10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K


(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR SECTION 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 29, 2001

OR


(   ) TRANSITION REPORT PURSUANT TO SECTION 13 OR SECTION 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934        

Commission file number 0-21577


WILD OATS MARKETS, INC.
(Exact name of registrant as specified in its charter)

Delaware 
(State or other jurisdiction of incorporation or organization)  84-1100630
(I.R.S. Employer Identification Number)

3375 Mitchell Lane
Boulder, Colorado 80301
(Address of principal executive offices, including zip code)

(303) 440-5220
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: 

Title of Each Class

Common Stock, $.001 par value

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ( X ) No (   )

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.(   )

As of March 1, 2002, the aggregate market value of the voting stock held by non-affiliates (as defined by the regulations of the Securities and Exchange Commission) of the Registrant was $200,212,124, based upon the closing sale price of such stock on such date as reported on the NASDAQ National Market. As of March 1, 2002, the total number of shares outstanding of the Registrant's common stock, $.001 par value, was 24,809,433 shares.


DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive Proxy Statement for the Registrant's Annual Meeting of Stockholders to be held on May 7, 2002, have been incorporated by reference into Part III of this report.



TABLE OF CONTENTS


PART I. 

Item 1. Business

Item 2. Properties

Item 3. Legal Proceeding 

Item 4. Submission of Matters to a Vote of Security Holders


PART II. 

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 

Item 6. Selected Financial Data. 

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 

Item 7A. Quantitative and Qualitative Disclosures About Market Risk 

Item 8. Financial Statements and Supplementary Data. 

Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure 


PART III.

Item 10. Directors and Executive Officers of the Registrant 

Item 11. Executive Compensation 

Item 12 Security Ownership of Certain Beneficial Owners and Management 

Item 13. Certain Relationships and Related Transactions 


PART IV.

Item 14. Exhibits, Financial Statements, Financial Statements Schedules and Reports on Form 8-K 

PART I.

Item 1.
BUSINESS


Introduction 

Wild Oats Markets, Inc. ("Wild Oats") is one of the largest natural foods supermarket chains in North America. As of March 1, 2002, we operated 102 natural foods stores, including two small vitamin stores, in 23 states and British Columbia, Canada under several names, including:

-     Wild Oats Natural Marketplace (nationwide)
- -     Henry's Marketplace (San Diego and Orange County, CA)
- -     Nature's - A Wild Oats Market (metropolitan Portland, OR)
- -     Sun Harvest Farms (TX)
- -     Capers Community Market (British Columbia, Canada)

We are dedicated to providing a broad selection of high-quality natural, organic and gourmet foods and related products at competitive prices in an inviting and educational store environment emphasizing customer service. Our stores range in size from 2,700 to 45,000 gross square feet and feature natural alternatives for virtually every product category found in conventional supermarkets. Wild Oats provides its customers with a one-stop, full-service shopping alternative to both conventional supermarkets and traditional health food stores. We believe we have developed a differentiated concept that appeals to a broader, more mainstream customer base than the traditional natural foods store. Our comprehensive selection of natural health foods products appeals to health-conscious shoppers while we also offer virtually every product category found in a conventional supermarket, including grocery, produce, meat, poultry, seafood, dairy, frozen, food service, bakery, vitamins and supplements, health and body care and household items. Our unique positioning, coupled with industry data that states that the natural products industry comprises less than 5% of the total grocery industry, offers significant potential for us to continue to expand our customer base. 

Wild Oats' sales grew from $838.1 million during fiscal 2000 to $893.2 million during fiscal 2001, an increase of 6.6%, due largely to improvements in merchandising, marketing and operations in our stores and the opening of four new stores. We also believe that sales increases, in the face of a number of store closures and sales, resulted from the implementation in 44 of our natural foods supermarket format stores of certain new strategic initiatives. These include strategic banner consolidation to build brand equity, and marketing, merchandising and pricing initiatives as part of our Fresh Look program. The Fresh Look program was tested in our Colorado stores on a modified format in July of fiscal 2001, and rolled out to 44 stores in phases during September, October and November of fiscal 2001. The Fresh Look program includes price reductions on up to 2,500 items per store, increased marketing through the introduction of a weekly, eight-page flyer that is distributed to a broader range of potential customers, and operational modifications in the stores, including product reorganization, department reorganization within the store, modification of product mix and increased labor staffing. 

We added 4, 13, 25, 16 and 14 new and acquired stores to our store base in fiscal years 2001, 2000, 1999, 1998 and 1997, respectively. As a result of our aggressive growth over the last five years, we have increased our penetration of existing markets, entered new geographic markets and created a stronger platform for future growth. We believe our growth has resulted in operating efficiencies created by: 

- -     warehousing, distribution and administrative economies of scale
- -     improved volume purchasing discounts
- -    coordinated merchandising and marketing strategies

Our aggressive growth has also resulted in operations and acquisition integration difficulties that had a negative impact on our overall operating results in fiscal 2001. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Comparable Store Sales Results."

At the end of fiscal 2001, we had 107 stores located in 23 states and Canada, as compared to 106 stores in 22 states and Canada as of the end of fiscal 2000. A summary of store openings, acquisitions, closures and sales is as follows:

	TOTAL STORE COUNT
	Fiscal Year Ending		Period Ending
	March 1,
	2000	2001	2002
Store count at beginning of period	110	106	107
Stores opened	14	4
Stores acquired	2
Stores closed	(17)	(1)	(2)
Stores sold	(3)	(2)	(3)
Store count at end of period	106 ===	107  ===	102  ===

As part of the strategic repositioning announced by the Company in the second and fourth quarters of fiscal 2000, the Company identified 22 natural foods stores for closure or sale due to weak performance. In fiscal 2000, we closed 10 and sold three of those identified stores. In the second quarter of fiscal 2001, as part of additional evaluation of the Company's operations by new management, we identified an additional three stores for closure in fiscal 2001; in the fourth quarter of fiscal 2001, we extended our evaluation and identified an additional three stores for closure in fiscal 2001 and 2002. In fiscal 2001 and through the date of this report, the Company closed three of the identified stores, terminated its lease-related obligations as to two of the identified locations and sold five of the identified stores, four in related transactions. One store remains to be closed or sold in fiscal 2002. The Company also closed two small vitamin stores in the second and third quarters of fiscal 2000. Due to a change in estimates related to changes in facts and circumstances during the fourth quarter of fiscal 2001, we decided to continue to operate four stores previously identified for closure or sale. A summary of restructuring activity by store count is as follows:

	RESTRUCTURING STORE COUNT
	Fiscal Year Ending		Period Ending
			March 1,
	2000	2001	2002
Stores remaining at commencement of period		9	6
Stores identified in fiscal 2000 for closure or sale	22
Stores identified in fiscal 2001 for closure or sale		6
Identified stores closed or abandoned	(10)	(3)	(2)
Identified stores sold	(3)	(2)	(3)
Reversal of stores identified for closure or sale		(4)
Identified stores remaining at period end	9  ==	6  ==	1  ==

Natural products industry 

Retail sales of natural products have grown from $7.6 billion in 1994 to $24.6 billion in fiscal 2000, a 21.6% compound annual growth rate, and total sales of natural products (including over the internet, by practitioners, by multi-level marketers and through mail order) reached $32.1 billion in fiscal 2000 (Natural Foods Merchandiser, June 2001). Sales growth in the traditional grocery industry has remained relatively flat over the same period. We believe that this growth reflects a broadening of the natural products consumer base, which is being propelled by several factors, including healthier eating patterns, increasing concern regarding food purity and safety and greater environmental awareness. While natural products generally have higher costs of production and correspondingly higher retail prices, we believe that more of the population now attributes added value to high-quality natural products and is willing to pay a premium for such products. The increase in the availability of natural products in conventional supermarkets, whose sales of natural products increased by 6.1% in fiscal 2000, demonstrates the increase in consumer acceptance of natural products. Despite the increase in natural foods sales within conventional supermarkets, we believe that conventional supermarkets still lack the total shopping experience that natural foods stores offer. Many natural foods stores develop a more personal relationship with increased interaction between store staff and customers than that of conventional supermarkets. Conventional supermarkets may also have less appeal for natural foods shoppers because they are largely dependent on commercial brand names, resulting in a more limited selection of natural products from which to choose. In addition, conventional supermarkets may not be able to match our pricing in many categories because of the greater volume purchase discounts we receive on natural products. As a result, while conventional supermarkets may carry a limited selection of natural foods products, they do not duplicate the inventory of natural foods stores, which carry a more comprehensive selection of natural products sourced from a large number of independent vendors. 


Operating strategy 

Our objective is to become the grocery store of choice both for natural foods shoppers and quality-conscious consumers in each of our markets by emphasizing the following key elements of our operating strategy: 

Destination format. Our stores are one-stop, full-service supermarkets for customers seeking high-quality natural and gourmet foods and related products. In most of our stores, we offer between 10,000 and 30,000 stock-keeping units of natural foods products in virtually every product category found in a conventional supermarket. Our stores carry a much broader selection of natural and gourmet foods and related products than those offered by typical independent natural foods stores or conventional supermarkets. 

High-quality, unique products. We seek to offer the highest quality products throughout our merchandise categories and emphasize unique products and brands not typically found in conventional supermarkets. Each of our stores tailors its product mix to meet the preference of its local market, and where cost of goods and distribution logistics allow, sourcing produce from local organic growers. In fiscal 2001, we expanded our value-added offerings in our meat and seafood departments to provide our customers with delicious, pre-prepared entrees. We also operate regional commissary kitchens and bakeries that provide our stores with fresh bakery items and a unique assortment of prepared foods for the quality- and health-conscious consumer. 

Educational and entertaining store environment. Each store strives to create a fun, friendly and educational environment that makes grocery shopping enjoyable, encouraging shoppers to spend more time in the store and to purchase new products. In order to enhance our customers' understanding of natural foods and how to prepare them, we train our store staff to educate customers as to the benefits and quality of our products and prominently feature educational brochures, newsletters and in-store demonstrations, as well as an in-store consumer information department. In addition, many stores offer cafe seating areas, espresso and fresh juice bars and in-store massage therapists, all of which emphasize the comfortable, relaxed nature of the shopping experience. We believe our knowledgeable store staff and high ratio of store staff to customers results in significantly higher levels of customer service than in a conventional supermarket. In fiscal 2001, we increased staffing levels at many of our stores to address our guests' requests for higher service levels.

Extensive community involvement. We seek to engender customer loyalty by demonstrating our high degree of commitment to the local communities in which we operate. Each store makes significant monetary and in-kind contributions to local not-for-profit organizations through programs such as "5% Days," where a store may, once each calendar quarter, donate 5% of its net sales from one day to a local not-for-profit group, and a "Charity Work Benefit" where we pay employees for time spent working for local charities. 

Multiple store formats. We operate two store formats: natural foods supermarkets, which emphasize natural and organic products and high-quality service; and farmers market stores, which emphasize fresh produce, natural living products and price value. Our two store formats enable us to customize our stores to specific site characteristics and to meet the unique needs of a variety of markets. We believe that this multiple store format strategy allows us to operate successfully in a diverse set of markets, enabling us to reach a broader customer base and to increase our market penetration. 

Competitive pricing. We seek to offer products at prices that are at or below those of other natural foods stores and conventional markets. In fiscal 2001, we introduced our Fresh Look program in 44 of our natural supermarket stores, and as part of such program reduced everyday prices on up to 2,500 items per store and implemented a weekly flyer program, with an expanded selection of sale items and emphasis on our perishable departments (meat/seafood, produce, prepared foods and dairy). We have also expanded our private label programs to include a large selection of high-quality private label products under our "Wild Oats(R)" and "A Wild Oats Down to Earth Value" lines at competitive prices. We believe these pricing programs broaden our consumer appeal and encourage our customers to fill more of their shopping needs at our stores. 

Motivated staff. We have developed a unique culture by encouraging active participation and communication among all staff members, advocating store-level participation in a variety of marketing, merchandising and operating decisions and rewarding staff based upon the achievement of targeted store-level sales, profitability and other financial performance criteria. In addition, we seek to hire individuals dedicated to the concept of natural foods and a healthy lifestyle. We believe that these practices translate into a satisfied and motivated staff and a high level of customer service. 

As mentioned previously, our operating strategy during fiscal 2001 also included the development and implementation of the Fresh Look program, which involved modifications in customer service, marketing, advertising, merchandising and pricing strategies. This program occurred in conjunction with certain changes in senior management in the second and third quarters of fiscal 2001, and was based on extensive research regarding our target customer base, customer satisfaction, store design elements, current marketing and advertising, and current merchandising. We introduced the Fresh Look program in our Colorado stores on a modified basis in July 2001, and added additional stores in the Midwest, New England, Oregon and Florida throughout the third and fourth quarters of fiscal 2001. The Company currently is evaluating the results from the Fresh Look campaign to determine its efficacy and whether modifications are necessary in any of its components. If modifications are necessary, we will make the necessary modifications based on such evaluation prior to implementing the Fresh Look campaign in the first half of fiscal 2002 in additional natural foods supermarket format stores. One modification already identified is the reevaluation of the depth of pricing cuts in certain item pricing. We also implemented merchandising, marketing and customer service changes in the majority of our natural foods supermarket stores. These operational changes were aimed at reorganizing the stores' merchandise to shelf locations according to product movement, similar to conventional grocers, eliminating or reducing slower-moving inventory, simplifying and clarifying our in-store signage, reorganizing the content and look of our monthly flyers to emphasize specials and give greater impact, and boosting store staff customer service skills through intensive training.


Growth strategy 

Our growth strategy is to increase total year-over-year comparable store sales growth, sales and income through: 

- -     improved guest service and store execution
- -     opening of new stores
- -     increased consumer awareness of Wild Oats

We intend to continue our expansion strategy by increasing penetration in existing markets and expanding into new regions that we believe are currently underserved by natural foods retailers. While we believe that most of our store expansion will result from new store openings, we may continue to evaluate acquisition opportunities in both existing and new markets. 

We currently have leases signed for four new stores to be opened or relocated in the remainder of fiscal 2002 or early fiscal 2003. The proposed sites are in southern California (two sites), Kentucky and Maine.

Our growth strategy will be affected in fiscal 2002 and beyond by our ability to raise additional operating capital. We provided private placement memoranda, summarizing current business conditions and operational results as well as projected results based on our beliefs as to the efficacy of the Fresh Look program, to potential investors who executed confidentiality agreements with standstill provisions. We have received several offers for investments in the Company; however, we are currently reviewing other options for raising additional equity funds on a less dilutive basis, as a result of improvements in the Nasdaq market and the Company's operational results. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources."

Opening of new stores. In fiscal 2001, we opened four new stores in Irvine, California; Westport, Connecticut; Omaha, Nebraska; and Cleveland, Ohio. We closed one underperforming natural foods store in Denver, Colorado and sold two stores in San Anselmo and Sacramento, California in related transactions. To date in fiscal 2002, we have sold three stores: two in Berkeley and Sunnyvale, California to the purchaser of the other two northern California stores, and one in Victoria, British Columbia, Canada. We have also closed two stores in Boca Raton, Florida and Chesterfield, Missouri. In fiscal 2000, we opened 11 new stores, acquired two stores, relocated three stores and closed 15 underperforming natural foods stores and two small vitamin stores, as well as sold three stores in related transactions. 

Year-over-year comparable store sales growth. Comparable store sales increased 4.0% in fiscal 2001, as compared to a 2.6% decrease for fiscal 2000, primarily due to operational improvements implemented by our new executive team and the roll-out of the Fresh Look program in certain key markets. We have also remerchandised a significant number of our natural foods supermarket format stores to emphasize perishables and reset certain product categories according to item movement. We made a commitment in fiscal 2001 to improve customer service through aggressive training programs for new and existing employees, and will continue this commitment in fiscal 2002 and beyond. We are currently evaluating the results of our Fresh Look program, which was implemented in 44 natural foods supermarket stores in the third and fourth quarters of fiscal 2001, and will implement the program in additional stores in the first half of fiscal 2002. Analysis of the results from existing Fresh Look program stores on the program 30 weeks or more shows that we are increasing comparable store sales results and customer counts, although average transaction size remains relatively flat. 

Our comparable store sales results have been negatively affected in the past by planned cannibalization, which is the loss of sales at an existing store when we open a new store nearby. The greater-than-expected cannibalization we experienced in fiscal 2000 as a result of the opening of stores in existing markets continues to impact certain of our stores in total gross sales, although the comparable store sales growth impact has been eliminated as the new stores celebrated their one-year anniversary. There can be no assurance that comparable store sales for any particular period will not decline in the future.


Products 

We offer our customers a broad selection of unique, high-quality products that are natural alternatives to those found in conventional supermarkets. We generally do not offer well-known national conventional brands and focus instead on a comprehensive selection of lesser-known natural branded products within each category. Although the core merchandise assortment is similar at each of our stores, individual stores adapt the product mix to reflect local and regional preferences. Our stores source produce from local organic growers whenever possible and typically offer a variety of local products unique to the region. In addition, in certain markets, our stores may offer more food service, gourmet and ethnic items, as well as feature more value-added services such as gift baskets, catering and home delivery, while in other markets, a store may focus more on bulk foods, produce and staple grocery items. We regularly introduce new high-quality and locally-grown products in our merchandise selection to minimize overlap with products carried by conventional supermarkets. 

In addition, we intend to continue to expand and enhance our prepared foods, value-added items (such as marinated or stuffed meats and seafood) and in-store cafe environment. We believe that consumers are increasingly seeking convenient, healthy, "ready-to-eat" meals and that by increasing our commitment to this category we can provide an added service to our customers, broaden our customer base and further differentiate us from conventional supermarkets and traditional natural foods stores. 

Quality standards. Our objective is to offer products that generally meet the following standards: 

- -     free of preservatives, artificial colors, chemical additives and added hormones
- -     organically grown, whenever possible
- -     minimally processed
- -     not tested on animals 

We continually evaluate new products, quality issues and controversial ingredients and frequently counsel store managers on compliance with our product standards. 

Private label. The natural foods industry is highly fragmented and characterized by many small independent vendors. As a result, we believe that our customers do not have strong loyalty to particular brands of natural foods products. In contrast to conventional supermarkets whose private label products are intended to be low-cost alternatives to name-brand products, we have developed our "Wild Oats(R)" private label program in order to build brand loyalty to specific products based on our relationship with our customers and our reputation as a natural foods authority. Through this program, we have successfully introduced a number of high-quality, unique private label products, such as cereals, breads, salad dressings, vitamins, chips, salsa, pretzels, cookies, juices, pasta, pasta sauces, oils, frozen products such as pizza and veggie burgers, and pet foods. In fiscal 2000, we introduced a new line of "Wild Oats(R)" imported and organic goods. In fiscal 2001, we expanded this private label line with the introduction of baking mixes, imported peppers, capers, pickles and cherries, canned tomatoes, preserves, tuna, cookies and teas. In fiscal 1999, we introduced our "A Wild Oats Down to Earth Value" label of "staple" products, such as peanut butter, cookies, coffee, canned tomatoes, bottled water and paper products, to offer our customers quality natural products at competitive prices, and expanded the line in fiscal 2001 with potato chips. We are currently evaluating a new private label strategy that would include a new brand name and look for our private label products. We intend to continue to expand our private label product offerings on a selected basis. 

Pricing. In general, natural and gourmet foods and related products have higher costs of production and correspondingly higher retail prices than conventional grocery items. Our pricing strategy has been to maintain prices that are at or below those of our natural foods competitors while educating our customers about the higher quality and added value of our products to differentiate them from conventional products. As part of the Fresh Look program, we reduced prices on a large number of products throughout participating stores. After analysis of results from the Fresh Look stores and additional customer research, we determined that some pricing reductions on certain items were overly aggressive, resulting in greater margin erosion without corresponding customer recognition and item movement, and we are evaluating a modest price increase on selected products. Like most conventional supermarkets, we regularly feature dozens of sale items, and for those stores on the Fresh Look program, we have implemented a weekly flyer program featuring a broad selection of sale items from all departments. Sale items are promoted through a variety of media, including direct mail, newspapers and in-store flyers. We regularly monitor the prices at natural foods and conventional supermarket competitors to ensure our prices remain competitive. 


Company culture and store operations 

Company culture. Our culture is embodied in our mission statement:

"Wild Oats was founded on the vision of enhancing the lives of our customers and 
our people with products and education that support health and well-being.

Wild Oats is committed to providing the highest quality, fresh and natural food, 
and health and wellness products in vibrant stores with people who are 
friendly, eager and ready to educate.

At Wild Oats, we sell food that remembers its roots." (TM)


Our values of service, integrity, quality, giving back to our communities, increasing value for our stakeholders (which include our shareholders, our employees and our communities) and accountability were adopted to support our mission statement. As part of our values, we believe that knowledgeable, satisfied and motivated staff members have a positive impact on store performance and overall profitability. In fiscal 2001, we implemented aggressive new training programs, with an emphasis on customer service, for all new employees. We are also implementing product knowledge training programs for certain departments to ensure that staff receive consistent training on issues affecting the products they sell. We will continue to focus on customer service in the coming years, with training for existing staff as well as new employees.

Management and employees. Our stores are organized into geographic regions, each of which has a regional director who is responsible for the store operations within his or her region and who reports to our senior management. The regional directors are responsible for, and frequently visit, their cluster of stores to monitor financial performance and ensure adherence to our operating standards. In fiscal 2001, as part of new management's restructuring of our operations, we reduced the number of regions from 11 to five. We maintain a staff of corporate level department specialists including natural living, food service, produce and floral, meat/poultry/seafood and grocery merchandising directors who manage centralized buying programs and formulate store-level merchandising, pricing and staff training to ensure company-wide adherence to product standards and store concept. 

Staff members at the store and home-office levels participate in incentive plans that tie compensation awards to the achievement of specified store-level or company-wide sales, profitability and other performance criteria. We also seek to foster enthusiasm and dedication in our staff members through comprehensive benefits packages, including health and disability insurance, an employee stock purchase plan and an employer-matching 401(k) plan. 


Purchasing and distribution 

We have centralized merchandising departments for each major product category. These departments set product standards, approve products and negotiate volume purchase discount arrangements with distributors and vendors. The wholesale segment of the natural foods industry provides a large and growing array of product choices across the full range of grocery product categories. Although we purchase products from approximately 8,000 suppliers, in fiscal 2001 approximately 28.2% of the Company's inventory purchases were from United Natural Foods Inc. ("UNFI"), a wholesale distributor that operates multiple warehouses nationwide under a four-year buying agreement that expires in August 2002. We believe that UNFI has the capacity to service all of our existing stores as well as most of our future sites. As a result of our rapid growth, we have been able to negotiate greater volume discounts with this distributor and certain other vendors. The Company currently is negotiating with several parties for a new primary distributor arrangement.

In fiscal 1999, we entered into a supply agreement with Nutricia (formerly GNP), under which Nutricia manufactures for us certain private label vitamins and supplements. The agreement has a three-year term, but is terminable by either party with advance notice. We have certain minimum per-product purchase requirements that have led, in the past, to the Company being obligated for past dated products where the minimum product purchased could not be sold prior to expiration. We have no supply contracts with the majority of our smaller vendors, who could discontinue selling to us at any time. Although we believe that we could develop alternative sources of supply, any such termination may create a short-term disruption in store-level merchandise selection. 

Most products are delivered directly to our stores by vendors and distributors. We currently operate three warehouse facilities in Los Angeles and San Diego, California and San Antonio, Texas, which receive and distribute purchases of produce and grocery items that cannot currently be delivered cost effectively directly to the stores by outside vendors. We maintain a small fleet of local delivery vans. As we enter new markets, we will evaluate the need for additional warehouse and distribution facilities.

We operate commissary kitchens in Phoenix, Arizona; Denver, Colorado; Portland, Oregon and Vancouver, British Columbia, Canada, as well as bakeries in Phoenix, Arizona; San Diego, California and Denver, Colorado. These facilities produce deli food, take-out food, bakery products and certain private label items for sale in our stores. Each kitchen can make deliveries to stores within a hundred-mile radius of the facility. We will evaluate the need for new commissary kitchens as we expand into new markets. In fiscal 2001, after extensive review of their profitability, operational efficiency and long-term capital improvement requirements, we closed two commissary kitchens in Los Angeles, California and Santa Fe, New Mexico, one bakery in Tucson, Arizona and one distribution warehouse in Denver, Colorado. The goods and services previously provided by these facilities have been absorbed by other, existing commissaries and warehouses or have been replaced with goods and services from third-party suppliers.


Marketing 

We recognize the importance of building brand awareness within our trade area and advertise in traditional media outlets such as radio, newspapers, outdoor and direct mail to gain new customer trial and repeat business. As part of our marketing strategy, we have increased our use of direct mail and newspaper inserts to increase our market exposure to a broader base of customers. Our farmers market format stores primarily use flyers and "weekly specials" advertising to generate consumer interest and increase customer traffic. As part of the implementation of the Fresh Look program in 44 of our natural foods supermarket stores, we introduced eight-page weekly flyers, with a significant number of weekly specials and an expanded flyer distribution. We are currently evaluating the efficacy of the eight-page flyer and, based on the results of the data currently being gathered, may modify the flyer program before further implementation of the Fresh Look program in additional natural foods supermarket format stores.

We also focus on in-store consumer education through the use of a variety of media, including in-store flyers, informational brochures and signage that promote the depth of our merchandise selection, benefits of natural products and competitive prices. In fiscal 2001, with the hiring of a new Chief Marketing Officer, we reviewed and made modifications to our store signage and educational pieces, to increase consumer awareness of who we are and what we offer. When we first enter a new market, we execute an intense marketing and public relations campaign to build awareness of our new store and its selection of natural products. After the initial campaign, this advertising is supplemented by the marketing strategies described above. In fiscal 2001 we also created a public relations department to promote the Company and its achievements, to manage a consistent flow of internal and external communications and to assist in educating consumers about our position on issues of importance, such as genetically modified foods and the use of antibiotics in livestock production.

Our advertising costs prior to the implementation of the Fresh Look program historically were 1.5% of sales. Advertising costs for stores on the Fresh Look program on average have increased to 2.0% of sales. We offset a certain amount of such costs through a promotional program with our vendors, which allows for different degrees of promotional participation in our weekly flyers. 


Management information systems 

Our management information systems have been designed to provide detailed store-level financial data, including sales, gross margin, payroll and store contribution, to regional directors and store directors and to our headquarters on a timely basis. Currently, certain inventory management systems are processed manually. We purchased a software system that allows us to establish centralized pricing on certain merchandise and to track product movement, and have implemented such system in all of our Wild Oats and Henry's Marketplace stores (for item movement). The Henry's stores host their own pricing structure, although the Company currently is examining hosting all pricing for all stores centrally. 

We are currently testing, and plan to implement a "data warehouse" in the first half of 2002 that will allow us to perform rapid analyses of disparate data relating to financial performance, item movement, margin result, comparable store sales results, payroll and other data generated by our operations. We also are installing, in the first half of 2002, a promotion management system that will link our item information database to our marketing and merchandising systems to facilitate the approval and creation of marketing and merchandising flyers. This will enable us to create our flyers more quickly by minimizing printing modifications from flyer to flyer, and will increase the accuracy of graphic and text descriptions of items. We are completing the testing of and will implement a plan-o-gram computerized shelf management program in our newest store in Long Beach, California, which is due to open in April 2002. This program will allow us to map and manage shelf space from store to store to ensure consistency of item placement and track item movement to allow us to determine appropriate shelf inventory of various SKUs of product. In 2002 we will be implementing a front end auditing program that will track cashier activity and identify anomalies in cash handling, to enable us to identify cashier training issues and improper cash handling procedures. We also are evaluating, for possible future implementation the following: in-store signage and shelf tag printing controlled by our home office departments; scale hosting to standardize pricing by weight, product descriptions, cooking instructions and other printed material on weighed items; and direct store delivery receiving, which will verify the accuracy of deliveries and increase the efficiency of in-store receiving departments. 

We have implemented new, faster credit card processing systems company-wide to reduce transaction time at the cash register and the cost to us of individual credit card transactions. In 2000, we also implemented a wide-area network to allow faster data transmissions between our headquarters and stores, and between our stores and our credit card processor. The credit card processing system is fully operational in our stores, with the exception of the stores in Canada and a few of our smaller stores. 

In fiscal 1999, we standardized our timekeeping systems throughout our stores, and installed new software that now allows us to process payroll in-house instead of through a third-party processor. In the first quarter of fiscal 2001, we began processing our Canadian payroll in-house. We believe that by handling payroll in-house, we have greater accuracy in payroll processing and greater control over payroll and, in the future, we expect to realize a cost savings by not paying outside processing fees.


Competition 

Our competitors currently include other independent and multi-unit natural foods supermarkets, smaller traditional natural foods stores, conventional supermarkets and specialty grocery stores. While certain conventional supermarkets, smaller traditional natural foods stores and small specialty stores do not offer as complete a range of products as we do, they compete with us in one or more product categories. In recent years, several of the larger conventional grocers have added or expanded specialty sections in their stores devoted specifically to natural and organic foods and body care products, and have expanded their offerings of vitamins and supplements. Some feature a "store-within-a-store" concept where the fixtures, lighting and flooring in the natural foods and products section are modified to provide a different, more upscale ambiance, such as that provided in our stores. We believe that these specialty sections do not offer the customer service, product selection and depth of product knowledge that we offer in our stores.

A number of other natural foods supermarkets offer a range of natural foods products similar to those offered in our stores. We believe that the principal competitive factors in the natural foods industry include customer service, quality and variety of selection, store location and convenience, price and store atmosphere. We believe that our primary natural foods competitor is Whole Foods Market, Inc., a company based in Texas, with whom we currently compete directly in California, Colorado, Florida, Illinois, Massachusetts, New Mexico and Texas. 


Employees 

As of March 1, 2002, we employed approximately 6,334 full-time individuals and 2,053 part-time individuals. Approximately 8,015 of our employees are engaged at the store-level and 372 are devoted to regional administrative and corporate activities. We believe that we maintain a good relationship with our employees. In fiscal 2001, we won by a substantial margin the one election for union representation brought at any of our stores. We anticipate that in the future one or more of our stores may be the subject of attempted organizational campaigns by labor unions representing grocery industry workers, and that from time to time certain of our stores may be picketed by local labor unions relating to area wage and benefit standards. Four of our stores (including two Henry's stores in metropolitan San Diego, California) are currently being picketed relating to area standards.


Factors Impacting Results of Operations

Our results of operations have been and will continue to be affected by, among other things:

- -    the number, timing and mix of store openings, acquisitions, relocations, remodels or closings
- -    availability of capital
- -   fluctuations in quarterly results of operations
- -   impact of the Fresh Look program roll-out to additional stores
- -   economic conditions
- -   competition
- -   labor issues
- -   loss of key management
- -   government regulations
- -   changes in suppliers, distributors and manufacturers
- -   volatility in our stock price

New stores build their sales volumes and refine their merchandise selection gradually and, as a result, generally have lower gross margins and higher operating expenses as a percentage of sales than more mature stores. We anticipate that the new stores opened in fiscal 2001 will experience operating losses for the first six to 12 months of operation, in accordance with historical trends; however, given the continued weakening of the U.S. economy in the wake of the events of September 11, 2001, operating losses may be extended for additional periods of time. Further, acquired stores, while generally profitable as of the acquisition date, generate lower gross margins and store contribution margins than our company average due to their substantially lower volume purchasing discounts and the integration of the acquired stores into our operating systems. Over time, we expect the gross margin and store contribution margin of acquired stores to approach our company average. Other factors that could cause acquired stores to perform at lower-than-expected levels include, among other things, turnover of regional and store management, disruption of advertising, changes in product mix and delays in the integration of purchasing programs. 

We completed the remodeling of 15 of our older stores in the fiscal 2001, and remerchandised a number of our stores in the second, third and fourth quarters of 2001, with the goal of eliminating slower-selling products, reducing excess SKU counts in certain categories of products, and giving greater emphasis to produce, meat and seafood and grocery departments. Remodels and remerchandising typically cause short-term disruption in sales volume and related increases in certain expenses as a percentage of sales, such as payroll. We cannot predict whether sales disruptions and the related impact on earnings may be greater in time or volume than projected in future remodeled or remerchandised stores. 

The construction or acquisition of new stores, remodeling of existing stores, as well as completion of capital purchases of new technology systems required for efficient operation of our business require substantial capital expenditures. In the past, our capital expenditures have been funded by cash generated from operations, bank debt and equity financing proceeds. These sources of capital may not be available to us in the future; in addition, our existing credit agreement contains limitations on our ability to make capital expenditures that may constrain future growth without additional equity financings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources."

Our quarterly results of operations may differ materially from quarter to quarter for a variety of reasons, including the timing and success of new store openings, overall store performance, changes in the economy, seasonality and the timing of holidays, significant increases or decreases in prices for or availability of goods and services, competitive pressure and labor disturbances, as well as other factors mentioned in this section. 

As discussed above, we propose to implement the Fresh Look program in additional natural foods supermarket stores in fiscal 2002. There can be no assurances that the program will be successful in those stores, nor that the cost of the program roll-out will be at or below the costs incurred in fiscal 2001.

Downturns in general economic conditions in communities, states, regions or the nation as a whole can affect our results of operations. While purchases of food generally do not decrease in a slower economy, consumers may choose less expensive alternative sources for food purchases. In addition, downturns in the economy make the disposition of excess properties, for which the Company continues to pay rent and other carrying costs, substantially more difficult as the markets become saturated with vacant space and market rents decrease.

As mentioned previously, we compete with both natural foods and conventional grocers. As competition in certain markets intensifies, our results of operations may be negatively impacted through loss of sales, reduction in margin from competitive price modifications, and disruptions in our employee base.

From time to time, unions will attempt to organize employees or portions of the employee base at stores or our distribution or manufacturing facilities. Responses to organization attempts require substantial management and employee time and are disruptive to operations. In addition, from time to time certain of our stores may be subject to informational picketing, which can discourage customer traffic and lower sales volumes. Our ability to attract, hire and retain qualified employees at store and home-office levels is critical to our continued success.

Our future direction and success is dependent in large part on the continued services of certain key executive officers. Loss of any key officer may have an adverse affect on current operations and future growth programs.

We are subject to a myriad of local, state and federal regulations governing the operation of our stores and support facilities, including licensing laws governing the sale of particular categories of products, health and sanitation laws, laws governing the manufacture, labeling and importation of private label products, labor laws controlling wages, benefits and employment conditions of our employees and advertising regulations governing the manner in which we may advertise products we sell. In addition, in the fall of 2002, the National Organic Standards, a comprehensive program of regulations governing the growing, production, handling and sale of goods advertised as "organic", will be fully implemented. Modifications in existing laws and the implementation of new laws governing components of our business operations may be triggered by consumer and regulatory concerns regarding food safety issues, new technology or competitive pressures. Such modifications can have a material impact on our sales volume, costs of goods and direct store expenses. Modification of such laws may also impact the vendors and manufacturers who provide goods and services to us, raising the cost of such items or decreasing their availability. In addition, from time to time we are audited by various governmental agencies for compliance with existing laws, and we could be subject to fines or operational modifications as a result of noncompliance.

We purchase 28.2% of our total goods from one distributor under an agreement that expires in August 2002. We are currently negotiating with that distributor and others for a new distribution agreement. There is no assurance that we may not experience significant disruption in our operations through shortages of goods and services if we change our distribution relationship. Any significant disruption in the supply of goods could have a material impact on our overall sales volume and cost of goods.

Our stock price has been and continues to be fairly volatile. Our stock price is affected by our quarterly and year-end results, results of our major competitors and suppliers, general market and economic conditions and publicity about us, our competitors, our vendors or our industry. Volatility in our stock price may affect our future ability to raise proceeds from equity financings, renegotiate our existing credit agreement or enter into a new borrowing relationship, or affect our ability to obtain new store sites on favorable economic terms.


Item 2.
PROPERTIES

We currently lease approximately 54,000 square feet for our corporate headquarters in Boulder, Colorado. The lease has four and one-half years remaining on the term, with one three-year renewal option. 

We lease all of our currently operating stores. We currently have leases signed for four sites projected to be opened in the remainder of fiscal 2002 and fiscal 2003. Our leases typically provide for a 10- to 25-year base term and generally have several renewal periods. The rental payments are either fixed base rates or minimum base rent with additional rent calculated on a percentages of sales over a certain break point. All of the leases are accounted for as operating leases. 


Store locations 

The following map and store list show, as of March 1, 2002, the natural foods grocery stores and vitamin stores that Wild Oats operates in each state and Canadian province and the cities in which Wild Oats stores are located:

Arizona
Phoenix (2)
Scottsdale
Tucson (3) Arkansas
Little Rock California
Escondido
Hemet
Irvine
Laguna Beach
Laguna Niguel
Los Angeles
Pasadena
San Diego (12)
Santa Monica (2)
Yorba Linda Colorado
Boulder (3)
Colorado Springs
Denver (7)
Fort Collins
Connecticut
West Hartford
Westport Florida
Fort Lauderdale
Melbourne
Miami
Miami Beach
West Palm Beach Illinois
Evanston
Hinsdale Indiana
Indianapolis Kansas
Kansas City (2) Massachusetts
Boston (3) Missouri
Kansas City
St. Louis Nebraska
Omaha Nevada
Las Vegas (2)
Reno New Jersey
Princeton New Mexico
Albuquerque (3)
Santa Fe New York
New York City Ohio
Cincinnati
Cleveland (2)
Upper Arlington Oklahoma
Tulsa Oregon
Bend
Eugene (2)
Portland (7) Tennessee
Memphis
Nashville (2) Texas
Austin (2)
Corpus Christi
El Paso (3)**
McAllen
San Antonio (3) Utah
Salt Lake City (2) Washington
Vancouver British Columbia, Canada
Vancouver (2)
West Vancouver

** Includes two small vitamin stores

Item 3.
LEGAL PROCEEDINGS


Alfalfa's Canada, Inc., a Canadian subsidiary of the Company, is a defendant in a suit brought in the Supreme Court of British Columbia, by one of its distributors, Waysafer Wholefoods Limited and one of its principals, seeking monetary damages for breach of contract and injunctive relief to enforce a buying agreement for the three Canadian stores entered into by a predecessor of Alfalfa's Canada. Under the buying agreement, the stores must buy products carried by the plaintiff if such are offered at the current advertised price of its competitors. The suit was filed in September 1996. In June 1998, Alfalfa's Canada filed a Motion for Dismissal on the grounds that the contract in dispute constituted a restraint of trade. The Motion was subsequently denied. We do not believe its potential exposure in connection with the suit will have a material adverse effect on the Company's consolidated results of operations, financial position, or cash flows.

In April 2000, the Company was named as defendant in S/H -Ahwatukee, LLC and YP- Ahwatukee LLC v. Wild Oats Markets, Inc., Superior Court of Arizona, Maricopa County, by a landlord alleging Wild Oats breached a continuous operations clause arising from the closure of a Phoenix, Arizona store. The landlord dismissed the same suit, filed in 1999, without prejudice in 1999, after the Company presented a possible acceptable subtenant, but subsequently rejected the subtenant. Plaintiff claimed $1.5 million for diminution of value of the shopping center plus accelerated rent, fees and $360,000 in attorneys' fees and costs. After trial in November 2001, the judge awarded the plaintiff $326,000 in damages and $210,000 in attorneys' fees.

In January 2001, the Company was named as defendant in Glades Plaza, LP v. Wild Oats Markets, Inc., a suit filed in the 15th Judicial Circuit Court, Palm Beach County, Florida, by a landlord alleging we breached our lease obligations when we gave notice of termination of the lease for landlord's default in not timely turning over the premises. The parties negotiated a settlement pursuant to which the Company terminated its lease obligations and paid $220,000 to the plaintiff in return for a full release from all lease liability and termination of the lawsuit. 

In October 2000 we were named as defendant in 3601 Group Inc. v. Wild Oats Northwest, Inc., Wild Oats, Inc. and Wild Oats Markets, Inc., a suit filed in Superior Court for King County, Washington, by a property owner who claims that Alfalfa's Inc., our predecessor on interest, breached a lease in 1995 related to certain property in Seattle, Washington. We believe that Alfalfa's properly terminated the lease pursuant to certain conditions precedent to its obligations thereunder. Since filing its claim, Plaintiff has increased its damages claim from $377,000 to $2.4 million. The parties are currently in discovery. We have filed a motion for summary judgment, which is currently scheduled for a hearing in May 2002. A trial date has been set in June 2002.


We also are named as defendant in various actions and proceedings arising in the normal course of business. In all of these cases, the Company is denying the allegations and is vigorously defending against them and, in some cases, has filed counterclaims. Although the eventual outcome of the various lawsuits cannot be predicted, it is management's opinion that these lawsuits will not result in liabilities that would materially affect the Company's consolidated results of operations, financial position, or cash flows


Item 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

PART II.

Item 5.
MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS

The Company's common stock is traded on the NASDAQ National Market under the symbol "OATS". 

The following are the quarterly high and low sales prices for each quarter of the past two years:

	HIGH	LOW
First Quarter 2000	$ 22.750	$ 15.313
Second Quarter 2000	23.500	8.000
Third Quarter 2000	14.250	9.313
Fourth Quarter 2000	13.000	3.875
First Quarter 2001	9.563	4.125
Second Quarter 2001	11.800	6.125
Third Quarter 2001	11.970	7.120
Fourth Quarter 2001	11.330	6.900

As of March 1, 2002, Wild Oats' common stock was held by 650 stockholders of record. No cash dividends have been declared previously on our common stock, and we do not anticipate declaring a cash dividend in the near future. Our Amended and Restated Credit Agreement for our $125.0 million credit facility contains restrictions on the payment of cash dividends without lender consent for so long as amounts remain unpaid under the facility. 


Item 6.
SELECTED FINANCIAL DATA
(in thousands, except per-share amounts and number of stores)

The following data for the fiscal years ended December 29, 2001; December 30, 2000; January 1, 2000; January 2, 1999; and December 27, 1997 are derived from the consolidated financial statements of the Company. The following data should be read in conjunction with the Company's consolidated financial statements, related notes thereto and other financial information included elsewhere in this report on Form 10-K. 

