Document:

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                                                                   EXHIBIT 10.89

                              FORBEARANCE AGREEMENT

      This FORBEARANCE AGREEMENT (the "Agreement") dated as of March 10, 2004 by
and among Radian Reinsurance Inc., as insurer (the "Facility Insurer"), Maxtor
Funding LLC, as borrower (the "Borrower"), Maxtor Corporation (individually,
"Maxtor"), as servicer under the Loan Agreement (as defined below), (together
with its successors and assigns in such capacity, the "Servicer"), and Merrill
Lynch Commercial Finance Corp., as Lender and Agent under the Loan Agreement (in
each such capacity, the "Lender" and the "Agent", respectively), and U.S. Bank
National Association, ("US Bank") in its capacities as "Backup Servicer",
"Trustee", "Collateral Agent" and "Collection Account Bank" under the Loan
Agreement. Capitalized terms used and not otherwise defined herein shall have
the meanings assigned to such terms in the Loan Agreement defined below.

                             PRELIMINARY STATEMENTS

            Reference is hereby made to that certain Receivables Loan and
Security Agreement (the "Loan Agreement") dated as of May 9, 2003, by and among
the Facility Insurer, the Borrower, the Servicer, the Lender , the Agent, the
Backup Servicer, Trustee, Collateral Agent and the Collection Account Bank.

            WHEREAS, an Early Amortization Event has occurred under Section
7.01(m) of the Loan Agreement, in that the rolling average of the
Dilution-to-Liquidation Ratios for the three preceding Cut-Off Dates as reported
in the Monthly Remittance Report delivered on March 8, 2004, exceeded 15.00%,
and such Early Amortization Event (the "Dilution Trigger Event") gives either
the Agent or the Facility Insurer the right (i) to declare the Amortization
Commencement Date to have occurred and (ii) to declare a Servicer Default under
clause (iv) of the definition thereof on account of such Dilution Trigger Event
and to terminate the rights and obligations of the Servicer under the Loan
Agreement.

            WHEREAS, the Borrower has requested that each of the Agent and the
Facility Insurer (collectively, the "Forbearance Parties") forbear from the
exercise of their rights to declare an Amortization Commencement Date pursuant
to Section 7.01 of the Loan Agreement or to terminate Maxtor as Servicer, and
the Forbearance Parties are willing, upon the satisfaction of certain conditions
precedent and subject to the terms herein, to forbear temporarily from the
exercise of such right.

            NOW THEREFORE, in consideration of the mutual conditions and
agreements set forth in the Transaction Documents and this Agreement, and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
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      I. FORBEARANCE.

            1.1 Subject to the terms and conditions set forth herein, each
Forbearance Party hereby agrees, during the period from the time this Agreement
becomes effective pursuant to Section 2 until 9:00 a.m. New York time on March
31, 2004 (such period, as it may be prematurely terminated at the option of the
Facility Insurer or the Agent pursuant to the terms of this Agreement, the
"Forbearance Period"), to forbear temporarily from exercising its rights, on
account of the Dilution Trigger Event, to declare an Amortization Commencement
Date or to terminate Maxtor as Servicer under the Loan Agreement. This agreement
to forbear on account of the Dilution Trigger Event as provided herein expires
at the conclusion of the Forbearance Period and any or each Forbearance Party
may, at any time thereafter, exercise any of its rights and remedies with
respect to the Dilution Trigger Event to the same extent as if this Agreement
did not exist, including without limitation, the right to declare the occurrence
of the Amortization Commencement Date, terminate Maxtor as Servicer, and
exercise any remedies set forth in the Transaction Documents which are
exercisable from and after the Amortization Commencement Date.

            1.2 The specific agreement to forbear described in Section 1.1 above
applies only to the Dilution Trigger Event and not to any other facts or
circumstances giving rise to an Early Amortization Event or Servicer Default
which may have occurred or may hereafter occur, and nothing in this Agreement
shall be deemed to restrict any right or remedy any Forbearance Party may have
on account of any such other Early Amortization Event or Servicer Default,
including the right to declare the occurrence of the Amortization Commencement
Date at any time during the Forbearance Period on account of any such other
Early Amortization Event or to terminate the Servicer during the Forbearance
Period on account of any such other Servicer Default. The Forbearance Parties
are not hereby waiving the existence of any Early Amortization Event or Servicer
Default, and are merely agreeing to forbear as provided herein during the
Forbearance Period. Except for the forbearance expressly set forth above in
Section 1.1, each Forbearance Party expressly reserves each and every right and
remedy it has under the Transaction Documents and under applicable law, and
nothing in this Agreement shall be deemed to constitute a waiver of any Early
Amortization Event or Servicer Default whether now existing or hereafter
arising, or, constitute a waiver of, or, except for the forbearance expressly
set forth above in Section 1.1, forbearance of, any right or remedy the
Forbearance Parties may have under any of the Transaction Documents or
applicable law.

