<PAGE>
As Filed With the Securities and Exchange Commission on November 14, 1997
Registration No. 333-_________________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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. [_]
-------------------------------------
Calculation of Registration Fee
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Title of Each Class Proposed Maximum Proposed Maximum
of Securities to Amount to be Offering Price Aggregate Offering Amount of
be Registered Registered (1) Per Share (2) Price (2) Registration Fee (2)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock,
$.001 Par Value Per Share.............. 2,459,375 $38.125 $93,763,672 $28,413.24
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes 320,788 shares subject to Underwriters' over-allotment option.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457 (c) under the Securities Act of 1933. The registration fee
has been calculated based upon the average of the high and low sales prices
of the Company's Common Stock as reported on the Nasdaq National Market on
November 7, 1997.
-------------------------------------
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 November ____, 1997
2,138,587 Shares
[LOGO OF WILD OATS]
Prospectus Wild Oats Markets, Inc.
Common Stock
Of the 2,138,587 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 938,587 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 13, 1997 the last reported sale price of the Common Stock
on the Nasdaq National Market was $40.75 per share. See "Price Range of Common
Stock."
See "Risk Factors" beginning on page 7 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 320,788 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
assumes no exercise of the Underwriters' over-allotment option. Unless
otherwise indicated, references herein to fiscal years of the Company are to the
Company's 52- or 53-week fiscal year, which ends on the Saturday nearest to
December 31 of each year. This Prospectus contains forward-looking statements
which involve risks and uncertainties. See "Risk Factors" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Cautionary Statement Regarding Forward-Looking Statements" for a discussion of
certain risks and their potential impact on the forward-looking statements
contained herein.
The Company
Wild Oats Markets, Inc. ("Wild Oats" or the "Company") is the second largest
natural foods supermarket chain in North America. The Company currently
operates 51 stores in 12 states: Arizona, California, Colorado, Florida,
Illinois, Kansas, Missouri, Nevada, New Mexico, Oregon, Tennessee and Utah; and
British Columbia, Canada.
According to The Natural Foods Merchandiser, growth in the natural foods
industry has accelerated from a 15% increase in sales in 1992 to a 25% increase
in 1996, representing a compound annual growth rate of 21% from $5.3 billion in
1992 to $11.5 billion in 1996. The Company believes that this growth reflects a
broadening of the natural foods consumer base which is being propelled by
several factors including healthier eating patterns, increasing concern
regarding food purity and safety, and greater environmental awareness. Wild
Oats believes it has developed a differentiated concept that provides this
expanding consumer base with an attractive one-stop, full-service shopping
alternative to both conventional supermarkets and traditional health food
stores.
Since acquiring its first natural foods store in 1987, Wild Oats has pursued
an aggressive growth strategy. The Company has grown from nine natural foods
stores located primarily in Colorado at the end of 1992 to 40 stores in eight
states and Canada at the end of 1996, representing a compound annual growth rate
of 45%. The Company's sales increased from $36.6 million in 1992 to $192.5
million in 1996, representing a compound annual growth rate of 51%. The
Company's annual sales increased 95% in 1996 to $192.5 million and 75% in the
first nine months of 1997 to $226.4 million.
The Company's growth has been driven by the acquisition of independent and
small chain natural foods store operators, the opening of new stores and
positive comparable store sales growth. In 1996, Wild Oats acquired 13 stores,
including 10 stores owned by Alfalfa's, Inc. ("Alfalfa's"), and opened seven new
stores. In the first nine months of 1997, the Company acquired an additional
nine natural foods stores and opened two new stores. As a result of the
Company's aggressive growth, the Company has increased its penetration of
existing markets, entered new geographic markets and created a stronger platform
for future growth. Since the beginning of 1996, the Company has successfully
entered a number of new regions, including Arizona, Florida, Oregon, Tennessee
and Utah. The Company believes its growth has resulted in operating efficiencies
created by: (i) warehousing, distribution and administrative economies of scale;
(ii) improved merchandise buying terms as a result of the Company's larger size;
and (iii) coordinated merchandising and marketing strategies. See "Recent
Acquisitions and New Store Openings."
