Document:

EXHIBIT 10.34

 

DIEDRICH COFFEE, INC.

CHIEF EXECUTIVE OFFICER

EMPLOYMENT AGREEMENT

 

This Chief
Executive Officer Employment Agreement (“Agreement”) is entered into as of the
24th day of April, 2003 by and between Roger M. Laverty (“Executive”) and
Diedrich Coffee, Inc., a Delaware corporation (the “Company”).

 

WHEREAS, the
Company desires to employ Executive to provide personal services to the
Company, and wishes to provide Executive with certain compensation and benefits
in return for his services; and

 

WHEREAS,
Executive wishes to be employed by the Company and provide personal services to
the Company in return for certain compensation and benefits;

 

NOW,
THEREFORE, in consideration of the mutual promises and covenants contained
herein, it is hereby agreed by and between the parties hereto as follows:

 

1.                                      Employment by the Company.

 

1.1                                 Title
and Responsibilities.  Subject to
terms set forth herein, the Company agrees to employ Executive in the position
of president and chief executive officer and Executive hereby accepts
employment effective as of April 29, 2003 (the “Effective Date”). During his
employment with the Company, Executive will devote his best efforts and
substantially all of his business time and attention (except for vacation
periods as set forth herein and reasonable periods of illness or other
incapacity permitted by the Company’s general employment policies) to the
business of the Company.

 

1.2                                 Executive
Position.  Executive will continue
to serve in an executive capacity and shall perform such duties as are
customarily associated with his title, consistent with the Bylaws of the
Company and as reasonably required by the Company’s Board of Directors (the
“Board”).

 

1.3                                 Company
Employment Policies.  The employment
relationship between the parties shall also be governed by the general
employment policies and practices of the Company, including those relating to
protection of confidential information and assignment of inventions, except
that if the terms of this Agreement differ from or are in conflict with the
Company’s general employment policies or practices, this Agreement shall
control.

 

1.4                                 Board
of Directors.  On the Effective
Date, Executive shall be appointed as a member of the Company’s Board of
Directors to serve until the next annual meeting of stockholders.  Thereafter, he will stand for election with
the other directors at the annual meeting of stockholders.

 

2.                                      Compensation.

 

2.1                                 Salary.  Executive shall receive for services to be
rendered hereunder an annualized base salary of Three Hundred Thousand Dollars
($300,000.00), payable on a

 

 

biweekly basis in accordance
with the normal payroll practices of the Company (including deductions,
withholdings and collections as required by law).  Executive will be considered for annual increases in base salary
in accordance with Company policy and subject to review and approval by the
Compensation Committee of the Board (the “Compensation Committee”).

 

2.2                                 Bonus.  Executive shall be eligible to participate
in the Company’s executive level bonus plan throughout the duration of
Executive’s employment with the Company.

 

(a)                                  Executive’s Performance.  The amount of Executive’s bonus will depend
upon Executive’s performance with respect to certain measurable goals to be
established in an executive bonus plan for each fiscal year to be developed by
the Chief Executive Officer and other officers of the Company within sixty (60)
days after the beginning of such fiscal year and then approved by the
Compensation Committee no later than ninety (90) days after the beginning of
such fiscal year.

 

(b)                                 Company Profitability.  The amount of Executive’s bonus will also
depend on attainment by the Company of its planned financial objectives for the
bonus year.

 

(c)                                  Determination of Bonus.  The amount of Executive’s bonus will be
determined after the close of the Company’s fiscal year and after the Company
has received its audited financial statement for such fiscal year.  To be eligible to receive a bonus, Executive
must remain in employment with the Company throughout the entire fiscal year.

 

(d)                                 No Guaranteed Bonus.  Notwithstanding the foregoing, no bonus is
guaranteed to Executive.  Any bonus is
subject to the approval of the Board, which retains the authority to review,
grant, deny or revise any bonus in its sole discretion.

