As Filed With the Securities and Exchange Commission on September 29, 1999
Registration No. 333-_____
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Wild Oats Markets, Inc.
(Exact name of registrant as specified in its charter)
Delaware 84-1100630
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
3375 Mitchell Lane
Boulder, Colorado 80301
(303) 440-5220
(Address, including zip code, and telephone number,
including area code, of registrants
principal executive offices)
----------
Michael C. Gilliland Chief
Executive Officer WILD OATS
MARKETS, INC.
3375 Mitchell Lane
Boulder, Colorado 80301
(303) 440-5220
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
-----------
Copies to:
Francis R. Wheeler, Esq.
Mashenka Lundberg, Esq. Jonathan A. Schaffzin, Esq.
HOLME ROBERTS & OWEN LLP CAHILL GORDON & REINDEL
1700 Lincoln Street, Suite 4100 80 Pine Street
Denver, Colorado 80203 New York, New York 10005
(303) 861-7000 (212) 701-3000
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the registration statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to a dividend or interest reinvestment plan, check the following box.
|_|
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. |X|
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule
434, check the following box. |_|
<PAGE>
<TABLE>
<CAPTION>
-------------------
CALCULATION OF REGISTRATION FEE
Title of Each Class of
Securities to be Amount to be Proposed Maximum Proposed Maximum Amount of
Registered Registered Offering Price Per Share(1) Aggregate Offering Price(1) Registration Fee(1)
<S> <C> <C> <C> <C>
Common Stock, $.001
par value 4,073,153 (2) $38.81 $158,079,067.90 $43,945.98
</TABLE>
- ---------------------
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(c) on the basis of the average of the high and low prices
reported on the Nasdaq National Market on September 24, 1999.
(2) Includes 372,960 shares subject to the underwriters' over-allotment option.
-------------------
The registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
EXPLANATORY NOTE
This registration statement consists of two prospectuses. The first
prospectus for 2,486,401 shares relates to an underwritten public offering of
our common stock by us and the selling stockholders. The second prospectus for
1,213,792 shares relates to offers and sales of our common stock from time to
time by selling stockholders.
<PAGE>
SUBJECT TO COMPLETION, DATED SEPTEMBER 29, 1999
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS
[LOGO] 2,486,401 Shares
Wild Oats Markets, Inc.
Common Stock
$____ per share
-------------------
We are selling 1,700,000 shares of our common stock and the selling
stockholders named in this prospectus are selling 786,401 shares. We will not
receive any of the proceeds from the sale of common stock by the selling
stockholders. The underwriters named in this prospectus may purchase up to
372,960 additional shares of common stock from one of the selling stockholders
solely to cover over-allotments.
Our common stock is traded on the Nasdaq National Market under the symbol
"OATS." The last reported sale price of the common stock on the Nasdaq National
Market on September 24, 1999 was $38.50 per share.
-------------------
Investing in our common stock involves certain risks. See "Risk Factors"
beginning on page 8.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
-------------------
<TABLE>
<CAPTION>
Per Share Total
<S> <C> <C>
Public Offering Price......................................................... $ $
Underwriting Discount......................................................... $ $
Proceeds to Wild Oats (before expenses)....................................... $ $
Proceeds to Selling Stockholders ............................................. $ $
</TABLE>
The underwriters are offering the shares subject to various conditions. The
underwriters expect to deliver the shares to purchasers on or about , 1999.
-------------------
Salomon Smith Barney
Merrill Lynch & Co.
U.S. Bancorp Piper Jaffray
Hambrecht & Quist
, 1999
<PAGE>
You should rely only on the information contained in or incorporated by
reference in this prospectus. Wild Oats has not authorized anyone to provide you
with different information. We are not making an offer of these securities in
any state where the offer is not permitted. You should not assume that the
information provided by this prospectus is accurate as of any date other than
the date on the front of this prospectus.
-------------------
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
Prospectus Summary................................................................................................1
Risk Factors......................................................................................................8
Use of Proceeds..................................................................................................14
Market Price of Common Stock ....................................................................................14
Capitalization ..................................................................................................15
Management's Discussion and Analysis of Supplemental Combined
Financial Condition and Results of Operations ..............................................................16
Business.........................................................................................................24
Management ......................................................................................................35
Principal and Selling Stockholders ..............................................................................38
Underwriting.....................................................................................................41
Legal Matters....................................................................................................42
Experts..........................................................................................................42
Where You Can Find More Information..............................................................................43
Incorporation of Certain Information We File With the SEC........................................................43
</TABLE>
In this prospectus, "Wild Oats," "we," "us," and "our" each refer to Wild Oats
Markets, Inc.
ii
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information appearing elsewhere in this prospectus
or incorporated by reference. This summary may not contain all the information
that you should consider before purchasing our common stock. You should
carefully read this entire prospectus and the other documents to which this
prospectus refers. This prospectus contains forward-looking statements that
involve risks and uncertainties.
Please note that, unless otherwise stated:
o all information in this prospectus assumes no exercise of the
underwriters' over-allotment option
o all information in this prospectus reflects a 3-for-2 stock split of
our common stock paid on January 7, 1998 to holders of record on
December 22, 1997
o all references in this prospectus to a particular fiscal year refer to
our 52- or 53-week fiscal year, which ends on the Saturday nearest to
December 31 of each year
o the summary supplemental combined financial information presented in
this prospectus has been derived from our historical financial
information, restated to reflect the merger with Henry's Marketplace,
Inc. which was completed on September 27, 1999. This merger has been
accounted for as a pooling of interests. Accordingly, the accounts and
operations of Henry's have been included in our summary supplemental
combined financial and operating data for all periods discussed herein.
As such, this supplemental combined financial and operating information
does not represent the historical financial position or operations of
Wild Oats
The Company
Wild Oats is the second largest natural foods supermarket chain in North
America. We currently operate 91 stores in 20 states and Canada. We are
dedicated to providing a broad selection of high quality natural and gourmet
foods and related products at competitive prices in an inviting and educational
store environment emphasizing customer service. Our stores range in size from
2,500 to 42,000 gross square feet and feature natural alternatives for virtually
every product category found in conventional supermarkets. Wild Oats provides
its customers with a one-stop, full-service shopping alternative to both
conventional supermarkets and traditional health food stores.
Wild Oats emphasizes unique products not typically found in conventional
supermarkets and tailors its product mix to meet the preferences of each store's
local market. In addition, we have implemented "A Wild Oats Down to Earth
Value" private label line that offers high quality, all-natural items in many
product categories at prices competitive with those of similar brand-name items.
Our strict quality standards require our products to be minimally processed,
free of preservatives, artificial colors and chemical additives and not tested
on animals.
Each of our stores strives to create a fun, friendly and educational store
environment that makes grocery shopping enjoyable, encouraging shoppers to spend
more time in our stores and to purchase new products. We train our store staff
to educate customers as to the benefits and quality of our products, and we
prominently feature instructional brochures, newsletters and an in-store
information department. In addition, many of our stores offer cafe seating
areas, espresso and fresh juice bars and in-store nutritional consultations and
massage therapists, all of which emphasize the comfortable and relaxed nature of
the Wild Oats shopping experience. We also seek to engender customer loyalty by
demonstrating our high degree of commitment to the local community through
ongoing programs which provide significant monetary and in-kind contributions to
local not-for-profit organizations.
<PAGE>
From 1994 to 1998, sales of natural products grew from $7.6 billion to
$25.4 billion, for a compound annual growth rate of 35.2%. Sales growth in the
traditional supermarket industry remained relatively flat over the same period.
We believe that this growth reflects a broadening of the natural products
consumer base that is being propelled by several factors, including healthier
eating patterns, increasing concern regarding food purity and safety, greater
environmental awareness and increasing consumer demand for fresh, premium
quality foods. Further, according to industry data, the natural products
industry comprises less than 2.5% of the total supermarket industry,
demonstrating significant potential for continued expansion of our customer
base.
Since acquiring our first natural foods store in 1987, we have pursued an
aggressive growth strategy. We have grown our annual gross sales in large part
through acquiring independent and small chain natural foods stores and through
opening new stores. We currently operate 91 stores in 20 states and British
Columbia, Canada. The table below sets forth certain of our annual growth
statistics. The information about our total number of stores is net of closures
and relocations.
<TABLE>
<CAPTION>
Total Number of Total Number of Number of Stores Number of Stores
Stores at End of States at End of Acquired During Opened During Annual Gross Sales
Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year (in millions)
----------- ----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
1996 49 8 13 9 $253.6
1997 62 12 9 5 383.9
1998 73 18 7 8 479.9
1999 (through
September 27, 1999) 91 20 24 5 Not available
</TABLE>
Our sales grew at a compound annual growth rate of 37.6% from 1996 to 1998.
Our year-to-date sales for the first six months of 1999 were $305.3 million,
compared to $230.3 million in the same period in 1998, an increase of 32.6%,
largely due to the opening of two new stores and the acquisition of 13 stores in
the first six months of 1999. Through September 27th, we have opened five new
stores and acquired 24 stores in 1999, including:
o Nature's Fresh Northwest, located in metropolitan Portland, Oregon,
which owned seven operating natural foods stores and one site in
development. The purchase price was approximately $40.0 million in cash
and assumption by us of a $17.0 million promissory note payable to the
seller. Nature's had sales of approximately $58.3 million in its 1998
fiscal year. The transaction closed on May 29, 1999 and was accounted
for as a purchase.
o Henry's Marketplace, located in metropolitan San Diego, California,
which owned 11 operating natural foods supermarkets and one site in
development. The merger consideration was approximately $46.0 million
of Wild Oats' common stock. Henry's had sales of approximately $81.0
million in its 1998 fiscal year. The transaction closed on September
27, 1999 and was accounted for as a pooling of interests.
As a result of our aggressive growth, we have increased our penetration of
existing markets, entered new geographic markets and created a stronger platform
for future growth. Since the beginning of 1997, we have successfully entered a
number of new states, including Arizona, Arkansas, Connecticut, Illinois,
Indiana, New Jersey, New York, Ohio, Oregon, Tennessee and Texas. We believe our
growth has resulted in operating efficiencies created by:
o warehousing, distribution and administrative economies of scale
o improved volume purchasing discounts
o coordinated merchandising and marketing strategies
2
<PAGE>
Wild Oats plans to open an additional two stores in the remainder of 1999
and to open, acquire or relocate as many as 20 stores in 2000. We intend to
continue our national expansion strategy by increasing penetration in existing
markets and expanding into new regions that we believe are currently underserved
by natural foods retailers. We believe our flexible store format strategy, which
includes large supermarket format stores and medium-sized urban format stores,
and our store clustering strategy enable us to increase market penetration,
reach a broader customer base and operate successfully in a diverse set of
markets. In addition, we periodically evaluate new store formats that may appeal
to different types of consumers in various parts of the country.
Our executive offices are located at 3375 Mitchell Lane, Boulder, Colorado
80301, and our telephone number is (303) 440-5220.
Risk Factors
We operate in a highly competitive industry. The following are among the
risks which could adversely affect our future financial performance:
o our ability to manage our growth
o our strategy of clustering stores
o fluctuations in our financial results that could cause our stock price
to fluctuate
o comparable store sales trend fluctuations
o increased competition in the sale of natural foods products
o loss of key personnel
o disruptions of product supply
These and other risks associated with our business and the purchase of our
common stock are discussed under the heading "Risk Factors" beginning on page 8.
The Offering
Shares offered by Wild Oats......... 1,700,000 shares
Shares offered by the
selling stockholders............... 786,401 shares
---------
Total...................... 2,486,401 shares
=========
Common stock to be outstanding
after this offering................ 14,999,137 shares
Use of proceeds..................... We intend to use the net proceeds from this
offering to repay a portion of our
revolving line of credit which, as of
September 24, 1999 had outstanding
borrowings of approximately $80.0 million,
and to finance future acquisitions.
We will not receive any proceeds from the
sale of the shares by the selling
stockholders.
Dividend policy..................... We have not paid cash dividends in prior
years and we do not anticipate paying any
cash dividends in the foreseeable future.
Nasdaq National Market symbol....... "OATS"
3
<PAGE>
The number of shares of common stock to be outstanding after the offering
is based on actual shares outstanding as of September 24, 1999 (which does not
include 1,400,193 shares issued on September 27, 1999 in connection with the
closing of the transaction with Henry's) and excludes 1,110,568 shares of common
stock issuable upon exercise of options outstanding under our equity incentive
and stock option plans (of which 412,172 shares of common stock were vested as
of July 3, 1999), 1,573,156 shares of common stock reserved for issuance
pursuant to our equity incentive and stock option plans, 5,269 shares of common
stock reserved for issuance upon exercise of outstanding warrants, and 143,993
shares of common stock available for grant under our employee stock purchase
plan. In addition, the number of shares of common stock to be outstanding after
this offering assumes no exercise of the underwriters' over-allotment option.
The weighted average exercise prices of our outstanding stock options and
warrants are $18.65 and $14.21 per share, respectively.
4
<PAGE>
<TABLE><CAPTION>
HISTORICAL SUMMARY FINANCIAL AND OPERATING DATA OF WILD OATS
(In thousands, except operating and per-share data)
Fiscal Year Six Months Ended
------------------------------------------ -------------------------
1994 1995 1996 1997 1998 June 27, 1998 July 3,1999
------- ------- -------- ------- ------- ------------- ----------
Statement of Operations Data:
<S> <C> <C> <C> <C> <C> <C> <C>
Sales................................ $65,219 $98,517 $192,493 $311,077 $398,857 $190,266 $257,846
Cost of goods sold and occupancy costs 44,637 67,164 130,957 215,156 274,780 130,824 178,006
-------- ------- -------- -------- -------- -------- --------
Gross profit......................... 20,582 31,353 61,536 95,921 124,077 59,442 79,840
Direct store expenses................ 15,685 25,072 48,317 71,516 87,035 42,249 56,819
-------- ------- -------- -------- -------- -------- --------
Store contribution................... 4,897 6,281 13,219 24,405 37,042 17,193 23,021
Selling, general and
administrative expenses............ 2,317 4,465 8,977 11,488 14,687 7,627 9,269
Pre-opening expenses................. -- 1,037 1,763 1,099 3,277 981 1,600
Non-recurring expenses............... -- -- 7,035 -- 393 393 10,894
-------- ------- -------- -------- -------- -------- --------
Income (loss) from operations........ 2,580 779 (4,556) 11,818 18,685 8,192 1,258
Interest expense (income), net....... (373) (363) (904) 113 688 (524) 641
-------- ------- -------- -------- -------- -------- --------
Income (loss) before income taxes.... 2,207 416 (5,460) 11,931 19,373 8,716 617
Income tax expense (benefit)......... 880 40 (977) 4,895 7,725 3,408 258
-------- ------- -------- -------- -------- -------- --------
Net income (loss) before
cumulative effect of change
in accounting principle............ 1,327 376 (4,468) 7,036 11,648 5,308 359
Cumulative effect of change in accounting
principle, net of tax................ -- -- -- -- -- -- 281
--------- ------ -------- -------- -------- -------- --------
Net income (loss).................... $ 1,327 $ 376 $ (4,483) $ 7,036 $ 11,648 $ 5,308 $ 78
======= ====== ======== ======== ======== ======= ========
Diluted net income (loss)
per common share................... $0.24 $(0.45) $(1.35) $0.64 $0.87 $0.39 $0.01
===== ======= ======= ===== ===== ===== =====
Weighted average number of common shares
outstanding assuming dilution...... 3,552 3,483 5,078 10,957 13,393 13,440 13,509
===== ===== ===== ====== ====== ====== ======
Selected Operating Data:
Number of stores at end of period.... 14 21 40 52 63 59 77
Average square feet per store........ 11,800 13,700 14,700 15,600 16,500 15,900 17,900
Average sales per square foot (1).... $ 435 $ 464 $ 463 $ 442 $ 433 $ 424 $ 430
Comparable store sales increase (2).. 13% 7% 2% 6% 3% 4% 8%
Capital expenditures................. $ 1,907 $14,213 $13,174 $24,151 $54,520 $27,138 $30,799
</TABLE>
<TABLE>
<CAPTION>
As of Fiscal Year End July 3, 1999
--------------------------------------------- ------------
1994 1995 1996 1997 1998 Actual
---- ---- ---- ---- ---- ------
Balance Sheet Data:
<S> <C> <C> <C> <C> <C>
Working capital (deficit)............ $ 3,278 $ 474 $ 9,932 $ 37,063 $ (355) $ (2,637)
Total assets......................... 24,053 38,376 107,057 172,913 198,840 307,947
Long-term debt
(including capitalized leases)..... 3,078 13,302 971 467 -- 87,010
Redeemable convertible preferred stock 15,018 16,956 -- -- -- --
Stockholders' equity (deficit)....... (2,645) (4,209) 77,783 135,123 150,944 154,792
</TABLE>
- -----------
(1) Average sales per square foot is calculated by dividing total sales by the
weighted average gross square footage of stores open during the period.
(2) Sales of a store are deemed to be comparable commencing in the thirteenth
full month of operations for both new and acquired stores.
5
<PAGE>
SUMMARY SUPPLEMENTAL COMBINED FINANCIAL AND OPERATING DATA
(In thousands, except operating and per-share data)
The following summary supplemental combined financial and operating data
have been derived from our filings on Form 10-K for the fiscal years ended 1998,
1997 and 1996 and our filings on Form 10-Q for the six months ended June 27,
1998 and July 3, 1999 (incorporated herein by reference) and have been revised
to reflect the merger with Henry's Marketplace, Inc. that occurred on September
27, 1999. This merger has been accounted for as a pooling of interests and,
accordingly, the accounts and operations of Henry's have been included in the
summary supplemental combined financial and operating data for all periods
presented below. As such, this data does not represent the historical financial
position or operations of Wild Oats.
The information set forth below should be read in conjunction with the
"Management's Discussion and Analysis of Supplemental Combined Financial
Condition and Results of Operations" included herein and our complete
Supplemental Combined Financial Statements as filed on Form 8-K on September 29,
1999, incorporated herein by reference.
<TABLE><CAPTION>
Fiscal Year Six Months Ended
------------------------------------------- -------------------------
1996 1997 1998 June 27, 1998 July 3,1999
-------- -------- -------- ------------- -----------
(unaudited)
Statement of Operations Data:
<S> <C> <C> <C> <C> <C>
Sales................................ $253,606 $383,853 $479,883 $230,308 $305,334
Cost of goods sold and occupancy costs 175,698 268,059 333,944 159,999 212,168
-------- -------- -------- -------- --------
Gross profit......................... 77,908 115,794 145,939 70,309 93,166
Direct store expenses................ 58,928 85,280 99,534 48,291 64,601
-------- -------- -------- -------- --------
Store contribution................... 18,980 30,514 46,405 22,018 28,565
Selling, general and
administrative expenses............ 10,558 14,083 19,630 9,971 12,193
Pre-opening expenses................. 1,863 1,149 3,277 981 1,600
Non-recurring expenses............... 7,035 -- 393 393 10,894
-------- -------- -------- -------- --------
Income from operations............... (476) 15,282 23,105 10,673 3,878
Interest expense (income), net....... 1,232 378 (195) (259) 832
-------- -------- -------- -------- --------
Income before income taxes........... (1,708) 14,904 23,300 10,932 3,046
Income tax expense (benefit)......... (156) 5,457 7,793 3,448 298
-------- -------- -------- -------- --------
Net income before cumulative effect of
change in accounting principle.... (1,552) 9,447 15,507 7,484 2,748
Cumulative effect of change in accounting
principle, net of tax............. -- -- -- -- 281
-------- -------- -------- -------- --------
Net income (loss).................... $ (1,552) $ 9,447 $ 15,507 $ 7,484 $ 2,467
======== ========= ========= ========= =========
Pro forma net income (loss) (1)...... $ (2,248) $ 8,823 $ 14,011 $ 6,641 $ 1,539
========= ======== ======== ======== ========
Pro forma diluted net income
per common share (1)............... (0.72) $ 0.71 $ 0.95 $ 0.45 $ 0.12
========= ======== ======== ======== ========
Weighted average number of common shares
outstanding assuming dilution...... 6,478 12,357 14,793 14,840 14,909
========= ======== ======== ======== ========
Selected Operating Data:
Number of stores at end of period.... 49 62 73 69 87
Average square feet per store........ 15,300 16,000 16,500 16,000 18,000
Average sales per square foot (2).... $ 448 $ 444 $ 435 $ 426 $ 442
Comparable store sales increase (3).. 6% 5% 4% 4% 4%
Capital expenditures................. $17,193 $ 26,339 $ 55,197 $ 27,334 $ 32,200
</TABLE>
<TABLE><CAPTION>
As of Fiscal Year End July 3, 1999 End
----------------------- ----------------
1996 1997 1998 Actual As Adjusted (4)
-------- -------- -------- -------- ---------------
Balance Sheet Data:
<S> <C> <C> <C> <C> <C>
Working capital (deficit)............ $ 8,450 $ 35,534 $ (1,576) $ (4,326) $ (4,326)
Total assets......................... 118,119 184,551 209,770 320,744 320,744
Long-term debt
(including capitalized leases)..... 4,412 4,157 2,675 89,357 27,218
Stockholders' equity................. $ 79,286 $137,384 $153,499 $157,856 219,995
- -----------
</TABLE>
6
<PAGE>
(1) The pro forma net income and pro forma net income per share reflect the tax
adjustment for a fiscal 1999 merger accounted for as a pooling of interests
that was previously an S corporation for income tax purposes, as if the
merged company had filed a C corporation tax return for all periods
presented.