Wild Oats stores range in size from 5,000 to 35,000 square feet and feature
between 10,000 and 25,000 stock-keeping units ("SKUs") of natural and gourmet
foods and related products in virtually every product category found in a
conventional supermarket. The Company's strict quality standards require
products to be minimally processed, free of preservatives, artificial colors and
chemical additives, and not tested on animals. The Company emphasizes unique
products not typically found in conventional supermarkets and tailors the
product mix to meet the preferences of the local market. In addition, the
Company has implemented a "down to earth" competitive price program which offers
high quality, all natural items in each product category at prices competitive
with those of similar items in conventional supermarkets.
3
<PAGE>
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.
4
<PAGE>
THE OFFERING
Common Stock offered by the
Company.......................... 1,200,000 shares
Common Stock offered by the
Selling Stockholders............. 938,587 shares
Common Stock to be outstanding
after this offering.............. 8,287,323 shares (1)
Use of Proceeds................... To finance new store openings and possible
acquisitions and for working capital and
other general corporate purposes. See "Use
of Proceeds."
Nasdaq National Market symbol..... OATS
_______________________________
(1) Based on actual shares of Common Stock outstanding as of October 31, 1997.
Excludes 637,772 shares of Common Stock issuable upon exercise of options
outstanding under the Company's equity incentive and stock option plans (of
which 255,308 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. 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."
5
<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 16,100 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) $ 43,027
Total assets......................... 6,763 9,873 24,053 38,376 107,057 121,081 167,236
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 85,617 131,772
</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
$40.75 per share (the last reported sale price on November 13, 1997) and
after deducting the estimated underwriting discounts and offering expenses
payable by the Company. See "Use of Proceeds" and "Capitalization."
6
<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.
7
<PAGE>
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.
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
8
<PAGE>
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. 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 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
9
<PAGE>
sales of certain products. Federal legislation raising the minimum wage in the
future may increase the Company's employee costs and adversely affect the
Company's profitability.
Safety concerns arising from the recall in 1996 of certain fresh juices sold
nationwide because of bacterial contamination may result in additional
governmental regulations regarding the preparation or sale of unprocessed or
minimally processed foods. Such regulations could have an adverse impact on the
Company's ability to offer certain products for sale. Product recalls or
additional government regulation also may erode customer confidence in the
safety of products carried by the Company, resulting in adverse impacts on
sales.
The Company also sells nutritional supplements, some of which are subject to
regulation by several federal, state and local agencies. There can be no
assurance that such agencies will not enact regulations that could have an
adverse effect on the Company's business, results of operations and financial
condition. In addition, recent legislation has required manufacturers of
nutritional supplements to label ingredients in their products. Such
legislation could be enacted in the future which may adversely effect 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 and certain other stockholders 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: 4,901,579 shares (including the 1,680,000
shares sold in the Company's initial public
10
<PAGE>
offering and the 2,138,587 shares sold in this offering) will be available for
immediate sale following the completion of this offering; 481,508 shares will be
eligible for immediate sale following the completion of this offering pursuant
to Rule 701 or Rule 144 under the Securities Act ("Rule 701" and "Rule 144,"
respectively) (subject in certain cases to the volume limitations of Rule 144);
and the remaining 2,904,236 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 2,836,647 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 31.0% 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 2,922,147 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.
11
<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 eight Alfalfa's stores in Colorado, New Mexico and Washington
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."
12
<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 $46.2 million
($58.6 million if the Underwriters' over-allotment option is exercised in full),
assuming a public offering price of $40.75 per share and after deducting the
estimated underwriting discounts and offering expenses payable by the Company.
