<PAGE> 1
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DIEDRICH COFFEE, INC.
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<PAGE> 2
Diedrich LogoTM
DIEDRICH COFFEE, INC.
2144 MICHELSON DRIVE
IRVINE, CA 92612
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 29, 2000
Dear Diedrich Coffee Stockholder:
On Wednesday, November 29, 2000, Diedrich Coffee, Inc. will hold its annual
meeting of stockholders at the Doubletree Hotel, 90 Pacifica Avenue, Irvine,
California 92618. The meeting will begin at 10:00 a.m. local time. We will serve
our premium coffee.
Only stockholders of record at the close of business on October 16, 2000
can vote at this meeting or any adjournments that may take place. At the meeting
we will:
1. Elect a board of directors to serve until the next annual meeting of
stockholders;
2. Vote on a proposal to approve the Stock Option Plan and Agreement by and
between Diedrich Coffee and the recently appointed President and Chief
Executive Officer, J. Michael Jenkins, to be effective as of September
22, 2000, granting Mr. Jenkins options to purchase up to 500,000 shares
of Diedrich Coffee common stock, $0.01 par value per share;
3. Vote on a proposal to approve Diedrich Coffee's 2000 Equity Incentive
Plan and the reservation of 750,000 shares of our common stock in
connection with the 2000 Equity Incentive Plan; and
4. Ratify the selection of KPMG LLP as our independent auditors for the
current fiscal year ending June 27, 2001.
We will also attend to business properly presented at the meeting and any
adjournments or postponements of the meeting. The foregoing items of business,
including the nominees for directors, are more fully described in the proxy
statement that is attached to and a part of this notice.
The board of directors unanimously recommends that you vote FOR all of the
proposals.
By order of the board of directors
/s/ JOHN E. MARTIN
John E. Martin
Chairman of the Board
Irvine, California
October 26, 2000
YOUR VOTE IS IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING IN PERSON, YOU ARE
REQUESTED TO COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD AS PROMPTLY
AS POSSIBLE IN ORDER TO ENSURE YOUR REPRESENTATION AT THE MEETING. A RETURN
ENVELOPE (POSTAGE PREPAID IF MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT
PURPOSE. IF YOU ATTEND THE ANNUAL MEETING, YOU MAY REVOKE YOUR PROXY AT ANY TIME
BEFORE IT IS VOTED AND VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY
RETURNED YOUR PROXY CARD. PLEASE NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF
RECORD BY A BROKER, BANK OR OTHER NOMINEE AND YOU WISH TO VOTE AT THE MEETING,
YOU MUST OBTAIN FROM THE RECORD HOLDER A PROXY ISSUED IN YOUR NAME.
<PAGE> 3
DIEDRICH COFFEE, INC.
2144 MICHELSON DRIVE
IRVINE, CA 92612
------------------------
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
NOVEMBER 29, 2000
------------------------
INTRODUCTION
This proxy statement is furnished in connection with the solicitation on
behalf of the board of directors of Diedrich Coffee, Inc., a Delaware
corporation, of proxies for use at the annual meeting of stockholders to be held
on November 29, 2000 at 10:00 a.m. local time, or at any adjournment of
postponement of the meeting. At the meeting we will vote on the matters
described in this proxy statement and in the accompanying notice. The annual
meeting will be held at the Doubletree Hotel, 90 Pacifica Avenue, Irvine,
California 92618. Diedrich Coffee intends to mail this proxy statement and
accompanying proxy card on or about October 27, 2000 to all stockholders
entitled to vote at the annual meeting.
INFORMATION REGARDING VOTING AT THE ANNUAL MEETING
PROXIES
Our stockholders should complete and return the accompanying form of proxy
regardless of whether they will attend the annual meeting in person. Our
stockholders may revoke their proxies at any time before they are exercised by:
- giving our Corporate Secretary written notice of revocation;
- by giving our Corporate Secretary a properly executed proxy of a later
date; or
- by attending our annual meeting and voting in person.
Written notices of revocation and other communications with respect to the
revocation of our proxies should be addressed to Diedrich Coffee, Inc., 2144
Michelson Drive, Irvine, California, 92612, Attention: Corporate Secretary. All
shares represented by valid proxies received and not revoked before they are
exercised will be voted in the manner specified in the proxies. If nothing is
specified, the proxies will be voted in favor of each of the proposals. Diedrich
Coffee's board of directors is unaware of any other matters that may be
presented for action at the Diedrich Coffee annual meeting. If other matters do
properly come before the Diedrich Coffee annual meeting, however, it is intended
that shares represented by proxies will be voted in the discretion of the proxy
holders.
SOLICITATION OF PROXIES
We will pay the entire cost of soliciting proxies. In addition to
soliciting the proxies by mail, we will request banks, brokers and other record
holders to send proxies and proxy materials to the beneficial owners of Diedrich
Coffee common stock and secure their voting instructions, if necessary. We will
reimburse such record holders for their reasonable expenses in performing these
tasks. If necessary, we may use several of our regular employees, who will not
be specially compensated, to solicit proxies from stockholders, either
personally or by telephone, letter or other means.
RECORD DATE AND VOTING RIGHTS
Our board of directors has fixed October 16, 2000 as the record date for
determining the Diedrich Coffee stockholders entitled to notice of, and to vote
at, our annual meeting. Therefore, only stockholders of record at the close of
business on the record date will receive notice of, and be able to vote at, the
Diedrich Coffee
<PAGE> 4
annual meeting. At the close of business on the record date, there were
12,645,356 shares of our common stock outstanding held by 641 record holders in
addition to approximately 5,500 holders who do not hold shares in their own
names. A majority of these shares must be present at the our annual meeting,
either in person or by proxy, in order for there to be a quorum at the meeting.
Each share of our outstanding common stock entitles its holder to one vote.
Shares of our common stock with respect to which the holders are present in
person at our annual meeting but not voting, and shares for which we have
received proxies but with respect to which holders of the shares have abstained,
will be counted as present at our annual meeting for purpose of determining
whether or not a quorum exits. Brokers who hold shares in nominee or "street"
name for customers who are the beneficial owners of the shares may not give a
proxy to vote shares held for these customers on the matters to be voted on at
our annual meeting without specific instructions from them. However broker
non-votes will be counted for purposes of determining whether a quorum exists.
The five persons receiving the greatest number of the votes of the shares
of our common stock present in person or represented by proxy at the meeting
will be elected to our board of directors. All other matters submitted to the
stockholders will require the affirmative vote of a majority of our outstanding
shares of common stock present in person or represented by proxy at the meeting
for approval pursuant to Delaware law and our certificate of incorporation.
Abstentions and broker non-votes will have the same effect as votes against
approval of the proposals. Therefore, our board of directors urges you to
complete, date and sign the accompanying proxy and return it promptly in the
enclosed, postage-paid envelope.
PROPOSAL 1
ELECTION OF DIRECTORS
Our directors are elected once a year at our annual meeting of
stockholders. Our bylaws provide that our board of directors shall consist of
between three and seven directors with the precise number to be determined by
resolution of our board of directors. Effective as of the date of the annual
meeting, the authorized number of members of our board of directors will be five
persons. If a quorum is present at our annual meeting, the five nominees
receiving the greatest number of votes will be elected. The five directors will
serve until the next annual meeting of stockholders and until their respective
successors are elected and qualified.
In connection with the acquisition of Coffee People, Inc. in July 1999,
Diedrich Coffee and certain of its affiliates entered into a voting agreement
with The Second Cup Ltd. pursuant to which they agreed to nominate and vote for
a director nominee identified by Second Cup in any subsequent stockholder
meeting where directors were to be elected. On October 6, 2000, Second Cup
notified us that it was irrevocably waiving its right to designate a director as
provided in this voting agreement.
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<PAGE> 5
Shares represented by executed proxies will be voted, if authority to do so
is not withheld, for the election of the five nominees named below. All of the
nominees for election as directors at the annual meeting set forth in the table
below are incumbent directors. Each of the nominees has consented to serve as a
director if elected, and management has no reason to believe that any nominee
will be unable to serve. In the event that any nominee should be unavailable for
re-election as a result of an unexpected occurrence, such shares will be voted
for the election of such substitute nominee as the board of directors may
propose.
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION DIRECTOR SINCE
---- --- -------------------- --------------
<S> <C> <C> <C>
John E. Martin............... 55 Chairman of the Board and Director of 1997
Diedrich Coffee
Martin R. Diedrich........... 41 Vice Chairman of the Board, Secretary, 1985
Chief Coffee Officer and Director of
Diedrich Coffee
Peter Churm(1)(2)............ 74 Private investor 1996
Lawrence Goelman(1)(2)....... 59 Managing Partner, GazelleLab LLC, a 1996
private venture development firm
Paul C. Heeschen(1)(2)....... 43 Principal, Heeschen & Associates, a 1996
private investment firm
</TABLE>
---------------
(1) Member of the audit committee
(2) Member of the compensation committee
There are no family relationships among any of the directors or executive
officers of Diedrich Coffee. The principal occupation for the last five years of
each nominee for director of Diedrich Coffee, as well as other information, is
set forth below.
John E. Martin was appointed Chairman of the Board by the board of
directors as of November 17, 1997. Effective as of October 20, 2000, our board
of directors accepted Mr. Martin's offer to transition from executive Chairman
of the Board to non-executive Chairman of the Board. From 1983 to 1996, Mr.
Martin was Chairman and Chief Executive Officer of Taco Bell Worldwide. From
October 1996 to June 1997, Mr. Martin was Chairman of PepsiCo's Casual Dining
Division. Mr. Martin is also Chairman of publicly held Easyriders, Inc., a
publishing company, and Chairman of Culinary Holdings Incorporated, a privately
held company that owns and operates several restaurants in Southern California,
Arizona and Oklahoma. In addition, Mr. Martin serves on the board of directors
of Williams-Sonoma, Inc. and The Good Guys! Inc.
