**Exhibit 10.2**

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# **DIEDRICH COFFEE, INC.2000 EQUITY INCENTIVE PLAN**

 

# **ARTICLE IPURPOSE OF PLAN**

 

TheCompany has adopted this Plan to promote the interests of the Company and itsstockholders by using investment interests in the Company to attract, retainand motivate its management and other persons, to encourage and reward theircontributions to the performance of the Company, and to align their interestswith the interests of the Company’s stockholders. Capitalized terms nototherwise defined herein have the meanings ascribed to them in Article IX.

 

# **ARTICLE IIEFFECTIVE DATE AND TERM OF PLAN**

 

**2.1****          Term of Plan.**

 

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

 

**2.2****          Effect on Awards.**

 

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

 

# **ARTICLE IIISHARES SUBJECT TO PLAN**

 

**3.1****          Number of Shares.**

 

Themaximum number of shares of Common Stock that may be issued pursuant to Awardsunder this Plan is 1,087,500, subject to adjustment as set forth in Section3.4.

 

**3.2****          Source of Shares.**

 

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

 

**3.3****          Availability of UnusedShares.**

 

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

 

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shares wereissued, will again become available for the grant of further Awards under thisPlan as part of the shares available under Section 3.1. However, if theexercise price of, or withholding taxes incurred in connection with, an Awardis paid with shares of Common Stock, or if shares of Common Stock otherwiseissuable pursuant to Awards are withheld by the Company in satisfaction of anexercise price or the withholding taxes incurred in connection with anyexercise or vesting of an Award, then the number of shares of Common Stockavailable for issuance under the Plan will be reduced by the gross number ofshares 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 ofsuch Award.

 

**3.4****          Adjustment Provisions.**

 

(a)           Adjustments.  If the Company consummates anyReorganization in which holders of shares of Common Stock are entitled toreceive in respect of such shares any additional shares or new or differentshares or securities, cash or other consideration (including, withoutlimitation, a different number of shares of Common Stock), or if theoutstanding shares of Common Stock are increased, decreased or exchanged for adifferent 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 Section8.1, an appropriate and proportionate adjustment shall be made by theAdministrator in its discretion in: (i) the maximum number and kind of sharessubject to this Plan as provided in Section 3.1; (ii) the number and kind ofshares or other securities subject to then outstanding Awards; (iii) the pricefor each share or other unit of any other securities subject to, or measurementcriteria applicable to, then outstanding Awards; and/or (iv) the number andkind of shares or other securities to be issued as Non-Employee DirectorOptions.

 

(b)           No FractionalInterests.  No fractional interests willbe issued under the Plan resulting from any adjustments.

 

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

 

(d)           Right to MakeAdjustment. The grant of an Award will not affect in any way the right or powerof the Company to make adjustments, reclassifications, reorganizations orchanges of its capital or business structure or to merge or to consolidate orto dissolve, liquidate or sell, or transfer all or any part of its business orassets.

 

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

 

**3.5****          Reservation of Shares.**

 

TheCompany will at all times reserve and keep available shares of Common Stockequaling at least the total number of shares of Common Stock issuable pursuantto all outstanding Awards.

 

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# **ARTICLE IVADMINISTRATION OF PLAN**

 

**4.1****          Administrator.**

 

(a)           PlanAdministration.  Subject to theprovisions of Section 4.1(b), this Plan will be administered by the Board andmay also be administered by a Committee of the Board appointed pursuant toSection 4.1(b).

 

(b)           Administration byCommittee.  The Board in its solediscretion 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 anddiscretion of the Board under this Plan. As long as the Company has a class ofequity securities registered under Section 12 of the Exchange Act, this Planwill be administered by a Committee of not less than two (2) Board membersappointed by the Board in its sole discretion from time to time, each of whomis (i) a Non-Employee Director, and (ii) an “Outside Director” as defined inthe regulations adopted under Section 162(m) of the IRC. The Board may fromtime to time increase or decrease (but not below two (2)) the number of membersof the Committee, remove from membership on the Committee all or any portion ofits members, and/or appoint such person or persons as it desires to fill anyvacancy existing on the Committee, whether caused by removal, resignation orotherwise. Unless otherwise required by this Section 4.1(b), the Board maydisband the Committee at any time.

 

**4.2****          Authority ofAdministrator.**

 

(a)           Authority to InterpretPlan.  Subject to the express provisionsof this Plan, the Administrator will have the power to implement, interpret andconstrue this Plan and any Awards and Award Documents or other documentsdefining the rights and obligations of the Company and Recipients hereunder andthereunder, to determine all questions arising hereunder and thereunder, and toadopt and amend such rules and regulations for the administration hereof andthereof as it may deem desirable. The interpretation and construction by theAdministrator 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 thisPlan or any Award or Award Document, will be within the discretion of theAdministrator and will be conclusive and binding upon all persons. Subject onlyto compliance with the express provisions hereof, the Administrator may act inits discretion in matters related to this Plan and any and all Awards and AwardDocuments.

 

(b)           Authority to GrantAwards. Subject to the express provisions of this Plan, the Administrator mayfrom time to time in its discretion select the Eligible Persons to whom, andthe time or times at which, Awards will be granted or sold, the nature of eachAward, the number of shares of Common Stock or the number of rights that makeup or underlie each Award, the exercise price and period (if applicable) forthe exercise of each Award, and such other terms and conditions applicable toeach individual Award as the Administrator may determine. Any and all terms andconditions of Awards may be established by the Administrator without regard toexisting Awards or other grants and without incurring any obligation of theCompany in respect of subsequent Awards. The Administrator may grant at any time new Awards to an Eligible Personwho has previously received Awards or other grants (including

 

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

 

(c)           Procedures.  Subject to the Company’s charter or bylawsor any Board resolution conferring authority on the Committee, any action ofthe Administrator with respect to the administration of this Plan must be takenpursuant to a majority vote of the authorized number of members of theAdministrator 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) actionstaken by the Board will be valid if approved in accordance with applicable law.

