlling person unless (i) the indemnifying parties have agreed in
writing to pay such fees and expenses, (ii) the indemnifying parties have failed
to assume the defense and employ counsel, or (iii) the named parties to any such
action, suit or proceeding (including any impleaded parties) include both such
Underwriter or such controlling person and the indemnifying parties and such
Underwriter or such controlling person shall have been advised by its counsel
that representation of such indemnified party and any indemnifying party by the
same counsel would be inappropriate under applicable standards of professional
conduct (whether or not such representation by the same counsel has been
proposed) due to actual or potential differing interests between them (in which
case the indemnifying party shall not have the right to assume the defense of
such action, suit or proceeding on behalf of such Underwriter or such
controlling person). It is understood, however, that the indemnifying parties
shall, in connection with any one such action, suit or proceeding or separate
but substantially similar or related actions, suits or proceedings in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of only one separate firm of
attorneys at any time for all such
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Underwriters and controlling persons when entitled under the immediately
preceding sentence, which firm shall be designated in writing by Smith Barney
Inc., and that all such fees and expenses shall be reimbursed as they are
incurred. To the extent that any such reimbursement is held to have been
improper by a court of competent jurisdiction, each Underwriter shall promptly
return such reimbursement to the Company and the Principal Selling Stockholders
together with interest, compounded daily, determined on the basis of the prime
rate (or other commercial lending rate for borrowers of the highest credit
standing) announced from time to time by _____________. The indemnifying
parties shall not be liable for any settlement of any such action, suit or
proceeding effected without their written consent, but if settled with such
written consent, or if there be a final judgment for the plaintiff in any such
action, suit or proceeding, the indemnifying parties agree to indemnify and hold
harmless any Underwriter, to the extent provided in the preceding paragraph, and
any such controlling person from and against any loss, claim, damage, liability
or expense by reason of such settlement or judgment.
(c) Each Other Selling Stockholder agrees, severally and not
jointly, to indemnify and hold harmless each of you and each Other Underwriter
and each person, if any, who controls any Underwriter within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act, the Company, its
directors, its officers who sign the Registration Statement, and any person who
controls the Company within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act to the same extent as the foregoing indemnity from the
Company and the Principal Selling Stockholders to each Underwriter, but only
with respect to the information furnished in writing by or on behalf of such
Other Selling Stockholder expressly for use in the Registration Statement, the
Prospectus or any Prepricing Prospectus, or any amendment or supplement thereto.
If any action, suit or proceeding shall be brought against any Underwriter, any
such controlling person of any Underwriter, the Company, any of its directors,
any such officer, or any such controlling person of the Company, based on the
Registration Statement, the Prospectus or any Prepricing Prospectus or any
amendment or supplement thereto, and in respect of which indemnity may be sought
against any Other Selling Stockholder pursuant to this paragraph (c), such Other
Selling Stockholder shall have the rights and duties given to the Company by
paragraph (b) above (except that if the Company shall have assumed the defense
thereof such Other Selling Stockholder shall not be required to do so, but may
employ separate counsel therein and participate in the defense thereof, but the
fees and expenses of such counsel shall be at such Other Selling Stockholder's
expense), and each Underwriter, each such controlling person of any Underwriter,
the Company, its directors, any such officer, and any such controlling person of
the Company shall have the rights and duties given to the Underwriters by
paragraph (b) above. The foregoing indemnity agreement shall be in addition to
any liability which any Selling Stockholder may otherwise have. In addition, in
no event shall the liability of any Other Selling Stockholder for
indemnification under this Section 9(c) or for breach of representation and
warranties under this Agreement exceed the
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<PAGE>
proceeds received by such Other Selling Stockholder from the Underwriters in the
offering.
(d) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors, its officers who sign
the Registration Statement, each Selling Stockholder, and any person who
controls the Company within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act, to the same extent as the foregoing indemnities from
the Company and the Selling Stockholders to each Underwriter, but only with
respect to information relating to such Underwriter furnished pursuant to
Section 14 hereof. If any action, suit or proceeding shall be brought against
the Company, any of its directors, any such officer, any Selling Stockholder, or
any such controlling person based on the Registration Statement, the Prospectus
or any Prepricing Prospectus, or any amendment or supplement thereto, and in
respect of which indemnity may be sought against any Underwriter pursuant to
this paragraph (d), such Underwriter shall have the rights and duties given to
the Company by paragraph (b) above (except that if the Company shall have
assumed the defense thereof such Underwriter shall not be required to do so, but
may employ separate counsel therein and participate in the defense thereof, but
the fees and expenses of such counsel shall be at such Underwriter's expense),
and the Company, its directors, any such officer, the Selling Stockholders, and
any such controlling person shall have the rights and duties given to the
Underwriters by paragraph (b) above. The foregoing indemnity agreement shall be
in addition to any liability which any Underwriter may otherwise have.