Martin R. Diedrich has served as our officer and director since 1985. In
April 1997, he became Vice Chairman of the Board and Chief Coffee Officer, as
well as continuing as our Corporate Secretary. Before that time, Mr. Diedrich
served as Director of Coffee. In addition, he served as Chairman of the Board
from January 1996 to April 1997. Mr. Diedrich is an internationally recognized
specialty coffee expert who is a frequent speaker at industry and trade
association functions.
Peter Churm joined our board of directors in October 1996. Mr. Churm was
most recently Chairman Emeritus of Furon Company from 1992 until his retirement
in November 1999. He served as Chairman of the Board of Furon Company from May
1980 through February 1992 and was President of that company for more than 16
years prior to that time. Mr. Churm also serves on the board of directors of CKE
Restaurants, Inc.
Lawrence Goelman was our interim Chief Executive Officer from March 1997 to
November 1997 and has served as a member of our board of directors since October
1996. Mr. Goelman assumed the position of Chairman of the Board in March 1997
until he was replaced by John E. Martin on November 17, 1997. Currently, Mr.
Goelman serves as the Managing Partner of GazelleLab LLC, a private venture
development firm. Prior to that, Mr. Goelman was President and Chief Executive
Officer of Pinnacle Micro, Inc. from May 1996 to December 1996. Mr. Goelman was
also a Managing Partner of Tremont Partners, Inc. from 1995 to 1999. Before
that, he served as Chairman, President and Chief Executive Officer of CostCare,
Inc. for 14 years. Mr. Goelman also serves on the board of directors of
BIZiMobile inc.
Paul C. Heeschen became our director in January 1996. For the past eight
years, Mr. Heeschen has been a Principal of Heeschen & Associates, a private
investment firm. He is also the sole general partner of D.C.H.,
3
<PAGE> 6
L.P., Redwood Enterprises VI, L.P. and Sequoia Enterprises L.P. and a trustee of
the Palm Trust, each of which are Diedrich Coffee stockholders.
BOARD COMMITTEES AND MEETINGS
Our board of directors has standing compensation and audit committees. We
do not have a standing nominating committee; rather our entire board of
directors acts as a committee with respect to nominations for membership on our
board.
Audit Committee. Our audit committee is responsible for, among other
matters, making recommendations to our board of directors regarding the
engagement of our independent certified public accountants, reviewing (with our
independent certified public accountants) the fees, scope, timing, plans and
results of the audit engagement, reviewing any significant changes in our
accounting policies and the adequacy of our internal accounting controls, and
analyzing and discussing with our independent certified public accountants any
difficulties or disagreements with our management as well as legal proceedings
or contingent liabilities involving us that may be material to our financial
statements or the auditor's report. Our audit committee is composed of outside
directors who are not our officers or employees. The audit committee consists of
Messrs. Churm, Goelman and Heeschen, each of whom have been a member of our
audit committee since its formation. Our board of directors and audit committee
have adopted an audit committee charter, which is attached hereto as Appendix C.
Compensation Committee. Our compensation committee determines salaries and
incentive compensation for our executive officers and administers our stock
option plans. The compensation committee consists of Messrs. Churm, Goelman and
Heeschen.
Meetings. During our fiscal year ended June 28, 2000, there were five
meetings of the board of directors, four meetings of the audit committee and
four meetings of the compensation committee. In connection with our acquisition
of Coffee People in July 1999, we changed our fiscal year end from the Wednesday
closest to January 31 to the Wednesday closest to June 30. During the 22 week
transitional period from January 28, 1999 (the end of our old fiscal year) until
June 30, 1999 (the end of the transitional period), there were five meetings of
the board of directors, two meetings of the audit committee and two meetings of
the compensation committee. Each of the current board members attended at least
75% of the meetings of the board of directors and meetings of the committees on
which they served during the fiscal year ended June 28, 2000 and the 22 week
transitional period.
DIRECTORS' COMPENSATION
Directors who are also our employees receive no extra compensation for
their service on the board of directors. Non-employee directors receive
reimbursement for out-of-pocket expenses incurred in attending board meetings
and receive stock option grants under the Diedrich Coffee, Inc. 1996
Non-Employee Directors Stock Option Plan.
Under our 1996 Non-Employee Directors Plan, each non-employee director
automatically receives, upon becoming a director, a one-time grant of an option
to purchase up to 10,000 shares of our common stock. These initial options vest
and become exercisable with respect to 50% of the underlying shares upon the
earlier of (1) the first anniversary of the grant date or (2) immediately before
the first annual meeting of stockholders following the grant date, if the
recipient has remained a non-employee director for the entire period from the
grant date to such earlier date, and with respect to the remaining 50% of the
underlying shares upon the earlier of (1) the second anniversary of the grant
date or (2) immediately before the second annual meeting of stockholders
following the grant date, if the recipient has remained a non-employee director
for the entire period from the grant date to such earlier date. In addition to
an initial grant, under the 1996 Non-Employee Directors Plan, each non-employee
director also receives, upon re-election to our board of directors, an automatic
grant of an option to purchase up to 5,000 additional shares of our common
stock. These additional options vest and become exercisable upon the earlier of
(1) the first anniversary of the grant date or (2) immediately before the annual
meeting of stockholders following the grant date, if the recipient has remained
a non-employee director for the entire period from the grant date to such
earlier date.
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<PAGE> 7
All non-employee director options granted under the 1996 Non-Employee
Directors Plan have a term of ten years and an exercise price equal to the fair
market value of our common stock on the date of grant. The 1996 Non-Employee
Directors Plan provides that the exercise price may be paid by company loan or
withholding of underlying stock, or deferred until completion of broker-assisted
exercise and sale transactions. Vesting of non-employee director options granted
under the 1996 Non-Employee Directors Plan accelerates in certain circumstances
in connection with a change-in-control. During the fiscal year ended June 28,
2000, no options to purchase shares of our common stock were issued to
non-employee directors. During the 22 week transitional period ended June 30,
1999, options to purchase an aggregate of 15,000 shares of our common stock were
issued to non-employee directors, at an exercise price of $7.00, under the 1996
Non-Employee Directors Plan. As of October 2, 2000, no options to purchase
shares had been exercised under the 1996 Non-Employee Directors Plan.
If Proposal 3 is adopted by the stockholders, we will discontinue granting
options under the 1996 Non-Employee Directors Plan. If Proposal 3 is not
adopted, we will continue granting options under the 1996 Non-Employee Directors
Plan. Under the 2000 Equity Incentive Plan, each non-employee director
automatically receives, upon becoming a director, a one-time grant of an option
to purchase up to 10,000 shares of our common stock. In addition to an initial
grant, under the 2000 Equity Incentive Plan, each non-employee director also
receives, upon re-election to our board of directors, an automatic grant of an
option to purchase up to 5,000 additional shares of our common stock. These
initial and additional options have substantially the same terms and conditions
as the initial and additional options granted under the 1996 Non-Employee
Directors Plan, including those terms and conditions outlined above. In addition
to the initial and additional options, under the 2000 Equity Incentive Plan,
each director, including each non-employee director, is eligible to receive
other awards under the 2000 Equity Incentive Plan at the discretion of the
administrator of the plan, as more fully described in the discussion of Proposal
3 below.
On October 20, 2000, our board of directors adopted the Diedrich Coffee,
Inc. 2000 Non-Employee Directors Stock Option Plan. This plan provides for a
one-time grant of an option to purchase 8,000 shares of our common stock to
three of our non-employee directors, Messrs. Churm, Goelman and Heeschen, for
their contributions during the previous year, including their efforts in the
acquisition of Coffee People. Each option granted under the 2000 Non-Employee
Directors Stock Option Plan is effective as of October 20, 2000 and has a term
of ten years. The options will vest and become exercisable on October 20, 2001,
at an exercise price of $1.34 per share, provided that the recipient has
remained a non-employee director for the entire period from the grant date until
October 20, 2001. The 2000 Non-Employee Directors Stock Option Plan provides
that the exercise price of the options may be paid in cash or, subject to the
discretion of our compensation committee, by delivery of shares of our common
stock or a combination of cash and shares of our common stock.
VOTE REQUIRED AND BOARD RECOMMENDATION
The five persons receiving the greatest number of the votes at the annual
meeting will be elected to our board of directors.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE IN FAVOR OF EACH NAMED
NOMINEE IN PROPOSAL 1.
PROPOSAL 2
APPROVAL OF THE STOCK OPTION PLAN AND AGREEMENT WITH J. MICHAEL JENKINS
STOCK OPTION PLAN AND AGREEMENT WITH J. MICHAEL JENKINS
Proposal 2 seeks your approval of the Stock Option Plan and Agreement with
J. Michael Jenkins. In September 2000, the board of directors appointed Mr.
Jenkins to the positions of President and Chief Executive Officer. The Jenkins
Option Plan is summarized below and attached to this proxy statement in its
entirety as Appendix A.
5
<PAGE> 8
SUMMARY OF JENKINS OPTION PLAN
Effective September 22, 2000, Diedrich Coffee entered into the Jenkins
Option Plan subject to approval by the stockholders. Under this plan, Mr.
Jenkins was granted options to purchase an aggregate of up to 500,000 shares of
our common stock for the purpose of encouraging and rewarding his contributions
to our performance and aligning his interests with the interests of our
stockholders. Subject to stockholder approval, the options granted to Mr.
Jenkins will be exercisable at an exercise price of $1.75 per share, in four
equal installments on each of the first four anniversary dates of September 22,
2000. The options granted to Mr. Jenkins will become immediately vested and
fully exercisable if we undergo a change of control, except that Mr. Jenkins'
options will terminate and become unexercisable on the earlier of the tenth
anniversary of September 22, 2000 or the first anniversary of the change of
control. If Mr. Jenkins' employment with Diedrich Coffee is terminated for cause
prior to the tenth anniversary of the date of the Jenkins Option Plan or if Mr.
