UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR SECTION 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JANUARY 1, 2000
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR SECTION 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-21577
WILD OATS MARKETS, INC.
(Exact name of registrant as specified in its charter)
Delaware 84-1100630
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
3375 Mitchell Lane
Boulder, Colorado 80301
(Address of principal executive offices, including zip code)
(303) 440-5220
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class
Common Stock, $.001 par value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes (X) No ( )
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.( )
As of March 1, 2000, the aggregate market value of the voting stock held by
non-affiliates (as defined by the regulations of the Securities and Exchange
Commission) of the Registrant was $319,098,538, based upon the closing sale
price of such stock on such date as reported on the NASDAQ National Market. As
of March 1, 2000, the total number of shares outstanding of the Registrant's
common stock, $.001 par value, was 23,022,059 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the Registrant's Annual Meeting
of Stockholders to be held on May 5, 2000, have been incorporated by reference
into Part III of this report.
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TABLE OF CONTENTS
Page
PART I.
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Item 1. Business. 1
Item 2. Properties. 8
Item 3. Legal Proceedings. 10
Item 4. Submission of Matters to a Vote of Security Holders. 10
PART II.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. 10
Item 6. Selected Financial Data. 12
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. 13
Item 7A. Quantitative and Qualitative Disclosures About Market Risk. 19
Item 8. Financial Statements and Supplementary Data. 20
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. 41
PART III.
Item 10. Directors and Executive Officers of the Registrant. 41
Item 11. Executive Compensation. 41
Item 12. Security Ownership of Certain Beneficial Owners and Management. 41
Item 13. Certain Relationships and Related Transactions. 41
PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. 41
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PART I.
Item 1. BUSINESS
Introduction
Wild Oats Markets, Inc. ("Wild Oats") is the largest natural foods
supermarket chain in North America (based on number of stores). As of March 1,
2000, we operated 111 stores in 22 states and British Columbia, Canada under
several names, including:
o Wild Oats Community Market (Nationwide)
o Alfalfa's Market (CO and NM)
o Henry's Marketplace (San Diego, CA)
o Nature's Fresh and Nature's Northwest (metropolitan Portland, OR)
o Sun Harvest Market (TX)
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 2,700 to 45,000 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.
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 one which 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, food service,
bakery, vitamins and supplements, health and body care and household items. Our
positioning, coupled with industry data that states that the natural products
industry comprises less than 2.5% of the total grocery industry, offers
significant potential for us to continue to expand our customer base.
Since acquiring our first natural foods store in 1987, we have pursued an
aggressive growth strategy. In 1999, we acquired 17 stores through cash
acquisitions and completed two stock-for-stock transactions with Henry's
Marketplace, Inc. ("Henry's") and Sun Harvest Farms, Inc. and an affiliate ("Sun
Harvest") in the third and fourth quarters, respectively, that added another 24
stores to our historic store base. The transactions were accounted for as
poolings-of-interests, and so our historic financial information and the numbers
of stores operated for all periods described have been restated throughout this
Report on Form 10-K to include the operations of Henry's and Sun Harvest.
We have grown from 82 natural foods stores located in 18 states and Canada
at the end of 1998 to 106 natural foods stores and four vitamin stores in 22
states and Canada as of the end of 1999, an increase of 34%. Wild Oats' sales
grew from $530.7 million during 1998 to $721.1 million during fiscal 1999, an
increase of 36%, due largely to the opening of eight new stores (including one
opened by Henry's), the relocation of five stores and the acquisition of 17
stores in 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. In 1999, we opened eight new stores (including
one opened by Henrys in 1999) and acquired 17 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 Four stores operated under the name "Wild Harvest" in metropolitan Boston,
Massachusetts
o Three operating stores located in Tucson, Arizona
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We also completed stock-for-stock transactions, accounted for as
poolings-of-interests, with the following entities in 1999:
o Henry's Marketplace, which owned 11 stores and one site in development in
metropolitan San Diego, California
o Sun Harvest Farms and an affiliate, which owned nine natural food grocery
stores and four vitamin stores in San Antonio, Austin and other communities in
Texas
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. 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
Retail sales of natural products have grown from $7.6 billion in 1994 to
sales of $19.0 billion in 1998, a 26% compound annual growth rate, and total
sales of natural products (including over the internet, by practitioners, by
multi-level marketers and through mail order) reached $25.4 billion in 1998.
Sales growth in the traditional grocery 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 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% 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
commercial brand names, resulting in a more limited selection of natural
products from which to choose. In addition, conventional supermarkets may not be
able to match our pricing in many categories because of the greater volume
purchase discounts we receive on natural products. 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.
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.
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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. We also are installing "Healthnotes On
Line(R)", an on-line health information database, in most of our stores in 2000
to provide our customers with up-to-date access to health and health product
information. 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 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, once each
calendar quarter, donate 5% of its gross sales from one day 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" lines 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, acquire or relocate as many as 21 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 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.
As of March 1, 2000, we have opened three new stores and relocated one
store. We currently have leases or letters of intent signed for 18 additional
new stores to be opened or relocated in the remainder of 2000 and in 2001,
including six relocations of existing stores, as follows:
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Projected
Site Name Opening Date
St. Louis, Missouri Opened January 2000
West Hartford, Connecticut* Opened February 2000
San Diego, California Opened February 2000
Reno, Nevada Opened February 2000
Kansas City, Kansas* Opened March 2000
Bend, Oregon 2000
Cincinnati, Ohio 2000
Cleveland, Ohio (two sites) 2000
Las Vegas, Nevada* 2000
Northern California 2000
Omaha, Nebraska 2000
Portland, Oregon 2000
Salt Lake City, Utah* 2000
San Diego, California 2000
South Florida (two sites)* 2000
Southern California (two sites) 2000
Texas 2000
Westport, Connecticut* 2000
Kansas City, Missouri 2001
Long Beach, California 2001
* Relocation
Acquisition of assets of independent and small chain natural foods store
operators. During 1999, we acquired 17 natural foods stores: seven in
metropolitan Portland, Oregon; four in metropolitan Boston, Massachusetts; three
in Tucson, Arizona; one each in Hartford (subsequently relocated in the first
quarter of 2000) 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.
Stock-for-stock transactions with operators of natural foods stores. During
1999, we completed two stock-for-stock transactions, accounted for as poolings
of interest, with the shareholders of the following natural foods store
operators: Henry's Marketplace, which operated 11 natural foods stores, a bakery
depot and a produce warehouse in metropolitan San Diego, California; and Sun
Harvest Farms, which operated nine natural foods stores, a distribution
warehouse, and through an affiliate, four small vitamin stores in San Antonio,
Austin and other communities in Texas. In 1998, we completed two stock-for-stock
transactions accounted for as poolings of interests with natural foods store
operators who operated single stores in Columbus, Ohio, and in Little Rock,
Arkansas.
Opening of new stores. In 1999, we opened eight new stores in Phoenix,
Arizona; San Diego, California (opened by Henry's); Hinsdale and Evanston,
Illinois; Madison, New Jersey; Albuquerque, New Mexico; Tulsa, Oklahoma and
Nashville, Tennessee, 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. To date in 2000, we opened three new stores, relocated
one store and closed two smaller stores. In 1998, we opened nine new stores in
Santa Monica, California; Westminster, Colorado; Pinecrest and South Beach,
Florida; Indianapolis, Indiana; Las Vegas, Nevada; Princeton, New Jersey and
Dallas and San Antonio, Texas (opened by Sun Harvest), and relocated two stores,
one each in 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 seek to
attract new customers, generate repeat business and gradually increase the size
of the average transaction by introducing, expanding and improving key
merchandise
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categories such as perishables (produce, deli and prepared foods) and private
label products, as well as implementing expanded marketing programs and
expanding customer service.
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 in 2000 by planned cannibalization due to the opening of
new or relocated stores in several of our existing markets, including, among
others, Phoenix, Arizona; San Diego, California; Kansas City and St. Louis,
Missouri; Las Vegas, Nevada; Albuquerque, New Mexico and Salt Lake City, Utah.
There can be no assurance that comparable store sales for any particular period
will not decrease in the future.
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 us 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
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 cereals, breads,
salad dressings, vitamins, chips, salsa, pretzels, cookies, juices, pasta, pasta
sauces, oils and chocolate bars. 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, bottled water and paper products, to
offer our customers quality natural products at competitive prices.
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.
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Company culture and store operations
Company culture. Our culture is embodied in our "Five Areas of
Responsibility": responsibility to our customers, our staff, our community, the
environment and our bottom line. In particular, we believe that knowledgeable,
satisfied and motivated staff members have a positive 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 purchasing directors 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 and disability insurance,
employer matching 401(k) plan and equity incentive plans that include 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.
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 approximately 8,000 suppliers, we
purchase approximately 25% of the dollar value of the products sold in our
stores from United Natural Foods Inc. ("UNFI"), a wholesale distributor that
operates multiple warehouses nationwide and with whom we are in the second of a
four-year buying agreement. We believe that UNFI has the capacity to service all
of our existing stores as well as most of our future sites, although in 1999
UNFI experienced some problems with the consolidation of its eastern U.S.
warehouse operations that resulted in its inability to supply us with sufficient
product in certain categories so that some of our stores were out of stock on
certain items. Recent changes in the upper management of UNFI have improved
distribution operations and reduced the number of unfilled or partially filled
orders. As a result of our rapid growth, we have been able to negotiate greater
volume discounts with this distributor and certain other vendors. In 1999, we
entered into a supply agreement with General Nutrition Products, Inc. ("GNP")
under which GNP supplies us with certain private label vitamins and supplements.
The agreement runs for three years, but is terminable by either party with
advanced notice. 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 three warehouse facilities, one in Denver,
Colorado, one in Los Angeles, California, and one in San Antonio, Texas, 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.
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We operate seven commissary kitchens in Phoenix, Arizona; Los Angeles,
California; Denver, Colorado; Las Vegas, Nevada; Santa Fe, New Mexico; 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 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 have been primarily focused on in-store customer
education and promoting product specials. 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 campaigns. As a result, we focus
on consumer education and emphasize the benefits and quality of our products. We
use a variety of media, including in-store flyers, informational brochures and
signage that promote the depth of our merchandise selection, benefits of natural
products and "down to earth" competitive prices. We also recognize the
importance of building brand awareness within our trade area and advertise in
traditional media outlets such as radio, newspapers, outdoor and direct mail to
gain new customer trial and repeat business. 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 supplemented by the marketing strategies described above.
In 1999, we entered into a strategic alliance with eNutrition, Inc. under
which eNutrition will have an exclusive right to market vitamins, supplements,
sports nutrition products and certain personal care items through links from
www.eNutrition.com to our website, www.wildoats.com. Wild Oats and eNutrition
will also co-market each other's products, with the goal to boost the number of
customers and sales from our website. Wild Oats may receive equity interests in
eNutrition for our participation in co-marketing plans, and for achieving target
levels of new customers who purchase from eNutrition's site by the link through
our website.
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.
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 directors 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, other than a majority
of the stores acquired in 1999, to date. The Henry's stores in the metropolitan
San Diego area use a different point-of-sale system that will be maintained
independently. All newly opened stores will be using the new hardware and
software systems going forward.
We have 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. The credit card processing system is fully
operational in 80% of our stores, and the remaining stores currently using IBM
cash register systems are targeted for conversion, with the exception of the
stores in Canada and several of our smallest stores, by the end of the first
quarter of 2000.
In 1999, we standardized our timekeeping systems throughout our stores, and
installed new software that now allows us to process payroll in-house instead of
through a third-party processor. We believe that by handling payroll in house,
we have greater accuracy in payroll processing, greater control over payroll
and, in the future, we expect to realize a cost savings by not paying outside
processing fees.
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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. We currently compete directly with Whole Foods in California,
Colorado, Florida, Illinois, Massachusetts, New Mexico and Texas.
Employees
As of March 1, 2000, we employed approximately 6,600 full-time individuals
and 2,000 part-time individuals. Approximately 8,000 of our employees are
engaged at the store-level and 600 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 Henry's stores in metropolitan San Diego, California) are
currently being picketed relating to area standards.
Item 2. PROPERTIES
We currently lease approximately 29,500 square feet for our corporate
office 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.
We lease all of our currently operating stores. We currently have
letters of intent or leases signed for 18 sites projected to be opened in the
remainder of 2000 and in 2001, including six relocations. In 1999, we acquired
certain real property in Oregon in conjunction with the acquisition of an
operating store, and an office building in San Antonio, Texas as part of the
stock-for-stock transaction with Sun Harvest Farms, Inc. We have already sold
the property under the store in Oregon in a sale-leaseback transaction. We
anticipate that we will sell substantially all of the real property we currently
own. Our leases typically provide for a 10- to 25-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.
8
<PAGE>
Store locations
The following map and store list show, as of December 31, 1999, the
number of natural food grocery stores (excluding four small vitamin stores in
Texas) that Wild Oats operates in each state and Canadian province and the
cities in which Wild Oats stores are located:
[MAP]
<TABLE>
<CAPTION>
------------------------ ----------------------------- -------------------------- ------------------------------
<S> <C> <C> <C>
Arizona Colorado Kansas Oklahoma
Phoenix (2) Aurora Mission Tulsa
Scottsdale Boulder (3)
Tucson (3) Colorado Springs Massachusetts Oregon
Denver (3) Andover Beaverton
Arkansas Fort Collins Framingham Eugene (2)
Little Rock Glendale Medford Lake Oswego
Greenwood Village Saugus Portland (4)
California Lakewood
Berkeley Littleton Missouri Tennessee
Encinitas Westminster Kansas City Memphis (2)
Mission Viejo St. Louis Nashville (2)
Laguna Beach Connecticut
La Mesa Hartford Nevada Texas
Los Angeles Norwalk Las Vegas (3) Austin (2)
Pasadena Corpus Christie
Poway Florida New Jersey Dallas
Sacramento Boca Raton Princeton El Paso
San Anselmo Fort Lauderdale Madison McAllen
San Diego (6) Melbourne San Antonio (4)
Santa Barbara Miami Beach New Mexico
Santa Monica (2) Pinecrest Albuquerque (3) Utah
Santee West Palm Beach Santa Fe (3) Salt Lake City (3)
Solana Beach
Sunnyvale Illinois New York Washington
West Hollywood Evanston New York City Vancouver
Hinsdale
Ohio British Columbia, Canada
Indiana Upper Arlington Vancouver (2)
Indianapolis Victoria
West Vancouver
</TABLE>
9
<PAGE>
Item 3. LEGAL PROCEEDINGS
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.
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.
On February 17, 2000, we were named as defendant in Cornerstone III, LLC v.
Wild Oats Markets, Inc., a suit filed in U.S. District Court for the Eastern
District of Missouri by a former landlord who alleges that we breached our
obligations under a lease agreement when we notified the landlord that we were
exercising our rights under the lease to terminate after the landlord failed to
turn over possession of the leased property within the time period provided for
in the lease. The plaintiff seeks actual and punitive damages. We believe that
we acted within our rights under the lease and intend to vigorously defend the
suit.
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.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On October 22, 1999, Wild Oats held a special meeting of stockholders to
vote on an amendment to our Amended and Restated Certificate of Incorporation to
increase the number of authorized shares of common stock to 60,000,000. The
proposal was adopted, with 9,259,379 votes cast for and 2,743,008 votes cast
against the matter. 18,393 votes abstained and there were no broker non-votes.
PART II.
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the NASDAQ National Market
under the symbol "OATS".
The following are the quarterly high and low sales prices (adjusted for
the 3-for-2 splits described below) for each quarter of the past two years:
High Low
First Quarter 1998 25.50 14.00
Second Quarter 1998 24.33 17.04
Third Quarter 1998 21.83 11.67
Fourth Quarter 1998 22.00 14.67
First Quarter 1999 21.33 14.67
Second Quarter 1999 20.50 16.50
Third Quarter 1999 27.42 20.04
Fourth Quarter 1999 28.50 17.44
10
<PAGE>
As of March 1, 2000, Wild Oats' common stock was held by 681
stockholders of record. No cash dividends have been declared previously on our
common stock, and we do not anticipate declaring a cash dividend in the near
future. Our revolving line of credit facility contains restrictions on the
payment of cash dividends without lender consent for so long as amounts remain
unpaid under the facility. On January 7, 1998, and on December 1, 1999, Wild
Oats effected 3-for-2 stock splits of its common stock for securities held of
record as of December 22, 1997 and November 17, 1999, respectively.
On December 15, 1999, we issued 888,903 shares of Wild Oats common
stock to the stockholders of Sun Harvest Farms, Inc. and an affiliate in
exchange for 100% of the outstanding stock of Sun Harvest and all of the
partnership interests in the affiliate, in a transaction accounted for as a
pooling-of-interests. The transaction was completed pursuant to an exemption
from registration under Rule 506 of Regulation D, promulgated under the
Securities Act of 1933, as amended. In accordance with Rule 506, no more than 35
purchasers received shares of the Company's stock, each purchaser who was not an
accredited investor had sufficient knowledge and experience, alone or with a
purchaser representative, to evaluate the investment, and all information
required to be provided by the Company was provided. There were no cash proceeds
from the transaction.
11
<PAGE>
Item 6. SELECTED FINANCIAL DATA
(In thousands, except per-share amounts and number of stores)
The following data for the five fiscal years ended January 1, 2000, are derived
from the consolidated financial statements of the Company. The following data
should be read in conjunction with the Company's consolidated financial
statements, related notes thereto and other financial information included
elsewhere in this report on Form 10-K.
<TABLE>
<CAPTION>
Fiscal Year 1999 1998 1997 1996 1995
- - ----------------------------------------------------------------------------------------------------------------------
Statement of operations data: (unaudited)
<S> <C> <C> <C> <C> <C>
Sales $721,091 $530,726 $431,974 $299,567 $180,037
Cost of goods sold and occupancy costs 499,627 369,475 301,644 208,454 124,890
---------- ---------- -------- --------- --------
Gross profit 221,464 161,251 130,330 91,113 55,147
Direct store expenses 155,869 113,094 96,448 69,485 42,486
---------- ---------- --------- --------- --------
Store contribution 65,595 48,157 33,882 21,628 12,661
Selling, general and administrative expenses 27,939 20,026 16,314 12,361 8,657
Pre-opening expenses 2,767 3,449 1,149 1,863 1,037
Non-recurring expenses 12,642 393 7,035
---------- ---------- --------- -------
Income from operations 22,247 24,289 16,419 369 2,967
Interest income (expense), net (4,280) (28) (622) (1,471) (867)
---------- ---------- --------- --------- --------
Income (loss) before income taxes 17,967 24,261 15,797 (1,102) 2,100
Income tax expense (benefit) 5,198 7,822 5,501 (120) 424
---------- ---------- --------- --------- --------
Net income (loss) before cumulative effect
of change in accounting principle 12,769 16,439 10,296 (982) 1,676
Cumulative effect of change in accounting
principle, net of tax (1) 281
---------
Net income (loss) 12,488 16,439 10,296 (982) 1,676
Accretion of redeemable preferred stock 2,396 1,937
---------- ---------- --------- --------- --------
Net income (loss) allocable to common stock $12,488 $16,439 $10,296 $(3,378) $(261)
========== ========== ========= ========= ========
Basic net income (loss) per common share $0.55 $0.73 $0.55 $(0.32) $(0.03)
========== ========== ========= ========= ========
Weighted average number of common shares outstanding 22,806 22,440 18,841 10,606 8,214
========== ========== ========= ========= ========
Diluted net income (loss) per common share $0.53 $0.71 $0.53 $(0.32) $(0.03)
========== ========== ========= ========= ========
Weighted average number of common shares outstanding 23,467 23,079 19,425 10,606 8,214
========== ========== ========= ========= ========
Number of stores at end of period 110 82 70 57 36
Balance sheet data:
Working capital (deficit) $(20,971) $(5,281) $32,566 $5,998 $(3,035)
Total assets 350,629 217,320 190,752 123,045 49,275
Long-term debt (including capitalized leases) 80,328 2,675 4,157 4,678 14,984
Redeemable convertible preferred stock 16,956
Stockholders' equity (deficit) 165,387 152,608 136,697 77,809 (4,376)
</TABLE>
(1) In 1999 the Company recorded $281,000 in expenses associated with cumulative
effect of change in accounting principle. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Preopening
Expenses".
12
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This report on Form 10-K contains certain forward-looking statements
regarding our future results of operations and performance. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Cautionary Statement Regarding Forward-Looking Statements." All information
stated herein has been revised to reflect the stock-for-stock transactions,
accounted for as poolings of interests, with Henry's and Sun Harvest, which were
consummated on September 27, 1999 and December 15, 1999, respectively. The
Company declared a 3-for-2 stock split for all stockholders of record on
November 17, 1999, effective December 1, 1999. All shares and per-share
information presented herein have been retroactively restated to reflect this
stock split.