(2) Average sales per square foot is calculated by dividing total sales by the
weighted average gross square footage of stores open during the period.
(3) Sales of a store are deemed to be comparable commencing in the thirteenth
full month of operations for both new and acquired stores.
(4) As adjusted to give effect to the sale by us of 1,700,000 shares of common
stock at a public offering price of $38.50 per share (the closing price on
September 24, 1999) and after deducting the underwriting discounts and
estimated offering expenses payable by us.
7
<PAGE>
RISK FACTORS
This offering involves a high degree of risk. In addition to other
information contained in this prospectus or incorporated herein by reference,
prospective investors should carefully consider the following risk factors
before purchasing any of the common stock offered hereby.
Our ability to manage growth is critical to executing our growth strategy
successfully
We have grown considerably in size and geographic scope since 1992. To date
in 1999, we have acquired 24 stores and opened five new stores. We plan to
continue growing rapidly primarily through the opening of new stores. Therefore,
our success depends, in part, on our ability to open and operate new stores
profitably. Our ability to continue to implement our growth strategy
successfully in this manner depends on many factors, including our ability to:
o hire and train new personnel, including administrative and accounting
personnel, departmental, regional and store managers, store employees
and other personnel in our corporate organization
o expand into areas of the country where we have no operating experience
o identify areas of the country that meet our criteria for new store
sites
o locate suitable store sites and negotiate acceptable lease terms
o obtain governmental and other third party consents, permits and
licenses needed to operate new stores
o integrate new stores into our existing operations
o expand our existing systems or acquire and implement new systems,
including information systems, hardware and software, and distribution
infrastructure, to include new, relocated and acquired stores
o obtain adequate funding for operations
In addition, we will continue to consider acquisitions of natural foods
retailers where attractive opportunities exist. Acquisitions of operating stores
involve risks, which could have a negative effect on our business, financial
results and profitability, such as:
o short-term declines in our reported operating results
o diversion of management's attention
o unanticipated problems or legal liabilities
o inclusion of incompatible operations, particularly management
information systems
o inexperience in operating different store formats
Although we believe that we have the management, operational and
information systems, distribution infrastructure and other resources required to
implement our growth strategy, we may not be able to execute our new store
expansion plans within the expected time frame. Our continued growth may place a
significant strain on our management, our ability to distribute products to our
stores, working capital, and financial and management control systems. In order
for us to manage our expanding store base successfully, our management will be
required to anticipate the changing demands of our growing operations and to
adapt systems and procedures accordingly. If we are not able to do so, our
business, sales and overall profitability will be materially and negatively
affected.
Our strategy of clustering stores may result in declines in operating results
As part of our growth strategy, we strive to locate stores in clusters in
select regional markets to increase overall sales, reduce operating costs and
increase customer awareness. In the past, when we have opened a store in a
market where we have an existing store, our sales and operating results have
declined at some existing stores in such markets. We intend to continue to
cluster stores and expect the sales and trends in operating results for other
stores in such clustered markets to continue to experience temporary declines as
a result.
8
<PAGE>
Our financial results may fluctuate significantly which could cause the price
of our shares to fluctuate
Our profitability may fluctuate significantly from period to period as the
result of a variety of factors, including:
o the number, timing, mix and cost of store openings, acquisitions,
relocations or closings
o the ratio of stores opened to stores acquired
o the opening of stores by us or by our competitors in markets where we
have existing stores
o percentage changes in comparable store sales results, i.e, same store
sales from year to year
We incur significant pre-opening expenses and new stores typically
experience an initial period of operating losses. As a result, the opening of a
significant number of new stores in a single period will negatively affect our
profitability.
Our past comparable store sales may not be indicative of future comparable store
sales
A variety of factors affect our comparable store sales results, including,
among others:
o the opening of stores by us or by our competitors in markets where we
have existing stores
o the relative proportion of new stores to mature stores
o the timing of promotional events
o our ability to follow our operating plans effectively
o changes in consumer preferences for natural foods products
o general economic conditions
Past increases in comparable store sales may not reflect future
performance. Comparable store sales for any particular period may decrease in
the future. Due to the factors listed above, we believe that period-to-period
comparisons of our operating results are not necessarily meaningful and that
such comparisons cannot be relied upon as indicators of future financial
performance. Fluctuations in our comparable store sales could cause the price of
our common stock to fluctuate substantially.
Increased competition in the sale of natural foods products could reduce our
profitability
Our competitors currently include other independent and multi-unit natural
foods supermarkets, smaller traditional natural foods stores, conventional
supermarkets and specialty grocery stores. We believe that our primary
competitor is Whole Foods Market, Inc., a national natural foods supermarket
chain based in Texas, currently, as of September 1999, with 100 stores and with
annual revenues of approximately $1.4 billion in its 1998 fiscal year. A number
of other natural foods supermarkets offer a range of natural foods products
similar to those we offer. While some competitors do not offer as full a range
of products as we do, they do compete with us in some product categories.
Many of our competitors have been in business longer and have greater
financial or marketing resources than we do. Our competitors also may be able to
devote more funds and employees to securing suitable locations for new stores
and to the sourcing, promotion and sale of their products. In addition, should
any of our competitors reduce prices, we may be required to reduce prices to
remain competitive, which could result in lower sales and profitability. As we
open stores in new geographic markets, our success will depend in part on our
ability to gain market share from established competitors. Traditional and
specialty grocery stores are expanding the amount of natural foods they carry
and market, and therefore they now compete directly with us for products,
customers and locations. We expect competition from both new and existing
competitors to increase in our markets and we may not be able to compete
effectively in the future, which could adversely affect our profitability.
Loss of key personnel could disrupt our operations
We believe that our continued success will depend to a significant extent
upon the leadership and performance of:
9
<PAGE>
o Michael C. Gilliland, our co-founder and Chief Executive Officer
o James Lee, our President and Chief Operating Officer
o Mary Beth Lewis, our Chief Financial Officer
The loss of the services of these individuals or other of our key personnel
could have a substantial negative effect upon our operations. Also, in the
current economy in the United States, it is more difficult to find, hire and
retain qualified managerial employees. Any inability to recruit qualified
employees could disrupt our operations.
Disruptions of product supply could reduce store sales and profitability and
disrupt our operations
Our business is dependent on our ability to buy products on a timely basis
and at competitive prices from a small number of distributors and from a large
number of relatively small vendors. Based on our previous purchasing patterns,
we anticipate that we will continue to purchase approximately one-third of the
products sold in our stores through one wholesale distributor, United Natural
Foods Inc. We have three years remaining on a four-year supply agreement with
this major distributor and we do not have contracts with any other major
supplier. This distributor has recently announced problems in the consolidation
of its eastern U.S. warehouse operations which resulted in minor disruptions in
the supply of products to certain of our eastern stores. We cannot assure that
future disruptions in the operations of this distributor will not have a
material effect on our operations or profitability. We may not be able to
negotiate future supply agreements with this or other distributors on terms
favorable to us. In addition, any other vendor or distributor could stop selling
to us at any time. Any disruption in our product supplies could reduce store
sales and our profitability. In addition, even where we have access to
alternative sources of supply, the failure of a vendor or distributor to meet
our demands may temporarily disrupt store-level merchandise selection, resulting
in reduced sales.
Government regulation could increase our costs
We are subject to many laws, regulations and ordinances at the local, state
and national level and problems or failures to comply with these laws could
negatively affect our store sales and operations, or could delay the opening of
a new store. Such laws regulate our operations, including:
o health and sanitation standards
o food labeling and handling requirements
o employment and wage levels
o food and alcoholic beverage sales regulations
From time to time, various local, state and national government agencies
propose laws on issues affecting our operations that could reduce our
profitability by increasing our costs or affecting sales of certain products.
Examples of such issues are:
o the minimum wage payable to employees
o the minimum age restriction for certain jobs
o tax increases on the retail sale of certain products
Food safety concerns may also generate new laws that could increase the
cost to prepare foods sold in our stores or make the sale of some items
unprofitable. Product recalls or additional government regulation may also erode
customer confidence in the safety of our products, resulting in reduced sales.
Over 15% of our total sales come from the sale of vitamins, supplements and
herbal products. There have been many proposals for new laws on a national level
to restrict sales of certain supplement products or to regulate information
available to consumers regarding these products. If new laws are passed that
limit our ability to offer information on the products we sell or limit the
availability of the products to the general public, our sales could decrease.
10
<PAGE>
Fluctuations in our stock price may be volatile
The market price of our common stock can change rapidly in response to our
operating results and other factors, including announcements by our competitors.
In addition, the stock market in recent years has experienced extreme price and
volume fluctuations that often have been unrelated or disproportionate to the
operating performance of companies. In addition to fluctuations in the price of
our common stock caused by stock market fluctuations, the market price of our
common stock may fluctuate due to:
o a shortfall in sales, comparable store sales growth or earnings
compared to public market analysts' expectations
o changes in analysts' recommendations or projections
o general economic and market conditions
The Year 2000 problem could affect sales and profitability
We continually evaluate our computer systems used in operating our stores
and have replaced or upgraded, the components of our systems which we believe
might have failed as of January 1, 2000 because of computers' inabilities to
read "01/01/00" as "January 1, 2000" and not "January 1, 1900". We believe that
our own material systems will not fail on January 1, 2000, but cannot guarantee
that disruptions caused by third-party problems will not occur and that system
failures will not affect our sales levels or profitability. If our product
vendors or banks have operations problems because of Year 2000 problems, our
ability to stock products in our stores or process credit card or food stamp
sales for our customers could be disrupted, which could result in lower store
sales or lower profitability.
Year 2000 problems in other areas such as failures by power, telephone,
mail, data transfer or other utility or general service providers or government
or private entities could also affect our operations and profitability. For
example, we could experience the following:
o if the power supply is disrupted, some or all of our stores may have
to close temporarily, certain perishable inventory could be destroyed
and store security systems may not operate
o we could lose communication links, including credit card processing,
with some or all of our stores
o we could experience significant disruptions caused by the inability of
our distributors to deliver products to us in a timely manner
We are currently preparing contingency plans in the event these third-party
systems are not Year 2000 compliant and anticipate having such plans completed
early in the fourth quarter of 1999.
We do not intend to pay cash dividends for the foreseeable future
We have never paid cash dividends on shares of our common stock. We do not
intend to pay cash dividends in the foreseeable future. Our revolving credit
facilities contain various financial covenants which restrict, among other
things, our ability to pay cash dividends.
Future sales into the public market could cause the price of our shares to
decline
Sales of a substantial number of shares of our common stock in the public
market following this offering could result in a decrease in the market price of
our common stock. The number of shares of our common stock available for sale in
the public market is limited by restrictions under the Securities Act of 1933,
as amended (the "Securities Act"), and by lock-up agreements executed in
connection with this offering, pursuant to which our executive officers,
directors and the selling stockholders have entered into agreements with Salomon
Smith Barney Inc., not to sell or otherwise dispose of any of their shares of
the common stock for 90 days following completion of this offering. Salomon
Smith Barney Inc., may, however, in its sole discretion at any time and without
notice, release all or any portion of the securities subject to lock-up
agreements.
11
<PAGE>
Upon completion of this offering, the following information (based on
actual shares outstanding as of September 24, 1999) will apply to our common
stock:
Number of shares outstanding......................................... 14,999,137
Number of shares outstanding after exercise of all vested options.... 15,388,317
Number of shares that can be sold immediately........................ 10,855,140
Number of shares that can be sold after 90 days...................... 4,533,177
Some of the shares outstanding are subject to restrictions on sale under
federal securities laws that limit the amount of shares that may be sold in any
three-month period. Not all of the shares shown above as outstanding if all
stock options were exercised by employees and the members of the board of
directors will actually be issued. Stock options may terminate if the employee
leaves our employ. Shares owned by some of the officers, directors and selling
stockholders cannot be sold until an agreement with certain underwriters
prohibiting the sale has expired in 90 days.
Our governing documents, provisions of Delaware law and our stockholder rights
plan could have anti-takeover effects
Our Certificate of Incorporation and Bylaws, certain provisions of Delaware
law and a stockholder rights plan that we adopted could have the following
effects:
o delaying, deferring or preventing a change in control of our company
o discouraging bids for our common stock at a premium over the market
price of our common stock
o adversely affecting the market price of our common stock and the
voting and other rights of the holders of our common stock
Such provisions in our governing documents include, but are not limited to,
a classified Board of Directors and the authority of the Board of Directors to
issue up to 5,000,000 shares of preferred stock and to fix the price, rights,
preferences, privileges and restrictions, including voting rights, of those
shares without further vote or action by the stockholders. The rights of the
holders of our common stock will be subject to, and may be adversely affected
by, the rights of the holders of any preferred stock that may be issued in the
future. We have no present plans to issue shares of preferred stock. In
addition, certain provisions of Delaware law applicable to us could have similar
effects.
Our stockholder rights plan gives our stockholders the right to purchase a
fractional share of preferred stock at a purchase price of $145 for each share
of our common stock held. In addition, until the rights become exercisable and
in certain limited circumstances thereafter, we will issue one right for each
share of our common stock issued hereafter. The rights become exercisable only
if a person or group acquires beneficial ownership of 15% or more of our
outstanding common stock and would entitle all holders of rights, other than
that person or group to purchase shares of our common stock at a substantial
discount to the then-current market price. In addition, if Wild Oats were
acquired in a merger or other business combination or transaction, the holders
of such rights would be entitled to purchase shares of the acquiror's common
stock at a substantial discount.
Our officers, directors and principal stockholders will exercise significant
control
After this offering is completed, our directors, executive officers and
principal stockholders, and certain of their affiliates, will control
approximately 19.6% of the outstanding shares of our common stock. Because of
this level of stock ownership, these persons, individually and as a group, will
be able to effectively control us and direct our affairs and business, including
decisions about the acquisition or disposition of our assets, future issuances
of common stock or other securities by us, declaration of dividends in our
common stock and the election of directors. The large percentage of stock held
by such individuals could also delay or prevent a change in control.
Pursuant to an agreement between us and certain investors, certain parties
controlling an aggregate of approximately 2.3 million shares of our common stock
have agreed that, under certain circumstances, they will vote
12
<PAGE>
their shares in favor of electing the nominee of an investor to our board of
directors and to the audit and compensation committees of our board.
Actual results may differ from results discussed in forward-looking statements
Certain statements in this prospectus, including statements contained in
the summary, under the captions "Risk Factors," "Management's Discussion and
Analysis of Supplemental Combined Financial Condition and Results of Operations"
and "Business" and elsewhere in this prospectus constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements include, without limitation, statements
as to our plans to acquire, relocate or open additional stores, the anticipated
performance of new or acquired stores and other statements containing the words
"believes,""anticipates," "estimates," "expects," "may," "intends" and words of
similar import or statements of our management's opinion. These forward-looking
statements and assumptions involve known and unknown risks, uncertainties and
other factors that may cause our actual results, market performance or
achievements to differ materially from any future results, performance or
achievements expressed or implied by such forward-looking statements. Important
factors that could cause such differences include, but are not limited to:
o changes in economic or business conditions in general or affecting the
natural foods industry in particular
o changes in product supply
o changes in the competitive environment in which we operate
o the availability of sites for new stores and potential acquisition
candidates
o changes in our management information needs
o changes in customer needs and expectations
o governmental and regulatory actions
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<PAGE>
USE OF PROCEEDS
Our net proceeds from the sale of 1,700,000 shares of common stock we are
offering are estimated to be $62,139,300, based on a public offering price of
$38.50 per share (the closing price on September 24, 1999) and after deducting
the underwriting discounts and estimated offering expenses payable by us. We
will not receive any of the proceeds from the sale of common stock by the
selling stockholders. The net proceeds will be used to repay a portion of our
$120.0 million revolving line of credit which, as of September 24, 1999 had
outstanding borrowings of approximately $80.0 million, and to finance future
acquisitions.
Pending such uses, other than the repayment of the outstanding line of
credit, we intend to invest the net proceeds in short-term, investment grade,
interest bearing securities.
Our $120.0 million revolving line of credit facility has a three-year term
as to $90.0 million and a one-year term as to $30.0 million, and bears interest,
at our option, at the prime rate or LIBOR plus 1.15%. None of the $30.0 million
portion of the line of credit has been drawn upon. The line of credit agreement
includes certain financial and other covenants, as well as restrictions on
payments of dividends. We used the borrowings on this line of credit to finance
the following:
o our acquisition of the Nature's Fresh Northwest stores
o our acquisition of three stores located in Tucson, Arizona
o our acquisition of three stores located in Connecticut and Florida
o development of various new stores
o enhancements and upgrades to existing information technology systems and
the purchase of new systems
o working capital
MARKET PRICE OF COMMON STOCK
Our common stock is presently traded on the Nasdaq National Market under
the symbol "OATS." The following table sets forth, for the periods indicated,
the high and low sales prices for the common stock, as quoted on the Nasdaq
National Market.
High Low
1997 Fiscal year
First Quarter................................... $13.00 $ 8.58
Second Quarter.................................. 19.08 9.25
Third Quarter................................... 21.00 14.75
Fourth Quarter.................................. 29.00 19.33
1998 Fiscal Year
First Quarter................................... 38.25 21.88
Second Quarter.................................. 36.38 25.56
Third Quarter................................... 32.75 17.50
Fourth Quarter.................................. 33.00 22.00
1999 Fiscal Year
First Quarter................................... 32.00 22.00
Second Quarter.................................. 30.75 24.75
Third Quarter (through September 24, 1999)...... 40.88 30.06
As of September 1, 1999, there were 586 holders of record of our common
stock. On September 24, 1999, the last reported sale price for our common stock
on the Nasdaq National Market was $38.50 per share.
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<PAGE>
CAPITALIZATION
The following table sets forth our current debt and capitalized lease
obligations as well as our capitalization on July 3, 1999, on an actual basis,
and as adjusted basis to give effect to the sale of the 1,700,000 shares of
common stock we are offering hereby at an assumed public offering price of
$38.50 per share (the closing price on September 24, 1999) and after:
o deducting the underwriting discount and estimated offering expenses
payable by us
o applying the net proceeds as described under "Use of Proceeds"
<TABLE>
<CAPTION>
As of July 3, 1999
------------------------
As
Actual (1) Adjusted
---------- -----------
(In thousands)
<S> <C> <C>
Cash and cash equivalents.............................................................. $ 14,844 $ 14,844
Notes payable and current portion of long-term debt,
including capitalized lease obligations............................................... 5,372 5,372
Long-term debt, including capitalized lease obligations.................................. 89,357 27,218
Stockholders' equity (2):
Common stock, $.001 par value, 20,000,000 shares authorized, 13,266,502
issued and outstanding, actual; and 14,966,502
shares issued and outstanding, as adjusted...................................... 14 16
Additional paid-in capital.......................................................... 145,794 207,931
Retained earnings................................................................... 11,735 11,735
Other cumulative comprehensive income............................................... 313 313
-------- --------
Total stockholders' equity..................................................... 157,856 219,995
-------- --------
Total capitalization...................................................... $267,429 $267,429
======== ========
</TABLE>
(1) This supplemental information is based on our historical financial
information, restated to reflect the merger with Henry's Marketplace, Inc.
This merger was completed on September 27, 1999 and was accounted for as a
pooling of interests.
(2) Based on actual shares of common stock outstanding as of July 3, 1999
(which does not include 1,400,193 shares issued on September 27, 1999 in
connection with the closing of the transaction with Henry's). Excludes
1,110,568 shares issuable upon exercise of options outstanding under our
equity incentive and stock option plans (of which 412,172 shares were
vested as of July 3, 1999), 1,573,156 shares reserved for issuance pursuant
to our equity incentive and stock option plans, 5,269 shares reserved for
issuance upon exercise of outstanding warrants, and 143,993 shares
available for future grants under our employee stock purchase plan. In
addition, the number of shares of common stock to be outstanding after this
offering assumes no exercise of the underwriters' over-allotment option. As
of July 3, 1999, the weighted average exercise prices of our outstanding
stock options and warrants were $18.65 and $14.21 per share, respectively.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF SUPPLEMENTAL COMBINED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the supplemental combined
financial condition and results of operations have been derived from our filings
on Form 10-K for fiscal years ended 1998, 1997 and 1996, and our filings on Form
10-Q for the six months ended June 27, 1998 and July 3, 1999 (incorporated
herein by reference) and have been revised to reflect the merger with Henry's
Marketplace, Inc. which occurred on September 27, 1999. This merger has been
accounted for as a pooling of interests and, accordingly, the accounts and
operations of Henry's have been included in the discussion of supplemental
combined financial condition and results of operations for all periods presented
below. As such, this data does not represent our historical financial position
or operations.