Jenkins terminates his employment with us for any reason, then (1) all options
that have not otherwise become exercisable as of the termination date will
immediately terminate and become unexercisable, and (2) all options that have
become exercisable as of the termination date will terminate and become
unexercisable on and after the date that is sixty days after the date of the
termination. If Diedrich Coffee terminates Mr. Jenkins' employment without
cause, then (1) all options that have not otherwise become exercisable as of the
termination date will continue to become exercisable, except that the options
will terminate and become unexercisable on the earlier of the tenth anniversary
of September 22, 2000 or the first anniversary of the date of Mr. Jenkins'
termination date, and (2) all options that have become exercisable as of the
termination date will terminate and become unexercisable on the earlier of the
tenth anniversary of September 22, 2000 or the first anniversary of the date of
Mr. Jenkins' termination date. Otherwise, all of Mr. Jenkins' unexercised
options will terminate on the tenth anniversary of the date of the Jenkins
Option Plan.
INTEREST OF MR. JENKINS IN MATTERS TO BE ACTED UPON
If Proposal 2 is approved, Mr. Jenkins will receive an option to purchase
up to 500,000 shares of our common stock, as more fully described below. The
table below summarizes certain information with respect to the options granted
to Mr. Jenkins on September 22, 2000, which are contingent upon stockholder
approval of Proposal 2:
NEW PLAN BENEFITS
JENKINS OPTION PLAN
<TABLE>
<CAPTION>
NAME DOLLAR VALUE NUMBER OF SHARES
---- ------------ ----------------
<S> <C> <C>
J. Michael Jenkins...................................... --(1) 500,000(2)
</TABLE>
---------------
(1) As of October 20, 2000, none of Mr. Jenkins' options was in the money. The
exercise price of each option is $1.75 per share, the fair market value of
our common stock on the date of grant (September 22, 2000), and the closing
price of our common stock on the Nasdaq National Market on October 20, 2000
was $1.34 per share.
(2) Mr. Jenkins' options vest in four equal installments on each of the first
four anniversary dates of September 22, 2000 under the Jenkins Option Plan.
We have agreed to file a registration statement on Form S-8 with the
Securities and Exchange Commission to register the issuance of shares of our
common stock upon the exercise of options under the Jenkins Option Plan. The
exercise of options by Mr. Jenkins will be contingent upon the receipt of all
necessary governmental approvals and consents as well as compliance with all
applicable federal, state and/or local tax withholding requirements. Only Mr.
Jenkins is eligible to receive options under the Jenkins Option Plan and the
options are non-transferable and non-assignable. The Jenkins Option Plan
provides that the exercise price of the options may be paid in cash or, subject
to the discretion of our compensation committee, by delivery of shares of our
common stock or a combination of cash and shares of our common stock.
6
<PAGE> 9
EMPLOYMENT AGREEMENT WITH J. MICHAEL JENKINS
On September 22, 2000, Diedrich Coffee entered into an at-will employment
letter agreement with Mr. Jenkins which provides that either Diedrich Coffee or
Mr. Jenkins may terminate his employment at any time, with or without cause or
notice. The employment letter provides, among other matters, that Mr. Jenkins
will:
- serve as our President and Chief Executive Officer;
- receive a base salary of $300,000 per year, subject to annual
adjustments;
- receive a guaranteed bonus of $100,000 on the first anniversary date of
his employment with us, if he remains our employee through that date, and
receive additional bonuses in successive years based on specific
objectives and targets established for him by our compensation committee;
and
- receive options to purchase 500,000 shares of our common stock in
accordance with the terms of the Jenkins Option Plan;
- receive three weeks of vacation during his first year of employment; and
- participate in our executive benefit plans and 401(k) plan based on plan
eligibility criteria.
If Diedrich Coffee terminates Mr. Jenkins' employment without cause as
described in the letter agreement, we will be obligated to make bi-weekly
payments to Mr. Jenkins of his then current salary until the earlier of (1) such
time as he accepts other employment or work as an independent contractor or (2)
the first anniversary date of the termination of his employment. We will not be
obligated to make these payments if his employment with us is terminated for
disability or by his death.
REASONS FOR THE PROPOSAL
Our board of directors authorized the Jenkins Option Plan and entered into
the related employment letter agreement with Mr. Jenkins as two elements of an
organized effort to attract and motivate an individual whom our board of
directors has determined possesses the characteristics necessary to
substantially improve our performance. The letter agreement appoints Mr. Jenkins
as our President and Chief Executive Officer, giving him the necessary authority
to make the changes he determines are in our best interests. The Jenkins Option
Plan rewards Mr. Jenkins as the value of our common stock increases. Taken as a
whole, we believe these two agreements give Mr. Jenkins the authority and the
motivation to direct his efforts to improving our fiscal health.
TAX INFORMATION
The following is a brief, general description of federal income tax
consequences of the receipt and exercise of options granted by Diedrich Coffee
under the Jenkins Option Plan. This description is based on the laws and
regulations in effect as of the date of this Proxy Statement and does not
purport to be a complete statement of the law in this area. Furthermore, the
discussion below does not address the tax consequences of the receipt and
exercise of options under foreign, state and/or local tax laws, and such tax
laws may not correspond to the federal tax treatment described herein. The exact
federal income tax treatment of transactions under the Jenkins Option Plan will
vary depending upon the specific facts and circumstances involved.
Non-qualified Stock Options. Our grant of a non-qualified stock option to
Mr. Jenkins is generally not a taxable event for him. Upon the exercise of a
non-qualified stock option, Mr. Jenkins will generally recognize ordinary income
equal to the excess of the fair market value of the shares he acquires upon
exercise (determined as of the date of exercise) over the exercise price of the
non-qualified stock option. We will generally be able to deduct as compensation
expense the amount of ordinary income recognized by Mr. Jenkins. Mr. Jenkins'
subsequent sale of the shares generally will give rise to capital gain or loss
equal to the difference between the sale price and the sum of the exercise price
paid for the shares plus the ordinary income recognized with respect to the
shares.
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<PAGE> 10
Withholding. Since Mr. Jenkins is an employee of our company, we ordinarily
will be required to withhold applicable federal income taxes with respect to any
ordinary income recognized by him in connection with stock options granted under
the Jenkins Option Plan.
Special Rules Applicable to "Insiders." Since Mr. Jenkins is an "insider,"
he may be required to defer determination of the amount of income and the timing
of income recognition in connection with his options under the plan, and the
beginning of the holding period for any shares he receives, until the expiration
of any period during which he would be restricted from disposing of any shares
he received. Mr. Jenkins will not be required to defer these determinations if
he makes a valid election under Section 83(b) of the Internal Revenue Code.
VOTE REQUIRED AND BOARD RECOMMENDATION
The affirmative vote of a majority of our shares present in person or
represented by proxy and entitled to vote at the annual meeting will be required
to approve the Stock Option Plan and Agreement with J. Michael Jenkins.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE IN FAVOR OF PROPOSAL 2.
PROPOSAL 3
APPROVAL AND ADOPTION OF 2000 EQUITY INCENTIVE PLAN
GENERAL
On October 20, 2000, our board of directors authorized the adoption,
subject to stockholder approval, of the Diedrich Coffee 2000 Equity Incentive
Plan and the concurrent discontinuation of option grants under our Amended and
Restated 1996 Stock Incentive Plan and our 1996 Non-Employee Directors Stock
Option Plan. In aggregate, these two 1996 plans have 1,400,000 shares reserved
for issuance consisting of 1,275,000 shares reserved under the Amended and
Restated 1996 Stock Incentive Plan and 125,000 shares reserved under the 1996
Non-Employee Directors Plan. Currently, 817,000 shares underlying options have
been awarded under the Amended and Restated 1996 Stock Incentive Plan and 60,000
shares underlying options have been awarded under the 1996 Non-Employee
Directors Plan. The remaining 528,000 shares reserved for issuance under the two
1996 plans will be cancelled if our stockholders approve Proposal 3. Following
the cancellation of these shares reserved for issuance, 750,000 shares of common
stock (subject to antidilution adjustments) will be reserved for issuance under
the 2000 Equity Incentive Plan. Options currently outstanding under the two 1996
plans are unaffected by this proposal. If our stockholders do not approve
Proposal 3, we will continue to grant awards under the two 1996 plans and the
remaining shares reserved under these 1996 plans will not be cancelled.
SUMMARY OF THE 2000 EQUITY INCENTIVE PLAN
The following summary of the 2000 Equity Incentive Plan is qualified in its
entirety by the terms of the 2000 Equity Incentive Plan, a copy of which is
attached as Appendix B.
Purpose. The 2000 Equity Incentive Plan's purpose is to promote our
interests and those of our stockholders by using investment interests in our
company to attract, retain and motivate our management and other persons, to
encourage and reward their contributions to our performance and to align their
interests with the interests of our stockholders.
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<PAGE> 11
Administration, Amendment and Termination. As long as we have a class of
equity securities registered under Section l2 of the Securities Exchange Act of
1934, the administrator of the 2000 Equity Incentive Plan will be the
compensation committee, composed solely of "non-employee directors" within the
meaning of Rule 16b-3 under the Securities Exchange Act of 1934 and "Outside
Directors" as defined in the regulations adopted under Section 162(m) of the
Internal Revenue Code. The administrator will have the power to:
- select the eligible persons to whom, and the times at which, awards will
be granted, the nature of each award and the terms and conditions of each
award;
- interpret the 2000 Equity Incentive Plan and the rights of recipients of
awards granted under the 2000 Equity Incentive Plan;
- discontinue, suspend or amend the 2000 Equity Incentive Plan in any
manner, subject to stockholder approval only where such approval is
required by applicable law, rule or regulation;
- modify, extend, renew or exchange outstanding awards, including the power
to adjust or reduce the purchase or exercise price of an award either by
cancellation of the award and the granting of a new award at the modified
purchase or exercise price or by amending the terms of the award to
reflect the modified purchase or exercise price; and
- change the number of shares or vesting periods associated with
non-employee director options, and suspend and reactivate the plan
provisions regarding automatic grants of non-employee director options.
