Document:

exv10w4

 

Exhibit 10.4

ROGER E. DAVIDSON

WILD OATS MARKETS, INC.

EQUITY INCENTIVE PLAN

ROGER E. DAVIDSON — WILD OATS MARKETS, INC.

EQUITY INCENTIVE PLAN

1. Purpose. The purpose of this Roger E. Davidson — Wild Oats Markets, Inc. Equity Incentive Plan
(the “Plan”) is to induce Roger E. Davidson to enter employment with, and to aid Wild Oats Markets,
Inc., a Delaware corporation (together with its successors and assigns, the “Company”), in
retaining, motivating and rewarding Roger E. Davidson, to provide for equitable and competitive
compensation opportunities, and promote the creation of long-term value for stockholders by closely
aligning the interests of Roger E. Davidson with those of stockholders.

2. Definitions. In addition to the terms defined in Section 1 above and elsewhere in the Plan, the
following capitalized terms used in the Plan have the respective meanings set forth in this
Section:

(a) “Annual Limit” shall have the meanings specified in Section 5(b).

(b) “Award” means any Option granted to Participant under the Plan.

(c) “Beneficiary” means the legal representatives of the Participant’s estate entitled
by will or the laws of descent and distribution to receive the benefits under a Participant’s Award
upon a Participant’s death, provided that, if and to the extent authorized by the Committee, a
Participant may be permitted to designate a Beneficiary, in which case the “Beneficiary” instead
will be the person, persons, trust or trusts (if any are then surviving) which have been designated
by the Participant in his or her most recent written and duly filed beneficiary designation to
receive the benefits specified under the Participant’s Award upon such Participant’s death. Unless
otherwise determined by the Committee, any designation of a Beneficiary other than a Participant’s
spouse shall be subject to such spouse’s written consent.

(d) “Board” means the Company’s Board of Directors.

(e) “Change in Control” has the meanings specified in Section 9.

(f) “Code” means the Internal Revenue Code of 1986, as amended. References to any
provision of the Code or regulation thereunder shall include any successor provisions and
regulations, and reference to regulations includes any applicable guidance or pronouncement of the
Department of the Treasury and Internal Revenue Service.

(g) “Committee” means the Compensation Committee of the Board, which shall 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 of the Exchange Act. No action
of the Committee shall be void or deemed to be without authority due to the failure of any member,
at the time the action was taken, to meet any qualification standard set forth in the Committee
Charter or the Plan. The full Board may perform any function of the Committee hereunder, in which
case the term “Committee” shall refer to the Board.

(h) “Covered Employee” means an Eligible Person who is a Covered Employee as specified
in Section 11(j).

 

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(i) “Dividend Equivalent” means a right, granted under this Plan, to receive cash,
Stock, other Awards or other property equal in value to all or a specified portion of the dividends
paid with respect to a specified number of shares of Stock.

(j) “Effective Date” means the effective date specified in Section 11(q).

(k) “Eligible Person” has the meaning specified in Section 5.

(l) “Exchange Act” means the Securities Exchange Act of 1934, as amended. References
to any provision of the Exchange Act or rule (including a proposed rule) thereunder shall include
any successor provisions and rules.

(m) “Fair Market Value” means the fair market value of Stock, Awards or other property
as determined in good faith by the Committee or under procedures established by the Committee.
Unless otherwise determined by the Committee, the Fair Market Value of Stock shall be the closing
sales price for such Stock (or the closing bid, if no sales were reported) as quoted on the NASDAQ
National Market or the NASDAQ SmallCap Market or any other established stock exchange, as
applicable, on the last market trading day prior to the day of determination or grant, as reported
in the Wall Street Journal or such other source as the Board deems reliable. Fair Market Value
relating to the determination of the exercise price or base price of any Non-409A Option or SAR
(that does not provide for a deferral of compensation) shall be made consistent with the
requirements under Code Section 409A.

(n) “409A Awards” means Awards that constitute a deferral of compensation under Code
Section 409A and regulations thereunder. “Non-409A Awards” means Awards other than 409A
Awards. Although the Committee retains authority under the Plan to grant Options, SARs and
Restricted Stock on terms that will qualify those Awards as 409A Awards, Options, SARs exercisable
for Stock, and Restricted Stock are intended to be Non-409A Awards unless otherwise expressly
specified by the Committee.

(o) “Incentive Stock Option” or “ISO” means any Option designated as an
incentive stock option within the meaning of Code Section 422 and qualifying thereunder.

(p) “Option” means a right, granted under this Plan, to purchase Stock.

(q) “Other Stock-Based Awards” means Awards granted to a Participant under Section
6(h).

(r) “Participant” means Roger E. Davidson, after he has been granted an Award under
the Plan which remains outstanding, even if no longer an Eligible Person.

(s) “Performance Award” means a conditional right, granted to a Participant under
Sections 6(i) and 7, to receive cash, Stock or other Awards or payments.

(t) “Preexisting Plan” — INTENTIONALLY DELETED.

(u) “Restricted Stock” means Stock granted under this Plan which is subject to certain
restrictions and to a risk of forfeiture.

(v) “Restricted Stock Unit” or “RSU” means a right, granted under this Plan,
to receive Stock or other Awards or a combination thereof at the end of a specified deferral
period.

(w) “Rule 16b-3” means Rule 16b-3, as from time to time in effect and applicable to
Participants, promulgated by the Securities and Exchange Commission under Section 16 of the
Exchange Act.

 

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(x) “Stock” means the Company’s Common Stock, par value $0.001 per share, and any
other equity securities of the Company that may be substituted or resubstituted for Stock pursuant
to Section 11(c).

(y) “Stock Appreciation Rights” or “SAR” means a right granted to a
Participant under Section 6(c).