 

**4.3****          No Liability.**

 

Nomember of the Board or the Committee or any designee thereof will be liable forany action or inaction with respect to this Plan or any Award or anytransaction arising under this Plan or any Award except in circumstancesconstituting bad faith of such member.

 

**4.4****          Amendments.**

 

(a)           Plan Amendments.  The Administrator may at any time and fromtime to time in its discretion, insofar as permitted by applicable law, rule orregulation and subject to Section 4.4(c), suspend or discontinue this Plan orrevise or amend it in any respect whatsoever, and this Plan as so revised oramended will govern all Awards, including those granted before such revision oramendment. Without limiting the generality of the foregoing, the Administratoris authorized to amend this Plan to comply with or take advantage of amendmentsto applicable laws, rules or regulations, including the Securities Act, theExchange Act, the IRC, or the rules of any exchange or market system upon whichthe Common Stock is listed or trades, or any rules or regulations promulgatedthereunder. No stockholder approval of any amendment or revision will berequired unless such approval is required by applicable law, rule orregulation.

 

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

 

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

 

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**4.5****          Other CompensationPlans.**

 

ThisPlan supersedes and replaces the Company’s Amended and Restated 1996 StockIncentive 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, incentiveor other compensation plans in effect from time to time for the Company, andthis Plan will not preclude the Company from establishing any other forms ofincentive or other compensation for employees, directors, advisors orconsultants of the Company, whether or not approved by stockholders.Notwithstanding the fact that this Plan supersedes and replaces the Company’sAmended and Restated 1996 Stock Incentive Plan and the Company’s 1996Non-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 EffectiveDate.

 

**4.6****          Plan Binding onSuccessors.**

 

ThisPlan will be binding upon the successors and assigns of the Company.

 

**4.7****          References to SuccessorStatutes, Regulations and Rules.**

 

Anyreference in this Plan to a particular statute, regulation or rule will alsorefer to any successor provision of such statute, regulation or rule.

 

**4.8****          Invalid Provisions.**

 

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

 

**4.9****          Governing Law.**

 

ThisPlan will be governed by and interpreted in accordance with the internal lawsof the State of Delaware, without giving effect to the principles of theconflicts of laws thereof.

 

**4.10****        Interpretation.**

 

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

 

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# **ARTICLE VGENERAL AWARD PROVISIONS**

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**5.1****          Participation in Plan.**

 

(a)           Eligibility to ReceiveAwards.  A person is eligible to receivegrants of Awards if, at the time of the grant of the Award, such person is anEligible Person or has received an offer of employment from the Company,provided, however, that only Non-Employee Directors are eligible to receiveNon-Employee Director Options, and provided further, that Awards granted to aperson who has received an offer of employment will terminate and be forfeitedwithout consideration if the employment offer is not accepted within such timeas may be specified by the Company. Status as an Eligible Person will not beconstrued as a commitment that any Award will be granted under this Plan to anEligible Person or to Eligible Persons generally.

 

(b)           Eligibility to ReceiveIncentive Stock Options.  IncentiveStock Options may be granted only to Eligible Persons meeting the employmentrequirements of Section 422 of the IRC.

 

(c)           Awards to ForeignNationals.  Notwithstanding anything tothe contrary herein, the Administrator may, in order to fulfill the purposes ofthis Plan, modify grants of Awards to Recipients who are foreign nationals oremployed outside of the United States to recognize differences in applicablelaw, tax policy or local custom.

 

**5.2****          Award Documents.**

 

EachAward must be evidenced by an agreement duly executed on behalf of the Companyand by the Recipient or, in the Administrator’s discretion, a confirmingmemorandum issued by the Company to the Recipient, setting forth such terms andconditions applicable to the Award as the Administrator may in its discretiondetermine. Awards will not be deemed made or binding upon the Company, and Recipientswill have no rights thereto, until such an agreement is entered into betweenthe Company and the Recipient or such a memorandum is delivered by the Companyto the Recipient, but an Award may have an effective date prior to the date ofsuch 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 ofthis Plan, a copy of which will be provided to each Recipient and incorporatedby reference into each Award Document. Any Award Document may contain suchother terms, provisions and conditions not inconsistent with this Plan as maybe determined by the Administrator. In case of any conflict between this Planand any Award Document, this Plan shall control.

 

**5.3****          Payment for Awards.**

 

(a)           Payment of ExercisePrice.  The exercise price or otherpayment for an Award is payable upon the exercise of a Stock Option or uponother purchase of shares pursuant to an Award granted hereunder by delivery oflegal tender of the United States or payment of such other consideration as theAdministrator 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 abroker-assisted or similar transaction in which the exercise price is notreceived by the Company until promptly after exercise.

 

(b)           CompanyAssistance.  The Company may assist anyperson to whom an Award is granted (including, without limitation, any officeror director of the Company) in the payment of the purchase price or otheramounts payable in connection with the receipt or exercise of that Award, bylending such amounts to such person on such terms and at such rates of interestand upon such security (if any) as may be consistent with applicable law andapproved by the Administrator. In case of such a loan, the Administrator mayrequire that the exercise be followed by a prompt sale of some or all of the underlyingshares and that a portion of the sale proceeds be dedicated to full payment ofthe exercise price and amounts required pursuant to Section 5.10.

 

(c)           Cashless Exercise.  If permitted in any case by theAdministrator in its discretion, the exercise price for Awards may be paid bycapital stock of the Company delivered in transfer to the Company by or onbehalf of the person exercising the Award and duly endorsed in blank oraccompanied by stock powers duly endorsed in blank, with signatures guaranteedin accordance with the Exchange Act if required by the Administrator; orretained by the Company from the stock otherwise issuable upon exercise orsurrender of vested and/or exercisable Awards or other equity awards previouslygranted to the Recipient and being exercised (if applicable) (in either casevalued at Fair Market Value as of the exercise date); or such otherconsideration as the Administrator may from time to time in the exercise of itsdiscretion deem acceptable in any particular instance.

