**EXHIBIT 10.35**

 

**STOCK OPTION PLAN AND AGREEMENT**

**WITH ROGER M. LAVERTY**

 

This StockOption Plan and Agreement (this “Agreement”), is made effective as of April 24,2003 (the “Effective Date”), by and between Diedrich Coffee, Inc., a Delawarecorporation (the “Company”) andRoger M. Laverty (“Grantee”).

 

**RECITALS**

 

WHEREAS, the Company has agreed to employ Grantee underterms and conditions set forth in that certain employment agreement dated ofeven date herewith (the “EmploymentAgreement”), by and between the Company and Grantee.

 

WHEREAS, for the purpose of encouraging and rewardingGrantee’s contributions to the performance of the Company and aligningGrantee’s interests with the interests of the Company’s stockholders, and asinducement material to Grantee entering into the Employment Agreement with theCompany, the Company, in the Employment Agreement, has agreed to grant toGrantee options to purchase 200,000 shares of Company common stock, $0.01 parvalue per share (the “Common Stock”),as of the Effective Date.

 

**AGREEMENT**

 

NOW,THEREFORE, to evidence the grant of options by the Company and to set forth theterms and conditions of the grant of options, the Company and Grantee herebyagree as follows:

 

1.                                       Grant of Options. The Company hereby grants to Grantee, effective as of the EffectiveDate, non-qualified options to purchase up to 200,000 shares of Common Stock onthe terms and subject to the conditions set forth herein (the “Options”).

 

2.                                       Exercisability and Exercise Price. The Options will become exercisable as follows:

 

(a)                                  TheCompany shall seek approval of the terms of this Agreement and the grant of theOptions hereunder from the stockholders of the Company at the next annualmeeting of stockholders. Notwithstanding any provision contained in this Agreement or theEmployment Agreement to the contrary, none of the Options granted hereunderwill become exercisable until stockholders of the Company approve the terms ofthis Agreement and the grant of the Options hereunder.

 

(b)                                 TheOptions will become exercisable in four equal installments on each of the firstfour anniversary dates of the Effective Date at an option exercise price equalto $3.44 per share of Common Stock.

 

(c)                                  Notwithstandingthe foregoing, the Options will fully vest and become immediately exercisableif Grantee is terminated by the Company other than for Cause (as such term isdefined in the Employment Agreement) within (i) sixty (60) days prior to aChange in

 

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Control (as such term isdefined in the Employment Agreement) or (ii) twelve (12) months following aChange in Control;*provided, however,*thatall such Options will terminate and become unexercisable on the earlier of theExpiration Date or the first (1st) anniversary of the date of the Change ofControl.

 

3.                                       Terminationof Options.

 

(a)                                  Unlessan earlier termination date occurs as specified in this Section 3,the Options will expire and become unexercisable (whether or not thenexercisable) on the tenth (10th) anniversary of the Effective Date (the “Expiration Date”).

 

(b)                                 IfGrantee’s employment with the Company is terminated by the Company for Cause(as such term is defined in the Employment Agreement) prior to the ExpirationDate or by the Grantee for any reason other than a Constructive Termination (assuch term is defined in the Employment Agreement) prior to the ExpirationDate:  (i) all Options that havenot otherwise become exercisable as of the date of the termination of Grantee’semployment will immediately terminate and become unexercisable; and(ii) all Options that have become exercisable will terminate and becomeunexercisable on and after the date sixty (60) days following the date of thetermination of Grantee’s employment.

 

(c)                                  Subjectto Section 2(c) above, if Grantee’s employment with the Company isterminated for any reason other than as set forth in Section 3(b) hereof(including if due to death or disability (as such term is defined in theEmployment Agreement)):  (i) all Optionsthat have not otherwise become exercisable as of the date of the termination ofGrantee’s employment will continue to become exercisable pursuant to Section2;*provided, however,*thatsuch Options will terminate and become unexercisable on the earlier of theExpiration Date or the first (1st) anniversary of the date of the terminationof Grantee’s employment; and (ii) all Options that have become exercisable asof the date of the termination of Grantee’s employment will terminate andbecome unexercisable on the earlier of the Expiration Date or the first (1st)anniversary of the date of the termination of Grantee’s employment.

 

4.                                       Registration of Options.  Promptlyafter the stockholders of the Company approve this Agreement, the Company, atits expense, shall file a registration statement on Form S-8 to register theshares of Common Stock subject to the Options.

 

5.                                       Restrictions on Exercise.  Notwithstandinganything to the contrary in this Agreement, the Options may not be exercised,and no shares of Common Stock issuable upon exercise (the “Exercise Shares”)shall be issued:  (a) unless allrequisite approvals and consents of any governmental authority of any kindhaving jurisdiction over the exercise of options shall have been secured and(b) unless all applicable federal, state and local tax withholdingrequirements shall have been satisfied. The Company shall use commercially reasonable efforts to obtain theconsents and approvals referred to in this Section 5(a) so as topermit the Options to be exercised.