3. Administration.

(a) Authority of the Committee. The Plan shall be administered by the Committee,
which shall have full and final authority, in each case subject to and consistent with the
provisions of the Plan, to select Eligible Persons to participate; to grant Awards; to determine
the type and number of Awards, the dates on which Awards may be exercised and on which the risk of
forfeiture or deferral period relating to Awards shall lapse or terminate, the acceleration of any
such dates, the expiration date of any Award, whether, to what extent, and under what circumstances
an Award may be settled, or the exercise price of an Award may be paid, in cash, Stock, other
Awards, or other property, and other terms and conditions of, and all other matters relating to,
Awards; to prescribe documents evidencing or setting terms of Awards (such Award documents need not
be identical for each Participant), amendments thereto, and rules and regulations for the
administration of the Plan and amendments thereto (including outstanding Awards); to construe and
interpret the Plan and Award documents and correct defects, supply omissions or reconcile
inconsistencies therein; and to make all other decisions and determinations as the Committee may
deem necessary or advisable for the administration of the Plan. Decisions of the Committee with
respect to the administration and interpretation of the Plan shall be final, conclusive, and
binding upon all persons interested in the Plan, including Participants, Beneficiaries, transferees
under Section 11(b) and other persons claiming rights from or through a Participant, and
stockholders. The foregoing notwithstanding, the Board shall perform the functions of the
Committee for purposes of granting Awards under the Plan to members of the Committee.

(b) Manner of Exercise of Committee Authority. The express grant of any specific
power to the Committee, and the taking of any action by the Committee, shall not be construed as
limiting any power or authority of the Committee. The Committee may act through subcommittees,
including for purposes of perfecting exemptions under Rule 16b-3 or qualifying Awards under Code
Section 162(m) as performance-based compensation, in which case the subcommittee shall be subject
to and have authority under the charter applicable to the Committee, and the acts of the
subcommittee shall be deemed to be acts of the Committee hereunder. The Committee may delegate to
officers or managers of the Company or any subsidiary, or committees thereof, the authority,
subject to such terms as the Committee shall determine, to perform such functions, including
administrative functions, as the Committee may determine, to the extent (i) that such delegation
will not result in the loss of an exemption under Rule 16b-3 for Awards granted to Participants
subject to Section 16 of the Exchange Act in respect of the Company and will not cause Awards
intended to qualify as “performance-based compensation” under Code Section 162(m) to fail to so
qualify, and (ii) permitted under Section 157 and other applicable provisions of the Delaware
General Corporation Law.

(c) Limitation of Liability. The Committee and each member thereof, and any person
acting pursuant to authority delegated by the Committee, shall be entitled, in good faith, to rely
or act upon any report or other information furnished by any executive officer, other officer or
employee of the Company or a subsidiary, the Company’s independent auditors, consultants or any
other agents assisting in the administration of the Plan. Members of the Committee, any person
acting pursuant to authority delegated by the Committee, and any officer or employee of the Company
or a subsidiary acting at the direction or on behalf of the Committee or a delegee shall not be
personally liable for any action or determination taken or made in good faith with respect to the
Plan, and shall, to the extent permitted by law, be fully indemnified and protected by the Company
with respect to any such action or determination.

 

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4. Stock Subject To Plan.

(a) Overall Number of Shares Available for Delivery. Subject to adjustments pursuant
to the provisions of Section 11(c) below, the total number of shares of Stock reserved and
available for delivery in connection with Awards under the Plan shall be the sum of 100,000 shares.
Any shares of Stock delivered under the Plan shall consist of authorized and unissued shares or
treasury shares.

(b) Share Counting Rules. The Committee may adopt reasonable counting procedures to
ensure appropriate counting, avoid double counting (as, for example, in the case of tandem or
substitute awards) and make adjustments in accordance with this Section  4(b). Shares that are
potentially deliverable under an Award under the Plan that are canceled, expired, forfeited,
settled in cash or otherwise terminated without a delivery of such shares to the Participant will
not be counted as delivered under the Plan.

5. Eligibility; Per-Person Award Limitations.

(a) Eligibility. Awards may be granted under the Plan only to Eligible Persons. For
purposes of the Plan, an “Eligible Person” means Roger E. Davidson, who has been offered employment
by the Company or a parent or subsidiary, provided that Roger E. Davidson may not receive any
payment or exercise any right relating to an Award until such person has commenced employment with
the Company or a subsidiary. An employee on “leave of absence” (as such term is defined in the
Company’s employee handbook or, if no such definition exists, as otherwise defined by the Committee
in its discretion) may be considered as still in the employ of the Company or a parent or
subsidiary for purposes of eligibility for participation in the Plan, if so determined by the
Committee.

(b) Per-Person Award Limitations. In each calendar year during any part of which the
Plan is in effect, an Eligible Person may be granted Awards under each of Section 6(b), 6(c), 6(d),
6(e), 6(f), 6(g) or 6(h) relating to up to his or her Annual Limit (such Annual Limit to apply
separately to the type of Award authorized under each specified subsection, except that the
limitation applies to Dividend Equivalents under Section 6(g) only if such Dividend Equivalents are
granted separately from and not as a feature of another Award). A Participant’s Annual Limit, in
any year during any part of which the Participant is then eligible under the Plan, shall equal
500,000 shares plus the amount of the Participant’s unused Annual Limit relating to the same type
of Award as of the close of the previous year, subject to adjustment as provided in Section 11(c).
In the case of an Award which is not valued in a way in which the limitation set forth in the
preceding sentence would operate as an effective limitation satisfying applicable law (including
Treasury Regulation 1.162-27(e)(4)), an Eligible Person may not be granted Awards authorizing the
earning during any calendar year of an amount that exceeds the Eligible Person’s Annual Limit,
which for this purpose shall equal $1 million plus the amount of the Eligible Person’s unused cash
Annual Limit as of the close of the previous year (this limitation is separate and not affected by
the number of Awards granted during such calendar year subject to the limitation in the preceding
sentence). For this purpose, (i) “earning” means satisfying performance conditions so that an
amount becomes payable, without regard to whether it is to be paid currently or on a deferred basis
or continues to be subject to any service requirement or other non-performance condition, and (ii)
a Participant’s Annual Limit is used to the extent an amount or number of shares may be potentially
earned or paid under an Award, regardless of whether such amount or shares are in fact earned or
paid.

