-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UNWJy4Ut86Jbr/ZPY9Q5/jnEKFtHLuWuLMA01OGR/dvPZpP863gHyKhywnkc3bL8 cvksnMc6Y1NjXhQc4I9sBA== 0000912057-97-010031.txt : 19970326 0000912057-97-010031.hdr.sgml : 19970326 ACCESSION NUMBER: 0000912057-97-010031 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 17 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970325 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: WHOLESOME & HEARTY FOODS INC CENTRAL INDEX KEY: 0000859735 STANDARD INDUSTRIAL CLASSIFICATION: CANNED, FROZEN & PRESERVED FRUIT, VEG & FOOD SPECIALTIES [2030] IRS NUMBER: 930886359 STATE OF INCORPORATION: OR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-20330 FILM NUMBER: 97562426 BUSINESS ADDRESS: STREET 1: 975 S E SANDY BLVD STREET 2: SUITE 201 CITY: PORTLAND STATE: OR ZIP: 97214 BUSINESS PHONE: 5032380109 MAIL ADDRESS: STREET 1: 975 SE SANDY BLVD CITY: PORTLAND STATE: OR ZIP: 97214 10-K 1 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended: December 31, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER: 0 - 20330 WHOLESOME & HEARTY FOODS, INC. (Exact name of registrant as specified in its charter) OREGON 93-0886359 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 1411 SW MORRISON STREET, SUITE 400, PORTLAND, OREGON 97205 (Address of principal executive offices) Registrant's telephone number, including area code: (503)-205-1500 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, NO PAR VALUE (Title of Class) _______________ 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. [ ] The aggregate market value of the voting stock held by non-affiliates of the Registrant is $48,259,402 as of February 28, 1997 based upon the last closing price as reported by the Nasdaq National Market System ($6.75). The number of shares outstanding of the Registrant's Common Stock as of February 28, 1997 was 8,566,456 shares. The index to exhibits appears on page 19 of this document. _______________ DOCUMENTS INCORPORATED BY REFERENCE The Registrant has incorporated into Part III of Form 10-K by reference portions of its Proxy Statement, dated March 20, 1997. Portions of the Registrant's Annual Report to Shareholders for the fiscal year ended December 31, 1996, are incorporated by reference in Parts II and IV of Form 10-K. - -------------------------------------------------------------------------------- WHOLESOME & HEARTY FOODS, INC. 1996 FORM 10-K ANNUAL REPORT TABLE OF CONTENTS Page ---- PART I Item 1. Business 2 Item 2. Properties 8 Item 3. Legal Proceedings 9 Item 4. Submission of Matters to a Vote of Security Holders 9 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 9 Item 6. Selected Financial Data 10 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Item 8. Financial Statements and Supplementary Data 15 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 16 PART III Item 10. Directors and Executive Officers of the Registrant 17 Item 11. Executive Compensation 17 Item 12. Security Ownership of Certain Beneficial Owners and Management 17 Item 13. Certain Relationships and Related Transactions 17 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 18 Signatures 21 1 PART I ITEM 1. BUSINESS INTRODUCTION Wholesome & Hearty Foods, Inc. (the "Company" ) was organized in 1985 to provide a line of food products in response to the public's awareness of the importance of diet to overall health and fitness. Toward this end, the Company developed and now produces and distributes products which include a variety of frozen, meatless items that are low in cholesterol and low in fat. One such product, the Gardenburger-Registered Trademark- Veggie Patty, contains approximately one- sixth of the fat and two-thirds of the calories contained in a similar-sized ground beef patty. In addition, the Company distributes and is continuing to develop and perfect the GardenDog-Registered Trademark-, a meatless, all natural hot dog like product made primarily from vital wheat gluten. The Company divested itself of the AlmondMylk-TM- and AlmondCheeze-TM- products at the beginning of 1996 and no longer sells these products. The Company registered its common stock with the Securities and Exchange Commission and completed its initial public offering in 1992. PRODUCTS The Company offers its meatless items, primarily patties, under the trade names Gardenburger-Registered Trademark-, Gardenburger-Registered Trademark- Zesty Bean, Gardenburger-Registered Trademark- Veggie Medley, Gardenburger Sub-Registered Trademark-, GardenSausage-Registered Trademark-, and GardenVegan - -Registered Trademark-. The patties range in various sizes from 2.5 ounces to 3.4 ounces. The recipes although proprietary, contain commonly known ingredients including fresh mushrooms, brown rice, onions, rolled oats, low-fat cheeses, bulgur wheat, egg whites, natural seasonings and spices, are soy-free and do not contain artificial additives. The Gardenburger contains the commonly known ingredients mentioned above. The 1/4 pound Gardenburger-Registered Trademark- patty, is 130 calories, 3 grams of fat, 19 grams of carbohydrate and 6 grams of protein. The Gardenburger-Registered Trademark- Zesty Bean contains black beans, Anaheim chilies, red and yellow bell pepper and cilantro in addition to the common ingredients which provide a spicy, Mexican flavor and additional protein and fiber from the beans. A 1/4 pound patty is 120 calories, 2.5 grams of fat, 18 grams of carbohydrate and 6 grams of protein. The Gardenburger-Registered Trademark- Veggie Medley contains soy cheese in lieu of low fat dairy cheeses, broccoli, carrots, and red and yellow bell peppers in addition to the common ingredients. A 1/4 pound patty is 100 calories, zero grams of fat, 17 grams of carbohydrate and 6 grams of protein. The 3.1 ounce Gardenburger Sub-Registered Trademark-, is 170 calories, 3 grams of fat, 26 grams of carbohydrate and 10 grams of protein. It is oval shaped to accommodate sub sandwich style buns. GardenSausage-Registered Trademark- contains maple syrup and natural seasonings in addition to the common ingredients which provides a light and fresh breakfast sausage flavor. A 2.5 ounce patty is 140 calories, 2.5 grams of fat, 20 grams of carbohydrate and 7 grams of protein. 2 The GardenVegan-TM- contains water, brown rice, vital wheat gluten, bulgur wheat, onions, mushrooms, and natural spices. A 1/4 pound patty is 140 calories, zero grams of fat, 23 grams of carbohydrate and 11 grams of protein. The GardenDog-Registered Trademark- is a meatless, all natural hot dog like product with approximately one sixth the fat content of a typical meat hot dog and no preservatives or additives. The primary ingredients in a GardenDog- Registered Trademark- are water, vital wheat gluten, nutritional yeast, natural flavors, spices and color. The Company is currently developing several new products also made from vital wheat gluten, including analog chicken, beef and pepperoni products. The Company produces it line of GardenProducts-TM- at its plant in Portland, Oregon. The Company has also entered into selective co-packing agreements under which its products are produced by third parties, although no such agreements are currently in place. The production process involves cleaning, chopping and mixing ingredients, forming, baking, and quick freezing patties, then packaging. Products are then shipped fully cooked, frozen and packaged via temperature controlled truck to distributors throughout North America, and by temperature controlled container to Europe. The Company's products may be purchased in restaurants and from other institutional food preparers throughout the United States, Canada, Mexico and in selected European food service outlets. Products may also be purchased for home consumption from grocery stores, natural foods stores, club stores and specialty food stores in the United States, Canada and the United Kingdom. ACQUISITION OF GORILLA FOODS, INC. AND WHOLE FOODS MARKETING In January 1996 the Company completed the acquisition of Ojai, California-based Gorilla Foods, a privately held developer and manufacturer of wheat protein- based, meatless food products, including the GardenDog-Registered Trademark-. The transaction provided for the exchange of 240,000 shares of the Company's common stock for all outstanding common shares of Gorilla Foods, and $68,750 in cash. In addition, up to an additional 200,000 certain contingent shares of the Company could be issued in 50,000 share increments based on sales performance of wheat protein-based products over the next five years. This transaction has enabled the Company to broaden its product line by owning the recipe for the GardenDog-Registered Trademark- and future wheat gluten protein-based products to be developed for the meat analog product market. In a separate transaction in January 1996, the Company completed the acquisition of the assets, for $350,000 in cash, of Whole Food Marketing, a Southern California-based food broker of the Company's and Gorilla Foods' products, that was partly owned by Gorilla Foods' executives. COMPETITION At present, competing products are sold by Worthington Foods, Inc., Pillsbury's Green Giant Division which is marketing Archer-Daniels-Midland's meatless patty products, Boca Burger, Fantastic Foods and Imagine Foods. The Company also expects to see some additional competition from extreme low-fat meat based products such as ConAgra's Healthy Choice 96 percent Extra Lean Ground Beef burger and chicken/turkey based 3 patties. Large competitors are positioned to take advantage of their existing resources, which are substantially greater than the Company's, especially distribution and marketing resources in order to penetrate the market quickly, to increase the potential market and to potentially occupy a significant share of the market. To the best of the Company's knowledge, the main competing meatless patty products come from: Worthington Foods, Inc. distributing "Morningstar Farms" and other products through institutional food service, and distributing "Morningstar Farms" and "Natural Touch" patties to retail stores; Pillsbury, distributing "Green Giant Harvest Burgers" for Archer-Daniels-Midland into institutional food service and retail sectors; Boca Burger, distributing a growing line of soy-based meat analog burgers in both the food service and retail sectors; Imagine Foods, Inc. distributing "Ken & Robert's" burgers into institutional and retail sectors; and a variety of patties and meat substitutes which bear names such as the "New York Veggie Burger" and come primarily from smaller health or natural foods producers. The foregoing are believed to be representative but not inclusive of all existing and potentially competing products. The Company believes that its products compare favorably to those offered by competitors based on taste, quality of its natural ingredients, ease of preparation, availability and value. Some competing patty products, meat substitutes, and meat substitute mixes use ingredients and processing methods, soy for example, which tend to be less expensive and blend into textures and appearances that are much more uniform and "meat-like" than the Company's products. The Company believes that its ingredients and processes, although slightly more costly, tend to produce products in which the major ingredients are more discernible, and, therefore, more appealing to the consumer. Some competitors, including Worthington Foods, Inc., are introducing products which appear to be following the Company's approach but use different ingredients and, presumably, different processing methods. The Company cannot readily assess the immediate impact of such products or product introductions. The Company believes, but cannot assure, that the Gardenburger's-Registered Trademark- taste and texture are superior to that of soy or tofu-based burgers. The calorie and fat content of the Gardenburger-Registered Trademark- is generally equivalent to that of other meatless burger products. While Gardenburgers-Registered Trademark- generally sell for a slightly higher price than other meatless patty products, management feels that the higher price reflects the value of higher quality ingredients and a "premium" product. A possible competitive risk facing the Company is that others may attempt to copy or imitate the Company's products using the same or similar ingredients or methods as the Company. Management cannot assess the likelihood or the impact of such efforts. The Company feels that "low fat" meat products compete with meatless patties in general and, as a result, with the Gardenburger-Registered Trademark- and its variations. The Company is not able to quantify the specific trade-offs involved as to when a consumer might choose between meat, "low-fat" meat, "meat- like" (meat "analog"), non-meat protein concentrate, or non-meat "natural foods" alternatives in selecting a patty or a meat substitute either over the long run or at a specific time. However, based on sales over the past few years, consumers are actively seeking alternatives to meat products. In a broader sense, the Company competes with frozen, mass produced entrees and distributed low calorie/low fat national consumer brands such as Healthy Choice, LeMenu 4 and Weight Watchers whose name recognition, advertising budgets and resources are significantly greater than those of the Company's. DISTRIBUTION The Company sells its products in North America and in certain European and South American markets through sixty independent, commissioned food brokers and through five hundred active distributors. The Company's line of frozen GardenProducts-Registered Trade Mark- is shipped by temperature controlled truck and inventoried for distributors in cold storage warehouses in principal cities in the United States, Canada and Europe. The Company's product distribution activities and sales in 1996 were primarily focused on the west coast of the United States. Approximately 50 percent of net sales were delivered on the West Coast, 20 percent in the Northeast, 10 percent in the Southeast, 10 percent in the Midwest and 7 percent in the Southwest. The remaining 3 percent were shipped outside of the United States, primarily Canada and some parts of Europe. The Company's Gardenburger-Registered Trademark- is the most significant product sold by the Company in terms of both volume and net sales, comprising over 80 percent of each. Variations on the Gardenburger-Registered Trademark- are the second largest product sales group, comprising approximately 18 percent of net sales in 1996. The Company is pursuing expanded European distribution through demonstrating its products at food shows, exploring strategic partnerships and building a broker network. At present this "developmental" activity is negligible to the overall business. SALES AND MARKETING The Company's sales objective is to position the original Gardenburger- Registered Trademark- and its flavor variants, the Zesty Bean and Veggie Medley, as the number #1 veggie burger in both the retail grocery and food service distribution channels. The Company intends to aggressively pursue national chain restaurant accounts and to leverage the sales force with distributor sales representatives who are educated regarding the unique benefits and features of our healthy food choices. During 1997 and future years the company also intends to aggressively expand its distribution in the retail grocery channel. At the beginning of 1996 the Company's penetration in this channel was less than 30 percent of U.S. retail grocery outlets. It's goal is to penetrate up to 80 percent of the retail grocery channel in the U.S. during 1997 and also to expand its presence in club stores. The costs of entry and maintenance in these distribution channels are typically higher than in the food service channel, and the Company plans to invest heavily in securing additional retail grocery distribution and follow-up promotional activities during 1997. The Company believes, but cannot assure, that additional investment in marketing, promotion and merchandising will increase sales. Sales activities are organized under an institutional sales division and a retail sales division. Institutional customers include more than 30,000 food service outlets such as restaurants, corporate and industrial cafeterias, hotel chains, colleges, hospitals, airlines and sports stadiums. Retail outlets include approximately 10,000 grocery and other specialty food stores and over 4,000 natural foods stores. Although complete and accurate meatless patty sales data is not publicly available at this time, industry analysts have estimated Wholesome & Hearty Foods has over a fifty percent share of the food service 5 meatless patty market and a ten percent share of the supermarket grocery and natural food meatless patty retail market. The Company will continue to build its natural foods store base while, as mentioned above, it continues to seek new opportunities in national chain restaurants, club stores, school food service and retail grocery distribution. During 1996 the Company hired additional sales and marketing personnel and will continue to add personnel as needed in order to promote the Company and its products and relations with distributors, brokers and customers. Marketing objectives include increasing market penetration, building brand awareness and loyalty and establishing a position of leadership in the category of meatless food choices. Programs are being created and pursued to encourage the use of the Gardenburger-Registered Trademark- brand in broadcast and print media, to encourage the use of the Company's other product names, such as GardenSausage-Registered Trademark-, on restaurant menus and point of sale displays, to introduce new meatless products and to expand distribution geographically and into new channels. In addition to increased promotional activities, the Company will utilize a variety of methods to solidify and build its business. The Company's promotional materials and packaging re-design include a complete reformatting to comply with the Food and Drug Administration nutrition information and label regulations. The updated materials build brand awareness by providing more cohesive and consistent visual images across the Company's entire line of products and communicate to consumers, at the point of purchase, the heart smart nutritional benefits (less than 30% of calories from fat) of Wholesome & Hearty products. In 1996, the Company's advertising and promotional expenses focused primarily on print ads in food service trade publications, trade shows, off-invoice promotions with distributors and radio advertising. The Company spent approximately $1,539,000 in 1996 for advertising and promotions, $871,000 in 1995 and $670,000 in 1994. RESEARCH AND DEVELOPMENT The Company's research and development activities include development of new products, the improvement of existing products and process development. The GardenDog continues to be sold through the Company's natural foods product channel while product and process improvements continue to be made to improve consumer acceptance. In the fourth quarter of 1996 the Company hired a new Vice President of Research and Development with a significant background in healthy, frozen food products. Other employees, outside consultants and experts are also involved on an as needed basis depending on the specific projects at hand. The Company's research and development resources are focused on creating great tasting, convenient, healthy center-of-the-plate entrees. Recipes and processes are being developed for meatless alternatives to chicken, beef and pepperoni. Development activity is done at the Company's development and production facilities in Portland, Oregon. In 1996, the Company spent approximately $1.0 million on such activities, including $612,000 of acquired in-process research and development. The amount spent on such activities during 1995 and 1994 was immaterial. 6 EMPLOYEES The Company has approximately 147 full-time equivalent employees. The Company also utilizes a temporary workforce during peak seasonal demand periods that averages 70 employees. The Company's employees are not represented by a labor union, and the Company believes its relations with employees are satisfactory. TRADEMARKS The Company has registered the trademarks "Gardenburger-Registered Trademark-", "Wholesome & Hearty Foods, Inc.-Registered Trademark-", "GardenDog-Registered Trademark-", "GardenSausage-Registered Trademark-", "Gardenburger Sub-Registered Trademark-", "Gardenburger-Registered Trademark- Veggie Medley" and "Gardenburger-Registered Trademark- Zesty Bean" with the United States Patent and Trademark Office. These trademarks expire at different times after the turn of the century. The Gardenburger-Registered Trademark- trademark has also been registered in the United Kingdom, Australia, Canada, Germany and Switzerland. The Company has applied to register the Gardenburger-Registered Trademark- in Argentina, China, Japan, Mexico, The Philippines and Columbia. The Company has also applied for various other trademarks in the U.S. related to its wheat- gluten based products. The Company is not aware of any significant claims of infringement or other challenges to any of its trademarks, logos or trademark applications. The Company did successfully settle such a claim with Worthington Foods during 1996. SIGNIFICANT CUSTOMERS AND CONCENTRATIONS OF CREDIT RISK For the fiscal year ended December 31, 1996 one customer accounted for approximately 22.9 percent of revenue and 32.3 percent of the accounts receivable balance at December 31, 1996. Another customer accounted for approximately 11.5 percent of revenue for the year ended December 31, 1996 and 12.7 percent of the accounts receivable balance at December 31, 1996. For the fiscal year ended December 31, 1995 one customer accounted for approximately 22.9 percent of revenue and 24.3 percent of the accounts receivable balance at December 31, 1995. Another customer accounted for 11.5 percent of revenue for the year ended December 31, 1995 and 7.9 percent of the accounts receivable balance at December 31, 1995. For the year ended December 31, 1994 one customer accounted for 13.3 percent of revenue and 10.4 percent of the accounts receivable balance at December 31, 1994. Another customer accounted for 13.0 percent of revenue for the year ended December 31, 1994 and 29.0 percent of accounts receivable balance at December 31, 1994. Historically, the Company has not incurred significant losses related to its accounts receivable. SOURCES OF SUPPLY The Company uses natural ingredients such as mushrooms, oats, rice, onions, and egg whites. These are common agricultural items typically available in most parts of the United States. In addition, the Company uses packaging and materials which are common in the food industry. As a result, the Company believes, but cannot assure, that its sources of supply are reasonably reliable and that the Company is at no greater risk on supply matters than other similar food processors and producers. 7 SEASONALITY The Company believes that its industry is seasonal due to the seasonal nature of consumer demand for its type of products. Historically, the fourth and first quarters have a decrease in sales from the preceding second and third quarters due to such seasonality. The Company believes such seasonal variations may be reflected in future quarterly patterns of its revenues and earnings. ITEM 2. PROPERTIES The Company leases 19,000 square feet of administrative office space at 1411 SW Morrison, Suite 400, Portland, Oregon 97205, pursuant to a two year lease which terminates on December 31, 1998. The Company also leases 6,600 square feet of former administrative office space at 975 S.E. Sandy Boulevard, Portland, Oregon 97214, pursuant to a 5-year lease which terminates on June 1, 1999. The Company is currently seeking to sub-let this space to another tenant. The Company also leases approximately 20,000 square feet of pre-production, storage and distribution space at 10264 SE Jennifer, Clackamas, Oregon under a one-year lease that expires on November 1, 1997, and 15,000 square feet of distribution space at 215 SE Stark, Portland, Oregon under a one-year lease that expires on March 14, 1997, with an option to extend the lease for an additional six months which the Company intends to exercise. The Company leases additional space for research and development and production at 1416 S.E. Eighth Avenue in Portland, Oregon. The facility is leased from Paul F. Wenner, the Company's Chief Creative Officer and Frank S. Card, a shareholder of the Company, at a rental rate of $1,700 per month, which the Company considers to be reasonable rent, consistent with rental rates charged by unaffiliated property owners in the same market area. The Company owns 40,000 square feet of production facilities at 1005 S.E. Washington Street, Portland, Oregon, and a 1,200 square foot annex at the same location. The Company is actively seeking and planning for additional manufacturing capacity in the next 12-24 months. Capacity expansion alternatives include: adding additional equipment to existing facilities, constructing a new plant, or retrofitting a plant, expanding co-packing (outsourcing production to qualified food processors), and licensing others to produce and/or distribute the Company's products. In the event the Company elects to construct a new plant in Portland, Oregon, an investment estimated currently to be fifteen to twenty million dollars, including production equipment, would be required. The Company owns a 16.6 acre parcel of real estate close to Portland International Airport and intends to build such a facility. Currently, the company is exploring financing alternatives ranging from working capital, conventional long-term debt and leasing. However, no firm commitments on such financing have been made at this date. 8 ITEM 3. LEGAL PROCEEDINGS There are currently no material pending legal proceedings to which the Company or its subsidiaries are a party. From time to time, the Company becomes involved in ordinary, routine or regulatory legal proceedings incidental to the business of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company did not submit any matters to a vote of security holders during the quarter ended December 31, 1996. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock trades on The Nasdaq National Market System under the symbol WHFI. The high and low sales prices for the two years in the period ended December 31, 1996 were as follows: 1996 High Low ---------------------------- ------ ------ Quarter 4 $ 8.25 $ 6.00 Quarter 3 8.38 6.38 Quarter 2 9.38 7.13 Quarter 1 9.50 6.50 1995 High Low ---------------------------- ------ ------ Quarter 4 $10.88 $ 7.13 Quarter 3 14.06 10.69 Quarter 2 13.75 10.00 Quarter 1 13.25 10.44 The approximate number of shareholders of record and beneficial shareholders at December 31, 1996 was 745. There were no cash dividends declared or paid in 1996 or 1995. The Company does not anticipate declaring cash dividends in the foreseeable future. Except for 240,000 shares issued and 200,000 shares put into escrow in connection with the Gorilla Foods acquisition, there were no sales of unregistered securities by the Company during the year ended December 31, 1996. The 440,000 shares were issued in reliance on Rule 505 of Regulation D under the Securities Act of 1933. 9 ITEM 6. SELECTED FINANCIAL DATA
IN THOUSANDS: EXCEPT SHARE AND PER SHARE AMOUNTS 1996 (1) 1995 1994 1993 1992 ---------- ---------- ----------- ---------- ---------- STATEMENT OF OPERATIONS DATA Net sales $ 39,254 $ 35,754 $ 23,736 $ 12,952 $ 6,946 Gross margin 19,348 17,656 12,345 6,817 3,346 Operating expenses 17,885 13,958 8,754 4,158 2,277 Operating income 1,463 3,698 3,591 2,659 1,069 Net income $ 1,063 $ 2,510 $ 2,391 $ 1,532 $ 575 Net income per share $ 0.12 $ 0.29 $ 0.28 $ 0.19 $ 0.10 Shares used in per share calculations 9,065,969 8,638,691 8,577,907 8,177,222 6,190,341 BALANCE SHEET DATA Working capital $ 13,393 $ 11,978 $ 11,037 $ 6,710 $ 2,495 Total assets 24,934 19,325 15,320 10,363 5,857 Long-term liabilities - - - - 697 Shareholders' equity 20,979 16,955 14,028 9,151 4,298 GROWTH INDICATORS (UNAUDITED) Net sales growth 10% 51% 83% 86% 116% Operating income growth (60%) 3% 35% 149% 64% Net income growth (58%) 5% 56% 166% 55% Net income per share growth (59%) 4% 47% 90% (17%)
(1) Operating expenses in 1996 include a $612,000 one-time charge for acquired in-process research and development related to the Gorilla Foods acquisition. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION GENERAL The following discussion should be read in conjunction with the financial statements and related notes which follow. The Company's future operating results are likely to be affected by trends and factors which are beyond the Company's control. These include, among other factors, unexpected changes in food manufacturing technology, uncertain business conditions that impact the general food manufacturing industry, government regulation and general economic conditions. The Company's manufacturing processes use certain raw ingredients, including mushrooms, onions and cheese, supplied from outside sources. Any reduction in supply or change in costs of these ingredients may affect the Company's ability to meet customer demand. The Company is not currently aware of any such changes in supply or costs of its raw material ingredients, other than cheese. During 1996, the prices of cheese were volatile and such volatility may continue in 1997. 10 During 1996 the Company continued to broaden its product distribution into new geographic locations and new sales channels to increase its national presence and to provide direct sales and support interface with customers. There can be no assurance that this strategy will be effective or successful or that the service and support needed to ensure the success of the Company's expansion into new territories or new sales channels can be achieved cost effectively. The market price of the Company's Common Stock has been, and is likely to continue to be, volatile. Many factors, including events affecting the stock market generally, quarterly fluctuations in the Company's operating results and general conditions in the economy may affect the price of the Company's stock. Any shortfall in revenue or earnings from the level anticipated by securities analysts could have an immediate and adverse impact on the trading price of the Company's Common Stock in any given period. Because of all the foregoing factors, as well as other variables, past financial performance should not be considered a reliable indicator of future performance and management believes that historical trends should not be relied on to anticipate results or trends in future periods. ACQUISITION OF GORILLA FOODS, INC. AND WHOLE FOOD MARKETING In January 1996 the Company completed the acquisition of Ojai, California-based Gorilla Foods, Inc., a privately held developer and manufacturer of wheat protein-based, meatless food products, including the GardenDog. The transaction provided for the issuance of 240,000 shares of the Company's Common Stock in exchange for all outstanding common shares of Gorilla Foods, and $68,750 in cash. In addition, up to an additional 200,000 certain contingent shares of the Company could be issued in 50,000 share increments contingent upon the Company achieving certain sales performance levels of wheat protein-based products over the next five years. This transaction has enabled the Company to broaden its product line by owning the recipe for the GardenDog and other future wheat gluten protein-based products to be developed for the meat analog product market. The Company incurred a one-time charge of $612,000 in the first quarter of 1996 as a result of the acquisition of in process research and development associated with this acquisition, with the remainder of the purchase price principally allocated to goodwill. Pro forma financial information has not been provided as the pro forma results are not materially different from actual results. In a separate transaction in January 1996, the Company completed the acquisition of the assets of Whole Food Marketing, Inc., a Southern California-based food broker of the Company's and Gorilla Foods' products. The Company paid $350,000 for the assets of Whole Food Marketing, Inc., all of which was allocated to goodwill. 11 RESULTS OF OPERATIONS The following table is derived from the Company's Statements of Operations for the periods indicated and presents the results of operations as a percentage of net sales.
