WILD OATS MARKETS, INC.

EDWARD DUNLAP EQUITY INCENTIVE PLAN

1. PURPOSES

(a) The purpose of the Plan is to induce Edward Dunlap ("Executive"or "Optionee") to enter into an employment arrangement with Wild OatsMarkets, Inc. as Chief Financial Officer, and pursuant to which the Executivemay be given an opportunity to benefit from increases in value of the commonstock of the Company ("Common Stock") through the granting ofNonstatutory Stock Options.

(b) All Options shall be Nonstatutory Stock Options at the time of grant, andin such form as issued pursuant to Section 6, and a separate certificate orcertificates will be issued for shares purchased on exercise of each Option.

 

2. DEFINITIONS

(a) "AFFILIATE" means any parent corporation or subsidiarycorporation, whether now or hereafter existing, as those terms are defined inSections 424(e) and (f) respectively, of the Code.

(b) "BOARD" means the Board of Directors of the Company.

(c) "CODE" means the Internal Revenue Code of 1986, as amended.

(d) "COMMITTEE" means a Committee appointed by the Board inaccordance with subsection 3(c) of the Plan.

(e) "COMPANY" means Wild Oats Markets, Inc. a Delaware corporation.

(f) "CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT"means the employment or relationship as a Director or Consultant is notinterrupted or terminated. The Board, in its sole discretion, may determinewhether Continuous Status as an Employee, Director or Consultant shall beconsidered interrupted in the case of: (i) any leave of absence approved by theBoard, including sick leave, military leave, or any other personal leave; or(ii) transfers between locations of the Company or between the Company,Affiliates or their successors.

(g) "DIRECTOR" means a member of the Board.

(h) "EMPLOYEE" means any person, including Officers and Directors,employed by the Company or any Affiliate of the Company. Neither service as aDirector nor payment of a director's fee by the Company shall be sufficient toconstitute "employment" by the Company.

(i) "EXCHANGE ACT" means the Securities Exchange Act of 1934, asamended.

(j) "FAIR MARKET VALUE" means, as of any date, the value of theCommon Stock of the Company determined as follows:

> 
(1) If the Common Stock is listed on any established stock exchange, or  traded on the Nasdaq National Market or the Nasdaq SmallCap Market, the Fair  Market Value of a share of Common Stock shall be the closing sales price for  such stock (or the closing bid, if no sales were reported) as quoted on such  exchange or market (or the exchange or market with the greatest volume of  trading in Common Stock) on the last market trading day prior to the day of  determination, as reported in the Wall Street Journal or such other source as  the Board deems reliable;

(2) In the absence of such markets for the Common Stock, the Fair Market  Value shall be determined in good faith by the Board.

(k) "INCENTIVE STOCK OPTION" means an Option intended to qualify asan incentive stock option within the meaning of Section 422 of the Code and theregulations promulgated thereunder.

(l) "NONSTATUTORY STOCK OPTION" means an Option not intended toqualify as an Incentive Stock Option.

(m) "OFFICER" means a person who is an officer of the Companywithin the meaning of Section 16 of the Exchange Act and the rules andregulations promulgated thereunder.

(n) "OPTION" means a stock option granted pursuant to the Plan.

(o) "OPTION AGREEMENT" means a written agreement between theCompany and an Optionee evidencing the terms and conditions of an individualOption grant. Each Option Agreement shall be subject to the terms and conditionsof the Plan.

(p) "OPTIONEE" means a person to whom an Option is granted pursuantto the Plan.

(q) "PLAN" means this Wild Oats Markets, Inc. 1996 Equity IncentivePlan.

(r) "RULE 16B-3" means Rule 16b-3 of the Exchange Act or anysuccessor to Rule 16b-3, as in effect when discretion is being exercised withrespect to the Plan.

(s) "STOCK AWARD" means any right granted under the Plan, includingany Option.

(t) "STOCK AWARD AGREEMENT" means a written agreement between theCompany and a holder of a Stock Award evidencing the terms and conditions of anindividual Stock Award grant. Each Stock Award Agreement shall be subject to theterms and conditions of the Plan.

 

3. ADMINISTRATION

(a) The Plan shall be administered by the Board unless and until the Boarddelegates administration to a Committee, as provided in subsection 3(c).