(e) If the indemnification provided for in this Section 9 is
unavailable to an indemnified party under paragraphs (a),(c) or (d) hereof in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then an indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company and the Selling Stockholders on the one hand and the Underwriters on the
other hand from the offering of the Shares, or (ii) if the allocation provided
by clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company and the Selling Stockholders on
the one hand and the Underwriters on the other in connection with the statements
or omissions that resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The relative
benefits received by the Company and the Selling Stockholders on the one hand
and the Underwriters on the other shall be deemed to be in the same proportion
as the total net proceeds from the offering (before deducting expenses) received
by the Company and the Selling Stockholders bear to the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover page of the Prospectus; provided that, in the
event that the Underwriters shall have purchased any Additional Shares
hereunder, any
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determination of the relative benefits received by the Company, the Selling
Stockholders or the Underwriters from the offering of the Shares shall include
the net proceeds (before deducting expenses) received by the Company and the
Selling Stockholders, and the underwriting discounts and commissions received by
the Underwriters, from the sale of such Additional Shares, in each case computed
on the basis of the respective amounts set forth in the notes to the table on
the cover page of the Prospectus. The relative fault of the Company and the
Selling Stockholders on the one hand and the Underwriters on the other hand
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company or the
Selling Stockholders on the one hand or by the Underwriters on the other hand
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
(f) The Company, the Selling Stockholders and the Underwriters
agree that it would not be just and equitable if contribution pursuant to this
Section 9 were determined by a pro rata allocation (even if the Underwriters
were treated as one entity for such purpose) or by any other method of
allocation that does not take account of the equitable considerations referred
to in paragraph (e) above. The amount paid or payable by an indemnified party as
a result of the losses, claims, damages, liabilities and expenses referred to in
paragraph (e) above shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating any claim or defending any such action,
suit or proceeding. Notwithstanding the provisions of this Section 9, no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price of the Shares underwritten by it and distributed to the
public exceeds the amount of any damages which such Underwriter has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute pursuant to this
Section 9 are several in proportion to the respective numbers of Firm Shares set
forth opposite their names in Schedule II hereto (or such numbers of Firm Shares
increased as set forth in Section 12 hereof) and not joint.
(g) No indemnifying party shall, without the prior written consent
of the indemnified party, effect any settlement of any pending or threatened
action, suit or proceeding in respect of which any indemnified party is or could
have been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release of
such indemnified party from all liability on claims that are the subject matter
of such action, suit or proceeding.
(h) Any losses, claims, damages, liabilities or expenses for which
an indemnified party is entitled to indemnification or contribution under this
Section 9 shall
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<PAGE>
be paid by the indemnifying party to the indemnified party as such losses,
claims, damages, liabilities or expenses are incurred. To the extent that any
such indemnification is held to have been improper by a court of competent
jurisdiction, each indemnified party shall promptly return such indemnified
amounts to the indemnifying party together with interest, compounded daily,
determined on the basis of the prime rate (or other commercial lending rate for
borrowers of the highest credit standing) announced from time to time by
_____________. The indemnity and contribution agreements contained in this
Section 9 and the representations and warranties of the Company and the Selling
Stockholders set forth in this Agreement shall remain operative and in full
force and effect, regardless of (i) any investigation made by or on behalf of
any Underwriter or any person controlling any Underwriter, the Company, its
directors or officers or the Selling Stockholders or any person controlling the
Company, (ii) acceptance of any Shares and payment therefor hereunder, and (iii)
any termination of this Agreement. A successor to any Underwriter or any person
controlling any Underwriter, or to the Company, its directors or officers, any
person controlling the Company or any Selling Stockholder, shall be entitled to
the benefits of the indemnity, contribution and reimbursement agreements
contained in this Section 9.
10. Conditions of the Obligations of the Underwriters. The obligations
-------------------------------------------------
of the several Underwriters to purchase and pay for the Firm Shares on the
Closing Date and the Additional Shares on the Option Closing Date shall be
subject to the accuracy of the representations and warranties on the part of the
Company and the Selling Stockholders herein set forth as of the date hereof and
as of the Closing Date or the Option Closing Date, as the case may be, to the
accuracy of the statements of Company's officers and the Selling Stockholders
made pursuant to the provisions hereof, to the performance by the Company and
the Selling Stockholders of their respective obligations hereunder, and to the
following additional conditions:
(a) The Registration Statement shall have become effective not
later than 5:00 P.M. (or, in the case of a registration statement filed pursuant
to Rule 462(b) of the Rules and Regulations relating to the Shares, not later
than 10:00 P.M.), Washington, D.C. Time, on the date of this Agreement, or at
such later time as shall have been consented to by you; if the filing of the
Prospectus, or any supplement thereto, is required pursuant to Rule 424(b) of
the Rules and Regulations, the Prospectus shall have been filed in the manner
and within the time period required by Rule 424(b) of the Rules and Regulations;
and prior to such Closing Date, no stop order suspending the effectiveness of
the Registration Statement shall have been issued and no proceedings for that
purpose shall have been instituted or shall be pending or, to the knowledge of
the Company, the Selling Stockholders or you, shall be contemplated by the
Commission; and any request of the Commission for inclusion of additional
information in the Registration Statement, or otherwise, shall have been
complied with to your satisfaction.
