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Exhibit 10.5
SEVERANCE AGREEMENT
THIS AGREEMENT, dated October 30, 2006, is made by and
between Wild Oats Markets, Inc., a Delaware corporation (the
"Company"), and Roger E. Davidson (the "Executive").
WHEREAS, the Company considers it essential to the best
interests of its stockholders to foster the continued employment of
key management personnel; and
WHEREAS, the Board recognizes that, as is the case with many
publicly held corporations, the possibility of a Change in Control
exists and that such possibility, and the uncertainty and questions
which it may raise among management, may result in the departure or
distraction of management personnel to the detriment of the Company
and its stockholders; and
WHEREAS, the Board has determined that appropriate steps should
be taken to reinforce and encourage the continued attention and
dedication of members of the Company’s management, including
the Executive, to their assigned duties without distraction in the
face of potentially disturbing circumstances arising from the
possibility of a Change in Control;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the Company and the Executive hereby
agree as follows:
1. Defined Terms . The definitions of capitalized
terms used in this Agreement are provided in the last Section
hereof.
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2. Term of Agreement . The Term of this Agreement
shall commence on the date hereof and shall continue in effect
through December 31, 2006; commencing thereafter, the Term
shall automatically be extended for one additional year unless, not
later than September 30 of the preceding year, the Company or
the Executive shall have given notice not to extend the Term; and
further provided , however , that if a Change
in Control shall have occurred during the Term, the Term shall
expire no earlier than twenty-four (24) months beyond the
month in which such Change in Control occurred.
3. Company’s Covenants Summarized . In order
to induce the Executive to remain in the employ of the Company and
in consideration of the Executive’s covenants set forth in
Section 4 hereof, the Company agrees, under the conditions
described herein, to pay the Executive the Severance Benefits and
the other payments and benefits described herein. Except as
provided in Section 10.1 hereof, no Severance Benefits shall
be payable under this Agreement unless there shall have been (or,
under the terms of the second sentence of Section 6.1 hereof,
there shall be deemed to have been) a termination of the
Executive’s employment with the Company following a Change in
Control and during the Term. This Agreement shall not be construed
as creating an express or implied contract of employment and,
except as otherwise agreed in writing between the Executive and the
Company, the Executive shall not have any right to be retained in
the employ of the Company.
4. The Executive’s Covenants . The Executive
agrees that, subject to the terms and conditions of this Agreement,
in the event of a Potential Change in Control during the Term, the
Executive will remain in the employ of the Company until the
earliest of (i) a date which is six (6) months from the
date of such Potential Change in
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Control, (ii) the date of a Change in Control,
(iii) the date of termination by the Executive of the
Executive’s employment for Good Reason or by reason of death,
Disability or Retirement, or (iv) the termination by the
Company of the Executive’s employment for any reason.
5. Compensation Other Than Severance Benefits .
5.1 Following a Change in Control and during the Term, during
any period that the Executive fails to perform the
Executive’s full-time duties with the Company as a result of
incapacity due to physical or mental illness, the Company shall pay
the Executive’s full salary to the Executive at the rate in
effect at the commencement of any such period, together with all
compensation and benefits payable to the Executive under the terms
of any compensation or benefit plan, program or arrangement
maintained by the Company during such period (other than any
disability plan), until the Executive’s employment is
terminated by the Company for Disability.
5.2 If the Executive’s employment shall be terminated for
any reason following a Change in Control and during the Term, the
Company shall pay the Executive’s full salary to the
Executive through the Date of Termination at the rate in effect
immediately prior to the Date of Termination or, if higher, the
rate in effect immediately prior to the first occurrence of an
event or circumstance constituting Good Reason, together with all
compensation and benefits payable to the Executive through the Date
of Termination under the terms of the Company’s compensation
and benefit plans, programs or arrangements as in effect
immediately prior to the Date of Termination or, if more favorable
to the Executive, as in effect immediately prior to the first
occurrence of an event or circumstance constituting Good
Reason.
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5.3 If the Executive’s employment shall be terminated for
any reason following a Change in Control and during the Term, the
Company shall pay to the Executive the Executive’s normal
post-termination compensation and benefits as such payments become
due. Such post-termination compensation and benefits shall be
determined under, and paid in accordance with, the Company’s
retirement, insurance and other compensation or benefit plans,
programs and arrangements as in effect immediately prior to the
Date of Termination or, if more favorable to the Executive, as in
effect immediately prior to the occurrence of the first event or
circumstance constituting Good Reason.