(b) The Board shall have the power, subject to, and within the limitationsof, the express provisions of the Plan:

> 
(1) To determine when and how each Stock Award shall be granted; whether a  Stock Award will be an Incentive Stock Option or a Nonstatutory Stock Option.

(2) To construe and interpret the Plan and Stock Awards granted under it,  and to establish, amend and revoke rules and regulations for its  administration. The Board, in the exercise of this power, may correct any  defect, omission or inconsistency in the Plan or in any Stock Award Agreement,  in a manner and to the extent it shall deem necessary or expedient to make the  Plan fully effective.

(3) To amend the Plan or a Stock Award as provided in Section 13.

(4) Generally, to exercise such powers and to perform such acts as the  Board deems necessary or expedient to promote the best interests of the  Company which are not in conflict with the provisions of the Plan.

(c) The Board may delegate administration of the Plan to a committee orcommittees ("Committee") of one or more members of the Board. In thediscretion of the Board, a Committee may consist solely of two or more OutsideDirectors, in accordance with Code Section 162(m), or solely of two or moreNon-Employee Directors, in accordance with Rule 16(b)-3. If administration isdelegated to a Committee, the Committee shall have, in connection with theadministration of the Plan, the powers theretofore possessed by the Board (andreferences in this Plan to the Board shall thereafter be to the Committee),subject, however, to such resolutions, not inconsistent with the provisions ofthe Plan, as may be adopted from time to time by the Board. The Board mayabolish the Committee at any time and revest in the Board the administration ofthe Plan.

 

4. SHARES SUBJECT TO THE PLAN

(a) Subject to the provisions of Section 12 relating to adjustments uponchanges in stock, the stock that may be issued pursuant to Stock Awards shallnot exceed in the aggregate 120,000 shares of the Common Stock. If any StockAward shall for any reason expire or otherwise terminate, in whole or in part,without having been exercised in full (or vested in the case of RestrictedStock), the stock not acquired under such Stock Award shall cease to be subjectto the Plan.

(b) The stock subject to the Plan may be unissued shares or reacquiredshares, bought on the market or otherwise.

 

5. ELIGIBILITY

(a) Stock Awards other than Incentive Stock Options may be granted only toEmployees, Directors or Consultants.

(b) Subject to the provisions of Section 12 relating to adjustments uponchanges in stock, no person shall be eligible to be granted Options coveringmore than one hundred thousand (100,000) shares of the Common Stock in anycalendar year. This subsection 5(c) shall not apply until (i) the earliest of:(A) the first material modification of the Plan (including any increase to thenumber of shares reserved for issuance under the Plan in accordance with Section4); (B) the issuance of all of the shares of Common Stock reserved for issuanceunder the Plan; (C) the expiration of the Plan; or (ii) such other date requiredby Section 162(m) of the Code and the rules and regulations promulgatedthereunder.

 

6. OPTION PROVISIONS

Each Option shall be in such form and shall contain such terms and conditionsas the Board shall deem appropriate. The provisions of separate Options need notbe identical, but each Option shall include (through incorporation of provisionshereof by reference in the Option or otherwise) the substance of each of thefollowing provisions:

(a) TERM. No Option shall be exercisable after the expiration of ten (10)years from the date it was granted.

(b) PRICE. The exercise price of each Nonstatutory Stock Option shall be notless than eighty-five percent (85%) of the Fair Market Value of the stocksubject to the Option on the date the Option is granted. Notwithstanding theforegoing, an Option may be granted with an exercise price lower than that setforth in the preceding sentence if such Option is granted pursuant to anassumption or substitution for another option in a manner satisfying theprovisions of Section 424(a) of the Code.

(c) CONSIDERATION. The purchase price of stock acquired pursuant to an Optionshall be paid, to the extent permitted by applicable statutes and regulations,either (i) in cash at the time the Option is exercised, or (ii) at thediscretion of the Board or the Committee, at the time of the grant of theOption, (A) by delivery to the Company of other Common Stock of the Company, (B)according to a deferred payment or other arrangement (which may include, withoutlimiting the generality of the foregoing, the use of other Common Stock of theCompany) with the person to whom the Option is granted or to whom the Option istransferred pursuant to subsection 6(d), or (C) in any other form of legalconsideration that may be acceptable to the Board.