FISCAL YEAR	2001	2000	1999	1998	1997
STATEMENT OF OPERATIONS DATA:
Sales	$ 893,179	$ 838,131	$ 721,091	$ 530,726	$ 431,974
Cost of goods sold and occupancy costs	634,631	581,980	499,627	369,475	301,644
Gross profit	258,548	256,151	221,464	161,251	130,330
Direct store expenses	212,642	190,986	155,869	113,094	96,448
Store contribution	45,906	65,165	65,595	48,157	33,882
Selling, general and administrative expenses	48,864	32,480	27,939	20,026	16,314
Pre-opening expenses	1,562	3,289	2,767	3,449	1,149
Restructuring and asset impairment charges	54,906	42,066	12,642	393
Income (loss) from operations	(59,426)	(12,670)	22,247	24,289	16,419
Loss on investment	228	2,060
Interest expense, net	9,447	8,850	4,280	28	622
Income (loss) before income taxes	(69,101)	(23,580)	17,967	24,261	15,797
Income tax expense (benefit)	(25,189)	(8,559)	5,198	7,822	5,501
Net income (loss) before cumulative effect of change in    accounting principle	(43,912)	(15,021)	12,769	16,439	10,296
Cumulative effect of change in accounting   principle, net of tax (1)			281
Net income (loss)	$ (43,912) =========	$ (15,021) =========	$ 12,488  =========	$ 16,439  =========	$ 10,296  =========
Basic net income (loss) per common share	$ (1.80) =========	$ (0.65) =========	$ 0.55  =========	$ 0.73  =========	$ 0.55  =========
Weighted average number of   common shares outstanding	24,424  =========	23,090  =========	22,806  =========	22,440  =========	18,841  =========
Diluted net income (loss) per common share	$ (1.80) =========	$ (0.65) =========	$ 0.53  =========	$ 0.71  =========	$ 0.53  =========
Weighted average number of common shares outstanding	24,424  =========	23,090  =========	23,467  =========	23,079  =========	19,425  =========
Number of stores at end of period	107	106	110	82	70
BALANCE SHEET DATA:
Working capital (deficit)	$ (26,489)	$ (16,102)	$ (20,971)	$   (5,281)	$   32,566
Total assets	$ 353,426	$ 372,632	$ 350,629	$ 217,320	$ 190,752
Long-term debt (including capitalized leases)	$ 112,291	$ 116,839	$   80,328	$     2,675	$     4,157
Stockholders' equity	$ 107,015	$ 151,564	$ 165,387	$ 152,608	$ 136,697

(1) In fiscal 1999 the Company recorded $281,000 in expenses associated with a cumulative effect of a change in accounting principle. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Pre-Opening Expenses."

Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This report on Form 10-K contains certain forward-looking statements regarding our future results of operations and performance. Important factors that could cause differences in results of operations include, but are not limited to, the timing and success of the Fresh Look program; the Company's continued compliance with its credit facility covenants; the successful transition of responsibility to our new Chief Financial Officer; the timing and execution of new store openings, relocations, remodels, sales and closures; the timing and impact of promotional and advertising campaigns; the impact of competition; changes in product supply or suppliers; changes in management information needs; changes in customer needs and expectations; governmental and regulatory actions; general industry or business trends or events; changes in economic or business conditions in general or affecting the natural foods industry in particular; and competition for and the availability of sites for new stores and potential acquisition candidates. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Cautionary Statement Regarding Forward-Looking Statements." All information stated herein has been revised to reflect the stock-for-stock transactions, accounted for as poolings of interests, with Henry's Marketplace, Inc. and Sun Harvest Farms, Inc., which were consummated on September 27, 1999 and December 15, 1999, respectively. 


Overview

Fresh Look Program. During the second and third quarters of fiscal 2001, we conducted extensive consumer research to determine how to broaden our customer base and increase per-customer sales. Based on the results of the research, we formulated our Fresh Look program - a comprehensive advertising, pricing and merchandising program. In the beginning of the third quarter of fiscal 2001, the Company commenced the test of a modified Fresh Look program in our 12 Colorado stores. The results of such program were encouraging, and we initiated a phased roll-out of the complete Fresh Look program to the Colorado stores and an additional 32 stores in Connecticut, Florida, Kansas, Massachusetts, Missouri, Nebraska, New Jersey, Ohio, Oklahoma, Oregon and Washington over the third and fourth quarters of fiscal 2001. The program includes weekly, as opposed to monthly, flyer advertising through direct mail, in-store distribution and newspaper insertion, remerchandising to emphasize produce, grocery and meat and seafood offerings, and lowered pricing on selected merchandise throughout the stores. As part of the program, we are also consolidating our banner names in selected areas across the country to convert stores bearing individually different names to the "Wild Oats Market" name, to increase advertising synergy and brand awareness. In the short period in which the program has been in place, we have seen encouraging increases in customer counts and comparable store sales results although average transaction size has remained relatively flat. We will continue to evaluate the data being produced from the Fresh Look program stores to determine whether to proceed on a long-term basis with the program in its current format or in a modified format.

We currently have 42 stores operating on the program. We have seen increases in comparable store sales results in most of the stores on the program; for those on the program 30 weeks or more (the stores in Colorado), the results have been most pronounced. For stores in the Fresh Look program for 30 weeks or more, through the end of February 2002, comparable store sales results have increased 5%, from a -1% comparable store sales from January 2001 through mid July, 2001, to 4% through February 2002. These stores have also shown a 9% increase in comparable customer counts, from -4% prior to the commencement of the program to 5% for the period thereafter. In comparison, for those Wild Oats Market stores not on the Fresh Look program (excluding the farmers market format stores and our Capers Community Market(TM) stores), for similar periods, overall comparable store sales increased 2% while comparable customer counts increased 5%.

Store format and clustering strategy. We operate two store formats: the natural foods supermarket and farmers market formats. The natural foods supermarket format store, operated under the Wild Oats(R) Natural Marketplace and Nature's(R) - - A Wild Oats Market tradenames, is generally 20,000 to 35,000 gross square feet, and the farmers market store, operated under the Henry's Marketplace(R) and Sun Harvest(TM) tradenames, is generally 15,000 to 25,000 gross square feet. Our profitability has been and will continue to be affected by the mix of natural foods supermarkets and farmers market stores opened, acquired or relocated and whether stores are being opened in markets where we have an existing presence. As part of the ongoing comprehensive review of the Company's business operations and strategic plan, we are evaluating our current natural foods store format and design, and may make significant changes in the future. We also plan to expand the Henry's Marketplace farmers market store format as our second, parallel store format. We believe this format, which is primarily located in metropolitan San Diego, California and Texas, appeals to a more value-conscious customer. The format has historically produced higher comparable store sales results than the natural foods supermarket format stores, although margins are lower. The format also appears to perform better in the face of new competition, whether from conventional or natural foods supermarket competitors.

In the past, we have pursued a strategy of clustering stores in each of our markets to increase overall sales, reduce operating costs and increase customer awareness. In prior years, when we opened a store in a market where we had an existing presence, our sales and operating results declined at certain of our existing stores in that market. However, over time, the affected stores generally achieved store contribution margins comparable to prior levels on the lower base of sales. Certain new stores opened in the past two years have caused a greater degree of cannibalization than previously expected, and at this time it does not appear that the store contribution margins at the older, affected stores in these regions will rebound to their prior levels. In certain existing markets, the sales and operating results trends for other stores may continue to experience temporary declines related to the clustering of stores. We are currently reevaluating our clustering strategy in response to greater-than-expected sales cannibalization in certain existing markets where we opened new stores.

Comparable store sales results. Sales of a store are deemed to be comparable commencing in the thirteenth full month of operations for new, relocated and acquired stores. A variety of factors affect our comparable store sales results, including, among others:

- -   general economic conditions
- -   the opening of stores by us or by our competitors in markets where we have existing stores
- -   the relative proportion of new or relocated stores to mature stores
- -   the timing of advertising and promotional events
- -   store remodels
- -   store closures
- -   our ability to effectively execute our operating plans
- -   changes in consumer preferences for natural foods products
- -   availability of produce and other seasonal merchandise.

Past increases in comparable store sales may not be indicative of future performance. Substantial uncertainty in the current U.S. economy in the wake of the events of September 11, 2001 make it more difficult to determine future performance of certain of our stores, although generally, food sales are not dramatically impacted by economic recessions.

Our comparable store sales results have been negatively affected in the past by, among other factors, planned cannibalization, which is the loss of sales at an existing store when we open a new store nearby, resulting from the implementation of our store clustering strategy. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Store format and clustering strategy." Comparable store sales results in previous years were negatively affected by higher-than-expected cannibalization due to the openings of new or relocated stores in several of our existing markets. The farmers market format stores, which depend heavily on produce sales, are more susceptible to sales fluctuations resulting from the availability and price of certain produce items. As a result of operational improvements in some recently acquired stores, the Fresh Look marketing program in selected regions and store closures of certain weaker stores, comparable store sales increased by 5.7% in the fourth quarter of fiscal 2001, 5.5% in the third quarter of fiscal 2001, 3.9% in the second quarter of fiscal 2001 and 1.0% in the first quarter of fiscal 2001. We expect comparable store sales to increase, although as the Company expands the implementation of its Fresh Look program to additional natural foods supermarket stores, the Company projects that comparable store sales in those regions in which the initiatives are implemented may increase slightly more as such initiatives increase total store sales. There can be no assurance that comparable store sales for any particular period will not decrease in the future.

Store openings, closings, sales, remodels, relocations and acquisitions. In the first quarter of fiscal 2001, we opened four new stores in Cleveland, Ohio; Irvine, California; Westport, Connecticut; and Omaha, Nebraska. We postponed the opening of five additional stores originally planned to be opened in fiscal 2001, to allow for the redesign of the interiors of such stores to incorporate feedback received during extensive customer interviews and focus groups conducted in the second quarter of fiscal 2001, to improve the operating efficiency of certain departments and to shift the guests' focus to the meat and seafood, produce and grocery departments. One of the postponed stores is currently planned to open in Long Beach, California in the first half of fiscal 2002. We negotiated a termination of one lease in Kansas City, Missouri; the opening dates for the remainder have been rescheduled during fiscal 2002 or early fiscal 2003.

In fiscal 2001 we closed one natural foods store in Denver, Colorado and terminated our lease obligation in one location in West Palm Beach, Florida. We also sold two underperforming stores in San Anselmo and Sacramento, California, in related transactions. As of the date of this report, in fiscal 2002 we have closed two underperforming stores in Boca Raton, Florida and Chesterfield, Missouri, sold two additional stores in Berkeley and Sunnyvale, California to the same purchaser of the other stores in northern California, and sold a store in Victoria, British Columbia, Canada. We also terminated a lease obligation for one location never opened in Kansas City, Missouri. In fiscal 2000, we opened 11 new stores in Laguna Niguel, San Diego (two) and Yorba Linda, California; Kansas City, Kansas; St. Louis, Missouri; Reno, Nevada; Cleveland and Cincinnati, Ohio; Bend and Portland, Oregon; and relocated three stores in West Hartford, Connecticut; Las Vegas, Nevada; and Salt Lake City, Utah. We also acquired two operating natural foods stores in Escondido and Hemet, California. 

The Company currently has an inventory of 20 vacant sites, comprising both closed store, kitchen and warehouse locations and excess unoccupied space acquired during acquisitions or other leasing transactions, for which we have rent obligations; appropriate accruals have been made for such obligations. We are actively seeking subtenants or assignees for the spaces, although many of the sites are difficult to sublease or assign because of unusual site characteristics, surpluses of vacant retail space in the markets in which the sites are located, or because the remaining lease terms are relatively short. In fiscal 2001, we disposed of 12 of our vacant sites, including closed store sites in Scottsdale and Tempe, Arizona; Mission Viejo and Santa Barbara, California; Denver, Colorado; Framingham, Massachusetts; Madison, New Jersey; Las Vegas, Nevada; Dallas, Texas and two smaller sites in Salt Lake City, Utah. In fiscal 2002, through the date of this report, we have disposed of two additional locations, in Santa Fe, New Mexico and West Hartford, Connecticut, both in transactions where the landlord took a reassignment of the space in exchange for payment to the Company of cash or rent abatements. In some cases we have negotiated lease terminations with the landlords in exchange for a cash payment by us. Where appropriate, we have made vacant space available for use by charitable organizations which cover the utilities costs for the space while we continue to pay the rent obligation.

Our ability to increase the number of stores opened in fiscal 2002 and beyond may depend upon our ability to raise additional equity financings. During the first three quarters of fiscal 2001, we were in default under our $157.5 million credit facility as a result of our violation of certain financial covenants in our loan agreement. In October 2001, we executed an amendment to our credit facility, pursuant to which all previous defaults under the credit facility were waived. As part of such amendment, our borrowings have been limited to $125.0 million, and we agreed to restrictive covenants, including covenants regarding our ability to enter into new leases and to make certain capital expenditures. Absent additional equity funding, the limitations on capital expenditures will not allow us to complete and open in fiscal 2002 all of the stores for which we currently have signed leases; therefore, some openings have been rescheduled into early fiscal 2003. We have proposed to raise $30.0 million or more in equity financings, and have executed confidentiality agreements with and provided due diligence to a number of interested parties. To date, we have received several offers for investment in the Company. The Company is currently investigating other, less dilutive equity alternatives. If the Company is successful in raising additional equity financing of $30.0 million or more, under the terms of the amended credit agreement we will be allowed to increase the number of new leases we may execute and new stores we may open, based on the amount of equity financings raised and the format of the stores proposed to be opened. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources."

As has been our practice in the past, we will continue to evaluate the profitability, strategic positioning, impact of potential competition, and sales growth potential of all of our stores on an ongoing basis. We may, from time to time, make decisions regarding closures, disposals, relocations or remodels in accordance with such evaluations. In fiscal 2000, as part of restructuring and asset impairment charges taken in the second and fourth quarters, we identified 22 stores for closure or sale, of which 20 have been closed or sold. Changing facts and circumstances during the fourth quarter of fiscal 2001 have led us to remove the remaining two stores from our list of closures or sales. One of these stores was expected to be closed or sold by the end of fiscal 2001 in conjunction with the Company's opening of a new store in the same city; however, in the fourth quarter of fiscal 2001, the Company abandoned the new store site due to parking issues created during construction of the site. Due to this change in facts and circumstances, management decided to continue to operate the existing store in its existing location; therefore, the restructuring charges of $864,000 previously recorded for the existing store were reversed during the fourth quarter of fiscal 2001. With regard to the other store, during the fourth quarter of fiscal 2001 the Company completed a competitive analysis of the market area and a re-evaluation of the operations of the store, which showed that the store was achieving acceptable performance levels and demonstrating positive performance trends following the implementation of the Fresh Look program late in the third quarter of fiscal 2001. Due to this change in facts and circumstances during the fourth quarter of fiscal 2001, management decided to continue to operate the store in its existing location; therefore, the restructuring charges of $1.6 million previously recorded for the store were reversed during the fourth quarter of fiscal 2001. In the second quarter of fiscal 2001, we identified an additional three stores slated for closure or sale, including one location in West Palm Beach, Florida where we terminated our leasehold interest in the second quarter of fiscal 2001. The other two stores were removed from our list of closures or sales due to changes in estimates related to changes in facts and circumstances during the fourth quarter of fiscal 2001. The Company had planned to close or sell both stores in conjunction with the Company's opening of new stores in the respective trade areas; however, during the fourth quarter of fiscal 2001, the Company abandoned its plans for the new store sites and decided to continue to operate the existing stores in their existing locations and reversed $274,000 of restructuring charges previously recorded for the existing stores.

Pre-opening expenses. Pre-opening expenses include labor, rent, advertising, utilities, supplies and certain other costs incurred prior to a store's opening. Historically, pre-opening expenses for natural foods supermarket format stores have averaged approximately $250,000 to $350,000 per store, and farmers market format stores have averaged approximately $75,000 per store, although the amount per store may vary depending on whether the store is the first to be opened in a market or is part of a cluster of stores in that market. As part of the Fresh Look advertising initiatives implemented by the Company, we expect that pre-opening expenses will increase to $400,000 per natural foods supermarket store, and $150,000 per farmers market store, as we boost grand opening and weekly advertising. Consolidation of store banners, which was implemented in the last half of fiscal 2001, should improve advertising synergies in many regions of the country.

Restructuring and Asset Impairment Charges. As a result of the March 2001 transition to our new Chief Executive Officer and a new management philosophy, the Company has been and continues to conduct an extensive review of all components of our business, including our previously announced strategic repositioning initiatives, as well as current marketing, purchasing, merchandising and new store programs. This comprehensive review is intended to aggressively reexamine all aspects of our business for opportunities to improve, strengthen, streamline and reposition our business operations. As a result of this review, the Company has and continues to make significant changes to our current business strategy and methods of operations with the goal of increasing comparable store sales, average transaction size and customer count. Initiatives implemented at 44 of our natural foods supermarket stores as part of our Fresh Look program include reductions in many items' everyday pricing, increases in frequency and distribution of advertising, modifications of staffing and remerchandising of selected stores. 

During the second quarter of fiscal 2001, the Company's management made certain decisions relating to the Company's operations which identified three stores to be closed or abandoned by the end of fiscal 2001, reduced the Company's regional offices and certain staff, changed estimates of prior restructuring and asset impairment charges, and resulted in a restructuring and asset impairment charge of $54.8 million. See "Notes to Consolidated Financials Statements - Note 12 - Restructuring and Asset Impairment Charges." 

After a comprehensive review of the Company's support facilities was completed by management during the third quarter of fiscal 2001, management determined that the operations of certain support facilities should be eliminated. As a result, in the third quarter of fiscal 2001, the Company recorded a restructuring and asset impairment charge of $776,000 resulting primarily from the closure of three support facilities: a bakery in Tucson, Arizona, and two commissary kitchens in Los Angeles, California and Santa Fe, New Mexico. 

During the fourth quarter of fiscal 2001, the Company's management made certain decisions relating to the Company's operations which identified three stores to be closed or abandoned by the second quarter of fiscal 2002, changed estimates of prior restructuring and asset impairment charges, and resulted in restructuring and asset impairment income of $704,000. See "Notes to Consolidated Financials Statements - Note 12 - Restructuring and Asset Impairment Charges." 

Critical Accounting Policies and Estimates. Our discussion and analysis of the Company's financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

On an ongoing basis, we evaluate the continued appropriateness of our accounting policies and resulting estimates, including those related to:

- -   asset impairment charges
- -   restructuring charges and store closing costs
- -   allowance for bad debt
- -   inventory valuation and reserves
- -   self-insurance reserves
- -   reserves for contingencies and litigation
- -   goodwill valuation

We believe the following critical accounting policies affect our most significant judgments and estimates used in the preparation of our consolidated financial statements. We monitor the carrying value of our long-lived assets, including goodwill and other intangible assets, for potential impairment at the store level. The triggering events for such evaluations include a significant decrease in the market value of an asset, acquisition and construction costs in excess of budget, or current period losses combined with a history of losses or a projection of continuing losses. The Company records an asset impairment charge when an impairment is identified. Future adverse changes in asset market values or store operating results could result in an inability to recover the carrying value of the assets, thereby requiring an asset impairment charge in the future. See "Notes to Consolidated Financial Statements - Note 12 - Restructuring and Asset Impairment Charges", for an additional discussion of our policies regarding the calculation of asset impairments.

The Company plans to complete store closures or sales within a one-year period following the commitment date. Costs related to store closures and sales are reflected in the income statement as "Restructuring and Asset Impairment Charges." For stores the Company intends to sell, the Company actively markets the stores to potential buyers. Stores held for disposal are reduced to their estimated net realizable value. For stores the Company intends to close, a lease-related liability is recorded for the present value of the estimated remaining noncancelable lease payments after the anticipated closing date, net of estimated subtenant income, or for estimated lease settlement costs. In addition, the Company records a liability for costs to be incurred after the store closing which are required under leases or local ordinances for site preservation during the period before lease termination. The value of equipment and leasehold improvements related to a closed store is reduced to reflect recoverable values based on the Company's previous efforts to dispose of similar assets and current economic conditions. Severance costs incurred in connection with store closings are recorded when the employees have been identified and notified of the termination benefits to be made to the employees. Lease-related liabilities and the recoverability of assets to be disposed of are reviewed quarterly, and changes in previous estimates are reflected in operations. Significant cash payments associated with closed stores relate to ongoing payments of rent, common area maintenance, insurance charges, and real property taxes as required under continuing lease obligations.

The Company maintains allowances for bad debt for estimated losses resulting from the inability of third parties to make required payments. If the financial condition of such third parties were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

The Company maintains allowances for excess or unsaleable inventory as a percentage of its gross inventory balance based on historical experience and assumptions about market conditions. If actual market conditions are less favorable than those projected by management, or if the Company expands its forward buying of inventory which will increase its inventory levels, then additional inventory write-downs may be required.

The Company is self-insured for certain losses relating to workers' compensation claims and employee medical and dental benefits. The Company has purchased stop-loss coverage to limit its exposure to any significant levels of claims. Self-insured losses are accrued based upon the Company's estimates of the aggregate insured claims incurred using certain actuarial assumptions followed in the insurance industry and the Company's historical experiences. If the Company experiences an increase in claims, if actuarial assumptions are inaccurate, or if insurance industry costs increase beyond current expectations, then additional reserves may be required.

The Company maintains reserves for contingencies and litigation based on management's best estimates of potential liability in the event of a judgment against the Company, and possible settlement costs, as well as existing facts and circumstances. Future adverse changes related to current contingencies and litigation could necessitate additional reserves in the future.


Results of Operations 

The net loss for fiscal 2001 was $43.9 million, or $1.80 per diluted share, compared with a net loss of $15.0 million, or $0.65 per diluted share, in fiscal 2000. In addition to the restructuring income of $700,000 recorded during the fourth quarter of fiscal 2001, as part of the Company's strategic repositioning activities during fiscal 2001, the Company recorded restructuring and asset impairment charges of approximately $55.0 million in the second and third quarters of fiscal 2001. Excluding these charges, the Company reported a pro forma net loss of $9.5 million, or $0.39 per diluted share, in fiscal 2001, compared with pro forma net income of $12.6 million, or $0.54 per diluted share, excluding $44.1 million in restructuring and asset impairment charges related to the sale and closure of underperforming stores and the discontinuation of e-commerce activities in fiscal 2000.

The following table sets forth for the periods indicated, certain selected income statement data expressed as a percentage of sales: 

FISCAL YEAR ENDED	2001	2000	1999
Sales	100.0%	100.0%	100.0%
Cost of goods sold and occupancy costs	71.1	69.4	69.3
Gross profit	28.9	30.6	30.7
Direct store expenses	23.8	22.8	21.6
Store contribution	5.1	7.8	9.1
Selling, general and administrative expenses	5.4	3.9	3.9
Pre-opening expenses	0.2	0.4	0.4
Restructuring and asset impairment charges	6.1	5.0	1.8
Income (loss) from operations	(6.6)	(1.5)	3.0
Loss on investment	0.0	0.3
Interest expense, net	1.1	1.0	0.6
Income (loss) before income taxes	(7.7)	(2.8)	2.4
Income tax expense (benefit)	(2.8)	(1.0)	0.7
Net income (loss) before cumulative effect of change in accounting principle	(4.9)	(1.8)	1.7
Cumulative effect of change in accounting principle, net of taxes			0.1
Net income (loss)	(4.9)% ======	(1.8)% ======	1.6 % ======

Fiscal 2001 Compared to Fiscal 2000

Sales. Sales for the fiscal year ended December 29, 2001, increased 6.6% to $893.2 million from $838.1 million in fiscal 2000. The increase was primarily due to the opening of four new stores in the first quarter of fiscal 2001, as well as the inclusion of the 16 stores opened or acquired in fiscal 2000, offset by three stores closed or sold in fiscal 2001 and 20 stores closed or sold in fiscal 2000. Higher comparable store sales from existing stores contributed slightly more than half of the fiscal 2001 sales increase, with new stores contributing the balance. Comparable store sales increased 4.0% for fiscal 2001, as compared to a 2.6% decrease for fiscal 2000. Some of the comparable store sales increases are attributable to the phased roll-out of a number of strategic initiatives as part of the Fresh Look program, which are projected to increase overall sales gradually in those regions in which the initiatives are implemented, through increased advertising, more frequent advertised specials and modified pricing.

Gross Profit. Gross profit for the fiscal year ended December 29, 2001, increased 0.9% to $258.5 million from $256.2 million in fiscal 2000. The smaller percentage increase in gross profit is due primarily to lower merchandise margins resulting from the implementation of pricing reductions as part of the Fresh Look program as well as a shift in the sales mix between store formats. As a percentage of sales, gross profit decreased to 28.9% in fiscal 2001 from 30.6% in fiscal 2000 due primarily to lower merchandise margins resulting from the implementation of the Fresh Look program, as well as a shift in the sales mix between store formats, increases in inventory reserves for slow-moving goods, lower margins on certain categories of products sold in the stores, higher utilities expenses and higher-than-expected coupon activity during the fourth quarter of fiscal 2001. As the Company expands the Fresh Look program to additional stores in fiscal 2002, gross profit in fiscal 2002 may be negatively affected by lower margins on certain items.

Direct Store Expenses. Direct store expenses for the fiscal year ended December 29, 2001, increased 11.3% to $212.6 million from $191.0 million in fiscal 2000. As a percentage of sales, direct store expenses increased to 23.8% in fiscal 2001 from 22.8% in fiscal 2000. The increases are primarily due to increased payroll associated with an increase in the number of stores in operation, enhanced customer service efforts as part of the Fresh Look program, additional benefit days due to a change in vacation policy in fiscal 2001, increased health and dental, workers' compensation, and general liability insurance costs related to general market conditions, and an increase in repairs and maintenance costs. We anticipate that we will see increases in fiscal 2002 and beyond in the area of employee-related insurance and general liability insurance costs. On an absolute basis, we expect direct store expenses to increase with the addition of new stores, but on a percentage-of-sales basis to be consistent with fiscal 2001.

Selling, General and Administrative Expenses. Selling, general and administrative expenses for the fiscal year ended December 29, 2001, increased 50.4% to $48.9 million from $32.5 million in fiscal 2000. The increases are attributable to consulting and professional fees resulting from the comprehensive review of our business and strategic position ($1.7 million), severance costs for former senior executives ($1.3 million), recruiting and relocation costs ($500,000), and expenses associated with the October 2001 amendment to our $125.0 million credit facility ($300,000), as well as increases in advertising and merchandising expenses related to the implementation of the Fresh Look program and expenses for expanded infrastructure at the Company's headquarters to support the new advertising, merchandising and pricing initiatives. As a percentage of sales, selling, general and administrative expenses increased to 5.4% in fiscal 2001 from 3.9% in fiscal 2000. As part of the Company's expanded strategic repositioning, we expect to spend additional funds on marketing at the national level, as well as increased corporate and regional support staffs. As a result of these increased expenditures, we expect that selling, general and administrative expenses will increase in fiscal 2002 over fiscal 2001 levels in both absolute and percentage terms. The increase is primarily due to increased marketing expense in conjunction with the continuing Fresh Look implementation, annualization of payroll expenses for staff additions in fiscal 2001, and increased employee-related insurance costs.

Pre-Opening Expenses. Pre-opening expenses for the fiscal year ended December 29, 2001, decreased 52.5% to $1.6 million from $3.3 million in fiscal 2000. As a percentage of sales, pre-opening expenses decreased to 0.2% in fiscal 2001 from 0.4% in fiscal 2000, due to the opening of four new stores in fiscal 2001 as compared to the opening of 14 new and relocated stores in fiscal 2000. As part of the Company's increase in marketing efforts relating to the Fresh Look program, we anticipate that pre-opening expenses for new natural foods supermarket stores will increase from an estimated $250,000 historically to an estimated $400,000 per new store, and those of the farmers market format will increase from $75,000 historically to an estimated $150,000 in the future.

Interest Expense, Net. Net interest expense for the fiscal year ended December 29, 2001, increased 6.7% to $9.4 million from $8.9 million in fiscal 2000, due to higher average borrowings in fiscal 2001 and higher swap-related interest rates on the term portion of the credit facility in fiscal 2001. As part of the amendment to the credit facility, the interest rate on the facility was amended to either prime plus 2.25% or one-month LIBOR plus 3.75%, at our election, and the rates increase by 0.5% starting January 1, 2002 and each six months thereafter through January 1, 2003 when the rate will remain constant through the end of the agreement in August 2003. Due to the current state of the U.S. economy, management believes that the variable interest rates will remain constant during the next six to 12 months. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources" below.

Restructuring and Asset Impairment Charges - Fiscal 2001. As a result of hiring a new chief executive officer just prior to the beginning of the second quarter of fiscal 2001, and a comprehensive review conducted by the new chief executive officer of our business and strategic repositioning efforts during the second quarter of fiscal 2001, we identified and committed to a restructuring plan during the second quarter of fiscal 2001 and recorded a restructuring and asset impairment charge of $54.8 million (such asset impairments were recorded in accordance with SFAS 121, Accounting for the Impairment of Long-lived Assets and for Assets to be Disposed of). Details of the significant components of the charge are as follows: 

- -   Change in estimate related to fixed asset impairments for previously identified sites held for disposal ($1.5 million) - During the second quarter of fiscal 2001, we determined that certain fixed assets were not compatible with a new store design. Due to the new store design, such assets could not be relocated as contemplated under the original restructuring plan. As a result, we determined we could not recover the previously estimated carrying value of these assets, and therefore recognized an impairment charge and disposed of the assets during the second quarter of fiscal 2001.

- -   Change in estimate related to lease-related liabilities for previously identified sites for closure ($15.9 million) - During the second quarter of fiscal 2001, we determined that additional periods of time were necessary to dispose of certain lease obligations. This determination was driven by our results of current disposition efforts, and is attributable to deteriorating real estate markets in certain regions, existing lease obligations at above-market rates, and unattractive site characteristics. The charge for exit costs assumes, based on our current results of disposition efforts, that we will be successful in disposing of these long-term lease obligations within the next five years. Facts and circumstances can change in the future with respect to the above attributes, affecting the ultimate resolution of these exit costs. We will make appropriate adjustments to the restructuring liabilities contemporaneous with any change in facts and circumstances.

- -   Fixed asset impairments for three additional stores identified in the second quarter of fiscal 2001 to be abandoned, closed, or sold by the end of fiscal 2001 ($1.8 million) - During the second quarter of fiscal 2001, we became involved in litigation filed by the landlord of a site under construction. We decided not to proceed with the opening of the store and consequently abandoned the site and the related fixed assets (leasehold improvements) totaling $1.5 million during the second quarter of fiscal 2001. Additionally, the fixed assets of two other stores that were scheduled to be closed by the end of fiscal 2001 comprised the remaining $300,000 of the charge. 

- -   Fixed asset impairments for subleased properties identified during the second quarter of fiscal 2001 ($1.7 million) - These asset impairments relate to leasehold improvements made by the Company in subleased properties for specific subtenants. During the second quarter of fiscal 2001, certain subtenants either vacated the improved properties without prior notice or gave notice to us that they planned to vacate the properties shortly, and certain other subtenants were in financial distress and in one case, had filed for bankruptcy protection. We determined that we could not recover the carrying value of these build-to-suit leasehold improvements and therefore recognized an impairment charge. Certain of these assets were disposed of during the second quarter of fiscal 2001 and the remainder were disposed of by the end of fiscal 2001. 

- -   Lease-related liabilities for subleased properties identified during the second quarter of fiscal 2001 ($10.0 million) - During the second quarter of fiscal 2001, certain subtenants either vacated the improved properties without prior notice or gave notice to us that they planned to vacate the properties shortly. We also were informed in the second quarter that certain other subtenants were in financial distress and in one case, had filed for bankruptcy protection. The lease-related liabilities represent our estimate to dispose of these lease obligations based on current disposition efforts, and is attributable to deteriorating real estate markets in certain regions, existing lease obligations at above-market rates, and unattractive site characteristics. The charge for exit costs assumes, based on our current results of disposition efforts, that the Company will be successful in disposing of these long-term lease obligations within the next five years. Facts and circumstances can change in the future with respect to the above attributes affecting the ultimate resolution of these exit costs. We will make appropriate adjustments to the restructuring liabilities contemporaneous with the change in facts and circumstances.

- -   Fixed asset impairments for regional and departmental office closures and consolidations during the second quarter of fiscal 2001 ($3.0 million) - As part of our reorganization during the second quarter of fiscal 2001, we reduced our regional offices from 11 to five offices, and eliminated much of our construction department. In conjunction with these modifications to regional and departmental structures, we determined that we could not recover the carrying value of the fixed assets used by certain regional and departmental offices and our construction department, and therefore recognized an impairment charge and disposed of the assets during the second quarter of fiscal 2001. 

- -   Fixed asset impairments for store construction project discontinuation ($2.3 million) - During the second quarter of fiscal 2001, we determined that a new store design was required, and construction of new stores and expansion and remodel activities at existing stores based on the previously developed designs would be abandoned to incorporate the new store design changes. Assets in this charge included abandoned construction in progress (primarily leasehold improvements). We determined that we could not recover the carrying value of these fixed assets, and therefore recognized an impairment charge and disposed of the assets during the second quarter of fiscal 2001. 

- -   Severance for employees terminated during the second quarter of fiscal 2001 ($2.5 million) - During the second quarter of fiscal 2001, 104 of our 9,000 employees were terminated as part of the Company's restructuring plan. The terminated employee groups were regional store support, construction and new store development, and corporate office personnel. As of December 29, 2001, $2.4 million of involuntary termination benefits had been paid to terminated employees; the remaining benefits of $136,000 will be paid during the first half of fiscal 2002.

In addition to the restructuring charges described above, in the second quarter of fiscal 2001 management also identified asset impairment charges of $15.9 million in accordance with the provisions of SFAS 121 related to five stores held for use. These assets became impaired in the second quarter of fiscal 2001 because the projected future cash flows of each store at that time were not sufficient to fully recover the carrying value of the stores' long-lived assets. In determining whether an impairment exists, we estimate the store's future cash flows on an undiscounted basis, and if the cash flows are not sufficient to recover the carrying value, then the Company uses a discounted cash flow based on a risk-adjusted discount rate to adjust its carrying value of the assets, and records a provision for impairment as appropriate. We believe the weak performance from the stores included in the asset impairment charge were caused by significant budget overruns in construction (one store), poor site location (two stores) or insufficient advertising in new regional markets (two stores). We continually reevaluate our stores' performance to monitor the carrying value of long-lived assets in comparison to projected cash flows. Elements that could contribute to impairment of long-lived assets include new competition, overruns in construction costs, or poor operating results caused by a variety of factors, including improper site selection, insufficient advertising, or changes in local, regional or national economies. We are currently reevaluating the store format and construction procedures to reduce the likelihood of construction cost overruns, and have increased our projected pre-opening costs per new store to increase the level of new store advertising. Site selection criteria are also being reevaluated in light of the results of the Company's comprehensive review of all operations and ideal customer demographics. There is no assurance that in the future, additional long-lived assets will not be impaired.

After a comprehensive review of our support facilities was completed by management during the third quarter of fiscal 2001, we determined that the operations of certain support facilities should be eliminated. As a result, in the third quarter of fiscal 2001, we recorded a restructuring and asset impairment charge of $776,000 resulting primarily from the closure of three support facilities: a bakery in Tucson, Arizona, and two commissary kitchens in Los Angeles, California and Santa Fe, New Mexico. 

During the fourth quarter of fiscal 2001, we recorded restructuring income of $5.7 million consisting of the following components: 

- -   Change in estimate related to lease-related liabilities for sites previously identified for closure or sale that were closed, sold or disposed of during the fourth quarter of fiscal 2001 and the first quarter of fiscal 2002 ($10.1 million of restructuring income) - During the fourth quarter of fiscal 2001, we sold two stores in San Anselmo and Sacramento, California, in related transactions; we subsequently sold two additional stores in Berkeley and Sunnyvale, California, to the same purchaser of the other northern California stores. In conjunction with these transactions, the purchaser assumed the lease-related obligations associated with these stores. Based on this change in facts and circumstances, we reversed the remaining lease-related liabilities previously recorded for these stores and therefore recognized restructuring income of $3.7 million during the fourth quarter of fiscal 2001. During the fourth quarter of fiscal 2001 and the first quarter of fiscal 2002, we also assigned to a third party or terminated lease obligations for sites in Madison, New Jersey and Boca Raton, Florida, respectively; based on this change in facts and circumstances, we reversed the remaining lease-related liabilities previously recorded for these stores and therefore recognized restructuring income of $6.4 million during the fourth quarter of fiscal 2001.

- -   Change in estimate related to fixed asset impairments for four stores previously identified for closure or sale ($1.6 million of restructuring income) - Due to changes in facts and circumstances during the fourth quarter of fiscal 2001, we determined that four stores previously identified as sites held for disposal would continue to operate in their existing locations. Three of the stores were expected to be closed in conjunction with the Company's opening of new stores in the respective trade areas; however, during the fourth quarter of fiscal 2001, the Company decided to abandon the new store sites and continue to operate the existing stores. With regard to the fourth store, management decided in the fourth quarter of fiscal 2001 to continue to operate the store in its existing location after completing a competitive analysis of the market area and a reevaluation of the operations of the store in the fourth quarter of fiscal 2001, which showed that the store was achieving acceptable performance levels and demonstrating positive performance trends following the implementation of the Fresh Look program late in the third quarter of fiscal 2001. As a result, we reversed the restructuring charge previously recorded for the fixed asset impairments related to these four stores and therefore recognized restructuring income of $1.6 million during the fourth quarter of fiscal 2001.

- -   Change in estimate related to lease-related liabilities for four stores previously identified for closure or sale ($1.1 million of restructuring income) - Due to changes in facts and circumstances during the fourth quarter of fiscal 2001, we determined that four stores previously identified as sites held for disposal would continue to operate in their existing locations. Three of the stores were expected to be closed in conjunction with the Company's opening of new stores in the respective trade areas; however, during the fourth quarter of fiscal 2001, the Company decided to abandon the new store sites and continue to operate the existing stores. With regard to the fourth store, management decided in the fourth quarter of fiscal 2001 to continue to operate the store in its existing location after completing a competitive analysis of the market area and a reevaluation of the operations of the store in the fourth quarter of fiscal 2001, which showed that the store was achieving acceptable performance levels and demonstrating positive performance trends following the implementation of the Fresh Look program late in the third quarter of fiscal 2001. As a result, we reversed the restructuring charge previously recorded for the long-term lease obligations related to these four stores and therefore recognized restructuring income of $1.1 million during the fourth quarter of fiscal 2001.

- -   Fixed asset impairments for three additional stores and one support facility identified in the fourth quarter of fiscal 2001 to be closed or sold by the second quarter of fiscal 2002 ($3.3 million of restructuring expense) - During the fourth quarter of fiscal 2001, we decided to close two stores in fiscal 2002 following the negotiation of a lease obligation settlement for one store in the fourth quarter of fiscal 2001 and the completion of an operations analysis for the other store, which showed that the intensive Fresh Look marketing and merchandising efforts initiated at the store early in the fourth quarter of 2001 were not improving the store's sales and profit trends. We also decided to close one support facility in the second quarter of fiscal 2002 after deciding in the fourth quarter of fiscal 2001 to outsource the operations of the support facility to an identified external food service supplier. We determined that we could not recover the carrying value of the fixed assets at these locations and therefore recognized an impairment charge. Certain of these assets were disposed of during the first quarter of fiscal 2002, and the remainder will be disposed of by the end of the second quarter of fiscal 2002. 

During the fourth quarter of fiscal 2001, we also decided to abandon construction of a new store in Kansas City, Missouri, due to location and parking-related issues. Assets in this charge included abandoned construction in progress (primarily leasehold improvements). We determined that we could not recover the carrying value of these fixed assets and therefore recognized an impairment charge and disposed of the assets during the fourth quarter of fiscal 2001.

- -   Lease-related liabilities for three additional stores and one support facility identified during the fourth quarter of fiscal 2001 to be closed or sold by the second quarter of fiscal 2002 ($3.6 million of restructuring expense) - During the fourth quarter of fiscal 2001, we decided to close two stores in fiscal 2002 following the negotiation of a lease obligation settlement for one store in the fourth quarter of fiscal 2001 and the completion of an operations analysis for the other store, which showed that the intensive Fresh Look marketing and merchandising efforts initiated at the store early in the fourth quarter of 2001 were not improving the store's sales and profit trends. We also decided to close one support facility in the second quarter of fiscal 2002 after determining in the fourth quarter of fiscal 2001 to outsource the operations of the support facility to an identified external food service supplier. The lease-related liabilities for these locations represent our estimate to dispose of these lease obligations based on current disposition efforts, and is attributable to deteriorating real estate markets in certain regions, existing lease obligations at above-market rates, and unattractive site characteristics. The charge for exit costs assumes, based on our current results of disposition efforts, that the Company will be successful in disposing of these long-term lease obligations within the next five years. Facts and circumstances can change in the future with respect to the above attributes affecting the ultimate resolution of these exit costs. We will make appropriate adjustments to the restructuring liabilities contemporaneous with the change in facts and circumstances.

During the fourth quarter of fiscal 2001, we also decided to abandon construction of a new store in Kansas City, Missouri due to location and parking-related issues. We subsequently terminated the lease obligation for a commitment to pay up to $155,000.

- -   Severance for employees terminated during the fourth quarter of fiscal 2001 ($0.2 million) - During the fourth quarter of fiscal 2001, 33 employees were terminated in conjunction with the closure of four support facilities. The employees were notified of their involuntary termination during the fourth quarter of fiscal 2001. As of December 29, 2001, $98,000 of involuntary termination benefits had been paid to terminated employees; the remaining benefits of $57,000 will be paid during the first half of fiscal 2002.


In addition to the restructuring charges described above, in the fourth quarter of fiscal 2001 management also identified asset impairment charges of $5.0 million in accordance with the provisions of SFAS 121 related to four stores held for use. These assets became impaired in the fourth quarter of fiscal 2001 because the projected future cash flows of each store at that time were not sufficient to fully recover the carrying value of the stores' long-lived assets. In determining whether an impairment exists, we estimate the store's future cash flows on an undiscounted basis, and if the cash flows are not sufficient to recover carrying value, then the Company uses a discounted cash flow based on a risk-adjusted discount rate, to adjust its carrying value of the assets and records a provision for impairment as appropriate. We believe the weak performance from the stores included in the asset impairment charge were caused by poor site location (two stores) or insufficient advertising in new regional markets (two stores). We continually reevaluate our stores' performance to monitor the carrying value of long-lived assets in comparison to projected cash flows. Elements that could contribute to impairment of long-lived assets include new competition, overruns in construction costs, or poor operating results caused by a variety of factors, including improper site selection, insufficient advertising, or changes in local, regional or national economies. We are currently reevaluating the store format and construction procedures to reduce the likelihood of construction cost overruns, and have increased our projected pre-opening costs per new store to increase the level of new store advertising. Site selection criteria are also being reevaluated in light of the results of the Company's comprehensive review of all operations and ideal customer demographics. There is no assurance that in the future, additional long-lived assets will not be impaired.

During fiscal 2001 and through the date of this report, the Company terminated lease obligations for store sites in West Palm Beach, Florida and Kansas City, Missouri and closed a store in Boca Raton, Florida as part of the fiscal 2001 restructuring plans. With regard to the current status of the six stores identified for closure or sale as part of the Company's fiscal 2001 restructuring plans, as of March 1, 2002, three of the stores have been closed or sold; one remains to be closed or sold in the second quarter of fiscal 2002. The remaining two stores have been removed from the list of closures or sales due to changes in estimates based on changes in facts and circumstances during the fourth quarter of fiscal 2001.