6. Severance Benefits .
6.1 Subject to Section 9 below, if the Executive’s
employment is terminated following a Change in Control and during
the Term, other than (A) by the Company for Cause, (B) by
reason of death or Disability, or (C) by the Executive without
Good Reason, then the Company shall pay the Executive the amounts,
and provide the Executive the benefits, described in this
Section 6.1 ("Severance Benefits") and the payment referred to
in Section 6.2, in addition to any payments and benefits to
which the Executive is entitled under Section 5 hereof. For
purposes of this Agreement, the Executive’s employment shall
be deemed to have been terminated following a Change in Control by
the Company without Cause or by the Executive with Good Reason, if
(i) the Executive’s employment is terminated by the
Company without Cause prior to a Change in Control (whether or not
a Change in Control ever occurs) and such termination was at the
request or direction of a Person who has entered into an agreement
with the Company the consummation of which would constitute a
Change in Control, (ii) the Executive
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terminates his employment for Good Reason prior to a Change in
Control (whether or not a Change in Control ever occurs) and the
circumstance or event which constitutes Good Reason occurs at the
request or direction of such Person, or (iii) the
Executive’s employment is terminated by the Company without
Cause or by the Executive for Good Reason and such termination or
the circumstance or event which constitutes Good Reason is
otherwise in connection with or in anticipation of a Change in
Control (whether or not a Change in Control ever occurs). For
purposes of any determination regarding the applicability of the
immediately preceding sentence, any position taken by the Executive
shall be presumed to be correct unless the Company establishes to
the Committee by clear and convincing evidence that such position
is not correct. The Executive shall not be entitled to receive any
Severance Benefits under this Agreement under any circumstances
other than those set forth in this paragraph.
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(A) In lieu of any further salary payments to the Executive
for periods subsequent to the Date of Termination and in lieu of
any severance benefit otherwise payable to the Executive, the
Company shall pay to the Executive a lump sum severance payment, in
cash, equal to two times the sum of (i) the Executive’s
base salary as in effect immediately prior to the Date of
Termination or, if higher, in effect immediately prior to the first
occurrence of an event or circumstance constituting Good Reason,
and (ii) the average annual bonus earned by the Executive
pursuant to any discretionary annual bonus or incentive plan
maintained by the Company in respect of the two fiscal years ending
immediately prior to the fiscal year in which occurs the Date of
Termination or, if the Executive has not been eligible for at least
two annual
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bonuses as of the Date of Termination, the bonus earned by the
Executive in respect of the fiscal year immediately prior to the
fiscal year in which occurs the Date of Termination.
(B) For the twenty-four (24) month period immediately
following the Date of Termination, the Company shall arrange to
provide the Executive and his dependents life, disability, accident
and health insurance benefits substantially similar to those
provided to the Executive and his dependents immediately prior to
the Date of Termination or, if more favorable to the Executive,
those provided to the Executive and his dependents immediately
prior to the first occurrence of an event or circumstance
constituting Good Reason, at no greater cost to the Executive than
the cost to the Executive immediately prior to such date or
occurrence; provided , however , that, unless the
Executive consents to a different method (after taking into account
the effect of such method on the calculation of "parachute
payments" pursuant to Section 6.2 hereof), such health
insurance benefits shall be provided through a third-party insurer.
Benefits otherwise receivable by the Executive pursuant to this
Section 6.1(B) shall be reduced to the extent benefits of the
same type are received by or made available to the Executive during
the twenty-four (24) month period following the
Executive’s termination of employment (and any such benefits
received by or made available to the Executive shall be reported to
the Company by the Executive); provided , however ,
that the Company shall reimburse the Executive for the excess, if
any, of the cost of such benefits to the Executive over such cost
immediately prior to the Date of Termination or, if more favorable
to
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the Executive, the first occurrence of an event or circumstance
constituting Good Reason.
(C) Notwithstanding any provision of any annual or
long-term incentive plan to the contrary, the Company shall pay to
the Executive a lump sum amount, in cash, equal to the sum of
(i) any unpaid incentive compensation which has been allocated
or awarded to the Executive for a completed fiscal year or other
measuring period preceding the Date of Termination under any such
plan and which, as of the Date of Termination, is contingent only
upon the continued employment of the Executive to a subsequent
date, and (ii) a pro rata portion to the Date of Termination of the
aggregate value of all contingent incentive compensation awards to
the Executive for all then uncompleted periods under any such plan,
calculated as to each such award by multiplying the award that the
Executive would have earned on the last day of the performance
award period, assuming the achievement, at the target level of the
individual and corporate performance goals established with respect
to such award, if the Company’s incentive compensation plan
has such a concept, or, if not, at a level commensurate with the
Executive’s position at the Company and the incentive
compensation awards paid to similarly situated executives of the
Company, by the fraction obtained by dividing the number of full
months and any fractional portion of a month during such
performance award period through the Date of Termination by the
total number of months contained in such performance award
period.