The information set forth below should be read in conjunction with our
complete Supplemental Combined Financial Statements as filed on Form 8-K on
September 29, 1999, incorporated herein by reference.
Overview
Store openings, closings, remodels, relocations and acquisitions. Year to
date in 1999, Wild Oats has opened five new stores in Phoenix, Arizona, Evanston
and Hinsdale, Illinois, Madison, New Jersey, and Albuquerque, New Mexico,
relocated five stores in Phoenix, Arizona, Ft. Collins, Colorado, Portland,
Oregon, Salt Lake City, Utah and Memphis, Tennessee, and closed two Farm to
Market stores in Tempe, Arizona and Buffalo Grove, Illinois. During the same
period, we also acquired 24 operating natural foods stores, including seven
Nature's Fresh Northwest stores in metropolitan Portland, Oregon (of which one
was subsequently relocated during the second quarter), 11 Henry's Marketplace
stores in metropolitan San Diego, California, three stores in Tucson, Arizona,
two in Norwalk and Hartford, Connecticut, and one in Melbourne, Florida. We plan
to open two additional new stores during the remainder of 1999 and open, acquire
or relocate as many as 20 stores in 2000. We are actively looking for other
acquisition opportunities and may complete additional acquisitions in the
remainder of 1999 and in 2000. We will continue to evaluate the profitability of
all of our stores on an ongoing basis and may, from time to time, make decisions
regarding closures, disposals, relocations or remodels in accordance with such
evaluations.
Acquisitions. To date in 1999, we have opened five new stores and acquired
24 stores, including:
o Nature's Fresh Northwest, located in metropolitan Portland, Oregon,
which owned seven operating natural foods stores and one site in
development. Nature's had sales of approximately $58.3 million in 1998.
The purchase price was approximately $40.0 million in cash and
assumption by us of a $17.0 million promissory note payable to the
seller. This acquisition was accounted for using the purchase method
and the excess of cost over the fair value of the assets acquired and
liabilities assumed of $32.1 million was allocated to goodwill, which
is being amortized on a straight-line basis over 40 years.
o Henry's Marketplace, located in metropolitan San Diego, California,
which owned 11 operating natural foods stores and one site in
development. Henry's had sales of approximately $81.0 million in 1998.
The merger consideration was approximately $46.0 million of Wild Oats'
common stock. This transaction was accounted for as a
pooling-of-interests.
Our results of operations have been and will continue to be affected by,
among other things, the number, timing and mix of store openings, acquisitions,
relocations 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. We anticipate that the new stores opened in 1999 will experience
operating losses for the first six to 12 months of operation, in accordance with
historical trends. Further, acquired stores, while generally profitable as of
the acquisition date, generate lower gross margins and store contribution
margins than our company average due to their substantially lower volume
purchasing discounts. Over time, typically six months, as we sell through the
acquired inventories and are able to realize our volume purchase discounts, we
expect that the gross margin and store contribution margin of the acquired
stores will approach our company average. We anticipate that our current high
concentration of acquired stores, including the Nature's and
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<PAGE>
Henry's stores, will have a temporary negative impact on our consolidated
results of operations.
We are actively upgrading, remodeling or relocating some of our older
stores. Remodels and relocations typically cause short-term disruption in sales
volume and related increases in certain expenses as a percentage of sales, such
as payroll. Remodels on average take between 90 and 120 days to complete. We
cannot predict whether sales disruptions and the related impact on earnings may
be greater in time or volume than projected in certain remodeled or relocated
stores.
Store format and clustering strategy. We operate two store formats:
supermarket and urban. The supermarket format is generally 15,000 to 35,000
gross square feet, and typically generates higher sales and store contribution
than the urban format stores, which are generally 8,000 to 15,000 gross square
feet. Our profitability has been and will continue to be affected by the mix of
supermarket and urban format stores opened, acquired or relocated and whether
stores are being opened in markets where we have an existing presence. We expect
to focus primarily on opening, acquiring or relocating supermarket format stores
in the future but will consider additional urban stores when appropriate
opportunities arise. In addition, we pursue a strategy of clustering stores in
each of our markets to increase overall sales, reduce operating costs and
increase customer awareness. In the past, when we have opened a store in a
market where we have an existing presence, our sales and operating results have
declined at certain of our existing stores in that market. However, over time,
we believe the affected stores generally will achieve store contribution margins
comparable to prior levels on the lower base of sales. We intend to continue to
pursue our store clustering strategy and expect the sales and operating results
trends for other stores in an expanded market to continue to experience
temporary declines related to the clustering of stores.
Comparable store sales results. Sales of a store are deemed to be
comparable commencing in the thirteenth full month of operations for new,
relocated and acquired stores. A variety of factors affect our comparable store
sales results, including, among others:
o the opening of stores by us or by our competitors in markets where we
have existing stores
o the relative proportion of new or relocated stores to mature stores
o the timing of promotional events
o our ability to execute our operating plans effectively
o changes in consumer preferences for natural foods products
o general economic conditions.
Past increases in comparable store sales may not be indicative of future
performance.
Our comparable store sales results have been negatively affected in the
past by planned cannibalization, which is the loss of sales at an existing store
when we open a new store nearby, resulting from the implementation of our store
clustering strategy. We expect that comparable sales increases will continue to
be negatively affected by planned cannibalization throughout 1999 due to the
planned opening of new or relocated stores in several of our existing markets,
including Phoenix, Arizona; Denver, Colorado; Hartford, Connecticut; Las Vegas,
Nevada; Albuquerque, New Mexico; Nashville, Tennessee and Salt Lake City, Utah.
There can be no assurance that comparable store sales for any particular period
will not decrease in the future.
Pre-opening expenses. Pre-opening expenses include labor, rent, utilities,
supplies and certain other costs incurred prior to a store's opening.
Pre-opening expenses have averaged approximately $250,000 to $350,000 per store
over the past 18 months, although the amount per store may vary depending on the
store format and whether the store is the first to be opened in a market, or is
part of a cluster of stores in that market.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, Accounting for Costs of Start-Up Activities.
Statement of Position 98-5 requires that pre-opening costs be expensed as
incurred. Statement of Position 98-5 is effective for fiscal years beginning
after December 15, 1998, and the initial application should be reported as a
cumulative effect of a change in accounting principle. We adopted Statement of
Position 98-5 in fiscal 1999 and recorded approximately $281,000 as a cumulative
effect of a change in accounting principle, net of taxes, during the first
quarter of 1999.
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<PAGE>
Results of Operations
The following table sets forth for the periods indicated, certain selected
income statement data expressed as a percentage of sales:
<TABLE>
<CAPTION>
Fiscal Year Six Months Ended
------------------------------ -----------------------
1996 1997 1998 June 27, 1998 July 3, 1999
---- ---- ---- ------------- ------------
<S> <C> <C> <C> <C> <C>
Sales........................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold and occupancy costs.......... 69.3 69.8 69.6 69.5 69.4
----- ----- ----- ----- -----
Gross margin.................................... 30.7 30.2 30.4 30.5 30.6
Direct store expenses........................... 23.2 22.2 20.7 21.0 21.2
Selling, general and administrative expenses.... 4.2 3.7 4.1 4.3 4.0
Pre-opening expenses............................ 0.7 0.3 0.7 0.4 0.5
Non-recurring expenses.......................... 2.8 -- 0.1 0.2 3.6
----- ----- ----- ----- -----
Income (loss) from operations................... (0.2) 4.0 4.8 4.6 1.3
Interest expense (income), net.................. 0.5 -- -- (0.1) 0.3
----- ----- ----- ----- -----
Income (loss) before income taxes............... (0.7) 3.9 4.8 4.7 1.0
Income tax expense (benefit) ................... (0.1) 1.4 1.6 1.5 0.1
----- ----- ----- ----- -----
Net income (loss) before cumulative effect of
change in accounting principle................. (0.6) 2.5 3.2 3.2 0.9
Cumulative effect of change in accounting
principle, net of taxes..................... -- -- -- -- 0.1
----- ----- ----- ----- -----
Net income (loss)............................... (0.6)% 2.5% 3.2% 3.2% 0.8%
===== ===== ===== ===== =====
</TABLE>
Six Months Ended July 3, 1999 and June 27, 1998
Sales. Sales for the six months ended July 3, 1999 increased 32.6% to
$305.3 million from $230.3 million for the same period in 1998. The increase is
primarily due to the opening of two new stores, the acquisition of 13 stores,
and the relocation of five stores in the first six months of 1999, as well as
the inclusion of eight stores opened and seven stores acquired during 1998.
Comparable store sales increased 4.0% for the six months ended July 3, 1999,
based on both new and acquired stores that have been operating longer than 12
months.
Gross profit. Gross profit for the six months ended July 3, 1999 increased
32.5% to $93.2 million from $70.3 million for the same period in 1998. The
increase in gross profit is primarily attributable to the increase in the number
of stores that we operate. Gross profit as a percentage of sales for the six
months ended July 3, 1999 remained relatively constant at 30.6% as compared to
30.5% for the same period in 1998.
Direct store expenses. Direct store expenses for the six months ended July
3, 1999 increased 33.8% to $64.6 million from $48.3 million for the same period
in 1998. The increase in direct store expenses is attributable to the increase
in the number of stores that we operate. Direct store expenses as a percentage
of sales for the six months ended July 3, 1999 remained relatively constant at
21.2% as compared to 21.0% for the same period in 1998.
Selling, general and administrative expenses. Selling, general and
administrative expenses for the six months ended July 3, 1999 increased 22.3% to
$12.2 million from $10.0 million for the same period in 1998. The increase is
the result of additional central and regional support staff and infrastructure
that we added to support our increased number of stores. Selling, general and
administrative expenses as a percentage of sales for the six months ended July
3, 1999 decreased to 4.0% from 4.3% for the same period in 1998. The decrease is
the result of greater leverage of overhead expenses over higher sales volumes.
Pre-opening expenses. Pre-opening expenses for the six months ended July 3,
1999 increased 63.1% to $1.6 million from $981,000 for the same period in 1998.
The increase is attributable to the opening of two new stores
18
<PAGE>
and five relocated stores during the first six months of 1999, as compared to
the opening of three new stores and one relocated store during the same period
in 1998. Additionally, in accordance with Statement of Position 98-5,
pre-opening expenses are recognized as incurred during fiscal 1999. Prior to
fiscal 1999, pre-opening expenses were deferred until a store's opening date, at
which time such costs were expensed in full. Pre-opening expenses as a
percentage of sales for the six months ended July 3, 1999 increased to 0.5% from
0.4% for the same period in 1998. The increase is primarily due to a higher
number of new and relocated stores during the first six months of 1999.
Non-recurring expenses. Non-recurring expenses of approximately $10.9
million were incurred during the first six months of 1999, all in the first
quarter, resulting from certain decisions by our management regarding our
operations and selected store closures. The first decision was a change in our
strategic direction with respect to our two Farm to Market stores located in
Buffalo Grove, Illinois, and Tempe, Arizona which resulted in a non-recurring
expense of $4.5 million. The second decision involved the reallocation of
corporate resources to service new and existing stores, rather than closed sites
which resulted in a non-recurring expense of $6.4 million. Components of the
non-recurring charge consist primarily of non-cancelable lease obligations
through the year 2000 in the amount of $1.2 million and abandonment of fixed and
intangible assets in the amount of $9.7 million.
Net interest expense (income). Net interest expense for the six months
ended July 3, 1999 was $832,000 as compared to net interest income of $259,000
for the same period in 1998. The change is attributable to increased borrowing
from our revolving line of credit to fund new store openings and acquisition of
13 stores in the first six months of 1999, and to lower levels of invested cash
in the first six months of 1999.
Fiscal 1998 compared to fiscal 1997
Fiscal 1998 contained 53 weeks of operations as compared to 52 weeks in
fiscal 1997.
Sales. Sales for the fiscal year ended January 2, 1999 increased 25.0% to
$479.9 million from $383.9 million in 1997. The increase was primarily due to
the acquisition of seven stores, the opening of eight new stores and the
relocation of two stores, as well as the inclusion of a full year of sales for
the five new stores opened and nine stores acquired in 1997. Comparable store
sales increased 4.0% for 1998, as compared to 5.0% for 1997.
Gross profit. Gross profit for the fiscal year ended January 2, 1999
increased 26.0% to $145.9 million from $115.8 million in 1997. The increase in
gross profit is primarily attributable to the acquisition of seven stores and
the opening of eight new stores. As a percentage of sales, gross profit
increased to 30.4% from 30.2% in 1997 due to the maturation of our store base,
our increasing volume purchase discounts and enhanced inventory management.
Direct store expenses. Direct store expenses for the fiscal year ended
January 2, 1999 increased 16.7% to $99.5 million from $85.3 million in 1997.
The increase in direct store expenses is attributable to the increase in the
number of stores that we operate. As a percentage of sales, direct store
expenses decreased to 20.7% from 22.2% in 1997 due to the matured performance of
the new stores opened in 1997, as well as improved control of direct store
expenses, particularly payroll and benefits costs.
Selling, general and administrative expenses. Selling, general and
administrative expenses for the fiscal year ended January 2, 1999 increased
39.4% to $19.6 million from $14.1 million in 1997. The increase is primarily
attributable to the acquisition of seven stores and the opening of eight new
stores during 1998. As a percentage of sales, selling, general and
administrative expenses increased to 4.1% from 3.7% in 1997 as a result of
additional personnel costs in the information technology, marketing and
purchasing departments needed to support our growth plans, as well as additional
costs to distribute our marketing materials, such as special flyers, to our
customers. In addition, we moved our corporate office during the fourth quarter
of 1998 to a larger facility to accommodate an increased support staff for our
larger base of stores. There were additional selling, general and administrative
expenses for rent and utilities on the new facility, as well as costs of
relocating the information systems that we use.
Pre-opening expenses. Pre-opening expenses for the fiscal year ended
January 2, 1999 increased 185.2% to $3.3 million from $1.1 million in 1997. The
increase in pre-opening expenses is attributable to the increase in the
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number of stores opened or relocated. As a percentage of sales, pre-opening
expenses increased to 0.7% from 0.3% due to the delayed opening of two stores
resulting in additional pre-opening costs primarily in the form of rental
payments, as well as the opening of eight new stores in 1998 as compared to five
new stores in 1997.
Non-recurring expenses. Non-recurring expenses for the fiscal year ended
January 2, 1999 were $393,000. There were no non-recurring expenses in fiscal
1997. The change is attributed to employee severance costs, inventory and fixed
asset write-downs, and lease cancellation costs associated with two immaterial
pooling-of-interests transactions during 1998.
Interest income, net. Net interest income for the fiscal year ended January
2, 1999 was $195,000 as compared to net interest expense of $378,000 in 1997.
The change is attributable to the investment of the net proceeds from our public
equity offering in December 1997 and to lower levels of indebtedness incurred to
fund new store openings and acquisitions.
Fiscal 1997 compared to fiscal 1996
Sales. Sales for the fiscal year ended December 27, 1997 increased 51.4% to
$383.9 million from $253.6 million in 1996. The increase was primarily due to
the acquisition of nine stores, the opening of five new stores, and the
relocation of one store, as well as the inclusion of a full year of sales for
the nine new stores opened and 13 stores acquired in 1996. Comparable store
sales increased 5.0% for 1997, as compared to 6.0% for 1996.
Gross profit. Gross profit for the fiscal year ended December 27, 1997
increased 48.6% to $115.8 million from $77.9 million in 1996. The increase in
gross profit on a dollar basis is primarily attributable to the acquisition of
nine stores and the opening of five new stores. As a percentage of sales, gross
profit decreased to 30.2% from 30.7% in the same period in 1996 due to
aggressive pricing programs on advertised items instituted in 1997 and a related
increase in the number of lower-margin items offered for sale in our stores, and
the effect of acquiring nine stores in the first six months of 1997.
Direct store expenses. Direct store expenses for the fiscal year ended
December 27, 1997 increased 44.7% to $85.3 million from $58.9 million in 1996.
The increase in direct store expenses is attributable to the increase in the
number of stores that we operate. As a percentage of sales, direct store
expenses decreased to 22.2% from 23.2% in the same period in 1996 due to the
matured performance of the new stores opened in 1996.
Selling, general and administrative expenses. Selling, general and
administrative expenses for the fiscal year ended December 27, 1997 increased
33.4% to $14.1 million from $10.6 million in 1996. The increase is primarily
attributable to the acquisition of nine stores and the opening of five new
stores during 1997. As a percentage of sales, selling, general and
administrative expenses decreased to 3.7% from 4.2% in 1996 as a result of
completing the consolidation of the overhead structure of Alfalfa's Inc. begun
in July 1996 (when we acquired ten Alfalfa's natural foods retail stores,
including three Capers Whole Foods Market stores in Vancouver, British
Columbia).
Pre-opening expenses. Pre-opening expenses for the fiscal year ended
December 27, 1997 decreased 38.3% to $1.1 million from $1.9 million in 1996. The
decrease in pre-opening expenses is attributable to the decrease in the number
of new stores opened, with only five new stores opened in 1997, as compared to
nine in 1996.
Non-recurring expenses. During 1996 we performed a thorough analysis of our
operations subsequent to the acquisition of Alfalfa's and made certain decisions
relating to our operations which resulted in a $7.0 million non-recurring charge
being recorded, of which $5.7 million were non-cash write-offs. The charge is
attributable to (i) closing our store in Lawrence, Kansas, resulting in
approximately $800,000 in lease-cancellation costs and asset write-offs, as well
as closing a regional bakery and kitchen, resulting in approximately $200,000 in
asset write-offs and lease adjustment costs; (ii) moving out of our existing
corporate
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headquarters and relocating to the former Alfalfa's corporate headquarters,
resulting in approximately $700,000 in lease-cancellation costs, relocation
costs and asset write-offs; and (iii) consolidating certain information systems,
resulting in approximately $300,000 in asset write-offs. In addition, after
operating the combined companies, management closed the Alfalfa's Seattle,
Washington store, resulting in approximately $4.5 million of severance costs,
lease-cancellation costs and asset write-offs, and a restaurant in a 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, we had planned to retain the Seattle store and Vancouver restaurant
operation.
Interest expense, net. Net interest expense for the fiscal year ended
December 27, 1997 decreased 69.3% to $378,000 from $1.2 million in 1996. The
decrease is attributable to the investment of the proceeds from our public stock
offerings in October 1996 and December 1997 and to lower levels of indebtedness
incurred to fund store openings and acquisitions.
Liquidity and capital resources
Our primary sources of capital have been cash flow from operations, trade
payables, bank indebtedness, and the sale of equity securities. Primary uses of
cash have been the financing of new store development, new store openings,
acquisitions and purchases of real property.
Net cash provided by operating activities was $29.3 million during the six
months ended July 3, 1999 as compared to $13.9 million during the same period in
1998. Cash provided by operating activities increased during this period
primarily due to increases in net income before depreciation and amortization
expense and non-recurring expenses. Net cash provided by operating activities
was $31.1 million during 1998 and $22.5 million during 1997. Cash provided by
operating activities increased during this period primarily as a result of an
increase in net income before depreciation and amortization expense and
increases in accounts payable and accrued liabilities. Net cash provided by
operating activities was $22.5 million during 1997 and $13.9 million during
1996. Cash provided by operating activities increased during this period
primarily as a result of an increase in net income before depreciation and
amortization expense. We have not required significant external financing to
support inventory requirements at our existing and new stores because we have
been able to rely on vendor financing for most of the inventory costs, and we
anticipate that vendor financing will continue to be available for new store
openings.
Net cash used by investing activities was $97.2 million during the six
months ended July 3, 1999 as compared to $36.9 million during the same period in
1998. The increase is due to the opening of two new stores, the acquisition of
13 stores, the relocation of six stores and several store remodels in the first
six months of 1999, as well as the construction costs incurred for five new or
relocated stores now under construction which are expected to open in the
remainder of 1999, as compared to three new stores, one relocated store and six
acquired stores in the first six months of 1998 and the construction costs
incurred for new stores in development which opened during the remainder of
1998. Net cash used by investing activities was $62.8 million during 1998 and
$39.9 million during 1997. The increase is due to the acquisition of seven
stores and the opening of eight new stores during 1998, the purchase of real
property and the construction costs incurred for six new or relocated stores in
development which are expected to open during the first six months of 1999. Net
cash used by investing activities was $39.9 million during 1997 and $31.2
million during 1996 due to the acquisition of nine stores and the opening of
five new stores during 1997, the purchase of real property and the construction
costs incurred for six new stores in development which opened during the first
nine months of 1998.