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(b) You shall be satisfied that since the respective dates as of
which information is given in the Registration Statement and Prospectus, (i)
there shall not have been any change in the capital stock other than pursuant to
the exercise of outstanding options or warrants disclosed in the Prospectus of
the Company or any of its subsidiaries or any material change in the
indebtedness (other than in the ordinary course of business) of the Company or
any of its subsidiaries, (ii) except as set forth or contemplated by the
Registration Statement or the Prospectus, no material verbal or written
agreement or other transaction shall have been entered into by the Company or
any of its subsidiaries, which is not in the ordinary course of business or
which could result in a material reduction in the future earnings of the Company
and its subsidiaries, (iii) no loss or damage (whether or not insured) to the
property of the Company or any of its subsidiaries shall have been sustained
which materially and adversely affects the condition (financial or otherwise),
business, results of operations or prospects of the Company and its
subsidiaries, (iv) no legal or governmental action, suit or proceeding affecting
the Company or any of its subsidiaries which is material to the Company or any
of its subsidiaries or which affects or may affect the transactions contemplated
by this Agreement shall have been instituted or threatened except as disclosed
in the Prospectus and (v) there shall not have been any material change in the
condition (financial or otherwise), business, management, results of operations
or prospects of the Company or any of its subsidiaries which makes it
impractical or inadvisable in the judgment of the Representatives to proceed
with the public offering or purchase the Shares as contemplated hereby.
(c) There shall have been furnished to you, as Representatives of
the Underwriters, on each Closing Date, in form and substance satisfactory to
you, except as otherwise expressly provided below:
(i) An opinion of Holme Roberts & Owen LLP, counsel for the
Company and the Selling Stockholders, addressed to the Underwriters and dated
the Closing Date, or the Option Closing Date, as the case may be, to the effect
that:
(1) Each of the Company and its subsidiaries has been
duly incorporated and is validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation, is duly qualified to
do business as a foreign corporation and is in good standing in all other
jurisdictions where the ownership or leasing of properties or the conduct
of its business requires such qualification, except for jurisdictions in
which the failure to so qualify would not have a material adverse effect on
the Company and its subsidiaries taken as a whole, and has full corporate
power and authority to own its properties and conduct its business as
described in the Registration Statement;
(2) The authorized, issued and outstanding capital
stock of the Company is as set forth under the caption "Capitalization" in
the Prospectus as of the date set forth therein and conforms as to legal
matters in all
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material respects to the description thereof incorporated by reference into
the Company's Registration Statement on Form 8-A (File no. 00-21577) (the
"Form 8-A"); all necessary and proper corporate proceedings have been
taken in order to authorize validly such authorized Stock; all outstanding
shares of Capital Stock (including the Firm Shares and any Additional
Shares) have been duly and validly issued, are fully paid and
nonassessable, were not issued in violation of or to the best of such
counsel's knowledge, subject to any preemptive rights or other rights to
subscribe for or purchase any securities and conform to the description
thereof incorporated by reference into the Form 8-A; without limiting the
foregoing, there are no preemptive or to the best of such counsel's
knowledge, other rights to subscribe for or purchase any of the Shares to
be sold by the Company hereunder;
(3) All of the issued and outstanding shares of capital
stock of the Company's subsidiaries have been duly and validly authorized
and issued, are fully paid and nonassessable and are owned beneficially by
the Company free and clear of all liens, encumbrances, equities, claims,
security interests, voting trusts or other defects of title whatsoever;
(4) The certificate evidencing the Shares of the
Company incorporated by reference as an exhibit to the Registration
Statement is in due and proper form under Delaware law, and when duly
countersigned by the Company's transfer agent and registrar, and delivered
to you or upon your order against payment of the agreed consideration
therefor in accordance with the provisions of this Agreement, the Shares
represented thereby will be duly authorized and validly issued, fully paid
and nonassessable, will not have been issued in violation of or subject to
any preemptive rights or to the best of such counsel's knowledge, other
rights to subscribe for or purchase securities and will conform in all
respects to the description thereof incorporated by reference into the Form
8-A;
(5) Except as disclosed in or specifically contemplated
by the Prospectus, to the best of such counsel's knowledge, there are no
outstanding options, warrants or other rights calling for the issuance of,
and no commitments, plans or arrangements to issue, any shares of capital
stock of the Company or any security convertible into or exchangeable for
capital stock of the Company;
(6) (a) The Registration Statement has become
effective under the Act, and, to the best of such counsel's knowledge, no
stop order proceeding suspending the effectiveness of the Registration
Statement or preventing the use of the Prospectus has been issued and no
proceedings for that purpose have been instituted or are pending or
threatened by the Commission; any required filing of the Prospectus and any
supplement thereto pursuant to Rule
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424(b) of the Rules and Regulations has been made in the manner and within
the time period required by such Rule 424(b);
(b) The Registration Statement, the Prospectus and each
amendment or supplement thereto and the Incorporated Documents (except for
the financial statements and schedules and financial and statistical data
included therein as to which such counsel need express no opinion) comply
as to form in all material respects with the requirements of the Act and
the Rules and Regulations or the Exchange Act, as the case may be;
(c) To the best of such counsel's knowledge, there are no
franchises, leases, contracts, agreements or documents of a character
required to be disclosed in the Registration Statement or Prospectus or to
be filed as exhibits to the Registration Statement which are not disclosed
or filed, as required by the Act and the Rules and Regulations; and
(d) To the best of such counsel's knowledge, there are no
legal or governmental actions, suits or proceedings pending or threatened
against the Company which are required to be described in the Prospectus
which are not described as required by the Act and the Rules and
Regulations.