The net proceeds will be used to finance store openings and possible
acquisitions 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 938,587 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> <C> <C>
Fiscal year ended December 28, 1996:
Fourth Quarter (from October 22, 1996)...... $27 $18
Fiscal year ended December 27, 1997:
First Quarter............................... $19 1/2 $12 7/8
Second Quarter.............................. $28 5/8 $13 7/8
Third Quarter............................... $31 1/2 $22 1/8
Fourth Quarter (through November 13, 1997).. $43 1/2 $29
</TABLE>
As of October 31, 1997, there were 253 holders of record of the Company's
Common Stock. On November 13, 1997, the last reported sale price for the
Company's Common Stock on the Nasdaq National Market was $40.75 per share.
13
<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...................................... 89,239 135,393
Accumulated deficit............................................. (3,545) (3,545)
Foreign currency translation adjustment......................... (84) (84)
------- --------
Total stockholders' equity................................... 85,617 131,772
------- --------
Total capitalization....................................... $87,003 $133,158
======= ========
</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. The weighted average
exercise prices of the Company's outstanding stock options and warrants
were $15.97 and $21.32 per share, respectively.
14
<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
15
<PAGE>
when the store opens. Pre-opening expenses have averaged approximately $250,000
per store over the past 18 months, although the amount per store may vary
depending on the store format and whether the store is the first to be opened in
a market, or is part of a cluster of stores in that market.
Results of Operations
The following table sets forth for the periods indicated, certain selected
income statement data expressed as a percentage of sales:
<TABLE>
<CAPTION>
Fiscal Year Nine Months Ended
--------------------- ------------------------------
September 28, September 27,
1994 1995 1996 1996 1997
------ ------ ------ -------------- --------------
<S> <C> <C> <C> <C> <C>
Sales............................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold and occupancy
costs........................... 68.4 68.2 68.0 68.2 69.1
----- ----- ----- ----- -----
Gross profit..................... 31.6 31.8 32.0 31.8 30.9
Direct store expenses............ 24.0 25.4 25.1 25.0 23.1
----- ----- ----- ----- -----
Store contribution............... 7.6 6.4 6.9 6.8 7.8
Selling, general and
administrative expenses......... 3.5 4.4 4.7 4.3 4.0
Pre-opening expenses............. 1.1 0.9 1.0 0.1
Nonrecurring expenses............ 3.7 5.7
----- ----- ----- ----- -----
Income (loss) from operations.... 4.1 0.9 (2.4) (4.2) 3.7
Interest expense (income), net... 0.6 0.4 0.4 0.7 (0.1)
----- ----- ----- ----- -----
Income (loss) before income
taxes........................... 3.5 0.5 (2.8) (4.9) 3.8
Income tax expense (benefit)..... 1.4 (0.5) (1.0) 1.6
----- ----- ----- ----- -----
Net income (loss)................ 2.1% 0.5% (2.3)% (3.9)% 2.2%
===== ===== ===== ===== =====
</TABLE>
Nine Months Ended September 27, 1997 and September 28, 1996
Sales. Sales for the nine months ended September 27, 1997 increased 75.3% to
$226.4 million from $129.1 million for the same period in 1996. The increase
was primarily due to the acquisition of nine stores and the opening of two new
stores in the first nine months of 1997, as well as the inclusion of the 13
stores acquired and seven new stores opened in 1996. Comparable store sales
increased 5% for the nine months then ended, based on both new and acquired
stores that have been operating longer than 12 months. The comparable store
sales increase for the nine months includes a comparison against significant
sales increases in the Company's Colorado and Vancouver, British Columbia store
bases in the second quarter of 1996 resulting from a strike at conventional
supermarkets in those regions. Exclusive of the strike comparison, comparable
stores sales increased 6% for the nine months.
Gross Profit. Gross profit for the nine months ended September 27, 1997
increased 70.1% to $69.9 million from $41.1 million for the same period in 1996.