Restructuring and Asset Impairment Charges - Fiscal 2000. During the second quarter of fiscal 2000, we made certain decisions relating to the strategic repositioning of the Company's operations which resulted in a restructuring and asset impairment charge of $20.6 million. These decisions included the closure of three natural foods stores during the second quarter of fiscal 2000 ($4.7 million); the planned sale or closure of seven stores during the remainder of fiscal 2000 ($9.9 million); exit costs of previously closed or abandoned sites ($5.6 million); and the discontinuance of e-commerce activities ($400,000). The $5.6 million charge related to changes in estimates for previously closed or abandoned sites. The significant components of the $5.6 million charge were (a) $3.6 million of additional lease-related liabilities, and (b) $2.0 million of fixed asset impairments for 15 previously closed stores. Components of the restructuring and asset impairment charge consist of impairment of fixed ($8.9 million) and intangible assets ($6.4 million); and non-cancelable lease obligations and liabilities ($5.3 million). Substantially all of the restructuring charges are non-cash expenses. 
During the fourth quarter of fiscal 2000, we expanded the strategic repositioning and, as a part of such expansion, decided to close or sell 12 underperforming stores. This decision resulted in an additional restructuring and asset impairment charge of $21.4 million. This restructuring charge consists primarily of costs associated with the abandonment of fixed ($13.6 million) and intangible assets ($1.7 million) and non-cancelable lease obligations and lease-related liabilities ($6.1 million). Substantially all of the restructuring charges are non-cash expenses. See "Notes to Consolidated Financial Statements - Note 12 - Restructuring and Asset Impairment Charges."

During fiscal 2001 and through the date of this report, two of the identified natural foods stores were closed in Denver, Colorado and Chesterfield, Missouri as part of the fiscal 2000 restructuring plans and five of the identified stores were sold. With regard to the current status of the 22 stores identified for closure or sale as part of the Company's fiscal 2000 restructuring plans, as of March 1, 2002, 20 of the stores have been closed or sold. The remaining two stores have been removed from the list of closures or sales due to changes in estimates based on changes in facts and circumstances during the fourth quarter of fiscal 2001. 

As part of the strategic repositioning announced by the Company in the second and fourth quarters of fiscal 2000, the Company identified 22 natural foods stores for closure or sale due to weak performance. In fiscal 2000, we closed 10 and sold three of those identified stores. In the second quarter of fiscal 2001, as part of additional evaluation of the Company's operations by new management, we identified an additional three stores for closure in fiscal 2001; in the fourth quarter of fiscal 2001, we extended our evaluation and identified an additional three stores for closure in fiscal 2001 and 2002. In fiscal 2001 and through the date of this report, the Company closed three of the identified stores, terminated its lease-related obligations as to two of the identified locations and sold five of the identified stores, four in related transactions. One store remains to be closed or sold in fiscal 2002. The Company also closed two small vitamin stores in the second and third quarters of fiscal 2000. Due to a change in estimates related to changes in facts and circumstances during the fourth quarter of fiscal 2001, we decided to continue to operate four stores previously identified for closure or sale. 

A summary of restructuring activity by store count is as follows:

	RESTRUCTURING STORE COUNT
	Fiscal Year Ending		Period Ending
			March 1,
	2000	2001	2002
Stores remaining at commencement of period		9	6
Stores identified in fiscal 2000 for closure or sale	22
Stores identified in fiscal 2001 for closure or sale		6
Identified stores closed or abandoned	(10)	(3)	(2)
Identified stores sold	(3)	(2)	(3)
Reversal of stores identified for closure or sale		(4)
Identified stores remaining at period end	9  ==	6  ==	1  ==

Restructuring Accruals. The material changes in the liability balances of each significant type of exit cost included in the restructuring charges in the second and fourth quarters of fiscal 2000 were related to changes in estimates for lease defeasance costs and for the net realizable value of fixed assets. The changes in estimates during the second quarter of fiscal 2001 for lease defeasance costs in the restructuring charges during the second and fourth quarters of fiscal 2000 resulted from the economic downturn during fiscal 2001, which has made it more difficult to find sublease tenants and settle lease terminations with landlords (particularly in the case of leases with above-market rents). In the second quarter of fiscal 2001, we received updated estimates from various external sources (i.e., landlords and real estate brokers) of the costs to exit certain lease obligations. Due to the economic downturn that worsened during the second quarter of fiscal 2001, we revised our estimates of the costs associated with subleasing properties or settling lease terminations with landlords. Due to changes in facts and circumstances during the fourth quarter of fiscal 2001, we determined that four stores previously identified as sites held for disposal would continue to operate in their existing locations. Three of the stores were expected to be closed in conjunction with the Company's opening of new stores in the respective trade areas; however, during the fourth quarter of fiscal 2001, the Company decided to abandon the new store sites and continue to operate the existing stores. With regard to the fourth store, management decided in the fourth quarter of fiscal 2001 to continue to operate the store in its existing location after completing a competitive analysis of the market area and a reevaluation of the operations of the store in the fourth quarter of fiscal 2001, which showed that the store was achieving acceptable performance levels and demonstrating positive performance trends following the implementation of the Fresh Look program late in the third quarter of fiscal 2001. As a result, we reversed the restructuring accruals previously recorded for the long-term lease obligations related to these four stores.

The material cash outlays associated with the Company's exit plans are primarily for lease-related obligations. As of December 29, 2001, the components of the accruals related to the Company's restructuring activities are accrued liabilities ($6.6 million) and other long-term obligations ($16.4 million). Employee severance benefits are another cash outlay that will be paid out during the next five months. As of December 29, 2001, $2.4 million of the $2.5 million of involuntary termination benefits accrued during the second quarter of fiscal 2001 had been paid to terminated employees. The employee severance benefits relate to the termination of employment of 104 of our 9,000 employees.

Income Tax Benefit. For the fiscal year ended December 29, 2001, we recorded a $25.2 million income tax benefit, primarily as a result of the loss before taxes of $69.1 million during the period. The recoverability of the net deferred tax asset is primarily dependent upon the Company generating sufficient taxable income in the future. Although realization of the net deferred tax asset is not assured, we believe it is more likely than not that the Company will generate sufficient taxable income in the future to realize the full amount of the deferred tax asset. Our assessment is based on projections that assume that the Company can maintain its current store contribution margin. Furthermore, we expect to maintain the sales growth experienced over the past five years that would generate additional taxable income. The primary uncertainty related to the realization of the deferred tax asset is the Company's ability to achieve its four-year business plan and generate future taxable income to realize the full amount of the deferred tax asset. We believe that the sales, gross margin, store contribution margin, and selling, general and administrative expenses assumptions in our four-year business plan are reasonable and, more likely than not, attainable. We will continue to assess the recoverability of the net deferred tax asset and to the extent it is determined in the future that a valuation allowance is required, it will be recognized as a charge to earnings at that time.


Fiscal 2000 Compared to Fiscal 1999

Fiscal 2000 and fiscal 1999 each contained 52 weeks of operations.

Sales. Sales for the fiscal year ended December 30, 2000, increased 16.2% to $838.1 million from $721.1 million in fiscal 1999. The increase was primarily due to the acquisition of two stores, the opening of 11 new stores, and the relocation of three stores, as well as the inclusion of a full year of sales for the eight new stores opened, five stores relocated, and 17 stores acquired in fiscal 1999. Comparable store sales decreased 2.6% for fiscal 2000, as compared to a 6% increase for fiscal 1999.

Gross Profit. Gross profit for the fiscal year ended December 30, 2000, increased 15.7% to $256.2 million from $221.5 million in fiscal 1999. The increase in gross profit is primarily attributable to the acquisition of two stores, the opening of 11 new stores and the relocation of three stores. As a percentage of sales, gross profit decreased to 30.6% in fiscal 2000 from 30.7% in fiscal 1999 due primarily to acquisition integration difficulties in Oregon, Massachusetts and Texas.

Direct Store Expenses. Direct store expenses for the fiscal year ended December 30, 2000, increased 22.5% to $191.0 million from $155.9 million in fiscal 1999. The increase in direct store expenses is attributable to the increase in the number of stores operated by the Company. As a percentage of sales, direct store expenses increased to 22.8% in fiscal 2000 from 21.6% in fiscal 1999 due to the increased number of acquired and newly-opened stores in late fiscal 1999, acquisition integration difficulties and significant investments that the Company has made in employee benefit programs, particularly expanded health insurance offerings.

Selling, General and Administrative Expenses. Selling, general and administrative expenses for the fiscal year ended December 30, 2000, increased 16.3% to $32.5 million from $27.9 million in fiscal 1999. The increase is primarily attributable to additions in the corporate and regional staff necessary to support the Company's accelerated growth in fiscal 1999. As a percentage of sales, selling, general and administrative expenses remained constant at 3.9% in fiscal 2000 from fiscal 1999. As part of the Company's expanded strategic repositioning, we expect to spend additional funds on marketing at the national level, as well as increased corporate and regional support staffs. As a result of these increased expenditures, we expect that selling, general and administrative expenses will increase in fiscal 2001.

Pre-Opening Expenses. In April 1998, the AICPA issued Statement of Position 98-5, Accounting for the Costs of Start-Up Activities, which required that preopening expenses be expensed as incurred. We adopted the policy in fiscal 1999. Pre-opening expenses for the fiscal year ended December 30, 2000, increased 18.9% to $3.3 million from $2.8 million in fiscal 1999. The increase in pre-opening expenses is attributable to the increase in the number of stores opened. As a percentage of sales, pre-opening expenses remained constant at 0.4% due to the opening of 14 new stores (including three relocations) in fiscal 2000 as compared to 13 new stores (including five relocations) in fiscal 1999.

Restructuring and Asset Impairment Charges. Restructuring and asset impairment charges for fiscal 2000 were $42.0 million as compared to $12.6 million in fiscal 1999. The expenses for fiscal 2000 consisted of two separate strategic repositioning efforts. During the second quarter of fiscal 2000, the Company's management made certain decisions relating to the strategic repositioning of the Company's operations which resulted in a restructuring and asset impairment charge of $20.6 million. These decisions included the closure of three natural food stores during the second quarter of fiscal 2000 ($4.7 million); the planned sale or closure of seven stores during the remainder of fiscal 2000 ($9.9 million); exit costs of previously closed or abandoned sites ($5.6 million); and the discontinuation of e-commerce activities ($400,000). The $5.6 million charge related to changes in estimates for previously closed or abandoned sites. The significant components of the $5.6 million charge were (a) $3.6 million of additional lease-related liabilities, and (b) $2.0 million of fixed asset impairments for 15 previously closed stores. Components of the restructuring and asset impairment charge consist primarily of abandonment of fixed ($8.9 million) and intangible assets ($6.4 million); and noncancelable lease obligations and lease-related liabilities ($5.3 million). Substantially all of the restructuring charges are non-cash expenses.

During the fourth quarter of fiscal 2000, the Company expanded its strategic repositioning and, as a part of such expansion, decided to close or sell 12 under-performing stores. This decision resulted in an additional restructuring charge of $21.4 million. This restructuring charge consists primarily of costs associated with the abandonment of fixed ($13.6 million) and intangible assets ($1.7 million) and noncancelable lease obligations and lease-related liabilities ($6.1 million). Substantially all of the restructuring charges are non-cash expenses. See "Notes to Consolidated Financial Statements - Note 12 - Restructuring and Asset Impairment Charges". 

Loss on Investment. In the second quarter of fiscal 2000, the Company recorded a loss on investment of $2.1 million related to the reduction in value of the Company's investment in an e-commerce nutritional company. 

Interest Expense, Net. Net interest expense for the fiscal year ended December 30, 2000, increased to $8.9 million, from $4.3 million in fiscal 1999. As a percentage of sales, net interest expense increased to 1.0% from 0.6% in fiscal 1999. The increase is primarily attributable to increased borrowings on our line of credit to fund acquisitions, new stores, relocations and remodels. Interest expense may increase in the future as a result of increased borrowing and/or an expected increase in the interest rate under our credit facility. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources" below.


Liquidity and Capital Resources 

Our primary sources of capital have been cash flow from operations (which includes trade payables), bank indebtedness, and the sale of equity securities. Primary uses of cash have been the financing of new store development, new store openings, relocations, remodels and acquisitions and repayment of debt.

Net cash provided by operating activities was $25.7 million during fiscal 2001 as compared to $41.0 million during fiscal 2000. Cash from operating activities decreased during this period primarily due to a pre-tax loss, offset by changes in working capital items and restructuring and asset impairment charges. We have not required significant external financing to support inventory requirements at our existing and new stores because we have been able to rely on vendor financing for most of the inventory costs, and we anticipate that vendor financing will continue to be available for new store openings.

Net cash used in investing activities was $19.9 million during fiscal 2001 as compared to $72.8 million during fiscal 2000. The decrease is due to a reduction in capital expenditures and acquisitions.

Net cash provided by financing activities was $1.0 million during fiscal 2001 as compared to $22.3 million during fiscal 2000. The decrease reflects lower incremental borrowings under our revolving line of credit.

We have a net deferred tax asset of $24.4 million on our balance sheet, primarily as a result of the $54.9 million of restructuring and asset impairment charges recorded during fiscal 2001. The net deferred tax asset will reduce cash required for payment of federal and state income taxes, as we believe we will generate sufficient taxable income for realization of the asset in the future.

The following is a summary of our lease and debt obligations, construction commitments and outstanding letters of credit as of December 29, 2001:


SUMMARY OF OBLIGATIONS AND COMMERCIAL COMMITMENTS
(in thousands)

	PAYMENTS DUE BY PERIOD
		Less than			After
	Total	1 Year	2-3 Years	4-5 Years	5 Years
Contractual Obligations:
Long-term debt	$ 124,259	$ 12,000	$ 112,259	$      ---	$       ---
Capital lease obligations	370	338	18	14	---
Operating leases	401,006	31,855	60,560	54,080	254,511
Construction commitments	1,341	1,341	---	---	---
Total contractual cash obligations	$ 526,976 =======	$ 45,534 =======	$ 172,837 =======	$ 54,094 =======	$ 254,511 =======

	AMOUNT OF COMMITMENT EXPIRATION PER PERIOD
		Less than			After
	Total	1 Year	2-3 Years	4-5 Years	5 Years
Other Commercial Commitments:
Letters of credit	$ 1,307	$ 1,307	$       ---	$       ---	$       ---
Total commercial commitments	$ 1,307 =====	$ 1,307 =====	$       --- =====	$       --- =====	$       --- =====

Amendment to Credit Facility. Our current credit facility has two separate lines of credit, a revolving line and a term loan facility, each with a three-year term expiring August 1, 2003. As of December 29, 2001, there were $83.5 million in borrowings outstanding under the revolving line and $38.8 million in borrowings outstanding under the term loan. The credit agreement includes certain financial and other covenants, as well as restrictions on payments of dividends. As of December 30, 2000, we were in violation of two financial covenants, and the lending group issued a notice of default, although it did not accelerate our repayment obligations. The defaults were waived as part of the execution of an amendment to the credit facility on October 17, 2001. The amendment entered into with our lenders includes an initial increase in our interest rate, with additional increases each six months through January 2003, increases in agency fees, and quarterly and yearly aggregate limits on the execution of new leases, opening of new stores and new store capital expenditures, as well as modification of other previously existing financial covenants. Our borrowings under the amended credit facility have been limited to $125.0 million. As part of the amendment, we have granted a security interest to our lenders in all of our cash, equipment and fixtures, inventory and other assets, other than the proceeds of any equity offering that may be concluded by us. We also have an obligation to obtain leasehold mortgages on all new leases executed after the date of the amendment, and to maintain, from February 1, 2002 through the maturity date of the credit facility, leasehold mortgages on existing leases for stores generating at least 44% of the total sales revenues of the Company. Following the execution of the amendment, we requested and received a waiver of performance under the September 2001 stockholders' equity covenant, and a modification of the performance requirements under the stockholders' equity covenants for October and November 2001, and executed amendments to the credit agreement reflecting such modifications in November and December 2001. We believe that cash generated from operations and available under our credit facility will be sufficient to meet our capital expenditure requirements in fiscal 2002. If we are successful in concluding an equity offering of at least $30.0 million in net proceeds, the number of new leases that we will be permitted to sign and the number of new stores we will be permitted to open under our credit facility will be proportionately increased, based upon the format of the stores proposed to be opened (natural foods supermarket stores are more expensive to build and open and therefore, under the credit agreement, fewer may be opened from equity proceeds). As a result, the Company's sales growth rate could accelerate as a portion of any equity financing proceeds are used to fund the construction of additional stores not currently planned.

The Company's credit agreement contains certain monthly and quarterly financial covenants, which become more restrictive during fiscal 2002 and 2003. The Company anticipates that it will continue to comply in fiscal 2002 and 2003 with the monthly and quarterly financial covenants in the credit agreement. Management's current business plans for the Company anticipate significant improvement in financial position attributable to increases in revenues due to comparable store sales increases, improved working capital management, reduced capital spending, successful implementation of ongoing cost savings initiatives, and improved operating efficiencies. In the event that business conditions worsen, management has identified contingency actions to enable the Company to remain in compliance with the financial covenants. Such actions, including reductions in operating expenses together with lower capital spending, may result in fewer new store openings in fiscal 2003, which may negatively impact revenues. The Company currently expects to meet the amended credit agreement covenants throughout fiscal 2002 and 2003; however, if business conditions are other than as anticipated or other unseen events occur and the Company's planned contingency actions are unsuccessful in countering such events, these may impact the Company's ability to remain in compliance. Even if the Company remains in compliance with its monetary covenants, a technical default could result due to a breach of the financial covenants. In the absence of a waiver or amendment to such financial covenants, such non-compliance would constitute a default under the credit agreement, and the lenders would be entitled to accelerate the maturity of the indebtedness outstanding thereunder. In the event that such non-compliance appears likely, or occurs, the Company will seek approval, as it has in the past, from the lenders to renegotiate financial covenants and/or obtain waivers, as required. However, there can be no assurance that future amendments or waivers will be obtained.

The Company is proposing to raise approximately $30.0 million to $50.0 million in a private placement of the Company's equity to provide additional liquidity, although such equity financing is not a requirement of the amended credit facility. A number of parties have conducted, and several parties are currently conducting, due diligence on the Company related to the proposed private placement. We have received several offers for investment in the Company. Based on the Company's overall improvement in operational results, and indications that other financing vehicles with a greater return and lower dilutive effects to the Company may be available, the Company is currently evaluating other financing alternatives.

The Company provided projections through fiscal 2005 of the Company's operational results to the potential investors conducting due diligence in connection with the private placement. The projections were based on an assumed infusion of $50.0 million in net common equity financing proceeds received in the first half of 2002, combined with internally generated cash to accelerate new store openings. Based on such assumptions, the Company projected the following:

-    New store openings in 2002 would number four or five with most of the openings occurring in the second half of the year. In fiscal 2003, additional new stores would number 10. The number of new stores added would double to 20 in fiscal 2004 and would approximate 25 in fiscal 2005.

-    The compound annual growth rate in comparable store sales results were projected, based on 2001 actual comparable store sales results, to increase 6% to 7.5% company-wide. Company-wide net sales were projected to increase on a compound annual rate of 14% to 17%, based on 2001 actual net sales.

-    Net earnings were projected to turn positive in fiscal 2002 and achieve at least a 2% after-tax return on sales by 2005. Earnings before interest, taxes and depreciation/amortization (EBITDA) were projected to average a compound annual growth rate of 45% to 55% from fiscal 2001 to 2005 with growth in any one year not falling below 25%.

The projections provided to potential investors, including but not limited to the net income and EBITDA projections, are subject to uncertainties, including but not limited to the following: whether the Company will complete an equity financing and, if completed, the timing of net proceeds and terms of such equity financing; the ability to locate suitable sites for new stores and successfully negotiate acceptable lease terms; the ability to open the projected number of stores; the success of the Fresh Look program in existing stores and our ability to successfully implement the Fresh Look program in additional Wild Oats stores; the ability to control and increase gross margins on products sold in our stores; the ability to successfully negotiate a new distribution agreement with a primary distributor on terms more favorable to the Company; continued sales growth in excess of the increases in sales realized in fiscal 2001; increases in the average transaction size per customer in all stores; receipt of vendor financial support for certain advertising initiatives; and our ability to leverage direct store and selling, general and administrative expenses as well as renegotiate our current credit facility, or enter into a new credit agreement with a new lending group at more favorable terms than those in our current agreement. There is no assurance that any of the foregoing can be achieved or that the projections will be met.

We maintain an interest rate risk-management strategy, which is required by our amended credit facility terms, that uses derivative instruments to minimize significant, unanticipated earnings fluctuations that may arise from volatility in interest rates. The Company's specific goals are to (1) manage interest rate sensitivity by modifying the repricing or maturity characteristics of some of its debt and (2) lower (where possible) the cost of its borrowed funds. In accordance with the Company's interest rate risk-management strategy, and in accordance with the requirements of our credit facility, the Company has entered into a swap agreement to hedge the interest rate on $42.5 million of its borrowings. The swap agreement locks in a one-month LIBOR rate of 6.6% and expires in August 2003. 

Capital Expenditures. We spent approximately $20.1 million during fiscal 2001 for new store construction, development, remodels and other capital expenditures, exclusive of acquisitions. Capital expenditures originally planned for certain of the stores rescheduled to open in fiscal 2002 were incurred commencing in the fourth quarter of fiscal 2001. The aggregate amount to construct all five originally scheduled stores was originally estimated at $15.0 million to $20.0 million, but may be revised downward as part of our comprehensive review of the business operations and strategic plan. Our average capital expenditures to open a leased store, including leasehold improvements, equipment and fixtures, have ranged from approximately $2.0 million to $5.0 million historically, excluding inventory costs and initial operating losses. As part of our reexamination of our operating strategies, we anticipate that the average capital expenditures to open a natural foods supermarket format store will be $2.5 million to $4.0 million in the future, partly because of our decision to reduce the size or simplify the format of our food service department in new stores, as well as our decision not to increase store size in the majority of geographic areas. Our average capital expenditures to open a farmers market format store are estimated at $1.5 million to $2.0 million in the future. Delays in opening new stores may result in increased capital expenditures and increased pre-opening costs for the site, as well as lower than planned sales for the Company. Under our amended credit facility, we are limited in our capital expenditures to $3.6 million in the first quarter of fiscal 2002, increasing to an aggregate $4.7 million in the second quarter and an aggregate $5.0 million in the third quarter. Proceeds from any equity offering in excess of $30.0 million may be used to increase our total allowable level of capital expenditures by $4.0 million per natural foods supermarket format store and $2.25 million per farmers market format store. If we are successful in raising the additional equity financing, we plan to use the equity proceeds to complete the early construction of two stores in fiscal 2002 and execute leases for and commence capital expenditures on up to 15 new stores through fiscal 2003. Although there can be no assurance that actual capital expenditures will not exceed anticipated levels, we believe that cash generated from operations and available under our existing credit facility will be sufficient to satisfy our budgeted capital expenditure requirements through the remainder of fiscal 2001.

The cost of initial inventory for a new store is approximately $300,000 to $800,000 depending on the store format; however, we obtain vendor financing for most of this cost. Pre-opening costs currently are approximately $250,000 to $350,000 per store and are expensed as incurred. Pre-opening costs for natural foods supermarket format stores in the future are projected to increase from $250,000 to $400,000 per store, and pre-opening costs for farmers market format stores are projected to increase from $75,000 to $150,000, as a result of increased advertising for new stores. The amounts and timing of such pre-opening costs will depend upon the availability of new store sites and other factors, including the location of the store and whether it is in a new or existing market for us, the size of the store, and the required build-out at the site. Costs to acquire future stores, if any, are impossible to predict and could vary materially from the cost to open new stores. There can be no assurance that actual capital expenditures will not exceed anticipated levels, although our amended credit facility contains aggregate limits on the amounts of capital expenditures we may make. We believe that cash generated from operations and available under our existing credit facility will be sufficient to satisfy our budgeted cash requirements through fiscal 2002.


Cautionary Statement Regarding Forward-Looking Statements

This Report on Form 10-K contains "forward-looking statements," within the meaning of the Private Securities Litigation Reform Act of 1995, which involve known and unknown risks. Such forward-looking statements include statements as to the Company's plans to open, acquire or relocate additional stores; the anticipated performance of such stores; the impact of competition and current economic uncertainty; the sufficiency of funds to satisfy the Company's cash requirements through the remainder of fiscal 2002, our expectations for comparable store sales; our plans for redesigning our natural foods supermarket store format; the impact of changes resulting from implementation of our Fresh Look merchandising, advertising and pricing program; levels of cannibalization; expected pre-opening expenses and capital expenditures; and other statements containing words such as "believes," "anticipates," "estimates," "expects," "may," "intends" and words of similar import or statements of management's opinion. These forward-looking statements and assumptions involve known and unknown risks, uncertainties and other factors that may cause the actual results, market performance or achievements of the Company to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Important factors that could cause differences in results of operations include, but are not limited to, the Company's ability to conclude a private placement of the Company's stock; the timing and success of the implementation of the Fresh Look program; the successful integration of our new Chief Financial Officer; the timing and execution of new store openings, relocations, remodels, sales and closures; the impact of competition; changes in product supply or suppliers; changes in management information needs; changes in customer needs and expectations; governmental and regulatory actions; general industry or business trends or events; changes in economic or business conditions in general or affecting the natural foods industry in particular; and competition for and the availability of sites for new stores and potential acquisition candidates. The Company undertakes no obligation to update any forward-looking statements in order to reflect events or circumstances that may arise after the date of this Report. 


Item 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK

In the normal course of business, the Company is exposed to fluctuations in interest rates and the value of foreign currency. The Company employs various financial instruments to manage certain exposures when practical. 

The Company is exposed to foreign currency exchange risk. The Company owns and operates three natural foods supermarkets and a commissary kitchen in British Columbia, Canada. The commissary supports the three Canadian stores and does not independently generate sales revenue. Sales made from the Canadian stores are made in exchange for Canadian dollars. To the extent that those revenues are repatriated to the United States, the amounts repatriated are subject to the exchange rate fluctuations between the two currencies. The Company does not hedge against this risk because of the small amounts of funds at risk.

The Company's exposure to interest rate changes is primarily related to its variable rate debt issued under its $125.0 million revolving credit facility. The facility has two separate lines of credit, a revolving line of up to $86.2 million and a term loan of up to $38.8 million, each with a three-year term expiring August 1, 2003. As part of the October 2001 amendment of the credit facility, which had an original credit capacity of $157.5 million, borrowings under the credit facility have been limited to $125.0 million. As of December 29, 2001, there were $83.5 million in borrowings outstanding under the $86.2 million revolving line of this facility and $38.8 million in borrowings outstanding under the $38.8 million term note. As part of the amendment to the credit facility, the interest rate on the facility was amended to either prime plus 2.25% or one-month LIBOR plus 3.75%, at our election, and the rates increase by 0.5% starting January 1, 2002 and each six months thereafter through January 2003. Because the interest rates on these facilities are variable, based upon the prime rate or LIBOR, the Company's interest expense and net income are affected by interest rate fluctuations. If interest rates were to increase or decrease by 100 basis points, the result, based upon the existing outstanding debt as of December 29, 2001, would be an annual increase or decrease of approximately $1.2 million in interest expense and a corresponding decrease or increase of approximately $777,000 in the Company's net income after taxes. 

In September 2000, as required by the Company's credit facility, the Company entered into an interest rate swap to hedge its exposure on variable rate debt positions. Variable rates are predominantly linked to LIBOR as determined by one-month intervals. The interest rate provided by the swap on variable rate debt is 6.6%. At December 29, 2001, the notional principal amount of the interest rate swap agreement was $42.5 million, expiring in August 2003. The notional amount is the amount used for the calculation of interest payments which are exchanged over the life of the swap transaction on the amortized principal balance. In fiscal 2001, the loss, net of taxes, included in other comprehensive loss for this cash flow hedge was approximately $1.2 million.


Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Report of Management

Reports of Independent Accountants

Consolidated Statements of Operations
for the Fiscal Years 2001, 2000 and 1999 


Consolidated Statements of Comprehensive Income 
for the Fiscal Years 2001, 2000 and 1999 


Consolidated Balance Sheets for the Fiscal Years Ended 2001 and 2000

Consolidated Statements of Stockholders' Equity 
    for the Fiscal Years Ended 2001, 2000 and 1999 


Consolidated Statements of Cash Flows for the Fiscal Years 
    Ended 2001, 2000 and 1999 


Notes to Consolidated Financial Statements

Schedule II - Valuation and Qualifying Accounts and Reserves
    for the Fiscal Years Ended 2001, 2000 and 1999 

REPORT OF MANAGEMENT

We are responsible for the preparation and integrity of the consolidated financial statements and all related information appearing in our Annual Report. The consolidated financial statements and notes were prepared in conformity with generally accepted accounting principles appropriate in the circumstances and, accordingly, include certain amounts based on our best judgments and estimates of current conditions and circumstances.

Management maintains a system of accounting and other controls to provide reasonable assurance that assets are safeguarded against loss from unauthorized use or disposition and that accounting records are reliable for preparing financial statements. Even an effective internal control system, no matter how well designed, has inherent limitations, including the possibility of circumvention or overriding of controls, and therefore can provide only reasonable assurance with respect to financial statement presentation. The system of accounting and other controls is modified in response to changes in business conditions and operations and recommendations made by the independent accountants.

The Audit Committee of the Board of Directors, which is composed of directors who are not employees, meets periodically with management and the independent accountants to review the manner in which these groups are performing their responsibilities and to carry out the Audit Committee's oversight role with respect to auditing, internal controls and financial reporting matters. The Audit Committee reviews with the independent accountants the scope and results of the audit. The independent accountants periodically meet privately with the Audit Committee and have access to its individual members.

We engaged PricewaterhouseCoopers LLP, independent accountants, to audit the consolidated financial statements in accordance with generally accepted auditing standards, which include consideration of the internal control structure. The opinion of the independent accountants, based upon their audits of the consolidated financial statements, is contained in this Annual Report.

/s/  Perry D. Odak
Chief Executive Officer and President
March 26, 2002

/s/  Edward F. Dunlap
Chief Financial Officer
March 26, 2002

REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors and Stockholders of Wild Oats Markets, Inc.

In our opinion, based on our audits and the report of other auditors, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Wild Oats Markets, Inc and its subsidiaries (the "Company") at December 29, 2001 and December 30, 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 29, 2001 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, based on our audits and the report of other auditors, the financial statement schedule listed in the accompanying index present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. The consolidated financial statements give retroactive effect to the merger of Sun Harvest Farms, Inc. and its affiliate on December 15, 1999, in a transaction accounted for as a pooling of interests, as described in Note 3 to the consolidated financial statements. We did not audit the financial statements of Sun Harvest Farms, Inc., which statements reflect total revenues of $41,155,576 for the thirty-nine weeks ended September 28, 1999. Those statements were audited by other auditors whose report thereon has been furnished to us, and our opinion expressed herein, insofar as it relates to the amounts included for Sun Harvest Farms, Inc. for the thirty-nine weeks ended September 28, 1999 is based solely on the report of the other auditors. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits and the report of the other auditors provide a reasonable basis for our opinion.

In 1999, the Company changes its method of accounting for pre-opening expenses as discussed in Note 1 to the consolidated financial statements.


PricewaterhouseCoopers LLP


Denver, Colorado
March 25, 2002

REPORT OF INDEPENDENT AUDITORS


The Board of Directors
Sun Harvest Farms, Inc.

We have audited the accompanying balance sheets of Sun Harvest Farms, Inc. (the Company) as of September 28, 1999, December 29, 1998, and December 30, 1997, and the related statements of income, shareholder's equity (deficit) and cash flows for the nine-month period ended September 28, 1999 and the fiscal years ended December 29, 1998, December 30, 1997, and December 31, 1996, not separately presented herein. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Sun Harvest Farms, Inc. as of September 28, 1999, December 29, 1998, and December 30, 1997, and the results of its operations and its cash flows for the nine-month period ended September 28, 1999 and the fiscal years ended December 29, 1998, December 30, 1997, and December 31, 1996, in conformity with generally accepted accounting principles.



Ernst & Young LLP 


San Antonio, Texas
November 17, 1999

WILD OATS MARKETS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per-share amounts)

FISCAL YEAR	2001	2000	1999
Sales	$ 893,179	$ 838,131	$ 721,091
Cost of goods sold and occupancy costs	634,631	581,980	499,627
Gross profit	258,548	256,151	221,464
Operating expenses:
Direct store expenses	212,642	190,986	155,869
Selling, general and administrative expenses	48,864	32,480	27,939
Pre-opening expenses	1,562	3,289	2,767
Restructuring and asset impairment charges	54,906	42,066	12,642
Income (loss) from operations	(59,426)	(12,670)	22,247
Loss on investment	(228)	(2,060)
Interest income	990	117	304
Interest expense	(10,437)	(8,967)	(4,584)
Income (loss) before income taxes	(69,101)	(23,580)	17,967
Income tax expense (benefit)	(25,189)	(8,559)	5,198
Net income (loss) before cumulative effect of change in accounting principle	(43,912)	(15,021)	12,769
Cumulative effect of change in accounting principle, net of tax			281
Net income (loss)	$ (43,912) =======	$ (15,021) =======	$  12,488  =======
Basic net income (loss) per common share:
Net income (loss) before cumulative effect of change in accounting principle	$ (1.80)	$(0.65)	$0.56
Cumulative effect of change in accounting principle, net of tax			(0.01)
Net income (loss)	$ (1.80) ======	$(0.65) ======	$0.55  ======
Diluted net income (loss) per common share:
Net income (loss) before cumulative effect of change in accounting principle, net of tax	$ (1.80)	$(0.65)	$0.54
Cumulative effect of change in accounting principle, net of tax			(0.01)
Net income (loss)	$ (1.80) ======	$(0.65) ======	$0.53  ======
Weighted average number of common shares outstanding	24,424  ======	23,090  ======	22,806  ======
Weighted average number of common shares outstanding assuming dilution	24,424  ======	23,090  ======	23,467  ======

The accompanying notes are an integral part of these consolidated financial statements.


WILD OATS MARKETS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands) 

FISCAL YEAR	2001	2000	1999
Net income (loss)	$ (43,912)	$ (15,021)	$  12,488
Other comprehensive income (loss):
Foreign currency translation adjustments arising during the period	(530)	(259)	510
Cumulative effect of change in accounting principle (see Note 1), net of tax of $352	(586)
Recognition of hedge results to interest expense during the period, net of tax of $435	726
Change in market value of cash flow hedge during the period, net of tax of $935	(1,561)
Other comprehensive income (loss)	(1,951)	(259)	510
Comprehensive income (loss)	$ (45,863) ======	$ (15,280) ======	$  12,998 ======

The accompanying notes are an integral part of the consolidated financial statements

WILD OATS MARKETS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)

FISCAL YEAR ENDED	2001	2000
ASSETS
Current assets:
Cash and cash equivalents	$ 18,840	$ 12,457
Inventories (net of reserves of $2,667 and $1,483,   respectively)	54,058	55,258
Accounts receivable (net of allowance for doubtful   accounts of $1,070 and $355, respectively)	3,197	3,936
Income tax receivable	4,186	9,973
Prepaid expenses and other current assets	3,123	2,004
Deferred tax asset	5,378	1,989
Total current assets	88,782	85,617
Property, plant and equipment, net	128,922	160,614
Intangible assets, net	114,296	122,382
Deposits and other assets	2,436	3,791
Long-term investment		228
Deferred tax asset	18,990
	$ 353,426 ======	$ 372,632 ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$ 39,796	$ 39,969
Book overdraft	23,056	16,587
Accrued liabilities	40,081	37,434
Current portion of debt and capital leases	12,338	7,729
Total current liabilities	115,271	101,719
Long-term debt and capital leases	112,291	116,839
Deferred tax liability		989
Other long-term obligations	18,849	1,521
	246,411	221,068
Commitments and contingencies (Notes 10 and 11)
Stockholders' equity:
Preferred stock, $0.001 par value; 5,000,000   shares authorized; no shares issued and   outstanding
Common stock; $0.001 par value; 60,000,000 shares      authorized; 24,766,409 and 23,147,103 issued and    outstanding, respectively	25	23
Additional paid-in capital	160,736	149,764
Note receivable, related party	(9,660)
Retained earnings (accumulated deficit)	(42,277)	1,635
Accumulated other comprehensive income (loss)	(1,809)	142
Total stockholders' equity	107,015	151,564
	$ 353,426 ======	$ 372,632 ======

The accompanying notes are an integral part of these consolidated financial statements.

WILD OATS MARKETS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY 
(In thousands, except share and per-share amounts)

	Common Stock
	Shares	Amount	Add'l Paid-In Capital	Note Receivable, Related Party	Retained Earnings (Accumulated Deficit)	Accumulated Other Comprehensive Income (Loss)	Total Stockholders' Equity
BALANCE AT JANUARY 2, 1999	22,606,019	$ 23	$ 142,774		$ 9,920	$ (109)	$ 152,608
Equity transactions of pooled companies			104		(5,752)		(5,648)
Issuance of common stock ($16.72 to $18.92 per share), net of issuance costs	131,239		2,104				2,104
Common stock options exercised ($3.13 to $19.79 per share)	255,179		3,325				3,325
Net income					12,488		12,488
Foreign currency translation adjustment						510	510
BALANCE AT JANUARY 1, 2000	22,992,437	23	148,307		16,656	401	165,387
Issuance of common stock ($10.68 per share), net of issuance costs	67,889		802				802
Common stock options exercised ($3.13 to $18.00 per share)	86,777		655				655
Net loss					(15,021)		(15,021)
Foreign currency translation adjustment						(259)	(259)
BALANCE AT DECEMBER 30, 2000	23,147,103	23	149,764		1,635	142	151,564
Stock issued in exchange for note receivable	1,332,649	1	9,286	$ (9,274)			13
Accrued interest on note receivable				(386)			(386)
Issuance of common stock ($3.61 to $3.66 per share), net of issuance costs	152,405		551				551
Common stock options exercised ($3.13 to $9.06 per share)	134,252	1	1,135				1,136
Net loss					(43,912)		(43,912)
Foreign currency translation adjustment						(530)	(530)
Cumulative effect of change in accounting principle, net of tax						(586)	(586)
Recognition of hedge results to interest expense during the period, net of tax						726	726
Change in market value of cash flow hedge during the period, net of tax						(1,561)	(1,561)
BALANCE AT DECEMBER 29, 2001	24,766,409  ========	$ 25  ===	$ 160,736  ======	$ (9,660) ======	$ (42,277) ======	$ (1,809) ======	$ 107,015  ======

WILD OATS MARKETS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except share amounts)

FISCAL YEAR	2001	2000	1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$ (43,912)	$ (15,021)	$ 12,488
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	26,082	25,574	22,072
Loss (gain) on disposal of property and equipment	477	(306)	14
Deferred tax benefit	(22,509)	(410)	(1,409)
Restructuring and asset impairment charges	54,907	42,066	12,642
Loss on investment	228	2,060
Other	(280)	104
Change in assets and liabilities, net of acquisitions:
Inventories, net	1,120	(5,048)	(7,569)
Receivables, net and other assets	5,240	(11,551)	(2,417)
Accounts payable	6,330	8,542	12,057
Accrued liabilities	(1,972)	(5,001)	6,028
Net cash provided by operating activities	25,711	41,009	53,906
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures	(20,082)	(60,584)	(62,592)
Acquisitions, net of cash acquired		(16,791)	(77,779)
Proceeds from sale of property and equipment	146	4,585	21,902
Long-term investment		(38)	(1,500)
Net cash used in investing activities	(19,936)	(72,828)	(119,969)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds (repayments) on line of credit, net	(1,685)	28,751	95,200
Proceeds from notes payable and long-term debt	2,000		1,538
Payments on notes payable, long-term debt and capitalized leases	(254)	(7,489)	(18,810)
Proceeds from issuance of common stock, net	895	1,069	3,865
Distributions to stockholders, net			(5,752)
Net cash provided by financing activities	956	22,331	76,041
Effect of exchange rates on cash	(348)	68	510
Net (decrease) increase in cash and cash equivalents	6,383	(9,420)	10,488
Cash and cash equivalents at beginning of year	12,457	21,877	11,389
Cash and cash equivalents at end of year	$ 18,840  =======	$ 12,457  =======	$ 21,877  =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest	$ 10,203  =======	$ 9,715  =======	$ 3,570  =======
Cash paid (received) for income taxes	$ (7,241) =======	$ 4,503  =======	$ 2,097  =======
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Common stock issued and total debt and liabilities    assumed in acquisitions			$ 1,668  =======
Stock received in exchange for services		$ 750  =======
Stock issued in exchange for note receivable	$ 9,274  =======

The accompanying notes are an integral part of these consolidated financial statements.

WILD OATS MARKETS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Summary of Significant Accounting Policies

Organization. Wild Oats Markets, Inc. ("Wild Oats" or the "Company"), headquartered in Boulder, Colorado, owns and operates natural foods supermarkets in the United States and Canada. The Company also operates bakeries, commissary kitchens, and warehouses that supply the retail stores. The Company's operations are concentrated in one market segment, grocery stores, and are geographically concentrated in the western and central parts of the United States.

Basis of Presentation. Certain amounts in the prior years' financial statements have been reclassified to conform to the current year presentation.

Principles of Consolidation. The Company's consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.

Fiscal Year. The Company reports its financial results on a 52- or 53-week fiscal year ending on the Saturday closest to December 31. Fiscal years for the consolidated financial statements included herein ended on December 29, 2001, December 30, 2000 and January 1, 2000. Fiscal 2001, fiscal 2000 and fiscal 1999 were 52-week years.

Cash and Cash Equivalents. The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Financial instruments which potentially subject the Company to concentration of credit risk consist principally of cash and temporary cash investments. At times, cash balances held at financial institutions were in excess of Federal Deposit Insurance Corporation insurance limits. The Company places its temporary cash investments with high-credit quality financial institutions. The Company believes no significant concentration of credit risk exists with respect to these cash investments.

Inventories. Inventories consisting of products held for sale are stated at the lower of cost (first-in, first-out) or market, as determined by the retail inventory method. Perishable inventories are valued at the lower of cost (first in, first out) or market.

Property, Plant and Equipment. Property, plant and equipment are recorded at cost. Depreciation is computed on a straight-line basis over the estimated useful lives of machinery and equipment (three to ten years). Depreciation is computed on a straight-line basis over the estimated useful lives of buildings (30 years). Leasehold improvements are amortized on a straight-line basis over the shorter of the useful life of the asset or the lease term. Major renewals and improvements are capitalized, while maintenance and repairs are expensed as incurred. Upon sale or retirement of assets, the cost and related accumulated depreciation or amortization are eliminated from the respective accounts and any resulting gains or losses are reflected in operations. Applicable interest charges incurred during the construction of assets are capitalized as one of the elements of cost and are amortized over the assets' estimated useful lives. All construction-related overhead and a portion of direct administrative expenses are capitalized and allocated to assets based on the relative asset costs.

Intangible Assets. Intangible assets consist primarily of goodwill, which is amortized using the straight-line method over 40 years, and are shown net of accumulated amortization of $11.4 million, $8.8 million and $7.1 million at December 29, 2001, December 30, 2000 and January 1, 2000, respectively. Amortization expense related to intangible assets totaled approximately $3.0 million, $3.1 million and $2.6 million in fiscal 2001, fiscal 2000 and fiscal 1999, respectively. See "New Accounting Pronouncements: Goodwill and Intangible Assets" below in this footnote.

