Exhibit 10.5



 






Exhibit 10.5




SEVERANCE AGREEMENT




THIS AGREEMENT, dated October 30, 2006, is made by and between Wild Oats Markets, Inc., a Delaware corporation
(the “Company”), and Roger E. Davidson (the “Executive”).



WHEREAS, the Company considers it essential to the best interests of its stockholders to foster the continued
employment of key management personnel; and



WHEREAS, the Board recognizes that, as is the case with many publicly held corporations, the possibility of a
Change in Control exists and that such possibility, and the uncertainty and questions which it may raise among
management, may result in the departure or distraction of management personnel to the detriment of the Company and its
stockholders; and



WHEREAS, the Board has determined that appropriate steps should be taken to reinforce and encourage the continued
attention and dedication of members of the Company’s management, including the Executive, to their assigned duties
without distraction in the face of potentially disturbing circumstances arising from the possibility of a Change in
Control;



NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the Company and the
Executive hereby agree as follows:



1. Defined Terms. The definitions of capitalized terms used in this Agreement are provided in the last
Section hereof.


 


 


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2. Term of Agreement. The Term of this Agreement shall commence on the date hereof and shall continue in
effect through December 31, 2006; commencing thereafter, the Term shall automatically be extended for one additional
year unless, not later than September 30 of the preceding year, the Company or the Executive shall have given notice
not to extend the Term; and further provided, however, that if a Change in Control shall have
occurred during the Term, the Term shall expire no earlier than twenty-four (24) months beyond the month in which such
Change in Control occurred.



3. Company’s Covenants Summarized. In order to induce the Executive to remain in the employ of the
Company and in consideration of the Executive’s covenants set forth in Section 4 hereof, the Company agrees, under the
conditions described herein, to pay the Executive the Severance Benefits and the other payments and benefits described
herein. Except as provided in Section 10.1 hereof, no Severance Benefits shall be payable under this Agreement unless
there shall have been (or, under the terms of the second sentence of Section 6.1 hereof, there shall be deemed to have
been) a termination of the Executive’s employment with the Company following a Change in Control and during the Term.
This Agreement shall not be construed as creating an express or implied contract of employment and, except as otherwise
agreed in writing between the Executive and the Company, the Executive shall not have any right to be retained in the
employ of the Company.



4. The Executive’s Covenants. The Executive agrees that, subject to the terms and conditions of this
Agreement, in the event of a Potential Change in Control during the Term, the Executive will remain in the employ of
the Company until the earliest of (i) a date which is six (6) months from the date of such Potential Change in



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Control, (ii) the date of a Change in Control, (iii) the date of termination by the Executive of the Executive’s
employment for Good Reason or by reason of death, Disability or Retirement, or (iv) the termination by the Company of
the Executive’s employment for any reason.



5. Compensation Other Than Severance Benefits.



5.1 Following a Change in Control and during the Term, during any period that the Executive fails to perform the
Executive’s full-time duties with the Company as a result of incapacity due to physical or mental illness, the Company
shall pay the Executive’s full salary to the Executive at the rate in effect at the commencement of any such period,
together with all compensation and benefits payable to the Executive under the terms of any compensation or benefit
plan, program or arrangement maintained by the Company during such period (other than any disability plan), until the
Executive’s employment is terminated by the Company for Disability.



5.2 If the Executive’s employment shall be terminated for any reason following a Change in Control and during the
Term, the Company shall pay the Executive’s full salary to the Executive through the Date of Termination at the rate in
effect immediately prior to the Date of Termination or, if higher, the rate in effect immediately prior to the first
occurrence of an event or circumstance constituting Good Reason, together with all compensation and benefits payable to
the Executive through the Date of Termination under the terms of the Company’s compensation and benefit plans, programs
or arrangements as in effect immediately prior to the Date of Termination or, if more favorable to the Executive, as in
effect immediately prior to the first occurrence of an event or circumstance constituting Good Reason.



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5.3 If the Executive’s employment shall be terminated for any reason following a Change in Control and during the
Term, the Company shall pay to the Executive the Executive’s normal post-termination compensation and benefits as such
payments become due. Such post-termination compensation and benefits shall be determined under, and paid in accordance
with, the Company’s retirement, insurance and other compensation or benefit plans, programs and arrangements as in
effect immediately prior to the Date of Termination or, if more favorable to the Executive, as in effect immediately
prior to the occurrence of the first event or circumstance constituting Good Reason.



6. Severance Benefits.



6.1 Subject to Section 9 below, if the Executive’s employment is terminated following a Change in Control and
during the Term, other than (A) by the Company for Cause, (B) by reason of death or Disability, or (C) by the Executive
without Good Reason, then the Company shall pay the Executive the amounts, and provide the Executive the benefits,
described in this Section 6.1 (“Severance Benefits”) and the payment referred to in Section 6.2, in addition to any
payments and benefits to which the Executive is entitled under Section 5 hereof. For purposes of this Agreement, the
Executive’s employment shall be deemed to have been terminated following a Change in Control by the Company without
Cause or by the Executive with Good Reason, if (i) the Executive’s employment is terminated by the Company without
Cause prior to a Change in Control (whether or not a Change in Control ever occurs) and such termination was at the
request or direction of a Person who has entered into an agreement with the Company the consummation of which would
constitute a Change in Control, (ii) the Executive



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terminates his employment for Good Reason prior to a Change in Control (whether or not a Change in Control ever
occurs) and the circumstance or event which constitutes Good Reason occurs at the request or direction of such Person,
or (iii) the Executive’s employment is terminated by the Company without Cause or by the Executive for Good Reason and
such termination or the circumstance or event which constitutes Good Reason is otherwise in connection with or in
anticipation of a Change in Control (whether or not a Change in Control ever occurs). For purposes of any
determination regarding the applicability of the immediately preceding sentence, any position taken by the Executive
shall be presumed to be correct unless the Company establishes to the Committee by clear and convincing evidence that
such position is not correct. The Executive shall not be entitled to receive any Severance Benefits under this
Agreement under any circumstances other than those set forth in this paragraph.