            1.3 The Borrower acknowledges and agrees that, due to the existence
of the Dilution Trigger Event, the conditions precedent to borrowing under
Section 3.02(c)(ii) of the Loan Agreement are not satisfied and the Lender is
not required to advance, nor is the Borrower entitled to receive, any Loans
under the Loan Agreement. The Borrower hereby irrevocably agrees that it shall
not seek any further Loans under the Loan Agreement and will not be entitled to
receive any further Loans hereafter unless the Dilution Trigger Event has been
waived by the Facility Insurer, the Agent and the Lender. The Borrower further
acknowledges that, due to the existence of the Dilution Trigger Event, the
Facility Insurer is entitled to receive Default Premium and the Lender is
entitled to receive Default Yield and such amounts shall be paid from the
Collection Account in accordance with Section 2.05(c) of the Loan Agreement.

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            1.4 Each of the Borrower, the Agent, the Lender and the Facility
Insurer hereby irrevocably directs the Trustee, Collateral Agent and Collection
Account Bank, and the Trustee, Collateral Agent and Collection Account Bank
hereby agree, that, notwithstanding anything to the contrary in the Loan
Agreement, during the Forbearance Period, (i) the Trustee shall not release any
funds in the Collection Account to the Originator or the Borrower under Section
2.05(f) of the Loan Agreement until such time as the Loans have been prepaid in
full and all other amounts due and owing to the Facility Insurer, the Agent and
the Lenders have been paid; (ii) on the Remittance Date to occur on or about
March 12, 2004 all funds in the Collection Account shall be applied in the order
of priority set forth in Section 2.05(c) of the Loan Agreement including,
pursuant to clause (vi) thereof, to the repayment of the principal amount of
Loans, and (iii) on each Business Day after such Remittance Date an amount equal
to (x) all funds in the Collection Account minus (y) the amounts otherwise
required to be retained on deposit therein under Section 2.05(f) of the Loan
Agreement in respect of accrued Yield, Premium, Non-Use Fees, Servicing Fees,
Backup Standby Servicer Fees and Trustee Fees, shall be paid to the Lender in
repayment of the principal of Loans.

            1.5 During the Forbearance Period, the Borrower and the Servicer
hereby agree to honor and forward promptly to the Facility Insurer and the Agent
all outstanding informational requests made by the Agent and/or the Facility
Insurer or their respective accountants and advisors in connection with their
February 2004 on-site due diligence meetings with the Servicer and further
acknowledge and agree that each of the Agent and the Facility Insurer shall, at
the expense of the Borrower, be entitled to receive additional information and
conduct further audits in accordance with Section 6.13 of the Loan Agreement.
Each of the Facility Insurer and the Agent agrees that it shall concurrently
send to the other a copy of any informational requests or notices related to
this Agreement or the Loan Agreement that such party sends to the Borrower or
the Servicer. The Borrower and the Servicer agree that they shall concurrently
send (i) to the Agent a copy of any requested information and any other notice
related to this Agreement or the Loan Agreement sent to the Facility Insurer and
(ii) to the Facility Insurer a copy of any requested information and any other
notice related to this Agreement or the Loan Agreement sent to the Agent.

            1.6 Each of the Borrower and the Servicer expressly acknowledge and
agree that the agreement of the Forbearance Parties under Section 1.1 to forbear
as provided herein is expressly conditioned on compliance by each of the
Borrower and the Servicer with the covenants, agreements, terms and conditions
contained herein and that if the Borrower or the Servicer fails to comply with
any such covenants, agreements, terms or conditions or if the information
provided pursuant to Section 1.5 above is not satisfactory to any Forbearance
Party for any reason, such Forbearance Party shall have the right, by written
notice to the other parties hereto, to declare that the Forbearance Period has
terminated upon which declaration this Agreement shall no longer be of any force
and effect and each Forbearance Party shall be entitled to exercise all rights
the exercise of which are otherwise temporarily postponed under Section 1.1
above.

            II. CONDITION PRECEDENT. This Agreement shall become effective, as
of the date first above written, upon execution by each of the parties hereto.

                                       3
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            III. REPRESENTATIONS AND WARRANTIES.