In the case of any deferred payment arrangement, interest shall be payable atleast annually and shall be charged at the minimum rate of interest necessary toavoid the treatment as interest, under any applicable provisions of the Code, ofany amounts other than amounts stated to be interest under the deferred paymentarrangement.

(d) TRANSFERABILITY. A Nonstatutory Stock Option may be transferred to theextent provided in the Option Agreement; provided that if the Option Agreementdoes not expressly permit the transfer of a Nonstatutory Stock Option, theNonstatutory Stock Option shall not be transferable except by will, by the lawsof descent and distribution or pursuant to a domestic relations order satisfyingthe requirements of Rule 16b-3 and shall be exercisable during the lifetime ofthe person to whom the Option is granted only by such person or any transfereepursuant to a domestic relations order. Notwithstanding the foregoing, theperson to whom the Option is granted may, by delivering written notice to theCompany, in a form satisfactory to the Company, designate a third party who, inthe event of the death of the Optionee, shall thereafter be entitled to exercisethe Option.

(e) VESTING. The total number of shares of stock subject to an Option may,but need not, be allotted in periodic installments (which may, but need not, beequal). The Option Agreement may provide that from time to time during each ofsuch installment periods, the Option may become exercisable ("vest")with respect to some or all of the shares allotted to that period, and may beexercised with respect to some or all of the shares allotted to such periodand/or any prior period as to which the Option became vested but was not fullyexercised. The Option may be subject to such other terms and conditions on thetime or times when it may be exercised (which may be based on performance orother criteria) as the Board may deem appropriate. The provisions of thissubsection 6(e) are subject to any Option provisions governing the minimumnumber of shares as to which an Option may be exercised.

(f) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR CONSULTANT. Inthe event an Optionee's Continuous Status as an Employee, Director or Consultantterminates (other than upon the Optionee's death or disability), the Optioneemay exercise his or her Option (to the extent that the Optionee was entitled toexercise it at the date of termination) but only within such period of timeending on the earlier of (i) the date thirty (30) days after the termination ofthe Optionee's Continuous Status as an Employee, Director or Consultant (or suchlonger or shorter period specified in the Option Agreement), or (ii) theexpiration of the term of the Option as set forth in the Option Agreement. If,after termination, the Optionee does not exercise his or her Option within thetime specified in the Option Agreement, the Option shall terminate, and theshares covered by such Option shall revert to and again become available forissuance under the Plan.

An Optionee's Option Agreement may also provide that if the exercise of theOption following the termination of the Optionee's Continuous Status as anEmployee, Director, or Consultant (other than upon the Optionee's death ordisability) would result in liability under Section 16(b) of the Exchange Act,then the Option shall terminate on the earlier of (i) the expiration of the termof the Option set forth in the Option Agreement, or (ii) the tenth (10th) dayafter the last date on which such exercise would result in such liability underSection 16(b) of the Exchange Act. Finally, an Optionee's Option Agreement mayalso provide that if the exercise of the Option following the termination of theOptionee's Continuous Status as an Employee, Director or Consultant (other thanupon the Optionee's death or disability) would be prohibited at any time solelybecause the issuance of shares would violate the registration requirements underthe Act, then the Option shall terminate on the earlier of (i) the expiration ofthe term of the Option set forth in the first paragraph of this subsection 6(f),or (ii) the expiration of a period of thirty (30) days after the termination ofthe Optionee's Continuous Status as an Employee, Director or Consultant duringwhich the exercise of the Option would not be in violation of such registrationrequirements.

(g) DISABILITY OF OPTIONEE. In the event an Optionee's Continuous Status asan Employee, Director or Consultant terminates as a result of the Optionee'sdisability, the Optionee may exercise his or her Option (to the extent that theOptionee was entitled to exercise it at the date of termination), but onlywithin such period of time ending on the earlier of (i) the date six (6) monthsfollowing such termination (or such longer or shorter period specified in theOption Agreement), or (ii) the expiration of the term of the Option as set forthin the Option Agreement. If, at the date of termination, the Optionee is notentitled to exercise his or her entire Option, the shares covered by theunexercisable portion of the Option shall revert to and again become availablefor issuance under the Plan. If, after termination, the Optionee does notexercise his or her Option within the time specified herein, the Option shallterminate, and the shares covered by such Option shall revert to and againbecome available for issuance under the Plan.