Net cash provided by financing activities was $71.2 million during the six
months ended July 3, 1999 as compared to $2.7 million net cash used during the
same period in 1998. The increase reflects increased borrowing under our
revolving line of credit, as well as repayment of a $3.2 million note payable.
Net cash used by financing activities was $3.9 million during 1998, net cash
provided by financing activities was $46.6 million during 1997, and $33.7
million during 1996. The fluctuation was primarily due to net proceeds of $46.5
million from the sale of 2.1 million shares of our common stock pursuant to a
public equity offering in December 1997, net proceeds of $31.4 million from the
sale of 2.1 million shares of our common stock during its initial public
offering in October 1996 and net proceeds of $16.5
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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.
We have a $120.0 million revolving credit facility. The facility has two
separate lines of credit, one in the amount of $90.0 million with a three-year
term expiring in 2002 and the other in the amount of $30.0 million with a
one-year term, expiring in 2000. Both bear interest, at our option, at the prime
rate or LIBOR plus 1.15%. The line of credit agreement includes certain
financial and other covenants, as well as restrictions on payments of dividends.
As of September 24, 1999, there were $80.0 million in borrowings outstanding
under the $90.0 million line of this facility.
We spent approximately $32.2 million during the first six months of 1999
and anticipate that we will spend approximately $20 million during the remainder
of 1999 for new store construction, purchases of real property and leasehold
interests, development, remodels and maintenance capital expenditures, exclusive
of acquisitions. Our average capital expenditures to open a leased store,
including leasehold improvements, equipment and fixtures, have ranged from
approximately $2.0 million to $3.0 million over the past 24 months, excluding
inventory costs and initial operating losses. Delays in opening new stores may
result in increased capital expenditures, increased pre-opening costs and lower
sales.
We opened two stores on owned property in the second quarter of 1999, and
acquired a third operating store and the underlying property in the second
quarter of 1999 as part of the acquisition of the outstanding stock of Nature's
Fresh Northwest. Acquisition of real property and construction of stores
requires substantially greater cash outlays than the remodeling of existing
leased buildings (i.e., $3.5 to $9.0 million as compared to $2.0 to $3.0
million). We have entered into agreements to sell the two parcels of real
property, and we have sold a third parcel, in sale-leaseback transactions. If we
are not successful in completing the transactions for the sale and leaseback of
the properties that we currently own, this may result in unplanned, long-term
uses of cash that otherwise would be available to fund our operations.
The cost of initial inventory for a new store has historically been
approximately $500,000; however, we obtain vendor financing for most of this
cost. Pre-opening costs currently are approximately $250,000 to $350,000 per
store and are expensed as incurred. The amounts and timing of such pre-opening
costs will depend upon the availability of new store sites and other factors,
including the location of the store and whether it is in a new or existing
market for us, 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. We believe that
cash generated from operations and funds available under our revolving line of
credit will be sufficient to satisfy our cash requirements, exclusive of
additional acquisitions, through 1999.
Year 2000 readiness statement
Information technologies. As the Year 2000 approaches, we recognize the
need to ensure that our operations will not be adversely affected by Year 2000
software or hardware failures. We have determined that all components of our
major software and hardware systems at our corporate headquarters are Year 2000
compliant. All but seven of our stores contain major point-of-sale systems, such
as cash registers and scanners, that are also Year 2000 compliant, including
those recently acquired through the Nature's and Henry's acquisitions. Total
replacement and installation cost to date has been approximately $5.0 million.
This cost may increase if we acquire additional stores with noncompliant
point-of-sale systems. We will continue to make investments in our software
systems and applications to ensure that they are Year 2000 compliant. The
financial impact of these investments to us is not anticipated to be material in
any single year.
Vendors, suppliers and service providers. We also are in the process of
determining whether our major suppliers, service providers, and financial
institutions are Year 2000 compliant. Many of our product vendors are smaller
businesses that have not considered the impact of Year 2000 noncompliance and
therefore are taking no steps to ensure compliance. To the extent that product
vendors' manufacturing or distribution systems fail as a
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result of Year 2000 noncompliance, certain products carried by our stores could
become unavailable, resulting in decreases in operating revenues, although in
many circumstances alternative local vendors' products may be available. We are
currently requesting Year 2000 compliance statements from our major vendors to
determine whether such vendors' distribution of product may be interrupted as a
result of Year 2000 compliance problems. We will, based on the responses
received, formulate an alternative action plan to ensure minimal impact on the
available supply of products in our stores. One of our largest distributors
recently provided information to its customers concerning its own Year 2000
compliance. Currently this distributor has upgraded or replaced the majority of
its technology infrastructure and devices that had embedded computer chips with
compliant systems and devices, and is currently testing its upgrades. At this
time, we cannot evaluate the magnitude of the impact that a failure by that
distributor to successfully install compliant systems could have on our
operations. A failure in the distributor's warehouse facilities could affect our
ability to stock product in certain of our stores, resulting in lower sales
revenues in those stores. Our stores' operations could be materially adversely
affected if utilities, particularly the power supply, are disrupted. At this
time we are in the process of developing contingency plans to address product or
utility disruptions.
If our financial institutions are not Year 2000 compliant, a failure in
their operating system could result in our temporary inability to access
necessary cash resources required for operations; we expect that normal store
operations, however, will generate sufficient revenues to cover daily operating
needs. Our credit card processor has confirmed to us that it has adapted its
systems to accept credit cards issued with expiration dates of 2000 and beyond
and has also completed implementation of all phases of its compliance program in
accordance with guidelines of the Federal Financial Institutions Examination
Council.
Mechanical systems. We have commenced review of the various individual
mechanical systems in our stores, such as heating, ventilation and air
conditioning, refrigeration and security systems, to determine whether any Year
2000 compliance issues exist as to these systems. We have contacted the
suppliers of certain store systems with embedded chips where Year 2000
compliance may be an issue to obtain confirmation of compliance or instructions
for reprogramming in the event of a compliance problem. Responses received to
date to a questionnaire sent to service providers of mechanical systems indicate
there will be little impact on store operations due to Year 2000 noncompliance
in mechanical systems. We do not anticipate that any major store mechanical
systems will require replacement because of Year 2000 compliance concerns or
that noncompliance of any mechanical systems will have any material effect on
store operations. The dollar value of perishable goods that could be affected by
a failure in refrigerated systems is small in comparison to the total inventory
of any one store.
The estimates and conclusions regarding Year 2000 impact contained above
are forward-looking statements based on our best estimates of future events.
Actual results may differ due to certain risks and uncertainties that we cannot,
at this time, predict.
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BUSINESS
Introduction
Wild Oats is the second largest natural foods supermarket chain in North
America. As of the date of this prospectus, we operate 91 stores in 20 states
and British Columbia, Canada under several names, including:
o Wild Oats Community Market (Nationwide)
o Alfalfa's Markets (CO and NM)
o Henry's Marketplace (San Diego, CA)
o Nature's Fresh and Nature's Northwest (Portland, OR)
o Capers Community Market (British Columbia, Canada)
We are dedicated to providing a broad selection of high quality natural and
gourmet foods and related products at competitive prices in an inviting and
educational store environment emphasizing customer service. Our stores range in
size from 2,500 to 42,000 gross square feet and feature natural alternatives for
virtually every product category found in conventional supermarkets. Wild Oats
provides its customers with a one-stop, full-service shopping alternative to
both conventional supermarkets and traditional health food stores.
Since acquiring our first natural foods store in 1987, we have pursued an
aggressive growth strategy. We have grown from 49 natural foods stores located
in eight states and Canada at the end of 1996 to 73 stores in 18 states and
Canada as of the end of 1998, for a compound annual growth rate of 22.1%. Wild
Oats' sales grew from $253.6 million to $479.9 million, for a compound annual
growth rate of 37.6%, during that same period. Our sales for the first six
months of 1999 were $305.3 million, compared to $230.3 million in the same
period in 1998, an increase of 32.6%, due largely to the opening of two new
stores and the acquisition of 13 stores in the first six months of 1999.
Our growth has been driven by the acquisition of independent and small
chain natural foods store operators, the opening of new stores and positive
comparable store sales growth. To date in 1999, we have opened five new stores
and acquired 24 operating natural foods stores, including:
o Nature's Fresh Northwest, which owned seven operating stores and one
site in development in metropolitan Portland, Oregon
o Henry's Marketplace, which owned 11 stores and one site in development
in metropolitan San Diego, California
As a result of our aggressive growth, we have increased our penetration of
existing markets, entered new geographic markets and created a stronger platform
for future growth. Since the beginning of 1997, we have successfully entered a
number of new states, including Arizona, Arkansas, Connecticut, Illinois,
Indiana, New Jersey, New York, Ohio, Oregon, Tennessee, and Texas. We believe
our growth has resulted in operating efficiencies created by:
o warehousing, distribution and administrative economies of scale o
improved volume purchasing discounts
o coordinated merchandising and marketing strategies
Natural products industry
Sales of natural products have grown from $7.6 billion in 1994 to sales of
$25.4 billion in 1998, a 35.2% compound annual growth rate, while sales growth
in the traditional supermarket industry has remained relatively flat over the
same period. We believe that this growth reflects a broadening of the natural
products 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
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production and correspondingly higher retail prices, we believe that more of the
population now attributes added value to high quality natural products and is
willing to pay a premium for such products. The increase in the availability of
natural products in conventional supermarkets, whose sales of natural foods
products increased by 18.0% in 1998, demonstrates the increase in consumer
acceptance of natural products. Despite the increase in natural foods sales
within conventional supermarkets, we believe that conventional supermarkets
still lack the total shopping experience that natural foods stores offer. Many
natural foods stores develop a more personal relationship with increased
interaction between store staff and customers than that of conventional
supermarkets. Conventional supermarkets may also have less appeal for natural
foods shoppers because they are largely dependent on brand names, resulting in a
more limited selection of products to choose from. Conventional supermarkets
also struggle to compete with us on pricing in many natural foods categories
because of our comprehensive selection and our use of a large number of
independent vendors. As a result, while conventional supermarkets may carry a
limited selection of natural foods products, they do not duplicate the inventory
of natural foods stores which carry a more comprehensive selection of natural
products sourced from a large number of independent vendors. In addition,
conventional supermarkets cannot match our pricing in many categories because of
our greater buying power.
We believe we have developed a differentiated concept that provides the
expanding natural foods consumer base with an attractive one-stop, full-service
shopping alternative to both the conventional supermarket and the traditional
natural health foods store and that appeals to a broader, more mainstream
customer base than the traditional natural foods store. Our thorough selection
of natural health foods products appeals to health conscious shoppers while we
also offer virtually every product category found in a conventional supermarket,
including grocery, produce, meat, poultry, seafood, dairy, frozen, deli, bakery,
vitamins and supplements, health and body care and household items. This
provides a shopping alternative that appeals to the broader, more mainstream
customer base than traditional health foods stores. Our positioning, coupled
with industry data that states that the natural products industry comprises less
than 2.5% of the total supermarket industry, offers significant potential for us
to continue to expand our customer base.
Operating strategy
Our objective is to become the grocery store of choice both for natural
foods shoppers and quality-conscious consumers in each of our markets by
emphasizing the following key elements of our operating strategy:
Destination format. Our stores are one-stop, full-service supermarkets for
customers seeking high quality natural and gourmet foods and related products.
In most of our stores, we offer between 10,000 and 25,000 stock- keeping units
of natural foods products in virtually every product category found in a
conventional supermarket. Our 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. We seek to offer the highest quality
products throughout our merchandise categories and emphasize unique products and
brands not typically found in conventional supermarkets. Our strict quality
standards require products to be minimally processed, free of preservatives,
artificial colors and chemical additives and not tested on animals. Each of our
stores tailors its product mix to meet the preference of its local market, in
particular sourcing produce from local organic growers whenever possible. We
also operate regional commissary kitchens and bakeries that provide our 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, encouraging shoppers to spend
more time in the store and to purchase new products. In order to enhance our
customers' understanding of natural foods and how to prepare them, we train our
store staff to educate customers as to the benefits and quality of our products
and prominently feature 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. We believe
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our 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. We seek to engender customer loyalty by
demonstrating our 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 a store may donate 5% of
its gross sales one day in a given month to a local not-for-profit group, and a
"Charity Work Benefit" where we pay employees for time spent working for local
charities.
Flexible store format. Our flexible store format enables us to customize
our stores to specific site characteristics and to meet the unique needs of a
variety of markets. Our supermarket format stores are adapted in size and
product selection to suburban markets and our urban format stores are designed
to appeal in size and product selection to more densely populated urban markets.
We believe that this flexible store format strategy allows us to operate
successfully in a diverse set of markets, enabling us to reach a broader
customer base and to increase our market penetration.
Competitive pricing. We seek to offer products at prices which are at or
below those of other natural foods stores. We have implemented a 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. We have also expanded our private
label programs to include a large selection of high quality private label
products under our "Wild Oats" and "A Wild Oats Down to Earth Value" line at
competitive prices. We believe these pricing programs broaden our consumer
appeal and encourage our customers to fill more of their shopping needs at our
stores.
Motivated staff. We have 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,
profitability and other financial performance criteria. In 1998, we introduced a
new compensation program that includes the award of incentive stock options to
all our full-time employees who have been with us for one year or more. In
addition, we generally hire individuals dedicated to the concept of natural
foods and a healthy lifestyle. We believe that these practices translate into a
satisfied and motivated staff and a high level of customer service.
Growth strategy
Our growth strategy is to increase sales and income through:
o acquisitions of independent and small chain natural foods store operators
o opening of new stores
o year over year comparable store sales growth
We plan to open two additional new stores in the remainder of 1999 and to
open, acquire or relocate as many as 20 stores in 2000. We intend to continue
our expansion strategy by increasing penetration in existing markets and
expanding into new regions which we believe are currently underserved by natural
foods retailers. While we believe that most of our new store expansion will
result from new store openings, we continue to evaluate acquisition
opportunities in both existing and new markets. We have identified and are
negotiating with several potential acquisition candidates, although we have no
present commitments or agreements with respect to any such acquisitions.
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We currently have leases signed for 12 new stores and 5 relocations of
existing stores as follows:
Projected
Site Name Opening Date
1. Tulsa, Oklahoma Q4 1999
2. Nashville, Tennessee Q4 1999
3. Long Beach, California 2000
4. West Hartford, Connecticut 2000
5. Westport, Connecticut* 2000
6. South Florida (2 sites)* 2000
7. Overland Park, Kansas 2000
8. Chesterfield, Missouri 2000
9. Creve Coeur, Missouri 2000
10. Henderson, Nevada* 2000
11. Reno, Nevada 2000
12. Cleveland, Ohio 2000
13. Cincinnati, Ohio 2000
14. Cleveland, Ohio 2000
15. Portland, Oregon 2000
16. Salt Lake City, Utah* 2000
* Relocation
Acquisition of independent and small chain natural foods store operators.
During the first nine months of 1999, we acquired 24 natural foods stores: seven
in metropolitan Portland, Oregon; 11 in metropolitan San Diego, California;
three in Tucson, Arizona: two in Hartford and Norwalk, Connecticut and one in
Melbourne, Florida. In 1998, we acquired seven natural foods stores in
Nashville, Tennessee; Columbus, Ohio; New York, New York; Victoria, British
Columbia; Santa Barbara, California; Little Rock, Arkansas and Boulder,
Colorado.
Opening of new stores. Year-to-date in 1999, we have opened five new stores
in Phoenix, Arizona; Hinsdale and Evanston, Illinois; Madison, New Jersey and
Albuquerque, New Mexico, and relocated five stores in Phoenix, Arizona; Ft.
Collins, Colorado; Portland, Oregon; Salt Lake City, Utah and Memphis,
Tennessee. We also closed two Farm to Market stores in Tempe, Arizona and
Buffalo Grove, Illinois. In 1998, we opened eight new stores in Santa Monica,
California; Westminster, Colorado; Pinecrest and South Beach, Florida;
Indianapolis, Indiana; Las Vegas, Nevada; Princeton, New Jersey and Dallas,
Texas, and relocated two stores, one in each of Denver, Colorado and Columbus,
Ohio.
Year over year comparable store sales growth. We believe that historical
growth in sales at our existing stores reflects continued strong growth in the
natural foods industry as well as improved execution of our operating strategy.
We continually seek to increase sales at our existing stores and have undertaken
several initiatives designed to increase comparable store sales. We are 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.
27
<PAGE>
Store locations
The following map and store list show the number of stores that Wild
Oats operates in each state and Canadian province and the cities in which Wild
Oats stores are located:
[GRAPHIC OMITTED]
Arizona Colorado Indiana Oregon
Phoenix (2) Aurora Indianapolis Beaverton
Scottsdale Boulder (3) Eugene (2)
Tucson (3) Colorado Springs Kansas Lake Oswego
Denver (3) Mission Portland (4)
Arkansas Fort Collins
Little Rock Glendale Missouri Tennessee
Greenwood Village Kansas City Memphis (2)
California Lakewood St. Louis Nashville
Berkeley Littleton
Encinitas Westminster Nevada Texas
Mission Viejo Las Vegas (3) Dallas
Laguna Beach Connecticut
La Mesa Hartford New Jersey Utah
Los Angeles Norwalk Princeton Salt Lake City (3)
Pasadena Madison
Poway Florida Washington
Sacramento Boca Raton New Mexico Vancouver
San Anselmo Fort Lauderdale Albuquerque (3)
San Diego (6) Miami Beach Santa Fe (3) British Columbia, Canada
Santa Barbara Pinecrest Vancouver (2)
Santa Monica (2) West Melbourne New York Victoria
Santee West Palm Beach New York City West Vancouver
Solana Beach
Sunnyvale Illinois Ohio
West Hollywood Evanston Upper Arlington
Hinsdale
28
<PAGE>
Site selection and store format
Prior to opening or acquiring a store, we analyze the local market and we
consider:
o certain demographic data, such as education level, median income,
population density and age distribution
o certain lifestyle data, such as the levels of cultural awareness,
physical exercise, health consciousness and environmental awareness in
the community
o the existing competition
Our flexible strategy allows us to open stores in a variety of locations
and adapt our store layout and merchandise selection to accommodate specific
site characteristics, regional themes and local cultural traditions. We seek
locations of approximately 15,000 to 35,000 square feet for our supermarket
format stores and generally seek 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. We seek locations of approximately 8,000 to 15,000
square feet for our urban format stores and generally seek to be in the
commercial district of densely populated residential areas with convenient
parking and a high level of foot traffic.
When we acquire a store, we remodel the store in accordance with our
specifications. These acquired stores remain in operation while they are being
remodeled. If the stores are to be renamed "Wild Oats Community Market," they
are not renamed until the remodeling is completed. The timing and cost of the
remodel of each store varies depending on the location of the store and whether
it is in a new or existing market for us, the size of the store and the required
build-out. We typically require two to four months to remodel a store.
Products
We offer our customers a broad selection of unique, high-quality products
that are natural alternatives to those found in conventional supermarkets. We
typically do not offer well-known national conventional brands and focus instead
on a comprehensive selection of lesser-known natural branded products within
each category. Although the core merchandise assortment is similar at each of
our stores, individual stores adapt the product mix to reflect local and
regional preferences. Our 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, our 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, while in other markets, a store may
focus more on bulk foods, produce and staple grocery items. We regularly
introduce new high-quality and locally grown products in our merchandise
selection to minimize overlap with products carried by conventional
supermarkets.
In addition, we intend to continue to expand and enhance our prepared food
and in-store cafe environment. We believe that consumers are increasingly
seeking convenient, healthy, "ready-to-eat" meals and that by increasing our
commitment to this category we can provide an added service to our customers,
broaden our customer base and further differentiate ourself from conventional
supermarkets and traditional natural foods stores.
Quality standards. Our objective is to offer products which meet the
following standards:
o free of preservatives, artificial colors, chemical additives and added
hormones
o organically grown, whenever possible
o minimally processed
o not tested on animals
We continually evaluate new products, quality issues and controversial
ingredients and frequently counsel store managers on compliance with our strict
product standards.