            3.1 Upon the effectiveness of this Agreement, each of the Borrower
and the Servicer hereby reaffirms all covenants, representations and warranties
made by it in the Transaction Documents and agrees that all such covenants,
representations and warranties shall be deemed to have been re-made as of the
effective date of this Agreement (except for any representations or warranties
which speak as of a specific date only, in which event they are reaffirmed as of
such date). Additionally, Maxtor hereby reaffirms all covenants, representations
and warranties made by it in the Transaction Documents individually or as
Originator, and agrees that all such covenants, representations and warranties
shall be deemed to have been re-made as of the effective date of this Agreement
(except for any representations or warranties which speak as of a specific date
only, in which event they are reaffirmed as of such date).

            3.2 Each of the Borrower and Maxtor (individually and as the
Servicer) hereby represents and warrants, as to itself, that (a) this Agreement
constitutes its legal, valid and binding obligation, enforceable against it in
accordance with its terms and (b) there is no consent, approval or other
requirement known to it which could reasonably be expected to impair or
materially delay its ability to perform its obligations under this Agreement,
the Loan Agreement or the Transaction Documents as proposed to be modified
hereby.

            IV. RATIFICATION AND RELEASE.

            4.1 Each Transaction Document is in all respects hereby ratified and
confirmed by the Borrower, Maxtor and the Servicer and, except to the extent
expressly provided in this Agreement, none of the execution, delivery or
effectiveness of this Agreement shall operate as a forbearance in respect of any
rights, powers or remedies of the Agent, the Lender or the Facility Insurer of
any provision contained in any Transaction Document, whether as a result of any
Early Amortization Event, Servicer Default, or otherwise. Each of the Borrower,
Maxtor and the Servicer hereby: (i) ratifies and reaffirms all of its payment
and performance obligations, contingent or otherwise, under each Transaction
Document to which it is a party, (ii) agrees and acknowledges that such
ratification and reaffirmation is not a condition to the continued effectiveness
of such Transaction Document and (iii) acknowledges that no Forbearance Party
has made any promises, covenants or commitments with respect to whether or not
it is willing to waive the Dilution Trigger Event described above.

            4.2 The Facility Insurer hereby acknowledges and agrees that none of
the execution, delivery or effectiveness of this Agreement or the performance of
any provisions hereof shall operate as a waiver or forbearance in respect of any
rights, powers or remedies the Agent and/or the Lenders may have as against the
Facility Insurer under the Facility Insurance Policy or the Facility Insurance
Agreement, or otherwise impair, restrict or limit in any manner any such rights
and remedies of the Agent and the Lenders, which Facility Insurance Policy and
Facility Insurance Agreement remain in full force and effect and are hereby
ratified and confirmed in all respects.

            4.3 Each of the Borrower, Maxtor and the Servicer hereby
acknowledges and confirms that (i) it does not have any grounds, and hereby
agrees not to challenge (or to allege or to pursue any matter, cause or claim
arising under or with respect to), in any case based upon

                                       4
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acts or omissions of any of the Forbearance Parties occurring prior to the date
hereof or facts otherwise known to it as of the date hereof, the effectiveness,
genuineness, validity, collectibility or enforceability of any Transaction
Document, or any ownership interests, security interests or other Liens created
thereunder and (ii) it does not possess (and hereby forever waives, remises,
releases, discharges and holds harmless each Forbearance Party and their
respective affiliates, stockholders, directors, officers, employees, attorneys,
agents and representatives and each of their respective heirs, executors,
administrators, successors and assigns (collectively, the "Indemnified Parties")
from and against, and agrees not to allege or pursue) any action, cause of
action, suit, debt, claim, counterclaim, cross-claim, demand, defense, offset,
opposition, and other right of action whatsoever, whether in law, equity or
otherwise (which it, all those claiming by, through or under it, or its
successors or assigns, have or may have) against the Indemnified Parties, or any
of them, by reason of, any matter, cause or thing whatsoever, with respect to
events or omissions occurring or arising on or prior to the date hereof and
relating to any of the Transaction Documents.

            V. MISCELLANEOUS

            5.1 SEVERABILITY. Any provision of this Agreement held by a court of
competent jurisdiction to be invalid or unenforceable shall not impair or
invalidate the remainder of this Agreement and the effect thereof shall be
confined to the provision so held to be invalid or unenforceable.

            5.2 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original, but all of which taken
together shall be one and the same instrument. This Agreement may also be
executed by facsimile and each facsimile signature hereto shall be deemed for
all purposes to be an original signature page.

            5.3 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, INCLUDING, WITHOUT
LIMITATION, SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW
YORK BUT OTHERWISE WITHOUT REFERENCE TO ITS CONFLICT OF LAWS PROVISIONS, AND THE
OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

            5.4 SECTION TITLES. The section titles contained in this Agreement
are and shall be without substance, meaning or content of any kind whatsoever
and are not a part of the agreement between the parties hereto.

