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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR SECTION 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 28, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR SECTION 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-21577
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 Number)
incorporation or organization)
1645 Broadway
Boulder, Colorado 80302
(Address of principal executive offices, including zip code)
(303) 440-5220
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class
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Common Stock, $.001 par value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes (x) No ( )
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( )
As of March 17, 1997, the aggregate market value of the voting stock held by
non-affiliates (as defined by the regulations of the Securities and Exchange
Commission) of the Registrant was $37,278,000, based upon the closing
sale price of such stock on such date as reported on the NASDAQ National Market.
As of March 17, 1997, the total number of shares outstanding of the Registrant's
common stock, $.001 par value, was 6,890,484 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Stockholders for the fiscal year
ended December 28, 1996 have been incorporated by reference into Parts II and
IV of this report on Form 10-K. Portions of the definitive Proxy Statement for
the Registrant's Annual Meeting of Stockholders to be held on May 1, 1997, have
been incorporated by reference into Part III of this report.
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TABLE OF CONTENTS
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PART I.
Item 1. Business. 1
Item 2. Properties. 8
Item 3. Legal Proceedings. 9
Item 4. Submission of Matters to a Vote of Security Holders. 9
PART II.
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters. 9
Item 6. Selected Financial Data. 9
Item 7. Management's Discussion and Analysis of 9
Financial Condition and Results of Operations.
Item 8. Financial Statements and Supplementary Data. 10
Item 9. Changes in and Disagreements with Accountants 10
on Accounting and Financial Disclosure.
PART III.
Item 10. Directors and Executive Officers of the Registrant. 10
Item 11. Executive Compensation. 10
Item 12. Security Ownership of Certain Beneficial Owners and Management. 10
Item 13. Certain Relationships and Related Transactions. 10
PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. 10
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PART I.
Item 1. BUSINESS
Introduction
Wild Oats Markets, Inc. (the "Company" or "Wild Oats") is the second
largest natural foods supermarket chain in North America with the largest
natural foods store base in the western United States. References herein to
"the Company" or "Wild Oats" are deemed to refer to Wild Oats Markets, Inc., its
subsidiaries and predecessors. As of March 21, 1997, the Company currently
operates 45 stores under the names "Wild Oats Community Markets", "Alfalfa's
Markets" and "Oasis Fine Foods" in nine states: California, Colorado, Florida,
Kansas, Missouri, Nevada, New Mexico, Oregon 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.
The Company grew 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%. During this period,
the Company's sales increased from $36.6 million to $192.5 million, representing
a compound annual growth rate of 51%. This growth resulted from the acquisition
of independent and small chain natural foods store operators, the opening of new
stores and positive comparable store sales growth. As of the end of fiscal
1994, 1995 and 1996, the Company grew from 14 to 21 to 40 stores, with sales of
$65.2 million, $98.5 million and $192.5 million, respectively, and income (loss)
from operations of $2.6 million, $800,000 and $(4.6 million), respectively. See
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations" incorporated by reference from the Company's Annual Report to
Stockholders. In 1996, the Company opened seven new stores and acquired 14
additional stores and sales increased 95% to $192.5 million from $98.5 million
in 1995. In July 1996, Wild Oats completed the acquisition of Alfalfa's, Inc.
("Alfalfa's"), a leading natural foods supermarket chain that operated 11 stores
in three states and Canada. From fiscal 1994 to fiscal 1996 Alfalfa's grew from
six to 11 stores, representing a compound annual growth rate of 35.4%. During
this same period sales increased from $45.9 million to $85.6 million,
representing a compound annual growth rate of 36.6%. Through the acquisition of
Alfalfa's, the Company combined two natural foods retailers with similar
operating strategies and complementary store bases, increased the Company's
penetration of existing markets and created a stronger platform for future
growth. In the last half of 1996, the Company closed the Alfalfa's Market
Seattle, Washington store and the Wild Oats Market Lawrence, Kansas store, and
consolidated the Company's and Alfalfa's, Inc.'s corporate headquarters and
information systems, for which the Company recorded a one-time nonrecurring
charge of $7.0 million. See "Management's Discussion and Analysis of Financial
Conditions and Results of Operations," incorporated by reference from the
Company's Annual Report to Stockholders.
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, Inc., the Company effected a merger into WO Holdings, Inc., a
Delaware corporation, which subsequently changed its name to Wild Oats Markets,
Inc. In December 1996 and January 1997 the Company merged several wholly owned
subsidiaries that held the operations of the Colorado and New Mexico Alfalfa's
Market stores into the Company.
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 1991 to 1995 the natural foods industry grew at a 19%
compound annual growth rate. According to The Natural Foods Merchandiser, a
leading industry publication, growth in the natural foods industry has
accelerated from a 10% increase in sales in 1991 to a 22% increase in 1995, when
the market reached $9.1 billion, of which approximately $6.1 billion was
generated by independent natural/health food stores. According to the results
of a retailer survey of 1996 industry performance by Whole Foods, an industry
publication, total independent natural/health food store sales reached $10.4
billion in 1996, which represents an approximate 58% increase in sales in this
sector 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. 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.
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Traditional natural foods stores, offering only vitamins, dietary
supplements, herbs and a limited selection of natural foods product lines, first
emerged over 50 years ago. Over the years, as consumer demand for natural foods
has increased, the number of natural foods stores has grown and the product mix
has expanded. More distributors and vendors have entered the natural foods
industry and many more natural products have become available. In response to
increasing supply and demand, larger format natural foods stores have emerged,
offering 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 food 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 6,600 independent natural/health
foods stores in 1995, which generated approximately $6.1 billion of the total
$9.1 billion of natural food sales. In 1996, the total number of stores is
estimated to have increased to over 7,000, and total natural food sales by these
independents are estimated at $10.4 billion by a retailer survey conducted by
Whole Foods, an industry publication. In 1995, only 13% of the 6,600 stores
were full-service, natural foods stores (defined as stores having a minimum of
5,000 square feet and offering a full range of product categories, including
fresh meat and seafood). The Company believes that the two largest natural
foods retailers (Wild Oats and Whole Foods Market, Inc., including subsequent
acquisitions) represented on a pro forma basis 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 preferences of the
local market, in particular sourcing produce from local organic growers whenever
possible. The Company also operates regional kitchens and bakeries that provide
its stores with fresh bakery items and a unique assortment of prepared foods for
the quality and health-conscious consumer.
Educational and Entertaining Store Environment. At Wild Oats, shopping is
"theater." Each store strives to create a fun, friendly and educational
environment that makes grocery shopping enjoyable and encourages shoppers to
spend more time in the store and to purchase new products. In order to enhance
customers' understanding of natural foods and how to prepare them, the Company
trains its store staff to educate customers as to the benefits and quality of
its products and prominently features educational brochures and newsletters as
well as an in-store consumer information department. In addition, many stores
offer cafe seating areas, espresso and fresh juice bars, and in-store massage
therapists, all of which emphasize the comfortable, relaxed nature of the
shopping experience. The Company believes its knowledgeable store staff and
high ratio of store staff to customers results in significantly higher levels of
customer service than in a conventional supermarket.
Extensive Community Involvement. The Company seeks to engender customer
loyalty by demonstrating its high degree of commitment to the local community.
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 "Charity Work Benefits" where the Company pays employees for time
spent working for local charities.
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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. To date, the Company has focused its growth in the western half of the
U.S. and has built the largest store base in that region. The Company's growth
strategy is to increase sales and income through: (i) new store expansion; (ii)
acquisition of existing compatible stores; and (iii) increased sales at
existing stores.
New Store Expansion. The Company has grown from nine stores at the end of
1992 to 45 stores as of March 21, 1997, through a combination of both new store
openings and acquisitions. Since its inception, the Company has opened 20
stores and acquired 27 stores (including 11 Alfalfa's Market stores). In 1996
the Company opened seven new stores and acquired 14 existing stores, and
subsequently closed the Alfalfa's Market Seattle, Washington store and the Wild
Oats Market Lawrence, Kansas store. The Company intends to continue to
strengthen its position in the western United States and to expand to new
regions, such as Florida and the Pacific Northwest, which it believes are
currently underserved by natural foods retailers. The Company opened one store
in 1996 in Florida, and signed leases for stores in Sacramento and Laguna Beach,
California, which are planned to open in March and the second quarter of 1997,
respectively. The Company also has purchased real property for the construction
of a new store in Westminster, Colorado that is projected to open in September
of 1997. While the Company believes that most of its new store expansion will
result from store openings, it continues to evaluate acquisition opportunities
in both existing and new markets. In the first quarter of 1997, the Company
acquired four additional existing natural foods supermarkets: two located in
Eugene, Oregon, and one located in Boca Raton and one located in West Palm
Beach, Florida. There is no assurance that the Company will achieve its planned
expansion in existing markets or enter new markets. The Company intends to
operate new stores primarily under the "Wild Oats Community Market" name.
Historically, the Company has pursued a strategy of clustering stores
within each of its markets in order to more fully penetrate these markets,
achieve operating efficiencies and enhance name recognition. 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 in which
it had an existing presence, the Company has experienced a decline in the
revenue 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 these trends to continue. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations," incorporated by
reference from the Company's Annual Report to Stockholders.
Increase 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.
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
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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," 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:
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Product Category Description
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Grocery Pastas, canned goods, cereals, cooking oils, juices, salad
dressings, crackers, chips, pretzels, cookies, baking items,
sodas, bottled waters, and beer and wine in selected stores.
Many products are formulated for special diets and are
identified as fat-free, low-sodium, wheat-free or dairy-
free;
Natural Living Vitamins, supplements, herbs and body care items such as
shampoos, lotions, cosmetics, deodorants, dental care
products, nutritional supplements, herbal tinctures, bulk
herbs and homeopathic remedies as well as a selection of
health-related books and magazines;
Prepared Foods Hot entrees, salads, sushi, wraps, pizza and pasta which can
be taken out or, in the larger stores, eaten in the store's
cafe seating area. Most stores feature full-service delis
as well as espresso and fresh juice bars;
Produce Majority of produce is organically grown, although the
availability varies, and is sourced seasonally from local
organic farmers whenever possible. All produce is clearly
labeled as to whether it was grown organically or
commercially;
Dairy/Frozen Dairy products, both organic and commercial, such as yogurt,
milk, cheese, eggs, soy milk, soy foods, and fresh juices,
and frozen products such as ice cream, frozen yogurt,
entrees, vegetables, desserts, juices, meat and meat
substitutes;
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Meat/Poultry/ Fresh beef, lamb, pork, seafood and free-range poultry,
Seafood 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.
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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.
Pricing. In general, natural and gourmet foods and related products have
higher costs of production and correspondingly higher retail prices than
conventional grocery items. The Company's pricing strategy has been to maintain
prices that are at or below those of its natural foods competitors while
educating its customers as to the higher quality and added value of its products
so as to differentiate them from conventional products. Like most conventional
supermarkets, the Company regularly features dozens of sale items, including
"buy one-get one free" items, that are rotated periodically. In addition, the
Company has an ongoing "down to earth" competitive pricing program that
consistently features a natural foods item in each major product category at a
price that is competitive with or lower than its conventional equivalent. The
Company regularly monitors the prices at its natural foods and conventional
supermarket competitors to ensure its prices remain competitive.
Store Environment
At Wild Oats, shopping is "theater." Each store strives to create a fun,
friendly and educational environment that makes grocery shopping enjoyable and
encourages shoppers to spend more time in the store and to purchase new
products. In order to enhance customers' understanding of natural foods and how
to prepare them, the Company trains its store staff to educate customers as to
the benefits and quality of its products and prominently features educational
brochures and newsletters as well as an in-store consumer information
department. Product brochures, recipe card areas, food sampling stations,
informational signage and, in certain stores, an educational computer kiosk, are
used extensively throughout the store. Most 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 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.
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Management and Employees. The Company's stores are organized into ten
geographic regions, each of which has a regional director who is responsible for
the store operations within his or her region and who reports to the Company's
senior management. The Company's regional directors are responsible for, and
frequently visit, their cluster of stores to monitor financial performance and
ensure adherence to the Company's operating standards. The typical staff of a
Wild Oats store consists of one store manager, ten department managers and
between 25 to 200 additional hourly staff members, most of whom work full time.
Store and department managers are responsible for the operations of individual
stores including recruiting and hiring store personnel, communicating financial
results nightly, coordinating merchandise ordering, distribution and receiving,
and to a limited extent, supplementing their stores' merchandise mix with
regional and other products suited for their specific market. The accounting
department provides a detailed monthly financial analysis of every department in
each store which is reviewed by both the store and regional managers. The
Company maintains a staff of corporate level department specialists including
Natural Living, Prepared Foods, Produce, Meat/Poultry/Seafood and Grocery
coordinators who manage centralized buying programs and assist in store-level
merchandising, pricing and staff training to ensure Company-wide adherence to
product standards and store concept.
All regional directors and store managers and certain store-level staff
participate in an incentive plan that ties compensation awards to the
achievement of specified store-level sales, profitability and other financial
performance criteria. The Company also seeks to foster enthusiasm and
dedication in its staff members through comprehensive benefits packages
including health insurance and wellness programs as well as an employer matching
401(k) plan and Equity Incentive Plans.
Purchasing and Distribution
The Company has a centralized purchasing function which sets product
standards, approves products and negotiates volume purchase discount
arrangements with distributors and vendors. Individual store purchases are
handled through its department managers who make purchasing decisions within
these established parameters. This approach enables each store to customize its
product mix to meet the needs and preferences of its customers while adhering to
the Company's established product standards and allowing each store to benefit
from the Company's volume purchasing discounts.
The wholesale segment of the natural foods industry provides a large and
growing array of product choices across the full range of grocery product
categories. Although the Company purchases products from more than 3,000
suppliers, the Company purchases approximately 30% of its products from a single
wholesale distributor that operates warehouses in Colorado, Connecticut, Georgia
and California. The Company believes that this distributor is able to service
all of the Company's existing stores as well as any future sites. In 1996, as a
result of the Alfalfa's acquisition, the Company was 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. 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, 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 four off-site kitchens in Santa Fe, New Mexico,
Denver, Colorado 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. 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.
6
<PAGE>
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. In 1996 the Company
purchased a software system to convert the currently different Wild Oats and
Alfalfa's point-of-sale and pricing systems to one system, and anticipates that
such system will be in place by the end of the fourth quarter of 1997. Certain
Wild Oats stores are not currently on an automated point-of-sale and pricing
system, and the Company anticipates that such stores will not be included within
the automated system for several years. Although the Company believes that a
combined system can be implemented without significant disruptions in its
operations or financial reporting, there can be no assurance that such
disruption will not occur.
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. 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 Market, Inc., a publicly-traded company based in Texas which, as of
September 28, 1996, had 68 stores and gross sales of $892 million. The Company
currently competes with Whole Foods Market in California and Florida. Whole
Foods Market recently announced that it 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, and that it intends to pursue other markets in
which the Company has stores. At this time the Company cannot evaluate what, if
any, impact increased competition from Whole Foods Market will have on its
overall sales. The Company's Boulder, Colorado stores account for approximately
10% of the Company's overall sales revenues. While certain conventional
supermarkets, smaller traditional natural foods stores and small specialty
stores do not offer as full a range of products as the Company, they do compete
with Wild Oats in one or more product categories. Many of the Company's
competitors have been in business longer and have greater financial or marketing
resources than the Company and may be able to devote greater resources to
securing suitable locations and to the sourcing, promotion and sale of their
products. In addition, should any of the Company's competitors reduce prices,
the Company may be required to implement price reductions in order to remain
competitive, which could have an adverse impact on its business, financial
condition and results of operations. As Wild Oats enters new geographic
markets, its success will depend in part on its ability to gain market share
from established competitors. In addition, traditional and specialty grocery
stores may expand more aggressively in marketing a broader range of natural
foods and related products and thereby compete directly with the Company for
products, customers and locations. The Company expects competition from both
new and existing competitors to increase in its markets and there can be no
assurance that the Company will be able to compete effectively in the future.
Government Regulation
The Company is subject to numerous federal, state and local laws,
regulations and ordinances regulating health and sanitation standards, food
labeling and handling, equal employment, minimum wages and licensing for the
sale of food and alcoholic beverages. Difficulties or failures in complying
with these regulations could adversely affect the operations of an existing
store or delay the opening of a new store.
In addition, from time-to-time, various federal, state and local
legislative and regulatory proposals are made to, among other things, increase
the minimum wage payable to employees, establish minimum store security
requirements and increase taxes on the retail sale of certain products. Changes
to such laws, regulations or ordinances may adversely affect the Company's
performance by increasing the Company's costs or affecting its sales of certain
products. Although the Company currently pays all of its non-exempt employees
hourly wages which are above the minimum wage level, federal legislation raising
the minimum wage in the future may increase the Company's employee costs and
adversely affect the Company's profitability.
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 manufactures 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.
Employees
As of March 4, 1997, the Company employed 2,470 full-time individuals and
1,690 part-time individuals. Approximately 4,040 of the Company's employees are
engaged at the store-level and 120 are devoted to regional administrative and
corporate activities.
7
<PAGE>
Item 2. 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 all of its currently operating stores; however, the
Company has purchased real property in Westminster, Colorado for the
construction of a new store projected to be opened in September of 1997. The
Company also has exercised an option to purchase the real property underlying
its Fort Collins, Colorado, Alfalfa's Market store, with a proposed purchase
date in the second quarter of 1997. The Company's leases typically provide for
a ten-year base term and generally have several renewal periods. The rental
payments are either fixed base rates or percentages of sales with minimum
rentals. All of the leases are accounted for as operating leases. See "Note 11
of Notes to Consolidated Financial Statements" incorporated by reference from
the Company's Annual Report to Stockholders.