(7) The Company has full corporate right, power and authority to
enter into this Agreement and to sell and deliver the Shares to be sold by
it to the several Underwriters; this Agreement has been duly and validly
authorized by all necessary corporate action by the Company, has been duly
and validly executed and delivered by and on behalf of the Company, and is
a valid and binding agreement of the Company in accordance with its terms,
except as enforceability may be limited by general equitable principles,
bankruptcy, insolvency, reorganization, moratorium or other laws affecting
creditors' rights generally and except as to those provisions relating to
indemnity or contribution for liabilities arising under the Act as to which
no opinion need be expressed; and no approval, authorization, order,
consent, registration, filing, qualification, license or permit of or with
any court, regulatory, administrative or other governmental body or agency
is required for the execution and delivery of this Agreement by the Company
or the consummation of the transactions contemplated by this Agreement,
except such as have been obtained and are in full force and effect under
the Act and such as may be required under applicable Blue Sky laws in
connection with the purchase and distribution of the Shares by the
Underwriters and the clearance of such offering with the NASD;
(8) The execution and performance of this Agreement and the
consummation of the transactions herein contemplated will not conflict
with, result in the breach of, or constitute, either by such execution,
performance or consummation or upon notice or the passage of time or both,
a default under, any
26.
<PAGE>
agreement, mortgage, deed of trust, lease, franchise, license, indenture,
permit or other instrument known to such counsel which is incorporated by
reference as an exhibit to the Registration Statement and to which the
Company or any of its subsidiaries is a party or by which the Company or
any of its subsidiaries or any of its or their property may be bound or
affected which is material to the Company and its subsidiaries taken as a
whole, or violate any of the provisions of the certificate of incorporation
or bylaws, of the Company or any of its subsidiaries or, to the best of
such counsel's knowledge, violate any statute, judgment, decree, order,
rule or regulation of any court or governmental body having jurisdiction
over the Company or any of its subsidiaries or any of its or their
property;
(9) Neither the Company nor any subsidiary is in violation of its
certificate of incorporation or bylaws, or to the best of such counsel's
knowledge, in breach of or default with respect to any provision of any
agreement, mortgage, deed of trust, lease, franchise, license, indenture,
permit or other instrument known to such counsel to which the Company or
any such subsidiary is a party or by which it or any of its properties may
be bound or affected, except where such default would not materially
adversely affect the Company and its subsidiaries taken as a whole; and, to
the best of such counsel's knowledge, the Company and its subsidiaries are
in compliance with all laws, rules, regulations, judgments, decrees, orders
and statutes of any court or jurisdiction to which they are subject, except
where noncompliance would not materially adversely affect the Company and
its subsidiaries taken as a whole;
(10) To the best of such counsel's knowledge, no holders of
securities of the Company have rights which have not been waived to the
registration of shares of Common Stock or other securities, because of the
filing of the Registration Statement by the Company or the offering
contemplated hereby;
(11) To the best of such counsel's knowledge: this Agreement and
the Custody Agreement have been duly authorized, executed and delivered by
or on behalf of each of the Selling Stockholders; has been
------------
duly and validly authorized to act as the custodian of the Shares to be
sold by each such Selling Stockholder in accordance with the terms and
provisions of the Custody Agreement; and the performance of this Agreement
and the Custody Agreement and the consummation of the transactions herein
contemplated by the Selling Stockholders will not result in a breach of, or
constitute a default under, any indenture, mortgage, deed of trust, trust
(constructive or other), loan agreement, lease, franchise, license or other
agreement or instrument to which any of the Selling Stockholders is a party
or by which any of the Selling Stockholders or any of their properties may
be bound, or violate any statute, judgment, decree, order, rule or
regulation known to such counsel of any court or governmental body having
jurisdiction over any of the Selling Stockholders or any
27.
