Exhibit 10.2

 

 

 

DIEDRICH COFFEE, INC.
2000 EQUITY INCENTIVE PLAN

 

ARTICLE I
PURPOSE OF PLAN

 

The Company has adopted this Plan to promote the interests of the Company and
its stockholders by using investment interests in the Company to attract, retain
and motivate its management and other persons, to encourage and reward their
contributions to the performance of the Company, and to align their interests
with the interests of the Company’s stockholders. Capitalized terms not
otherwise defined herein have the meanings ascribed to them in Article IX.

 

ARTICLE II
EFFECTIVE DATE AND TERM OF PLAN

 

2.1          Term of Plan.

 

This Plan became effective as of the Effective Date and will continue in effect
until the Expiration Date, at which time this Plan will automatically terminate.

 

2.2          Effect on Awards.

 

Awards may be granted only during the Plan Term, but each Award properly granted
during the Plan Term will remain in effect after the Expiration Date until such
Award has been exercised, terminated or expired in accordance with its terms and
the terms of this Plan.

 

ARTICLE III
SHARES SUBJECT TO PLAN

 

3.1          Number of Shares.

 

The maximum number of shares of Common Stock that may be issued pursuant to
Awards under this Plan is 1,087,500, subject to adjustment as set forth in
Section 3.4.

 

3.2          Source of Shares.

 

The Common Stock to be issued under this Plan will be made available, at the
discretion of the Administrator, either from authorized but unissued shares of
Common Stock or from previously issued shares of Common Stock reacquired by the
Company, including without limitation shares purchased on the open market.

 

3.3          Availability of Unused Shares.

 

Shares of Common Stock subject to unexercised portions of any Award that expire,
terminate or are canceled, and shares of Common Stock issued pursuant to an
Award that are reacquired by the Company pursuant to this Plan or the terms of
the Award under which such

 

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shares were issued, will again become available for the grant of further Awards
under this Plan as part of the shares available under Section 3.1. However, if
the exercise price of, or withholding taxes incurred in connection with, an
Award is paid with shares of Common Stock, or if shares of Common Stock
otherwise issuable pursuant to Awards are withheld by the Company in
satisfaction of an exercise price or the withholding taxes incurred in
connection with any exercise or vesting of an Award, then the number of shares
of Common Stock available for issuance under the Plan will be reduced by the
gross number of shares for which the Award is exercised or for which it vests,
as applicable, and not by the net number of shares of Common Stock issued to the
holder of such Award.

 

3.4          Adjustment Provisions.

 

(a)           Adjustments.  If the Company consummates any Reorganization in
which holders of shares of Common Stock are entitled to receive in respect of
such shares any additional shares or new or different shares or securities, cash
or other consideration (including, without limitation, a different number of
shares of Common Stock), or if the outstanding shares of Common Stock are
increased, decreased or exchanged for a different number or kind of shares or
other securities through merger, consolidation, sale or exchange of assets of
the Company, reorganization, recapitalization, reclassification, combination,
stock dividend, stock split, reverse stock split, spin-off, or similar
transaction then, subject to Section 8.1, an appropriate and proportionate
adjustment shall be made by the Administrator in its discretion in: (i) the
maximum number and kind of shares subject to this Plan as provided in Section
3.1; (ii) the number and kind of shares or other securities subject to then
outstanding Awards; (iii) the price for each share or other unit of any other
securities subject to, or measurement criteria applicable to, then outstanding
Awards; and/or (iv) the number and kind of shares or other securities to be
issued as Non-Employee Director Options.

 

(b)           No Fractional Interests.  No fractional interests will be issued
under the Plan resulting from any adjustments.

 

(c)           Adjustments Related to Company Stock.  To the extent any
adjustments relate to stock or securities of the Company, such adjustments will
be made by the Administrator, whose determination in that respect will be final,
binding and conclusive.

 

(d)           Right to Make Adjustment. The grant of an Award will not affect in
any way the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure or to merge or to consolidate or to dissolve, liquidate or sell, or
transfer all or any part of its business or assets.

 

(e)           Limitations.  No adjustment to the terms of an Incentive Stock
Option may be made unless such adjustment either:  (i) would not cause the
Option to lose its status as an Incentive Stock Option; or (ii) is agreed to in
writing by the Administrator and the Recipient.

 

3.5          Reservation of Shares.

 

The Company will at all times reserve and keep available shares of Common Stock
equaling at least the total number of shares of Common Stock issuable pursuant
to all outstanding Awards.

 

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ARTICLE IV
ADMINISTRATION OF PLAN

 

4.1          Administrator.

 

(a)           Plan Administration.  Subject to the provisions of Section 4.1(b),
this Plan will be administered by the Board and may also be administered by a
Committee of the Board appointed pursuant to Section 4.1(b).

 

(b)           Administration by Committee.  The Board in its sole discretion may
from time to time appoint a Committee of not less than two (2) Board members
with authority to administer this Plan in whole or part and, subject to
applicable law, to exercise any or all of the powers, authority and discretion
of the Board under this Plan. As long as the Company has a class of equity
securities registered under Section 12 of the Exchange Act, this Plan will be
administered by a Committee of not less than two (2) Board members appointed by
the Board in its sole discretion from time to time, each of whom is (i) a
Non-Employee Director, and (ii) an “Outside Director” as defined in the
regulations adopted under Section 162(m) of the IRC. The Board may from time to
time increase or decrease (but not below two (2)) the number of members of the
Committee, remove from membership on the Committee all or any portion of its
members, and/or appoint such person or persons as it desires to fill any vacancy
existing on the Committee, whether caused by removal, resignation or otherwise.
Unless otherwise required by this Section 4.1(b), the Board may disband the
Committee at any time.

 

4.2          Authority of Administrator.

 

(a)           Authority to Interpret Plan.  Subject to the express provisions of
this Plan, the Administrator will have the power to implement, interpret and
construe this Plan and any Awards and Award Documents or other documents
defining the rights and obligations of the Company and Recipients hereunder and
thereunder, to determine all questions arising hereunder and thereunder, and to
adopt and amend such rules and regulations for the administration hereof and
thereof as it may deem desirable. The interpretation and construction by the
Administrator of any provisions of this Plan or of any Award or Award Document,
and any action taken by, or inaction of, the Administrator relating to this Plan
or any Award or Award Document, will be within the discretion of the
Administrator and will be conclusive and binding upon all persons. Subject only
to compliance with the express provisions hereof, the Administrator may act in
its discretion in matters related to this Plan and any and all Awards and Award
Documents.

 

(b)           Authority to Grant Awards. Subject to the express provisions of
this Plan, the Administrator may from time to time in its discretion select the
Eligible Persons to whom, and the time or times at which, Awards will be granted
or sold, the nature of each Award, the number of shares of Common Stock or the
number of rights that make up or underlie each Award, the exercise price and
period (if applicable) for the exercise of each Award, and such other terms and
conditions applicable to each individual Award as the Administrator may
determine. Any and all terms and conditions of Awards may be established by the
Administrator without regard to existing Awards or other grants and without
incurring any obligation of the Company in respect of subsequent Awards.  The
Administrator may grant at any time new Awards to an Eligible Person who has
previously received Awards or other grants (including

 

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other stock options) regardless of the status of such other Awards or grants.
The Administrator may grant Awards singly or in combination or in tandem with
other Awards as it determines in its discretion.

 

(c)           Procedures.  Subject to the Company’s charter or bylaws or any
Board resolution conferring authority on the Committee, any action of the
Administrator with respect to the administration of this Plan must be taken
pursuant to a majority vote of the authorized number of members of the
Administrator or by the unanimous written consent of its members; provided,
however, that (i) if the Administrator is the Committee and consists of two (2)
members, then actions of the Administrator must be unanimous, and (ii) actions
taken by the Board will be valid if approved in accordance with applicable law.

 

4.3          No Liability.

 

No member of the Board or the Committee or any designee thereof will be liable
for any action or inaction with respect to this Plan or any Award or any
transaction arising under this Plan or any Award except in circumstances
constituting bad faith of such member.