Debt Issuance Costs. Costs related to the issuance of debt are capitalized and amortized to interest expense using the effective interest method over the period the debt is outstanding.

Impairment of Long-Lived Assets. The Company monitors the carrying value of its long-lived assets, including intangible assets, for potential impairment at the store level. The triggering events for such evaluations include a significant decrease in the market value of an asset, acquisition and construction costs in excess of budget, or current period losses combined with a history of losses or a projection of continuing losses. If an impairment is identified, based on undiscounted future cash flows, the Company compares the asset's future cash flows, discounted to present value using a risk-adjusted discount rate, to its current carrying value and records a provision for impairment as appropriate. With respect to equipment and leasehold improvements associated with closed stores, the value of these assets is adjusted to reflect recoverable values estimated based on the Company's previous efforts to dispose of similar assets, with consideration for current economic conditions. 

Store Closing Costs. The Company plans to complete store closures or sales within a one-year period following the commitment date. Costs related to store closures and sales are reflected in the income statement as "Restructuring and Asset Impairment Charges." For stores the Company intends to sell, the Company actively markets the stores to potential buyers. Stores held for disposal are reduced to their estimated net realizable value. For stores the Company intends to close, a lease-related liability is recorded for the present value of the estimated remaining noncancelable lease payments after the anticipated closing date, net of estimated subtenant income, or for estimated lease settlement costs. In addition, the Company records a liability for costs to be incurred after the store closing which are required under leases or local ordinances for site preservation during the period before lease termination. The value of equipment and leasehold improvements related to a closed store is reduced to reflect recoverable values based on the Company's previous efforts to dispose of similar assets and current economic conditions. 

Severance costs incurred in connection with store closings are recorded when the employees have been identified and notified of the termination benefits to be made to the employees. 

Lease-related liabilities and the recoverability of assets to be disposed of are reviewed quarterly, and changes in previous estimates are reflected in operations. Significant cash payments associated with closed stores relate to ongoing payments of rent, common area maintenance, insurance charges, and real property taxes as required under continuing lease obligations.

Pre-Opening Expenses. Beginning in fiscal 1999, the Company adopted Statement of Position 98-5, Accounting for the Costs of Start-Up Activities, which requires that pre-opening costs be expensed as incurred and was effective for fiscal years beginning after December 15, 1998. The Company recorded $281,000 as a cumulative effect of change in accounting principle, net of taxes, during the first quarter of fiscal 1999. Through fiscal 1998, pre-opening expenses were deferred until the store's opening date, at which time such costs were expensed in full. Beginning in fiscal 1999, pre-opening expenses are recognized as incurred.

Concentration of Risk. The Company purchases approximately 28.2% of its cost of goods sold from one vendor. The Company's reliance on this supplier can be shifted, over a period of time, to alternative sources of supply, should such changes be necessary. However, if the Company could not obtain products from this supplier for factors beyond its control, the Company's operations would be disrupted in the short term while alternative sources of product were secured.

Revenue Recognition. Revenue for sales of the Company's products is recognized at the point of sale to the retail customer.

Advertising. Advertising is expensed as incurred. Advertising expense was $9.3 million, $6.8 million and $7.3 million for fiscal 2001, fiscal 2000 and fiscal 1999, respectively.

Fair Value of Financial Instruments. The carrying amounts of the Company's financial instruments, including cash and cash equivalents, short-term trade receivables and payables, approximate their fair values due to the short-term nature of the instruments. The fair value of the Company's long-term debt approximates its carrying value due to the variable interest rate feature of the instrument.

Derivative Financial Instruments. The Company uses an interest rate swap to manage interest costs and the risk associated with changing interest rates. As interest rates change, the differential paid or received is recognized in interest expense of the related period.

Long-Term Investment. The Company's long-term investment in an e-commerce nutrition company of $228,000 at December 30, 2000 was recorded under the cost method as the Company is unable to exercise effective control. In the second quarter of fiscal 2001, the Company recorded a loss on investment of $228,000 related to the reduction in value of the Company's investment in the e-commerce nutrition company. In the second quarter of fiscal 2000, the Company recorded a loss on investment of $2.1 million related to the reduction in value of the Company's investment in the e-commerce nutrition company. In the Company's previous fiscal 2000 financial statements, this $2.1 million loss on investment was reflected in loss from operations as part of the restructuring charge. This loss on investment is now presented separately after loss from operations in these financial statements.

Use of Estimates. The preparation of these financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Foreign Currency Translation. The functional currency for the Company's Canadian subsidiary is the Canadian dollar. Translation into U.S. dollars is performed for assets and liabilities at the exchange rate as of the balance sheet date. Income and expense accounts are translated at average exchange rates for the year. Adjustments resulting from the translation are reflected as a separate component of other comprehensive income. Translation adjustments are not tax-effected as they relate to investments that are permanent in nature.

Self-Insurance. The Company is self-insured for certain losses relating to worker's compensation claims, general liability and employee medical and dental benefits. The Company has purchased stop-loss coverage in order to limit its exposure to any significant levels of claims. Self-insured losses are accrued based upon the Company's estimates of the aggregate uninsured claims incurred using certain actuarial assumptions followed in the insurance industry and the Company's historical experiences.

Earnings Per Share. Earnings per share are calculated in accordance with the provisions of Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings Per Share. SFAS No. 128 requires the Company to report both basic earnings per share, which is based on the weighted-average number of common shares outstanding, and diluted earnings per share, which is based on the weighted-average number of common shares outstanding and all dilutive potential common shares outstanding, except where the effect of their inclusion would be antidilutive (i.e., in a loss period). Antidilutive stock options of 2,006,215, 1,480,827, and 750,181 for the fiscal years ended December 29, 2001, December 30, 2000 and January 1, 2000, respectively, were not included in the earnings per share calculations. A reconciliation of the basic and diluted per-share computations is as follows (in thousands, except per-share data):

FISCAL YEAR	2001	2000	1999
Basic and diluted earnings per   Common share computation:
Net income (loss)	$ (43,912)	$ (15,021)	$ 12,488
Basic net income (loss) per common share:
Net income (loss) before cumulative effect of   change in accounting principle	$ (1.80)	$ (0.65)	$ 0.56
Cumulative effect of change in   accounting principle, net of tax			(0.01)
Net income (loss)	$ (1.80) =======	$ (0.65) =======	$ 0.55  =======
Diluted net income (loss) per common share:
Net income (loss) before cumulative   effect of change in accounting   principle	$ (1.80)	$ (0.65)	$ 0.54
Cumulative effect of change in   accounting principle, net of tax			(0.01)
Net income (loss)	$ (1.80) =======	$ (0.65) =======	$ 0.53  =======
Weighted average number of common   shares outstanding	24,424	23,090	22,806
Incremental shares from assumed   conversions:
Stock options			661
Weighted average number of common   shares outstanding assuming dilution	24,424  ======	23,090  ======	23,467  ======

New Accounting Pronouncements: Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, was issued in October 2001. This statement addresses significant issues relating to the implementation of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of, and establishes a single accounting model, based on the framework established in SFAS No. 121, for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired. SFAS No. 144 is effective for the Company's financial statements for the year beginning December 30, 2001. The adoption of this statement is not currently anticipated to have a material impact on the Company's financial position or results of operations.

Goodwill and Other Intangible Assets. SFAS No. 142, Goodwill and Other Intangible Assets, was issued in July 2001. SFAS No. 142 supersedes Accounting Principles Bulletin No. 17, Intangible Assets, and is effective for the Company's financial statements for the fiscal year beginning December 30, 2001. SFAS No. 142 primarily addresses the accounting for goodwill and intangible assets subsequent to their initial recognition. SFAS No. 142 (1) prohibits the amortization of goodwill and indefinite-lived intangible assets, (2) requires testing of goodwill and indefinite-lived intangible assets on an annual basis for impairment (and more frequently if the occurrence of an event or circumstance indicates an impairment), (3) requires that reporting units be identified for the purpose of assessing potential future impairments of goodwill and (4) removes the 40-year limitation on the amortization period of intangible assets that have finite lives. The provisions of SFAS No. 142 also apply to equity-method investments made both before and after June 30, 2001. 

The Company records goodwill at the store level; no goodwill is recorded at the enterprise level. During the second quarter of fiscal 2002, the Company plans to complete the two-step process prescribed by SFAS No. 142 for (1) testing for impairment and (2) determining the amount of impairment loss related to goodwill associated with its store-level reporting units. The Company cannot reliably estimate the full impact of this new accounting standard at this time, but anticipates an annual decrease in amortization of goodwill of approximately $3.0 million and a corresponding annual increase to net income of $1.8 million. The Company intends to test goodwill for impairment annually or more frequently if the occurrence of an event or circumstance indicates potential impairment.

Business Combinations. SFAS No. 141, Business Combinations, was issued in July 2001. This statement establishes new accounting and reporting standards that will, among other things, eliminate the pooling-of-interests method of accounting for business combinations and require that the purchase method be used. Its provisions will be effective for the Company for all future business combinations.

Derivatives and Hedging Activities. In accordance with the Company's interest rate risk-management strategy and as required by the terms of the Company's credit facility, the Company has entered into a swap agreement to hedge the interest rate on $42.5 million of its borrowings. The swap agreement locks in a one-month LIBOR rate of 6.6% and expires in August 2003. The fair value of the swap at December 29, 2001 was ($2.3 million), which has been recorded, net of tax, in the accompanying balance sheet in accrued liabilities.

The Company adopted SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, on December 31, 2000. In accordance with the transition provisions of SFAS 133, as of December 31, 2000, the Company recorded a net-of-tax cumulative loss adjustment to other comprehensive income totaling $586,000 that relates to the fair value of the previously described cash flow hedging relationship. Based upon current interest rates, approximately $2.1 million of the interest rate hedging loss currently in other comprehensive income is expected to flow through interest expense during the next 12 months.

On the date that the Company entered into the derivative contract, it designated the derivative as a hedge of the variability of cash flows that are to be received or paid in connection with a recognized asset or liability (a "cash flow" hedge). The Company does not enter into derivative contracts for trading or non-hedging purposes. Currently, the Company's swap agreement is designated as a cash flow hedge and is recognized in the balance sheet at its fair value. Changes in the fair value of the Company's cash flow hedge, to the extent that the hedge is highly effective, are recorded in other comprehensive income, until earnings are affected by the variability of cash flows of the hedged transaction through interest expense. Any hedge ineffectiveness (which represents the amount by which the changes in the fair value of the derivative exceed the variability in the cash flows being hedged) is recorded in current period earnings.

The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking various hedge transactions. This process includes linking all derivatives that are designated as fair value, cash flow, or foreign currency hedges to (1) specific assets and liabilities on the balance sheet or (2) specific firm commitments or forecasted transactions. The Company also formally assesses (both at the hedge's inception and on an ongoing basis) whether the derivatives that are used in hedging transactions have been highly effective in offsetting changes in the cash flows of hedged items and whether those derivatives may be expected to remain highly effective in future periods. When it is determined that a derivative is not (or has ceased to be) highly effective as a hedge, the Company discontinues hedge accounting prospectively, as discussed below.

The Company discontinues hedge accounting prospectively when (1) it determines that the derivative is no longer effective in offsetting changes in the fair value or cash flows of a hedged item (including hedged items such as firm commitments or forecasted transactions); (2) the derivative expires or is sold, terminated, or exercised; (3) it is no longer probable that the forecasted transaction will occur; (4) a hedged firm commitment no longer meets the definition of a firm commitment; or (5) management determines that designating the derivative as a hedging instrument is no longer appropriate.

When hedge accounting is discontinued due to the Company's determination that the derivative no longer qualifies as an effective cash flow hedge, the Company will continue to carry the derivative on the balance sheet at its fair value but cease to adjust the hedged asset or liability for changes in fair value. When hedge accounting is discontinued because the hedged item no longer meets the definition of a firm commitment, the Company will continue to carry the derivative on the balance sheet at its fair value, removing from the balance sheet any asset or liability that was recorded to recognize the firm commitment and recording it as a gain or loss in current period earnings. When the Company discontinues hedge accounting because it is no longer probable that the forecasted transaction will occur in the originally expected period, the gain or loss on the derivative remains in accumulated other comprehensive income and is reclassified into earnings when the forecasted transaction affects earnings. However, if it is probable that a forecasted transaction will not occur by the end of the originally specified time period or within an additional two-month period of time thereafter, the gains and losses that were accumulated in other comprehensive income will be recognized immediately in earnings. In all situations in which hedge accounting is discontinued and the derivative remains outstanding, the Company will carry the derivative at its fair value on the balance sheet, recognizing changes in the fair value in current-period earnings.


2. Debt Covenant Compliance and Liquidity

The Company was not in compliance with certain financial covenants of its $157.0 million credit agreement as of December 30, 2000. On October 17, 2001, we entered into an amendment to the credit agreement which waived the default in exchange for certain restrictive covenants, a security interest in our assets and a limitation on borrowing of $125.0 million. Following the execution of the amendment, we requested and received a waiver of performance under the September 2001 stockholders' equity covenant, and a modification of the performance requirements under the stockholders' equity covenants for October and November 2001, and executed amendments to the credit agreement reflecting such modifications in November and December 2001. As of December 29, 2001, the Company was in compliance with the revised covenants.

The Company's credit agreement contains certain monthly and quarterly financial covenants, which become more restrictive during fiscal 2002 and 2003. The Company anticipates that it will continue to comply in fiscal 2002 and 2003 with the monthly and quarterly financial covenants in the credit agreement. Management's current business plans for the Company anticipate significant improvement in financial position attributable to increases in revenues due to comparable store sales increases, improved working capital management, reduced capital spending, successful implementation of ongoing cost savings initiatives, and improved operating efficiencies. In the event that business conditions worsen, management has identified contingency actions to enable the Company to remain in compliance with the financial covenants. Such actions, including reductions in operating expenses together with lower capital spending, may result in fewer new store openings in fiscal 2003, which may negatively impact revenues.

The Company currently expects to meet the amended credit agreement covenants throughout fiscal 2002 and fiscal 2003; however, if business conditions are other than as anticipated or other unseen events occur and the Company's planned contingency actions are unsuccessful in countering such events, these may impact the Company's ability to remain in compliance. Even if the Company remains in compliance with its monetary covenants, a technical default could result due to a breach of the financial covenants. In the absence of a waiver or amendment to such financial covenants, such non-compliance would constitute a default under the credit agreement, and the lenders would be entitled to accelerate the maturity of the indebtedness outstanding thereunder. In the event that such non-compliance appears likely, or occurs, the Company will seek approval, as it has in the past, from the lenders to renegotiate financial covenants and/or obtain waivers, as required. However, there can be no assurance that future amendments or waivers will be obtained. See "Notes to Consolidated Financial Statements - Note 6."


3. Business Combinations

Fiscal 2000

In May 2000, the Company acquired the assets and operations of two operating natural foods supermarkets located in southern California, for a purchase price of $13.7 million in cash. The acquisition was accounted for using the purchase method and the excess of cost over the fair value of the assets acquired of $12.9 million was allocated to goodwill, which is being amortized on a straight-line basis over 40 years. 


Fiscal 1999

Poolings of Interests. On December 15, 1999, the Company issued approximately 890,000 shares of common stock in exchange for all of the outstanding stock of Sun Harvest Farms, Inc. and an affiliate in a transaction accounted for as a pooling of interests. Accordingly, the financial position, results of operations and cash flows of Sun Harvest have been combined with those of the Company in these financial statements. Certain reclassifications have been made to the prior financial statements of Sun Harvest to conform with the Company's financial presentations and policies. There were no intercompany transactions between the Company and Sun Harvest for all periods presented.

On September 27, 1999, the Company issued approximately 2.1 million shares of common stock in exchange for all of the outstanding stock of Henry's Marketplace, Inc. in a transaction accounted for as a pooling of interests. Accordingly, the financial position, results of operations and cash flows of Henry's have been combined with those of the Company in these financial statements. Certain reclassifications have been made to the prior financial statements of Henry's to conform with the Company's financial presentation and policies. There were no intercompany transactions between the Company and Henry's for all periods presented.

Results of Pooled Company Prior to Transaction. Separate results of operations for the Company's, Henrys', and Sun Harvest's (including the affiliated entity) operations for the period prior to the transaction are as follows (in thousands):

FISCAL YEAR	1999
Sales:
Wild Oats	$ 593,109
Henry's	74,979
Sun Harvest	53,003
Combined	$ 721,091 =======
Net Income:
Wild Oats	$ 7,355
Henry's	3,542
Sun Harvest	1,591
Combined	$ 12,488 =======
Other Changes in Stockholders' Equity:
Wild Oats	$ 5,939
Henry's	(4,450)
Sun Harvest	(1,198)
Combined	$ 291 =====

Purchase Transactions. On November 15, 1999, the Company acquired the assets and operations of four natural foods supermarkets located in metropolitan Boston, Massachusetts, for a purchase price of $12.5 million in cash. The acquisition was accounted for using the purchase method and the excess of cost over the fair value of the assets acquired of $787,000 was allocated to goodwill, which is being amortized on a straight-line basis over 40 years.

On May 29, 1999, the Company acquired all of the outstanding stock of Nature's Fresh Northwest, Inc., a Delaware corporation that owned seven operating natural food stores, one new site and one relocation in development in metropolitan Portland, Oregon. The purchase price for this acquisition aggregated $40.0 million in cash, including the assumption by the Company of a $17.0 million promissory note owed by Nature's to the seller. The acquisition was accounted for using the purchase method and the excess of cost over the fair value of the assets acquired and liabilities assumed of $32.6 million was allocated to goodwill, which is being amortized on a straight-line basis over 40 years. 

On April 30, 1999, the Company acquired the operations of three existing natural foods supermarkets in Norwalk and Hartford, Connecticut and Melbourne, Florida. The purchase price for this acquisition aggregated $6.6 million in cash. The acquisition was accounted for using the purchase method, and the excess of cost over the fair value of the assets acquired and liabilities assumed of $6.1 million was allocated to goodwill, which is being amortized on a straight-line basis over 40 years.

On February 1, 1999, the Company acquired the operations of three existing natural foods supermarkets in Tucson, Arizona. The purchase price for this acquisition aggregated $18.4 million in cash. The acquisition was accounted for using the purchase method, and the excess of cost over the fair value of the assets acquired of $17.0 million was allocated to goodwill, which is being amortized on a straight-line basis over 40 years.

The fair values of the purchased assets and liabilities of these purchased acquisitions are as follows (in thousands):

Current assets ($697 of cash)	$ 8,912
Equipment	26,604
Building and land	9,153
Other assets	89
Liabilities	(24,730)
Goodwill	57,352
	$ 77,380 ======

The following unaudited pro forma combined results of operations of the Company and the acquired businesses discussed above have been prepared as if the transactions occurred as of the beginning of the respective periods presented (in thousands) (unaudited):

FISCAL YEAR	2000	1999
Sales	$ 846,017	$ 815,180
Net income (loss)	(14,469)	18,802
Basic income (loss) per share	(0.63)	0.82
Diluted income (loss) per share	(0.63)	0.80

The unaudited pro forma results above are not necessarily representative of the actual results that would have occurred or may occur in the future, if the transactions had been in effect on the dates indicated. The pre-acquisition historical results of the acquired businesses discussed above are not reflected in the Company's historical financial statements.


4. Property, Plant and Equipment

Property, plant and equipment consist of the following (in thousands):

FISCAL YEAR	2001	2000
Machinery and equipment	$ 122,169	$ 117,777
Leasehold improvements	87,185	81,880
Land and building	127	255
Construction in progress	1,253	27,521
	210,734	227,433
Less accumulated depreciation    and amortization	(81,812)	(66,819)
	$ 128,922  =======	$ 160,614  =======

Depreciation and amortization expense related to property, plant and equipment totaled approximately $22.7 million, $22.5 million and $19.6 million in fiscal 2001, fiscal 2000 and fiscal 1999, respectively. Property, plant and equipment includes approximately $291,000 of interest capitalized during fiscal 2001, $890,000 during fiscal 2000, and $776,000 during fiscal 1999. The amounts shown above include $994,000 of machinery and equipment which are accounted for as capitalized leases and which have accumulated amortization of $412,000 at December 29, 2001. There were $1,086,000 of machinery and equipment accounted for as capitalized leases as of December 30, 2000, with accumulated amortization of $291,000.


5. Accrued Liabilities

Accrued liabilities consist of the following (in thousands):

FISCAL YEAR	2001	2000
Wages and employee costs	$ 20,087	$ 16,510
Sales and personal property taxes	2,822	3,034
Real estate costs	9,688	14,328
Deferred charges and other accruals	7,484	3,562
	$ 40,081 ======	$ 37,434 ======

6. Notes Payable and Long-Term Debt

Notes payable and long-term debt outstanding consists of the following (in thousands):

FISCAL YEAR ENDED	2001	2000
Capitalized leases	$     370	$      624
Note payable to related party; 9% interest rate per annum; unsecured	2,000
Bank line of credit due August 1, 2003; bearing interest at one-month LIBOR plus 3.75% (5.9% on December 29, 2001); collateralized by corporate assets	83,436	77,621
Bank term debt due August 1, 2003; bearing interest at one-month LIBOR plus 3.75% (5.9% on December 29, 2001); collateralized by corporate assets	38,823	46,323
	124,629	124,568
Less current portion	(12,338)	(7,729)
	$ 112,291 =======	$ 116,839 =======

The maturities of notes payable and long-term debt are as follows (in thousands):

FISCAL YEAR ENDING
2002	$ 12,338
2003	112,277
2004	14
	$ 124,629 ======

The Company has a $125.0 million revolving line of credit. The facility has two separate lines of credit, a revolving line of up to $86.2 million and a term loan of up to $38.8 million, each with a three-year term expiring on August 1, 2003. The interest rate on the facility is either prime plus 2.25% or one-month LIBOR plus 3.75% at our election, and the rates increase by 0.5% starting January 1, 2002 and each six months thereafter through January 2003. The line of credit agreement includes certain financial and other covenants, as well as restrictions on the payment of dividends. In addition, the Company has three letters of credit outstanding as of December 29, 2001 that total $1.3 million and expire in January 2002 ($30,000) and November 2002 ($1.3 million).

As a result of restructuring and asset impairment charges incurred during fiscal 2000, we were not in compliance with the fixed charge coverage ratio and minimum net income covenants under our credit facility as of and for the quarter ended December 30, 2000, and as a result, our lenders issued a notice of default, although no acceleration of outstanding debt was requested. The Company entered into an amendment to its existing credit facility on October 17, 2001, pursuant to which all outstanding defaults were waived in exchange for the modification of certain covenants, a security interest in the Company's assets and a cap on borrowings of $125.0 million. Additional amendments were executed in November and December 2001 to modify the performance requirements under the stockholders' equity covenant for October and November 2001. See "Notes to Consolidated Financial Statements - Note 2."

In September 2000, the Company entered into an interest rate swap to hedge its exposure on variable rate debt positions. Variable rates are predominantly linked to LIBOR as determined by one-month intervals. The interest rate provided by the swap on variable rate debt is 6.6%. At December 29, 2001, the notional principal amount at the interest rate swap agreement was $42.5 million, expiring in August 2003. The notional amount is the amount used for the calculation of interest payments that are exchanged over the life of the swap transaction on the amortized principal balance. In fiscal 2000, the loss included in other comprehensive loss for this cash flow hedge was approximately $12,000. In fiscal 2001, the loss included in other comprehensive loss for this cash flow hedge was approximately $1.2 million.


7. Income Taxes

Income (loss) before income taxes consists of the following (in thousands):

FISCAL YEAR	2001	2000	1999
Domestic	$ (69,370)	$ (24,358)	$ 17,519
Foreign	269	778	448
	$ (69,101) =======	$ (23,580) =======	$ 17,967 =======

Income tax expense (benefit) consists of the following (in thousands):

FISCAL YEAR	2001	2000	1999
Current:
Federal	$ (2,604)	$ (7,690)	$ 4,624
State and foreign	(69)	(454)	1,983
	(2,673) =======	(8,144) =======	6,607 =======
Deferred:
Federal	(21,025)	(373)	(1,019)
State and foreign	(1,491)	(42)	(390)
	(22,516)	(415)	(1,409)
	$ (25,189) =======	$ (8,559) =======	$ 5,198  =======

The differences between the U.S. federal statutory income tax rate and the Company's effective tax rate are as follows:

FISCAL YEAR	2001	2000	1999
Statutory tax rate	(35.0)%	(35.0)%	35.0%
State income taxes (benefit), net of    federal income tax benefit	(2.3)	(2.4)	2.1
Tax effect of non-deductible goodwill	0.8	2.5	2.6
Untaxed earnings related to pooled companies			(10.2)
Change in tax status of pooled companies			(4.7)
Other permanent items related to acquisitions			2.9
Other, net	(0.0)	(1.4)	1.2
Effective tax rate	(36.5)% ======	(36.3)% ======	28.9% ======

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are as follows (in thousands):

FISCAL YEAR	2001	2000
Deferred tax assets:
Inventory-related	911	533
Vacation accrual	2,335	1,727
Real estate accruals	13,023	3,008
Net operating loss carryforward	9,267
Credit carryforward	802
Mark-to-market swap accrual	852
Other	(693)	220
Total deferred tax assets	26,497	5,488
Deferred tax liabilities:
Property-related	(2,129)	(4,488)
Total deferred tax liabilities	(2,129)	(4,488)
Net deferred tax asset	24,368  ======	1,000  ======
Financial statements:
Current deferred tax asset	5,378	1,989
Non-current deferred tax asset	18,990	(989)
Net deferred tax asset	24,368 ======	1,000  ======

During fiscal 2001, fiscal 2000 and fiscal 1999, the Company recognized $102,000, $293,000 and $1.4 million, respectively, as a tax benefit directly to additional paid-in-capital related to noncompensatory stock plans.

At December 29, 2001, the Company had a net operating loss carryforward of $24.7 million, which expires in 2021, and is available to offset future taxable income. Management has concluded that a valuation allowance is not required as it is more likely than not that the Company will be able to realize the benefit of the net operating loss carryforward through the generation of future taxable income.


8. Capital Stock

The Company declared 3-for-2 stock splits for all stockholders of record as of December 22, 1997, and November 17, 1999, effective January 7, 1998 and December 1, 1999, respectively. All shares and per-share prices presented herein have been retroactively restated to reflect the stock splits.

In October 1999, the Company's shareholders approved an increase in the authorized common stock of the Company to 60,000,000 shares.


9. Stock Plans, Options and Warrants

Employee Stock Purchase Plan. In August 1996, the Company's board of directors approved and adopted an Employee Stock Purchase Plan ("Purchase Plan") covering an aggregate of 287,307 shares of common stock. The Purchase Plan is intended to qualify as an employee stock purchase plan within the meaning of Section 423 of the Internal Revenue Code. Under the Purchase Plan, the board of directors may authorize participation by eligible employees, including officers, in periodic offerings. The offering period for any offering will be no more than 27 months. The board authorized an offering commencing on the initial public offering date of October 22, 1996 and ending June 30, 1997, and sequential six-month offerings thereafter. 

Employees are eligible to participate in the currently authorized offerings if they have been employed by the Company or an affiliate of the Company incorporated in the United States for at least six months preceding October 22, 1996. Employees can have up to 15% of their earnings withheld pursuant to the Purchase Plan and applied on specified purchase dates (currently the last day of each authorized offering) to the purchase of shares of common stock. The price of common stock purchased under the Purchase Plan will be equal to 85% of the lower of the fair market value of the common stock on the commencement date of each offering or the relevant purchase date. As of December 29, 2001, there were approximately $340,000 of payroll deductions of which $339,000 were used to purchase 40,089 shares of common stock on December 31, 2001.

The Board suspended participation in the Purchase Plan effective January 29, 2001, when the available pool of shares was substantially exhausted. The Company obtained shareholder approval in May 2001 to increase the pool of stock by 500,000 shares, and participation was resumed in June 2001.

Equity Incentive Plan. The Company's Wild Oats Markets, Inc. 1996 Equity Incentive Plan (the "Incentive Plan") was adopted by the board of directors in August 1996. The Incentive Plan provides for the grant of incentive stock options to employees (including officers and employee-directors) and nonqualified stock options, restricted stock purchase awards and stock bonuses to employees and directors. The exercise price of options granted under the Incentive Plan is determined by the board of directors, provided that the exercise price for an incentive stock option cannot be less than 100% of the fair market value of the common stock on the grant date and the exercise price for a nonqualified stock option cannot be less than 85% of the fair market value of the common stock on the grant date. Outstanding options generally vest over a period of five years and generally expire ten years from the grant date.

Non-qualified Stock Option Plan. In 2001 the Company created the Wild Oats Markets, Inc. 2001 Nonofficer/Nondirector Equity Incentive Plan (the "Non-qualified Plan"). As of December 29, 2001, 486,000 shares of common stock were reserved for issuance under the Non-qualified Plan. The Non-qualified Plan provides for the grant of nonqualified stock options to employees of the Company who are not officers or directors. The exercise price of options granted under the Non-qualified Plan is determined by the board of directors, provided that the exercise price for a nonqualified stock option cannot be less than 85% of the fair market value of the common stock on the grant date. Outstanding options generally vest over a period of five years and generally expire ten years from the grant date.

Individual Stock Option Plans. The Company also created four nonqualified stock option plans, two in May and one in each of September and December of 2001, as inducements to certain executives to accept offers of employment with the Company. The total amount of options available for grant and granted under the four plans is 410,000 shares. Under each plan, the exercise price of the stock options is determined by the board of directors, provided that the exercise price cannot be less than 85% of fair market value of the common stock on the grant date. Outstanding options vest over a four-year period with an expiration date 10 years from the date of grant. 

Fair Values. The Company applies Accounting Principles Board Opinion No. 25 and related Interpretations in accounting for its stock plans. Accordingly, no compensation expense has been recognized for these plans. Had compensation cost for these plans been determined based on the fair value at the grant dates as prescribed by FAS No. 123, Accounting for Stock-Based Compensation, the Company's net income (loss) allocable to common stock and basic and diluted income (loss) per share would have been reduced to the pro forma amounts indicated below: 

FISCAL YEAR	2001	2000	1999
Net income (loss)
As reported	$ (43,912)	$ (15,021)	$ 12,488
Pro forma	$ (46,407)	$ (19,269)	$ 8,855
Basic income (loss) per share
As reported	$ (1.80)	$ (0.65)	$ 0.55
Pro forma	$ (1.90)	$ (0.83)	$ 0.39
Diluted income (loss) per share
As reported	$ (1.80)	$ (0.65)	$ 0.53
Pro forma	$ (1.90)	$ (0.83)	$ 0.38

The fair value of the employees' purchase rights was estimated using the Black-Scholes model with the following weighted-average assumptions:

FISCAL YEAR	2001	2000	1999
Estimated dividends	None	None	None
Expected volatility	52%	68%	46%
Risk-free interest rate	1.8%	4.8%	5.6%
Expected life (years)	0.5	0.5	0.5
Weighted-average fair value per share	$2.40	$1.16	$4.96

The fair value of each option grant under the Company's aggregated incentive and nonqualified stock option plans is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

FISCAL YEAR	2001	2000	1999
Estimated dividends	None	None	None
Expected volatility	52%	68%	46%
Risk-free interest rate	4.55%	5.75%	5.6%
Expected life (years)	4.8	7.0	7.0

A summary of the status of the Company's aggregated incentive and nonqualified stock options plans as of the 2001, 2000 and 1999 fiscal year ends and changes during the years ending on those dates is presented below:

	Number of Shares	Weighted Average Exercise Price
Outstanding as of January 2, 1999	1,419,354	$ 10.49
Granted	809,665	$ 20.18
Forfeited	(165,632)	$ 16.80
Exercised	(255,179)	$ 7.26
Outstanding as of January 1, 2000	1,808,208	$ 14.68
Granted	881,832	$ 10.13
Forfeited	(203,434)	$ 18.53
Exercised	(86,777)	$ 7.55
Outstanding as of December 30, 2000	2,399,829	$ 12.94
Granted	2,226,465	$ 8.04
Forfeited	(1,136,109)	$ 11.36
Exercised	(134,252)	$ 6.57
Outstanding as of December 29, 2001	3,355,933  ========	$ 10.36 ======

The following table summarizes information about incentive and nonqualified stock options outstanding and exercisable at December 29, 2001:

OPTIONS OUTSTANDING				OPTIONS EXERCISABLE
			Weighted-		Weighted-
Range Of		Remaining	Average		Average
Exercise	Number	Contractual	Exercise	Number	Exercise
Prices	Outstanding	Life	Price	Exercisable	Price
$2.65 - 5.30	78,568	6.1 years	4.19	45,628	4.14
$5.30 - 7.95	1,265,149	8.6	7.22	267,063	7.04
$7.95 - 10.60	1,236,589	9.2	9.20	218,951	8.99
$10.60 - 13.25	177,590	7.0	11.82	103,842	11.60
$13.25 - 15.90	43,406	6.5	15.01	43,406	15.01
$15.90 - 18.55	262,434	5.4	17.04	190,168	16.96
$18.55 - 21.20	123,406	7.3	19.86	73,395	19.61
$21.20 - 23.85	99,183	7.6	22.24	40,699	22.26
$23.85 - 26.50	69,608	7.5	26.50	27,856	26.50
	3,355,933 ========	8.3	10.36	1,011,008 ========	12.07

At December 29, 2001, 1,147,945 shares were available for future grant under the Incentive Plan, and  53,200 shares were available for future grant under the Non-qualified Plan. At December 29, 2001 and December 30, 2000, options for 1,011,008 and 975,708 shares with weighted average exercise prices of $12.07 and $12.07, respectively, were exercisable. The weighted-average grant-date per-share fair values of options granted during fiscal 2001, fiscal 2000 and fiscal 1999 were $8.04, $10.13 and $20.18, respectively.


10. Litigation

Alfalfa's Canada, Inc., a Canadian subsidiary of the Company, is a defendant in a suit brought in the Supreme Court of British Columbia, by one of its distributors, Waysafer Wholefoods Limited and one of its principals, seeking monetary damages for breach of contract and injunctive relief to enforce a buying agreement for the three Canadian stores entered into by a predecessor of Alfalfa's Canada. Under the buying agreement, the stores must buy products carried by the plaintiff if such are offered at the current advertised price of its competitors. The suit was filed in September 1996. In June 1998, Alfalfa's Canada filed a Motion for Dismissal on the grounds that the contract in dispute constituted a restraint of trade. The Motion was subsequently denied. We do not believe its potential exposure in connection with the suit will have a material adverse effect on the Company's consolidated results of operations, financial position, or cash flows.

In April 2000, the Company was named as defendant in S/H -Ahwatukee, LLC and YP- Ahwatukee LLC v. Wild Oats Markets, Inc., Superior Court of Arizona, Maricopa County, by a landlord alleging Wild Oats breached a continuous operations clause arising from the closure of a Phoenix, Arizona store. The landlord dismissed the same suit, filed in 1999, without prejudice in 1999, after the Company presented a possible acceptable subtenant, but subsequently rejected the subtenant. Plaintiff claimed $1.5 million for diminution of value of the shopping center plus accelerated rent, fees and $360,000 in attorneys' fees and costs. After trial in November 2001, the judge awarded the plaintiff $326,000 in damages and $210,000 in attorneys' fees.

In January 2001, the Company was named as defendant in Glades Plaza, LP v. Wild Oats Markets, Inc., a suit filed in the 15th Judicial Circuit Court, Palm Beach County, Florida, by a landlord alleging we breached our lease obligations when we gave notice of termination of the lease for landlord's default in not timely turning over the premises. The parties negotiated a settlement pursuant to which the Company terminated its lease obligations and paid $220,000 to the plaintiff in return for a full release from all lease liability and termination of the lawsuit. 

In October 2000 we were named as defendant in 3601 Group Inc. v. Wild Oats Northwest, Inc., Wild Oats, Inc. and Wild Oats Markets, Inc., a suit filed in Superior Court for King County, Washington, by a property owner who claims that Alfalfa's Inc., our predecessor on interest, breached a lease in 1995 related to certain property in Seattle, Washington. We believe that Alfalfa's properly terminated the lease pursuant to certain conditions precedent to its obligations thereunder. Since filing its claim, Plaintiff has increased its damages claim from $377,000 to $2.4 million. The parties are currently in discovery. We have filed a motion for summary judgment, which is currently scheduled for a hearing in May 2002. A trial date has been set in June 2002. 

In January 2002, we were named as defendant in Michael C. Gilliland and Elizabeth C. Cook v. Wild Oats Markets, Inc., a suit filed in Boulder District Court, Boulder County, Colorado by former officers and directors, and holders of more than 5% of the Company's outstanding stock, for $2.0 million in principal on a promissory note, together with interest at a 15% default rate and attorneys' fees. The plaintiffs loaned the Company $2.0 million in January 2001. The Company executed a demand note for the loan. The plaintiffs demanded payment under the note in January 2002 and filed suit when they did not receive payment within the period specified. In March 2002, the parties entered into a settlement agreement dismissing the suit, pursuant to which the Company has agreed to a repayment schedule for the loan, together with interest at 9% per annum, from cash and equity proceeds over a five-month period, and the plaintiffs have agreed to a $200,000 offset against the principal balance of the loan for outstanding receivables alleged to be due to the Company.

We also are named as defendant in various actions and proceedings arising in the normal course of business. In all of these cases, the Company is denying the allegations and is vigorously defending against them and, in some cases, has filed counterclaims. Although the eventual outcome of the various lawsuits cannot be predicted, it is management's opinion that these lawsuits will not result in liabilities that would materially affect the Company's consolidated results of operations, financial position, or cash flows.


11. Commitments

The Company has numerous operating leases related to facilities occupied and store equipment. These leases generally contain renewal provisions at the option of the Company. Total rental expense (consisting of minimum rent and contingent rent) under these leases was $37.6 million, $34.5 million and $25.5 million during fiscal 2001, fiscal 2000 and fiscal 1999, respectively.

Future minimum lease payments under noncancelable operating leases as of December 29, 2001 are summarized as follows (in thousands):

FISCAL YEAR
2002	$ 31,855
2003	31,323
2004	29,237
2005	27,941
2006	26,139
Thereafter	254,511
Total minimum lease payments	$ 401,006 =======

Minimum rentals for operating leases do not include contingent rentals which may become due under certain lease terms which provide that rentals may be increased based on a percentage of sales. During fiscal 2001, fiscal 2000 and fiscal 1999, the Company paid contingent rentals of $734,000, $445,000 and $938,000, respectively.

Included in the $401.0 million of minimum lease payments is $29.1 million, which is related to lease costs for closed stores. The Company is actively working to defease these payments through assignments, subleases or terminations of the lease obligations.

As of December 29, 2001, the Company had commitments under construction contracts totaling $1.3 million.

In fiscal 1999, we entered into a supply agreement with Nutricia (formerly GNP), under which Nutricia manufactures for us certain private label vitamins and supplements. The agreement has a three-year term, but is terminable by either party with advance notice. We have certain minimum per-product purchase requirements that have led, in the past, to the Company being obligated for past dated products where the minimum product purchased could not be sold prior to expiration. We have no supply contracts with the majority of our smaller vendors, who could discontinue selling to us at any time. Although we believe that we could develop alternative sources of supply, any such termination may create a short-term disruption in store-level merchandise selection. 


12. Restructuring and Asset Impairment Charges

Fiscal 2001

As a result of hiring a new chief executive officer just prior to the beginning of the second quarter of fiscal 2001 and a comprehensive review conducted by the new chief executive officer of the business and strategic repositioning efforts of the Company during the second quarter of fiscal 2001, management identified and committed to a restructuring plan during the second quarter of fiscal 2001 and has recorded a restructuring and asset impairment charge of $54.8 million (such asset impairments were recorded in accordance with SFAS 121, Accounting for the Impairment of Long-lived Assets and for Assets to be Disposed of). The significant components of the charge are as follows: 

Change in estimate related to fixed asset impairments for previously identified sites held for disposal	$ 1.5 million
Change in estimate related to lease-related liabilities for previously identified sites for closure	15.9 million
Fixed asset impairments for three additional stores identified in the second quarter of fiscal 2001 to be abandoned, closed, or sold by the end of fiscal 2001	1.8 million
Lease-related settlements for three additional stores identified in the second quarter of fiscal 2001 to be abandoned, closed, or sold by the end of fiscal 2001	(0.4 million)
Fixed asset impairments for subleased properties identified during the second quarter of fiscal 2001	1.7 million
Lease-related liabilities for subleased properties identified during the second quarter of fiscal 2001	10.0 million
Fixed asset impairments for regional and departmental office closures and consolidations during the second quarter of fiscal 2001	3.0 million
Fixed asset impairments for store construction project discontinuation	2.3 million
Lease-related liabilities for store construction project discontinuation	0.6 million
Severance for employees terminated during the second quarter of fiscal 2001	2.5 million
Total	$ 38.9 million ===========

Details of the significant components of the charge are as follows:

- -   Change in estimate related to fixed asset impairments for previously identified sites held for disposal ($1.5 million) - During the second quarter of fiscal 2001, the Company determined that these fixed assets were not compatible with a new store design. Due to the new store design, such assets could not be relocated as contemplated under the original restructuring plan. As a result, the Company determined it could not recover the previously estimated carrying value of these assets, and therefore recognized an impairment charge and disposed of the assets during the second quarter of fiscal 2001.

- -   Change in estimate related to lease-related liabilities for previously identified sites for closure ($15.9 million) - During the second quarter of fiscal 2001, the Company determined that additional periods of time are necessary to dispose of certain lease obligations. This determination was driven by results of current disposition efforts by the Company, and is attributable to deteriorating real estate markets in certain regions, existing lease obligation at above-market rates, and unattractive site characteristics. The charge for exit costs assumes, based on the Company's current results of disposition efforts, that the Company will be successful in disposing of these long-term lease obligations within the next five years. Facts and circumstances can change in the future with respect to the above attributes affecting the ultimate resolution of these exit costs. The Company will make appropriate adjustments to the restructuring liabilities contemporaneous with the change in facts and circumstances.

- -   Fixed asset impairments for three additional stores identified in the second quarter of fiscal 2001 to be abandoned, closed, or sold by the end of fiscal 2001 ($1.8 million) - During the second quarter of fiscal 2001, the Company became involved in litigation filed by the landlord of a site under construction. The Company decided not to proceed with the opening of the store and consequently abandoned the site and the related fixed assets (leasehold improvements) totaling $1.5 million during the second quarter of fiscal 2001. Additionally, the fixed assets of two other stores that were scheduled to be closed by the end of fiscal 2001 comprised the remaining $300,000 of the charge.

- -   Fixed asset impairments for subleased properties identified during the second quarter of fiscal 2001 ($1.7 million) - These asset impairments relate to leasehold improvements made by the Company in subleased properties for specific subtenants. During the second quarter of fiscal 2001, certain subtenants either vacated the improved properties without prior notice or gave notice to the Company that they planned to vacate the properties shortly, and certain other subtenants were in financial distress and in one case, had filed for bankruptcy protection. The Company determined that it could not recover the carrying value of these build-to-suit leasehold improvements and therefore recognized an impairment charge. Certain of these assets were disposed of during the second quarter of fiscal 2001 and the remainder of which are to be disposed of by the end of fiscal 2001.