6. Specific Terms of Awards.

(a) General. Awards may be granted on the terms and conditions set forth in this
Section 6. In addition, the Committee may impose on any Award or the exercise thereof, at the date
of grant or thereafter (subject to Sections 11(e) and 11(k)), such additional terms and conditions,
not inconsistent with the provisions of the Plan, as the Committee shall determine, including terms
requiring forfeiture of Awards in the event of termination of employment or service by the
Participant and terms permitting a Participant to make elections relating to his or her Award. The
Committee shall retain full power and discretion with respect to any term or condition of an Award
that is not mandatory under the Plan, subject

 

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to Section 11(k). The Committee shall require the payment of lawful consideration for an Award to
the extent necessary to satisfy the requirements of the Delaware General Corporation Law, and may
otherwise require payment of consideration for an Award except as limited by the Plan.

(b) Options. The Committee is authorized to grant Options to Participant on the
following terms and conditions:

	 	(i)	 	Exercise Price. The exercise price per share of Stock purchasable under an
Option (including both ISOs and non-qualified Options) shall be determined by the
Committee, provided that, notwithstanding anything contained herein to the contrary
such exercise price shall be (A) fixed as of the grant date, and (B) not less than the
Fair Market Value of a share of Stock on the date of grant of such Option.
Notwithstanding the foregoing, any substitute award granted in assumption of or in
substitution for an outstanding award granted by a company or business acquired by the
Company or a subsidiary, or with which the Company or a subsidiary combines may be
granted with an exercise price per share of Stock other than as required above.

	 
	 	(ii)	 	Option Term; Time and Method of Exercise. The Committee shall determine the
term of each Option, provided that in no event shall the term of any Option exceed a
period of ten years from the date of grant. The Committee shall determine the time or
times at which or the circumstances under which an Option may be exercised in whole or
in part. The basis for determining the vesting and exercisability of an option will
be the passage of a specific period of time or the occurrence or non-occurrence of
certain specific events (which may include, but is not limited to, the achievement of
performance goals or future service requirements) or a combination thereof. In
addition, the Committee shall determine the methods by which such exercise price may
be paid or deemed to be paid and the form of such payment (subject to Sections 11(k)
and 11(l)), including, without limitation, cash, Stock (including by delivery of Stock
or withholding Stock deliverable upon exercise, if such payment feature will not
result in additional accounting expense to the Company), other Awards or awards
granted under other plans of the Company or any subsidiary, or other property
(including through broker-assisted “cashless exercise” arrangements, to the extent
permitted by applicable law), and the methods by or forms in which Stock will be
delivered or deemed to be delivered in satisfaction of Options to Participants
(including, in the case of 409A Awards, deferred delivery of shares subject to the
Option, as mandated by the Committee, with such deferred shares subject to any
vesting, forfeiture or other terms as the Committee may specify). Stock delivered
hereunder shall be valued at Fair Market Value on the day prior to remittance of the
Stock.

	 
	 	(iii)	 	ISOs. The terms of any ISO granted under the Plan shall comply in all
respects with the provisions of Code Section 422, including but not limited to that to
the extent that the aggregate Fair Market Value (determined at the time of grant) of
ISOs granted are exercisable for the first time by any Participant during any calendar
year under all plans of the Company and its parent and subsidiaries exceeds the dollar
limit stated in Code Section 422, the ISO or portion thereof which exceed the limit
(according to the order in which they were granted) shall be treated as nonqualified
stock options.

	 
	 	(iv)	 	Repricing. Notwithstanding anything in this Plan to the contrary, without
the approval of stockholders, the Committee will not amend or replace previously
granted Options in a transaction that constitutes a “repricing,” as such term is used
in Section 303A.08 of the Listed Company Manual of the New York Stock Exchange or
Nasdaq National Market (as then applicable) or Item 402(i)(1) of Regulation S-K of the
Exchange Act.

	 
	 	(v)	 	Termination of Employment or Relationship. In the event a Participant’s
continuous status as an employee, director, advisor or consultant terminates (other
than upon the Participant’s death or Disability), the Participant may exercise his/her
Options to the

 

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	 	 	 	extent then exercisable on the date of termination, but only within such period of
time ending on the earlier of: (A) the date 90 days after the termination of the
Participant’s current continuous service, or (B) or such longer or shorter period
specified in the Award agreement, or (C) the expiration of the Award as specified
in the Award agreement.

	 	(vi)	 	Death or Disability. In the event a Participant’s continuous status as an
employee, director, advisor or consultant terminates upon the Participant’s death or
Disability, the Participant may exercise his/her Options to the extent then
exercisable on the date of termination, but only within such period of time ending on
the earlier of: (A) the date 180 days after the termination of the Participant’s
current continuous service for Disability, and one year after termination for death,
or (B) or such longer or shorter period specified in the Award agreement, or (C) the
expiration of the Award as specified in the Award agreement. Unless otherwise defined
in an Award agreement, “Disability” means the Participant is actually receiving
benefits under a separate disability plan maintained by the Company or its subsidiary.

	 
	 	(vii)	 	Earlier Forfeiture. A Participant’s right to exercise Options may terminate
earlier as provided under Section 10 below.

	 
	 	(viii)	 	Section 16. A Participant’s Award agreement may provide that if the exercise of the
Option following the termination of the Participant’s continuous status as an
employee, director, or consultant (other than upon the Participant’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 Award 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.