 

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

 

**5.4****          No Employment Rights.**

 

Nothingcontained in this Plan (or in Award Documents or in any other documents relatedto this Plan or to Awards) will confer upon any Eligible Person or Recipientany right to continue in the employ of or engagement by the Company or anyAffiliated Entity or constitute any contract or agreement of employment orengagement, or interfere in any way with the right of the Company or anyAffiliated Entity to reduce such person’s compensation or other benefits or toterminate the employment or engagement of such Eligible Person or Recipient,with or without cause. Except as expressly provided in this Plan or in anystatement evidencing the grant of an Award, the Company has the right to dealwith each Recipient in the same manner as if this Plan and any such statementevidencing the grant of an Award did not exist, including, without limitation,with respect to all matters related to the hiring, discharge, compensation andconditions of the employment or engagement of the Recipient. Unless otherwiseset forth in a written agreement binding upon the Company or an AffiliatedEntity, all employees of the Company or an Affiliated Entity are “at will”employees whose employment may be terminated by the Company or the AffiliatedEntity at any time for any reason or no reason, without payment or penalty ofany kind. Any question(s) as to whether and when there has been a

 

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

 

**5.5****          Restrictions UnderApplicable Laws and Regulations.**

 

(a)           GovernmentApprovals.  All Awards will be subjectto the requirement that, if at any time the Company determines, in itsdiscretion, that the listing, registration or qualification of the securitiessubject to Awards granted under this Plan upon any securities exchange orinterdealer quotation system or under any federal, state or foreign law, or theconsent or approval of any government or regulatory body, is necessary ordesirable as a condition of, or in connection with, the granting of such anAward 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 suchlisting, registration, qualification, consent or approval has been effected orobtained free of any conditions not acceptable to the Company. During the termof this Plan, the Company will use its reasonable efforts to seek to obtainfrom the appropriate governmental and regulatory agencies any requisitequalifications, consents, approvals or authorizations in order to issue andsell such number of shares of its Common Stock as is sufficient to satisfy therequirements of this Plan. The inability of the Company to obtain any suchqualifications, consents, approvals or authorizations will relieve the Companyof any liability in respect of the nonissuance or sale of such stock as towhich such qualifications, consents, approvals or authorizations pertain.

 

(b)           No RegistrationObligation; Recipient Representations. The Company will be under no obligation to register or qualify theissuance of Awards or underlying securities under the Securities Act orapplicable state securities laws. Unless the issuance of Awards and underlyingsecurities have been registered under the Securities Act and qualified orregistered under applicable state securities laws, the Company shall be underno obligation to issue any Awards or underlying securities unless the Awardsand underlying securities may be issued pursuant to applicable exemptions fromsuch registration or qualification requirements. In connection with any suchexempt issuance, the Administrator may require the Recipient to provide awritten representation and undertaking to the Company, satisfactory in form andscope to the Company, that such Recipient is acquiring such Awards andunderlying securities for such Recipient’s own account as an investment and notwith a view to, or for sale in connection with, the distribution of any suchsecurities, and that such person will make no transfer of the same except incompliance with any rules and regulations in force at the time of such transferunder the Securities Act and other applicable law, and that if securities areissued without registration, a legend to this effect (together with any otherlegends deemed appropriate by the Administrator) may be endorsed upon thesecurities so issued, and to the effect of any additional representations thatare appropriate in light of applicable securities laws and rules. The Companymay also order its transfer agent to stop transfers of such shares. TheAdministrator may also require the Recipient to provide the Company suchinformation and other documents as the Administrator may request in order tosatisfy the Administrator as to the investment sophistication and experience ofthe Recipient and as to any other conditions for compliance with any suchexemptions from registration or qualification.

 

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**5.6****          Additional Conditions.**

 

AnyAward may be subject to such provisions (whether or not applicable to any otherAward or Recipient) as the Administrator deems appropriate, including withoutlimitation provisions for the forfeiture of or restrictions on resale or otherdisposition of securities of the Company acquired under this Plan, provisionsgiving the Company the right to repurchase securities of the Company acquiredunder this Plan in the event the Recipient leaves the Company for any reason orelects to effect any disposition thereof, and provisions to comply with federaland state securities laws.

 

**5.7****          No Privileges Re StockOwnership or Specific Assets.**

 

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

 

**5.8****          Nonassignability.**

 

NoAward is assignable or transferable except: (a) by will or by the laws of descent and distribution; or (b) subjectto the final sentence of this Section 5.8, upon dissolution of marriagepursuant to a qualified domestic relations order or, in the discretion of theAdministrator and under circumstances that would not adversely affect theinterests of the Company, transfers for estate planning purposes or pursuant toa 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 beexercisable only by the Recipient (or the Recipient’s permitted transferee) orsuch person’s guardian or legal representative. Notwithstanding the foregoing,Stock Options intended to be treated as Incentive Stock Options (or otherAwards subject to transfer restrictions under the IRC) may not be assigned ortransferred in violation of Section 422(b)(5) of the IRC or the regulationsthereunder, and nothing herein is intended to allow such assignment ortransfer.

 

**5.9****          Information toRecipients.**

 

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

 

(b)           Confidentiality.  The furnishing of financial and otherinformation that is confidential to the Company is subject to the Recipient’sagreement to maintain the

 

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

 

**5.10****        Withholding Taxes.**

 

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

 

**5.11****        Legends on Awards andStock Certificates.**

 

EachAward Document and each certificate representing securities acquired uponvesting 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 placedon the Award Document and/or the certificate. The determination of whichlegends, if any, will be placed upon Award Documents or the certificates willbe made by the Administrator in its discretion and such decision will be finaland binding.