Private label. The natural foods industry is highly fragmented and
characterized by many small independent vendors. As a result, we believe that
our customers do not have strong loyalty to particular brands of natural foods
29
<PAGE>
products. In contrast to conventional supermarkets whose private label products
are intended to be low cost alternatives to name-brand products, we have
developed a private label program in order to build brand loyalty to specific
products based on our relationship with our customers and our reputation as a
natural foods authority. Through this program, we have 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. We intend to continue
to expand our private label product offerings on a selected basis, and
anticipate doubling the number of private label stock-keeping units in the next
twelve to eighteen months. In 1999, we introduced our "A Wild Oats Down to Earth
Value" label of "staple" products, such as peanut butter, coffee and bottled
water, to offer our customers a quality natural product at a competitive price.
Pricing. In general, natural and gourmet foods and related products have
higher costs of production and correspondingly higher retail prices than
conventional grocery items. Our pricing strategy has been to maintain prices
that are at or below those of our natural foods competitors while educating our
customers as to the higher quality and added value of our products so as to
differentiate them from conventional products. Like most conventional
supermarkets, we regularly feature dozens of sale items. Sale items are promoted
through a variety of media, including direct mail, newspapers and in-store
flyers. We regularly monitor the prices at natural foods and conventional
supermarket competitors to ensure our prices remain competitive.
Company culture and store operations
Company culture. Our culture is embodied in our "Four Areas of
Responsibility": responsibility to our customers, our staff, our community and
our bottom line. In particular, we believe that knowledgeable, satisfied and
motivated staff members have a direct impact on store performance and overall
profitability. We have made a substantial commitment to staff training,
including the creation of "Wild Oats University," an in-house training program.
We generally hire individuals dedicated to the concept of natural foods and a
healthy lifestyle and seek to promote store-level employees to positions of
increasing responsibility.
Management and employees. Our stores are organized into 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 our senior management.
The regional directors are responsible for, and frequently visit, their cluster
of stores to monitor financial performance and ensure adherence to our operating
standards. We maintain a staff of corporate level department specialists
including Natural Living, Food Service, Produce, Meat/Poultry/Seafood and
Grocery coordinators who manage centralized buying programs and assist with
store-level merchandising, pricing and staff training to ensure company-wide
adherence to product standards and store concept.
Staff members at the store and home-office level participate in an
incentive plan that ties compensation awards to the achievement of specified
store-level or company-wide sales, profitability and other performance criteria.
We also seek to foster enthusiasm and dedication in our 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. In 1998,
we introduced a new compensation program that includes the award of incentive
stock options to all our full-time employees who have been with us for one year
or more.
Purchasing and distribution
We have 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 their
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 our
established product standards and allowing each store to benefit from our volume
purchasing discounts.
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<PAGE>
The wholesale segment of the natural foods industry provides a large and
growing array of product choices across the full range of grocery product
categories. Although we purchase products from more than 6,700 suppliers, we
purchase approximately one-third of the products sold in our stores from United
Natural Foods Inc., a wholesale distributor that operates multiple warehouses
nationwide. We believe that this distributor has the capacity to service all of
our existing stores as well as most of our future sites, although this
distributor has recently experienced some problems with the consolidation of its
eastern U.S. warehouse operations. As a result of our rapid growth, we have been
able to negotiate greater volume discounts with this distributor and certain
other vendors. In 1998, we entered into a four-year national buying agreement
with United Natural Foods Inc., our largest distributor. We have no supply
contracts with the majority of our smaller vendors, who could discontinue
selling to us at any time. Although we believe that we could develop alternative
sources of supply, any such termination may create a short-term disruption in
store-level merchandise selection. We are a party to an interim buying agreement
with a distributor in Vancouver, British Columbia, Canada under which we are
obligated to purchase certain products from the distributor for certain of our
Canadian stores, provided the purchase price is the lowest price offered by our
various distributors in that region.
Most products are delivered directly to our stores by vendors and
distributors. We currently operate two warehouse facilities, one in Denver,
Colorado and one in Los Angeles, California, which receive and distribute
truckload purchases of produce and grocery items and distribute products that
cannot be delivered directly to the stores by outside vendors. We maintain a
small fleet of local delivery vans and over-the-road trucks. As we enter new
markets, we will review the need for additional warehouse and distribution
facilities.
We operate eight commissary kitchens in: Phoenix, Arizona; Los Angeles,
California; Denver, Colorado; Las Vegas, Nevada; Santa Fe, New Mexico; Eugene
and Portland, Oregon and Vancouver, British Columbia, Canada, as well as a
bakeries in Phoenix and Tucson, Arizona; San Diego, California and Denver,
Colorado. These facilities produce deli food, take-out food, bakery products and
certain private label items exclusively for sale in our stores. Each kitchen can
make daily deliveries to stores within a hundred mile radius of the facility. We
intend to add new kitchens as we expand into new markets.
Marketing
Our marketing programs are primarily focused on in-store customer education
and information. We believe that our 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, we focus on consumer education and emphasize the benefits and quality
of our products such as the fact that an item is organic or grown locally. We
use a variety of media, including in-store flyers, newspaper inserts and
promotional brochures in which we promote the depth of our merchandise
selection, benefits of natural products and "down to earth" competitive prices.
When we first enter a new market, we execute an intense marketing campaign to
build awareness of our new store and its selection of natural products. After
the initial campaign, this advertising is replaced by the marketing strategies
described above. In 1998, we launched our Internet grocery store,
"shop.wildoats.com", which offers approximately 1,000 stock-keeping units of
vitamins, supplements and private label products for sale in the United States.
We intend to expand our product selections offered by our Internet store over
time.
Our advertising costs historically have been less than 1.5% of sales. We
operate a multifaceted annual promotional program to our vendors which allows
for different degrees of promotional participation and commits vendors to full
year marketing expenditures in advance. In exchange for participation in our
promotional program, vendors receive access to national advertising programs,
detailed feedback on volume movement and the ability for longer term production
planning.
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<PAGE>
Management information systems
Our management information systems have been designed to provide detailed
store-level financial data, including sales, gross margin, payroll and store
contribution, to regional directors and store managers and to our headquarters
on a timely basis. Currently, certain store-level accounting and inventory
management systems are processed manually. We purchased a software system to
convert the store level point-of-sale and pricing systems to one system and to
track product movement, and have installed new hardware to run such software and
implemented such systems in more than 95% of our stores to date. We anticipate
that the remaining stores, exclusive of new acquisitions, will be converted by
the end of the third quarter of 1999. All new stores will be using the new
hardware and software systems going forward.
We have also implemented new, faster credit card processing systems
company-wide to reduce transaction time at the cash register and the cost to us
of individual credit card transactions. We have also implemented a wide-area
network to allow faster data transmissions between our headquarters and stores,
and between our stores and our credit card processor. These new systems are
fully operational in 80% of our stores, and the remaining stores targeted for
conversion to IBM point-of-sale systems, with the exception of the stores in
Canada, by the first quarter of 2000. We have determined that all components of
our major computer systems are Year 2000 compliant and that the cash registers
being installed in our stores are Year 2000 compliant. We have requested Year
2000 compliance certification from our major vendors, service providers and
financial institutions. We do not anticipate that we will incur any material
expense related to Year 2000 compliance in 1999.
Competition
Our competitors currently include other independent and multi-unit natural
foods supermarkets, smaller traditional natural foods stores, conventional
supermarkets and specialty grocery stores. While certain conventional
supermarkets, smaller traditional natural foods stores and small specialty
stores do not offer as complete a range of products as we do, they compete with
us in one or more product categories. A number of other natural foods
supermarkets offer a range of natural foods products similar to those offered in
our stores. We believe 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. We believe that our
primary competitor is Whole Foods Market, Inc., a publicly-traded company based
in Texas which, as of August 26, 1999, had 97 stores and had gross annual sales
of approximately $1.4 billion in its 1998 fiscal year. We currently compete
directly with Whole Foods in California, Colorado, Florida, Illinois and Texas.
Employees
As of September 27, 1999, we employed 5,763 full-time individuals and 2,115
part-time individuals. Approximately 7,838 of our employees are engaged at the
store-level and 241 are devoted to regional administrative and corporate
activities. We believe that we maintain a good relationship with our employees.
One small group of employees at one of our acquired stores was unionized at the
time of the store's acquisition and continues to be unionized. We anticipate
that in the future one or more of our stores may be the subject of attempted
organizational campaigns by labor unions representing grocery industry workers,
and that from time to time certain of our stores may be picketed by local labor
unions relating to area wage and benefit standards. Three of our stores
(including two recently acquired stores in metropolitan San Diego, California)
are currently being picketed relating to area standards.
Properties
We currently lease an aggregate of approximately 29,478 square feet for our
corporate offices in Boulder, Colorado. The lease for the corporate headquarters
expires in September 2003 and has two renewal options for an additional three
years each. The rental payment is a fixed base rate.
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<PAGE>
We lease the majority of our currently operating stores. We currently have
leases signed for 12 new stores and four relocations projected to open in the
remainder of 1999 and 2000. We currently own two parcels of real property on
which operating stores are located. We anticipate that we will sell all or
substantially all of the real property we currently own under sale and leaseback
transactions, where the purchaser will lease the properties back to us at
certain specified terms. Our leases typically provide for a ten-to-twenty 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.
Litigation
In August 1998, we filed Wild Oats Markets, Inc. v. Plaza Acquisition, Inc.
in United States District Court for the Northern District of Illinois, Eastern
Division, seeking recovery of $300,000 in tenant improvement allowances owed to
us by our landlord for the build-out of our Buffalo Grove, Illinois store. The
landlord counterclaimed for $1 million in damages, alleging that we breached
covenants requiring construction to be completed by a certain date and other
operating covenants. After we closed the Buffalo Grove store in May 1999, the
landlord increased its counterclaim to $3 million, including accelerated rent
resulting from an alleged breach of a continuous operations clause in the lease.
However, because the lease requires us to pay percentage rent only until a
certain level of gross sales is achieved, and because that level was never
achieved, the actual amount of rent due, even if accelerated, cannot be
determined at this time. We asserted several defenses to the counterclaim,
including the unenforceability of the lease because of the landlord's lack of
authority to execute the lease. Motions for summary judgment were filed by each
party. Our motion was denied and the landlord's motion to accelerate rent was
granted; however, at this time an assessment of damages, if any, to which the
landlord may become entitled cannot be made for the reasons stated above.
Alfalfa's Canada, Inc., our Canadian subsidiary, is a defendant in a suit
brought in the Supreme Court of British Columbia, by one of its distributors,
Waysafer Wholefoods Limited and one of its principals, seeking monetary damages
for breach of contract and injunctive relief to enforce a buying agreement for
three Canadian stores entered into by a predecessor of Alfalfa's Canada, Inc.
The suit was filed in September 1996. In June 1998, we filed a Motion for
Dismissal on the grounds that the contract in dispute constituted a restraint of
trade. The Motion was subsequently denied. We do not believe our potential
exposure in connection with the suit to be material.
There are no other material pending legal proceedings to which we or our
subsidiaries are a party. From time to time, we are involved in lawsuits that we
consider to be in the normal course of our business.
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<PAGE>
Trademarks
The following are our federally registered trademarks:
o Wild Oats (R)
o Wild Oats Community Market (R)
o Henry's Marketplace (R)
o Nature's Fresh Northwest (R)
We also own the following additional trademarks:
o Alfalfa's Market(TM)
o Beans, Grains & Things(TM)
o Capers Community Market(TM)
o Nature's(TM)
o Nature's Fresh(TM)
o Oasis Fine Foods(TM)
o Peoples' Market(TM)
o Sunshine Grocery(TM)
o Uptown Whole Foods(TM)
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<PAGE>
MANAGEMENT
Executive officers and directors
Our executive officers and directors are as follows:
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Michael C. Gilliland(1) ............... 41 Chief Executive Officer and Director
James W. Lee........................... 48 President and Chief Operating Officer
Elizabeth C. Cook(1)................... 40 Executive Vice President and Director
Mary Beth Lewis........................ 41 Vice President of Finance, Chief Financial Officer and
Secretary
John R. Baker............................ 43 Vice President of New Store Operations
Freya R. Brier......................... 41 Vice President of Legal and General Counsel
Nancy B. Casey......................... 35 Treasurer and Controller
Ronald J. Feldman...................... 52 Vice President of Real Estate
John E. Lauderbach..................... 49 Vice President of Information Technology
Peter F. Williams...................... 42 Vice President of Human Resources
John A. Shields(2)..................... 56 Chairman of the Board
David M. Chamberlain(3)................ 56 Vice Chairman of the Board
Brian K. Devine(3)..................... 57 Director
David L. Ferguson(2) .................. 44 Director
James B. McElwee(3) ................... 47 Director
Morris J. Siegel(2).................... 49 Director
</TABLE>
(1) Michael C. Gilliland and Elizabeth C. Cook are husband and wife.
(2) Member of Audit Committee.
(3) Member of Compensation Committee.
Michael C. Gilliland co-founded Wild Oats and has been the Chief Executive
Officer and a Director of Wild Oats since its inception in October 1987. Mr.
Gilliland also served as President and Chairman of the Board from inception
until July 1996. Prior to forming Wild Oats in 1987, Mr. Gilliland was involved
in several entrepreneurial ventures.
James W. Lee joined Wild Oats as its Chief Operating Officer in September
1996 and became President of Wild Oats in January 1997. Mr. Lee was Group Vice
President, Store Operations-Central Division of Ralphs Grocery Company
("Ralphs") from February 1993 to September 1996. He was also Group Vice
President, Store Operations- Southern Division from February 1991 to January
1993 and Vice President, Store Operations-Northern Division from February 1988
to January 1991 with Ralphs.
Elizabeth C. Cook co-founded Wild Oats and has been a Vice President and
Director of Wild Oats since its inception in October 1987 and has been Executive
Vice President since July 1997. Ms. Cook was General Counsel until December
1996. Prior to that, from 1983 to 1987, Ms. Cook was tax counsel on staff with
the Atlantic Richfield Company.
Mary Beth Lewis joined Wild Oats as its Chief Financial Officer in
September 1992 and has been Vice President of Finance since July 1997. From
August 1986 until August 1992, Ms. Lewis worked for Price Waterhouse LLP.
John R. Baker joined Wild Oats as Vice President of New Store Development
in September 1999. From 1981 to September 1999, Mr. Baker worked for Bennigan's
Restaurants in several positions, most recently as Director of Operations and
prior to that as Director of Franchise Operations, International Division, and
Director of Training and Development.
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<PAGE>
Freya R. Brier joined Wild Oats as General Counsel in December 1996 and has
been Vice President of Legal since July 1997. Ms. Brier was Corporate Counsel
for Synergen, Inc. from January 1993 through January 1995, and a legal
consultant to Amgen, Inc. from February 1995 to November 1996. Prior to joining
Synergen, Ms. Brier was a partner with the Denver law firm of Holme Roberts &
Owen LLP.
Nancy B. Casey joined Wild Oats as Controller in May 1996, and has been
Treasurer since August 1999. From September 1991 through April 1996, Ms. Casey
worked for Price Waterhouse LLP. Ms. Casey is a Certified Public Accountant.
Ronald J. Feldman joined Wild Oats as Vice President of Real Estate in
October 1997. From 1994 to September 1997, Mr. Feldman was Vice President of
Real Estate Development for Quizno's Corporation. From 1991 to 1994, Mr. Feldman
was Vice President Restaurant Services of Retail One.
John E. Lauderbach joined Wild Oats as Vice President of Information
Technology in August 1997. From 1974 to 1997, Mr. Lauderbach was with Wolohan
Lumber Co., serving as Director of Management Information Systems from 1992 to
July 1997.
Peter F. Williams joined Wild Oats as Vice President of Human Resources in
May 1997. From 1992 to 1997, Mr. Williams was with Boston Chicken, Inc., serving
as Senior Director of Human Resources from 1993 to April 1997.
John A. Shields has been Chairman of the Board of Wild Oats since July
1996. Mr. Shields was a member of the Board of Directors of Alfalfa's, Inc. from
June 1995 to July 1996. He has been Chairman of the Board of Homeland Stores,
Inc. since October 1997. From January 1994 through December 1997, he was
Chairman of the Board of Delray Farms Markets, a chain of produce, meat and deli
markets. From 1983 until 1993, Mr. Shields was President and Chief Executive
Officer of First National Supermarkets. He is currently a director of DIY Home
Warehouse, Inc., Homeland Stores, Inc., Pasta Montana L.L.C., Veterinary Imaging
Company and Shore Bank and Trust Company.
David M. Chamberlain has been the Vice-Chairman of the Board of Wild Oats
since July 1996 and a Director of Wild Oats since July 1994. Mr. Chamberlain is
currently Vice Chairman of L. Kee & Co., Inc., a home textiles company. Mr.
Chamberlain held the positions of President and CEO of Genesco, Inc., a shoe
wholesaler/retailer company, from October 1994 through January 1997, and is
currently its Chairman of the Board. From May 1993 to October 1994, Mr.
Chamberlain was a principal of Consumer Focus Partners, a private investment
firm. Prior to that, from October 1983 until May 1994, he was with Shaklee
Corp., a nutritional products company, serving most recently as Chairman.
Brian K. Devine has been a Director of Wild Oats since October 1997. Mr.
Devine is Chairman, President and Chief Executive Officer of Petco Animal
Supplies, Inc., and has been with Petco since August 1990. Prior to joining
Petco, Mr. Devine was President of Krause's Sofa Factory, a furniture retailer
and manufacturer, from 1988 to 1989.
David L. Ferguson has been a Director of Wild Oats since November 1994 and
has been a general partner of Chase Capital Partners (the general partner of
Chase) since 1989. Prior to joining Chase Capital Partners, he was a member of
the mergers and acquisitions groups of Prudential Securities, Inc. from 1987 to
1989 and Bankers Trust New York Corporation from 1985 to 1987. Mr. Ferguson
currently serves as a director of Guitar Center, Inc.
James B. McElwee has been a Director of Wild Oats since July 1993. Since
November 1992, Mr. McElwee has been a general partner of Weston Presidio Capital
(the general partner of Weston Presidio Offshore Capital C.V.). From July 1979
until November 1992, he was Senior Vice President and a Managing Director of the
Security Pacific Venture Capital Group.
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<PAGE>
Morris J. Siegel has been a Director of Wild Oats since October 1998. Mr.
Siegel has been Chairman of the Board of Celestial Seasonings, Inc. since 1991.
In 1970 Mr. Siegel founded Celestial Seasonings, Inc., and was President and
Chairman of the Board until 1986. From 1986 until 1991 Mr. Siegel was involved
in private investments and not-for-profit activities. He served as Chief
Executive Officer of Celestial Seasonings from 1991 to 1997 and has served as a
director since 1988. He also serves on the Board of Corporate Express, Inc. and
is a director for various non-public and not-for-profit corporations and
organizations.
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<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of our common stock as of September 1, 1999, and, as
adjusted to reflect the sale of the common stock being offered hereby and
assuming no exercise of the underwriter's over-allotment option, by:
o each of our directors and executive officers
o all our directors and executive officers as a group
o each person, or group of affiliated persons, who is known by us to own
beneficially more than 5% of our common stock
o each selling stockholder
<TABLE>
<CAPTION>
Number
of Shares
Beneficial Ownership to be Sold Beneficial Ownership
Prior to in the After
the Offering (1) Offering the Offering (1)
Name Number Percent Number Percent
- ----
Directors and Esecutive Officers:
<S> <C> <C> <C> <C> <C>
Michael C. Gilliland (2).............................. 1,704,242 12.8 -0- 1,704,242 11.4
Elizabeth C. Cook (3)................................. 1,704,242 12.8 -0- 1,704,242 11.4
John A. Shields (4)................................... 83,341 * -0- 83,341 *
David M. Chamberlain (5).............................. 51,323 * -0- 51,323 *
Brian K. Devine (6)................................... 12,923 * -0- 12,923 *
David L. Ferguson (7)................................. 1,594,057 12.0 600,000 994,057 6.6
James B. McElwee (8).................................. 15,182 * -0- 15,182 *
Morris J. Siegel(9)................................... 5,426 * -0- 5,426 *
James W. Lee (10)..................................... 29,199 * -0- 29,199 *
Mary Beth Lewis (11).................................. 23,619 * -0- 23,619 *
John R. Baker.......................................... -0- * -0- -0- *
Freya R. Brier (12)................................... 4,389 * -0- 4,389 *
Nancy B. Casey(13).................................... 1,002 * -0- 1,002 *
Ronald J. Feldman(14)................................. 2,905 * -0- 2,905 *
John E. Lauderbach(15)................................ 2,200 * -0- 2,200 *
Peter F. Williams(16)................................. 693 * -0- 693 *
All directors and executive officers as a group
(16 people) (17)...................................... 3,530,501 26.6 600,000 2,903,501 19.6
Five Percent Beneficial Owners and Selling Stockholders:
Chase Capital Partners (18)........................... 1,567,885 11.8 600,000 967,885 6.5
Stanley A. Boney(19)(20).............................. 381,215 2.9 76,243 304,976 2.0
Scott B. Boney(19)(21)................................ 368,217 2.8 92,054 276,163 1.8
Shon A. Boney(19)(22)................................. 41,576 * 1,250 40,326 *
Kevin Easler(19)(23).................................. 41,576 * 1,250 40,326 *
Bruce W. Parrish(19)(24).............................. 7,802 * 7,802 0 *
Kelvin Nettleton(19)(25).............................. 7,802 * 7,802 0 *
- -----------------
*Less than one percent.