- -   Lease-related liabilities for subleased properties identified during the second quarter of fiscal 2001 ($10.0 million) - During the second quarter of fiscal 2001, certain subtenants either vacated the improved properties without prior notice or gave notice to the Company that they planned to vacate the properties shortly. The Company also was informed in the second quarter that certain other subtenants were in financial distress and in one case, had filed for bankruptcy protection. The lease-related liabilities represent the Company's estimate to dispose of these lease obligations based on current disposition efforts by the Company, and is attributable to deteriorating real estate markets in certain regions, existing lease obligations at above-market rates, and unattractive site characteristics. The charge for exit costs assumes, based on the Company's current results of disposition efforts, that the Company will be successful in disposing of these long-term lease obligations within the next five years. Facts and circumstances can change in the future with respect to the above attributes affecting the ultimate resolution of these exit costs. The Company will make appropriate adjustments to the restructuring liabilities contemporaneous with the change in facts and circumstances.

- -   Fixed asset impairments for regional and departmental office closures and consolidations during the second quarter of fiscal 2001 ($3.0 million) - As part of the Company's reorganization during the second quarter of fiscal 2001, the Company reduced its regional offices from 11 to five offices, and eliminated much of its construction department. In conjunction with these modifications to regional and departmental structures, the Company determined that it could not recover the carrying value of the fixed assets used by certain regional and departmental offices and the construction department and therefore recognized an impairment charge and disposed of the assets during the second quarter of fiscal 2001. 

- -   Fixed asset impairments for store construction project discontinuation ($2.3 million) - During the second quarter of fiscal 2001, the Company determined that a new store design was required and construction of new stores and expansion and remodel activities at existing stores based on the previously developed designs would be abandoned to incorporate the new store design changes. Assets in this charge included abandoned construction in progress (primarily leasehold improvements). The Company determined that it could not recover the carrying value of these fixed assets, and therefore recognized an impairment charge and disposed of the assets during the second quarter of fiscal 2001. 

- -   Severance for employees terminated during the second quarter of fiscal 2001 ($2.5 million) - During the second quarter of fiscal 2001, 104 of the Company's 9,000 employees were terminated as part of the Company's restructuring plan. The terminated employee groups were regional store support, construction and new store development, and corporate office personnel. As of December 29, 2001, $2.4 million of involuntary termination benefits had been paid to terminated employees; the remaining benefits of $136,000 will be paid during the first half of fiscal 2002.


In addition to the $38.9 million of restructuring charges described above, management has also identified asset impairment charges of $15.9 million in accordance with the provisions of SFAS 121 related to five stores held for use. The assets became impaired in the second quarter of fiscal 2001 because the projected future cash flows of each store at that time were not sufficient to fully recover the carrying value of the stores' long-lived assets. In determining whether an impairment exists, the Company estimates the store's future cash flows on an undiscounted basis, and if the cash flows are not sufficient to recover the carrying value, then the Company uses a discounted cash flow based on a risk-adjusted discount rate, to adjust its carrying value of the assets and records a provision for impairment as appropriate. The Company believes the weak performance from the stores included in the asset impairment charge were caused by significant budget overruns in construction (one store), poor site location (two stores) or insufficient advertising in new regional markets (two stores). The Company continually reevaluates its stores' performance to monitor the carrying value of its long-lived assets in comparison to projected cash flows. Elements that could contribute to impairment of long-lived assets include new competition, overruns in construction costs, or poor operating results caused by a variety of factors, including improper site selection, insufficient advertising, or changes in local, regional or national economies. The Company is currently reevaluating its store format and construction procedures to reduce the likelihood of construction cost overruns, and has increased its projected preopening costs per new store to increase the level of new store advertising. Site selection criteria are also being reevaluated in light of the results of the Company's comprehensive review of its operations and ideal customer demographics. There is no assurance that in the future, additional long-lived assets will not be deemed impaired.

After a comprehensive review of our support facilities was completed by management during the third quarter of fiscal 2001, we determined that the operations of certain support facilities should be eliminated. As a result, in the third quarter of fiscal 2001, we recorded a restructuring and asset impairment charge of $776,000 resulting primarily from the closure of three support facilities: a bakery in Tucson, Arizona, and two commissary kitchens in Los Angeles, California and Santa Fe, New Mexico. 

During the fourth quarter of fiscal 2001, we recorded restructuring income of $5.7 million consisting of the following components: 

Change in estimate related to lease-related liabilities for sites previously identified for closure or sale that were closed, sold or disposed of during the fourth quarter of fiscal 2001 and the first quarter of fiscal 2002 

Change in estimate related to lease-related liabilities for sites previously identified for closure or sale that were closed, sold or disposed of during the fourth quarter of fiscal 2001 and the first quarter of fiscal 2002	$ (10.1 million)
Change in estimate related to fixed asset impairments for four stores previously identified for closure or sale	(1.6 million)
Change in estimate related to lease-related liabilities for four stores previously identified for closure or sale	(1.1 million)
Fixed asset impairments for three additional stores and one support facility identified during the fourth quarter of fiscal 2001	3.3 million
Lease-related liabilities for three additional stores and one support facility identified during the fourth quarter of fiscal 2001	3.6 million
Severance for employees terminated during the fourth quarter of fiscal 2001	0.2 million
Total restructuring income	$ (5.7 million) ===========

- -   Change in estimate related to lease-related liabilities for sites previously identified for closure or sale that were closed, sold or disposed of during the fourth quarter of fiscal 2001 and the first quarter of fiscal 2002 ($10.1 million of restructuring income) - During the fourth quarter of fiscal 2001, we sold two stores in San Anselmo and Sacramento, California, in related transactions; we subsequently sold two additional stores in Berkeley and Sunnyvale, California, to the same purchaser of the other northern California stores. In conjunction with these transactions, the purchaser assumed the lease-related obligations associated with these stores. Based on this change in facts and circumstances, we reversed the remaining lease-related liabilities previously recorded for these stores and therefore recognized restructuring income of $3.7 million during the fourth quarter of fiscal 2001. During the fourth quarter of fiscal 2001 and the first quarter of fiscal 2002, we also terminated lease obligations for sites in Madison, New Jersey and Boca Raton, Florida, respectively; based on this change in facts and circumstances, we reversed the remaining lease-related liabilities previously recorded for these stores and therefore recognized restructuring income of $6.4 million during the fourth quarter of fiscal 2001.

- -   Change in estimate related to fixed asset impairments for four stores previously identified for closure or sale ($1.6 million of restructuring income) - Due to changes in facts and circumstances during the fourth quarter of fiscal 2001, we determined that four stores previously identified as sites held for disposal would continue to operate in their existing locations. Three of the stores were expected to be closed in conjunction with the Company's opening of new stores in the respective trade areas; however, during the fourth quarter of fiscal 2001, the Company decided to abandon the new store sites and continue to operate the existing stores. With regard to the fourth store, management decided in the fourth quarter of fiscal 2001 to continue to operate the store in its existing location after completing a competitive analysis of the market area and a reevaluation of the operations of the store in the fourth quarter of fiscal 2001, which showed that the store was achieving acceptable performance levels and demonstrating positive performance trends following the implementation of the Fresh Look program late in the third quarter of fiscal 2001. As a result, we reversed the restructuring charge previously recorded for the fixed asset impairments related to these four stores and therefore recognized restructuring income of $1.6 million during the fourth quarter of fiscal 2001.

- -   Change in estimate related to lease-related liabilities for four stores previously identified for closure or sale ($1.1 million of restructuring income) - Due to changes in facts and circumstances during the fourth quarter of fiscal 2001, we determined that four stores previously identified as sites held for disposal would continue to operate in their existing locations. Three of the stores were expected to be closed in conjunction with the Company's opening of new stores in the respective trade areas; however, during the fourth quarter of fiscal 2001, the Company decided to abandon the new store sites and continue to operate the existing stores. With regard to the fourth store, management decided in the fourth quarter of fiscal 2001 to continue to operate the store in its existing location after completing a competitive analysis of the market area and a reevaluation of the operations of the store in the fourth quarter of fiscal 2001, which showed that the store was achieving acceptable performance levels and demonstrating positive performance trends following the implementation of the Fresh Look program late in the third quarter of fiscal 2001. As a result, we reversed the restructuring charge previously recorded for the long-term lease obligations related to these four stores and therefore recognized restructuring income of $1.1 million during the fourth quarter of fiscal 2001.

- -   Fixed asset impairments for three additional stores and one support facility identified in the fourth quarter of fiscal 2001 to be closed or sold by the second quarter of fiscal 2002 ($3.3 million of restructuring expense) - During the fourth quarter of fiscal 2001, we decided to close two stores in fiscal 2002 following the negotiation of a lease obligation settlement for one store in the fourth quarter of fiscal 2001 and the completion of an operations analysis for the other store, which showed that the intensive Fresh Look marketing and merchandising efforts initiated at the store early in the fourth quarter of 2001 were not improving the store's sales and profit trends. We also decided to close one support facility in the second quarter of fiscal 2002 after determining in the fourth quarter of fiscal 2001 to outsource the operations of the support facility to an identified external food service supplier. We determined that we could not recover the carrying value of the fixed assets at these locations and therefore recognized an impairment charge. Certain of these assets were disposed of during the first quarter of fiscal 2002, and the remainder will be disposed of by the end of the second quarter of fiscal 2002. 

During the fourth quarter of fiscal 2001, we also decided to abandon construction of a new store in Kansas City, Missouri, due to location and parking-related issues. Assets in this charge included abandoned construction in progress (primarily leasehold improvements). We determined that we could not recover the carrying value of these fixed assets and therefore recognized an impairment charge and disposed of the assets during the fourth quarter of fiscal 2001.

- -   Lease-related liabilities for three additional stores and one support facility identified during the fourth quarter of fiscal 2001 to be closed or sold by the second quarter of fiscal 2002 ($3.6 million of restructuring expense) - During the fourth quarter of fiscal 2001, we decided to close two stores in fiscal 2002 following the negotiation of a lease obligation settlement for one store in the fourth quarter of fiscal 2001 and the completion of an operations analysis for the other store, which showed that the intensive Fresh Look marketing and merchandising efforts initiated at the store early in the fourth quarter of 2001 were not improving the store's sales and profit trends. We also decided to close one support facility in the second quarter of fiscal 2002 after determining in the fourth quarter of fiscal 2001 to outsource the operations of the support facility to an identified external food service supplier. The lease-related liabilities for these locations represent our estimate to dispose of these lease obligations based on current disposition efforts, and is attributable to deteriorating real estate markets in certain regions, existing lease obligations at above-market rates, and unattractive site characteristics. The charge for exit costs assumes, based on our current results of disposition efforts, that the Company will be successful in disposing of these long-term lease obligations within the next five years. Facts and circumstances can change in the future with respect to the above attributes affecting the ultimate resolution of these exit costs. We will make appropriate adjustments to the restructuring liabilities contemporaneous with the change in facts and circumstances.

During the fourth quarter of fiscal 2001, we also decided to abandon construction of a new store in Kansas City, Missouri due to location and parking-related issues. We terminated the lease obligation for $155,000 during the fourth quarter of fiscal 2001.

- -   Severance for employees terminated during the fourth quarter of fiscal 2001 ($0.2 million) - During the fourth quarter of fiscal 2001, 33 employees were terminated in conjunction with the closure of four support facilities during the fourth quarter of fiscal 2001. The employees were notified of their involuntary termination during the fourth quarter of fsical 2001. As of December 29, 2001, $98,000 of involuntary termination benefits had been paid to terminated employees; the remaining benefits of $57,000 will be paid during the first half of fiscal 2002.


Sales and store contribution to profit (sales less cost of goods sold, occupancy costs, and direct store expenses) for the fiscal year ended December 29, 2001, December 30, 2000 and January 1, 2000 for stores that were held for disposal are as follows (unaudited, in thousands):

	2001	2000	1999
Sales	$ 35,171	$ 95,242	$ 138,506
Store contribution to profit	$ (1,979)	$ 146	$ 9,452

The effect of suspending depreciation for assets held for disposal was approximately $913,000, $1.7 million and $416,000 for the fiscal years ended December 29, 2001, December 30, 2000 and January 1, 2000, respectively. 

The carrying value of those assets held for disposal as of December 29, 2001 and December 30, 2000 was approximately $125,000 and $509,000, respectively. 

In addition to the restructuring charges described above, management also identified asset impairment charges of $5.0 million in accordance with the provisions of SFAS 121 related to four stores held for use. These assets became impaired in the fourth quarter of fiscal 2001 because the projected future cash flows of each store at that time were not sufficient to fully recover the carrying value of the stores' long-lived assets. In determining whether an impairment exists, we estimate the store's future cash flows on an undiscounted basis, and if the cash flows are not sufficient to recover carrying value, then the Company uses a discounted cash flow based on a risk-adjusted discount rate, to adjust its carrying value of the assets and records a provision for impairment as appropriate. We believe the weak performance from the stores included in the asset impairment charge were caused by poor site location (two stores) or insufficient advertising in new regional markets (two stores). We continually reevaluate our stores' performance to monitor the carrying value of long-lived assets in comparison to projected cash flows. Elements that could contribute to impairment of long-lived assets include new competition, overruns in construction costs, or poor operating results caused by a variety of factors, including improper site selection, insufficient advertising, or changes in local, regional or national economies. We are currently reevaluating the store format and construction procedures to reduce the likelihood of construction cost overruns, and have increased our projected pre-opening costs per new store to increase the level of new store advertising. Site selection criteria are also being reevaluated in light of the results of the Company's comprehensive review of all operations and ideal customer demographics. There is no assurance that in the future, additional long-lived assets will not be impaired.


Fiscal 2000

During the second quarter of fiscal 2000, the Company's management made certain decisions relating to the strategic repositioning of the Company's operations which resulted in a restructuring and asset impairment charge of $20.6 million. These decisions included the closure of three natural foods stores during the second quarter of fiscal 2000 ($4.7 million); the planned sale or closure of seven stores during the remainder of fiscal 2000 ($9.9 million); exit costs of previously closed or abandoned sites ($5.6 million); and the discontinuance of e-commerce activities ($400,000). The $5.6 million charge related to changes in estimates for previously closed or abandoned sites. The significant components of the $5.6 million charge were (a) $3.6 million of additional lease-related liabilities, and (b) $2.0 million of fixed asset impairments for 15 previously closed stores. Components of the restructuring and asset impairment charge consist of impairment of fixed ($8.9 million) and intangible assets ($6.4 million); and noncancelable lease obligations and liabilities ($5.3 million). Substantially all of the restructuring charges are non-cash expenses. 

During the fourth quarter of fiscal 2000, the Company expanded its strategic repositioning and, as a part of such expansion, decided to close or sell twelve under performing stores. This decision resulted in an additional restructuring and asset impairment charge of $21.4 million. This restructuring charge consists primarily of costs associated with the abandonment of fixed ($13.6 million) and intangible assets ($1.7 million) and noncancelable lease obligations and lease-related liabilities ($6.1 million). Substantially all of the restructuring charges are non-cash expenses. 

The assets written off as part of the second and fourth quarter fiscal 2000 charges consist of the following:

Goodwill impairment	$ 8,041,000
Leasehold interest impairment	2,537,000
Fixed asset impairment	20,030,000
Total	$ 30,608,000 =========

During the first quarter of fiscal 2001, one natural foods store was closed in Denver, Colorado as part of the fiscal 2000 restructuring plans. An additional store was closed in the first quarter of fiscal 2002. Five of the identified stores were sold in the fourth quarter of fiscal 2001 and the first quarter of fiscal 2002. With regard to the current status of the Company's fiscal 2000 restructuring plans, as of March 1, 2002, 20 of the 22 stores identified in fiscal 2000 for closure or sale have been closed or sold. The remaining two stores have been removed from the Company's closure or sale list due to changes in facts and circumstances. A summary of restructuring activity by store count is as follows:

	RESTRUCTURING STORE COUNT
	Fiscal Year Ending		Period Ending
			March 1,
	2000	2001	2002
Stores remaining at commencement of period		9	6
Stores identified in fiscal 2000 for closure or sale	22
Stores identified in fiscal 2001 for closure or sale		6
Identified stores closed or abandoned	(10)	(3)	(2)
Identified stores sold	(3)	(2)	(3)
Reversal of stores identified for closure or sale		(4)
Identified stores remaining at period end	9  ==	6  ==	1  ==

The following table summarizes accruals related to all of the Company's restructuring plans during fiscal 2000 and 2001 (in thousands):

EXIT PLANS	1999 and prior	Q2 2000	Q4 2000	Q2 2001	Q3 2001	Q4 2001	Total
Balance, Jan 1, 2000	$ 1,868						$ 1,868
New accruals:
Lease-related liabilities	1,987	$ 3,142	$ 6,041				11,170
Cash paid - lease-related liabilities	(1,744)	(967)	(448)				(3,159)
Balance, Dec 30, 2000	2,111	2,175	5,593				9,879
New accruals:
Severance				$ 2,511		$ 155	2,666
Lease-related liabilities	3,261	2,242	(427)	10,458	$ 108	3,822	19,464
Cash paid - Severance				(2,375)		(98)	(2,473)
Cash paid - lease-related liabilities	(2,914)	(1,955)	(1,862)	(492)	(21)		(7,244)
Stock options in lieu of cash			(43)				(43)
Cash received -lease-related liabilities			800				800
Balance, Dec 29, 2001	$ 2,458* ======	$ 2,462* ======	$ 4,061* ======	$10,102** =======	$ 87* ====	$3,879*** ========	$ 23,049 =======

* The restructuring accrual balance consists of lease-related liabilities.
** The restructuring accrual balance consists of $10.0 million for lease-related liabilities and $0.1 million for employee termination benefits. 
*** The restructuring accrual balance consists of $3.8 million for lease-related liabilities and $57,000 for employee termination benefits. 

As of December 29, 2001, the components of the accruals related to the Company's restructuring activities are accrued liabilities ($6.6 million) and other long-term obligations ($16.4 million).


13. 401(k) Plan

The Company maintains a tax-qualified employee savings and retirement plan (the "401(k) Plan") covering the Company's employees. Pursuant to the 401(k) Plan, eligible employees may elect to reduce their current compensation by up to the lesser of 15% of their annual compensation or the statutorily prescribed annual limit ($10,500 in fiscal 2001) and have the amount of such reduction contributed to the 401(k) Plan. The 401(k) Plan provides for additional matching contributions to the 401(k) Plan by the Company in an amount determined by the Company prior to the end of each plan year. Total Company contributions during fiscal 2001, fiscal 2000 and fiscal 1999 were approximately $1.1 million, $1.0 million and $557,000, respectively. The trustees of the 401(k) Plan, at the direction of each participant, invest the assets of the 401(k) Plan in designated investment options. The 401(k) Plan is intended to qualify under Section 401 of the Internal Revenue Code. 

In January 2002, the Company was notified by its 401(k) trustee, Advisors Trust Company, that effective April 1, 2002, the trustee would no longer provide trustee services for 401(k) plans. The Company selected a new plan administrator and a new trustee after extensive research and interviews. The Company is currently in the process of transferring the existing plan accounts to the new trustee. Company employees have been notified that they will be unable to make withdrawals from or change the investment designations of their accounts until the transfer, which is estimated to take six to eight weeks, has been completed.

The Company, through Henry's, also sponsored a 401(k) plan in fiscal 1999 covering Henry's employees with at least 12 months of service. Contributions are discretionary. Henry's contributed $90,000 to this 401(k) plan for fiscal 1999.

The Company, through Sun Harvest, also sponsored a 401(k) plan in fiscal 1999 covering Sun Harvest employees with at least 12 months of service. Contributions are discretionary. Sun Harvest contributed $36,000 to this 401(k) plan for fiscal 1999. 


14. Stockholder Rights Plan

The Company has a stockholder rights plan having both "flip-in" and "flip-over" provisions. Stockholders of record as of May 22, 1998 received the right ("Right") to purchase a fractional share of preferred stock at a purchase price of $145 for each share of common stock held. In addition, until the Rights become exercisable as described below and in certain limited circumstances thereafter, the Company will issue one Right for each share of common stock issued after May 22, 1998. For the "flip-in provision," the Rights would become exercisable only if a person or group acquires beneficial ownership of 15% (the "Threshold Percentage") or more of the outstanding common stock. Holdings of certain existing affiliates of the Company are excluded from the Threshold Percentage. In that event, all holders of Rights other than the person or group who acquired the Threshold Percentage would be entitled to purchase shares of common stock at a substantial discount to the then-current market price. This right to purchase common stock at a discount would be triggered as of a specified number of days following the passing of the Threshold Percentage. For the "flip-over" provision, if the Company was acquired in a merger or other business combination or transaction, the holders of such Rights would be entitled to purchase shares of the acquiror's common stock at a substantial discount. In February 2002, the rights plan was amended to remove certain provisions related to continuing control of modification and operation of the rights plan by certain directors.


15. Deferred Compensation Plan

Effective fiscal 1999, the Company maintains a nonqualified Deferred Compensation Plan (the "DCP") for certain members of management. Eligible employees may contribute a portion of base salary or bonuses to the plan annually. The DCP provides for additional matching contributions by the Company in an amount determined by the Company prior to the end of each plan year. Total Company matching contributions to the DCP during fiscal 2001, fiscal 2000 and fiscal 1999 were approximately $26,000, $75,000 and $21,000, respectively.

16. Quarterly Information (Unaudited)

The following interim financial information presents the fiscal 2001 and fiscal 2000 consolidated results of operations on a quarterly basis (in thousands, except per-share amounts):

	QUARTER ENDED
	March 31, 2001	June 30, 2001	September 29, 2001	December 29, 2001
Statement of Operations Data:
Sales	$ 219,499	$ 229,383	$ 222,168	$ 222,129
Gross profit	66,409	66,378	63,543	62,218
Net loss	$ (118) =====	$ (38,120) =======	$ (2,898) =======	$ (2,776) =======
Basic net loss per common share:
Basic loss per common share	$ (0.00) =====	$ (1.55) =====	$ (0.12) =====	$ (0.13) =====
Diluted net loss per common share:
Diluted loss per common share	$ (0.00) =====	$ (1.55) =====	$ (0.12) =====	$ (0.13) =====

	QUARTER ENDED
	April 1, 2000	July 1, 2000	September 30, 2000	December 30, 2000
Statement of Operations Data:
Sales	$ 211,241	$ 212,772	$ 207,201	$ 206,917
Gross profit	66,524	66,339	62,254	61,034
Net income (loss)	$ 5,334 =====	$ (8,780) =====	$ 1,075 =====	$ (12,650) =====
Basic net income (loss)   per common share:
Basic income (loss) per common share	$ 0.23 =====	$ (0.38) =====	$ 0.05 =====	$ (0.55) =====
Diluted net income (loss)   per common share:
Diluted income (loss) per common    share	$ 0.23 =====	$ (0.38) =====	$ 0.05 =====	$ (0.55) =====

17. Related Party Transactions

Elizabeth C. Cook and Michael C. Gilliland, former executive officers and directors of the Company, each own a one-third interest in Pretty Good Groceries, Inc. ("PGG"), which in the past operated two grocery stores, and currently operates one store in Boulder, Colorado. Through January 2002, PGG purchased certain items through the Company's volume purchase discount programs with its distributors, and also purchased items from the Company's commissaries and warehouses at cost. The Company had a receivable of approximately $80,000 at December 29, 2001 related to the purchases by PGG of goods from the Company or its suppliers. The receivable was paid as part of the settlement of litigation described below. At December 29, 2001, the Company also had a receivable for certain personal expenses of Mr. Gilliland and Ms. Cook, the amount of which was in dispute.

Ms. Cook and Mr. Gilliland are trustees of Wild Oats Community Foundation ("Foundation"), a non-profit organization formed by Ms. Cook and Mr. Gilliland to provide health-related services. During fiscal 1998 and fiscal 1999, the Foundation entered into sublease arrangements with the Company for space adjacent to three of the Company's stores leased by the Company. In fiscal 2001, the sublease obligations between the Foundation and the Company were terminated, and other subtenants were placed in two of the three wellness center locations. The third primary lease for space sublet by the Foundation expired by its own terms. The Company had a small receivable related to subtenant rent due from the Foundation, which was paid as part of the settlement of the litigation described below.

In May 1998, PGG II, a limited liability company two-thirds owned by Mr. Gilliland and Ms. Cook purchased a small underperforming store in Boulder, Colorado from the Company. PGG II paid the wholesale cost of the inventory in the store at time of transfer. PGG II disputed whether there was consideration due for equipment transferred to PGG II as part of the original purchase transaction, and the parties reached a settlement on the value of the equipment as part of the settlement of the litigation described below.

In January 2001, the Company borrowed $2.0 million from Ms. Cook and Mr. Gilliland. The loan was evidenced by a demand note that bears interest at 9.0% per annum and default rate interest at 15% per annum. Mr. Gilliland and Ms. Cook filed suit against the Company in January 2002 for payment of the note after demand was made but payment was not received. See "Notes to Consolidated Financial Statements - Note 10 - Litigation." In March 2002 the parties settled the litigation through execution of a settlement agreement under which the plaintiffs agreed to a $200,000 offset against the principal balance of the loan in settlement of certain identified receivables alleged to be due to the Company, and the Company agreed to repayment of the balance of the loan, together with interest at 9% per annum, over a five-month period from cash and proceeds of equity securities.

In fiscal 2000, the Company recorded a note receivable in the amount of approximately $75,000 from Bacchus Beverage Corporation, an entity owned by Patrick Gilliland, Mr. Gilliland's brother, which was a subtenant in excess space located adjacent to one of the Company's stores. In March 2002, the Company agreed to extinguish the remaining balance on the note in exchange for a $35,000 cash payment.

In March 2001, Perry D. Odak, the Company's Chief Executive Officer and President, and a director of the Board, purchased 1,332,649 shares of Common Stock for $6.969 per share for an aggregate purchase price of $9.28 million. Mr. Odak paid $13,326 in cash and executed a full recourse, five-year promissory note for the balance of $9,273,905 to the Company, with interest accruing at 5.5% percent per annum, compounding semiannually.

If the Company issues additional shares of Common Stock such that Mr. Odak's share of Common Stock represents less than 5%, Mr. Odak has the right to purchase such additional shares of Common Stock sufficient to maintain his interest at 5% of the outstanding Common Stock, provided that Mr. Odak will not acquire more than 300,000 shares in the aggregate.

Schedule II
WILD OATS MARKETS, INC.
Valuation and Qualifying Accounts and Reserves
(in thousands)

Allowance For Doubtful Accounts for the Fiscal Years Ended:	Balance At Beginning Of Year	Charged To Expenses	Write-Offs	Balance At End Of Year
January 1, 2000	$159	155	(55)	$259
December 30, 2000	$259	293	(197)	$355
December 29, 2001	$355	1,575	(860)	$1,070

Inventory Reserve for the Fiscal Years Ended:	Balance At Beginning Of Year	Charged To Expenses	Write-Offs	Balance At End Of Year
January 1, 2000	$586	1,713	(969)	$1,330
December 30, 2000	$1,330	1,786	(1,633)	$1,483
December 29, 2001	$1,483	1,784	(600)	$2,667

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE

None reported.


PART III.

Item 10.
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information included under the captions "Election of Directors" and "Executive Compensation-Management-Executive Officers" in our definitive Proxy Statement in connection with the Annual Meeting of stockholders to be held May 7, 2002, to be filed with the Commission on or before April 5, 2002, is incorporated herein by reference.


Item 11.
EXECUTIVE COMPENSATION

The information included under the caption "Executive Compensation" in our definitive Proxy Statement in connection with the Annual Meeting of stockholders to be held May 7, 2002, to be filed with the Commission on or before April 5, 2002, is incorporated herein by reference.


Item 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT 

The information included under the caption "Security Ownership of Certain Beneficial Owners and Management" in our definitive Proxy Statement in connection with the Annual Meeting of stockholders to be held May 7, 2002, to be filed with the Commission on or before April 5, 2002, is incorporated herein by reference. 


Item 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information included under the caption "Directors and Executive Officers - Certain Transactions" in our definitive Proxy Statement in connection with the Annual Meeting of stockholders to be held May 7, 2002, to be filed with the Commission on or before April 5, 2002, is incorporated herein by reference.


PART IV.

Item 14.
EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT 
SCHEDULE AND REPORTS ON FORM 8-K

(a) Financial Statements and Financial Statement Schedule. The following are filed as a part of this Report on Form 10-K:

(1)	Report of Management
	Reports of Independent Accountants Consolidated Statements of Operations Consolidated Statements of Comprehensive Income (Loss) Consolidated Balance Sheets Consolidated Statements of Changes in Stockholders' Equity  Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements
(2)	Schedule II - Valuation and Qualifying Accounts and Reserves

(b) Reports on Form 8-K. The Company filed the following reports on Form 8-K during fiscal 2001:

(1)	Report January 4, 2001 on Form 8-K, reported under Item 9, Regulation FD Disclosure, regarding earnings per share projections.
(2)	Report dated August 31, 2001 on Form 8-K, reported under Item 5, Other Events, announcing operations restructuring.
(3)	Report dated October 19, 2001, reported under Item 5, Other Events, announcing an amendment to credit facility.
(4)	Report dated December 7, 2001, reported under Item 5, Other Events, announcing the resignation of two board members.
(5)	Report dated December 17, 2001, reported under Item 5, Other Events, announcing the naming of Edward Dunlap as Chief Financial Officer.

(c) Exhibits. The following exhibits to this Form 10-K are filed pursuant to the requirements of Item 601 of Regulation S-K:

EXHIBIT NUMBER	DESCRIPTION OF DOCUMENT
3(i).1.(a)**	Amended and Restated Certificate of Incorporation of the Registrant. (1)
3(i).1.(b)**	Certificate of Correction to Amended and Restated Certificate of Incorporation of the Registrant. (1)
3(i).1.(c)**	Certificate of Amendment to Amended and Restated Certificate of Incorporation of the Registrant. (2)
3(ii).1**	Amended and Restated By-Laws of the Registrant. (1)
4.1**	Reference is made to Exhibits 3(i).1 through 3(ii).1.
4.2**	Specimen stock certificate. (3)
4.3**	Rights Agreement dated May 22, 1998 between Registrant and Norwest Bank Minnesota. (4)
4.4+	Amendment No. 1 to Rights Agreement dated February 26, 2002 between Registrant and Wells Fargo Bank, N.A.
10.1**	Form of Indemnity Agreement between the Registrant and its directors and executive officers, with related schedule. (3)
10.2#**	1996 Equity Incentive Plan, including forms of Options granted to employees and non-employee directors thereunder. (3)
10.3#**	Amendment to 1996 Equity Incentive Plan. (4)
10.4#+	Second Amendment to 1996 Equity Incentive Plan.
10.5#**	1996 Employee Stock Purchase Plan. (3)
10.6#+	Amendment to 1996 Employee Stock Purchase Plan
10.7#**	1993 Stock Option Plan. (3)
10.8#**	1991 Stock Option Plan. (3)
10.9#**	Employee Stock Ownership Plan. (3)
10.10#**	Wild Oats Markets, Inc. Deferred Compensation Plan (6)
10.11#**	Employment Agreement dated March 6, 2001 between Perry D. Odak and the Registrant .(7)
10.12#+	Amendment to Employment Agreement dated March 6, 2001 between Perry D. Odak and the Registrant.
10.13#**	Stock Purchase Agreement dated March 6, 2001 between Perry D. Odak and the Registrant .(7)
10.14#**	Stephen Kaczynski Equity Incentive Plan. (8)
10.15#**	Employment Agreement dated April 24, 2001 between Stephen A. Kaczynski and the Registrant. (8)
10.16#**	Employment Agreement dated May 21, 2001 between Bruce Bowman and the Registrant. (8)
10.17#+	Amendment to Employment Agreement dated May 21, 2001 between Bruce Bowman and Registrant.
10.18#**	Bruce Bowman Equity Incentive Plan. (8)
10.19#+	Terry Maloy Equity Incentive Plan.
10.20#+	Edward F. Dunlap Equity Incentive Plan.
10.21#+	Employment Agreement dated December 17, 2001 between Edward F. Dunlap and the Registrant.
10.22#+	Severance Agreement and Release of Claims dated August 4, 2001, between Mary Beth Lewis and the Registrant.
10.23#+	Amendment to Severance Agreement between Mary Beth Lewis and the Registrant
10.24#+	Severance Agreement and Release of Claims dated November 14, 2001, between James Lee and the Registrant
10.25+	Wild Oats Markets, Inc. 2001 Nonofficer/Nondirector Equity Incentive Plan.
10.26**	Amended and Restated Stockholders Agreement among the Registrant and certain parties named therein dated August 1996. (3)
10.27**	Registration Rights Agreement between the Registrant and certain parties named therein dated July 12, 1996. (3)
10.28**	Amended and Restated Credit Agreement dated as of August 1, 2000, among Registrant, the lenders named therein and Wells Fargo Bank National Association, as Administrative Agent. (5)
10.29**	Amendment No. 1 to Amended and Restated Credit Agreement, dated October 17, 2001. (9)
10.30+	Amendment No. 2 to Amended and Restated Credit Agreement, dated November 12, 2001.
10.31+	Amendment No. 3 to Amended and Restated Credit Agreement, dated December 14, 2001.
21.1+	List of subsidiaries.
23.1+	Consent of PricewaterhouseCoopers LLP.
23.2+	Consent of Ernst & Young LLP.

________________________________

#	Management Compensation Plan.
**	Previously filed.
+	Included herewith.
(1)	Incorporated by reference from the Registrant's Form 10-K for the year ended December 28, 1996. (File No. 0-21577)
(2)	Incorporated by reference from the Registrant's Amendment No. 2 to the Registration Statement on Form S-3 filed with the Commission on November 10, 1999 (File No. 333-88011)
(3)	Incorporated by reference from the Registrant's Registration Statement on Form S-1 (File No. 333-11261) filed on August 30, 1996
(4)	Incorporated by reference from the Registrant's Registration Statement on Form S-8 (File No. 333-66347) filed on October 30, 1998
(5)	Incorporated by reference from the Registrant's Form 10-Q for the period ended September 30, 2000 (File No. 0-21577), filed on November 14, 2000.
(6)	Incorporated by reference from the Registrant's Form 10-K for the year ended December 29, 2001 (File No. 0-21577)
(7)	Incorporated by reference from the Registrant's Form 10-Q for the period ended March 31, 2001 (File No. 0-21577
(8)	Incorporated by reference from the Registrant's Form 10-Q for the period ended June 30, 2001 (File No. 0-1577)
(9)	Incorporated by reference from the Registrant's Form 10-Q for the period ended September 29, 2001 (File No. 0-21577)

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



Wild Oats Markets, Inc.
(Registrant)

By: /s/ Edward F. Dunlap 
Edward F. Dunlap
Executive Officer and Chief Financial Officer
(Principal Financial and Accounting Officer)

Date: March 26, 2002

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Perry D. Odak	Chief Executive Officer, President and Director	March 26, 2002
/s/ Edward F. Dunlap	Chief Financial Officer	March 26, 2002
/s/ John A. Shields	Chairman	March 26, 2002
/s/ David M. Chamberlain	Vice Chairman	March 26, 2002
/s/ Brian K. Devine	Director	March 26, 2002
/s/ David L. Ferguson	Director	March 26, 2002
/s/ James B. McElwee	Director	March 26, 2002
/s/ Mo J. Siegel	Director	March 26, 2002

EX-4.4

AMENDMENT NO. 1 TO RIGHTS AGREEMENT

This Amendment No. 1 to Rights Agreement, dated as of February 26, 2002 (this "Amendment"), amends that certain Rights Agreement, dated as of May 22, 1998 (the "Original Agreement"), entered into between Wild Oats Markets, Inc., a Delaware corporation (the "Company"), and Wells Fargo Bank, N.A., as successor in interest to Norwest Bank Minneapolis, N.A. (the "Rights Agent").

W I T N E S S E T H:

WHEREAS, pursuant to Section 27 of the Original Agreement, the Company desires to make certain amendments to the Original Agreement.

NOW, THEREFORE, in consideration of the foregoing and in accordance with Section 27 of the Original Agreement and intending to be legally bound, the Company and the Rights Agent agree that the Original Agreement hereby is amended as follows:

1. Certain Amendments.

Amendment to Section 1(a). Section 1(a) of the Original Agreement hereby is amended in its entirety to read as follows:

"Acquiring Person" means any Person that, together with all Affiliates and Associates of such Person, is the Beneficial Owner of 15% or more of the shares of Common Stock then outstanding, but shall not include (i) the Company, any Subsidiary of the Company, any employee benefit plan of the Company or of any Subsidiary of the Company, or any Person or entity organized, appointed or established by the Company for or pursuant to the terms of any such plan; (ii) any Person who would otherwise become an Acquiring Person solely as a result of a reduction in the number of shares of Common Stock outstanding due to the acquisition of shares of Common Stock by the Company or a Subsidiary of the Company, unless and until such Person shall thereafter purchase or otherwise become the Beneficial Owner of additional shares of Common Stock constituting one percent or more of the then outstanding shares of Common Stock; or (iii) any of the following: David L. Ferguson or J.P. Morgan Partners (SBIC), LLC.

Notwithstanding the foregoing, if the Board of Directors of the Company determines in good faith that a Person who would otherwise be an "Acquiring Person," as defined pursuant to the foregoing provisions of this paragraph (a), has become such inadvertently, and such Person divests as promptly as practicable a sufficient number of shares of Common Stock so that such Person would no longer be an "Acquiring Person," as defined pursuant to the foregoing provisions of this paragraph (a), such Person shall not be deemed to be an "Acquiring Person" for any purposes of this Agreement.

1. Amendment to Section 1(h). Section 1(h) of the Original Agreement (which defines the term "Continuing Director") hereby is deleted in its entirety, and the remaining Section 1(i) through 1(q) hereby are renumbered as Sections 1(h) through 1(p), respectively.
2. Amendment to Section 7(e). Section 7(e) of the Original Agreement hereby is amended in its entirety to read as follows:
   
   (e) Notwithstanding anything in this Agreement to the contrary, from and after the first occurrence of a Section 11(a)(ii) Event, any Rights beneficially owned by (i) an Acquiring Person or an Associate or Affiliate of an Acquiring Person, (ii) a transferee of an Acquiring Person (or of any such Associate or Affiliate) who becomes a transferee after the Acquiring Person becomes such, or (iii) a transferee of an Acquiring Person (or of any such Associate or Affiliate) who becomes a transferee prior to or concurrently with the Acquiring Person becoming such and receives such Rights pursuant to either (A) a transfer (whether or not for consideration) from the Acquiring Person to holders of equity interests in such Acquiring Person or to any Person with whom the Acquiring Person has any continuing agreement, arrangement or understanding regarding the transferred Rights or (B) a transfer that the Company has determined is part of a plan, arrangement or understanding that has as a primary purpose or effect the avoidance of this Section 7(e), shall become null and void without any further action and no holder of such Rights shall have any rights whatsoever with respect to such Rights, whether under this Agreement or otherwise. The Company shall use all reasonable efforts to insure that this Section 7(e) and Section 4(b) hereof are complied with, but shall have no liability to any holder of Rights Certificates or other Person as a result of its failure to make any determinations with respect to an Acquiring Person or its Affiliates, Associates or transferees hereunder.
3. Amendment to Section 23(a). Section 23(a) of the Original Agreement hereby is amended in its entirety to read as follows:
   
   (a) The Board of Directors of the Company may, at its option, at any time before the earlier of (i) the close of business on the tenth day following the Stock Acquisition Date (or, if the Stock Acquisition Date occurs before the Record Date, the close of business on the tenth day after the Record Date), or (ii) the Final Expiration Date, redeem all but not less than all the then outstanding Rights at a redemption price of $.001 per Right (such redemption price being hereinafter referred to as the "Redemption Price"). Notwithstanding anything in this Agreement to the contrary, the Rights shall not be exercisable at any time when the Company may redeem them pursuant to this Section 23. The Company may, at its option, pay the Redemption Price in cash, shares of Common Stock (based on the "current market price" as defined in Section 11(d)(i) hereof, of the Common Stock at the time of redemption) or any other form of consideration deemed appropriate by the Board of Directors. Notwithstanding anything herein to the contrary, the Rights shall not be exercisable pursuant to Section 11(a)(ii) prior to the expiration of the Company's right of redemption hereunder.
4. Amendment to Section 27. Section 27 of the Original Agreement hereby is amended in its entirety to read as follows:
   
   Section 27. Supplements and Amendments. Prior to the Distribution Date, the Company from time to time may, in its sole and absolute discretion, and the Rights Agent shall if the Company so directs, supplement or amend any provision of this Agreement without the approval of any holder of Rights. From and after the Distribution Date and subject to the penultimate sentence of this Section 27, the Company may, and the Rights Agent shall if the Company so directs, supplement or amend this Agreement without the approval of any holders of Rights (i) to cure any ambiguity, (ii) to correct or supplement any provision contained herein which may be defective or inconsistent with any other provisions herein, or (iii) to shorten or lengthen any time period hereunder; provided, however, that this Agreement may not be supplemented or amended to lengthen, pursuant to clause (iii) of this sentence, (A) a time period relating to when the Rights may be redeemed at such time as the Rights are not then redeemable, or (B) any other time period unless such lengthening is for the purpose of protecting, enhancing or clarifying the rights of holders of the Rights. Upon the delivery of a certificate from an appropriate officer of the Company stating that the proposed supplement or amendment is in compliance with this Section 27, the Rights Agent shall execute such supplement or amendment. Notwithstanding anything herein to the contrary, no supplement or amendment shall be made after the Distribution Date that would adversely affect the basic economic terms of the Rights or would have the effect of making the Rights redeemable. Prior to the Distribution Date, the interests of the holders of Rights shall be deemed coincident with the interests of the holders of Common Stock.
5. Amendment to Exhibit C. The Summary of Rights to Purchase Preferred Stock attached as Exhibit C to the Original Agreement hereby is amended as follows:
1. The eleventh paragraph of the Summary of Rights to Purchase Preferred Stock hereby is amended in its entirety to read as follows:
   
   At any time until ten days following the Stock Acquisition Date, the Company may redeem the Rights in whole, but not in part, at a price of $.001 per Right. Immediately upon the action of the Board of Directors ordering redemption of the Rights or at such other time as may be specified by the Board when it orders redemption, the Rights will terminate and the only right of the holders of Rights will be to receive the $.001 redemption price.
2. The twelfth paragraph of the Summary of Rights to Purchase Preferred Stock (which defined "Continuing Directors") hereby is deleted in its entirety.
2. Miscellaneous Provisions.
1. "Agreement" as Amended. The term "Agreement" as used in the Original Agreement shall be deemed to refer to the Original Agreement as amended by this Amendment, and all references in the Original Agreement to the "Agreement" shall be deemed to include this Amendment.
2. Effectiveness. This Amendment shall be effective as of the date first written above, and except as set forth herein, the Original Agreement shall remain in full force and effect and otherwise shall be unaffected hereby.
3. Severability. If any term of this Amendment is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Amendment shall remain in full force and effect and shall in no way be affected, impaired or invalidated.
4. Governing Law. This Amendment shall be deemed to be a contract made under Delaware law and for all purposes shall be governed by and construed in accordance with Delaware law applicable to contracts made and to be performed entirely within such state.
5. Counterparts. This Amendment may be executed in any number of counterparts, each of which shall be an original, and all of which shall together constitute a single instrument.
6. Descriptive Headings. Descriptive headings of the Sections of this Amendment are inserted for convenience only and shall not affect the meaning of this Amendment.