(A) In lieu of any further salary payments to the Executive for periods subsequent to the Date of
Termination and in lieu of any severance benefit otherwise payable to the Executive, the Company shall pay to
the Executive a lump sum severance payment, in cash, equal to two times the sum of (i) the Executive’s base
salary as in effect immediately prior to the Date of Termination or, if higher, in effect immediately prior
to the first occurrence of an event or circumstance constituting Good Reason, and (ii) the average annual
bonus earned by the Executive pursuant to any discretionary annual bonus or incentive plan maintained by the
Company in respect of the two fiscal years ending immediately prior to the fiscal year in which occurs the
Date of Termination or, if the Executive has not been eligible for at least two annual



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bonuses as of the Date of Termination, the bonus earned by the Executive in respect of the fiscal year
immediately prior to the fiscal year in which occurs the Date of Termination.




(B) For the twenty-four (24) month period immediately following the Date of Termination, the Company
shall arrange to provide the Executive and his dependents life, disability, accident and health insurance
benefits substantially similar to those provided to the Executive and his dependents immediately prior to the
Date of Termination or, if more favorable to the Executive, those provided to the Executive and his
dependents immediately prior to the first occurrence of an event or circumstance constituting Good Reason, at
no greater cost to the Executive than the cost to the Executive immediately prior to such date or occurrence;
provided, however, that, unless the Executive consents to a different method (after taking
into account the effect of such method on the calculation of “parachute payments” pursuant to Section 6.2
hereof), such health insurance benefits shall be provided through a third-party insurer. Benefits otherwise
receivable by the Executive pursuant to this Section 6.1(B) shall be reduced to the extent benefits of the
same type are received by or made available to the Executive during the twenty-four (24) month period
following the Executive’s termination of employment (and any such benefits received by or made available to
the Executive shall be reported to the Company by the Executive); provided, however, that the
Company shall reimburse the Executive for the excess, if any, of the cost of such benefits to the Executive
over such cost immediately prior to the Date of Termination or, if more favorable to



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the Executive, the first occurrence of an event or circumstance constituting Good Reason.




(C) Notwithstanding any provision of any annual or long-term incentive plan to the contrary, the Company
shall pay to the Executive a lump sum amount, in cash, equal to the sum of (i) any unpaid incentive
compensation which has been allocated or awarded to the Executive for a completed fiscal year or other
measuring period preceding the Date of Termination under any such plan and which, as of the Date of
Termination, is contingent only upon the continued employment of the Executive to a subsequent date, and (ii)
a pro rata portion to the Date of Termination of the aggregate value of all contingent incentive compensation
awards to the Executive for all then uncompleted periods under any such plan, calculated as to each such
award by multiplying the award that the Executive would have earned on the last day of the performance award
period, assuming the achievement, at the target level of the individual and corporate performance goals
established with respect to such award, if the Company’s incentive compensation plan has such a concept, or,
if not, at a level commensurate with the Executive’s position at the Company and the incentive compensation
awards paid to similarly situated executives of the Company, by the fraction obtained by dividing the number
of full months and any fractional portion of a month during such performance award period through the Date of
Termination by the total number of months contained in such performance award period.



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(D) In addition to the benefits to which the Executive is entitled under each DC Pension Plan, the
Company shall pay the Executive a lump sum amount, in cash, equal to the sum of (i) the amount that would
have been contributed thereto by the Company on the Executive’s behalf during the two years immediately
following the Date of Termination, determined (x) as if the Executive made the maximum permissible
contributions thereto during such period, (y) as if the Executive earned compensation during such period at a
rate equal to the Executive’s compensation (as defined in the DC Pension Plan) during the twelve (12) months
immediately preceding the Date of Termination or, if higher, during the twelve months immediately prior to
the first occurrence of an event or circumstance constituting Good Reason, and (z) without regard to any
amendment to the DC Pension Plan made subsequent to a Change in Control and on or prior to the Date of
Termination, which amendment adversely affects in any manner the computation of benefits thereunder, and (ii)
the excess, if any, of (x) the Executive’s account balance under the DC Pension Plan as of the Date of
Termination over (y) the portion of such account balance that is nonforfeitable under the terms of the DC
Pension Plan.




(E) Each option to acquire common stock of the Company granted under a Company incentive plan or other
arrangement that is held by the Executive on the Date of Termination shall, as of such date, vest and become
immediately exercisable in full.



6.2 (A) Subject to Section 9 below, whether or not the Executive becomes entitled to the Severance Benefits, if
any of the payments or benefits received or



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to be received by the Executive in connection with a Change in Control or the Executive’s termination of
employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the
Company, any Person whose actions result in a Change in Control or any Person affiliated with the Company or such
Person) (all such payments and benefits, excluding the Gross-Up Payment, being hereinafter referred to as the “Total
Payments”) will be subject to the Excise Tax, the Company shall pay to the Executive an additional amount (the
“Gross-Up Payment”) such that the net amount retained by the Executive, after deduction of any Excise Tax on the Total
Payments and any federal, state and local income and employment taxes and Excise Tax upon the Gross-Up Payment, and
after taking into account the phase out of itemized deductions and personal exemptions attributable to the Gross-Up
Payment, shall be equal to the Total Payments.