The 2000 Equity Incentive Plan, as amended from time to time, shall, in the
discretion of the administrator, apply to and govern awards granted under the
2000 Equity Incentive Plan prior to the date of such amendment, provided that
the consent of an award holder is required if such amendment would alter,
terminate, impair or adversely affect an award or cause the award to cease to
qualify as an incentive stock option. Awards may be granted under the 2000
Equity Incentive Plan until the tenth anniversary of the adoption of the 2000
Equity Incentive Plan by our board of directors.
Securities Subject to the 2000 Equity Incentive Plan. A total of 750,000
shares of our common stock may be issued under the 2000 Equity Incentive Plan.
We may issue common stock under the plan from:
- authorized but unissued shares of our common stock; or
- from previously issued shares of common stock reacquired by us, including
shares purchased on the open market.
The administrator may appropriately adjust the maximum number and kind of
shares subject to the 2000 Equity Incentive Plan, the number and kind of shares
or other securities subject to the then outstanding awards, the price for each
share or other unit of any other securities subject to the then outstanding
awards, and/or the number and kind of shares or other securities to be issued as
non-employee director options if our common stock is affected through any of the
following:
<TABLE>
<S> <C>
- merger; - combination;
- consolidation; - stock dividend;
- sale or exchange of assets; - stock split;
- recapitalization; - reverse stock split; or
- reclassification; - spin-off.
</TABLE>
For purposes of calculating the aggregate number of shares issued under the
plan, we will count only the number of shares actually issued upon exercise or
settlement of an award and not returned to us upon expiration, termination or
cancellation of any awards. However, if an award holder pays the exercise price
or withholding taxes relating to an award with shares of our common stock, or if
we withhold shares in satisfaction of the exercise price or withholding taxes
payment, then we will reduce the number of shares of common stock available for
issuance under the 2000 Equity Incentive Plan by the gross number of shares for
which the award is exercised or for which it vests, as applicable.
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<PAGE> 12
On October 20, 2000, the closing price of our common stock on the Nasdaq
National Market was $1.34 per share. No options or other awards have been
granted under the 2000 Equity Incentive Plan.
Awards Under the 2000 Equity Incentive Plan. We may grant the following
types of awards under the 2000 Equity Incentive Plan:
<TABLE>
<S> <C>
- stock options; - stock bonuses;
- performance awards; - stock sales;
- restricted stock; - phantom stock;
- stock appreciation rights; - dividend equivalents; and
- stock payments; - other stock-based benefits.
</TABLE>
Stock options granted under the 2000 Equity Incentive Plan may be incentive
stock options intended to qualify under the provisions of Section 422 of the
Internal Revenue Code or non-qualified stock options that do not so qualify.
However, the aggregate fair market value of any employee's incentive stock
options that become first exercisable during any calendar year may not exceed
$100,000, and may be further limited by other requirements in the Internal
Revenue Code. If this limitation is exceeded, the excess incentive stock options
will be treated as non-qualified stock options.
Eligibility. Our directors, officers, employees, consultants, advisors and
our affiliated entities are eligible to receive awards under the 2000 Equity
Incentive Plan, except that only non-employee directors may receive
"non-employee director options," as described below. Currently, it is estimated
that approximately 164 persons will be eligible for selection to receive awards
under the 2000 Equity Incentive Plan, consisting of approximately 150 employees,
10 executive officers and 4 non-employee directors.
Terms and Conditions of Non-Employee Director Options Under the 2000 Equity
Incentive Plan. The 2000 Equity Incentive Plan provides that non-employee
directors receive initial and annual grants of "non-employee director options."
Upon first becoming a non-employee director, a non-employee director receives a
one-time grant of an option to purchase up to 10,000 shares of our common stock.
These initial options vest and become exercisable with respect to 50% of the
underlying shares upon the earlier of the following dates, if the recipient has
remained a non-employee director for the entire period from the grant date to
such earlier date:
- the first anniversary of the grant date, or
- immediately before the first annual meeting of stockholders following the
grant date.
The remaining 50% of the shares underlying the initial options vest upon the
earlier of the following dates, if the recipient has remained a non-employee
director for the entire period from the grant date to such earlier date:
- the second anniversary of the grant date, or
- immediately before the second annual meeting of stockholders following
the grant date.
In addition to an initial grant, each non-employee director also receives,
upon re-election to our board of directors, an automatic grant of an option to
purchase up to 5,000 additional shares of our common stock. These additional
options vest and become exercisable upon the earlier of the following dates, if
the recipient has remained a non-employee director for the entire period from
the grant date to such earlier date:
- the first anniversary of the grant date, or
- immediately before the annual meeting of stockholders following the grant
date.
All non-employee director options have a term of ten years and an exercise
price equal to the fair market value of Diedrich Coffee common stock on the date
of grant. If a recipient of a non-employee director option ceases to be a
director of Diedrich Coffee, all initial options granted to the recipient are
exercisable, to the extent already exercisable at the date the director ceases
to be a director, for a period of 365 days after that date (or sooner if the
option expires according to its terms), and all additional options are
exercisable to the extent already exercisable at the date the director ceases to
be a director for a period of 365 days after that
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<PAGE> 13
date (or sooner if the option expires according to its terms) if the director
ceases to be a director because of death or permanent disability, or a period of
90 days after that date (or sooner if the option expires according to its terms)
if the director ceases to be a director for any other reason. In addition to
these non-employee director options, non-employee directors are eligible to
receive general grants of awards under the plan, including stock options other
than non-employee director options, at the discretion of the administrator. To
the extent not inconsistent with the terms of the plan governing non-employee
director options, the terms of general awards under the 2000 Equity Incentive
Plan apply to non-employee director options.
Terms and Conditions of General Awards Under the 2000 Equity Incentive
Plan. The administrator will select the recipients of awards granted under the
2000 Equity Incentive Plan and will determine the dates, amounts, exercise
prices, vesting periods and other relevant terms of the awards. However, only
non-employee directors are eligible to receive non-employee director options. In
addition, the 2000 Equity Incentive Plan specifies the dates, amounts, exercise
prices, vesting periods and other relevant terms of non-employee director
options, as summarized above.
Award Pricing. The administrator will determine the exercise or
purchase price of awards granted under the 2000 Equity Incentive Plan
except that the provisions of the plan govern the exercise price of
non-employee director options. In addition, the exercise price for an
incentive stock option must comply with the provisions of Section 422 of
the Internal Revenue Code. Section 422 currently provides that the exercise
price must not be less than the fair market value of our common stock on
the date of grant, and not less than 110% of the fair market value as of
the date of grant in the case of a grant to a person owning more than ten
percent of the combined voting power of our common stock.
Award Vesting and Term. The administrator will determine the date or
dates on which awards granted under the 2000 Equity Incentive Plan vest and
become exercisable except that the provisions of the plan govern the
vesting and term of non-employee director options. In addition, the term
for an incentive stock option must comply with the provisions of Section
422 of the Internal Revenue Code. Section 422 currently provides that the
incentive stock option may not be exercisable after the expiration of ten
years from the date of grant, or five years in the case of an incentive
stock option granted to a person owning more than ten percent of the
combined voting power of our common stock.
Awards granted under the 2000 Equity Incentive Plan may be exercised
at any time after they vest and before the expiration date determined by
the administrator, provided that an award is generally exercisable
following an award holder's termination of employment only to the extent
that the award had become exercisable on or before the date of termination
and to the extent that the award is not forfeited under the terms of the
plan. Furthermore, in the absence of a specific agreement to the contrary,
stock options will generally expire and become unexercisable immediately
upon termination of the recipient's employment with us for just cause; 30
days after termination of the recipient's employment with us for any reason
other than just cause, death, permanent disability or normal retirement; or
180 days after termination of the recipient's employment with us due to
death, permanent disability or normal retirement, unless the term of the
options provides for an earlier expiration. The administrator may
accelerate the vesting of any options and may also extend the period
following termination of employment with us during which options may vest
and/or be exercised.
Other Award Provisions. The administrator will determine any
applicable performance criteria, restrictions or conditions of any award.
Award Payments. A holder of an award may pay cash or any other
consideration deemed acceptable by the administrator to pay the exercise
price for the award. We may extend or arrange for the extension of credit
to any award holder to finance the award holder's purchase of shares upon
exercise of the holder's award on terms approved by the administrator,
subject to restrictions under applicable laws and regulations, or allow
exercise in a broker's transaction in which the exercise price will not be
received until after exercise and subsequent sale of the underlying common
stock. The administrator may, in its discretion, allow an award holder to
pay the exercise price for an award by delivering our common stock.
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<PAGE> 14
Limited Transferability of Awards. Awards are generally not
transferable by the recipient during the life of the recipient.
Awards Documentation. An agreement duly executed on behalf of us and
by the recipient or, a confirming memorandum issued by us to the recipient,
setting forth such terms and conditions applicable to the award, will
evidence awards granted under the 2000 Equity Incentive Plan.
Rights With Respect to Common Stock. No recipient of an award under
the 2000 Equity Incentive Plan or other person will have any right, title
or interest in or to any shares of common stock subject to any award or any
rights as a stockholder unless the award is duly exercised pursuant to the
terms of the 2000 Equity Incentive Plan and the shares of common stock are
issued to the recipient upon exercise of the award.
Plan Provisions Regarding Changes in Control. As of the effective time
and date of any change in our control (as defined in the 2000 Equity
Incentive Plan), the 2000 Equity Incentive Plan and any of the then
outstanding awards (whether or not vested) will automatically terminate
unless:
- provision is made in writing in connection with such transaction for
the continuance of the 2000 Equity Incentive 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, in which event the 2000 Equity
Incentive Plan and such outstanding awards shall continue or be
replaced, as the case may be, in the manner and under the terms so
provided; or
- the board of directors 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 accelerating the vesting of outstanding awards and/or
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 these plan provisions, the 2000 Equity Incentive Plan
and the awards terminate by reason of the occurrence of a change in control
without provision for any of the actions described in the paragraph above,
then any recipient holding outstanding awards shall have the right, at such
time immediately prior to the consummation of the change in control as our
board of directors shall designate, to exercise the recipient's awards to
the full extent not theretofore exercised, including any installments which
have not yet become vested.