            5.5 TRANSACTION DOCUMENTS. Each of the parties hereto irrevocably
agrees that this Agreement constitutes a "Transaction Document" within the
meaning of the Loan Agreement and that the provisions of Article IX of the Loan
Agreement with respect to amendments, notices to be given, and waivers of jury
trial shall apply to any amendments of this Agreement, any notices to be given
hereunder or any action or proceeding with respect to this Agreement.

                                       5
<PAGE>
            5.6 BINDING EFFECT. This Agreement shall become effective when it
shall have been executed by the parties hereto and thereafter shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns.

            5.7 EXPENSES. The Servicer hereby agrees to promptly reimburse the
Facility Insurer, the Agent and US Bank for all reasonable out-of-pocket
expenses, including, without limitation, reasonable attorneys' and other
professionals' fees, either such party has heretofore or hereafter incurred or
incurs in connection with the preparation, negotiation, execution and/or
enforcement of this Agreement or any document, instrument, agreement delivered
pursuant to this Agreement, and the Borrower acknowledges that the Borrower is
obligated to pay such amounts under the Loan Agreement and the Insurance
Agreement in the event the Servicer does not do so and that such obligations are
secured under the Loan Agreement.

            5.8 INTEGRATION. This Agreement contains the final and complete
understanding by the parties hereto with respect to the subject matter hereof
and shall supersede all other oral or written understandings with respect to the
subject matter hereof.

                                       6
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IN WITNESS WHEREOF, the parties hereto have executed this Forbearance Agreement
as of March 10, 2004.

                                RADIAN REINSURANCE INC., as Facility Insurer
                                By: /s/
                                    ---------------------------------
                                Name:
                                Title:

                                MAXTOR FUNDING LLC
                                By: /s/
                                    ---------------------------------
                                Name:
                                Title:

                                MAXTOR CORPORATION, individually and as Servicer
                                By: /s/
                                    ---------------------------------
                                Name:
                                Title:

                                MERRILL LYNCH COMMERCIAL FINANCE CORP.,
                                as Agent and as Lender
                                By: /s/
                                    ---------------------------------
                                Name:
                                Title:

Acknowledged and Agreed:
U.S. BANK NATIONAL ASSOCIATION,
as Trustee, Collateral Agent, Collection Account Bank and Backup Servicer
By:  /s/
     --------------------------------
Name:
Title:

                                       7Exhibit 10.21

 

WILD OATS MARKETS, INC.

GARY RAWLINGS EQUITY INCENTIVE PLAN

 

 

1. PURPOSES

(a) The purpose of the Plan is to induce Gary Rawlings ("Executive" or
"Optionee") to enter into an employment arrangement with Wild Oats Markets, Inc.
as Vice President, Marketing, and pursuant to which the Executive may be given an
opportunity to benefit from increases in value of the common stock of the Company
("Common Stock") through the granting of Nonstatutory Stock Options.

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

 

 

2. DEFINITIONS

(a) "AFFILIATE" means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in Sections 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 in accordance 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 not interrupted or terminated.
The Board, in its sole discretion, may determine whether Continuous Status as an Employee,
Director or Consultant shall be considered interrupted in the case of: (i) any leave of
absence approved by the Board, 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 a Director nor payment
of a director's fee by the Company shall be sufficient to constitute
"employment" by the Company.

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

(j) "FAIR MARKET VALUE" means, as of any date, the value of the Common 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 as an
incentive stock option within the meaning of Section 422 of the Code and the regulations
promulgated thereunder.

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

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

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

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

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

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

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

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

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

 

 

3. ADMINISTRATION

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

(b) The Board shall have the power, subject to, and within the limitations of, 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 or committees
("Committee") of one or more members of the Board. In the discretion of the
Board, a Committee may consist solely of two or more Outside Directors, in accordance with
Code Section 162(m), or solely of two or more Non-Employee Directors, in accordance with
Rule 16(b)-3. If administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore possessed by the
Board (and references in this Plan to the Board shall thereafter be to the Committee),
subject, however, to such resolutions, not inconsistent with the provisions of the Plan,
as may be adopted from time to time by the Board. The Board may abolish the Committee at
any time and revest in the Board the administration of the Plan.

 

 

4. SHARES SUBJECT TO THE PLAN

(a) Subject to the provisions of Section 12 relating to adjustments upon changes in
stock, the stock that may be issued pursuant to Stock Awards shall not exceed in the
aggregate 40,000 shares of the Common Stock. If any Stock Award 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 Restricted Stock), the stock not acquired under such Stock Award
shall cease to be subject to the Plan.