The following is a list of the Company's stores as of March 21, 1997:
<TABLE>
<CAPTION>
Approximate
Date Gross Square
Territory/Store Location Opened/Acquired Footage
- --------------- -------- --------------- ------------
<S> <C> <C> <C>
Northern California
Wild Oats Berkeley Berkeley, CA Acquired April 1995 7,500
Wild Oats Sacramento Sacramento, CA Opened March 1997 12,400
Wild Oats San Anselmo San Anselmo, CA Acquired April 1995 8,500
Wild Oats San Francisco San Francisco, CA Opened April 1996 9,000
Wild Oats Sunnyvale Sunnyvale, CA Opened November 1996 23,850
Southern California
Wild Oats Mission Viejo Mission Viejo, CA Opened May 1996 23,500
Wild Oats Pasadena Pasadena, CA Opened January 1994 15,000
Wild Oats Santa Monica Santa Monica, CA Opened September 1995 8,200
Wild Oats West Hollywood West Hollywood, CA Opened February 1996 14,000
Wild Oats West Los Angeles Los Angeles, CA Opened September 1996 7,900
Colorado
Wild Oats Aurora Aurora, CO Acquired February 1990 8,000
Wild Oats Vegetarian Boulder, CO Acquired October 1987 6,500
Wild Oats Boulder Boulder, CO Opened February 1988 12,900
Alfalfa's Boulder Boulder, CO Acquired July 1996 25,000
Wild Oats Colorado Springs Colorado Springs, CO Opened November 1992 16,700
Alfalfa's Cherry Creek Denver, CO Acquired July 1996 17,000
Wild Oats Denver Denver, CO Acquired February 1990 6,300
Wild Oats Washington Park Denver, CO Opened May 1995 18,600
Alfalfa's Capitol Hill Denver, CO Acquired July 1996 22,000
Wild Oats Fort Collins Fort Collins, CO Acquired September 1988 5,000
Alfalfa's Fort Collins Fort Collins, CO Acquired July 1996 14,000
Wild Oats Orchard Greenwood Village, CO Opened August 1995 35,000
Alfalfa's Littleton Littleton, CO Acquired July 1996 22,500
Alfalfa's Vail Vail, CO Acquired July 1996 6,200
Florida
Wild Oats Fort Lauderdale Ft. Lauderdale, FL Opened November 1996 24,000
Wild Oats Boca Raton Boca Raton, FL Acquired February 1997 12,000
Wild Oats West Palm Beach West Palm Beach, FL Acquired February 1997 11,000
Midwest
Wild Oats Mission Mission, KS Opened October 1995 22,000
Wild Oats Kansas City Kansas City, MO Acquired March 1993 5,000
Wild Oats St. Louis St. Louis, MO Opened August 1996 20,500
New Mexico
Wild Oats Albuquerque Albuquerque, NM Opened May 1992 28,000
Wild Oats Juan Tabo Albuquerque, NM Opened November 1995 22,000
Wild Oats St. Francis Santa Fe, NM Opened January 1991 15,000
Wild Oats St. Michael Santa Fe, NM Opened January 1992 9,000
Alfalfa's Santa Fe Santa Fe, NM Acquired July 1996 20,000
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Oregon
Oasis Fine Foods North Eugene, OR Acquired March 1997 27,000
Oasis Fine Foods South Eugene, OR Acquired March 1997 13,000
Utah/Nevada
Wild Oats Las Vegas East Las Vegas, NV Acquired July 1994 10,400
Wild Oats Las Vegas West Las Vegas, NV Acquired July 1994 16,400
Wild Oats Salt Lake East Salt Lake City, UT Acquired June 1996 10,000
Wild Oats Salt Lake Holladay Salt Lake City, UT Acquired June 1996 8,800
Wild Oats Salt Lake South Salt Lake City, UT Acquired June 1996 7,000
Canada
Capers Vancouver, B.C. Acquired July 1996 17,500
Capers Vancouver, B.C. Acquired July 1996 8,100
Capers West Vancouver, B.C. Acquired July 1996 11,800
</TABLE>
The Company has signed a lease for a store in Laguna Beach, CA, with a Wild Oats
Markets store projected to be opened at that location in the second quarter of
1997.
Item 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company or
its subsidiaries are a party. From time to time, the Company is involved in
lawsuits that the Company considers to be in the normal course of its business.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
In October 1996 the Company solicited written consents in lieu of a
special meeting from stockholders for the following items: amendment to the
Amended and Restated Certificate of Incorporation to provide, among other
things, for automatic conversion of the Company's Series A, B, C, D and E
preferred stock to common stock upon the initial public offering of the
Company's common stock and to effect a 1.7735 for one stock split of the
Company's common stock; adoption of the Company's 1996 Equity Incentive Plan;
and adoption of the Company's 1996 Employee Stock Purchase Plan. Requests for
consents were sent to stockholders holding a number of the shares of the
Company's outstanding stock as would be necessary to approve such matters at a
meeting of the stockholders. Notices of the taking of corporate action without a
meeting by less than unanimous consent were given to the Company's stockholders
of record pursuant to Section 228(d) of the Delaware General Corporation Law. On
a post-split basis, 72% of the then-outstanding shares voted by consent in favor
of the proposals, with the votes tallied as follows: 2,202,048 shares of common
stock, 298,730 shares of Series A Preferred Stock, 732,984 shares of Series C
Preferred Stock, 408,336 shares of Series D Preferred Stock and 926,992 shares
of Series E Preferred Stock voted in favor of the proposal and of those
stockholders from which consent was requested, no shares voted against such
proposal.
PART II.
Items 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the NASDAQ National Market
system under the symbol "OATS". The high per share sales price for the Company's
common stock for the period from the Company's initial public offering on
October 22, 1996 through December 28, 1996 was $27, and the low per share sales
price was $18.
As of March 4, 1997, the Company's common stock was held by 194
stockholders of record. No cash dividends have been declared previously on the
Company's common stock, and the Company does not anticipate declaring a cash
dividend in the near future.
Item 6. SELECTED FINANCIAL DATA
The information included under the caption "Selected Financial Data"
from the Company's 1996 Annual Report to Stockholders is incorporated herein by
reference.
9
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information included under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the Company's 1996
Annual Report to Stockholders is incorporated herein by reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information included in the financial statements and footnotes
thereto in the Company's 1996 Annual Report to Stockholders is incorporated
herein by reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information included under the captions "Election of Directors" and
"Executive Compensation-Management-Executive Officers" in the Company's
definitive Proxy Statement in connection with the Annual Meeting of stockholders
to be held May 1, 1997, to be filed with the Commission on or before April 29,
1997, is incorporated herein by reference.
Item 11. EXECUTIVE COMPENSATION
The information included under the caption "Executive Compensation" in
the Company's definitive Proxy Statement in connection with the 1997 Annual
Meeting of stockholders to be held May 1, 1997, to be filed with the Commission
on or before April 29, 1997, is incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information included under the caption "Security Ownership of
Certain Beneficial Owners and Management" in the Company's definitive Proxy
Statement in connection with the 1997 Annual Meeting of stockholders to be held
May 1, 1997, to be filed with the Commission on or before April 29, 1997, is
incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information included under the caption "Directors and Executive
Officers - Certain Transactions" in the Company's definitive Proxy Statement in
connection with the 1997 Annual Meeting of stockholders to be held May 1, 1997,
to be filed with the Commission on or before April 29, 1997, is incorporated
herein by reference.
PART IV.
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following are filed as a part of this Report on Form 10-K:
(1) Consolidated Statement of Operations
Consolidated Balance Sheet
Consolidated Statement of Changes in Stockholders' Equity (Deficit)
Consolidated Statement of Cash Flows
(2) Schedule II - Valuation and Qualifying Accounts
(b) Reports on Form 8-K. There were no reports on Form 8-K for the
three-month period ended December 28, 1996.
(c) Exhibits
The following exhibits to this Form 10-K are filed pursuant to the
requirements of Item 601 of Regulation S-K:
10
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------ -----------------------
<S> <C>
3(i).1.(a) Amended and Restated Certificate of Incorporation of the
Registrant.
3(i).1.(b) Certificate of Correction to Amended and Restated
Certificate of Incorporation of the Registrant.
3(ii).1 Amended and Restated By-Laws of the Registrant.
4.1+ Reference is made to Exhibits 3(i).1 through 3(ii).1.
4.2+ Specimen stock certificate.
10.1+ Form of Indemnity Agreement between the Registrant and its
directors and executive officers, with related schedule.
10.2+ Registrant's 1996 Equity Incentive Plan, including forms of
Options granted to employees and non-employee directors
thereunder.
10.3+ Registrant's 1996 Employee Stock Purchase Plan.
10.4+ Registrant's 1993 Stock Option Plan.
10.5+ Registrant's 1991 Stock Option Plan.
10.6+ Employee Stock Ownership Plan.
10.7+ Employment Agreement between Registrant and Michael C.
Gilliland, dated July 12, 1996 as amended.
10.8+ Employment Agreement between Registrant and S.M. Hassan,
dated July 12, 1996.
10.9+ Employment Agreement between Registrant and Elizabeth C.
Cook, dated July 12, 1996 as amended.
10.10+ Warrant to purchase Series C Preferred Stock issued to
Montgomery Securities dated November 14, 1994.
10.11+ Warrant to purchase Series B Preferred Stock issued to
Weston Presidio Offshore Capital C.V. dated November 14,
1994.
10.12+ Warrant to purchase Series B Preferred Stock issued to
Weston Presidio Offshore Capital C.V. dated November 14,
1994.
10.13+ Amended and Restated Stockholders Agreement among the
Registrant and certain parties named therein dated August
1996.
10.14+ Registration Rights Agreement between the Registrant and
certain parties named therein dated July 12, 1996.
10.15+ Credit Agreement between the Registrant and Bank One,
Indianapolis, National Association dated March 15, 1995.
10.16+ First Amendment to Credit Agreement between the Registrant
and Bank One, Indianapolis, National Association dated
November 30, 1995.
10.17+ Lease Agreement between Registrant and Bway Property Limited
Partnership for the property located at 1645 Broadway,
Boulder, CO dated October 5, 1992.
10.18+ Lease Agreement between Registrant and Bway Property Limited
Partnership for the property located at 1651 Broadway,
Boulder, CO dated October 11, 1982.
10.19+ Amendment to Lease Agreements between Registrant and Bway
Property Limited Partnership dated March 9, 1995 for the
properties located at 1645 and 1651 Broadway, Boulder, CO.
10.20+ Lease Agreement between Registrant and Overland Outfitters,
Inc. for the property located at 1655 Broadway, Boulder, CO
dated April 10, 1989.
10.21+ Lease Agreement between Registrant and Marianna Partners
Limited for the property located at the northwest corner of
St. Francis Drive and Cordova Road, Santa Fe, NM dated
August 27, 1990.
10.22+ First Amendment to Lease Agreement between Registrant and
CAMPR Partners, Ltd., successor by merger to Marianna
Partners Limited for the property located at the northwest
corner of St. Francis Drive and Cordova Road, Santa Fe, NM
dated August 1, 1992.
10.23+ Second Amendment to Lease Agreement between Registrant and
CAMPR Partners, Ltd., for the property located at the
northwest corner of St. Francis Drive and Cordova Road,
Santa Fe, NM dated
10.24+ Lease Agreement between Registrant and First Interstate Bank
of New Mexico, N.A., as Trustee of the Joseph M. Montoya
Trust, the Patrick J. Montoya Trust, and the Lynda M. Haran
Trust for the property located at the northwest corner of
Don Diego Avenue and Cordova Road, Santa Fe, NM dated June
29, 1994.
10.25+ Shopping Center Lease between Registrant and Skunk Creek
Investors dated August 8, 1995 for the store located at
Baseline Road, Boulder, CO.
10.26+ Lease between Registrant and AGF Property Management Corp.
for the property located at 1111-23 South Washington Street,
Denver, CO dated October 12, 1994.
10.27+ Lease between Registrant and 306283 British Columbia Ltd.
for the property located at 2211 West 4th Avenue, Vancouver,
B.C. dated November 6, 1992.
10.28+ Lease Agreement between Registrant and Fireside Liquors,
Inc. for the property located at 1425/1421/1411 Montana
Avenue, Santa Monica, CA dated September 15, 1994.
10.29+ Employment Agreement between Registrant and James Lee, dated
September 30, 1996.
10.30+ Agreement and Plan of Merger between the Registrant,
Alfalfa's, Inc. and WO Holdings, Inc. dated June 4, 1996.
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
11.1 Statement regarding computation of pro forma net income (loss)
per share.
13.1 Registrant's 1996 Annual Report to Stockholders.
21.1+ List of subsidiaries.
23.1 Consent of Price Waterhouse LLP.
27.1 Financial Data Schedule.
</TABLE>
+ Previously filed.
12
<PAGE>
-------------------
SELECTED FINANCIAL DATA
-------------------
in thousands, except per-share data
The following data for the five fiscal years ended December 28, 1996, are
derived from the consolidated financial statements of the Company. The following
data should be read in conjunction with the Company's consolidated financial
statements, related notes thereto and other financial information included
elsewhere in this Annual Report.
<TABLE>
<CAPTION>
Fiscal year: 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales $192,493 $ 98,517 $ 65,219 $ 47,266 $ 36,638
Cost of goods sold and
occupancy costs 130,957 67,164 44,637 32,344 25,056
--------- --------- --------- --------- ---------
Gross profit 61,536 31,353 20,582 14,922 11,582
Direct store expenses 48,317 25,072 15,685 11,007 8,723
--------- --------- --------- --------- ---------
Store contribution 13,219 6,281 4,897 3,915 2,859
Selling, general and
administrative expenses 8,977 4,465 2,317 1,824 1,049
Pre-opening expenses 1,763 1,037 416 650
Nonrecurring expenses 7,035
--------- --------- --------- --------- ---------
Income (loss) from operations (4,556) 779 2,580 1,675 1,160
Interest expense 904 363 373 350 151
--------- --------- --------- --------- ---------
Income (loss) before income taxes (5,460) 416 2,207 1,325 1,009
Income tax expense (benefit)/(1)/ (977) 40 880 521 393
--------- --------- --------- --------- ---------
Net income (loss)/(1)/ (4,483) $ 376 $ 1,327 $ 804 $ 616
========= ========= ========= ========= =========
Unaudited pro forma net income (loss)
per common share/(2)/ $ (0.92) $ 0.10
========= =========
Unaudited pro forma weighted average number of
common shares outstanding/(2)/ 4,890 3,864
========= =========
BALANCE SHEET DATA (AT PERIOD END):
Working capital (deficit) $ 9,932 $ 474 $ 3,278 $ (292) $ (1,400)
Total assets 107,057 38,376 24,053 9,873 6,763
Long-term debt (including capitalized leases) 971 13,302 3,078 2,494 1,446
Redeemable convertible preferred stock 16,956 15,018 2,164
Stockholders' equity (deficit) 77,783 (4,209) (2,645) (358) 1,301
</TABLE>
/(1)/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.
/(2)/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. See Note 1 of Notes to Consolidated Financial
Statements.
<PAGE>
-----------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
-----------------------------------------------------------
This Annual Report contains forward-looking statements within the context of
Section 21E of the Securities Exchange Act of 1934, as amended. Each and every
forward-looking statement involves a number of risks and uncertainties,
including the Risk Factors specifically delineated and described in the
Company's Registration Statement on Form S-1, No. 333-11261, effective October
22, 1996 ("Registration Statement"), and in the Company's Quarterly Report on
Form 10-Q for the quarter ended September 28, 1996, including those Risk Factors
that have been specifically expanded or modified below. The actual results that
the Company achieves may differ materially from any forward-looking statements
due to such risks and uncertainties. Words such as "believes," "anticipates,"
"expects," "intends," and similar expressions are intended to identify forward-
looking statements, but are not the exclusive means of identifying such
statements. The Company undertakes no obligation to update any forward-looking
statements in order to reflect events or circumstances that may arise after the
date of this report.
Certain of the Risk Factors described above are hereby restated, modified and
expanded in accordance with the following section references:
UNCERTAIN ABILITY TO EXECUTE GROWTH STRATEGY (AMENDED)
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 forty-four stores (as of the date of this annual report) in nine
U.S. states and British Columbia, Canada. The Company opened its first store
outside of the western United States (in Florida) in November 1996. The Company
closed the Alfalfa's Seattle, Washington, store and the Wild Oats Market
Lawrence, Kansas, store in September 1996 and October 1996, respectively. The
Company opened seven stores in 1996 (exclusive of the acquisition of 11
Alfalfa's stores), including one store originally scheduled to open in 1997, and
anticipates opening or acquiring at least nine additional stores in 1997. The
Company also acquired 14 existing stores in 1996. The Company currently has
signed a lease for two stores and a purchase agreement for real property for the
construction of a third store planned to open in 1997. As of the date of this
report, in 1997 the Company has purchased four existing natural food grocery
stores located in West Palm Beach and Boca Raton, Florida, and Eugene, Oregon,
and is currently integrating those stores into its operations. 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; and (vii)
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. 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.
COMPETITION (AMENDED)
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 Market recently announced that it 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. Whole Foods' management has also
announced that Whole Foods 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.
FLUCTUATIONS IN OPERATING RESULTS (AMENDED)
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
and mix 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 resulting from lower
initial gross margins and higher direct store expenses as a percentage of sales.
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. In addition,
the Company's store base is geographically concentrated, and shifts in economic
or demographic trends and consumer preferences in a particular market could have
an adverse effect on the Company's results of operations. Further, 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 operating performance. 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.
<PAGE>
-----------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
-----------------------------------------------------------
continued
RESULTS OF OPERATIONS
The following table is derived from the Company's consolidated statement of
operations for the periods indicated and presents, for the periods indicated,
certain selected income statement data expressed as a percentage of sales:
<TABLE>
<CAPTION>
Fiscal year: 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales 100.0% 100.0% 100.0%
Cost of goods sold and occupancy costs 68.0 68.2 68.4
--------- --------- ---------
Gross profit 32.0 31.8 31.6
Direct store expenses 25.1 25.4 24.0
--------- --------- ---------
Store contribution 6.9 6.4 7.6
Selling, general and administrative expenses 4.7 4.4 3.5
Pre-opening expenses 0.9 1.1
Nonrecurring expenses 3.7
--------- --------- ---------
Income (loss) from operations (2.4) 0.9 4.1
Interest expense, net 0.4 0.4 0.6
--------- --------- ---------
Income (loss) before income taxes (2.8) 0.5 3.5
Income tax expense (benefit) (0.5) 1.4
--------- --------- ---------
Net income (loss) (2.3)% 0.5% 2.1%
========= ========= =========
</TABLE>
STORE OPENINGS, CLOSINGS AND ACQUISITIONS
In 1996, the Company opened seven new stores in St. Louis, Missouri, Ft.
Lauderdale, Florida, and San Francisco, West Hollywood, West Los Angeles,
Mission Viejo and Sunnyvale, California. The Sunnyvale store was originally
scheduled to open in the first quarter of 1997. The Company also completed the
acquisition of fourteen stores, including the acquisition of the stores owned by
Alfalfa's, Inc., which operated eight Alfalfa's and three Capers stores. (See
"Acquisition of Alfalfa's" below.) In addition, in the third quarter, the
Company closed one Alfalfa's store in Seattle, Washington, and, in the fourth
quarter, closed a Wild Oats Market store in Lawrence, Kansas. As of the date of
this report, the Company has also completed the acquisition of four existing
natural foods grocery stores in Boca Raton and West Palm Beach, Florida, and
Eugene, Oregon. 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. While store openings and the acquisition of Alfalfa's, Inc.
contributed to an increase in the Company's overall sales during these periods,
from $98.5 million during 1995 to $192.5 million during 1996, net income
decreased, largely as a result of a $7.0 million nonrecurring charge described
below, pre-opening expenses (which aggregated approximately $1.8 million for
1996) and initial operating losses at the new stores. The Company anticipates
that the new stores opened in the third and fourth quarters of 1996 will
experience operating losses for the first six to twelve months of operation, in
accordance with historic trends. 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 closures, relocations or remodels in accordance with
such evaluations.
ACQUISITION OF ALFALFA'S
The Company completed the acquisition of Alfalfa's, Inc. in July 1996. Through
this acquisition, the Company combined two natural foods retailers with similar
operating strategies and complementary store bases, increased its penetration of
existing markets and created a stronger platform for future growth. Wild Oats
and Alfalfa's stores overlap in four markets: Santa Fe, New Mexico, and Denver,
Boulder and Fort Collins, Colorado. The Company believes these markets are large
enough to support these stores. In connection with the acquisition, the Company
recorded goodwill in the third quarter of 1996 of approximately $27.8 million,
which is being amortized on a straight-line basis over 40 years. The future
operating and financial performance of the Company will depend in part on its
ability to integrate and operate the Alfalfa's stores successfully and to
enhance the profitability of the acquired business.