 

(e)                                  Target Bonus.  The target bonus for Executive shall be fifty percent (50%) of
his base salary.  At Executive’s
election, any bonus payable to Executive may be paid in whole or in part through
a grant of shares of the Company’s common stock.

 

(f)                                    Withholding.  Any cash bonus paid to Executive shall be subject to such
withholdings as may be required by law.

 

2.3                                 Stock
Options.  The Company will grant
Executive options to purchase 200,000 shares of common stock of the Company
pursuant to the terms and subject to the conditions set forth in the Stock
Option Plan and Agreement with Roger M. Laverty (the “Laverty Option Plan”) to
be entered into concurrently herewith. 
These options will vest 25% annually on each anniversary of the
Effective Date until all options have been vested.  This option grant will be subject to stockholder approval, which
will be sought at the annual meeting to be held before the end of this calendar
year.

 

2.4                                 Automobile
Allowance.  Executive will be
entitled to an automobile allowance equal to Twelve Hundred Fifty Dollars
($1250) per month, paid on a biweekly basis, in reimbursement of all expenses
associated with the operation, maintenance and use of a vehicle for business
purposes.

 

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2.5                                 Standard
Company Benefits and Vacation. 
Executive shall be entitled to those benefits provided to the Company’s
executives generally and for which he is eligible pursuant to the terms and
conditions of the relevant plans. 
Executive shall be entitled to four (4) weeks of paid vacation per year.

 

2.6                                 Business
Expenses.  The Company shall
promptly reimburse Executive for all reasonable and necessary business expenses
incurred by Executive in connection with the business of the Company and the
performance of his duties under this Agreement, subject to Executive providing
the company with reasonable documentation thereof.

 

2.7                                 Excise
Tax.  If any payments or transfers
of property to be made to Executive hereunder are subject, in whole or in part,
to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986
(“the Excise Tax”) and application of Section 280G of such Code, can be avoided
by an appropriate stockholder vote, pursuant to Section 280G(b)(5)(A) of the
Code, the Company and Executive agree that, if requested by Executive at least
15 days prior to the date that proxy materials are first submitted to the
Securities and Exchange Commission or mailed to stockholders, the Company will
(i) include in any such proxy materials information appropriate to submit the
benefits provided to Executive under this Agreement to stockholder vote and
(ii) recommend approval of any such proposal.

 

3.                                      Confidential Information, Rights and Duties.

 

3.1                                 Agreement.

 

(a)                                  Confidential Information.

 

(i)                                     Executive
specifically agrees that he shall not at any time, either during or subsequent
to the term of his employment with the Company, in any fashion, form or manner,
either directly or indirectly, unless expressly consented to in writing by the
Company, use, divulge, disclose or communicate to any person or entity any
confidential information of any kind, nature or description concerning any
matters affecting or relating to the business of the Company, including, but
not limited to: the Company’s sales and marketing methods, programs and related
data, or other written records used in the Company’s business; the Company’s
computer processes, programs and codes; the names, addresses, buying habits or
practices of any of its clients or customers; compensation paid to other
employees and independent contractors and other terms of this employment or
contractual relationships; or any other confidential information of, about or
concerning the business of the Company, its manner of operations, or other data
of any kind, nature or description.  The
parties to this Agreement hereby stipulate that, as between them, the above
information and items are important, material and confidential trade secrets
that affect the successful conduct of the Company’s business and its good will,
and that any breach of any term of this section is a material breach of this
Agreement.  All equipment, notebooks,
documents, memoranda, reports, files, samples, books, correspondence, lists or
other written and graphic records, and the like, including tangible or
intangible computer programs, records and data, affecting or relating to the
business of the Company, which the Executive might prepare, use, construct,
observe, posses or control, shall be and shall remain the Company’s sole
property.