Overview
Store openings, closings, remodels, relocations and acquisitions. In 1999,
we opened eight new stores in Phoenix, Arizona; San Diego, California (opened by
Henry's); Evanston and Hinsdale, Illinois; Madison, New Jersey; Albuquerque, New
Mexico; Tulsa, Oklahoma and Nashville, Tennessee, and relocated five stores in
Phoenix, Arizona; Ft. Collins, Colorado; Portland, Oregon; Salt Lake City, Utah
and Memphis, Tennessee. As of March 1, 2000, we have opened three new stores and
relocated one new store. Also during 1999, we acquired 17 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), four in Metropolitan Boston, Massachusetts, three in Tucson, Arizona,
two in Norwalk and Hartford, Connecticut, and one in Melbourne, Florida. We also
consummated two stock-for-stock transactions, accounted for as poolings of
interest, which added 24 stores to our historic store base, including 11 Henry's
Marketplace stores in metropolitan San Diego, California (one of which was
opened in 1999 and is included in the number of new stores opened discussed
herein) and nine Sun Harvest and four vitamin stores in San Antonio, Austin and
other Texas communities. We plan to open, acquire or relocate as many as 16
stores in the remainder of 2000. We are actively looking for other acquisition
opportunities and may complete additional acquisitions 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. As a result of such evaluations,
we closed two Farm to Market stores in Tempe, Arizona and Buffalo Grove,
Illinois in 1999. In the first quarter of 2000, we closed our Dallas store for
remodeling and reopening under the "Sun Harvest" tradename, and closed two of
our smaller stores. During the first half of 2000, we plan to remodel as many as
25 of our existing, older stores to remerchandise and incorporate new features.
Acquisitions. In 1999, we opened eight new stores (including one opened by
Henry's) and acquired 17 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 $29.5 million was allocated to goodwill, which
is being amortized on a straight-line basis over 40 years.
o Four stores operated under the name "Wild Harvest" in metropolitan
Boston, Massachusetts. The purchase price aggregated $12.5 million in
cash. The acquisition was accounted for using the purchase method, and
the excess of cost over the fair value of the assets acquired of
$787,000 was allocated to goodwill, which is being amortized on a
straight-line basis over 40 years.
We also consummated two stock-for-stock transactions, accounted for as poolings
of interest, which added 20 natural food grocery stores and four small vitamin
stores to our historic store base, with the following entities:
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 2,100,290 shares of Wild Oats' common
stock. This transaction was accounted for as a pooling of interests.
o Sun Harvest Farms and an affiliate, located in San Antonio, Austin and
other Texas communities, which owned nine operating natural food stores
and four vitamin stores. Sun Harvest Farms had sales of
13
<PAGE>
approximately $50.8 million in sales in 1998. The merger consideration
was 888,903 shares of Wild Oats' common stock. The 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, Henry's and Sun
Harvest 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. We plan to remodel or remerchandise as many as 25 of our older stores in
the first half of 2000. 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 store remodels
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 in 2000 by planned cannibalization due to the opening of
new or relocated stores in several of our existing markets, including, among
others, Phoenix, Arizona; San Diego, California; Kansas City and St. Louis,
Missouri; Las Vegas, Nevada; Albuquerque, New Mexico and Salt Lake City, Utah.
As a result, we expect comparable store sales percentage increases to be flat to
slightly negative for the first quarter of 2000, and to average in the low to
mid-
14
<PAGE>
single digits for the remainder of 2000. 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
historically, 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 1999.
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 Ended 1999 1998 1997
- - ----------------- --------- -------- -------
<S> <C> <C> <C>
Sales 100.0% 100.0% 100.0%
Cost of goods sold
and occupancy costs 69.3 69.6 69.8
--------- -------- -------
Gross profit 30.7 30.4 30.2
Direct store expenses 21.6 21.3 22.4
--------- -------- -------
Store contribution 9.1 9.1 7.8
Selling, general and
administrative expenses 3.9 3.8 3.7
Pre-opening expenses 0.4 0.6 0.3
Non-recurring expenses 1.8 0.1
--------- ------
Income from operations 3.0 4.6 3.8
Interest (expense), net (0.6) (0.1)
--------- -------- --------
Income before income taxes 2.4 4.6 3.7
Income tax expense 0.7 1.5 1.3
--------- -------- -------
Net income before cumulative
effect of change in accounting
principle 1.7 3.1 2.4
Cumulative effect of change
in accounting principle,
net of taxes 0.1
------
Net income 1.6% 3.1% 2.4%
========= ======== ========
</TABLE>
Fiscal 1999 Compared to Fiscal 1998
Fiscal 1999 contained 52 weeks of operations as compared to 53 weeks in fiscal
1998.
Sales
Sales for the fiscal year ended January 1, 2000, increased 35.9% to $721.1
million from $530.7 million in 1998. The increase was primarily due to the
acquisition of seventeen stores, the opening of eight new stores, and the
relocation of five stores, as well as the inclusion of a full year of sales for
the nine new stores opened and seven stores acquired in 1998. Comparable store
sales increased 6% for 1999, as compared to 4% for 1998.
Gross Profit
Gross profit for the fiscal year ended January 1, 2000, increased 37.3% to
$221.5 million from $161.3 million in 1998. The increase in gross profit is
primarily attributable to the acquisition of seventeen stores and the opening of
eight new stores. As a percentage of sales, gross profit increased to 30.7% in
1999 from 30.4% in 1998 due to the maturation of the Company's store base and
the Company's increasing volume purchase discounts.
15
<PAGE>
Direct Store Expenses
Direct store expenses for the fiscal year ended January 1, 2000, increased 37.8%
to $155.9 million from $113.1 million in 1998. The increase in direct store
expenses is attributable to the increase in the number of stores operated by the
Company. As a percentage of sales, direct store expenses increased to 21.6% in
1999 from 21.3% in 1998 due to the increased number of acquired and newly-opened
stores in 1999 over 1998.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the fiscal year ended January
1, 2000, increased 39.5% to $27.9 million from $20.0 million in 1998. As a
percentage of sales, selling, general and administrative expenses increased to
3.9% from 3.8% in 1998. The increases are primarily attributable to additions in
the corporate and regional staff necessary to support the Company's growth. In
addition, the Company moved its corporate office during the fourth quarter of
1998 to a larger facility to accommodate an increased support staff for its
larger base of stores. There is a full year of additional selling, general and
administrative expenses for rent and utilities on the new facility in 1999, as
compared to one quarter in 1998.
Pre-Opening Expenses
As previously discussed herein, in April 1998, the AICPA issued SOP 98-5,
Accounting for the Costs of Start-Up Activities. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Pre-Opening
Expenses." Pre-opening expenses for the fiscal year ended January 1, 2000,
decreased 19.8% to $2.8 million from $3.4 million in 1998. The decrease in
pre-opening expenses is attributable to the decrease in the number of stores
opened. As a percentage of sales, pre-opening expenses decreased to 0.4% from
0.6% due to the opening of eight new stores in 1999 as compared to nine new
stores in 1998.
Non-Recurring Expenses
Non-recurring expenses for the fiscal year ended January 1, 2000, were $12.6
million, as compared to $393,000 in 1998. Non-recurring expenses of
approximately $10.9 million were recorded in the first quarter of 1999 as the
result of 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. There were also non-recurring
expenses of $645,000 during the third quarter of 1999, and $1.1 million during
the fourth quarter 1999, as a result of the poolings with Henry's and Sun
Harvest. The components were primarily non-cancelable lease obligations and
professional fees. The 1998 charge is attributed to employee severance costs,
inventory and fixed asset write-downs, and lease cancellation costs associated
with two poolings-of-interests transactions during 1998.
Interest Expense, Net
Net interest expense for the fiscal year ended January 1, 2000, increased to
$4.3 million, from $28,000 in 1998. As a percentage of sales, net interest
expense increased to 0.6% from less than 0.1% in 1998. The increase is primarily
attributable to interest on borrowings on our line of credit to fund
acquisitions and new stores.
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 22.8% to $530.7
million from $432.0 million in 1997. The increase was primarily due to the
acquisition of seven stores, the opening of nine 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% for 1998, as compared to 5% for 1997.
Gross Profit
Gross profit for the fiscal year ended January 2, 1999, increased 23.7% to
$161.3 million from $130.3 million in 1997. The increase in gross profit is
primarily attributable to the acquisition of seven stores and the opening of
nine new stores. As a percentage of sales, gross profit increased to 30.4% in
1998 from 30.2% in 1997 due to the maturation of the Company's store base and
the Company's increasing volume purchase discounts.
Direct Store Expenses
Direct store expenses for the fiscal year ended January 2, 1999, increased 17.3%
to $113.1 million from $96.4 million in 1997. The increase in direct store
expenses is attributable to the increase in the number of stores operated by the
Company. As a percentage of sales, direct store expenses decreased to 21.3% from
22.4% 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.
16
<PAGE>
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the fiscal year ended January
2, 1999, increased 22.7% to $20.0 million from $16.3 million in 1997. As a
percentage of sales, selling, general and administrative expenses increased to
3.8% from 3.7% in 1997. The increases are the 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 marketing
materials 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 200.1%
to $3.4 million from $1.1 million in 1997. The increase in pre-opening expenses
is attributable to the increase in the number of stores opened or relocated. As
a percentage of sales, pre-opening expenses increased to 0.6% 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 nine 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,
as compared to no non-recurring expenses in 1997. The change is attributed to
employee severance costs, inventory and fixed asset write-downs, and lease
cancellation costs associated with two poolings-of-interests transactions during
1998.
Interest Expense, Net
Net interest expense for the fiscal year ended January 2, 1999, decreased 95.4%
to $28,000, from $622,000 in 1997. As a percentage of sales, net interest
expense decreased to less than 0.1% from 0.1% in 1997. The decrease is
attributable to the investment of the net proceeds from the Company's public
equity offering in December 1997 and to lower levels of indebtedness incurred to
fund new 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,
relocations, remodels, acquisitions and purchases of real property.
Net cash provided by operating activities was $53.9 million during 1999 as
compared to $32.1 million during 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 $32.1 million during 1998 and $23.6 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.
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 $120.0 million during 1999 as
compared to $63.5 million during the same period in 1998. The increase is due to
the opening of eight new stores, the acquisition of 17 stores, the relocation of
five stores and several store remodels in 1999, as compared to nine new stores,
one relocated store and seven acquired stores in 1998 and the construction costs
incurred for new stores in development which opened during 1999. Net cash used
by investing activities was $40.9 million during 1997 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 $76.0 million during 1999 as
compared to $4.0 million net cash used during 1998. The increase reflects
increased borrowing under our revolving line of credit, as well as repayment of
a $17.5 million debt. Net cash used by financing activities was $4.0 million
during 1998 and net cash provided by financing activities was $46.4 million
during 1997. The fluctuation was primarily due to net proceeds of $46.5 million
from the sale of 3.2 million shares of our common stock pursuant to a public
equity offering in December 1997.
17
<PAGE>
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 May 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 December 31, 1999, there were $79.7 million in borrowings outstanding
under the $90.0 million line of this facility and $15.5 million in borrowings
outstanding under the $30.0 million line. We are currently negotiating with our
bank group to increase the commitment under the revolving credit facility to
$180.0 million.
We spent approximately $63 million during 1999 for new store construction,
purchases of real property and leasehold interests, development, remodels and
maintenance capital expenditures, exclusive of acquisitions, and anticipate that
we will spend $60 to $65 million in 2000 for new store construction, equipment,
leasehold improvements, remodels and maintenance capital expenditures,
relocations of existing stores and purchases of leasehold interests, 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 historically, 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,
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 and acquired an office building in the fourth quarter of 1999 as
part of the pooling of interests transaction with Sun Harvest Farms, Inc.
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 sold three parcels
in sale-leaseback transactions and plan to sell the office building and a
remaining vacant parcel in sale transactions.
The cost of initial inventory for a new store has historically been
approximately $500,000 to $600,000; 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 2000.
New Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("FAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This statement establishes
accounting and reporting standards requiring that every derivative instrument be
recorded on the balance sheet as either an asset or liability measured at its
fair value. FAS No. 133 also requires that changes in the derivative's fair
value be recognized currently in earnings unless specific hedge accounting
criteria are met. In June 1999, the FASB issued FAS No. 137 which defers the
effective date of FAS No. 133 to fiscal years beginning after June 15, 2000. The
Company will adopt FAS No. 137 in the first quarter of fiscal 2001, but does not
expect such adoption to materially affect financial statement presentation.
Year 2000 readiness statement
Information technologies. We recognize the need to ensure that our
operations will not be adversely affected by Year 2000 software or hardware
failures that may occur through the first half of the Year 2000. We have
determined that all components of our major software and hardware systems at our
corporate headquarters are Year 2000 compliant, and as of the date of this
Report, we have experienced no material disruptions in operations of such
systems. All but two of our stores contain point-of-sale systems, such as cash
registers and scanners, that are also Year 2000 compliant, including those
recently acquired or added through stock-for-stock transactions in 1999. Total
replacement and installation cost to date has been approximately $5.25 million.
The financial impact to us of further investments is not anticipated to be
material.
18
<PAGE>
Vendors, suppliers and service providers. We have received confirmation
from a majority of our major suppliers, service providers, and financial
institutions that they are Year 2000 compliant. We experienced no material
disruptions as of January 1, 2000 in product supplies. Many of our product
vendors are smaller businesses that have not considered the impact of Year 2000
noncompliance and therefore have not taken steps to ensure compliance. To the
extent that product vendors' manufacturing or distribution systems fail as a
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. One of
our largest distributors has upgraded or replaced the majority of its technology
infrastructure and devices that had embedded computer chips with compliant
systems and devices. 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.
There were no major failures in the operating systems of our financial
institutions as of January 1, 2000. 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 and to date there have been no
disruptions in credit card processing.
Mechanical systems. There was little impact on store operations due to Year
2000 noncompliance in mechanical systems as of January 1, 2000. 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.
Cautionary Statement Regarding Forward-Looking Statements
This Report on Form 10-K contains "forward-looking statements," within the
meaning of the Private Securities Litigation Reform Act of 1995, that involve
known and unknown risks. Such forward-looking statements include statements as
to the Company's plans to acquire, open or relocate additional stores, the
anticipated performance of such stores, the impact of competition and other
statements containing words such as "believes," "anticipates," "estimates,"
"expects," "may," "intends" and words of similar import or statements of
management's opinion. These forward-looking statements and assumptions involve
known and unknown risks, uncertainties and other factors that may cause the
actual results, market performance or achievements of the Company to differ
materially from any future results, performance or achievements expressed or
implied by such forward-looking statements. Important factors that could cause
such differences include, but are not limited to, changes in economic or
business conditions in general or affecting the natural foods industry in
particular, changes in product supply, changes in the competitive environment in
which the Company operates, competition for and the availability of sites for
new stores and potential acquisition candidates, changes in the Company's
management information needs, changes in customer needs and expectations and
governmental actions. The Company undertakes no obligation to update any
forward-looking statements in order to reflect events or circumstances that may
arise after the date of this Report.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
Not applicable.
19
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per-share amounts)
January 1, January 2, December 27,
Fiscal Year Ended 2000 1999 1997
- - ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $721,091 $530,726 $431,974
Cost of goods sold and occupancy costs 499,627 369,475 301,644
---------- --------- ---------
Gross profit 221,464 161,251 130,330
Operating expenses
Direct store expenses 155,869 113,094 96,448
Selling, general and administrative expenses 27,939 20,026 16,314
Pre-opening expenses 2,767 3,449 1,149
Non-recurring expenses 12,642 393
---------- --------
Income from operations 22,247 24,289 16,419
Interest income 304 975 309
Interest expense (4,584) (1,003) (931)
--------- --------- ---------
Income before income taxes 17,967 24,261 15,797
Income tax expense 5,198 7,822 5,501
---------- --------- ---------
Net income before cumulative effect of change in
accounting principle 12,769 16,439 10,296
Cumulative effect of change in accounting principle,
net of tax 281
---------
Net income 12,488 16,439 10,296
Other comprehensive income
Foreign currency translation adjustment, net 510 22 (46)
---------- --------- ---------
Comprehensive income $12,998 $16,461 $10,250
========== ========= =========
Basic net income per common share:
Net income before cumulative effect of
change in accounting principle $0.56 $ 0.73 $ 0.55
Cumulative effect of change in accounting
principle, net of tax (0.01)
----------
Net income $0.55 $0.73 $0.55
========== ========= =========
Diluted net income per common share:
Net income before cumulative effect of
change in accounting principle $0.54 $0.71 $0.53
Cumulative effect of change in accounting
principle, net of tax (0.01)
----------
Net income $0.53 $0.71 $0.53
========== ========= =========
Weighted average number of common
shares outstanding 22,806 22,440 18,841
========== ========= =========
Weighted average number of common
shares outstanding assuming dilution 23,467 23,079 19,425
========== ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
20
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
(In thousands, except share amounts)
January 1, January 2,
2000 1999
- - ----------------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $21,877 $11,389
Inventories 51,412 36,206
Accounts receivable (net of allowance
for doubtful accounts of $259 and $159) 2,159 2,257
Income tax receivable 520
Prepaid expenses and other current assets 2,424 2,552
Deferred income taxes 1,775 812
---------- ---------
Total current assets 80,167 53,216
Property and equipment, net 156,156 106,804
Long-term equity investment 1,500
Intangible assets, net 108,734 56,018
Deposits and other assets 4,072 1,282
---------- ---------
$350,629 $217,320
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $48,048 $35,991
Accrued liabilities 30,381 14,386
Current portion of debt and capital leases 22,709 8,120
---------- ---------
Total current liabilities 101,138 58,497
Long-term debt and capital leases 80,328 2,675
Deferred income taxes 1,185 1,958
Other long-term obligations 2,591 1,582
---------- ---------
185,242 64,712
---------- ---------
Commitments and contingencies
Stockholders' equity:
Common stock; $.001 par value; 60,000,000
shares authorized; 22,992,437 and 22,606,019 issued and outstanding 23 23
Additional paid-in capital 148,307 142,774
Retained earnings 16,656 9,920
Accumulated other comprehensive income (loss) 401 (109)
---------- ----------
Total stockholders' equity 165,387 152,608
---------- ---------
$350,629 $217,320
========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
21
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands, except share and per-share amounts)
----------------------------------------------------------------------------------------------------
Retained Accumulated
Additional Earnings Other Total
Common Stock Paid In (Accumulated Comprehensive Stockholders'
----------------- Capital Deficit) Income (Loss) Equity
Shares Amount
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 28, 1996 18,459,099 $18 $88,467 $(10,083) $(85) $78,317
Equity transactions of
pooled companies (2,219) (2,219)
Issuance of common stock
($7.11 to $9.45 per 152,346 1,117 1,117
share)
Public offering of common
stock ($14.99 per
share), net of 3,125,313 3 46,535 46,538
issuance costs
Common stock options
and warrants
exercised ($1.77
to $8.45 per share) 371,391 1 2,693 2,694
Net income 10,296 10,296
Foreign currency
translation adjustment (46) (46)
__________ ___ _______ _________ _____ _______
Balance at December 27, 1997 22,108,149 22 138,812 (2,006) (131) 136,697
Pooling-of-interests 200,045 60 188 248
transactions
Equity transactions of
pooled companies (4,701) (4,701)
Issuance of common stock
($9.63 to $20.33 per 69,846 1,096 1,096
share)
Common stock options
exercised ($3.13 to $16.00 227,979 1 2,806 2,807
per share)
Net income 16,439 16,439
Foreign currency
translation adjustment 22 22
__________ ___ _______ _________ _____ _______
Balance at January 2, 1999 22,606,019 23 142,774 9,920 (109) 152,608
Equity transactions of
pooled companies 104 (5,752) (5,648)
Issuance of common stock
($16.72 to $18.92 per 131,239 2,104 2,104
share), net of
issuance costs
Common stock options
exercised ($3.13 to $19.79 255,179 3,325 3,325
per share)
Net income 12,488 12,488
Foreign currency
translation adjustment
510 510
__________ ___ _______ _________ _____ _______
Balance at January 1, 2000 22,992,437 $23 $148,307 $ 16,656 $ 401 $ 165,387
========== ===== ======== ========= ======== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
22
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands, except share amounts)
January 1, January 2, December 27,
Fiscal Year Ended 2000 1999 1997
- - ----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income $ 12,488 $ 16,439 $ 10,296
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 31,613 15,525 11,118
Loss (gain) on disposal of property and equipment and
settlement of property-related obligations 14 (829) (1,060)
Deferred tax provision (benefit) (1,409) 406 1,737
Deferred severance
Non-recurring expenses 1,868 476
Change in assets and liabilities, net of acquisitions:
Inventories, net (7,569) (6,504) (4,024)
Receivables, net and other assets (2,417) (2,215) (533)
Accounts payable 12,057 7,202 4,499
------- ------- -------
Accrued liabilities 7,261 2,046 1,045
Net cash provided by operating activities 53,906 32,070 23,554
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (62,592) (56,448) (27,459)
Acquisitions, net of cash acquired (77,779) (10,481) (14,003)
Proceeds from sale of property and equipment 21,902 3,408 566
Long-term equity investment (1,500)
Net cash used by investing activities
(119,969) (63,521) (40,896)
--------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds on line of credit, net 95,200
Proceeds from notes payable and long-term debt 1,538 1,720 2,497
Payments on notes payable, long-term debt and capitalized (18,810) (3,041) (3,570)
leases 3,865 2,003 49,705
Proceeds from issuance of common stock, net
Distributions to stockholders, net (5,752) (4,726) (2,244)
--------- -------- --------
Net cash provided (used) by financing activities
76,041 (4,044) 46,388
--------- -------- --------
Effect of exchange rates on cash
510 62 (46)
--------- -------- --------
Net increase (decrease) in cash and cash equivalents 10,488 (35,433) 29,000
Cash and cash equivalents at beginning of year
11,389 46,822 17,822
--------- -------- --------
Cash and cash equivalents at end of year $ 21,877 $ 11,389 $ 46,822
========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 3,570 $ 897 $ 891
========== ========== ==========
Cash paid for income taxes $ 2,097 $ 6,370 $ 2,505
========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Short-term note payable issued for acquisition $ 3,150
=========
Common stock issued and total debt and liabilities
assumed in acquisitions $ 1,668 $ 488 $ 3,400
======== ========== =========
</TABLE>
In addition, the Company issued 2,989,193 and 200,045 shares as consideration
for poolings of interests transactions in 1999 and 1998, respectively.