7. Performance Awards. INTENTIONALLY DELETED.

8. Certain Provisions Applicable To Awards.

(a) Stand-Alone, Additional, and Tandem Awards. Awards granted under the Plan may, in
the Committee’s discretion, be granted either alone or in addition to, in tandem with, or in
substitution or exchange for, any other Award or any award granted under another plan of the
Company, any subsidiary, or any business entity acquired by the Company or a subsidiary, or any
other right of a Participant to receive payment from the Company or any subsidiary; provided,
however, that a 409A Award may not be granted in tandem with a Non-409A Award. Awards granted in
addition to or in tandem with other Awards or awards may be granted either as of the same time as
or a different time from the grant of such other Awards or awards. Notwithstanding anything in
this Section 8(a) to the contrary, in no event may Options or SARs be exchanged for Awards of the
same or different type in a manner that would violate the provisions of Section 303A.08 of the
Listed Company Manual of the New York Stock Exchange or Nasdaq National Market (as then applicable)
or Item 402(i)(1) of Regulation S-K of the Exchange Act.

(b) Term of Awards. The term of each Award shall be for such period as may be
determined by the Committee, subject to the express limitations set forth in Sections 6(b)(ii),
6(c)(ii) and 8 or elsewhere in the Plan.

(c) Form and Timing of Payment under Awards; Deferrals. Subject to the terms of the
Plan (including Sections 11(k) and (l)) and any applicable Award document, payments to be made by
the Company or a subsidiary upon the exercise of an Option or other Award or settlement of an Award
may be made in such forms as the Committee shall determine, including, without limitation, cash,
Stock, other Awards or other property, and may be made in a single payment or transfer, in
installments, or on a deferred basis. The settlement of any Award may be accelerated, and cash
paid in lieu of Stock in

 

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connection with such settlement, in the Committee’s discretion or upon occurrence of one or more
specified events, subject to Sections 6(b)(ii), 11(k) and 11(l). Subject to Section 11(k),
installment or deferred payments may be required by the Committee (subject to Section 11(e)) or
permitted at Participant’s election on terms and conditions established by the Committee. Payments
may include, without limitation, provisions for the payment or crediting of reasonable interest on
installment or deferred payments or the grant or crediting of Dividend Equivalents or other amounts
in respect of installment or deferred payments denominated in Stock. In the case of any 409A Award
that is vested and no longer subject to a risk of forfeiture (within the meaning of Code Section
83), such Award will be distributed to the Participant, upon application of the Participant, if the
Participant has had an unforeseeable emergency within the meaning of Code Sections
409A(a)(2)(A)(vi) and 409A(a)(2)(B)(ii), in accordance with Section 409A(a)(2)(B)(ii).

9. Change in Control.

(a) The Committee shall have the discretion to provide that in the event of a Change in
Control (as defined in Section 9(b) below), the following provisions will apply:

	 	(i)	 	Each outstanding Option or SAR (or such lesser portion of each Option or SAR
as is set forth in an applicable Award agreement) will immediately become exercisable
in full.

	 
	 	(ii)	 	Each outstanding share of Restricted Stock (or such lesser number of shares
as is set forth in an applicable Award agreement) will immediately become free of the
restrictions.

	 
	 	(iii)	 	To the extent provided in an applicable Award agreement, each outstanding
other Award shall be deemed free of restriction and any performance goals shall be
determined to be satisfied to the extent set forth in the Award agreement.

	 
	 	(iv)	 	In the event of a Change in Control that is a merger or consolidation in
which the Company is not the surviving corporation or which results in the acquisition
of substantially all of the Company’s outstanding Stock by a single person or entity
or by a group of persons or entities acting in concert, or in the event of a sale or
transfer of all or substantially all of the Company’s assets (a “Covered
Transaction”), the Committee shall have the discretion to provide for the termination
of all outstanding Options and SARs as of the effective date of the Covered
Transaction; provided, that, if the Covered Transaction follows a Change in Control or
would give rise to a Change in Control, no Option or SAR will be so terminated
(without the consent of the Participant) prior to the expiration of 20 days following
the later of (A) the date on which the Award became fully exercisable and (B) the date
on which the Participant received written notice of the consummation of a Covered
Transaction.

(b) Except as provided in Section 9(c), 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 (as determined under Rule 13d-3
under the Exchange Act), 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 (as determined under Rule 12b-2 under the
Exchange Act) representing 31 percent (31%) or more of the combined voting power of
the Company’s then outstanding securities, excluding any person who becomes such a
beneficial owner in connection with a Non-Control Merger (as defined in paragraph
(iii) below); or

 

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	 	(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

	 
	 	(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.

(c) To the extent required for purposes of compliance with Section 409A, the following
definition of a “Change in Control” shall apply to Awards subject to Section 409A. 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)	 	Change in Ownership. Any one person, or more than one person acting as a
group (“Person”), acquires ownership of stock of the Company that, together with stock
held by the Person, constitutes more than 50 percent (50%) of the total fair market
value or total voting power of the stock of the Company. However, if any Person is
considered to own more than 50 percent (50%) of the total fair market value or total
voting power of the stock of the Company, the acquisition of additional stock by the
Person is not considered to cause a change in the ownership of the Company (or to
cause a change in the effective control of the Company (within the meaning of
paragraph (ii)).

	 
	 	(ii)	 	Change in Effective Control. A change in effective control of the Company
occurs only on the date that either:

	 	(A)	 	Any Person acquires (or has acquired during the 12-month
period ending on the date of the most recent acquisition by the Person)
ownership of stock of the Company possessing 35 percent (35%) or more of the
total voting power of the stock of the Company; or

 

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	 	(B)	 	A majority of the members of the Board is replaced during any
12-month period by directors whose appointment or election is not endorsed by
a majority of the members of the Board prior to the date of the appointment or
election.