NONRECURRING EXPENSES
During late August 1996, the Company performed a thorough analysis of its
operations subsequent to the acquisition of Alfalfa's, Inc. 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 noncash write-
offs. The charge is attributable to (i) closing the Wild Oats Market Lawrence,
Kansas, store, 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, Inc. 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.
<PAGE>
-----------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
-----------------------------------------------------------
continued
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 eight 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. Sales of a store are deemed to be comparable commencing in the
thirteenth full month after the store was opened or acquired. 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 as described in "Uncertain Ability to Execute Growth
Strategy" and "Fluctuations in Operating Results." Management believes that the
Company experienced the most significant negative effects of this
cannibalization in the first three quarters of 1996, and expects that comparable
store sales increases will improve in 1997.
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 11 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, Inc.
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.
NET INTEREST EXPENSE
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.
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
<PAGE>
-----------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
-----------------------------------------------------------
continued
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
Net interest expense in 1995 decreased 2.7% to $363,000 from $373,000 in 1994 as
a result of lower average levels of indebtedness.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of capital have been cash flow from operations,
trade payables, bank indebtedness, and the sale of equity securities. Primary
uses of cash have been the financing of store openings and acquisitions.
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. The Company anticipates that vendor financing
will continue to be available for new store openings.
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, Inc. acquisition, other minor
acquisitions and the opening of seven new stores during 1996.
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, Inc.
The Company currently has a $20.0 million revolving line of credit with Bank One
Indianapolis, National Association (the "Revolving Line"). The Revolving Line
bears interest, at the Company's option, at the lender's prime rate or LIBOR
plus 1.75% and has a final maturity of February 2002. At December 28, 1996, the
Company had borrowings outstanding under the Revolving Line of approximately
$750,000. The Company used a portion of the net proceeds from its initial public
offering in October 1996 to repay all amounts outstanding on the Revolving Line.
Further, in December 1996, the Company received a commitment from its lender to
increase its borrowing capacity under the Revolving Line to $40.0 million. The
Company's ability to borrow under the Revolving Line is contingent upon its
compliance with certain material covenants, including covenants related to the
Company's net worth, total funded debt to total capitalization ratio, interest
coverage ratio, tangible capital base, and fixed charge coverage.
The Company spent approximately $13.2 million in 1996 to complete the build-out
and opening of seven stores, one of which was originally scheduled to open in
1997. In addition, in 1996, the Company spent $14.1 million (net of cash
acquired) to acquire the capital stock or assets of fourteen natural foods
stores. As of the date of this Annual Report, in 1997 the Company has used cash
of approximately $7.4 million and will issue shares of the Company's common
stock worth approximately $1.0 million to acquire four existing natural foods
stores and fund the construction in progress of its sites in development or
under remodel. 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 18 months, excluding
inventory costs, pre-opening expenses and initial operating losses. The cost of
initial inventory for a new store over such period was approximately $500,000;
however, the Company relies on vendor financing for most of this cost. Pre-
opening expenses are approximately $250,000 per store and are expensed when the
new store opens. The amounts and timing of such expenditures 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. There can be no assurance that actual capital
expenditures will not exceed anticipated levels.
<PAGE>
Wild Oats Markets, Inc.
======================
CONSOLIDATED STATEMENT OF OPERATIONS
----------------------
in thousands, except per-share amounts
<TABLE>
<CAPTION>
Dec. 28, Dec. 30, Dec. 31,
Fiscal year ended: 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $192,493 $98,517 $65,219
Cost of goods sold and occupancy costs 130,957 67,164 44,637
-------- ------- -------
Gross profit 61,536 31,353 20,582
Operating expenses:
Direct store expenses 48,317 25,072 15,685
Selling, general and administrative expenses 8,977 4,465 2,317
Pre-opening expenses 1,763 1,037
Nonrecurring expenses 7,035
-------- ------- -------
Income (loss) from operations (4,556) 779 2,580
Interest expense, net 904 363 373
-------- ------- -------
Income (loss) before income taxes (5,460) 416 2,207
Income tax expense (benefit) (977) 40 880
-------- ------- -------
Net income (loss) (4,483) 376 1,327
Accretion of redeemable preferred stock 2,396 1,937 484
-------- ------- -------
Net income (loss) allocable to common stock $ (6,879) $(1,561) $ 843
======== ======= =======
Unaudited pro forma net income (loss) per common share (Note 1) $ ( 0.92) $0.10
======== =======
Unaudited pro forma weighted average number of common shares outstanding (Note 1) 4,890 3,864
======== =======
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
<PAGE>
Wild Oats Markets, Inc.
=======================
CONSOLIDATED BALANCE SHEET
--------------------------
in thousands, except share amounts
<TABLE>
<CAPTION>
Dec. 28, Dec. 30,
1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 16,404 $ 1,150
Inventories 15,464 7,789
Accounts receivable (net of allowance
for doubtful accounts of $299 and $47) 558 378
Income tax receivable 800 1,367
Prepaid expenses and other current assets 319 464
Deferred income taxes 2,056 343
-------- -------
Total current assets 35,601 11,491
Property and equipment, net 35,736 19,318
Intangible assets, net 35,150 7,309
Deposits and other assets 416 258
Deferred income taxes 154
-------- -------
$107,057 $38,376
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT):
Current liabilities:
Accounts payable $ 16,845 $ 8,468
Accrued liabilities 8,664 2,467
Notes payable 50
Current portion of long-term debt 110 82
-------- -------
Total current liabilities 25,669 11,017
Long-term debt 971 13,302
Deferred income taxes 1,157 1,310
Other liabilities 1,477
-------- -------
29,274 25,629
-------- -------
Commitments and contingencies (Notes 10 and 11)
Redeemable convertible preferred stock; $.001 par value; 5,000,000 shares authorized; 298,730 designated
as Series A, 298,730 issued and outstanding in 1995; 2,845 designated as Series B, no shares issued and
outstanding; 743,240 designated as Series C, 739,727 issued and outstanding in 1995 16,956
-------
Stockholders' equity (deficit):
Common stock; $.001 par value; 20,000,000 shares authorized; 6,875,514 and 2,723,307 issued; 6,875,514
and 2,321,716 outstanding 7 3
Additional paid-in capital 86,471 2,868
Accumulated deficit (8,610) (1,731)
Treasury stock, at cost, 401,591 shares in 1995 (5,349)
Foreign currency translation adjustment (85)
-------- -------
Total stockholders' equity (deficit) 77,783 (4,209)
-------- -------
$107,057 $38,376
======== =======
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
<PAGE>
Wild Oats Markets, Inc.
====================================
CONSOLIDATED STATEMENT OF CHANGES
IN STOCKHOLDERS' EQUITY (DEFICIT)
====================================
in thousands, except share and per-share amounts
<TABLE>
<CAPTION>
Foreign
Additional Currency Stockholders'
Common Stock Treasury Stock Paid-in Accumulated Translation Equity
Shares Amount Shares Amount Capital Deficit Adjustment (Deficit)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994 2,489,423 $ 3 149,364 $(1,050) $ 1,654 $ (964) $ (357)
Issuance of common stock
($9.84 per share) 12,700 125 125
Issuance of common stock
($14.06 per share) 4,139 58 58
Issuance of warrants to
purchase preferred stock 27 27
Conversion of note payable
into shares of common stock 216,472 1,000 1,000
Repurchase of common stock 251,654 (4,292) (4,292)
Accretion of redeemable
preferred stock (484) (484)
Stockholder draws (49) (49)
Net income 1,327 1,327
--------- -------- -------- --------- --------- --------- ---------
Balance at December 31, 1994 2,722,734 3 401,018 (5,342) 2,864 (170) (2,645)
Common stock options
exercised ($7.05 to $17.10
per share) 573 4 4
Repurchase of common stock 573 (7) (7)
Accretion of redeemable
preferred stock (1,937) (1,937)
Net income 376 376
--------- -------- -------- --------- --------- --------- ---------
Balance at December 30, 1995 2,723,307 3 401,591 (5,349) 2,868 (1,731) (4,209)
Issuance of common stock
($16.70 per share) 783,421 1 13,086 13,087
Issuance of stock options 1,109 1,109
Initial public offering of common
stock ($25.00 per share),
net of issuance costs 1,400,000 1 31,401 31,402
Accretion of redeemable
preferred stock (2,396) (2,396)
Conversion of redeemable
convertible preferred stock
into shares of common stock 2,322,809 2 43,100 43,102
Common stock options exercised
($7.05 to $17.10 per share) 50,920 298 298
Repurchase of common stock 3,352 (42) (42)
Retirement of treasury stock (404,943) (404,943) 5,391 (5,391)
Net loss (4,483) (4,483)
Foreign currency translation
adjustment $ (85) (85)
--------- -------- -------- --------- --------- --------- --------- ---------
Balance at December 28, 1996 6,875,514 $ 7 -- $ -- $ 86,471 $ (8,610) $ (85) $ 77,783
========= ======== ======== ========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
<PAGE>
Wild Oats Markets, Inc.
====================================
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
in thousands
<TABLE>
<CAPTION>
Dec. 28, Dec. 30, Dec. 31,
Fiscal year ended: 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (4,483) $ 376 $ 1,327
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Write-off of assets in nonrecurring expenses 5,746
Depreciation and amortization 7,019 2,078 1,301
Loss on disposal of equipment 110 241 57
Deferred tax provision (benefit) (863) 834 51
Change in assets and liabilities:
Inventories (4,239) (3,363) (570)
Receivables and other assets (1,529) (1,385) (224)
Accounts payable 3,001 5,098 (618)
Accrued liabilities 4,737 747 205
--------- --------- ---------
Net cash provided by operating activities 9,499 4,626 1,529
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (13,174) (14,213) (1,907)
Payment for purchase of acquired entities, net of cash acquired (14,109) (2,829) (2,361)
--------- --------- ---------
Net cash used by investing activities (27,283) (17,042) (4,268)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt 3,095
Payments on long-term debt (2,029) (5,938) (3,546)
Net proceeds (payments) on line of credit (12,486) 13,236
Principal payments under capitalized leases (88) (142) (143)
Proceeds from issuance of redeemable preferred stock, net 16,068 12,369
Proceeds from issuance of common stock, net 31,700 4 125
Purchase of treasury stock (42) (7) (4,292)
Stockholder draws (49)
--------- --------- ---------
Net cash provided by financing activities 33,123 7,153 7,559
--------- --------- ---------
Effect of exchange rate changes on cash (85)
---------
Net increase (decrease) in cash and cash equivalents 15,254 (5,263) 4,820
Cash and cash equivalents at beginning of year 1,150 6,413 1,593
--------- --------- ---------
Cash and cash equivalents at end of year $ 16,404 $ 1,150 $ 6,413
========= ========= =========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,099 $ 380 $ 426
--------- --------- ---------
Cash paid for income taxes $ 809 $ 668 $ 991
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
<PAGE>
Wild Oats Markets, Inc.
------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------
NOTE I: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Wild Oats Markets, Inc. (the "Company"), headquartered in Boulder, Colorado,
owns and operates natural foods supermarkets in the western and central United
States and Canada. The Company also operates bakeries, commissary kitchens and
warehouses that supply the retail stores. The Company's operations are
concentrated in one market segment -- grocery stores -- and are geographically
concentrated in the western and central United States; management considers a
downturn in this market segment and geographic location to be unlikely.
Principles of Consolidation
The Company's consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated.
Fiscal Year
The Company reports its financial results on a 52- or 53-week fiscal year ending
on the Saturday closest to December 31. Each fiscal quarter consists of a 13-
week period, with one 14-period in a 53-week year. All fiscal years presented
were 52-week periods.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. Such cash equivalents
aggregated $12.3 million at December 28, 1996; there were no cash equivalents at
December 30, 1995. Cash equivalents are carried at cost which approximates fair
market value.
Inventories
Inventories consisting of products held for sale are stated at the lower of cost
(first in, first out) or market, as determined by the retail inventory method.
Depreciation and Amortization
Property and equipment are recorded at cost. Depreciation is computed on a
straight-line basis over the estimated useful lives of the respective assets
(three to seven years). Leasehold improvements are amortized on a straight-line
basis over the shorter of the useful life of the asset or the lease term.
Maintenance and repairs are expensed as incurred and improvements are
capitalized.
Intangible Assets
Intangible assets consist primarily of goodwill, which is amortized using the
straight-line method over 40 years and are shown net of accumulated amortization
of $1.6 million and $942,000 at December 28, 1996, and December 30, 1995,
respectively. The carrying value of goodwill is assessed for recoverability by
management based on an analysis of undiscounted expected future cash flows from
the related acquired entities. The Company believes that there has been no
impairment thereof as of December 28, 1996.
Pre-Opening Expenses
Pre-opening expenses are included in other assets and consist primarily of labor
costs, rent, utilities, supplies, and other expenses incurred in connection with
the opening of a new store. Pre-opening expenses are deferred until the store's
opening date, at which time such costs are expensed in full.
Advertising
Advertising is expensed as incurred. Advertising expense was $2.7 million, $1.3
million and $568,000 for 1996, 1995 and 1994, respectively.
Fair Value of Financial Instruments
The carrying amounts of the Company's financial instruments, including cash and
cash equivalents, short-term trade receivables and payables and long-term debt,
approximate their fair values.
Use of Estimates
The preparation of these financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
Foreign Currency Translation
The functional currency for the Company's Canadian subsidiary is the Canadian
dollar. Translation into U.S. dollars is performed for balance-sheet accounts at
year-end rates for monetary items and historical rates for non-monetary items.
Income and expense accounts are translated at average exchange rates.
Adjustments resulting from the translation are reflected as a separate component
of stockholders' equity.
Unaudited Pro Forma Net Income (Loss) Per Share
Pro forma net income (loss) per common share is computed based on the weighted
average number of common shares outstanding during the respective period and
gives effect to the acquisition of Alfalfa's as of January 1, 1995, and to
certain adjustments described below. Common equivalent shares are not included
in the per-share calculation where the effect of their inclusion would be
antidilutive (i.e., in a loss period), except that, in conformity with SEC
requirements, common shares and common share equivalents issued during the 12-
month period prior to the effectiveness of the Company's initial public offering
have been included in the calculation as if they were outstanding for all
periods using the treasury stock method. Additionally, all outstanding shares of
convertible preferred stock are assumed to have been converted to common stock
at the time of their issuance. The Company's historical capital structure is
not indicative of its structure following the closing of its initial public
offering, due to the automatic conversion of convertible preferred stock into
common stock. Accordingly, net income (loss) per common share has been presented
on a pro forma basis only.
Reclassifications
Certain amounts in the prior years' Consolidated Financial Statements have been
reclassified to conform to the 1996 presentation.
NOTE 2: BUSINESS COMBINATIONS
In July 1996, the Company acquired all of the outstanding common and preferred
stock of Alfalfa's for $39.1 million, consisting of $16.2 million of cash,
issuance of 783,421 shares of common stock and options to acquire 124,101 shares
of common stock valued at $14.2 million, issuance of 408,336 shares of
redeemable convertible Series D Preferred Stock valued at $7.7 million and $1.0
million of acquisition-related costs. The acquisition was accounted for using
the purchase method, and the excess of cost over the fair value of the assets
acquired of $27.8 million was allocated to goodwill, which is being amortized on
a straight-line basis over 40 years.
In May 1996, the Company acquired substantially all of the combined assets of
three related natural foods retail stores in Salt Lake City, Utah, in exchange
for total consideration of $2.2 million consisting of $500,000 in cash and $1.7
million in promissory notes. The acquisition was accounted for using the
purchase method, and the excess of cost over fair value of the assets acquired
of $2.1 million was allocated to goodwill, which is being amortized on a
straight-line basis over 40 years.
<PAGE>
Wild Oats Markets, Inc.
======================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------
continued
The fair values of the acquired assets and liabilities of these acquisitions are
as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Current assets ($3,591 of cash).................................. $ 8,507
Equipment........................................................ 12,030
Other assets..................................................... 523
Liabilities...................................................... (9,738)
Goodwill......................................................... 29,899
-------
$41,221
=======
</TABLE>
On April 22, 1995, the Company acquired the assets of two independent California
Limited Partnerships, each operating a natural foods supermarket in northern
California, in exchange for $2.8 million in cash. The acquisitions were
accounted for using the purchase method and the excess of cost over fair value
of the assets acquired of $1.7 million was allocated to goodwill, which is being
amortized on a straight-line basis over 40 years. The fair values of the assets
and liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Current assets.................................................... $ 564
Equipment......................................................... 607
Current liabilities............................................... (24)
Goodwill.......................................................... 1,682
------
$2,829
======
</TABLE>
On July 14, 1994, the Company acquired all of the outstanding stock of two
related Nevada corporations, each operating a natural foods store in Las Vegas,
in exchange for $2.8 million in cash, $3.6 million in notes payable, and $85,000
in stock and warrants. The acquisition was accounted for using the purchase
method and resulted in goodwill of $5.8 million, which is being amortized on a
straight-line basis over 40 years. The fair values of the assets and liabilities
are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Current assets ($396 of cash)..................................... $ 1,423
Property and equipment............................................ 1,239
Other assets...................................................... 80
Goodwill.......................................................... 5,837
Current liabilities............................................... (1,168)
Notes payable..................................................... (855)
Other liabilities................................................. (90)
-------
$ 6,466
=======
</TABLE>
Total debt and liabilities incurred and assumed in acquisitions for 1996 and
1994 aggregated $30.5 million and $5.8 million, respectively, and were excluded
from the Consolidated Statement of Cash Flows. The assets acquired in 1996 and
1994 aggregated $47.4 million and $8.6 million, respectively, and were excluded
from the Consolidated Statement of Cash Flows.
The following unaudited pro forma combined results of operations of the Company
and the acquired businesses discussed above have been prepared as if the
transactions occurred as of the beginning of the respective period (in
thousands):
<TABLE>
<CAPTION>
Dec. 28, Dec. 30, Dec. 31,
Fiscal year ended: 1996 1995 1994
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $242,318 $111,304 $83,577
Net income (loss) (3,677) 1,852 1,791
Earnings (loss) per share $ (0.75) $ 0.47
</TABLE>
The unaudited pro forma results above are not necessarily representative of the
actual results that would have occurred or may occur in the future, if the
transactions had been in effect on the date indicated. The pre-merger historical
results of the acquired businesses discussed above are not reflected in the
Company's historical financial statements.
NOTE 3: PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
Dec. 28, Dec. 30,
1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C>
Machinery and equipment $28,415 $14,634
Leasehold improvements 12,781 5,192
Land and building 44 338
Construction in progress 2,624 3,022
------- -------
43,864 23,186
Less accumulated depreciation
and amortization (8,128) (3,868)
------- -------
$35,736 $19,318
======= =======
</TABLE>
The amounts shown above include $339,000 and $338,000 of machinery and equipment
which are accounted for as capitalized leases and which have accumulated
amortization of $280,000 and $228,000 at fiscal year-end 1996 and 1995,
respectively.