(B) For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount
of such Excise Tax, (i) all of the Total Payments shall be treated as “parachute payments” (within the meaning of
section 280G(b)(2) of the Code) unless, in the opinion of tax counsel (“Tax Counsel”) reasonably acceptable to the
Executive and selected by the accounting firm which was, immediately prior to the Change in Control, the Company’s
independent auditor (the “Auditor”), such payments or benefits (in whole or in part) do not constitute parachute
payments, including by reason of section 280G(b)(4)(A) of the Code, (ii) all “excess parachute payments” within the
meaning of section 280G(b)(l) of the Code shall be treated as subject to the Excise Tax unless, in the opinion of Tax
Counsel, such excess parachute payments (in whole or in part) represent reasonable compensation for services



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actually rendered (within the meaning of section 280G(b)(4)(B) of the Code) in excess of the Base Amount allocable
to such reasonable compensation, or are otherwise not subject to the Excise Tax, and (iii) the value of any noncash
benefits or any deferred payment or benefit shall be determined by the Auditor in accordance with the principles of
sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, the Executive
shall be deemed to pay federal income tax at the highest marginal rate of federal income taxation in the calendar year
in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation
in the state and locality of the Executive’s residence on the Date of Termination (or if there is no Date of
Termination, then the date on which the Gross-Up Payment is calculated for purposes of this Section 6.2), net of the
maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes.



(C) In the event that the Excise Tax is finally determined to be less than the amount taken into account hereunder
in calculating the Gross-Up Payment, the Executive shall repay to the Company, within five (5) business days following
the time that the amount of such reduction in the Excise Tax is finally determined, the portion of the Gross-Up Payment
attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal,
state and local income and employment taxes imposed on the Gross-Up Payment being repaid by the Executive), to the
extent that such repayment results in a reduction in the Excise Tax and a dollar-for-dollar reduction in the
Executive’s taxable income and wages for purposes of federal, state and local income and employment taxes. In the
event that the Excise Tax is



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determined to exceed the amount taken into account hereunder in calculating the Gross-Up Payment (including by
reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the
Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest, penalties or additions
payable by the Executive with respect to such excess) within five (5) business days following the time that the amount
of such excess is finally determined. The Executive and the Company shall each reasonably cooperate with the other in
connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise
Tax with respect to the Total Payments.



6.3 The payments provided in subsections (A), (C) and (D) of Section 6.1 hereof and in Section 6.2 hereof shall be
made not later than the fifth day following the Date of Termination (or if there is no Date of Termination, then the
date on which the Gross-Up Payment is calculated for purposes of Section 6.2 hereof); provided,
however, that if the amounts of such payments cannot be finally determined on or before such day, the Company
shall pay to the Executive on such day an estimate, as determined in good faith by the Executive or, in the case of
payments under Section 6.2 hereof, in accordance with Section 6.2 hereof, of the minimum amount of such payments to
which the Executive is clearly entitled and shall pay the remainder of such payments (together with interest on the
unpaid remainder (or on all such payments to the extent the Company fails to make such payments when due) at 120% of
the rate provided in section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but in no event
later than the thirtieth (30th) day after the Date of Termination. In the event that the amount of the estimated
payments exceeds the amount subsequently determined to have been due, such



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amount shall be repaid by the Executive to the Company no later than the fifth (5th) business day after demand by
the Company. At the time that payments are made under this Agreement, the Company shall provide the Executive with a
written statement setting forth the manner in which such payments were calculated and the basis for such calculations
including, without limitation, any opinions or other advice the Company has received from Tax Counsel, the Auditor or
other advisors or consultants (and any such opinions or advice which are in writing shall be attached to the
statement).



6.4 The Company also shall pay to the Executive fifty percent (50%) all legal fees and expenses incurred by the
Executive in disputing in good faith any issue hereunder relating to the termination of the Executive’s employment, in
seeking in good faith to obtain or enforce any benefit or right provided by this Agreement or in connection with any
tax audit or proceeding to the extent attributable to the application of section 4999 of the Code to any payment or
benefit provided hereunder. Such payments shall be made within five (5) business days after delivery of the
Executive’s written requests for payment accompanied with such evidence of fees and expenses incurred as the Company
reasonably may require. Within five (5) business days following the final resolution and any such dispute, attempted
enforcement or tax proceeding, either (i) the Company shall pay to the Executive the remaining fifty percent (50%) of
such fees and expenses not previously paid to the Executive, if the Executive prevails on at least one material issue
in such dispute, attempted enforcement or tax proceeding or (ii) the Executive shall repay to the Company the fifty
percent (50%) of such fees and expenses previously paid to the Executive, if the Executive does not prevail on at least
one material issue in such dispute, attempted enforcement or tax proceeding.



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7. Termination Procedures and Compensation During Dispute.