[Remainder of this page intentionally left blank.]

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the day and year first above written.

WILD OATS MARKETS, INC.


By: /s/
Name: Freya R. Brier
Title:  V.P., Legal

WELLS FARGO BANK, N.A.


By:  /s/
Name:  Jennifer L. Leno
Title:  Officer

EX-10.4

SECOND AMENDMENT

TO

WILD OATS MARKETS, INC.

1996 EQUITY INCENTIVE PLAN

On August 19, 1996, the Board of Directors of Wild Oats Markets, Inc. (the "Company") adopted the Wild Oats Markets, Inc. 1996 Equity Incentive Plan (the "Plan") under which the Company may, from time to time, issue options exercisable for shares of the Common Stock, stock bonuses and rights to purchase restricted Common Stock of the Company.

RECITALS

A. The Board of Directors of the Company resolved on February 3, 2000 to increase the number of shares of the Company's Common Stock reserved for issuance under the Plan, by 1,560,000 shares.

B. Shareholder approval to amend the Plan by increasing by 1,560,000 the number of shares of the Company's Common Stock reserved for issuance under the Plan was requested and given at the Shareholders Annual Meeting on May 5, 2000.

AMENDMENT

1. Section 4(a) of the Plan is hereby amended by deleting the existing Section 4(a), as previously amended, in its entirety and replacing it with the following Section 4(a):

(a) Subject to the provisions of Section 12 relating to adjustments upon changes in stock, the stock that may be issued pursuant to Stock Awards shall not exceed in the aggregate 4,650,221 shares of Common Stock (including previously reserved shares). If any Stock Award shall for any reason expire or otherwise terminate, in whole or in part, without having been exercised in full (or vested in the case of Restricted Stock), the stock not acquired under such Stock Award shall revert to and again become available for issuance under the Plan.

2. The foregoing amendment is effective as of May 5, 2000.

3. Except for the above Amendment, all terms and conditions of the Plan are unamended and shall remain in full force and effect.

WILD OATS MARKETS, INC.

By:  /s/ Mary Beth Lewis

 Title: Secretary

 Date: May 5, 2000

EX-10.6

FIRST AMENDMENT

TO

WILD OATS MARKETS, INC.

EMPLOYEE STOCK PURCHASE PLAN

RECITALS

A. In August 1996, the Board of Directors of Wild Oats Markets, Inc. (the "Company") adopted the Wild Oats Markets, Inc. Employee Stock Purchase Plan (the "Plan") under which the employees of the Company, and its affiliates, be given an opportunity to purchase stock of the Company.

B. At the Plan's inception, 260,453 shares (on a post-split basis adjusted for stock splits in December 1999 and January 1998) of common stock were reserved for issuance under the Plan.

C. On May 21, 2001, the balance of shares of common stock available for purchase under the Plan on a post-split basis adjusted for stock splits in December 1999 and January 1998 was 19,004.

D.On May 22, 2001, the Company's stockholders approved an amendment to the Plan to increase by 500,000 the number of shares of the Company's common stock available for purchase pursuant to the Plan.

AMENDMENT

1. Section 3(a) of the Plan is hereby amended by adding 500,000 shares of common stock to the total number reserved for issuance under the Plan and thereby increasing the limit of the aggregate shares of the Company's common stock that may be sold pursuant to rights granted under the Plan on a post-split basis adjusted for stock splits in December 1999 and January 1998 to 760,453.

      2.    The foregoing amendment is effective as of May 22, 2001.

3. Except for the above Amendment, all definitions, terms and conditions of the Plan are unamended and shall remain in full force and effect.

WILD OATS MARKETS, INC.

By: /s/ Mary Beth Lewis

Title: Secretary

Date:  May 22, 2001

EX-10.12

FIRST AMENDMENT TO EMPLOYMENT AGREEMENT

THIS FIRST AMENDMENT TO EMPLOYMENT AGREEMENT by and between Wild Oats Markets, Inc. (the "Company") and Perry D. Odak (the "Executive") is dated December 28, 2001.

RECITALS

A. The Executive and the Company entered into an Employment Agreement dated March 6, 2001 (the "Employment Agreement"); and

B. Under Section 4(b) of the Employment Agreement, the Company shall pay the Executive as Incentive Compensation in respect to each fiscal year (or a portion thereof) of the Company during the Term, an amount determined in accordance with any bonus or short term incentive compensation program (which may be based upon achieving certain specified performance criteria) which may be established by the Board either for the Executive or for senior management;

C. Section 4(b) of the Employment Agreement further provides for the Executive's good faith consideration of waiving all or a portion of the Incentive Compensation otherwise payable to him for the first 12 months of service to the extent that the Company incurs a loss in connection with its obligation to arrange for the purchase of the Executive's house under Section 4(h) of the Employment Agreement;

D. The parties have agreed to an extension of the date on which the Incentive Compensation shall be paid in order to provide for sufficient time to determine whether the Company will incur a loss in connection with the Company's obligation to purchase the Executive's house for purposes of Section 4(b) of the Agreement; and

E. The Board of Directors and the Executive have agreed that the first Incentive Compensation payment date shall be as provided below.

AGREEMENT

NOW, THEREFORE, in consideration of the foregoing premises and the mutual promises, terms, provisions and conditions set forth in this First Amendment to Employment Agreement, the parties hereby agree:

1. Amendment to Section 4(b) - Incentive Compensation. The last sentence in the first full paragraph is deleted and replaced with the following:

The amount of Incentive Compensation to be paid by the Company to the Executive for the first twelve (12) months of service during the Term hereof shall not be less than Two Hundred Fifty Thousand Dollars ($250,000), which amount shall be paid only if the Executive remains in the employment of the Company on June 20, 2002 or is terminated by the Company other than for Cause (or he terminates for Good Reason) during such period.

The following sentence is added at the end of Section 4(b) of the Employment Agreement:

The Incentive Compensation payment to the Executive for the first 12 months of service during the Term shall be due on or before June 20, 2002 in order to provide sufficient time for the Executive to evaluate whether the Company has incurred a loss in connection with the Company's obligation to purchase the Executive's house.

2. Confirmation. In all other respects, the terms of the Employment Agreement are hereby confirmed.

IN WITNESS WHEREOF, this First Amendment to Employment Agreement has been executed by the Company, by its duly authorized officer, and by the Executive, as of the date first above written.

THE EXECUTIVE	WILD OATS MARKETS, INC.
/s/
Perry D. Odak	By:  /s/
	Name: Freya R. Brier
	Title: V.P., Legal

EX-10.17

AMENDMENT TO EMPLOYMENT AGREEMENT

This Amendment, dated as of December 21, 2001, is between Wild Oats Markets, Inc., a Delaware corporation (the "Company") and Bruce Bowman ("Executive").

RECITALS

A. Executive and the Company entered into an Employment Agreement dated May 21, 2001, pursuant to which Executive was hired by the Company (the "Agreement").

B. The Company and Executive have determined that an insufficient period of time has passed within which to evaluate Executive's performance for purposes of determining whether Executive has earned a bonus pursuant to Section 3(c) of the Agreement.

C. The parties desire to amend the Agreement as provided below to allow for a greater review prior to payment of any bonuses to Executive.

AGREEMENT

In consideration of the recitals set forth above, the parties agree as follows:

1. Amendment of Section 3(c) of the Agreement. Section 3(c) of the Agreement is hereby deleted and the following substituted therefor:

1. For performance for the first year of employment, if the Executive meets or exceeds (in the reasonable determination of the CEO) performance targets established by the CEO, the Executive shall be entitled to receive a minimum bonus of $50,000, payable on or before May 1, 2002.

2. No Further Amendment. Except as set forth herein, the Agreement shall remain in full force and effect.

Executed as of the date set forth above.

WILD OATS MARKETS, INC.                    THE EXECUTIVE

By:  /s/  Freya Brier                                         /s/ Bruce Bowman
        V.P., Legal

EX-10.19

WILD OATS MARKETS, INC.

TERRY MALOY EQUITY INCENTIVE PLAN

1. PURPOSES

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

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

2. DEFINITIONS

(a) "AFFILIATE" means any parent corporation or subsidiary corporation, whether now or hereafter existing, as those terms are defined in Sections 424(e) and (f) respectively, of the Code.

(b) "BOARD" means the Board of Directors of the Company.

(c) "CODE" means the Internal Revenue Code of 1986, as amended.

(d) "COMMITTEE" means a Committee appointed by the Board in accordance with subsection 3(c) of the Plan.

(e) "COMPANY" means Wild Oats Markets, Inc. a Delaware corporation.

(f) "CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT" means the employment or relationship as a Director or Consultant is not interrupted or terminated. The Board, in its sole discretion, may determine whether Continuous Status as an Employee, Director or Consultant shall be considered interrupted in the case of: (i) any leave of absence approved by the Board, including sick leave, military leave, or any other personal leave; or (ii) transfers between locations of the Company or between the Company, Affiliates or their successors.

(g) "DIRECTOR" means a member of the Board.

(h) "EMPLOYEE" means any person, including Officers and Directors, employed by the Company or any Affiliate of the Company. Neither service as a Director nor payment of a director's fee by the Company shall be sufficient to constitute "employment" by the Company.

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

(j) "FAIR MARKET VALUE" means, as of any date, the value of the Common Stock of the Company determined as follows:

(1) If the Common Stock is listed on any established stock exchange, or traded on the Nasdaq National Market or the Nasdaq SmallCap Market, the Fair Market Value of a share of Common Stock shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or market (or the exchange or market with the greatest volume of trading in Common Stock) on the last market trading day prior to the day of determination, as reported in the Wall Street Journal or such other source as the Board deems reliable;

(2) In the absence of such markets for the Common Stock, the Fair Market Value shall be determined in good faith by the Board.

(k) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder.

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

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

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

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

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

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

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

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

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

3. ADMINISTRATION

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

(b) The Board shall have the power, subject to, and within the limitations of, the express provisions of the Plan:

(1) To determine when and how each Stock Award shall be granted; whether a Stock Award will be an Incentive Stock Option or a Nonstatutory Stock Option.

(2) To construe and interpret the Plan and Stock Awards granted under it, and to establish, amend and revoke rules and regulations for its administration. The Board, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan or in any Stock Award Agreement, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective.

(3) To amend the Plan or a Stock Award as provided in Section 13.

(4) Generally, to exercise such powers and to perform such acts as the Board deems necessary or expedient to promote the best interests of the Company which are not in conflict with the provisions of the Plan.

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

4. SHARES SUBJECT TO THE PLAN

(a) Subject to the provisions of Section 12 relating to adjustments upon changes in stock, the stock that may be issued pursuant to Stock Awards shall not exceed in the aggregate 60,000 shares of the Common Stock. If any Stock Award shall for any reason expire or otherwise terminate, in whole or in part, without having been exercised in full (or vested in the case of Restricted Stock), the stock not acquired under such Stock Award shall cease to be subject to the Plan.

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

5. ELIGIBILITY

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

(b) Subject to the provisions of Section 12 relating to adjustments upon changes in stock, no person shall be eligible to be granted Options covering more than one hundred thousand (100,000) shares of the Common Stock in any calendar year. This subsection 5(c) shall not apply until (i) the earliest of: (A) the first material modification of the Plan (including any increase to the number of shares reserved for issuance under the Plan in accordance with Section 4); (B) the issuance of all of the shares of Common Stock reserved for issuance under the Plan; (C) the expiration of the Plan; or (ii) such other date required by Section 162(m) of the Code and the rules and regulations promulgated thereunder.

6. OPTION PROVISIONS

Each Option shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. The provisions of separate Options need not be identical, but each Option shall include (through incorporation of provisions hereof by reference in the Option or otherwise) the substance of each of the following provisions:

(a) TERM. No Option shall be exercisable after the expiration of ten (10) years from the date it was granted.

(b) PRICE. The exercise price of each Nonstatutory Stock Option shall be not less than eighty-five percent (85%) of the Fair Market Value of the stock subject to the Option on the date the Option is granted. Notwithstanding the foregoing, an Option may be granted with an exercise price lower than that set forth in the preceding sentence if such Option is granted pursuant to an assumption or substitution for another option in a manner satisfying the provisions of Section 424(a) of the Code.

(c) CONSIDERATION. The purchase price of stock acquired pursuant to an Option shall be paid, to the extent permitted by applicable statutes and regulations, either (i) in cash at the time the Option is exercised, or (ii) at the discretion of the Board or the Committee, at the time of the grant of the Option, (A) by delivery to the Company of other Common Stock of the Company, (B) according to a deferred payment or other arrangement (which may include, without limiting the generality of the foregoing, the use of other Common Stock of the Company) with the person to whom the Option is granted or to whom the Option is transferred pursuant to subsection 6(d), or (C) in any other form of legal consideration that may be acceptable to the Board.

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

(d) TRANSFERABILITY. A Nonstatutory Stock Option may be transferred to the extent provided in the Option Agreement; provided that if the Option Agreement does not expressly permit the transfer of a Nonstatutory Stock Option, the Nonstatutory Stock Option shall not be transferable except by will, by the laws of descent and distribution or pursuant to a domestic relations order satisfying the requirements of Rule 16b-3 and shall be exercisable during the lifetime of the person to whom the Option is granted only by such person or any transferee pursuant to a domestic relations order. Notwithstanding the foregoing, the person to whom the Option is granted may, by delivering written notice to the Company, in a form satisfactory to the Company, designate a third party who, in the event of the death of the Optionee, shall thereafter be entitled to exercise the Option.

(e) VESTING. The total number of shares of stock subject to an Option may, but need not, be allotted in periodic installments (which may, but need not, be equal). The Option Agreement may provide that from time to time during each of such installment periods, the Option may become exercisable ("vest") with respect to some or all of the shares allotted to that period, and may be exercised with respect to some or all of the shares allotted to such period and/or any prior period as to which the Option became vested but was not fully exercised. The Option may be subject to such other terms and conditions on the time or times when it may be exercised (which may be based on performance or other criteria) as the Board may deem appropriate. The provisions of this subsection 6(e) are subject to any Option provisions governing the minimum number of shares as to which an Option may be exercised.

(f) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR CONSULTANT. In the event an Optionee's Continuous Status as an Employee, Director or Consultant terminates (other than upon the Optionee's death or disability), the Optionee may exercise his or her Option (to the extent that the Optionee was entitled to exercise it at the date of termination) but only within such period of time ending on the earlier of (i) the date thirty (30) days after the termination of the Optionee's Continuous Status as an Employee, Director or Consultant (or such longer or shorter period specified in the Option Agreement), or (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, after termination, the Optionee does not exercise his or her Option within the time specified in the Option Agreement, the Option shall terminate, and the shares covered by such Option shall revert to and again become available for issuance under the Plan.

An Optionee's Option Agreement may also provide that if the exercise of the Option following the termination of the Optionee's Continuous Status as an Employee, Director, or Consultant (other than upon the Optionee's death or disability) would result in liability under Section 16(b) of the Exchange Act, then the Option shall terminate on the earlier of (i) the expiration of the term of the Option set forth in the Option Agreement, or (ii) the tenth (10th) day after the last date on which such exercise would result in such liability under Section 16(b) of the Exchange Act. Finally, an Optionee's Option Agreement may also provide that if the exercise of the Option following the termination of the Optionee's Continuous Status as an Employee, Director or Consultant (other than upon the Optionee's death or disability) would be prohibited at any time solely because the issuance of shares would violate the registration requirements under the Act, then the Option shall terminate on the earlier of (i) the expiration of the term of the Option set forth in the first paragraph of this subsection 6(f), or (ii) the expiration of a period of thirty (30) days after the termination of the Optionee's Continuous Status as an Employee, Director or Consultant during which the exercise of the Option would not be in violation of such registration requirements.

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

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

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

(j) RE-LOAD OPTIONS. Without in any way limiting the authority of the Board or Committee to make or not to make grants of Options hereunder, the Board or Committee shall have the authority (but not an obligation) to include as part of any Option Agreement a provision entitling the Optionee to a further Option (a "Re-Load Option") in the event the Optionee exercises the Option evidenced by the Option agreement, in whole or in part, by surrendering other shares of Common Stock in accordance with this Plan and the terms and conditions of the Option Agreement. Any such Re-Load Option (i) shall be for a number of shares equal to the number of shares surrendered as part or all of the exercise price of such Option; (ii) shall have an expiration date which is the same as the expiration date of the Option the exercise of which gave rise to such Re-Load Option; and (iii) shall have an exercise price which is equal to one hundred percent (100%) of the Fair Market Value of the Common Stock subject to the Re-Load Option on the date of exercise of the original Option.

Any such Re-Load Option shall be a Nonstatutory Stock Option. There shall be no Re-Load Options on a Re-Load Option. Any such Re-Load Option shall be subject to the availability of sufficient shares under subsection 4(a) and shall be subject to such other terms and conditions as the Board or Committee may determine which are not inconsistent with the express provisions of the Plan regarding the terms of Options.

7. RESERVED

8. CANCELLATION AND RE-GRANT OF OPTIONS

(a) The Board or the Committee shall have the authority to effect, at any time and from time to time, (i) the repricing of any outstanding Options under the Plan and/or (ii) with the consent of any adversely affected holders of Options, the cancellation of any outstanding Options under the Plan and the grant in substitution therefor of new Options under the Plan covering the same or different numbers of shares of stock, but having an exercise price per share not less than eighty-five percent (85%) of the Fair Market Value for a Nonstatutory Stock Option. Notwithstanding the foregoing, the Board or the Committee may grant an Option with an exercise price lower than that set forth above if such Option is granted as part of a transaction to which section 424(a) of the Code applies.

(b) Shares subject to an Option canceled under this Section 8 shall continue to be counted against the maximum award of Options permitted to be granted pursuant to subsection 5(c) of the Plan. The repricing of an Option under this Section 7, resulting in a reduction of the exercise price, shall be deemed to be a cancellation of the original Option and the grant of a substitute Option; in the event of such repricing, both the original and the substituted Options shall be counted against the maximum awards of Options permitted to be granted pursuant to subsection 5(c) of the Plan. The provisions of this subsection 8(b) shall be applicable only to the extent required by Section 162(m) of the Code.

9. COVENANTS OF THE COMPANY

(a) During the terms of the Stock Awards, the Company shall keep available at all times the number of shares of stock required to satisfy such Stock Awards.

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

10. USE OF PROCEEDS FROM STOCK

Proceeds from the sale of stock pursuant to Stock Awards shall constitute general funds of the Company.

11. MISCELLANEOUS

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

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

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

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

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

(f) To the extent provided by the terms of a Stock Award Agreement, the person to whom a Stock Award is granted may satisfy any federal, state or local tax withholding obligation relating to the exercise or acquisition of stock under a Stock Award by any of the following means or by a combination of such means: (1) tendering a cash payment; (2) authorizing the Company to withhold shares from the shares of the Common Stock otherwise issuable to the participant as a result of the exercise or acquisition of stock under the Stock Award; or (3) delivering to the Company owned and unencumbered shares of the Common Stock of the Company.

12. ADJUSTMENTS UPON CHANGES IN STOCK

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

(b) In the event of: (1) a dissolution, liquidation or sale of substantially all of the assets of the Company; (2) a merger or consolidation in which the Company is not the surviving corporation; or (3) a reverse merger in which the Company is the surviving corporation but the shares of the Company's common stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise, then to the extent permitted by applicable law: (i) any surviving corporation or an Affiliate of such surviving corporation shall assume any Stock Awards outstanding under the Plan or shall substitute similar Stock Awards for those outstanding under the Plan, or (ii) such Stock Awards shall continue in full force and effect. In the event any surviving corporation and its Affiliates refuse to assume or continue such Stock Awards, or to substitute similar options for those outstanding under the Plan, then, with respect to Stock Awards held by persons then performing services as Employees, Directors or Consultants, the time during which such Stock Awards may be exercised shall be accelerated and the Stock Awards terminated if not exercised prior to such event.

13. AMENDMENT OF THE PLAN AND STOCK AWARDS

(a) The Board at any time, and from time to time, may amend the Plan. However, except as provided in Section 12 relating to adjustments upon changes in stock, no amendment shall be effective unless approved by the stockholders of the Company to the extent stockholder approval is necessary for the Plan to satisfy the requirements of Section 422 of the Code, Rule 16b-3 or any Nasdaq or securities exchange listing requirements.

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

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

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

(e) The Board at any time, and from time to time, may amend the terms of any one or more Stock Award; provided, however, that the rights and obligations under any Stock Award shall not be impaired by any such amendment unless (i) the Company requests the consent of the person to whom the Stock Award was granted and (ii) such person consents in writing.

14. TERMINATION OR SUSPENSION OF THE PLAN

(a) The Board may suspend or terminate the Plan at any time. Unless sooner terminated, the Plan shall terminate ten (10) years from the date the Plan is adopted by the Board or approved by the stockholders of the Company, whichever is earlier. No Stock Awards may be granted under the Plan while the Plan is suspended or after it is terminated.

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

15. EFFECTIVE DATE OF PLAN.

This Plan shall become effective on September 28, 2001.

WILD OATS MARKETS, INC.

NON-QUALIFIED STOCK OPTION

TERRY MALOY, Optionee:

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

The details of your option are as follows:

1. (a) The total number of shares of Common Stock subject to this option is ____________________________

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

NUMBER OF SHARES (INSTALLMENT)

DATE OF EARLIEST EXERCISE (VESTING)

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

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

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

3. This option may not be exercised for any number of shares which would require the issuance of anything other than whole shares.

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

5. The term of this option commences on the date hereof and, unless sooner terminated as set forth below or in the Plan, terminates ten (10) years from the date of grant. In no event may this option be exercised on or after the date on which it terminates. This option shall terminate prior to the expiration of its term as follows: Thirty (30) days after the termination of your employment with the Company for any reason or for no reason unless;

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

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

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

However, this option may be exercised on or after the termination of employment only as to that number of vested shares as to which it was exercisable on the date of termination of employment under the provisions of paragraphs 1 and 3 of this option; provided however, that if your employment is terminated prior to the First Exercise Date (as defined in subparagraph 3(a) hereof), subject to paragraph 1 hereof, the date of your termination of employment shall be deemed the First Exercise Date.

6. (a) This option may be exercised, to the extent specified above, by delivering a notice of exercise (in a form designated by the Company) together with the exercise price to the Secretary of the Company, or to such other person as the Company may designate, during regular business hours, together with such additional documents as the Company may then require pursuant to the Plan.

(i) By exercising this option you agree that the Company may require you to enter an arrangement providing for the payment by you to the Company of any tax withholding obligation of the Company arising by reason of (1) the exercise of this option; (2) the lapse of any substantial risk of forfeiture to which the shares are subject at the time of exercise; or (3) the disposition of shares acquired upon such exercise.

7. This option is not transferable, except by will or by the laws of descent and distribution, and is exercisable during your life only by you.

8. Any notices provided for in this option shall be given in writing and shall be deemed effectively given upon receipt or, in the case of notices delivered by the Company to you, five (5) days after deposit in the United States mail, postage prepaid, addressed to you at the address specified below or at such other address as you hereafter designate by written notice to the Company.

9. If the partners hereto shall have any conflict regarding the terms of this option, the interpretation of the Company's Compensation Committee shall prevail.

Dated the ______ day of _________________, 200_.

Very truly yours,

WILD OATS MARKETS, INC.

By ___________________________________

Duly authorized on behalf of the Board of Directors

The undersigned:

(a) Acknowledges receipt of the foregoing option and the attachments referenced therein and understands that all rights and liabilities with respect to this option are set forth in the option and the Plan; and

(b) Acknowledges that as of the date of grant of this option, it sets forth the entire understanding between the undersigned optionee and the Company and its affiliates regarding the acquisition of stock in the Company and supersedes all prior oral and written agreements on that subject with the exception of the following agreements only:

NONE _____________________

(Initial)

OTHER __________________________________________________________

__________________________________________________________

__________________________________________________________

___________________________________________________

Optionee

Address: ___________________________________________

___________________________________________

NOTICE OF EXERCISE

Date of Exercise

Wild Oats Markets, Inc.

3375 Mitchell Lane

Boulder, CO 80301

Ladies and Gentlemen:

This constitutes notice under my stock option that I elect to purchase the number of shares for the price set forth below.

Type of option Nonstatutory

Stock option dated:

Number of shares as to which

option is exercised:

Certificates to be issued in

name of: _____________________

Total exercise price: $

Cash payment delivered herewith: $

By this exercise, I agree (i) to provide such additional documents as you may require pursuant to the terms of the Terry Maloy Equity Incentive Plan, (ii) to provide for the payment by me to you (in the manner designated by you) of your withholding obligation, if any, relating to the exercise of this option, and (iii) if this exercise related to an incentive stock option, to notify you in writing within fifteen (15) days after the date of any disposition of any of the shares of Common Stock issued upon exercise of this option that occurs within two (2) years after the date of grant of this option or within one (1) year after such shares of Common Stock are issued upon exercise of this option.

I hereby make the following certifications and representations with respect to the number of shares of Common Stock of the Company listed above (the "Shares"), which are being acquired by me for my own account upon exercise of the Option as set forth above:

I further acknowledge that I will not be able to resell the Shares for at least ninety days after the stock of the Company becomes publicly traded (i.e., subject to the reporting requirements of Section 13 of 15(d) of the Securities Exchange Act of 1934) under Rule 701 and that more restrictive conditions apply to affiliates of the Company under Rule 144.

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

I further agree that, if required by the Company (or a representative of the underwriters) in connection with the first underwritten registration of the offering of any securities of the Company under the Act, I will not sell or otherwise transfer or dispose of my shares of Common Stock or other securities of the Company during such period (not to exceed two hundred seventy (270) days) following the effective date of the registration statement of the Company filed under the Act (the "Effective Date") as may be requested by the Company or the representative of the underwriters. For purposes of this restriction I will be deemed to own securities that (i) are owned directly or indirectly by me, including securities held for my benefit by nominees, custodians, brokers or pledges; (ii) may be acquired by me within sixty (60) days of the Effective Date; (iii) are owned directly or indirectly, by or for my brothers or sisters (whether by whole or half blood), spouse, ancestors and lineal descendants; or (iv) are owned, directly or indirectly, by or for a corporation, partnership, estate or trust of which I am a shareholder, partner or beneficiary, but only to the extent of my proportionate interest therein as a shareholder, partner or beneficiary thereof. I further agree that the Company may impose stop-transfer instructions with respect to securities subject to the foregoing restrictions until the end of such period.

Very truly yours,

_________________________________

EX-10.20

WILD OATS MARKETS, INC.

EDWARD DUNLAP EQUITY INCENTIVE PLAN

1. PURPOSES

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

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

2. DEFINITIONS

(a) "AFFILIATE" means any parent corporation or subsidiary corporation, whether now or hereafter existing, as those terms are defined in Sections 424(e) and (f) respectively, of the Code.

(b) "BOARD" means the Board of Directors of the Company.

(c) "CODE" means the Internal Revenue Code of 1986, as amended.

(d) "COMMITTEE" means a Committee appointed by the Board in accordance with subsection 3(c) of the Plan.

(e) "COMPANY" means Wild Oats Markets, Inc. a Delaware corporation.

(f) "CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT" means the employment or relationship as a Director or Consultant is not interrupted or terminated. The Board, in its sole discretion, may determine whether Continuous Status as an Employee, Director or Consultant shall be considered interrupted in the case of: (i) any leave of absence approved by the Board, including sick leave, military leave, or any other personal leave; or (ii) transfers between locations of the Company or between the Company, Affiliates or their successors.

(g) "DIRECTOR" means a member of the Board.

(h) "EMPLOYEE" means any person, including Officers and Directors, employed by the Company or any Affiliate of the Company. Neither service as a Director nor payment of a director's fee by the Company shall be sufficient to constitute "employment" by the Company.

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

(j) "FAIR MARKET VALUE" means, as of any date, the value of the Common Stock of the Company determined as follows:

(1) If the Common Stock is listed on any established stock exchange, or traded on the Nasdaq National Market or the Nasdaq SmallCap Market, the Fair Market Value of a share of Common Stock shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or market (or the exchange or market with the greatest volume of trading in Common Stock) on the last market trading day prior to the day of determination, as reported in the Wall Street Journal or such other source as the Board deems reliable;

(2) In the absence of such markets for the Common Stock, the Fair Market Value shall be determined in good faith by the Board.

(k) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder.

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

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

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

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

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

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

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

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

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

3. ADMINISTRATION

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

(b) The Board shall have the power, subject to, and within the limitations of, the express provisions of the Plan:

(1) To determine when and how each Stock Award shall be granted; whether a Stock Award will be an Incentive Stock Option or a Nonstatutory Stock Option.

(2) To construe and interpret the Plan and Stock Awards granted under it, and to establish, amend and revoke rules and regulations for its administration. The Board, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan or in any Stock Award Agreement, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective.

(3) To amend the Plan or a Stock Award as provided in Section 13.

(4) Generally, to exercise such powers and to perform such acts as the Board deems necessary or expedient to promote the best interests of the Company which are not in conflict with the provisions of the Plan.

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

4. SHARES SUBJECT TO THE PLAN

(a) Subject to the provisions of Section 12 relating to adjustments upon changes in stock, the stock that may be issued pursuant to Stock Awards shall not exceed in the aggregate 50,000 shares of the Common Stock. If any Stock Award shall for any reason expire or otherwise terminate, in whole or in part, without having been exercised in full (or vested in the case of Restricted Stock), the stock not acquired under such Stock Award shall cease to be subject to the Plan.

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

5. ELIGIBILITY

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

(b) No person shall be eligible for the grant of an Incentive Stock Option if, at the time of grant, such person owns (or is deemed to own pursuant to Section 424(d) of the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any of its Affiliates unless the exercise price of such Option is at least one hundred ten percent (110%) of the Fair Market Value of such stock at the date of grant and the Option is not exercisable after the expiration of five (5) years from the date of grant.

(c) Subject to the provisions of Section 12 relating to adjustments upon changes in stock, no person shall be eligible to be granted Options covering more than one hundred thousand (100,000) shares of the Common Stock in any calendar year. This subsection 5(c) shall not apply until (i) the earliest of: (A) the first material modification of the Plan (including any increase to the number of shares reserved for issuance under the Plan in accordance with Section 4); (B) the issuance of all of the shares of Common Stock reserved for issuance under the Plan; (C) the expiration of the Plan; or (ii) such other date required by Section 162(m) of the Code and the rules and regulations promulgated thereunder.

6. OPTION PROVISIONS

Each Option shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. The provisions of separate Options need not be identical, but each Option shall include (through incorporation of provisions hereof by reference in the Option or otherwise) the substance of each of the following provisions:

(a) TERM. No Option shall be exercisable after the expiration of ten (10) years from the date it was granted.

(b) PRICE. The exercise price of each Incentive Stock Option shall be not less than one hundred percent (100%) of the Fair Market Value of the stock subject to the Option on the date the Option is granted and the exercise price of each Nonstatutory Stock Option shall be not less than eighty-five percent (85%) of the Fair Market Value of the stock subject to the Option on the date the Option is granted. Notwithstanding the foregoing, an Option may be granted with an exercise price lower than that set forth in the preceding sentence if such Option is granted pursuant to an assumption or substitution for another option in a manner satisfying the provisions of Section 424(a) of the Code.

(c) CONSIDERATION. The purchase price of stock acquired pursuant to an Option shall be paid, to the extent permitted by applicable statutes and regulations, either (i) in cash at the time the Option is exercised, or (ii) at the discretion of the Board or the Committee, at the time of the grant of the Option, (A) by delivery to the Company of other Common Stock of the Company, (B) according to a deferred payment or other arrangement (which may include, without limiting the generality of the foregoing, the use of other Common Stock of the Company) with the person to whom the Option is granted or to whom the Option is transferred pursuant to subsection 6(d), or (C) in any other form of legal consideration that may be acceptable to the Board.

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

(d) TRANSFERABILITY. An Incentive Stock Option shall not be transferable except by will or by the laws of descent and distribution, and shall be exercisable during the lifetime of the person to whom the Incentive Stock Option is granted only by such person. A Nonstatutory Stock Option may be transferred to the extent provided in the Option Agreement; provided that if the Option Agreement does not expressly permit the transfer of a Nonstatutory Stock Option, the Nonstatutory Stock Option shall not be transferable except by will, by the laws of descent and distribution or pursuant to a domestic relations order satisfying the requirements of Rule 16b-3 and shall be exercisable during the lifetime of the person to whom the Option is granted only by such person or any transferee pursuant to a domestic relations order. Notwithstanding the foregoing, the person to whom the Option is granted may, by delivering written notice to the Company, in a form satisfactory to the Company, designate a third party who, in the event of the death of the Optionee, shall thereafter be entitled to exercise the Option.

(e) VESTING. The total number of shares of stock subject to an Option may, but need not, be allotted in periodic installments (which may, but need not, be equal). The Option Agreement may provide that from time to time during each of such installment periods, the Option may become exercisable ("vest") with respect to some or all of the shares allotted to that period, and may be exercised with respect to some or all of the shares allotted to such period and/or any prior period as to which the Option became vested but was not fully exercised. The Option may be subject to such other terms and conditions on the time or times when it may be exercised (which may be based on performance or other criteria) as the Board may deem appropriate. The provisions of this subsection 6(e) are subject to any Option provisions governing the minimum number of shares as to which an Option may be exercised.

(f) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR CONSULTANT. In the event an Optionee's Continuous Status as an Employee, Director or Consultant terminates (other than upon the Optionee's death or disability), the Optionee may exercise his or her Option (to the extent that the Optionee was entitled to exercise it at the date of termination) but only within such period of time ending on the earlier of (i) the date thirty (30) days after the termination of the Optionee's Continuous Status as an Employee, Director or Consultant (or such longer or shorter period specified in the Option Agreement), or (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, after termination, the Optionee does not exercise his or her Option within the time specified in the Option Agreement, the Option shall terminate, and the shares covered by such Option shall revert to and again become available for issuance under the Plan.

An Optionee's Option Agreement may also provide that if the exercise of the Option following the termination of the Optionee's Continuous Status as an Employee, Director, or Consultant (other than upon the Optionee's death or disability) would result in liability under Section 16(b) of the Exchange Act, then the Option shall terminate on the earlier of (i) the expiration of the term of the Option set forth in the Option Agreement, or (ii) the tenth (10th) day after the last date on which such exercise would result in such liability under Section 16(b) of the Exchange Act. Finally, an Optionee's Option Agreement may also provide that if the exercise of the Option following the termination of the Optionee's Continuous Status as an Employee, Director or Consultant (other than upon the Optionee's death or disability) would be prohibited at any time solely because the issuance of shares would violate the registration requirements under the Act, then the Option shall terminate on the earlier of (i) the expiration of the term of the Option set forth in the first paragraph of this subsection 6(f), or (ii) the expiration of a period of thirty (30) days after the termination of the Optionee's Continuous Status as an Employee, Director or Consultant during which the exercise of the Option would not be in violation of such registration requirements.

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

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

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

(j) RE-LOAD OPTIONS. Without in any way limiting the authority of the Board or Committee to make or not to make grants of Options hereunder, the Board or Committee shall have the authority (but not an obligation) to include as part of any Option Agreement a provision entitling the Optionee to a further Option (a "Re-Load Option") in the event the Optionee exercises the Option evidenced by the Option agreement, in whole or in part, by surrendering other shares of Common Stock in accordance with this Plan and the terms and conditions of the Option Agreement. Any such Re-Load Option (i) shall be for a number of shares equal to the number of shares surrendered as part or all of the exercise price of such Option; (ii) shall have an expiration date which is the same as the expiration date of the Option the exercise of which gave rise to such Re-Load Option; and (iii) shall have an exercise price which is equal to one hundred percent (100%) of the Fair Market Value of the Common Stock subject to the Re-Load Option on the date of exercise of the original Option. Notwithstanding the foregoing, a Re-Load Option which is an Incentive Stock Option and which is granted to a 10% stockholder (as described in subsection 5(c)), shall have an exercise price which is equal to one hundred ten percent (110%) of the Fair Market Value of the stock subject to the Re-Load Option on the date of exercise of the original Option and shall have a term which is no longer than five (5) years.

Any such Re-Load Option may be an Incentive Stock Option or a Nonstatutory Stock Option, as the Board or Committee may designate at the time of the grant of the original Option; provided, however, that the designation of any Re-Load Option as an Incentive Stock Option shall be subject to the one hundred thousand dollars ($100,000) annual limitation on exercisability of Incentive Stock Options described in subsection 11(d) of the Plan and in Section 422(d) of the Code. There shall be no Re-Load Options on a Re-Load Option. Any such Re-Load Option shall be subject to the availability of sufficient shares under subsection 4(a) and shall be subject to such other terms and conditions as the Board or Committee may determine which are not inconsistent with the express provisions of the Plan regarding the terms of Options.

7. RESERVED

8. CANCELLATION AND RE-GRANT OF OPTIONS

(a) The Board or the Committee shall have the authority to effect, at any time and from time to time, (i) the repricing of any outstanding Options under the Plan and/or (ii) with the consent of any adversely affected holders of Options, the cancellation of any outstanding Options under the Plan and the grant in substitution therefor of new Options under the Plan covering the same or different numbers of shares of stock, but having an exercise price per share not less than eighty-five percent (85%) of the Fair Market Value for a Nonstatutory Stock Option, one hundred percent (100%) of the Fair Market Value for an Incentive Stock Option or, in the case of an Incentive Stock Option held by a 10% stockholder (as described in subsection 5(c)), not less than one hundred ten percent (110%) of the Fair Market Value per share of stock on the new grant date. Notwithstanding the foregoing, the Board or the Committee may grant an Option with an exercise price lower than that set forth above if such Option is granted as part of a transaction to which section 424(a) of the Code applies.

(b) Shares subject to an Option canceled under this Section 8 shall continue to be counted against the maximum award of Options permitted to be granted pursuant to subsection 5(c) of the Plan. The repricing of an Option under this Section 7, resulting in a reduction of the exercise price, shall be deemed to be a cancellation of the original Option and the grant of a substitute Option; in the event of such repricing, both the original and the substituted Options shall be counted against the maximum awards of Options permitted to be granted pursuant to subsection 5(c) of the Plan. The provisions of this subsection 8(b) shall be applicable only to the extent required by Section 162(m) of the Code.

9. COVENANTS OF THE COMPANY

(a) During the terms of the Stock Awards, the Company shall keep available at all times the number of shares of stock required to satisfy such Stock Awards.

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

10. USE OF PROCEEDS FROM STOCK

Proceeds from the sale of stock pursuant to Stock Awards shall constitute general funds of the Company.

11. MISCELLANEOUS

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

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

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

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

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

(f) To the extent provided by the terms of a Stock Award Agreement, the person to whom a Stock Award is granted may satisfy any federal, state or local tax withholding obligation relating to the exercise or acquisition of stock under a Stock Award by any of the following means or by a combination of such means: (1) tendering a cash payment; (2) authorizing the Company to withhold shares from the shares of the Common Stock otherwise issuable to the participant as a result of the exercise or acquisition of stock under the Stock Award; or (3) delivering to the Company owned and unencumbered shares of the Common Stock of the Company.

12. ADJUSTMENTS UPON CHANGES IN STOCK

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

(b) In the event of: (1) a dissolution, liquidation or sale of substantially all of the assets of the Company; (2) a merger or consolidation in which the Company is not the surviving corporation; or (3) a reverse merger in which the Company is the surviving corporation but the shares of the Company's common stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise, then to the extent permitted by applicable law: (i) any surviving corporation or an Affiliate of such surviving corporation shall assume any Stock Awards outstanding under the Plan or shall substitute similar Stock Awards for those outstanding under the Plan, or (ii) such Stock Awards shall continue in full force and effect. In the event any surviving corporation and its Affiliates refuse to assume or continue such Stock Awards, or to substitute similar options for those outstanding under the Plan, then, with respect to Stock Awards held by persons then performing services as Employees, Directors or Consultants, the time during which such Stock Awards may be exercised shall be accelerated and the Stock Awards terminated if not exercised prior to such event.

13. AMENDMENT OF THE PLAN AND STOCK AWARDS

(a) The Board at any time, and from time to time, may amend the Plan. However, except as provided in Section 12 relating to adjustments upon changes in stock, no amendment shall be effective unless approved by the stockholders of the Company to the extent stockholder approval is necessary for the Plan to satisfy the requirements of Section 422 of the Code, Rule 16b-3 or any Nasdaq or securities exchange listing requirements.

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

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

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

(e) The Board at any time, and from time to time, may amend the terms of any one or more Stock Award; provided, however, that the rights and obligations under any Stock Award shall not be impaired by any such amendment unless (i) the Company requests the consent of the person to whom the Stock Award was granted and (ii) such person consents in writing.

14. TERMINATION OR SUSPENSION OF THE PLAN

(a) The Board may suspend or terminate the Plan at any time. Unless sooner terminated, the Plan shall terminate ten (10) years from the date the Plan is adopted by the Board or approved by the stockholders of the Company, whichever is earlier. No Stock Awards may be granted under the Plan while the Plan is suspended or after it is terminated.

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

15. EFFECTIVE DATE OF PLAN.

This Plan shall become effective on the date of hire of the Executive.

WILD OATS MARKETS, INC.

INCENTIVE STOCK OPTION

EDWARD DUNLAP, Optionee:

Wild Oats Markets, Inc. (the "Company"), pursuant to the Edward Dunlap (the "Plan"), has this day granted to you, the optionee named above, an option to purchase shares of the common stock of the Company ("Common Stock"). This option is intended to qualify as an "incentive stock option" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").

The details of your option are as follows:

1. (a) THE TOTAL NUMBER OF SHARES OF COMMON STOCK SUBJECT TO THIS OPTION IS __________________________.

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

NUMBER OF SHARES (INSTALLMENT)

DATE OF EARLIEST EXERCISE (VESTING)

2. (a) The exercise price of this option is $_____________ per share, being not less than one hundred percent (100%) of the fair market value of the Common Stock on the date of grant of this option.

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

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

3. This option may not be exercised for any number of shares which would require the issuance of anything other than whole shares.

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

5. The term of this option commences on the date hereof and, unless sooner terminated as set forth below or in the Plan, terminates ten (10) years from the date of grant. In no event may this option be exercised on or after the date on which it terminates. This option shall terminate prior to the expiration of its term as follows: Thirty (30) days after the termination of your employment with the Company or an affiliate of the Company (as defined in the Plan) for any reason or for no reason unless;

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

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

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

However, this option may be exercised on or after the termination of employment only as to that number of vested shares as to which it was exercisable on the date of termination of employment under the provisions of paragraphs 1 and 3 of this option; provided however, that if your employment is terminated prior to the First Exercise Date (as defined in subparagraph 3(a) hereof), subject to paragraph 1 hereof, the date of your termination of employment shall be deemed the First Exercise Date.