	 	(iii)	 	Change in Ownership of a Substantial Portion of the Company’s Assets. The
date that any Person acquires (or has acquired during the 12-month period ending on
the date of the most recent acquisition by the Person) assets from the Company that
have a total gross fair market value of all of the assets of the Company immediately
prior to the acquisition or acquisitions. For this purpose, gross fair market value
means the value of the assets of the Company, or the value of the assets being
disposed of, determined without regard to any liabilities associated with the assets.

The determination of whether a “Change in Control” has occurred and the date consummated, shall be
made by the Board, in good faith, consistent with the requirements of Code Section 409A.

10. Additional Award Forfeiture Provisions.

(a) Forfeiture of Options and Other Awards and Gains Realized Upon Prior Option Exercises
or Award Settlements. Unless otherwise determined by the Company, each Award granted
hereunder, shall be subject to the following additional forfeiture conditions, to which the
Participant, by accepting an Award hereunder, agrees. If any of the events specified in Section
10(b)(i), (ii), (iii), (iv) occurs (a “Forfeiture Event”), all of the following forfeitures will
result:

	 	(i)	 	The unexercised portion of the Option, whether or not vested, and any other
Award not then settled will be immediately forfeited and canceled upon the occurrence
of the Forfeiture Event; and

	 
	 	(ii)	 	The Participant will be obligated to repay to the Company, in cash, within
five business days after demand is made therefor by the Company, the total amount of
Award Gain (as defined herein) realized by the Participant upon each exercise of an
Option or settlement of an Award that occurred on or after (A) the date that is six
months prior to the occurrence of the Forfeiture Event, if the Forfeiture Event
occurred while the Participant was employed by, or providing services to, the Company
or a subsidiary, or (B) the date that is six months prior to the date the
Participant’s employment by, or service with, the Company or a subsidiary terminated,
if the Forfeiture Event occurred after the Participant ceased to be so employed or
ceased service. For purposes of this Section, the term “Award Gain” shall mean (i),
in respect of a given Option exercise, the product of (X) the Fair Market Value per
share of Stock at the date of such exercise (without regard to any subsequent change
in the market price of shares) minus the exercise price times (Y) the number of shares
as to which the Option was exercised at that date, and (ii), in respect of any other
settlement of an Award granted to the Participant, the Fair Market Value of the cash
or Stock paid or payable to Participant (regardless of any elective deferral) less any
cash or the Fair Market Value of any Stock or property (other than an Award or award
which would have itself then been forfeitable hereunder and excluding any payment of
tax withholding) paid by the Participant to the Company as a condition of or in
connection such settlement.

(b) Events Triggering Forfeiture. The forfeitures specified in Section 10(a) will be
triggered upon the occurrence of any one of the following Forfeiture Events at any time during
Participant’s employment by, or service with, the Company or a subsidiary, or during the one-year
period following termination of service or employment:

 

- 9 -

 

	 	(i)	 	Participant, acting alone or with others, directly or indirectly, (A)
engages, either as employee, employer, consultant, advisor, or director, or as an
owner, investor, partner, stockholder, licensee or licensor unless Participant’s
interest is insubstantial, in any business in an area or region in which the Company
conducts business at the date the event occurs, which is directly in competition with
a business then conducted by the Company or a subsidiary; (B) induces any customer,
supplier, licensee or licensor of the Company or a subsidiary, with which the Company
or a subsidiary has a business relationship, to curtail, cancel, not renew, or not
continue his or her or its business with the Company or any subsidiary; or (C)
induces, or attempts to influence, any employee, service provider, licensee or
licensor to the Company or a subsidiary to terminate such employment or service. The
Committee shall, in its discretion, determine which lines of business the Company
conducts on any particular date and which third parties may reasonably be deemed to be
in competition with the Company. For purposes of this Section 10(b)(i), a
Participant’s interest as a stockholder is insubstantial if it represents beneficial
ownership of less than five percent of the outstanding class of stock, and a
Participant’s interest as an owner, investor, or partner is insubstantial if it
represents ownership, as determined by the Committee in its discretion, of less than
five percent of the outstanding equity of the entity;

	 
	 	(ii)	 	Participant discloses, uses, sells, or otherwise transfers, except in the
course of employment with or other service to the Company or any subsidiary, any
confidential or proprietary information of the Company or any subsidiary, including
but not limited to information regarding the Company’s current and potential
customers, organization, employees, finances, and methods of operations and
investments, so long as such information has not otherwise been disclosed to the
public or is not otherwise in the public domain (other than by Participant’s breach of
this provision), except as required by law or pursuant to legal process, or
Participant makes statements or representations, or otherwise communicates, directly
or indirectly, in writing, orally, or otherwise, or takes any other action which may,
directly or indirectly, disparage or be damaging to the Company or any of its
subsidiaries or their respective officers, directors, employees, advisors, businesses
or reputations, except as required by law or pursuant to legal process;

	 
	 	(iii)	 	Participant fails to cooperate with the Company or any subsidiary in any
way, including, without limitation, by making himself or herself available to testify
on behalf of the Company or such subsidiary in any action, suit, or proceeding,
whether civil, criminal, administrative, or investigative, or otherwise fails to
assist the Company or any subsidiary in any way, including, without limitation, in
connection with any such action, suit, or proceeding by providing information and
meeting and consulting with members of management of, other representatives of, or
counsel to, the Company or such subsidiary, as reasonably requested; or

	 
	 	(iv)	 	Participant is terminated for cause, as determined by the Company. “Cause”
shall include but not be limited to negligence in the performance of duties and
misconduct, including acts of moral turpitude.