<PAGE>
of their properties; and, no approval, authorization, order or consent of
any court, regulatory body, administrative agency or other governmental
body is required for the execution and delivery of this Agreement or the
Custody Agreement or the consummation by the Selling Stockholders of the
transactions contemplated by this Agreement, except such as have been
obtained and are in full force and effect under the Act and such as may be
required under the rules of the NASD and applicable Blue Sky laws;
(12) To the best of such counsel's knowledge, each of the Selling
Stockholders has good and marketable title to such Shares so sold, free and
clear of all liens, encumbrances, equities, claims, restrictions, security
interests, voting trusts, or other defects of title whatsoever, has been
transferred to the Underwriters (whom counsel may assume to be bona fide
purchasers) (assuming payment in full therefor by such Underwriters) who
have purchased such Shares hereunder; and
(13) To the best of such counsel's knowledge, this Agreement and
the Custody Agreement are valid and binding agreements of each of the
Selling Stockholders in accordance with their terms except as
enforceability may be limited by general equitable principles, bankruptcy,
insolvency, reorganization, moratorium or other laws affecting creditors'
rights generally and except with respect to those provisions relating to
indemnities or contributions for liabilities under the Act, as to which no
opinion need be expressed.
(14) No transfer taxes are required to be paid in connection with
the sale and delivery of the Shares to the Underwriters hereunder.
In rendering such opinion, such counsel may rely (i) as to the matters set
forth in paragraphs (11), (12) and (13), on opinions of other counsel retained
by the Selling Stockholders, (ii) as to matters of local law, on opinions of
local counsel, and (iii) as to matters of fact, on certificates of the Selling
Stockholders and of officers of the Company and of governmental officials, in
which case their opinion is to state that they are so doing and their belief
that the Underwriters are justified in relying on such opinions or certificates
and copies of said opinions are to be attached to the opinion. Such counsel
shall also include a statement to the effect that nothing has come to such
counsel's attention that would lead such counsel to believe that either at the
effective date of the Registration Statement or at the applicable Closing Date
the Registration Statement or the Prospectus, or any such amendment or
supplement, contains any untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading.
(ii) Such opinion or opinions of Brobeck, Phleger & Harrison LLP,
counsel for the Underwriters, dated the Closing Date or the Option Closing Date,
as the case may be, with respect to the incorporation of the Company, the
sufficiency of all
28.
<PAGE>
corporate proceedings and other legal matters relating to this Agreement, the
validity of the Shares, the Registration Statement and the Prospectus and other
related matters as you may reasonably require, and the Company and the Selling
Stockholders shall have furnished to such counsel such documents and shall have
exhibited to them such papers and records as they may reasonably request for the
purpose of enabling them to pass upon such matters. In connection with such
opinions, such counsel may rely on representations or certificates of officers
of the Company and governmental officials.
(iii) A certificate of the Company executed by the Chairman of the
Board, the Chief Executive Officer or President and the chief financial or
accounting officer of the Company, dated the Closing Date or the Option Closing
Date, as the case may be, to the effect that:
(1) The representations and warranties of the Company set forth
in Section 7 of this Agreement are true and correct as of the date of this
Agreement and as of the Closing Date or the Option Closing Date, as the
case may be, and the Company has complied with all the agreements and
satisfied all the conditions on its part to be performed or satisfied on or
prior to such Closing Date;
(2) The Commission has not issued any order preventing or
suspending the use of the Prospectus or any Prepricing Prospectus filed as
a part of the Registration Statement or any amendment thereto; no stop
order suspending the effectiveness of the Registration Statement has been
issued; and to the best of the knowledge of the respective signers, no
proceedings for that purpose have been instituted or are pending or
contemplated under the Act;
(3) Each of the respective signers of the certificate has
carefully examined the Registration Statement and the Prospectus; in such
officers' opinion and to the best of such officers' knowledge, the
Registration Statement and the Prospectus and any amendments or supplements
thereto contain all statements required to be stated therein regarding the
Company and its subsidiaries; and neither the Registration Statement nor
the Prospectus nor any amendment or supplement thereto includes any untrue
statement of a material fact or omits to state any material fact required
to be stated therein or necessary to make the statements therein not
misleading;
(4) Since the initial date on which the Registration Statement
was filed, no agreement, written or oral, transaction or event has occurred
which should have been set forth in an amendment to the Registration
Statement or in a supplement to or amendment of any prospectus which has
not been disclosed in such a supplement or amendment;
29.