The increase in gross profit is primarily attributable to the acquisition of
nine stores and the opening of two new stores during the first nine months of
1997, as well as the inclusion of the 13 stores acquired and seven new stores
opened in 1996. Gross profit as a percentage of sales for the nine months ended
September 27, 1997 decreased to 30.9% from 31.8% for the same period in 1996.
The decrease is attributable to lower initial gross margins contributed by the
nine stores acquired and the two new stores opened in the nine months, as well
as pricing discounts related to the Company's expanded product promotion program
begun in the first quarter of 1997. The Company expects this lower gross margin
trend to continue for the remainder of 1997.
Direct Store Expenses. Direct store expenses for the nine months ended
September 27, 1997 increased 62.0% to $52.3 million from $32.3 million for the
same period in 1996. The increase in direct store expenses is
16
<PAGE>
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.
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.
Net 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 seven Alfalfa's and three Capers 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, Inc. 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.
17
<PAGE>
Net 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.
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 does not believe that closing the
two stores will 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.
Net 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.
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<PAGE>
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.
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.
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<PAGE>
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.
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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<PAGE>
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
21
<PAGE>
distributors and vendors have entered the natural foods industry and many more
natural products have become available. In response to increasing supply and
demand, larger format natural foods stores have emerged, offering 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.
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<PAGE>
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, 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
*Relocation
</TABLE>
23
<PAGE>
New Store Expansion. Year-to-date in 1997, the Company has opened three
new stores in Sacramento and Laguna Beach, California; and Buffalo Grove,
Illinois. In 1996, the Company opened seven new stores in West Hollywood, San
Francisco, Mission Viejo, Los Angeles and Sunnyvale, California; St. Louis,
Missouri; and Fort Lauderdale, Florida. The Company subsequently closed the San
Francisco store in October 1997.
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.
24
<PAGE>
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 November 13, 1997.
[U.S. Map Showing
Company stores appears
here]
Arizona Colorado Illinois Oregon
- ------- -------- -------- ------
Phoenix (2) Aurora Buffalo Grove Eugene (2)
Scottsdale (1) Boulder (3)
Colorado Springs Kansas Tennessee
California Denver (4) ------ ---------
- ---------- Fort Collins (2) Mission Memphis (2)
Berkeley Greenwood Village
Mission Viejo Littleton Missouri Utah
Laguna Beach Vail -------- ----
Los Angeles Kansas City Salt Lake City (3)
Pasadena Florida St. Louis
Sacramento ------- British Columbia,
San Anselmo Boca Raton Nevada -----------------
Santa Monica Fort Lauderdale ------ Canada
Sunnyvale West Palm Beach Las Vegas (2) ------
West Hollywood Vancouver (2)
New Mexico West Vancouver
----------
Albuquerque (2)
Santa Fe (3)
25
<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
27
<PAGE>
purchase new products. In order to enhance customers' understanding of natural
foods and how to prepare them, the Company trains its store staff to educate
customers as to the benefits and quality of its products and prominently
features educational brochures and newsletters as well as an in-store consumer
information department. Product brochures, recipe card areas, food sampling
stations and informational signage are used extensively throughout the store.
Most stores offer cafe seating areas, espresso and fresh juice bars, in-store
nutritional consultants, and in-store massage therapists, all of which emphasize
the comfortable, relaxed nature of the Wild Oats shopping experience. In
addition, each store features a monthly calendar of special events such as
educational presentations, children's events, cooking classes, live music, prize
drawings and dog washes. Certain departments are remerchandised several times a
year according to seasonal themes or different marketing campaigns, such as Rain
Forest Month or Organic Harvest Month. The stores also sponsor many community-
related activities such as presentations on health and safety as well as fund-
raising drives for local organizations. The Company encourages and receives
feedback from its customers through its suggestion boxes and posts responses on
the stores' community bulletin board.
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.