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(D) In addition to the benefits to which the Executive is
entitled under each DC Pension Plan, the Company shall pay the
Executive a lump sum amount, in cash, equal to the sum of
(i) the amount that would have been contributed thereto by the
Company on the Executive’s behalf during the two years
immediately following the Date of Termination, determined
(x) as if the Executive made the maximum permissible
contributions thereto during such period, (y) as if the
Executive earned compensation during such period at a rate equal to
the Executive’s compensation (as defined in the DC Pension
Plan) during the twelve (12) months immediately preceding the
Date of Termination or, if higher, during the twelve months
immediately prior to the first occurrence of an event or
circumstance constituting Good Reason, and (z) without regard
to any amendment to the DC Pension Plan made subsequent to a Change
in Control and on or prior to the Date of Termination, which
amendment adversely affects in any manner the computation of
benefits thereunder, and (ii) the excess, if any, of (x) the
Executive’s account balance under the DC Pension Plan as of
the Date of Termination over (y) the portion of such account
balance that is nonforfeitable under the terms of the DC Pension
Plan.
(E) Each option to acquire common stock of the Company
granted under a Company incentive plan or other arrangement that is
held by the Executive on the Date of Termination shall, as of such
date, vest and become immediately exercisable in full.
6.2 (A) Subject to Section 9 below, whether or not the
Executive becomes entitled to the Severance Benefits, if any of the
payments or benefits received or
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to be received by the Executive in connection with a Change in
Control or the Executive’s termination of employment (whether
pursuant to the terms of this Agreement or any other plan,
arrangement or agreement with the Company, any Person whose actions
result in a Change in Control or any Person affiliated with the
Company or such Person) (all such payments and benefits, excluding
the Gross-Up Payment, being hereinafter referred to as the "Total
Payments") will be subject to the Excise Tax, the Company shall pay
to the Executive an additional amount (the "Gross-Up Payment") such
that the net amount retained by the Executive, after deduction of
any Excise Tax on the Total Payments and any federal, state and
local income and employment taxes and Excise Tax upon the Gross-Up
Payment, and after taking into account the phase out of itemized
deductions and personal exemptions attributable to the Gross-Up
Payment, shall be equal to the Total Payments.
(B) For purposes of determining whether any of the Total
Payments will be subject to the Excise Tax and the amount of such
Excise Tax, (i) all of the Total Payments shall be treated as
"parachute payments" (within the meaning of section 280G(b)(2) of
the Code) unless, in the opinion of tax counsel ("Tax Counsel")
reasonably acceptable to the Executive and selected by the
accounting firm which was, immediately prior to the Change in
Control, the Company’s independent auditor (the "Auditor"),
such payments or benefits (in whole or in part) do not constitute
parachute payments, including by reason of section 280G(b)(4)(A) of
the Code, (ii) all "excess parachute payments" within the
meaning of section 280G(b)(l) of the Code shall be treated as
subject to the Excise Tax unless, in the opinion of Tax Counsel,
such excess parachute payments (in whole or in part) represent
reasonable compensation for services
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actually rendered (within the meaning of section 280G(b)(4)(B)
of the Code) in excess of the Base Amount allocable to such
reasonable compensation, or are otherwise not subject to the Excise
Tax, and (iii) the value of any noncash benefits or any
deferred payment or benefit shall be determined by the Auditor in
accordance with the principles of sections 280G(d)(3) and
(4) of the Code. For purposes of determining the amount of the
Gross-Up Payment, the Executive shall be deemed to pay federal
income tax at the highest marginal rate of federal income taxation
in the calendar year in which the Gross-Up Payment is to be made
and state and local income taxes at the highest marginal rate of
taxation in the state and locality of the Executive’s
residence on the Date of Termination (or if there is no Date of
Termination, then the date on which the Gross-Up Payment is
calculated for purposes of this Section 6.2), net of the
maximum reduction in federal income taxes which could be obtained
from deduction of such state and local taxes.
(C) In the event that the Excise Tax is finally determined
to be less than the amount taken into account hereunder in
calculating the Gross-Up Payment, the Executive shall repay to the
Company, within five (5) business days following the time that
the amount of such reduction in the Excise Tax is finally
determined, the portion of the Gross-Up Payment attributable to
such reduction (plus that portion of the Gross-Up Payment
attributable to the Excise Tax and federal, state and local income
and employment taxes imposed on the Gross-Up Payment being repaid
by the Executive), to the extent that such repayment results in a
reduction in the Excise Tax and a dollar-for-dollar reduction in
the Executive’s taxable income and wages for purposes of
federal, state and local income and employment taxes. In the event
that the Excise Tax is
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determined to exceed the amount taken into account hereunder in
calculating the Gross-Up Payment (including by reason of any
payment the existence or amount of which cannot be determined at
the time of the Gross-Up Payment), the Company shall make an
additional Gross-Up Payment in respect of such excess (plus any
interest, penalties or additions payable by the Executive with
respect to such excess) within five (5) business days
following the time that the amount of such excess is finally
determined. The Executive and the Company shall each reasonably
cooperate with the other in connection with any administrative or
judicial proceedings concerning the existence or amount of
liability for Excise Tax with respect to the Total Payments.