Fiscal year ended December 31, 1996 December 31, 1995 December 31, 1994 - -------------------------------------------- ----------------- ----------------- ----------------- Net sales 100.0% 100.0% 100.0% Cost of goods sold 50.7 50.6 48.0 ----------------- ----------------- ----------------- Gross margin 49.3 49.4 52.0 Sales and marketing expense 31.4 28.2 26.8 General and administrative expense 12.6 10.8 10.1 Acquired in-process research and development 1.6 -- -- ----------------- ----------------- ----------------- Operating income 3.7 10.4 15.1 Other income (expense) 0.9 0.4 1.1 ----------------- ----------------- ----------------- Income before income taxes 4.6 10.8 16.2 Income taxes 1.9 3.8 6.1 ----------------- ----------------- ----------------- Net income 2.7 7.0 10.1 ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
1996 COMPARED TO 1995 NET SALES. Net sales for 1996 increased 9.8 percent to $39.3 million from $35.8 million for 1995. The Company has increased its sales levels in each of its major channels, including food service, retail and club stores, such as PriceCostco. Such increases are primarily a result of increased marketing and public relations activities which have increased awareness of the Company's products throughout its channels of distribution. At the beginning of the second quarter of 1996, the Company started selling to additional large retail chains in Southern California. In January 1996, the Company discontinued selling its almond beverage and almond cheese products, which resulted in natural foods sales declining approximately $1.0 million from the prior year. GROSS MARGIN. Gross margin increased 9.6 percent to $19.3 million (49.3 percent of net sales) for 1996 from $17.7 million (49.4 percent of net sales) for 1995. Gross margin as a percentage of net sales remained constant primarily as a result of continued upward pressures on pricing in certain raw materials, offset by process improvements at the Company's manufacturing plant, increased food service sales, which have higher margins, and start-up costs associated with a new food service product-type in 1995 that were not duplicated in 1996. SALES AND MARKETING EXPENSE. Sales and marketing expenses increased to $12.3 million (31.4 percent of net sales) for 1996 from $10.1 million (28.2 percent of net sales) for 1995. The increase is primarily attributable to increased expenditures during 1996 related to the promotion of sales for additional retail chains that the Company began selling to during the first half of 1996, increased headcount as a result of hiring additional field sales people, costs associated with the Company's plan to aggressively grow its retail grocery business in 1997 and increased promotional activities in general to support and promote the growth of the Company. 12 GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expense increased to $5.0 million (12.6 percent of net sales) for 1996 from $3.9 million (10.8 percent of net sales) for 1995. The increase is primarily a result of non- recurring costs to defend litigation which was settled in the third quarter of 1996, relocation and recruiting expense in connection with the hiring of personnel to support the growth of the Company, approximately $400,000 for management transition costs during the second quarter of 1996 and ongoing costs related to the overall growth of the Company, including an improved support infrastructure. ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT. In connection with the acquisition of Gorilla Foods, Inc., the Company recorded a one-time pretax charge of $612,000 ($386,000 net of taxes) related to acquired in-process research and development costs. The value assigned to the in-process research and development was determined by an appraisal and represents those efforts in process at the acquisition date that had not yet established feasibility and that had no alternative future uses. Accounting rules require that such costs be charged to expense as incurred. The Company currently believes that these research and development efforts will result in commercially viable products over the next several years. OPERATING INCOME. Operating income (without the one-time charge for purchased in-process research and development) decreased to $2.1 million (5.3 percent of net sales) for 1996 compared to $3.7 million (10.4 percent of net sales) for 1995 as a result of the individual line item changes discussed above. OTHER INCOME (EXPENSE). Other income increased to $327,000 in 1996 from $153,000 in 1995 primarily as a result of increased cash balances and therefore increased interest income. INCOME TAXES. The Company's income tax rate for 1996 was 40.6 percent compared to 34.8 percent for 1995. The increase from the 34.8 percent rate achieved for fiscal 1995 is primarily a result of non-deductible goodwill expenditures in 1996, adjustments in 1996 relating to prior years and a one-time tax benefit received in 1995 from the State of Oregon. NET INCOME. Net income decreased to $1.1 million (2.7 percent of net sales) for 1996 compared to $2.5 million (7.0 percent of net sales) for 1995 as a result of the individual line item changes discussed above. The Company believes that the impact of inflation on net income was minimal for fiscal years 1996 and 1995. 1995 COMPARED TO 1994 NET SALES. Net sales for 1995 increased 51 percent to $35.8 million from $23.7 million for 1994. The increase was primarily attributable to increased penetration in the Company's food service distribution channels and in club stores, such as PriceCostco, and increased marketing and public relations activities which have increased awareness of the Company's products throughout its channels of distribution. 13 GROSS MARGIN. Gross margin increased 43 percent to $17.7 million (49 percent of net sales) for 1995 from $12.3 million (52 percent of net sales) for 1994. The decrease as a percentage of net sales primarily resulted from increasing club store sales, both in absolute dollars and as a percentage of the total sales mix. In addition, greater promotional discounts due to increased competition and start-up costs associated with new food service products impacted margins. SALES AND MARKETING EXPENSE. Sales and marketing expenses increased to $10.1 million (28.2 percent of net sales) for 1995 from $6.4 million (26.8 percent of net sales) for 1994. The increase is primarily attributable to growth of the Company and increased marketing efforts which included more product demonstrations, coupon and other media activities and a new marketing campaign aimed at the Company's institutional business. GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expense increased to $3.9 million (10.8 percent of net sales) for 1995 from $2.4 million (10.1 percent of net sales) for 1994. The increase is primarily attributable to growth of the Company, $281,000 to defend current litigation and a company wide profit sharing plan that was implemented in 1995, offset by cost containment measures put into place in the third quarter of 1995. OPERATING INCOME. 1995 operating income remained relatively constant at $3.7 million (10.3 percent of net sales) compared to $3.6 million (15.1 percent of net sales) for 1994 as a result of the individual line item changes discussed above. OTHER INCOME (EXPENSE). Other income decreased to $153,000 in 1995 from $262,000 in 1994 primarily as a result of increased cash balances and therefore increased interest income, offset by a $52,000 loss on the sale of fixed assets in 1995 compared to a gain on sale of fixed assets of $85,000 in 1994. INCOME TAXES. The Company's income tax rate for 1995 was 34.8 percent compared to 37.9 percent for 1994. The decrease from 1994 was primarily attributable to tax exempt interest and dividends received on investments and slightly lower effective state tax rates in 1995 as a result of a one-time benefit from the state of Oregon. NET INCOME. Net income remained relatively constant at $2.5 million (7.0 percent of net sales) for 1995 compared to $2.4 million (10.1 percent of net sales) for 1994 as a result of the individual line item changes discussed above. The Company believes that the impact of inflation on net income was minimal for fiscal years 1995 and 1994. LIQUIDITY AND CAPITAL RESOURCES At December 31, 1996, the Company had working capital of $13.4 million, which included $7.8 million of cash and cash equivalents as compared to $12.0 in working capital at December 31, 1995 and approximately $9.2 million of cash and cash equivalents at December 31, 1995. The decrease in cash and cash equivalents is primarily a result of $0.5 million used in operations, including the building of inventories in anticipation of increased growth in 1997, $2.4 million for the purchase of property and equipment and $0.4 million for the purchase of Gorilla Foods and Whole Food Marketing, offset by $2.0 million provided from the exercise of Common Stock options and the income tax benefit of non-qualified option exercises and disqualifying dispositions. 14 Accounts receivable decreased $141,000 to $2.8 million at December 31, 1996 from $2.9 million at December 31, 1995. Days sales outstanding have decreased to 32.0 at December 31, 1996 from 34.6 at December 31, 1995 (calculated based on average sales per day in the fourth quarter of each respective year). Accounts 80 days or more past due represent less than 2 percent of accounts receivable at December 31, 1996. Inventory levels at December 31, 1996 increased $3.2 million to $4.8 million at December 31, 1996 from $1.6 million at December 31, 1995, due primarily to the building of finished goods to ensure the Company's ability to meet anticipated sales demand during the first half of 1997. Inventory turns have decreased to approximately 5.1 times for the year ended December 31, 1996 from approximately 8.0 times for the year ended December 31, 1995. Income taxes receivable were $653,000 at December 31, 1996 compared to a payable of $269,000 at December 31, 1995 primarily as a result of a $1.4 million benefit which resulted from the exercise of non-qualified stock options and payments made during 1996. Accounts payable increased to $2.2 million at December 31, 1996 from $1.0 million at December 31, 1995 primarily as a result of increased inventory purchases to support an anticipated increase in the Company's sales growth rate beginning in the first half of 1997. Capital expenditures of $2.4 million during 1996 primarily resulted from the purchase of packaging equipment to streamline the Company's retail manufacturing process, equipment to increase the Company's manufacturing capacity at current locations and improvements to the Company's information systems infrastructure. Future capital requirements, other than normal operating expenses, could include, among other things, the possible construction of a new manufacturing facility, the purchase of manufacturing equipment to equip such a new facility or a co-packing facility, the funding of regional or national marketing campaigns and the implementation of a new information systems infrastructure. If the Company obtains a new manufacturing facility, it would expect such a facility to cost between $15 and $20 million, including all production equipment. The Company is currently researching funding options including various combinations of cash, conventional debt and lease financings. At December 31, 1996, the Company had firm obligations of $120,000 related to such facility. The Company has incurred approximately $468,000 in expenditures to date on its information systems project and expects the entire project to cost approximately $550,000, all of which is expected to be paid out of existing cash balances. Management believes that the Company's existing working capital, in combination with cash flow from operations and funds available under credit and capital lease facilities, should be sufficient to support working capital requirements over the next year. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and notes thereto required by this item are included on pages F-1 through F-15 as listed in Item 14 of Part IV of this document. 15 Unaudited quarterly financial data for each of the eight quarters in the two year period ended December 31, 1996 is as follows:
IN THOUSANDS, EXCEPT PER SHARE DATA 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER - ----------------------------------- ----------- ----------- ----------- ----------- 1996 Net sales $ 9,164 $ 11,005 $ 11,042 $ 8,043 Gross margin 4,523 5,532 5,434 3,859 Net income 58 (1) 521 778 (294) Net income per share 0.01 0.06 0.09 (0.03) 1995 Net sales $ 8,281 $ 9,453 $ 10,195 $ 7,825 Gross margin 4,008 4,958 5,067 3,623 Net income 652 746 860 252 Net income per share 0.08 0.09 0.10 0.03
(1) Operating expenses in 1996 include a $612,000 one-time charge for acquired in-process research and development related to the Gorilla Foods acquisition. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE On April 13, 1995, Wholesome & Hearty Foods, Inc. (the "Company") dismissed its independent accountant, Grant Thornton LLP ("Grant Thornton"). Such dismissal was recommended and approved by the Board of Directors of the Company. Grant Thornton's report on the Company's financial statements for the fiscal year ending December 31, 1994 contained no adverse opinion or disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope or accounting principles. There were no disagreements with Grant Thornton on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure during this one year period nor in any subsequent period preceding the dismissal. In addition, there were no such events as described under Item 304(a)(1)(v)(A) through (D) of Regulation S-K during the two most recent fiscal years or the subsequent period through April 13, 1995. Also as of April 13, 1995, the Company engaged Arthur Andersen LLP to be its independent accountant. Except on a limited basis as disclosed below, at no time during the two most recent fiscal years or subsequent period prior to engagement has the Company consulted with Arthur Andersen LLP as to (i) the application of accounting principles to a specified transaction, either completed or proposed, (ii) the type of audit opinion that might be rendered on its financial statements or (iii) any matter that was the subject of a disagreement (as defined in Item 304(a)(1)(iv) of Regulation S-K) or a reportable event (as described in Item 304(a)(1)(v) of Regulation S-K). In anticipation of engaging Arthur Andersen LLP, the Company had limited discussions with Arthur Andersen LLP regarding the accounting for the proposed acquisition of Gorilla Foods. Arthur Andersen LLP expressed orally to the Company that based on the preliminary facts and circumstances the proposed transaction should be accounted for as a purchase. The Company has also discussed the proposed transaction with Grant Thornton who also believes the transaction should be accounted for as a purchase. It is the Company's understanding that Arthur Andersen LLP has also consulted with Grant Thornton in the process of reaching their conclusion. 16 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information required by this item is included under the captions ELECTION OF DIRECTORS, EXECUTIVE OFFICERS AND COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934, respectively, in the Company's Proxy Statement for its 1997 Annual Meeting of Shareholders and is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION Information required by this item is included under the caption EXECUTIVE COMPENSATION in the Company's Proxy Statement for its 1997 Annual Meeting of Shareholders and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is included under the caption SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT in the Company's Proxy Statement for its 1997 Annual Meeting of Shareholders and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is included under the caption CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS in the Company's Proxy Statement for its 1997 Annual Meeting of Shareholders and is incorporated herein by reference. 17 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) (1) FINANCIAL STATEMENTS The Financial Statements, together with the reports thereon of Arthur Andersen LLP and Grant Thornton LLP, are included on the pages indicated below : Page ---- Report of Arthur Andersen LLP F-1 Report of Grant Thornton LLP F-2 Balance Sheets - December 31, 1996 and 1995 F-3 Statements of Operations for the years ended December 31, 1996, 1995 and 1994 F-4 Statements of Shareholders' Equity - December 31, 1996, 1995 and 1994 F-5 Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994 F-6 Notes to Financial Statements F-7 FINANCIAL STATEMENT SCHEDULES The following schedule and report thereon is filed herewith: Page ---- Report of Independent Public Accountants on Financial Statement Schedule F-16 Schedule II Valuation and Qualifying Accounts F-17 18 (a) (3) EXHIBITS INCLUDED HEREIN: Exhibit No. - ----------- 3a Restated Articles of Incorporation (3) ---- 3b Amendment No. 1 to Restated Articles of Incorporation (1) ---- 3c Amendment No. 2 to Restated Articles of Incorporation (6) ---- 3d 1995 Restated Bylaws (7) ---- 4 Instruments defining the rights of security holders. See Article II, Sections 3, 4 and 5 of Restated Articles of Incorporation and Article I of 1995 Restated Bylaws (3) (7) ---- 10a Business Loan Agreement with Bank of America re: Lines of Credit, dated March 22, 1996 (6) ---- 10b Plant Lease-1416 S.E. 8th, Portland, Oregon (1) ---- 10c Office Lease-975 S.E. Sandy Blvd., Portland, Oregon (4) ---- 10d Consent to Assignment and Option to purchase 1005 S.E. Washington, Portland, Oregon (1) ---- 10e Morrison Plaza Office Lease, dated October 29, 1996. 10f Purchase and Sale Agreement and Receipt For Earnest Money Between the Iseli Family Partnership, an Oregon Partnership (Seller) and the Company (Buyer), as amended, dated May 8, 1995 (6) ---- 10g 1992 Employee Incentive Stock Option Plan (1) ---- 10h 1992 First Amended and Restated Combination Stock Option Plan (4) ---- 10i Lyle Hubbard employment agreement, dated April 14, 1996. 10j Employment Agreement and Amendment thereto-Mr. Wenner (1) ---- 10k Paul F. Wenner Stock Option Agreement (2) ---- 10l Executive Officer Termination Agreement 10m Form of indemnification Agreement between the Company and its Officers and Directors (3) ---- 10n Plan and Agreement of Reorganization by Exchange by the Company of Its Voting Stock for Substantially All The Properties of Gorilla Foods, Inc., dated January 31, 1996 (6) ---- 19 Exhibit No. - ----------- 10o 1997 Executive Bonus Plan 10p Consulting agreement between the Company and E. Kay Stepp, dated November 1, 1996. 10q Rights Agreement between the Company and First Chicago Trust Company of New York, dated April 25, 1996 (8) ---- 11 Statement regarding computation of per share earnings 16 Letter re: change in certifying accountant (5) ---- 23a Consent of Arthur Andersen LLP 23b Consent of Grant Thornton LLP 24a Power of attorney of Thomas D. Henrion 24b Power of attorney of Ralph M. Kovel 24c Power of attorney of Mary O. McWilliams 24d Power of attorney of Michael L. Ray 24e Power of attorney of E. Kay Stepp 24f Power of attorney of Michael D. Wagoner 24g Power of attorney of Paul F. Wenner 27 Financial Data Schedule (1) Incorporated by reference to the Company's Form S-1 Registration Statement (Commission File No. 33-46623) as filed with the Securities and Exchange Commission on May 6, 1992. (2) Incorporated by reference to the Company's fiscal year ended December 26, 1992 Form 10-K Annual Report as filed with the Securities and Exchange Commission on March 23, 1993. (3) Incorporated by reference to the Company's fiscal year ended December 25, 1993 Form 10-K Annual Report as filed with the Securities and Exchange Commission on March 23, 1994. (4) Incorporated by reference to the Company's fiscal year ended December 31 1994 Form 10-K Annual Report as filed with the Securities and Exchange Commission on March 30, 1995. (5) Incorporated by reference to the Company's Form 8-K/A dated April 13, 1995 as filed with the Securities and Exchange Commission on May 5, 1995. (6) Incorporated by reference to the Company's fiscal year ended December 31, 1995 Form 10-K Annual Report as filed with the Securities and Exchange Commission on March 29, 1996. (7) Incorporated by reference to the Company's Form 10-Q for the quarter ended September 30, 1996, as filed with the Securities and Exchange Commission on November 4, 1996. (8) Incorporated by reference to the Company's Form 8-K, as filed with the Securities and Exchange Commission on May 8, 1996. (b) REPORTS ON FORM 8-K. No reports on Form 8-K were filed during the quarter ended December 31, 1996. 20 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. Date: March 17, 1997 -------------- WHOLESOME & HEARTY FOODS, INC. By:/s/ LYLE G. HUBBARD ------------------- Lyle G. Hubbard Director, President and Chief Executive 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 on March 17, 1997. Signature Title /s/ LYLE G. HUBBARD Director, President and Chief Executive Officer - ------------------------- (Principal Executive Officer) Lyle G. Hubbard /s/ RICHARD C. DIETZ Executive Vice President, - ------------------------- Chief Financial Officer, Treasurer and Secretary Richard C. Dietz (Principal Financial and Accounting Officer) * THOMAS D. HENRION Director - ------------------------- Thomas D. Henrion * RALPH M. KOVEL Director - ------------------------- Ralph M. Kovel * MARY O. MCWILLIAMS Director - ------------------------- Mary O. McWilliams * MICHAEL L. RAY Director - ------------------------- Michael L. Ray * E. KAY STEPP Chairman of the Board - ------------------------- E. Kay Stepp * MICHAEL D. WAGONER Director - ------------------------- Michael D. Wagoner * PAUL F. WENNER Founder, Senior Chairman of the Board - ------------------------- and Chief Creative Officer Paul F. Wenner * BY:/s/ RICHARD C. DIETZ - ------------------------- Richard C. Dietz, Attorney-in-fact 21 Report of Independent Public Accountants To the Board of Directors and Shareholders of Wholesome & Hearty Foods, Inc.: We have audited the accompanying balance sheets of Wholesome & Hearty Foods, Inc. (an Oregon corporation) as of December 31, 1996 and 1995 and the related statements of operations, shareholders' equity and cash flows for each of the two years in the period ended December 31, 1996. 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. The financial statements of Wholesome & Hearty Foods, Inc. for the year ended December 31, 1994 were audited by other auditors whose report dated February 20, 1995 expressed an unqualified opinion. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits 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 Wholesome & Hearty Foods, Inc. as of December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Portland, Oregon, February 7, 1997 F-1 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors Wholesome & Hearty Foods, Inc. We have audited the accompanying statements of operations, shareholders' equity and cash flows of Wholesome & Hearty Foods, Inc. (an Oregon corporation) for the year ended December 31, 1994. 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 results of operations and cash flows of Wholesome & Hearty Foods, Inc. for the year ended December 31, 1994, in conformity with generally accepted accounting principles. GRANT THORNTON LLP Portland, Oregon February 20, 1995 F-2 WHOLESOME AND HEARTY FOODS, INC. BALANCE SHEETS