28
<PAGE>
The wholesale segment of the natural foods industry provides a large and
growing array of product choices across the full range of grocery product
categories. Although the Company purchases products from more than 3,000
suppliers, the Company purchases approximately 25% of its products from a single
wholesale distributor that operates multiple warehouses nationwide. The Company
believes that this distributor is able to service all of the Company's existing
stores as well as most of its future sites. As a result of its rapid growth,
the Company has been able to negotiate greater volume discounts with this
distributor and certain other vendors. The Company has no supply contracts with
these parties and any vendor or distributor could discontinue selling to the
Company at any time. The Company believes that it could develop alternative
sources of supply; however, any such termination may create a short-term
disruption in store-level merchandise selection. See "Risk Factors--Possible
Disruption of Product Supply." The Company is a party to an interim buying
agreement with a distributor in Vancouver, British Columbia, Canada under which
the Company is obligated to purchase certain products from the distributor for
its Canadian stores, provided the purchase price is the lowest price offered
from the Company's various distributors in that region.
Most products are delivered directly to the stores by vendors and
distributors. The Company currently operates a consolidated warehouse facility
in Denver which receives and distributes truck load purchases of 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
29
<PAGE>
half of 1998. All new stores will be using the system going forward. Certain
Wild Oats stores are not currently on an automated point-of-sale and pricing
system. The Company is currently implementing new, faster credit card processing
systems Company-wide to reduce transaction time at the cash register and the
cost to the Company of individual credit card transactions. The Company also has
purchased a software system to track product movement and allow for centralized
pricing input to the stores. These new systems are expected to be operational in
all of the Company's stores by third quarter of 1998. The Company is also in the
process of ensuring that its software systems are year 2000 compliant. The
financial impact to the Company of such compliance is not expected to be
material in any single year. See "Risk Factors--Possible Inability to Manage
Growth."
Competition
The Company's competitors currently include other independent and multi-unit
natural foods supermarkets, smaller traditional natural foods stores,
conventional supermarkets and specialty grocery stores. While certain
conventional supermarkets, smaller traditional natural foods stores and small
specialty stores do not offer as full a range of products as the Company, they
do compete with Wild Oats in one or more product 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 2,114 full-time individuals and
1,816 part-time individuals. Approximately 3,788 of the Company's employees are
engaged at the store-level and 142 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
30
<PAGE>
minimum rentals. All of the leases are accounted for as operating leases. See
"Risk Factors---Ownership and Sale of Real Property."
Trademarks
Wild Oats(R), and Wild Oats Community Markets(R) are federally registered
trademarks and Alfalfa's Market(TM), Oasis Fine Foods(TM) and Capers Whole Foods
Market(TM) are trademarks owned by the Company.
31
<PAGE>
MANAGEMENT
Executive Officers and Directors
The executive officers and directors of the Company are as follows:
Name Age Position
- ---- --- --------
Michael C. Gilliland(1).. 39 Chief Executive Officer and Director
James W. Lee............. 47 President and Chief Operations 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)...... 53 Chairman of the Board
David M. Chamberlain(3).. 53 Vice Chairman of the Board
Brian K. Devine.......... 55 Director
David L. Ferguson(2)(3).. 42 Director
James B. McElwee(2)(3)... 44 Director
______________________________
(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 Operations 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.
33
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of October 31, 1997, and
as adjusted to reflect the sale of the Common Stock being offered hereby by: (i)
each person (or group of affiliated persons) who is known by the Company to own
beneficially more than 5% of the Common Stock; (ii) each of the Company's
directors and executive officers, (iii) all directors and executive officers of
the Company as a group and (iv) each Selling Stockholder.
<TABLE>
<CAPTION>
Beneficial Ownership Number Beneficial Ownership
Prior to of Shares After
the Offering (1) to be Sold the Offering (1)
--------------------------------- in the -------------------------------
Name Number Percent Offering Number Percent
- -------------------------------------- ---------------- --------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Michael C. Gilliland (2).............. 1,483,708 20.9% 210,000 1,273,708 15.4%
Wild Oats Markets, Inc.