 

**5.12****        Effect of Termination ofEmployment on Awards.**

 

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

 

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

 

(c)           Leave of Absence.  In the case of any employee on an approvedleave of absence, the Administrator may make such provision respectingcontinuance of Awards granted to such employee as the Administrator in itsdiscretion deems appropriate, except that in no event

 

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will an Award be exercisable after the datesuch Award would expire in accordance with its terms had the Recipient remainedcontinuously employed.

 

(d)           General Cessation.  Except as otherwise set forth in this Planor 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 employmentor service with the Company or any Affiliated Entity (or cessation of any otherservice relationship between the Recipient and the Company or any AffiliatedEntity in place as of the date the Award was granted).

 

**5.13****        Lock-Up Agreements.**

 

EachRecipient agrees as a condition to receipt of an Award that, in connection withany public offering by the Company of its equity securities and upon therequest of the Company and the principal underwriter (if any) in such publicoffering, any shares of Common Stock acquired or that may be acquired uponexercise 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 anysales of securities of the Company, without the prior written consent of theCompany or such underwriter, as the case may be, for a period of not more than365 days after the effective date of the registration statement for such publicoffering. Each Recipient will, if requested by the Company or the principalunderwriter, enter into a separate agreement to the effect of this Section5.13.

 

**5.14****        Restrictions on CommonStock and Other Securities.**

 

CommonStock or other securities of the Company issued or issuable in connection withany Award will be subject to all of the restrictions imposed under this Planupon Common Stock issuable or issued upon exercise of Stock Options, except asotherwise determined by the Administrator.

 

**5.15****        Cancellation and Rescissionof Awards.**

 

Unlessan Award Document or other separate written agreement binding upon the Companyprovides otherwise, the Administrator may cancel any unexpired, unpaid ordeferred Award (whether or not vested) at any time if the Recipient thereoffails at any time to comply with all applicable provisions of the AwardDocument or this Plan, or does any of the following:

 

(a)           During employment orengagement with the Company or any Affiliated Entity and without the priorwritten authorization of the Chief Executive Officer of the Company, rendersservices for any organization or engages directly or indirectly in any businessthat, in the judgment of the Chief Executive Officer of the Company or othersenior officer designated by the Administrator, is competitive with the Companyor any Affiliated Entity, or which organization or business, or the renderingof services to such organization or business, is otherwise prejudicial to or inconflict with the business or interests of the Company or any AffiliatedEntity.

 

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

 

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Affiliated Entity to which the Recipient isparty, or with the policies of the Company or Affiliated Entity regardingnondisclosure of confidential information, or without prior writtenauthorization from the Company or any Affiliated Entity, discloses to anyoneoutside the Company or any Affiliated Entity, or uses for any purpose or in anycontext other than in performance of the Recipient’s duties to the Company orany Affiliated Entity, any confidential or trade secret information of theCompany or any Affiliated Entity.

 

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

 

Uponand as a condition to exercise of any Award, a Recipient shall certify on aform acceptable to the Company that he or she is in compliance with the termsand conditions of this Plan and any applicable Award Document and has not doneany of the things described in this Section 5.15. Furthermore, if a Recipientdoes any of the things described in this Section 5.15 within 180 days after anyexercise, payment or delivery pursuant to an Award, the Company may rescindsuch exercise, payment or delivery. The Company shall notify the Recipient inwriting of any such rescission within two years after such exercise, payment ordelivery. Within ten days after receiving such notice from the Company, aRecipient shall pay to the Company the amount of any gain realized or paymentreceived as a result of the rescinded exercise, payment or delivery pursuant toan Award. Such payment shall be made by returning to the Company all shares ofcapital stock that the Recipient received in connection with the rescindedexercise, payment or delivery, or if such shares have been transferred by theRecipient, then by paying the equivalent value thereof at the time of theirtransfer to the Company in cash. To assist in enforcement of the Company’srescission right described above, the Company may, in its discretion, retainany Common Stock or other consideration otherwise deliverable to a Recipient inconnection with an Award until the rescission period described above haslapsed.

 

**5.16****        Limits on Awards toEligible Persons.**

 

Notwithstandingany other provision of this Plan, no one Eligible Person shall be grantedawards with respect to more than 200,000 shares of Common Stock in any onecalendar year, provided, however, that this limitation shall not apply if it isnot required in order for the compensation attributable to Awards hereunder toqualify as Performance-Based Compensation. The limitation set forth in thisSection 5.16 will be subject to adjustment as provided in Section 3.4 or underArticle VIII, but only to the extent such adjustment would not affect thestatus of compensation attributable to Awards as Performance-BasedCompensation.

 

# **ARTICLE VIAWARDS**

 

**6.1****          Stock Options.**

 

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

 

(b)           Option ExercisePrice.  The exercise price for eachStock Option will be determined by the Administrator as of the date such StockOption is granted.

 

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(c)           Option Period andVesting.  Stock Options grantedhereunder will vest and may be exercised as determined by the Administrator, exceptthat exercise of Stock Options after termination of the Recipient’s employmentor service shall be subject to Section 5.12 and Section 6.1(e). Each StockOption granted hereunder and all rights or obligations thereunder shall expireon 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 toearlier termination as provided herein or in the Award Document. Except asotherwise provided herein, a Stock Option will become exercisable, as a wholeor in part, on the date or dates specified by the Administrator and thereafterwill remain exercisable until the exercise, expiration or earlier terminationof the Stock Option.