 

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(ii)                                  For
purposes of this Agreement, the term “confidential information” shall not
include any information that:  (A) has
been made public by the Company (other than by acts of Executive in violation
of this Agreement or other obligation of confidentiality); (B) is developed by
Executive independently of any information the Executive learns in the course
of fulfilling his duties hereunder; or (C) Executive is legally compelled to
disclose; provided that (1) Executive is advised by written opinion of the
Executive’s counsel, who shall be reasonably satisfactory to the Company, that
he is legally required to disclose such information and (2) Executive notifies
the Company of such proposed disclosure in as far in advance of its disclosure
as is practicable and uses his best efforts to obtain assurances that
confidential treatment will be accorded to such information.

 

(b)                                 Non-Interference.  Any wrongful interference with the Company’s
business, property, confidential information, trade secrets, clients,
customers, employees or independent contractors by the Executive or any of
Executive’s agents during or after the term of Executive’s employment shall be
treated and acknowledged by the parties as a material breach of this
Agreement.  If such interference occurs
at a time that Executive is employed by the Company, such interference shall be
grounds for the Company to terminate Executive for Cause.

 

3.2                                 Remedies.  Executive’s duties under this Section 3
shall survive termination of Executive’s employment with the Company.  Executive acknowledges that a remedy at law
for any breach or threatened breach by Executive of the provisions of this
Section 3 would be inadequate, and Executive therefore agrees that the Company
shall be entitled to injunctive relief in case of any such breach or threatened
breach.

 

4.                                      Outside Activities.

 

4.1                                 Activities.  Except with the prior written consent of the
Board, Executive will not during his employment with the Company undertake or
engage in any other employment, occupation or business enterprise, other than
ones in which Executive is a passive investor. 
Executive may engage in civic and not-for-profit activities so long as
such activities do not materially interfere with the performance of his duties
hereunder.  It is acknowledged by
Company and Executive that Executive is currently a member of three non-profit
and one for-profit (First Coastal Bancshares) outside Boards of Directors which
the Executive has represented do not and will not materially interfere with the
performance of his duties hereunder and that such positions will continue and
are deemed approved by the Company.

 

4.2                                 Investments
and Interests.  Executive agrees not
to acquire, assume or participate in, directly or indirectly, any material
position, investment or interest known by him to be adverse or antagonistic to
the Company, its business or prospects, financial or otherwise.

 

4.3                                 Non-Competition.  During his employment by the Company, except
on behalf of the Company, Executive will not directly or indirectly, whether as
an officer, director, stockholder, partner, proprietor, associate,
representative, consultant, or in any capacity whatsoever engage in, become
financially interested in, be employed by or have any business connection with
any other person, corporation, firm, partnership or other entity whatsoever
which were known by him to compete directly with the Company, throughout the
world, in any line of business engaged in (or planned to be engaged in) by the
Company.

 

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5.                                      Termination Of Employment.

 

5.1                                 Termination
With or Without Cause.

 

(a)                                  At-Will Employment.  Executive’s relationship with the Company is
at-will.  The Company shall have the
right to terminate Executive’s employment with the Company at any time with or
without Cause and with or without notice.

 

(b)                                 Definition of Cause.  For purposes of this Agreement and the
Laverty Option Plan, “Cause” is defined as the occurrence of one or more of the
following:  (i) Executive is convicted
of or pleads guilty or nolo contendere to a felony or any crime involving moral
turpitude, (ii) Executive breaches this Agreement or any Agreement entered into
with the Company in a manner that materially and adversely affects the Company,
(iii) willful misconduct which materially and adversely impacts the Company, or
(iv) Executive fails, after receipt of written notice and after receiving a
period of at least fifteen (15) days following such notice, to follow the
direction of the Board of Directors and perform his obligations hereunder.

 

(c)                                  Termination for Cause. If Executive is
terminated with Cause, the Company shall pay Executive the compensation and
benefits otherwise payable to Executive under Section 2.1 through the date of
termination.  Executive’s rights under
the Company’s benefit plans of general application shall be determined under
the provisions of those plans.  All other
compensation from and after such termination shall cease (except for those benefits
that must be continued pursuant to applicable law or by the terms of such
benefit plans), and Executive shall not be entitled to any severance pay or
other payment or compensation whatsoever upon such termination.

