Exhibit 10.2


 


 


 


DIEDRICH COFFEE, INC.

2000 EQUITY INCENTIVE PLAN


 


ARTICLE I

PURPOSE OF PLAN


 


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


 


ARTICLE II

EFFECTIVE DATE AND TERM OF PLAN


 


2.1          Term of Plan.


 


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


 


2.2          Effect on Awards.


 


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


 


ARTICLE III

SHARES SUBJECT TO PLAN


 


3.1          Number of Shares.


 


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


 


3.2          Source of Shares.


 


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


 


3.3          Availability of Unused
Shares.


 


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


 

















 


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


 


3.4          Adjustment Provisions.


 


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


 


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


 


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


 


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


 


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


 


3.5          Reservation of Shares.


 


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


 


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ARTICLE IV

ADMINISTRATION OF PLAN


 


4.1          Administrator.


 


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


 


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


 


4.2          Authority of
Administrator.


 


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


 


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


 


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


 


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


 


4.3          No Liability.


 


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


 


4.4          Amendments.


 


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


 


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


 


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


 


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4.5          Other Compensation
Plans.


 


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


 


4.6          Plan Binding on
Successors.


 


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


 


4.7          References to Successor
Statutes, Regulations and Rules.


 


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


 


4.8          Invalid Provisions.


 


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


 


4.9          Governing Law.


 


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


 


4.10        Interpretation.


 


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


 


5

















 


ARTICLE V

GENERAL AWARD PROVISIONS


 


5.1          Participation in Plan.


 


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


 


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


 


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


 


5.2          Award Documents.


 


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


 


5.3          Payment for Awards.


 


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


 


6

















 


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


 


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


 


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


 


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


 


5.4          No Employment Rights.


 


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


 


7

















 


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


 


5.5          Restrictions Under
Applicable Laws and Regulations.


 


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


 


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


 


8

















 


5.6          Additional Conditions.


 


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


 


5.7          No Privileges Re Stock
Ownership or Specific Assets.


 


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


 


5.8          Nonassignability.


 


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


 


5.9          Information to
Recipients.


 


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


 


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


 


9

















 


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


 


5.10        Withholding Taxes.


 


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


 


5.11        Legends on Awards and
Stock Certificates.


 


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


 


5.12        Effect of Termination of
Employment on Awards.


 


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


 


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


 


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


 


10

















 


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


 


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


 


5.13        Lock-Up Agreements.


 


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


 


5.14        Restrictions on Common
Stock and Other Securities.


 


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


 


5.15        Cancellation and Rescission
of Awards.


 


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


 


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


 


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


 


11

















 


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


 


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


 


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


 


5.16        Limits on Awards to
Eligible Persons.


 


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


 


ARTICLE VI

AWARDS


 


6.1          Stock Options.


 


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


 


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


 


12

















 


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


 


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


 


(e)           Termination of
Employment.


 


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


 


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


 


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


 


13

















 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


6.2          Performance Awards.


 


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


 


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


 


14

















 


6.3          Restricted Stock.


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


15

















 


6.4          Stock Appreciation
Rights.


 


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


 


(b)           SARs Related to
Options.


 


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


 


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


 


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


 


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


 


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


 


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


 


16

















 


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


 


6.5          Stock Payments.


 


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


 


6.6          Dividend Equivalents.


 


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


 


6.7          Stock Bonuses.


 


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


 


6.8          Stock Sales.


 


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


 


6.9          Phantom Stock.


 


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


 


6.10        Other Stock-Based
Benefits.


 


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


 


17

















 


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


 


ARTICLE VII

NON-EMPLOYEE DIRECTOR OPTIONS


 


7.1          Initial Grant of Stock
Options.


 


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


 


7.2          Annual Grants of Stock
Options.


 


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


 


7.3          Vesting.


 


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


 


18

















 


7.4          Exercise.


 


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


 


7.5          Term of Options and
Effect of Termination.


 


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


 


7.6          Amendment; Suspension.


 


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


 


ARTICLE VIII

CHANGE IN CONTROL


 


8.1          Provision for Awards
Upon Change in Control.


 


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


 


19

















 


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


 


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


 


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


 


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


 


20

















 


ARTICLE IX

DEFINITIONS


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


21

















 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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