Drew Field
Direct Public Offerings

Natural Business
July, 1996

Annie's Homegrown To Complete Direct Offering

Annie's direct public offering is raising money to gain shelf space for the company's all-natural pasta dinners in mainstream supermarkets.

If you looked recently inside a box of Annie's Homegrown macaroni and cheese dinner, you would have seen an insert regarding an opportunity to invest in the company-at least in the 11 states where Annie's is conducting a direct public offering for $3.6 million, or 600,000 shares of its common stock. And if you were inclined to review the company's prospectus, you could access it on the World Wide Web-a first, according to the company.
"The idea to stick one million inserts in our boxes to offer shares of stock to our customers came from other models we'd seen, including Ben & Jerry's, which initially offered shares of stock on the lids of its ice cream containers to residents of the state of Vermont," says Celinda Shannon. Shannon is the corporate secretary and operations manager for Annie's, based in Sausalito and in Chelsea, MA. "Besides saving the costs of an underwriter, we wanted our customers to be our shareholders. They are our best 'word-of-mouth' sales force helping to sell our products."
The 11 states where the stock is offered are concentrated in the Northeast and the West, where Annie's sales traditionally have been strong for its line of all-natural, premium-priced macaroni and cheese dinners. States include: CA, OR, WA, ME, NH, VT, MA, RI, CT, NY and NJ. The direct public offering, begun in August 1995, technically closes on Aug. 22. "We've had calls from all 50 states for the prospectus; however, I don't think we'll extend the offering," Shannon says.
Companies considering a direct public offering can save about half of the underwriting costs associated with an IPO, according to Drew Field, president of Drew Field Direct Public Offerings in San Francisco, coordinator of the Annie's offering. However, when the deals are small, what the company gains in savings it may lose in liquidity. Investors should expect to in committed for the long haul says one industry analyst.
The cost to Annie's for the direct offering is estimated at $250,000, according to the prospectus. The remaining$3.35 million will be used to pay slotting fees for the acquisition of shelf space in mainstream supermarkets, according to Shannon.
Once the offering closes, we will decide on a trading exchange," she says. "We prefer the Boston Stock Exchange or the Pacific Stock Exchange, which deal with a lot of small companies such as Annie's. If we can t qualify to get onto an exchange, we will set up a broker/dealer to act as an order-matching service to provide some liquidity for our shareholders. Our ultimate goal is to be traded on an exchange."
According to Field, to date Annie's "has clearly passed its minimum objective in terms of raising the money it needs and the number of investors participating. This direct offering brings the company a lot closer to its customers, many of whom are now shareholders in the business,' he says. "The challenge for Annie's is to realize that share ownership is now one of its product lines in terms of attention and service.
While the offering is set to close in August, "it is not uncommon to have 30% to 50% of the total amount come in during the last three to four weeks of an offering," Field says.
Annie's was founded by Ann Withey and Andrew Martin after the sale of their first company Smartfoods Inc., for $15 million to Pepsico/Frito-Lay in 1989. Withey and Martin own 38.31% and 38.27% of outstanding Annie's stock, respectively.
According to the company prospectus, if the maximum amount of the offering is sold, Withey and Martin will own 33.31% and 33 28% of the company's outstanding common stock, respectively, thus selling nearly 10% of the company in the offering. At the date of the prospectus, the company had 4 million shares of common stock outstanding. Annie's products are sold in natural foods stores and in mainstream supermarkets. Sales were reported at $3.02 million in 1994 and $1.22 million in the 1Q 95. Annie's is also involved as equal partners in Pasta Products Inc., a joint venture with Pasta USA Inc., in Spokane, WA, to manufacture and market a line of specialty organic pasta, the Earth and Life brand. Pasta USA is also the co-packer for Annie's Homegrown macaroni and cheese dinners.
For more information, contact Annie's Homegrown at  1.800.664.7336, or refer to the Annie's prospectus on the World Wide Web at http://www.annies.com.