December 31, December 31, 1996 1995 ------------ ------------ ASSETS Current Assets: Cash and cash equivalents (Note 1) $ 7,755,000 $ 9,247,000 Accounts receivable, net of allowances of $177,000 and $120,000 (Note 1) 2,800,000 2,941,000 Inventories, net (Notes 1 and 2) 4,790,000 1,562,000 Prepaid expenses 378,000 197,000 Income taxes receivable 653,000 - Deferred income tax benefit (Note 6) 470,000 156,000 ------------ ------------ Total Current Assets 16,846,000 14,103,000 Property, Plant and Equipment, net of accumulated depreciation of $1,220,000 and $828,000 (Note 3) 6,814,000 4,937,000 Other Assets, net of accumulated amoritization of $122,000 and zero 1,274,000 285,000 ------------ ------------ Total Assets $ 24,934,000 $ 19,325,000 ------------ ------------ ------------ ------------ LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Income taxes payable (Note 6) $ - $ 269,000 Accounts payable 2,173,000 1,039,000 Payroll and related liabilities payable 458,000 408,000 Accrued employee bonuses 221,000 112,000 Accrued relocation 178,000 - Accrued brokers' commissions 199,000 205,000 Other current liabilities 224,000 92,000 ------------ ------------ Total Current Liabilities 3,453,000 2,125,000 Deferred Income Taxes (Note 6) 502,000 245,000 Commitments and Contingencies (Notes 5 and 12) Shareholders' Equity: Preferred Stock, no par value, 5,000,000 shares authorized; none issued (Note 9) - - Series A Junior Participating Preferred Stock, no par value, 250,000 shares authorized; none issued (Note 9) - - Common Stock, no par value, 25,000,000 shares authorized; shares issued and outstanding: 8,566,456 and 7,701,456 8,468,000 7,603,000 Additional paid-in capital 4,139,000 2,053,000 Retained earnings 8,372,000 7,299,000 ------------ ------------ Total Shareholders' Equity 20,979,000 16,955,000 ------------ ------------ Total Liabilities and Shareholders' Equity $ 24,934,000 $ 19,325,000 ------------ ------------ ------------ ------------
The accompanying notes are an integral part of these balance sheets. F-3 WHOLESOME AND HEARTY FOODS, INC. STATEMENTS OF OPERATIONS
For the Year Ended December 31, 1996 1995 1994 ------------- ------------- ------------- Net sales $ 39,254,000 $ 35,754,000 $ 23,736,000 Cost of goods sold 19,906,000 18,098,000 11,391,000 ------------- ------------- ------------- Gross margin 19,348,000 17,656,000 12,345,000 Operating expenses: Sales and marketing 12,310,000 10,087,000 6,357,000 General and administrative 4,963,000 3,871,000 2,397,000 Acquired in-process research & development 612,000 - - ------------- ------------- ------------- ------------- ------------- ------------- 17,885,000 13,958,000 8,754,000 ------------- ------------- ------------- Operating income 1,463,000 3,698,000 3,591,000 Other income (expense): Interest income 365,000 284,000 164,000 Interest expense - (1,000) (1,000) ------------- ------------- ------------- ------------- ------------- ------------- Other, net (38,000) (130,000) 99,000 327,000 153,000 262,000 ------------- ------------- ------------- Income before provision for income taxes 1,790,000 3,851,000 3,853,000 Provision for income taxes 727,000 1,341,000 1,462,000 ------------- ------------- ------------- Net income $ 1,063,000 $ 2,510,000 $ 2,391,000 ------------- ------------- ------------- ------------- ------------- ------------- Net income per share $ 0.12 $ 0.29 $ 0.28 ------------- ------------- ------------- ------------- ------------- ------------- Shares used in per share calculations 9,065,969 8,638,691 8,577,907 ------------- ------------- ------------- ------------- ------------- -------------
The accompanying notes are an integral part of these statements. F-4 WHOLESOME AND HEARTY FOODS, INC. STATEMENTS OF SHAREHOLDERS' EQUITY For the Years Ended December 31, 1996, 1995 and 1994
Common Stock Additional Total ------------------------ Paid-In Retained Shareholders' Shares Amount Capital Earnings Equity --------- ------------ ------------ ------------ ------------- Balance at December 25, 1993 4,887,858 $ 6,743,000 $ 10,000 $ 2,398,000 $ 9,151,000 Three-for-two stock split 2,443,929 - - - - --------- ------------ ------------ ------------ ------------- Adjusted Balances, December 25, 1993 7,331,787 6,743,000 10,000 2,398,000 9,151,000 Exercise of Common Stock Options 220,335 394,000 - - 394,000 Exercise of Common Stock Warrants 90,000 175,000 - - 175,000 Income tax benefit of non-qualified stock option exercises and disqualifying dispositions - - 1,917,000 - 1,917,000 Net income - - - 2,391,000 2,391,000 --------- ------------ ------------ ------------ ------------- Balance at December 31, 1994 7,642,122 7,312,000 1,927,000 4,789,000 14,028,000 Exercise of Common Stock Options 59,334 291,000 - - 291,000 Income tax benefit of non-qualified stock option exercises and disqualifying dispositions - - 126,000 - 126,000 Net income - - - 2,510,000 2,510,000 --------- ------------ ------------ ------------ ------------- Balance at December 31, 1995 7,701,456 7,603,000 2,053,000 7,299,000 16,955,000 Exercise of Common Stock Options 625,000 625,000 - - 625,000 Income tax benefit of non-qualified stock option exercises and disqualifying dispositions - - 1,336,000 - 1,336,000 Issuance of shares for acquisition of Gorilla Foods, Inc. 240,000 240,000 750,000 - 990,000 Foreign currency translation - - - 10,000 10,000 Net income - - - 1,063,000 1,063,000 --------- ------------ ------------ ------------ ------------- Balance at December 31, 1996 8,566,456 $ 8,468,000 $ 4,139,000 $ 8,372,000 $ 20,979,000 --------- ------------ ------------ ------------ ------------- --------- ------------ ------------ ------------ -------------
The accompanying notes are an integral part of these statements. F-5 WHOLESOME AND HEARTY FOODS, INC. STATEMENTS OF CASH FLOWS
For the Year Ended December 31, 1996 1995 1994 ------------ ------------ ------------ Cash flows from operating activities: Net income $ 1,063,000 $ 2,510,000 $ 2,391,000 Effect of exchange rate on operating accounts 10,000 - - Adjustments to reconcile net income to net cash flows provided by (used in) operating activities: Depreciation and amortization 594,000 334,000 190,000 Acquired in-process research and development, net of tax 386,000 - - (Gain) loss on sale of fixed assets 52,000 52,000 (85,000) Deferred income taxes (57,000) (154,000) 107,000 (Increase) decrease in: Investments - 507,000 1,734,000 Accounts receivable, net 141,000 (519,000) (1,172,000) Inventories, net (3,228,000) 1,398,000 (1,850,000) Prepaid expenses (181,000) (60,000) (93,000) Income taxes receivable, net (922,000) 2,559,000 (2,805,000) Increase (decrease) in: Accounts payable 1,134,000 409,000 473,000 Payroll and related liabilities 50,000 178,000 81,000 Other accrued liabilities 413,000 239,000 48,000 ------------ ------------ ------------ Net cash provided by (used in) operating activities (545,000) 7,453,000 (981,000) Cash flows from investing activities: Payments for purchase of property and equipment (2,428,000) (2,219,000) (851,000) Proceeds from sale of equipment 26,000 1,000 214,000 Cash paid for Gorilla Foods and Whole Food Marketing (419,000) - - Other assets, net (87,000) (137,000) (110,000) ------------ ------------ ------------ Net cash used in investing activities (2,908,000) (2,355,000) (747,000) Cash flows from financing activities: Payment on equipment option - - (100,000) Proceeds from exercise of common stock options and warrants 625,000 291,000 569,000 Income tax benefit of non-qualified stock option exercises and disqualifying dispositions 1,336,000 126,000 1,917,000 ------------ ------------ ------------ Net cash provided by financing activities 1,961,000 417,000 2,386,000 Increase (decrease) in cash and cash equivalents (1,492,000) 5,515,000 658,000 Cash and cash equivalents: Beginning of period 9,247,000 3,732,000 3,074,000 ------------ ------------ ------------ End of period $ 7,755,000 $ 9,247,000 $ 3,732,000 ------------ ------------ ------------ ------------ ------------ ------------
The accompanying notes are an integral part of these statements. F-6 WHOLESOME & HEARTY FOODS, INC. NOTES TO FINANCIAL STATEMENTS 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION AND NATURE OF OPERATIONS Wholesome & Hearty Foods, Inc. was incorporated in Oregon in 1985 to provide a line of food products in response to the public's awareness of the importance of diet to overall health and fitness. Toward this end, the Company developed and now produces and distributes products which include a variety of frozen, meatless items that are generally low in cholesterol and fat. The Company's products are principally sold to retail and institutional customers throughout the United States. REPORTING PERIOD In January 1995 the Company changed from a 52-53 week year for reporting purposes to a calendar year. The year ended December 31, 1994 consists of 53 weeks. ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Management believes that the estimates used are reasonable. CASH EQUIVALENTS Cash equivalents consist of highly liquid investments with maturities at the date of purchase of 90 days or less. INVENTORIES Inventories are valued at standard cost, which approximates the lower of cost (using the first-in, first-out (FIFO) method), or market, and include materials, labor and manufacturing overhead. GOODWILL Goodwill is being amortized using the straight line method over ten years. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost. Depreciation and amortization are provided using straight-line and accelerated methods over the estimated useful lives of the assets. Leasehold improvements are amortized over the lease term or the estimated useful life of the asset, whichever is shorter. Estimated useful lives are as follows: BUILDING AND IMPROVEMENTS 3 - 40 YEARS OFFICE FURNITURE AND EQUIPMENT 3 - 10 YEARS MACHINERY AND EQUIPMENT 7 - 30 YEARS VEHICLES 5 YEARS F-7 CONCENTRATIONS OF CREDIT RISK AND SIGNIFICANT CUSTOMERS The Company invests its excess cash with high credit quality financial institutions which bear minimal risk and, by policy, limits the amount of credit exposure to any one financial institution. For the year ended December 31, 1996, two customers accounted for approximately 23 percent and 12 percent of revenue and 32 percent and 13 percent of the accounts receivable balance at December 31, 1996, respectively. For the year ended December 31, 1995, two customers accounted for approximately 23 and 12 percent of revenue and 24 and 8 percent of the accounts receivable balance at December 31, 1995, respectively. For the year ended December 31, 1994, two customers accounted for approximately 13 and 13 percent of revenue and 10 and 29 percent of the accounts receivable balance at December 31, 1994. Historically, the Company has not incurred significant losses related to its accounts receivable. REVENUE RECOGNITION Revenue from the sale of products is generally recognized at time of shipment to the customer. Promotional and other discounts are accrued for at time of shipment based on historical experience. ADVERTISING COSTS Advertising costs are expensed as incurred. Advertising expense was approximately $1,539,000, $871,000 and $670,000 in 1996, 1995 and 1994, respectively. SLOTTING FEES Slotting costs associated with new products or new territories are deferred and amortized over the twelve month period following the initial introductions. RESEARCH AND DEVELOPMENT COSTS Research and development costs are expensed as incurred. Research and development expense was approximately $1.0 million in 1996, which includes a one-time charge of $612,000 of in-process research and development in conjunction with the acquisition of Gorilla Foods (see Note 7). The amount spent on such activities during 1995 and 1994 was immaterial. NET INCOME PER SHARE Net income per share is computed using the weighted average number of common and dilutive common equivalent shares outstanding. Fully diluted earnings per share is not significantly different from primary earnings per share for the periods presented. RECLASSIFICATIONS Certain amounts in the prior year financial statements have been reclassified to conform to the current year presentation. F-8 2. INVENTORIES Detail of inventory at December 31, 1996 and 1995 is as follows: December 31, 1996 1995 - --------------------------------------------- ----------- ----------- Raw materials $ 670,000 $ 391,000 Packaging and supplies 243,000 171,000 Finished goods 3,877,000 1,000,000 ----------- ----------- $ 4,790,000 $ 1,562,000 ----------- ----------- ----------- ----------- 3. PROPERTY, PLANT AND EQUIPMENT December 31, 1996 1995 - --------------------------------------------- ----------- ----------- Land $ 787,000 $ 787,000 Building and improvements 1,968,000 1,175,000 Machinery and equipment 3,825,000 2,809,000 Vehicles 49,000 47,000 Office furniture and equipment 1,405,000 947,000 ----------- ----------- 8,034,000 5,765,000 Less accumulated depreciation (1,220,000) (828,000) ----------- ----------- $ 6,814,000 $ 4,937,000 ----------- ----------- ----------- ----------- 4. LINE-OF-CREDIT The Company has a $5,000,000 unsecured line-of-credit agreement with a commercial bank with interest at the bank's reference rate or, at the Company's election, LIBOR plus 1.0 percent on amounts of $500,000 or more. This line-of- credit expires on July 1, 1997. At December 31, 1996, the bank's reference rate was 8.25 percent. There was no balance outstanding under this line at December 31, 1996. 5. LEASE COMMITMENTS Future minimum lease payments at December 31, 1996 were as follows: Year Ended December 31, - --------------------------------------------- 1997 $ 498,000 1998 338,000 1999 66,000 ----------- Total $ 902,000 Rental expense for the years ended December 31, 1996, 1995 and 1994 was $257,000, $180,000 and $80,000, respectively. F-9 6. INCOME TAXES The Company accounts for income taxes under Statement of Financial Accounting Standards 109, ACCOUNTING FOR INCOME TAXES. The Company realizes tax benefits as a result of the exercise of nonqualified stock options and the exercise and subsequent sale of certain incentive stock options (disqualifying dispositions). For financial reporting purposes, any reduction in income tax obligations as a result of these tax benefits is credited to paid-in capital. Tax benefits of $1,336,000, $126,000 and $1,917,000 were credited to paid-in capital in 1996, 1995 and 1994, respectively. The provision for income taxes is as follows: December 31, 1996 1995 1994 - ----------------------------------- --------- ----------- ----------- CURRENT: Federal $ 616,000 $ 1,309,000 $ 1,061,000 State 168,000 186,000 294,000 --------- ----------- ----------- 784,000 1,495,000 1,355,000 DEFERRED (57,000) (154,000) 107,000 --------- ----------- ----------- $ 727,000 $ 1,341,000 $ 1,462,000 --------- ----------- ----------- --------- ----------- ----------- Total deferred income tax assets were $507,000 and $342,000 and liabilities were $539,000 and $431,000, at December 31, 1996 and 1995, respectively. Individually significant temporary differences include inventory reserves and UniCap which are booked as deferred tax assets of $105,000 and $133,000 at December 31, 1996, respectively and book/tax depreciation differences which are recorded as deferred liabilities of $517,000 and $356,000 at December 31, 1996 and 1995, respectively. There are no other individually significant temporary differences at December 31, 1996 or 1995. The Company's deferred tax assets are realizable as a result of past income and available income tax carrybacks. The reconciliation between the effective tax rate and the statutory federal income tax rate is as follows: December 31, 1996 1995 1994 - ---------------------------------------------- ---- ---- ---- Statutory federal income tax rate 34.0% 34.0% 34.0% State taxes, net of federal income tax benefit 5.9 3.4 4.0 Tax exempt interest and dividends (4.0) (2.3) (1.4) Trademark and goodwill amortization 2.0 -- -- Revision of prior year estimates 2.0 -- -- Other 0.7 (0.3) 1.3 ---- ---- ---- Effective tax rate 40.6% 34.8% 37.9% ---- ---- ---- ---- ---- ---- F-10 7. ACQUISITIONS In January 1996 the Company completed the acquisition of Ojai, California based Gorilla Foods, Inc., a privately held developer and manufacturer of wheat protein-based, meatless food products, including the GardenDog. The transaction, accounted for under the purchase method, provided for the issuance of 240,000 shares of the Company's Common Stock in exchange for all outstanding common shares of Gorilla Foods, and $68,750 in cash. In addition, up to an additional 200,000 certain contingent shares of the Company could be issued in 50,000 share increments contingent upon meeting certain sales performance levels of wheat protein-based products over the next five years. This transaction has enabled the Company to broaden its product line by owning the recipe for the GardenDog and other future wheat gluten protein-based products to be developed for the meat analog, whole food product market. Prior to the acquisition of Gorilla Foods, the Company purchased the GardenDog directly from Gorilla Foods. The Company incurred a one-time charge of $612,000 in the first quarter of 1996 as a result of the acquisition of in process research and development associated with this acquisition, with the remainder of the purchase price principally allocated to goodwill. In a separate transaction, the Company completed the acquisition of the assets of Whole Food Marketing, Inc., a Southern California-based food broker of the Company's and Gorilla Foods' products. The Company paid $350,000 for the assets of Whole Food Marketing, Inc., all of which was allocated to goodwill. This acquisition was accounted for under the purchase method. Pro forma financial information has not been provided for these acquisitions as the pro forma results are not materially different from actual results. 8. RELATED PARTY TRANSACTIONS The Company leases its S.E. 8th Avenue plant facility from the Company's Chief Creative Officer and one other shareholder. This lease agreement provides for a $1,700 monthly payment. The lease provides for cancellation, without penalty, by either party with a 60-day notice. 9. SHAREHOLDERS' EQUITY PREFERRED STOCK The Company has authorized 5,000,000 shares of preferred stock. Such stock may be issued by the Board of Directors in one or more series, with the preferences, limitations and rights of each series to be determined by the Board of Directors. PREFERRED SHARE PURCHASE RIGHTS In April 1996, the Company declared a dividend distribution of one preferred share purchase right on each outstanding share of the Company's Common Stock. Each right will entitle shareholders to buy one one-hundredth of a share of newly created Series A Junior Participating Preferred Stock of the Company at an exercise price of $47. The rights will be exercisable if a person or group acquires 15 percent or more of the F-11 Company's Common Stock or announces a tender offer for 15 percent or more of the Common Stock. The Company's Board of Directors is entitled to redeem the rights at $.01 per right at any time before a person has acquired 15 percent or more of the outstanding Common Stock. COMMON STOCK SPLITS On February 18, 1994, the Company effected a three-for-two Common Stock split. All share and per share amounts have been retroactively adjusted to reflect the stock splits. STOCK OPTIONS AND WARRANTS On March 10, 1992, the Company granted a non-statutory stock option to its Chief Executive Officer exercisable for 1,650,000 shares of the Company's Common Stock. Such option is exercisable for a period of ten years from the date of grant at an exercise price of $1.00 per share, the fair market value of the Company's Common Stock on the date of grant. At December 31, 1996, an option to purchase 1,025,000 shares of Common Stock was outstanding, all of which was exercisable. At December 31, 1996, 1,025,000 shares of the Company's Common Stock were reserved for issuance under this option grant. Also in 1992, the Company granted a non-statutory stock option to a consultant of the Company exercisable for 150,000 shares of the Company's Common Stock at $1.50 per share, the fair market value of the Company's Common Stock on the date of grant. Such option was exercised in full in 1994. In addition, the Company has a 1992 First Amended and Restated Combination Stock Option Plan (the "Plan") which provides for the issuance of incentive stock options ("ISOs") to employees and officers of the Company and non-statutory stock options ("NSOs") to employees, officers, directors and consultants of the Company. Under the Plan, the exercise price of an ISO cannot be less than the fair market value on the date of grant and the exercise price of an NSO cannot be less than 85 percent of fair market value on the date of grant. Options granted under the Plan generally vest three to five years from the date of grant and generally expire ten years from the date of grant. At December 31, 1996, the Company had 2,132,817 shares of Common Stock reserved for issuance under the Plan. At December 31, 1996, 549,580 shares were exercisable. Activity under the Plan is summarized as follows:
Shares Available Shares Subject Exercise Price Per for Grant to Options Share ---------------- -------------- ------------------ Balances, December 25, 1993 549,997 212,461 $ 1.00 - 6.87 Options granted (125,800) 125,800 11.00 - 13.25 Options canceled 35,200 (35,200) 4.16 - 5.25 Options exercised -- (70,307) 1.00 - 5.25 ---------- ---------- --------------- Balances December 31, 1994 459,397 232,754 $ 1.00 - 13.25 Additional shares reserved 1,500,000 -- -- Options granted (326,066) 326,066 9.56 - 13.13 Options canceled 13,337 (13,337) 1.00 - 11.75 Options exercised -- (59,334) 1.00 - 11.75 ---------- ---------- --------------- Balances, December 31, 1995 1,646,668 486,149 $ 1.50 - 13.25 Options granted (886,300) 886,300 6.50 - 8.69 Options canceled 15,333 (15,333) 11.50 - 11.75 Options exercised -- -- -- ---------- ---------- --------------- Balances, December 31, 1996 775,701 1,357,116 $ 1.50 - 13.25 ---------- ---------- --------------- ---------- ---------- ---------------
F-12 The 1,200,000 units sold in the initial public offering (IPO) each included two shares of Common Stock and one warrant to purchase one share of Common Stock at $2.25 per share. Also included in the IPO were warrants issued to the underwriters that provided for the purchase of 120,000 units at $3.60 per unit. During 1994, the remaining 90,000 warrants were exercised at prices ranging from $1.80 to $2.25 per share. There were no other warrant transactions during the three year period ended December 31, 1996 and no warrants were outstanding at December 31, 1996. STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 123 During 1995, the Financial Accounting Standards Board issued SFAS 123 which defines a fair value based method of accounting for an employee stock option and similar equity instruments and encourages all entities to adopt that method of accounting for all of their employee stock compensation plans. However, it also allows an entity to continue to measure compensation cost for those plans using the method of accounting prescribed by APB 25. Entities electing to remain with the accounting in APB 25 must make pro forma disclosures of net income and, if presented, earnings per share, as if the fair value based method of accounting defined in SFAS 123 had been adopted. The Company has elected to account for its stock-based compensation plans under APB 25; however, the Company has computed, for pro forma disclosure purposes, the value of all options granted during 1996 and 1995 using the Black-Scholes option pricing model as prescribed by SFAS 123 using the following weighted average assumptions for grants: For the Year Ended December 31, 1996 1995 ------- ------- Risk-free interest rate 6.0% 6.0% Expected dividend yield 0% 0% Expected lives 8 years 8 years Expected volatility 60.94% 64.51% Using the Black-Scholes methodology, the total value of options granted during 1996 and 1995 was $4,762,000 and $2,721,000, respectively, which would be amortized on a pro forma basis over the vesting period of the options (typically four years). The weighted average fair value of options granted during 1996 and 1995 was $5.42 and $8.34, respectively. If the Company had accounted for its stock-based compensation plans in accordance with SFAS 123, the Company's net income and net income per share would approximate the pro forma disclosures below: For the Year Ended December 31, 1996 1995 -------------------- ---------------------- As Pro As Pro Reported Forma Reported Forma ---------- --------- ---------- --------- Net income (loss) $1,063,000 $(299,000) $2,510,000 $1,046,000 Net income (loss) per share $ 0.12 $ (0.04) $ 0.29 $ 0.12 F-13 The effects of applying SFAS 123 in this pro forma disclosure are not indicative of future amounts. SFAS 123 does not apply to awards prior to January 1, 1995, and additional awards are anticipated in future years. The following table summarizes information about stock options outstanding at December 31, 1996:
Options Outstanding Options Exercisable - ---------------------------------------------------------------- ------------------------- Weighted Average Weighted Number of Weighted Range of Number Remaining Average Shares Average Exercise Outstanding Contractual Exercise Exercisable Exercise Prices at 12/31/96 Life Price at 12/31/96 Price - --------------- ----------- ----------- --------- ----------- -------- $ 1.00 - 1.50 1,047,500 5.0 $ 1.01 1,047,500 $ 1.01 3.08 - 5.00 18,450 6.2 3.76 18,450 3.76 6.51 - 8.69 898,300 9.2 7.89 176,094 7.57 9.56 - 11.75 362,866 7.8 11.58 278,202 11.54 11.76 - 13.25 55,000 8.2 13.00 54,334 13.00 -------------- --------- --- ------ --------- ------ $ 1.00 - 13.25 2,382,116 6.9 $ 5.51 1,574,580 $ 4.05 -------------- --------- --- ------ --------- ------ -------------- --------- --- ------ --------- ------
10. 401(k) PLAN The Company has a 401(k) Salary Deferral Plan which covers all employees who have reached the age of 18. The covered employees may elect to have an amount deducted from their wages for investment in a retirement plan. The Company matches 100 percent of employee contributions up to two percent. The Company's contribution to this plan was approximately $74,000 in 1996, $51,000 in 1995 and $22,000 in 1994. 11. SUPPLEMENTAL CASH FLOW INFORMATION Supplemental disclosure of cash flow information is as follows: 1996 1995 1994 - --------------------------------------------- ---------- ------- ---------- Cash paid during the period for interest $ -- $ 1,000 $ 5,000 Cash paid during the period for income taxes 1,062,000 96,000 2,266,000 Issuance of Common Stock in exchange for the assets of Gorilla Foods, Inc. 990,000 -- -- F-14 12. COMMITMENTS AND CONTINGENCIES NEW FACILITY During 1995, the Company purchased a 16.6 acre parcel of real estate in proximity to Portland International Airport with the intent of building a new facility that would house both production and administrative functions. Currently, the company is exploring the feasibility of building such a facility and financing alternatives ranging from working capital, conventional long-term debt and leasing. However, no firm commitments on such financing have been made at this date. The Company had firm purchase commitments of $120,000 related to such facility at December 31, 1996. LITIGATION During the third quarter of 1996, the Company announced the settlement of a lawsuit brought by a former sales executive, that alleged numerous claims relating to his employment at the Company. This employee alleged damages of more than $21 million but settled for $85,000, a substantial portion of which was paid by the Company's officer and director liability insurance policy. The Company is currently seeking recovery of its costs incurred in defending the litigation from its insurance carrier. All defense costs have been expensed as incurred in the accompanying statement of operations. No anticipated recoveries have been reflected in the accompanying financial statements given uncertainty as to the ultimate outcome. F-15 Report of Independent Public Accountants on Financial Statement Schedule We have audited in accordance with generally accepted auditing standards, the financial statements included in Wholesome & Hearty Foods, Inc.'s Form 10-K, and have issued our report thereon dated February 7, 1997. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed on page 15 is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in our audit of the basic financial statements and, in our opinion, fairly states, in all material respects, the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Portland, Oregon, February 7, 1997 F-16
Column A Column B Column C Column D Column E - --------------------------------------------- ------------ -------------------------------- ------------ --------- Balance Charged Charged to Balance at Beginning to Costs and Other Accounts - Deductions - at End Description of Period Expenses Describe Describe (b) of Period - --------------------------------------------- ------------ ------------ ---------------- ------------ --------- Year Ended December 31, 1995 (a): Reserves deducted from asset accounts: Allowance for uncollectible accounts $ 50,000 $ 72,000 $ - $ 2,000 $ 120,000 Year Ended December 31, 1996: Reserves deducted from asset accounts: Allowance for uncollectible accounts $ 120,000 $ 70,000 $ - $ 13,000 $ 177,000
(a) Balances and amounts charged to and deducted from such account were not material for the year ended December 31, 1994. (b) Charges to the account included in this column are for the purposes for which the reserve was created. F-17 EX-10.(E) 2 EXHIBIT 10.(E) EXHIBIT 10e MORRISON PLAZA OFFICE LEASE This lease, made and entered into at Portland, Oregon this October 29, 1996 by and between AMERICAN PROPERTY MANAGEMENT CORP., as LESSOR, and WHOLESOME & HEARTY FOODS, INC. AN OREGON CORPORATION, as LESSEE. AMERICAN PROPERTY MANAGEMENT CORP. ACCOUNT #C-8923-02 LESSOR hereby leases to LESSEE the following: SUITE #400 (THE PREMISES) CONSISTING OF 18,850 RENTABLE SQUARE FEET in the Morrison Plaza Office Building (the Building) at 1411 S.W. Morrison Street, Portland OR 97205 for a term commencing December 6, 1996 and continuing through December 31, 1998; at a Base Rental of $18,850.00 (U.S.) per month payable in advance on the first day of each month at 2154 N.E. Broadway, Suite #200, Portland, Oregon 97232-1561 commencing December 6, 1996. LESSOR INITIAL_____ LESSEE INITIAL_____ LESSOR and LESSEE covenant and agree as follows: 1.1 THE PREMISES The Premises square footage is an approximation only and may vary from the actual square footage. Prior to occupancy LESSEE may inspect and measure the Leased Premises to confirm the square footage. Pursuant to paragraph 2.3 below, however, as of occupancy LESSEE shall be deemed to have accepted the Leased Premises, and will be deemed to have waived any objection to the square footage approximations set forth herein. The Premises include ten (10) private windowed offices with above standard relights, desks, returns, upper and lower cabinets. The built-in furniture is the property of the LESSOR and shall remain intact and in its present condition, subject to normal wear and tear. The Premises also contain built-in lockers, which are the property of the LESSOR and shall remain intact. 2.1 DELIVERY OF POSSESSION Should LESSOR be unable to deliver possession of the Premises on the date fixed for the commencement date of the term, commencement will be deferred and LESSEE shall owe no rent until receiving notice from LESSOR tendering possession to LESSEE. If possession is not so tendered within 45 days following commencement of the term, then LESSEE may elect to cancel this lease by providing written notice to LESSOR within 10 days following expiration of the 45 day period. LESSOR shall have no liability to LESSEE for delay in delivering possession, nor shall such delay extend the term of this lease in any manner. 2.2 EARLY POSSESSION If LESSEE occupies the Premises prior to said commencement date, such occupancy shall be subject to all provisions of this LEASE, such occupancy shall not advance the termination date, and LESSEE shall pay rent for such period at the initial monthly rates set forth above. After a LEASE is fully executed, the LESSOR will provide access for LESSEE inspections (including but not limited to electrical and phone capabilities) and wiring in the Premises prior to LESSEE move in. 2.3 ACCEPTANCE OF LEASED PREMISES Except as may be provided for in any exhibit, appendix or rider hereto, occupancy shall be construed to mean that LESSEE expressly acknowledges that it has fully inspected the Leased Premises and accepts the Leased Premises in their present condition. LESSEE further acknowledges LESSOR shall not be responsible for any alternations, improvements or repairs unless by written agreement of the parties, attached to and made a part of this Lease. LESSOR INITIAL_____ LESSEE INITIAL_____ 3.1 RENT PAYMENT LESSEE shall pay the Base Rent for the Premises and any additional rent provided herein without deduction or offset. Rent for any partial month during the lease term shall be prorated to reflect the number of days during the month that LESSEE occupies the Premises based on a thirty (30) day month/365 day year. Rent not paid when due shall bear interest at the rate of one-and-one-half percent (1 1/2%) per month until paid in full. LESSOR may at its option impose a late charge of .05 for each $1 of rent or $50.00, whichever is greater, for rent payments made more than 10 days after its due date in lieu of interest for the first month of delinquency, without waiving any other remedies available for default. 4.1 LEASE CONSIDERATION Upon LESSEE'S execution of the LEASE, LESSEE shall pay the Base Rent for the first full month of the LEASE term for which rent is payable and in addition shall pay the sum of $18,850.00, as LEASE CONSIDERATION. LESSOR may apply the LEASE CONSIDERATION to pay the cost of performing any obligation which LESSEE fails to perform within the time required by this LEASE, but such application by LESSOR shall not be the exclusive remedy for the LESSEE'S default. If the LEASE CONSIDERATION is applied by LESSOR, LESSEE shall on demand pay the sum necessary to replenish the LEASE CONSIDERATION to its required amount. To the extent not applied by LESSOR to cure defaults by LESSEE, the LEASE CONSIDERATION shall be applied against the rent payable for the last month of the term. The LEASE CONSIDERATION shall not be refundable. When the Base Rent is adjusted per the terms of this LEASE, an additional amount shall be paid to bring the LEASE CONSIDERATION amount equal to the newly adjusted Base Rent amount. 5.1 USE LESSEE shall use the Premises for professional business office use only (see exception below) with no retail sales or manufacturing and for no other purpose without LESSOR'S consent. In connection with its use, LESSEE shall at its expense promptly comply with all applicable laws, ordinances, rules and regulations of any public authority and shall not annoy, obstruct, or interfere with the rights of the other tenants of the Building. LESSEE shall create no nuisance nor allow any objectionable fumes, noise, or vibrations to be emitted from the Premises. LESSEE shall not conduct any activities that will increase LESSOR'S insurance rates for any portion of the Building or that will in any manner degrade or damage the reputation of the Building. The LESSOR shall approve a "LESSEE test kitchen" in the Premises as long as; 1.) the "test kitchen" is in compliance and stays in compliance with all applicable building codes, fire codes and health codes, 2.) the "test kitchen" does not disturb other tenants in the building and 3.) the LESSOR approves the LESSOR INITIAL_____ LESSEE INITIAL_____ specifications for the "test kitchen". Approval shall not be unreasonably withheld. 6.1 EQUIPMENT LESSEE shall install in the Premises only such office equipment as is customary for general office use (see exception below) and shall not overload the weight capacity of the floors or the capacity of the electrical circuits of the Premises or Building or alter the plumbing or wiring of the Premises or Building. LESSOR must approve, in advance, the location and manner of installing any electrical, heat generating or communication equipment or exceptionally heavy articles. Any additional air conditioning required because of heat generating equipment or special lighting installed by the LESSEE shall be installed at LESSEE'S expense. The LESSOR shall approve a "LESSEE test kitchen equipment" in the Premises as long as; 1.) the "test kitchen equipment" is in compliance and stays in compliance with all applicable building codes, fire codes and health codes, 2.) the "test kitchen equipment" does not disturb other tenants in the building and 3.) the LESSOR approves the specifications of the "test kitchen equipment". Approval shall not be unreasonably withheld. 7.1 SIGNS Except for the exterior painted sign described below, no signs, awnings, antennas, or other apparatus shall be painted on or attached to the Building or anything placed on any glass or woodwork of the Premises or positioned so as to be visible from outside the Premises without LESSOR'S written approval as to design, size, location and color. All signs installed by LESSEE shall comply with LESSOR'S standards for signs and all applicable codes and ordinances and all signs and sign hardware shall be removed upon termination of this LEASE with the sign location restored to its former state unless LESSOR elects to retain all or any portion thereof. LESSOR shall provide and install building standard signage in the name of the LESSEE as it appears in this lease agreement for the building lobby and suite entry. Any changes thereafter requested by LESSEE and approved by LESSOR shall be at LESSEE'S sole expense. The LESSEE shall be permitted, at their expense, to paint the name "Wholesome & Hearty Foods, Inc." (color and letter style to be mutually agreed by LESSOR and LESSEE) directly above the existing building name on the North side of the building. The letter size shall be one-half the size of the existing building letters. The LESSEE shall be responsible for removing their signage at the end of their Lease term. 8.1 UTILITIES AND SERVICES LESSOR shall furnish heat, electricity, elevator service, and if the Premises are air conditioned, air conditioning during the normal Buildings hours of 7:00 A.M. to 6:00 P.M., Monday through Friday, except holidays and 7:00 A.M. to 2:00 P.M. Saturdays, except holidays. The acceptable temperature range for the Premises is between 67 degrees to 75 degrees fahrenheit, as measured from the thermostat level which is approximately sixty inches (60") above the floor, unless there are extreme weather conditions which create an unusually hot or cold condition. Janitorial service will be provided in accordance with the regular schedule of the Building, which schedule and service may change from time to time. LESSEE shall comply with all government laws and regulations regarding the use or reduction of use of utilities on the Premises. Interruption of services or utilities shall not be deemed an eviction or disturbance of LESSEE'S use and possession of the Premises, render LESSOR liable to LESSEE for damages, or relieve LESSEE from performance of LESSEE'S obligations under this LEASE, but LESSOR shall take all reasonable steps to correct any interruptions in service. Electrical service furnished will be 110 volts unless different service already exists in the Premises. The LESSOR shall only provide repair and maintenance to building standard florescent light fixtures. The LESSOR shall not be responsible for repair, maintenance (including light bulb replacement) for non-building standard light fixtures. 8.2 EXTRA USAGE If LESSEE uses excessive amounts of LESSOR provided utilities and/or services of any kind because of operation during normal Building hours and/or outside of normal Building hours, high demands from office machinery and equipment, nonstandard lighting or any other cause, LESSOR may impose a reasonable charge for supplying such extra utilities and/or services, which charge shall be payable monthly by LESSEE in conjunction with rent payments. In case of dispute over any extra charge under this paragraph, LESSOR shall designate a qualified independent engineer whose decision shall be conclusive on both parties. LESSOR and LESSEE shall each pay one-half of the cost of such determination. LESSEE shall be solely responsible for and promptly pay for the removal of all debris, cardboard, all and any other refuse generated in LESSEE'S moving into premises including the replacement of office furniture and equipment during tenancy and in vacating the premises. Upon request, LESSOR shall supply LESSEE the name of a recycling company to remove recyclable items. LESSEE shall pay such additional charge in full upon receipt of statement. 9.1 MAINTENANCE AND REPAIRS LESSOR shall have no liability for failure to perform required maintenance and repair unless written notice of the needed maintenance or repair is given by LESSEE and LESSOR fails to commence efforts to remedy the problem in a reasonable time and manner. LESSOR shall have the right to erect scaffolding and other apparatus necessary for the purpose of making repairs, and LESSOR shall have no LESSOR INITIAL_____ LESSEE INITIAL_____ liability for reasonable interference with LESSEE'S use because of repairs and installations, nor shall LESSOR be required to provide LESSEE with advance written notice of LESSOR'S access to the Premises during the following situations: 1.) in an emergency, 2.) LESSEE requested repairs, or 3.) during normal building hours. LESSEE shall have no claim against LESSOR for any interruption or reduction of services or interference with LESSEE'S occupancy, and no such interruption or reduction shall be construed as a constructive or other eviction of LESSEE. Repair of damage caused by negligent or intentional acts or breach of this lease by LESSEE, its employees, or invitees shall be at LESSEE'S expense. 10.1 ALTERATIONS LESSEE shall not make any alterations, additions, or improvements to the Premises, change the color or character of the interior, or install any wall or floor covering without LESSOR'S prior written consent. Any such additions, alterations, or improvements, except for removable machinery and unattached moveable trade fixtures shall at once become part of the realty and belong to LESSOR. LESSOR may at its option require that LESSEE remove any alterations and restore the Premises to the original condition upon termination of this LEASE. LESSOR shall have the right to approve the contractor used by LESSEE for any work in the Premises, and to post notices of nonresponsibility in connection with any work being performed by LESSEE in the Premises. LESSEE agrees that any building or fixture modifications within the LESSEE'S leased space that is required to accommodate the LESSEE, employees or invitees of the LESSEE, as required by the Americans with Disabilities Act (ADA), will be at the expense of the LESSEE. The LESSEE shall not alter any lock or install a new or additional lock or any bolt on any bolt on any door of the Leased Premises without prior written consent of the LESSOR. In the event LESSEE desires to change or modify door locks on the Leased Premises, LESSEE shall notify LESSOR in advance and shall use LESSOR'S authorized locksmith and LESSEE shall bear such cost. 11.1 INDEMNITY LESSEE shall not allow any liens to attach to the Building or LESSEE'S interest in the Premises as a result of its activities. LESSEE shall indemnify and defend LESSOR from any claim, liability, damage, or loss occurring on the Premises, arising out of any activity by LESSEE, its agents, or invitees or resulting from LESSEE'S failure to comply with any term or condition of this LEASE. LESSOR shall have no liability to LESSEE because of loss or damage caused by the acts or omissions of other tenants of the Building, or by third parties. 12.1 INSURANCE LESSOR INITIAL_____ LESSEE INITIAL_____ LESSEE shall carry liability insurance in the amount of no less than $1,000,000.00 and which insurance shall have an endorsement naming LESSOR and LESSOR'S agent, if any, as an additional insured and covering the liability insured under Paragraph 11.1 of this LEASE. LESSEE shall furnish a certificate evidencing such insurance which shall state that the coverage shall not be cancelled or materially changed without 10 days advance written notice to LESSOR and LESSOR'S agent, if any, and a renewal certificate shall be furnished at least 10 days prior to expiration of any policy. LESSEE is responsible for their own fire insurance, see Section 14.1. 13.1 FIRE OR CASUALTY "Major Damage" means damage by fire or other casualty to the Building or the Premises which causes the Premises or any substantial portion of the Building to be unusable, or which will cost more than 25 percent (25%) of pre-damage value of the Building to repair, or which is not covered by insurance. In case of Major Damage, LESSOR may elect to terminate this LEASE by notice in writing to LESSEE within 30 days after such date. If this LEASE is not terminated following Major Damage, LESSOR shall promptly restore the Premises to the condition existing just prior to the damage. LESSEE shall promptly restore all damage to tenant improvements or alterations installed by LESSEE or pay the cost of such restoration to LESSOR if LESSOR elects to do the restoration of such improvements. Rent shall be reduced from the date of damage until the date restoration work being performed by LESSOR is substantially complete, with the reduction to be in proportion to the area of the Premises not useable by LESSEE. 14.1 WAIVER OF SUBROGATION LESSEE shall be responsible for insuring its personal property and trade fixtures located on the Premises. Neither LESSOR nor LESSEE shall be liable to the other for any loss or damage caused by fire, water damage, sprinkler leakage, or any of the risks that are or could be covered by a standard all risk insurance policy with an extended coverage endorsement, or for any business interruption, and there shall be no subrogated claim by one party's insurance carrier against the other party arising out of any such loss. 15.1 EMINENT DOMAIN If a condemning authority takes title by eminent domain or by agreement in lieu thereof to the entire Building or a portion sufficient to render the Premises unsuitable for LESSEE'S use, then either party may elect to terminate this LEASE effective on the date that possession is taken by the condemning authority. Rent shall be reduced for the remainder of the term in an amount proportionate to the reduction in the area of the Premises caused by the taking. All condemnation proceeds shall belong to LESSOR, and LESSEE shall have LESSOR INITIAL_____ LESSEE INITIAL_____ no claim against LESSOR or the condemnation award because of the taking. 