7.1 Notice of Termination. After a Change in Control and during the Term, any purported termination of
the Executive’s employment (other than by reason of death) shall be communicated by written Notice of Termination from
one party hereto to the other party hereto in accordance with Section 11 hereof. For purposes of this Agreement, a
“Notice of Termination” shall mean a notice which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive’s employment under the provision so indicated. Further, a Notice of Termination for Cause
is required to include a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters
(3/4) of the entire membership of the Board at a meeting of the Board which was called and held for the purpose of
considering such termination (after reasonable notice to the Executive and an opportunity for the Executive, together
with the Executive’s counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, the
Executive was guilty of conduct set forth in clause (i) or (ii) of the definition of Cause herein, and specifying the
particulars thereof in detail.



7.2 Date of Termination. “Date of Termination,” with respect to any purported termination of the
Executive’s employment after a Change in Control and during the Term, shall mean (i) if the Executive’s employment is
terminated for Disability, thirty (30) days after Notice of Termination is given (provided that the Executive shall not
have returned to the full-time performance of the Executive’s duties during such thirty (30) day period), and (ii) if
the Executive’s employment is terminated



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for any other reason, the date specified in the Notice of Termination (which, in the case of a termination by the
Company, shall not be less than thirty (30) days (except in the case of a termination for Cause) and, in the case of a
termination by the Executive, shall not be less than fifteen (15) days nor more than sixty (60) days, respectively,
from the date such Notice of Termination is given).



7.3 Dispute Concerning Termination. If within fifteen (15) days after any Notice of Termination is given,
or, if later, prior to the Date of Termination (as determined without regard to this Section 7.3), the party receiving
such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of
Termination shall be extended until the earlier of (i) the date on which the Term ends or (ii) the date on which the
dispute is finally resolved, either by mutual written agreement of the parties or by a final judgment, order or decree
of an arbitrator or a court of competent jurisdiction (which is not appealable or with respect to which the time for
appeal therefrom has expired and no appeal has been perfected); provided, however, that the Date of
Termination shall be extended by a notice of dispute given by the Executive only if such notice is given in good faith
and the Executive pursues the resolution of such dispute with reasonable diligence.



7.4 Compensation During Dispute. If a purported termination occurs following a Change in Control and
during the Term and the Date of Termination is extended in accordance with Section 7.3 hereof, the Company shall
continue to pay the Executive the full compensation in effect when the notice giving rise to the dispute was given
(including, but not limited to, salary) and continue the Executive as a participant in all compensation, benefit and
insurance plans in which the Executive was participating



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when the notice giving rise to the dispute was given, until the Date of Termination, as determined in accordance
with Section 7.3 hereof. Amounts paid under this Section 7.4 are in addition to all other amounts due under this
Agreement (other than those due under Section 5.2 hereof) and shall not be offset against or reduce any other amounts
due under this Agreement.



8. No Mitigation. The Company agrees that, if the Executive’s employment with the Company terminates
during the Term, the Executive is not required to seek other employment or to attempt in any way to reduce any amounts
payable to the Executive by the Company pursuant to Section 6 hereof or Section 7.4 hereof. Further, except as
specifically provided in Section 6.1(B) hereof, the amount of any payment or benefit provided for in this Agreement
shall not be reduced by any compensation earned by the Executive as the result of employment by another employer, by
retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company, or otherwise.



9. Restrictive Covenants



The Executive agrees that restrictions on his activities during and after his employment are necessary to protect
the goodwill, Confidential Information and other legitimate interests of the Company and its Subsidiaries, and that the
agreed restrictions set forth below will not deprive the Executive of the ability to earn a livelihood:




(A) While the Executive is in the employment of the Company and, if the Executive is entitled to
benefits under Section 6.1 hereof upon termination of employment, for a period of twenty-four (24) months
after such



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termination of employment (the “Non-Competition Period”), the Executive shall not, directly or
indirectly, whether as owner, partner, investor, consultant, agent, employee, co-venturer or otherwise,
compete with the business of the Company or any of its Subsidiaries within a twenty (20) mile radius of any
location where the Company operates a retail store at the date of termination of employment, or at which the
Company has entered into a letter of intent or similar commitment for or entered into obligations relating to
the opening of a retail store to be opened within the period of this covenant. Specifically, but without
limiting the foregoing, the Executive agrees not to engage in any manner in any activity that is directly or
indirectly competitive with the business of the Company or any of its Subsidiaries as conducted or which has
been proposed by management within six months prior to termination of the Executive’s employment. Restricted
activity also includes without limitation accepting employment or a consulting position with any person who
is, or at any time within twelve (12) months prior to termination of the Executive’s employment has been, a
licensee of the Company or any of its Subsidiaries. For the purposes of this Section 9, the business of the
Company and its Subsidiaries shall mean retail operations for the sale of natural and organic foods,
including groceries, meat, seafood, dairy and frozen products and produce, as well as natural vitamins,
supplements, homeopathic remedies and body care products.




(B) The Executive agrees that during the Non-Competition Period or in connection with any termination of
employment pursuant to which the Executive is entitled to benefits under Section 6.1, the Executive will not,



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either directly or through any agent or employee, Solicit any employee of the Company or any of its
Subsidiaries to terminate his or her relationship with the Company or any of its Subsidiaries or to apply for
or accept employment with any enterprise competitive with the business of the Company, or Solicit any
customer, supplier, licensee or vendor of the Company or any of its Subsidiaries to terminate or materially
modify its relationship with them, or, in the case of a customer, to conduct with any person any business or
activity which such customer conducts or could conduct with the Company or any of its Subsidiaries.