(c) Agreement Does Not Prohibit Competition or Other Participant Activities. Although
the conditions set forth in this Section 10 shall be deemed to be incorporated into an Award, a
Participant is not, solely by reason of such incorporation, thereby prohibited from engaging in any
activity, including but not limited to competition with the Company and its subsidiaries. Rather,
the non-occurrence of the Forfeiture Events set forth in Section 10(b) is a condition to the
Participant’s right to realize and retain value from his or her compensatory Options and Awards,
and the consequence under the Plan if the Participant engages in an activity giving rise to any
such Forfeiture Event are the forfeitures specified herein. The Company and Participant shall not
be precluded by this provision or otherwise from entering into other agreements concerning the
subject matter of Sections 10(a) and 10(b).

 

- 10 -

 

11. General Provisions.

(a) Compliance with Legal and Other Requirements. The Company may, to the extent
deemed necessary or advisable by the Committee and subject to Section 11(k), postpone the issuance
or delivery of Stock or payment of other benefits under any Award until completion of such
registration or qualification of such Stock or other required action under any federal or state
law, rule or regulation, listing or other required action with respect to any stock exchange or
automated quotation system upon which the Stock or other securities of the Company are listed or
quoted, or compliance with any other obligation of the Company, as the Committee may consider
appropriate, and may require any Participant to make such representations, furnish such information
and comply with or be subject to such other conditions as it may consider appropriate in connection
with the issuance or delivery of Stock or payment of other benefits in compliance with applicable
laws, rules, and regulations, listing requirements, or other obligations. The foregoing
notwithstanding, in connection with a Change in Control, except as provided in Section 9 or as
required for compliance under Code Section 409A, the Company shall take or cause to be taken no
action, and shall undertake or permit to arise no legal or contractual obligation, that results or
would result in any postponement of the issuance or delivery of Stock or payment of benefits under
any Award or the imposition of any other conditions on such issuance, delivery or payment, to the
extent that such postponement or other condition would represent a greater burden on a Participant
than existed on the 90th day preceding the Change in Control.

(b) Limits on Transferability; Beneficiaries. No Award or other right or interest of
a Participant under the Plan shall be pledged, hypothecated or otherwise encumbered or subject to
any lien, obligation or liability of such Participant to any party (other than the Company or a
subsidiary thereof), or assigned or transferred by such Participant otherwise than by will or the
laws of descent and distribution or to a Beneficiary upon the death of a Participant, and such
Awards or rights that may be exercisable shall be exercised during the lifetime of the Participant
only by the Participant or his or her guardian or legal representative, except that Awards and
other rights (other than ISOs and SARs in tandem therewith) may be transferred to one or more
transferees during the lifetime of the Participant, and may be exercised by such transferees in
accordance with the terms of such Award, but only if and to the extent such transfers are permitted
by the Committee, subject to any terms and conditions which the Committee may impose thereon (which
may include limitations the Committee may deem appropriate in order that offers and sales under the
Plan will meet applicable requirements of registration forms under the Securities Act of 1933
specified by the Securities and Exchange Commission), provided, however, that no
such transfer may occur for consideration. A Beneficiary, transferee, or other person claiming any
rights under the Plan from or through any Participant shall be subject to all terms and conditions
of the Plan and any Award document applicable to such Participant, except as otherwise determined
by the Committee, and to any additional terms and conditions deemed necessary or appropriate by the
Committee. 

(c) Adjustments. In the event that any large, special and non-recurring dividend or
other distribution (whether in the form of cash or property other than Stock), recapitalization,
forward or reverse split, Stock dividend, reorganization, merger, consolidation, spin-off,
combination, repurchase, share exchange, liquidation, dissolution or other similar corporate
transaction or event affects the Stock such that an adjustment is determined by the Committee to be
appropriate and, in the case of any outstanding Award, necessary to prevent dilution or enlargement
of Participant’s rights, then the Committee shall, in an equitable manner as determined by the
Committee, adjust any or all of (i) the number and kind of shares of Stock which may be delivered
in connection with Awards granted thereafter, (ii) the number and kind of shares of Stock by which
annual per-person Award limitations are measured under Section 5, (iii) the number and kind of
shares of Stock subject to or deliverable in respect of outstanding Awards and (iv) the exercise
price, grant price or purchase price relating to any Award or, if deemed appropriate, the Committee
may make provision for a payment of cash or property to the holder of an outstanding Option
(subject to Section 11(l)) or other Award. In addition, the Committee is authorized to make
adjustments in the terms and conditions of, and the criteria included in, Awards (including
Performance Awards and performance goals and any hypothetical funding pool relating thereto) in
recognition of unusual or nonrecurring events (including, without limitation, events described in
the preceding sentence, as well as acquisitions and dispositions of businesses and assets)
affecting the Company, any subsidiary or other business unit, or the financial statements of the
Company or any subsidiary, or in response to changes in

 

- 11 -

 

applicable laws, regulations, accounting principles, tax rates and regulations or business
conditions or in view of the Committee’s assessment of the business strategy of the Company, any
subsidiary or business unit thereof, performance of comparable organizations, economic and business
conditions, personal performance of a Participant, and any other circumstances deemed relevant;
provided that no such adjustment shall be authorized or made if and to the extent that the
existence of such authority (i) would cause Options, SARs, or Performance Awards granted under the
Plan to Participants designated by the Committee as Covered Employees and intended to qualify as
“performance-based compensation” under Code Section 162(m) and regulations thereunder to otherwise
fail to qualify as “performance-based compensation” under Code Section 162(m) and regulations
thereunder, or (ii) would cause the Committee to be deemed to have authority to change the targets,
within the meaning of Treasury Regulation 1.162-27(e)(4)(vi), under the performance goals relating
to Options or SARs granted to Covered Employees and intended to qualify as “performance-based
compensation” under Code Section 162(m) and regulations thereunder.

(d) Tax Provisions.