 

4.4          Amendments.

 

(a)           Plan Amendments.  The Administrator may at any time and from time
to time in its discretion, insofar as permitted by applicable law, rule or
regulation and subject to Section 4.4(c), suspend or discontinue this Plan or
revise or amend it in any respect whatsoever, and this Plan as so revised or
amended will govern all Awards, including those granted before such revision or
amendment. Without limiting the generality of the foregoing, the Administrator
is authorized to amend this Plan to comply with or take advantage of amendments
to applicable laws, rules or regulations, including the Securities Act, the
Exchange Act, the IRC, or the rules of any exchange or market system upon which
the Common Stock is listed or trades, or any rules or regulations promulgated
thereunder. No stockholder approval of any amendment or revision will be
required unless such approval is required by applicable law, rule or regulation.

 

(b)           Award Amendments.  The Administrator may at any time and from time
to time in its discretion, but subject to Section 4.4(c) and compliance with
applicable statutory or administrative requirements, accelerate or extend the
vesting or exercise period of any Award as a whole or in part, adjust or reduce
the purchase or exercise price of an Award either by cancellation of such Award
and the granting of a new Award at such modified purchase or exercise price or
by amending the terms of the Award to reflect such a modified purchase or
exercise price, and make such other modifications in the terms and conditions of
an Award as it deems advisable.

 

(c)           Limitation.  Except as otherwise provided in this Plan or in the
applicable Award Document, no amendment, revision, suspension or termination of
this Plan or an outstanding Award that would cause an Incentive Stock Option to
cease to qualify as such or that would alter, impair or diminish in any material
respect any rights or obligations under any Award theretofore granted under this
Plan may be effected without the written consent of the Recipient to whom such
Award was granted.

 

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4.5          Other Compensation Plans.

 

This Plan supersedes and replaces the Company’s Amended and Restated 1996 Stock
Incentive Plan and the Company’s 1996 Non-Employee Directors Stock Option Plan,
but the adoption of this Plan will not affect any other stock option, incentive
or other compensation plans in effect from time to time for the Company, and
this Plan will not preclude the Company from establishing any other forms of
incentive or other compensation for employees, directors, advisors or
consultants of the Company, whether or not approved by stockholders.
Notwithstanding the fact that this Plan supersedes and replaces the Company’s
Amended and Restated 1996 Stock Incentive Plan and the Company’s 1996
Non-Employee Directors Stock Option Plan, this plan does not affect in any way,
any outstanding award grants made under such other plans prior to the Effective
Date.

 

4.6          Plan Binding on Successors.

 

This Plan will be binding upon the successors and assigns of the Company.

 

4.7          References to Successor Statutes, Regulations and Rules.

 

Any reference in this Plan to a particular statute, regulation or rule will also
refer to any successor provision of such statute, regulation or rule.

 

4.8          Invalid Provisions.

 

In the event that any provision of this Plan is found to be invalid or otherwise
unenforceable under any applicable law, such invalidity or unenforceability is
not to be construed as rendering any other provisions contained herein invalid
or unenforceable, and all such other provisions are to be given full force and
effect to the same extent as though the invalid and unenforceable provision were
not contained herein.

 

4.9          Governing Law.

 

This Plan will be governed by and interpreted in accordance with the internal
laws of the State of Delaware, without giving effect to the principles of the
conflicts of laws thereof.

 

4.10        Interpretation.

 

Headings herein are for convenience of reference only, do not constitute a part
of this Plan, and will not affect the meaning or interpretation of this Plan.
References herein to Sections or Articles are references to the referenced
Section or Article hereof, unless otherwise specified.

 

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ARTICLE V
GENERAL AWARD PROVISIONS

 

5.1          Participation in Plan.

 

(a)           Eligibility to Receive Awards.  A person is eligible to receive
grants of Awards if, at the time of the grant of the Award, such person is an
Eligible Person or has received an offer of employment from the Company,
provided, however, that only Non-Employee Directors are eligible to receive
Non-Employee Director Options, and provided further, that Awards granted to a
person who has received an offer of employment will terminate and be forfeited
without consideration if the employment offer is not accepted within such time
as may be specified by the Company. Status as an Eligible Person will not be
construed as a commitment that any Award will be granted under this Plan to an
Eligible Person or to Eligible Persons generally.

 

(b)           Eligibility to Receive Incentive Stock Options.  Incentive Stock
Options may be granted only to Eligible Persons meeting the employment
requirements of Section 422 of the IRC.

 

(c)           Awards to Foreign Nationals.  Notwithstanding anything to the
contrary herein, the Administrator may, in order to fulfill the purposes of this
Plan, modify grants of Awards to Recipients who are foreign nationals or
employed outside of the United States to recognize differences in applicable
law, tax policy or local custom.

 

5.2          Award Documents.

 

Each Award must be evidenced by an agreement duly executed on behalf of the
Company and by the Recipient or, in the Administrator’s discretion, a confirming
memorandum issued by the Company to the Recipient, setting forth such terms and
conditions applicable to the Award as the Administrator may in its discretion
determine. Awards will not be deemed made or binding upon the Company, and
Recipients will have no rights thereto, until such an agreement is entered into
between the Company and the Recipient or such a memorandum is delivered by the
Company to the Recipient, but an Award may have an effective date prior to the
date of such an agreement or memorandum. Award Documents may be (but need not
be) identical and must comply with and be subject to the terms and conditions of
this Plan, a copy of which will be provided to each Recipient and incorporated
by reference into each Award Document. Any Award Document may contain such other
terms, provisions and conditions not inconsistent with this Plan as may be
determined by the Administrator. In case of any conflict between this Plan and
any Award Document, this Plan shall control.

 

5.3          Payment for Awards.

 

(a)           Payment of Exercise Price.  The exercise price or other payment
for an Award is payable upon the exercise of a Stock Option or upon other
purchase of shares pursuant to an Award granted hereunder by delivery of legal
tender of the United States or payment of such other consideration as the
Administrator may from time to time deem acceptable in any particular instance;
provided, however, that the Administrator may, in the exercise of its

 

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discretion, allow exercise of an Award in a broker-assisted or similar
transaction in which the exercise price is not received by the Company until
promptly after exercise.

 

(b)           Company Assistance.  The Company may assist any person to whom an
Award is granted (including, without limitation, any officer or director of the
Company) in the payment of the purchase price or other amounts payable in
connection with the receipt or exercise of that Award, by lending such amounts
to such person on such terms and at such rates of interest and upon such
security (if any) as may be consistent with applicable law and approved by the
Administrator. In case of such a loan, the Administrator may require that the
exercise be followed by a prompt sale of some or all of the underlying shares
and that a portion of the sale proceeds be dedicated to full payment of the
exercise price and amounts required pursuant to Section 5.10.

 

(c)           Cashless Exercise.  If permitted in any case by the Administrator
in its discretion, the exercise price for Awards may be paid by capital stock of
the Company delivered in transfer to the Company by or on behalf of the person
exercising the Award and duly endorsed in blank or accompanied by stock powers
duly endorsed in blank, with signatures guaranteed in accordance with the
Exchange Act if required by the Administrator; or retained by the Company from
the stock otherwise issuable upon exercise or surrender of vested and/or
exercisable Awards or other equity awards previously granted to the Recipient
and being exercised (if applicable) (in either case valued at Fair Market Value
as of the exercise date); or such other consideration as the Administrator may
from time to time in the exercise of its discretion deem acceptable in any
particular instance.

 

(d)           No Precedent.  Recipients will have no rights to the assistance
described in Section 5.3(b) or the exercise techniques described in Section
5.3(c), and the Company may offer or permit such assistance or techniques on an
ad hoc basis to any Recipient without incurring any obligation to offer or
permit such assistance or techniques on other occasions or to other Recipients.