(h) DEATH OF OPTIONEE. In the event of the death of an Optionee during, orwithin a period specified in the Option after the termination of, the Optionee'sContinuous Status as an Employee, Director or Consultant, the Option may beexercised (to the extent the Optionee was entitled to exercise the Option at thedate of death) by the Optionee's estate, by a person who acquired the right toexercise the Option by bequest or inheritance or by a person designated toexercise the option upon the Optionee's death pursuant to subsection 6(d), butonly within the period ending on the earlier of (i) the date twelve (12) monthsfollowing the date of death (or such longer or shorter period specified in theOption Agreement), or (ii) the expiration of the term of such Option as setforth in the Option Agreement. If, at the time of death, the Optionee was notentitled to exercise his or her entire Option, the shares covered by theunexercisable portion of the Option shall revert to and again become availablefor issuance under the Plan. If, after death, the Option is not exercised withinthe time specified herein, the Option shall terminate, and the shares covered bysuch Option shall revert to and again become available for issuance under thePlan.

(i) EARLY EXERCISE. The Option may, but need not, include a provision wherebythe Optionee may elect at any time while an Employee, Director or Consultant toexercise the Option as to any part or all of the shares subject to the Optionprior to the full vesting of the Option. Any unvested shares so purchased may besubject to a repurchase right in favor of the Company or to any otherrestriction the Board determines to be appropriate.

(j) RE-LOAD OPTIONS. Without in any way limiting the authority of the Boardor Committee to make or not to make grants of Options hereunder, the Board orCommittee shall have the authority (but not an obligation) to include as part ofany Option Agreement a provision entitling the Optionee to a further Option (a"Re-Load Option") in the event the Optionee exercises the Optionevidenced by the Option agreement, in whole or in part, by surrendering othershares of Common Stock in accordance with this Plan and the terms and conditionsof the Option Agreement. Any such Re-Load Option (i) shall be for a number ofshares equal to the number of shares surrendered as part or all of the exerciseprice of such Option; (ii) shall have an expiration date which is the same asthe expiration date of the Option the exercise of which gave rise to suchRe-Load Option; and (iii) shall have an exercise price which is equal to onehundred percent (100%) of the Fair Market Value of the Common Stock subject tothe Re-Load Option on the date of exercise of the original Option.

Any such Re-Load Option shall be a Nonstatutory Stock Option. There shall beno Re-Load Options on a Re-Load Option. Any such Re-Load Option shall be subjectto the availability of sufficient shares under subsection 4(a) and shall besubject to such other terms and conditions as the Board or Committee maydetermine which are not inconsistent with the express provisions of the Planregarding the terms of Options.

7. RESERVED

8. CANCELLATION AND RE-GRANT OF OPTIONS

(a) The Board or the Committee shall have the authority to effect, at anytime and from time to time, (i) the repricing of any outstanding Options underthe Plan and/or (ii) with the consent of any adversely affected holders ofOptions, the cancellation of any outstanding Options under the Plan and thegrant in substitution therefor of new Options under the Plan covering the sameor different numbers of shares of stock, but having an exercise price per sharenot less than eighty-five percent (85%) of the Fair Market Value for aNonstatutory Stock Option. Notwithstanding the foregoing, the Board or theCommittee may grant an Option with an exercise price lower than that set forthabove if such Option is granted as part of a transaction to which section 424(a)of the Code applies.

(b) Shares subject to an Option canceled under this Section 8 shall continueto be counted against the maximum award of Options permitted to be grantedpursuant to subsection 5(c) of the Plan. The repricing of an Option under thisSection 7, resulting in a reduction of the exercise price, shall be deemed to bea cancellation of the original Option and the grant of a substitute Option; inthe event of such repricing, both the original and the substituted Options shallbe counted against the maximum awards of Options permitted to be grantedpursuant to subsection 5(c) of the Plan. The provisions of this subsection 8(b)shall be applicable only to the extent required by Section 162(m) of the Code.

 

9. COVENANTS OF THE COMPANY

(a) During the terms of the Stock Awards, the Company shall keep available atall times the number of shares of stock required to satisfy such Stock Awards.