Plan Provisions Regarding Section 162(m) the Internal Revenue Code. In
general, Section 162(m) of the Internal Revenue Code imposes a $1,000,000
limit on the amount of compensation that may be deducted by us in any tax
year with respect to our Chief Executive Officer and our other four most
highly compensated employees, including any compensation relating to an
award under the 2000 Equity Incentive Plan. To prevent compensation
relating to an award under the 2000 Equity Incentive Plan from being
subject to the $1,000,000 limit of Internal Revenue Code Section 162(m),
the 2000 Equity Incentive Plan provides that no eligible person shall be
granted any awards with respect to more than 200,000 shares of common stock
in any one calendar year if such grant would otherwise be subject to
Section 162(m).
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<PAGE> 15
Furthermore, if Internal Revenue Code Section 162(m) would otherwise
apply and if the amount of compensation an eligible person would receive
under an award is not based solely on an increase in the value of our
underlying common stock after the date of grant or award, the administrator
can condition the grant, vesting, or exercisability of such an award on the
attainment of a preestablished objective performance goal. For this
purpose, a preestablished objective performance goal may include one or
more of the following performance criteria:
- cash flow;
- earnings per share, including earnings before interest, taxes and
amortization;
- return on equity;
- total stockholder return;
- return on capital;
- return on assets or net assets;
- income or net income;
- operating margin;
- return on operating revenue; and/or
- any similar performance criteria.
TAX INFORMATION
The following summary of certain federal income tax consequences of the
receipt and exercise of awards granted by us is based on the laws and
regulations in effect as of the date of this Proxy Statement and does not
purport to be a complete statement of the law in this area. Furthermore, the
discussion below does not address the tax consequences of the receipt and
exercise of awards under foreign, state and/or local tax laws, and such tax laws
may not correspond to the federal tax treatment described herein. The exact
federal income tax treatment of transactions under the 2000 Equity Incentive
Plan will vary depending upon the specific facts and circumstances involved.
Incentive Stock Options. Except as discussed below, a recipient of an
incentive stock option generally will not pay tax on the grant or the exercise
of the option if the recipient exercises the option while the recipient is our
employee or within three months following termination of the recipient's
employment (or one year, if termination was due to a permanent disability).
If the recipient of the incentive stock option sells the shares acquired
upon the exercise of the option at any time within one year after the date we
transfer those shares to the recipient or two years after the date we grant the
incentive stock option to the recipient, then:
- if the recipient's sales price exceeds the exercise price of the
incentive stock option, the recipient will recognize capital gain equal
to the excess, if any, of the sales price over the fair market value of
the shares on the date of exercise, and will recognize ordinary income
equal to the excess, if any, of the lesser of the sales price or the fair
market value of the shares on the date of exercise over the exercise
price of the incentive stock option; or
- if the recipient's sales price is less than the exercise price of the
incentive stock option, the recipient will recognize a capital loss equal
to the excess of the exercise price of the incentive stock option over
the sales price of the shares.
If the recipient sells shares acquired upon exercise of an incentive stock
option at any time after the recipient has held the shares for at least one year
after the date we transfer the shares to the recipient pursuant to the
recipient's exercise of the incentive stock option and at least two years after
the date we grant the recipient the incentive stock option, then the recipient
will recognize capital gain or loss equal to the difference between the sales
price and the exercise price of the incentive stock option. If the recipient is
an "insider" (as defined below), the recipient is advised to consult a tax
advisor about the possibility of making an election under Section 83(b) of the
Internal Revenue Code upon exercise of an incentive stock option.
The amount by which the fair market value of shares the recipient acquires
upon exercise of an incentive stock option exceeds the exercise price on the
date of exercise will be included as a positive adjustment in the calculation of
the recipient's "alternative minimum taxable income" in the year of exercise.
The "alternative minimum tax" will generally equal the amount by which 26% or
28% (depending upon the amount of the recipient's alternative minimum taxable
income) of the recipient's alternative minimum taxable income
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<PAGE> 16
(reduced by certain exemption amounts) exceeds the recipient's regular income
tax liability for the year. Before exercising an incentive stock option, a
recipient should determine whether and to what extent exercise of an incentive
stock option will result in alternative minimum tax in the year of exercise.
In the case of an early disposition of shares by a recipient that results
in the recognition of ordinary income, we will be entitled to a deduction equal
to the tax amount of such ordinary income. If the recipient holds the shares for
the requisite period described above and therefore solely recognizes capital
gain upon the sale of such shares, we are not entitled to any deduction.
Non-qualified Stock Options. Our grant of a non-qualified stock option to a
recipient is generally not a taxable event for the recipient. Upon the exercise
of a non-qualified stock option, the recipient will generally recognize ordinary
income equal to the excess of the fair market value of the shares the recipient
acquires upon exercise (determined as of the date of exercise) over the exercise
price of the non-qualified stock option. We generally will be entitled to deduct
as a compensation expense the amount of such ordinary income. The recipient's
subsequent sale of the shares generally will give rise to capital gain or loss
equal to the difference between the sale price and the sum of the exercise price
paid for the shares plus the ordinary income recognized with respect to the
shares, and these capital gains will be taxable as long term or short term
capital gains depending upon the recipient's holding period. If the recipient is
an "insider" (as defined below), the recipient is advised to consult a tax
advisor about the possibility of making an election under Section 83(b) of the
Internal Revenue Code upon exercise of a non-qualified stock option.
Stock Appreciation Rights and Phantom Stock. Generally, the holder of a
stock appreciation right or phantom stock award will recognize ordinary income
equal to the amount paid by us under either arrangement on the date the holder
receives payment from us. If we place a limit on the amount that will be payable
under a stock appreciation right, the holder may recognize ordinary income equal
to the value of the holder's right under the stock appreciation right at the
time the value of such right equals such limit and the stock appreciation right
is exercisable. We will generally be entitled to a deduction in an amount equal
to the ordinary income recognized by the holder.
Stock Purchase Rights -- Restricted Stock. Under the 2000 Equity Incentive
Plan, we are authorized to grant rights to purchase our restricted common stock
subject to our right to repurchase such stock at the price paid by the
participant if the participant's employment relationship with us terminates
prior to the lapse of such repurchase right. In general, there will be no tax
consequences to a participant upon the grant of a right to purchase such
restricted stock. Instead, the participant will be taxed at ordinary income
rates at the time our repurchase rights expire or are removed on an amount equal
to the excess of the fair market value of the stock at that time over the amount
the participant paid to acquire such stock. A participant who acquires
restricted stock, however, may make an election under Section 83(b) of the
Internal Revenue Code with respect to such stock. If such an election is timely
made, the participant is taxed at ordinary income rates in the year in which the
participant acquires the restricted stock. The ordinary income the participant
must recognize is equal to the excess of the fair market value of the stock at
the time of the participant's acquisition of the stock (determined without
regard to the restrictions) over the amount that the participant paid to acquire
such stock. If a participant makes a timely election under Section 83(b) of the
Internal Revenue Code with respect to restricted stock, the participant
generally will not be required to report any additional income with respect to
such restricted stock until he disposes of such stock. In the event that a
participant forfeits restricted stock with respect to which an election under
Section 83(b) of the Internal Revenue Code has been made, the participant
ordinarily will not be entitled to recognize any loss for federal income tax
purposes (except to the extent the amount realized by the participant at the
time of such forfeiture is less than the participant's purchase price for such
stock). We generally will be entitled to a deduction equal to the amount of
ordinary income (if any) recognized by a participant with respect to restricted
stock for our taxable year in which, or with which, ends the taxable year of the
participant in which such ordinary income is recognized.
Other Awards. In addition to the types of awards described above, the 2000
Equity Incentive Plan authorizes certain other awards that may include payments
in cash, our common stock, or a combination of cash and common stock. The tax
consequences of such awards will depend upon the specific terms of such awards.
Generally, however, a participant who receives an award payable in cash will
recognize ordinary
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<PAGE> 17
income, and we will be entitled to a deduction, with respect to such award at
the earliest time at which the participant has an unrestricted right to receive
the amount of the cash payment. In general, the sale or grant of stock to a
participant under the 2000 Equity Incentive Plan will be a taxable event at the
time the participant has an unrestricted right to receive such stock if such
stock would not be subject to a substantial risk of forfeiture or would be
transferable within the meaning of Section 83 of the Internal Revenue Code in
the hands of the participant. (For such purposes, stock is ordinarily considered
to be transferable if it can be transferred to another person who takes the
stock free of any substantial risk of forfeiture.) In such case, the participant
will recognize ordinary income, and we will be entitled to a deduction, equal to
the excess of the fair market value of such stock on the date of the award over
the amount, if any, that the participant pays for such stock. Stock that at the
time of receipt by a participant is subject to restrictions that constitute a
substantial risk of forfeiture and that is not transferable within the meaning
of Internal Revenue Code Section 83, generally will be taxed under the rules
applicable to restricted stock as described above.
Withholding. In the event that an optionee or other recipient of an award
under the 2000 Equity Incentive Plan is our employee, we ordinarily will be
required to withhold applicable federal income taxes with respect to any
ordinary income recognized by such optionee or other award recipient in
connection with stock options or other awards under the 2000 Equity Incentive
Plan.
Special Rules Applicable to "Insiders." If a recipient of an award is an
"insider" (a director, officer or other individual subject to Section 16 of the
Exchange Act), the recipient may be required to defer determination of the
amount of income and the timing of income recognition in connection with an
award under the plan, and the beginning of the holding period for any shares the
recipient receives, until the expiration of any period during which the
recipient would be restricted from disposing of any shares the recipient
received. The recipient will not be required to defer these determinations if
the recipient makes a valid election under Section 83(b) of the Internal Revenue
Code. If a recipient is an insider, the recipient is advised to consult a tax
advisor to determine the tax consequences of exercising options granted to the
recipient under the plan.