 

5.2                                 Voluntary
Termination; Death or Disability.

 

(a)                                  Voluntary Termination.  Executive may voluntarily terminate his
employment with the Company at any time, after which no further compensation
will be paid to Executive, except as specifically set forth herein.

 

(b)                                 Death or Disability.  The Executive’s employment under this
Agreement shall terminate immediately and without notice by the Company upon
the death or disability of the Executive. 
In the event of Executive’s termination due death or disability, he will
not be entitled to severance pay, pay in lieu of notice or any other such
compensation.  For purposes of this
Agreement and the Laverty Option Plan, the Executive will be deemed to have a
disability if he becomes physically or mentally incapacitated or disabled or
otherwise unable to fully discharge his duties hereunder for a period of 60
consecutive calendar days or for 120 days in any 360-day period.

 

(c)                                  No Severance Pay.  In the event of Executive’s death or
disability or if Executive voluntarily terminates his employment other than due
to a Constructive Termination, he will not be entitled to severance pay, pay in
lieu of notice or any other such compensation.

 

(d)                                 Definition of Constructive Termination.  For purposes of this Agreement and the
Laverty Option Plan, “Constructive Termination” shall mean any one of the

 

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following events which occurs
on or after the Effective Date of this Agreement: (i) reduction of the
Executive’s annual base salary; (ii) a material reduction in Executive’s duties
or a reduction in Executive’s title; (iii) a relocation of Executive’s office
to a location outside of Los Angeles County or Orange County, California;  (iv) any material breach by the Company of
its obligations under this Agreement; or (v) any failure by the Company to
obtain the assumption of this Agreement by any successor or assign of the
Company.

 

5.3                                 Severance
Benefits.

 

(a)                                  Severance Payment.  In the event the Company terminates
Executive’s employment without Cause or if Executive terminates his employment
due to a Constructive Termination, and provided that Executive timely executes
a release as described in Section 8 hereof, Executive shall be entitled to a
severance payment equal to:  (i) 25% of
Executive’s then existing base salary (exclusive of bonus or any other
benefits) if such termination occurs prior to the date that is 180 days after
the Effective Date; (ii) 50% of Executive’s then existing base salary
(exclusive of bonus or any other benefits) if such termination occurs after the
date that is 180 days after the Effective Date and prior to the first
anniversary of the Effective Date; or (iii) 100% of Executive’s then existing
base salary (exclusive of bonus or any other benefits) if such termination
occurs after the first anniversary of the Effective Date.

 

(b)                                 Stock Options.  In the event the Company terminates Executive’s employment
without Cause or if Executive terminates his employment due to a Constructive
Termination, Executive’s outstanding stock options shall be treated as provided
in the documents governing such stock option grants.

 

(c)                                  Healthcare Coverage.  If Executive has been employed by the
Company for more than one year, he may elect to continue his medical coverage
under COBRA.  Assuming Employee
exercises his right to continued medical benefits in accordance with COBRA, the
Company will pay the premiums for Executive’s COBRA coverage as they become due
(including the premiums for any dependent coverage he elects), until the
earlier of:  (i) the date Executive accepts
full time employment and/or becomes covered under another plan; (ii) the date
he is otherwise no longer eligible for COBRA coverage; or (iii) twelve (12)
months after the effective date of separation. 
This Section 5.3(c) shall not apply if Executive’s employment is
terminated due to death or disability.

 

5.4                                 Cessation.  If Executive violates any provision of
Sections 3, 7 or 8 of this Agreement, any severance payments or other benefits
being provided to Executive will cease immediately, and Executive will not be
entitled to any further compensation from the Company.