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

 

 

5. ELIGIBILITY

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

(b) Subject to the provisions of Section 12 relating to adjustments upon changes in
stock, no person shall be eligible to be granted Options covering more than one hundred
thousand (100,000) shares of the Common Stock in any calendar 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 the number of shares reserved for issuance under the Plan in
accordance with Section 4); (B) the issuance of all of the shares of Common Stock reserved
for issuance under the Plan; (C) the expiration of the Plan; or (ii) such other date
required by Section 162(m) of the Code and the rules and regulations promulgated
thereunder.

 

 

6. OPTION PROVISIONS

Each Option shall be in such form and shall contain such terms and conditions as the
Board shall deem appropriate. The provisions of separate Options need not be identical,
but each Option shall include (through incorporation of provisions hereof by reference in
the Option or otherwise) the substance of each of the following 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 not less than
eighty-five percent (85%) of the Fair Market Value of the stock subject to the Option on
the date the Option is granted. Notwithstanding the foregoing, an Option may be granted
with an exercise price lower than that set forth in the preceding sentence if such Option
is granted pursuant to an assumption or substitution for another option in a manner
satisfying the provisions of Section 424(a) of the Code.

(c) CONSIDERATION. The purchase price of stock acquired pursuant to an Option shall 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 the discretion of the Board or the
Committee, at the time of the Common Stock is issued pursuant to the exercise, (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, without limiting the generality of the
foregoing, the use of other Common Stock of the Company) with the person to whom the
Option is granted or to whom the Option is transferred pursuant to subsection 6(d), or (C)
in any other form of legal consideration that may be acceptable to the Board.

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

(d) TRANSFERABILITY. A Nonstatutory Stock Option may be transferred to the extent
provided in the Option Agreement; provided that if the Option Agreement does not expressly
permit the transfer of a Nonstatutory Stock Option, the Nonstatutory Stock Option shall
not be transferable except by will, by the laws of descent and distribution or pursuant to
a domestic relations order satisfying the requirements of Rule 16b-3 and shall be
exercisable during the lifetime of the person to whom the Option is granted only by such
person or any transferee pursuant to a domestic relations order. Notwithstanding the
foregoing, the person to whom the Option is granted may, by delivering written notice to
the Company, in a form satisfactory to the Company, designate a third party who, in the
event of the death of the Optionee, shall thereafter be entitled to exercise the 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, be equal). The Option
Agreement may provide that from time to time during each of such installment periods, the
Option may become exercisable ("vest") with respect to some or all of the shares
allotted to that period, and may be exercised with respect to some or all of the shares
allotted to such period and/or any prior period as to which the Option became vested but
was not fully exercised. The Option may be subject to such other terms and conditions on
the time or times when it may be exercised (which may be based on performance or other
criteria) as the Board may deem appropriate. The provisions of this subsection 6(e) are
subject to any Option provisions governing the minimum number of shares as to which an
Option may be exercised.

(f) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR CONSULTANT. In the event
an Optionee's Continuous Status as an Employee, Director or Consultant terminates (other
than upon the Optionee's death or disability), the Optionee may exercise his or her Option
(to the extent that the Optionee was entitled to exercise it at the date of termination)
but only within such period of time ending on the earlier of (i) the date thirty (30) days
after the termination of the Optionee's Continuous Status as an Employee, Director or
Consultant (or such longer or shorter period specified in the Option Agreement), or (ii)
the expiration 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 the time specified in
the Option Agreement, the Option shall terminate, and the shares covered by such Option
shall revert to and again become available for issuance under the Plan. 

An Optionee's Option Agreement may also provide that if the exercise of the Option
following the termination of the Optionee's Continuous Status as an Employee, Director, or
Consultant (other than upon the Optionee's death or disability) 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 term of the Option set forth in the Option Agreement, or (ii)
the tenth (10th) day after the last date on which such exercise would result in such
liability under Section 16(b) of the Exchange Act. Finally, an Optionee's Option Agreement
may also provide that if the exercise of the Option following the termination of the
Optionee's Continuous Status as an Employee, Director or Consultant (other than upon the
Optionee's death or disability) would be prohibited at any time solely because the
issuance of shares would violate the registration requirements under the Act, then the
Option shall terminate on the earlier of (i) the expiration of the 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 of the Optionee's Continuous Status as an
Employee, Director or Consultant during which the exercise of the Option would not be in
violation of such registration requirements.