 

6.                                       Non-Transferability of Options.  Noneof the Options are assignable or transferable, in whole or in part, and maynot, directly or indirectly, be offered, transferred, sold, pledged, assigned,alienated, hypothecated or otherwise disposed of or encumbered (including

 

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without limitation by gift,operation of law or otherwise) other than by will or by the laws of descent anddistribution to the estate of Grantee upon his death, *provided**that*the deceased Grantee’s beneficiary or the representative of his estate acknowledgeand agree in writing, in a form reasonably acceptable to the CompensationCommittee of the Company’s Board of Directors (the “Compensation Committee”) tobe bound by this Agreement as if such beneficiary or the estate were Grantee.

 

7.                                       Withholding.  Whenever shares ofCommon Stock are to be issued pursuant to the exercise of Options, theCompensation Committee may require the recipient of the shares of Common Stockto remit to the Company an amount sufficient to satisfy any applicable federal,state and local tax withholding requirements. Upon request by Grantee, the Company may also withhold shares of CommonStock to satisfy applicable withholding requirements, subject to any rulesadopted by the Compensation Committee regarding compliance with applicable law,including, but not limited to, Section 16(b) of the Securities Exchange Act of1934, as amended (the “Exchange Act”).

 

8.                                       Mannerof Exercise.

 

(a)                                  Tothe extent that the Options have become and remain exercisable as provided in Sections2 and 3, and subject to such reasonable administrative regulations as theCompensation Committee may adopt, the Options may be exercised, by writtennotice to the Compensation Committee, specifying the number of Exercise Sharesand the date on which the Grantee intends to exercise the Options (the“Exercise Date”).  On or before theExercise Date, Grantee shall deliver to the Company full payment for theOptions being exercised in cash, or cash equivalent satisfactory to the CompensationCommittee, and in an amount equal to the aggregate purchase price for theExercise Shares.

 

(b)                                 Subjectto the discretion of the Compensation Committee, Grantee may, in lieu of cash,either:  (i) deliver shares ofCommon Stock having an Exercise Date Value (defined as the product of: (x) thenumber of shares of Common Stock delivered to the Company multiplied by (y) theclosing price on the Nasdaq National Market (or any subsequent exchange ormarket system upon which the Company’s Common Stock is principally traded) ofthe Common Stock on the Exercise Date) equal to the purchase price of theExercise Shares; or (ii) deliver a combination of cash and shares ofCommon Stock with an aggregate value and Exercise Date Value equal to thepurchase price of the Exercise Shares, subject to such rules and regulations asmay be adopted by the Compensation Committee to provide for the compliance ofsuch payment procedure with applicable law, including Section 16(b) of theExchange Act.

 

(c)                                  TheCompensation Committee may require Grantee to furnish or execute such otherdocuments as the Compensation Committee reasonably deems necessary:  (i) to evidence such exercise and(ii) to comply with or satisfy the requirements of the Securities Act of1933, as amended, applicable state securities laws or any other law.

 

9.                                       No Rights as Stockholder. Grantee will have no voting or other rights as a stockholder of theCompany with respect to any shares of Common Stock covered by the Options untilthe exercise of such Options and the issuance of a certificate or certificatesto him

 

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for such shares of CommonStock.  No adjustment will be made fordividends or other rights for which the record date is prior to the issuance ofsuch certificate or certificates.

 

10.                                 Capital Adjustments. The number and any applicable option price of the shares of Common Stockcovered by the Options will be proportionately and appropriately adjusted bythe Compensation Committee to reflect any stock dividend, stock split or sharecombination of the Common Stock or any recapitalization of the Company.  Subject to any required action by thestockholders of the Company, in any merger, consolidation, reorganization,exchange of shares, liquidation or dissolution, the Options will pertain to thesecurities and other property, if any, that a holder of the number of shares ofCommon Stock covered by the Options would have been entitled to receive inconnection with such event.

 

11.                                 General Provisions. This Agreement shall be governed by Section 9 of the EmploymentAgreement with the same force and effect as though Section were set forth inits entirety herein.

 

IN WITNESSWHEREOF, the Company and Grantee have executed this Agreement as of the datefirst above written.

 
|   | **DIEDRICH COFFEE, INC.:**         |
|--------|------------------------------------|
|   |                               |
|   |                               |
|   | /s/ Paul C. Heeschen               |   |
|   | Paul C. Heeschen                   |
|   | Chairman of the Board of Directors |
|   |                               |
|   |                               |
|   | **GRANTEE:**                       |
|   |                               |
|   |                               |
|   | /s/ Roger M. Laverty               |   |
|   | Roger M. Laverty                   |

 

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