6.3 The payments provided in subsections (A), (C) and
(D) of Section 6.1 hereof and in Section 6.2 hereof
shall be made not later than the fifth day following the Date of
Termination (or if there is no Date of Termination, then the date
on which the Gross-Up Payment is calculated for purposes of
Section 6.2 hereof); provided , however , that
if the amounts of such payments cannot be finally determined on or
before such day, the Company shall pay to the Executive on such day
an estimate, as determined in good faith by the Executive or, in
the case of payments under Section 6.2 hereof, in accordance
with Section 6.2 hereof, of the minimum amount of such
payments to which the Executive is clearly entitled and shall pay
the remainder of such payments (together with interest on the
unpaid remainder (or on all such payments to the extent the Company
fails to make such payments when due) at 120% of the rate provided
in section 1274(b)(2)(B) of the Code) as soon as the amount thereof
can be determined but in no event later than the thirtieth (30th)
day after the Date of Termination. In the event that the amount of
the estimated payments exceeds the amount subsequently determined
to have been due, such
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amount shall be repaid by the Executive to the Company no later
than the fifth (5th) business day after demand by the Company. At
the time that payments are made under this Agreement, the Company
shall provide the Executive with a written statement setting forth
the manner in which such payments were calculated and the basis for
such calculations including, without limitation, any opinions or
other advice the Company has received from Tax Counsel, the Auditor
or other advisors or consultants (and any such opinions or advice
which are in writing shall be attached to the statement).
6.4 The Company also shall pay to the Executive fifty percent
(50%) all legal fees and expenses incurred by the Executive in
disputing in good faith any issue hereunder relating to the
termination of the Executive’s employment, in seeking in good
faith to obtain or enforce any benefit or right provided by this
Agreement or in connection with any tax audit or proceeding to the
extent attributable to the application of section 4999 of the Code
to any payment or benefit provided hereunder. Such payments shall
be made within five (5) business days after delivery of the
Executive’s written requests for payment accompanied with
such evidence of fees and expenses incurred as the Company
reasonably may require. Within five (5) business days
following the final resolution and any such dispute, attempted
enforcement or tax proceeding, either (i) the Company shall
pay to the Executive the remaining fifty percent (50%) of such fees
and expenses not previously paid to the Executive, if the Executive
prevails on at least one material issue in such dispute, attempted
enforcement or tax proceeding or (ii) the Executive shall
repay to the Company the fifty percent (50%) of such fees and
expenses previously paid to the Executive, if the Executive does
not prevail on at least one material issue in such dispute,
attempted enforcement or tax proceeding.
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7. Termination Procedures and Compensation During
Dispute .
7.1 Notice of Termination . After a Change in Control and
during the Term, any purported termination of the Executive’s
employment (other than by reason of death) shall be communicated by
written Notice of Termination from one party hereto to the other
party hereto in accordance with Section 11 hereof. For
purposes of this Agreement, a "Notice of Termination" shall mean a
notice which shall indicate the specific termination provision in
this Agreement relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for
termination of the Executive’s employment under the provision
so indicated. Further, a Notice of Termination for Cause is
required to include a copy of a resolution duly adopted by the
affirmative vote of not less than three-quarters (3/4) of the
entire membership of the Board at a meeting of the Board which was
called and held for the purpose of considering such termination
(after reasonable notice to the Executive and an opportunity for
the Executive, together with the Executive’s counsel, to be
heard before the Board) finding that, in the good faith opinion of
the Board, the Executive was guilty of conduct set forth in clause
(i) or (ii) of the definition of Cause herein, and
specifying the particulars thereof in detail.
7.2 Date of Termination . "Date of Termination," with
respect to any purported termination of the Executive’s
employment after a Change in Control and during the Term, shall
mean (i) if the Executive’s employment is terminated for
Disability, thirty (30) days after Notice of Termination is
given (provided that the Executive shall not have returned to the
full-time performance of the Executive’s duties during such
thirty (30) day period), and (ii) if the
Executive’s employment is terminated
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for any other reason, the date specified in the Notice of
Termination (which, in the case of a termination by the Company,
shall not be less than thirty (30) days (except in the case of
a termination for Cause) and, in the case of a termination by the
Executive, shall not be less than fifteen (15) days nor more
than sixty (60) days, respectively, from the date such Notice
of Termination is given).
7.3 Dispute Concerning Termination . If within fifteen
(15) days after any Notice of Termination is given, or, if
later, prior to the Date of Termination (as determined without
regard to this Section 7.3), the party receiving such Notice
of Termination notifies the other party that a dispute exists
concerning the termination, the Date of Termination shall be
extended until the earlier of (i) the date on which the T
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