<PAGE>
(5) Since the respective dates as of which information is given
in the Registration Statement and the Prospectus, and except as disclosed
in or contemplated by the Prospectus, there has not been any material
adverse change or a development involving a material adverse change in the
condition (financial or otherwise), business, properties, results of
operations, management or prospects of the Company and its subsidiaries;
and, except as disclosed in or contemplated by the Prospectus, no legal or
governmental action, suit or proceeding is pending or threatened against
the Company or any of its subsidiaries which is material to the Company and
its subsidiaries taken as a whole, whether or not arising from transactions
in the ordinary course of business, or which may adversely affect the
transactions contemplated by this Agreement; since such dates and except as
so disclosed, neither the Company nor any of its subsidiaries has entered
into any verbal or written agreement or other transaction which is not in
the ordinary course of business or which could result in a material
reduction in the future earnings of the Company or incurred any material
liability or obligation, direct, contingent or indirect, made any change in
its capital stock, made any material change in its short-term debt or
funded debt or repurchased or otherwise acquired any of the Company's
capital stock; and the Company has not declared or paid any dividend, or
made any other distribution, upon its outstanding capital stock payable to
stockholders of record on a date prior to the Closing Date or Option
Closing Date; and
(6) Since the respective dates as of which information is given
in the Registration Statement and the Prospectus and except as disclosed in
or contemplated by the Prospectus, the Company and its subsidiaries have
not sustained a material loss or damage by strike, fire, flood, windstorm,
accident or other calamity (whether or not insured).
(iv) On the Closing Date or the Option Closing Date, as the case may
be, a certificate, dated such Closing Date and addressed to you, signed by or on
behalf of each of the Selling Stockholders to the effect that the
representations and warranties of such Selling Stockholder in this Agreement are
true and correct, as if made at and as of the Closing Date or the Option Closing
Date, as the case may be, and such Selling Stockholder has complied with all the
agreements and satisfied all the conditions on his or her part to be performed
or satisfied prior to the Closing Date or the Option Closing Date, as the case
may be.
(v) On the date before this Agreement is executed and also on the
Closing Date and the Option Closing Date a letter addressed to you, as
Representatives of the Underwriters, from Price Waterhouse LLP, independent
accountants, the first one to be dated the day before the date of this
Agreement, the second one to be dated the Closing Date and the third one (in the
event of the exercising of the Underwriters' over-allotment option in part or in
full), to be dated the Option Closing Date, in form and substance satisfactory
to you.
30.
<PAGE>
(vi) On or before the Closing Date, letters from each of the Selling
Stockholders, each holder of five percent (5%) or more of the Company's Common
Stock and each director and officer of the Company, in form and substance
satisfactory to you, confirming that for a period of 90 days after the first
date that any of the Shares are released by you for sale to the public, such
person will not directly or indirectly offer to sell, pledge, sell or contract
to sell or otherwise dispose of any shares of Common Stock or any right to
acquire such shares or securities convertible into or exchangeable for any
shares of Common Stock without the prior written consent of Smith Barney Inc.,
which consent may be withheld at the sole discretion of Smith Barney Inc [to be
conformed to final lockup].
(vii) The Company shall have taken the actions required by the
published rules of the Nasdaq Stock Market to qualify the Shares for inclusion
in the Nasdaq National Market.
All such opinions, certificates, letters and documents shall be in
compliance with the provisions hereof only if they are satisfactory to you and
to Brobeck, Phleger & Harrison LLP, counsel for the Underwriters. The Company
shall furnish you with such manually signed or conformed copies of such
opinions, certificates, letters and documents as you request. Any certificate
signed by any officer of the Company and delivered to the Representatives or to
counsel for the Underwriters shall be deemed to be a representation and warranty
by the Company to the Underwriters as to the statements made therein.
If any condition to the Underwriters' obligations hereunder to be satisfied
prior to or at the Closing Date is not so satisfied, this Agreement at your
election will terminate upon notification by you as Representatives to the
Company and the Selling Stockholders without liability on the part of any
Underwriter, the Company or the Selling Stockholders except for the expenses to
be paid or reimbursed by the Company and by the Selling Stockholders pursuant to
Sections 2(m) and 11 hereof and except to the extent provided in Section 9
hereof.
11. Expenses. The Sellers (in such proportions as they may agree) agree
--------
pay the following costs and expenses and all other costs and expenses incident
to the performance by the Sellers of their obligations hereunder: (i) the
preparation, printing or reproduction, and filing with the Commission of the
registration statement (including financial statements and exhibits thereto),
each Prepricing Prospectus, the Prospectus, and each amendment or supplement to
any of them; (ii) the printing (or reproduction) and delivery (including
postage, air freight charges and charges for counting and packaging) of such
copies of the registration statement, each Prepricing Prospectus, the
Prospectus, the Incorporated Documents, and all amendments or supplements to any
of them, as may be reasonably requested for use in connection with the offering
and sale of the Shares; (iii) the preparation, printing, authentication,
issuance and delivery of
31.