NOTE 4: ACCRUED LIABILITIES
Accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
Dec. 28, Dec. 30,
1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C>
Accrued wages and employee costs $4,660 $1,230
Accrued sales and property taxes 1,640 793
Deferred charges and other accruals 2,364 444
------ ------
$8,664 $2,467
====== ======
</TABLE>
NOTE 5: NOTES PAYABLE AND LONG-TERM DEBT
At December 28, 1996, the Company had a short-term note payable of $50,000 which
bears interest at an annual rate of 10%; the note was repaid in full in January
1997.
Long-term debt outstanding consists of the following (in thousands):
<TABLE>
<CAPTION>
Dec. 28, Dec. 30,
1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C>
Notes payable to banks:
Due February 28, 2002, bearing interest, at the
Company's option, at the prime rate or LIBOR
plus 1.75% (8.25% at December 28, 1996,
and $5,238 at 8.25% and $8,000 at 7.625%,
respectively, at December 30, 1995), secured
by inventory and fixed assets $ 750 $13,236
Notes payable to corporations and individuals:
Due in monthly installments of $4,165 including
interest through June 2005, bearing interest at
10%, unsecured 271
Capitalized leases 60 148
------ -------
1,081 13,384
Less current portion (110) (82)
------ -------
$ 971 $13,302
====== =======
</TABLE>
<PAGE>
Wild Oats Markets, Inc.
======================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------
continued
At December 28, 1996, the Company had a $20.0 million revolving line of credit.
The facility has a three-year draw period, after which the commitment will
reduce over a four-year period. The line bears interest, at the Company's
option, at the prime rate or LIBOR plus 1.75%. As of December 28, 1996, the
Company had $750,000 outstanding on the line of credit and had approximately
$16.5 million available under the line of credit, although, in December 1996,
the Company received a commitment from its lender to increase its line of credit
to $40.0 million. The line of credit agreement includes certain financial and
other covenants, as well as restrictions on payments of dividends.
Scheduled maturities of long-term debt as of December 28, 1996, are as follows
(in thousands):
<TABLE>
<S> <C>
1997 $ 117
1998 775
1999 27
2000 30
2001 33
Thereafter 106
------
1,088
Less interest on capitalized leases (7)
------
$1,081
======
</TABLE>
NOTE 6: INCOME TAXES
Income tax expense (benefit) consists of the following (in thousands):
<TABLE>
<CAPTION>
Dec. 28, Dec. 30, Dec. 31,
Fiscal year ended: 1996 1995 1994
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Current: Federal $(114) $(791) $ 707
State 0 (3) 122
----- ----- -----
(114) (794) 829
----- ----- -----
Deferred: Federal (705) 825 40
State (158) 9 11
----- ----- -----
(863) 834 51
----- ----- -----
$(977) $ 40 $ 880
===== ===== =====
</TABLE>
Income taxes as reflected in the consolidated statement of operations differ
from the amounts computed by applying the statutory federal corporate tax rate
to income as follows:
<TABLE>
<CAPTION>
Dec. 28, Dec. 30, Dec. 31,
Fiscal year ended: 1996 1995 1994
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory tax rate (34.0%) 34.0% 34.0%
State income taxes, net of
federal income tax benefit (3.8) 3.8 3.6
Tax effect of nondeductible
goodwill 14.3 4.7 1.1
Disposal of assets (30.7)
Other, net 5.6 (2.2) 1.2
----- ----- -----
Effective tax rate (17.9%) 9.6% 39.9%
===== ===== =====
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities are as follows (in
thousands):
<TABLE>
<CAPTION>
Dec. 28, Dec. 30,
1996 1995
- ---------------------------------------------------------
<S> <C> <C>
Deferred tax assets
Inventory related $ 386 $ 165
Accruals 1,209 168
Other 249
Net operating loss carryforward 904 102
------- -------
Total deferred tax assets 2,748 435
------- -------
Deferred tax liabilities
Property related (1,695) (1,310)
Pre-opening expenses (92)
------- -------
Total deferred tax liabilities (1,695) (1,402)
------- -------
Net deferred tax asset (liability) $ 1,053 $ (967)
======= =======
</TABLE>
The ultimate realization of a significant portion of this asset is dependent
upon the generation of future taxable income sufficient to offset the related
deductions on future tax periods in which they reverse. Although realization is
not assured, management believes that it is more likely than not that all of the
deferred tax asset will be realized.
As of December 28, 1996, the Company had U.S. net operating loss carryforwards
of approximately $1.9 million which expire beginning in the year 2011. The
Company also had state net operating loss carryforwards of approximately $4.2
million.
NOTE 7: REDEEMABLE CONVERTIBLE PREFERRED STOCK
On November 15, 1994, the Company issued 739,727 shares of Series C Preferred
Stock at $17.05 per share and had previously issued 298,730 shares of Series A
Preferred Stock at $7.03 per share. The preferred stock had a liquidation
preference of $7.03 per share plus accrued dividends at 12% compounded annually
for Series A and $17.05 per share plus accrued dividends at 12% compounded
annually for Series C, participated in dividends declared on a pro rata basis
with common stock, and converted, at the option of the holder, into common stock
at a ratio of one to one.
In July 1996, in connection with the acquisition of Alfalfa's, the Company
amended and restated its Certificate of Incorporation to give effect to the
following: (i) the Series A Preferred Stock and Series C Preferred Stock
liquidation preferences were amended to reduce the dividend to 10% compounded
annually, respectively; and (ii) the Series A Preferred Stock redemption
election date was amended to be December 31, 1999.
Also, in July 1996, immediately prior to the acquisition of Alfalfa's, the
Company sold 876,016 shares of Series E Preferred Stock for $16.5 million. The
proceeds were used primarily to purchase shares of common and preferred stock
held by former Alfalfa's stockholders. In addition, as part of the consideration
in the acquisition of Alfalfa's, the Company issued 408,336 shares of Series D
Preferred Stock. Both the Series D and E have the same liquidation preference of
$18.81 per share plus all of the same rights, preferences and privileges as the
Series A and C Preferred Stock.
<PAGE>
Wild Oats Markets, Inc.
======================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------
continued
Upon the closing of the Company's initial public offering on October 22, 1996,
the Company's Series A, B, C, D and E Preferred Stock shares were converted into
an aggregate of 2,322,809 shares of the Company's common stock. Non-cash
transactions of $43.1 million and $2.4 million relating to the conversion of
preferred stock into common stock and the accretion of preferred stock,
respectively, were excluded from financing activities in the 1996 Consolidated
Statement of Cash Flows.
NOTE 8: COMMON STOCK
The Company completed its initial public offering on October 22, 1996. The
proceeds from the sale of 1.4 million shares of common stock at $25.00 per share
were approximately $31.4 million, net of the underwriting discount of $2.5
million and stock offering costs of $1.1 million.
NOTE 9: EMPLOYEE STOCK PLANS, OPTIONS AND WARRANTS
Employee Stock Purchase Plan
In August 1996, the Company's board of directors approved and adopted the
Employee Stock Purchase Plan (the "Purchase Plan") covering an aggregate of
127,692 shares of common stock. The Purchase Plan is intended to qualify as an
employee stock purchase plan within the meaning of Section 423 of the Internal
Revenue Code. Under the Purchase Plan, the board of directors may authorize
participation by eligible employees, including officers, in periodic offerings.
The offering period for any offering will be no more than 27 months. The board
authorized an offering commencing on the initial public offering date of October
22, 1996, and ending June 30, 1997, and sequential six-month offerings
thereafter.
Employees are eligible to participate in the currently authorized offerings if
they have been employed by the Company or an affiliate of the Company
incorporated in the United States for at least six months preceding October 22,
1996. Employees can have up to 15% of their earnings withheld pursuant to the
Purchase Plan (10% under the currently authorized offerings) and applied on
specified purchase dates (currently the last day of each authorized offering) to
the purchase of shares of common stock. The price of common stock purchased
under the Purchase Plan will be equal to 85% of the lower of the fair market
value of the common stock on the commencement date of each offering ($25.00 per
share on October 22, 1996) or the relevant purchase date. Employees may end
their participation in the offering at any time during the offering, and
participation ends automatically on termination of employment. In the event of
certain changes in control, the Company and the Board of Directors have
discretion to provide that each right to purchase common stock will be assumed
or an equivalent right substituted by the successor corporation, or the board
may shorten an offering and provide for all sums collected by payroll deductions
be applied to purchase stock immediately prior to the change in control. The
Purchase Plan will terminate at the board's direction. As of December 28, 1996,
there were approximately $49,000 of payroll deductions to be applied to purchase
stock on June 30, 1997.
Employee Stock Ownership Plan
In conjunction with the acquisition of Alfalfa's in July 1996, the Company
assumed an employee stock ownership plan ("ESOP") for Alfalfa's employees who
were participants at the time of the acquisition. Following the acquisition, the
Company discontinued contributions to the ESOP. The 50,176 shares of the
Company's common stock held in trust as of December 28, 1996, will be
distributed to the ESOP participants, pursuant to the terms of the ESOP, in
1997.
1996 Equity Incentive Plan
The Company's 1996 Equity Incentive Plan (the "Incentive Plan") was adopted by
the Board of Directors in August 1996 as an amendment and restatement of the
Company's 1993 Stock Option Plan (the "1993 Plan"). The board designated all
shares formerly available for issuance under the 1993 Plan and the 1991 Option
Plan (the "1991 Plan") of Alfalfa's following the July 1996 acquisition of
Alfalfa's to be available for issuance under the Incentive Plan.
The Incentive Plan provides for the grant of incentive stock options to
employees (including officers and employee-directors) and nonstatutory stock
options, restricted stock purchase awards and stock bonuses to employees,
directors and consultants. The exercise price of options granted under the
Incentive Plan is determined by the Board of Directors, provided that the
exercise price for an incentive stock option cannot be less than 100% of the
fair market value of the common stock on the grant date and the exercise price
for a nonstatutory stock option cannot be less than 85% of the fair market value
of the common stock on the grant date. Outstanding options vest ratably over a
period of five years and expire 10 years from the grant date.
Warrants
During 1994, as consideration for providing certain bridge financing, the
Company issued two warrants to an existing stockholder to purchase an aggregate
of 2,678 shares of Series B Preferred Stock. The warrants have a five-year term
and an exercise price of $9.84 and $10.59 per share.
Also during 1994, as consideration for investment advisory services related to
the placement of Series C Preferred Stock, the Company issued a five-year
warrant to a Series C stockholder to purchase 3,513 shares of Series C Preferred
Stock at an exercise price of $21.32 per share.
The above warrants were valued at $27,000, which was recorded as additional paid
in capital in 1994. Upon the closing of the Company's initial public offering on
October 23, 1996, the above warrants were converted to warrants to purchase
common stock with the same terms and exercise prices.
Fair Values
The Company applies Accounting Principles Board Opinion No. 25 and related
Interpretations in accounting for its stock plans. Accordingly, no compensation
expense has been recognized for these plans. Had compensation costs for these
plans been determined based on the fair value at the grant dates as prescribed
by Financial Accounting Standards Board Statement No. 123 "Accounting for Stock-
Based Compensation," the Company's net income (loss) and earnings (loss) per
share would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1995
- --------------------------------------------------------
<S> <C> <C>
Net income (loss)
As reported $(4,483) $ 376
Pro forma $(4,871) 73
Earnings (loss) per share
As reported $ (0.92) $ 0.10
Pro forma $ (1.00) $ 0.02
</TABLE>
<PAGE>
Wild Oats Markets, Inc.
-------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------
continued
The fair value of the employees' purchase rights was estimated using the Black-
Scholes model with the following assumptions for 1996: No dividend yield; an
expected life of eight months; expected volatility of 51 percent; and risk-free
interest rate of 5.6 percent. The weighted-average fair value of the purchase
rights granted in 1996 was $4.92 per share.
The fair value of each option grant under the Incentive Plan is estimated on the
date of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 1996 and 1995, respectively: no
dividend yield for both years; expected volatility of 51 percent for both years,
risk-free interest rates ranging from 5.6 to 7.1%and from 6.2 to 6.8% and
expected lives of seven years for both years.
A summary of the status of the Company's Incentive Plan as of the 1994, 1995 and
1996 fiscal year ends and changes during the years ending on those dates is
presented below:
<TABLE>
<CAPTION>
Weighted-
Average
Exercise
Qualified Non-Qualified Price
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding as of
January 1, 1994 181,473 $ 7.05
Granted 85,004 23,815 $ 13.12
Forfeited (45,224) (1,774) $ 7.03
Outstanding as of ---------- ----------
December 31, 1994 221,253 22,041 $ 9.19
Granted 115,100 $ 17.10
Forfeited (44,128) $ 10.08
Exercised (573) $ 7.70
Outstanding as of ---------- ----------
December 30, 1995 291,652 22,041 $ 11.95
Granted 439,825 29,528 $ 15.10
Forfeited (42,874) $ 14.68
Exercised (50,920) $ 5.85
---------- ----------
Outstanding as of
December 28, 1996 637,683 51,569 $ 14.13
========== ==========
</TABLE>
At December 28, 1996, options exercisable for 134,179 shares were available for
future grant under the Plan. At December 30, 1995 and at December 31, 1994,
options exercisable for 166,647 and 91,551 shares with weighted average exercise
prices of $10.39 and $8.72, respectively, were exercisable. The weighted-average
grant date per share fair values of options granted during 1996, 1995 and 1994
were $16.91, $17.10 and $13.12, respectively, per share.
The following tables summarize information about options outstanding and
exercisable at December 28, 1996:
<TABLE>
<CAPTION>
Options Outstanding
- --------------------------------------------------------------------------------
Weighted-
Average Weighted-
Range of Remaining Average
Exercise Number Contractual Exercise
Prices Outstanding Life Price
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 3.98-9.87 187,478 6.7 years $ 7.38
11.71-19.00 501,774 9.3 16.65
------------- ---------- ---------- -----------
$ 3.98-19.00 689,252 8.6 14.13
==========
Options Exercisable
- --------------------------------------------------------------------------------
<CAPTION>
Weighted-
Range of Average
Exercise Number Exercise
Prices Exercisable Price
- --------------------------------------------------------------------------------
$ 3.98-9.87 152,574 $ 7.23
11.71-19.00 121,605 15.89
-------------- ----------- --------
$ 3.98-19.00 274,179 11.07
===========
</TABLE>
NOTE 10: LITIGATION
The Company is named as defendant in various actions and proceedings arising in
the normal course of business. In all of these cases, the Company is denying the
allegations and is vigorously defending against them and in some instances, has
filed counterclaims. Although the eventual outcome of the various lawsuits
cannot be predicted, it is management's opinion these suits will not result in
liabilities that would materially affect the Company's financial position or
results of operations.
NOTE 11: COMMITMENTS
The Company has several noncancelable operating leases related to facilities
occupied and store equipment. These leases generally contain renewal provisions
at the option of the Company. Total rental expense (consisting of minimum rent
and contingent rent) under these leases was $7.6 million, $2.6 million and $1.8
million during 1996, 1995 and 1994, respectively.
Future minimum lease payments under noncancelable operating leases as of
December 28, 1996, are summarized as follows (in thousands):
<TABLE>
<CAPTION>
Operating
Fiscal year ended: Leases
- --------------------------------------------------------------------------------
<S> <C>
1997 $ 8,025
1998 7,422
1999 6,893
2000 6,105
2001 5,354
Thereafter 22,442
-------
Total minimum lease payments $56,241
=======
</TABLE>
Minimum rentals for operating leases do not include contingent rentals which may
become due under certain lease terms which provide that rentals may be increased
based on a percentage of sales. During 1996, 1995 and 1994, the Company paid
contingent rentals of $270,000, $158,000 and $165,000, respectively.
NOTE 12: NONRECURRING EXPENSES
During late August 1996, the Company's Board of Directors made the following
decisions relating to the Company's operations, which resulted in an approximate
$7.3 million nonrecurring charge being recorded in the third quarter of 1996.
Specifically, as a direct result of the July 1996 acquisition of Alfalfa's, the
Company incurred $2.0 million by: (i) closing the Wild Oats Lawrence, Kansas,
store as well as a regional bakery and kitchen; (ii) moving out of its existing
corporate headquarters and relocating to Alfalfa's; and (iii) consolidating
certain
<PAGE>
Wild Oats Markets, Inc.
-------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------
continued
information systems, thereby abandoning certain Wild Oats hardware and software.
In addition, after operating the combined businesses, management closed the
Alfalfa's Seattle, Washington, store and a restaurant in a Capers Store which,
at the time of the acquisition, it had planned to retain. These closures
resulted in the remaining $5.3 million of the charge. Components of the
nonrecurring charge consist primarily of lease-cancellation costs ($1.1
million), employee severance and relocation costs ($500,000) and losses on
disposal or abandonment of certain assets ($5.7 million).
During the fourth quarter of 1996, management revised its estimates and adjusted
the nonrecurring charge from $7.3 million to $7.0 million to reflect a $200,000
reduction in employee severance and relocation costs and a $100,000 reduction in
lease-cancellation costs. Cash paid for employee severance, relocation and
lease-cancellation costs related to the nonrecurring charge totaled $1.1 million
during 1996. At December 28, 1996, the remaining accrued liabilities related to
the nonrecurring charge totaled approximately $1.4 million.
NOTE 13: 401(K) PLAN
As of July 1, 1994, the Company adopted a tax-qualified employee savings and
retirement plan (the "401(k) Plan") covering the Company's employees who have
attained the age of 21 and have completed one year of service. Pursuant to the
401(k) Plan, eligible employees may elect to reduce their current compensation
by up to the lesser of 15% of their annual compensation or the statutorily
prescribed annual limit ($9,500 in 1996) and have the amount of such reduction
contributed to the 401(k) Plan. The 401(k) Plan provides for additional matching
contributions to the 401(k) Plan by the Company in an amount determined by the
Company prior to the end of each plan year. Total Company contributions to the
401(k) Plan during 1996, 1995 and 1994 were approximately $95,000, $83,000 and
$23,000, respectively. The trustees under the 401(k) Plan, at the direction of
each participant, invest the assets of the 401(k) Plan in designated investment
options. The 401(k) Plan is intended to qualify under Section 401 of the
Internal Revenue Code.
In conjunction with the acquisition of Alfalfa's in July 1996, the Company
assumed a 401(k) Profit Sharing Plan and Trust (the "Profit Sharing Plan") for
Alfalfa's employees who were participants in the Profit Sharing Plan at the time
of the acquisition. The Profit Sharing Plan provides for discretionary matching
contributions of 1% of participant compensation to the Profit Sharing Plan. The
net assets of the Profit Sharing Plan will be transferred to the Company's
401(k) Plan during 1997.