	 	(i)	 	Withholding. The Company and any subsidiary is authorized to withhold from
any Award granted, any payment relating to an Award under the Plan, including from a
distribution of Stock, or any payroll or other payment to a Participant, amounts of
withholding and other taxes due or potentially payable in connection with any
transaction involving an Award, and to take such other action as the Committee may
deem advisable to enable the Company and Participants to satisfy obligations for the
payment of withholding taxes and other tax obligations relating to any Award. This
authority shall include authority to withhold or receive Stock or other property and
to make cash payments in respect thereof in satisfaction of a Participant’s
withholding obligations, either on a mandatory or elective basis in the discretion of
the Committee, or in satisfaction of other tax obligations. Other provisions of the
Plan notwithstanding, only the minimum amount of Stock deliverable in connection with
an Award necessary to satisfy statutory withholding requirements will be withheld,
unless withholding of any additional amount of Stock will not result in additional
accounting expense to the Company. Stock deliverable or withheld hereunder shall be
valued at the Fair Market Value thereof on the day prior to remittance or
withholding. 

	 
	 	(ii)	 	Required Consent to and Notification of Code Section 83(b) Election. No
election under Section 83(b) of the Code (to include in gross income in the year of
transfer the amounts specified in Code Section 83(b)) or under a similar provision of
the laws of a jurisdiction outside the United States may be made unless expressly
permitted by the terms of the Award document or by action of the Committee in writing
prior to the making of such election. In any case in which a Participant is permitted
to make such an election in connection with an Award, the Participant shall notify the
Company of such election within ten days of filing notice of the election with the
Internal Revenue Service or other governmental authority, in addition to any filing
and notification required pursuant to regulations issued under Code Section 83(b) or
other applicable provision.

	 
	 	(iii)	 	Requirement of Notification Upon Disqualifying Disposition Under Code
Section 421(b). If any Participant shall make any disposition of shares of Stock
delivered pursuant to the exercise of an ISO under the circumstances described in Code
Section 421(b) (i.e., a disqualifying disposition), such Participant shall notify the
Company of such disposition within ten days thereof.

 

- 12 -

 

(e) Plan Amendment, Termination or Other Changes. Except as provided in Section 11(q)
of the Plan, the Board may amend, suspend or terminate the Plan or the Committee’s authority to
grant Awards under the Plan without the consent of stockholders or Participants; provided, however,
that:

	 	(i)	 	Any amendment to the Plan shall be submitted to the Company’s stockholders
for approval not later than the earliest annual meeting for which the record date is
at or after the date of such Board action if such stockholder approval is required by
any federal or state law or regulation or the rules of the New York Stock Exchange or
Nasdaq National Market (as then applicable) or any other stock exchange or automated
quotation system on which the Stock may then be listed or quoted, or if such amendment
would materially increase the number of shares reserved for issuance and delivery
under the Plan, and the Board may otherwise, in its discretion, determine to submit
other amendments to the Plan to stockholders for approval.

	 
	 	(ii)	 	Without the consent of an affected Participant, no such Board action may
materially and adversely affect the rights of such Participant under any outstanding
Award (for this purpose, actions that alter the timing of federal income taxation of a
Participant will not be deemed material unless such action results in an income tax
penalty on the Participant).

	 
	 	(iii)	 	Without the approval of stockholders, the Committee will not amend or
replace previously granted Options or SARs in a transaction that constitutes a
“repricing,” as such term is used in Section 303A.08 of the Listed Company Manual of
the New York Stock Exchange or Nasdaq National Market (as then applicable) or Item
402(i)(1) of Regulation S-K of the Exchange Act.

With regard to other terms of Awards, the Committee shall have no authority to waive or modify any
such Award term after the Award has been granted to the extent the waived or modified term would be
mandatory under the Plan for any Award newly granted at the date of the waiver or modification.

(f) Right of Setoff. The Company or any subsidiary may, to the extent permitted by
applicable law, deduct from and set off against any amounts the Company or a subsidiary may owe to
the Participant from time to time (including amounts payable in connection with any Award, owed as
wages, fringe benefits, amounts related to Awards which should have, but have not previously been,
withheld by the Company for tax purposes, or other compensation owed to the Participant), such
amounts as may be owed by the Participant to the Company, including but not limited to amounts owed
under Section 10(a), although the Participant shall remain liable for any part of the Participant’s
payment obligation not satisfied through such deduction and setoff. By accepting any Award granted
hereunder, the Participant agrees to any deduction or setoff under this Section 11(f).

(g) Unfunded Status of Awards; Creation of Trusts. The Plan is intended to constitute
an “unfunded” plan for incentive and deferred compensation. With respect to any payments not yet
made to a Participant or obligation to deliver Stock pursuant to an Award, nothing contained in the
Plan or any Award shall give any such Participant any rights that are greater than those of a
general creditor of the Company; provided that the Committee may authorize the creation of trusts
and deposit therein cash, Stock, other Awards or other property, or make other arrangements to meet
the Company’s obligations under the Plan. Such trusts or other arrangements shall be consistent
with the “unfunded” status of the Plan unless the Committee otherwise determines with the consent
of each affected Participant.

(h) Nonexclusivity of the Plan. The creation of the Plan by the Board, or Committee
shall not be construed as creating any limitations on the power of the Board or a committee
thereof to adopt such other incentive arrangements, apart from the Plan, as it may deem desirable,
including incentive arrangements and awards which do not qualify under Code Section 162(m), and
such other arrangements may be either applicable generally or only in specific cases.

 

- 13 -

 

(i) Payments in the Event of Forfeitures; Fractional Shares. Unless otherwise
determined by the Committee, in the event of a forfeiture of an Award with respect to which a
Participant paid cash consideration, the Participant shall be repaid the amount of such cash
consideration. No fractional shares of Stock shall be issued or delivered pursuant to the Plan or
any Award. The Committee shall determine whether cash, other Awards or other property shall be
issued or paid in lieu of such fractional shares or whether such fractional shares or any rights
thereto shall be forfeited or otherwise eliminated.