1645 Broadway
Boulder, CO 80302
Elizabeth C. Cook (3)................. 1,483,708 20.9 210,000 1,273,708 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......................... 464,853 6.6 130,000 334,853 4.0
2147 Kincaid
Boulder, CO 80304
Weston Presidio Offshore
Capital C.V. (5)..................... 537,392 7.6 537,392 -0- *
343 Sansome Street, Suite 1210
San Francisco, CA 94104-1316
John A. Shields (6)................... 43,770 * -0- 43,770 *
David M. Chamberlain (7).............. 27,971 * -0- 27,971 *
Brian K. Devine....................... -0- * -0- -0- *
David L. Ferguson (8)................. 1,256,753 17.7 -0- 1,256,753 15.2
James B. McElwee (9).................. 539,059 7.6 537,392 1,667 *
James W. Lee (10)..................... 8,141 * -0- 8,141 *
Mary Beth Lewis (11).................. 17,001 * -0- 17,001 *
Freya R. Brier (12)................... 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 (13)...................... 5,094 * 5,094 -0- *
Edward Burns (13)..................... 5,094 * 5,094 -0- *
Michael Madnick (13)(14).............. 24,307 * 24,307 -0- *
Joseph Scarpa (13)(14)................ 26,700 * 26,700 -0- *
All directors and executive officers
as a group (13 persons) (15)......... 3,378,499 47.3 747,392 2,631,107 31.5
</TABLE>
34
<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 480,971 shares held by Mr. Gilliland, 480,751 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,
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 a private
foundation to be formed by Mr. Gilliland and Ms. Cook to which half of such
shares will be transferred by each of Mr. Gilliland and Ms. Cook.
(3) Consists of 480,751 shares held by Ms. Cook, 480,971 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 a private foundation to be formed by Mr.
Gilliland and Ms. Cook to which half of such shares will be transferred by
each of Mr. Gilliland and Ms. Cook.
(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 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.
(6) 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.
(7) 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.
(8) 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.
(9) 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.
(10) 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.
(11) 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.
(12) 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.
(13) These Selling Stockholders were the stockholders of Wholly Harvest of Boca
Raton, Inc., from which the Company purchased its store in Boca Raton,
Florida in February 1997.
(14) These Selling Stockholders were the stockholders of Wholly Harvest Markets,
Inc., from which the Company purchased its store in West Palm Beach,
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.
35
<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.
Underwriter Number of Shares
- ----------- ----------------
Smith Barney Inc...................................
PaineWebber Incorporated...........................
Piper Jaffray Inc..................................
Dain Bosworth Incorporated.........................
---------
Total 2,138,587
=========
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 320,788
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 and
certain other stockholders 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
36
<PAGE>
include a provision whereby, if the Representatives purchase Common Stock in the
open market for the account of the underwriting syndicate and the securities
purchased can be traced to a particular Underwriter or member of the selling
group, the underwriting syndicate may require the Underwriter or selling group
member in question to purchase the Common Stock in question at the cost price to
the syndicate or may recover from (or decline to pay to) the Underwriter or
selling group member in question the selling concession applicable to the
securities in question. The Underwriters are not required to engage in any of
these activities and any such activities, if commenced, may be discontinued at
any time.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Holme Roberts & Owen LLP, Denver, Colorado. Certain legal matters
relating to this offering will be passed upon for the Underwriters by Brobeck,
Phleger & Harrison LLP, Palo Alto, California.