 

5.4          No Employment Rights.

 

Nothing contained in this Plan (or in Award Documents or in any other documents
related to this Plan or to Awards) will confer upon any Eligible Person or
Recipient any right to continue in the employ of or engagement by the Company or
any Affiliated Entity or constitute any contract or agreement of employment or
engagement, or interfere in any way with the right of the Company or any
Affiliated Entity to reduce such person’s compensation or other benefits or to
terminate the employment or engagement of such Eligible Person or Recipient,
with or without cause. Except as expressly provided in this Plan or in any
statement evidencing the grant of an Award, the Company has the right to deal
with each Recipient in the same manner as if this Plan and any such statement
evidencing the grant of an Award did not exist, including, without limitation,
with respect to all matters related to the hiring, discharge, compensation and
conditions of the employment or engagement of the Recipient. Unless otherwise
set forth in a written agreement binding upon the Company or an Affiliated
Entity, all employees of the Company or an Affiliated Entity are “at will”
employees whose employment may be terminated by the Company or the Affiliated
Entity at any time for any reason or no reason, without payment or penalty of
any kind. Any question(s) as to whether and when there has been a

 

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termination of a Recipient’s employment or engagement, the reason (if any) for
such termination, and/or the consequences thereof under the terms of this Plan
or any statement evidencing the grant of an Award pursuant to this Plan will be
determined by the Administrator and the Administrator’s determination thereof
will be final and binding.

 

5.5          Restrictions Under Applicable Laws and Regulations.

 

(a)           Government Approvals.  All Awards will be subject to the
requirement that, if at any time the Company determines, in its discretion, that
the listing, registration or qualification of the securities subject to Awards
granted under this Plan upon any securities exchange or interdealer quotation
system or under any federal, state or foreign law, or the consent or approval of
any government or regulatory body, is necessary or desirable as a condition of,
or in connection with, the granting of such an Award or the issuance, if any, or
purchase of shares in connection therewith, such Award may not be exercised as a
whole or in part unless and until such listing, registration, qualification,
consent or approval has been effected or obtained free of any conditions not
acceptable to the Company. During the term of this Plan, the Company will use
its reasonable efforts to seek to obtain from the appropriate governmental and
regulatory agencies any requisite qualifications, consents, approvals or
authorizations in order to issue and sell such number of shares of its Common
Stock as is sufficient to satisfy the requirements of this Plan. The inability
of the Company to obtain any such qualifications, consents, approvals or
authorizations will relieve the Company of any liability in respect of the
nonissuance or sale of such stock as to which such qualifications, consents,
approvals or authorizations pertain.

 

(b)           No Registration Obligation; Recipient Representations.  The
Company will be under no obligation to register or qualify the issuance of
Awards or underlying securities under the Securities Act or applicable state
securities laws. Unless the issuance of Awards and underlying securities have
been registered under the Securities Act and qualified or registered under
applicable state securities laws, the Company shall be under no obligation to
issue any Awards or underlying securities unless the Awards and underlying
securities may be issued pursuant to applicable exemptions from such
registration or qualification requirements. In connection with any such exempt
issuance, the Administrator may require the Recipient to provide a written
representation and undertaking to the Company, satisfactory in form and scope to
the Company, that such Recipient is acquiring such Awards and underlying
securities for such Recipient’s own account as an investment and not with a view
to, or for sale in connection with, the distribution of any such securities, and
that such person will make no transfer of the same except in compliance with any
rules and regulations in force at the time of such transfer under the Securities
Act and other applicable law, and that if securities are issued without
registration, a legend to this effect (together with any other legends deemed
appropriate by the Administrator) may be endorsed upon the securities so issued,
and to the effect of any additional representations that are appropriate in
light of applicable securities laws and rules. The Company may also order its
transfer agent to stop transfers of such shares. The Administrator may also
require the Recipient to provide the Company such information and other
documents as the Administrator may request in order to satisfy the Administrator
as to the investment sophistication and experience of the Recipient and as to
any other conditions for compliance with any such exemptions from registration
or qualification.

 

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5.6          Additional Conditions.

 

Any Award may be subject to such provisions (whether or not applicable to any
other Award or Recipient) as the Administrator deems appropriate, including
without limitation provisions for the forfeiture of or restrictions on resale or
other disposition of securities of the Company acquired under this Plan,
provisions giving the Company the right to repurchase securities of the Company
acquired under this Plan in the event the Recipient leaves the Company for any
reason or elects to effect any disposition thereof, and provisions to comply
with federal and state securities laws.

 

5.7          No Privileges Re Stock Ownership or Specific Assets.

 

Except as otherwise set forth herein, a Recipient or a permitted transferee of
an Award will have no rights as a stockholder with respect to any shares
issuable or issued in connection with the Award until the Recipient has
delivered to the Company all amounts payable and performed all obligations
required to be performed in connection with exercise of the Award and the
Company has issued such shares. No person will have any right, title or interest
in any fund or in any specific asset (including shares of capital stock) of the
Company by reason of any Award granted hereunder. Neither this Plan (or any
documents related hereto) nor any action taken pursuant hereto is to be
construed to create a trust of any kind or a fiduciary relationship between the
Company and any person. To the extent that any person acquires a right to
receive an Award hereunder, such right shall be no greater than the right of any
unsecured general creditor of the Company.

 

5.8          Nonassignability.

 

No Award is assignable or transferable except:  (a) by will or by the laws of
descent and distribution; or (b) subject to the final sentence of this Section
5.8, upon dissolution of marriage pursuant to a qualified domestic relations
order or, in the discretion of the Administrator and under circumstances that
would not adversely affect the interests of the Company, transfers for estate
planning purposes or pursuant to a nominal transfer that does not result in a
change in beneficial ownership. During the lifetime of a Recipient, an Award
granted to such person will be exercisable only by the Recipient (or the
Recipient’s permitted transferee) or such person’s guardian or legal
representative. Notwithstanding the foregoing, Stock Options intended to be
treated as Incentive Stock Options (or other Awards subject to transfer
restrictions under the IRC) may not be assigned or transferred in violation of
Section 422(b)(5) of the IRC or the regulations thereunder, and nothing herein
is intended to allow such assignment or transfer.

 

5.9          Information to Recipients.

 

(a)           Provision of Information.  The Administrator in its sole
discretion may determine what, if any, financial and other information is to be
provided to Recipients and when such financial and other information is to be
provided after giving consideration to applicable federal and state laws, rules
and regulations, including, without limitation, applicable federal and state
securities laws, rules and regulations.

 

(b)           Confidentiality.  The furnishing of financial and other
information that is confidential to the Company is subject to the Recipient’s
agreement to maintain the

 

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confidentiality of such financial and other information, and not to use the
information for any purpose other than evaluating the Recipient’s position under
this Plan. The Administrator may impose other restrictions on the access to and
use of such confidential information and may require a Recipient to acknowledge
the Recipient’s obligations under this Section 5.9(b) (which acknowledgment is
not to be a condition to Recipient’s obligations under this Section 5.9(b)).

 

5.10        Withholding Taxes.

 

Whenever the granting, vesting or exercise of any Award, or the issuance of any
securities upon exercise of any Award or transfer thereof, gives rise to tax or
tax withholding liabilities or obligations, the Administrator will have the
right as a condition thereto to require the Recipient to remit to the Company an
amount sufficient to satisfy any federal, state and local withholding tax
requirements arising in connection therewith. The Administrator may, in the
exercise of its discretion, allow satisfaction of tax withholding requirements
by accepting delivery of stock of the Company or by withholding a portion of the
stock otherwise issuable in connection with an Award, in each case valued at
Fair Market Value as of the date of such delivery or withholding, as the case
may be, is determined.

 

5.11        Legends on Awards and Stock Certificates.

 

Each Award Document and each certificate representing securities acquired upon
vesting or exercise of an Award must be endorsed with all legends, if any,
required by applicable federal and state securities and other laws to be placed
on the Award Document and/or the certificate. The determination of which
legends, if any, will be placed upon Award Documents or the certificates will be
made by the Administrator in its discretion and such decision will be final and
binding.