(j) Compliance with Code Section 162(m). It is the intent of the Company that Options
and SARs granted to Covered Employees and other Awards designated as Awards to Covered Employees
subject to Section 7 shall constitute qualified “performance-based compensation” within the meaning
of Code Section 162(m) and regulations thereunder, unless otherwise determined by the Committee at
the time of allocation of an Award. Accordingly, the terms of Sections 7(b) and (c), including the
definitions of Covered Employee and other terms used therein, shall be interpreted in a manner
consistent with Code Section 162(m) and regulations thereunder. The foregoing notwithstanding,
because the Committee cannot determine with certainty whether a given Participant will be a Covered
Employee with respect to a fiscal year that has not yet been completed, the term Covered Employee
as used herein shall mean only a person designated by the Committee as likely to be a Covered
Employee with respect to a specified fiscal year. If any provision of the Plan or any Award
document relating to a Performance Award that is designated as intended to comply with Code Section
162(m) does not comply or is inconsistent with the requirements of Code Section 162(m) or
regulations thereunder, such provision shall be construed or deemed amended to the extent necessary
to conform to such requirements, and no provision shall be deemed to confer upon the Committee or
any other person discretion to increase the amount of compensation otherwise payable in connection
with any such Award upon attainment of the applicable performance objectives.

(k) Certain Limitations on Awards to Ensure Compliance with Code Section 409A. For
purposes of this Plan, references to an award term or event (including any authority or right of
the Company or a Participant) being “permitted” under Code Section 409A mean, for a 409A Award,
that the term or event is not intended to cause the Participant to be liable for payment of
interest or a tax penalty under Code Section 409A and, for a Non-409A Award, that the term or event
is not intended to cause the Award to be treated as subject to Code Section 409A. Other provisions
of the Plan notwithstanding, the terms of any 409A Award and any Non-409A Award, including any
authority of the Company and rights of the Participant with respect to the Award, shall be limited
to those terms permitted under Code Section 409A, and any terms not permitted under Code Section
409A shall be automatically modified and limited to the extent necessary to conform with Code
Section 409A, as determined by the Company in good faith. For this purpose, other provisions of
the Plan notwithstanding, the Company shall have no authority to accelerate distributions relating
to 409A Awards in excess of the authority permitted under Code Section 409A, and any distribution
subject to Code Section 409A(a)(2)(A)(i) (separation from service) to a “key employee” as defined
under Code Section 409A(a)(2)(B)(i), shall not occur earlier than the earliest time permitted under
Code Section 409A(a)(2)(B)(i).

(l) Certain Limitations Relating to Accounting Treatment of Awards. Other provisions
of the Plan notwithstanding, the Committee’s discretionary authority under the Plan (including
under Sections 8(c), 11(c) and 11(d)) is limited to the extent necessary to ensure that any Option
or other Award of a type that the Committee has intended to be subject to fixed accounting with a
measurement date at the date of grant or the date performance conditions are satisfied under APB 25
(or other applicable accounting requirements) shall not become subject to “variable” accounting
solely due to the existence of such authority, unless the Committee specifically determines that
the Award shall remain outstanding despite such “variable” accounting.

(m) Governing Law. The validity, construction, and effect of the Plan, any rules and
regulations relating to the Plan and any Award document shall be determined in accordance with the
laws of the State of Delaware, without giving effect to principles of conflicts of laws, and
applicable provisions of federal law.

(n) Awards to Participants Outside the United States. INTENTIONALLY DELETED.

 

- 14 -

 

(o) Limitation on Rights Conferred under Plan. Neither the Plan nor any action taken
hereunder shall be construed as (i) giving any Eligible Person or Participant the right to continue
as an Eligible Person or Participant or in the employ or service of the Company or a subsidiary,
(ii) interfering in any way with the right of the Company or a subsidiary to terminate any Eligible
Person’s or Participant’s employment or service at any time (subject to the terms and provisions of
any separate written agreements), (iii) giving an Eligible Person or Participant any claim to be
granted any Award under the Plan or to be treated uniformly with other Participants and employees,
or (iv) conferring on a Participant any of the rights of a stockholder of the Company unless and
until the Participant is duly issued or transferred shares of Stock in accordance with the terms of
an Award or an Option is duly exercised. Except as expressly provided in the Plan and an Award
document, neither the Plan nor any Award document shall confer on any person other than the Company
and the Participant any rights or remedies thereunder.

(p) Severability; Entire Agreement. If any of the provisions of this Plan or any
Award document is finally held to be invalid, illegal or unenforceable (whether in whole or in
part), such provision shall be deemed modified to the extent, but only to the extent, of such
invalidity, illegality or unenforceability, and the remaining provisions shall not be affected
thereby; provided, that, if any of such provisions is finally held to be invalid, illegal, or
unenforceable because it exceeds the maximum scope determined to be acceptable to permit such
provision to be enforceable, such provision shall be deemed to be modified to the minimum extent
necessary to modify such scope in order to make such provision enforceable hereunder. The Plan and
any Award documents contain the entire agreement of the parties with respect to the subject matter
thereof and supersede all prior agreements, promises, covenants, arrangements, communications,
representations and warranties between them, whether written or oral with respect to the subject
matter thereof.

(q) Plan Effective Date and Termination. The Plan shall become effective the business
day immediately prior to the date on which Roger E. Davidson commences employment with the Company.
Unless earlier terminated by action of the Board of Directors as permitted under Section 11(e) of
the Plan, the authority of the Committee to make grants under the Plan shall terminate on the date
that is ten years after the Plan creation, and the Plan will remain in effect until such time as no
Stock remains available for delivery under the Plan or as set forth above and the Company has no
further rights or obligations under the Plan with respect to outstanding Awards under the Plan.

 

- 15 -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.

 

 

1

 

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

2

 

 

2

 

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.

3

 

 

3

 

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

4

 

 

4

 

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

5

 

 

5

 

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

6

 

 

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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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