16.1 ASSIGNMENT AND SUBLETTING This LEASE shall bind and inure to the benefit of the parties, their respective heirs, successors, and assigns, provided that LESSEE shall not assign its interest under this LEASE or sublet all or any portion of the Premises without first obtaining LESSOR'S consent in writing. This provision shall apply to all transfers by operation of law including but not limited to mergers and changes in control of LESSEE. No assignment or subletting shall relieve LESSEE of its obligation to pay rent or perform other obligations required by this LEASE, and no consent to one assignment or subletting shall be a consent to any further assignment or subletting. LESSOR shall not unreasonably withhold its consent to any assignment, or to subletting provided the subrental rate or effective rental paid by the assignee is not less than the current scheduled rental rate of the Building for comparable space and the proposed LESSEE is compatible with LESSOR'S normal standards for the Building. If LESSEE proposes a subletting or assignment to which LESSOR is required to consent under this paragraph, LESSOR shall have the option of terminating this LEASE and dealing directly with the proposed sublessee or assignee, or any third party. If an assignment or subletting is permitted, any cash profit, or the net value of any other consideration received by LESSEE as a result of such transaction shall be paid to LESSOR promptly following its receipt by LESSEE unless the assignment or sublease is with an affiliated or subsidiary company and Wholesome & Hearty Foods, Inc. an Oregon Corporation remains the LESSEE. In addition, out of pocket LESSEE tenant improvement costs approved by LESSOR shall be deducted from any cash profit. LESSEE shall pay any costs incurred by LESSOR in connection with a request for assignment or subletting, including reasonable attorneys' fees. The LESSOR'S administrative costs shall be capped at $500.00. 17.1 DEFAULT Any of the following shall constitute a default by LESSEE under this LEASE: (a) LESSEE'S failure to pay rent or any other charge under this LEASE within 10 days after it is due, or failure to comply with any other term or condition within 10 days following written notice from LESSOR specifying the noncompliance. If such noncompliance cannot be cured within this 10 day period, the provision shall be satisfied if LESSEE commences correction within such period and thereafter proceeds in good faith and with reasonable diligence to effect compliance as soon as possible. Time is of the essence in the performance of this LEASE. LESSOR INITIAL_____ LESSEE INITIAL_____ (b) The making by LESSEE of any general assignment or general arrangement for the benefit of creditors; or the filing by or against LESSEE of a petition to have LESSEE adjudged a bankrupt, or a petition or reorganization or arrangement under any law relating to bankruptcy (unless, in the case of a petition filed against LESSEE, the same is dismissed within sixty (60) days); or the appointment of a trustee or a receiver to take possession of substantially of all LESSEE'S assets located at the Premises or of LESSEE'S interest in this Lease, where possession is not restored to LESSEE within thirty (30) days; or the attachment, execution, or other judicial seizure of substantially all of LESSEE'S assets located at the Premises or of LESSEE'S interest in this Lease, where such seizure is not discharged within thirty (30) days. (c) Assignment or subletting by LESSEE in violation of Paragraph 16.1. (d) Vacation or abandonment of the Premises without the written consent of LESSOR. 17.2 REMEDIES FOR DEFAULT In case of default as described in Paragraph 17.1, LESSOR shall have the right to the following remedies which are intended to be cumulative and in addition to any other remedies provided under applicable law: (a) LESSOR may terminate the LEASE and retake possession of the Premises. Following such retaking of possession, efforts by LESSOR to relet the Premises shall be sufficient if LESSOR follows its usual procedure for finding tenants for the space at rates not less than the current rates for other comparable space in the Building. If LESSOR has other vacant space in the Building, prospective tenants may be placed in such other space without prejudice to LESSOR'S claim to damages or loss of rental from LESSEE. (b) LESSOR may recover all damages caused by LESSEE'S default which shall include an amount equal to rentals lost because of the default, lease commissions paid for this LEASE, the unamortized cost of any tenant improvements installed by LESSOR to meet LESSEE'S special requirements and the cost of any clean up, refurbishing, lock changes and removal of the LESSEE'S property and fixtures. LESSOR may sue periodically to recover damages as they occur throughout the lease term, and no action for accrued damages shall bar a later action for damages subsequently accruing. LESSOR may elect in any one action to recover accrued damages plus damages attributable to the remaining term of the lease. Such damages shall be measured by the difference between the rent under this LEASE and the reasonable rental value of the Premises for the remainder of the term, discounted to the time of judgment at the prevailing interest rates on judgments. LESSOR INITIAL_____ LESSEE INITIAL_____ (c) LESSOR may make any payment or perform any obligation which LESSEE has failed to perform, in which case LESSOR shall be entitled to recover from LESSEE upon demand all amounts so expended, plus interest from the date of the expenditure at the rate of one-and-one- half percent (1 1/2%) per month. Any such payment or performance by LESSOR shall not waive LESSEE'S default. 18.1 SURRENDER On expiration or early termination of this LEASE, LESSEE shall deliver all keys to LESSOR to avoid a minimum lock change charge of $80.00 per lock and surrender the Premises broom clean and in the same condition as at the commencement date of the term subject only to reasonable wear from ordinary use. LESSEE shall remove all of its furnishings and trade fixtures that remain its property and restore all damage resulting from such removal. Failure to remove shall be an abandonment of the property and LESSOR may dispose of it in any manner without liability and LESSEE shall pay a reasonable charge for such removal and disposal. If LESSEE fails to vacate the Premises when required, including failure to remove all its personal property, LESSOR may elect either: (1) to treat LESSEE as a tenant from month to month, subject to all the provisions of this LEASE except that rent shall be one-and-one-half (1 1/2) times the total rent being charged when the lease term expired; or (2) to eject LESSEE from the Premises and recover damages caused by wrongful holdover. During the period of sixty (60) days prior to the termination date of this LEASE, the LESSOR may post on said premises or in the windows thereof signs of appropriate size notifying the public that the premises are "For Lease." 19.1 REGULATIONS LESSOR shall have the right (but shall not be obligated) to make, revise and enforce regulations or policies consistent with this LEASE for the purpose of promoting safety, order, economy, cleanliness, and good service to all tenants of the Building. All such regulations and policies shall be complied with as if part of this LEASE. 20.1 ACCESS During times other than normal Building hours LESSEE'S officers and employees or those having business with LESSEE may be required to identify themselves or show passes in order to gain access to the Building. LESSOR shall have no liability for permitting or refusing to permit access by anyone. The LESSOR shall not be required to give notice to access the Premises during emergencies, LESSEE requested repairs or during normal building hours. LESSOR shall have the right to enter upon the Premises after normal building hours by passkey or otherwise to determine LESSEE'S compliance with this LEASE, to perform necessary repairs to the Building or the Premises, examine the condition of the Leased Space, to show the Premises to any prospective tenant or purchasers or for any other lawful purpose with at least 24 hours notice. Except in the case of emergency, such entry shall be at such times and in such manner as to minimize LESSOR INITIAL_____ LESSEE INITIAL_____ interference with the reasonable business use of the Premises by LESSEE. 21.1 FURNITURE AND BULKY ARTICLES LESSEE shall move furniture and bulky articles in and out of the Building or make independent use of the elevators only at times approved by LESSOR following at least 24 hours' advance written notice to LESSOR of the intended move. LESSOR will not unreasonably withhold its consent under this paragraph. Items of 1,000 pounds or greater shall require LESSOR'S approval. 22.1 NOTICES Notices between the parties relating to this LEASE shall be in writing, effective when delivered, or if mailed, effective on the second day following mailing, postage prepaid, to the address for the party stated in this LEASE or to such other address as either party may specify by written notice to the other. Notice to LESSEE may always be delivered to the Premises. Rent shall be payable to LESSOR at the LESSOR'S address and in the same manner, but shall be considered paid only when received. 23.1 SUBORDINATION This LEASE shall be subject and subordinate to any mortgages, deeds of trust, or land sale contracts (hereafter collectively referred to as encumbrances) now existing against the Building. At LESSOR'S option this LEASE shall be subject and subordinate to any future encumbrance hereafter placed against the Building (including the underlying land) or any modifications of existing encumbrances, and LESSEE shall execute such documents as may reasonably be requested by LESSOR or the holder of the encumbrance to evidence this subordination. 24.1 TRANSFER OF BUILDING If the Building is sold or otherwise transferred by LESSOR or any successor, LESSEE shall attorn to the purchaser or transferee and recognize it as the LESSOR under this LEASE, and, provided the purchaser assumes all obligations hereunder, the transferor shall have no further liability hereunder. 25.1 ESTOPPELS Either party will within 20 days after written notice from the other execute, acknowledge and deliver to the other party a certificate certifying whether or not this LEASE has been modified and is in full force and effect; whether there are any modifications or alleged breaches by any other party; the dates to which rent has been paid in advance, and the amount of any security deposit, LEASE CONSIDERATION, or prepaid rent; and any other facts that may reasonably be requested. Failure to deliver the certificate within the specified time shall be conclusive upon the party of whom the LESSOR INITIAL_____ LESSEE INITIAL_____ certificate was requested that the lease is in full force and effect and has not been modified except as may be represented by the party requesting the certificate. If requested by the holder of any Encumbrance, or any ground, LESSOR, LESSEE will agree to give such holder or LESSOR notice of and an opportunity to cure any default by LESSOR under this LEASE. 26.1 ATTORNEYS FEES In any litigation arising out of this LEASE, the prevailing party shall be entitled to recover, in addition to costs and disbursements, attorneys' fees at trial and on any appeal. 27.1 QUIET ENJOYMENT LESSOR warrants that so long as LESSEE complies with all terms of this LEASE, it shall be entitled to peaceable and undisturbed possession of the Premises free from any eviction or disturbance by LESSOR. 28.1 COMPLETE AGREEMENT This LEASE and the attached Exhibits and Schedules constitute the entire agreement of the parties and supersede all prior written and oral agreements and representations. Neither LESSOR nor LESSEE is relying on any representations other than those expressly set forth herein. 29.1 CHAIR MATS N/A DELETED IN ITS ENTIRETY 30.1 PARKING LESSEE shall have the nonexclusive use of no less than eighteen (18) spaces for every 18,850 square feet of leased space in the adjacent lot for use during normal business hours at an initial monthly rate of $85.00 per space and shall be subject to Provision #3.1. The cost shall be subject to an annual five percent (5%) fixed increase. LESSOR has sole control of parking and may designate areas for patrons of the property/building and assign LESSEE and employees of the LESSEE to designated parking areas. LESSEE and employees shall park their cars only in these areas designated for the purpose by the LESSOR. LESSEE shall furnish to LESSOR license numbers of vehicles used by the LESSEE and the employees of the LESSEE, and notify LESSOR of any changes within five (5) days. If LESSEE or its employees fail to park their vehicles in designated parking areas, then LESSOR may charge LESSEE an additional twenty dollars ($20.00) LESSOR INITIAL_____ LESSEE INITIAL_____ per day per vehicle for each or partial day, in any area other than those designated, or if the area is signed as a towing area, to have the vehicle(s) towed at the LESSOR'S option and at the expense of the LESSEE and its employees. The LESSEE shall be allowed to have up to eight (8) cars parked in the adjacent lot evenings and on weekends on a first come first serve basis. There shall be no overnight storage of vehicles or trailers in the parking areas or outside of premises. LESSOR may remove vehicle from property and LESSEE shall bear the cost of such removal. The LESSEE acknowledges that the adjacent parking lot may be developed at which time the LESSOR will not be responsible for providing the eighteen (18) parking spaces described above. In this event, the LESSOR will make its best efforts to find parking within a four (4) block radius of the building. The LESSEE shall be allowed to use the loading area off of 15th Street for daily deliveries. The LESSEE agrees to limit delivery/loading time to 15 minutes per delivery. 31.1 COMMON AREA LESSOR shall have the right, in LESSOR'S sole discretion, from time to time: 1.) To make changes to the building interior and exterior and common areas, including, without limitation, changes in the location, size, shape, number, and appearance thereof, including but not limited to the lobbies, windows, stairways, air shafts, elevators, escalators, restrooms, driveways, entrances, parking spaces, parking areas (not including adjacent parking), loading and unloading areas, ingress, egress, direction of traffic, decorative walls, landscaped areas and walkways; 2.) To close temporarily any of the common areas for maintenance purposes so long as reasonable access to the premises remains available; 3.) To designate other land and improvements outside the boundaries of the building to be a part of the common areas, provided that such other land and improvements have a reasonable and functional relationship to the building; 4.) To add additional buildings and improvements to the common area; 5.) To use common areas while engaged in making additional improvements, repairs or alterations to the building, or any portion thereof; 6.) To do and perform such other acts and make such other changes in, to or with respect to the common areas and building as LESSOR may, in the exercise of sound business judgement deem to be appropriate. LESSOR INITIAL_____ LESSEE INITIAL_____ Where the Building has a common entrance or meeting room, the LESSEE may use these facilities at no cost on a first-come, first- serve basis by contacting the LESSOR and reserving the room in advance. Abusing the privilege of the rooms may result in the loss of said use. 32.1 NOTICE OF NON-RENEWAL N/A DELETED IN ITS ENTIRETY 33.1 NOTICE TO OWNERS, BUYERS, AND TENANTS REGARDING HAZARDOUS WASTES OR SUBSTANCES UNDERGROUND STORAGE TANKS Comprehensive Federal and State laws and regulations have been enacted in the last few years in an effort to develop controls over the use, storage, handling, cleanup, removal and disposal of hazardous wastes or substances. Some of these laws and regulations, such as, for example, the so-called "Superfund Act", provide for broad liability schemes wherein an owner, tenant or other user of the property may be liable for cleanup costs and damages regardless of fault. Other laws and regulations set standards for the handling of asbestos or establish requirements for the use, modification, abandonment or closing of underground storage tanks. It is not practical or possible to list all such laws and regulations in this Notice. Therefore, owners, buyers and tenants are urged to consult legal counsel to determine their respective rights and liabilities with respect to the issues described in this Notice as well as all other aspects of the proposed transaction. If LESSOR INITIAL_____ LESSEE INITIAL_____ hazardous wastes or substances have been, or are going to be used, stored, handled or disposed of on the property, or if the property has or may have underground storage tanks, it is essential that legal and technical advice be obtained to determine, among other things, what permits and approvals have been or may be required, if any, the estimated costs and expenses associated with the use, storage, handling, cleanup, removal or disposal of the hazardous wastes or substances and what contractual provisions and protections are necessary or desirable. It may also be important to obtain expert assistance for site investigations as to the likelihood of hazardous wastes or substances, or underground storage tanks being on the property. Although AMERICAN PROPERTY MANAGEMENT CORP. will disclose any knowledge it actually possesses with respect to the existence of hazardous wastes or substances, or underground storage tanks on the property, AMERICAN PROPERTY MANAGEMENT CORP. has not made investigations or obtained reports regarding the subject matter of this Notice, except as may be described in a separate written document signed by AMERICAN PROPERTY MANAGEMENT CORP. AMERICAN PROPERTY MANAGEMENT CORP. makes no representations regarding the existence or nonexistence of hazardous wastes or substances, or underground storage tanks on the property. You should contact a professional, such as a civil engineer, geologist, industrial hygienist or other persons with experience in these matters to advise you concerning the property. The term "hazardous wastes or substances" is used in this Notice in its very broadest sense and includes, but is not limited to petroleum base products, paints and solvents, lead cyanide, DDT, printing inks, acids, pesticides, ammonium compounds, asbestos, PCBs and other chemical products. Hazardous wastes or substances and underground storage tanks may be present on all types of real property. This Notice is therefore meant to apply to any transaction involving any type of real property, whether improved or unimproved. 34.1 MODIFICATION This LEASE may not be modified except by endorsement in writing attached to this LEASE, dated and signed by all the parties hereto, and LESSOR shall not be bound by any oral or written statement of any servant, agent, or employee modifying this LEASE. 35.1 PARTIES AFFECTED The rights, liabilities and remedies provided for herein shall extend to the heirs, legal representatives, successors and, so far as the terms of this LEASE permit, assigns of the parties hereto, and the words "LESSOR" and "LESSEE" and their accompanying verbs or pronouns, wherever used in this LEASE, shall apply equally to all persons, firms, or corporations which may be or become parties hereto. LESSOR INITIAL_____ LESSEE INITIAL_____ 36.1 SECURITY LESSEE and not LESSOR, is responsible for security of the Leased Space. Any breach in security of the Leased Space, common areas, common access doors, and/or elevators shall not constitute an eviction of the LESSEE or relieve LESSEE from any of LESSEE'S obligations under this LEASE. All tenants shall have the responsibility for maintaining the security to common access. 37.1 RIGHT TO RELOCATE N/A DELETED IN ITS ENTIRETY 38.1 RENTAL ADJUSTMENT The rental will be adjusted on the annual anniversary date of the LEASE if the LEASE is for a term of one (1) year or longer. On said anniversary date the rental adjustment will be the lowest of the following two (2) factors: (A) A five percent (5%) increase over the yearly rental rate paid the current year term now expiring. (B) The percentage increase in the yearly Consumer Price Index for U.S. City average (all urban consumer), which as of August 1996 was 157.3 and the same Consumer Price Index as of August 1997, and on the same month of each year of the LEASE term. Such information will be secured from the U.S. Bureau of Labor Statistics. An equal amount shall be paid to bring the LEASE CONSIDERATION up to an equal amount of the current month's rent. 38.2 RENTAL ADJUSTMENT DATES December 1, 1997 December 1, 1998 LESSOR INITIAL_____ LESSEE INITIAL_____ 39.1 SMOKING - ENTIRE NON-SMOKING BUILDING The building in which the LEASED space is located has been designated as an entire NON-SMOKING building. This includes ALL areas of the building, both common areas as well as individual tenant spaces. Thus, smoking in the LEASED area is not permitted. Because of the fact that some tenants' leases were in existence prior to the adoption of the entire building non-smoking policy, these tenants have the right, if they choose, to smoke in their LEASED space only, but do have a LEASE obligation to provide smokeless ashtrays and/or an air purification system that will filter air within the space to the extent that it is economically feasible. LEASES for all new tenants moving into the building will incorporate the entire non-smoking building policy and will prohibit these new tenants under their LEASE from smoking in all areas of the building. 40.1 WAIVER Any waiver by the LESSOR of any breach of any covenant herein contained to be kept and performed by the LESSEE shall not be deemed or considered as a continuing waiver, and shall not operate to bar or prevent the LESSOR from declaring a forfeiture for any succeeding breach, either of the same condition or covenant otherwise. 41.1 PERSONAL GUARANTY See Exhibit "A" X None Required ---------- 42.1 INTERIOR DESIGN & MODIFICATION See Exhibit "B" Space Plan 43.1 LESSOR AGREED TENANT IMPROVEMENTS See Exhibit "C" Interior Space Work Agreement 44.1 LESSEE AGREED IMPROVEMENTS See Exhibit "D" X None Required ----------- LESSOR INITIAL_____ LESSEE INITIAL_____ 45.1 TELEPHONES LESSEE agrees, at its expense, to provide telephone wiring into each individual office of the premises and appropriate common areas. LESSEE agrees that LESSOR shall not be liable for any damages or other liability incurred by LESSEE or any other parties as a result of LESSEE'S wiring the premises for telephones. LESSEE further agrees to indemnify and hold harmless LESSOR from any and all liability or claims of LESSEE or others arising or resulting from LESSEE'S wiring of the premises for telephones. 46.1 TIME IS OF THE ESSENCE LESSOR and LESSEE acknowledge that time is of the essence in the execution of this Lease Agreement in order to allow LESSOR adequate time to complete the agreed upon Tenant Improvements. If the Lease Agreement is not signed, returned (with Lease Consideration and prepaid rent) and accepted by the LESSOR by October 22, 1996, then LESSEE understands that the Tenant Improvements described in Exhibit "B" Space Plan and Exhibit "C" Interior Space Work Agreement may not be completed by the Lease Commencement date and LESSEE shall not take possession of premises until said Tenant Improvements are completed. 47.1 RENT CONCESSION The LESSEE shall receive a rental credit equal to $18,850.00, which shall be applied to January 1997 rent only. 48.1 EXPIRATION OF OFFER This offer to lease shall be null and void at the sole option of the LESSOR if not returned to LESSOR signed by LESSEE in an acceptable form to LESSOR and accompanied by appropriate funds by October 29, 1996. 