 

(d)           Exercise of StockOptions.  The exercise price for StockOptions will be paid as set forth in Section 5.3. No Stock Option will beexercisable except in respect of whole shares, and fractional share interestsshall be disregarded. Not fewer than 100 shares of Common Stock (or such otheramount as may be set forth in the applicable Award Document) may be purchasedat one time and Stock Options must be exercised in multiples of 100 unless thenumber purchased is the total number of shares for which the Stock Option isexercisable at the time of exercise. A Stock Option will be deemed to beexercised when the Secretary or other designated official of the Companyreceives written notice of such exercise from the Recipient in the form ofExhibit A hereto or such other form as the Company may specify from time totime, together with payment of the exercise price in accordance with Section5.3 and any amounts required under Section 5.10 or, with permission of theAdministrator, arrangement for such payment. Notwithstanding any otherprovision of this Plan, the Administrator may impose, by rule and/or in AwardDocuments, such conditions upon the exercise of Stock Options (including,without limitation, conditions limiting the time of exercise to specifiedperiods) as may be required to satisfy applicable regulatory requirements,including, without limitation, Rule 16b-3 and Rule 10b-5 under the ExchangeAct, and any amounts required under Section 5.10, or any applicable section ofor regulation under the IRC.

 

(e)           Termination ofEmployment.

 

(i)            Termination for JustCause.  Subject to Section 5.12 andexcept as otherwise provided in a written agreement between the Company or anAffiliated Entity and the Recipient, which may be entered into at any timebefore or after termination of employment or service, in the event of a JustCause Dismissal of a Recipient all of the Recipient’s unexercised StockOptions, whether or not vested, will expire and become unexercisable as of thedate of such Just Cause Dismissal.

 

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

 

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

 

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

 

(B)           Death or PermanentDisability 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 hadthe Recipient remained employed; and (2) 180 days after the date of terminationof employment or service.

 

(f)            Special ProvisionsRegarding Incentive Stock Options. Notwithstanding anything herein to thecontrary,

 

(i)            The exercise price andvesting period of any Stock Option intended to be treated as an Incentive StockOption must comply with the provisions of Section 422 of the IRC and theregulations thereunder. As of the Effective Date, such provisions require,among other matters, that: (A) the exercise price must not be less than theFair Market Value of the underlying stock as of the date the Incentive StockOption is granted, and not less than 110% of the Fair Market Value as of suchdate in the case of a grant to a Significant Stockholder; and (B) that theIncentive 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 dateof grant in the case of an Incentive Stock Option granted to a SignificantStockholder.

 

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

 

(iii)          Any Stock Optionsgranted as Incentive Stock Options pursuant to this Plan that for any reasonfail 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 grantedStock Options will be treated as Incentive Stock Options, up to such limit.

 

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

 

**6.2****          Performance Awards.**

 

(a)           Grant of PerformanceAward.  The Administrator will determinein its discretion the performance criteria (which need not be identical and maybe 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 conditionsapplicable to a Performance Award, payment will be made to the Recipient incash, in shares of Common Stock valued at Fair Market Value as of the datepayment is due, or in a combination of Common Stock and cash, as theAdministrator in its discretion may determine.

 

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**6.3****          Restricted Stock.**

 

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

 

(b)           Requirements ofRestricted Stock.  All shares ofRestricted Stock granted or sold pursuant to this Plan will be subject to thefollowing conditions:

 

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

 

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

 

(iii)          RestrictiveLegends.  Each certificate representingRestricted Stock granted or sold to a Recipient pursuant to this Plan will bearsuch legend or legends making reference to the restrictions imposed upon suchRestricted Stock as the Administrator in its discretion deems necessary orappropriate to enforce such restrictions; and

 

(iv)          Other Restrictions.  The Administrator may impose such otherconditions on Restricted Stock as the Administrator may deem advisable,including, without limitation, restrictions under the Securities Act, under theExchange Act, under the requirements of any stock exchange or interdealer quotationsystem upon which such Restricted Stock or other securities of the Company arethen listed or traded and under any blue sky or other securities lawsapplicable to such shares.

 

(c)           Lapse ofRestrictions.  The restrictions imposedupon Restricted Stock will lapse in accordance with such terms or otherconditions as are determined by the Administrator.

 

(d)           Rights ofRecipient.  Subject to the provisions ofSection 6.3(b) and any restrictions imposed upon the Restricted Stock, theRecipient will have all rights of a stockholder with respect to the RestrictedStock granted or sold to such Recipient under this Plan, including, withoutlimitation, the right to vote the shares and receive all dividends and otherdistributions paid or made with respect thereto.

 

(e)           Termination ofEmployment.  Unless the Administrator inits discretion determines otherwise, if a Recipient’s employment or servicewith the Company or any Affiliated Entity terminates for any reason, all of theRecipient’s Restricted Stock remaining subject to restrictions on the date ofsuch termination of employment or service will be repurchased by the Company atthe Purchase Price (if any) paid by the Recipient to the Company, withoutinterest or premium, and otherwise returned to the Company withoutconsideration.

 

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**6.4****          Stock AppreciationRights.**

 

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

 

(b)           SARs Related toOptions.

 

(i)            A Stock AppreciationRight related to a Stock Option will entitle the holder of the related StockOption, upon exercise of the Stock Appreciation Right, to surrender such StockOption, or any portion thereof to the extent previously vested but unexercised,with respect to the number of shares as to which such Stock Appreciation Rightis exercised, and to receive payment of an amount computed pursuant to Section6.4(b)(iii). Such Stock Option will, to the extent surrendered, then cease tobe exercisable.

 

(ii)           A Stock AppreciationRight related to a Stock Option hereunder will be exercisable at such time ortimes, and only to the extent that, the related Stock Option is exercisable,and will not be transferable except to the extent that such related StockOption may be transferable (and under the same conditions), will expire nolater than the expiration of the related Stock Option, and may be exercisedonly when the market price of the Common Stock subject to the related StockOption exceeds the exercise price of the Stock Option.

 

(iii)          Upon the exercise of aStock Appreciation Right related to a Stock Option, the Recipient will beentitled to receive payment of an amount determined by multiplying: (A) thedifference obtained by subtracting the exercise price of a share of CommonStock specified in the related Stock Option from the Fair Market Value of ashare 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 havebeen specified in the instrument evidencing the grant of the Stock AppreciationRight), by (B) the number of shares as to which such Stock Appreciation Right isexercised.