 

6.                                      Change Of Control.

 

6.1                                 Definition
of Change of Control.  For purposes
of this Agreement and the Laverty Option Plan, Change of Control means the
occurrence of any of the following: (i) a sale of all or substantially all of
the assets of the Company to any other person or entity (other than an
affiliate of the Company); (ii) a merger or consolidation involving the Company
in which the Company is not the surviving corporation and the stockholders of
the Company immediately prior to the completion of such transaction hold,
directly or indirectly, less than fifty percent

 

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(50%) of the beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), or comparable successor
rules) of the securities of the surviving corporation (excluding any
stockholders who possessed a beneficial ownership interest in the surviving
corporation prior to the completion of such transaction); or (iii) an
acquisition by any person, entity or group within the meaning of Section 13(d)
or 14(d) of the Exchange Act or any comparable successor provisions (excluding
any Affiliate of the Company or any employee benefit plan, or related trust,
sponsored or maintained by the Company) of the beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act, or comparable
successor rules) of securities of the Company representing at least fifty
percent (50%) of the combined voting power entitled to vote in the election of
directors.

 

6.2                                 Change
of Control Termination. 
Notwithstanding Section 5.3(a) to the contrary, in the event Executive’s
employment with the Company terminates other than (a) for Cause or (b) due to
death, disability or voluntary termination by the Executive, and such
termination occurs sixty (60) days prior to or twelve (12) months after such
Change of Control (a “Change of Control Termination”), then Executive shall be
eligible to receive, upon timely execution of a release as described in Section
8 hereof, (i) a severance payment in cash equal to 100% of Executive’s then
existing base salary (exclusive of bonus or any other benefits) and (ii) the
benefits set forth in the Laverty Option Plan.

 

7.                                      Noninterference.

 

While employed by the Company, and for two (2) years immediately
following the termination date of Executive’s employment, Executive agrees not
to interfere with the business of the Company.

 

7.1                                 Employees.  Executive shall not solicit, attempt to
solicit, induce, or otherwise cause any employee of the Company to terminate
his or her employment in order to become an employee, consultant or independent
contractor to or for any competitor of the Company.

 

7.2                                 Customers.  Executive shall not directly or indirectly
solicit (for a business competitive with the Company) the business of any
customer of the Company which at the time of termination or one (1) year
immediately prior thereto was listed on the Company’s customer list.

 

8.                                      Release.

 

In exchange for the benefits and other consideration under this
Agreement to which Executive would not otherwise be entitled, Executive shall
enter into and execute a release substantially in the form attached hereto as
Exhibit A (the “Release”) upon his termination of employment.  Unless the Release is executed by Executive
and delivered to the Company within twenty-one (21) days after the termination
of Executive’s employment with the Company, Executive shall not receive any
severance benefits provided under this Agreement or under the Laverty Option
Plan.  Additionally, unless the Release
is executed by Executive and delivered to the Company within twenty-one (21)
days after the termination of Executive’s employment with

 

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the Company (and such release is not revoked), any acceleration of
Executive’s options as provided in the Laverty Option Plan shall not be
effective.

 

9.                                      General Provisions.

 

9.1                                 Notices.  Any notices provided hereunder or in the
Laverty Option Plan must be in writing and shall be deemed effective upon the
earlier of personal delivery (including personal delivery by facsimile
transmission) or the third day after mailing by first class mail, to the Company
at its primary office location and to Executive at his address as listed on the
Company payroll.

 

9.2                                 Severability.  Whenever possible, each provision of this
Agreement or the Laverty Option Plan will be interpreted in such manner as to
be effective and valid under applicable law, but if any provision of this
Agreement or the Laverty Option Plan is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement or the
Laverty Option Plan, as the case may be, will be reformed, construed and
enforced in such jurisdiction as if such invalid, illegal or unenforceable
provisions had never been contained herein or therein.

 

9.3                                 Waiver.  If either party should waive any breach of
any provisions of this Agreement or the Laverty Option Plan, he or it shall not
thereby be deemed to have waived any preceding or succeeding breach of the same
or any other provision of this Agreement or the Laverty Option Plan.