49.1 OPTION TO RENEW LESSEE shall be entitled to one (1) option to renew this Lease Agreement for a term of not less than two (2) years commencing after the initial lease term expiration under terms and conditions to be mutually agreed to with a new Lease Agreement fully executed by LESSOR and LESSEE no later than August 1, 1998. If no mutual agreement can be made between LESSOR and LESSEE on or before August 1, 1998, this option to renew shall be null and void. (a) LESSEE shall have no right to exercise an Option, notwithstanding any provision in the grant of Option to the contrary; (i) during the period commencing with the giving of any notice of Default under LESSOR INITIAL_____ LESSEE INITIAL_____ Section 17.1 and continuing until the noticed Default is cured, or (ii) during the period of time any monetary obligation due LESSOR from LESSEE is unpaid (without regard to whether notice thereof is given to LESSEE), or (iii) during the time LESSEE is in Breach of this Lease, or (iv) in the event the LESSOR has given to LESSEE three (3) or more notices of separate Defaults during the twelve (12) month period immediately preceding the exercise of the Option, whether or not the defaults are cured. (b) The Option granted to LESSEE in this Lease is personal to the original LESSEE named on Page 1 hereof and cannot be voluntarily or involuntarily assigned or exercised by any person or entity other than said original LESSEE while the original LESSEE is in full and actual possession of the Premises and without the intention of thereafter assigning or subletting. The Option herein granted to LESSEE is not assignable, either as a part of an assignment of this Lease or separately or apart therefrom, and no Option may be separated from this Lease in any manner, by reservation or otherwise. In construing of this LEASE, it is understood that the LESSOR or the LESSEE may be more than one person; that if the context so requires, the singular pronoun shall be taken to mean and include the plural, the masculine, the feminine, and the neuter, and that generally all grammatical changes shall be made, assumed and implied to make the provisions hereof apply equally to corporations and to individuals. IN WITNESS WHEREOF, the respective parties have executed this instrument in duplicate on this, the day and year first hereinabove written, any corporation signature being by authority of its Board of Directors. LESSOR: By:________________________________ AMERICAN PROPERTY MANAGEMENT CORP. Name: Rhonda J. Tschida AS AGENT FOR AND ON BEHALF OF WESTON HOLDING COMPANY, L.L.C. (Federal Tax ID# 93-1173413*) Title: Vice President Commercial Property *Lessee need not supply Lessor a Federal 1099 Form Address for Notices: P.O. Box 12127 Portland, Oregon 97212-0127 LESSOR INITIAL_____ LESSEE INITIAL_____ 2154 N.E. Broadway, #200 Portland, Oregon 97232-1561 DATE:______________________________ LESSEE: WHOLESOME & HEARTY FOODS, INC. AN OREGON CORPORATION By: _______________________________ Name: ______________________________ Address for Notices: 1411 S.W. Morrison Street Title:_____________________________ Suite 400 Portland, Oregon 97205 DATE:______________________________ NOTARY: STATE OF _________________) ) ss. County of __________________) The foregoing instrument was acknowledged before me this _____ day of _______________, 19___, by the above-named_________________________________ ___________________________________________________________________________ to be his/her voluntary act and deed. ___________________________________ Notary Public for _________________ My Commission Expires:_____________ EXHIBIT "B" SPACE PLAN WHOLESOME & HEARTY FOODS, INC. an Oregon Corporation 1411 S.W. Morrison Street Suite 400 Portland, Oregon 97205 Account #C-8923-02 LESSOR INITIAL_____ LESSEE INITIAL_____ ANY CHANGES TO THIS EXHIBIT "B" SPACE PLAN ARE SUBJECT TO LESSOR'S APPROVAL. ANY CHANGES TO THIS PLAN SHALL BE AT LESSEE'S SOLE COST AND EXPENSE, SHALL NOT DELAY LEASE COMMENCEMENT, AND MAY DELAY LESSEE'S OCCUPANCY. EXHIBIT "C" INTERIOR SPACE WORK AGREEMENT LESSEE: WHOLESOME & HEARTY FOODS, INC. an Oregon Corporation ACCOUNT #:C-8923-02 BUILDING/SUITE #: Morrison Plaza/400
ACCEPTED AGREED LESSOR LESSEE ITEM AS-IS IMPROVEMENTS EXPENSE EXPENSE - ---------------------------------------------------------------------------------------------------- PAINTING: ------- Repaint the premises. Color to be Weston X ------- (Building Standard Color) ------- White. Existing wall cover to remain "as-is". FLOORCOVERING: X NONE (Building Standard Carpet ------- ------ Color/Cove Base Color) VINYL FLOORCOVERING: X NONE (Building Standard Vinyl) ------- ------ ------- LESSOR INITIAL_____ LESSEE INITIAL_____ LIGHTING: X NONE (Building Standard Fixtures) ----- ---------- ELECTRICAL: X NONE (Building Standard 110 Volt) ----- ---------- CEILING: X NONE (Building Standard ----- ---------- Acoustical Tile) PARTITIONS: X NONE (Building Standard Sheetrock) ----- ---------- DOORS/FRAMES ----- The Lessor shall provide one six foot sliding glass X (Building Standard Quality) ----- door where indicated on Exhibit "B" Space Plan as long as a six foot opening can be made and nothing in the said opening needs to be relocated (ie; plumbing, conduits, vents, etc.). LOCKS/HARDWARE ----- All interior doors are to be supplied X (Building Standard Quality) ----- with passage door knobs only (no locks). ------- RELIGHTS: X NONE (Building Standard Interior) ----- ----------- WINDOWCOVERING: X NONE (Building Standard Exterior) ----- ----------- TELEPHONE: X NONE (Building Standard Mud Rings) ----- ----------- PLUMBING: X NONE ----- ----------- OTHER: NONE
If LESSEE is modifying their existing space layout, or expanding their leased premises it is understood and agreed that all work will be performed during normal business hours and will not be deemed as an interruption of LESSEE'S business and that AMERICAN PROPERTY MANAGEMENT CORP. assumes no liability for damage to any existing hidden electrical located in the walls, ceiling and/or floors (i.e., electrical for phones, fax, computers, office equipment, etc.) that is not indicated on this agreement and brought to the attention of AMERICAN PROPERTY MANAGEMENT CORP. prior to the office remodel or is not equipped with an appropriate power surge protection device. EX-10.(I) 3 EXHIBIT 10(I) EXHIBIT 10i EMPLOYMENT AGREEMENT DATE: April 14, 1996 PARTIES: WHOLESOME & HEARTY FOODS, INC. (the "Company") 975 S.E. Sandy Boulevard, Suite 201 Portland, OR 97214 LYLE G. HUBBARD ("Employee") 1959 North Burling Street Chicago, IL 60614 RECITAL: The Company is engaged in the business of manufacturing and selling food products. The Company desires to employ and retain the unique experience, abilities, and services of Employee as its Chief Executive Officer. AGREEMENT: The parties agree as follows: SECTION 1. EMPLOYMENT 1.1 TERM. The Company agrees to employ Employee as its Chief Executive Officer for a term of three years, commencing on April 14, 1996, and terminating on April 13, 1999, or until an earlier termination in accordance with Section 5. The Board of Directors of the Company shall review Employee's performance within 60 days of the end of the second year of the employment term and, in the event this Agreement is extended at the end of the second year, within 60 days of the end of each subsequent one-year period thereafter. After completing each such review, the Board of Directors may elect, in its sole and absolute discretion, to extend this Agreement for an additional one-year period. For example, at the conclusion of the second year of the employment term, the Board of Directors may elect to extend the term of this Agreement until April 13, 2000. The Board of Directors shall promptly notify Employee, after completing each such review, whether the Board of Directors elects to extend this Agreement for an additional one-year term. The Board of Directors shall be under no obligation to extend the term of this Agreement, either at the end of the second year of the employment term, or at the end of any subsequent one-year period thereafter, and no extension shall be valid and binding unless set forth in writing and signed by both parties. 1.2 DUTIES. Employee accepts employment with the Company on the terms and conditions set forth in this Agreement, and agrees to devote his full time and attention (reasonable periods of illness excepted) to the performance of his duties under this Agreement. In general, Employee shall perform such duties as are customarily performed by a chief executive officer of a publicly held company engaged in a business similar to the Company's business. Employee shall perform such specific duties and shall exercise such specific authority as may be assigned to Employee from time to time by the Board of Directors of the Company. In performing such Page 1 - EMPLOYMENT AGREEMENT duties, Employee shall be subject to the direction and control of the Board of Directors of the Company. Employee further agrees that in all aspects of such employment, Employee shall comply with the instructions, policies, and rules of the Company established from time to time, and shall perform his duties faithfully, intelligently, to the best of his ability, and in the best interest of the Company. Employee shall serve as an officer of the Company without additional compensation if so requested. The devotion of reasonable periods of time by Employee for personal purposes, outside business activities, or charitable activities shall not be deemed a breach of this Agreement, provided that such purposes or activities do not materially interfere with the services required to be rendered to or on behalf of the Company. SECTION 2. COMPENSATION 2.1 BASE COMPENSATION. In consideration of all services to be rendered by Employee to the Company, the Company shall pay to Employee a base compensation of $225,000 per year, payable in equal biweekly installments. The Board of Directors shall formally review Employee's base compensation in February, 1997 and, in the event the Board of Directors, in its sole and absolute discretion, decides to increase such base compensation, such increase shall be made retroactively effective to January 1, 1997. 2.2 BONUS COMPENSATION. The Board of Directors recognizes that the success of the Company is based on the collective efforts of all of its employees. The Board of Directors has approved the concept of a success sharing plan, whereby management would establish, subject to approval of the Board of Directors, annual performance and financial targets in three areas, namely Net Sales, Income Before Provision For Income Taxes As Percentage of Net Sales (hereinafter referred to as "PBT"), and after-tax percent return on equity (hereinafter referred to as "ROE"), and employee bonuses would be awarded based on the Company's success in achieving such targets. The Board of Directors of the Company is willing to consider input from Employee in refining the success sharing plan, provided, however, the Board of Directors shall retain sole and absolute discretion and control over the final form of such plan. Employee shall be entitled to participate in the success sharing plan, as established and amended from time to time by the Board of Directors, the same as any other employee of the Company in 1996 and 1997 and, in the event this Agreement is extended, during the term of any extensions. Management has established the following targets for Net Sales, PBT and ROE for calendar year 1996 and the Company shall pay Employee a bonus in each such category, based on the Company's highest level of achievement within the category, if the Company achieves such targets in 1996: 1996 % x 33% of Non-Cumulative Achievement Targets Base Compensation Bonus Amounts - ------------------- ----------------- ------------- Net Sales --------- Less than $50 MM -0- -0- $50MM to less than $54 MM 30% x $74,925 $22,478 $54MM to less than $58 MM 40% x 74,925 29,970 $58MM or greater 60% x 74,925 44,955 Page 2 - EMPLOYMENT AGREEMENT Income Before Provision For Income Taxes As Percentage of Net Sales - -------------------------- PBT of 10% x Net Sales 30% x $74,925 $22,478 PBT of 12% x Net Sales 40% x 74,925 29,970 PBT of 14% x Net Sales 60% x 74,925 44,955 Percent Return On Equity - -------------- ROE of 12% 30% x $74,925 $22,478 ROE of 16% 40% x 74,925 29,970 ROE of 18.5% 60% x 74,925 44,955 The foregoing bonuses within each objective category are NOT cumulative and, in the event the Company is successful in achieving more than one level of achievement within any one category, the Company shall only be obligated to pay Employee a bonus based on the highest level of achievement. The Company's accountants shall, as soon as reasonably practical after December 31, 1996, determine the Company's Net Sales, PBT and ROE for calendar year 1996, which determination shall be based on the figures set forth by the Company in its 1996 Annual Report to Shareholders and shall be final and binding on all parties. The Company shall, in the event Employee is entitled to any bonuses for 1996 based on the foregoing schedule, pay the same to Employee within 30 days of receipt of the accountants' final determination of Net Sales, PBT and ROE. 2.3 NONSTATUTORY STOCK OPTIONS. The Company granted Employee the following nonstatutory stock options under the Company's 1992 First Amended and Restated Combination Stock Option Plan (the "Plan") on April 14, 1996, the date of commencement of Employee's employment: 2.3.1. The Company granted Employee a nonstatutory stock option to purchase 300,000 shares of the Company's common stock at an exercise price of $8.69 per share. The terms and conditions of such nonstatutory stock option are set forth in the Nonstatutory Stock Option Agreement attached as Exhibit 1, which the parties shall execute contemporaneously with the execution of this Agreement. 2.3.2. The Company granted Employee a nonstatutory stock option to purchase 150,000 shares of the Company's common stock at an exercise price of $8.69 per share. The terms and conditions of such nonstatutory stock options are set forth in the Nonstatutory Stock Option Agreement attached as Exhibit 2, which the parties shall execute contemporaneously with the execution of this Agreement. 2.4 RELOCATION EXPENSES. The Company shall pay Employee a lump sum of $180,000 upon mutual execution of this Agreement to be used by Employee, in Employee's sole discretion, to cover relocation-related expenses, including but not limited to temporary housing, air transportation, real estate transaction costs, and household moving expenses. Employee acknowledges that this lump sum payment is a grossed-up amount and includes reimbursement to Employee for the tax liability that Employee will incur as a result of the funds being paid to him for relocation expenses. Page 3 - EMPLOYMENT AGREEMENT 2.5 OTHER BENEFITS. The Company shall provide to Employee and Employee's family the same benefits that the Company provides to other management employees and their families, subject to Employee's satisfaction of the normal eligibility conditions for such benefits. 2.6 TAXES. All compensation payable to Employee under this Section 2 or Section 5 below shall be subject to the customary withholding of income and other taxes as required by federal and state law with respect to compensation paid by a corporation to an employee. 2.7 VACATION. Employee shall be entitled to four weeks paid vacation during each full year of employment and to the number of paid holidays provided for under the current policies and procedures of Employer in effect from time to time. SECTION 3. CONFIDENTIALITY AGREEMENT Employee agrees to execute contemporaneously with this Agreement the Employee Proprietary Rights, Confidentiality and Inventions Agreement attached hereto as Exhibit 3, and to strictly comply with the terms and conditions thereof. SECTION 4. NONCOMPETITION COVENANT 4.1 NEED FOR NONCOMPETITION COVENANT. Employee recognizes and acknowledges that the business contacts he will make, and the knowledge and proprietary information that he will gain, as a result of his employment with the Company, is special and unique and that a covenant on his part not to compete against the Company upon termination of his employment is essential to protect the properties, assets and business of the Company. Employee acknowledges and agrees that the noncompetition covenant set forth in this Section 4 is being entered into in connection with his initial employment by the Company. 4.2 NONCOMPETITION COVENANT. In consideration of his initial employment by the Company, Employee agrees that he will not, during the period of his employment with the Company and for a period of two years from the date of termination of such employment, within any state or country in which the Company conducts its business or sells or distributes its products: (i) directly or indirectly, whether as an owner, partner, principal, member, stockholder (other than a stockholder in a corporation whose stock is publicly traded and in which Employee owns less than five percent (5%) of the issued and outstanding voting stock), officer, director, employee, agent, representative, associate, consultant or otherwise, engage in, or assist in any manner, any business that competes with the Company in the production, marketing, or sale of meat substitute vegetarian food products; (ii) induce, or attempt to induce, any person who is in the employment of the Company to leave such employment and engage in any business that is competitive with the Company; or (iii) directly or indirectly, suggest, request or encourage any suppliers or customers of the Company to curtail, reduce or cancel their business done with the Company, or otherwise solicit for himself or any other person or entity any business of the Company. 4.3 REMEDIES; EQUITABLE RELIEF. Employee acknowledges that a breach of any of the provisions of this Noncompetition Covenant will cause the Company irreparable and continuing injury and damage, for which there will be no adequate remedy at law. By reason thereof, Employee agrees that the Company shall be entitled to specific performance, including immediate issuance of a temporary restraining order and/or preliminary or permanent injunctive relief Page 4 - EMPLOYMENT AGREEMENT enforcing this Noncompetition Covenant, without the necessity of proof of actual damages and without posting bond for such relief, in addition to any and all other remedies provided by applicable law or equity. 4.4 SEVERABILITY. While Employee acknowledges that the restrictions contained herein are reasonable, if any term or condition of this Noncompetition Covenant is determined to be unenforceable because of its scope, duration, geographical area or similar factor, the court making such determination shall have the power to reduce or limit such scope, duration, area or other factor, and such covenant shall then be enforceable in its reduced or limited form. 4.5 EXCEPTION TO NONCOMPETITION COVENANT. Notwithstanding the provisions of this Section 4, Employee shall not be prohibited, directly or indirectly, as an officer, director, employee, agent, representative, associate, consultant or otherwise, from working for, or associating with, a public company involved in producing, marketing or selling meat substitute vegetarian food products, PROVIDED (i) such company has gross annual revenues of not less than $500 million, (ii) the portion of the company's business involved in the meat substitute vegetarian food product business does not constitute more than 5% of the total gross annual revenues of such company, and (iii) Employee does not work in, and is not directly involved with, the portion of the company's business that is involved in the meat substitute vegetarian food product business. SECTION 5. TERMINATION OF EMPLOYMENT 5.1 TERMINATION FOR CAUSE. Employee's employment under the terms of this Agreement may be terminated immediately, at the option and in the sole discretion of the Company, for "Cause." For purposes of this Agreement, termination of Employee's employment for "Cause" shall be limited to (a) Employee's conviction by a court with proper jurisdiction of a felony; (b) objective evidence of a material act of dishonesty by Employee related to his employment; (c) Employee's drunkenness or intoxication on the job, use of illegal drugs, or use of lawful drugs or alcohol in a manner violative of Company policy; (d) any material breach of Employee's obligations under this Agreement, provided, however, if the breach is of such nature that can be cured, Employee shall be given 15 days (the "Cure Period") after Employee's receipt of notice of such breach to cure the same, and if such breach cannot be cured within the Cure Period and if Employee has commenced to cure such breach within the Cure Period and thereafter proceeds with reasonable diligence and in good faith to effect a cure as soon as practicable, then the Cure Period shall be extended to such time as Employee can reasonably cure such breach; (e) Employee's diversion of any corporate opportunity of the Company for the Employee's direct or indirect benefit; or (f) inaccuracy of any representation made by Employee at Section 7 of this Agreement. 5.2 TERMINATION ON DEATH OR DISABILITY. Employee's employment under the terms of this Agreement shall automatically terminate upon Employee's death or "Disability." For purposes of this Agreement, "Disability" shall mean a health condition or other circumstance which renders Employee unable to perform the essential functions of his position with or without reasonable accommodation. The Company and Employee acknowledge (without limitation to their right to assert that other circumstances constitute a disability) that Employee's inability due to a physical or mental injury or illness to perform his duties for a consecutive period of 90 days or for at least 120 days in a 12-month period shall satisfy the requirements of this provision. Provided such requirements are satisfied, Employee acknowledges that the nature of his position is such that no reasonable accommodation is possible without undue hardship to the Company. Page 5 - EMPLOYMENT AGREEMENT 5.3 TERMINATION ON CHANGE IN CONTROL. Employee's employment under the terms of this Agreement may be terminated immediately, at the option and in the sole discretion of the Company, during the period commencing 30 days prior to and ending 180 days following a "Change in Control" of the Company. For purposes of this Agreement, "Change in Control" of the Company shall be deemed to have occurred upon the earlier of: (a) The date that any "person" (as that term is defined in Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934, as amended (the "Act")), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company, becomes a beneficial owner (within the meaning of Rule 13d-3 promulgated under the Act), directly or indirectly, of securities of the Company representing twenty-five percent (25%) or more of the combined voting power of the Company's then outstanding securities; or (b) The date of any annual or special meeting of stockholders at which a majority of the directors then elected are not individuals nominated by the Company's then incumbent Board of Directors; or (c) The date of approval by the stockholders of the Company of a plan of merger or consolidation of the Company in which such stockholders will not hold at least seventy-five percent (75%) of the combined voting power of the resulting entity immediately following such merger or consolidation, or the approval by the stockholders of the Company of a plan of complete liquidation of the Company or an agreement for the sale of substantially all of the Company's assets. 