 

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

 

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

 

(e)           Payments.  Payment of the amount determined under theforegoing provisions may be made solely in whole shares of Common Stock valuedat their Fair Market Value on the date of exercise of the Stock AppreciationRight or, alternatively, at the discretion of the Administrator, in cash or ina combination of cash and shares of Common Stock as the Administrator deemsadvisable. The Administrator has full discretion to determine the form in whichpayment of a Stock Appreciation Right will be made and to consent to ordisapprove the election of a Recipient to receive cash in full or partialsettlement of a Stock Appreciation Right.

 

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

 

**6.5****          Stock Payments.**

 

TheAdministrator may approve Stock Payments to any Eligible Person on such termsand conditions as the Administrator may determine. Stock Payments will replacecash compensation at the Fair Market Value of the Common Stock on the datepayment is due.

 

**6.6****          Dividend Equivalents.**

 

TheAdministrator may grant Dividend Equivalents to any Recipient who has receiveda Stock Option, SAR or other Award denominated in shares of Common Stock.Dividend Equivalents may be paid in cash, Common Stock or other Awards; theamount of Dividend Equivalents paid other than in cash will be determined bythe Administrator by application of such formula as the Administrator may deemappropriate to translate the cash value of dividends paid to the alternativeform of payment of the Dividend Equivalent. Dividend Equivalents will becomputed as of each dividend record date and will be payable to recipientsthereof at such time as the Administrator may determine. However, if it isintended that an Award qualify as Performance-Based Compensation, and theamount of compensation the Eligible Person could receive under the Award is basedsolely on an increase in value of the underlying stock after the date of thegrant or Award, then the payment of any Dividend Equivalents related to theAward shall not be made contingent on the exercise of the Award.

 

**6.7****          Stock Bonuses.**

 

TheAdministrator may issue Stock Bonuses to Eligible Persons on such terms andconditions as the Administrator may determine.

 

**6.8****          Stock Sales.**

 

TheAdministrator may sell to Eligible Persons shares of Common Stock on such termsand conditions as the Administrator may determine.

 

**6.9****          Phantom Stock.**

 

TheAdministrator may grant Awards of Phantom Stock to Eligible Persons. PhantomStock is a cash payment measured by the Fair Market Value of a specified numberof shares of Common Stock on a specified date, or measured by the excess ofsuch Fair Market Value over a specified minimum, which may but need not includea Dividend Equivalent.

 

**6.10****        Other Stock-BasedBenefits.**

 

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

 

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appreciation, dividend yield or otherfeatures attributable to a specified number of shares of Common Stock or othersecurities of the Company.

 

# **ARTICLE VIINON-EMPLOYEE DIRECTOR OPTIONS**

 

**7.1****          Initial Grant of StockOptions.**

 

EachNon-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 theCompany’s Common Stock (an “Initial Option”) at an exercise price per shareequal to the Fair Market Value of the Company’s Common Stock on the date ofgrant, subject to: (a) vesting as set forth in Section 7.3, and (b) adjustmentas set forth in this Plan.

 

**7.2****          Annual Grants of StockOptions.**

 

Immediatelyfollowing the annual meeting of stockholders of the Company next following aNon-Employee Director’s becoming a Non-Employee Director, and immediatelyfollowing each subsequent annual meeting of stockholders of the Company, ineach case if the Non-Employee Director has served as a director since his orher election or appointment and has been re-elected as a director at suchannual meeting, such Non-Employee Director shall automatically receive anoption to purchase up to 15,000 shares of the Company’s Common Stock (an “AdditionalOption”). In addition to the Additional Options described above, an individualwho was previously a Non-Employee Director and received an initial grant ofstock options under this Plan or pursuant to a prior option plan for theCompany’s directors, who then ceased to be a director for any reason, and whothen again becomes a Non-Employee Director, shall upon again becoming aNon-Employee Director automatically receive an Additional Option. The exerciseprice per share for all Additional Options shall be equal to the Fair MarketValue 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 thisPlan.

 

**7.3****          Vesting.**

 

InitialOptions shall vest and become exercisable (a) 50% upon the earlier of (i) thefirst anniversary of the grant date or (ii) immediately prior to the firstannual meeting of stockholders of the Company following the grant date, if theRecipient has remained a Non-Employee Director for the entire period from thedate of grant to such earlier date; and (b) 50% upon the earlier of (i) thesecond anniversary of the grant date or (ii) immediately prior to the secondannual meeting of stockholders of the Company following the date of grant tosuch earlier date. Additional Options shall vest and become exercisable withrespect to all underlying shares upon the earlier of (y) the first anniversaryof the grant date or (z) immediately prior to the annual meeting ofstockholders of the Company next following the grant date, if the Recipient hasremained a Non-Employee Director for the entire period from the date of grantto such earlier date. Notwithstanding the foregoing, however, Initial Optionsand Additional Options that have not vested and become exercisable at the timethe Recipient ceases to be a director shall terminate.

 

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**7.4****          Exercise.**

 

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

 

**7.5****          Term of Options andEffect of Termination.**

 

Notwithstandingany other provision of the Plan, no Non-Employee Director Option granted underthe Plan shall be exercisable after the expiration of ten years from the effectivedate of its grant. In the event that the recipient of any Non-Employee DirectorOptions 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 beexercisable, to the extent already exercisable at the date such recipientceases to be a director and regardless of the reason the recipient ceases to bea director, for a period of 365 days after that date (or, if sooner, until theexpiration of the option according to its terms), and shall then terminate; and(b) all Additional Options granted under this Plan to such recipient shall beexercisable, to the extent already exercisable at the date such recipientceases to be a director, for a period of 365 days after that date (or, ifsooner, until the expiration of the option according to its terms) if he or sheceases to be a director because of death or permanent disability, or for aperiod of 90 days after that date (or, if sooner, until the expiration of theoption according to its terms) if he or she ceases to be a director for anyother reason, and shall then terminate. In the event of the death of aRecipient while such Recipient is a director of the Company or within theperiod after termination of such status during which he or she is permitted toexercise an option, such option may be exercised by any person or personsdesignated by the Recipient on a beneficiary designation form adopted by thePlan administrator for such purpose or, if there is no effective beneficiarydesignation form on file with the Company, by the executors or administratorsof the Recipient’s estate or by any person or persons who shall have acquiredthe option directly from the Recipient by his or her will or the applicablelaws of descent and distribution.