(b) The Company shall seek to obtain from each regulatory commission oragency having jurisdiction over the Plan such authority as may be required toissue and sell shares under Stock Awards; provided, however, that thisundertaking shall not require the Company to register under the Securities Actof 1933, as amended (the "Securities Act") either the Plan, any StockAward or any stock issued or issuable pursuant to any such Stock Award. If,after reasonable efforts, the Company is unable to obtain from any suchregulatory commission or agency the authority which counsel for the Companydeems necessary for the lawful issuance and sale of stock under the Plan, theCompany shall be relieved from any liability for failure to issue and sell stockupon exercise of such Stock Awards unless and until such authority is obtained.

 

10. USE OF PROCEEDS FROM STOCK

Proceeds from the sale of stock pursuant to Stock Awards shall constitutegeneral funds of the Company.

 

11. MISCELLANEOUS

(a) The Board shall have the power to accelerate the time at which a StockAward may first be exercised or the time during which a Stock Award or any partthereof will vest pursuant to subsection 6(e) or 7(d), notwithstanding theprovisions in the Stock Award stating the time at which it may first beexercised or the time during which it will vest.

(b) Neither an Employee, Director nor a Consultant nor any person to whom aStock Award is transferred in accordance with the Plan shall be deemed to be theholder of, or to have any of the rights of a holder with respect to, any sharessubject to such Stock Award unless and until such person has satisfied allrequirements for exercise of the Stock Award pursuant to its terms.

(c) Nothing in the Plan or any instrument executed or Stock Award grantedpursuant thereto shall confer upon any Employee, Consultant or other holder ofStock Awards any right to continue in the employ of the Company or any Affiliateor to continue serving as a Consultant and Director, or shall affect the rightof the Company or any Affiliate to terminate the employment of any Employee withor without notice and with or without cause, or the right to terminate therelationship of any Consultant pursuant to the terms of such Consultant'sagreement with the Company or Affiliate or service as a Director pursuant to theCompany's By-laws.

(d) To the extent that the aggregate Fair Market Value (determined at thetime of grant) of stock with respect to which Incentive Stock Options areexercisable for the first time by any Optionee during any calendar year underall plans of the Company and its Affiliates exceeds one hundred thousand dollars($100,000), the Options or portions thereof which exceed such limit (accordingto the order in which they were granted) shall be treated as Nonstatutory StockOptions.

(e) The Company may require any person to whom a Stock Award is granted, orany person to whom a Stock Award is transferred in accordance with the Plan, asa condition of exercising or acquiring stock under any Stock Award, (1) to givewritten assurances satisfactory to the Company as to such person's knowledge andexperience in financial and business matters and/or to employ a purchaserrepresentative reasonably satisfactory to the Company who is knowledgeable andexperienced in financial and business matters, and that he or she is capable ofevaluating, alone or together with the purchaser representative, the merits andrisks of exercising the Stock Award; and (2) to give written assurancessatisfactory to the Company stating that such person is acquiring the stocksubject to the Stock Award for such person's own account and not with anypresent intention of selling or otherwise distributing the stock. The foregoingrequirements, and any assurances given pursuant to such requirements, shall beinoperative if (i) the issuance of the shares upon the exercise or acquisitionof stock under the Stock Award has been registered under a then currentlyeffective registration statement under the Securities Act, or (ii) as to anyparticular requirement, a determination is made by counsel for the Company thatsuch requirement need not be met in the circumstances under the then applicablesecurities laws. The Company may, upon advice of counsel to the Company, placelegends on stock certificates issued under the Plan as such counsel deemsnecessary or appropriate in order to comply with applicable securities laws,including, but not limited to, legends restricting the transfer of the stock.

(f) To the extent provided by the terms of a Stock Award Agreement, theperson to whom a Stock Award is granted may satisfy any federal, state or localtax withholding obligation relating to the exercise or acquisition of stockunder a Stock Award by any of the following means or by a combination of suchmeans: (1) tendering a cash payment; (2) authorizing the Company to withholdshares from the shares of the Common Stock otherwise issuable to the participantas a result of the exercise or acquisition of stock under the Stock Award; or(3) delivering to the Company owned and unencumbered shares of the Common Stockof the Company.