(C) The Executive and the Company further agree that following any termination of the Executive’s
employment pursuant to which the Executive is entitled to benefits under Section 6.1, (i) the Executive shall
not make statements or representations, otherwise communicate, directly or indirectly, in writing, orally, or
otherwise, or take any action which may, directly, or indirectly, disparage or be damaging to the Company or
any if its Subsidiaries or affiliates or their respective former or current officers, directors, employees,
advisors, businesses or reputations, (ii) the Company shall instruct its Board members and senior management
to not make statements or representations, otherwise communicate, directly, or indirectly, in writing, orally
or otherwise, or take any action which may, directly, or indirectly, disparage or be damaging to the
Executive or his reputation. The Executive and the Company further agree that, in the event the Executive’s
employment with the Company is terminated other than by the Company for Cause or as a result of the
Executive’s death, the Executive and the Company shall refer to the Executive’s departure as a



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“resignation” in any press release or other external announcement or communication concerning the
Executive’s departure from the Company. Nothing in this paragraph is intended to undermine any obligations
the Executive or the Company may have to comply with applicable law, or prohibit the Executive or the Company
from providing truthful testimony or information pursuant to subpoena, court order, discovery demand or
similar legal process, or truthfully responding to lawful inquiries by any governmental or regulatory entity.




(D) The provisions of this Section 9 shall not be deemed to preclude the Executive from employment or
engagement during the Non-Competition Period following termination of employment hereunder (i) in a business
engaged in retail sales, provided such employment or engagement does not otherwise violate the provisions of
this Section 9, or (ii) by a corporation, some of the activities of which are competitive with the business
of the Company, if the Executive’s activities do not relate to such competitive business, and nothing
contained in this Section 9 shall be deemed to prohibit the Executive, during the Non-Competition Period
following termination of employment hereunder, from acquiring or holding, solely as an investment, publicly
traded securities of any competitor corporation so long as such securities do not, in the aggregate,
constitute more than 3% of the outstanding voting securities of such corporation.




(E) The Executive acknowledges that the Company and its Subsidiaries continually develop Confidential
Information, that the Executive may develop Confidential Information for the Company or its Subsidiaries and
that the Executive may learn of Confidential Information during the course of his



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employment under this Agreement. The Executive will comply with the policies and procedures of the
Company and its Subsidiaries for protecting Confidential Information and shall never disclose to any person
(except as required by applicable law or legal process or for the proper performance of his duties and
responsibilities to the Company and its Subsidiaries, or in connection with any litigation between the
Company and the Executive (provided that the Company shall be afforded a reasonable opportunity in each case
to obtain a protective order)), or use for his own benefit or gain, any Confidential Information obtained by
the Executive incident to his employment or other association with the Company or any of its Subsidiaries.
The Executive understands that this restriction shall continue to apply after his employment terminates,
regardless of the reason for such termination. All documents, records, tapes and other media of every kind
and description relating to the business, present or otherwise, of the Company or its Subsidiaries and any
copies, in whole or in part, thereof (the “Documents”), whether or not prepared by the Executive, shall be
the sole and exclusive property of the Company and its Subsidiaries. The Executive shall safeguard all
Documents and shall surrender to the Company at the time his employment terminates, or at such earlier time
or times as the Board or its designee may specify, all Documents then in the Executive’s possession or
control.




(F) Without limiting the foregoing, it is understood that the Company shall not be obligated to make any
of the payments or to provide for any of the benefits specified in Sections 6.1 and 6.2 hereof, and shall be
entitled



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to recoup the pro rata portion of any such payments and of the value of any such benefits previously
provided to the Executive in the event of a material breach by the Executive of the provisions of this
Section 9 (such pro ration to be determined as a fraction, the numerator of which is the number of days from
such breach to the second anniversary of the date on which the Executive terminates employment and the
denominator of which is 730), which breach continues without having been cured within 15 days after written
notice to the Executive specifying the breach in reasonable detail.




(G) The Executive and the Company agree that in the event the Executive seeks a reference from the
Company in connection with any future or prospective employment, the Company’s response to any such reference
inquiry shall be limited to and consistent with the following: start and end dates of employment, position(s)
held and last salary.




For purposes of this Section 9, the following definitions shall apply:



(I) “Confidential Information” means any and all information of the Company and its
Subsidiaries that is not generally known by others with whom they compete or do business,
or with whom they plan to compete or do business and any and all information not readily
available to the public, which, if disclosed by the Company or its Subsidiaries could
reasonably be of benefit to such person or business in competing with or doing business
with the Company. Confidential Information includes



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without limitation such information relating to (1) the development, research,
testing, manufacturing, store operational processes, marketing and financial activities,
including costs, profits and sales, of the Company and its Subsidiaries, (2) the Products
and all formulas therefor, (3) the costs, sources of supply, financial performance and
strategic plans of the Company and its Subsidiaries, (4) the identity and special needs
of the customers and suppliers of the Company and its Subsidiaries and (5) the people and
organizations with whom the Company and its Subsidiaries have business relationships and
those relationships. Confidential Information also includes comparable information that
the Company or any of its Subsidiaries have received belonging to others or which was
received by the Company or any of its Subsidiaries with an agreement by the Company that
it would not be disclosed. Confidential Information does not include information which
(i) is or becomes available to the public generally (other than as a result of a
disclosure by the Executive), (ii) was within the Executive’s possession prior to the
date hereof or prior to its being furnished to the Executive by or on behalf of the
Company, provided that the source of such information was not bound by a confidentiality
agreement with or other contractual, legal or fiduciary obligation of confidentiality to
the Company or any other party with respect to such information, (iii) becomes



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available to the Executive on a non-confidential basis from a source other than the
Company, provided that such source is not bound by a confidentiality agreement with or
other contractual, legal or fiduciary obligation of confidentiality to the Company or any
other party with respect to such information, or (iv) was independently developed the
Executive without reference to the Confidential Information.