6. (a) This option may be exercised, to the extent specified above, by delivering a notice of exercise (in a form designated by the Company) together with the exercise price to the Secretary of the Company, or to such other person as the Company may designate, during regular business hours, together with such additional documents as the Company may then require pursuant to the Plan.

(b) By exercising this option you agree that:

(i) the Company may require you to enter an arrangement providing for the payment by you to the Company of any tax withholding obligation of the Company arising by reason of (1) the exercise of this option; (2) the lapse of any substantial risk of forfeiture to which the shares are subject at the time of exercise; or (3) the disposition of shares acquired upon such exercise; and

(ii) you will notify the Company in writing within fifteen (15) days after the date of any disposition of any of the shares of the Common Stock issued upon exercise of this option that occurs within two (2) years after the date of this option grant or within one (1) year after such shares of Common Stock are transferred upon exercise of this option.

7. This option is not transferable, except by will or by the laws of descent and distribution, and is exercisable during your life only by you.

8. Any notices provided for in this option or the Plan shall be given in writing and shall be deemed effectively given upon receipt or, in the case of notices delivered by the Company to you, five (5) days after deposit in the United States mail, postage prepaid, addressed to you at the address specified below or at such other address as you hereafter designate by written notice to the Company.

9. This option is subject to all the provisions of the Plan, a copy of which is attached hereto and its provisions are hereby made a part of this option, including without limitation the provisions of the Plan relating to option provisions, and is further subject to all interpretations, amendments, rules and regulations which may from time to time be promulgated and adopted pursuant to the Plan. In the event of any conflict between the provisions of this option and those of the Plan, the provisions of the Plan shall control.

Dated the _________ day of ____________, 2001.

Very truly yours,

WILD OATS MARKETS, INC.

By______________________________________

Duly authorized on behalf of the Board of Directors

The undersigned:

(a) Acknowledges receipt of the foregoing option and the attachments referenced therein and understands that all rights and liabilities with respect to this option are set forth in the option and the Plan; and

(b) Acknowledges that as of the date of grant of this option, it sets forth the entire understanding between the undersigned optionee and the Company and its affiliates regarding the acquisition of stock in the Company and supersedes all prior oral and written agreements on that subject with the exception of the following agreements only:

NONE __________________________
          (Initial)

OTHER ______________________________________________________________

______________________________________________________________

______________________________________________________________

__________________________________________________
Optionee

Address: ___________________________________________

___________________________________________

WILD OATS MARKETS, INC.

NON-QUALIFIED STOCK OPTION

EDWARD DUNLAP, Optionee:

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

The details of your option are as follows:

1. (a) The total number of shares of Common Stock subject to this option is ____________________________

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

NUMBER OF SHARES (INSTALLMENT)

DATE OF EARLIEST EXERCISE (VESTING)

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

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

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

3. This option may not be exercised for any number of shares which would require the issuance of anything other than whole shares.

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

5. The term of this option commences on the date hereof and, unless sooner terminated as set forth below or in the Plan, terminates ten (10) years from the date of grant. In no event may this option be exercised on or after the date on which it terminates. This option shall terminate prior to the expiration of its term as follows: Thirty (30) days after the termination of your employment with the Company for any reason or for no reason unless;

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

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

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

However, this option may be exercised on or after the termination of employment only as to that number of vested shares as to which it was exercisable on the date of termination of employment under the provisions of paragraphs 1 and 3 of this option; provided however, that if your employment is terminated prior to the First Exercise Date (as defined in subparagraph 3(a) hereof), subject to paragraph 1 hereof, the date of your termination of employment shall be deemed the First Exercise Date.

6. (a) This option may be exercised, to the extent specified above, by delivering a notice of exercise (in a form designated by the Company) together with the exercise price to the Secretary of the Company, or to such other person as the Company may designate, during regular business hours, together with such additional documents as the Company may then require pursuant to the Plan.

(i) By exercising this option you agree that the Company may require you to enter an arrangement providing for the payment by you to the Company of any tax withholding obligation of the Company arising by reason of (1) the exercise of this option; (2) the lapse of any substantial risk of forfeiture to which the shares are subject at the time of exercise; or (3) the disposition of shares acquired upon such exercise.

7. This option is not transferable, except by will or by the laws of descent and distribution, and is exercisable during your life only by you.

8. Any notices provided for in this option shall be given in writing and shall be deemed effectively given upon receipt or, in the case of notices delivered by the Company to you, five (5) days after deposit in the United States mail, postage prepaid, addressed to you at the address specified below or at such other address as you hereafter designate by written notice to the Company.

9. If the partners hereto shall have any conflict regarding the terms of this option, the interpretation of the Company's Compensation Committee shall prevail.

Dated the ______ day of _________________, 200_.

Very truly yours,

WILD OATS MARKETS, INC.

By ___________________________________

Duly authorized on behalf of the Board of Directors

The undersigned:

(a) Acknowledges receipt of the foregoing option and the attachments referenced therein and understands that all rights and liabilities with respect to this option are set forth in the option and the Plan; and

(b) Acknowledges that as of the date of grant of this option, it sets forth the entire understanding between the undersigned optionee and the Company and its affiliates regarding the acquisition of stock in the Company and supersedes all prior oral and written agreements on that subject with the exception of the following agreements only:

NONE _____________________
          (Initial)

OTHER __________________________________________________________

__________________________________________________________

__________________________________________________________

___________________________________________________
Optionee

Address: ___________________________________________

___________________________________________

NOTICE OF EXERCISE

Date of Exercise

Wild Oats Markets, Inc.
3375 Mitchell Lane
Boulder, CO 80301

Ladies and Gentlemen:

This constitutes notice under my stock option that I elect to purchase the number of shares for the price set forth below.

Type of option (check one)         Incentive         Nonstatutory

Stock option dated:

Number of shares as to which
option is exercised:

Certificates to be issued in
name of: _____________________

Total exercise price: $

Cash payment delivered herewith: $

By this exercise, I agree (i) to provide such additional documents as you may require pursuant to the terms of the Edward Dunlap Equity Incentive Plan, (ii) to provide for the payment by me to you (in the manner designated by you) of your withholding obligation, if any, relating to the exercise of this option, and (iii) if this exercise related to an incentive stock option, to notify you in writing within fifteen (15) days after the date of any disposition of any of the shares of Common Stock issued upon exercise of this option that occurs within two (2) years after the date of grant of this option or within one (1) year after such shares of Common Stock are issued upon exercise of this option.

I hereby make the following certifications and representations with respect to the number of shares of Common Stock of the Company listed above (the "Shares"), which are being acquired by me for my own account upon exercise of the Option as set forth above:

I further acknowledge that I will not be able to resell the Shares for at least ninety days after the stock of the Company becomes publicly traded (i.e., subject to the reporting requirements of Section 13 of 15(d) of the Securities Exchange Act of 1934) under Rule 701 and that more restrictive conditions apply to affiliates of the Company under Rule 144.

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

I further agree that, if required by the Company (or a representative of the underwriters) in connection with the first underwritten registration of the offering of any securities of the Company under the Act, I will not sell or otherwise transfer or dispose of my shares of Common Stock or other securities of the Company during such period (not to exceed two hundred seventy (270) days) following the effective date of the registration statement of the Company filed under the Act (the "Effective Date") as may be requested by the Company or the representative of the underwriters. For purposes of this restriction I will be deemed to own securities that (i) are owned directly or indirectly by me, including securities held for my benefit by nominees, custodians, brokers or pledges; (ii) may be acquired by me within sixty (60) days of the Effective Date; (iii) are owned directly or indirectly, by or for my brothers or sisters (whether by whole or half blood), spouse, ancestors and lineal descendants; or (iv) are owned, directly or indirectly, by or for a corporation, partnership, estate or trust of which I am a shareholder, partner or beneficiary, but only to the extent of my proportionate interest therein as a shareholder, partner or beneficiary thereof. I further agree that the Company may impose stop-transfer instructions with respect to securities subject to the foregoing restrictions until the end of such period.

Very truly yours,

_________________________________

EX-10.21

EMPLOYMENT AGREEMENT

This Agreement, dated December 17, 2001, is between Wild Oats Markets, Inc., a Delaware corporation (the "Company") and Edward F. Dunlap ("Executive").

For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

1. Employment. The Company agrees to employ Executive, and Executive hereby accepts employment with the Company, upon the terms and conditions set forth in this Agreement for a one-year period beginning on the date hereof (the "Initial Employment Period"). The term of this Agreement shall be renewed on the anniversary of the date Executive commenced employment for successive one year periods unless the Company shall provide notice to the Executive, given within 60 days prior to the anniversary date of the Executive's employment, that the Company has elected not to renew this Agreement.

2. Position and Duties. During the Employment Period, Executive shall serve as Chief Financial Officer of the Company at its headquarters in Boulder, Colorado, under the supervision and direction of the Company's Chief Executive Officer. Executive shall carry out the customary functions of his position as determined by the Company, and perform such tasks and responsibilities as requested by the CEO. Executive shall devote his best efforts and full business time and attention (except for permitted vacation periods and periods of illness or other incapacity as provided for herein) to the business and affairs of the Company and its subsidiaries. Executive shall perform his duties and responsibilities to the best of his abilities in a diligent, trustworthy, businesslike and efficient manner.

3. Salary, Bonus, Options and Benefits. (a) During the Employment Period, Executive's gross base salary (the "Base Salary") shall initially be $260,000.00 per annum, which salary shall be payable in regular installments in accordance with the Company's general payroll practices as in place from time to time. Any adjustment in Executive's compensation shall be determined by the CEO or the Compensation Committee of the Board in their sole discretion. All payments of compensation hereunder shall be subject to federal, state and other withholding taxes as required by applicable law and the Company's general payroll policies as in effect from time to time.

(b) The Company shall reimburse the Executive for a reasonable amount approved by the Chief Executive Officer for (i) temporary housing costs, (ii) any amounts paid by Executive to his current landlord to terminate any lease to which Executive is bound for his primary residence as of the date of this Agreement, (iii) moving expenses incurred, and (iv) the cost of storage of the Executive's household goods pending his purchase of a permanent residence in Colorado. Any amounts paid to Executive under this provision shall be increased for the effective tax rate paid by Executive on such amounts.

(c) During the Employment Period, Executive shall be entitled to participate in all of the Company's employee benefit programs for which senior executive employees of the Company are generally eligible as in effect from time to time. Executive shall be entitled to three weeks' paid vacation per year in accordance with the Company's policies. Any payments of benefits payable to Executive hereunder in respect of any calendar year during which Executive is employed by the Company for less than the entire such year shall, unless otherwise provided in the applicable plan or arrangement or required by applicable law, be prorated in accordance with the number of days in such calendar year during which Executive is employed.

(d) The Executive shall be granted stock options, pursuant to a separate plan to be established pursuant to certain exemptions promulgated under the NASDAQ Marketplace Guidelines as an incentive to executives for the inducement to enter employment, for 120,000 shares of the Company's common stock. The exercise price shall be the price as set by the Compensation Committee of the Company's Board of Directors at its next regularly scheduled board meeting. The options shall vest 25% after the first year of employment, and 6.25% per quarter thereafter. The options shall have a 10-year term. The options shall be terminable immediately upon termination of the Executive's employment for cause, and 30 days after termination without cause. The options shall have such additional terms as shall be established by the Chief Executive Officer or the Compensation Committee of the Board of Directors.

(e) The Executive may be entitled to a yearly bonus of up to 75% of his annual compensation, provided that the Executive meets such goals as shall be set for the Executive by the Chief Executive Officer or the Board of Directors or both, and further provided that the Executive is currently employed by the Company at the time any bonus would be payable. The Company agrees that during the Executive's first year of employment, provided that at the time bonuses may be payable the Executive is still currently employed by the Company, the Executive shall receive a minimum bonus of $75,000, payable $25,000 on June 11, 2002, and the remainder payable within 30 days of the anniversary of the Executive's commencement of employment with the Company. In addition, upon execution of this Agreement and commencement of work by the Executive at the Company's home offices, the Executive shall receive a sum, equal to one month's salary, to cover incidental expenses incurred by Executive in commencing work for the Company.

4. Term. (a) The Initial Employment Period shall be subject to earlier termination (1) by reason of Executive's death or disability (as defined below), (2) for Cause (as defined herein), (3) without Cause, or (4) by written resignation of the Executive.

(b) If the Initial Employment Period is terminated by reason of Executive's termination without Cause during the first 12 months thereof (which shall not be extended by any renewal of this Agreement), Executive shall be entitled to receive his then effective Base Salary for a 12-month period. If the Executive's employment is terminated after the first 12 months thereof by reason of Executive's termination without Cause, Executive shall be entitled to receive his then effective Base Salary for a period of months, not to be less than six nor more than 12 months, which is determined by subtracting from 12 months the number of full months after the end of the first 12 months of the Initial Employment Period during which the Executive remained employed. (For example, if the Executive was terminated three and one-half months following the end of the Initial Employment Period, the Executive would be entitled to (12 -  3) = 9 months of severance.) Such amounts shall be payable in equal biweekly installments, subject to all applicable deductions, in accordance with the Company's normal payroll schedule. Notwithstanding anything to the contrary herein, no renewal of the term of Executive's employment shall increase the number of months of severance to which the Executive may be entitled.

(c) For purposes of the foregoing, "Cause" shall mean (1) a material breach by the Executive of the Executive's obligations of confidentiality or loyalty; (2) the Executive's willful and repeated failure to comply with the lawful directives of the Chief Executive Officer or Board of Directors of the Company; (3) negligence or willful misconduct by the Executive in the performance of the Executive's duties to the Company; (4) the commission by the Executive of an act (including, but not limited to, a felony or a crime involving moral turpitude) causing material harm to the standing and reputation of the Company, as determined in good faith by the CEO or the Board; (5) misappropriation, breach of trust or fraudulent conduct by the Executive with respect to the assets or operations of the Company or any of its subsidiaries; (6) the continued use by the Executive after notice from the Chief Executive Officer of alcohol or drugs to an extent that, in the good faith determination of the Chief Executive Officer or Board, interferes with the performance by the Executive of the Executive employment responsibilities; (7) the threat by the Executive to cause, or the actual occurrence of, damage to the relations of the Company or any of its subsidiaries with customers, suppliers, lenders, advisors or employees which damage is adverse to the business or operations of the Company or any of its subsidiaries; or (8) continued unauthorized absence from work. Termination without Cause shall not include termination by voluntary resignation, death or disability, and no severance amounts shall be payable upon the occurrence of any of the foregoing.

(d) Except as expressly set forth in this Section, all compensation and other benefits shall cease to accrue upon termination of Executive's employment. Upon termination of the Executive's employment for any reason, Executive shall be deemed to have resigned from all offices and directorships, if any, then held with the Company or any of its subsidiaries or other affiliates.

5. Confidential Information; Company Property. Executive acknowledges that the information, observations and data obtained by him while employed by the Company and its subsidiaries concerning the business or affairs of the Company, its subsidiaries and any predecessor to the business of the Company that are not generally available to the public other than as a result of breach of this Agreement by Executive ("Confidential Information") are the property of the Company and its subsidiaries. Executive agrees that he shall not disclose to any unauthorized person or use for his own account any Confidential Information without the prior written consent of the Company unless, and in such case only to the extent that, such matters become generally known to and available for use by the public other than as a result of Executive's acts or omissions to act. Notwithstanding the foregoing, in the event Executive becomes legally compelled to disclose Confidential Information pursuant to judicial or administrative subpoena or process or other legal obligation, Executive may make such disclosure only to the extent required, in the opinion of counsel for Executive, to comply with such subpoena, process or other obligation. Executive shall, as promptly as possible and in any event prior to the making of such disclosure, notify the Company of any such subpoena, process or obligation and shall cooperate with the Company in seeking a protective order or other means of protecting the confidentiality of the Company Information. Executive shall deliver to the Company at the termination of the Employment Period, or at any time the Company may reasonably request, all memoranda, notes, plans, records, reports, computer tapes and software and other documents and data (and copies thereof) containing, relating to, or derived from the Confidential Information or the business of the Company or its subsidiaries which he may then possess or have under his control. Executive agrees that he will not retain after the termination of the Employment Period any copies of any Confidential Information including, without limitation, any software, documents or other materials originating with and/or belonging to the Company or any Subsidiary of the Company.

6. Non-Compete; Non-Solicitation. (a) Executive acknowledges that in the course of his employment with the Company he will become familiar with the Company's trade secrets and with other confidential information concerning the Company and its predecessors and that his services have been and will be of special, unique and extraordinary value to the Company. Executive agrees that, during the period in which Executive is receiving compensation hereunder and for a period of three years following termination of Executive's employment with the Company for any reason (the "Non-Compete Period"), he shall not directly or indirectly own, manage, control, participate in, consult with, render services for, or in any manner engage in the operation of any supermarket, food store or retailer of health and beauty aids with retail locations located within a ten mile radius of any store operated (defined herein as current stores or stores for which leases have been signed as of the date of termination) by the Company or its subsidiaries as of the date of termination of Executive's employment with the Company. In addition, Executive acknowledges that he shall not accept employment in any managerial or consulting capacity with Whole Foods Markets, Inc. or any successor to or subsidiary or affiliate of such company during the Non-Compete Period. Such Non-Compete Period shall terminate immediately at such time as the Company and its subsidiaries no longer operate supermarkets or food stores. Nothing herein shall prohibit Executive from being a passive owner of not more than 1% of the outstanding stock of another corporation, so long as Executive has no active participation in the management or the business of such corporation.

(b) During the Non-Compete Period, Executive shall not directly or indirectly (1) induce or attempt to induce any employee of the Company or any subsidiary of the Company to leave the employ of the Company or such subsidiary, or in any way interfere with the relationship between the Company or any such subsidiary and any employee thereof; (2) induce or attempt to induce any customer, supplier, licensee or other business relationship of the Company or any subsidiary of the Company to cease doing business with the Company or such subsidiary, or in any way interfere with the relationship between any such customer, supplier, licensee or business relation and the Company or any such subsidiary; or (3) make an oral or written disparaging statement, comment or remark about the Company or any of its subsidiaries to any employee, customer, supplier, licensee or other business relationship of the Company or any of its subsidiaries or to or for the intended use of any member of the press.

7. Employment-At-Will. It is understood and agreed that this Agreement constitutes employment-at-will and that notwithstanding (i) any general or specific policies (whether written or oral) of the Company relating to the employment or termination of its employees, (ii) any statements made to Executive, whether made orally or contained in any document, pertaining to Employee's relationship with the Company, or (iii) assignment of Cause by the Company, the Company reserves the right to terminate the employment of Executive by the Company in which event Executive's sole remedy shall be to receive certain payments and other benefits upon the terms and subject to the conditions provided for herein.

8. Enforcement. It is the express intention of the parties that this Agreement be enforced to the fullest extent permitted by applicable law in order to give full effect to the agreements reached herein. Accordingly, if at the time of enforcement of Sections 5 or 6 a court holds that the restrictions stated herein are unreasonable under the circumstances then existing, the parties hereto agree that the maximum period, scope or geographical area reasonable under such circumstances shall be substituted for the stated period, scope or area. Because Executive's services are unique and because Executive has access to Confidential Information, the parties hereto agree that money damages would be an inadequate remedy for any breach of this Agreement. In the event of a breach or threatened breach of this Agreement, the Company, its subsidiaries and their respective successors or assigns may, in addition to other rights and remedies existing in their favor, apply to any court of competent jurisdiction for specific performance and/or injunctive or other relief in order to enforce, or prevent any violation of, the provisions hereof (without posting a bond or other security). Sections 5 and 6 shall survive and continue in full force and effect in accordance with their terms notwithstanding any termination of the Employment Period.

9. Notices. All notices or other communications to be given or delivered under or by reason of the provisions of this Agreement will be in writing and will be deemed to have been given when delivered personally, one business day following when sent via a nationally recognized overnight courier, or when sent via facsimile confirmed in writing to the recipient. Such notices and other communications will be sent to the addresses indicated below:

To the Company:	To Executive:
Wild Oats Markets, Inc	_________________
3375 Mitchell Lane	_________________
Boulder, CO 80301	_________________
Attention: Chief Executive Officer
With a copy to: General Counsel

or such other address or to the attention of such other person as the recipient party shall have specified by prior written notice to the sending party.

10. Miscellaneous. Any provision of this Agreement may be amended or waived only with the prior written consent of the Company and Executive. This Agreement shall be governed by and construed in accordance with the domestic laws of the State of Colorado without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Colorado or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Colorado.

11. Dispute Resolution Process. The parties hereby agree that, in order to obtain prompt and expeditious resolution of any disputes under this Agreement, each claim, dispute or controversy of whatever nature, arising out of, in connection with, or in relation to the interpretation, performance or breach of this Agreement (or any other agreement contemplated by or related to this Agreement or any other agreement between the Company and Executive), including without limitation, any claim based on contract, tort or statute, or the arbitrability of any claim hereunder (a "Claim"), shall be settled, at the request of any part of this Agreement, by final and binding arbitration conducted in Denver, Colorado. All such Claims shall be settled by one arbitrator in accordance with the Commercial Arbitration Rules then in effect of the American Arbitration Association. Such arbitrator shall be provided through the CFR Institute for Dispute Resolution ("CFR") by mutual agreement of the parties, provided that, absent such agreement, the arbitrator shall be appointed by CFR. In this event, such arbitrator may not have any pre-existing, direct or indirect relationship with any party to the dispute. Each party hereto expressly consents to, and waives any future objection to, such forum and arbitration rules. Judgment upon any award may be entered by any state or federal court having jurisdiction thereof. Except as required by law (including, without limitation, the rules and regulations of the Securities and Exchange Commission and the Nasdaq Stock Market, if applicable), neither party nor the arbitrator shall disclose the existence, content, or results of any arbitration hereunder without the prior written consent of all parties. Except as provided herein, the Federal Arbitration Act shall govern the interpretation, enforcement and all proceedings pursuant to this Section. Adherence to this dispute resolution process shall not limit the right of the Company or Executive to obtain any provisional remedy, including without limitation, injunctive or similar relief set forth above, from any court of competent jurisdiction as may be necessary to protect their respective rights and interests pending arbitration. Notwithstanding the foregoing sentence, this dispute resolution procedure is intended to be the exclusive method of resolving any Claims arising out of or relating to this Agreement. The arbitration procedures shall follow the substantive law of the State of Colorado, including the provisions of statutory law dealing with arbitration, as it may exist at the time of the demand for arbitration, insofar as said provisions are not in conflict with this Agreement and specifically excepting therefrom sections of any such statute dealing with discovery and sections requiring notice of the hearing date by registered or certified mail.

Executed on the date set forth above.

COMPANY:

WILD OATS MARKETS, INC.

By /s/ Freya R. Brier

EXECUTIVE:

By /s/ Edward F. Dunlap

Edward F. Dunlap

EX-10.22

THIS IS A LEGAL DOCUMENT. YOU ARE ENCOURAGED TO CONSULT WITH AN ATTORNEY BEFORE SIGNING THIS DOCUMENT.

SEVERANCE AND RELEASE OF CLAIMS

This Severance Agreement and Release of Claims (the "Agreement") is between Wild Oats Markets, Inc. ("Company") and Mary Beth Lewis ("Employee").

Agreement

or good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Employee hereby agree as follows:

1. Termination of Employment. Effective July 20, 2001 (the "Effective Date"), Employee agrees that Employee's employment with the Company is hereby terminated, and Employee further resigns from any and all officer or director positions held by the Employee with the Company or any of its subsidiaries, effective as of the Effective Date.
2. Continuation of Salary and Benefits.

(a) Salary Continuance. Subject to Employee's compliance with the terms and conditions set forth in this Agreement, Company agrees to pay the Employee a continuation of the Employee's salary (the "Severance Pay") equivalent to one year's salary at the Employee's rate of pay on the Effective Date. Payment shall be an amount equal to Employee's rate of pay on the Effective Date for the period July 21, 2001 to July 19, 2002, to be paid in equal biweekly installments on the same payroll schedule under which the Company pays its employees, commencing the next pay date following the execution of the Agreement. The period from July 20, 2001 until July 19, 2002 shall be the "Severance Period".

(b) Medical and Other Benefits Continuance. The Company will not continue medical or other benefits for the Employee, except as specifically provided herein, and the Employee shall not be entitled to participate in any benefit plans provided by the Company, except as specifically provided herein.

(c) Deferred Compensation Plan. Barring prohibitions imposed by the Company's deferred compensation plan, the Company will allow the Employee to maintain the balance of her deferred compensation plan account in the plan until January 1, 2003, at which time the Company shall distribute the balance of the account to the Employee. The Employee shall not be entitle to make any further contributions to such account after the Effective Date. The Employee acknowledges that all sums remaining in the deferred compensation plan are not insured, and are considered as general funds of the Company for creditor purposes.

(d) Discount Card. Assuming the Employee complies with the other terms and conditions of this Agreement, the Employee shall be entitled to the reasonable use of the discount provided from time to time to active employees of the Company for the Severance Period. In the event that Employee violates the terms of this Agreement or the Company discontinues the discount benefit, the discount shall immediately terminate.

(e) Options. Employee acknowledges that Employee's stock options exercisable for common stock of the Company terminated effective July 20, 2001. As additional consideration for this Agreement and Release, Employee shall be granted a stock appreciation right. Within 14 days following execution of this Agreement, Employee shall receive a cash payment from the Company equal to the difference between (1) the strike price of Employee's fully vested stock options on July 20, 2001 (to the extend such strike price is lower than the closing price of the Company's common stock on the NASDAQ National Market on July 20, 2001, and (2) the closing price of the Company's common stock on the NASDAQ National Market on July 20, 2001, plus (3) an amount required to gross up that portion of the foregoing payment related to incentive stock options (as opposed to nonqualified stock options) to compensate Employee for the difference between the capital gains tax rate and the Employee's effective tax rate (39.1% for 2001). The Employee's vested options as of July 20, 2001, and the strike prices therefor, are shown on Attachment 1 hereto.

3. Conditions to Commencement of Severance Pay. In order for the Employee to receive the Severance Pay, the Employee must comply with all of the following conditions. At the Company's election, failure to comply with any condition will result in a delay in, or termination of, any right to receive Severance Pay:

(a) The Employee shall return, within 7 days after signing this Agreement, all equipment, tools, phones, computers, keys and proprietary information (including financials, price lists, vendor lists, manuals and strategic planning documents), in Employee's possession. All computer files must remain intact on all computer equipment returned. The Company agrees to transfer ownership to Employee of the laptop computer used by the Employee (other than the Zip drive) during the course of her employment.

(b) If the Employee has a Company credit card, within 7 days after the date the Employee signs this Agreement, the Employee must arrange for payment of outstanding charges.

To the best of Company's knowledge, Employee has complied with the provisions in Sections 3(a) and 3(b); however, such does not constitute a waiver of any breach that becomes known at a later date. Failure to comply with (a) or (b) may result in withholding or termination of Severance Pay, or the Company may elect to deduct any unpaid bills, costs of equipment, personal credit card charges or any business expenses for which reports have not been submitted from the Employee's Severance Pay.

4. Conditions to Continued Receipt of Severance Pay. In order for the Employee to continue to receive Severance Pay, the Employee MUST comply with the following conditions during the Severance Period:

(a) The Employee will not disparage or otherwise discredit the Company orally or in writing. For purposes of this paragraph (a), any factually accurate testimony, whether orally or in writing, given by the Employee as required by law under oath shall not be considered to disparage or otherwise discredit the Company. The Company agrees that Perry Odak and Freya Brier, acting as Company officers, will not disparage or discredit the Employee orally or in writing to any third party. For purposes of the obligations of the Company, "disparagement" or "discredit" shall not include any factually accurate statement or any disclosure required to be made to any governmental or quasi-governmental agency, or any disclosure made in the course of any pending or threatened litigation, mediation, arbitration or agency action.

(b) The Employee will not solicit, for him/herself or on behalf of a third party, either directly or indirectly, any employee of the Company then currently employed to leave the Company's employ.

(c) The Employee will not discuss the terms of this Agreement with any third party other than the Employee's spouse, family or legal or financial advisors; provided, however, that if the Company files this Agreement as an exhibit to any public filing, unless the Company obtains confidentiality treatment for the Agreement as filed, the Employee shall be released from the foregoing obligation. In the event the Employee is required by law to discuss or disclose any of the terms, the Employee must provide the Company with prompt written notice prior to disclosure to the third party to allow the Company sufficient time (not less than one-half of the time required for a response thereunder, with a minimum of 5 business days) to contest the pending disclosure.

5. Rehire. The Employee agrees that the Employee shall not apply for rehire by the Company on or before January 1, 2003, and the Company's refusal to hire before such date shall not be deemed to be discriminatory conduct on the part of the Company.
   
6. Confidentiality. The Employee acknowledges that he/she has been provided with, and has created for the Company, certain confidential information, both written and oral, including, but not limited to, trade secrets and other information related to the Company's practices in marketing, pricing, operations, advertising, promotions, merchandising, selling and distributing, price lists, vendor lists, customer lists, know-how, strategic planning and financial information, collectively referred to herein as "Confidential Information", by the Company. The Employee agrees that the Employee will not disclose such information, except to legal advisors, orally or in writing, to any third party except to the extent such disclosure is required by law, in which case the Employee will provide the Company with written notice within 5 days thereafter of the disclosure request to allow the Company sufficient time to contest the pending disclosure. For purposes hereof, "Confidential Information" shall not include information which is or subsequently becomes known to the public other than through a breach by Employee of this provision.
   
7. Release of Claims. By signing this Agreement without revocation, the Employee and his/her heirs and assigns hereby agree to release and forever discharge the Company, its officers, directors, employees, agents and representatives from any and all actions, causes of actions, suits, damages and claims, whether known or unknown, which the Employee ever had, now has, or may have against the Company for any matter relating to his/her employment or termination from employment to the date hereof. The Employee also agrees that he/she is legally waiving and releasing any rights the Employee may have had on or before the date of this Agreement regarding his/her employment and termination from employment with the Company, including those rights relating to age, gender, race, disability or religion, under the numerous laws and regulations regulating employment, including, without limitation, the Age Discrimination in Employment Act of 1967; the Civil Rights Acts of 1866, 1871, 1964 and 1991; the Employment Retirement Income Security Act; the Equal Pay Act; the Fair Labor Standards Act; the National Labor Relations Act; the Occupational Safety and Health Act; the Older Workers Benefit Protection Act of 1990; the Consolidated Omnibus Budget Reconciliation Act; the Rehabilitation Act of 1973; the Colorado Anti-Discrimination in Employment Act or any similar act of any other state; the Family Medical Leave Act, as well as other statutes and laws that may apply. Notwithstanding the foregoing, the Employee does not waive any rights conferred by statute to elect COBRA benefits or to apply and receive unemployment benefits. The Employee represents that the Employee has not filed any claims with any governmental agencies or any civil suits relating to his/her employment with the Company or his/her termination of employment with the Company.
   
8. Cooperation. (a) The Employee agrees to reasonably cooperation with the Company, as requested, to effect a transition of his/her responsibilities and job-related information and to ensure that the Company is aware of all matters that were being handled by the Employee.

(b) The Employee agrees, upon reasonable notice, to furnish information and assistance to the Company as may be required in connection with any governmental, legal or quasi-legal proceeding, including any external or internal investigation, involving the Company, its subsidiaries or affiliates, or in which any of them is, or may become, a party. After the Severance Period, or if during the Severance Period the assistance is for a period longer than 40 hours, the Company will pay the Employee for the time spent in providing the assistance with proceedings for a reasonable consulting fee not to exceed the Employee's effective hourly wage on the Effective Date. The Company will reimburse Employee for any reasonable out-of-pocket expenses requested by the Company and incurred in providing assistance to the Company.

9. Miscellaneous. (a) This agreement will be interpreted, construed and governed by the laws of the State of Colorado and the Employee agrees to accept jurisdiction and venue for any claims or actions in Boulder County, Colorado. (b) If any provision or other clause of this Agreement is held to be invalid by a court of competent jurisdiction, the invalid provision will be severed from this Agreement, but such invalidity will not affect the validity or enforceability of any other provision, and the balance of the Agreement will remain in full force and effect. (c) In the event of death by the Employee during the Severance Period, the right to receive Severance Pay will inure to the benefit of the Employee's heirs, successors or assigns. (d) The Company agrees that the Employee's termination shall be treated as a resignation in the event a current or prospective employer of the Employee requests a reference. (e) The Employee agrees and acknowledges that if, during the Severance Period, the Employee breaches any portion of this Agreement, the Company has a right to offset amounts due to the Company against Severance Pay or terminate any further Severance Pay. (f) The Employee acknowledges that the damages the Company may suffer for breach of this Agreement may be irreparable, and may be difficult, if not impossible, to ascertain, and agrees that the Company will have the right to pursue an injunction or other available equitable relief in any court of competent jurisdiction, enjoining any threatened or actual breach. The existence of a right to pursue an injunction or other available equitable relief will not preclude the Company from pursuing any other rights and remedies at law or inequity which it may have, including the right to seek recovery of damages. The Employee hereby waives the claim or defense that the Company has an adequate remedy at law or has not been or is not being irreparably injured by the breach of the Agreement, and also waives any requirement that a bond be posted in order to bring an action for injunctive relief or declaratory judgment. (g) The Company has elected to indemnify Employee for her services as an officer. The Company agrees that if, within the next two years, it proposes to amend the terms of its certificates of incorporation or bylaws to curtail or reduce the indemnification obligations to its officers and directors, including former officers and directors, it will provide notification thereof to Employee. Employee shall receive indemnification to the extent provided to other officers and directors of the Company. The Company further agrees that to the extent its Director and Officer Liability insurance covers former officers and directors, the Company willnot seek to remove Employee from such coverage (subject to the terms of the policy).
   
10. Expiration of Offer; Right to Revoke Agreement. (a) The Employee has 21 days from the day the Employee receives this Agreement to decide whether or not to sign it. The Employee acknowledges receipt of this Agreement on August 3, 2000. The Employee may waive some or all of the 21-day period. This offer will expire if the Agreement is not signed and postmarked within 21 days. (b) If the Employee signs the Agreement, he/she has 7 days after signing this Agreement to revoke it for any reason. This Agreement will not be effective or enforceable until 7 days after the date the Employee signs it. Severance Pay will be paid in accordance with paragraph 2(a) but in no event will commence before the expiration of the 7-day period. Revocation must be in writing and hand-delivered or mailed to the Company, postmarked within the 7-day period, and addressed to: Freya Brier, Wild Oats Markets, Inc., 3375 Mitchell Lane, Boulder, CO 80301.

The Employee hereby acknowledges that the Employee has been advised in writing to consult with an attorney before signing this Agreement and the Employee has either consulted with an attorney before signing this Agreement or the Employee has willingly and knowingly waived his/her right to speak with an attorney prior to signing this Agreement. The Employee fully understands this Agreement and agrees to its terms.

COMPANY: EMPLOYEE:

Wild Oats Markets, Inc.                             Agreed to and signed, this 4th day of August , 2001

By: /s/  Freya R. Brier                                    /s/  Mary Beth Lewis
        V.P.,  Legal                                                     Signature

EX-10.23

AMENDMENT TO SEVERANCE AGREEMENT AND RELEASE OF CLAIMS

This Amendment to Severance Agreement and Release of Claims is between Wild Oats Markets, Inc. (the "Company") and Mary Beth Lewis ("Employee").

1. The parties executed a Severance Agreement and Release of Claims dated August 4, 2001 (the "Agreement").

2. The parties desire to amend the Agreement to accurately identify that the Company includes the wholly owned subsidiaries of Wild Oats Markets, Inc.

AMENDMENT

For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

1. The Agreement is amended to amend the definition of the term "Company" to include Wild Oats Markets, Inc. and its wholly owned subsidiaries.
   
2. All other provisions of the Agreement remain unchanged.

Wild Oats Markets, Inc.	Employee
By: /s/	By:  /s/
Freya R. Brier, V.P., Legal	Mary Beth Lewis

EX-10.24

THIS IS A LEGAL DOCUMENT. YOU ARE ENCOURAGED TO CONSULT WITH AN ATTORNEY BEFORE SIGNING THIS DOCUMENT.

SEVERANCE AGREEMENT AND RELEASE OF CLAIMS

This Severance Agreement and Release of Claims (the "Agreement") is between Wild Oats Markets, Inc. ("Company") and James W. Lee ("Employee").

Agreement

For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Employee hereby agree as follows:

1. Termination of Employment. Effective August 30, 2001 (the "Effective Date"), Employee agrees that Employee's employment with the Company is hereby terminated, and Employee further resigns from any and all officer or director positions held by the Employee with the Company or any of its subsidiaries, effective as of the Effective Date. The Company agrees that the Employee's termination shall be treated as a resignation and retirement in the event a current or prospective employer of the Employee requests a reference.

2. Continuation of Salary and Benefits. (a) Salary Continuance. Subject to Employee's compliance with the terms and conditions set forth in this Agreement, Company agrees to pay the Employee a continuation of the Employee's salary (the "Severance Pay") for a period of one year, commencing on September 1, 2001 and ending on August 31, 2002 (the "Severance Period"). The Severance Pay will be paid in equal payments on the same payroll schedule under which the Company pays its employees. Subject to Paragraph 3 below, the first payment will be made on the next regularly scheduled pay day for the Company which occurs after August 30, 2001. Employee to receive benefit payout on next regularly pay period following signing of Agreement.

(b) Medical Benefits Continuance. The Company will continue medical benefits for the Employee for the Severance Period, including medical, life insurance, dental and vision plans, but excluding short and long term disability benefits.

(c) Deferred Compensation Plan. Barring prohibitions imposed by the Company's deferred compensation plan, the Company will allow the Employee to maintain the balance of his deferred compensation plan account in the plan until January 1, 2002, at which time the Company shall distribute the balance of the account to the Employee. The Employee shall not be entitled to make further contributions to such account after the Effective Date.

(d) Discount Card. The Employee will not be entitled to continued use of the employee discount benefit.

(d)  Company Vehicle. The Employee will be entitled to the continued use of the company vehicle currently in Employee's possession during the Severance Period. The Company will continue to pay the cost to insure the vehicle during the Severance Period.

(e)  Options. (i) Employee acknowledges that certain employees of the Company (including Employee) are currently under a blackout and unable to trade Company stock for an unspecified period of time (the "Blackout Period"). The Company agrees to lift the Blackout Period for Employee on November 15, 2001. Company further agrees to extend the period of time in which Employee may exercise Employee's vested stock options to March 15, 2002 (the "Option Expiration Date"). If such options are not exercised within such time frame, all of Employee's vested stock options will expire on the Option Expiration Date. Employee acknowledges that vesting of his stock options ceased as of August 30, 2001.

3. Conditions to Commencement of Severance Pay. In order for the Employee to receive the Severance Pay, the Employee must comply with all of the following conditions. At the Company's election, failure to comply with any condition will result in a delay in, or termination of, any right to receive Severance Pay:

(a)  The Employee shall return, within 7 days after signing this Agreement, all equipment, tools, phones, computers, keys and proprietary information (including financials, price lists, vendor lists, manuals and strategic planning documents), in Employee's possession, including the items listed on Attachment A to this Agreement. Change to acknowledgement of all equipment. All items shall be returned in accordance with the Equipment and Credit Card Information Sheet enclosed with this Agreement. All computer files must remain intact on all computer equipment returned.

(b)  If the Employee has a Company credit card, within 7 days after the date the Employee signs this Agreement, the Employee must arrange for payment of outstanding charges in accordance with the Equipment and Credit Card Information Sheet enclosed.

Failure to comply with (a) or (b) may result in withholding or termination of Severance Pay, or the Company may elect to deduct any unpaid bills, costs of equipment, personal credit card charges or any business expenses for which reports have not been submitted from the Employee's Severance Pay.

4. Conditions to Continued Receipt of Severance Pay. In order for the Employee to continue to receive Severance Pay, the Employee MUST comply with the following conditions during the Severance Period:

(a) The Employee will not disparage or otherwise discredit the Company orally or in writing.

(b) The Employee will not solicit, for him/herself or on behalf of a third party, either directly or indirectly, any currently employed employee of the Company to leave the Company's employ.

(c) The Employee will not discuss the terms of this Agreement with any third party other than the Employee's spouse, family or legal or financial advisors. In the event the Employee is required by law to discuss or disclose any of the terms, the Employee must provide the Company with prompt written notice prior to disclosure to the third party to allow the Company sufficient time to contest the pending disclosure.

5.  Company Obligations. The Company agrees that (a) the following officers of the Company, Perry Odak, Bruce Bowman, Steve Kaczynski, Freya Brier, Terry Maloy and Peter Williams (the "OCEO") will not disparage or otherwise discredit the Employee orally or in writing, and (b) the OCEO will not discuss the terms of this Agreement with any third party other than the Company's legal or financial advisors or as may be necessary. Employee acknowledges that the Company may be required to file a copy of this Agreement as an exhibit to its public filings under the laws, rules and regulations of the Securities and Exchange Commission.

6. Rehire. The Employee agrees that the Employee shall not apply for rehire by the Company, and the Company's refusal to hire shall not be deemed to be discriminatory conduct on the part of the Company.

7. Confidentiality. The Employee acknowledges that he/she has been provided with, and has created for the Company, certain confidential information, both written and oral, including, but not limited to, trade secrets and other information related to the Company's practices in marketing, pricing, operations, advertising, promotions, merchandising, selling and distributing, price lists, vendor lists, customer lists, know-how, strategic planning and financial information, collectively referred to herein as "Confidential Information", by the Company. The Employee agrees that the Employee will not disclose such information, orally or in writing, to any third party except to the extent such disclosure is required by law, in which case the Employee will provide the Company with prompt written notice of the disclosure request to allow the Company sufficient time to contest the pending disclosure.

8. Release of Claims. By signing this Agreement without revocation, the Employee and his/her heirs and assigns hereby agree to release and forever discharge the Company, its officers, directors, employees, agents and representatives from any and all actions, causes of action, suits, damages and claims, whether known or unknown, which the Employee ever had, now has, or may have against the Company for any matter relating to his/her employment or termination from employment to the date hereof. The Employee also agrees that he/she is legally waiving and releasing any rights the Employee may have had on or before the date of this Agreement regarding his/her employment and termination from employment with the Company, including those rights relating to age, gender, race, disability or religion, under the numerous laws and regulations regulating employment, including, without limitation, the Age Discrimination in Employment Act of 1967, the Civil Rights Acts of 1866, 1871, 1964 and 1991; the Employee Retirement Income Security Act; the Equal Pay Act; the Fair Labor Standards Act; the National Labor Relations Act; the Occupational Safety and Health Act; the Older Workers Benefit Protection Act of 1990; the Consolidated Omnibus Budget Reconciliation Act; the Rehabilitation Act of 1973; the Colorado Anti-Discrimination in Employment Act or any similar act of any other state; the Family Medical Leave Act, as well as other statutes and laws that may apply. Notwithstanding the foregoing, the Employee does not waive any rights conferred by statute to elect COBRA benefits or to apply and receive unemployment benefits. The Employee represents that the Employee has not filed any claims with any governmental agencies or any civil suits relating to his/her employment with the Company or his/her termination of employment with the Company.