 

**7.6****          Amendment; Suspension.**

 

TheAdministrator 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-EmployeeDirector Options, and (b) suspend and reactivate this Article VII.

 

# **ARTICLE VIIICHANGE IN CONTROL**

# ** **

**8.1****          Provision for AwardsUpon Change in Control.**

 

Asof the effective time and date of any Change in Control, this Plan and any thenoutstanding Awards (whether or not vested) will automatically terminate unless:(a) provision is made in writing in connection with such transaction for thecontinuance of this Plan and for the assumption of such Awards, or for thesubstitution for such Awards of new awards covering the securities of asuccessor entity or an affiliate thereof, with appropriate adjustments as tothe number and kind of securities and exercise prices or other measurementcriteria, in which event this Plan and such outstanding Awards will continue orbe 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 deemsappropriate in the terms and conditions of the then-outstanding Awards (whetheror not vested), including, without limitation, (i) accelerating the vesting ofoutstanding Awards, and/or (ii) providing for the cancellation of Awards andtheir automatic conversion into the right to receive the securities, cash orother consideration that a holder of the shares underlying such Awards wouldhave been entitled to receive upon consummation of such Change in Control hadsuch shares been issued and outstanding immediately prior to the effective dateand time of the Change in Control (net of the appropriate option exerciseprices). If, pursuant to the foregoing provisions of this Section 8.1, thisPlan and the Awards terminate by reason of the occurrence of a Change inControl 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 holdingoutstanding Awards will have the right, at such time prior to the consummationof the Change in Control as the Board designates, to exercise or receive thefull benefit of the Recipient’s Awards to the full extent not theretoforeexercised, including any installments which have not yet become vested.

 

**8.2****          Termination ofEmployment in Connection With a Change in Control.**

 

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

 

(b)           EmploymentTermination.  For purposes of thisSection, and subject to any separate written agreement binding upon theCompany, a Recipient’s employment with the Company or any Affiliated Entitywill be deemed to have been terminated in connection with a Change in Controlif: (i) the Recipient is removed from the Recipient’s employment by, or resignsthe Recipient’s employment upon the request of, a Person exercising practicalvoting control over the Company following the Change in Control or a personacting upon authority or at the instruction of such Person; or (ii) theRecipient’s position is eliminated as a result of a reduction in force made toreduce over-capacity or unnecessary duplication of personnel within 180 daysafter the consummation of the Change in Control and the Recipient is notoffered a replacement position with compensation substantially similar to thecompensation in effect immediately before the Change in Control. Unlessotherwise provided in a written agreement with the Company or any AffiliatedEntity, assignment of a Recipient to different duties or reporting will not bedeemed to constitute or justify termination of Recipient’s employment inconnection with the Change in Control.

 

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# **ARTICLE IXDEFINITIONS**

# ** **

Capitalizedterms used in this Plan and not otherwise defined have the meanings set forthbelow:

 

“AdditionalOption” means a right to purchase stock of the Company granted under Section7.2 of the Plan.

 

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

 

“AffiliatedEntity” means any Parent Corporation of the Company or Subsidiary Corporationof the Company or any other entity controlling, controlled by, or under commoncontrol with the Company.

 

“ApplicableDividend Period” means (i) the period between the date a Dividend Equivalent isgranted 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 theAdministrator may specify in the written instrument evidencing the grant of theDividend Equivalent.

 

“Award”means any Stock Option, Performance Award, Restricted Stock, Stock AppreciationRight, Stock Payment, Stock Bonus, Stock Sale, Phantom Stock, DividendEquivalent, or Other Stock-Based Benefit granted or sold to an Eligible Personunder this Plan, or any similar award granted by the Company prior to theEffective Date and outstanding as of the Effective Date that is governed bythis Plan.

 

“AwardDocument” means the agreement or confirming memorandum setting forth the termsand conditions of an Award.

 

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

 

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

 

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

 

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

 

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majorityof the directors then comprising the Incumbent Board shall be considered to bea member of the Incumbent Board unless that individual was nominated or electedby 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 combinedvoting power of the Company’s then outstanding voting securities entitled tovote generally in the election of directors, in which case that individualshall not be considered to be a member of the Incumbent Board unless suchindividual’s election or nomination for election by the Company’s stockholdersis approved by a vote of at least two-thirds of the directors then comprisingthe Incumbent Board; or

 

(iii)                               Consummationby the Company of the sale or other disposition by the Company of all orsubstantially all of the Company’s assets or a Reorganization of the Companywith any other person, corporation or other entity, other than

 

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

 

(B)                                aReorganization effected to implement a recapitalization or reincorporation ofthe Company (or similar transaction) that does not result in a material changein beneficial ownership of the voting securities of the Company or itssuccessor; or

 

(iv)                              Approvalby the stockholders of the Company or an order by a court of competentjurisdiction of a plan of liquidation of the Company.

 

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

 

“CommonStock” means the common stock of the Company, $0.01 par value per share, asconstituted on the Effective Date, and as thereafter adjusted under Section3.4.

 

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

 

“DividendEquivalent” means a right granted by the Company under Section 6.6 to a holderof a Stock Option, Stock Appreciation Right or other Award denominated inshares of Common Stock to receive from the Company during the ApplicableDividend Period payments equivalent to the amount of dividends payable toholders of the number of shares of Common Stock underlying such Stock Option,Stock Appreciation Right, or other Award.

 

“EffectiveDate” means the date this Plan is approved and adopted by the Company’sstockholders.