Certain Additional Rules Applicable to Awards. The terms of awards granted
under the 2000 Equity Incentive Plan may provide for accelerated vesting in
connection with a change in control of Diedrich Coffee. In that event and
depending upon the individual circumstances of the recipient, certain amounts
with respect to such awards may constitute "excess parachute payments" under the
"golden parachute" provisions of the Internal Revenue Code. Under these
provisions, a participant will be subject to a 20% excise tax on any "excess
parachute payments" and Diedrich Coffee will be denied any deduction with
respect to such payment. Participants are advised to consult their tax advisors
as to whether accelerated vesting or payment of an award in connection with a
change in our control would give rise to an excess parachute payment.
We generally are entitled to a deduction equal to the ordinary income
recognized by a recipient in connection with an award. However, our deduction
(including the deduction related to ordinary income recognized by a recipient)
for compensation paid to the Chief Executive Officer and the other four most
highly compensated employees may be limited to $1,000,000 per person annually.
Depending on the nature of the award, all or a portion of the ordinary income
attributable to certain awards granted under the 2000 Equity Incentive Plan may
be included in the compensation subject to such deduction limitation.
Special rules will apply in cases where a recipient pays the exercise price
of the award or applicable withholding tax obligations under the 2000 Equity
Incentive Plan by delivering any of our previously owned common stock or by
reducing the number of shares of common stock otherwise issuable pursuant to the
award. Participants who contemplate taking any such action are advised to
consult with their personal tax advisors regarding the tax consequences of such
action.
PARTICIPATION IN THE 2000 EQUITY INCENTIVE PLAN BY EXECUTIVE OFFICERS, DIRECTORS
AND OTHER EMPLOYEES; INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
Participation in the 2000 Equity Incentive Plan is in the discretion of the
administrator, except that non-employee directors automatically receive
non-employee director options in accordance with the 2000 Equity Incentive Plan.
If Proposal 3 is approved, each of the four current non-employee directors
standing for
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<PAGE> 18
re-election, Messrs. Churm, Goelman, Heeschen and Martin, would receive upon
re-election to our board of directors, an automatic grant of an option to
purchase up to 5,000 additional shares of our common stock. Each non-employee
director will also receive an automatic grant of an option to purchase up to
5,000 additional shares of our common stock immediately following each future
annual meeting of stockholders if the non-employee director has served as a
director since his or her election or appointment and has been re-elected at any
such future annual meeting. Finally, under the 2000 Equity Incentive Plan, each
non-employee director will be eligible to receive future awards of other stock
options or other types of awards as determined by the compensation committee in
its discretion. These awards, if granted, would be in addition to the
non-employee director options that non-employee directors automatically receive
under the 2000 Equity Incentive Plan.
Future participation in the 2000 Equity Incentive Plan by executive
officers and other employees is not determinable, nor can it be determined what
benefits would have been received by or allocated to executive officers and
other employees had the plan been in effect for the last completed fiscal year.
The following table summarizes certain information with respect to benefits
that will be received by the directors standing for re-election as non-employee
directors:
NEW PLAN BENEFITS
2000 EQUITY INCENTIVE PLAN
<TABLE>
<CAPTION>
NAME DOLLAR VALUE NUMBER OF SHARES
---- ------------ ----------------
<S> <C> <C>
Non-Employee Directors(1).......................... not determinable(2) 20,000(3)
</TABLE>
---------------
(1) Includes all current non-employee directors standing for re-election.
(2) The exercise price for each non-employee director option granted under the
2000 Equity Incentive Plan is the fair market value of our common stock on
the date of grant.
(3) Represents the number of shares underlying non-employee director options
that will be granted under the 2000 Equity Incentive Plan in the fiscal year
ending June 27, 2001 if each of the directors standing for re-election as a
non-employee director is re-elected at the 2000 annual meeting of
stockholders.
VOTE REQUIRED AND BOARD RECOMMENDATION
The affirmative vote of a majority of our shares present in person or
represented by proxy and entitled to vote at the annual meeting will be required
to approve the 2000 Equity Incentive Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE IN FAVOR OF PROPOSAL 3.
PROPOSAL 4
RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
Our board of directors has again selected KPMG LLP to serve as our
independent accountants for the fiscal year ending June 27, 2001. KPMG LLP has
served as our auditor since January 17, 1997. Representatives of KPMG LLP are
expected to be at the meeting, will have an opportunity to make a statement if
they so desire and will be available to respond to appropriate questions.
REASONS FOR THE PROPOSAL
Selection of our independent accountants is not required to be submitted
for stockholder approval, but our board of directors is seeking ratification of
its selection of KPMG LLP from our stockholders as a matter of good corporate
practice. If the stockholders do not ratify this selection, the board of
directors will reconsider its selection of KPMG LLP and will either continue to
retain this firm or appoint new auditors upon recommendation of the audit
committee. Even if the selection is ratified, the audit committee and our board
of
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<PAGE> 19
directors, in their discretion, may direct the appointment of different
independent auditors at any time during the year if they determine that such a
change would be in the best interests of our stockholders.
VOTE REQUIRED AND BOARD RECOMMENDATION
The affirmative vote of a majority of the shares present in person or
represented by proxy and entitled to vote at the annual meeting will be required
to ratify the selection of KPMG LLP as our independent accountants for the
current fiscal year.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE IN FAVOR OF PROPOSAL 4.
17
<PAGE> 20
EXECUTIVE OFFICERS
The executive officers of Diedrich Coffee, and their ages as of October 20,
2000, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION(S) HELD
---- --- ----------------
<S> <C> <C>
J. Michael Jenkins................... 54 President and Chief Executive Officer
Martin R. Diedrich................... 42 Vice Chairman of the Board, Secretary and Chief Coffee
Officer
Matthew C. McGuinness................ 40 Executive Vice President and Chief Financial Officer
Gregory MacIsaac..................... 47 Senior Vice President -- Operations
Carl Mount........................... 37 Vice President -- Manufacturing and Purchasing and
Interim President -- Gloria Jean's division
Matthew Kimble....................... 48 Vice President -- Human Resources
Joseph E. Caruso..................... 39 Vice President -- Franchise Sales
Edward A. Apffel..................... 39 Vice President -- Wholesale Sales
Lisa Steere.......................... 37 Executive Vice President -- Marketing and Sales,
Gloria Jean's division
Catherine A. Saar.................... 41 Vice President -- Marketing
</TABLE>
The following is information regarding those persons currently serving as
executive officers of Diedrich Coffee.
J. Michael Jenkins joined us in September 2000 as our President and Chief
Executive Officer. From May 1998 until May 2000, Mr. Jenkins was Chief Executive
Officer of Boston Chicken, Inc. Prior to that, from September 1994 to April
1998, Mr. Jenkins was Chief Executive Officer of VICORP Restaurants, Inc.
Martin R. Diedrich has served as our officer and director since 1985. In
April 1997, he became Vice Chairman of the Board and Chief Coffee Officer, as
well as continuing as our Corporate Secretary. Before that time, Mr. Diedrich
served as Director of Coffee. In addition, he served as Chairman of the Board
from January 1996 to April 1997. Mr. Diedrich is an internationally recognized
specialty coffee expert who is a frequent speaker at industry and trade
association functions.
Matthew C. McGuinness joined us in March 2000 as Senior Vice President and
Chief Financial Officer and was promoted to Executive Vice President in October
2000. Mr. McGuinness was Senior Vice President -- Finance and Chief Financial
Officer at Denny's, Inc. from May 1998 to February 2000. From 1991 until May
1998, Mr. McGuinness was Vice President -- Finance and Chief Financial Officer
at El Pollo Loco, Inc.
Gregory MacIsaac joined us in March 2000 as Senior Vice
President -- Operations. Mr. MacIsaac was Vice President -- Operations at
Restaurant Concepts, Inc., an Applebees restaurant franchisee, from June 1999 to
March 2000. From May 1973 to October 1998, Mr. MacIsaac was Senior Vice
President -- Operations at Darden Restaurants, Inc.
Carl Mount has been our Vice President -- Manufacturing and Purchasing
since November 1999. Mr. Mount also has been serving as the Interim
President -- Gloria Jean's division since October 2000. From January 1999 to
November 1999, Mr. Mount was a plant manager for the Pepsi Bottling Group in
Hayward, California. He served as a Senior Consultant, Manufacturing Services
for the Coca-Cola Company in Atlanta, Georgia from July 1998 to January 1999.
Prior to this, he served as Group Operations Manager from November 1996 to July
1998, and as Operations Manager from August 1995 to November 1996 for the
Coca-Cola Company in Western Turkey and Bursa, Turkey respectively.
Matthew Kimble has been our Vice President -- Human Resources since our
acquisition of Coffee People in July 1999. Mr. Kimble served as Vice President,
Human Resources of Coffee People from January 1997 until the acquisition. From
1991 to January 1997, he served as Employment Manager for Thrifty Payless Drug
Stores N.W.
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<PAGE> 21
Joseph E. Caruso has been our Vice President -- Franchise Sales since April
2000. From March 1999 to April 2000, Mr. Caruso was Director of Non-Traditional
Development at Mrs. Fields Original Cookie Co. based in Salt Lake City, Utah.
From August 1993 to October 1998, Mr. Caruso was National Director of Franchise
Sales for Hardee's Food Systems, Inc., a division of CKE Restaurants, Inc. based
in Rocky Mount, North Carolina.
Edward A. Apffel has been our Vice President -- Wholesale Sales since April
2000. He served as our Director of Wholesale Sales from June 1997 to April 2000.
From January 1996 to June 1997, Mr. Apffel was Director National Wholesale Sales
at F. Gavina & Sons, Inc. in Vernon, California. From October 1992 to December
1995, Mr. Apffel was the owner of Red Apple Coffee Co., a coffee consulting firm
located in Glendale, California.
Lisa Steere was appointed Executive Vice President -- Marketing and Sales,
Gloria Jean's division in May 2000. Ms. Steere has been responsible for Gloria
Jean's marketing since August 1997 and was employed by Coffee People in that
capacity prior to its acquisition by us in July 1999. Ms. Steere was Marketing
Director for Fresh Express from October 1996 to August 1997. From March 1993 to
October 1996, Ms. Steere held several positions with Nestle Beverage Co.,
including Marketing Director, Consumer Manager and Promotion/Media Manager.