NOTE 14: QUARTERLY INFORMATION
(UNAUDITED)
The following interim financial information presents the 1996 and 1995
consolidated results of operations on a quarterly basis (in thousands, except
per-share amounts):
<TABLE>
<CAPTION>
Quarter Ended 1996
Dec. 28 Sept. 28 June 29 March 30
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $63,361 $60,203 $36,692 $32,237
Gross profit 20,439 19,124 11,913 10,060
Net income (loss) 421 (5,405) 255 246
Pro forma net income (loss)
per common share $ 0.06 $ (1.05) $ 0.04 $ 0.03
<CAPTION>
Quarter Ended 1995
Dec. 30 Sept. 30 July 1 April 1
- -------------------------------------------------------------------------------
Sales $30,008 $25,724 $23,359 $19,426
Gross profit 9,175 8,191 7,618 6,369
Net income (loss) (415) (277) 469 599
Pro forma net income (loss)
per common share $ (0.10) $ (0.07) $ 0.12 $ 0.15
</TABLE>
-------------------
REPORT OF INDEPENDENT
ACCOUNTANTS
-------------------
To the Board of Directors and Stockholders of Wild Oats Markets, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of changes in stockholders' equity
(deficit) and of cash flows present fairly, in all material respects, the
financial position of Wild Oats Markets, Inc. and its subsidiaries (the
"Company") at December 28, 1996, and December 30, 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 28, 1996, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ Price Waterhouse LLP
Boulder, Colorado
January 31, 1997
<PAGE>
Schedule II
WILD OATS MARKETS, INC.
Valuation and Qualifying Accounts
(in thousands)
<TABLE>
<CAPTION>
Balance at Charged Balance at
Allowance for Doubtful Accounts Beginning to End
for the Fiscal Year Ended: of Year Expenses Write-Offs of Year
<S> <C> <C> <C> <C>
December 31, 1994 $ 37 $ $ $ 37
December 30, 1995 37 85 (75) 47
December 28, 1996 47 252 299
</TABLE>
14
<PAGE>
========================================
MANAGEMENT'S STATEMENT OF RESPONSIBILITIES
----------------------------------------
The accompanying consolidated financial statements of Wild Oats Markets, Inc.
and its subsidiaries (the "Company") are prepared by the Company's management in
conformity with generally accepted accounting principles. Management is
responsible for the fairness of the financial statements, which include
estimates based on judgment.
The Company maintains accounting and other control systems which management
believes provide reasonable assurance that financial records are reliable for
the purposes of preparing financial statements, and that assets are properly
safeguarded and recorded. Underlying the concept of reasonable assurance is the
premise that the cost of control should not be disproportionate to the benefits
expected to be derived from control.
The Audit Committee of the Board of Directors meets periodically with management
and the independent accountants to discuss the annual audit, internal control
and financial reporting matters. The independent accountants have direct access
to the Audit Committee.
/s/ Michael C. Gilliland
Michael C. Gilliland
Chief Executive Officer
/s/ James W. Lee
James W. Lee
President and Chief Operating Officer
/s/ Mary Beth Lewis
Mary Beth Lewis
Chief Financial Officer and Treasurer
=====================
STOCKHOLDER INFORMATION
---------------------
Wild Oats Markets, Inc.
MARKET INFORMATION AND DIVIDEND POLICY:
The Company's Common Stock is traded on the NASDAQ National Market System under
the symbol "OATS." Since the Company's initial public offering on October 22,
1996, the high and low prices per share of the Common Stock as reported on the
NASDAQ National Market System were $27 and $18, respectively. As of March 4,
1997, the Company's common stock was held by 194 holders of record. No cash
dividends have been declared previously on the Company's common stock and the
Company does not anticipate declaring a cash dividend in the near future.
ANNUAL MEETING:
The Company's Annual Meeting of Stockholders will be held at 2 pm (Mountain
Daylight time), on Thursday, May 1, 1997, at:
Boulder Public Library Auditorium
1000 Canyon Boulevard
Boulder, CO 80302
FORM 10-K AND QUARTERLY STOCKHOLDER INFORMATION:
The Company's Annual Report on Form 10-K for the fiscal year ended December 28,
1996 may be obtained without charge by sending a written request to the address
below. Quarterly information is available to all stockholders immediately upon
its release, free of charge, via fax, by calling (303) 440-5220, extension 392,
or through access on the Internet at www.wildoats.com. To receive a copy by
mail, please send your written request to:
INVESTOR RELATIONS
Wild Oats Markets, Inc.
1645 Broadway
Boulder, CO 80302
TRANSFER AGENT AND REGISTRAR
Norwest Bank Minnesota, N.A.
Shareowner Services
161 North Concord Exchange
Post Office Box 738
South St. Paul, MN 55075
(612) 450-4062
EXECUTIVE OFFICERS
Michael C. Gilliland
Chief Executive Officer
and Director
James W. Lee
President and Chief Operating Officer
Mary Beth Lewis
Chief Financial Officer
and Treasurer
Elizabeth C. Cook
Vice President,
Secretary and Director
BOARD OF DIRECTORS
John A. Shields
Chairman of the Board
Chairman and Chief Executive Officer,
Del Ray Farms Markets, Inc.
David M. Chamberlain
Vice Chairman of the Board
Chairman of the Board, Genesco, Inc.
Peter D. Behrendt
Chairman of the Board, Exabyte Corporation
Barnet M. Feinblum
Chief Executive Officer and President,
Horizon Organic Dairy, Inc.
David L. Ferguson
General Partner, Chase Capital Partners
S.M. Hassan
Wild Oats Markets, Inc.
M. Laird Koldyke
General Partner, Frontenac Company
James B. McElwee
General Partner, Weston Presidio Capital
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
By /s/ Mary Beth Lewis
--------------------
Mary Beth Lewis
Executive Officer, Treasurer and
Chief Financial Officer
(Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ MICHAEL GILLILAND Chief Executive Officer
- ------------------------- and Director
/s/ JAMES W. LEE President
- -------------------------
/s/ MARY BETH LEWIS Chief Financial Officer
- -------------------------
/s/ JOHN A. SHIELDS Chairman
- -------------------------
/s/ ELIZABETH C. COOK Vice President and Director
- -------------------------
/s/ DAVID M. CHAMBERLAIN Vice Chairman
- -------------------------
/s/ BARNET M. FEINBLUM Director
- -------------------------
/s/ DAVID L. FERGUSON Director
- -------------------------
/s/ S.M. HASSAN Director
- -------------------------
/s/ M. LAIRD KOLDYKE Director
- -------------------------
/s/ JAMES B. MCELWEE Director
- -------------------------
</TABLE>
13
<PAGE>
Exhibit 3(i).1.(a)
Amended and Restated Certificate of Incorporation
<PAGE>
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
WILD OATS MARKETS, INC.
a Delaware corporation
I.
The undersigned, Elizabeth C. Cook, hereby certifies that:
ONE: She is the duly elected and acting Vice President of Wild Oats
Markets, Inc.
TWO: The corporation's original Certificate of Incorporation was filed with
the Secretary of State of the State of Delaware on May 31, 1996 under the name
WO Holdings, Inc.
THREE: This Amended and Restated Certificate of Incorporation restates,
integrates and amends the corporation's Certificate of Incorporation filed on
May 31, 1996, as amended by the Amended and Restated Certificate of
Incorporation filed July 12, 1996 and the Certificate of Amendment filed on
October 15, 1996 and has been duly adopted in accordance with Sections 242 and
245 of the General Corporation Law of the State of Delaware.
FOUR: The text of the Amended and Restated Certificate of Incorporation of
this corporation is hereby amended and restated to read in its entirety as
follows:
II.
The name of this corporation is Wild Oats Markets, Inc.
III.
The address of the registered office of the corporation in the State of
Delaware is The Prentice-Hall Corporation Systems, Inc., 1013 Centre Road,
Wilmington, Delaware 19805. The name of its registered agent at such address is
The Prentice-Hall Corporation Systems, Inc.
IV.
The purpose of this corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
the State of Delaware.
A. Classes Of Stock. This corporation is authorized to issue two classes
of stock to be designated, respectively, "Common Stock" and "Preferred Stock."
The total number of shares which the corporation is authorized to issue is
nineteen million two hundred thousand (25,000,000), of which sixteen million two
hundred thousand (20,000,000) shares shall be Common Stock and five million
(5,000,000) shares shall be Preferred Stock. The Common Stock shall have a par
value of $.001 per share and the Preferred Stock shall have a par value of $.001
per share.
<PAGE>
B. The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, by filing a certificate (a
"Preferred Stock Designation") pursuant to the Delaware General Corporation Law,
to fix or alter from time to time the designation, powers, preferences and
rights of the shares of each such series and the qualifications, limitations or
restrictions of any wholly unissued series of Preferred Stock, and to establish
from time to time the number of shares constituting any such series or any of
them; and to increase or decrease the number of shares of any series subsequent
to the issuance of shares of that series, but not below the number of shares of
such series then outstanding. In case the number of shares of any series shall
be decreased in accordance with the foregoing sentence, the shares constituting
such decrease shall resume the status that they had prior to the adoption of the
resolution originally fixing the number of shares of such series.
V.
For the management of the business and for the conduct of the affairs of
the corporation, and in further definition, limitation and regulation of the
powers of the corporation, of its directors and of its stockholders or any class
thereof, as the case may be, it is further provided that:
A.
1. The management of the business and the conduct of the affairs of
the corporation shall be vested in its Board of Directors. The number of
directors which shall constitute the whole Board of Directors shall be fixed
exclusively by one or more resolutions adopted by the Board of Directors.
2. Subject to the rights of the holders of any series of Preferred
Stock to elect additional directors under specified circumstances, and subject
to the Stockholders Agreement dated as of July 12, 1996 between the corporation
and certain stockholders, following the closing of the initial public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended (the "1933 Act"), covering the offer and sale of Common Stock
to the public (the "Initial Public Offering"), the directors shall be divided
into three classes designated as Class I, Class II and Class III, respectively.
Directors shall be assigned to each class in accordance with a resolution or
resolutions adopted by the Board of Directors. At the first annual meeting of
stockholders following the closing of the Initial Public Offering, the term of
office of the Class I directors shall expire and Class I directors shall be
elected for a full term of three years. At the second annual meeting of
stockholders following the Closing of the Initial Public Offering, the term of
office of the Class II directors shall expire and Class II directors shall be
elected for a full term of three years. At the third annual meeting of
stockholders following the Closing of the Initial Public Offering, the term of
office of the Class III directors shall expire and Class III directors shall be
elected for a full term of three years. At each succeeding annual meeting of
stockholders, directors shall be elected for a full term of three years to
succeed the directors of the class whose terms expire at such annual meeting.
Notwithstanding the foregoing provisions of this Article, each director
shall serve until his successor is duly elected and qualified or until his
death, resignation or removal. No decrease
2
<PAGE>
in the number of directors constituting the Board of Directors shall shorten the
term of any incumbent director.
3. Subject to the rights of the holders of any series of Preferred
Stock, no director shall be removed without cause. Subject to any limitations
imposed by law, the Board of Directors or any individual director may be removed
from office at any time with cause by the affirmative vote of the holders of a
majority of the voting power of all the then-outstanding shares of voting stock
of the corporation, entitled to vote at an election of directors (the "Voting
Stock").
4. Subject to the rights of the holders of any series of Preferred
Stock and the Stockholders Agreement, any vacancies on the Board of Directors
resulting from death, resignation, disqualification, removal or other causes and
any newly created directorships resulting from any increase in the number of
directors, shall, unless the Board of Directors determines by resolution that
any such vacancies or newly created directorships shall be filled by the
stockholders, except as otherwise provided by law, be filled only by the
affirmative vote of a majority of the directors then in office, even though less
than a quorum of the Board of Directors and not by the stockholders. Any
director elected in accordance with the preceding sentence shall hold office for
the remainder of the full term of the director for which the vacancy was created
or occurred and until such director's successor shall have been elected and
qualified.
B.
1. Subject to paragraph (i) of Section 43 of the Bylaws, the Bylaws
may be altered or amended or new Bylaws adopted by the affirmative vote of at
least sixty-six and two thirds percent (66-2/3%) of the voting power of all of
the then-outstanding shares of the Voting Stock. The Board of Directors shall
also have the power to adopt, amend, or repeal Bylaws.
2. The directors of the corporation need not be elected by written
ballot unless the Bylaws so provide.
3. No action shall be taken by the stockholders of the corporation
except at an annual or special meeting of stockholders called in accordance with
the Bylaws and following the closing of the Initial Public Offering no action
shall be taken by the stockholders by written consent.
C.
1. Special meetings of the stockholders of the corporation may be
called, for any purpose or purposes, by (i) the Chairman of the Board of
Directors, (ii) the Chief Executive Officer, (iii) the Board of Directors
pursuant to a resolution adopted by a majority of the total number of authorized
directors (whether or not there exist any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board of
Directors for adoption) or (iv) by the holders of the shares entitled to cast
not less that ten percent (10%) of the votes at the meeting, and shall be held
at such place, on such date, and at such time as they or he shall fix; provided,
however, that the following registration of any classes of equity securities of
the
3
<PAGE>
corporation pursuant to the provisions of the Securities Exchange Act of 1934,
as amended, special meetings of the stockholders may only be called by the Board
of Directors pursuant to a resolution adopted by a majority of the total number
of authorized Directors.
2. Advance notice of stockholder nominations for the election of
directors and of business to be brought by stockholders before any meeting of
the stockholders of the corporation shall be given in the manner provided in the
Bylaws of the corporation.
VI.
A. To the fullest extent permitted by applicable law, this corporation is
authorized to provide indemnification of (and advancement of expenses to)
directors, officers, employees and agents (and any other persons to which
Delaware law permits this corporation to provide indemnification) through Bylaw
provisions, agreements with such agents or other persons, vote of stockholders
or disinterested directors or otherwise, in excess of the indemnification and
advancement otherwise permitted by Section 145 of the Delaware General
Corporation Law, subject only to limits created by applicable Delaware law
(statutory or non-statutory), with respect to actions for breach of duty to the
corporation, its stockholders, and others.
B. No director of the corporation shall be personally liable to the
corporation or any stockholder for monetary damages for breach of fiduciary duty
as a director, except for any matter in respect of which such director shall be
liable under Section 174 of the General Corporation Law of the State of Delaware
or any amendment thereto or shall be liable by reason that, in addition to any
and all other requirements for such liability, such director (1) shall have
breached the director's duty of loyalty to the corporation or its stockholders,
(2) shall not have acted in good faith, or, in failing to act, shall not have
acted in good faith, (3) shall have acted in manner involving intentional
misconduct or a knowing violation of law or, in failing to act, shall have acted
in a manner involving intentional misconduct or a knowing violation of law, or
(4) shall have derived an improper personal benefit. If the Delaware General
Corporation Law is hereafter amended to authorize the further elimination or
limitation of the liability of a director, the liability of a director of the
corporation shall be eliminated or limited to the fullest extent permitted by
the Delaware General Corporation Law, as so amended.
C. Each person who was or is made a party or is threatened to be made a
party to or is in any way involved in any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), including any appeal therefrom, by
reason of the fact that he or she, or a person of whom he or she is the legal
representative, is or was a director or officer of the corporation or of a
direct or indirect subsidiary of the corporation, or is or was serving at the
request of the corporation as a director of officer of another entity or
enterprise, or was a director or officer of a foreign or domestic corporation
which was predecessor corporation of the corporation or of another entity or
enterprise at the request of such predecessor corporation, shall be indemnified
and held harmless by the corporation, and the corporation shall advance all
expenses incurred by any such person in defense of any such proceeding prior to
its final determination, to the fullest extent authorized by the General
Corporation Law of the State of Delaware. In any proceeding against the
corporation to enforce these rights, such person shall be presumed to be
entitled to indemnification and the
4
<PAGE>
corporation shall have the burden of proving that such person has not met the
standards of conduct for permissible indemnification set forth in the General
Corporation Law of the State of Delaware. The rights to indemnification and
advancement of expenses conferred by this Article VII shall be presumed to have
been relied upon by the directors and officers of the corporation in serving or
continuing to serve the corporation and shall be enforceable as contact rights.
Said rights shall not be exclusive of any other rights to which those seeking
indemnification may otherwise be entitled. The corporation may, upon written
demand presented by a director or officer of the corporation or of a direct or
indirect subsidiary of the corporation, or by a person serving at the request of
the corporation as a director or officer of another entity or enterprise, enter
into contracts to provide such persons with specified rights to indemnification,
which contracts may confer rights and protections to the maximum extent
permitted by the General Corporation Law of the State of Delaware, as amended
and in effect from time to time.
1. If a claim under this Article VII is not paid in full by the
corporation within sixty (60) days after a written claim has been received by
the corporation, the claimant may at any time thereafter bring suit against the
corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expenses of
prosecuting such claim. It shall be a defense to any such action (other than an
action brought to enforce the right to be advanced expenses incurred in
defending any proceeding prior to its final disposition where the required
undertaking, if any, has been tendered to the corporation) that the claimant has
not met the standards of conduct which make it permissible under the General
Corporation Law of the State of Delaware for the corporation to indemnify the
claimant for the amount claimed, but the claimant shall be presumed to be
entitled to indemnification and the corporation shall have the burden of proving
that the claimant has not met the standards of conduct for permissible
indemnification set forth in the General Corporation Law of the Sate of
Delaware.
2. If the General Corporation Law of the State of Delaware is
hereafter amended to permit the corporation to provide broader indemnification
rights than said Law permitted the corporation to provide prior to such
amendment, the indemnification rights conferred by this Article VII shall be
broadened to the fullest extent permitted by the General Corporation Law of the
State of Delaware, as so amended.
D. Any repeal or modification of any of the foregoing provisions of this
Article VII, including without limitation, any contractual rights arising under
or authorized by it, shall not adversely affect any right or protection of a
director, officer, agent or other person existing at the time of, or increase
the liability of any director of the corporation with respect to any acts or
omissions of such director, officer or agent occurring prior to such repeal or
modification.
VII.
A. The corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, except as provided in paragraph B. of this
Article VIII, and all rights conferred upon the stockholders herein are granted
subject to this reservation.
5
<PAGE>
B. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the Voting Stock required by law, this Certificate
of Incorporation or any Preferred Stock Designation, the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting
power of all of the then-outstanding shares of the Voting Stock, voting together
as a single class, shall be required to alter, amend or repeal Articles V, VI,
and VII.
In Witness Whereof, the undersigned has executed this certificate on
October 28, 1996.
/s/ Elizabeth C. Cook
----------------------------------------
Elizabeth C. Cook
Vice President
6
<PAGE>
Exhibit 3(i).1.(b)
Certificate of Correction to Amended and Restated Certificate of Incorporation
<PAGE>
CERTIFICATE OF CORRECTION OF
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF
WILD OATS MARKETS, INC.
FILED WITH THE SECRETARY OF STATE OF DELAWARE
ON OCTOBER 28, 1996
Wild Oats Markets, Inc., a Delaware corporation (the "Corporation"), hereby
certifies as follows:
1. The original Certificate of Incorporation of the Corporation was filed
with the Secretary of State of Delaware on May 31, 1996 under the name "WO
Holdings, Inc."
2. An Amended and Restated Certificate of Incorporation was filed with
the Secretary of State of Delaware on October 28, 1996 under the name Wild Oats
Markets, Inc. (the "Restated Certificate").
3. The Restated Certificate requires correction as permitted by
subsection (f) of Section 103 of the General Corporation Law of the State of
Delaware.