The accompanying notes are an integral part of these consolidated financial
statements.
23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Summary of Significant Accounting Policies
Organization
Wild Oats Markets, Inc. ("Wild Oats" or the "Company"), headquartered in
Boulder, Colorado, owns and operates natural foods supermarkets in the United
States and Canada. The Company also operates bakeries, commissary kitchens, and
warehouses that supply the retail stores. The Company's operations are
concentrated in one market segment, grocery stores, and are geographically
concentrated in the western and central United States. Management considers a
downturn in this market segment and geographic location to be unlikely.
Basis of Presentation
Certain amounts in the prior years' financial statements have been reclassified
to conform to the current year presentation.
Principles of Consolidation
The Company's consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated.
Fiscal Year
The Company reports its financial results on a 52- or 53-week fiscal year ending
on the Saturday closest to December 31. Each fiscal quarter consists of a
13-week period, with one 14-week period in a 53-week year. Fiscal year 1998 was
a 53-week period, and fiscal years 1997 and 1999 were 52-week periods.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents. Such cash equivalents aggregated
$2.1 million at January 1, 2000 and January 2, 1999.
Inventories
Inventories consisting of products held for sale are stated at the lower of cost
(first-in, first-out) or market, as determined by the retail inventory method.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed on a
straight-line basis over the estimated useful lives of the respective assets
(three to seven years). Leasehold improvements are amortized on a straight-line
basis over the shorter of the useful life of the asset or the lease term.
Maintenance and repairs are expensed as incurred, and improvements are
capitalized. Upon sale or retirement of assets, the cost and related accumulated
depreciation or amortization are eliminated from the respective accounts and any
resulting gains or losses are reflected in operations.
Intangible Assets
Intangible assets consist primarily of goodwill, which is amortized using the
straight-line method over 40 years, and are shown net of accumulated
amortization of $7.1 million and $4.4 million at January 1, 2000 and January 2,
1999, respectively. Management periodically evaluates the recoverability of
intangibles, which would be adjusted for a permanent decline in value, if any,
by comparing anticipated undiscounted future cash flows from operations to net
book value.
Pre-Opening Expenses
Beginning in fiscal year 1999, the Company adopted SOP 98-5, Accounting for the
Costs of Start-Up Activities, which requires that pre-opening costs be expensed
as incurred and was effective for fiscal years beginning after December 15,
1998. The Company recorded $281,000 as a cumulative effect of change in
accounting principle, net of taxes, during the first quarter of 1999. Through
fiscal 1998, pre-opening expenses were deferred until the store's opening date,
at which time such costs were expensed in full. Pre-opening expenses are
included in other current assets and consist primarily of labor costs,
marketing, rent, utilities, supplies, and other expenses incurred in connection
with the opening of a new store. Beginning in fiscal 1999, pre-opening expenses
were recognized as incurred.
24
<PAGE>
Concentration of Risk
The Company purchases approximately one-quarter of its cost of goods sold from
one vendor. The Company's reliance on this supplier can be shifted, over a
period of time, to alternative sources of supply, should such changes be
necessary. However, if the Company could not obtain products from this supplier
for factors beyond its control, the Company's operations would be disrupted in
the short term while alternative sources of product were secured.
Advertising
Advertising is expensed as incurred. Advertising expense was $7.3 million, $6.8
million, and $7.0 million for 1999, 1998 and 1997, respectively.
Fair Value of Financial Instruments
The carrying amounts of the Company's financial instruments, including cash and
cash equivalents, short-term trade receivables and payables and long-term debt,
approximate their fair values.
Use of Estimates
The preparation of these financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
Foreign Currency Translation
The functional currency for the Company's Canadian subsidiary is the Canadian
dollar. Translation into U.S. dollars is performed for assets and liabilities at
the exchange rate as of the balance sheet date. Income and expense accounts are
translated at average exchange rates for the year. Adjustments resulting from
the translation are reflected as a separate component of other comprehensive
income.
Earnings Per Share
Basic earnings per share is based on the weighted-average number of common
shares outstanding, and diluted earnings per share is based on the
weighted-average number of common shares outstanding and all dilutive potential
common shares outstanding, except where the effect of their inclusion would be
antidilutive. A reconciliation of the basic and diluted per-share computations
is as follows (in thousands, except per-share data):
<TABLE>
<CAPTION>
Jan. 1, Jan. 2, Dec. 27,
Fiscal Year Ended 2000 1999 1997
- - ------------------------------------ ---------- --------- --------
Basic earnings per
common share computation:
<S> <C> <C> <C>
Net income $12,488 $16,439 $10,296
Basic net income per common share:
Net income before cumulative effect of
change in accounting principle $0.56 $0.73 $0.55
Cumulative effect of change in accounting
principle, net of tax (0.01)
---------
Net income 0.55 $0.73 $0.55
========== ========= =========
Diluted net income per common share:
Net income before cumulative effect of
change in accounting principle $0.54 $0.71 $0.53
Cumulative effect of change in accounting
principle, net of tax (0.01)
---------
Net income $0.53 $0.71 $0.53
========== ========= =========
Weighted average number of common
shares outstanding 22,806 22,440 18,841
Incremental shares from assumed conversions:
Stock options 661 639 584
---------- --------- ---------
Weighted average number of common
shares outstanding assuming dilution 23,467 23,079 19,425
========== ========= =========
</TABLE>
25
<PAGE>
New Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("FAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards requiring that every derivative instrument be recorded on
the balance sheet as either an asset or liability measured at its fair value.
FAS No. 133 also requires that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting criteria are
met. In June 1999, the FASB issued FAS No. 137 which defers the effective date
of FAS No. 133 to fiscal years beginning after June 15, 2000. The Company will
adopt FAS No. 137 in the first quarter of fiscal 2001, but does not expect such
adoption to materially affect financial statement presentation.
2. Business Combinations
1999
Poolings of Interests
On December 15, 1999, the Company issued approximately 890,000 shares of common
stock in exchange for all of the outstanding stock of Sun Harvest Farms, Inc.
and an affiliate in a transaction accounted for as a pooling of interests.
Accordingly, the financial position, results of operations and cash flows of Sun
Harvest have been combined with those of the Company in these financial
statements. Certain reclassifications have been made to the prior financial
statements of Sun Harvest to conform with the Company's financial presentations
and policies. There were no intercompany transactions between the Company and
Sun Harvest for all periods presented.
On September 27, 1999, the Company issued approximately 2.1 million shares of
common stock in exchange for all of the outstanding stock of Henry's
Marketplace, Inc. in a transaction accounted for as a pooling of interests.
Accordingly, the financial position, results of operations and cash flows of
Henry's have been combined with those of the Company in these financial
statements. Certain reclassifications have been made to the prior financial
statements of Henry's to conform with the Company's financial presentation and
policies. There were no intercompany transactions between the Company and
Henry's for all periods presented.
Results of Pooled Company Prior to Transaction
Separate results of operations for the Company's, Henrys', and Sun Harvest's
(including the affiliated entity) operations for the periods prior to the
transaction are as follows (in thousands):
Jan. 1, Jan. 2, Dec. 27,
Fiscal Year Ended 2000 1999 1997
- - ----------------- ------- ------- -------
Sales:
Wild Oats $593,109 $398,857 $311,077
Henry's 74,979 81,026 72,776
Sun Harvest 53,003 50,843 48,121
------- ------- -------
Combined $721,091 $530,726 $431,974
======= ======= =======
Net Income:
Wild Oats $7,355 $ 11,648 $ 7,036
Henry's 3,542 3,859 2,411
Sun Harvest 1,591 932 849
------- ------- -------
Combined $ 12,488 $ 16,439 $ 10,296
======= ======= =======
Other Changes in Stockholders' Equity:
Wild Oats $5,939 $4,173 $ 50,304
Henry's (4,450) (3,565) (1,653)
Sun Harvest (1,198) (1,136) (567)
------- ------- -------
Combined $ 291 $ (528) $ 48,084
======= ======= =======
Purchase Transactions
On November 15, 1999, the Company acquired the assets and operations of four
operating natural food supermarkets located in metropolitan Boston,
Massachusetts, for a purchase price of $12.5 million in cash. The
26
<PAGE>
acquisition was accounted for using the purchase method and the excess of cost
over the fair value of the assets acquired of $787,000 was allocated to
goodwill, which is being amortized on a straight-line basis over 40 years.
On May 29, 1999, the Company acquired all of the outstanding stock of Nature's
Fresh Northwest, Inc., a Delaware corporation that owned seven operating natural
food stores, one new site and one relocation in development in metropolitan
Portland, Oregon. The purchase price for this acquisition aggregated $40.0
million in cash, including the assumption by the Company of a $17.0 million
promissory note owed by Nature's to the seller. The 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 $33.5 million was allocated to
goodwill, which is being amortized on a straight-line basis over 40 years. Since
the acquisition, goodwill has been adjusted to $29.5 million to reflect
reductions in the promissory note and differences in the book and tax basis of
assets.
On April 30, 1999, the Company acquired the operations of three existing natural
foods supermarkets in Norwalk and Hartford, Connecticut and Melbourne, Florida.
The purchase price for this acquisition aggregated $6.6 million in cash. The
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 $6.1
million was allocated to goodwill, which is being amortized on a straight-line
basis over 40 years.
On February 1, 1999, the Company acquired the operations of three existing
natural foods supermarkets in Tucson, Arizona. The purchase price for this
acquisition aggregated $18.4 million in cash. The acquisition was accounted for
using the purchase method, and the excess of cost over the fair value of the
assets acquired of $17.0 million was allocated to goodwill, which is being
amortized on a straight-line basis over 40 years.
The fair values of the purchased assets and liabilities of these purchased
acquisitions are as follows (in thousands):
Current assets ($697 of cash) $8,912
Equipment 26,604
Building and land 9,153
Other assets 89
Liabilities (24,730)
Goodwill 57,352
------
$77,380
======
1998
In January, May, June and December 1998, in four separate transactions, the
Company acquired the assets and assumed certain liabilities of five operating
natural foods supermarkets in Nashville, Tennessee; New York, New York; Santa
Barbara, California; Victoria, British Columbia, Canada and Boulder, Colorado.
The purchase price for these acquisitions aggregated $10.6 million in cash and a
note payable of $3.1 million that was repaid in full in January 1999 (see Note
5). The acquisitions were accounted for using the purchase method, and the
excess of cost over the fair value of the assets acquired of $12.0 million was
allocated to goodwill, which is being amortized on a straight-line basis over 40
years.
The fair values of the acquired assets and liabilities of these acquisitions are
as follows (in thousands):
Current assets ($127 of cash) $1,304
Equipment 1,397
Other assets 25
Liabilities (1,022)
Goodwill 12,014
------
$13,718
======
Also during 1998, the Company issued 200,045 shares of the Company's common
stock in exchange for all of the common stock of two companies operating natural
foods grocery stores in Columbus, Ohio and Little Rock, Arkansas. These
acquisitions were accounted for as poolings of interests, and accordingly, the
Company's consolidated financial statements for 1998 include the operations of
the stores for the entire year, adjusted to conform with the Company's
accounting policies and presentation. The Company's financial statements prior
to 1998 were not restated to include the results of these pooling transactions
as the effect is immaterial. Non-recurring, acquisition-related expenses of
$393,000 were recorded in conjunction with the poolings.
1997
In February, March and June 1997, in four separate transactions, the Company
acquired the assets and assumed certain liabilities of nine operating natural
foods supermarkets: two in south Florida, two in Eugene, Oregon, two in
27
<PAGE>
Memphis, Tennessee, and three in Phoenix and Scottsdale, Arizona. The purchase
price for these acquisitions aggregated $15.0 million and consisted of $14.0
million in cash and 137,690 shares of the Company's common stock. The
acquisitions were accounted for using the purchase method, and the excess of
cost over the fair value of the assets acquired of $10.3 million was allocated
to goodwill, which is being amortized on a straight-line basis over 40 years.
The fair values of the acquired assets and liabilities of these acquisitions are
as follows (in thousands):
Current assets ($27 of cash) $3,304
Equipment 3,782
Other assets 23
Liabilities (2,460)
Goodwill 10,338
------
$14,987
======
The following unaudited pro forma combined results of operations of the Company
and the acquired businesses discussed above have been prepared as if the
transactions occurred as of the beginning of the respective periods presented
(in thousands):
Jan. 1, Jan. 2, Dec. 27,
Fiscal Year Ended 2000 1999 1997
- - ----------------- -------- --------- ------
Sales $794,848 $693,083 $482,121
Net income 17,613 16,671 9,889
Basic earnings per share $0.77 $0.75 $0.52
Diluted earnings per share $0.75 $0.73 $0.51
The unaudited pro forma results above are not necessarily representative of the
actual results that would have occurred or may occur in the future, if the
transactions had been in effect on the dates indicated. The pre-acquisition
historical results of the acquired businesses discussed above are not reflected
in the Company's historical financial statements.
3. Property and Equipment
Property and equipment consist of the following (in thousands):
Jan. 1, Jan. 2,
2000 1999
---------- --------
Machinery and equipment $101,585 $70,309
Leasehold improvements 60,977 45,369
Land and building 13,322 11,492
Construction in progress 35,157 17,609
---------- ---------
Less accumulated depreciation 211,041 144,779
and amortization (54,885) (37,975)
---------- ----------
$156,156 $106,804
========== =========
Depreciation and amortization expense related to property and equipment totaled
approximately $20.0 million, $14.3 million and $8.0 million in 1999, 1998 and
1997, respectively. Property and equipment includes approximately $776,000 of
interest capitalized during fiscal year 1999. No interest was capitalized during
fiscal years 1998 and 1997. The amounts shown above include $969,000 of
machinery and equipment which are accounted for as capitalized leases and which
have accumulated amortization of $275,000 at January 1, 2000. There were no
fixed assets accounted for as capitalized leases as of January 2, 1999.
4. Accrued Liabilities
Accrued liabilities consist of the following (in thousands):
Jan. 1, Jan. 2,
2000 1999
---------- -------
Wages and employee costs $14,370 $6,563
Sales and personal property taxes 3,565 2,283
Real estate costs 4,984 1,750
Deferred charges and other accruals 7,462 3,790
------ ------
$30,381 $14,386
====== ======
28
<PAGE>
5. Notes Payable and Long-Term Debt
Long-term debt outstanding consists of the following (in thousands):
<TABLE>
<CAPTION>
Jan. 1, Jan. 2,
2000 1999
----------- -----------
Notes payable to corporations and individuals:
<S> <C>
Due January 5, 1999, bearing no interest, secured by inventory and fixed assets $ 3,150
Notes payable to bank and lending institutions payable in monthly installments
ranging from $632 to $10,992, including interest ranging from 8.0% to 14.55% per
annum at January 2, 1999, due dates ranging from June 1, 1998 through January 3,668
29, 2003, secured by equipment
Unsecured notes payable in monthly installments ranging from $3,805 to $14,311,
including interest ranging from 6.0% to 14.75% per annum at January 2, 1999, due
dates ranging from December 18,1999 through July 18, 2001 311
Note payable to a related party, unsecured, interest of 10.0% at January 2,
1999, payable in monthly installments of $1,366, including interest through
October 1, 2005 80
Note payable to bank ($2,675,000) in monthly principal and interest installments
of $40,000 at a financial institution's prime (8.25% at September 28, 1999)
beginning February 5, 1995 through January 5, 2000; all remaining unpaid
principal and interest is due and payable on January 5, 2000; payable on demand
at the bank's discretion; collateralized by inventory, equipment, and furniture
and fixtures, and personally guaranteed by the shareholders 1,538
Note payable to bank ($500,000) in monthly principal installments of $10,440 plus
interest at a financial institution's prime (8.25% at September 28, 1999)
floating, beginning February 5, 1997 through January 28, 2002 with the
outstanding principal and interest balance due on January 28, 2002; payable on
demand at the bank's discretion; collateralized by property, assignment of life
insurance proceeds, and assignments of common stock 388
Note payable to bank ($200,000) in monthly principal installments of $4,200 plus
interest at a financial institution's prime (8.25% at September 28, 1999)
floating, beginning June 16, 1997 through January 28, 2002 with the outstanding
principal and interest balance due on January 28, 2002; payable on demand at the
bank's discretion; collateralized by property, assignment of life insurance
proceeds, and assignments of common stock 37
Note payable to bank ($1,000,000) in monthly principal installments of $16,344
plus interest at prime (8.25% at September 28, 1999) + .5% floating, beginning
May 15, 1998 through April 15, 2003 with the outstanding principal and interest
balance due on April 15, 2003; payable on demand at the bank's discretion;
collateralized by real property 952
Note payable to bank ($200,000) in monthly interest-only installments at prime
(8.52% at September 28, 1999) + 1% floating, beginning December 20, 1998 through
May 20, 1999 with the entire principal balance due on May 20, 1999; payable on
demand at the bank's discretion; collateralized by property, assignment of life
insurance proceeds, and assignments of common stock 200
Note payable ($144,198) in twelve monthly principal installments of $12,017;
collateralized by inventory due on November 8, 1999 120
Mortgage payable to lending institution payable in monthly installments of
$3,899, including interest, secured by real estate 176 226
Unsecured note payable to a related party on demand 125
Note payable to corporation ($190,800) due and payable March 23, 2000; 0%
interest; unsecured 95
Note payable to corporation ($17,000,000); variable interest rate per annum based
on lender's external borrowing rate; principle and interest due November 28, 2000 6,629
Capitalized leases 937
Bank line of credit due March 1, 2000; bearing interest, at the Company's option,
at the prime rate or LIBOR plus 1.15% (7.3375 on January 1, 2000); unsecured 15,500
Bank line of credit due March 2, 2002; bearing interest, at the Company's option,
at the prime rate or LIBOR plus 1.15% ($63,0000,000 at 7.3375%; $15,000,000 at
7.275%; $1,700,000 at 8.5% on January 1, 2000); unsecured 79,700
------- ------
103,037 10,795
Less current portion (22,709) (8,120)
------- ------
$ 80,328 $ 2,675
======= ======
</TABLE>
29
<PAGE>
The maturities of notes payable and long-term debt are as follows (in
thousands):
Fiscal year ending
2000 $ 22,709
2001 162
2002 79,888
2003 270
2004 8
-------
$103,037
-------
The Company has a $120.0 million revolving line of credit. 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 May 2000. Both bear interest, at the Company's 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 the payment of
dividends. As of January 1, 2000, there were $79.7 million in borrowings
outstanding under the $90.0 million line of this facility and $15.5 million
outstanding under the $30.0 million line of this facility.
6. Income Taxes
Income before income taxes consists of the following (in thousands):
Jan. 1, Jan. 2, Dec. 27,
Fiscal Year Ended 2000 1999 1997
- - ----------------- ---------- ---------- --------
Domestic $17,519 $23,405 $14,895
Foreign 448 856 902
---------- ---------- ---------
$17,967 $24,261 $15,797
========== ========== =========
Income tax expense (benefit) consists of the following (in thousands):
Jan. 1, Jan. 2, Dec. 27,
Fiscal Year Ended 2000 1999 1997
- - ----------------- --------- -------- -------
Current: Federal $4,624 $5,685 $3,009
State and foreign 1,983 1,731 755
--------- -------- --------
6,607 7,416 3,764
--------- -------- --------
Deferred: Federal (1,019) 430 1,728
State and foreign (390) (24) 9
--------- -------- --------
(1,409) 406 1,737
--------- -------- --------
$5,198 $7,822 $5,501
========= ======== ========
The differences between the U.S. federal statutory income tax rate and the
Company's effective tax rate are as follows:
<TABLE>
<CAPTION>
Jan. 1, Jan. 2, Dec. 27,
Fiscal Year Ended 2000 1999 1997
- - ----------------- -------- --------- ------
<S> <C> <C> <C>
Statutory tax rate 35.0% 35.0% 34.0%
State income taxes, net of federal income tax benefit 2.1 3.6 1.5
Tax effect of non-deductible goodwill 2.6 1.2 1.7
Untaxed earnings related to pooled companies (10.2) (7.0) (4.8)
Change in tax status of pooled companies (4.7)
Other permanent items related to acquisitions 2.9
Other, net 1.2 (0.6) 2.4
------- -------- -----
Effective tax rate 28.9% 32.2% 34.8%
======= ======== ======
</TABLE>
30
<PAGE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities are as follows (in
thousands):
Jan. 1, Jan. 2,
Fiscal Year Ended 2000 1999
- - ----------------- --------- -------
Deferred tax assets
Inventory related $ 536 $ 237
Vacation accrual 1,284 724
Other accruals 2,531 352
Other 131 3
------- ------
Total deferred tax assets 4,482 1,316
------- -----
Deferred tax liabilities
Property related (3,892) (2,462)
------- ------
Total deferred tax liabilities (3,892) (2,462)
------- ------
Net deferred tax asset (liability) $ 590 $(1,146)
======= ======
7. Capital Stock
The Company declared 3-for-2 stock splits for all stockholders of record as of
December 22, 1997, and November 17, 1999, effective January 7, 1998 and December
1, 1999, respectively. All shares and per-share prices presented herein have
been retroactively restated to reflect the stock splits.