5.4 TERMINATION BY EMPLOYER WITHOUT CAUSE. Employee's employment under the term of this Agreement may be terminated by Employer, in the exercise of Employer's sole discretion, at any time without Cause, provided Employer pays Employee the compensation and severance pay provided in Section 5.5.2. 5.5 EFFECT OF TERMINATION; PAYMENTS UPON TERMINATION. 5.5.1 In the event of the termination of Employee's employment for Cause pursuant to Section 5.1, the Company shall pay to Employee the then current base compensation payable to Employee under Section 2.1, prorated through the effective date of such termination. No other compensation, benefits or payments of any nature whatsoever shall be due and payable under this Agreement in the event of termination of Employee's employment by the Company for Cause. 5.5.2 In the event of the termination of Employee's employment pursuant to Section 5.2 (Death or Disability) or Section 5.3 (Change of Control), or Section 5.4 (termination of Employee's employment by the Company without Cause), the Company shall pay to Employee: (a) The then current base compensation payable to Employee under Section 2.1 prorated through the effective date of the termination. Page 6 - EMPLOYMENT AGREEMENT (b) If Employee is entitled to a bonus in the year in which his employment is terminated, the Company shall, as soon as the Company's accountants have determined the amount of the bonus, prorate the same through the effective date of Employee's termination and pay Employee his prorata share thereof based on the effective date of his termination. (c) Severance pay equal to the greater of (i) 18 months of the base compensation payable to Employee under Section 2.1, or (ii) the base compensation remaining to be paid to Employee under Section 2.1 between the effective date of such termination and the end of the employment term under this Agreement. Employee agrees, as a condition to payment and receipt of such severance pay, to execute a full and complete release, in form and substance satisfactory to the Company, of any and all claims of every kind and nature whatsoever against the Company. (d) No other compensation, benefits or payments of any nature whatsoever shall be due and payable under this Agreement in the event of termination of Employee's employment by the Company pursuant to Sections 5.2, 5.3, or 5.4. without Cause. 5.6 DECISION OF COMPANY NOT TO EXTEND TERM; DECISION OF EMPLOYEE NOT TO ACCEPT EXTENSION. 5.6.1 DECISION OF COMPANY NOT TO EXTEND TERM. The Company is required under Section 1.1 above to notify Employee at the end of the second year of the employment term and, in the event this Agreement is extended, at the end of each subsequent one-year period thereafter, whether the Company elects to extend this Agreement for an additional one-year term. If the Company, in its sole and absolute discretion, decides not to extend this Agreement for an additional one-year term, then the Company shall, in the event it has not already paid severance pay to Employee under Section 5.5.2 above, pay to Employee at the end of the final year of Employee's employment, as severance pay, 18 months of the then current base compensation payable to Employee under Section 2.1, provided, however, the Company shall have no obligation to pay such severance pay if the reason for not extending this Agreement is Employee's retirement. Employee agrees, as a condition of payment and receipt of such severance pay, to execute a full and complete release, in form and substance satisfactory to the Company, of any and all claims of every kind and nature whatsoever against the Company. The Board of Directors shall be under no obligation, in the event it elects not to extend the term of this Agreement, to review Employee's performance, or offer Employee another extension, at the end of the final year of Employee's employment. 5.6.2 DECISION OF EMPLOYEE NOT TO ACCEPT EXTENSION. If the Company, in its sole and absolute discretion, decides to extend this Agreement at any time for an additional one-year term and Employee decides not to accept such extension, then the Company shall have no obligation to pay, and shall not pay, any severance pay to Employee. 5.7 OUTPLACEMENT SERVICES. In the event of the termination of Employee's employment pursuant to Section 5.3 (Change of Control) or Section 5.4 (Termination of Employee's employment by the Company without cause), or in the event the Company elects not to extend the term of this Agreement and Employee's employment ceases due to expiration of the Page 7 - EMPLOYMENT AGREEMENT employment term, the Company shall retain a reputable outplacement agency, acceptable to Employee, to assist Employee in finding another job, provided, however, the maximum amount that the Company shall be obligated to expend in outplacement services for Employee shall be $25,000. SECTION 6. FACILITIES AND PERSONNEL Employee shall be provided a private office, secretarial services, and such other facilities, supplies, and services as shall be required for the performance of Employee's duties under this Agreement. SECTION 7. REPRESENTATIONS AND WARRANTIES OF EMPLOYEE Employee represents and warrants to the Company that there is no employment contract or any other contractual obligation to which Employee is subject which prevents Employee from entering into this Agreement or from performing fully Employee's duties under this Agreement and that Employee has accurately stated his educational background, employment history and experience in the pre-employment process. SECTION 8. MISCELLANEOUS PROVISIONS 8.1 RESTRICTION ON ASSIGNMENT. Employee acknowledges that the services to be rendered hereunder are special, unique and of extraordinary character and that he may not assign any of his rights, or delegate any of his duties or obligations hereunder without the prior written consent of the Company. 8.2 ENTIRE AGREEMENT. This document (including the exhibits attached hereto) is the entire, final and complete Agreement and understanding of the parties with respect to the subject matter hereof, and supersedes and replaces all written and oral agreements and understandings heretofore made or existing by and between the parties or their representatives with respect thereto, specifically including without limitation that certain letter, dated April 12, 1996, from The Pringle Company to Employee. 8.3 WAIVER. No waiver of any provision of this Agreement shall be deemed, or shall constitute, a waiver of any other provision, whether or not similar, nor shall any waiver constitute a continuing waiver. No waiver shall be binding unless executed in writing by the party making the waiver. 8.4 BINDING EFFECT. All rights, remedies and liabilities herein given to or imposed upon the parties shall extend to, inure to the benefit of and bind, as the circumstances may require, the parties and their respective heirs, personal representatives, administrators, successors and permitted assigns. 8.5 NOTICES. Any notice or other communication required or permitted under this Agreement shall be in writing and shall be deemed given on the date of transmission when sent by telex or facsimile transmission, on the third business day after the date of mailing when mailed by certified mail, postage prepaid, return receipt requested, from within the United States, or on the date of actual delivery, whichever is the earliest, and shall be sent to the parties at the addresses shown on the first page of this Agreement, or at such other address as either party may hereafter Page 8 - EMPLOYMENT AGREEMENT designate by written notice to the other. 8.6 AMENDMENT. No supplement, modification or amendment of this Agreement shall be valid, unless the same is in writing and signed by all parties hereto. 8.7 SEVERABILITY. In the event any provision or portion of this Agreement is held to be unenforceable or invalid by any court of competent jurisdiction, the remainder of this Agreement shall remain in full force and effect and shall in no way be affected or invalidated thereby. 8.8 ATTORNEY'S FEES. In the event any suit, action or other legal proceeding shall be instituted to declare or enforce any right created by this Agreement, or by reason of any breach of this Agreement, the prevailing party shall be entitled to recover reasonable attorney fees as fixed by the trial court and all appellate courts. 8.9 LEGAL REPRESENTATION. This Agreement was prepared by Garvey, Schubert & Barer as attorneys for the Company. Employee acknowledges that Garvey, Schubert & Barer has acted as attorneys only for the Company and does not represent Employee. Employee acknowledges that he has exercised his right to independent legal counsel and is freely and voluntarily entering into this Agreement having exercised such right. 8.10 GOVERNING LAW AND VENUE. This Agreement shall be deemed to have been executed and entered into in Portland, Oregon, and this Agreement, and its formation, operation and performance, shall be governed, construed and enforced in accordance with the laws of the State of Oregon, without regard to its conflict of law principles. If any suit or action is filed by any party to enforce this Agreement or otherwise with respect to the subject matter of this Agreement, venue shall be in the federal court or state court in Portland, Oregon, and the parties hereby waive their right to change such venue and submit to the jurisdiction of such courts. 8.11 COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed to be an original instrument and all of which together shall constitute a single agreement. 8.12 INDEMNIFICATION. The Company shall indemnify Employee, in the event Employee is made, or threatened to be made, a party to an action, suit or proceeding, whether civil, criminal, administrative, investigative or otherwise by reason of the fact that Employee is or was an officer or employee of the Company, to the fullest extent permitted by the Oregon Business Corporation Act, and shall, upon request of Employee, advance expenses to Employee in any such action, suit or proceeding, subject to the terms, conditions and limitations set forth in the Oregon Business Corporation Act. IN WITNESS WHEREOF, the parties have executed this Agreement on the respective dates set forth below, retroactively effective as of April 14, 1996. EMPLOYEE: COMPANY: WHOLESOME & HEARTY FOODS, INC. - ------------------------- an Oregon corporation Lyle G. Hubbard Date: By: ------------------------- ------------------------------------- Title: ---------------------------------- Date: --------------------------------- Page 9 - EMPLOYMENT AGREEMENT EX-10.(L) 4 EXHIBIT 10(L) EXHIBIT 10L SEVERANCE AGREEMENT This Agreement (this "Agreement") is made and entered into as of this _____ day of September, 1996 by and between Wholesome & Hearty Foods, Inc., an Oregon corporation (the "Employer"), and _________________________ (the "Employee"). WHEREAS, Employer currently employs Employee in the capacity of _________________________ and Employee is one of Employer's key executives; WHEREAS, Employer considers it in the best interest of the shareholders to give Employee a severance agreement at this time; NOW, THEREFORE, in consideration of the promises and mutual covenants herein contained, the parties agree as follows: 1. DEFINITIONS. As used in this Agreement, the following terms shall have the following meanings: 1.1 TERMINATION OF EMPLOYMENT. Termination of Employment shall mean the termination of Employee's employment by Employer for other than "Cause." Employee's termination of the employment relationship shall not constitute a Termination of Employment under this Agreement; PROVIDED, HOWEVER, if Employee voluntarily terminates his or her employment within two weeks of receiving a salary reduction, such voluntary termination SHALL constitute an exception to this rule and shall be considered a Termination of Employment under this Agreement and Employee shall be entitled to severance based on the non-reduced salary rate. 1.2 CAUSE. Termination of Employee's employment for "Cause" shall mean a termination due to (a) Employee's conviction of a felony; (b) objective evidence of dishonesty by Employee related to his or her employment; (c) Employee's use of illegal drugs, or use of lawful drugs or alcohol in a manner violative of Employer's written policies; (d) objective evidence of Employee's wrongful discrimination against or harassment of another person(e) gross insubordination or gross dereliction of duty by Employee (i.e. egregious conduct such as repeated refusal to follow direct orders of Employer or refusal to perform minimum duties after repeated warning); or (f) Employee's diversion of any corporate opportunity or other similarly serious conflict of interest inuring to the Employee's direct or indirect benefit and the company's detriment. 1.3 NEW EMPLOYMENT. New Employment shall mean Employee's - --------------- (1) Sworn statements shall satisfy this requirement of objective evidence. - 1 - performance of services for another person or entity for compensation or for the future expectation of compensation. 1.4 GROSS SALARY. Gross Salary shall mean the gross amount of weekly wages paid to Employee as of the Termination of Employment. Gross Salary does not include the value of any other non-wage benefits provided to Employee, such as medical insurance, vacation, sick leave, or retirement benefits. 2. SEVERANCE PAYMENT. In the event of a Termination of Employment as defined herein, Employer agrees to pay Employee six months Gross Salary as severance pay. In addition, if Employee has not accepted New Employment by the conclusion of the six-month period following Termination of Employment, Employee shall be entitled to receive, as additional severance pay, payment of up to a maximum of an additional six months of Gross Salary for the time which Employee remains unemployed after the expiration of the first six-month period. The payments shall be made in equal bi-weekly installments, and shall be subject to all normal state, federal or other withholding and/or deductions. Acceptance of New Employment shall terminate Employee's entitlement to all severance pay. With the exception of constraints posed by the Employer Proprietary Rights and Confidentiality Agreement, the decision to accept or not accept New Employment rests solely with Employee. 3. OUTPLACEMENT SERVICES. In the event of a Termination of Employment, Employer agrees to pay for the actual cost of outplacement services incurred by Employee up to a maximum of $15,000. In order to be eligible to receive payment for outplacement services, Employee must seek and obtain such services within sixty (60) days of Termination of Employment. Acceptance of New Employment will terminate Employee's entitlement to payment for outplacement services under this Agreement. 4. CONTINUATION OF BENEFITS. In the event of a Termination of Employment, Employer agrees to continue to pay Employee's medical/health insurance benefit premiums on the same terms and conditions as generally are provided to other employees of Employer until the earlier of (a) one year following Termination of Employment or (b) Employee becomes eligible for payment of medical/health insurance premiums related to New Employment. Payment of such premiums shall be accomplished through Employer's normal premium payment procedures if Employee remains eligible for coverage without regard to the COBRA program. If Employee is not eligible, or ceases to be eligible, for coverage under Employer's medical/health insurance plan, except for eligibility under the COBRA benefit program, then Employer shall pay the premiums by paying Employee's share of his or her COBRA obligations. In no event shall Employer's duty to pay medical/health insurance premiums exceed the period of one year after Termination of Employment. 5. STOCK OPTIONS. In the event of a Termination of Employment, Employer agrees to amend Employee's incentive stock option agreements, immediately prior to such termination, as follows: - 2 - 5.1 ACCELERATION OF VESTING. The incentive stock option agreements shall be amended to provide that all options granted thereunder, to the extent not already vested, shall vest and become fully exercisable by Employee as of the date of Termination of Employment. 5.2 CONVERSION OF ISOS TO NONSTATUTORY STOCK OPTIONS. The incentive stock option agreements shall be amended as necessary to convert the incentive stock options granted thereunder into nonstatutory stock options. 5.3 EXTENSION OF PERIOD OF TIME FOR EXERCISING NONSTATUTORY STOCK OPTIONS. The incentive stock option agreements shall be amended to provide that Employee shall have a period of five years from the date of Termination of Employment to exercise the nonstatutory stock options. 6. RELEASE OF CLAIMS. As a precondition to receipt of the benefits provided in this Agreement, Employee acknowledges and understands that he or she must sign a Waiver and Release of Claims Agreement. Such Agreement shall be substantially similar to the Agreement attached as Exhibit A. 7. EMPLOYMENT AT WILL. Employee acknowledges that his or her employment with Employer is "at-will." At-will employment means that either Employee or Employer may terminate the employment relationship without notice or Cause at any time. Employee understands that this Agreement is not intended to change the "at-will" character of his or her employment in any manner. 8. NON-COMPETITION. Employee acknowledges that Employer is not obligated to provide him or her with the benefits set forth in this Agreement, and that such benefits, particularly the provisions for severance pay, continuation of benefits, paid outplacement and modification of his or her incentive stock option agreements, constitute a bona fide advancement for Employee. Employee hereby waives any right to assert or claim otherwise. In return for the right to receive such benefits and this advancement, Employee hereby agrees that, during the term of this Agreement and for a period of one year following the termination of Employee's employment with the Company, without Employer's prior written consent, Employee shall not, directly or indirectly, own, have any interest in, act as an officer, director, agent, employee or consultant of, or assist in any way or in any capacity any person, firm, association, partnership, corporation or other entity which is a creator, manufacturer, distributor, seller or provider of non-meat or vegetarian food products or otherwise engaged in a business that is substantially similar to and/or competes with the business then engaged in by Employer (a "Competitive Entity") in any geographical area where Employer engages in such business. The restrictions of this section prohibiting ownership in a Competitive Entity shall not apply to Employee's ownership of less than five percent (5%) of publicly-traded securities of any Competitive Entity. While the Employee and Employer acknowledge that the restrictions contained in this section are reasonable, in the unlikely event that any court should determine that - 3 - any of the restrictive covenants contained in this section, or any part thereof, is unenforceable because of the duration of such provision, the area covered thereby or any other basis, such court shall have the power to reduce the duration or area of such provision or otherwise amend it and, in its reduced form, such provision shall then be enforceable and shall be enforced. 9. MISCELLANEOUS PROVISIONS. 9.1 CONFIDENTIALITY. Employee agrees to keep the terms of this Agreement, specifically including without limitation, the amount of the severance pay, and the fact that he/she may receive or has received severance pay, strictly confidential. Employee may disclose the terms of this Agreement to his or her accountant, attorney, and taxing or other governmental authorities only as may be necessary for his or her financial affairs or as required by law. 9.2 NON-DISPARAGEMENT. Except as necessary to perform his or her job duties, Employee shall not make any derogatory remarks of any nature whatsoever about Employer or its products either publicly or privately, unless required by law during and after his or her employment with the Company. 9.3 EMPLOYEE PROPRIETARY RIGHTS AND CONFIDENTIALITY AGREEMENT. Employee acknowledges and reaffirms his or her obligations under the Employee Proprietary Rights and Confidentiality Agreement, attached hereto as Exhibit B, and agrees to strictly comply with the terms of such agreement. 9.4 ENTIRE AGREEMENT. This document is the entire, final, and complete agreement and understanding of the parties with respect to the topics discussed herein and, if this Agreement directly conflicts with any other written and oral agreements made or executed by and between the parties or their representatives, this Agreement shall supersede all such agreements. 9.5 WAIVER. A waiver of any provision of this Agreement shall not be deemed, or shall not constitute, a waiver of any other provision, whether or not similar, nor shall any waiver constitute a continuing waiver. No waiver shall be binding unless executed in writing by the parties making the waiver. 9.6 BINDING EFFECT. All rights, remedies, and liabilities herein given to or imposed upon the parties shall extend to, inure to the benefit of, and bind, as the circumstances may require, the parties or their representative heirs, personal representatives, administrators, successors and assigns. 9.7 AMENDMENTS. No supplement, modification, or amendment of this Agreement shall be valid, unless the same is in writing and signed by all parties thereto. 9.8 SEVERABILITY. In the event any provision or portion of this Agreement is - 4 - held to be unenforceable or invalid by any court of competent jurisdiction, the remainder of this Agreement shall remain in full force and effect and shall in no way be affected or invalidated thereby. 9.9 ATTORNEYS' FEES. If litigation is commenced by either party to enforce any provision of this Agreement, or by reason of any breach of this Agreement, the prevailing party shall be entitled to recover reasonable costs and attorneys' fees, both at trial and on appeal. 9.10 GOVERNING LAW. This Agreement shall be deemed to have been executed and entered into in Portland, Oregon and shall be governed, construed, performed and enforced in accordance with the laws of the State of Oregon, without regard to its conflict of law principles. IN WITNESS THEREOF, the parties have executed this Agreement on the respective dates set forth below, retroactively effective as of _______________, 19___. EMPLOYEE: EMPLOYER: WHOLESOME & HEARTY FOODS, _______________________________ INC., an Oregon corporation Name: _________________________ By__________________________ Date: _________________________ Name: ______________________ Title: _____________________ Date: ______________________ EX-10.