(g) DISABILITY OF OPTIONEE. In the event an Optionee's Continuous Status as an
Employee, Director or Consultant terminates as a result of the Optionee's disability, the
Optionee may exercise his or her Option (to the extent that the Optionee was entitled to
exercise it at the date of termination), but only within such period of time ending on the
earlier of (i) the date six (6) months following such termination (or such longer or
shorter period specified in the Option Agreement), or (ii) the expiration of the term of
the Option as set forth in the Option Agreement. If, at the date of termination, the
Optionee is not entitled to exercise his or her entire Option, the shares covered by the
unexercisable portion of the Option shall revert to and again become available for
issuance under the Plan. If, after termination, the Optionee does not exercise his or her
Option within the time specified herein, the Option shall terminate, and the shares
covered by such Option shall revert to and again become available for issuance under the
Plan.

(h) DEATH OF OPTIONEE. In the event of the death of an Optionee during, or within a
period specified in the Option after the termination of, the Optionee's Continuous Status
as an Employee, Director or Consultant, the Option may be exercised (to the extent the
Optionee was entitled to exercise the Option at the date of death) by the Optionee's
estate, by a person who acquired the right to exercise the Option by bequest or
inheritance or by a person designated to exercise the option upon the Optionee's death
pursuant to subsection 6(d), but only within the period ending on the earlier of (i) the
date twelve (12) months following the date of death (or such longer or shorter period
specified in the Option Agreement), or (ii) the expiration of the term of such Option as
set forth in the Option Agreement. If, at the time of death, the Optionee was not entitled
to exercise his or her entire Option, the shares covered by the unexercisable portion of
the Option shall revert to and again become available for issuance under the Plan. If,
after death, the Option is not exercised within the time specified herein, the Option
shall terminate, and the shares covered by such Option shall revert to and again become
available for issuance under the Plan.

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

(j) RE-LOAD OPTIONS. Without in any way limiting the authority of the Board or
Committee to make or not to make grants of Options hereunder, the Board or Committee shall
have the authority (but not an obligation) to include as part of any Option Agreement a
provision entitling the Optionee to a further Option (a "Re-Load Option") in the
event the Optionee exercises the Option evidenced by the Option agreement, in whole or in
part, by surrendering other shares of Common Stock in accordance with this Plan and the
terms and conditions of the Option Agreement. Any such Re-Load Option (i) shall be for a
number of shares equal to the number of shares surrendered as part or all of the exercise
price of such Option; (ii) shall have an expiration date which is the same as the
expiration date of the Option the exercise of which gave rise to such Re-Load Option; and
(iii) shall have an exercise price which is equal to one hundred percent (100%) of the
Fair Market Value of the Common Stock subject to the 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 be no Re-Load
Options on a Re-Load Option. Any such Re-Load Option shall be subject to the availability
of sufficient shares under subsection 4(a) and shall be subject to such other terms and
conditions as the Board or Committee may determine which are not inconsistent with the
express provisions of the Plan regarding 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 any time and from
time to time, (i) the repricing of any outstanding Options under the Plan and/or (ii) with
the consent of any adversely affected holders of Options, the cancellation of any
outstanding Options under the Plan and the grant in substitution therefor of new Options
under the Plan covering the same or different numbers of shares of stock, but having an
exercise price per share not less than eighty-five percent (85%) of the Fair Market Value
for a Nonstatutory Stock Option. Notwithstanding the foregoing, the Board or the Committee
may grant an Option with an exercise price lower than that set forth above 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 continue to be
counted against the maximum award of Options permitted to be granted pursuant to
subsection 5(c) of the Plan. The repricing of an Option under this Section 7, resulting in
a reduction of the exercise price, shall be deemed to be a cancellation of the original
Option and the grant of a substitute Option; in the event of such repricing, both the
original and the substituted Options shall be counted against the maximum awards of
Options permitted to be granted pursuant 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 at all times
the number of shares of stock required to satisfy such Stock Awards.

(b) The Company shall seek to obtain from each regulatory commission or agency having
jurisdiction over the Plan such authority as may be required to issue and sell shares
under Stock Awards; provided, however, that this undertaking shall not require the Company
to register under the Securities Act of 1933, as amended (the "Securities Act")
either the Plan, any Stock Award or any stock issued or issuable pursuant to any such
Stock Award. If, after reasonable efforts, the Company is unable to obtain from any such
regulatory commission or agency the authority which counsel for the Company deems
necessary for the lawful issuance and sale of stock under the Plan, the Company shall be
relieved from any liability for failure to issue and sell stock upon 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 constitute general funds
of the Company.