Catherine A. Saar has been our Vice President -- Marketing since July 1998.
Ms. Saar was Vice President -- Marketing and Merchandising for Frame-N-Lens,
Inc. from January 1998 to June 1998. From May 1993 to December 1997, Ms. Saar
was Director of Corporate Marketing for Smart and Final, Inc. Previously, Ms.
Saar held various marketing positions at Taco Bell Corp.
19
<PAGE> 22
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY OF COMPENSATION
In July 1999, we changed our fiscal year end from the Wednesday closest to
January 31 to the Wednesday closest to June 30 in connection with our
acquisition of Coffee People. The following table sets forth compensation earned
during the last three fiscal years, restated as if our fiscal year end occurred
on the Wednesday nearest to June 30 in each of 2000, 1999 and 1998, by our Chief
Executive Officer during the fiscal year ended June 28, 2000 and our next four
most highly compensated persons who were serving as our executive officers on
June 28, 2000 and whose total annual salary and bonus for that fiscal year
exceeded $100,000. This includes Timothy J. Ryan, who retired from his position
as Chief Executive Officer and President in September 2000 and Robert Rodriguez
who served as President of Gloria Jean's Gourmet Coffee from July 1999 until his
resignation in August 24, 2000. In addition, the table discloses compensation
earned during these periods for Ann Wride, who served as our Chief Financial
Officer from April 8, 1998 to March 13, 2000 and as our Senior Vice
President -- Strategic Planning from March 13, 2000 until her resignation on
April 28, 2000.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
FISCAL YEAR ----------------------------------- SECURITIES
ENDED OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION JUNE SALARY BONUS COMPENSATION OPTIONS(#)
--------------------------- ----------- --------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
John E. Martin(1)...................... 2000 $100,000 -- $72,000 --
Chairman of the Board 1999 100,000 -- 72,000 --
1998 58,846 -- 42,370 850,00
Timothy J. Ryan(2)..................... 2000 $223,077 $100,000 $ 7,200 20,000
Former Chief Executive Officer 1999 200,000 -- 7,200 --
and President 1998 117,692 -- 4,237 600,000
Robert Rodriguez(3).................... 2000 $202,308 $ 30,000 -- 50,000
President -- Gloria Jean's division 1999 -- -- -- --
1998 -- -- -- --
Martin R. Diedrich(4).................. 2000 $139,385 -- $ 4,800 15,000
Vice Chairman of the Board, Secretary 1999 119,385 -- 4,800 4,000
and Chief Coffee Officer 1998 100,000 -- 4,800 --
Lisa Steere(3)......................... 2000 $119,689 $ 17,905 -- 20,000
Executive Vice President -- Marketing
and 1999 -- -- -- --
Sales, Gloria Jean's division 1998 -- -- -- --
Ann Wride(5)........................... 2000 $102,788 -- $50,000 15,000
Former Vice President and Chief
Financial 1999 158,077 $ 23,250 -- 70,000
Officer 1998 27,423 -- -- 54,000
</TABLE>
---------------
(1) Mr. Martin's other annual compensation consists of our employment of a
full-time executive assistant on his behalf at an annual salary of $72,000.
Effective as of October 20, 2000, our board of directors accepted Mr.
Martin's offer to transition from executive Chairman of the Board to
non-executive Chairman of the Board.
(2) Mr. Ryan's other annual compensation consists of a monthly car allowance of
$600. Mr. Ryan resigned from his position as President and Chief Executive
Officer effective September 27, 2000. Mr. Jenkins was appointed President
and Chief Executive Officer effective September 27, 2000. Accordingly, Mr.
Jenkins did not earn or receive any compensation from us in fiscal 2000.
Pursuant to his employment agreement, Mr. Jenkins will receive an annual
salary of $300,000 per year.
(3) Mr. Rodriguez and Ms. Steere joined us in July 1999. Accordingly, neither
person received compensation from us for fiscal years ended June 1998 and
June 1999. Mr. Rodriguez resigned from his position as President -- Gloria
Jean's division effective August 24, 2000.
(4) Mr. Diedrich's other annual compensation consists of a monthly car allowance
of $400.
20
<PAGE> 23
(5) Ms. Wride's other annual compensation consists of a separation payment of
$50,000. Ms. Wride served as our Chief Financial Officer from April 8, 1998
to March 13, 2000, and as our Senior Vice President -- Strategic Planning
from March 13, 2000 until her resignation on April 28, 2000. Accordingly,
she did not earn a full year of compensation from us in either the year
ended June 1998 or in fiscal 2000.
STOCK OPTION GRANTS AND EXERCISES
The following table sets forth information regarding stock options granted
to the following executive officers during the fiscal year ended June 28, 2000
and the restated fiscal year ended June 30, 1999.
<TABLE>
<CAPTION>
PERCENT OF POTENTIAL REALIZABLE
TOTAL VALUE AT ASSUMED
NUMBER OPTIONS ANNUAL RATES OF
OF GRANTED STOCK
SECURITIES TO PRICE APPRECIATION FOR
FISCAL UNDERLYING EMPLOYEES EXERCISE OPTION TERM(1)
YEAR END OPTIONS IN FISCAL PRICE EXPIRATION -----------------------
NAME JUNE GRANTED(#) YEAR ($/SHARE) DATE 5%($) 10%($)
---- -------- ---------- ---------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
John E. Martin..................... 2000 -- -- -- -- -- --
1999 -- -- -- -- -- --
Timothy J. Ryan(2)................. 2000 20,000 3% 5.50 10/26/00 $179,178 $285,312
1999 -- -- -- -- -- --
Robert Rodriguez(3)................ 2000 50,000 8% 5.50 9/24/00 -- --
1999 -- -- -- -- -- --
Martin R. Diedrich(4).............. 2000 15,000 2% 5.50 11/3/09 $134,384 $213,984
1999 -- -- -- -- -- --
Lisa Steere(5)..................... 2000 20,000 3% 5.50 11/3/09 $179,178 $285,312
1999 -- -- -- -- -- --
Ann Wride(6)....................... 2000 15,000 2% 5.50 5/28/00 -- --
1999 50,000 30% 4.88 5/28/00 -- --
20,000 12% 6.25 5/28/00 -- --
</TABLE>
---------------
(1) The potential realizable values listed are based on an assumption that the
market price of Diedrich Coffee's common stock appreciates at the stated
rate, compounded annually, from the date of grant to the expiration date.
The 5% and 10% assumed rates of appreciation are determined by the rules of
the Securities and Exchange Commission and do not represent our estimate of
the future market price of Diedrich Coffee common stock.
(2) Mr. Ryan's options were granted on November 3, 1999 under our 1996 Stock
Incentive Plan.
(3) Mr. Rodriguez's options were granted on November 3, 1999 under our 1996
Stock Incentive Plan, which options were unexercised and terminated on
September 24, 2000, 30 days after his resignation on August 24, 2000.
(4) Mr. Diedrich's options were granted on November 3, 1999 under our 1996 Stock
Incentive Plan.
(5) Ms. Steere's options were granted on November 3, 1999 under our 1996 Stock
Incentive Plan.
(6) Of the 85,000 options granted to Ms. Wride, 20,000 options were granted on
February 23, 1999, 50,000 options were granted on May 4, 1999 and 15,000
options were granted on November 23, 1999. Ms. Wride's options were granted
under our 1996 Stock Incentive Plan and all of her options were unexercised
and terminated 30 days after her resignation on April 28, 2000.
21
<PAGE> 24
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth information concerning the number and value
of unexercisable options held by the following executive officers on June 28,
2000. None of these executive officers exercised options to purchase common
stock during the fiscal year ended June 28, 2000 or the 22 week transitional
period ended June 30, 1999.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT
AT FISCAL YEAR END(#) FISCAL YEAR END($)(1)
------------------------------- -------------------------------
NAME EXERCISABLE UNEXERCISABLE(2) EXERCISABLE UNEXERCISABLE(2)
---- ----------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C>
John E. Martin........................ 550,000 300,000 -- --
Timothy J. Ryan....................... 250,000 370,000 -- --
Robert Rodriguez...................... -- 50,000 -- --
Martin R. Diedrich.................... 2,000 17,000 -- --
Lisa Steere........................... -- 20,000 -- --
Ann Wride............................. -- -- -- --
</TABLE>
---------------
(1) These amounts represent the difference between the exercise price of the
in-the-money options and the market price of our common stock on June 28,
2000. The closing price of our common stock on that day on the Nasdaq
National Market was $2.875. Options are in-the-money if the market value of
the shares covered thereby is greater than the option exercise price. On
June 28, 2000, none of the options were in-the-money.
(2) Future exercisability is subject to a number of factors, including, but not
limited to, the optionee remaining employed by us.
EMPLOYMENT AGREEMENTS AND COMPENSATORY ARRANGEMENTS
The following section describes certain employment agreements and
compensatory arrangements between us or our affiliated entities and those who
currently serve as our executive officers or as executive officers of our
affiliated entities. In addition, it describes certain employment agreements and
compensatory arrangements between us or our affiliates and those who served as
our executive officers or as executive officers of our affiliates in fiscal year
ended June 28, 2000, but are no longer employed with us or our affiliates.
Employment Agreements and Compensatory Arrangements with Current Executive
Officers
J. Michael Jenkins: The terms of Mr. Jenkins' employment agreement and
stock option plan and agreement are described under Proposal 2. A copy of the
stock option plan and agreement with Mr. Jenkins is attached hereto as Appendix
A.
Martin R. Diedrich: Mr. Diedrich entered into an employment agreement with
Diedrich Coffee, which appointed him as our Chief Coffee Officer beginning as of
June 29, 1998. The term of the agreement is three years. The agreement provides
for a base salary of $120,000 per annum, increasing to $140,000 per annum
beginning in the second year of the agreement, and to $160,000 in the third
year. Mr. Diedrich is also entitled to the payment of a monthly car allowance of
$400. Mr. Diedrich receives employee benefits consistent with our policies for
other senior executives.