 

12. ADJUSTMENTS UPON CHANGES IN STOCK

(a) If any change is made in the stock subject to the Plan, or subject to anyStock Award, without the receipt of consideration by the Company (throughmerger, consolidation, reorganization, recapitalization, reincorporation, stockdividend, dividend in property other than cash, stock split, liquidatingdividend, combination of shares, exchange of shares, change in corporatestructure or other transaction not involving the receipt of consideration by theCompany), the Plan will be appropriately adjusted in the class(es) and maximumnumber of shares subject to the Plan pursuant to subsection 4(a) and the maximumnumber of shares subject to award to any person during any calendar yearpursuant to subsection 5(d), and the outstanding Stock Awards will beappropriately adjusted in the class(es) and number of shares and price per shareof stock subject to such outstanding Stock Awards. Such adjustments shall bemade by the Board or the Committee, the determination of which shall be final,binding and conclusive. (The conversion of any convertible securities of theCompany shall not be treated as a "transaction not involving the receipt ofconsideration by the Company".)

(b) In the event of: (1) a dissolution, liquidation or sale of substantiallyall of the assets of the Company; (2) a merger or consolidation in which theCompany is not the surviving corporation; or (3) a reverse merger in which theCompany is the surviving corporation but the shares of the Company's commonstock outstanding immediately preceding the merger are converted by virtue ofthe merger into other property, whether in the form of securities, cash orotherwise, then to the extent permitted by applicable law: (i) any survivingcorporation or an Affiliate of such surviving corporation shall assume any StockAwards outstanding under the Plan or shall substitute similar Stock Awards forthose outstanding under the Plan, or (ii) such Stock Awards shall continue infull force and effect. In the event any surviving corporation and its Affiliatesrefuse to assume or continue such Stock Awards, or to substitute similar optionsfor those outstanding under the Plan, then, with respect to Stock Awards held bypersons then performing services as Employees, Directors or Consultants, thetime during which such Stock Awards may be exercised shall be accelerated andthe Stock Awards terminated if not exercised prior to such event.

 

13. AMENDMENT OF THE PLAN AND STOCK AWARDS

(a) The Board at any time, and from time to time, may amend the Plan.However, except as provided in Section 12 relating to adjustments upon changesin stock, no amendment shall be effective unless approved by the stockholders ofthe Company to the extent stockholder approval is necessary for the Plan tosatisfy the requirements of Section 422 of the Code, Rule 16b-3 or any Nasdaq orsecurities exchange listing requirements.

(b) The Board may in its sole discretion submit any other amendment to thePlan for stockholder approval, including, but not limited to, amendments to thePlan intended to satisfy the requirements of Section 162(m) of the Code and theregulations thereunder regarding the exclusion of performance-based compensationfrom the limit on corporate deductibility of compensation paid to certainexecutive officers.

(c) It is expressly contemplated that the Board may amend the Plan in anyrespect the Board deems necessary or advisable to provide the Executive with themaximum benefits provided or to be provided under the provisions of the Code andthe regulations promulgated thereunder relating to Incentive Stock Optionsand/or to bring the Plan and/or Incentive Stock Options granted under it intocompliance therewith.

(d) Rights and obligations under any Stock Award granted before amendment ofthe Plan shall not be impaired by any amendment of the Plan unless (i) theCompany requests the consent of the person to whom the Stock Award was grantedand (ii) such person consents in writing.

(e) The Board at any time, and from time to time, may amend the terms of anyone or more Stock Award; provided, however, that the rights and obligationsunder any Stock Award shall not be impaired by any such amendment unless (i) theCompany requests the consent of the person to whom the Stock Award was grantedand (ii) such person consents in writing.

 

14. TERMINATION OR SUSPENSION OF THE PLAN

(a) The Board may suspend or terminate the Plan at any time. Unless soonerterminated, the Plan shall terminate ten (10) years from the date the Plan isadopted by the Board or approved by the stockholders of the Company, whicheveris earlier. No Stock Awards may be granted under the Plan while the Plan issuspended or after it is terminated.

(b) Rights and obligations under any Stock Award granted while the Plan is ineffect shall not be impaired by suspension or termination of the Plan, exceptwith the consent of the person to whom the Stock Award was granted.