 

9.4                                 Complete
Agreement.  This Agreement, together
with the Laverty Option Plan, constitutes the entire agreement between
Executive and the Company and it is the complete, final, and exclusive
embodiment of their agreement and supersedes any prior agreement written or
otherwise between Executive and the Company with regard to this subject
matter.  It is entered into without
reliance on any promise or representation other than those expressly contained
herein or therein, and it cannot be modified or amended except in a writing
signed by an officer of the Company.

 

9.5                                 Counterparts.  This Agreement and the Laverty Option Plan
may be executed in separate counterparts, any one of which need not contain
signatures of more than one party, but all of which taken together will
constitute one and the same agreement or plan.

 

9.6                                 Headings.  The headings of the sections hereof and of
the Laverty Option Plan are inserted for convenience only and shall not be
deemed to constitute a part hereof or thereof nor to affect the meaning
thereof.

 

9.7                                 Successors
and Assigns.  This Agreement and the
Laverty Option Plan are intended to bind and inure to the benefit of and be
enforceable by Executive and the Company and their respective successors,
assigns, heirs, executors and administrators, except that Executive may not
assign any of his duties hereunder or thereunder and he may not assign any of
his rights hereunder or thereunder without the written consent of the Company.

 

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9.8                                 Attorney
Fees.  If either party hereto brings
any action to enforce his or its rights hereunder or under the Laverty Option
Plan, the prevailing party in any such action shall be entitled to recover his
or its reasonable attorneys’ fees and costs incurred in connection with such
action.

 

9.9                                 Arbitration.  To provide a mechanism for rapid and
economical dispute resolution, Executive and the Company agree that any and all
disputes, claims, or causes of action, in law or equity, arising from or
relating to this Agreement (including the Release) and the Laverty Option Plan
or their respective enforcement, performance, breach, or interpretation, will
be resolved, to the fullest extent permitted by law, by final, binding, and
confidential arbitration before a single arbitrator held in Irvine, California
and conducted by Judicial Arbitration & Mediation Services/Endispute
(“JAMS”), under its then-existing Rules and Procedures.  The parties shall be entitled to conduct
adequate discovery, and they may obtain all remedies available to the parties
as if the matter had been tried in court. 
The arbitrator shall issue a written decision which specifies the findings
of fact and conclusions of law on which the arbitrator’s decision is
based.  Judgment upon the award rendered
by the arbitrator may be entered by any court having jurisdiction thereof.  Unless otherwise required by law, the
arbitrator will award reasonable expenses (including reimbursement of the
assigned arbitration costs) to the prevailing party.  Nothing in this Section 9.9 or in this Agreement or the Laverty
Option Plan is intended to prevent either Executive or the Company from
obtaining injunctive relief in court to prevent irreparable harm pending the
conclusion of any such arbitration.

 

9.10                           Governing
Law.  All questions concerning the
construction, validity and interpretation of this Agreement or the Laverty
Option Plan will be governed by the law of the State of California as applied to
contracts made and to be performed entirely within California, excluding the
rules on conflicts of law.

 

IN WITNESS
WHEREOF, the parties have executed this Agreement on the day and year first
above written.

 

 

	
  DIEDRICH COFFEE, INC.

  	
  EXECUTIVE

  	 

	
   

  	
   

  	 

	
   

  	
   

  	 

	
  By:

  	
  /s/ Paul C. Heeschen

  	
   

  	
  By:

  	
  /s/ Roger M. Laverty

  	
   

  	 

	
   

  	
  Paul C. Heeschen

  	
   

  	
  Roger M. Laverty

  
	
   

  	
  Chairman of the Board

  	
   

  	
   

  
							

 

9

 

EXHIBIT A

 

RELEASE AGREEMENT

 

I understand that my position with Diedrich Coffee, Inc. (the “Company”)
terminated effective
                        
(the “Separation Date”).  The Company has
agreed that if I choose to sign this Agreement, the Company will pay me
severance benefits (minus the standard withholdings and deductions) pursuant to
the terms of the Chief Executive Officer Employment Agreement entered into as
of the      day of
                            
between myself and the Company and the Laverty Stock Option Agreement and
Plan.  I understand that I am not
entitled to this severance payment unless I sign this Agreement. I understand
that in addition to this severance, the Company will pay me all of my accrued
salary and vacation, to which I am entitled by law regardless of whether I sign
this release.