</TABLE>
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of common stock subject
to options, warrants and convertible notes currently exercisable or
convertible, or exercisable or convertible within 60 days of September 1,
1999 are deemed outstanding for computing the percentage of the person or
entity holding such securities but are not outstanding for computing the
percentage of any other person or entity. Except as indicated by footnote,
and subject to community property laws where applicable, the persons named
in the table above have sole voting and investment power with respect to
all shares of common stock shown as beneficially owned by them.
38
<PAGE>
(2) Consists of 597,628 shares held by Mr. Gilliland, 357,528 shares held by
Elizabeth C. Cook, Mr. Gilliland's spouse, 6,210 shares held by Mr.
Gilliland and Ms. Cook as joint tenants, 10,290 shares held by the Ian
Patrick Gilliland 1993 Trust, 10,290 shares held by the Stella Elizabeth
Gilliland 1993 Trust, 9,750 shares held by the Michael C. Gilliland 1997
Charitable Remainder Trust, 9,750 shares held by the Elizabeth C. Cook 1997
Charitable Remainder Trust, 635,788 shares held by the Gilliland/Cook
Family Partnership, LLP and 15,454 shares held by the Wild Oats Community
Foundation. Also includes 51,554 shares subject to stock options that are
exercisable within 60 days of September 1, 1999 held by Mr. Gilliland. Mr.
Gilliland disclaims beneficial ownership of the 1,039,100 shares held by
the trusts (other than the Michael C. Gilliland 1997 Charitable Remainder
Trust), Ms. Cook, the Gilliland/Cook Family Partnership LLP and the Wild
Oats Community Foundation. Mr. Gilliland's business address is Wild Oats
Markets, Inc., 3375 Mitchell Lane, Boulder, CO 80301.
(3) Consists of 357,528 shares held by Ms. Cook, 597,628 shares held by Mr.
Gilliland, Ms. Cook's spouse, 6,210 shares held by Mr. Gilliland and Ms.
Cook as joint tenants, 10,290 shares held by the Ian Patrick Gilliland 1993
Trust, 10,290 shares held by the Stella Elizabeth Gilliland 1993 Trust,
9,750 shares held by the Michael C. Gilliland 1997 Charitable Remainder
Trust, 9,750 shares held by the Elizabeth C. Cook 1997 Charitable Remainder
Trust, 635,788 shares held by the Gilliland/Cook Family Partnership, LLP
and 15,454 shares held by the Wild Oats Community Foundation. Also includes
51,554 shares subject to stock options that are exercisable within 60 days
of September 1, 1999 held by Mr. Gilliland. Ms. Cook disclaims beneficial
ownership of the 1,330,754 shares held by the trusts (other than the
Elizabeth C. Cook 1997 Charitable Remainder Trust), Mr. Gilliland, the
Gilliland/Cook Family Partnership LLP and the Wild Oats Community
Foundation. Ms. Cook's business address is Wild Oats Markets, Inc., 3375
Mitchell Lane, Boulder, CO 80301.
(4) Consists of 49,985 shares and 33,356 shares subject to stock options that
are exercisable within 60 days of September 1, 1999 held by Mr. Shields.
Mr. Shields' business address is Wild Oats Markets, Inc., 3375 Mitchell
Lane, Boulder, CO 80301.
(5) Consists of 20,428 shares held by Mr. Chamberlain and 30,895 shares subject
to stock options that are exercisable within 60 days of September 1, 1999.
Mr. Chamberlain's business address is Wild Oats Markets, Inc., 3375
Mitchell Lane, Boulder, CO 80301.
(6) Consists of 12,923 shares subject to stock options that are exercisable
within 60 days of September 1, 1999, held by Mr. Devine. Mr. Devine's
business address is Wild Oats Markets, Inc., 3375 Mitchell Lane, Boulder,
CO 80301.
(7) Consists of 1,567,885 shares held of record by CVCA, 12,000 shares held by
Mr. Ferguson and 14,172 shares subject to stock options that are
exercisable within 60 days of September 1, 1999 held by Mr. Ferguson. The
general partner of CVCA is CCP, of which Mr. Ferguson is one of several
general partners. Mr. Ferguson disclaims beneficial ownership of the shares
owned by CVCA except to the extent of his pecuniary interest therein
arising from his general partnership interest therein. Certain stockholders
have entered into a stockholders agreement under which they have agreed,
under certain circumstances, to vote for the nominee of Chase to the Board.
Chase disclaims beneficial ownership of the shares voted in favor of its
nominee, David Ferguson. Mr. Ferguson's business address is 108 S. Frontage
Road West, #307, Vail, CO 81657.
(8) Consists of 1,010 shares and 14,172 shares subject to stock options that
are exercisable within 60 days of September 1, 1999 held by Mr. McElwee.
Mr. McElwee's business address is 343 Sansome Street, Suite 1210, San
Francisco, CA 94104-1316.
(9) Consists of 5,426 shares subject to stock options that are exercisable
within 60 days of September 1, 1999 held by Mr. Siegel. Mr. Siegel's
business address is 1919 14th Street, Suite 609, Boulder, CO 80302-5325.
(10) Consists of 1,473 shares and 27,726 shares subject to stock options that
are exercisable within 60 days of September 1, 1999 held by Mr. Lee. Mr.
Lee's business address is Wild Oats Markets, Inc., 3375 Mitchell Lane,
Boulder, CO 80301.
(11) Consists of 1,208 shares and 22,411 shares subject to stock options that
are exercisable within 60 days of September 1, 1999 held by Ms. Lewis. Ms.
Lewis's business address is Wild Oats Markets, Inc., 3375 Mitchell Lane,
Boulder, CO 80301.
(12) Consists of 855 shares and 3,534 shares subject to stock options that are
exercisable within 60 days of September 1, 1999 held by Ms. Brier. Ms.
Brier's business address is Wild Oats Markets, Inc., 3375 Mitchell Lane,
Boulder, CO 80301.
(13) Consists of 303 shares held by Ms. Casey, 300 shares jointly held by Ms.
Casey and her spouse, Bruce D. Casey, and 399 shares subject to stock
options that are exercisable within 60 days of September 1, 1999 held by
Ms. Casey. Ms. Casey's business address is Wild Oats Markets, Inc., 3375
Mitchell Lane, Boulder, CO 80301.
(14) Consists of 505 shares and 2,400 shares subject to stock options that are
exercisable within 60 days of September 1, 1999 held by Mr. Feldman. Mr.
Feldman's business address is Wild Oats Markets, Inc., 3375 Mitchell Lane,
Boulder, CO 80301.
(15) Consists of 150 shares and 2,050 shares subject to stock options that are
exercisable within 60 days of September 1, 1999 held by Mr. Lauderbach. Mr.
Lauderbach's business address is Wild Oats Markets, Inc., 3375 Mitchell
Lane, Boulder, CO 80301.
(16) Consists of 693 shares subject to stock options that are exercisable within
60 days of September 1, 1999 held by Mr. Williams. Mr. Williams' business
address is Wild Oats Markets, Inc., 3375 Mitchell Lane, Boulder, CO 80301.
(17) Consists of 3,308,800 shares and 221,701 shares subject to stock options
that are exercisable within 60 days of September 1, 1999.
(18) Consists of 1,567,885 shares held of record by Chase Venture Capital
Associates, L.P., a California limited partnership ("CVCA"). The
39
<PAGE>
general partner of CVCA is Chase Capital Partners, a New York general
partnership ("CCP"), of which Mr. Ferguson is one of several general
partners. Mr. Ferguson disclaims beneficial ownership of the shares owned
by CVCA except to the extent of his pecuniary interest therein arising from
his general partnership interest therein. Certain stockholders have entered
into a stockholders agreement under which they have agreed, under certain
circumstances, to vote for the nominee of Chase to the Board. Chase
disclaims beneficial ownership of the shares voted in favor of its nominee,
David Ferguson. CVCA's business address is 380 Madison Avenue, 12th Floor,
New York, NY 10017. If the underwriter's over-allotment option is exercised
in full, the number of shares owned and the percentage of ownership after
the offering for CVCA would be 594,925 and 3.9%.
(19) Became a Wild Oats shareholder when the transaction with Henry's was
completed on September 27, 1999.
(20) Consists of 381,215 shares held by Stanley A. Boney and his wife, Betty L.
Boney, as community property.
(21) Consists of 368,217 shares held by the Boney Family Trust with Scott B.
Boney and his wife, Betsy A. Boney, as Trustees.
(22) Consists of 41,576 shares held by Shon A. Boney and his wife, Heather A.
Boney, as community property.
(23) Consists of 41,576 shares held by Kevin Easler and his wife, Linda Easler,
as community property.
(24) Consists of 7,802 shares held by the Parrish Revocable Trust with Bruce W.
Parrish and his wife, Bonnie J. Parrish, as Trustees.
(25) Consists of 7,802 shares held by Kelvin L. Nettleton and his wife, Karen
Nettleton, as community property.
40
<PAGE>
UNDERWRITING
Subject to the terms and conditions stated in the underwriting agreement
dated the date hereof, each underwriter named below has severally agreed to
purchase, and Wild Oats and the selling stockholders have agreed to sell to such
underwriter, the respective number of shares set forth opposite the name of such
underwriter.
Underwriter Number of Shares
-----------
Salomon Smith Barney Inc. ...........................
Merrill Lynch, Pierce, Fenner & Smith Incorporated ..
U.S. Bancorp Piper Jaffray Inc.......................
Hambrecht & Quist LLC................................
Total......................................... ____________
The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares included in this offering are subject to
approval of certain legal matters by counsel and to certain other conditions.
The underwriters are obligated to purchase all the shares (other than those
covered by the over-allotment option described below) if they purchase any of
the shares.
The underwriters, for whom Salomon Smith Barney Inc., Merrill Lynch,
Pierce, Fenner & Smith Incorporated, U.S. Bancorp Piper Jaffray Inc. and
Hambrecht & Quist LLC are acting as representatives, propose to offer some of
the shares directly to the public at the public offering price set forth on the
cover page of this prospectus and some of the shares to certain dealers at the
public offering price less a concession not in excess of $ per share. The
underwriters may allow, and such dealers may reallow, a concession not in excess
of $ per share to certain other dealers. If all of the shares are not sold at
the initial offering price, the representatives may change the public offering
price and other selling terms.
We and certain of the selling stockholders have granted to the underwriters
an option, exercisable for 30 days from the date of this prospectus, to purchase
up to 372,960 additional shares of common stock at the public offering price
less the underwriting discount. The underwriters may exercise such option solely
for the purpose of covering over-allotments, if any, in connection with this
offering. To the extent such option is exercised, each underwriter will be
obligated, subject to certain conditions, to purchase a number of additional
shares approximately proportionate to such underwriter's initial purchase
commitment.
We, our executive officers and directors and the selling stockholders have
agreed that, for a period of 90 days from the date of this prospectus, we and
they will not, without the prior written consent of Salomon Smith Barney Inc.,
on behalf of the underwriters, sell, offer to sell, solicit an offer to buy,
contract to sell, grant or sell any option to purchase or otherwise transfer or
otherwise dispose of or hedge any shares of our common stock or any securities
convertible into or exchangeable for our common stock.
Salomon Smith Barney Inc. in its sole discretion may release any of the
securities subject to these lock-up agreements at any time without notice.
Our common stock is listed on the Nasdaq National Market under the symbol
"OATS."
The following table shows the underwriting discounts and commissions to be
paid to the underwriters by Wild Oats and the selling stockholders in connection
with this offering. These amounts are shown assuming both no exercise and full
exercise of the underwriters' option to purchase additional shares of common
stock.
41
<PAGE>
<TABLE>
<CAPTION>
Paid by Wild Oats Paid by Selling Stockholders
------------------------------- -------------------------------
No Exercise Full Exercise No Exercise Full Exercise
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Per share.................................. $ $ $ $
Total...................................... $ $ $ $
</TABLE>
In connection with the offering, Salomon Smith Barney Inc., on behalf of
the underwriters, may purchase and sell shares of common stock in the open
market. These transactions may include over-allotment, syndicate covering
transactions and stabilizing transactions. Over-allotment involves syndicate
sales of common stock in excess of the number of shares to be purchased by the
underwriters in the offering, which creates a syndicate short position.
Syndicate covering transactions involve purchases of the common stock in the
open market after the distribution has been completed in order to cover
syndicate short positions. Stabilizing transactions consist of certain bids or
purchases of common stock made for the purpose of preventing or retarding a
decline in the market price of the common stock while the offering is in
progress.
The underwriters also may impose a penalty bid. Penalty bids permit the
underwriters to reclaim a selling concession from a syndicate member when
Salomon Smith Barney Inc., in covering syndicate short positions or making
stabilizing purchases, repurchases shares originally sold by that syndicate
member.
Any of these activities may cause the price of the common stock to be
higher than the price that otherwise would exist in the open market in the
absence of such transactions. These transactions may be effected on the Nasdaq
National Market or in the over-the-counter market, or otherwise and, if
commenced, may be discontinued at any time.
In addition, in connection with this offering, certain of the underwriters
(and selling group members) may engage in passive market making transactions in
the common stock on the Nasdaq National Market, prior to the pricing and
completion of the offering. Passive market making consists of displaying bids on
the Nasdaq National Market no higher than the bid prices of independent market
makers and making purchases at prices no higher than those independent bids and
effected in response to order flow. Net purchases by a passive market maker on
each day are limited to a specified percentage of the passive market maker's
average daily trading volume in the common stock during a specified period and
must be discontinued when such limit is reached. Passive market making may cause
the price of the common stock to be higher than the price that otherwise would
exist in the open market in the absence of such transactions. If passive market
making is commenced, it may be discontinued at any time.
Wild Oats estimates that the total expenses of this offering will be
$300,000. Wild Oats will pay all expenses of this offering.
The representatives have performed certain investment banking and advisory
services for Wild Oats from time to time for which they have received customary
fees and expenses. The representatives may, from time to time, engage in
transactions with and perform services for Wild Oats in the ordinary course of
their business.
Wild Oats and the selling stockholders have agreed to indemnify the
underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, or to contribute to payments the underwriters may be
required to make in respect of any of those liabilities.
42
<PAGE>
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for
Wild Oats by Holme Roberts & Owen LLP, Denver, Colorado. Certain legal matters
relating to this offering will be passed upon for the Underwriters by Cahill
Gordon & Reindel (a partnership including a professional corporation), New York,
New York.
EXPERTS
Our financial statements incorporated in this prospectus by reference to
our Annual Report on Form 10-K for the year ended January 2, 1999, our
supplemental combined financial statements (which report contains an explanatory
paragraph relating to the pooling of interests with Henry's Marketplace, Inc. as
described in note 2 to the supplementary combined financial statements) filed on
Form 8-K on September 29, 1999 and the financial statements of Nature's Fresh
Northwest, Inc. as of and for the year ended February 6, 1999 filed on Form 8-K
on June 14, 1999, as amended on August 12, 1999 and August 16, 1999 have been so
incorporated in reliance on the reports of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting. The report of KPMG LLP, independent certified public
accountants, on the financial statements of Henry's Marketplace, Inc. as of and
for the fifty-two weeks ended December 27, 1998, has been incorporated by
reference herein upon the authority of said firm as experts in accounting and
auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-3, which encompasses all
amendments, exhibits, annexes and schedules thereto under the Securities Act
with respect to the common stock offered hereby. This prospectus, which
constitutes a part of the registration statement, does not contain all the
information set forth in the registration statement, to which reference is
hereby made. Statements made in this prospectus as to the contents of any
contract, agreement or other document referred to are not necessarily complete.
With respect to each such contract, agreement or other document filed as an
exhibit to the registration statement and the exhibits thereto, reference is
hereby made to the exhibit for a more complete description of the matter
involved, and each statement made herein shall be deemed qualified in its
entirety by such reference.
We are subject to the informational requirements of the Securities Exchange
Act of 1934 (the "Exchange Act") and in accordance therewith we file periodic
reports, proxy and information statements and other information filed with the
Commission. The registration statement filed by us with the Commission, as well
as such reports, proxy and information statements and other information filed by
us with the Commission, are available at the web site that the Commission
maintains at http:www.sec.gov and can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of
the Commission located at 7 World Trade Center, New York, New York 10048, and
the Central Regional Office, 1801 California Street, Suite 4800, Denver, CO
80202-2648. Copies of such material, when filed, may also be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. The Common Stock is quoted on the
Nasdaq National Market and such reports, proxy and information statements and
other information concerning Wild Oats are available at the offices of the
Nasdaq National Market located at 1735 K Street, N.W., Washington, D.C. 20006.
INCORPORATION OF CERTAIN INFORMATION WE FILE WITH THE SEC
Incorporated by reference in this prospectus are our following filings:
o Annual Report on Form 10-K for the fiscal year ended January 2, 1999
o Quarterly Reports on Form 10-Q for the quarters ended April 3, 1999 and
July 3, 1999
o Definitive Proxy Statement dated April 1, 1999
o Current Reports on Form 8-K filed on: June 14, 1999, as amended on August
12, 1999 and August 16, 1999; on August 2, 1999; and on September 29,
1999
43
<PAGE>
o the description of our common stock contained in our registration
statement on Form 8-A dated October 17, 1996
o the description of rights to purchase Series A Junior Participating
Preferred Stock contained in our registration statement on Form 8-A dated
May 21, 1998
All documents filed by us pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Exchange Act after the date of this prospectus and prior to the termination
of this offering shall be deemed to be incorporated by reference herein and to
be a part of this prospectus from the date of filing of such documents. Any
statement contained in a document incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this prospectus.
Wild Oats will provide without charge to each person, including any
beneficial owner of common stock, to whom a copy of this prospectus has been
delivered, on the written or oral request of such person, a copy of any or all
of the foregoing documents incorporated by reference in this prospectus, other
than exhibits to such documents unless such exhibits are specifically
incorporated by reference into the information that this prospectus
incorporates. Written or oral requests for such copies should be directed to
Wild Oats Markets, Inc., 3375 Mitchell Lane, Boulder, Colorado 80301 (telephone:
(303) 440-5220).
44
<PAGE>
---------------------------------------------------
2,486,401 Shares
Wild Oats Markets, Inc.
Common Stock
[LOGO]
--------
PROSPECTUS
, 1999
--------
Salomon Smith Barney
Merrill Lynch & Co.
U.S. Bancorp Piper Jaffray
Hambrecht & Quist
---------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED SEPTEMBER 29, 1999
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
[GRAPHIC OMITTED]
1,213,792 Shares
Prospectus Wild Oats Markets, Inc.
Common Stock
All of the 1,213,792 shares of our common stock are being sold by selling
stockholders. We will not receive any proceeds from the sale of shares by the
selling stockholders.
The sale of the shares may occur from time to time:
o in transactions on the Nasdaq National Market,
o in privately negotiated transactions, or
o in combination of various methods of sale.
The sales of the shares may occur from time to time :
o at fixed prices that may be changed,
o at market prices prevailing at the time of sale,
o at prices related to such prevailing prices, or
o at negotiated prices.
The selling stockholders may sell the shares to or through broker-dealers,
and such broker-dealers may receive compensation in the form of discounts,
concessions or commissions from the selling stockholders and/or the purchasers
of the shares for whom such broker-dealers may act as agents or to whom they may
sell as principals or both (which compensation as to a particular broker-dealer
might be in excess of customary commissions).
We have agreed, among other things, to bear certain expenses (other than
fees and expenses of counsel and underwriting discounts and commission and
brokerage commissions and fees) in connection with the registration and sale of
the shares being offered by the selling stockholders. We have agreed to
indemnify the selling stockholders and certain other persons against certain
liabilities, including liabilities under the federal securities laws.
Our common stock is quoted on the Nasdaq National Market under the symbol
"OATS." The last reported sales price of our common stock on the Nasdaq National
Market on September 24, 1999 was $38.50 per share.
Investing in our common stock involves certain risks. See "Risk Factors"
beginning on page 4.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this Prospectus is ________, 1999
<PAGE>
TABLE OF CONTENTS
Page
PROSPECTUS SUMMARY 1
RISK FACTORS 4
USE OF PROCEEDS 10
SELLING STOCKHOLDERS 10
PLAN OF DISTRIBUTION 11
LEGAL MATTERS 12
EXPERTS 12
WHERE YOU CAN FIND MORE INFORMATION 12
INCORPORATION OF CERTAIN INFORMATION WE FILE WITH THE SEC 13
ii
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information appearing elsewhere in this prospectus
or incorporated by reference. This summary may not contain all the information
that you should consider before purchasing our common stock. You should
carefully read this entire prospectus and the other documents to which this
prospectus refers. This prospectus contains forward-looking statements that
involve risks and uncertainties.