EXPERTS
The financial statements of Wild Oats incorporated in this Prospectus by
reference to the Company's Annual Report on Form 10-K for the year ended
December 28, 1996 have been so incorporated in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting. The consolidated financial statements of
Alfalfa's, Inc. as of June 30, 1996 and for the year then ended and the combined
financial statements of New Frontiers as of December 31, 1995 and 1994 and for
each of the three years in the period ended December 31, 1995 incorporated in
this Prospectus by reference to pages F-17 through F-30 and pages F-36 through
F-45, respectively of the Company's Prospectus dated October 22, 1996 have been
so incorporated in reliance on the reports of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting. The consolidated financial statements of Alfalfa's, Inc. and its
subsidiaries as of June 25, 1995 and for the years ended June 25, 1995 and June
26, 1994 incorporated in this Prospectus by reference from the Registration
Statement No. 333-11261 on Form S-1 of Wild Oats Markets, Inc. have been audited
by Deloitte & Touche LLP, independent auditors, as stated in their report which
is incorporated herein by reference, and have been so incorporated in reliance
upon the report of such firm given upon their authority as experts in accounting
and auditing.
AVAILABLE INFORMATION
The Company has filed with the Commission a registration statement on Form
S-3 (the "Registration Statement," which term encompasses all amendments,
exhibits, annexes and schedules thereto) under the Securities Act with respect
to the Common Stock offered hereby. This Prospectus, which constitutes a part
of the Registration Statement, does not contain all the information set forth in
the Registration Statement, to which reference is hereby made. Statements made
in this Prospectus as to the contents of any contract, agreement or other
document referred to are not necessarily complete. With respect to each such
contract, agreement or other document filed as an exhibit to the Registration
Statement and the exhibits thereto, reference is hereby made to the exhibit for
a more complete description of the matter involved, and each statement made
herein shall be deemed qualified in its entirety by such reference.
The Company is subject to the informational requirements of the Exchange
Act and in accordance therewith files periodic reports, proxy and information
statements and other information filed with the Commission. The Registration
Statement filed by the Company with the Commission, as well as such reports,
proxy and information statements and other information filed by the Company with
the Commission, are available at the web site that the Commission maintains at
http:\\www.sec.gov and can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the regional offices of the
Commission located at 7 World Trade Center, New York, New York 10048, and the
Central Regional Office, 1801 California Street, Suite 4800, Denver, CO 80202-
2648. Copies of such material, when filed, may also be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates. The Common Stock is quoted on the Nasdaq National
37
<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).
38
<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.]
<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
Page
Prospectus Summary.......................................................... 3
Risk Factors................................................................ 7
Recent Acquisitions and New Store Openings.................................. 12
Use of Proceeds............................................................. 13
Dividend Policy............................................................. 13
Price Range of Common Stock................................................. 13
Capitalization.............................................................. 14
Management's Discussion and Analysis of Financial
Condition and Results of Operations........................................ 15
Business.................................................................... 21
Management.................................................................. 32
Principal and Selling Stockholders.......................................... 34
Underwriting................................................................ 36
Legal Matters............................................................... 37
Experts..................................................................... 37
Available Information....................................................... 37
Incorporation of Certain Documents by Reference............................. 38
2,138,587 Shares
Common Stock
PROSPECTUS
Smith Barney Inc.
Painewebber Incorporated
Piper Jaffray Inc.
Dain Bosworth Incorporated
_______________, 1997
<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
Exhibit
Number Description of Document
- ------ -----------------------
1.1 Form of Underwriting Agreement. (3)
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.
12.1 Statement re Computation of Ratios. (1)
*21.1 List of subsidiaries
*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.
___________________
*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.
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 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 14th of November,
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, 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 and Director November 14, 1997
(Principal Executive Officer)
/s/ Mary Beth Lewis
- --------------------------
Mary Beth Lewis Vice President of Finance, November 14, 1997
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
/s/ Elizabeth C. Cook*
- --------------------------
Elizabeth C. Cook Executive Vice President, Secretary and Director November 14, 1997
/s/ John A. Shields*
- --------------------------
John A. Shields Chairman of the Board November 14, 1997
/s/ David M. Chamberlain*
- --------------------------
David M. Chamberlain Vice Chairman of the Board November 14, 1997
/s/ David L. Ferguson*
- --------------------------
David L. Ferguson Director November 14, 1997
/s/ James B. McElwee*
- --------------------------
James B. McElwee Director November 14, 1997
/s/ Brian K. Devine*
- --------------------------
Brian K. Devine Director November 14, 1997
- -----------------------------
*By: /s/ Mary Beth Lewis
Mary Beth Lewis
Attorney-In-Fact
</TABLE>
II-3
<PAGE>
Exhibit 5.1
November 14, 1997
Wild Oats Markets, Inc.