4. The errors to be corrected in the Restated Certificate are as follows:
(a) The number of shares of capital stock authorized to be issued by
the Corporation in paragraph A of Article IV should be Twenty-five Million
(25,000,000) shares of which Twenty Million (20,000,000) shares shall be Common
Stock and Five Million (5,000,000) shares shall be Preferred Stock. The Common
Stock shall have a par value of $.001 per share and the Preferred Stock shall
have a par value of $.001 per share.
5. Accordingly, paragraph A of Article IV of the Restated Certificate are
corrected to read as follows:
"(a) CLASSES OF STOCK. This corporation is authorized to issue two
classes of stock to be designated, respectively, "Common Stock" and "Preferred
Stock." The total number of shares which the corporation is authorized to issue
is Twenty-five Million (25,000,000) of which Twenty Million (20,000,000) shares
shall be Common Stock and Five Million (5,000,000) shares shall be Preferred
Stock. The Common Stock shall have a par value of $.001 per share and the
Preferred Stock shall have a par value of $.001 per share."
In Witness Whereof, the undersigned has executed this Certificate of
Correction on the 9th day of January, 1997.
Wild Oats Markets, Inc.
By: /s/ Mary Beth Lewis
____________________________________________
Mary Beth Lewis, Chief Financial Officer
<PAGE>
Exhibit 3(ii).1
Amended and Restated By-laws
<PAGE>
AMENDED AND RESTATED
BY-LAWS
OF
WILD OATS MARKETS, INC.
(a Delaware corporation)
As adopted by the Board of Directors August 19, 1996
<PAGE>
Table Of Contents
Page
<TABLE>
<CAPTION>
<S> <C>
ARTICLE I OFFICES.......................................................1
SECTION 1 REGISTERED OFFICE............................................1
SECTION 2 OTHER OFFICES................................................1
ARTICLE II CORPORATE SEAL................................................1
SECTION 3 CORPORATE SEAL...............................................1
ARTICLE III STOCKHOLDERS' MEETINGS........................................1
SECTION 4 OF MEETINGS..................................................1
SECTION 5 ANNUAL MEETING...............................................2
SECTION 6 SPECIAL MEETINGS.............................................3
SECTION 7 NOTICE OF MEETINGS...........................................4
SECTION 8 QUORUM.......................................................4
SECTION 9 ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS.................5
SECTION 10 VOTING RIGHTS...............................................5
SECTION 11 BENEFICIAL OWNERS OF STOCK..................................6
SECTION 12 LIST OF STOCKHOLDERS........................................6
SECTION 13 ACTION WITHOUT MEETING......................................6
SECTION 14 ORGANIZATION................................................7
ARTICLE IV DIRECTORS.....................................................8
SECTION 15 NUMBER AND TERM OF OFFICE...................................8
SECTION 16 POWERS......................................................8
SECTION 17 CLASSES OF DIRECTORS........................................8
SECTION 18 VACANCIES...................................................8
SECTION 19 RESIGNATION.................................................9
SECTION 20 REMOVAL.....................................................9
SECTION 21 MEETINGS....................................................9
(a) Annual Meetings................................................9
(b) Regular Meetings...............................................9
(c) Special Meetings...............................................9
(d) Telephone Meetings............................................10
(e) Notice of Meetings............................................10
(f) Waiver of Notice..............................................10
SECTION 22 QUORUM AND VOTING..........................................10
SECTION 23 ACTION WITHOUT MEETING.....................................10
SECTION 24 FEES AND COMPENSATION......................................11
SECTION 25 COMMITTEES.................................................11
(a) Executive Committee...........................................11
</TABLE>
i.
<PAGE>
Table Of Contents
(CONTINUED)
Page
<TABLE>
<CAPTION>
<S> <C>
(b) Other Committees..............................................11
(c) Term..........................................................11
(d) Meetings......................................................12
SECTION 26 ORGANIZATION...............................................12
ARTICLE V OFFICERS......................................................12
SECTION 27 OFFICERS DESIGNATED........................................12
SECTION 28 TENURE AND DUTIES OF OFFICERS..............................13
(a) General.......................................................13
(b) Duties of Chairman of the Board of Directors..................13
(c) Duties of President...........................................13
(d) Duties of Vice Presidents.....................................13
(e) Duties of Secretary...........................................13
(f) Duties of Chief Financial Officer or Treasurer................14
SECTION 29 DELEGATION OF AUTHORITY....................................14
SECTION 30 RESIGNATIONS...............................................14
SECTION 31 REMOVAL....................................................14
ARTICLE VI EXECUTION OF CORPORATE INSTRUMENTS AND
VOTING OF SECURITIES OWNED BY THE CORPORATION ......................14
SECTION 32 EXECUTION OF CORPORATE INSTRUMENTS..........................14
SECTION 33 VOTING OF SECURITIES OWNED BY THE CORPORATION...............15
ARTICLE VII SHARES OF STOCK.............................................15
SECTION 34 FORM AND EXECUTION OF CERTIFICATES..........................15
SECTION 35 LOST CERTIFICATES...........................................16
SECTION 36 TRANSFERS...................................................16
SECTION 37 FIXING RECORD DATES.........................................16
SECTION 38 REGISTERED STOCKHOLDERS.....................................17
ARTICLE VIII OTHER SECURITIES OF THE CORPORATION.........................17
SECTION 39 EXECUTION OF OTHER SECURITIES...............................17
ARTICLE IX DIVIDENDS....................................................18
SECTION 40 DECLARATION OF DIVIDENDS....................................18
SECTION 41 DIVIDEND RESERVE............................................18
ARTICLE X FISCAL YEAR...................................................18
SECTION 42 FISCAL YEAR.................................................18
ARTICLE XI INDEMNIFICATION..............................................19
</TABLE>
ii.
<PAGE>
Table Of Contents
(continued)
Page
<TABLE>
<CAPTION>
<S> <C>
SECTION 43 INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES
AND OTHER AGENTS.................................................19
(a) Directors......................................................19
(b) Officers, Employees and Other Agents...........................19
(c) Good Faith.....................................................19
(d) Expenses.......................................................20
(e) Enforcement....................................................20
(f) Non Exclusivity of Rights......................................20
(g) Survival of Rights.............................................21
(h) Insurance......................................................21
(i) Amendments.....................................................21
(j) Saving Clause..................................................21
(k) Certain Definitions............................................21
ARTICLE XII NOTICES.....................................................22
SECTION 44 NOTICES....................................................22
ARTICLE XIII AMENDMENTS.................................................24
SECTION 45 AMENDMENTS.................................................24
ARTICLE XIV LOANS TO OFFICERS...........................................24
SECTION 46 LOANS TO OFFICERS..........................................24
</TABLE>
iii.
<PAGE>
AMENDED AND RESTATED
BY-LAWS
OF
WILD OATS MARKETS, INC.
(a Delaware corporation)
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the corporation in
the State of Delaware shall be in the City of Dover, County of Kent.
Section 2. Other Offices. The corporation shall also have and maintain an
office or principal place of business in Boulder, Colorado, at such place as may
be fixed by the Board of Directors, and may also have offices at such other
places, both within and without the State of Delaware as the Board of Directors
may from time to time determine or the business of the corporation may require.
ARTICLE II
CORPORATE SEAL
Section 3. Corporate Seal. The corporate seal shall consist of a die
bearing the name of the corporation and the inscription, "Corporate Seal
Delaware." Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
ARTICLE III
STOCKHOLDERS' MEETINGS
Section 4. Place of Meetings. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State of
Delaware, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the office of the corporation required to be
maintained pursuant to Section 2 hereof.
Section 5. Annual Meeting.
(a) The annual meeting of the stockholders of the corporation, for the
purpose of election of Directors and for such other business as may lawfully
come before it, shall be held on such date and at such time as may be designated
from time to time by the Board of Directors
1
<PAGE>
(b) At an annual meeting of the stockholders, only such business shall
be conducted as shall have been properly brought before the meeting. To be
properly brought before an annual meeting, business must be: (A) specified in
the notice of meeting (or any supplement thereto) given by or at the direction
of the Board of Directors, (B) otherwise properly brought before the meeting by
or at the direction of the Board of Directors, or (C) otherwise properly brought
before the meeting by a stockholder. For business to be properly brought before
an annual meeting by a stockholder, the stockholder must have given timely
notice thereof in writing to the Secretary of the corporation. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the corporation not less than one hundred twenty
(120) calendar days in advance of the date of the corporation's proxy statement
released to stockholders in connection with the previous year's annual meeting
of stockholders; provided, however, that in the event that no annual meeting was
held in the previous year or the date of the annual meeting has been changed by
more than thirty (30) days from the date contemplated at the time of the
previous year's proxy statement, notice by the stockholder to be timely must be
so received not earlie than the close of business on the ninetieth (90th) day
prior to such annual meeting and not later than the close of business on the
sixtieth (60th) day prior to such annual meeting or, in the event public
announcement of the date of such annual meeting is first made by the corporation
fewer than seventy (70) days prior to the date of such annual meeting, the close
of business on the tenth (10th) day following the day on which public
announcement of the date of such meeting is first made by the corporation. A
stockholder's notice to the Secretary shall set forth as to each matter the
stockholder proposes to bring before the annual meeting: (i) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (ii) the name
and address, as they appear on the corporation's books, of the stockholder
proposing such business, (iii) the class and number of shares of the corporation
which are beneficially owned by the stockholder, (iv) any material interest of
the stockholder in such business and (v) any other information that is required
to be provided by the stockholder pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended, in his capacity as a proponent to a
stockholder proposal. Notwithstanding the foregoing, in order to include
information with respect to a stockholder proposal in the proxy statement and
form of proxy for a stockholder's meeting, stockholders must provide notice as
required by the regulations promulgated under the Securities and Exchange Act of
1934, as amended. Notwithstanding anything in these By-Laws to the contrary, no
business shall be conducted at any annual meeting except in accordance with the
procedures set forth in this paragraph (b). The chairman of the annual meeting
shall, if the facts warrant, determine and declare at the meeting that business
was not properly brought before the meeting and in accordance with the
provisions of this paragraph (b), and, if he should so determine, he shall so
declare at the meeting that any such business not properly brought before the
meeting shall not be transacted.
(c) Only persons who are nominated in accordance with the procedures
set forth in this paragraph (c) and the Stockholders Agreement between the
corporation and certain stockholders shall be eligible for election as
Directors. Nominations of persons for election to the Board of Directors of the
corporation may be made at a meeting of stockholders by or at the direction of
the Board of Directors or by any stockholder of the corporation entitled to vote
in the election of Directors at the meeting who complies with the notice
procedures set forth in this
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paragraph (c). Such nominations, other than those made by or at the direction of
the Board of Directors, shall be made pursuant to timely notice in writing to
the Secretary of the corporation in accordance with the provisions of paragraph
(b) of this Section 5. Such stockholder's notice shall set forth (i) as to each
person, if any, whom the stockholder proposes to nominate for election or re
election as a Director: (A) the name, age, business address and residence
address of such person, (B) the principal occupation or employment of such
person, (C) the class and number of shares of the corporation which are
beneficially owned by such person, (D) a description of all arrangements or
understandings between the stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nominations are to
be made by the stockholder, and (E) any other information relating to such
person that is required to be disclosed in solicitations of proxies for election
of Directors, or is otherwise required, in each case pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended (including without
limitation such person's written consent to being named in the proxy statement,
if any, as a nominee and to serving as a Director if elected); and (ii) as to
such stockholder giving notice, the information required to be provided pursuant
to paragraph (b) of this Section 5. At the request of the Board of Directors,
any person nominated by a stockholder for election as a Director shall furnish
to the Secretary of the corporation that information required to be set forth in
the stockholder's notice of nomination which pertains to the nominee. No person
shall be eligible for election as a Director of the corporation unless nominated
in accordance with the procedures set forth in this paragraph (c). The chairman
of the meeting shall, if the facts warrant, determine and declare at the meeting
that a nomination was not made in accordance with the procedures prescribed by
these By-laws, and if he should so determine, he shall so declare at the meeting
and the defective nomination shall be disregarded.
(d) For purposes of this Section 5, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service or in a document publicly filed by the
corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the Exchange Act.
Section 6. Special Meetings.
(a) Special meetings of the stockholders of the corporation may be
called, for any purpose or purposes, by (i) the Chairman of the Board, (ii) the
Chief Executive Officer, or (iii) the Board of Directors pursuant to a
resolution adopted by a majority of the total number of authorized directors
(whether or not there exist any vacancies in previously authorized directorships
at the time any such resolution is presented to the Board for adoption)or (iv)
by the holders of shares entitled to cast not less than ten percent (10%) of the
votes at the meeting, and shall be held at such place, on such date, and at such
time as they or he shall fix; provided, however, that following registration of
any of the classes of equity securities of the corporation pursuant to the
provisions of the Securities Exchange Act of 1934, as amended, special meetings
of the stockholders may only be called by the Board of Directors pursuant to a
resolution adopted by a majority of the total number of authorized Directors.
(b) If a special meeting is called by any person or persons other
than the Board of Directors, the request shall be in writing, specifying the
time of such meeting and the general nature of the business proposed to be
transacted, and shall be delivered personally or sent by
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registered mail or by telegraphic or other facsimile transmission to the
Chairman of the Board, the President, any Vice President, or the Secretary of
the corporation. No business may be transacted at such special meeting otherwise
than specified in such notice. The officer receiving the request shall cause
notice to be promptly given to the stockholders entitled to vote, in accordance
with the provisions of Section 7 of these By-Laws, that a meeting will be held
not less than thirty five (35) nor more than one hundred twenty (120) days after
the receipt of the request. Upon determination of the time and place of the
meeting, the officer receiving the request shall cause notice to be given to the
stockholders entitled to vote, in accordance with the provisions of Section 7 of
these Bylaws. If the notice is not given within sixty (60) days after the
receipt of the request, the person or persons requesting the meeting may give
the notice. Nothing contained in this paragraph (b) shall be construed as
limiting, fixing, or affecting the time when a meeting of stockholders called by
action of the Board of Directors may be held.
Section 7. Notice of Meetings. Except as otherwise provided by law or the
Certificate of Incorporation, written notice of each meeting of stockholders
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder entitled to vote at such meeting, such
notice to specify the place, date and hour and purpose or purposes of the
meeting. Notice of the time, place and purpose of any meeting of stockholders
may be waived in writing, signed by the person entitled to notice thereof,
either before or after such meeting, and will be waived by any stockholder by
his attendance thereat in person or by proxy, except when the stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Any stockholder so waiving notice of such meeting shall be
bound by the proceedings of any such meeting in all respects as if due notice
thereof had been given.
Section 8. Quorum. At all meetings of stockholders, except where
otherwise provided by statute or by the Certificate of Incorporation, or by
these By-Laws, the presence, in person or by proxy duly authorized, of the
holders of a majority of the outstanding shares of stock entitled to vote shall
constitute a quorum for the transaction of business. Any shares, the voting of
which at said meeting has been enjoined, or which for any reason cannot be
lawfully voted at such meeting, shall not be counted to determine a quorum at
such meeting. In the absence of a quorum any meeting of stockholders may be
adjourned, from time to time, either by the chairman of the meeting or by vote
of the holders of a majority of the shares represented thereat, but no other
business shall be transacted at such meeting. The stockholders present at a
duly called or convened meeting, at which a quorum is present, may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum. Except as otherwise provided by law,
the Certificate of Incorporation or these By-Laws, all action taken by the
holders of a majority of the voting power represented at any meeting at which a
quorum is present shall be valid and binding upon the corporation; provided,
however, that Directors shall be elected by a plurality of the votes of the
shares present in person or represented by proxy at the meeting and entitled to
vote on the election of Directors. Where a separate vote by a class or classes
or series is required, a majority of the outstanding shares of such class or
classes or series, present in person or represented by proxy, shall constitute a
quorum entitled to take action with respect to that vote on that matter and the
affirmative vote of the majority (plurality, in the case of the election of
Directors) of shares of such class or classes
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or series present in person or represented by proxy at the meeting shall be the
act of such class or classes or series.
Section 9. Adjournment and Notice of Adjourned Meetings. Any meeting of
stockholders, whether annual or special, may be adjourned from time to time
either by the chairman of the meeting or by the vote of a majority of the shares
represented thereat. When a meeting is adjourned to another time or place,
notice need not be given of the adjourned meeting if the time and place thereof
are announced at the meeting at which the adjournment is taken. At the
adjourned meeting the corporation may transact any business which might have
been transacted at the original meeting. If the adjournment is for more than
thirty (30) days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
Section 10. Voting Rights.
(a) For the purpose of determining those stockholders entitled to
vote at any meeting of the stockholders, except as otherwise provided by law,
only persons in whose names shares stand on the stock records of the corporation
on the record date, as provided in Section 12 of these By-Laws, shall be
entitled to vote at any meeting of stockholders. Except as may be otherwise
provided in the Certificate of Incorporation or these By-Laws, each stockholder
shall be entitled to one vote for each share of capital stock held by such
stockholder. Every person entitled to vote shall have the right to do so either
in person or by an agent or agents authorized by a written proxy executed by
such person or his duly authorized agent, which proxy shall be filed with the
Secretary at or before the meeting at which it is to be used. An agent so
appointed need not be a stockholder. No proxy shall be voted after three (3)
years from its date of creation unless the proxy provides for a longer period.
All elections of Directors shall be by written ballot, unless otherwise provided
in the Certificate of Incorporation.
Section 11. Beneficial Owners of Stock.
(a) If shares or other securities having voting power stand of
record in the names of two (2) or more persons, whether fiduciaries, members of
a partnership, joint tenants, tenants in common, tenants by the entirety, or
otherwise, or if two (2) or more persons have the same fiduciary relationship
respecting the same shares, unless the Secretary is given written notice to the
contrary and is furnished with a copy of the instrument or order appointing them
or creating the relationship wherein it is so provided, their acts with respect
to voting shall have the following effect: (a) if only one (1) votes, his act
binds all; (b) if more than one (1) votes, the act of the majority so voting
binds all; (c) if more than one (1) votes, but the vote is evenly split on any
particular matter, each faction may vote the securities in question
proportionally, or may apply to the Delaware Court of Chancery for relief as
provided in the General Corporation Law of Delaware, Section 217(b). If the
instrument filed with the Secretary shows that any such tenancy is held in
unequal interests, a majority or even split for the purpose of this subsection
(c) shall be a majority or even split in interest.
(b) Persons holding stock in a fiduciary capacity shall be entitled
to vote the shares so held. Persons whose stock is pledged shall be entitled to
vote, unless in the transfer by
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the pledgor on the books of the corporation he has expressly empowered the
pledgee to vote thereon, in which case only the pledgee, or his proxy, may
represent such stock and vote thereon.
Section 12. List of Stockholders. The Secretary shall prepare and make,
at least ten (10) days before every meeting of stockholders, a complete list of
the stockholders entitled to vote at said meeting, arranged in alphabetical
order, showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not
specified, at the place where the meeting is to be held. The list shall be
produced and kept at the time and place of meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
Section 13. Action without Meeting.