 

5.12        Effect of Termination of Employment on Awards.

 

(a)           Termination of Vesting.  Notwithstanding anything to the contrary
herein, but subject to Section 5.12(b) Awards will be exercisable by a Recipient
(or the Recipient’s successor in interest) following such Recipient’s
termination of employment or service only to the extent that installments
thereof had become exercisable on or prior to the date of such termination and
are not forfeited pursuant to Section 5.15.

 

(b)           Alteration of Vesting and Exercise Periods.  Notwithstanding
anything to the contrary herein, the Administrator may in its discretion (i)
designate shorter or longer periods following a Recipient’s termination of
employment or service during which Awards may vest or be exercised; provided,
however, that any shorter periods determined by the Administrator will be
effective only if provided for in this Plan or the instrument that evidences the
grant to the Recipient of the affected Award or if such shorter period is agreed
to in writing by the Recipient, and (ii) accelerate the vesting of all or any
portion of any Awards by increasing the number of shares purchasable at any
time.

 

(c)           Leave of Absence.  In the case of any employee on an approved
leave of absence, the Administrator may make such provision respecting
continuance of Awards granted to such employee as the Administrator in its
discretion deems appropriate, except that in no event

 

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will an Award be exercisable after the date such Award would expire in
accordance with its terms had the Recipient remained continuously employed.

 

(d)           General Cessation.  Except as otherwise set forth in this Plan or
an Award Document or as determined by the Administrator in its discretion, all
Awards granted to a Recipient, and all of such Recipient’s rights thereunder,
will terminate upon termination for any reason of such Recipient’s employment or
service with the Company or any Affiliated Entity (or cessation of any other
service relationship between the Recipient and the Company or any Affiliated
Entity in place as of the date the Award was granted).

 

5.13        Lock-Up Agreements.

 

Each Recipient agrees as a condition to receipt of an Award that, in connection
with any public offering by the Company of its equity securities and upon the
request of the Company and the principal underwriter (if any) in such public
offering, any shares of Common Stock acquired or that may be acquired upon
exercise or vesting of an Award may not be sold, offered for sale, encumbered,
or otherwise disposed of or subjected to any transaction that will involve any
sales of securities of the Company, without the prior written consent of the
Company or such underwriter, as the case may be, for a period of not more than
365 days after the effective date of the registration statement for such public
offering. Each Recipient will, if requested by the Company or the principal
underwriter, enter into a separate agreement to the effect of this Section 5.13.

 

5.14        Restrictions on Common Stock and Other Securities.

 

Common Stock or other securities of the Company issued or issuable in connection
with any Award will be subject to all of the restrictions imposed under this
Plan upon Common Stock issuable or issued upon exercise of Stock Options, except
as otherwise determined by the Administrator.

 

5.15        Cancellation and Rescission of Awards.

 

Unless an Award Document or other separate written agreement binding upon the
Company provides otherwise, the Administrator may cancel any unexpired, unpaid
or deferred Award (whether or not vested) at any time if the Recipient thereof
fails at any time to comply with all applicable provisions of the Award Document
or this Plan, or does any of the following:

 

(a)           During employment or engagement with the Company or any Affiliated
Entity and without the prior written authorization of the Chief Executive
Officer of the Company, renders services for any organization or engages
directly or indirectly in any business that, in the judgment of the Chief
Executive Officer of the Company or other senior officer designated by the
Administrator, is competitive with the Company or any Affiliated Entity, or
which organization or business, or the rendering of services to such
organization or business, is otherwise prejudicial to or in conflict with the
business or interests of the Company or any Affiliated Entity.

 

(b)           During employment with the Company or any Affiliated Entity or at
any time thereafter, fails to comply with any confidentiality agreement with the
Company or any

 

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Affiliated Entity to which the Recipient is party, or with the policies of the
Company or Affiliated Entity regarding nondisclosure of confidential
information, or without prior written authorization from the Company or any
Affiliated Entity, discloses to anyone outside the Company or any Affiliated
Entity, or uses for any purpose or in any context other than in performance of
the Recipient’s duties to the Company or any Affiliated Entity, any confidential
or trade secret information of the Company or any Affiliated Entity.

 

(c)           During employment with the Company or any Affiliated Entity or at
any time thereafter, breaches any agreement with or duty to the Company or any
Affiliated Entity.

 

Upon and as a condition to exercise of any Award, a Recipient shall certify on a
form acceptable to the Company that he or she is in compliance with the terms
and conditions of this Plan and any applicable Award Document and has not done
any of the things described in this Section 5.15. Furthermore, if a Recipient
does any of the things described in this Section 5.15 within 180 days after any
exercise, payment or delivery pursuant to an Award, the Company may rescind such
exercise, payment or delivery. The Company shall notify the Recipient in writing
of any such rescission within two years after such exercise, payment or
delivery. Within ten days after receiving such notice from the Company, a
Recipient shall pay to the Company the amount of any gain realized or payment
received as a result of the rescinded exercise, payment or delivery pursuant to
an Award. Such payment shall be made by returning to the Company all shares of
capital stock that the Recipient received in connection with the rescinded
exercise, payment or delivery, or if such shares have been transferred by the
Recipient, then by paying the equivalent value thereof at the time of their
transfer to the Company in cash. To assist in enforcement of the Company’s
rescission right described above, the Company may, in its discretion, retain any
Common Stock or other consideration otherwise deliverable to a Recipient in
connection with an Award until the rescission period described above has lapsed.

 

5.16        Limits on Awards to Eligible Persons.

 

Notwithstanding any other provision of this Plan, no one Eligible Person shall
be granted awards with respect to more than 200,000 shares of Common Stock in
any one calendar year, provided, however, that this limitation shall not apply
if it is not required in order for the compensation attributable to Awards
hereunder to qualify as Performance-Based Compensation. The limitation set forth
in this Section 5.16 will be subject to adjustment as provided in Section 3.4 or
under Article VIII, but only to the extent such adjustment would not affect the
status of compensation attributable to Awards as Performance-Based Compensation.

 

ARTICLE VI
AWARDS

 

6.1          Stock Options.

 

(a)           Nature of Stock Options.  Stock Options may be Incentive Stock
Options or Nonqualified Stock Options.

 

(b)           Option Exercise Price.  The exercise price for each Stock Option
will be determined by the Administrator as of the date such Stock Option is
granted.

 

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(c)           Option Period and Vesting.  Stock Options granted hereunder will
vest and may be exercised as determined by the Administrator, except that
exercise of Stock Options after termination of the Recipient’s employment or
service shall be subject to Section 5.12 and Section 6.1(e). Each Stock Option
granted hereunder and all rights or obligations thereunder shall expire on such
date as may be determined by the Administrator, but not later than ten (10)
years after the date the Stock Option is granted and may be subject to earlier
termination as provided herein or in the Award Document. Except as otherwise
provided herein, a Stock Option will become exercisable, as a whole or in part,
on the date or dates specified by the Administrator and thereafter will remain
exercisable until the exercise, expiration or earlier termination of the Stock
Option.

 

(d)           Exercise of Stock Options.  The exercise price for Stock Options
will be paid as set forth in Section 5.3. No Stock Option will be exercisable
except in respect of whole shares, and fractional share interests shall be
disregarded. Not fewer than 100 shares of Common Stock (or such other amount as
may be set forth in the applicable Award Document) may be purchased at one time
and Stock Options must be exercised in multiples of 100 unless the number
purchased is the total number of shares for which the Stock Option is
exercisable at the time of exercise. A Stock Option will be deemed to be
exercised when the Secretary or other designated official of the Company
receives written notice of such exercise from the Recipient in the form of
Exhibit A hereto or such other form as the Company may specify from time to
time, together with payment of the exercise price in accordance with Section 5.3
and any amounts required under Section 5.10 or, with permission of the
Administrator, arrangement for such payment. Notwithstanding any other provision
of this Plan, the Administrator may impose, by rule and/or in Award Documents,
such conditions upon the exercise of Stock Options (including, without
limitation, conditions limiting the time of exercise to specified periods) as
may be required to satisfy applicable regulatory requirements, including,
without limitation, Rule 16b-3 and Rule 10b-5 under the Exchange Act, and any
amounts required under Section 5.10, or any applicable section of or regulation
under the IRC.