<PAGE>
certificates for the Shares, including any stamp taxes in connection with the
original issuance and sale of the Shares; (iv) the printing (or reproduction)
and delivery of this Agreement, the Blue Sky Memorandum and all other agreements
or documents printed (or reproduced) and delivered in connection with the
offering of the Shares; (v) the listing of the Shares to be issued and sold by
the Company on the Nasdaq National Market; (vi) the registration or
qualification of the Shares for offer and sale under the securities or Blue Sky
laws of the several states (including the reasonable fees, expenses and
disbursements of counsel for the Underwriters relating to the preparation,
printing or reproduction, and delivery of the Blue Sky Memorandum and such
registration and qualification); (vii) the filing fee of the NASD; (viii) the
transportation and other expenses incurred by or on behalf of Company
representatives in connection with presentations to prospective purchasers of
the Shares; and (ix) the fees and expenses of the Company's accountants and the
fees and expenses of counsel (including local and special counsel) for the
Company and the Selling Stockholders. Except as provided in this Section 11,
Section 2(m) and Section 9 hereof, the Underwriters shall pay all their own
expenses, including the fees and disbursements of their counsel (excluding those
related to qualification, registration or exemption under the Blue Sky Laws and
the Blue Sky Memorandum referred to above). This Section 11 shall not affect
any agreements relative to the payment of expenses between the Company and the
Selling Stockholders.
12. Effective Date of Agreement. This Agreement shall become effective
---------------------------
immediately as to Sections 9, 11 and 13, as to all other provisions, (i) if at
the time of execution of this Agreement the Registration Statement has not
become effective, at 2:00 P.M., California Time, on the first full business day
following the effectiveness of the Registration Statement, or (ii) if at the
time of execution of this Agreement the Registration Statement has been declared
effective, at 2:00 P.M., California Time, on the first full business day
following the date of execution of this Agreement; but this Agreement shall
nevertheless become effective at such earlier time after the Registration
Statement becomes effective as you may determine on and by notice to the Company
or by release of any of the Shares for sale to the public. For the purposes of
this Section 12, the Shares shall be deemed to have been so released upon the
release for publication of any newspaper advertisement relating to the Shares or
upon the release by you of telegrams (i) advising Underwriters that the Shares
are released for public offering, or (ii) offering the Shares for sale to
securities dealers, whichever may occur first.
If any one or more of the Underwriters shall fail or refuse to purchase
Shares which it or they are obligated to purchase hereunder on the Closing Date,
and the aggregate number of Shares which such defaulting Underwriter or
Underwriters are obligated but fail or refuse to purchase is not more than one-
tenth of the aggregate number of Shares which the Underwriters are obligated to
purchase on the Closing Date, each non-defaulting Underwriter shall be
obligated, severally, in the proportion which the number of Firm Shares set
forth opposite its name in Schedule II hereto bears to the aggregate number of
Firm Shares set forth opposite the names of all non-defaulting
32.
<PAGE>
Underwriters or in such other proportion as you may specify in accordance with
Section 20 of the Master Agreement Among Underwriters of Smith Barney Inc., to
purchase the Shares which such defaulting Underwriter or Underwriters are
obligated, but fail or refuse, to purchase. If any one or more of the
Underwriters shall fail or refuse to purchase Shares which it or they are
obligated to purchase on the Closing Date and the aggregate number of Shares
with respect to which such default occurs is more than one-tenth of the
aggregate number of Shares which the Underwriters are obligated to purchase on
the Closing Date and arrangements satisfactory to you and the Company for the
purchase of such Shares by one or more non-defaulting Underwriters or other
party or parties approved by you and the Company are not made within 36 hours
after such default, this Agreement will terminate without liability on the part
of any non-defaulting Underwriter or the Company. In any such case which does
not result in termination of this Agreement, either you or the Company shall
have the right to postpone the Closing Date, but in no event for longer than
seven days, in order that the required changes, if any, in the Registration
Statement and the Prospectus or any other documents or arrangements may be
effected. Any action taken under this paragraph shall not relieve any
defaulting Underwriter from liability in respect of any such default of any such
Underwriter under this Agreement. The term ``Underwriter'' as used in this
Agreement includes, for all purposes of this Agreement, any party not listed in
Schedule II hereto who, with your approval and the approval of the Company,
purchases Shares which a defaulting Underwriter is obligated, but fails or
refuses, to purchase.
Any notice under this Section 12 may be given by telegram, telecopy or
telephone but shall be subsequently confirmed by letter.
13. Termination of Agreement. This Agreement shall be subject to
------------------------
termination in your absolute discretion, without liability on the part of any
Underwriter to the Company or any Selling Stockholder, by notice to the Company,
if prior to the Closing Date or any Option Closing Date (if different from the
Closing Date and then only as to the Additional Shares), as the case may be, (i)
trading in securities generally on the New York Stock Exchange, the American
Stock Exchange or the Nasdaq National Market shall have been suspended or
materially limited, (ii) a general moratorium on commercial banking activities
in New York or Colorado shall have been declared by either federal or state
authorities, or (iii) there shall have occurred any outbreak or escalation of
hostilities or other international or domestic calamity, crisis or change in
political, financial or economic conditions, the effect of which on the
financial markets of the United States is such as to make it, in your judgment,
impracticable or inadvisable to commence or continue the offering of the Shares
at the offering price to the public set forth on the cover page of the
Prospectus or to enforce contracts for the resale of the Shares by the
Underwriters. Notice of such termination may be given to the Company by
telegram, telecopy or telephone and shall be subsequently confirmed by letter.