 

 

11. MISCELLANEOUS

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

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

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

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

(e) The Company may require any person to whom a Stock Award is granted, or any person
to whom a Stock Award is transferred in accordance with the Plan, as a condition of
exercising or acquiring stock under any Stock Award, (1) to give written assurances
satisfactory to the Company as to such person's knowledge and experience in financial and
business matters and/or to employ a purchaser representative reasonably satisfactory to
the Company who is knowledgeable and experienced in financial and business matters, and
that he or she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the Stock Award; and (2) to give
written assurances satisfactory to the Company stating that such person is acquiring the
stock subject to the Stock Award for such person's own account and not with any present
intention of selling or otherwise distributing the stock. The foregoing requirements, and
any assurances given pursuant to such requirements, shall be inoperative if (i) the
issuance of the shares upon the exercise or acquisition of stock under the Stock Award has
been registered under a then currently effective registration statement under the
Securities Act, or (ii) as to any particular requirement, a determination is made by
counsel for the Company that such requirement need not be met in the circumstances under
the then applicable securities laws. The Company may, upon advice of counsel to the
Company, place legends on stock certificates issued under the Plan as such counsel deems
necessary 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, the person to whom
a Stock Award is granted may satisfy any federal, state or local tax withholding
obligation relating to the exercise or acquisition of stock under a Stock Award by any of
the following means or by a combination of such means: (1) tendering a cash payment; (2)
authorizing the Company to withhold shares from the shares of the Common Stock otherwise
issuable to the participant as 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
Stock of the Company.

 

 

12. ADJUSTMENTS UPON CHANGES IN STOCK

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

(b) In the event of: (1) a dissolution, liquidation or sale of substantially all of the
assets of the Company; (2) a merger or consolidation in which the Company is not the
surviving corporation; or (3) a reverse merger in which the Company is the surviving
corporation but the shares of the Company's common stock outstanding immediately preceding
the merger are converted by virtue of the merger into other property, whether in the form
of securities, cash or otherwise, then to the extent permitted by applicable law: (i) any
surviving corporation or an Affiliate of such surviving corporation shall assume any Stock
Awards outstanding under the Plan or shall substitute similar Stock Awards for those
outstanding under the Plan, or (ii) such Stock Awards shall continue in full force and
effect. In the event any surviving corporation and its Affiliates refuse to assume or
continue such Stock Awards, or to substitute similar options for those outstanding under
the Plan, then, with respect to Stock Awards held by persons then performing services as
Employees, Directors or Consultants, the time during which such Stock Awards may be
exercised shall be accelerated and the 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 changes in stock, no amendment
shall be effective unless approved by the stockholders of the Company to the extent
stockholder approval is necessary for the Plan to satisfy the requirements of Section 422
of the Code, Rule 16b-3 or any Nasdaq or securities exchange listing requirements.

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

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

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

(e) The Board at any time, and from time to time, may amend the terms of any one or
more Stock Award; provided, however, that the rights and obligations under any Stock Award
shall not be impaired by any such amendment unless (i) the Company requests the consent of
the person to whom the Stock Award was granted and (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 sooner terminated,
the Plan shall terminate ten (10) years from the date the Plan is adopted by the Board or
approved by the stockholders of the Company, whichever is earlier. No Stock Awards may be
granted under the Plan while the Plan is suspended or after it is terminated.

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

 

 

15. EFFECTIVE DATE OF PLAN.

This Plan shall become effective on November 24, 2003.

 

 

 

WILD OATS MARKETS, INC.

NON-QUALIFIED STOCK OPTION

OPTION AGREEMENT

GARY RAWLINGS, Optionee:

 

Wild Oats Markets, Inc. (the "Company"), pursuant to the Gary Rawlings Equity
Incentive Plan (the "Plan"), has this day granted to you, the optionee named
above ("Optionee"), options (the "Options") to purchase shares of the
common stock of the Company ("Common Stock"). The Options are not intended to
qualify and will not be treated as an "incentive stock option" within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code").

The details of your Options are as follows:

1. SHARES; VESTING. (a) The total number of shares of Common Stock subject to
the Options are ____________________________

(a) Subject to the conditions stated herein, the Option shall be exercisable with
respect to each installment shown below on or after the date of vesting applicable to such
installment; provided, however, that should Optionee's employment terminate for
"cause" this option shall be terminated and canceled immediately and shall not
be exercisable for any number of shares. For purposes of this option, "cause"
shall mean misconduct including, but not limited to, criminal acts involving moral
turpitude or dishonesty.

  
    NUMBER OF SHARES (INSTALLMENT)

    DATE OF EARLIEST EXERCISE (VESTING)

  

2. EXERCISE PRICE; PAYMENT. (a) The exercise price of the Options is $_______
per share, being not less than eighty five percent (85%) of the fair market value of the
Common Stock on the date of grant of the Options.

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

(b) Notwithstanding the foregoing, the Options may be exercised pursuant to a program
developed under Regulation T as promulgated by the Federal Reserve Board which results in
the receipt of cash (or check) by the Company prior to the issuance of Common Stock.