 

(e)           Termination of Employment.

 

(i)            Termination for Just Cause.  Subject to Section 5.12 and except
as otherwise provided in a written agreement between the Company or an
Affiliated Entity and the Recipient, which may be entered into at any time
before or after termination of employment or service, in the event of a Just
Cause Dismissal of a Recipient all of the Recipient’s unexercised Stock Options,
whether or not vested, will expire and become unexercisable as of the date of
such Just Cause Dismissal.

 

(ii)           Termination Other Than for Just Cause.  Subject to Section 5.12
and except as otherwise provided in a written agreement between the Company or
an Affiliated Entity and the Recipient, which may be entered into at any time
before or after termination of employment or service, if a Recipient’s
employment or service with the Company or any Affiliated Entity terminates for:

 

(A)          any reason other than for Just Cause Dismissal, death, Permanent
Disability or Retirement, the Recipient’s Stock Options, whether or not vested,
will expire and become unexercisable as of the earlier of: (1) the date such
Stock Options would

 

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expire in accordance with their terms had the Recipient remained employed; and
(2) 30 days after the date of termination of employment or service.

 

(B)           Death or Permanent Disability or Retirement, the Recipient’s
unexercised Stock Options will, whether or not vested, expire and become
unexercisable as of the earlier of: (1) the date such Stock Options would expire
in accordance with their terms had the Recipient remained employed; and (2) 180
days after the date of termination of employment or service.

 

(f)            Special Provisions Regarding Incentive Stock Options.
Notwithstanding anything herein to the contrary,

 

(i)            The exercise price and vesting period of any Stock Option
intended to be treated as an Incentive Stock Option must comply with the
provisions of Section 422 of the IRC and the regulations thereunder. As of the
Effective Date, such provisions require, among other matters, that: (A) the
exercise price must not be less than the Fair Market Value of the underlying
stock as of the date the Incentive Stock Option is granted, and not less than
110% of the Fair Market Value as of such date in the case of a grant to a
Significant Stockholder; and (B) that the Incentive Stock Option not be
exercisable after the expiration of ten (10) years from the date of grant or the
expiration of five (5) years from the date of grant in the case of an Incentive
Stock Option granted to a Significant Stockholder.

 

(ii)           The aggregate Fair Market Value (determined as of the respective
date or dates of grant) of the Common Stock for which one or more Stock Options
granted to any Recipient under this Plan (or any other option plan of the
Company or any of its subsidiaries or affiliates) may for the first time become
exercisable as Incentive Stock Options under the federal tax laws during any one
calendar year may not exceed $100,000.

 

(iii)          Any Stock Options granted as Incentive Stock Options pursuant to
this Plan that for any reason fail or cease to qualify as such will be treated
as Nonqualified Stock Options. If the limit described in Section 6.1(f)(ii) is
exceeded, the earliest granted Stock Options will be treated as Incentive Stock
Options, up to such limit.

 

(g)           Non-Employee Director Options. Article VII will govern
Non-Employee Director Options to the extent inconsistent with this Section 6.1.

 

6.2          Performance Awards.

 

(a)           Grant of Performance Award.  The Administrator will determine in
its discretion the performance criteria (which need not be identical and may be
established on an individual or group basis) governing Performance Awards, the
terms thereof, and the form and time of payment of Performance Awards.

 

(b)           Payment of Award.  Upon satisfaction of the conditions applicable
to a Performance Award, payment will be made to the Recipient in cash, in shares
of Common Stock valued at Fair Market Value as of the date payment is due, or in
a combination of Common Stock and cash, as the Administrator in its discretion
may determine.

 

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6.3          Restricted Stock.

 

(a)           Award of Restricted Stock.  The Administrator will determine the
Purchase Price (if any), the terms of payment of the Purchase Price, the
restrictions upon the Restricted Stock, and when such restrictions will lapse.

 

(b)           Requirements of Restricted Stock.  All shares of Restricted Stock
granted or sold pursuant to this Plan will be subject to the following
conditions:

 

(i)            No Transfer.  The shares may not be sold, assigned, transferred,
pledged, hypothecated or otherwise disposed of, alienated or encumbered until
the restrictions are removed or expire;

 

(ii)           Certificates.  The Administrator may require that the
certificates representing Restricted Stock granted or sold to a Recipient remain
in the physical custody of an escrow holder or the Company until all
restrictions are removed or expire;

 

(iii)          Restrictive Legends.  Each certificate representing Restricted
Stock granted or sold to a Recipient pursuant to this Plan will bear such legend
or legends making reference to the restrictions imposed upon such Restricted
Stock as the Administrator in its discretion deems necessary or appropriate to
enforce such restrictions; and

 

(iv)          Other Restrictions.  The Administrator may impose such other
conditions on Restricted Stock as the Administrator may deem advisable,
including, without limitation, restrictions under the Securities Act, under the
Exchange Act, under the requirements of any stock exchange or interdealer
quotation system upon which such Restricted Stock or other securities of the
Company are then listed or traded and under any blue sky or other securities
laws applicable to such shares.

 

(c)           Lapse of Restrictions.  The restrictions imposed upon Restricted
Stock will lapse in accordance with such terms or other conditions as are
determined by the Administrator.

 

(d)           Rights of Recipient.  Subject to the provisions of Section 6.3(b)
and any restrictions imposed upon the Restricted Stock, the Recipient will have
all rights of a stockholder with respect to the Restricted Stock granted or sold
to such Recipient under this Plan, including, without limitation, the right to
vote the shares and receive all dividends and other distributions paid or made
with respect thereto.

 

(e)           Termination of Employment.  Unless the Administrator in its
discretion determines otherwise, if a Recipient’s employment or service with the
Company or any Affiliated Entity terminates for any reason, all of the
Recipient’s Restricted Stock remaining subject to restrictions on the date of
such termination of employment or service will be repurchased by the Company at
the Purchase Price (if any) paid by the Recipient to the Company, without
interest or premium, and otherwise returned to the Company without
consideration.

 

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6.4          Stock Appreciation Rights.

 

(a)           Granting of Stock Appreciation Rights.  The Administrator may at
any time and from time to time approve the grant to Eligible Persons of Stock
Appreciation Rights, related or unrelated to Stock Options.

 

(b)           SARs Related to Options.

 

(i)            A Stock Appreciation Right related to a Stock Option will entitle
the holder of the related Stock Option, upon exercise of the Stock Appreciation
Right, to surrender such Stock Option, or any portion thereof to the extent
previously vested but unexercised, with respect to the number of shares as to
which such Stock Appreciation Right is exercised, and to receive payment of an
amount computed pursuant to Section 6.4(b)(iii). Such Stock Option will, to the
extent surrendered, then cease to be exercisable.

 

(ii)           A Stock Appreciation Right related to a Stock Option hereunder
will be exercisable at such time or times, and only to the extent that, the
related Stock Option is exercisable, and will not be transferable except to the
extent that such related Stock Option may be transferable (and under the same
conditions), will expire no later than the expiration of the related Stock
Option, and may be exercised only when the market price of the Common Stock
subject to the related Stock Option exceeds the exercise price of the Stock
Option.

 

(iii)          Upon the exercise of a Stock Appreciation Right related to a
Stock Option, the Recipient will be entitled to receive payment of an amount
determined by multiplying: (A) the difference obtained by subtracting the
exercise price of a share of Common Stock specified in the related Stock Option
from the Fair Market Value of a share of Common Stock on the date of exercise of
such Stock Appreciation Right (or as of such other date or as of the occurrence
of such event as may have been specified in the instrument evidencing the grant
of the Stock Appreciation Right), by (B) the number of shares as to which such
Stock Appreciation Right is exercised.

 

(c)           SARs Unrelated to Options.  The Administrator may grant Stock
Appreciation Rights unrelated to Stock Options. Section 6.4(b)(iii) will govern
the amount payable at exercise under such Stock Appreciation Right, except that
in lieu of an option exercise price the initial base amount specified in the
Award shall be used.