14. Representations and Warranties of the Underwriters. The
--------------------------------------------------
Representatives, on behalf of the several Underwriters, represent and warrant to
the Company and to the
33.
<PAGE>
Selling Stockholders that the information set forth (i) on the cover page of the
Prospectus with respect to price, underwriting discounts and commissions and
terms of offering and (ii) under ``Underwriting'' in the Prospectus was
furnished to the Company by and on behalf of the Underwriters for use in
connection with the preparation of the Registration Statement and the Prospectus
and is correct in all material respects. The Representatives represent and
warrant that they have been authorized by each of the other Underwriters as the
Representatives to enter into this Agreement on its behalf and to act for it in
the manner herein provided.
15. Miscellaneous. Except as otherwise provided in Sections 5, 12 and 13
-------------
hereof, notice given pursuant to any provision of this Agreement shall be in
writing and shall be delivered (i) if to the Company or the Selling
Stockholders, at the office of the Company at 1645 Broadway, Boulder, Colorado
80302, Attention: Michael C. Gilliland, with a copy to Holme Roberts & Owen
LLP, 1700 Lincoln Street, Suite 4100, Denver, Colorado 80202, Attention:
Francis Wheeler, Esq.; or (ii) if to you, as Representatives of the several
Underwriters, care of Smith Barney Inc., 388 Greenwich Street, New York, New
York 10013, Attention: Manager, Investment Banking Division with a copy to
Brobeck, Phleger & Harrison LLP, Two Embarcadero Plaza, 2200 Geng Road, Palo
Alto, California 94303, Attention: Therese A. Mrozek, Esq.
This Agreement has been and is made solely for the benefit of the several
Underwriters, the Company, its directors and officers, and the other controlling
persons referred to in Section 9 hereof and their respective successors and
assigns, to the extent provided herein, and no other person shall acquire or
have any right under or by virtue of this Agreement. Neither the term
``successor'' nor the term ``successors and assigns'' as used in this Agreement
shall include a purchaser from any Underwriter of any of the Shares in his
status as such purchaser.
16. Applicable Law; Counterparts. This Agreement shall be governed by and
----------------------------
construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed within the State of New York.
This Agreement may be signed in various counterparts which together
constitute one and the same instrument. If signed in counterparts, this
Agreement shall not become effective unless at least one counterpart hereof
shall have been executed and delivered on behalf of each party hereto.
34.
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement among
the Company, the Selling Stockholders and the several Underwriters.
Very truly yours,
WILD OATS MARKETS, INC.
By
-------------------------------
Michael C. Gilliland
Chief Executive Officer
Each of the Selling Stockholders
named in Schedule I hereto
By
-------------------------------
Attorney-in-Fact
Confirmed as of the date first above
mentioned on behalf of themselves and
the other several Underwriters named in
Schedule II hereto.
SMITH BARNEY INC.
PAINEWEBBER INCORPORATED
PIPER JAFFRAY INC.
DAIN BOSWORTH INCORPORATED
As Representatives of the Several Underwriters
By SMITH BARNEY INC.
By
----------------------------------
Managing Director
35.
<PAGE>
SCHEDULE I
WILD OATS MARKETS, INC.
Part A1 - Firm Shares
- ---------------------
Number of
Principal Selling Stockholders Firm Shares
------------------------------ -----------
Michael C. Gilliland & Elizabeth C. Cook
-----------
Total......................
-----------
Part A2 - Firm Shares
- ---------------------
Number of
Other Selling Stockholders Firm Shares
-------------------------- -----------
Michael C. Gilliland 1997 Charitable Remainder Trust
Elizabeth C. Cook 1997 Charitable Remainder Trust
Wild Oats Community Foundation
Mark R. Clapp 1997 Charitable Remainder Unitrust
Mark R. Clapp
Weston Presidio Offshore Capital, C.V.
David Burns
Edward Burns
Michael Madnick
Joseph Scarpa
-----------
Total......................
-----------
-----------
Total......................
-----------
<PAGE>
SCHEDULE II
WILD OATS MARKETS, INC.
Number of
Underwriter Firm Shares
- ----------- -----------
Smith Barney Inc. ................................
PaineWebber Incorporated..........................
Piper Jaffray Inc.
Dain Bosworth Incorporated
---------- -----------
Total..........
---------- -----------
<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 5, 1997
<PAGE>
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Amendment No. 2 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 5, 1997