 

15. EFFECTIVE DATE OF PLAN.

This Plan shall become effective on the date of hire of the Executive.

 

 

WILD OATS MARKETS, INC.

NON-QUALIFIED STOCK OPTION

 

EDWARD DUNLAP, Optionee:

 

Wild Oats Markets, Inc. (the "Company"), pursuant to the EdwardDunlap Equity Incentive Plan (the "Plan"), has this day granted toyou, the optionee named above, an option to purchase shares of the common stockof the Company ("Common Stock"). This option is not intended toqualify and will not be treated as an "incentive stock option" withinthe meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the"Code").

The details of your option are as follows:

1. (a) The total number of shares of Common Stock subject to this option is____________________________

(a) Subject to the conditions stated herein, this option shall be exercisablewith respect to each installment shown below on or after the date of vestingapplicable to such installment; provided, however, that should Optionee'semployment terminate for "cause" this option shall be terminated andcanceled immediately and shall not be exercisable for any number of shares. Forpurposes of this option, "cause" shall mean misconduct including, butnot limited to, criminal acts involving moral turpitude or dishonesty.

> 
NUMBER OF SHARES (INSTALLMENT)

DATE OF EARLIEST EXERCISE (VESTING)

2. (a) The exercise price of this option is ___________________ ($_______)per share, being not less than eighty five percent (85%) of the fair marketvalue of the Common Stock on the date of grant of this option.

(a) Payment of the exercise price per share is due in full in cash (includingcheck) upon exercise of all or any part of each installment which has becomeexercisable by you.

(b) Notwithstanding the foregoing, this option may be exercised pursuant to aprogram developed under Regulation T as promulgated by the Federal Reserve Boardwhich results in the receipt of cash (or check) by the Company prior to theissuance of Common Stock.

3. This option may not be exercised for any number of shares which wouldrequire the issuance of anything other than whole shares.

4. Notwithstanding anything to the contrary contained herein, this option maynot be exercised unless the shares issuable upon exercise of this option arethen registered under the Act or, if such shares are not then so registered, theCompany has determined that such exercise and issuance would be exempt from theregistration requirements of the Act.

5. The term of this option commences on the date hereof and, unless soonerterminated as set forth below or in the Plan, terminates ten (10) years from thedate of grant. In no event may this option be exercised on or after the date onwhich it terminates. This option shall terminate prior to the expiration of itsterm as follows: Thirty (30) days after the termination of your employment withthe Company for any reason or for no reason unless;

(a) such termination of employment is due to your permanent and totaldisability (within the meaning of Section 422(c)(6) of the Code), in which eventthe option shall terminate on the earlier of the termination date set forthabove or six (6) months following such termination of employment; or

(b) such termination of employment is due to your death, in which event theoption shall terminate on the earlier of the termination date set forth above ortwelve (12) months after your death; or

(c) during any part of such thirty (30) days period the option is notexercisable solely because of the condition set forth in paragraph 4 above, inwhich event the option shall not terminate until the earlier of the terminationdate set forth above or until it shall have been exercisable for an aggregateperiod of thirty (30) days after the termination of employment.

However, this option may be exercised on or after the termination ofemployment only as to that number of vested shares as to which it wasexercisable on the date of termination of employment under the provisions ofparagraphs 1 and 3 of this option; provided however, that if your employment isterminated prior to the First Exercise Date (as defined in subparagraph 3(a)hereof), subject to paragraph 1 hereof, the date of your termination ofemployment shall be deemed the First Exercise Date.

6. (a) This option may be exercised, to the extent specified above, bydelivering a notice of exercise (in a form designated by the Company) togetherwith the exercise price to the Secretary of the Company, or to such other personas the Company may designate, during regular business hours, together with suchadditional documents as the Company may then require pursuant to the Plan.

> 
(i) By exercising this option you agree that the Company may require you to  enter an arrangement providing for the payment by you to the Company of any  tax withholding obligation of the Company arising by reason of (1) the  exercise of this option; (2) the lapse of any substantial risk of forfeiture  to which the shares are subject at the time of exercise; or (3) the  disposition of shares acquired upon such exercise.

7. This option is not transferable, except by will or by the laws of descentand distribution, and is exercisable during your life only by you.