In October 1999, the Company's shareholders approved an increase in the
authorized common stock of the Company to 60,000,000 shares.
In December 1997, the Company completed a public offering of its common stock.
The proceeds from the sale of 3,125,313 shares of common stock at $14.99 per
share were approximately $46.5 million, net of the underwriting discount of $2.5
million and stock offering costs of $300,000.
8. Stock Plans, Options and Warrants
Employee Stock Purchase Plan
In August 1996, the Company's board of directors approved and adopted an
Employee Stock Purchase Plan ("Purchase Plan") covering an aggregate of 287,307
shares of common stock. The Purchase Plan is intended to qualify as an employee
stock purchase plan within the meaning of Section 423 of the Internal Revenue
Code. Under the Purchase Plan, the board of directors may authorize
participation by eligible employees, including officers, in periodic offerings.
The offering period for any offering will be no more than 27 months. The board
authorized an offering commencing on the initial public offering date of October
22, 1996 and ending June 30, 1997, and sequential six-month offerings
thereafter.
Employees are eligible to participate in the currently authorized offerings if
they have been employed by the Company or an affiliate of the Company
incorporated in the United States for at least six months preceding October 22,
1996. Employees can have up to 15% of their earnings withheld pursuant to the
Purchase Plan (10% under the currently authorized offerings) and applied on
specified purchase dates (currently the last day of each authorized offering) to
the purchase of shares of common stock. The price of common stock purchased
under the Purchase Plan will be equal to 85% of the lower of the fair market
value of the common stock on the commencement date of each offering or the
relevant purchase date. As of January 1, 2000, there were approximately $21,000
of payroll deductions to be applied to purchase stock on June 30, 2000; on
December 31, 1999, $338,000 of payroll deductions were used to purchase 19,820
shares of common stock.
Equity Incentive Plan
The Company's Equity Incentive Plan (the "Incentive Plan") was adopted by the
board of directors in August 1996. As of January 1, 2000, 3,090,221 shares of
common stock were reserved for issuance under the Incentive Plan.
The Incentive Plan provides for the grant of incentive stock options to
employees (including officers and employee-directors) and nonqualified stock
options, restricted stock purchase awards and stock bonuses to employees and
directors. The exercise price of options granted under the Incentive Plan is
determined by the board of directors, provided that the exercise price for an
incentive stock option cannot be less than 100% of the fair market value of the
common stock on the grant date and the exercise price for a nonqualified stock
option cannot be less than 85% of
31
<PAGE>
the fair market value of the common stock on the grant date. Outstanding options
generally vest over a period of five years and generally expire ten years from
the grant date.
Warrants
A five-year warrant to purchase 7,904 shares of the Company's common stock at an
exercise price of $9.47 per share was outstanding at January 2, 1999. The
warrant was exercised in full in 1999.
Fair Values
The Company applies Accounting Principles Board Opinion No. 25 and related
Interpretations in accounting for its stock plans. Accordingly, no compensation
expense has been recognized for these plans. Had compensation cost for these
plans been determined based on the fair value at the grant dates as prescribed
by FAS No. 123, Accounting for Stock-Based Compensation, the Company's net
income allocable to common stock and basic and diluted earnings per share would
have been reduced to the pro forma amounts indicated below:
1999 1998 1997
------------- -------------- ---------
Net income
As reported $12,488 $16,439 $10,296
Pro forma 8,855 6,825 3,809
Basic earnings per share
As reported $ 0.55 $0.73 $0.55
Pro forma $ 0.39 $0.30 $0.20
Diluted earnings per share
As reported $ 0.53 $0.71 $0.53
Pro forma $ 0.38 $0.30 $0.20
The fair value of the employees' purchase rights was estimated using the
Black-Scholes model with the following weighted-average assumptions:
1999 1998 1997
-------- --------- ------
Estimated dividends None None None
Expected volatility 46% 46% 51%
Risk-free interest rate 5.6% 4.5% 5.5%
Expected life (years) 0.5 0.5 0.5
Weighted-average fair value per share $4.96 $4.66 $3.69
The fair value of each option grant under the Incentive Plan is estimated on the
date of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions:
1999 1998 1997
----------- ----------- -------
Estimated dividends None None None
Expected volatility 46% 46% 49%
Risk-free interest rate 5.6% 4.5%-4.7% 5.8%
Expected life (years) 7 7 7
32
<PAGE>
A summary of the status of the Company's Incentive Plan as of the 1999, 1998 and
1997 fiscal year ends and changes during the years ending on those dates is
presented below:
Weighted
Number Average
of Exercise
Shares Price
Outstanding as of
December 28, 1996 1,550,816 $ 6.28
Granted 443,219 $10.91
Forfeited (226,401) $ 7.12
Exercised (365,366) $ 4.71
---------
Outstanding as of
December 27, 1997 1,402,268 $ 7.95
Granted 346,611 $17.91
Forfeited (101,546) $11.11
Exercised (227,979) $ 6.03
---------
Outstanding as of
January 2, 1999 1,419,354 $10.49
Granted 809,665 $20.18
Forfeited (165,632) $16.80
Exercised (255,179) $ 7.26
---------
Outstanding as of
January 1, 2000 1,808,208 $14.68
=========
The following table summarizes information about incentive and nonqualified
stock options outstanding and exercisable at January 1, 2000:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- - --------------------------------------------------------------- -------------------------------
Weighted-
Range of Remaining Average Weighted-
Exercise Number Contractual Exercise Number Average
Prices Outstanding Life Price Exercisable Exercise Price
- - ------------- -------------- ------------ --------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$2.65-5.30 73,928 3.5 years $3.62 73,928 $3.62
$5.30-7.95 526,127 5.8 $7.37 351,257 $7.37
$7.95-10.60 14,050 6.7 $8.33 6,228 $8.43
$10.60-13.25 94,191 7.4 $11.65 64,848 $11.43
$13.25-15.90 55,781 8.3 $14.77 41,300 $14.85
$15.90-18.55 576,154 8.6 $17.02 87,110 $16.48
$18.55-21.20 159,425 9.0 $19.86 27,772 $19.48
$21.20-23.85 187,377 9.9 $22.25 9,145 $22.40
$23.85-26.50 121,175 9.3 $26.50 0 $0
---------- -----------
1,808,208 7.7 $14.68 661,588 $9.74
========== ===========
</TABLE>
At January 1, 2000, options exercisable for 416,044 shares were available for
future grant under the Incentive Plan. At January 2, 1999 and December 27, 1997,
options for 620,448 and 524,871 shares with weighted average exercise prices of
$7.67 and $6.25, respectively, were exercisable. The weighted-average grant-date
per-share fair values of options granted during 1999, 1998 and 1997 were $20.18,
$17.91 and $10.91, respectively.
9. Litigation
In August 1998, the Company 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 it by its landlord for the build-out of the Company's Buffalo Grove,
Illinois store. The landlord counterclaimed for $1 million in damages, alleging
that the Company breached covenants requiring construction to be completed by a
certain date and other operating covenants. After the Company closed the Buffalo
Grove store in May 1999, the landlord increased its counterclaim to $3 million,
including accelerated rent resulting from an alleged
33
<PAGE>
breach of a continuous operations clause in the lease. However, because the
lease requires the Company 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. The
Company asserted several defenses to the counterclaim. Motions for summary
judgment were filed by each party. The Company's 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., a Canadian subsidiary of the Company, 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 the three Canadian stores entered into by a predecessor of
Alfalfa's Canada. Under the buying agreement, the stores must buy products
carried by the plaintiff if such are offered at the current advertised price of
its competitors. The suit was filed in September 1996. In June 1998, the Company
filed a Motion for Dismissal on the grounds that the contract in dispute
constituted a restraint of trade. The Motion was subsequently denied. The
Company does not believe its potential exposure in connection with the suit to
be material.
On February 17, 2000, the Company was named as defendant in Cornerstone III, LLC
v. Wild Oats Markets, Inc., a suit filed in U.S. District Court for the Eastern
District of Missouri by a former landlord who alleges that the Company breached
its obligations under a lease agreement when Wild Oats notified the landlord
that it was exercising its rights under the lease to terminate after the
landlord failed to turn over possession of the leased property within the time
period provided for in the lease. The plaintiff seeks actual and punitive
damages.
The Company also is named as defendant in various actions and proceedings
arising in the normal course of business. In all of these cases, the Company is
denying the allegations and is vigorously defending against them and, in some
cases, has filed counterclaims. Although the eventual outcome of the various
lawsuits cannot be predicted, it is management's opinion that these lawsuits
will not result in liabilities that would materially affect the Company's
financial position or results of operations.
10. Commitments
The Company has numerous operating leases related to facilities occupied and
store equipment. These leases generally contain renewal provisions at the option
of the Company. Total rental expense (consisting of minimum rent and contingent
rent) under these leases was $25.5 million, $17.1 million and $13.7 million
during 1999, 1998 and 1997, respectively.
Future minimum lease payments under noncancelable operating leases as of January
1, 2000 are summarized as follows (in thousands): Fiscal year ending
2000 $33,339
2001 33,301
2002 32,981
2003 32,018
2004 29,929
Thereafter 276,333
----------
Total minimum lease payments $437,901
==========
Minimum rentals for operating leases do not include contingent rentals which may
become due under certain lease terms which provide that rentals may be increased
based on a percentage of sales. During 1999, 1998 and 1997, the Company paid
contingent rentals of $938,000, $755,000 and $598,000, respectively.
11. Non-Recurring Expenses
During the first quarter of 1999, the Company's management made certain
decisions relating to the Company's operations and selected store closures,
which resulted in approximately $10.9 million of non-recurring expenses being
recorded. These decisions included (1) a change in the Company's strategic
direction, resulting in the closure in the second quarter of 1999 of its two
"Farm to Market" stores located in Buffalo Grove, Illinois, and Tempe,
34
<PAGE>
Arizona ($4.5 million), and (2) a decision by the Company's management to
allocate corporate resources to servicing new and existing stores, rather than
closed sites ($6.4 million). Components of the non-recurring charge consist
primarily of non-cancelable lease obligations through the year 2000 ($1.2
million) and abandonment of fixed and intangible assets ($9.7 million). At
January 1, 2000, the remaining accrued liabilities related to the non-recurring
charge totaled approximately $516,000 of non-cancelable lease obligations.
During the third quarter of 1999, the Company recognized non-recurring expenses
related to the pooling transaction with Henry's that totaled $645,000.
Components of the non-recurring charge consist primarily of non-cancelable lease
obligations ($287,000) and professional fees associated with the pooling
($323,000). At January 1, 2000, the remaining accrued liabilities related to the
non-recurring charge totaled approximately $252,000 of non-cancelable lease
obligations.
During the fourth quarter of 1999, the Company recognized non-recurring expenses
related to the pooling transaction with Sun Harvest that totaled $1.1 million.
Components of the non-recurring charge consist primarily of professional fees
associated with the pooling ($869,000) and employee-related costs ($128,000). At
January 1, 2000, the remaining accrued liabilities related to the non-recurring
charge totaled $1.1 million.
During 1998, a $393,000 non-recurring charge was recorded in conjunction with
two pooling-of-interests transactions (see Note 2). The non-recurring charge
consists of $201,000 of employee severance costs, $162,000 of inventory and
fixed asset write-downs, and $30,000 of lease cancellation costs. As of January
1, 2000, there were no remaining accrued liabilities related to the
non-recurring charge.
Cash paid for employee severance, relocation and lease cancellation costs
related to the non-recurring charge totaled approximately $900,000 in 1997.
During 1997, management adjusted certain accruals related to the non-recurring
charge, including a $500,000 reduction following the settlement of a
property-related obligation. At December 27, 1997, there were no remaining
accrued liabilities related to the non-recurring charge.
12. 401(k) Plan
The Company maintains a tax-qualified employee savings and retirement plan (the
"401(k) Plan") covering the Company's employees. Pursuant to the 401(k) Plan,
eligible employees may elect to reduce their current compensation by up to the
lesser of 15% of their annual compensation or the statutorily prescribed annual
limit ($10,000 in 1999) and have the amount of such reduction contributed to the
401(k) Plan. The 401(k) Plan provides for additional matching contributions to
the 401(k) Plan by the Company in an amount determined by the Company prior to
the end of each plan year. Total Company contributions during 1999, 1998 and
1997 were approximately $557,000, $408,000 and $256,000, respectively. The
trustees of the 401(k) Plan, at the direction of each participant, invest the
assets of the 401(k) Plan in designated investment options. The 401(k) Plan is
intend to qualify under Section 401 of the Internal Revenue Code.
The Company, through Henry's, also sponsored a 401(k) plan in 1999 covering
Henry's employees with at least 12 months of service. Contributions are
discretionary. Henry's contributed $90,000, $106,000 and $72,000 to this 401(k)
plan for fiscal 1999, 1998 and 1997, respectively.
The Company, through Sun Harvest, also sponsored a 401(k) plan in 1999 covering
Sun Harvest employees with at least 12 months of service. Contributions are
discretionary. Sun Harvest contributed $36,000, $36,000, and $33,000 to this
401(k) plan for fiscal 1999, 1998, and 1997, respectively.
13. Stockholder Rights Plan
The Company has a stockholder rights plan having both "flip-in" and "flip-over"
provisions. Stockholders of record as of May 22, 1998 received the right
("Right") to purchase a fractional share of preferred stock at a purchase price
of $145 for each share of common stock held. In addition, until the Rights
become exercisable as described below and in certain limited circumstances
thereafter, the Company will issue one Right for each share of common stock
issued after May 22, 1998. For the "flip-in provision," the Rights would become
exercisable only if a person or group acquires beneficial ownership of 15% (the
"Threshold Percentage") or more of the outstanding common stock. Holdings of
certain existing affiliates of the Company are excluded from the Threshold
Percentage. In that event, all holders of Rights other than the person or group
who acquired the Threshold Percentage would be entitled to purchase shares of
common stock at a substantial discount to the then-current market price. This
right to purchase
35
<PAGE>
common stock at a discount would be triggered as of a specified number of days
following the passing of the Threshold Percentage. For the "flip-over"
provision, if the Company was 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.
14. Deferred Compensation Plan
The Company maintains a nonqualified Deferred Compensation Plan (the "DCP") for
certain members of management. Eligible employees may contribute a portion of
base salary or bonuses to the plan annually. The DCP provides for additional
matching contributions by the Company in an amount determined by the Company
prior to the end of each plan year. Total Company matching contributions to the
DCP during 1999 were approximately $21,000.
15. Quarterly Information (Unaudited)
The following interim financial information presents the 1999 and 1998
consolidated results of operations on a quarterly basis (in thousands, except
per-share amounts):
<TABLE>
<CAPTION>
Quarter Ended
----------------------------------------------
Jan. 1, Oct. 2, July 3, April 3,
2000 1999 1999 1999
------ ------ ------- -------
Statement of Operations Data:
<S> <C> <C> <C> <C>
Sales $201,719 $186,522 $173,207 $159,643
Gross profit 62,342 57,965 52,805 48,352
Net income before cumulative
effect of change (1,157)
Cumulative effect of change in accounting
principle, net of tax 281
---------
Net income (loss) $ 4,448 $4,882 $4,596 $ (1,438)
====== ====== ====== ========
Basic net income per common share:
Net income before cumulative effect
of change in accounting principle $(0.05)
Cumulative effect of change in accounting
principle, net of tax (0.01)
-------
Basic earnings (loss) per common share $0.19 $0.22 $0.20 $(0.06)
===== ===== ===== =======
Diluted net income per common share:
Net income before cumulative effect
of change in accounting principle $(0.05)
Cumulative effect of change in accounting
principle, net of tax (0.01)
-------
Diluted earnings (loss)
per common share $0.19 $0.21 $0.19 $(0.06)
===== ===== ===== =======
Quarter Ended
----------------------------------------------
Jan. 2, Sept. 26, June 27, March 28,
1999 1998 1998 1998
------ ------ ------- -------
Statement of Operations Data:
Sales $144,809 $130,235 $131,794 $123,888
Gross profit 43,670 39,571 40,036 37,974
Net income 4,041 3,891 3,812 4,695
===== ===== ===== =====
Basic earnings per
common share $0.18 $0.17 $0.17 $0.21
===== ===== ===== =====
Diluted earnings
per common share $0.17 $0.17 $0.17 $0.20
===== ===== ===== =====
</TABLE>
36
<PAGE>
16. Related Party Transaction
Elizabeth C. Cook and Michael C. Gilliland, executive officers and directors of
the Company, are trustees of Wild Oats Community Foundation ("Foundation"), a
non-profit organization. In 1998, the Foundation opened Wild Oats Wellness
Centers in Boulder, Colorado and Albuquerque, New Mexico in space subleased from
the Company. In 1999, the Foundation opened a Wellness Center in Denver,
Colorado and closed the center in Albuquerque, New Mexico. The Foundation pays
to the Company the same rent as paid by the Company for the space. There are no
material transactions between the Company and the Foundation.
Subsequent to January 1, 2000, the Company recorded a note receivable in the
amount of $75,000 from a related party that is also a subtenant at one of the
Company's stores. The note has a five-year term and bears interest at 7%.
37
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Wild Oats Markets, Inc.
In our opinion, based on our audits and the reports of other auditors, the
consolidated financial statements listed in the index appearing under Item
14(a)(1) on page 41 present fairly, in all material respects, the financial
position of Wild Oats Markets, Inc. and its subsidiaries (the "Company") at
January 1, 2000 and January 2, 1999, and the results of their operations and
their cash flows for each of the three years in the period ended January 1,
2000, in conformity with accounting principles generally accepted in the United
States. In addition, in our opinion, based on our audits and the reports of
other auditors, the financial statement schedule listed in the index appearing
under Item 14(a)(2) on page 41 presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements. These financial statements and financial
statement schedule are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. The consolidated financial
statements give retroactive effect to the mergers of Henry's Marketplace, Inc.
and Sun Harvest Farms, Inc. and its affiliate on September 17, 1999 and December
15, 1999, respectively, in transactions accounted for as poolings of interests,
as described in Note 2 to the consolidated financial statements. We did not
audit the financial statements of Henry's Marketplace, Inc., which statements
reflect total assets of $10,930,032 at December 27, 1998, and total revenues of
$81,025,852 for the fifty-two weeks ended December 27, 1998. Those statements
were audited by other auditors whose report thereon has been furnished to us,
and our opinion expressed herein, insofar as it related to the amounts included
for Henry' Marketplace, Inc. as of and for the fifty-two weeks ended December
27, 1998, is based solely on the report of the other auditors. Additionally, we
did not audit the financial statements of Sun Harvest Farms, Inc., which
statements reflect total assets of $6,850,288 and $5,189,373 at December 29,
1998 and December 30, 1997, respectively, and total revenues of $41,155,576,
$50,841,400 and $48,120,937 for the thirty-nine weeks ended September 28, 1999,
and the fifty-two weeks ended December 29, 1998, and December 30, 1997,
respectively. Those statements were audited by other auditors whose report
thereon has been furnished to us, and our opinion expressed herein, insofar as
it relates to the amounts included for Sun Harvest Farms, Inc. for the
thirty-nine weeks ended September 28, 1999 and as of and for the fifty-two weeks
ended December 29, 1998, and December 30, 1997, is based solely on the report of
the other auditors. We conducted our audits of these statements in accordance
with auditing standards generally accepted in the United States, which require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits and the reports of other
auditors provide a reasonable basis for the opinion expressed above.
In 1999, the Company changed its method of accounting for pre-opening expenses
as discussed in Note 1 to the consolidated financial statements.
PricewaterhouseCoopers LLP
Denver, Colorado
March 3, 2000
38
<PAGE>
Independent Auditors' Report
The Board of Directors
Henry's Marketplace, Inc.
We have audited 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 ended December 27, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Henry's Marketplace, Inc. as of
December 27, 1998, and the results of its operations and its cash flows for the
fifty-two weeks ended December 27, 1998, in conformity with generally accepted
accounting principles.