Please note that, unless otherwise stated:
o all information in this prospectus assumes no exercise of the
underwriters' over-allotment option
o all information in this prospectus reflects a 3-for-2 stock split of our
common stock paid on January 7, 1998 to holders of record on December 22,
1997
o all references in this prospectus to a particular fiscal year refer to
our 52- or 53-week fiscal year, which ends on the Saturday nearest to
December 31 of each year
o the financial information presented in this prospectus has been derived
from our historical financial information, restated to reflect the
merger with Henry's Marketplace, Inc. which was completed on September
27, 1999. This merger has been accounted for as a pooling of interests.
Accordingly, the accounts and operations of Henry's have been included
in our summary supplemental combined financial and operating data for
all periods discussed herein. As such, this supplemental combined
financial and operating information does not represent the historical
financial position or operations of Wild Oats
The Company
Wild Oats is the second largest natural foods supermarket chain in North
America. We currently operate 91 stores in 20 states and Canada. We are
dedicated to providing a broad selection of high quality natural and gourmet
foods and related products at competitive prices in an inviting and educational
store environment emphasizing customer service. Our stores range in size from
2,500 to 42,000 gross square feet and feature natural alternatives for virtually
every product category found in conventional supermarkets. Wild Oats provides
its customers with a one-stop, full-service shopping alternative to both
conventional supermarkets and traditional health food stores.
Wild Oats emphasizes unique products not typically found in conventional
supermarkets and tailors its product mix to meet the preferences of each store's
local market. In addition, we have implemented "A Wild Oats Down to Earth
Value" private label line that offers high quality, all-natural items in many
product categories at prices competitive with those of similar brand-name items.
Our strict quality standards require our products to be minimally processed,
free of preservatives, artificial colors and chemical additives and not tested
on animals.
Each of our stores strives to create a fun, friendly and educational store
environment that makes grocery shopping enjoyable, encouraging shoppers to spend
more time in our stores and to purchase new products. We train our store staff
to educate customers as to the benefits and quality of our products, and we
prominently feature instructional brochures, newsletters and an in-store
information department. In addition, many of our stores offer cafe seating
areas, espresso and fresh juice bars and in-store nutritional consultations and
massage therapists, all of which emphasize the comfortable and relaxed nature of
the Wild Oats shopping experience. We also seek to engender customer loyalty by
demonstrating our high degree of commitment to the local community through
ongoing programs which provide significant monetary and in-kind contributions to
local not-for-profit organizations.
From 1994 to 1998, sales of natural products grew from $7.6 billion to
$25.4 billion, for a compound annual growth rate of 35.2%. Sales growth in the
traditional supermarket industry remained relatively flat over the same period.
We believe that this growth reflects a broadening of the natural products
consumer base that is being propelled by several factors, including healthier
eating patterns, increasing concern regarding food purity and safety, greater
environmental awareness and increasing consumer demand for fresh, premium
quality foods. Further,
<PAGE>
according to industry data, the natural products industry comprises less than
2.5% of the total supermarket industry, demonstrating significant potential for
continued expansion of our customer base.
Since acquiring our first natural foods store in 1987, we have pursued an
aggressive growth strategy. We have grown our annual gross sales in large part
through acquiring independent and small chain natural foods stores and opening
new stores. We currently operate 91 stores in 20 states and British Columbia,
Canada. The table below sets forth certain of our annual growth statistics. The
information about our total number of stores is net of closures and relocations.
<TABLE>
<CAPTION>
Total Number of Total Number of Number of Stores Number of Stores
Stores at End of States at End of Acquired During Opened During Annual Gross Sales
Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year (in millions)
----------- ----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
1996 49 8 13 9 $253.6
1997 62 12 9 5 383.9
1998 73 18 7 8 479.9
1999 (through
September 27, 1999) 91 20 24 5 Not available
</TABLE>
Our sales grew at a compound annual growth rate of 39.4% from 1996 to 1998.
Our year-to-date sales for the first six months of 1999 were $305.3 million,
compared to $230.3 million in the same period in 1998, an increase of 32.6%,
largely due to the opening of two new stores and the acquisition of 13 stores in
the first six months of 1999. Through September 27th, we have opened five new
stores and acquired 24 stores in 1999, including:
o Nature's Fresh Northwest, located in metropolitan Portland, Oregon,
which owned seven operating natural foods stores and one site in
development. The purchase price was approximately $40.0 million in cash
and assumption by us of a $17.0 million promissory note payable to the
seller. Nature's had sales of approximately $58.3 million in its 1998
fiscal year. The transaction closed on May 29, 1999 and was accounted
for as a purchase.
o Henry's Marketplace, located in metropolitan San Diego, California,
which owned 11 operating natural foods supermarkets and one site in
development. The merger consideration was approximately $46.0 million
of Wild Oats' common stock. Henry's had sales of approximately $81.0
million in its 1998 fiscal year. The transaction closed on September
27, 1999 and was accounted for as a pooling of interests.
As a result of our aggressive growth, we have increased our penetration of
existing markets, entered new geographic markets and created a stronger platform
for future growth. Since the beginning of 1997, we have successfully entered a
number of new states, including Arizona, Arkansas, Connecticut, Illinois,
Indiana, New Jersey, New York, Ohio, Oregon, Tennessee and Texas. We believe our
growth has resulted in operating efficiencies created by:
o warehousing, distribution and administrative economies of scale
o improved volume purchasing discounts
o coordinated merchandising and marketing strategies
Wild Oats plans to open an additional two stores in the remainder of 1999
and to open, acquire or relocate as many as 20 stores in 2000. We intend to
continue our national expansion strategy by increasing penetration in existing
markets and expanding into new regions that we believe are currently underserved
by natural foods retailers. We believe our flexible store format strategy, which
includes large supermarket format stores and medium-sized urban format stores,
and our store clustering strategy enable us to increase market penetration,
reach a broader customer base and operate successfully in a diverse set of
markets. In addition, we periodically evaluate
2
<PAGE>
new store formats that may appeal to different types of consumers in various
parts of the country.
Our executive offices are located at 3375 Mitchell Lane, Boulder, Colorado
80301, and our telephone number is (303) 440-5220.
Risk Factors
We operate in a highly competitive industry. The following are among the
risks which could adversely affect our future financial performance:
o our ability to manage our growth
o our strategy of clustering stores
o fluctuations in our financial results that could cause our stock price
to fluctuate
o comparable store sales trend fluctuations
o increased competition in the sale of natural foods products
o loss of key personnel
o disruptions of product supply
These and other risks associated with our business and the purchase of our
common stock are discussed under the heading "Risk Factors" beginning on page 4.
3
<PAGE>
RISK FACTORS
This offering involves a high degree of risk. In addition to other
information contained in this prospectus or incorporated herein by reference,
prospective investors should carefully consider the following risk factors
before purchasing any of the common stock offered hereby.
Our ability to manage growth is critical to executing our growth strategy
successfully
We have grown considerably in size and geographic scope since 1992. To date
in 1999, we have acquired 24 stores and opened five new stores. We plan to
continue growing rapidly primarily through the opening of new stores. Therefore,
our success depends, in part, on our ability to open and operate new stores
profitably. Our ability to continue to successfully implement our growth
strategy in this manner depends on many factors, including our ability to:
o hire and train new personnel, including administrative and accounting
personnel, departmental, regional and store managers, store employees
and other personnel in our corporate organization
o expand into areas of the country where we have no operating experience
o identify areas of the country that meet our criteria for new store
sites
o locate suitable store sites and negotiate acceptable lease
terms
o obtain governmental and other third party consents, permits and
licenses needed to operate new stores
o integrate new stores into our existing operations
o expand our existing systems or acquire and implement new systems,
including information systems, hardware and software, and distribution
infrastructure, to include new, relocated and acquired stores
o obtain adequate funding for operations
In addition, we will continue to consider acquisitions of natural foods
retailers where attractive opportunities exist. Acquisitions of operating stores
involve risks, which could have a negative effect on our business, financial
results and profitability, such as:
o short-term declines in our reported operating results
o diversion of management's attention
o unanticipated problems or legal liabilities
o inclusion of incompatible operations, particularly management
information systems
o inexperience in operating different store formats
Although we believe that we have the management, operational and
information systems, distribution infrastructure and other resources required to
implement our growth strategy, we may not be able to execute our new store
expansion plans within the expected time frame. Our continued growth may place a
significant strain on our management, our ability to distribute products to our
stores, working capital, and financial and management control systems. In order
for us to manage our expanding store base successfully, our management will be
required to anticipate the changing demands of our growing operations and to
adapt systems and procedures accordingly. If we are not able to do so, our
business, sales and overall profitability will be materially and negatively
affected.
Our strategy of clustering stores may result in declines in operating results
As part of our growth strategy, we strive to locate stores in clusters in
select regional markets to increase overall sales, reduce operating costs and
increase customer awareness. In the past, when we have opened a store in a
market where we have an existing store, our sales and operating results have
declined at some existing stores in such markets. We intend to continue to
cluster stores and expect the sales and trends in operating results for other
stores in such clustered markets to continue to experience temporary declines as
a result.
4
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Our financial results may fluctuate significantly which could cause the price of
our shares to fluctuate
Our profitability may fluctuate significantly from period to period as the
result of a variety of factors, including:
o the number, timing, mix and cost of store openings, acquisitions,
relocations or closings
o the ratio of stores opened to stores acquired
o the opening of stores by us or by our competitors in markets where we
have existing stores
o percentage changes in comparable store sales results, i.e, same store
sales from year to year
We incur significant pre-opening expenses and new stores typically
experience an initial period of operating losses. As a result, the opening of a
significant number of new stores in a single period will negatively affect our
profitability.
Our past comparable store sales may not be indicative of future comparable store
sales
A variety of factors affect our comparable store sales results, including,
among others:
o the opening of stores by us or by our competitors in markets where we
have existing stores
o the relative proportion of new stores to mature stores
o the timing of promotional events
o our ability to follow our operating plans effectively
o changes in consumer preferences for natural foods products
o general economic conditions
Past increases in comparable store sales may not reflect future
performance. Comparable store sales for any particular period may decrease in
the future. Due to the factors listed above, we believe that period-to-period
comparisons of our operating results are not necessarily meaningful and that
such comparisons cannot be relied upon as indicators of future financial
performance. Fluctuations in our comparable store sales could cause the price of
our common stock to fluctuate substantially.
Increased competition in the sale of natural foods products could reduce our
profitability
Our competitors currently include other independent and multi-unit natural
foods supermarkets, smaller traditional natural foods stores, conventional
supermarkets and specialty grocery stores. We believe that our primary
competitor is Whole Foods Market, Inc., a national natural foods supermarket
chain based in Texas, currently with 94 stores and with annual revenues of
approximately $1.4 billion in its 1998 fiscal year. A number of other natural
foods supermarkets offer a range of natural foods products similar to those we
offer. While some competitors do not offer as full a range of products as we do,
they do compete with us in some product categories.
Many of our competitors have been in business longer and have greater
financial or marketing resources than we do. Our competitors also may be able to
devote more funds and employees to securing suitable locations for new stores
and to the sourcing, promotion and sale of their products. In addition, should
any of our competitors reduce prices, we may be required to reduce prices to
remain competitive, which could result in lower sales and profitability. As we
open stores in new geographic markets, our success will depend in part on our
ability to gain market share from established competitors. Traditional and
specialty grocery stores are expanding the amount of natural foods they carry
and market, and therefore they now compete directly with us for products,
customers and locations. We expect competition from both new and existing
competitors to increase in our markets and we may not be able to compete
effectively in the future, which could adversely affect our profitability.
5
<PAGE>
Loss of key personnel could disrupt our operations
We believe that our continued success will depend to a significant extent
upon the leadership and performance of:
o Michael C. Gilliland, our co-founder and Chief Executive Officer
o James Lee, our President and Chief Operating Officer
o Mary Beth Lewis, our Chief Financial Officer
The loss of the services of these individuals or other of our key personnel
could have a substantial negative effect upon our operations. Also, in the
current economy in the United States, it is more difficult to find, hire and
retain qualified managerial employees. Any inability to recruit qualified
employees could disrupt our operations.
Disruptions of product supply could reduce store sales and profitability and
disrupt our operations
Our business is dependent on our ability to buy products on a timely basis
and at competitive prices from a small number of distributors and from a large
number of relatively small vendors. Based on our previous purchasing patterns,
we anticipate that we will continue to purchase approximately one-third of the
products sold in our stores through one wholesale distributor, United Natural
Foods Inc. We have three years remaining on a four-year supply agreement with
this major distributor and we do not have contracts with any other major
supplier. This distributor has recently announced problems in the consolidation
of its eastern U.S. warehouse operations which resulted in minor disruptions in
the supply of products to certain of our eastern stores. We cannot assure that
future disruptions in the operations of this distributor will not have a
material effect on our operations or profitability. We may not be able to
negotiate future supply agreements with this or other distributors on terms
favorable to us. In addition, any other vendor or distributor could stop selling
to us at any time. Any disruption in our product supplies could reduce store
sales and our profitability. In addition, even where we have access to
alternative sources of supply, the failure of a vendor or distributor to meet
our demands may temporarily disrupt store-level merchandise selection, resulting
in reduced sales.
Government regulation could increase our costs
We are subject to many laws, regulations and ordinances at the local, state
and national level and problems or failures to comply with these laws could
negatively affect our store sales and operations, or could delay the opening of
a new store. Such laws regulate our operations, including:
o health and sanitation standards
o food labeling and handling requirements
o employment and wage levels
o food and alcoholic beverage sales regulations
From time to time, various local, state and national government agencies
propose laws on issues affecting our operations that could reduce our
profitability by increasing our costs or affecting sales of certain products.
Examples of such issues are:
o the minimum wage payable to employees
o the minimum age restriction for certain jobs
o tax increases on the retail sale of certain products
Food safety concerns may also generate new laws that could increase the
cost to prepare foods sold in our
6
<PAGE>
stores or make the sale of some items unprofitable. Product recalls or
additional government regulation may also erode customer confidence in the
safety of our products, resulting in reduced sales. Over 15% of our total sales
come from the sale of vitamins, supplements and herbal products. There have been
many proposals for new laws on a national level to restrict sales of certain
supplement products or to regulate information available to consumers regarding
these products. If new laws are passed that limit our ability to offer
information on the products we sell or limit the availability of the products to
the general public, our sales could decrease.
Fluctuations in our stock price may be volatile
The market price of our common stock can change rapidly in response to our
operating results and other factors, including announcements by our competitors.
In addition, the stock market in recent years has experienced extreme price and
volume fluctuations that often have been unrelated or disproportionate to the
operating performance of companies. In addition to fluctuations in the price of
our common stock caused by stock market fluctuations, the market price of our
common stock may fluctuate due to:
o a shortfall in sales, comparable store sales growth or earnings
compared to public market analysts' expectations
o changes in analysts' recommendations or projections
o general economic and market conditions
The Year 2000 problem could affect sales and profitability
We continually evaluate our computer systems used in operating our stores
and have replaced or upgraded, the components of our systems which we believe
might have failed as of January 1, 2000 because of computers' inabilities to
read "01/01/00" as "January 1, 2000" and not "January 1, 1900". We believe that
our own material systems will not fail on January 1, 2000, but cannot guarantee
that disruptions caused by third-party problems will not occur and that system
failures will not affect our sales levels or profitability. If our product
vendors or banks have operations problems because of Year 2000 problems, our
ability to stock products in our stores or process credit card or food stamp
sales for our customers could be disrupted, which could result in lower store
sales or lower profitability.
Year 2000 problems in other areas such as failures by power, telephone,
mail, data transfer or other utility or general service providers or government
or private entities could also affect our operations and profitability. For
example, we could experience the following:
o if the power supply is disrupted, some or all of our stores may have to
close temporarily, certain perishable inventory could be destroyed and
store security systems may not operate
o we could lose communication links, including credit card processing,
with some or all of our stores
o we could experience significant disruptions caused by the inability of
our distributors to deliver products to us in a timely manner
We are currently preparing contingency plans in the event these third-party
systems are not Year 2000 compliant and anticipate having such plans completed
early in the fourth quarter of 1999.
We do not intend to pay cash dividends for the foreseeable future
We have never paid cash dividends on shares of our common stock. We do not
intend to pay cash dividends in the foreseeable future. Our revolving credit
facilities contain various financial covenants which restrict, among other
things, our ability to pay cash dividends.
7
<PAGE>
Our governing documents, provisions of Delaware law and our stockholder rights
plan could have anti-takeover effects
Our Certificate of Incorporation and Bylaws, certain provisions of Delaware
law and a stockholder rights plan that we adopted could have the following
effects:
o delaying, deferring or preventing a change in control of our company
o discouraging bids for our common stock at a premium over the market
price of our common stock
o adversely affecting the market price of our common stock and the
voting and other rights of the holders of our common stock
Such provisions in our governing documents include, but are not limited to,
a classified Board of Directors and the authority of the Board of Directors to
issue up to 5,000,000 shares of preferred stock and to fix the price, rights,
preferences, privileges and restrictions, including voting rights, of those
shares without further vote or action by the stockholders. The rights of the
holders of our common stock will be subject to, and may be adversely affected
by, the rights of the holders of any preferred stock that may be issued in the
future. We have no present plans to issue shares of preferred stock. In
addition, certain provisions of Delaware law applicable to us could have similar
effects.
Our stockholder rights plan gives our stockholders the right to purchase a
fractional share of preferred stock at a purchase price of $145 for each share
of our common stock held. In addition, until the rights become exercisable and
in certain limited circumstances thereafter, we will issue one right for each
share of our common stock issued hereafter. The rights become exercisable only
if a person or group acquires beneficial ownership of 15% or more of our
outstanding common stock and would entitle all holders of rights, other than
that person or group to purchase shares of our common stock at a substantial
discount to the then-current market price. In addition, if Wild Oats were
acquired in a merger or other business combination or transaction, the holders
of such rights would be entitled to purchase shares of the acquiror's common
stock at a substantial discount.
Our officers, directors and principal stockholders will exercise significant
control
After this offering is completed, our directors, executive officers and
principal stockholders, and certain of their affiliates, will control
approximately 19.6% of the outstanding shares of our common stock. Because of
this level of stock ownership, these persons, individually and as a group, will
be able to effectively control us and direct our affairs and business, including
decisions about the acquisition or disposition of our assets, future issuances
of common stock or other securities by us, declaration of dividends in our
common stock and the election of directors. The large percentage of stock held
by such individuals could also delay or prevent a change in control.
Pursuant to an agreement between us and certain investors, certain parties
controlling an aggregate of approximately 2.3 million shares of our common stock
have agreed that, under certain circumstances, they will vote their shares in
favor of electing the nominee of an investor to our board of directors and to
the audit and compensation committees of our board.
Actual results may differ from results discussed in forward-looking statements
Certain statements in this prospectus, including statements contained in
the summary, under the captions "Risk Factors," "Management's Discussion and
Analysis of Supplemental Combined Financial Condition and Results of Operations"
and "Business" and elsewhere in this prospectus constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements include, without limitation, statements
as to our plans to acquire, relocate or open additional stores, the anticipated
performance of new or acquired stores and other statements containing the words
"believes,""anticipates," "estimates," "expects," "may," "intends" and words of
similar import or statements of our management's opinion. These forward-looking
statements and assumptions involve known and unknown risks, uncertainties and
other factors that may cause our actual results, market performance or
achievements to differ materially from any future results, performance or
achievements expressed or implied by such forward-looking statements. Important
factors that could cause such differences include, but are not limited to:
8
<PAGE>
o changes in economic or business conditions in general or affecting the
natural foods industry in particular
o changes in product supply
o changes in the competitive environment in which we operate
o the availability of sites for new stores and potential acquisition
candidates
o changes in our management information needs
o changes in customer needs and expectations
o governmental and regulatory actions
9
<PAGE>
USE OF PROCEEDS
We will not receive any proceeds from the sale of the shares of common
stock offered by the selling stockholders.
SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the common stock as of September 27, 1998 by each
selling stockholder.