3. WHOLE SHARES. The Options may not be exercised for any number of shares which
would require the issuance of anything other than whole shares.

4. REGISTERED STOCK. Notwithstanding anything to the contrary contained herein,
the Options may not be exercised unless the shares issuable upon exercise of the Options
are then registered under the Act or, if such shares are not then so registered, the
Company has determined that such exercise and issuance would be exempt from the
registration requirements of the Act.

5. TERM; TERMINATION. (a) The term of the Options commence on the date hereof
and, unless sooner terminated as set forth below or in the Plan, terminates ten (10) years
from the date of grant. In no event may the Options be exercised on or after the date on
which they terminate. 

(b) The Options shall terminate prior to the expiration of its term 30 days after the
termination of your employment with the Company for any reason or for no reason, other
than cause as defined above, unless:

  
    (i) such termination of employment is due to your permanent and total disability
    (within the meaning of Section 422(c)(6) of the Code), in which event the option shall
    terminate on the earlier of the termination date set forth above or six (6) months
    following such termination of employment; or

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

    (iii) during any part of such thirty (30) days period the option is not exercisable
    solely because of the condition set forth in Section 4 above, in which event the Options
    shall not terminate until the earlier of the termination date set forth above or until
    they shall have been exercisable for an aggregate period of thirty (30) days after the
    termination of employment.

  

The Options may be exercised on or after the termination of employment only as to that
number of vested shares as to which they were exercisable on the date of termination of
employment under the provisions of Section 1 of this Option Agreement.

6. METHOD OF EXERCISE. (a) The Options may be exercised by delivering a notice
of exercise (in the form attached hereto as Attachment 2) together with the exercise price
to the Secretary of the Company, or to such other person as the Company may designate,
during regular business hours, together with such additional documents as the Company may
then require pursuant to the Plan. In the event of a "cashless exercise", you
may exercise the Options by providing such documentation to the brokerage firm retained by
the Company to administer cashless exercises as such brokerage firm may require.

(b) By exercising the Options 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 (i) the exercise of the Options; (ii) the
lapse of any substantial risk of forfeiture to which the shares are subject at the time of
exercise; or (iii) the disposition of shares acquired upon such exercise.

7. TRANSFERABILITY. The Options are not transferable, except by will or by the
laws of descent and distribution, and are exercisable during your life only by you.

8. NOTICES. Any notices provided for in this Option Agreement shall be given in
writing and shall be deemed effectively given upon receipt or, in the case of notices
delivered by the Company to you, five days after deposit in the United States mail,
postage prepaid, addressed to you at the address specified below or at such other address
as you hereafter designate by written notice to the Company.

9. CONFLICT. The Options is subject to all the provisions of the Plan, a copy of
which is attached hereto and its provisions are hereby made a part of this option,
including without limitation the provisions of the Plan relating to option provisions, and
is further subject to all interpretations, amendments, rules and regulations which may
from time to time be promulgated and adopted pursuant to the Plan. In the event of any
conflict between the provisions of this option and those of the Plan, the provisions of
the Plan shall control. If the parties hereto shall have any conflict regarding the terms
of the Options, the interpretation of the Company's Compensation Committee shall prevail.

Dated the ___ day of ____________, 2003.

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 attachments referenced therein
and understands that all rights and liabilities with respect to the Options are set forth
in this option agreement and the Plan; and

(b) Acknowledges that as of the date of grant of the Options, this option agreement
sets forth the entire understanding between the undersigned optionee and the Company and
its affiliates regarding the Options which are the subject hereof, and supersedes all
prior oral and written agreements on that subject. 

 

 

  
    ___________________________________________________

    Optionee

     

    Address: ___________________________________________

    
      
        ___________________________________________

         

      

    

  

ATTACHMENTS:

Attachment 1 – Gary Rawlings Equity Incentive Plan

Attachment 2 – Form of Notice of Exercise

 

 

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 the number of
shares for the price set forth below.

 

 

Type of option (check one) Incentive 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 may require
pursuant to the terms of the Wild Oats Markets, Inc. Gary Rawlings Equity Incentive Plan,
(ii) to provide for the payment by me to you (in the manner designated by you) of your
withholding obligation, if any, relating to the exercise of this option.

I further acknowledge that all certificates representing any of the Shares subject to
the provisions of the Option shall have endorsed thereon appropriate legends reflecting
the foregoing limitations, as well as any legends reflecting restrictions pursuant to the
Company's Articles of Incorporation, Bylaws and/or applicable securities laws.

 

Very truly yours,

_________________________________

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