KPMG LLP
San Diego, California
February 5, 1999
39
<PAGE>
Report of Independent Auditors
The Board of Directors
Sun Harvest Farms, Inc.
We have audited the accompanying balance sheets of Sun Harvest Farms, Inc. (the
Company) as of September 28, 1999, December 29, 1998, and December 30, 1997, and
the related statements of income, shareholder's equity (deficit), and cash flows
for the nine-month period ended September 28, 1999 and the fiscal years ended
December 29, 1998, December 30, 1997, and December 31, 1996, not separately
presented herein. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Sun Harvest Farms, Inc. as of
September 28, 1999, December 29, 1998, and December 30, 1997, and the results of
its operations and its cash flows for the nine-month period ended September 28,
1999 and the fiscal years ended December 29, 1998, December 30, 1997, and
December 31, 1996, in conformity with generally accepted accounting principles.
Ernst & Young LLP
November 17, 1999
40
<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None reported.
PART III.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information included under the captions "Election of Directors" and
"Executive Compensation-Management-Executive Officers" in our definitive Proxy
Statement in connection with the Annual Meeting of stockholders to be held May
5, 2000, to be filed with the Commission on or before May 2, 2000, is
incorporated herein by reference.
Item 11. EXECUTIVE COMPENSATION
The information included under the caption "Executive Compensation" in our
definitive Proxy Statement in connection with the Annual Meeting of stockholders
to be held May 5, 2000, to be filed with the Commission on or before May 2,
2000, is incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The information included under the caption "Security Ownership of Certain
Beneficial Owners and Management" in our definitive Proxy Statement in
connection with the Annual Meeting of stockholders to be held May 5, 2000, to be
filed with the Commission on or before May 2, 2000, is incorporated herein by
reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information included under the caption "Directors and Executive Officers -
Certain Transactions" in our definitive Proxy Statement in connection with the
Annual Meeting of stockholders to be held May 5, 2000, to be filed with the
Commission on or before May 2, 2000, is incorporated herein by reference.
PART IV.
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K
(a) Financial Statement Schedules. The following are filed as a part of this
Report on Form 10-K:
(1) Consolidated Statement of Operations
Consolidated Balance Sheet
Consolidated Statement of Changes in Stockholders' Equity
Consolidated Statement of Cash Flows
Notes to Consolidated Financial Statements
(2) Schedule II - Valuation and Qualifying Accounts
(b) Reports on Form 8-K. The Company filed the following reports on Form 8-K
during fiscal 1999:
(1) Report dated May 29, 1999, which reported under Item 5, Other
Items, the acquisition of all of the outstanding stock of
Nature's Fresh Northwest, Inc. This report was amended by the
following amendments on Form 8-KA:
(A) By an amendment dated August 12, 1999, reported under
Item 7, Financial Statements and Exhibits, the Company
amended the report on Form 8-K dated May 29, 1999 to
append to such report audited and unaudited, interim
financial statements of Nature's Fresh Northwest, Inc.,
and pro forma combined condensed financial statements of
Nature's and the Company;
41
<PAGE>
(B) By an amendment dated August 16, 1999, reported under
Item 7, Financial Statements and Exhibits, the Company
corrected a clerical error in the financials previously
filed as an amendment to the report on Form 8-K dated May
29, 1999.
(2) Report dated July 27, 1999, reported under Item 5, Other
Events, the Company's issuance of a press release containing
the Company's second quarter 1999 earnings announcement.
(3) Report dated September 29, 1999, reported under Item 5, Other
Events, the merger with Henry's Marketplace, Inc., a
California corporation that owned eleven operating natural
food stores located in metropolitan San Diego, California. The
following audited financial statements were filed with this
report: Supplemental Combined Statement of Operations,
Statement of Changes in Stockholders Equity (Deficit) and
Statement of Cash Flows for the Three Years Ended January 2,
1999, and Supplemental Combined Balance Sheet as of January 2,
1999 and December 27, 1997. This report was subsequently
amended on February 28, 2000 by a report on Form 8-KA to
restate the financial information included in the report as
the historic financial statements of the Company.
(4) Report dated October 29, 1999, reported under Item 5, Other
Events, the Company's issuance of a press release containing
the Company's third quarter 1999 earnings announcement.
(5) Report dated November 17, 1999, reported under Item 5, Other
Events and Item 7, Financial Statements, certain selected
financial data of the Company restated for the pooling of
interests transaction with Henry's Marketplace, Inc.
(c) Exhibits. The following exhibits to this Form 10-K are filed pursuant to the
requirements of Item 601 of Regulation S-K:
Exhibit
Number Description of Document
3(i).1.(a)** Amended and Restated Certificate of Incorporation of the
Registrant. (1)
3(i).1.(b)** Certificate of Correction to Amended and Restated Certificate
of Incorporation of the Registrant. (1)
3(i).1.(c)** Certificate of Amendment to Amended and Restated Certificate
of Incorporation of the Registrant. (2
3(ii).1** Amended and Restated By-Laws of the Registrant. (1)
4.1** Reference is made to Exhibits 3(i).1 through 3(ii).1.
4.2** Specimen stock certificate. (3)
4.3** Rights Agreement dated May 22, 1998 between Registrant and
Norwest Bank Minnesota. (4)
10.1** Form of Indemnity Agreement between the Registrant and its
directors and executive officers, with related schedule. (3)
10.2#** 1996 Equity Incentive Plan, including forms of Options granted
to employees and non-employee directors thereunder. (3)
10.3#** 1996 Employee Stock Purchase Plan. (3)
10.4#** 1993 Stock Option Plan. (3)
10.5#** 1991 Stock Option Plan. (3)
10.6#** Employee Stock Ownership Plan. (3)
10.7#** Employment Agreement between Registrant and Michael C.
Gilliland, dated July 12, 1996, as amended. (3)
10.8** Amended and Restated Stockholders Agreement among the
Registrant and certain parties named therein dated August
1996. (3)
10.9** Registration Rights Agreement between the Registrant and
certain parties named therein dated July 12, 1996. (3)
10.10** Revolving Loan Agreement dated as of March 2, 1999 among Wild
Oats Markets, Inc., the Lenders Named Herein and Wells Fargo
Bank, National Association, as Administrative Agent. (5)
10.11+ Amendment No. 1 to Revolving Loan Agreement dated July 29,
1999.
10.12#** Employment Agreement dated June 1, 1999, between Registrant
and James Lee. (6)
10.13#** Employment Agreement dated June 14, 1999, between Registrant
and Mary Beth Lewis. (6)
10.14** Stock Purchase Agreement between Nature's Fresh Northwest,
Inc., General Nutrition Incorporated and Registrant dated
April 22, 1999. (7)
42
<PAGE>
10.15** Stock Purchase Agreement among Henry's Marketplace, Inc., the
selling stockholders and the Registrant dated July 27, 1999.
(8)
10.16** Letter Agreement dated September 1, 1999, amending the Stock
Purchase Agreement referenced in 10.15 above. (8)
10.17** Agreement and Plan of Merger between the Registrant,
Alfalfa's, Inc. and WO Holdings, Inc. dated June 4, 1996. (3)
10.18#+ Wild Oats Markets, Inc. Deferred Compensation Plan
10.19#** 1996 Equity Incentive Plan, including forms of Options granted
to employees and non-employee directors thereunder. (9)
21.1+ List of subsidiaries.
23.1+ Consent of PricewaterhouseCoopers LLP
23.2+ Consent of KPMG LLP
23.3+ Consent of Ernst & Young LLP
27.1+ Financial Data Schedule - Year Ended January 1, 2000.
- - --------------------------------
# Management Compensation Plan.
** Previously filed.
+ Included herewith.
(1) Incorporated by reference from the Registrant's Form 10-K for the year
ended December 28, 1996. (File No. 0-21577)
(2) Incorporated by reference from the Registrant's Amendment No. 2 to the
Registration Statement on Form S-3 filed with the Commission on November
10, 1999 (File No. 333-88011)
(3) Incorporated by reference from the Registrant's Registration Statement on
Form S-1 (File No. 333-11261) filed on August 30, 1996
(4) Incorporated by reference from the Registrant's Form 8-K filed on May 5,
1998 (File No. 0-21577)
(5) Incorporated by reference from the Registrant's Report on Form 10-K for th
year ended January 2, 1999 (File No. 0-21577).
(6) Incorporated by reference from Registrant's Report on Form 10-Q filed on
August 17, 1999 (File No. 0-21577).
(7) Incorporated by reference from Registrant's Report on Form 8-K filed on
June 14, 1999 (File No. 0-21577).
(8) Incorporated by reference from the Registrant's Report on Form 8-K filed
September 29, 1999 (File No. 0-21577).
(9) Incorporated by reference from the Registrant's Registration Statement on
Form S-8 (File No. 333-66347) filed on October 30, 1998
43
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Wild Oats Markets, Inc.
(Registrant)
Date: March 14, 2000 By: /s/ Mary Beth Lewis
-----------------------
Mary Beth Lewis
Executive Officer, Treasurer and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Michael C. Gilliland Chief Executive Officer March 14, 2000
- - -------------------------------------------- and Director
/s/ James W. Lee President and Chief Operating March 14, 2000
- - -------------------------------------------- Officer
/s/ Mary Beth Lewis Chief Financial Officer March 14, 2000
- - --------------------------------------------
/s/ John A. Shields Chairman March 14, 2000
- - --------------------------------------------
/s/ Elizabeth C. Cook Executive Vice President March 14, 2000
- - -------------------------------------------- and Director
/s/ David M. Chamberlain Vice Chairman March 14, 2000
- - --------------------------------------------
/s/ Brian K. Devine Director March 14, 2000
- - --------------------------------------------
/s/ David L. Ferguson Director March 14, 2000
- - ------------------------------------
/s/ James B. McElwee Director March 14, 2000
- - ------------------------------------
/s/ Morris J. Siegel Director March 14, 2000
- - --------------------------------------------
</TABLE>
44
<PAGE>
`Schedule II
<TABLE>
<CAPTION>
WILD OATS MARKETS, INC.
Valuation and Qualifying Accounts
(in thousands)
Balance at Charged Balance at
Allowance for Doubtful Accounts Beginning to End
for the Fiscal Year Ended: of Year Expenses Write-Offs of Year
<S> <C> <C> <C> <C> <C> <C>
December 27, 1997 299 273 (358) 214
January 2, 1999 214 55 (110) 159
January 1, 2000 159 155 (55) 259
</TABLE>
45
AMENDMENT NO. 1 TO REVOLVING LOAN AGREEMENT
This Amendment No. 1 to Revolving Loan Agreement (this "Amendment") is
entered into with reference to the Revolving Loan Agreement dated as of March 2,
1999 (the "Loan Agreement") among Wild Oats Markets, Inc. ("Borrower"), the
Lenders party thereto, and Wells Fargo Bank, National Association, as
Administrative Agent. Capitalized terms used but not defined herein are used
with the meanings set forth for those terms in the Loan Agreement.
Borrower and the Administrative Agent, acting with the consent of all
of the Lenders pursuant to Section 11.2 of the Loan Agreement, agree as follows:
1. Section 1.1. Section 1.1 of the Loan Agreement is amended by
revising the definitions of "Line A Commitment" and "Line B Commitment" to read
as follows:
"Line A Commitment" means, subject to Sections 2.5
and 2.6, $90,000,000. The respective Pro Rata Shares
of the Lenders with respect to the Line A Commitment
are set forth in Schedule 1.1.
"Line B Commitment" means, subject to Sections 2.5
and 2.6, $30,000,000. The respective Pro Rata Shares
of the Lenders with respect to the Line B Commitment
are set forth in Schedule 1.1.
2. Section 1.1. Section 1.1 of the Loan Agreement is further
amended by adding the following new definition at the appropriate alphabetical
place:
"Reserve Amount" means, as of any date of
determination, the amount (if any) by which
Indebtedness permitted by Section 6.9(d)(iii) on that
date exceeds $5,000,000.
3. Schedule 1.1. Schedule 1.1 to the Loan Agreement is amended
as set forth in Schedule 1.1 attached to this Amendment.
4. Section 2.1. Section 2.1(a) of the Loan Agreement is amended
by striking the first sentence thereof and substituting therefor the following:
Subject to the terms and conditions set forth in this
Agreement, at any time and from time to time from the
Closing Date through the Line A Maturity Date, each
Lender shall, pro rata according to that Lender's Pro
Rata Share of the then applicable Line A Commitment,
make Advances to Borrower under the Line A Commitment
in such amounts as Borrower may request that do not
result in the sum of (i) the aggregate principal
amount outstanding under the Line A Notes plus (ii)
the Aggregate Effective Amount of all outstanding
Letters of Credit plus (iii) the Swing Line
Outstandings plus (iv) the Reserve Amount to exceed
the Line A Commitment.
5. Section 3.1. Section 3.1(d) of the Loan Agreement is amended
by striking clause (i) thereof and substituting therefor the following:
(i) The amount, if any, by which the sum of (A)
the principal Indebtedness evidenced by the
Line A Notes plus (B) the Aggregate
Effective Amount of all outstanding Letters
of Credit plus (C) the Swing Line
Outstandings plus (D) the Reserve Amount at
any time exceeds the then applicable Line A
Commitment (including the Line A Commitment
as reduced pursuant to Section 2.5) shall be
payable immediately.
6. Section 6.9. Section 6.9 of the Loan Agreement is amended by
striking Subsection (d) thereof and substituting therefor the following:
(d) Indebtedness of an Acquired Company (i)
that is the subject of an Acquisition made
on or before July 1, 1999 which is secured
solely by a Lien permitted by Section
6.8(e), (ii) that is the subject of an
Acquisition made after July 1, 1999 which is
owed to a Person that is not the seller of
the Acquired Company, or an Affiliate of
such seller, that is secured solely by a
Lien permitted by Section 6.8(e) and (iii)
that is the subject of an Acquisition made
after July 1, 1999 which is owed to the
seller of the Acquired Company, or an
Affiliate of such seller, that is secured
solely by a Lien permitted by Section
6.8(e); provided that the aggregate
principal Indebtedness permitted by this
clause (iii) shall not at any time exceed
$10,000,000.
7. Section 8.2. Section 8.2 of the Loan Agreement is amended by
striking the same in its entirety any substituting therefor the following:
"[Intentionally Deleted"]
8. Conditions Precedent. The effectiveness of this Amendment
shall be conditioned upon:
(a) The receipt by the Administrative Agent of
an amendment fee of $40,000 for the account
of the Lenders according to their Pro Rata
Share, which the Administrative Agent shall
promptly disburse to the Lenders; and
(b) The receipt by the Administrative Agent of
all of the fol-lowing, each properly
executed by an authorized officer of each
party thereto and dated as of the date
hereof:
(i) Counterparts of this Amendment executed
by all parties hereto;
(ii)Written consent of all of the Lenders as
required under Section 11.2 of the Loan Agreement in the form
of Exhibit A to this Amendment;
(iii)Written consent of the Subsidiary
Guarantors in the form of Exhibit B to this Amendment;
(iv)Replacement Line A Notes and Line B
Notes for each Lender in the new amount of its Pro Rata Share of
the Line A Commitment and Line B Commitment, respectively,
(against delivery by such Lenders of the existing Line A Notes
and Line B Notes);
(v)A copy of the resolution of the Board of
Directors of Borrower authorizing the increases in the Line A
Commitment and Line B Commitment, certified by a Senior Officer;
and
(vi)the written opinion of Freya R. Brier,
Esq. with respect to the due corporate authorization by Borrower
of the increase in the Line A Commitment and Line B Commitment
and confirming such aspects of the Opinion of Counsel as the
Administrative Agent reasonably requests, in form and substance
acceptable to the Administrative Agent.
9. Representation and Warranty. Borrower represents and warrants
that no Default or Event of Default has occurred and remains continuing.
10. Confirmation. In all other respects, the terms of the Loan
Agreement and the other Loan Documents are hereby confirmed.
IN WITNESS WHEREOF, Borrower and the Administrative Agent have executed
this Amendment as of July ___, 1999 by their duly authorized representatives.
WILD OATS MARKETS, INC.
By:By _________________________________
Mary Beth Lewis
Chief Financial Officer
WELLS FARGO BANK, NATIONAL
ASSOCIATION, as Administrative Agent
By _________________________________
Tracey Hanson
Vice President
Exhibit A to Amendment
CONSENT OF LENDER
Reference is hereby made to that certain Revolving Loan Agreement dated as of
March 2, 1999 (the "Loan Agreement") among Wild Oats Markets, Inc. ("Borrower"),
the Lenders party thereto and Wells Fargo Bank, National Association, as
Administrative Agent. Capitalized terms used but not defined herein are used
with the meanings set forth for those terms in the Loan Agreement.
The undersigned Lender hereby consents to the execution and delivery of
Amendment No. 1 to Revolving Loan Agreement by the Administrative Agent on its
behalf, substantially in the form of the most recent draft presented to the
undersigned Lender.
Date: July ___, 1999
- - -------------------------------------
[Name of Institution]
By ___________________________________
- - --------------------------------------
[Printed Name and Title]
Exhibit B to Amendment
CONSENT OF SUBSIDIARY GUARANTORS
Reference is hereby made to that certain Revolving Loan Agreement dated as of
March 2, 1999 among Wild Oats Markets, Inc. ("Borrower"), the Lenders party
thereto, and Wells Fargo Bank, National Association, as Administrative Agent
(the "Loan Agreement").
Each of the undersigned Subsidiary Guarantors hereby consents to
Amendment No. 1 to the Loan Agreement in the form executed by Borrower and
confirms that the Subsidiary Guaranty to which it is a party remain in full
force and effect.
Dated: July ___, 1999
<PAGE>
"Guarantors"
WILD OATS MARKETS CANADA, INC.
By:___________________________
- - --------------------------------
[Printed name and title]
ALFALFA'S CANADA, INC.
By:_____________________________
- - --------------------------------
[Printed name and title]
Wild Oats Markets, Inc.
Deferred Compensation Plan
Master Plan Document
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
Effective November 1, 1999
<PAGE>
Wild Oats Markets, Inc.
Deferred Compensation Plan
Master Plan Document
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
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TABLE OF CONTENTS
Page
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Purpose ...............................................................................................1
ARTICLE 1 Definitions....................................................................................1
ARTICLE 2 Selection, Enrollment, Eligibility.............................................................6
2.1 Selection by Committee.........................................................................6
2.2 Enrollment Requirements........................................................................6
2.3 Eligibility; Commencement of Participation.....................................................6
2.4 Termination of Participation and/or Deferrals..................................................6
ARTICLE 3 Deferral Commitments/Company Matching/Crediting Taxes..........................................7
3.1 Minimum Deferrals..............................................................................7
3.2 Maximum Deferral...............................................................................7
3.3 Election to Defer; Effect of Election Form.....................................................7
3.4 Withholding of Annual Deferral Amounts.........................................................8
3.5 Company Contribution Amount....................................................................8
3.6 Annual Company Matching Amount.................................................................8
3.7 Investment of Trust Assets.....................................................................8
3.8 Vesting........................................................................................8
3.9 Crediting/Debiting of Account Balances.........................................................9
3.10 FICA and Other Taxes..........................................................................11
ARTICLE 4 Short-Term Payout; Unforeseeable Financial Emergencies; Withdrawal Election...................11
4.1 Short-Term Payout.............................................................................11
4.2 Other Benefits Take Precedence Over Short-Term................................................11
4.3 Withdrawal Payout/Suspensions for Unforeseeable Financial Emergencies.........................11
4.4 Withdrawal Election...........................................................................12
ARTICLE 5 Retirement Benefit............................................................................12
5.1 Retirement Benefit............................................................................12
5.2 Payment of Retirement Benefit.................................................................12
5.3 Death Prior to Completion of Retirement Benefit...............................................13
ARTICLE 6 Pre-Retirement Survivor Benefit...............................................................13
6.1 Pre-Retirement Survivor Benefit...............................................................13
6.2 Payment of Pre-Retirement Survivor Benefit....................................................13
ARTICLE 7 Termination Benefit...........................................................................13
7.1 Termination Benefit...........................................................................13
7.2 Payment of Termination Benefit................................................................13
ARTICLE 8 Disability Waiver and Benefit.................................................................14
8.1 Disability Waiver.............................................................................14
8.2 Continued Eligibility; Disability Benefit.....................................................14
ARTICLE 9 Beneficiary Designation.......................................................................14
9.1 Beneficiary...................................................................................14
9.2 Beneficiary Designation; Change; Spousal Consent..............................................15
9.3 Acknowledgement...............................................................................15
9.4 No Beneficiary Designation....................................................................15
9.5 Doubt as to Beneficiary.......................................................................15
9.6 Discharge of Obligations......................................................................15
ARTICLE 10 Leave of Absence..............................................................................15
10.1 Paid Leave of Absence.........................................................................15
10.2 Unpaid Leave of Absence.......................................................................15
ARTICLE 11 Termination, Amendment or Modification........................................................16
11.1 Termination...................................................................................16
11.2 Amendment.....................................................................................16
11.3 Plan Agreement................................................................................17
11.4 Effect of Payment.............................................................................17
ARTICLE 12 Administration................................................................................17
12.1 Committee Duties..............................................................................17
12.2 Administration Upon Change In Control.........................................................17
12.3 Agents........................................................................................18
12.4 Binding Effect of Decisions...................................................................18
12.5 Indemnity of Committee........................................................................18
12.6 Employer Information..........................................................................18
ARTICLE 13 Other Benefits and Agreements.................................................................18
13.1 Coordination with Other Benefits..............................................................18
ARTICLE 14 Claims Procedures.............................................................................18
14.1 Presentation of Claim.........................................................................18
14.2 Notification of Decision......................................................................19
14.3 Review of a Denied Claim......................................................................19
14.4 Decision on Review............................................................................19
14.5 Legal Action..................................................................................19
ARTICLE 15 Trust.........................................................................................20
15.1 Establishment of the Trust....................................................................20
15.2 Interrelationship of the Plan and the Trust...................................................20
15.3 Distributions From the Trust..................................................................20
ARTICLE 16 Miscellaneous.................................................................................20
16.1 Status of Plan................................................................................20
16.2 Unsecured General Creditor....................................................................20
16.3 Employer's Liability..........................................................................20
16.4 Nonassignability..............................................................................20
16.5 Not a Contract of Employment..................................................................21
16.6 Furnishing Information........................................................................21
16.7 Terms.........................................................................................21
16.8 Captions......................................................................................21
16.9 Governing Law.................................................................................21
16.10 Notice........................................................................................21
16.11 Successors....................................................................................22
16.12 Spouse's Interest.............................................................................22
16.13 Validity......................................................................................22
16.14 Incompetent...................................................................................22
16.15 Court Order...................................................................................22
16.16 Distribution in the Event of Taxation.........................................................22
16.17 Insurance.....................................................................................23
16.18 Legal Fees To Enforce Rights After Change in Control..........................................23
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Wild Oats Markets, Inc.