 

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

 

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

 

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

 

“FairMarket Value” of a share of the Company’s capital stock as of a particular datemeans: (i) if the stock is listed on an established stock exchange or exchanges(including for this purpose, the Nasdaq National Market), the arithmetic meanof the highest and lowest sale prices of the stock for the trading dayimmediately preceding such date on the primary exchange upon which the stocktrades, as measured by volume, as published in The Wall Street Journal, or, ifno sale price was quoted for such date, then as of the next preceding date onwhich such a sale price was quoted; or (ii) if the stock is not then listed onan exchange or the Nasdaq National Market, the average of the closing bid andasked prices per share for the stock in the over-the-counter market on suchdate (in the case of (i) or (ii), subject to adjustment as and if necessary andappropriate to set an exercise price not less than 100% of the fair marketvalue of the stock on the date an Award is granted); or (iii) if the stock isnot then listed on an exchange or quoted in the over-the-counter market, anamount determined in good faith by the Administrator, provided, however, that(A) when appropriate, the Administrator in determining Fair Market Value ofcapital stock of the Company may take into account such other factors as it maydeem appropriate under the circumstances, and (B) if the stock is traded on theNasdaq SmallCap Market and both sales prices and bid and asked prices arequoted or available, the Administrator may elect to determine Fair Market Valueunder either clause (i) or (ii) above.

 

Notwithstandingthe foregoing, the Fair Market Value of capital stock for purposes of grants ofIncentive Stock Options must be determined in compliance with applicableprovisions of the IRC. The Fair Market Value of rights or property other thancapital stock of the Company means the fair market value thereof as determinedby the Administrator on the basis of such factors as it may deem appropriate.

 

“IncentiveStock Option” means a Stock Option that qualifies as an incentive stock optionunder Section 422 of the IRC.

 

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“InitialOption” means a right to purchase stock of the Company granted under Section7.1 of the Plan.

 

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

 

“JustCause Dismissal” means a termination of a Recipient’s employment for any of thefollowing reasons: (i) the Recipient violates any reasonable rule or regulationof the Board, the Company’s President or Chief Executive Officer or theRecipient’s superiors that results in damage to the Company or any AffiliatedEntity or which, after written notice to do so, the Recipient fails to correctwithin a reasonable time not exceeding 15 days; (ii) any willful misconduct orgross negligence by the Recipient in the responsibilities assigned to theRecipient; (iii) any willful failure to perform the Recipient’s job as requiredto meet the objectives of the Company or any Affiliated Entity; (iv) anywrongful conduct of a Recipient which has an adverse impact on the Company orany Affiliated Entity or which constitutes a misappropriation of assets of theCompany or any Affiliated Entity; (v) the Recipient does any of the thingsdescribed in Section 5.15; or (vi) any other conduct that the Administratorreasonably determines constitutes Just Cause for Dismissal; provided, however,that if a Recipient is party to an employment agreement with the Company or anyAffiliated Entity providing for just cause dismissal (or some comparableconcept) of Recipient from Recipient’s employment with the Company or anyAffiliated Entity, “Just Cause Dismissal” for purposes of this Plan will havethe same meaning as ascribed thereto or to such comparable concept in suchemployment agreement.

 

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

 

“Non-EmployeeDirector Option” means an Initial Option or an Additional Option grantedpursuant to Article VII of this Plan.

 

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

 

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

 

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

 

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

 

“Performance-BasedCompensation” means performance-based compensation as described in Section162(m) of the IRC. If the amount of compensation an Eligible Person willreceive under any Award is not based solely on an increase in the value ofCommon Stock after the date of grant or award, the Administrator, in order toqualify an Award as performance-based compensation under Section 162(m) of theIRC, can condition the grant, award, vesting, or exercisability of such anAward on the attainment

 

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

 

“PermanentDisability” means that the Recipient becomes physically or mentallyincapacitated or disabled so that the Recipient is unable to perform substantiallythe same services as the Recipient performed prior to incurring such incapacityor disability (the Company, at its option and expense, being entitled to retaina physician to confirm the existence of such incapacity or disability, and thedetermination of such physician to be binding upon the Company and theRecipient), and such incapacity or disability continues for a period of threeconsecutive 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 IncentiveStock Option may be exercised pursuant to Section 6.1(e), Permanent Disabilityshall mean “permanent and total disability” as defined in Section 22(e) of theIRC.

 

“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 theCompany and (iii) an underwriter or underwriting syndicate that has acquiredthe Company’s securities solely in connection with a public offering thereof.

 

“PhantomStock” means an Award granted under Section 6.9.

 

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

 

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

 

“PurchasePrice” means the purchase price (if any) to be paid by a Recipient forRestricted Stock as determined by the Administrator (which price shall be atleast equal to the minimum price required under applicable laws and regulationsfor the issuance of Common Stock which is nontransferable and subject to asubstantial 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.

 

“RestrictedStock” means Common Stock that is the subject of an Award made under Section6.3 and that is nontransferable and subject to a substantial risk of forfeitureuntil specific conditions are met, as set forth in this Plan and in anystatement evidencing the grant of such Award.

 

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

 

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

 

“SignificantStockholder” is an individual who, at the time a Stock Option is granted tosuch individual under this Plan, owns more than ten percent (10%) of thecombined voting power of all classes of stock of the Company or of any ParentCorporation or Subsidiary Corporation (after application of the attributionrules set forth in Section 424(d) of the IRC).

 

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

 

“StockBonus” means an issuance or delivery of unrestricted or restricted shares ofCommon Stock under Section 6.7 as a bonus for services rendered or for anyother valid consideration under applicable law.

 

“StockPayment” means a payment in shares of the Company’s Common Stock under Section6.5 to replace all or any portion of the compensation or other payment (otherthan base salary) that would otherwise become payable to the Recipient in cash.

 

“StockOption” means a right to purchase stock of the Company granted under Section6.1 or Article VII of this Plan.

 

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

 

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

 

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