8. Any notices provided for in this option shall be given in writing andshall be deemed effectively given upon receipt or, in the case of noticesdelivered by the Company to you, five (5) days after deposit in the UnitedStates mail, postage prepaid, addressed to you at the address specified below orat such other address as you hereafter designate by written notice to theCompany.

9. If the partners hereto shall have any conflict regarding the terms of thisoption, the interpretation of the Company's Compensation Committee shallprevail.

Dated the ______ day of _________________, 200_.

Very truly yours,

WILD OATS MARKETS, INC.

 

By ___________________________________

Duly authorized on behalf of the Board of Directors

The undersigned:

(a) Acknowledges receipt of the foregoing option and the attachmentsreferenced therein and understands that all rights and liabilities with respectto this option are set forth in the option and the Plan; and

(b) Acknowledges that as of the date of grant of this option, it sets forththe entire understanding between the undersigned optionee and the Company andits affiliates regarding the acquisition of stock in the Company and supersedesall prior oral and written agreements on that subject with the exception of thefollowing agreements only:

NONE _____________________

> 
(Initial)

OTHER __________________________________________________________

__________________________________________________________

__________________________________________________________

 

> 
___________________________________________________

Optionee

 

Address: ___________________________________________

___________________________________________

 
** 

NOTICE OF EXERCISE**
 

 

Date of Exercise

 

Wild Oats Markets, Inc.

3375 Mitchell Lane

Boulder, CO 80301

Ladies and Gentlemen:

This constitutes notice under my stock option that I elect to purchase thenumber of shares for the price set forth below.

 

 

Type of option       Nonstatutory

Stock option dated:

Number of shares as to which

option is exercised:

Certificates to be issued in

name of: _____________________

Total exercise price: $

Cash payment delivered herewith: $

 

By this exercise, I agree (i) to provide such additional documents as you mayrequire pursuant to the terms of the Edward Dunlap Equity Incentive Plan, (ii)to provide for the payment by me to you (in the manner designated by you) ofyour withholding obligation, if any, relating to the exercise of this option,and (iii) if this exercise related to an incentive stock option, to notify youin writing within fifteen (15) days after the date of any disposition of any ofthe shares of Common Stock issued upon exercise of this option that occurswithin two (2) years after the date of grant of this option or within one (1)year after such shares of Common Stock are issued upon exercise of this option.

I hereby make the following certifications and representations with respectto the number of shares of Common Stock of the Company listed above (the"Shares"), which are being acquired by me for my own account uponexercise of the Option as set forth above:

 

I further acknowledge that I will not be able to resell the Shares for atleast ninety days after the stock of the Company becomes publicly traded (i.e.,subject to the reporting requirements of Section 13 of 15(d) of the SecuritiesExchange Act of 1934) under Rule 701 and that more restrictive conditions applyto affiliates of the Company under Rule 144.

I further acknowledge that all certificates representing any of the Sharessubject to the provisions of the Option shall have endorsed thereon appropriatelegends reflecting the foregoing limitations, as well as any legends reflectingrestrictions pursuant to the Company's Articles of Incorporation, Bylaws and/orapplicable securities laws.

I further agree that, if required by the Company (or a representative of theunderwriters) in connection with the first underwritten registration of theoffering of any securities of the Company under the Act, I will not sell orotherwise transfer or dispose of my shares of Common Stock or other securitiesof the Company during such period (not to exceed two hundred seventy (270) days)following the effective date of the registration statement of the Company filedunder the Act (the "Effective Date") as may be requested by theCompany or the representative of the underwriters. For purposes of thisrestriction I will be deemed to own securities that (i) are owned directly orindirectly by me, including securities held for my benefit by nominees,custodians, brokers or pledges; (ii) may be acquired by me within sixty (60)days of the Effective Date; (iii) are owned directly or indirectly, by or for mybrothers or sisters (whether by whole or half blood), spouse, ancestors andlineal descendants; or (iv) are owned, directly or indirectly, by or for acorporation, partnership, estate or trust of which I am a shareholder, partneror beneficiary, but only to the extent of my proportionate interest therein as ashareholder, partner or beneficiary thereof. I further agree that the Companymay impose stop-transfer instructions with respect to securities subject to theforegoing restrictions until the end of such period.

Very truly yours,

_________________________________