<TABLE><CAPTION>
Number of
Beneficial Ownership Shares to be Beneficial Ownership
Prior to Registered After
the Offering (1) in the Offering the Offering (1)
---------------- --------------- ----------------
Name Number Percent Number Percent
- ---- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
Stanley A. Boney(2)....................... 381,215 2.6 304,972 76,243 *
Scott B. Boney(3)......................... 368,217 2.5 276,163 92,054 *
Harold G. Ayer(4)......................... 232,456 1.6 232,456 0 *
Craig S. Engstrand(5)..................... 105,975 * 105,975 0 *
Robert C. Ailworth(6)..................... 75,694 * 75,694 0 *
Shon A. Boney(7).......................... 41,576 * 40,326 1,250 *
Kevin Easler(8)........................... 41,576 * 40,326 1,250 *
Alex C. Mincks(9)......................... 33,505 * 33,505 0 *
Robert M. Malkus.......................... 29,263 * 29,263 0 *
Scott T. Wing(10)......................... 22,809 * 22,809 0 *
Alan L. Ryan(11).......................... 12,487 * 12,487 0 *
Willard E. Bransky........................ 9,754 * 9,754 0 *
Henry A. Boney(12)........................ 9,684 * 9,684 0 *
Bruce W. Parrish(13)...................... 7,802 * 7,802 0 *
Kelvin Nettleton(14)...................... 7,802 * 7,802 0 *
Barry M. Miller........................... 6,271 * 6,271 0 *
Renee M. Farrar........................... 5,133 * 5,133 0 *
Neil Malkus............................... 3,902 * 3,902 0 *
Jason Ryan................................ 3,120 * 3,120 0 *
Roberta Ryan Zimmer....................... 1,952 * 1,952 0 *
</TABLE>
* less than one percent
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of Common Stock subject
to options, warrants and convertible notes currently exercisable or
convertible, or exercisable or convertible within 60 days of September 27,
1999 are deemed outstanding for computing the percentage of the person or
entity holding such securities but are not outstanding for computing the
percentage of any other person or entity.
Assumes all offered shares are sold.
(2) Consists of 381,215 shares held by Stanley A. Boney and his wife, Betty L.
Boney, as community property.
(3) Consists of 368,217 shares held by The Boney Family Trust with Scott B.
Boney and his wife, Betsy A. Boney, as Trustees.
(4) Consists of 232,456 shares held by the Boney Family Irrevocable Trust with
Harold G. Ayer, as Trustee.
(5) Consists of 105,975 shares held by the Craig S. & Carolee A. Engstrand
Family Trust with Craig S. Engstrand and his wife Carolee A. Engstrand, as
Trustees.
(6) Consists of 75,694 shares held by Robert C. Ailworth and his wife, Judie
Ailworth, as community property.
(7) Consists of 41,576 shares held by Shon A. Boney and his wife, Heather A.
Boney, as community property.
(8) Consists of 41,576 shares held by Kevin Easler and his wife, Linda Easler,
as community property.
(9) Consists of 33,505 shares held by Alex C. Mincks and his wife, Joan C.
Mincks, as community property.
10
<PAGE>
(10) Consists of 22,809 shares held by the Wing Family Trust with Scott T. Wing
and his wife, Susan J. Wing, as Trustees.
(11) Consists of 12,487 shares held by the Ryan Family Trust with Alan L. Ryan
and his wife, Linda L. Ryan, as Trustees.
(12) Consists of 9,684 shares held by the Boney Family Trust with Henry A. Boney
and his wife, Jessie, as Trustees.
(13) Consists of 7,802 shares held by the Parrish Irrevocable Trust, with Bruce
W. Parrish and his wife, Bonnie J. Parrish as Trustees.
(14) Consists of 7,802 shares held by Kelvin L. Nettleton and his wife, Karen
Nettleton, as community property.
The selling stockholders were the stockholders of Henry's Market, Inc.,
acquired by us on September 27, 1999 in a stock-for-stock transaction. No
selling stockholder claims any beneficial interest or ownership for any shares
other than those issued, or previously owned by, to that selling stockholder.
Each selling stockholder was granted certain registration rights pursuant to the
Stock Purchase Agreement executed as part of the transaction. The shares held by
the selling stockholders are being registered pursuant to that agreement.
PLAN OF DISTRIBUTION
The selling stockholders or their pledgees, donees, transferees or other
successors in interest may offer the shares from time to time. They may sell the
shares on the Nasdaq National Market or in the over-the-counter market or
otherwise, at prices and on terms then prevailing or related to the then-current
market price, or in negotiated transactions. They may sell the shares using one
or more of the following methods or other methods, or in any combination of such
methods:
o to broker-dealers acting as principals
o through broker-dealers acting as agens
o in underwritten offerings,
o in block trades
o in agency placements
o in exchange distributions
o in brokerage transactions
The selling stockholders or the purchasers of the shares may pay
compensation in the form of discounts, concessions or commissions to
broker-dealers or others who act as agents or principals or both. The amounts of
compensation may be negotiated at the time and may be in excess of customary
commissions. Broker-dealers and any other persons participating in a
distribution of the shares may be underwriters as that term is defined in the
Securities Act, and any discounts, concessions or commissions may be
underwriting discounts or commissions under the Securities Act. The selling
stockholders may grant a security interest in shares owned by them. If the
secured parties foreclose on the shares, they may be selling stockholders. In
addition, the selling stockholders may sell short the common stock. This
prospectus may be delivered in connection with short sales and the shares
offered may be used to cover short sales.
Any or all of the sales or other transactions involving the shares
described above, whether completed by the selling stockholders, any
broker-dealer or others, may be made using this prospectus. In addition, any
shares that qualify for sale under Rule 144 of the Securities Act may be sold
under Rule 144 rather than by using this prospectus. The shares may also be
offered in one or more underwritten offerings, on a firm commitment or best
efforts basis. We will not receive any proceeds from the sale of the shares by
the selling stockholders. The shares may be sold in one or more transactions at
a fixed offering price, which may be changed, or at varying prices determined at
the time of sale or at negotiated prices. The prices will be determined by the
selling stockholders or by agreement between the selling stockholders and their
underwriters, dealers, brokers or agents.
11
<PAGE>
If required under the Securities Act, the number of the shares being
offered and the terms of the offering, the names of any agents, brokers, dealers
or underwriters and any commission with respect to a particular offer will be
set forth in a prospectus supplement. Any underwriters, dealers, brokers or
agents participating in the distribution of the shares may receive compensation
in the form of underwriting discounts, concessions, commissions or fees from
selling stockholders or purchasers of the shares or both.
In addition, sellers of shares may be underwriters as that term is defined in
the Securities Act and any profits on the sale of shares by them may be discount
commissions under the Securities Act. The selling stockholders may have other
business relationships with us and our subsidiaries or affiliates in the
ordinary course of business.
The selling stockholders also may enter into hedging transactions with
broker-dealers and the broker-dealers may engage in short sales of the common
stock in the course of hedging the positions they assume with the selling
stockholders. The selling stockholders may also enter into option or other
transactions with broker-dealers that involve the delivery of the shares to the
broker-dealers, who may then resell or otherwise transfer the shares. The
selling stockholders may also pledge the shares to a broker-dealer and the
broker-dealer may sell those shares upon a default.
We will pay all costs associated with this offering, other than fees and
expense of counsel for the selling stockholders and any underwriting discounts
and commissions, brokerage commissions and fees and transfer taxes.
LEGAL MATTERS
The validity of the common stock offered hereby has been passed upon by
Holme Roberts & Owen LLP, Denver, Colorado as counsel for Wild Oats.
EXPERTS
Our financial statements incorporated in this prospectus by reference to
our Annual Report on Form 10-K for the year ended January 2, 1999, our
supplemental combined financial statements (which report contains an explanatory
paragraph relating to the pooling of interests with Henry's Marketplace, Inc. as
described in note 2 to the supplementary combined financial statements) filed on
Form 8-K on September 29, 1999 and the financial statements of Nature's Fresh
Northwest, Inc. as of and for the year ended February 6, 1999 filed on Form 8-K
on June 14, 1999, as amended on August 12, 1999 and August 16, 1999 have been so
incorporated in reliance on the reports of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting. The report of KPMG LLP, independent certified public
accountants, on the financial statements of Henry's Marketplace, Inc. as of and
for the fifty-two weeks ended December 27, 1998, has been incorporated by
reference herein upon the authority of said firm as experts in accounting and
auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-3, which encompasses all
amendments, exhibits, annexes and schedules thereto under the Securities Act
with respect to the common stock offered hereby. This prospectus, which
constitutes a part of the registration statement, does not contain all the
information set forth in the registration statement, to which reference is
hereby made. Statements made in this prospectus as to the contents of any
contract, agreement or other document referred to are not necessarily complete.
With respect to each such contract, agreement or other document filed as an
exhibit to the registration statement and the exhibits thereto, reference is
hereby made to the exhibit for a more complete description of the matter
involved, and each statement made herein shall be deemed qualified in its
entirety by such reference.
We are subject to the informational requirements of the Securities Exchange
Act of 1934 (the "Exchange Act") and in accordance therewith we file periodic
reports, proxy and information statements and other information filed with the
Commission. The registration statement filed by us with the Commission, as well
as such reports, proxy and information statements and other information filed by
us with the Commission, are available at the web site that the Commission
maintains at http:www.sec.gov and can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of
the Commission located at 7 World Trade Center, New York, New York 10048, and
the Central Regional Office, 1801 California Street, Suite 4800, Denver, CO
80202-2648. Copies of such material, when filed, may also be obtained
12
<PAGE>
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. Our common stock is quoted on the
Nasdaq National Market and such reports, proxy and information statements and
other information concerning Wild Oats are available at the offices of the
Nasdaq National Market located at 1735 K Street, N.W., Washington, D.C. 20006.
INCORPORATION OF CERTAIN INFORMATION WE FILE WITH THE SEC
Incorporated by reference in this prospectus are our following filings:
o Annual Report on Form 10-K for the fiscal year ended January 2, 1999
o Quarterly Reports on Form 10-Q for the quarters ended April 3, 1999
and July 3, 1999
o Definitive Proxy Statement dated April 1, 1999
o Current Reports on Form 8-K filed on: June 14, 1999, as amended on
August 12, 1999 and August 16, 1999; on August 2, 1999; and on
September 29, 1999
o the description of our common stock contained in our registration
statement on Form 8-A dated October 17, 1996
o the description of rights to purchase Series A Junior Participating
Preferred Stock contained in our registration statement on Form 8-A
dated May 21, 1998.
All documents filed by us pursuant to Section 13(a), 13(c), 14 or 15(d)
of the Exchange Act after the date of this prospectus and prior to the
termination of this offering shall be deemed to be incorporated by reference
herein and to be a part of this prospectus from the date of filing of such
documents. Any statement contained in a document incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this prospectus.
We will provide without charge to each person, including any beneficial
owner of common stock, to whom a copy of this prospectus has been delivered, on
the written or oral request of such person, a copy of any or all of the
foregoing documents incorporated by reference in this prospectus, other than
exhibits to such documents unless such exhibits are specifically incorporated by
reference into the information that this prospectus incorporates. Written or
oral requests for such copies should be directed to Wild Oats Markets, Inc.,
3375 Mitchell Lane, Boulder, Colorado 80301 (telephone: (303) 440-5220).
13
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth all the estimated expenses, other than the
underwriting discounts and commissions, payable by Wild Oats in connection with
the distribution of the common stock being registered.
These expenses will be borne by Wild Oats.
SEC registration fee............................. $ 43,946
NASD filing fees................................ 11,598
Printing fees................................... 25,500
Legal fees and expenses........................... 100,000
Accounting fees and expenses..................... 100,000
Transfer agent and registrar fees............... 5,000
Miscellaneous expenses........................... 13,956
--------
Total........................................ $300,000
========
Item 15. Indemnification of Officers and Directors.
Under Section 145 of the Delaware General Corporation Law, Wild Oats has
broad powers to indemnify its directors and officers against liabilities they
may incur in such capacities, including liabilities under the Securities Act of
1933, as amended (the "Securities Act"). Wild Oats's Bylaws also provide that we
will indemnify our directors and officers and may indemnify our employees and
other agents to the fullest extent not prohibited by Delaware law, provided that
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to our best interests and, with respect to any criminal
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
Our Certificate of Incorporation provides for the elimination of liability
for monetary damages for breach of the directors' fiduciary duty of care to us
and our stockholders. These provisions do not eliminate the directors' duty of
care and, in appropriate circumstances, equitable remedies such an injunctive or
other forms of non-monetary relief will remain available under Delaware law. In
addition, each director will continue to be subject to liability for breach of
the director's duty of loyalty to us, for acts or omissions not in good faith or
involving intentional misconduct, for knowing violations of law, for any
transaction from which the director derived an improper personal benefit, and
for payment of dividends or approval of stock repurchases or redemptions that
are unlawful under Delaware law. The provision does not affect a director's
responsibilities under any other laws, such as the federal securities laws or
state or federal environmental laws.
We have entered into agreements with our directors and certain executive
officers that require us to indemnify such persons against expenses, judgments,
fines, settlements and other amounts actually and reasonably incurred (including
expenses of a derivative action) in connection with any proceeding, whether
actual or threatened, to which any such person may be made a party by reason of
the fact that such person is or was our director or officer, provided that such
person's conduct was not knowingly fraudulent or deliberately dishonest and did
not constitute willful misconduct. The indemnification agreements also set forth
certain procedures that will apply in the event of a claim for indemnification
thereunder.
II-1
<PAGE>
Item 16. Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
<S> <C>
1.1 Form of Underwriting Agreement.**
4(i).1.(a) Amended and Restated Certificate of Incorporation of Wild Oats (1)
4(i).1.(b) Certificate of Correction to Amended and Restated Certificate of
Incorporation of Wild Oats (1)
4(i).1.(c) Certificate of Designation for Series A Junior Participating
Preferred Stock of Wild Oats*
4(ii).1 Amended and Restated By-Laws of Wild Oats (1)
4.2 Specimen stock certificate (2)
5.1 Opinion of Holme Roberts & Owen LLP*
21.1 List of subsidiaries (3)
23.1 Consent of PricewaterhouseCoopers LLP*
23.2 Consent of KPMG LLP*
23.3 Consent of Holme Roberts & Owen LLP. Reference is made to Exhibit
5.1.
24.1 Power of Attorney *
</TABLE>
- -------------------
* Filed herewith.
** To be filed by amendment.
(1) Incorporated by reference to Wild Oats' Annual Report on Form 10-K for the
year ended December 28, 1996 (File Number 0-21577).
(2) Incorporated by reference to Wild Oats' Registration Statement on Form S-1
(Number 333-11261).
(3) Incorporated by reference to Wild Oats' Annual Report on Form 10-K for the
year ended December 27, 1997 (File Number 0-21577).
Item 17. Undertakings.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Wild Oats hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to include any material
information with respect to the plan of distribution not previously disclosed in
the registration statement or any material change to such information in the
registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
II-2
<PAGE>
(4) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by Wild Oats pursuant to Rule 424(b)(1) or (4) or 497(h) under
the Securities Act shall be deemed to be part of this registration statement as
of the time it was declared effective.
(5) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(6) That, for purposes of determining any liability under the Securities
Act, each filing of Wild Oats' annual report pursuant to section 13(a) or
section 15(d) of the Exchange Act that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Wild Oats
certifies that it has reasonable grounds to believe that it meets the
requirements for filing on Form S-3 and has caused this registration statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Boulder, County of Boulder, State of Colorado, on the 29th day of
September, 1999.
Wild Oats Markets, Inc.
By: /s/ Mary Beth Lewis
Mary Beth Lewis
Vice President of Finance,
Chief Financial Officer and Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
* September 29, 1999
- -----------------------------------------
Michael C. Gilliland Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Mary Beth Lewis September 29, 1999
- -----------------------------------------
Mary Beth Lewis Vice President of Finance,
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
* September 29, 1999
- -----------------------------------------
Elizabeth C. Cook Executive Vice President and Director
* September 29, 1999
- -----------------------------------------
John A. Shields Chairman of the Board
* September 29, 1999
- -----------------------------------------
David M. Chamberlain Vice Chairman of the Board
* September 29, 1999
- -----------------------------------------
David L. Ferguson Director
* September 29, 1999
- -----------------------------------------
James B. McElwee Director
* September 29, 1999
- -----------------------------------------
Brian K. Devine Director
* September 29, 1999
- -----------------------------------------
Morris J. Siegel Director
*By:/s/ Mary Beth Lewis
Mary Beth Lewis, as Attorney in Fact
</TABLE>
II-4
Exhibit 5.1
September 29, 1999
Wild Oats Markets, Inc.
1645 Broadway
Boulder, Colorado 80302
Dear Ladies and Gentlemen:
You have requested our opinion with respect to certain matters in connection
with the filing by Wild Oats Markets, Inc. (the "Company") of a registration
statement on Form S-3 (the "Registration Statement") with the Securities and
Exchange Commission, including (i) a prospectus included in the Registration
Statement relating to the sale by certain selling shareholders of up to
1,213,792 shares of the Company's common stock (the "Shares") and (ii) a
prospectus relating to the underwritten public offering of up to 2,859,361
Shares, of which up to 1,159,361 Shares to be sold by certain stockholders of
the Company.
In connection with this opinion, we have (i) examined and relied upon the
Registration Statement, (ii) reviewed the Company's Certificate of Incorporation
and Bylaws, as amended, and the originals or copies certified to our
satisfaction of such records, documents, certificates, memoranda and other
instruments as in our judgment were necessary or appropriate to enable us to
render the opinion expressed below, and (iii) assumed that the Shares to be sold
to the underwriters by the Company will be sold at a price established by the
Board of Directors of the Company or the Pricing Committe thereof in accordance
with Section 153 of the Delaware General Corporation Law.
On the basis of the foregoing and in reliance thereon, we are of the opinion
that the Shares, when issued and sold in accordance with the Registration
Statement, will be validly issued, fully paid and nonassessable.
We consent to the reference to our firm under the caption "Legal Matters" in
each prospectus included in the Registration Statement and to the filing of this
opinion as an exhibit to the Registration Statement.
Very truly yours,
Holme Roberts & Owen LLP
By: /s/ Francis R. Wheeler
Francis R. Wheeler, Partner
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-3 of:
o our report dated January 29, 1999 relating to the financial
statements, which appears in Wild Oats Markets, Inc. Annual Report on
Form 10-K for the year ended January 2, 1999, and
o our report dated January 29, 1999, except as to the pooling of
interests with Henry's Marketplace, Inc., which is as of September 27,
1999, relating to the supplemental combined financial statements,
which appears in the Current Report on Form 8-K dated September 29,
1999, and
o our report dated July 9, 1999 relating to the financial statements of
Nature's Fresh Northwest, Inc. as of and for the year ended February
6, 1999, which appears in the Current Report on Form 8-K dated June
14, 1999, as amended on August 12, 1999 and August 16, 1999.
We also consent to the reference to us under the heading "Experts" in such
Registration Statement.
PricewaterhouseCoopers LLP
Denver, Colorado
September 28, 1999
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the registration statement
(No. 333- ) on Form S-3 of Wild Oats Markets, Inc. of our report dated February
5, 1999, with respect to the balance sheet of Henry's Marketplace, Inc. as of
December 27, 1998, and the related statements of earnings, stockholders' equity,
and cash flows for the fifty-two weeks then ended, which report appears in the
Form 8-K of Wild Oats Markets, Inc., dated September 27, 1999. We also consent
to the reference to our firm under the heading "Experts" in the registration
statement.
KPMG LLP
San Diego, California
September 27, 1999
Exhibit 24.1
POWER OF ATTORNEY
Each person whose signature appears below does hereby make, constitute and
appoint Mary Beth Lewis as such person's true and lawful attorney-in- fact and
agent, with full power of substitution, resubstitution and revocation to
execute, deliver and file with the Securities and Exchange Commission, for and
on such person's behalf, and in any and all capacities, a Registration Statement
on Form S-3, any and all amendments (including post-effective amendments)
thereto and any abbreviated registration statement in connection with this
Registration Statement pursuant to Rule 462(b) under the Securities Act of 1933,
with all exhibits thereto and other documents in connection therewith, granting
unto said attorneys in-fact and agents full power and authority to do and
perform each and every act and thing requisite and necessary to be done as fully
to all intents and purposes as such person might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent or such
persons' substitute or substitutes may lawfully do or cause to be done by virtue
hereof.
/s/ Michael C. Gilliland September 24, 1999
- ------------------------
Michael C. Gilliland
/s/ Mary Beth Lewis September 24, 1999
- -------------------
Mary Beth Lewis
/s/ Elizabeth C. Cook September 24, 1999
- ---------------------
Elizabeth C. Cook
/s/ John A. Shields September 24, 1999
- -------------------
John A. Shields
/s/ David M. Chamberlain September 24, 1999
- ------------------------
David M. Chamberlain
/s/ David L. Ferguson September 24, 1999
- ---------------------
David L. Ferguson
/s/ James B. McElwee September 24, 1999
- --------------------
James B. McElwee
/s/ Brian K. Devine September 24, 1999
Brian K. Devine
/s/ Morris J. Siegel September 24, 1999
- ---------------------
Morris J. Siegel
