SEVERANCE AGREEMENT
THIS AGREEMENT, dated January 12, 2006, is made by and between
Wild Oats Markets, Inc., a Delaware corporation (the "Company"),
and Samuel M. Martin III (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.
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 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.
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
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 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 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.
(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 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 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 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 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.
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 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 th