Deferred Compensation Plan
Master Plan Document
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<PAGE>
WILD OATS MARKETS, INC.
DEFERRED COMPENSATION PLAN
Effective November 1, 1999
Purpose
The purpose of this Plan is to provide specified benefits to a select
group of management and highly compensated Employees and Directors who
contribute materially to the continued growth, development and future business
success of Wild Oats Markets, Inc., a Delaware corporation, and its
subsidiaries, if any, that sponsor this Plan. This Plan shall be unfunded for
tax purposes and for purposes of Title I of ERISA.
ARTICLE 1
Definitions
For purposes of this Plan, unless otherwise clearly apparent from the
context, the following phrases or terms shall have the following indicated
meanings:
1.1 "Account Balance" shall mean, with respect to a Participant, a credit
on the records of the Employer equal to the sum of (i) the Deferral
Account balance, (ii) the vested Company Contribution Account balance
and (iii) the vested Company Matching Account balance. The Account
Balance, and each other specified account balance, shall be a
bookkeeping entry only and shall be utilized solely as a device for the
measurement and determination of the amounts to be paid to a
Participant, or his or her designated Beneficiary, pursuant to this
Plan.
1.2 "Annual Company Matching Amount" for any one Plan Year shall be the
amount determined in accordance with Section 3.6.
1.3 "Annual Deferral Amount" shall mean that portion of a Participant's
Base Annual Salary, Bonus and Directors Fees that a Participant elects
to have, and is deferred, in accordance with Article 3, for any one
Plan Year. In the event of a Participant's Retirement, Disability (if
deferrals cease in accordance with Section 8.1), death or a Termination
of Employment prior to the end of a Plan Year, such year's Annual
Deferral Amount shall be the actual amount withheld prior to such
event.
1.4 "Annual Installment Method" shall be an annual installment payment over
the number of years selected by the Participant in accordance with this
Plan, calculated as follows: The Account Balance of the Participant
shall be calculated as of the close of business on the last business
day of the year. The annual installment shall be calculated by
multiplying this balance by a fraction, the numerator of which is one,
and the denominator of which is the remaining number of annual payments
due the Participant. By way of example, if the Participant elects a 10
year Annual Installment Method, the first payment shall be 1/10 of the
Account Balance, calculated as described in this definition. The
following year, the payment shall be 1/9 of the Account Balance,
calculated as described in this definition. Each annual installment
shall be paid on or as soon as practicable after the last business day
of the applicable year.
1.5 "Base Annual Salary" shall mean the annual cash compensation relating
to services performed during any calendar year, whether or not paid in
such calendar year or included on the Federal Income Tax Form W-2 for
such calendar year, excluding bonuses, commissions, overtime, fringe
benefits, stock options, relocation expenses, incentive payments,
non-monetary awards, directors fees and other fees, automobile and
other allowances paid to a Participant for employment services rendered
(whether or not such allowances are included in the Employee's gross
income). Base Annual Salary shall be calculated before reduction for
compensation voluntarily deferred or contributed by the Participant
pursuant to all qualified or non-qualified plans of any Employer and
shall be calculated to include amounts not otherwise included in the
Participant's gross income under Code Sections 125, 402(e)(3), 402(h),
or 403(b) pursuant to plans established by any Employer; provided,
however, that all such amounts will be included in compensation only to
the extent that, had there been no such plan, the amount would have
been payable in cash to the Employee.
1.6 "Beneficiary" shall mean one or more persons, trusts, estates or other
entities, designated in accordance with Article 9, that are entitled to
receive benefits under this Plan upon the death of a Participant.
1.7 "Beneficiary Designation Form" shall mean the form established from
time to time by the Committee that a Participant completes, signs and
returns to the Committee to designate one or more Beneficiaries.
1.8 "Board" shall mean the board of directors of the Company.
1.9 "Bonus" shall mean any compensation, in addition to Base Annual Salary
relating to services performed during any calendar year, whether or not
paid in such calendar year or included on the Federal Income Tax Form
W-2 for such calendar year, payable to a Participant as an Employee
under any Employer's bonus and cash incentive plans, excluding stock
options, stock dividends, stock warrants, and any other stock-based
compensation.
1.10 "Change in Control" shall mean the first to occur of any of the
following events:
(a) Any person (as defined below) becomes the Beneficial Owner (as defined
below), directly or indirectly, of securities of the Company representing a
majority or more of the combined voting power of the Company's then
outstanding securities. For purposes of this Agreement, (1) the term
"Person" is used as such term is used in Section 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"); provided,
however, that the term shall not include Elizabeth C. Cook, Michael C.
Gilliland, Chase Venture Capital Associates or their affiliates, the
Company, any trustee or other fiduciary holding securities under an
employee benefit plan of the Company, or any company owned, directly or
indirectly, by the stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company, and (2) the term
"Beneficial Owner" shall have the meaning given to such term in Rule 13d-3
under the Exchange Act;
(b) During any period of two consecutive years following the effective date of
this Plan, individuals who at the beginning of such period constitute the
Board, and any new director (other than a director designated by a person
who has entered into an agreement with the Company to effect a transaction
described in Sections 1.11(a) or (c)) whose election by the Board or
nomination for election by the Company's stockholders was approved by a
vote of at least a majority of the directors then still in office who
either were directors at the beginning of such period or whose election or
nomination for election was previously so approved (hereinafter referred to
as "Continuing Directors"), cease for any reason to constitute at least a
majority thereof;
(c) The stockholders of the Company consummate a plan of complete liquidation
of the Company or any agreement for the sale or disposition by the Company
to an unrelated third party or parties of all or substantially all of the
Company's assets.
1.11 "Claimant" shall have the meaning set forth in Section 14.1.
1.12 "Code" shall mean the Internal Revenue Code of 1986, as it may be
amended from time to time.
1.13 "Committee" shall mean the committee described in Article 12.
1.14 "Company" shall mean Wild Oats Markets, Inc., a Delaware corporation,
and any successor to all or substantially all of the Company's assets
or business.
1.15 "Company Contribution Account" shall mean (i) the sum of the
Participant's Company Contribution Amounts, plus (ii) amounts credited
in accordance with all the applicable crediting provisions of this Plan
that relate to the Participant's Company Contribution Account, less
(iii) all distributions made to the Participant or his or her
Beneficiary pursuant to this Plan that relate to the Participant's
Company Contribution Account.
1.16 "Company Contribution Amount" shall mean, for any one Plan Year, the
amount determined in accordance with Section 3.5.
1.17 "Company Matching Account" shall mean (i) the sum of all of a
Participant's Annual Company Matching Amounts, plus (ii) amounts
credited in accordance with all the applicable crediting provisions of
this Plan that relate to the Participant's Company Matching Account,
less (iii) all distributions made to the Participant or his or her
Beneficiary pursuant to this Plan that relate to the Participant's
Company Matching Account.
1.18 "Deduction Limitation" shall mean the following described limitation on
a benefit that may otherwise be distributable pursuant to the
provisions of this Plan. Except as otherwise provided, this limitation
shall be applied to all distributions that are "subject to the
Deduction Limitation" under this Plan. If an Employer determines in
good faith prior to a Change in Control that there is a reasonable
likelihood that any compensation paid to a Participant for a taxable
year of the Employer would not be deductible by the Employer solely by
reason of the limitation under Code Section 162(m), then to the extent
deemed necessary by the Employer to ensure that the entire amount of
any distribution to the Participant pursuant to this Plan prior to the
Change in Control is deductible for federal income tax purposes, the
Employer may defer all or any portion of a distribution under this
Plan. Any amounts deferred pursuant to this limitation shall continue
to be credited/debited with additional amounts in accordance with
Section 3.9 below, even if such amount is being paid out in
installments. The amounts so deferred and amounts credited thereon
shall be distributed to the Participant or his or her Beneficiary (in
the event of the Participant's death) at the earliest possible date, as
determined by the Employer in good faith, on which the deductibility of
compensation paid or payable to the Participant for the taxable year of
the Employer during which the distribution is made will not be limited
by Section 162(m), or if earlier, the effective date of a Change in
Control. Notwithstanding anything to the contrary in this Plan, the
Deduction Limitation shall not apply to any distributions made after a
Change in Control.
1.19 "Deferral Account" shall mean (i) the sum of all of a Participant's
Annual Deferral Amounts, plus (ii) amounts credited in accordance with
all the applicable crediting provisions of this Plan that relate to the
Participant's Deferral Account, less (iii) all distributions made to
the Participant or his or her Beneficiary pursuant to this Plan that
relate to his or her Deferral Account.
1.20 "Director" shall mean any member of the board of directors of any
Employer.
1.21 "Directors Fees" shall mean the total fees paid by any Employer in cash
during a Plan Year, including retainer fees and meetings fees, as
compensation for serving on the board of directors.
1.22 "Disability" shall mean a period during which a Participant is
"permanently and totally disabled" within the meaning of Code Section
22(e), as determined in the sole discretion of the Committee.
1.23 "Disability Benefit" shall mean the benefit set forth in Article 8.
1.24 "Election Form" shall mean the form established from time to time by
the Committee that a Participant completes, signs and returns to the
Committee to make an election under the Plan.
1.25 "Employee" shall mean a person who is an employee of any Employer.
1.26 "Employer(s)" shall mean the Company and/or any of its subsidiaries
(now in existence or hereafter formed or acquired) that have been
selected by the Board to participate in the Plan and have adopted the
Plan as a sponsor.
1.27 "ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as it may be amended from time to time.
1.28 "First Plan Year" shall mean the period beginning November 1, 1999 and
ending December 31, 1999.
1.29 "Participant" shall mean any Employee or Director (i) who is selected
to participate in the Plan, (ii) who elects to participate in the Plan,
(iii) who signs a Plan Agreement, an Election Form and a Beneficiary
Designation Form, (iv) whose signed Plan Agreement, Election Form and
Beneficiary Designation Form are accepted by the Committee, (v) who
commences participation in the Plan, and (vi) whose Plan Agreement has
not terminated. A spouse or former spouse of a Participant shall not be
treated as a Participant in the Plan or have an account balance under
the Plan, even if he or she has an interest in the Participant's
benefits under the Plan as a result of applicable law or property
settlements resulting from legal separation or divorce.
1.30 "Plan" shall mean the Company's Deferred Compensation Plan, which shall
be evidenced by this instrument and by each Plan Agreement, as they may
be amended from time to time.
1.31 "Plan Agreement" shall mean a written agreement, as may be amended from
time to time, which is entered into by and between an Employer and a
Participant. Each Plan Agreement executed by a Participant and the
Participant's Employer shall provide for the entire benefit to which
such Participant is entitled under the Plan; should there be more than
one Plan Agreement, the Plan Agreement bearing the latest date of
acceptance by the Employer shall supersede all previous Plan Agreements
in their entirety and shall govern such entitlement. The terms of any
Plan Agreement may be different for any Participant, and any Plan
Agreement may provide additional benefits not set forth in the Plan or
limit the benefits otherwise provided under the Plan; provided,
however, that any such additional benefits or benefit limitations must
be agreed to by both the Employer and the Participant.
1.32 "Plan Year" shall, except for the First Plan Year, mean a period
beginning on January 1 of each calendar year and continuing through
December 31 of such calendar year.
1.33 "Pre-Retirement Survivor Benefit" shall mean the benefit set forth in
Article 6.
1.34 "Retirement", "Retire(s)" or "Retired" shall mean, with respect to an
Employee, severance from employment from all Employers for any reason
other than a leave of absence, death or Disability when the sum of the
Participant's age and Years of Service is equal to or greater than
fifty five (55).
1.35 "Retirement Benefit" shall mean the benefit set forth in Article 5.
1.36 "Short-Term Payout" shall mean the payout set forth in Section 4.1.
1.37 "Termination Benefit" shall mean the benefit set forth in Article 7.
1.38 "Termination of Employment" shall mean the severing of employment with
all Employers, or service as a Director of all Employers, voluntarily
or involuntarily, for any reason other than Retirement, Disability,
death or an authorized leave of absence. If a Participant is both an
Employee and a Director, a Termination of Employment shall occur only
upon the termination of the last of these positions held; provided,
however, that such a Participant may elect, at least one year before
Termination of Employment and in accordance with the policies and
procedures established by the Committee, to be treated for purposes of
this Plan as having experienced a Termination of Employment at the time
he or she ceases employment with an Employer as an Employee.
1.39 "Trust" shall mean one or more trusts established pursuant to that
certain Master Trust Agreement, dated as of November 1, 1999 between
the Company and the trustee named therein, as amended from time to
time.
1.40 "Trustee" shall mean the trustee named under the Trust.
1.41 "Unforeseeable Financial Emergency" shall mean an unanticipated
emergency that is caused by an event beyond the control of the
Participant that would result in severe financial hardship to the
Participant resulting from (i) a sudden and unexpected illness or
accident of the Participant, the Participant's spouse, or a dependent
of the Participant, (ii) a loss of the Participant's property due to
casualty, or (iii) such other extraordinary and unforeseeable
circumstances arising as a result of events beyond the control of the
Participant, all of the above as determined in the sole discretion of
the Committee.
1.42 "Years of Plan Participation" shall mean the total number of full Plan
Years a Participant has been a Participant in the Plan prior to his or
her Termination of Employment (determined without regard to whether
deferral elections have been made by the Participant for any Plan
Year). Any partial year shall not be counted. Notwithstanding the
previous sentence, a Participant's first Plan Year of participation
shall be treated as a full Plan Year for purposes of this definition,
even if it is only a partial Plan Year of participation.
1.43 "Years of Service" shall mean the total number of full years in which a
Participant has been employed by one or more Employers. For purposes of
this definition, a year of employment shall be a 365 day period (or 366
day period in the case of a leap year) that, for the first year of
employment, commences on the Employee's date of hiring and that, for
any subsequent year, commences on an anniversary of that hiring date.
Any partial year of employment shall not be counted.
ARTICLE 2
Selection, Enrollment, Eligibility
2.1 Selection by Committee. Participation in the Plan shall be limited to a
select group of management and highly compensated Employees and
Directors of the Employers, as determined by the Committee in its sole
discretion. From that group, the Committee shall select, in its sole
discretion, Employees and Directors to participate in the Plan.
2.2 Enrollment Requirements. As a condition to participation, each selected
Employee and Director shall complete, execute and return to the
Committee a Plan Agreement, an Election Form and a Beneficiary
Designation Form, all within 30 days after he or she is selected to
participate in the Plan. In addition, the Committee shall establish
from time to time such other enrollment requirements as it determines
in its sole discretion are necessary.
2.3 Eligibility; Commencement of Participation. Provided an Employee or
Director selected to participate in the Plan has met all enrollment
requirements set forth in this Plan and required by the Committee,
including returning all required documents to the Committee within the
specified time period, that Employee or Director shall commence
participation in the Plan on the first day of the month following the
month in which the Employee or Director completes all such enrollment
requirements. If an Employee or a Director fails to meet all such
requirements within the period required, in accordance with Section
2.2, that Employee or Director shall not be eligible to participate in
the Plan until the first day of the Plan Year following the delivery to
and acceptance by the Committee of the required documents.
2.4 Termination of Participation and/or Deferrals. If the Committee
determines in good faith that a Participant no longer qualifies as a
member of a select group of management or highly compensated employees,
as membership in such group is determined in accordance with Sections
201(2), 301(a)(3) and 401(a)(1) of ERISA, the Committee shall have the
right, in its sole discretion, to do one or more of the following: (i)
terminate any deferral election the Participant has made for the
remainder of the Plan Year in which the Participant's membership status
changes, (ii) prevent the Participant from making future deferral
elections, and (iii) immediately distribute the Participant's then
Account Balance as a Termination Benefit and terminate the
Participant's participation in the Plan.
ARTICLE 3
Deferral Commitments/Company Matching/Crediting/Taxes
3.1 Minimum Deferrals.
(a) Base Annual Salary, Bonus and Director's Fees. For each Plan
Year, a Participant may elect to defer, as his or her Annual
Deferral Amount, one or more of the following forms of
compensation: (i) Base Annual Salary; (ii) Bonus; and (iii)
Director's Fees. The Annual Deferral Amount for each
Participant shall not in total be less than $2,000 in any Plan
Year.
(b) Short Plan Year. Notwithstanding the foregoing, if a
Participant first becomes a Participant after the first day of
a Plan Year, or in the case of the First Plan Year, the
minimum Annual Deferral Amount for such Participant shall be
an amount equal to the product obtained by multiplying $2,000
by a fraction, the numerator of which is the number of full
months remaining in that Plan Year and the denominator of
which is 12.
3.2 Maximum Deferral.
(a) Base Annual Salary, Bonus and Directors Fees. For each Plan Year, a
Participant may elect to defer, as his or her Annual Deferral Amount, up to
the following maximum percentages for each of the following forms of
compensation:
Deferral Maximum Amount
Base Annual Salary 50%
Bonus 100%
Directors Fees 100%
Notwithstanding the foregoing, a Participant's total maximum Annual
Deferral Amount for the First Plan Year shall be limited to the amount of
compensation not yet earned by such Participant for the First Plan Year
determined as of the date the Participant submits a Plan Agreement and
Election Form to the Committee for acceptance. If a Participant commences
participation in the Plan after the first day of a Plan Year (other than
the First Plan Year), such Participant's Maximum Annual Deferral Amount
shall be limited in the same manner as the First Plan Year limitation.
3.3 Election to Defer; Effect of Election Form.
(a) Initial Plan Year. In connection with a Participant's commencement of
participation in the Plan, the Participant shall make an irrevocable
deferral election for the Plan Year in which the Participant commences
participation in the Plan, along with such other elections as the Committee
deems necessary or desirable under the Plan. For these elections to be
valid, the Election Form must be completed and signed by the Participant,
timely delivered to the Committee (in accordance with Section 2.2 above)
and accepted by the Committee.
(b) Subsequent Plan Years. For each succeeding Plan Year, an irrevocable
deferral election and such other elections as the Committee shall require
must be made by each Participant prior to the end of the preceding Plan
Year. The irrevocable deferral election shall be made by timely delivering
an Election Form to the Committee in accordance with its rules and
procedures. Failure to do so shall preclude a Participant from
participating in the Plan for that Plan Year.
3.4 Withholding of Annual Deferral Amounts. For each Plan Year, the total
Base Annual Salary portion of the Annual Deferral Amount shall be
withheld from each regularly scheduled Base Annual Salary paycheck in
equal amounts, as adjusted from time to time for increases and
decreases in Base Annual Salary. The Bonus and Directors Fees portion
of the Annual Deferral Amount shall be withheld at the time the Bonus
and Directors Fees are to be paid to the Participant, whether or not
this occurs during the Plan Year.
3.5 Company Contribution Amount. For each Plan Year, an Employer, in its
sole discretion, may, but is not required to, credit any amount it
desires to a Participant's Company Contribution Account. The amount so
credited to a Participant may be greater or less than the amount
credited to any other Participant, and the amount credited to any
Participant for a Plan Year may be zero, even though one or more other
Participants receive a Company Contribution Amount for that Plan Year.
The Company Contribution Amount, if any, shall be credited as of the
last day of the Plan Year. If a Participant is not employed by an
Employer as of the last day of a Plan Year other than by reason of his
or her Retirement or death while employed, the Company Contribution
Amount for that Plan Year shall be zero.