1645 Broadway
Boulder, Colorado 80302
Ladies and Gentlemen:
You have requested our opinion with respect to certain matters in connection
with the filing by Wild Oats Markets, Inc, (the "Company") of a Registration
Statement on Form S-3 (the "Registration Statement") with the Securities and
Exchange Commission (the "Commission"), including a prospectus to be filed with
the Commission pursuant to Rule 424(b) of Regulation C promulgated under the
Securities Act of 1933, as amended, and the underwritten public offering of up
to 2,459,375 shares of the Company's Common Stock (the "Shares"), including up
to 938,587 shares of Common Stock to be sold by certain stockholders of the
Company.
In connection with this opinion, we have (i) examined and relied upon the
Registration Statement, (ii) reviewed the Company's Certificate of Incorporation
and Bylaws, as amended, and the originals or copies certified to our
satisfaction of such records, documents, certificates, memoranda and other
instruments as in our judgment were necessary or appropriate to enable us to
render the opinion expressed below, and (iii) assumed that the Shares to be sold
to the underwriters by the Company will be sold at a price established by the
Board of Directors of the Company or the Pricing Committee thereof in accordance
with Section 153 of the Delaware General Corporation Law.
On the basis of the foregoing and in reliance thereon, we are of the opinion
that the Shares, when issued and sold in accordance with the Registration
Statement, will be validly issued, fully paid and nonassessable.
We consent to the reference to our firm under the caption "Legal Matters" in the
prospectus included in the Registration Statement and to the filing of this
opinion as an exhibit to the Registration Statement.
Very truly yours,
HOLME ROBERTS & OWEN LLP
By: /s/ Francis R. Wheeler
----------------------------
Francis R. Wheeler, Partner
<PAGE>
Exhibit 21.1
WILD OATS MARKETS, INC.
Subsidiaries
Alfalfa's Canada, Inc.
<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
November 14, 1997
<PAGE>
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement 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
November 14, 1997
<PAGE>
Exhibit 24.1
POWER OF ATTORNEY
Each person whose signature appears below does hereby make, constitute and
appoint Mary Beth Lewis as such person's true and lawful attorney-in-fact and
agent, with full power of substitution, resubstitution and revocation to
execute, deliver and file with the Securities and Exchange Commission, for and
on such person's behalf, and in any and all capacities, a Registration Statement
on Form S-3, any and all amendments (including post-effective amendments)
thereto and any abbreviated registration statement in connection with this
Registration Statement pursuant to Rule 462(b) under the Securities Act of 1933,
with all exhibits thereto and other documents in connection therewith, granting
unto said attorneys-in-fact and agents full power and authority to do and
perform each and every act and thing requisite and necessary to be done as fully
to all intents and purposes as such person might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent or such
persons' substitute or substitutes may lawfully do or cause to be done by virtue
hereof.
/s/ Michael Gilliland November 5, 1997
- ---------------------
Michael Gilliland
/s/ Elizabeth Cook November 5, 1997
- ---------------------
Elizabeth Cook
/s/ David Chamberlain November 5, 1997
- ---------------------
David Chamberlain
/s/ James McElwee November 5, 1997
- ---------------------
James McElwee
/s/ Brian Devine November 5, 1997
- ---------------------
Brian Devine
/s/ David Ferguson November 5, 1997
- ---------------------
David Ferguson
/s/ John Shields November 5, 1997
- ---------------------
John Shields
/s/ James Lee November 5, 1997
- ---------------------
James Lee