 

(d)           Limits.  Notwithstanding the foregoing, the Administrator, in its
discretion, may place a dollar limitation on the maximum amount that will be
payable upon the exercise of a Stock Appreciation Right.

 

(e)           Payments.  Payment of the amount determined under the foregoing
provisions may be made solely in whole shares of Common Stock valued at their
Fair Market Value on the date of exercise of the Stock Appreciation Right or,
alternatively, at the discretion of the Administrator, in cash or in a
combination of cash and shares of Common Stock as the Administrator deems
advisable. The Administrator has full discretion to determine the form in which
payment of a Stock Appreciation Right will be made and to consent to or
disapprove the election of a Recipient to receive cash in full or partial
settlement of a Stock Appreciation Right.

 

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If the Administrator decides to make full payment in shares of Common Stock, and
the amount payable results in a fractional share, payment for the fractional
share will be made in cash.

 

6.5          Stock Payments.

 

The Administrator may approve Stock Payments to any Eligible Person on such
terms and conditions as the Administrator may determine. Stock Payments will
replace cash compensation at the Fair Market Value of the Common Stock on the
date payment is due.

 

6.6          Dividend Equivalents.

 

The Administrator may grant Dividend Equivalents to any Recipient who has
received a Stock Option, SAR or other Award denominated in shares of Common
Stock. Dividend Equivalents may be paid in cash, Common Stock or other Awards;
the amount of Dividend Equivalents paid other than in cash will be determined by
the Administrator by application of such formula as the Administrator may deem
appropriate to translate the cash value of dividends paid to the alternative
form of payment of the Dividend Equivalent. Dividend Equivalents will be
computed as of each dividend record date and will be payable to recipients
thereof at such time as the Administrator may determine. However, if it is
intended that an Award qualify as Performance-Based Compensation, and the amount
of compensation the Eligible Person could receive under the Award is based
solely on an increase in value of the underlying stock after the date of the
grant or Award, then the payment of any Dividend Equivalents related to the
Award shall not be made contingent on the exercise of the Award.

 

6.7          Stock Bonuses.

 

The Administrator may issue Stock Bonuses to Eligible Persons on such terms and
conditions as the Administrator may determine.

 

6.8          Stock Sales.

 

The Administrator may sell to Eligible Persons shares of Common Stock on such
terms and conditions as the Administrator may determine.

 

6.9          Phantom Stock.

 

The Administrator may grant Awards of Phantom Stock to Eligible Persons. Phantom
Stock is a cash payment measured by the Fair Market Value of a specified number
of shares of Common Stock on a specified date, or measured by the excess of such
Fair Market Value over a specified minimum, which may but need not include a
Dividend Equivalent.

 

6.10        Other Stock-Based Benefits.

 

The Administrator is authorized to grant Other Stock-Based Benefits. Other
Stock-Based Benefits are any arrangements granted under this Plan not otherwise
described above that: (a) by their terms might involve the issuance or sale of
Common Stock or other securities of the Company; or (b) involve a benefit that
is measured, as a whole or in part, by the value,

 

17

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appreciation, dividend yield or other features attributable to a specified
number of shares of Common Stock or other securities of the Company.

 

ARTICLE VII
NON-EMPLOYEE DIRECTOR OPTIONS

 

7.1          Initial Grant of Stock Options.

 

Each Non-Employee Director shall, upon first becoming a Non-Employee Director,
receive a one-time grant of an option to purchase up to 15,000 shares of the
Company’s Common Stock (an “Initial Option”) at an exercise price per share
equal to the Fair Market Value of the Company’s Common Stock on the date of
grant, subject to: (a) vesting as set forth in Section 7.3, and (b) adjustment
as set forth in this Plan.

 

7.2          Annual Grants of Stock Options.

 

Immediately following the annual meeting of stockholders of the Company next
following a Non-Employee Director’s becoming a Non-Employee Director, and
immediately following each subsequent annual meeting of stockholders of the
Company, in each case if the Non-Employee Director has served as a director
since his or her election or appointment and has been re-elected as a director
at such annual meeting, such Non-Employee Director shall automatically receive
an option to purchase up to 15,000 shares of the Company’s Common Stock (an
“Additional Option”). In addition to the Additional Options described above, an
individual who was previously a Non-Employee Director and received an initial
grant of stock options under this Plan or pursuant to a prior option plan for
the Company’s directors, who then ceased to be a director for any reason, and
who then again becomes a Non-Employee Director, shall upon again becoming a
Non-Employee Director automatically receive an Additional Option. The exercise
price per share for all Additional Options shall be equal to the Fair Market
Value of the Company’s Common Stock on the date of grant, subject to: (a)
vesting as set forth in Section 7.3, and (b) adjustment as set forth in this
Plan.

 

7.3          Vesting.

 

Initial Options shall vest and become exercisable (a) 50% upon the earlier of
(i) the first anniversary of the grant date or (ii) immediately prior to the
first annual meeting of stockholders of the Company following the grant date, if
the Recipient has remained a Non-Employee Director for the entire period from
the date of grant to such earlier date; and (b) 50% upon the earlier of (i) the
second anniversary of the grant date or (ii) immediately prior to the second
annual meeting of stockholders of the Company following the date of grant to
such earlier date. Additional Options shall vest and become exercisable with
respect to all underlying shares upon the earlier of (y) the first anniversary
of the grant date or (z) immediately prior to the annual meeting of stockholders
of the Company next following the grant date, if the Recipient has remained a
Non-Employee Director for the entire period from the date of grant to such
earlier date. Notwithstanding the foregoing, however, Initial Options and
Additional Options that have not vested and become exercisable at the time the
Recipient ceases to be a director shall terminate.

 

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7.4          Exercise.

 

Non-Employee Director Options will be exercisable, and the exercise price
therefor shall be paid, in the same manner as provided herein for other Stock
Options.

 

7.5          Term of Options and Effect of Termination.

 

Notwithstanding any other provision of the Plan, no Non-Employee Director Option
granted under the Plan shall be exercisable after the expiration of ten years
from the effective date of its grant. In the event that the recipient of any
Non-Employee Director Options granted under the Plan shall cease to be a
director of the Company, (a) all Initial Options granted under this plan to such
recipient shall be exercisable, to the extent already exercisable at the date
such recipient ceases to be a director and regardless of the reason the
recipient ceases to be a director, for a period of 365 days after that date (or,
if sooner, until the expiration of the option according to its terms), and shall
then terminate; and (b) all Additional Options granted under this Plan to such
recipient shall be exercisable, to the extent already exercisable at the date
such recipient ceases to be a director, for a period of 365 days after that date
(or, if sooner, until the expiration of the option according to its terms) if he
or she ceases to be a director because of death or permanent disability, or for
a period of 90 days after that date (or, if sooner, until the expiration of the
option according to its terms) if he or she ceases to be a director for any
other reason, and shall then terminate. In the event of the death of a Recipient
while such Recipient is a director of the Company or within the period after
termination of such status during which he or she is permitted to exercise an
option, such option may be exercised by any person or persons designated by the
Recipient on a beneficiary designation form adopted by the Plan administrator
for such purpose or, if there is no effective beneficiary designation form on
file with the Company, by the executors or administrators of the Recipient’s
estate or by any person or persons who shall have acquired the option directly
from the Recipient by his or her will or the applicable laws of descent and
distribution.

 

7.6          Amendment; Suspension.

 

The Administrator may at any time and from time to time in its discretion (a)
change the number of shares or vesting periods associated with the Non-Employee
Director Options, and (b) suspend and reactivate this Article VII.