(II) “Products” mean all products planned, researched, developed, tested,
manufactured, sold, licensed, leased or otherwise distributed or put into use by the
Company or any of its Subsidiaries, together with all services provided to third parties
or planned by the Company or any of its Subsidiaries, during the Executive’s service; as
used herein, “planned” refers to a Product or service which the Company has decided to
introduce within six months from the date as of which such term is applied.



(III) “Subsidiary” means any corporation or other business organization of which the
securities having a majority of the normal voting power in electing the board of
directors or similar governing body of such entity are, at the time of determination,
owned by the Company directly or indirectly through one or more Subsidiaries.



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(IV) “Solicit” means any direct or indirect communication of any kind whatsoever,
regardless of by whom initiated, inviting, advising, encouraging or requesting any person
or entity, in any manner, with respect to any action.



10. Successors; Binding Agreement.



10.1 In addition to any obligations imposed by law upon any successor to the Company, the Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner
and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure
of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a
breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the
same terms as the Executive would be entitled to hereunder if the Executive were to terminate the Executive’s
employment for Good Reason after a Change in Control, except that, for purposes of implementing the foregoing, the date
on which any such succession becomes effective shall be deemed the Date of Termination.



10.2 This Agreement shall inure to the benefit of and be enforceable by the Executive’s personal or legal
representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive
shall die while any amount would still be payable to the Executive hereunder (other than amounts which, by their



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terms, terminate upon the death of the Executive) if the Executive had continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the executors, personal
representatives or administrators of the Executive’s estate.



11. Notices. For the purpose of this Agreement, notices and all other communications provided for in the
Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed, if to the Executive, to the address inserted
below the Executive’s signature on the final page hereof and, if to the Company, to the address set forth below, or to
such other address as either party may have furnished to the other in writing in accordance herewith, except that
notice of change of address shall be effective only upon actual receipt:




To the Company:




Wild Oats Markets, Inc


3375 Mitchell Lane


Boulder, CO 80301


Attention: Chief Executive Officer


With a copy to: General Counsel



12. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such
waiver, modification or discharge is agreed to in writing and signed by the Executive and such officer as may be
specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party
hereto of, or of any lack of compliance with, any condition or provision of this Agreement to be performed by such
other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. This



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Agreement supersedes any other agreements or representations, oral or otherwise, express or implied, with respect
to the subject matter hereof which have been made by either party. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of Colorado. All references to sections of
the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. Any payments
provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law and
any additional withholding to which the Executive has agreed. The obligations of the Company and the Executive under
this Agreement which by their nature may require either partial or total performance after the expiration of the Term
(including, without limitation, those under Sections 6, 7 and 9 hereof) shall survive such expiration.



13. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.



14. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed
to be an original but all of which together will constitute one and the same instrument.



15. Settlement of Disputes; Arbitration. 15.1 All claims by the Executive for benefits under this
Agreement shall be directed to and determined by the Committee and shall be in writing. Any denial by the Committee of
a claim for benefits under this Agreement shall be delivered to the Executive in writing and shall set forth the
specific reasons for the denial and the specific provisions of this Agreement relied upon. The Committee shall afford
a reasonable opportunity to the Executive for a review of the



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decision denying a claim and shall further allow the Executive to appeal to the Committee a decision of the
Committee within sixty (60) days after notification by the Committee that the Executive’s claim has been denied.



15.2 Any further dispute or controversy arising under or in connection with this Agreement may, at the
Executive’s option, be settled by arbitration in Boulder, Colorado in accordance with the rules of the American
Arbitration Association then in effect; provided, however, that the evidentiary standards set forth in
this Agreement shall apply. If the Executive chooses to settle any dispute or controversy by arbitration, judgment may
be entered on the arbitrator’s award in any court having jurisdiction. Notwithstanding any provision of this Agreement
to the contrary, the Executive shall be entitled to seek specific performance of the Executive’s right to be paid until
the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this
Agreement.



15.3 The Executive acknowledges that he has carefully read and considered all the terms and conditions of this
Agreement, including the restraints imposed upon him pursuant to Section 9 hereof. The Executive agrees that said
restraints are necessary for the reasonable and proper protection of the Company and its Subsidiaries and that each and
every one of the restraints is reasonable in respect to subject matter, length of time and geographic area. The
Executive further acknowledges that, were he to breach any of the covenants contained in Section 9 hereof, the damage
to the Company would be irreparable. The Executive therefore agrees that the Company, in addition to any other remedies
available to it, and notwithstanding any provision of this Agreement to the contrary, shall be entitled to seek
preliminary and permanent injunctive



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relief against any breach or threatened breach by the Executive of any of said covenants, without having to post bond.
The parties further agree that, in the event that any provisions of Section 9 hereof shall be determined by any court
of competent jurisdiction to be unenforceable by reason of its being extended over too great a time, too large a
geographic area or too great a range of activities, such provision shall be deemed to be modified to permit its
enforcement to the maximum extent permitted by law.



16. Definitions. For purposes of this Agreement, the following terms shall have the meanings indicated
below:



(A) “Affiliate” shall have the meaning set forth in Rule 12b-2 promulgated under Section 12 of the Exchange Act.