 

In consideration for the severance payment I am receiving under this
Agreement, I agree not to use or disclose any of the Company’s proprietary
information without written authorization from the Company, to immediately
return all Company property and documents (including all embodiments of
proprietary information) and all copies thereof in my possession or control,
and to release the Company and its current and former officers, directors,
agents, attorneys, employees, shareholders, and affiliates from any and all
claims, liabilities, demands, causes of action, attorneys’ fees, damages, or
obligations of every kind and nature, whether they are known or unknown,
arising at any time prior to the date I sign this Agreement.  This general release includes, but is not
limited to: all federal and state statutory and common law claims, claims
related to my employment or the termination of my employment or related to
breach of contract, tort, wrongful termination, discrimination, wages or
benefits, or claims for any form of compensation.  This release is not intended to release any claims I have or may
have against any of the released parties for (a) indemnification as a director,
officer, agent or employee under applicable law, charter document or agreement,
(b) severance and other termination benefits specifically provided for in my
employment agreement and the Laverty Option Plan which constitute a part of the
consideration for this release, (c) health or other insurance benefits based on
claims already submitted or which are covered claims properly submitted in the
future, (d) vested rights under pension, retirement or other benefit plans, or
(e) in respect of events, acts or omissions occurring after the date of this
Release Agreement.  In releasing claims unknown
to me at present, I am waiving all rights and benefits under Section 1542 of
the California Civil Code, and any law or legal principle of similar effect in
any jurisdiction:  “A general release
does not extend to claims which the creditor does not know or suspect to exist
in his favor at the time of executing the release, which if known by him must
have materially affected his settlement with the debtor.”

 

I acknowledge that I am knowingly and voluntarily waiving and releasing
any rights I may have under the federal Age Discrimination in Employment Act of
1967, as amended (“ADEA”).  I also
acknowledge that the consideration given for the waiver in the above paragraph
is in addition to anything of value to which I was already entitled.  I have been advised by this writing, as
required by the ADEA that: (a) my waiver and release do not apply to any claims
that may arise after my signing of this Agreement; (b) I should consult with an
attorney prior to executing this release, (c) I have twenty-one (21) days
within which to consider this release

 

10

 

(although I may choose to voluntarily execute this release earlier);
(d) I have seven (7) days following the execution of this release to revoke the
Agreement; and (e) this Agreement will not be effective until the eighth day
after this Agreement has been signed both by me and by the Company (“Effective
Date”).

 

This Agreement constitutes the complete, final and exclusive embodiment
of the entire agreement between the Company and me with regard to the subject
matter hereof.  I am not relying on any
promise or representation by the Company that is not expressly stated
herein.  This Agreement may only be
modified by a writing signed by both me and a duly authorized officer of the
Company.

 

I accept and agree to the terms and conditions stated above:

 

 

	
   

  	
   

  
	
  Roger M. Laverty

  	
   

  	
   

  
			

 

11EXHIBIT 10.35

 

STOCK OPTION PLAN AND AGREEMENT

WITH ROGER M. LAVERTY

 

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

 

RECITALS

 

WHEREAS, the Company has agreed to employ Grantee under
terms and conditions set forth in that certain employment agreement dated of
even date herewith (the “Employment
Agreement”), by and between the Company and Grantee.

 

WHEREAS, for the purpose of encouraging and rewarding
Grantee’s contributions to the performance of the Company and aligning
Grantee’s interests with the interests of the Company’s stockholders, and as
inducement material to Grantee entering into the Employment Agreement with the
Company, the Company, in the Employment Agreement, has agreed to grant to
Grantee options to purchase 200,000 shares of Company common stock, $0.01 par
value 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 the
terms and conditions of the grant of options, the Company and Grantee hereby
agree as follows:

 

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

 

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

 

(a)                                  The
Company shall seek approval of the terms of this Agreement and the grant of the
Options hereunder from the stockholders of the Company at the next annual
meeting of stockholders. 
Notwithstanding any provision contained in this Agreement or the
Employment Agreement to the contrary, none of the Options granted hereunder
will become exercisable until stockholders of the Company approve the terms of
this Agreement and the grant of the Options hereunder.