(O) 5 EXHIBIT 10(O) EXHIBIT 10.O WHOLESOME & HEARTY FOODS, INC. 1997 EXECUTIVE BONUS PLAN INTENT Wholesome & Hearty Foods, Inc. recognizes the contributions made by the company's senior management team and wishes to recognize and reward these contributions through implementation of a 1997 Executive Bonus Plan ("Plan"). The Plan is tied to the company's overall annual operating performance for 1997 with Plan payouts based on achievement of key performance targets as established by the Board of Directors and included in the annual operating plan. The Plan will be divided into specific operating segments as follows: retail segment; food service segment; overall business; and chief executive officer. Payouts will be determined as appropriate by each segment's achievement of identified key performance targets. BONUS CALCULATIONS Bonus calculations under the Plan will be based on meeting targets in three key performance areas: revenue growth, operating income and share price. These targets and associated bonus payouts are summarized in EXHIBIT A. The first bonus target is tied to company revenue growth and is split between retail managers, food service managers and overall corporate managers (see EXHIBIT A). Based on the targets identified in EXHIBIT A, bonus amounts are adjusted per the sliding scale included in EXHIBIT B. Bonus levels as determined by achievement of revenue growth targets are then modified based on operating income performance (see EXHIBIT A). Finally, for any bonus payment to occur, the company's share price at 12/31/97 must be no lower than the price at 12/31/96 (see EXHIBIT A). SERVICE & ELIGIBILITY All managers identified as senior-level executives and who are actively employed by the company at the end of the Plan year will be eligible for participation in the program. For those qualifying participants that join the company during the plan year, the bonus payout will be prorated for number of months actually employed during the plan year. VESTING Each Plan year is fully vested at the end of the Plan year. However, as identified in EXHIBIT A, if an operating loss occurs during the fiscal year, one-half of such bonus will be deferred until two consecutive profitable fiscal quarters are achieved in fiscal year 1998. 1 All participant payments will be made as soon as possible after the end of the Plan year, when full results can be determined and all administration completed. PAYMENT Each participant will be paid their annual plan value in a lump sum amount. Executive bonus amounts are not considered a form of base pay for determining any company benefits or other conditions. ADMINISTRATION The Wholesome & Hearty Foods, Inc. 1997 Executive Bonus Plan will be administered by the Human Resources Department. The Plan year will be the normal company fiscal period. Once performance targets have been set, they will not be revised unless there is a significant event that management and the Board of Directors believes must be recognized. 2 EX-10.(P) 6 EXHIBIT 10(P) EXHIBIT 10P INDEPENDENT CONSULTANT AGREEMENT DATE: November 1, 1996 PARTIES: WHOLESOME & HEARTY FOODS, INC. ("WHFI") an Oregon corporation 975 S.E. Sandy Boulevard, Suite 201 Portland, Oregon 97214 E. KAY STEPP ("Stepp") c/o Executive Solutions 25-6 N.W. 23rd Place, No. 185 Portland, Oregon 97210-3534 RECITALS: A. Stepp is a member, and currently serves as Chair, of the Board of Directors of WHFI (the "Board of Directors"); B. Stepp, who owns and operates her own independent management consulting business, has been providing certain management services to the Board of Directors over the past year; C. Stepp's current contract with WHFI expires on October 31, 1996; and D. WHFI desires to continue to retain Stepp as an independent consultant to provide management services to the Board of Directors; NOW, THEREFORE, in consideration of the mutual promises and conditions contained herein, the parties agree as follows: 1. MANAGEMENT SERVICES. WHFI hereby retains Stepp as an independent contractor to provide management services to the Board of Directors, and Stepp hereby agrees to provide such services in accordance with the terms and conditions set forth herein. 2. TERM. This Agreement shall commence on November 1, 1996 and shall terminate on the earlier of (i) the date Stepp resigns as Chair of the Board of Directors, (ii) the date Stepp is removed as Chair of the Board of Directors, (iii) the date of Stepp's death, or (iv) April 30, 1998. 3. DUTIES. Stepp shall perform the following duties and responsibilities as an independent consultant to the Board of Directors: 3.1 Stepp shall, as Chair of the Board of Directors, preside at all meetings of the Board of Directors and all meetings of its shareholders. Stepp shall prepare agendas for, and Page 1 - INDEPENDENT CONSULTANT AGREEMENT convene and conduct, all regular and special meetings of the Board of Directors. 3.2 Stepp shall provide leadership to the Board of Directors in reviewing and deciding upon matters which exert major influence on the manner in which WHFI's business is conducted. 3.3 Stepp shall act in a general advisory capacity, and shall give counsel to, the CEO and other officers of WHFI on all matters concerning the management and interests of WHFI. Stepp shall review all major corporate activities and plans with the CEO so as to insure conformity with the Board of Directors' view on corporate policy. 3.4 Stepp shall work to insure regular communication, and facilitate mutual understanding, between the officers and directors of WHFI. 3.5 Stepp shall individually and collectively counsel with members of the Board of Directors so as to utilize their capacities to the fullest extent necessary to secure optimum benefits for WHFI. 3.6 Stepp shall make nominations to the Board of Directors with respect to who should serve as members of all committees of the Board of Directors. Stepp shall serve as an ex-officio member of all committees of the Board of Directors and shall assist the respective Chairs of all committees as necessary and appropriate. Stepp shall serve as Chair of the Executive Committee. 3.7 Stepp shall make nominations to the Board of Directors with respect to who should serve as officers of WHFI. 3.8 Stepp shall participate in outside activities which will enhance WHFI's prestige and fulfill WHFI's public obligations as a member of the industry and the community. 3.9 Stepp shall carry out special assignments in collaboration with the CEO, and perform such other duties and responsibilities as may be assigned to her from time to time by the CEO or Board of Directors. 4. COMPENSATION. 4.1 MONTHLY FEE. WHFI shall pay Stepp, as compensation for the consulting services rendered hereunder, a flat monthly fee of $4,083.33, which is the equivalent of $49,000 per year, payable on the last business day of each calendar month, commencing November 30, 1996. WHFI and Stepp agree that such flat monthly fee shall be subject to review and adjustment as provided in Section 4.2 below. 4.2 REVIEW/ADJUSTMENT OF MONTHLY FEE. WHFI and Stepp acknowledge that the flat monthly fee set forth in Section 4.1 above is based on the assumption that Stepp will be expending approximately 350 hours per year in the performance of her duties hereunder. Stepp has been keeping time records over the past six months, and shall continue to keep time records over the next three months as to the hours spent in performing her duties hereunder, and provide a copy of such time records to the Board of Directors. The Board of Directors and Stepp shall review such time records at the Board of Directors meeting in February, 1997 and shall, in the event they determine, based on such review, that the flat monthly fee needs to be adjusted, Page 2 - INDEPENDENT CONSULTANT AGREEMENT mutually adjust the same as appropriate, effective April 1, 1997. Stepp shall not be required to keep time records after said initial three-month period, as WHFI recognizes and acknowledges that the hours rendered by Stepp will fluctuate from month to month and desire to compensate Stepp on a flat monthly fee basis, rather than requiring Stepp to maintain time records throughout the term of this Agreement and paying her on a hourly basis. In the event the Board of Directors and Stepp are unable to reach mutual agreement at their meeting in February, 1997 as to the adjustment, if any, to the flat monthly fee, then either party may, notwithstanding any other provision herein to the contrary, terminate this Agreement, effective April 1, 1997, by sending written notice of termination to the other. 5. STOCK OPTIONS. 5.1 AUTOMATIC GRANT OF DIRECTOR STOCK OPTIONS. Pursuant to the provisions of Section 4 of the WHFI 1992 First Amended and Restated Combination Stock Option Plan, Stepp shall receive, so long as she remains a member of the Board of Directors of WHFI and does not become an employee of WHFI, an automatic grant of a nonstatutory stock option each year, as of the date of WHFI's annual meeting of shareholders, to purchase 3,000 shares of common stock of WHFI. 5.2 IMMEDIATE GRANT OF ADDITIONAL STOCK OPTIONS. WHFI shall grant Stepp a nonstatutory stock option under the WHFI 1992 First Amended and Restated Combination Stock Option Plan, effective as of the date of mutual execution of this Agreement, to purchase 7,500 shares of common stock of WHFI. The exercise price of such option shall be the fair market of the common stock of WHFI on the last trading date immediately preceding November 1, 1996. Such option shall vest and become fully exercisable six months after the date of grant. The terms and conditions of such option are set forth in the Nonstatutory Stock Option Agreement attached hereto as Exhibit A, which the parties shall execute simultaneously herewith. 5.3 FUTURE CONTINGENT GRANT OF STOCK OPTION. WHFI shall, subject to the review and approval of the Executive Personnel and Compensation Committee of the Board of Directors, grant Stepp a nonstatutory stock option under the WHFI 1992 First Amended and Restated Combination Stock Option Plan on November 1, 1997 to purchase 7,500 shares of the common stock of WHFI, provided Stepp is still serving as Chair of the Board of Directors, and this Agreement is still in effect, on November 1, 1997. The exercise price of such option shall be the fair market of the common stock of WHFI on the last trading date immediately preceding November 1, 1997. Such option shall vest and become fully exercisable six months after the date of grant. The terms and conditions of such option shall be substantially the same as those set forth in the Nonstatutory Stock Option Agreement attached hereto as Exhibit A. 6. INDEPENDENT CONTRACTOR RELATIONSHIP. 6.1 Notwithstanding anything express or implied herein to the contrary, the parties acknowledge and agree that Stepp is acting as an independent contractor, and for all purposes shall be deemed to be an independent contractor within the meaning of the Internal Revenue Code of 1986, as now in effect or as may hereafter be amended, in providing the management consulting services under this Agreement. 6.2 Stepp accepts full and complete responsibility for filing all tax returns and paying all taxes which may be required or due for compensation received from WHFI under the terms of Page 3 - INDEPENDENT CONSULTANT AGREEMENT this Agreement, including by way of illustration but not limitation, all federal and state income taxes, Social Security taxes, unemployment insurance taxes, and any and all other taxes required by law. 6.3 Stepp represents and warrants to WHFI that she is regularly engaged in the business of providing management consulting services. Stepp shall determine, and shall be in sole control of, the methods, details and means used in providing the management consulting services under this Agreement. Stepp shall choose the time and manner for performing such services according to her own routines and schedules, independent from WHFI's business operations. 7. MISCELLANEOUS. 7.1 ENTIRE AGREEMENT. This document is the entire, final and complete Agreement and understanding of the parties with respect to the subject matter hereof, and supersedes and replaces all written and oral agreements and understandings heretofore made or existing by and between the parties or their representatives with respect thereto. 7.2 WAIVER. No waiver of any provision of this Agreement shall be deemed, or shall constitute, a waiver of any other provision, whether or not similar, nor shall any waiver constitute a continuing waiver. No waiver shall be binding unless executed in writing by the party making the waiver. 7.3 BINDING EFFECT. All rights, remedies and liabilities herein given to or imposed upon the parties shall extend to, inure to the benefit of and bind, as the circumstances may require, the parties and their respective heirs, personal representatives, administrators and successors. 7.4 NOTICES. Any notice of other communication required or permitted under this Agreement shall be in writing and shall be deemed given on the date of transmission when sent by telex or facsimile transmission, on the third business day after the date of mailing when mailed by certified mail, postage prepaid, return receipt requested, from within the United States, or on the date of actual delivery, whichever is the earliest, and shall be sent to the parties at the addresses shown on the first page of this Agreement, or at such other address as either party may hereafter designate by written notice to the other. 7.5 AMENDMENT. No supplement, modification or amendment to this Agreement shall be valid, unless the same is in writing and signed by all parties hereto. 7.6 SEVERABILITY. In the event any provision or portion of this Agreement is held to be unenforceable or invalid by any court of competent jurisdiction, the remainder of this Agreement shall remain in full force and effect and shall in no way be affected or invalidated thereby. 7.7 ATTORNEY'S FEES. In the event any suit, action or other legal proceeding shall be instituted to declare or enforce any right created by this Agreement, or by reason of any breach of this Agreement, the prevailing party shall be entitled to recover reasonable attorney fees as fixed by the trial court and all appellate courts. 7.8 GOVERNING LAW. This Agreement, and its formation, operation and performance, shall be governed, construed and enforced in accordance with the laws of the State of Oregon, without regard to its conflict of law principles. Page 4 - INDEPENDENT CONSULTANT AGREEMENT IN WITNESS WHEREOF, the parties have executed this Agreement in duplicate on December ___, 1996, retroactively effective November 1, 1996. WHOLESOME & HEARTY FOODS, INC., an Oregon corporation By: --------------------------- ------------------------------ E. Kay Stepp Page 5 - INDEPENDENT CONSULTANT AGREEMENT EX-11 7 EXHIBIT 11 EXHIBIT 11 WHOLESOME AND HEARTY FOODS, INC. CALCULATIONS OF NET INCOME PER SHARE
The Year Ended December 31, --------------------------------------------------------------------------------------- 1996 1995 1994 -------------------------- ------------------------- -------------------------- Primary Fully Diluted Primary Fully Diluted Primary Fully Diluted -------------------------- ------------------------- -------------------------- Weighted Average Shares Outstanding for the Period 8,455,623 8,455,623 7,670,322 7,670,322 7,566,245 7,566,245 Dilutive Common Stock Options Using the Treasury Stock Method 610,346 609,721 968,369 968,918 1,011,662 1,011,662 --------------------------- ---------------------------- ---------------------------- Total Shares Used for Per Share Calculations 9,065,969 9,065,344 8,638,691 8,639,240 8,577,907 8,577,907 --------------------------- ---------------------------- ---------------------------- --------------------------- ---------------------------- ---------------------------- Net Income $ 1,063,000 $1,063,000 $ 2,510,000 $ 2,510,000 $ 2,391,000 $2,391,000 --------------------------- ---------------------------- ---------------------------- --------------------------- ---------------------------- ---------------------------- Net Income Per Share $ 0.12 $ 0.12 $ 0.29 $ 0.29 $ 0.28 $ 0.28 --------------------------- ---------------------------- ---------------------------- --------------------------- ---------------------------- ----------------------------
EX-23.(A) 8 EXHIBIT 23(A) EXHIBIT 23a CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As Independent public accountants, we hereby consent to the incorporation of our reports dated February 7, 1997, included in this Form 10-K into the Company's previously filed Registration Statements No. 33-64622 on Form S-8, No. 33-64624 on Form S-8 and No. 33-76764 on Form S-8. ARTHUR ANDERSEN LLP Portland, Oregon, March 17, 1997 EX-23.(B) 9 EXHIBIT 23(B) EXHIBIT 23b CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS We have issued our report dated February 20, 1995, accompanying the financial statements included in Wholesome & Hearty Foods, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1996. We hereby consent to the incorporation by reference of said report in the Registration Statements of Wholesome & Hearty Foods, Inc. on Forms S-8 (File No. 33-64622, effective June 18, 1993, File No. 33-64624, effective June 18, 1993 and File No. 33-76764, effective March 22, 1994). GRANT THORNTON LLP Portland, Oregon March 17, 1997 EX-24.(A) 10 EXHIBIT 24(A) EXHIBIT 24a POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of WHOLESOME & HEARTY FOODS, INC., an Oregon corporation (the "Company"), hereby constitutes and appoints RICHARD C. DIETZ his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign the Form 10-K Annual Report, with all exhibits and amendments thereto, of Wholesome & Hearty Foods, Inc. for the fiscal year ended December 31, 1996, and to file this Power of Attorney and the Form 10-K, and all exhibits thereto and other documents in connection with the Securities and Exchange Commission and the National Association of Securities Dealers, Inc., granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that each of said attorney-in-fact and agent, or his substitute or substitutes, may do or cause to be done by virtue hereof. Dated this 3rd day of December, 1996. /s/ THOMAS D. HENRION , Director ----------------------- Thomas D. Henrion EX-24.(B) 11 EXHIBIT 24(B) EXHIBIT 24b POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of WHOLESOME & HEARTY FOODS, INC., an Oregon corporation (the "Company"), hereby constitutes and appoints RICHARD C. DIETZ his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign the Form 10-K Annual Report, with all exhibits and amendments thereto, of Wholesome & Hearty Foods, Inc. for the fiscal year ended December 31, 1996, and to file this Power of Attorney and the Form 10-K, and all exhibits thereto and other documents in connection with the Securities and Exchange Commission and the National Association of Securities Dealers, Inc., granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that each of said attorney-in-fact and agent, or his substitute or substitutes, may do or cause to be done by virtue hereof. Dated this 3rd day of December, 1996. /s/ RALPH M. KOVEL , Director -------------------- Ralph M. Kovel EX-24.(C) 12 EXHIBIT 24(C) EXHIBIT 24c POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of WHOLESOME & HEARTY FOODS, INC., an Oregon corporation (the "Company"), hereby constitutes and appoints RICHARD C. DIETZ his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign the Form 10-K Annual Report, with all exhibits and amendments thereto, of Wholesome & Hearty Foods, Inc. for the fiscal year ended December 31, 1996, and to file this Power of Attorney and the Form 10-K, and all exhibits thereto and other documents in connection with the Securities and Exchange Commission and the National Association of Securities Dealers, Inc., granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that each of said attorney-in-fact and agent, or his substitute or substitutes, may do or cause to be done by virtue hereof. Dated this 3rd day of December, 1996. /s/MARY O. MCWILLIAMS , Director ------------------------- Mary O. McWilliams EX-24.(D) 13 EXHIBIT 24(D) EXHIBIT 24d POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of WHOLESOME & HEARTY FOODS, INC., an Oregon corporation (the "Company"), hereby constitutes and appoints RICHARD C. DIETZ his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign the Form 10-K Annual Report, with all exhibits and amendments thereto, of Wholesome & Hearty Foods, Inc. for the fiscal year ended December 31, 1996, and to file this Power of Attorney and the Form 10-K, and all exhibits thereto and other documents in connection with the Securities and Exchange Commission and the National Association of Securities Dealers, Inc., granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that each of said attorney-in-fact and agent, or his substitute or substitutes, may do or cause to be done by virtue hereof. Dated this 3rd day of December, 1996. /s/MICHAEL L. RAY , Director ------------------- Michael L. Ray EX-24.(E) 14 EXHIBIT 24(E) EXHIBIT 24e POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of WHOLESOME & HEARTY FOODS, INC., an Oregon corporation (the "Company"), hereby constitutes and appoints RICHARD C. DIETZ his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign the Form 10-K Annual Report, with all exhibits and amendments thereto, of Wholesome & Hearty Foods, Inc. for the fiscal year ended December 31, 1996, and to file this Power of Attorney and the Form 10-K, and all exhibits thereto and other documents in connection with the Securities and Exchange Commission and the National Association of Securities Dealers, Inc., granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that each of said attorney-in-fact and agent, or his substitute or substitutes, may do or cause to be done by virtue hereof. Dated this 3rd day of December, 1996. /s/E. KAY STEPP , Director ----------------- E. Kay Stepp EX-24.(F) 15 EXHIBIT 24(F) EXHIBIT 24f POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of WHOLESOME & HEARTY FOODS, INC., an Oregon corporation (the "Company"), hereby constitutes and appoints RICHARD C. DIETZ his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign the Form 10-K Annual Report, with all exhibits and amendments thereto, of Wholesome & Hearty Foods, Inc. for the fiscal year ended December 31, 1996, and to file this Power of Attorney and the Form 10-K, and all exhibits thereto and other documents in connection with the Securities and Exchange Commission and the National Association of Securities Dealers, Inc., granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that each of said attorney-in-fact and agent, or his substitute or substitutes, may do or cause to be done by virtue hereof. Dated this 3rd day of December, 1996. /s/MICHAEL D. WAGONER , Director ----------------------- Michael D. Wagoner EX-24.(G) 16 EXHIBIT 24(G) EXHIBIT 24g POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of WHOLESOME & HEARTY FOODS, INC., an Oregon corporation (the "Company"), hereby constitutes and appoints RICHARD C. DIETZ his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign the Form 10-K Annual Report, with all exhibits and amendments thereto, of Wholesome & Hearty Foods, Inc. for the fiscal year ended December 31, 1996, and to file this Power of Attorney and the Form 10-K, and all exhibits thereto and other documents in connection with the Securities and Exchange Commission and the National Association of Securities Dealers, Inc., granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that each of said attorney-in-fact and agent, or his substitute or substitutes, may do or cause to be done by virtue hereof. Dated this 3rd day of December, 1996. /s/PAUL F. WENNER , Director ------------------- Paul F. Wenner EX-27 17 EX 27
5 YEAR DEC-31-1996 DEC-31-1996 7,755,000 0 2,800,000 177,000 4,790,000 16,846,000 6,814,000 1,220,000 24,934,000 3,453,000 0 0 0 8,468,000 12,511,000 24,934,000 39,254,000 39,254,000 19,906,000 19,906,000 17,885,000 35,000 0 1,790,000 727,000 1,063,000 0 0 0 1,063,000 0.12 0.12
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