(a) Any action required by statute to be taken at any annual or
special meeting of the stockholders, or any action which may be taken at any
annual or special meeting of the stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent or consents in writing,
setting forth the action so taken, are signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted.
(b) Every written consent shall bear the date of signature of each
stockholder who signs the consent, and no written consent shall be effective to
take the corporate action referred to therein unless, within sixty (60) days of
the earliest dated consent delivered to the Corporation in the manner herein
required, written consents signed by a sufficient number of stockholders to take
action are delivered to the corporation by delivery to its registered office in
the State of Delaware, its principal place of business or an officer or agent of
the corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to a corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
(c) Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing. If the action which is
consented to is such as would have required the filing of a certificate under
any section of the General Corporation Law of Delaware if such action had been
voted on by stockholders at a meeting thereof, then the certificate filed under
such section shall state, in lieu of any statement required by such section
concerning any vote of stockholders, that written notice and written consent
have been given as provided in Section 228 of the General Corporation Law of
Delaware.
(d) Notwithstanding the foregoing, no such action by written
consent may be taken following the closing of the initial public offering
pursuant to an effective registration
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statement under the Securities Act of 1933, as amended (the "1933 Act"),
covering the offer and sale of Common Stock of the corporation (the "Initial
Public Offering").
Section 14. Organization.
(a) At every meeting of stockholders, the Chairman of the Board of
Directors, or, if a Chairman has not been appointed or is absent, the President,
or, if the President is absent, the most senior Vice President present, or in
the absence of any such officer, a chairman of the meeting chosen by a majority
in interest of the stockholders entitled to vote, present in person or by proxy,
shall act as chairman. The Secretary, or, in his absence, an Assistant
Secretary directed to do so by the President, shall act as secretary of the
meeting.
(b) The Board of Directors of the corporation shall be entitled to
make such rules or regulations for the conduct of meetings of stockholders as it
shall deem necessary, appropriate or convenient. Subject to such rules and
regulations of the Board of Directors, if any, the chairman of the meeting shall
have the right and authority to prescribe such rules, regulations and procedures
and to do all such acts as, in the judgment of such chairman, are necessary,
appropriate or convenient for the proper conduct of the meeting, including,
without limitation, establishing an agenda or order of business for the meeting,
rules and procedures for maintaining order at the meeting and the safety of
those present, limitations on participation in such meeting to stockholders of
record of the corporation and their duly authorized and constituted proxies, and
such other persons as the chairman shall permit, restrictions on entry to the
meeting after the time fixed for the commencement thereof, limitations on the
time allotted to questions or comments by participants and regulation of the
opening and closing of the polls for balloting on matters which are to be voted
on by ballot. Unless, and to the extent determined by the Board of Directors or
the chairman of the meeting, meetings of stockholders shall not be required to
be held in accordance with rules of parliamentary procedure.
ARTICLE IV
DIRECTORS
Section 15. Number and Term of Office. The authorized number of directors
of the corporation shall be fixed in accordance with the Certificate of
Incorporation. Directors need not be stockholders unless so required by the
Certificate of Incorporation. If for any cause, the Directors shall not have
been elected at an annual meeting, they may be elected as soon thereafter as
convenient at a special meeting of the stockholders called for that purpose in
the manner provided in these By-Laws. No reduction of the authorized number of
Directors shall have the effect of removing any Director before the Director's
term of office expires, unless such removal is made pursuant to the provisions
of Section 20 hereof.
Section 16. Powers. The powers of the corporation shall be exercised, its
business conducted and its property controlled by the Board of Directors, except
as may be otherwise provided by statute or by the Certificate of Incorporation.
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Section 17. Classes of Directors. Subject to the rights of the holders of
any series of Preferred Stock to elect additional directors under specified
circumstances, following the closing of the Initial Public Offering, the
directors shall be divided into three classes designated as Class I, Class II
and Class III, respectively. Directors shall be assigned to each class in
accordance with a resolution or resolutions adopted by the Board of Directors.
At the first annual meeting of stockholders following the closing of the Initial
Public Offering, the term of office of the Class I directors shall expire and
Class I directors shall be elected for a full term of three years. At the
second annual meeting of stockholders following the Closing of the Initial
Public Offering, the term of office of the Class II directors shall expire and
Class II directors shall be elected for a full term of three years. At the
third annual meeting of stockholders following the Closing of the Initial Public
Offering, the term of office of the Class III directors shall expire and Class
III directors shall be elected for a full term of three years. At each
succeeding annual meeting of stockholders, directors shall be elected for a full
term of three years to succeed the directors of the class whose terms expire at
such annual meeting.
Notwithstanding the foregoing provisions of this Article, each director
shall serve until his successor is duly elected and qualified or until his
death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
Section 18. Vacancies. Unless otherwise provided in the Certificate of
Incorporation, vacancies and newly created directorships resulting from any
increase in the authorized number of Directors may be filled by a majority of
the Directors then in office, although less than a quorum, or by a sole
remaining Director, and each Director so elected shall hold office for the
unexpired portion of the term of the Director whose place shall be vacant and
until his successor shall have been duly elected and qualified. A vacancy in
the Board of Directors shall be deemed to exist under this Section 18 in the
case of the death, removal or resignation of any Director, or if the
stockholders fail at any meeting of stockholders at which Directors are to be
elected (including any meeting referred to in Section 20 below) to elect the
number of Directors then constituting the whole Board of Directors.
Section 19. Resignation. Any Director may resign at any time by
delivering his written resignation to the Secretary, such resignation to specify
whether it will be effective at a particular time, upon receipt by the Secretary
or at the pleasure of the Board of Directors. If no such specification is made,
it shall be deemed effective at the pleasure of the Board of Directors. When
one or more Directors shall resign from the Board of Directors, effective at a
future date, a majority of the Directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each Director so chosen shall hold office for the unexpired
portion of the term of the Director whose place shall be vacated and until his
successor shall have been duly elected and qualified.
Section 20. Removal. Subject to the rights of the holders of any series
of Preferred Stock and the Stockholders Agreement, no director shall be removed
without cause. Subject to any limitations imposed by law, the Board of
Directors or any individual director may be removed from office at any time with
cause by the affirmative vote of the holders of a majority of
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the voting power of all the then-outstanding shares of voting stock of the
corporation, entitled to vote at an election of directors (the "Voting Stock").
Section 21. Meetings.
(a) Annual Meetings. The annual meeting of the Board of Directors
shall be held immediately after the annual meeting of stockholders and at the
place where such meeting is held. No notice of an annual meeting of the Board
of Directors shall be necessary and such meeting shall be held for the purpose
of electing officers and transacting such other business as may lawfully come
before it.
(b) Regular Meetings. Except as hereinafter otherwise provided,
regular meetings of the Board of Directors shall be held in the office of the
corporation required to be maintained pursuant to Section 2 hereof. Unless
otherwise restricted by the Certificate of Incorporation, regular meetings of
the Board of Directors may also be held at any place within or without the State
of Delaware which has been determined by the Board of Directors.
(c) Special Meetings. Unless otherwise restricted by the
Certificate of Incorporation, special meetings of the Board of Directors may be
held at any time and place within or without the State of Delaware whenever
called by the President or a majority of the Directors.
(d) Telephone Meetings. Any member of the Board of Directors, or of
any committee thereof, may participate in a meeting by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
by such means shall constitute presence in person at such meeting.
(e) Notice of Meetings. Written notice of the time and place of all
special meetings of the Board of Directors shall be given at least one (1) day
before the date of the meeting. Notice of any meeting may be waived in writing
at any time before or after the meeting and will be waived by any Director by
attendance thereat, except when the Director attends the meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened.
(f) Waiver of Notice. The transaction of all business at any
meeting of the Board of Directors, or any committee thereof, however called or
noticed, or wherever held, shall be as valid as though had at a meeting duly
held after regular call and notice, if a quorum be present and if, either before
or after the meeting, each of the Directors not present shall sign a written
waiver of notice, or a consent to holding such meeting, or an approval of the
minutes thereof. Neither the business to be transacted at, nor the purpose of,
any regular or special meeting of the Board of Directors need be specified in
any written waiver of notice or consent unless so required by the Certificate of
Incorporation or these By-Laws. All such waivers, consents or approvals shall be
filed with the corporate records or made a part of the minutes of the meeting.
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Section 22. Quorum and Voting.
(a) Unless the Certificate of Incorporation requires a greater number
and except with respect to indemnification questions arising under Section 43
hereof, for which a quorum shall be one-third of the exact number of Directors
fixed from time to time in accordance with the Certificate of Incorporation, a
quorum of the Board of Directors shall consist of a majority of the exact number
of directors fixed from time to time by the Board of Directors in accordance
with the Certificate of Incorporation; provided, however, at any meeting whether
a quorum be present or otherwise, a majority of the directors present may
adjourn from time to time until the time fixed for the next regular meeting of
the Board of Directors, without notice other than by announcement at the
meeting.
(b) At each meeting of the Board of Directors at which a quorum is
present all questions and business shall be determined by a vote of a majority
of the Directors present, unless a different vote be required by law, the
Certificate of Incorporation or these By-Laws.
Section 23. Action without Meeting. Unless otherwise restricted by the
Certificate of Incorporation or these By-Laws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and such writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
Section 24. Fees and Compensation. Directors shall be entitled to such
compensation for their services as may be approved by the Board of Directors,
including, if so approved, by resolution of the Board of Directors, a fixed sum
and expenses of attendance, if any, for attendance at each regular or special
meeting of the Board of Directors and at any meeting of a committee of the Board
of Directors. Nothing herein contained shall be construed to preclude any
Director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise and receiving compensation therefor.
Section 25. Committees.
(a) Executive Committee. The Board of Directors may by resolution
passed by a majority of the whole Board of Directors, appoint an Executive
Committee to consist of one (1) or more members of the Board of Directors. The
Executive Committee, to the extent permitted by law and specifically granted by
the Board of Directors, shall have and may exercise when the Board of Directors
is not in session all powers of the Board of Directors in the management of the
business and affairs of the corporation, including, without limitation, the
power and authority to declare a dividend or to authorize the issuance of stock,
except such committee shall not have the power or authority to amend the
Certificate of Incorporation, to adopt an agreement of merger or consolidation,
to recommend to the stockholders the sale, lease or exchange of all or
substantially all of the corporation's property and assets, to recommend to the
stockholders of the corporation a dissolution of the corporation or a revocation
of a dissolution or to amend these By-Laws.
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(b) Other Committees. The Board of Directors may, by resolution
passed by a majority of the whole Board of Directors, from time to time appoint
such other committees as may be permitted by law. Such other committees
appointed by the Board of Directors shall consist of one (1) or more members of
the Board of Directors, and shall have such powers and perform such duties as
may be prescribed by the resolution or resolutions creating such committees, but
in no event shall such committee have the powers denied to the Executive
Committee in these By-Laws.
(c) Term. The members of all committees of the Board of Directors
shall serve a term coexistent with that of the Board of Directors which shall
have appointed such committee. The Board of Directors, subject to the
provisions of subsections (a) or (b) of this Section 25, may at any time
increase or decrease the number of members of a committee or terminate the
existence of a committee. The membership of a committee member shall terminate
on the date of his death or voluntary resignation from the committee or from the
Board of Directors. The Board of Directors may at any time for any reason
remove any individual committee member and the Board of Directors may fill any
committee vacancy created by death, resignation, removal or increase in the
number of members of the committee. The Board of Directors may designate one or
more Directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee, and, in addition, in the
absence or disqualification of any member of a committee, the member or members
thereof present at any meeting and not disqualified from voting, whether or not
he or they constitute a quorum, may unanimously appoint another member of the
Board of Directors to act at the meeting in the place of any such absent or
disqualified member.
(d) Meetings. Unless the Board of Directors shall otherwise provide,
regular meetings of the Executive Committee or any other committee appointed
pursuant to this Section 25 shall be held at such times and places as are
determined by the Board of Directors, or by any such committee, and when notice
thereof has been given to each member of such committee, no further notice of
such regular meetings need be given thereafter. Special meetings of any such
committee may be held at any place which has been determined from time to time
by such committee, and may be called by any Director who is a member of such
committee, upon written notice to the members of such committee of the time and
place of such special meeting given in the manner provided for the giving of
written notice to members of the Board of Directors of the time and place of
special meetings of the Board of Directors. Notice of any special meeting of
any committee may be waived in writing at any time before or after the meeting
and will be waived by any Director by attendance thereat, except when the
Director attends such special meeting for the express purpose of objecting, at
the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened. A majority of the authorized number
of members of any such committee shall constitute a quorum for the transaction
of business, and the act of a majority of those present at any meeting at which
a quorum is present shall be the act of such committee.
Section 26. Organization. At every meeting of the Directors, the Chairman
of the Board of Directors, or, if a Chairman has not been appointed or is
absent, the President, or if the President is absent, the most senior Vice
President, or, in the absence of any such officer, a chairman of the meeting
chosen by a majority of the Directors present, shall preside over the
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meeting. The Secretary, or in his absence, an Assistant Secretary directed to do
so by the President, shall act as secretary of the meeting.
ARTICLE V
OFFICERS
Section 27. Officers Designated. The officers of the corporation shall be
the Chairman of the Board of Directors, the President, one or more Vice
Presidents, the Secretary and the Chief Financial Officer or Treasurer, all of
whom shall be elected at the annual organizational meeting of the Board of
Directors. The order of the seniority of the Vice Presidents shall be in the
order of their nomination, unless otherwise determined by the Board of
Directors. The Board of Directors may also appoint such other officers and
agents with such powers and duties as it shall deem necessary. The Board of
Directors may assign such additional titles to one or more of the officers as it
shall deem appropriate. Any one person may hold any number of offices of the
corporation at any one time unless specifically prohibited therefrom by law.
The salaries and other compensation of the officers of the corporation shall be
fixed by or in the manner designated by the Board of Directors. The President
may appoint one or more Assistant Secretaries and Assistant Treasurers with such
powers and duties as he or she deems necessary.
Section 28. Tenure and Duties of Officers.
(a) General. All officers shall hold office at the pleasure of the
Board of Directors and until their successors shall have been duly elected and
qualified, unless sooner removed. Any officer elected or appointed by the Board
of Directors may be removed at any time by the Board of Directors. If the
office of any officer becomes vacant for any reason, the vacancy may be filled
by the Board of Directors.
(b) Duties of Chairman of the Board of Directors. The Chairman of
the Board of Directors, when present, shall preside at all meetings of the
stockholders and the Board of Directors. The Chairman of the Board of Directors
shall perform other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. If there is no President, then the Chairman
of the Board of Directors shall also serve as the Chief Executive Officer of the
corporation and shall have the powers and duties prescribed in paragraph (c) of
this Section 28.
(c) Duties of President. The President shall preside at all meetings
of the stockholders and at all meetings of the Board of Directors, unless the
Chairman of the Board of Directors has been appointed and is present. The
President shall be the Chief Executive Officer of the corporation and shall,
subject to the control of the Board of Directors, have general supervision,
direction and control of the business and officers of the corporation. The
President shall perform other duties commonly incident to his office and shall
also perform such other duties and have such other powers as the Board of
Directors shall designate from time to time.
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(d) Duties of Vice Presidents. The Vice Presidents, in the order of
their seniority, may assume and perform the duties of the President in the
absence or disability of the President or whenever the office of President is
vacant. The Vice Presidents shall perform other duties commonly incident to
their office and shall also perform such other duties and have such other powers
as the Board of Directors or the President shall designate from time to time.
(e) Duties of Secretary. The Secretary shall attend all meetings of
the stockholders and of the Board of Directors, and shall record all acts and
proceedings thereof in the minute book of the corporation. The Secretary shall
give notice in conformity with these By-Laws of all meetings of the
stockholders, and of all meetings of the Board of Directors and any committee
thereof requiring notice. The Secretary shall perform all other duties given
him in these By-Laws and other duties commonly incident to his office and shall
also perform such other duties and have such other powers as the Board of
Directors shall designate from time to time. The President may direct any
Assistant Secretary to assume and perform the duties of the Secretary in the
absence or disability of the Secretary, and each Assistant Secretary shall
perform other duties commonly incident to his office and shall also perform such
other duties and have such other powers as the Board of Directors or the
President shall designate from time to time.
(f) Duties of Chief Financial Officer or Treasurer. The Chief
Financial Officer or Treasurer shall keep or cause to be kept the books of
account of the corporation in a thorough and proper manner, and shall render
statements of the financial affairs of the corporation in such form and as often
as required by the Board of Directors or the President. The Chief Financial
Officer or Treasurer, subject to the order of the Board of Directors, shall have
the custody of all funds and securities of the corporation. The Chief Financial
Officer or Treasurer shall perform other duties commonly incident to his office
and shall also perform such other duties and have such other powers as the Board
of Directors or the President shall designate from time to time. The President
may direct any Assistant Treasurer to assume and perform the duties of the Chief
Financial Officer or Treasurer in the absence or disability of the Chief
Financial Officer or Treasurer, and each Assistant Treasurer shall perform other
duties commonly incident to his office and shall also perform such other duties
and have such other powers as the Board of Directors or the President shall
designate from time to time.
Section 29. Delegation of Authority. The Board of Directors may from time
to time delegate the powers or duties of any officer to any other officer or
agent, notwithstanding any provision hereof.
Section 30. Resignations. Any officer may resign at any time by giving
written notice to the Board of Directors or to the President or to the
Secretary. Any such resignation shall be effective when received by the person
or persons to whom such notice is given, unless a later time is specified
therein, in which event the resignation shall become effective at such later
time. Unless otherwise specified in such notice, the acceptance of any such
resignation shall not be necessary to make it effective. Any resignation shall
be without prejudice to the rights, if any, of the corporation under any
contract with the resigning officer.
Section 31. Removal. Any officer may be removed from office at any time,
either with or without cause, by the vote or written consent of a majority of
the Directors in office at the
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time, or by any committee or superior officers upon whom such power of removal
may have been conferred by the Board of Directors.
ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND
VOTING OF SECURITIES OWNED BY THE CORPORATION
Section 32. Execution of Corporate Instruments. The Board of Directors
may, in its discretion, determine the method and designate the signatory officer
or officers, or other person or persons, to execute on behalf of the corporation
any corporate instrument or document, or to sign on behalf of the corporation
the corporate name without limitation, or to enter into contracts on behalf of
the corporation, except where otherwise provided by law or these By-Laws, and
such execution or signature shall be binding upon the corporation.
Unless otherwise specifically determined by the Board of Directors or
otherwise required by law, promissory notes, deeds of trust, mortgages and other
evidences of indebtedness of the corporation, and other corporate instruments or
documents requiring the corporate seal, and certificates of shares of stock
owned by the corporation, shall be executed, signed or endorsed by the Chairman
of the Board of Directors, or the President or any Vice President, and by the
Secretary or Chief Financial Officer or Treasurer or any Assistant Secretary or
Assistant Treasurer. All other instruments and documents requiring the
corporate signature, but not requiring the corporate seal, may be executed as
aforesaid or in such other manner as may be directed by the Board of Directors.
All checks and drafts drawn on banks or other depositaries on funds to the
credit of the corporation or in special accounts of the corporation shall be
signed by such person or persons as the Board of Directors shall authorize so to
do.