3.6 Annual Company Matching Amount. A Participant's Annual Company Matching
Amount for any Plan Year shall be equal to (i) 50 % of the
Participant's Annual Deferral Amount for such Plan Year, up to an
amount that does not exceed 4 % of the Participant's Base Annual Salary
plus (ii) 25 % of the Participant's Annual Deferral Amount for such
Plan Year that exceeds 4 % of the Participant's Base Annual Salary, up
to an amount that does not exceed 6 % of the Participant's Base Annual
Salary. If a Participant is not employed by an Employer, or is no
longer providing services as a Director, as of the last day of a Plan
Year other than by reason of his or her Retirement or death, the Annual
Company Matching Amount for such Plan Year shall be zero. In the event
of Retirement or death, a Participant shall be credited with the Annual
Company Matching Amount for the Plan Year in which he or she Retires or
dies.
3.7 Investment of Trust Assets. The Trustee shall be authorized, upon
written instructions received from the Committee or investment manager
appointed by the Committee, to invest and reinvest the assets of the
Trust in accordance with the applicable Trust Agreement, including the
disposition of stock and reinvestment of the proceeds in one or more
investment vehicles designated by the Committee.
3.8 Vesting.
(a) A Participant shall at all times be 100% vested in his or her Deferral
Account and Company Matching Account.
(b) A Participant shall be vested in his or her Company Contribution Account in
accordance with the schedule set forth in his or her Plan Agreement.
(c) Notwithstanding anything to the contrary contained in Section 3.8(b), in
the event of a Change in Control, a Participant's Company Contribution
Account shall immediately become 100% vested (if it is not already vested
in accordance with the above vesting schedule).
(d) Notwithstanding subsection (c), the vesting schedule for a Participant's
Company Contribution Account shall not be accelerated to the extent that
the Committee determines that such acceleration would cause the deduction
limitations of Section 280G of the Code to become effective. In the event
that all of a Participant's Company Contribution Account is not vested
pursuant to such a determination, the Participant may request independent
verification of the Committee's calculations with respect to the
application of Section 280G. In such case, the Committee must provide to
the Participant within 30 business days of such a request an opinion from
an independent public accounting firm selected by the Company (the
"Accounting Firm") concluding that a limitation in the vested percentage
hereunder is necessary to avoid the limits of Code Section 280G. The
opinion shall include supporting calculations. The cost of such opinion
shall be paid for by the Company.
3.9 Crediting/Debiting of Account Balances. In accordance with, and subject
to, the rules and procedures that are established from time to time by
the Committee, in its sole discretion, amounts shall be credited or
debited to a Participant's Account Balance in accordance with the
following rules:
(a) Election of Measurement Funds. A Participant, in connection with his or her
initial deferral election in accordance with Section 3.3(a) above, shall
elect, on the Election Form, one or more Measurement Fund(s) (as described
in Section 3.9(c) below) to be used to determine the additional amounts to
be credited to his or her Account Balance for the first business day in
which the Participant commences participation in the Plan and continuing
thereafter for each subsequent business day in which the Participant
participates in the Plan, unless changed in accordance with the next
sentence. Commencing with the first business day that follows the
Participant's commencement of participation in the Plan and continuing
thereafter for each subsequent business day in which the Participant
participates in the Plan, the Participant may (but is not required to)
elect, by submitting an Election Form to the Committee that is accepted by
the Committee, to add or delete one or more Measurement Fund(s) to be used
to determine the additional amounts to be credited to his or her Account
Balance, or to change the portion of his or her Account Balance allocated
to each previously or newly elected Measurement Fund. If an election is
made in accordance with the previous sentence, it shall apply to the next
business day and continue thereafter for each subsequent business day in
which the Participant participates in the Plan, unless changed in
accordance with the previous sentence.
(b) Proportionate Allocation. In making any election described in Section
3.9(a) above, the Participant shall specify on the Election Form, in
increments of five percentage points (5%), the percentage of his or her
Account Balance to be allocated to a Measurement Fund (as if the
Participant was making an investment in that Measurement Fund with that
portion of his or her Account Balance).
(c Measurement Funds. The Participant may elect one or more of the following
measurement funds, based on certain mutual funds (the "Measurement Funds"),
for the purpose of crediting additional amounts to his or her Account
Balance. As necessary, the Committee may, in its sole discretion,
discontinue, substitute or add a Measurement Fund. Each such action will
take effect as of the first day of the calendar quarter that follows by
thirty (30) days the day on which the Committee gives Participants advance
written notice of such change.
(d) Crediting or Debiting Method. The performance of each elected Measurement
Fund (either positive or negative) will be determined by the Committee, in
its reasonable discretion, based on the performance of the Measurement
Funds themselves. A Participant's Account Balance shall be credited or
debited on a daily basis based on the performance of each Measurement Fund
selected by the Participant, as determined by the Committee in its sole
discretion, as though (i) a Participant's Account Balance were invested in
the Measurement Fund(s) selected by the Participant, in the percentages
applicable to such calendar quarter, as of the close of business on the
first business day of such calendar quarter, at the closing price on such
date; (ii) the portion of the Annual Deferral Amount that was actually
deferred during any calendar quarter was invested in the Measurement
Fund(s) selected by the Participant, in the percentages applicable to such
calendar quarter, no later than the close of business on the first business
day after the day on which such amounts are actually deferred from the
Participant's Base Annual Salary through reductions in his or her payroll,
at the closing price on such date; and (iii) any distribution made to a
Participant that decreases such Participant's Account Balance ceased being
invested in the Measurement Fund(s), in the percentages applicable to such
calendar quarter, no earlier than one business day prior to the
distribution, at the closing price on such date. The Participant's Annual
Company Matching Amount shall be credited to his or her Company Matching
Account for purposes of this Section 3.9(d) as of the close of business on
the first business day in February of the Plan Year following the Plan Year
to which it relates.
(e) No Actual Investment. Notwithstanding any other provision of this Plan that
may be interpreted to the contrary, the Measurement Funds are to be used
for measurement purposes only, and a Participant's election of any such
Measurement Fund, the allocation to his or her Account Balance thereto, the
calculation of additional amounts and the crediting or debiting of such
amounts to a Participant's Account Balance shall not be considered or
construed in any manner as an actual investment of his or her Account
Balance in any such Measurement Fund. In the event that the Company or the
Trustee (as that term is defined in the Trust), in its own discretion,
decides to invest funds in any or all of the Measurement Funds, no
Participant shall have any rights in or to such investments themselves.
Without limiting the foregoing, a Participant's Account Balance shall at
all times be a bookkeeping entry only and shall not represent any
investment made on his or her behalf by the Company or the Trust. The
Participant shall at all times remain an unsecured creditor of the Company.
3.10 FICA and Other Taxes.
(a) Annual Deferral Amounts. For each Plan Year in which an Annual Deferral
Amount is being withheld from a Participant's compensation, the
Participant's Employer(s) shall withhold from that portion of the
Participant's Base Annual Salary and Bonus that is not being deferred,
in a manner determined by the Employer(s), the Participant's share of
FICA and other employment taxes on such Annual Deferral Amount. If
necessary, the Committee may reduce the Annual Deferral Amount in order
to comply with this Section 3.10.
(b) Company Matching Amounts. When a participant becomes vested in a portion of
his or her Company Matching Account, the Participant's Employer(s) shall
withhold from the Participant's Base Annual Salary and/or Bonus that is not
deferred, in a manner determined by the Employer(s), the Participant's
share of FICA and other employment taxes. If necessary, the Committee may
reduce the vested portion of the Participant's Company Matching Account in
order to comply with this Section 3.10.
(c) Distributions. The Participant's Employer(s) or the Trustee, as the case
may be, shall withhold from any payments made to a Participant under this
Plan all applicable federal, state and local income, employment and other
taxes required to be withheld in a manner to be determined in the sole
discretion of the Employer(s) or the Trustee.
ARTICLE 4
Short-Term Payout; Unforeseeable Financial Emergencies;
Withdrawal Election
4.1 Short-Term Payout. In connection with each election to defer an Annual
Deferral Amount, a Participant may irrevocably elect to receive a
future "Short-Term Payout" from the Plan with respect to such Annual
Deferral Amount. Subject to the Deduction Limitation, the Short-Term
Payout shall be a lump sum payment in an amount that is equal to the
Annual Deferral Amount and the Annual Company Matching Amount, plus
amounts credited or debited in the manner provided in Section 3.9 above
on those amounts, determined at the time that the Short-Term Payout
becomes payable (rather than the date of a Termination of Employment).
Subject to the Deduction Limitation and the other terms and conditions
of this Plan, each Short-Term Payout elected shall be paid out during a
60 day period commencing immediately on the first day of any Plan Year
designated by the Participant that is at least three Plan Years after
the Plan Year in which the Annual Deferral Amount is actually deferred.
By way of example, if a one year Short-Term Payout is elected for
Annual Deferral Amounts that are deferred in the Plan Year commencing
November 1, 1999, the three year Short-Term Payout would become payable
during a 60 day period commencing January 1, 2002.
4.2 Other Benefits Take Precedence Over Short-Term. Should an event occur
that triggers a benefit under Article 5, 6, 7 or 8, any Annual Deferral
Amount, plus amounts credited or debited thereon, that is subject to a
Short-Term Payout election under Section 4.1 shall not be paid in
accordance with Section 4.1 but shall be paid in accordance with the
other applicable Article.
4.3 Withdrawal Payout/Suspensions for Unforeseeable Financial Emergencies.
If the Participant experiences an Unforeseeable Financial Emergency,
the Participant may petition the Committee to (i) suspend any deferrals
required to be made by a Participant and/or (ii) receive a partial or
full payout from the Plan. The payout shall not exceed the lesser of
the Participant's Account Balance, calculated as if such Participant
were receiving a Termination Benefit, or the amount reasonably needed
to satisfy the Unforeseeable Financial Emergency. If, subject to the
sole discretion of the Committee, the petition for a suspension and/or
payout is approved, suspension shall take effect upon the date of
approval and any payout shall be made within 60 days of the date of
approval. The payment of any amount under this Section 4.3 shall not be
subject to the Deduction Limitation.
4.4 Withdrawal Election. A Participant (or, after a Participant's death,
his or her Beneficiary) may elect, at any time, to withdraw all but not
less than all of his or her Account Balance, calculated as if there had
occurred a Termination of Employment as of the day of the election,
less a withdrawal penalty equal to 10% of such amount (the net amount
shall be referred to as the "Withdrawal Amount"). This election can be
made at any time, before or after Retirement, Disability, death or
Termination of Employment, and whether or not the Participant (or
Beneficiary) is in the process of being paid pursuant to an installment
payment schedule. If made before Retirement, Disability or death, a
Participant's Withdrawal Amount shall be his or her Account Balance
calculated as if there had occurred a Termination of Employment as of
the day of the election. No partial withdrawals of the Withdrawal
Amount shall be allowed. The Participant (or his or her Beneficiary)
shall make this election by giving the Committee advance written notice
of the election in a form determined from time to time by the
Committee. The Participant (or his or her Beneficiary) shall be paid
the Withdrawal Amount within 60 days of his or her election. Once the
Withdrawal Amount is paid, the Participant's participation in the Plan
shall terminate and the Participant shall not be eligible to
participate in the Plan for the remainder of the Plan Year of such
election and the next Plan Year. The payment of this Withdrawal Amount
shall not be subject to the Deduction Limitation.
ARTICLE 5
Retirement Benefit
5.1 Retirement Benefit. Subject to the Deduction Limitation, a
Participant who Retires shall receive, as a Retirement Benefit,
his or her Account Balance in accordance with the provisions contained
herein.
5.2 Payment of Retirement Benefit. A Participant, in connection with his or
her commencement of participation in the Plan, shall elect on an
Election Form to receive the Retirement Benefit in a lump sum or
pursuant to an Annual Installment Method of 2, 5, 10 or 15 years. The
Participant may annually change his or her election to an allowable
alternative payout period by submitting a new Election Form to the
Committee, provided that any such Election Form is submitted at least 1
year prior to the Participant's Retirement and is accepted by the
Committee in its sole discretion. The Election Form most recently
accepted by the Committee shall govern the payout of the Retirement
Benefit. If a Participant does not make any election with respect to
the payment of the Retirement Benefit, then such benefit shall be
payable in a lump sum. If elected, the lump sum payment shall be made
no later than 60 days after the day on which the Participant Retires.
If elected, installment payments shall commence no later than 60 days
after the last day of the Plan Year in which the Participant Retires.
Any payment made shall be subject to the Deduction Limitation.
5.3 Death Prior to Completion of Retirement Benefit. If a Participant dies
after Retirement but before the Retirement Benefit is paid in full, the
Participant's unpaid Retirement Benefit payments shall continue and
shall be paid to the Participant's Beneficiary (a) over the remaining
number of years and in the same amounts as that benefit would have been
paid to the Participant had the Participant survived, or (b) in a lump
sum, if requested by the Beneficiary and allowed in the sole discretion
of the Committee, that is equal to the Participant's unpaid remaining
Account Balance.
ARTICLE 6
Pre-Retirement Survivor Benefit
6.1 Pre-Retirement Survivor Benefit. Subject to the Deduction Limitation,
the Participant's Beneficiary shall receive a Pre-Retirement Survivor
Benefit equal to the Participant's Account Balance if the Participant
dies before he or she Retires, experiences a Termination of Employment
or suffers a Disability.
6.2 Payment of Pre-Retirement Survivor Benefit. A Participant, in
connection with his or her commencement of participation in the Plan,
shall elect on an Election Form whether the Pre-Retirement Survivor
Benefit shall be received by his or her Beneficiary in a lump sum or
pursuant to an Annual Installment Method of 2, 5, 10 or 15 years. The
Participant may annually change this election to an allowable
alternative payout period by submitting a new Election Form to the
Committee, which form must be accepted by the Committee in its sole
discretion. The Election Form most recently accepted by the Committee
prior to the Participant's death shall govern the payout of the
Participant's Pre-Retirement Survivor Benefit. If a Participant does
not make any election with respect to the payment of the Pre-Retirement
Survivor Benefit, then such benefit shall be paid in a lump sum.
Despite the foregoing, if the Participant's Account Balance at the time
of his or her death is less than $25,000, payment of the Pre-Retirement
Survivor Benefit may be made, in the sole discretion of the Committee,
in a lump sum or pursuant to an Annual Installment Method of not more
than 5 years. The lump sum payment shall be made, or installment
payments shall commence, no later than 60 days after the last day of
the Plan Year in which the Committee is provided with proof that is
satisfactory to the Committee of the Participant's death. Any payment
made shall be subject to the Deduction Limitation.
ARTICLE 7
Termination Benefit
7.1 Termination Benefit. Subject to the Deduction Limitation, the
Participant shall receive a Termination Benefit, which shall be equal
to the Participant's Account Balance if a Participant experiences a
Termination of Employment prior to his or her Retirement, death or
Disability.
7.2 Payment of Termination Benefit. If the Participant's Account Balance at
the time of his or her Termination of Employment is less than $25,000,
payment of his or her Termination Benefit shall be paid in a lump sum.
If his or her Account Balance at such time is equal to or greater than
that amount, the Committee, in its sole discretion, may cause the
Termination Benefit to be paid in a lump sum or pursuant to an Annual
Installment Method of 5 years. The lump sum payment shall be made, or
installment payments shall commence, no later than 60 days after the
last day of the Plan Year in which the Participant experiences the
Termination of Employment. Any payment made shall be subject to the
Deduction Limitation.
ARTICLE 8
Disability Waiver and Benefit
8.1 Disability Waiver.
(a) Waiver of Deferral. A Participant who is determined by the
Committee to be suffering from a Disability shall be excused
from fulfilling that portion of the Annual Deferral Amount
commitment that would otherwise have been withheld from a
Participant's Base Annual Salary, Bonus and/or Directors Fees
for the remainder of the Plan Year during which the
Participant first suffers a Disability. During the period of
Disability, the Participant shall not be allowed to make any
additional deferral elections, but will continue to be
considered a Participant for all other purposes of this Plan.
(b) Return to Work. If a Participant returns to employment, or
service as a Director, with an Employer, after a Disability
ceases, the Participant may elect to defer an Annual Deferral
Amount for the Plan Year following his or her return to
employment or service and for every Plan Year thereafter while
a Participant in the Plan; provided such deferral elections
are otherwise allowed and an Election Form is delivered to and
accepted by the Committee for each such election in accordance
with Section 3.3 above.
8.2 Continued Eligibility; Disability Benefit. A Participant suffering a
Disability shall, for benefit purposes under this Plan, continue to be
considered to be employed, or in the service of an Employer as a
Director, and shall be eligible for the benefits provided for in
Articles 4, 5, 6 or 7 in accordance with the provisions of those
Articles. Notwithstanding the above, the Committee may, in its sole and
absolute discretion and for purposes of this Plan only, and shall in
the case of a Participant who is otherwise eligible to Retire, deem the
Participant to have experienced a Termination of Employment, or in the
case of a Participant who is eligible to Retire, to have Retired, at
any time (or in the case of a Participant who is eligible to Retire, as
soon as practicable) after such Participant is determined to be
suffering a Disability, in which case the Participant shall receive a
Disability Benefit equal to his or her Account Balance at the time of
the Committee's determination; provided, however, that should the
Participant otherwise have been eligible to Retire, he or she shall be
paid in accordance with Article 5. The Disability Benefit shall be paid
in a lump sum within 60 days of the Committee's exercise of such right.
Any payment made shall be subject to the Deduction Limitation.
ARTICLE 9
Beneficiary Designation
9.1 Beneficiary. Each Participant shall have the right, at any time, to
designate one or more Beneficiaries to receive benefits payable under
the Plan upon the death of a Participant. The Beneficiary designated
under this Plan may be the same as or different from the Beneficiary
designation under any other plan of an Employer in which the
Participant participates.
9.2 Beneficiary Designation; Change; Spousal Consent. A Participant shall
designate a Beneficiary by completing and signing the Beneficiary
Designation Form, and returning it to the Committee or its designated
agent. A Participant shall have the right to change a Beneficiary
designation by completing, signing and otherwise complying with the
terms of the Beneficiary Designation Form and the Committee's rules and
procedures, as in effect from time to time. If the Participant names
someone other than his or her spouse as a Beneficiary, a spousal
consent, in the form designated by the Committee, must be signed by
that Participant's spouse and returned to the Committee. Upon the
acceptance by the Committee of a new Beneficiary Designation Form, all
Beneficiary designations previously filed shall be canceled. The
Committee shall be entitled to rely on the last Beneficiary Designation
Form filed by the Participant and accepted by the Committee prior to
his or her death.
9.3 Acknowledgment. No designation or change in designation of a
Beneficiary shall be effective until received and acknowledged in
writing by the Committee or its designated agent.
9.4 No Beneficiary Designation. If a Participant fails to designate a
Beneficiary as provided in Sections 9.1, 9.2 and 9.3 above or, if all
designated Beneficiaries predecease the Participant or die prior to
complete distribution of the Participant's benefits, then the
Participant's designated Beneficiary shall be deemed to be his or her
surviving spouse. If the Participant has no surviving spouse, the
benefits remaining under the Plan to be paid to a Beneficiary shall be
payable to the executor or personal representative of the Participant's
estate.
9.5 Doubt as to Beneficiary. If the Committee has any doubt as to the
proper Beneficiary to receive payments pursuant to this Plan, the
Committee shall have the right, exercisable in its discretion, to cause
the Participant's Employer to withhold such payments until this matter
is resolved to the Committee's satisfaction.
9.6 Discharge of Obligations. The payment of benefits under the Plan to a
Beneficiary shall fully and completely discharge all Employers and the
Committee from all further obligations under this Plan with respect to
the Participant, and that Participant's Plan Agreement shall terminate
upon such full payment of benefits.
ARTICLE 10
Leave of Absence
10.1 Paid Leave of Absence. If a Participant is authorized by the
Participant's Employer for any reason to take a paid leave of absence
from the employment of the Employer, the Participant shall continue to
be considered employed by the Employer and the Annual Deferral Amount
shall continue to be withheld during such paid leave of absence in
accordance with Section 3.3.
10.2 Unpaid Leave of Absence. If a Participant is authorized by the
Participant's Employer for any reason to take an unpaid leave of
absence from the employment of the Employer, the Participant shall
continue to be considered employed by the Employer and the Participant
shall be excused from making deferrals until the earlier of the date
the leave of absence expires or the Participant returns to a paid
employment status. Upon such expiration or return, deferrals shall
resume for the remaining portion of the Plan Year in which the
expiration or return occurs, based on the deferral election, if any,
made for that Plan Year. If no election was made for that Plan Year, no
deferral shall be withheld.