 

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

 

(c)                                  Notwithstanding
the foregoing, the Options will fully vest and become immediately exercisable
if Grantee is terminated by the Company other than for Cause (as such term is
defined in the Employment Agreement) within (i) sixty (60) days prior to a
Change in

 

 

Control (as such term is
defined in the Employment Agreement) or (ii) twelve (12) months following a
Change in Control; provided, however, that
all such Options will terminate and become unexercisable on the earlier of the
Expiration Date or the first (1st) anniversary of the date of the Change of
Control.

 

3.                                       Termination
of Options.

 

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

 

(b)                                 If
Grantee’s employment with the Company is terminated by the Company for Cause
(as such term is defined in the Employment Agreement) prior to the Expiration
Date or by the Grantee for any reason other than a Constructive Termination (as
such term is defined in the Employment Agreement) prior to the Expiration
Date:  (i) all Options that have
not otherwise become exercisable as of the date of the termination of Grantee’s
employment will immediately terminate and become unexercisable; and
(ii) all Options that have become exercisable will terminate and become
unexercisable on and after the date sixty (60) days following the date of the
termination of Grantee’s employment.

 

(c)                                  Subject
to Section 2(c) above, if Grantee’s employment with the Company is
terminated 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 the
Employment Agreement)):  (i) all Options
that have not otherwise become exercisable as of the date of the termination of
Grantee’s employment will continue to become exercisable pursuant to Section
2; provided, however, that
such Options will terminate and become unexercisable on the earlier of the
Expiration Date or the first (1st) anniversary of the date of the termination
of Grantee’s employment; and (ii) all Options that have become exercisable as
of the date of the termination of Grantee’s employment will terminate and
become 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.  Promptly
after the stockholders of the Company approve this Agreement, the Company, at
its expense, shall file a registration statement on Form S-8 to register the
shares of Common Stock subject to the Options.

 

5.                                       Restrictions on Exercise.  Notwithstanding
anything 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 all
requisite approvals and consents of any governmental authority of any kind
having jurisdiction over the exercise of options shall have been secured and
(b) unless all applicable federal, state and local tax withholding
requirements shall have been satisfied. 
The Company shall use commercially reasonable efforts to obtain the
consents and approvals referred to in this Section 5(a) so as to
permit the Options to be exercised.

 

6.                                       Non-Transferability of Options.  None
of the Options are assignable or transferable, in whole or in part, and may
not, directly or indirectly, be offered, transferred, sold, pledged, assigned,
alienated, hypothecated or otherwise disposed of or encumbered (including

 

2

 

 

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

 

7.                                       Withholding.  Whenever shares of
Common Stock are to be issued pursuant to the exercise of Options, the
Compensation Committee may require the recipient of the shares of Common Stock
to 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 Common
Stock to satisfy applicable withholding requirements, subject to any rules
adopted by the Compensation Committee regarding compliance with applicable law,
including, but not limited to, Section 16(b) of the Securities Exchange Act of
1934, as amended (the “Exchange Act”).

 

8.                                       Manner
of Exercise.

 

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

 

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

 

(c)                                  The
Compensation Committee may require Grantee to furnish or execute such other
documents 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 of
1933, 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 the
Company with respect to any shares of Common Stock covered by the Options until
the exercise of such Options and the issuance of a certificate or certificates
to him

 

3

 

for such shares of Common
Stock.  No adjustment will be made for
dividends or other rights for which the record date is prior to the issuance of
such certificate or certificates.

 

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

 

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

 

IN WITNESS
WHEREOF, the Company and Grantee have executed this Agreement as of the date
first 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

  

 

4

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