 

ARTICLE VIII
CHANGE IN CONTROL

 

8.1          Provision for Awards Upon Change in Control.

 

As of the effective time and date of any Change in Control, this Plan and any
then outstanding Awards (whether or not vested) will automatically terminate
unless: (a) provision is made in writing in connection with such transaction for
the continuance of this Plan and for the assumption of such Awards, or for the
substitution for such Awards of new awards covering the securities of a
successor entity or an affiliate thereof, with appropriate adjustments as to the
number and kind of securities and exercise prices or other measurement criteria,
in which event this Plan and such outstanding Awards will continue or be
replaced, as the case may be, in the

 

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manner and under the terms so provided; or (b) the Board otherwise provides in
writing for such adjustments as it deems appropriate in the terms and conditions
of the then-outstanding Awards (whether or not vested), including, without
limitation, (i) accelerating the vesting of outstanding Awards, and/or (ii)
providing for the cancellation of Awards and their automatic conversion into the
right to receive the securities, cash or other consideration that a holder of
the shares underlying such Awards would have been entitled to receive upon
consummation of such Change in Control had such shares been issued and
outstanding immediately prior to the effective date and time of the Change in
Control (net of the appropriate option exercise prices). If, pursuant to the
foregoing provisions of this Section 8.1, this Plan and the Awards terminate by
reason of the occurrence of a Change in Control without provision for any of the
action(s) described in clause (a) or (b) hereof, then subject to Sections 5.12
and 5.15, any Recipient holding outstanding Awards will have the right, at such
time prior to the consummation of the Change in Control as the Board designates,
to exercise or receive the full benefit of the Recipient’s Awards to the full
extent not theretofore exercised, including any installments which have not yet
become vested.

 

8.2          Termination of Employment in Connection With a Change in Control.

 

(a)           Acceleration of Awards.  If a Change in Control occurs and
provision for Awards is made as described in part (a) or (b) of Section 8.1 such
that a Recipient continues to own Awards or replacement awards, but in
connection with such Change in Control the Recipient’s employment with the
Company or an Affiliated Entity is terminated by the Company or an Affiliated
Entity as described in Section 8.2(b), then, subject to Sections 5.12 and 5.15
and the terms of any written employment agreement between the Company or any
Affiliated Entity and the Recipient and the specific terms of any Award, such
Recipient will have the right to exercise or receive the full benefit of the
Recipient’s Awards during the applicable time period provided in Section 5.12,
without regard to any vesting or performance requirements or other milestones.

 

(b)           Employment Termination.  For purposes of this Section, and subject
to any separate written agreement binding upon the Company, a Recipient’s
employment with the Company or any Affiliated Entity will be deemed to have been
terminated in connection with a Change in Control if: (i) the Recipient is
removed from the Recipient’s employment by, or resigns the Recipient’s
employment upon the request of, a Person exercising practical voting control
over the Company following the Change in Control or a person acting upon
authority or at the instruction of such Person; or (ii) the Recipient’s position
is eliminated as a result of a reduction in force made to reduce over-capacity
or unnecessary duplication of personnel within 180 days after the consummation
of the Change in Control and the Recipient is not offered a replacement position
with compensation substantially similar to the compensation in effect
immediately before the Change in Control. Unless otherwise provided in a written
agreement with the Company or any Affiliated Entity, assignment of a Recipient
to different duties or reporting will not be deemed to constitute or justify
termination of Recipient’s employment in connection with the Change in Control.

 

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ARTICLE IX
DEFINITIONS

 

Capitalized terms used in this Plan and not otherwise defined have the meanings
set forth below:

 

“Additional Option” means a right to purchase stock of the Company granted under
Section 7.2 of the Plan.

 

“Administrator” means the Board as long as no Committee has been appointed and
is in effect and also means the Committee to the extent that the Board has
delegated authority thereto.

 

“Affiliated Entity” means any Parent Corporation of the Company or Subsidiary
Corporation of the Company or any other entity controlling, controlled by, or
under common control with the Company.

 

“Applicable Dividend Period” means (i) the period between the date a Dividend
Equivalent is granted and the date the related Stock Option, SAR, or other Award
is exercised, terminates, or is converted to Common Stock, or (ii) such other
time as the Administrator may specify in the written instrument evidencing the
grant of the Dividend Equivalent.

 

“Award” means any Stock Option, Performance Award, Restricted Stock, Stock
Appreciation Right, Stock Payment, Stock Bonus, Stock Sale, Phantom Stock,
Dividend Equivalent, or Other Stock-Based Benefit granted or sold to an Eligible
Person under this Plan, or any similar award granted by the Company prior to the
Effective Date and outstanding as of the Effective Date that is governed by this
Plan.

 

“Award Document” means the agreement or confirming memorandum setting forth the
terms and conditions of an Award.

 

“Board” means the Board of Directors of the Company.

 

“Change in Control” means the following and shall be deemed to occur if any of
the following events occurs:

 

(i)                                     Any Person becomes the beneficial owner
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of fifty
percent (50%) or more of either the then outstanding shares of Common Stock or
the combined voting power of the Company’s then outstanding securities entitled
to vote generally in the election of directors; or

 

(ii)                                  Individuals who, as of the effective date
hereof, constitute the Board (the “Incumbent Board”) cease for any reason to
constitute at least a majority of the Board, provided, however, that any
individual who becomes a director after the effective date hereof whose
election, or nomination for election by the Company’s stockholders, is approved
by a vote of at least a

 

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majority of the directors then comprising the Incumbent Board shall be
considered to be a member of the Incumbent Board unless that individual was
nominated or elected by any person, entity or group (as defined above) having
the power to exercise, through beneficial ownership, voting agreement and/or
proxy, twenty percent (20%) or more of either the outstanding shares of Common
Stock or the combined voting power of the Company’s then outstanding voting
securities entitled to vote generally in the election of directors, in which
case that individual shall not be considered to be a member of the Incumbent
Board unless such individual’s election or nomination for election by the
Company’s stockholders is approved by a vote of at least two-thirds of the
directors then comprising the Incumbent Board; or

 

(iii)                               Consummation by the Company of the sale or
other disposition by the Company of all or substantially all of the Company’s
assets or a Reorganization of the Company with any other person, corporation or
other entity, other than

 

(A)                              a Reorganization that would result in the
voting securities of the Company outstanding immediately prior thereto (or, in
the case of a Reorganization that is preceded or accomplished by an acquisition
or series of related acquisitions by any Person, by tender or exchange offer or
otherwise, of voting securities representing 5% or more of the combined voting
power of all securities of the Company, immediately prior to such acquisition or
the first acquisition in such series of acquisitions) continuing to represent,
either by remaining outstanding or by being converted into voting securities of
another entity, more than 50% of the combined voting power of the voting
securities of the Company or such other entity outstanding immediately after
such Reorganization (or series of related transactions involving such a
Reorganization), or

 

(B)                                a Reorganization effected to implement a
recapitalization or reincorporation of the Company (or similar transaction) that
does not result in a material change in beneficial ownership of the voting
securities of the Company or its successor; or

 

(iv)                              Approval by the stockholders of the Company or
an order by a court of competent jurisdiction of a plan of liquidation of the
Company.

 

“Committee” means any committee appointed by the Board to administer this Plan
pursuant to Section 4.1.

 

“Common Stock” means the common stock of the Company, $0.01 par value per share,
as constituted on the Effective Date, and as thereafter adjusted under Section
3.4.

 

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“Company” means Diedrich Coffee, Inc., a Delaware corporation.

 

“Dividend Equivalent” means a right granted by the Company under Section 6.6 to
a holder of a Stock Option, Stock Appreciation Right or other Award denominated
in shares of Common Stock to receive from the Company during the Applicable
Dividend Period payments equivalent to the amount of dividends payable to
holders of the number of shares of Common Stock underlying such Stock Option,
Stock Appreciation Right, or other Award.

 

“Effective Date” means the date this Plan is approved and adopted by the
Company’s stockholders.

 

“Eligible Person” includes directors, including Non-Employee Directors,
officers, employees, consultants and advisors of the Company or of any
Affiliated Entity.

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

“Expiration Date” means the tenth (10th) anniversary of the Effective Date.