(B) “Auditor” shall have the meaning set forth in Section 6.2 hereof.



(C) “Base Amount” shall have the meaning set forth in section 280G(b)(3) of the Code.



(D) “Beneficial Owner” shall have the meaning set forth in Rule 13d-3 under the Exchange Act.



(E) “Board” shall mean the Board of Directors of the Company.



(F) “Cause” for termination by the Company of the Executive’s employment shall mean (i) the willful and continued
failure by the Executive to substantially perform the Executive’s duties with the Company (other than any such failure
resulting from the Executive’s incapacity due to physical or mental illness or any



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such actual or anticipated failure after the issuance of a Notice of Termination for Good Reason by the Executive
pursuant to Section 7.1 hereof) that has not been cured within 30 days after a written demand for substantial
performance is delivered to the Executive by the Board, which demand specifically identifies the manner in which the
Board believes that the Executive has not substantially performed the Executive’s duties, or (ii) the willful engaging
by the Executive in conduct which is demonstrably and materially injurious to the Company or its subsidiaries,
monetarily or otherwise. For purposes of clauses (i) and (ii) of this definition, (x) no act, or failure to act, on
the Executive’s part shall be deemed “willful” unless done, or omitted to be done, by the Executive not in good faith
and without reasonable belief that the Executive’s act, or failure to act, was in the best interest of the Company and
(y) in the event of a dispute concerning the application of this provision, no claim by the Company that Cause exists
shall be given effect unless the Company establishes to the Committee by clear and convincing evidence that Cause
exists.



(G) A “Change in Control” shall be deemed to have occurred if the event set forth in any one of the following
paragraphs shall have occurred:



(I) any Person is or becomes the Beneficial Owner, directly or indirectly, of
securities of the Company (not including in the securities beneficially owned by such
Person any securities acquired directly from the Company or its Affiliates) representing
31% or more of the combined voting power of the Company’s then outstanding securities,
excluding any Person who



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becomes such a Beneficial Owner in connection with a Non-Control Merger (as defined
in paragraph (III) below); or



(II) the following individuals cease for any reason to constitute a majority of the
number of directors then serving: individuals who, on the date hereof, constitute the
Board and any new director (other than a director whose initial assumption of office is
in connection with an actual or threatened election contest, including but not limited to
a consent solicitation, relating to the election of directors of the Company) whose
appointment or election by the Board or nomination for election by the Company’s
stockholders was approved or recommended by a vote of at least two-thirds (2/3) of the
directors then still in office who either were directors on the date hereof or whose
appointment, election or nomination for election was previously so approved or
recommended; or;



(III) there is consummated a merger or consolidation of the Company or any direct or
indirect subsidiary of the Company with any other corporation, other than a merger or
consolidation (a “Non-Control Merger”) immediately following which the individuals who
comprise the Board immediately prior thereto constitute at least a majority of the board
of directors of the Company, the entity surviving such merger or consolidation or any
parent thereof; or



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(IV) the stockholders of the Company approve a plan of complete liquidation or
dissolution of the Company or there is consummated an agreement for the sale or
disposition by the Company of all or substantially all of the Company’s assets, other
than a sale or disposition by the Company of all or substantially all of the Company’s
assets immediately following which the individuals who comprise the Board immediately
prior thereto constitute at least a majority of the board of directors of the entity to
which such assets are sold or disposed or any parent thereof.



Notwithstanding the foregoing, a “Change in Control” shall not be deemed to have occurred by virtue of the consummation
of any transaction or series of integrated transactions immediately following which the record holders of the common
stock of the Company immediately prior to such transaction or series of transactions continue to have substantially the
same proportionate ownership in an entity which owns all or substantially all of the assets of the Company immediately
following such transaction or series of transactions.



(H) “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time.



(I) “Committee” shall mean (i) the individuals (not fewer than three in number) who, on the date six months before
a Change in Control, constitute the Compensation Committee of the Board, plus (ii) in the event that fewer than three



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individuals are available from the group specified in clause (i) above for any reason, such individuals as may be
appointed by the individual or individuals so available (including for this purpose any individual or individuals
previously so appointed under this clause (ii)).



(J) “Company” shall mean Wild Oats Markets, Inc., a Delaware corporation and, except in determining under Section
15(G) hereof whether or not any Change in Control of the Company has occurred, shall include any successor to its
business and/or assets which assumes and agrees to perform this Agreement by operation of law, or otherwise.



(K) “DC Pension Plan” shall mean any tax-qualified, supplemental or excess defined contribution plan maintained by
the Company and any other defined contribution plan or agreement entered into between the Executive and the Company.



(L) “Date of Termination” shall have the meaning set forth in Section 7.2 hereof.



(M) “Disability” shall be deemed the reason for the termination by the Company of the Executive’s employment, if,
as a result of the Executive’s incapacity due to physical or mental illness, the Executive shall have been absent from
the full-time performance of the Executive’s duties with the Company for a period of six (6) consecutive months, the
Company shall have given the Executive a Notice of Termination for Disability, and, within thirty (30) days after such
Notice of Termination



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is given, the Executive shall not have returned to the full-time performance of the Executive’s duties.



(N) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended from time to time.



(O) “Excise Tax” shall mean any excise tax imposed under section 4999 of the Code.



(P) “Executive” shall mean the individual named in the first paragraph of this Agreement.