Unless authorized or ratified by the Board of Directors or within the
agency power of an officer, no officer, agent or employee shall have any power
or authority to bind the corporation by any contract or engagement or to pledge
its credit or to render it liable for any purpose or for any amount.
Section 33. Voting of Securities Owned by the Corporation. All stock and
other securities of other corporations owned or held by the corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors, or, in the absence of such authorization,
by the Chairman of the Board of Directors, the President, or any Vice President.
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ARTICLE VII
SHARES OF STOCK
Section 34. Form and Execution of Certificates. Certificates for the
shares of stock of the corporation shall be in such form as is consistent with
the Certificate of Incorporation and applicable law. Every holder of stock in
the corporation shall be entitled to have a certificate signed by or in the name
of the corporation by the Chairman of the Board of Directors, or the President
or any Vice President and by the Treasurer or Assistant Treasurer or the
Secretary or Assistant Secretary, certifying the number of shares owned by him
in the corporation. Any or all of the signatures on the certificate may be by
facsimile. In case any officer, transfer agent, or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent, or registrar before such certificate is
issued, it may be issued with the same effect as if he were such officer,
transfer agent, or registrar at the date of issue. Each certificate shall state
upon the face or back thereof, in full or in summary, all of the designations,
preferences, limitations, restrictions on transfer and relative rights of the
shares authorized to be issued.
Section 35. Lost Certificates. A new certificate or certificates shall be
issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. The corporation may require, as a condition
precedent to the issuance of a new certificate or certificates, the owner of
such lost, stolen, or destroyed certificate or certificates, or his legal
representative, to advertise the same in such manner as it shall require or to
give the corporation a surety bond in such form and amount as it may direct as
indemnity against any claim that may be made against the corporation with
respect to the certificate alleged to have been lost, stolen, or destroyed.
Section 36. Transfers.
(a) Transfers of record of shares of stock of the corporation shall
be made only upon its books by the holders thereof, in person or by attorney
duly authorized, and upon the surrender of a properly endorsed certificate or
certificates for a like number of shares.
(b) The corporation shall have power to enter into and perform any
agreement with any number of stockholders of any one or more classes of stock of
the corporation to restrict the transfer of shares of stock of the corporation
of any one or more classes owned by such stockholders in any manner not
prohibited by the General Corporation Law of Delaware.
Section 37. Fixing Record Dates.
(a) In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of Directors may fix, in advance, a record date,
which record date shall not precede the date upon which the resolution fixing
the record date is adopted by the Board of Directors, and which record date
shall not be more than sixty (60) nor less than ten (10) days before the date of
such
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meeting. If no record date is fixed by the Board of Directors, the record date
for determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
(b) Prior to the Initial Public Offering, in order that the
Corporation may determine the stockholders entitled to consent to corporate
action in writing without a meeting, the Board of Directors may fix, in advance,
a record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors, and
which date shall not be more than ten (10) days after the date upon which the
resolution fixing the record date is adopted by the Board of Directors. If no
record date has been fixed by the Board of Directors, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting, when no prior action by the Board of Directors is required by
law, shall be the first date on which a signed written consent setting forth the
action taken or proposed to be taken is delivered to the Corporation by delivery
to its registered office in the State of Delaware, its principal place of
business or an officer or agent of the Corporation having custody of the book in
which proceedings of meetings of stockholders are recorded. Delivery made to a
Corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested. If no record date has been fixed by the Board
of Directors and prior action by the Board of Directors is required by law, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting shall be at the close of business on the day on
which the Board of Directors adopts the resolution taking such prior action.
(c) In order that the corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix, in advance, a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted, and which record date shall be not more than sixty (60)
days prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto.
Section 38. Registered Stockholders. The corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and shall not be
bound to recognize any equitable or other claim to or interest in such share or
shares on the part of any other person whether or not it shall have express or
other notice thereof, except as otherwise provided by the laws of Delaware.
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ARTICLE VIII
OTHER SECURITIES OF THE CORPORATION
Section 39. Execution of Other Securities. All bonds, debentures and
other corporate securities of the corporation, other than stock certificates
(covered in Section 34), may be signed by the Chairman of the Board of
Directors, the President or any Vice President, or such other person as may be
authorized by the Board of Directors, and the corporate seal impressed thereon
or a facsimile of such seal imprinted thereon and attested by the signature of
the Secretary or an Assistant Secretary, or the Chief Financial Officer or
Treasurer or an Assistant Treasurer; provided, however, that where any such
bond, debenture or other corporate security shall be authenticated by the manual
signature of a trustee under an indenture pursuant to which such bond, debenture
or other corporate security shall be issued, the signatures of the persons
signing and attesting the corporate seal on such bond, debenture or other
corporate security may be the imprinted facsimile of the signatures of such
persons. Interest coupons appertaining to any such bond, debenture or other
corporate security, authenticated by a trustee as aforesaid, shall be signed by
the Treasurer or an Assistant Treasurer of the corporation or such other person
as may be authorized by the Board of Directors, or bear imprinted thereon the
facsimile signature of such person. In case any officer who shall have signed
or attested any bond, debenture or other corporate security, or whose facsimile
signature shall appear thereon or on any such interest coupon, shall have ceased
to be such officer before the bond, debenture or other corporate security so
signed or attested shall have been delivered, such bond, debenture or other
corporate security nevertheless may be adopted by the corporation and issued and
delivered as though the person who signed the same or whose facsimile signature
shall have been used thereon had not ceased to be such officer of the
corporation.
ARTICLE IX
DIVIDENDS
Section 40. Declaration of Dividends. Dividends upon the capital stock of
the corporation, subject to the provisions of the Certificate of Incorporation,
if any, may be declared by the Board of Directors pursuant to law at any regular
or special meeting. Dividends may be paid in cash, in property, or in shares of
the capital stock, subject to the provisions of the Certificate of
Incorporation.
Section 41. Dividend Reserve. Before payment of any dividend, there may
be set aside out of any funds of the corporation available for dividends such
sum or sums as the Board of Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the Board of Directors shall think
conducive to the interests of the corporation, and the Board of Directors may
modify or abolish any such reserve in the manner in which it was created.
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ARTICLE X
FISCAL YEAR
Section 42. Fiscal Year. The fiscal year of the corporation shall be
fixed by resolution of the Board of Directors.
ARTICLE XI
INDEMNIFICATION
Section 43. Indemnification of Directors, Officers, Employees and Other
Agents.
(a) Directors. The corporation shall indemnify its Directors to
the fullest extent not prohibited by the Delaware General Corporation Law;
provided, however, that the corporation shall not be required to indemnify any
Director in connection with any proceeding (or part thereof) initiated by such
person or any proceeding by such person against the corporation or its
Directors, officers, employees or other agents unless (i) such indemnification
is expressly required to be made by law, (ii) the proceeding was authorized by
the Board of Directors of the corporation or (iii) such indemnification is
provided by the corporation, in its sole discretion, pursuant to the powers
vested in the corporation under the Delaware General Corporation Law.
(b) Officers, Employees and Other Agents. The corporation shall
have power to indemnify its officers, employees and other agents as set forth in
the Delaware General Corporation Law.
(c) Good Faith.
(i) For purposes of any determination under this Bylaw, a
Director or executive officer shall be deemed to have acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding, to have
had no reasonable cause to believe that his conduct was unlawful, if his action
is based on information, opinions, reports and statements, including financial
statements and other financial data, in each case prepared or presented by:
(1) one or more officers or employees of the
corporation whom the Director or executive officer believed to be reliable and
competent in the matters presented;
(2) counsel, independent accountants or other persons
as to matters which the Director or executive officer believed to be within such
person's professional competence; and
(3) with respect to a Director, a committee of the
Board upon which such Director does not serve, as to matters within such
Committee's designated authority,
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which committee the Director believes to merit confidence; so long as, in each
case, the Director or executive officer acts without knowledge that would cause
such reliance to be unwarranted.
(ii) The termination of any proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its equivalent shall
not, of itself, create a presumption that the person did not act in good faith
and in a manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal proceeding, that
he had reasonable cause to believe that his conduct was unlawful.
(iii) The provisions of this paragraph (c) shall not be deemed
to be exclusive or to limit in any way the circumstances in which a person may
be deemed to have met the applicable standard of conduct set forth by the
Delaware General Corporation Law.
(d) Expenses. The corporation shall advance, prior to the final
disposition of any proceeding, promptly following request therefor, all expenses
incurred by any Director or executive officer in connection with such proceeding
upon receipt of an undertaking by or on behalf of such person to repay said
amounts if it should be determined ultimately that such person is not entitled
to be indemnified under this Bylaw or otherwise.
(e) Enforcement. Without the necessity of entering into an express
contract, all rights to indemnification and advances to Directors and executive
officers under this Bylaw shall be deemed to be contractual rights and be
effective to the same extent and as if provided for in a contract between the
corporation and the Director or executive officer. Any right to indemnification
or advances granted by this Bylaw to a Director or executive officer shall be
enforceable by or on behalf of the person holding such right in any court of
competent jurisdiction if (i) the claim for indemnification or advances is
denied, in whole or in part, or (ii) no disposition of such claim is made within
ninety (90) days of request therefor. The claimant in such enforcement action,
if successful in whole or in part, shall be entitled to be paid also the expense
of prosecuting his claim. The corporation shall be entitled to raise as a
defense to any such action that the claimant has not met the standards of
conduct that make it permissible under the Delaware General Corporation Law for
the corporation to indemnify the claimant for the amount claimed. Neither the
failure of the corporation (including its Board of Directors, independent legal
counsel or its stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he has met the applicable standard of conduct set
forth in the Delaware General Corporation Law, nor an actual determination by
the corporation (including its Board of Directors, independent legal counsel or
its stockholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that claimant
has not met the applicable standard of conduct.
(f) Non Exclusivity of Rights. The rights conferred on any person
by this Bylaw shall not be exclusive of any other right which such person may
have or hereafter acquire under any statute, provision of the Certificate of
Incorporation, By-Laws, agreement, vote of stockholders or disinterested
Directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office. The corporation is specifically
authorized to enter into individual contracts with any or all of its Directors,
officers, employees or agents
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respecting indemnification and advances, to the fullest extent not prohibited by
the Delaware General Corporation Law.
(g) Survival of Rights. The rights conferred on any person by this
Bylaw shall continue as to a person who has ceased to be a Director, officer,
employee or other agent and shall inure to the benefit of the heirs, executors
and administrators of such a person.
(h) Insurance. To the fullest extent permitted by the Delaware
General Corporation Law, the corporation, upon approval by the Board of
Directors, may purchase insurance on behalf of any person required or permitted
to be indemnified pursuant to this Bylaw.
(i) Amendments. Any repeal or modification of this Bylaw shall
only be prospective and shall not affect the rights under this Bylaw in effect
at the time of the alleged occurrence of any action or omission to act that is
the cause of any proceeding against any agent of the corporation.
(j) Saving Clause. If this Bylaw or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each Director and executive officer to
the full extent not prohibited by any applicable portion of this Bylaw that
shall not have been invalidated, or by any other applicable law.
(k) Certain Definitions. For the purposes of this Bylaw, the
following definitions shall apply:
(i) The term "proceeding" shall be broadly construed and
shall include, without limitation, the investigation, preparation, prosecution,
defense, settlement, arbitration and appeal of, and the giving of testimony in,
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative.
(ii) The term "expenses" shall be broadly construed and shall
include, without limitation, court costs, attorneys' fees, witness fees, fines,
amounts paid in settlement or judgment and any other costs and expenses of any
nature or kind incurred in connection with any proceeding.
(iii) The term the "corporation" shall include, in addition to
the resulting corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger which, if
its separate existence had continued, would have had power and authority to
indemnify its directors, officers, and employees or agents, so that any person
who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position under
the provisions of this Bylaw with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
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(iv) References to a "director," "officer," "employee," or
"agent" of the corporation shall include, without limitation, situations where
such person is serving at the request of the corporation as a director, officer,
employee, trustee or agent of another corporation, partnership, joint venture,
trust or other enterprise.
(v) References to "other enterprises" shall include employee
benefit plans; references to "fines" shall include any excise taxes assessed on
a person with respect to an employee benefit plan; and references to "serving at
the request of the corporation" shall include any service as a director,
officer, employee or agent of the corporation which imposes duties on, or
involves services by, such director, officer, employee, or agent with respect to
an employee benefit plan, its participants, or beneficiaries; and a person who
acted in good faith and in a manner he reasonably believed to be in the interest
of the participants and beneficiaries of an employee benefit plan shall be
deemed to have acted in a manner "not opposed to the best interests of the
corporation" as referred to in this Bylaw.
ARTICLE XII
NOTICES
Section 44. Notices.
(a) Notice to Stockholders. Whenever, under any provisions of
these By-Laws, notice is required to be given to any stockholder, it shall be
given in writing, timely and duly deposited in the United States mail, postage
prepaid, and addressed to his last known post office address as shown by the
stock record of the corporation or its transfer agent.
(b) Notice to Directors. Any notice required to be given to any
Director may be given by the method stated in subsection (a), or by facsimile,
telex or telegram, except that such notice other than one which is delivered
personally shall be sent to such address as such Director shall have filed in
writing with the Secretary, or, in the absence of such filing, to the last known
post office address of such Director.
(c) Address Unknown. If no address of a stockholder or Director be
known, notice may be sent to the office of the corporation required to be
maintained pursuant to Section 2 hereof.
(d) Affidavit of Mailing. An affidavit of mailing, executed by a
duly authorized and competent employee of the corporation or its transfer agent
appointed with respect to the class of stock affected, specifying the name and
address or the names and addresses of the stockholder or stockholders, or
Director or Directors, to whom any such notice or notices was or were given, and
the time and method of giving the same, shall be conclusive evidence of the
statements therein contained.
(e) Time Notices Deemed Given. All notices given by mail, as above
provided, shall be deemed to have been given as at the time of mailing and all
notices given by
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facsimile, telex or telegram shall be deemed to have been given as of the
sending time recorded at time of transmission.
(f) Methods of Notice. It shall not be necessary that the same
method of giving notice be employed in respect of all Directors, but one
permissible method may be employed in respect of any one or more, and any other
permissible method or methods may be employed in respect of any other or others.
(g) Failure to Receive Notice. The period or limitation of time
within which any stockholder may exercise any option or right, or enjoy any
privilege or benefit, or be required to act, or within which any Director may
exercise any power or right, or enjoy any privilege, pursuant to any notice sent
him in the manner above provided, shall not be affected or extended in any
manner by the failure of such stockholder or such Director to receive such
notice.
(h) Notice to Person with Whom Communication Is Unlawful. Whenever
notice is required to be given, under any provision of law or of the Certificate
of Incorporation or By-Laws of the corporation, to any person with whom
communication is unlawful, the giving of such notice to such person shall not be
required and there shall be no duty to apply to any governmental authority or
agency for a license or permit to give such notice to such person. Any action or
meeting which shall be taken or held without notice to any such person with whom
communication is unlawful shall have the same force and effect as if such notice
had been duly given. In the event that the action taken by the corporation is
such as to require the filing of a certificate under any provision of the
Delaware General Corporation Law, the certificate shall state, if such is the
fact and if notice is required, that notice was given to all persons entitled to
receive notice except such persons with whom communication is unlawful.
(i) Notice to Person with Undeliverable Address. Whenever notice
is required to be given, under any provision of law or the Certificate of
Incorporation or By-Laws of the corporation, to any stockholder to whom (i)
notice of two consecutive annual meetings, and all notices of meetings or of the
taking of action by written consent without a meeting to such person during the
period between such two consecutive annual meetings, or (ii) all, and at least
two, payments (if sent by first class mail) of dividends or interest on
securities during a twelve month period, have been mailed addressed to such
person at his address as shown on the records of the Corporation and have been
returned undeliverable, the giving of such notice to such person shall not be
required. Any action or meeting which shall be taken or held without notice to
such person shall have the same force and effect as if such notice had been duly
given. If any such person shall deliver to the corporation a written notice
setting forth his then current address, the requirement that notice be given to
such person shall be reinstated. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate need not
state that notice was not given to persons to whom notice was not required to be
given pursuant to this paragraph.
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ARTICLE XIII
AMENDMENTS
Section 45. Amendments. Except as otherwise set forth in paragraph (i) of
Section 43 of these By-Laws, the Bylaws may be altered or amended or new Bylaws
adopted by the affirmative vote of at least sixty-six and two-thirds percent
(66-2/3%) of the voting power of all of the then-outstanding shares of the
Voting Stock. The Board of Directors shall also have the power to adopt, amend
or repeal Bylaws.
ARTICLE XIV
LOANS TO OFFICERS
Section 46. Loans to Officers. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation or of its subsidiaries, including any officer or employee who
is a Director of the corporation or its subsidiaries, whenever, in the judgment
of the Board of Directors, such loan, guarantee or assistance may reasonably be
expected to benefit the corporation. The loan, guarantee or other assistance
may be with or without interest and may be unsecured, or secured in such manner
as the Board of Directors shall approve, including, without limitation, a pledge
of shares of stock of the corporation. Nothing in this Section 46 shall be
deemed to deny, limit or restrict the powers of guaranty or warranty of the
corporation at common law or under any statute.
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EXHIBIT 11.1
WILD OATS MARKETS, INC.
Statement Regarding Computation of Pro Forma Net Income (Loss) Per Share
(Unaudited)
Year Ended
December 28,
1996
-----------
<TABLE>
<CAPTION>
<S> <C>
Weighted average number of common
shares outstanding 4,622,202
Common and common equivalent shares
issued during the twelve-month period
prior to the filing of the Company's
initial public offering calculated
using the treasury stock method 267,811
-----------
Pro forma weighted average number of
common shares outstanding 4,890,013
Net income (loss) $(4,483,000)
===========
Pro forma net income (loss) per share $ (0.92)
===========
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-20539) of Wild Oats Markets, Inc. of our report
dated January 31, 1997 appearing in this Form 10-K.
PRICE WATERHOUSE LLP
Boulder, Colorado
March 25, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 28, 1996 AND THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 28, 1996 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-END> DEC-28-1996
<CASH> 16,404
<SECURITIES> 0
<RECEIVABLES> 857
<ALLOWANCES> 299
<INVENTORY> 15,464
<CURRENT-ASSETS> 35,601
<PP&E> 43,864
<DEPRECIATION> 8,128
<TOTAL-ASSETS> 107,057
<CURRENT-LIABILITIES> 25,669
<BONDS> 971
0
0
<COMMON> 7
<OTHER-SE> 77,776
<TOTAL-LIABILITY-AND-EQUITY> 107,057
<SALES> 192,493
<TOTAL-REVENUES> 192,493
<CGS> 130,957
<TOTAL-COSTS> 130,957
<OTHER-EXPENSES> 66,092
<LOSS-PROVISION> 252
<INTEREST-EXPENSE> 904
<INCOME-PRETAX> 5,460
<INCOME-TAX> 977
<INCOME-CONTINUING> 4,483
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,483
<EPS-PRIMARY> 0.92
<EPS-DILUTED> 0.92
</TABLE>