 

“Fair Market Value” of a share of the Company’s capital stock as of a particular
date means: (i) if the stock is listed on an established stock exchange or
exchanges (including for this purpose, the Nasdaq National Market), the
arithmetic mean of the highest and lowest sale prices of the stock for the
trading day immediately preceding such date on the primary exchange upon which
the stock trades, as measured by volume, as published in The Wall Street
Journal, or, if no sale price was quoted for such date, then as of the next
preceding date on which such a sale price was quoted; or (ii) if the stock is
not then listed on an exchange or the Nasdaq National Market, the average of the
closing bid and asked prices per share for the stock in the over-the-counter
market on such date (in the case of (i) or (ii), subject to adjustment as and if
necessary and appropriate to set an exercise price not less than 100% of the
fair market value of the stock on the date an Award is granted); or (iii) if the
stock is not then listed on an exchange or quoted in the over-the-counter
market, an amount determined in good faith by the Administrator, provided,
however, that (A) when appropriate, the Administrator in determining Fair Market
Value of capital stock of the Company may take into account such other factors
as it may deem appropriate under the circumstances, and (B) if the stock is
traded on the Nasdaq SmallCap Market and both sales prices and bid and asked
prices are quoted or available, the Administrator may elect to determine Fair
Market Value under either clause (i) or (ii) above.

 

Notwithstanding the foregoing, the Fair Market Value of capital stock for
purposes of grants of Incentive Stock Options must be determined in compliance
with applicable provisions of the IRC. The Fair Market Value of rights or
property other than capital stock of the Company means the fair market value
thereof as determined by the Administrator on the basis of such factors as it
may deem appropriate.

 

“Incentive Stock Option” means a Stock Option that qualifies as an incentive
stock option under Section 422 of the IRC.

 

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“Initial Option” means a right to purchase stock of the Company granted under
Section 7.1 of the Plan.

 

“IRC” means the Internal Revenue Code of 1986, as amended.

 

“Just Cause Dismissal” means a termination of a Recipient’s employment for any
of the following reasons: (i) the Recipient violates any reasonable rule or
regulation of the Board, the Company’s President or Chief Executive Officer or
the Recipient’s superiors that results in damage to the Company or any
Affiliated Entity or which, after written notice to do so, the Recipient fails
to correct within a reasonable time not exceeding 15 days; (ii) any willful
misconduct or gross negligence by the Recipient in the responsibilities assigned
to the Recipient; (iii) any willful failure to perform the Recipient’s job as
required to meet the objectives of the Company or any Affiliated Entity; (iv)
any wrongful conduct of a Recipient which has an adverse impact on the Company
or any Affiliated Entity or which constitutes a misappropriation of assets of
the Company or any Affiliated Entity; (v) the Recipient does any of the things
described in Section 5.15; or (vi) any other conduct that the Administrator
reasonably determines constitutes Just Cause for Dismissal; provided, however,
that if a Recipient is party to an employment agreement with the Company or any
Affiliated Entity providing for just cause dismissal (or some comparable
concept) of Recipient from Recipient’s employment with the Company or any
Affiliated Entity, “Just Cause Dismissal” for purposes of this Plan will have
the same meaning as ascribed thereto or to such comparable concept in such
employment agreement.

 

“Non-Employee Director” means a director of the Company who qualifies as a
“Non-Employee Director” under Rule 16b-3 under the Exchange Act.

 

“Non-Employee Director Option” means an Initial Option or an Additional Option
granted pursuant to Article VII of this Plan.

 

“Nonqualified Stock Option” means a Stock Option that is not an Incentive Stock
Option.

 

“Other Stock-Based Benefits” means an Award granted under Section 6.10.

 

“Parent Corporation” means any Parent Corporation as defined in Section 424(e)
of the IRC.

 

“Performance Award” means an Award under Section 6.2, payable in cash, Common
Stock or a combination thereof, that vests and becomes payable over a period of
time upon attainment of performance criteria established in connection with the
grant of the Award.

 

“Performance-Based Compensation” means performance-based compensation as
described in Section 162(m) of the IRC. If the amount of compensation an
Eligible Person will receive under any Award is not based solely on an increase
in the value of Common Stock after the date of grant or award, the
Administrator, in order to qualify an Award as performance-based compensation
under Section 162(m) of the IRC, can condition the grant, award, vesting, or
exercisability of such an Award on the attainment

 

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of a pre-established, objective performance goal. For this purpose, a
pre-established, objective performance goal may include one or more of the
following performance criteria: (a) cash flow, (b) earnings per share (including
earnings before interest, taxes, and amortization), (c) return on equity, (d)
total Shareholder return, (e) return on capital, (f) return on assets or net
assets, (g) income or net income, (h) operating income or net operating income,
(i) operating margin, (j) return on operating revenue, and (k) any other similar
performance criteria.

 

“Permanent Disability” means that the Recipient becomes physically or mentally
incapacitated or disabled so that the Recipient is unable to perform
substantially the same services as the Recipient performed prior to incurring
such incapacity or disability (the Company, at its option and expense, being
entitled to retain a physician to confirm the existence of such incapacity or
disability, and the determination of such physician to be binding upon the
Company and the Recipient), and such incapacity or disability continues for a
period of three consecutive months or six months in any 12-month period or such
other period(s) as may be determined by the Administrator with respect to any
Award, provided, however, that for purposes of determining the period during
which an Incentive Stock Option may be exercised pursuant to Section 6.1(e),
Permanent Disability shall mean “permanent and total disability” as defined in
Section 22(e) of the IRC.

 

“Person” means any person, entity or group, within the meaning of Section 13(d)
or 14(d) of the Exchange Act, but excluding (i) the Company and its
subsidiaries, (ii) any employee stock ownership or other employee benefit plan
maintained by the Company and (iii) an underwriter or underwriting syndicate
that has acquired the Company’s securities solely in connection with a public
offering thereof.

 

“Phantom Stock” means an Award granted under Section 6.9.

 

“Plan” means this 2000 Equity Incentive Plan of the Company.

 

“Plan Term” means the period during which this Plan remains in effect
(commencing the Effective Date and ending on the Expiration Date).

 

“Purchase Price” means the purchase price (if any) to be paid by a Recipient for
Restricted Stock as determined by the Administrator (which price shall be at
least equal to the minimum price required under applicable laws and regulations
for the issuance of Common Stock which is nontransferable and subject to a
substantial risk of forfeiture until specific conditions are met).

 

“Recipient” means a person who has received an Award.

 

“Reorganization” means any merger, consolidation or other reorganization.

 

“Restricted Stock” means Common Stock that is the subject of an Award made under
Section 6.3 and that is nontransferable and subject to a substantial risk of
forfeiture until specific conditions are met, as set forth in this Plan and in
any statement evidencing the grant of such Award.

 

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“Retirement” of a Recipient means the Recipient’s resignation from the Company
or any Affiliated Entity after reaching age 60 and at least five years of
full-time employment by the Company or any Affiliated Entity, without any
circumstances that would justify a Just Cause Dismissal of the Recipient.

 

“Securities Act” means the Securities Act of 1933, as amended.

 

“Significant Stockholder” is an individual who, at the time a Stock Option is
granted to such individual under this Plan, owns more than ten percent (10%) of
the combined voting power of all classes of stock of the Company or of any
Parent Corporation or Subsidiary Corporation (after application of the
attribution rules set forth in Section 424(d) of the IRC).

 

“Stock Appreciation Right” or “SAR” means a right granted under Section 6.4 to
receive a payment that is measured with reference to the amount by which the
Fair Market Value of a specified number of shares of Common Stock appreciates
from a specified date, such as the date of grant of the SAR, to the date of
exercise.

 

“Stock Bonus” means an issuance or delivery of unrestricted or restricted shares
of Common Stock under Section 6.7 as a bonus for services rendered or for any
other valid consideration under applicable law.

 

“Stock Payment” means a payment in shares of the Company’s Common Stock under
Section 6.5 to replace all or any portion of the compensation or other payment
(other than base salary) that would otherwise become payable to the Recipient in
cash.

 

“Stock Option” means a right to purchase stock of the Company granted under
Section 6.1 or Article VII of this Plan.

 

“Stock Sale” means a sale of Common Stock to an Eligible Person under Section
6.8.

 

“Subsidiary Corporation” means any Subsidiary Corporation as defined in Section
424(f) of the IRC.

 

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