9. Non-Competition. (a) Restrictions. In consideration for the severance specified above, during the Severance Period, the Employee will not directly or indirectly, on the Employee's own account or as an employee, consultant, partner, owner, officer, director or stockholder of any other firm, partnership or corporation, conduct, engage in, be connected with, have any interest in or aid or assist Whole Foods Markets, Inc., or its affiliates or subsidiaries or any other natural foods grocery chain which is a competitor of the Company, or its affiliates or subsidiaries, nor will the Employee in any way directly or indirectly, solicit, divert, take away or interfere with any of the business customers, trade or personnel of the Employer; nor will the Employee interfere with the suppliers, manufacturers, distributors, wholesalers or other such companies with which the Employer transacts business; provided, however, nothing contained herein shall prevent the Employee from engaging in employment with a conventional grocery chain, so long as Employee is not involved in the natural foods operations of such conventional operator, or prevent Employee from owning shares of stock of any such type of corporation, the shares of which are publicly traded on a nationally recognized stock exchange.

(b) Geographic Limitation. The geographic limitation within which the Employee shall not compete as set forth in paragraph (a) of this covenant not to compete is within the continental United States or such lesser geographic area deemed enforceable by a court of competent jurisdiction.

(c) Acknowledgments. The Employee hereby acknowledges that the terms of this covenant not to compete is a minimum period of time and that the area of restriction is reasonable and necessary in order to protect the Employer.

(d) Remedies. The Employee further agrees that damages cannot reasonably compensate the Employer in the event of a violation of this covenant and that it would be difficult to ascertain the lost profits which would be suffered and that, by reason thereof, injunctive relief would be essential for the protection of the Employer. Accordingly, the Employee hereby agrees and consents that in the event of any such breach or violation, the Employer may obtain such injunctive relief in order to prevent a continued violation of the terms of this Agreement. The Employee, therefore, agrees that the Employer may obtain a temporary restraining order and temporary and permanent injunctions against the Employee from any court of competent jurisdiction in the State of Colorado without necessity of the posting of a bond or other security. The foregoing shall not limit the Employer in the pursuit of other remedies it may have, including damages.

10. Cooperation. (a) The Employee agrees to cooperate with the Company, as requested, to effect a transition of his/her responsibilities and job-related information and to ensure that the Company is aware of all matters being handled by the Employee.

(b) The Employee agrees, upon reasonable notice, to furnish information and assistance to the Company as may be required in connection with any legal or quasi-legal proceeding, including any external or internal investigation, involving the Company, its subsidiaries or affiliates, or in which any of them is, or may become, a party. After the Severance Period, or if during Severance Period the assistance is for a period longer than 10 days, the Company will pay the Employee for the time spent in providing assistance with proceedings for a reasonable consulting fee not to exceed the Employee's effective hourly wage on the Effective Date.

11. Miscellaneous. (a) This Agreement will be interpreted, construed and governed by the laws of the State of Colorado, and the Employee agrees to accept jurisdiction and venue for any claims or actions in Boulder County, Colorado. (b) If any provision or clause of this Agreement is held to be invalid by a court of competent jurisdiction, the invalid provision will be severed from this Agreement, but such invalidity will not affect the validity or enforceability of any other provision, and the balance of the Agreement will remain in full force and effect. (c) In the event of death by the Employee during the Severance Period, the right to receive Severance Pay, but not medical insurance coverage, will inure to the benefit of the Employee's heirs, successors or assigns. (d) The Employee agrees and acknowledges that if the Employee breaches any portion of this Agreement, the Company has a right to offset amounts due to the Company against Severance Pay or terminate any further Severance Pay. (e) The Employee acknowledges that the damages the Company may suffer for breach of this Agreement may be irreparable, and in any event would be difficult, if not impossible, to ascertain, and agrees that the Company will have the right to an injunction or other available equitable relief in any court of competent jurisdiction, enjoining any threatened or actual breach. The existence of a right to an injunction or other available equitable relief will not preclude the Company from pursuing any other rights and remedies at law or in equity which it may have, including the right to seek recovery of damages. The Employee hereby waives the claim or defense that the Company has an adequate remedy at law or has not been or is not being irreparably injured by the breach of the Agreement, and also waives any requirement that a bond be posted in order to bring an action for injunctive relief or declaratory judgment.

10. Expiration of Offer; Right to Revoke Agreement. (a) The Employee has 21 days from the day the Employee receives this Agreement to decide whether or not to sign it. The Employee acknowledges receipt of this Agreement on November 7, 2001. The Employee may waive some or all of the 21-day period. This offer will expire if the Agreement is not signed and postmarked within 21 days (November 28, 2001).

(b) If the Employee signs the Agreement, he/she has 7 days after signing this Agreement to revoke it for any reason. This Agreement will not be effective or enforceable until 7 days after the date the Employee signs it. Severance Pay will not be paid until the next pay period after the expiration of the 7-day period. Revocation must be in writing and hand-delivered or mailed to the Company, postmarked within the 7-day period, and addressed to: Angie Suarez, Wild Oats Markets, Inc., 3375 Mitchell Lane, Boulder, CO 80301.

The Employee hereby acknowledges that the Employee has been advised in writing to consult with an attorney before signing this Agreement and the Employee has either consulted with an attorney before signing this Agreement or the Employee has willingly and knowingly waived his/her right to speak with an attorney prior to signing this Agreement. The Employee fully understands this Agreement and agrees to its terms.

COMPANY:                                       EMPLOYEE:

Wild Oats Markets, Inc.       Agreed to and signed, this 14th day of November, 2001

By:  /s/ Freya R. Brier             /s/ James W. Lee
                                       Signature

ATTACHMENT A

TO SEVERANCE AGREEMENT AND RELEASE OF CLAIMS

.

Name: Jim W. Lee

Address:

Weeks of Severance: 52 weeks

Equipment:

Cell Phone: Returned

Pager: Returned

Laptop: N/A

Camera: N/A

Co. Credit Card: Returned

Keys: Returned

Discount Card: Returned

EX-10.25

WILD OATS MARKETS, INC.

2001 NON-OFFICER/NON-DIRECTOR

STOCK OPTION PLAN

1. PURPOSES

(a) The purpose of the Plan is to provide a means by which selected Non-Officer, Non-Director Employees may be given an opportunity to benefit from increases in value of the common stock of the Company ("Common Stock") through the granting of Nonstatutory Stock Options.

(b) The Company, by means of the Plan, seeks to retain the services of persons who are now Employees of the Company and its Affiliates, to secure and retain the services of new Employees and to provide incentives for such persons to exert maximum efforts for the success of the Company and its Affiliates.

(c) The Company intends that the Stock Awards issued under the Plan shall be Nonstatutory Options granted pursuant to Section 6 hereof. All Options shall be designated Nonstatutory Stock Options at the time of grant, and in such form as issued pursuant to Section 6, and a separate certificate or certificates will be issued for shares purchased on exercise of each type of Option.

2. DEFINITIONS

(a) "AFFILIATE" means any parent corporation or subsidiary corporation, whether now or hereafter existing, as those terms are defined in Sections 424(e) and (f) respectively, of the Code.

(b) "BOARD" means the Board of Directors of the Company.

(c) "CODE" means the complete Internal Revenue Code, as amended.

(d) "COMMITTEE" means a Committee appointed by the Board in accordance with subsection 3(c) of the Plan.

(e) "COMPANY" means Wild Oats Markets, Inc. a Delaware corporation.

(f) "CONTINUOUS STATUS AS AN EMPLOYEE" means the employment is not interrupted or terminated. The Board, in its sole discretion, may determine whether Continuous Status as an Employee shall be considered interrupted in the case of: (i) any leave of absence approved by the Board, including sick leave, military leave, or any other personal leave; or (ii) transfers between locations of the Company or between the Company, Affiliates or their successors.

(g) "DIRECTOR" means a member of the Board.

(h) "EMPLOYEE" means any person, excluding Officers and Directors, employed by the Company or any Affiliate of the Company.

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

(j) "FAIR MARKET VALUE" means, as of any date, the value of the Common Stock of the Company determined as follows:

(1) If the Common Stock is listed on any established stock exchange, or traded on the Nasdaq National Market or the Nasdaq SmallCap Market, the Fair Market Value of a share of Common Stock shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or market (or the exchange or market with the greatest volume of trading in Common Stock) on the last market trading day prior to the day of determination, as reported in the Wall Street Journal or such other source as the Board deems reliable;

(2) In the absence of such markets for the Common Stock, the Fair Market Value shall be determined in good faith by the Board.

(k) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify as an incentive stock option under Section 422 of the Code and the regulations thereunder.

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

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

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

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

(p) "OUTSIDE DIRECTOR" means a Director who either (i) is not a current employee of the Company or an "affiliated corporation" (within the meaning of Treasury regulations promulgated under Section 162(m) of the Code), is not a former employee of the Company or an "affiliated corporation" receiving compensation for prior services (other than benefits under a tax qualified pension plan), was not an officer of the Company or an "affiliated corporation" at any time, and is not currently receiving direct or indirect remuneration from the Company or an "affiliated corporation" for services in any capacity other than as a Director, or (ii) is otherwise considered an "outside director" for purposes of Section 162(m) of the Code.

(q) "PLAN" means this Wild Oats Markets, Inc. 2001 Non-Officer/Non-Director Stock Option Plan.

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

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

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

3. ADMINISTRATION

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

(b) The Board shall have the power, subject to, and within the limitations of, the express provisions of the Plan:

(1) To determine from time to time which of the persons eligible under the Plan shall be granted Stock Awards; when and how each Stock Award shall be granted; the provisions of each Stock Award granted (which need not be identical), including the time or times when a person shall be permitted to receive stock pursuant to a Stock Award and the number of shares with respect to which a Stock Award shall be granted to each such person.

(2) To construe and interpret the Plan and Stock Awards granted under it, and to establish, amend and revoke rules and regulations for its administration. The Board, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan or in any Stock Award Agreement, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective.

(3) To amend the Plan or a Stock Award as provided in Section 12.

(4) Generally, to exercise such powers and to perform such acts as the Board deems necessary or expedient to promote the best interests of the Company which are not in conflict with the provisions of the Plan.

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

4. SHARES SUBJECT TO THE PLAN

(a) Subject to the provisions of Section 11 relating to adjustments upon changes in stock, the stock that may be issued pursuant to Stock Awards shall not exceed in the aggregate 486,000 shares of the Common Stock. If any Stock Award shall for any reason expire or otherwise terminate, in whole or in part, without having been exercised in full, the stock not acquired under such Stock Award shall revert to and again become available for issuance under the Plan.

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

5. ELIGIBILITY

No Officer or Director shall be eligible to receive any Stock Award under this Plan. Subject to the provisions of Section 11 relating to adjustments upon changes in stock, no person shall be eligible to be granted Options covering more than 50,000 shares of the Common Stock in any calendar year.

6. OPTION PROVISIONS

Each Option shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. The provisions of separate Options need not be identical, but each Option shall include (through incorporation of provisions hereof by reference in the Option or otherwise) the substance of each of the following provisions:

(a) TERM. No Option shall be exercisable after the expiration of ten (10) years from the date it was granted.

(b) PRICE. The exercise price of each Nonstatutory Stock Option shall be not less than eighty-five percent (85%) of the Fair Market Value of the stock subject to the Option on the date the Option is granted.

(c) CONSIDERATION. The purchase price of stock acquired pursuant to an Option shall be paid, to the extent permitted by applicable statutes and regulations, either (i) in cash at the time the Option is exercised, or (ii) at the discretion of the Board or the Committee, at the time of the grant of the Option, (A) by delivery to the Company of other Common Stock of the Company, (B) according to a deferred payment or other arrangement (which may include, without limiting the generality of the foregoing, the use of other Common Stock of the Company) with the person to whom the Option is granted or to whom the Option is transferred pursuant to subsection 6(d), or (C) in any other form of legal consideration that may be acceptable to the Board.

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

(d) TRANSFERABILITY. A Nonstatutory Stock Option shall not be transferable except by will, by the laws of descent and distribution or pursuant to a domestic relations order satisfying the requirements of Rule 16b-3 and shall be exercisable during the lifetime of the person to whom the Option is granted only by such person or any transferee pursuant to a domestic relations order. Notwithstanding the foregoing, the person to whom the Option is granted may, by delivering written notice to the Company, in a form satisfactory to the Company, designate a third party who, in the event of the death of the Optionee, shall thereafter be entitled to exercise the Option.

(e) VESTING. The total number of shares of stock subject to an Option may, but need not, be allotted in periodic installments (which may, but need not, be equal). The Option Agreement may provide that from time to time during each of such installment periods, the Option may become exercisable ("vest") with respect to some or all of the shares allotted to that period, and may be exercised with respect to some or all of the shares allotted to such period and/or any prior period as to which the Option became vested but was not fully exercised. The Option may be subject to such other terms and conditions on the time or times when it may be exercised (which may be based on performance or other criteria) as the Board may deem appropriate. The provisions of this subsection 6(e) are subject to any Option provisions governing the minimum number of shares as to which an Option may be exercised.

(f) TERMINATION OF EMPLOYMENT. In the event an Optionee's Continuous Status as an Employee terminates (other than upon the Optionee's death or disability), the Optionee may exercise his or her Option (to the extent that the Optionee was entitled to exercise it at the date of termination) but only within such period of time ending on the earlier of (i) the date thirty (30) days after the termination of the Optionee's Continuous Status as an Employee (or such longer or shorter period specified in the Option Agreement), or (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, after termination, the Optionee does not exercise his or her Option within the time specified in the Option Agreement, the Option shall terminate, and the shares covered by such Option shall revert to and again become available for issuance under the Plan.

An Optionee's Option Agreement may also provide that if the exercise of the Option following the termination of the Optionee's Continuous Status as an Employee (other than upon the Optionee's death or disability) would result in liability under Section 16(b) of the Exchange Act, then the Option shall terminate on the earlier of (i) the expiration of the term of the Option set forth in the Option Agreement, or (ii) the tenth (10th) day after the last date on which such exercise would result in such liability under Section 16(b) of the Exchange Act. Finally, an Optionee's Option Agreement may also provide that if the exercise of the Option following the termination of the Optionee's Continuous Status as an Employee (other than upon the Optionee's death or disability) would be prohibited at any time solely because the issuance of shares would violate the registration requirements under the Act, then the Option shall terminate on the earlier of (i) the expiration of the term of the Option set forth in the first paragraph of this subsection 6(f), or (ii) the expiration of a period of thirty (30) days after the termination of the Optionee's Continuous Status as an Employee during which the exercise of the Option would not be in violation of such registration requirements.

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

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

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

(j) RE-LOAD OPTIONS. Without in any way limiting the authority of the Board or Committee to make or not to make grants of Options hereunder, the Board or Committee shall have the authority (but not an obligation) to include as part of any Option Agreement a provision entitling the Optionee to a further Option (a "Re-Load Option") in the event the Optionee exercises the Option evidenced by the Option agreement, in whole or in part, by surrendering other shares of Common Stock in accordance with this Plan and the terms and conditions of the Option Agreement. Any such Re-Load Option (i) shall be for a number of shares equal to the number of shares surrendered as part or all of the exercise price of such Option; (ii) shall have an expiration date which is the same as the expiration date of the Option the exercise of which gave rise to such Re-Load Option; and (iii) shall have an exercise price which is equal to one hundred percent (100%) of the Fair Market Value of the Common Stock subject to the Re-Load Option on the date of exercise of the original Option.

There shall be no Re-Load Options on a Re-Load Option. Any such Re-Load Option shall be subject to the availability of sufficient shares under subsection 4(a) and shall be subject to such other terms and conditions as the Board or Committee may determine which are not inconsistent with the express provisions of the Plan regarding the terms of Options.

7. CANCELLATION AND RE-GRANT OF OPTIONS

(a) The Board or the Committee shall have the authority to effect, at any time and from time to time, (i) the repricing of any outstanding Options under the Plan and/or (ii) with the consent of any adversely affected holders of Options, the cancellation of any outstanding Options under the Plan and the grant in substitution therefor of new Options under the Plan covering the same or different numbers of shares of stock, but having an exercise price per share not less than eighty-five percent (85%) of the Fair Market Value for a Nonstatutory Stock Option.

(b) Shares subject to an Option canceled under this Section 7 shall continue to be counted against the maximum award of Options permitted to be granted pursuant to Section 5 of the Plan. The repricing of an Option under this Section 7, resulting in a reduction of the exercise price, shall be deemed to be a cancellation of the original Option and the grant of a substitute Option; in the event of such repricing, both the original and the substituted Options shall be counted against the maximum awards of Options permitted to be granted pursuant to Section 5 of the Plan.

8. COVENANTS OF THE COMPANY

(a) During the terms of the Stock Awards, the Company shall keep available at all times the number of shares of stock required to satisfy such Stock Awards.

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

9. USE OF PROCEEDS FROM STOCK

Proceeds from the sale of stock pursuant to Stock Awards shall constitute general funds of the Company.

10. MISCELLANEOUS

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

(b) No Employee or any person to whom a Stock Award is transferred in accordance with the Plan shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares subject to such Stock Award unless and until such person has satisfied all requirements for exercise of the Stock Award pursuant to its terms.

(c) Nothing in the Plan or any instrument executed or Stock Award granted pursuant thereto shall confer upon any Employee or other holder of Stock Awards any right to continue in the employ of the Company or any Affiliate, or shall affect the right of the Company or any Affiliate to terminate the employment of any Employee with or without notice and with or without cause.

(d) The Company may require any person to whom a Stock Award is granted, or any person to whom a Stock Award is transferred in accordance with the Plan, as a condition of exercising or acquiring stock under any Stock Award, (1) to give written assurances satisfactory to the Company as to such person's knowledge and experience in financial and business matters and/or to employ a purchaser representative reasonably satisfactory to the Company who is knowledgeable and experienced in financial and business matters, and that he or she is capable of evaluating, alone or together with the purchaser representative, the merits and risks of exercising the Stock Award; and (2) to give written assurances satisfactory to the Company stating that such person is acquiring the stock subject to the Stock Award for such person's own account and not with any present intention of selling or otherwise distributing the stock. The foregoing requirements, and any assurances given pursuant to such requirements, shall be inoperative if (i) the issuance of the shares upon the exercise or acquisition of stock under the Stock Award has been registered under a then currently effective registration statement under the Securities Act, or (ii) as to any particular requirement, a determination is made by counsel for the Company that such requirement need not be met in the circumstances under the then applicable securities laws. The Company may, upon advice of counsel to the Company, place legends on stock certificates issued under the Plan as such counsel deems necessary or appropriate in order to comply with applicable securities laws, including, but not limited to, legends restricting the transfer of the stock.

(e) To the extent provided by the terms of a Stock Award Agreement, the person to whom a Stock Award is granted may satisfy any federal, state or local tax withholding obligation relating to the exercise or acquisition of stock under a Stock Award by any of the following means or by a combination of such means: (1) tendering a cash payment; (2) authorizing the Company to withhold shares from the shares of the Common Stock otherwise issuable to the participant as a result of the exercise or acquisition of stock under the Stock Award; or (3) delivering to the Company owned and unencumbered shares of the Common Stock of the Company.

11. ADJUSTMENTS UPON CHANGES IN STOCK

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

(b) In the event of: (1) a dissolution, liquidation or sale of substantially all of the assets of the Company; (2) a merger or consolidation in which the Company is not the surviving corporation; or (3) a reverse merger in which the Company is the surviving corporation but the shares of the Company's common stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise, then to the extent permitted by applicable law: (i) any surviving corporation or an Affiliate of such surviving corporation shall assume any Stock Awards outstanding under the Plan or shall substitute similar Stock Awards for those outstanding under the Plan, or (ii) such Stock Awards shall continue in full force and effect. In the event any surviving corporation and its Affiliates refuse to assume or continue such Stock Awards, or to substitute similar options for those outstanding under the Plan, then, with respect to Stock Awards held by persons then performing services as Employees, the time during which such Stock Awards may be exercised shall be accelerated and the Stock Awards terminated if not exercised prior to such event.

12. AMENDMENT OF THE PLAN AND STOCK AWARDS

(a) The Board at any time, and from time to time, may amend the Plan; provided that no such amendment shall allow for the issuance of Stock Awards hereunder to any Officer or Director when permitted under Nasdaq guidelines for plans not approved by the Company's shareholders.

(b) It is expressly contemplated that the Board may amend the Plan in any respect the Board deems necessary or advisable to provide eligible Employees with the maximum benefits provided or to be provided under the provisions of the Code.

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

(d) The Board at any time, and from time to time, may amend the terms of any one or more Stock Award; provided, however, that the rights and obligations under any Stock Award shall not be impaired by any such amendment unless (i) the Company requests the consent of the person to whom the Stock Award was granted and (ii) such person consents in writing.

13. TERMINATION OR SUSPENSION OF THE PLAN

(a) The Board may suspend or terminate the Plan at any time. Unless sooner terminated, the Plan shall terminate 15 years from the date the Plan is adopted by the Board. No Stock Awards may be granted under the Plan while the Plan is suspended or after it is terminated.

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

14. EFFECTIVE DATE OF PLAN.

The Plan shall become effective on October 1, 2001.

WILD OATS MARKETS, INC.

NON-QUALIFIED STOCK OPTION

___________________________________,Optionee:

Wild Oats Markets, Inc. (the "Company"), pursuant to its 2001 Non-Officer / Non-Director Stock Option Plan (the "Plan"), has this day granted to you, the optionee named above, an option to purchase shares of the common stock of the Company ("Common Stock"). This option is not intended to qualify and will not be treated as an "incentive stock option" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").

The details of your option are as follows:

1. (a) The total number of shares of Common Stock subject to this option is ____________________________

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

NUMBER OF SHARES (INSTALLMENT)

DATE OF EARLIEST EXERCISE (VESTING)

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

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

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

3. This option may not be exercised for any number of shares which would require the issuance of anything other than whole shares.

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

5. The term of this option commences on the date hereof and, unless sooner terminated as set forth below or in the Plan, terminates ten (10) years from the date of grant. In no event may this option be exercised on or after the date on which it terminates. This option shall terminate prior to the expiration of its term as follows: Thirty (30) days after the termination of your employment with the Company for any reason or for no reason unless;

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

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

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

However, this option may be exercised on or after the termination of employment only as to that number of vested shares as to which it was exercisable on the date of termination of employment under the provisions of paragraphs 1 and 3 of this option; provided however, that if your employment is terminated prior to the First Exercise Date (as defined in subparagraph 3(a) hereof), subject to paragraph 1 hereof, the date of your termination of employment shall be deemed the First Exercise Date.

6. (a) This option may be exercised, to the extent specified above, by delivering a notice of exercise (in a form designated by the Company) together with the exercise price to the Secretary of the Company, or to such other person as the Company may designate, during regular business hours, together with such additional documents as the Company may then require pursuant to the Plan.

(i) By exercising this option you agree that the Company may require you to enter an arrangement providing for the payment by you to the Company of any tax withholding obligation of the Company arising by reason of (1) the exercise of this option; (2) the lapse of any substantial risk of forfeiture to which the shares are subject at the time of exercise; or (3) the disposition of shares acquired upon such exercise.

7. This option is not transferable, except by will or by the laws of descent and distribution, and is exercisable during your life only by you.

8. Any notices provided for in this option shall be given in writing and shall be deemed effectively given upon receipt or, in the case of notices delivered by the Company to you, five (5) days after deposit in the United States mail, postage prepaid, addressed to you at the address specified below or at such other address as you hereafter designate by written notice to the Company.

9. If the partners hereto shall have any conflict regarding the terms of this option, the interpretation of the Company's Compensation Committee shall prevail.

Dated the ______ day of _________________, 20___.

Very truly yours,

WILD OATS MARKETS, INC.

By ___________________________________

Duly authorized on behalf of the Board of Directors

The undersigned:

(a) Acknowledges receipt of the foregoing option and the attachments referenced therein and understands that all rights and liabilities with respect to this option are set forth in the option and the Plan; and

(b) Acknowledges that as of the date of grant of this option, it sets forth the entire understanding between the undersigned optionee and the Company and its affiliates regarding the acquisition of stock in the Company and supersedes all prior oral and written agreements on that subject with the exception of the following agreements only:

NONE _____________________

(Initial)

OTHER __________________________________________________________

__________________________________________________________

__________________________________________________________

___________________________________________________

Optionee

Address: ___________________________________________

___________________________________________

ATTACHMENTS:

2001Non- Officer/Non-Director Stock Option Plan

Notice of Exercise

NOTICE OF EXERCISE

Date of Exercise

Wild Oats Markets, Inc.
3375 Mitchell Lane
Boulder, CO 80301

Ladies and Gentlemen:

This constitutes notice under my stock option that I elect to purchase the number of shares for the price set forth below.

Type of option (check one)             Incentive                 Nonstatutory

Stock option dated:

Number of shares as to which
option is exercised:

Certificates to be issued in
name of: _____________________

Total exercise price: $

Cash payment delivered herewith: $

By this exercise, I agree (i) to provide such additional documents as you may require pursuant to the terms of the 2001 Non-Officer / Non-Director Stock Option Plan, (ii) to provide for the payment by me to you (in the manner designated by you) of your withholding obligation, if any, relating to the exercise of this option, and (iii) if this exercise related to an incentive stock option, to notify you in writing within fifteen (15) days after the date of any disposition of any of the shares of Common Stock issued upon exercise of this option that occurs within two (2) years after the date of grant of this option or within one (1) year after such shares of Common Stock are issued upon exercise of this option.

I hereby make the following certifications and representations with respect to the number of shares of Common Stock of the Company listed above (the "Shares"), which are being acquired by me for my own account upon exercise of the Option as set forth above:

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

Very truly yours,

_________________________________

EX-10.30

AMENDMENT NO. 2 TO
AMENDED AND RESTATED CREDIT AGREEMENT

This Amendment No. 2 to Amended and Restated Credit Agreement (this "Amendment") is entered into with reference to the Amended and Restated Credit Agreement dated as of August 1, 2000 (as heretofore amended, the "Credit Agreement") among Wild Oats Markets, Inc. ("Borrower"), the Lenders party thereto, and Wells Fargo Bank, National Association, as Administrative Agent. Capitalized terms used but not defined herein are used with the meanings set forth for those terms in the Credit Agreement. Section references herein relate to the Credit Agreement unless otherwise stated.

RECITALS

1. Pursuant to Section 6.14, Borrower is required to have Stockholders' Equity of not less than $110,125,000 as of September 29, 2001, $108,375,000 as of October 27, 2001, $106,175,000 as of November 24, 2001 and $103,605,000 as of December 29, 2001.
2. Since the date of the First Amendment, Borrower's accountants have advised Borrower to record certain pre-tax restructuring charges associated with the closure of certain kitchens, bakeries and warehouses in Borrower's third Fiscal Quarter 2001 statement of operations rather than recording such charges during the fourth Fiscal Quarter 2001 (as was contemplated at the time of the execution and delivery of the First Amendment).
3. Borrower's recordation of such restructuring charges against the third Fiscal Quarter 2001 statement of operations (rather than during the fourth Fiscal Quarter) will cause Borrower to be in violation of the Stockholders' Equity covenant as of September 29, 2001 and may cause further breaches of such covenant as of October 27, 2001 and November 24, 2001.
4. As a result of the change in timing for recognition of the aforementioned restructuring charges, Borrower has requested that the Lenders waive the Event of Default that would otherwise occur as a result of the foregoing Stockholders' Equity covenant violation as of September 29, 2001 and to amend Section 6.14 to reduce the required levels of Stockholders' Equity for the October 27, 2001 and November 24, 2001 measurement dates (with no change made to the December 29, 2001 Stockholders' Equity requirement or for any measurement date thereafter).
5. Subject to the terms and conditions set forth herein, the Administrative Agent and the Lenders are willing to waive such Event of Default and to amend the Credit Agreement as set forth below.

AGREEMENT

NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Borrower and the Administrative Agent, acting with the consent of the Requisite Lenders pursuant to Section 11.2 of the Credit Agreement, agree as follows:

1. Representation and Warranty. Borrower represents and warrants to the Lenders that, other than the violation regarding Stockholders' Equity described above and after giving effect to this Amendment, no Default or Event of Default has occurred and remains continuing under the Credit Agreement.

2. Waiver. In reliance upon the foregoing, the Lenders hereby waive Borrower's compliance with Section 6.14 for the period ended September 29, 2001, provided, however, Stockholders' Equity, as reflected in the final consolidated financial statements of Borrower and its Subsidiaries to be delivered to the Lenders pursuant Section 7.1(b) of the Credit Agreement for the Fiscal Quarter ended September 29, 2001, is not less than $109,625,000.

3. Section 6.14-"Stockholders' Equity". Section 6.14 is amended and restated to read in full as follows:

6.14 Stockholders' Equity. Permit Stockholders' Equity, as of (a)  October 27, 2001, to be less than $107,875,000, (b) November 24, 2001, to be less than $105,675,000, (c) December 29, 2001, to be less than $103,605,000, and (d) the last day of any Fiscal Month thereafter, to be less than the sum of (i) $103,605,000, plus (ii) 90% of Net Income in each Fiscal Quarter ending after December 29, 2001 (with no deduction for a net loss in any such Fiscal Quarter) plus (c) 100% of the proceeds of any issuance by Borrower of equity securities (except to employees or former employees of Borrower pursuant to an employee stock option plan or employee stock purchase plan maintained by Borrower) after the Restructure Date; provided, however, that if the Equity Achievement occurs, Stockholders' Equity will thereafter be tested on a Fiscal Quarter basis (rather than on a Fiscal Month basis as set forth above).

4. Conditions Precedent. The effectiveness of this Amendment shall be conditioned upon the receipt by the Administrative Agent of all of the following, each properly executed by an authorized officer of each party thereto and dated as of the date hereof:

(a) Counterparts of this Amendment executed by all parties hereto;

(b) Written consent of the Requisite Lenders as required under Section 11.2 of the Credit Agreement in the form of Exhibit A to this Amendment; and

(c) Written consent of the Subsidiary Guarantors in the form of Exhibit B to this Amendment.

5. Confirmation. In all other respects, the terms of the Credit Agreement and the other Loan Documents are hereby confirmed.

IN WITNESS WHEREOF, Borrower and the Administrative Agent have executed this Amendment by their duly authorized representatives.

Dated: November 12, 2001

WILD OATS MARKETS, INC.

By:   /s/
       Freya R. Brier
       Vice President Legal

WELLS FARGO BANK, NATIONAL
ASSOCIATION, as Administrative Agent

By   /s/
       Ellen J. Trach
       Vice President

Exhibit A to Amendment No. 2

CONSENT OF LENDER

Reference is hereby made to that certain Amended and Restated Credit Agreement dated as of August 1, 2001 (as heretofore amended, the "Credit Agreement") among Wild Oats Markets, Inc. ("Borrower"), the Lenders party thereto and Wells Fargo Bank, National Association, as Administrative Agent. Capitalized terms used but not defined herein are used with the meanings set forth for those terms in the Credit Agreement.

The undersigned Lender hereby consents to the execution and delivery of Amendment No. 2 to Amended and Restated Credit Agreement by the Administrative Agent on its behalf substantially in the form of the most recent draft presented to the undersigned Lender.

Date: November 9, 2001

Wells Fargo Bank, National Association

By  /s/
Ellen J. Trach
Vice President

Exhibit A to Amendment No. 2

CONSENT OF LENDER

Reference is hereby made to that certain Amended and Restated Credit Agreement dated as of August 1, 2001 (as heretofore amended, the "Credit Agreement") among Wild Oats Markets, Inc. ("Borrower"), the Lenders party thereto and Wells Fargo Bank, National Association, as Administrative Agent. Capitalized terms used but not defined herein are used with the meanings set forth for those terms in the Credit Agreement.

The undersigned Lender hereby consents to the execution and delivery of Amendment No. 2 to Amended and Restated Credit Agreement by the Administrative Agent on its behalf substantially in the form of the most recent draft presented to the undersigned Lender.

Date: November 9, 2001

Bank One, NA

By   /s/
Phillip D. Martin
Senior Vice President

Exhibit A to Amendment No. 2

CONSENT OF LENDER

Reference is hereby made to that certain Amended and Restated Credit Agreement dated as of August 1, 2001 (as heretofore amended, the "Credit Agreement") among Wild Oats Markets, Inc. ("Borrower"), the Lenders party thereto and Wells Fargo Bank, National Association, as Administrative Agent. Capitalized terms used but not defined herein are used with the meanings set forth for those terms in the Credit Agreement.

The undersigned Lender hereby consents to the execution and delivery of Amendment No. 2 to Amended and Restated Credit Agreement by the Administrative Agent on its behalf substantially in the form of the most recent draft presented to the undersigned Lender.

Date: November 9, 2001

Cooperative Centrale Raiffeisen-Boerenleenbank, B.A., "Rabobank Nederland", New York Branch, as a Lender

By   /s/
Edward J. Reyser
Managing Director

By   /s/
John McMahon
Vice President

Exhibit A to Amendment No. 2

CONSENT OF LENDER

Reference is hereby made to that certain Amended and Restated Credit Agreement dated as of August 1, 2001 (as heretofore amended, the "Credit Agreement") among Wild Oats Markets, Inc. ("Borrower"), the Lenders party thereto and Wells Fargo Bank, National Association, as Administrative Agent. Capitalized terms used but not defined herein are used with the meanings set forth for those terms in the Credit Agreement.

The undersigned Lender hereby consents to the execution and delivery of Amendment No. 2 to Amended and Restated Credit Agreement by the Administrative Agent on its behalf substantially in the form of the most recent draft presented to the undersigned Lender.

Date: November 8, 2001

Harris Trust and Savings Bank

By   /s/
David C. Fisher
Vice President

Exhibit A to Amendment No. 2

CONSENT OF LENDER

Reference is hereby made to that certain Amended and Restated Credit Agreement dated as of August 1, 2001 (as heretofore amended, the "Credit Agreement") among Wild Oats Markets, Inc. ("Borrower"), the Lenders party thereto and Wells Fargo Bank, National Association, as Administrative Agent. Capitalized terms used but not defined herein are used with the meanings set forth for those terms in the Credit Agreement.

The undersigned Lender hereby consents to the execution and delivery of Amendment No. 2 to Amended and Restated Credit Agreement by the Administrative Agent on its behalf substantially in the form of the most recent draft presented to the undersigned Lender.

Date: November 9, 2001

Key Bank National Association

By   /s/
Michelle K. Bushey
Vice President

Exhibit B to Amendment No. 2

CONSENT OF SUBSIDIARY GUARANTORS

Reference is hereby made to that certain Amended and Restated Credit Agreement dated as of August 1, 2000 among Wild Oats Markets, Inc. ("Borrower"), the Lenders party thereto, and Wells Fargo Bank, National Association, as Administrative Agent (as heretofore amended, the "Credit Agreement").

Each of the undersigned Subsidiary Guarantors hereby consents to Amendment No. 2 to Amended and Restated Credit Agreement in the form executed by Borrower and confirms that the Subsidiary Guaranty to which it is a party remains in full force and effect.

Dated: As of November 12, 2001

"Subsidiary Guarantors"

WILD MARKS, INC.                             SPARKY, INC.

By: /s/                                                       By: /s/
Karen Novotny                                         Karen Novotny
Secretary                                                  Secretary

WILD OATS FINANCIAL, INC.           WILD OATS OF TEXAS, INC.

By: /s/                                                       By:  /s/
Melody Pickett                                         Richard Vara
President                                                  Secretary

EX-10.31

AMENDMENT NO. 3 TO
AMENDED AND RESTATED CREDIT AGREEMENT

This Amendment No. 3 to Amended and Restated Credit Agreement (this "Amendment") is entered into with reference to the Amended and Restated Credit Agreement dated as of August 1, 2000 (the "Credit Agreement") among Wild Oats Markets, Inc. ("Borrower"), the Lenders party thereto, and Wells Fargo Bank, National Association, as Administrative Agent. Capitalized terms used but not defined herein are used with the meanings set forth for those terms in the Credit Agreement. Section references herein relate to the Credit Agreement unless otherwise stated.

Borrower, the Administrative Agent and each of the Lenders agree as follows:

1. Amendment to Definition of "Fixed Charges". The definition of "Fixed Charges" in Section 1.1 is amended and restated to read in full as follows:

"Fixed Charges" means, with respect to any fiscal period, the sum of (a) Interest Expense of Borrower and its Subsidiaries for such fiscal period plus (b) Rental Expense of Borrower and its Subsidiaries for such fiscal period plus (c) scheduled principal payments (or principal components, in the case of Capital Lease Obligations) paid or payable on Indebtedness of Borrower and its Subsidiaries during that fiscal period, other than the $2,500,000 Line B Commitment Amortization Amount paid on September 30, 2001.

2. New Defined Term. Section 1.1 is amended by adding the following definition in the appropriate alphabetical location:

"Permitted Insurance Premium Indebtedness" means Indebtedness incurred by Borrower or any of its Subsidiaries to finance payment of insurance premiums, provided that (a) the aggregate outstanding principal amount of such Indebtedness does not exceed $1,200,000 at any time, (b) such Indebtedness is incurred pursuant to (or is otherwise evidenced by) a written agreement between Borrower or such Subsidiary and a Person regularly engaged in the business of financing insurance premiums payable by corporate entities (each, a "Premium Finance Agreement"), (c) the scheduled tenor of any such Indebtedness from the date of its incurrence does not exceed twelve (12) months, and (d) if secured, the Lien securing any such Indebtedness is (i) expressly limited to the right, title and interest of Borrower or such Subsidiary in and to the applicable insurance policy (or policies) and any money that may at any time be due Borrower or such Subsidiary under such policy (or policies) (x) as a result of a loss that reduces the unearned premiums, (y) as a return of the premium for such policy (or policies) or (z) as a dividend which becomes payable to Borrower or such Subsidiary in connection with such policy (or policies) and (ii) by its terms (whether set forth in the Premium Finance Agreement or otherwise) expressly subject and subordinate to the interests (and Liens) of any applicable mortgagee of Borrower or such Subsidiary and/or the loss payee of such policy (or policies).

3. Amendment to Section 6.8 - Liens and Negative Pledges. Section 6.8(d) is amended and restated to read in full as follows:

(d) Permitted Encumbrances and Liens arising in connection with Permitted Insurance Premium Indebtedness;

4. Amendment to Section 6.9 - Indebtedness and Guaranty Obligations. Section 6.9 is amended as follows:
1. Section 6.9(j) is amended by replacing the period at the end of such section with "and;".
2. The following new Section 6.9(k) is added to the Credit Agreement:

(k) Permitted Insurance Premium Indebtedness.

5. Conditions Precedent. The effectiveness of this Amendment shall be conditioned upon the receipt by the Administrative Agent of all of the following, each properly executed by an authorized officer of each party thereto and dated as of the date hereof:

(a) Counterparts of this Amendment executed by all parties hereto; and

(b) Written consent of the Subsidiary Guarantors in the form of Exhibit A to this Amendment.

6. Confirmation. In all other respects, the terms of the Credit Agreement and the other Loan Documents are hereby confirmed.

[signature pages follow]

IN WITNESS WHEREOF, Borrower, the Administrative Agent and the Lenders have executed this Amendment as of December 14, 2001 by their duly authorized representatives.

WILD OATS MARKETS, INC.

By: /s/
Freya R. Brier Vice President Legal

WELLS FARGO BANK, NATIONAL
ASSOCIATION, as Administrative Agent and a Lender

By: /s/
Ellen J. Trach
Vice President

BANK ONE, NA, as a Lender

By: /s/
Phillip D. Martin
Senior Vice President

COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK, B.A., "RABOBANK NEDERLAND", NEW YORK BRANCH, as a Lender


By: /s/
Ian Reece
Managing Director


By:   /s/
John McMahon
Vice President

HARRIS TRUST & SAVINGS BANK, as a Lender

By: /s/
David C. Fisher
Vice President

KEYBANK NATIONAL ASSOCIATION, as a Lender

By: /s/
Michelle K. Bushey
Vice President

U.S. BANK NATIONAL ASSOCIATION,
as a Lender

By: /s/
C. Kirk Dyche
Vice President

Exhibit A to Amendment No. 3

CONSENT OF SUBSIDIARY GUARANTORS

Reference is hereby made to that certain Amended and Restated Credit Agreement dated as of August 1, 2000 among Wild Oats Markets, Inc. ("Borrower"), the Lenders party thereto, and Wells Fargo Bank, National Association, as Administrative Agent (as heretofore amended, the "Credit Agreement").

Each of the undersigned Subsidiary Guarantors hereby consents to Amendment No. 3 to Amended and Restated Credit Agreement in the form executed by Borrower and confirms that the Subsidiary Guaranty to which it is a party remains in full force and effect.

Dated: As of December 14, 2001

"Subsidiary Guarantors"

WILD MARKS, INC.                                         SPARKY, INC.

By: /s/                                                                   By: /s/
Melody Pickett                                                     Karen Novotny
President                                                              Secretary

WILD OATS FINANCIAL, INC.                      WILD OATS OF TEXAS, INC.

By:   /s/                                                                By:   /s/
Melody Pickett                                                    Richard Vara
President                                                             Secretary

EX-21.1

Exhibit 21.1

WILD OATS MARKETS, INC.
LIST OF SUBSIDIARIES

Wholly owned subsidiaries of Wild Oats Markets, Inc.:

Alfalfa's Canada, Inc. - a British Columbia, Canada corporation
Wild Oats Markets Canada, Inc. - a British Columbia, Canada corporation
Wild Oats Financial, Inc. - a Nevada corporation

Wholly owned subsidiaries of Wild Oats Financial, Inc.:
Sparky, Inc. - a Nevada corporation 
Wild Oats of Massachusetts, Inc. - a Massachusetts corporation
Wild Oats of Texas, Inc. - a Texas corporation
Wild Marks, Inc. - a Nevada corporation

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-20539, No. 333-66347, No. 333-38346, No. 333-64054, and No. 333-72466) and Form S-3 (No. 333-88011) of Wild Oats Markets, Inc. of our report dated March 25, 2002 relating to the financial statements and financial statement schedule, which is appears in this Annual Report on Form 10-K.

PricewaterhouseCoopers LLP

Denver, Colorado

March 26, 2002

EX-23.2

CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in the Registration Statements on Form S-3, No. 333-88011, No. 333-52747, and No. 333-31292 of Wild Oats Markets, Inc. and the Registration Statements on From S-8, No. 333-72466, No. 333-66347, No. 333-20539, and No. 333-64054 of Wild Oats Markets, Inc. pertaining to the Wild Oats Markets, Inc. Employee Stock Purchase Plan and Employee Equity Incentive Plans of our report dated November 17, 1999, with respect to the financial statements of Sun Harvest Farms, Inc. as of September 28, 1999, December 29, 1998 and December 30, 1997, and for the nine-month period ended September 28, 1999 and the fiscal years ended December 29, 1998, December 30, 1997 and December 31, 1996, included in the Annual Report (From 10-K) dated March 18, 2002.

Ernst & Young LLP

San Antonio, Texas

March 18, 2002