(Q) “Good Reason” for termination by the Executive of the Executive’s employment shall mean the occurrence
(without the Executive’s express written consent) after any Change in Control, or prior to a Change in Control under
the circumstances described in clauses (ii) and (iii) of the second sentence of Section 6.1 hereof (treating all
references in paragraphs (I) through (VII) below to a “Change in Control” as references to a “Potential Change in
Control”), of any one of the following acts by the Company, or failures by the Company to act, unless, (x) in the case
of any act or failure to act described in paragraph (I), (V), (VI) or (VII) below, such act or failure to act is
corrected prior to the Date of Termination specified in the Notice of Termination given in respect thereof or (y) in
the case of first act or failure to act following a Change in Control and described in paragraph (IV) below, such act
or failure to act is corrected prior to the Date of Termination specified in the Notice of Termination given in respect
thereof:



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(I) the assignment to the Executive of any duties materially and adversely
inconsistent with the Executive’s status as a senior executive officer of the Company or
a substantial adverse alteration in the nature or status of the Executive’s
responsibilities from those in effect immediately prior to the Change in Control;



(II) a reduction by the Company in the Executive’s annual base salary as in effect
on the date hereof or as the same may be increased from time to time;



(III) the relocation of the Executive’s principal place of employment to a location
more than 25 miles from the Executive’s principal place of employment immediately prior
to the Change in Control or the Company’s requiring the Executive to be based anywhere
other than such principal place of employment (or permitted relocation thereof) except
for required travel on the Company’s business to an extent substantially consistent with
the Executive’s present business travel obligations;



(IV) the failure by the Company to pay to the Executive any portion of the
Executive’s current compensation or to pay to the Executive any portion of an installment
of deferred compensation under any deferred compensation program of the



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Company, within seven (7) days of the date such compensation is due;



(V) the failure by the Company to continue in effect any compensation plan in which
the Executive participates immediately prior to the Change in Control which is material
to the Executive’s total compensation, unless an equitable arrangement (embodied in an
ongoing substitute or alternative plan) has been made with respect to such plan, or the
failure by the Company to continue the Executive’s participation therein (or in such
substitute or alternative plan) on a basis not materially less favorable, both in terms
of the amount or timing of payment of benefits provided and the level of the Executive’s
participation relative to other participants, as existed immediately prior to the Change
in Control;



(VI) the failure by the Company to continue to provide the Executive with benefits
substantially similar to those enjoyed by the Executive under any of the Company’s
pension, savings, life insurance, medical, health and accident, or disability plans in
which the Executive was participating immediately prior to the Change in Control, the
taking of any other action by the Company which would directly or indirectly materially
reduce any of such benefits or deprive the Executive of any material fringe benefit
enjoyed by the Executive at the time of the Change in Control, or the failure by the
Company to provide the Executive



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with the number of paid vacation days to which the Executive is entitled on the
basis of years of service with the Company in accordance with the Company’s normal
vacation policy in effect at the time of the Change in Control; or



(VII) any purported termination of the Executive’s employment which is not effected
pursuant to a Notice of Termination satisfying the requirements of Section 7.1 hereof;
for purposes of this Agreement, no such purported termination shall be effective.



The Executive’s right to terminate the Executive’s employment for Good Reason shall not be affected by the
Executive’s incapacity due to physical or mental illness. The Executive’s continued employment shall not constitute
consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder.



For purposes of any determination regarding the existence of Good Reason, any claim by the Executive that Good
Reason exists shall be presumed to be correct unless the Company establishes to the Committee by clear and convincing
evidence that Good Reason does not exist.



(S) “Gross-Up Payment” shall have the meaning set forth in Section 6.2 hereof.



(T) “Notice of Termination” shall have the meaning set forth in Section 7.1 hereof.



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(U) “Person” shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections
13(d) and 14(d) thereof, except that such term shall not include (i) the Company or any of its subsidiaries, (ii) a
trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its Affiliates,
(iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation
owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company.



(V) “Potential Change in Control” shall be deemed to have occurred if the event set forth in any one of the
following paragraphs shall have occurred:



(I) the Company enters into an agreement, the consummation of which would result in
the occurrence of a Change in Control;



(II) the Company or any Person publicly announces an intention to take or to
consider taking actions which, if consummated, would constitute a Change in Control;



(III) any Person becomes the Beneficial Owner, directly or indirectly, of securities
of the Company representing 15% or more of either the then outstanding shares of common
stock of the Company or the combined voting power of the Company’s then outstanding
securities (not including in the



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securities beneficially owned by such Person any securities acquired directly from
the Company or its affiliates); or



(IV) the Board adopts a resolution to the effect that, for purposes of this
Agreement, a Potential Change in Control has occurred.



(W) “Retirement” shall be deemed the reason for the termination by the Executive of the Executive’s employment if
such employment is terminated in accordance with the Company’s retirement policy, including early retirement, generally
applicable to its salaried employees.



(X) “Severance Benefits” shall have the meaning set forth in Section 6.1 hereof.



(Y) “Tax Counsel” shall have the meaning set forth in Section 6.2 hereof.



(Z) “Term” shall mean the period of time described in Section 2 hereof (including any extension, continuation or
termination described therein).



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(AA) “Total Payments” shall mean those payments so described in Section 6.2 hereof.



IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.




WILD OATS MARKETS, INC.




By: /s/ Freya R. Brier                                  

Name: Freya R. Brier

Title: Sr. Vice President





EXECUTIVE




By: /s/ Roger E. Davidson                          

Roger E. Davidson





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