ARTICLE 11
Termination, Amendment or Modification
11.1 Termination. Each Employer reserves the right to discontinue its
sponsorship of the Plan and/or to terminate the Plan at any time with
respect to one or more or all of its participating Employees and
Directors, by action of its board of directors. Upon the termination of
the Plan with respect to any Employer, the Plan Agreements of the
affected Participants who are employed by that Employer, or in the
service of that Employer as Directors, shall terminate and their
Account Balances, determined as if they had experienced a Termination
of Employment on the date of Plan termination or, if Plan termination
occurs after the date upon which a Participant was eligible to Retire,
then with respect to that Participant as if he or she had Retired on
the date of Plan termination, shall be paid to the Participants as
follows: Prior to a Change in Control, if the Plan is terminated with
respect to all of its Participants, an Employer shall have the right,
in its sole discretion, and notwithstanding any elections made by the
Participant, to pay such benefits in a lump sum or pursuant to an
Annual Installment Method of up to 15 years, with amounts credited and
debited during the installment period as provided herein. If the Plan
is terminated with respect to less than all of its Participants, an
Employer shall be required to pay such benefits in a lump sum. After a
Change in Control, the Employer shall be required to pay such benefits
in a lump sum. The termination of the Plan shall not adversely affect
any Participant or Beneficiary who has become entitled to the payment
of any benefits under the Plan as of the date of termination; provided
however, that the Employer shall have the right to accelerate
installment payments without a premium or prepayment penalty by paying
the Account Balance in a lump sum or pursuant to an Annual Installment
Method using fewer years (provided that the present value of all
payments that will have been received by a Participant at any given
point of time under the different payment schedule shall equal or
exceed the present value of all payments that would have been received
at that point in time under the original payment schedule).
11.2 Amendment. Any Employer may, at any time, amend or modify the Plan in
whole or in part with respect to that Employer by the action of its
board of directors; provided, however, that: (i) no amendment or
modification shall decrease or restrict the value of a Participant's
Account Balance in existence at the time the amendment or modification
is made, calculated as if the Participant had experienced a Termination
of Employment as of the effective date of the amendment or modification
or, if the amendment or modification occurs after the date upon which
the Participant was eligible to Retire, the Participant had Retired as
of the effective date of the amendment or modification, and (ii) no
amendment or modification of this Section 11.2 or Section 12.2 of the
Plan shall be effective. The amendment or modification of the Plan
shall not affect any Participant or Beneficiary who has become entitled
to the payment of benefits under the Plan as of the date of the
amendment or modification; provided, however, that the Employer shall
have the right to accelerate installment payments by paying the Account
Balance in a lump sum or pursuant to an Annual Installment Method using
fewer years (provided that the present value of all payments that will
have been received by a Participant at any given point of time under
the different payment schedule shall equal or exceed the present value
of all payments that would have been received at that point in time
under the original payment schedule).
11.3 Plan Agreement. Despite the provisions of Sections 11.1 and 11.2 above,
if a Participant's Plan Agreement contains benefits or limitations that
are not in this Plan document, the Employer may only amend or terminate
such provisions with the consent of the Participant.
11.4 Effect of Payment. The full payment of the applicable benefit under
Articles 4, 5, 6, 7 or 8 of the Plan shall completely discharge all
obligations to a Participant and his or her designated Beneficiaries
under this Plan and the Participant's Plan Agreement shall terminate.
ARTICLE 12
Administration
12.1 Committee Duties. Except as otherwise provided in this Article 12, this
Plan shall be administered by a Committee which shall consist of the
Board, or such committee as the Board shall appoint. Members of the
Committee may be Participants under this Plan. The Committee shall also
have the discretion and authority to (i) make, amend, interpret, and
enforce all appropriate rules and regulations for the administration of
this Plan and (ii) decide or resolve any and all questions including
interpretations of this Plan, as may arise in connection with the Plan.
Any individual serving on the Committee who is a Participant shall not
vote or act on any matter relating solely to himself or herself. When
making a determination or calculation, the Committee shall be entitled
to rely on information furnished by a Participant or the Company.
12.2 Administration Upon Change In Control. For purposes of this Plan, the
Company shall be the "Administrator" at all times prior to the
occurrence of a Change in Control. Upon and after the occurrence of a
Change in Control, the "Administrator" shall be an independent third
party selected by the Trustee and approved by the individual who,
immediately prior to such event, was the Company's Chief Executive
Officer or, if not so identified, the Company's highest ranking officer
(the "Ex-CEO"). The Administrator shall have the discretionary power to
determine all questions arising in connection with the administration
of the Plan and the interpretation of the Plan and Trust including, but
not limited to benefit entitlement determinations; provided, however,
upon and after the occurrence of a Change in Control, the Administrator
shall have no power to direct the investment of Plan or Trust assets or
select any investment manager or custodial firm for the Plan or Trust.
Upon and after the occurrence of a Change in Control, the Company must:
(1) pay all reasonable administrative expenses and fees of the
Administrator; (2) indemnify the Administrator against any costs,
expenses and liabilities including, without limitation, attorney's fees
and expenses arising in connection with the performance of the
Administrator hereunder, except with respect to matters resulting from
the gross negligence or willful misconduct of the Administrator or its
employees or agents; and (3) supply full and timely information to the
Administrator or all matters relating to the Plan, the Trust, the
Participants and their Beneficiaries, the Account Balances of the
Participants, the date of circumstances of the Retirement, Disability,
death or Termination of Employment of the Participants, and such other
pertinent information as the Administrator may reasonably require. Upon
and after a Change in Control, the Administrator may be terminated (and
a replacement appointed) by the Trustee only with the approval of the
Ex-CEO. Upon and after a Change in Control, the Administrator may not
be terminated by the Company.
12.3 Agents. In the administration of this Plan, the Committee may, from
time to time, employ agents and delegate to them such administrative
duties as it sees fit (including acting through a duly appointed
representative) and may from time to time consult with counsel who may
be counsel to any Employer.
12.4 Binding Effect of Decisions. The decision or action of the
Administrator with respect to any question arising out of or in
connection with the administration, interpretation and application of
the Plan and the rules and regulations promulgated hereunder shall be
final and conclusive and binding upon all persons having any interest
in the Plan.
12.5 Indemnity of Committee. All Employers shall indemnify and hold harmless
the members of the Committee, any Employee to whom the duties of the
Committee may be delegated, and the Administrator against any and all
claims, losses, damages, expenses or liabilities arising from any
action or failure to act with respect to this Plan, except in the case
of gross negligence or willful misconduct by the Committee, any of its
members, any such Employee or the Administrator.
12.6 Employer Information. To enable the Committee and/or Administrator to
perform its functions, the Company and each Employer shall supply full
and timely information to the Committee and/or Administrator, as the
case may be, on all matters relating to the compensation of its
Participants, the date and circumstances of the Retirement, Disability,
death or circumstances of the Retirement, Disability, death or
Termination of Employment of its Participants, and such other pertinent
information as the Committee or Administrator may reasonably require.
ARTICLE 13
Other Benefits and Agreements
13.1 Coordination with Other Benefits. The benefits provided for a
Participant and Participant's Beneficiary under the Plan are in
addition to any other benefits available to such Participant under any
other plan or program for employees of the Participant's Employer. The
Plan shall supplement and shall not supersede, modify or amend any
other such plan or program except as may otherwise be expressly
provided.
ARTICLE 14
Claims Procedures
14.1 Presentation of Claim. Any Participant or Beneficiary (such Participant
or Beneficiary being referred to below as a "Claimant") may deliver to
the Committee a written claim for a determination with respect to the
amounts distributable to such Claimant from the Plan. If such a claim
relates to the contents of a notice received by the Claimant, the claim
must be made within 60 days after such notice was received by the
Claimant. All other claims must be made within 180 days of the date on
which the event that caused the claim to arise occurred. The claim must
state with particularity the determination desired by the Claimant.
14.2 Notification of Decision. The Committee shall consider a Claimant's
claim within a reasonable time, not to exceed 60 days from the date the
Committee received written notice of the claim, and shall notify the
Claimant in writing:
(a) that the Claimant's requested determination has been made, and that the
claim has been allowed in full; or
(b) that the Committee has reached a conclusion contrary, in whole or in part,
to the Claimant's requested determination, and such notice shall include
the following:
(i the specific reason(s) for the denial of the claim, or any part of it;
(ii) specific reference(s) to pertinent provisions of the Plan upon which such
denial was based;
(iii)a description of any additional material or information necessary for the
Claimant to perfect the claim, and an explanation of why such material or
information is necessary; and
(iv) an explanation of the claim review procedure set forth in Section 14.3
below.
14.3 Review of a Denied Claim. Within 60 days after receiving a notice from
the Committee that a claim has been denied, in whole or in part, a
Claimant (or the Claimant's duly authorized representative) may file
with the Committee a written request for a review of the denial of the
claim. Thereafter, but not later than 30 days after the review
procedure began, the Claimant (or the Claimant's duly authorized
representative):
(a) may review pertinent documents;
(b) may submit written comments or other documents; and/or
(c) may request a hearing, which the Committee, in its sole discretion, may
grant.
14.4 Decision on Review. The Committee shall render its decision on review
promptly, and not later than 60 days after the filing of a written
request for review of the denial, unless a hearing is held or other
special circumstances require additional time, in which case the
Committee's decision must be rendered within 120 days after such date.
Such decision must contain the following:
(a) the specific reasons for the decision;
(b) the specific reference(s) to the pertinent Plan provisions upon
which the decision was based; and
(c) such other matters as the Committee deems relevant.
14.5 Legal Action. A Claimant's compliance with the foregoing provisions of
this Article 14 is a mandatory prerequisite to a Claimant's right to
commence any legal action with respect to any claim for benefits under
this Plan.
ARTICLE 15
Trust
15.1 Establishment of the Trust. The Company shall establish the Trust, and
each Employer shall at least annually transfer to the Trust such assets
as the Employer determines, in its sole discretion, are necessary to
provide, on a present value basis, for its respective future
liabilities created with respect to the Annual Deferral Amounts,
Company Contribution Amounts, and Company Matching Amounts for such
Employer's Participants for all periods prior to the transfer, as well
as any debits and credits to the Participants' Account Balances for all
periods prior to the transfer, taking into consideration the value of
the assets in the trust at the time of the transfer.
15.2 Interrelationship of the Plan and the Trust. The provisions of the Plan
and the Plan Agreement shall govern the rights of a Participant to
receive distributions pursuant to the Plan. The provisions of the Trust
shall govern the rights of the Employers, Participants and the
creditors of the Employers to the assets transferred to the Trust. Each
Employer shall at all times remain liable to carry out its obligations
under the Plan.
15.3 Distributions From the Trust. Each Employer's obligations under the
Plan may be satisfied with Trust assets distributed pursuant to the
terms of the Trust, and any such distribution shall reduce the
Employer's obligations under this Plan.
ARTICLE 16
Miscellaneous
16.1 Status of Plan. The Plan is intended to be a nonqualified plan within
the meaning of Code Section 401(a) and is unfunded and is maintained by
an employer primarily for the purpose of providing deferred
compensation for a select group of management or highly compensated
employees within the meaning of ERISA Sections 201(2), 301(a)(3) and
401(a)(1). The Plan shall be administered and interpreted to the extent
possible in a manner consistent with this intent.
16.2 Unsecured General Creditor. Participants and their Beneficiaries,
heirs, successors and assigns shall have no legal or equitable rights,
interests or claims in any property or assets of an Employer. For
purposes of the payment of benefits under this Plan, any and all of an
Employer's assets shall be, and remain, the general, unpledged
unrestricted assets of the Employer. An Employer's obligation under the
Plan shall be merely that of an unfunded and unsecured promise to pay
money in the future.
16.3 Employer's Liability. An Employer's liability for the payment of
benefits shall be defined only by the Plan and the Plan Agreement, as
entered into between the Employer and a Participant. An Employer shall
have no obligation to a Participant under the Plan except as expressly
provided in the Plan and his or her Plan Agreement.
16.4 Nonassignability. Neither a Participant nor any other person shall have
any right to commute, sell, assign, transfer, pledge, anticipate,
mortgage or otherwise encumber, transfer, hypothecate, alienate or
convey in advance of actual receipt, any amounts payable hereunder. No
part of the amounts payable shall, prior to actual payment, be subject
to seizure, attachment, garnishment or sequestration for the payment of
any debts, judgments, alimony or separate maintenance owed by a
Participant or any other person, be transferable by operation of law in
the event of a Participant's or any other person's bankruptcy or
insolvency or be transferable to a spouse as a result of a property
settlement or otherwise.
16.5 Not a Contract of Employment. The terms and conditions of this Plan
shall not be deemed to constitute a contract of employment between any
Employer and a Participant. Such employment is hereby acknowledged to
be an "at will" employment relationship that can be terminated at any
time for any reason, or no reason, with or without cause, and with or
without notice, unless expressly provided in a written employment
agreement. Nothing in this Plan shall be deemed to give a Participant
the right to be retained in the service of any Employer, either as an
Employee or a Director, or to interfere with the right of any Employer
to discipline or discharge the Participant at any time.
16.6 Furnishing Information. A Participant or his or her Beneficiary will
cooperate with the Committee by furnishing any and all information
requested by the Committee and take such other actions as may be
requested in order to facilitate the administration of the Plan and the
payments of benefits hereunder, including but not limited to taking
such physical examinations as the Committee may deem necessary.
16.7 Terms. Whenever any words are used herein in the masculine, they shall
be construed as though they were in the feminine in all cases where
they would so apply; and whenever any words are used herein in the
singular or in the plural, they shall be construed as though they were
used in the plural or the singular, as the case may be, in all cases
where they would so apply.
16.8 Captions. The captions of the articles, sections and paragraphs of this
Plan are for convenience only and shall not control or affect the
meaning or construction of any of its provisions.
16.9 Governing Law. Subject to ERISA, the provisions of this Plan
shall be construed and interpreted according to the internal
laws of the State of Colorado without regard to its conflicts of
laws principles.
16.10 Notice. Any notice or filing required or permitted to be given to the
Committee under this Plan shall be sufficient if in writing and
hand-delivered, or sent by registered or certified mail, to the address
below:
Chief Financial Officer
Wild Oats Markets, Inc.
3376 Mitchell Lane
Boulder, Colorado 80301
Such notice shall be deemed given as of the date of delivery, or, if
delivery is made by mail, as of the date shown on the postmark on the
receipt for registration or certification.
Any notice or filing required or permitted to be given to a Participant
under this Plan shall be sufficient if in writing and hand-delivered,
or sent by registered or certified mail, to the last known address of
the Participant. Such notice shall be deemed given as of the date of
delivery, or, if delivery is made by mail, as of the date shown on the
postmark on the receipt for registration or certification.
16.11 Successors. This Plan shall be binding upon and inure to the benefit of
all the parties hereto, and, to the extent permitted by this Plan, to
their respective heirs, legal representatives, successors, and assigns.
16.12 Spouse's Interest. The interest in the benefits hereunder of a spouse
of a Participant who has predeceased the Participant shall
automatically pass to the Participant and shall not be transferable by
such spouse in any manner, including but not limited to such spouse's
will, nor shall such interest pass under the laws of intestate
succession.
16.13 Validity. In case any provision of this Plan shall be illegal or
invalid for any reason, said illegality or invalidity shall not affect
the remaining parts hereof, but this Plan shall be construed and
enforced as if such illegal or invalid provision had never been
inserted herein.
16.14 Incompetent. If the Committee determines in its discretion that a
benefit under this Plan is to be paid to a minor, a person declared
incompetent or to a person incapable of handling the disposition of
that person's property, the Committee may direct payment of such
benefit to the guardian, legal representative or person having the care
and custody of such minor, incompetent or incapable person. The
Committee may require proof of minority, incompetence, incapacity or
guardianship, as it may deem appropriate prior to distribution of the
benefit. Any payment of a benefit shall be a payment for the account of
the Participant and the Participant's Beneficiary, as the case may be,
and shall be a complete discharge of any liability under the Plan for
such payment amount.
16.15 Court Order. The Committee is authorized to make any payments directed
by court order in any action in which the Plan or the Committee has
been named as a party. In addition, if a court determines that a spouse
or former spouse of a Participant has an interest in the Participant's
benefits under the Plan in connection with a property settlement or
otherwise, the Committee, in its sole discretion, shall have the right,
notwithstanding any election made by a Participant, to immediately
distribute the spouse's or former spouse's interest in the
Participant's benefits under the Plan to that spouse or former spouse.
16.16 Distribution in the Event of Taxation.
(a) In General. If, for any reason, all or any portion of a Participant's
benefits under this Plan becomes taxable to the Participant prior to
receipt, a Participant may petition the Committee before a Change in
Control, or the Trustee after a Change in Control, for a distribution of
that portion of his or her benefit that has become taxable. Upon the grant
of such a petition, which grant shall not be unreasonably withheld (and,
after a Change in Control, shall be granted), a Participant's Employer
shall distribute to the Participant immediately available funds in an
amount equal to the taxable portion of his or her benefit (which amount
shall not exceed a Participant's unpaid Account Balance under the Plan). If
the petition is granted, the tax liability distribution shall be made
within 90 days of the date when the Participant's petition is granted. Such
a distribution shall affect and reduce the benefits to be paid under this
Plan.
(b) Trust. If the Trust terminates in accordance with its terms, and benefits
are distributed from the Trust to a Participant in accordance therewith,
the Participant's benefits under this Plan shall be reduced to the extent
of such distributions.
16.17 Insurance. The Employers, on their own behalf or on behalf of the
Trustee, and, in their sole discretion, may apply for and procure
insurance on the life of the Participant, in such amounts and in such
forms as the Trustee may choose. The Employers or the Trustee, as the
case may be, shall be the sole owner and beneficiary of any such
insurance. The Participant shall have no interest whatsoever in any
such policy or policies, and at the request of the Employers shall
submit to medical examinations and supply such information and execute
such documents as may be required by the insurance company or companies
to whom the Employers have applied for insurance.
16.18 Legal Fees To Enforce Rights After Change in Control. The Company and
each Employer is aware that upon the occurrence of a Change in Control,
the Board or the board of directors of a Participant's Employer (which
might then be composed of new members) or a shareholder of the Company
or the Participant's Employer, or of any successor corporation might
then cause or attempt to cause the Company, the Participant's Employer
or such successor to refuse to comply with its obligations under the
Plan and might cause or attempt to cause the Company or the
Participant's Employer to institute, or may institute, litigation
seeking to deny Participants the benefits intended under the Plan. In
these circumstances, the purpose of the Plan could be frustrated.
Accordingly, if, following a Change in Control, it should appear to any
Participant that the Company, the Participant's Employer or any
successor corporation has failed to comply with any of its obligations
under the Plan or any agreement thereunder or, if the Company, such
Employer or any other person takes any action to declare the Plan void
or unenforceable or institutes any litigation or other legal action
designed to deny, diminish or to recover from any Participant the
benefits intended to be provided, then the Company and the
Participant's Employer irrevocably authorize such Participant to retain
counsel of his or her choice at the expense of the Company and the
Participant's Employer (who shall be jointly and severally liable) to
represent such Participant in connection with the initiation or defense
of any litigation or other legal action, whether by or against the
Company, the Participant's Employer or any director, officer,
shareholder or other person affiliated with the Company, the
Participant's Employer or any successor thereto in any jurisdiction.
IN WITNESS WHEREOF, the Company has signed this Plan document as of __________,
1999.
"Company"
Wild Oats Markets, Inc., a Delaware corporation
By: /s/
Title: _________________________________
Exhibit 21.1
WILD OATS MARKETS, INC.
LIST OF SUBSIDIARIES
Alfalfa's Canada, Inc.
Wild Oats Markets Canada, Inc.
Wild Oats of Texas, Inc.
Sun Harvest Farms, Inc.
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (File No. 333-66347 and File No. 333-20539) of Wild Oats
Markets, Inc. of our report dated March 3, 2000 relating to the financial
statements, which appears on page 38 of this Annual Report to Shareholders. We
also consent to the incorporation by reference of our report dated March 3, 2000
relating to the financial statement schedules, which appears on page 45 of this
Form 10-K.
PricewaterhouseCoopers LLP
Denver, Colorado
March 27, 2000
Consent of Independent Accountants
The Board of Directors
Henry's Marketplace, Inc.:
We consent to incorporation by reference in the registration statements on Form
S-3 (No. 333-31292, No. 333-88011, No. 333-62175, and No. 333-52747) and in the
registration statements on Form S-8 (No. 333-66347 and No. 333-20539) 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 January 1, 2000, annual
report on Form 10-K of Wild Oats Markets, Inc.
KPMG LLP
San Diego, California
March 27, 2000
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements on
Form S-3, No. 333-88011, No. 333-62175, No. 333-52747, and No. 333-31292 of Wild
Oats Markets, Inc. and the Registration Statements on Form S-8, No. 333-66347
and No. 333-20539 pertaining to certain benefit plans of Wild Oats Markets, Inc.
of our report dated November 17, 1999, with respect to the financial statements
of Sun Harvest Farms, Inc. as of September 28, 1999, December 29, 1998, and
December 30, 1997, and for the nine-month period ended September 28, 1999 and
the fiscal years ended December 29, 1998, December 30, 1997, and December 31,
1996, included in the Annual Report (Form 10-K) dated March 27, 2000.
Ernst & Young LLP
San Antonio, Texas
March 27, 2000
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF JANUARY 1, 2000 AND THE CONSOLIDATED STATEMENT
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CONSOLIDATED FINANCIAL STATEMENTS.
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