Matthew C. McGuinness: Effective as of March 2000, Mr. McGuinness entered
into an employment agreement with us appointing him Senior Vice President and
Chief Financial Officer. The agreement provides for a minimum base salary of
$206,000 per annum and an annual incentive bonus of up to 50% of base salary
based on our performance and Mr. McGuinness' performance against objectives
approved by our board of directors. Concurrent with Mr. McGuinness' promotion to
Executive Vice President in October 2000, his base salary was increased to
$250,000 per annum. He is also entitled to employee benefits that include two
weeks of annual vacation leave, reimbursement for all reasonable and necessary
travel and other business expenses incurred in connection with the performance
of services under the agreement, and the payment of a monthly car allowance of
$700. Mr. McGuinness is further entitled to reimbursement of all reasonable
relocation
22
<PAGE> 25
expenses incurred by him in relocating to Irvine, California, including a
gross-up payment for any taxable reimbursements. If terminated without cause,
Mr. McGuinness is entitled to twelve months' salary as severance compensation.
Mr. McGuinness also received options to purchase up to 75,000 shares of our
common stock at an exercise price equaling the trailing five day average of the
price of the common stock from the day of board approval. Such options vest over
three years at a rate of 33% per year. Mr. McGuinness receives employee benefits
consistent with our policies for other senior executives.
Gregory MacIsaac: In February 2000, Mr. MacIsaac entered into an employment
agreement with us appointing him as our Senior Vice President -- Operations. The
agreement provides for a base salary of $175,000 per annum and an annual
incentive bonus of up to 25% of base salary based on our performance and Mr.
MacIsaac's performance against objectives approved by our board of directors.
Mr. MacIsaac is also entitled to employee benefits that include two weeks of
annual vacation leave and reimbursement of all reasonable relocation expenses
incurred by him in relocating to Irvine, California, including a gross-up
payment for any taxable reimbursements. Mr. MacIsaac also received options to
purchase up to 50,000 shares of our common stock at an exercise price equaling
the trailing five day average of the price of the common stock from the day of
board approval. Such options vest over two years at a rate of 50% per year. If
terminated without cause, Mr. MacIsaac is entitled to twelve months' salary as
severance compensation. Mr. MacIsaac receives employee benefits consistent with
our policies for other senior executives.
Carl Mount: In October 1999, Mr. Mount entered into an employment agreement
with us appointing him as our Vice President -- Manufacturing and Purchasing.
The agreement provides for a minimum base salary of $140,000 per annum, a
signing bonus of $19,000, an annual incentive bonus of up to 25% of base salary
based on our performance and Mr. Mount's performance against objectives approved
by our board of directors and three weeks of annual vacation leave. In September
2000, his base salary was increased to $175,000 per annum. If terminated without
cause, Mr. Mount is entitled to six months' salary as severance compensation.
Mr. Mount also received options to purchase up to 20,000 shares of our common
stock at an exercise price of $5.50. Such options vest over three years at a
rate of 33% per year. Mr. Mount receives employee benefits consistent with our
policies for other senior executives.
Joseph E. Caruso: In February 2000, Mr. Caruso entered into an employment
agreement with us appointing him as our Vice President -- Franchise Sales. The
agreement provides for a base salary of $120,000 per annum, a signing bonus of
$10,000, an annual incentive bonus of up to 15% of the initial area development
fee and $1,000 per store as full size franchisee stores open and two weeks of
annual vacation leave. The agreement also provides for the reimbursement of all
Mr. Caruso's reasonable relocation expenses incurred by him in relocating to
Irvine, California, including temporary housing for up to 4 months and a
gross-up payment for any taxable reimbursements. If terminated without cause,
Mr. Caruso is entitled to six months' salary as severance compensation. Mr.
Caruso also received options to purchase up to 20,000 shares of our common stock
at an exercise price of $2.88. Such options vest over three years at a rate of
33% per year. Mr. Caruso receives employee benefits consistent with our policies
for other senior executives.
Edward A. Apffel: In May 2000, Mr. Apffel entered into an employment
agreement with us appointing him as our Vice President -- Wholesale Operations.
The agreement provides for a base salary of $110,000 per annum and an annual
incentive bonus of up to 4% of Wholesale Earnings Before Interest, Taxes,
Depreciation and Amortization revenue based on the percentage of the total
Wholesale Earnings Before Interest, Taxes, Depreciation and Amortization plan
that is met. If terminated without cause, Mr. Apffel is entitled to six months'
salary as severance compensation. Mr. Apffel also received options to purchase
up to 15,000 shares of our common stock at an exercise price of $2.96. Such
options vest over three years at a rate of 33% per year. Mr. Apffel receives
employee benefits consistent with our policies for other senior executives.
Lisa Steere: In June 2000, Ms. Steere entered into an employment agreement
with Gloria Jean's Gourmet Coffee appointing her as our Executive Vice
President -- Marketing and Sales. The agreement provides for a base salary of
$150,000 per annum and an annual incentive bonus of up to 25% of base salary
based on our performance and Ms. Steere's performance against objectives
approved by our board of directors. If terminated without cause, Ms. Steere is
entitled to six months' salary as severance compensation. Ms. Steere is also
entitled to participate in the executive vice president stock option plan.
23
<PAGE> 26
Catherine A. Saar: On May 26, 2000, Ms. Saar entered into an employment
agreement with us setting forth the terms of Ms. Saar's continuing employment as
our Vice President -- Marketing. The agreement provides for a base salary of
$106,400 per annum and an annual incentive bonus of up to 15.75% of base salary
based on our performance and Ms. Saar's performance against objectives approved
by our board of directors. If Ms. Saar's employment is terminated, we will
engage Ms. Saar as a consultant for a minimum of three months after the end of
her employment at a minimum billing of 20 hours per month at a minimum rate of
$100 per hour. Ms. Saar also received options to purchase up to 20,000 shares of
our common stock at an exercise price of $7.75, vesting over two years. Ms. Saar
receives employee benefits consistent with our policies for other senior
executives.
Employment Agreements and Compensatory Arrangements with Executive Officers no
Longer Employed by Diedrich Coffee
John E. Martin: Effective as of October 20, 2000, our board of directors
accepted Mr. Martin's offer to transition from executive Chairman of the Board
to non-executive Chairman of the Board. As of that date, Mr. Martin is no longer
entitled to compensation beyond that amount provided to our other non-employee
directors and is no longer entitled to the benefits set forth in his letter
agreement with us dated as of November 17, 1997. Prior to October 20, 2000, Mr.
Martin's employment relationship with us was governed by the letter agreement.
The agreement provided for a base salary of $100,000 per year for so long as Mr.
Martin continued as Chairman of the Board. Mr. Martin was not eligible to
receive employee benefits nor was he entitled to any other compensation to which
he would otherwise have been entitled for serving on the board. Our board of
directors was permitted to terminate him in its discretion at any time with or
without reason. We also agreed to employ a full-time executive assistant on his
behalf, reimburse him for all reasonable and necessary travel and other business
expenses incurred in connection with the performance of services under the
agreement, enter into an indemnification agreement with him in the form provided
to each of our other directors and executive officers, and reimburse him for
reasonable legal and accounting fees incurred in connection with the negotiation
and execution of his agreement in an amount not to exceed $10,000. Finally, the
agreement recognized that Mr. Martin's other business interests related to
restaurants and provided that we waive any rights or claims to other business
opportunities involving the restaurant business which might become available to
Mr. Martin, other than opportunities involving the coffeehouse business or other
businesses in which the principal activity involves the sale of coffee and
coffee beverages.
On November 17, 1997, Mr. Martin also entered into a stock option plan and
agreement with us, which was approved by our stockholders at a special meeting
held on January 22, 1998. We granted Mr. Martin options to purchase an aggregate
of 850,000 shares of common stock for the purpose of encouraging and rewarding
his contributions to our performance and to align Mr. Martin's interests with
the interests of our stockholders. Mr. Martin's option agreement provided that
options granted to Mr. Martin were exercisable on the earlier of May 15, 2002 or
as soon as the closing price of our common stock on the Nasdaq National Market
exceeded the respective exercise price for at least seven trading days in any
period of ten consecutive trading days, at the following exercise prices:
- 450,000 shares of common stock at an exercise price of $4.00 per share;
- 100,000 shares of common stock at an exercise price of $5.00 per share;
- 150,000 shares of common stock at an exercise price of $8.00 per share;
and
- 150,000 shares of common stock at an exercise price of $10.00 per share.
Of the 850,000 options granted to Mr. Martin, 550,000 options became
exercisable. Now that Mr. Martin has transitioned to non-executive Chairman of
the Board, pursuant to the terms of Mr. Martin's option agreement, the 300,000
options that had not become exercisable as of October 20, 2000, will continue to
become exercisable until they terminate on the first anniversary of that date.
The 550,000 options that had become exercisable as of October 20, 2000, will
terminate on the first anniversary of that date. The options are not
transferable or assignable. Subject to the discretion of our compensation
committee, Mr. Martin may pay
24
<PAGE> 27
the exercise price for his options with cash or by delivery of shares of our
common stock with a value equal to the exercise price or through a combination
of cash and shares.
Timothy J. Ryan: Effective as of September 27, 2000, Timothy J. Ryan
retired after approximately three years of service as our President and Chief
Executive Officer. Prior to his retirement, Mr. Ryan's employment relationship
with us was governed by a two-year employment agreement with us dated November
17, 1997. The agreement provided for an annual salary of $200,000 per year, a
discretionary performance bonus which could be awarded by the compensation
committee after twelve months of employment (not to initially exceed 25% of Mr.
Ryan's base salary), and employee benefits that included three weeks of annual
vacation leave, reimbursement for all reasonable and necessary travel and other
business expenses incurred in connection with the performance of services under
the agreement, and the payment of a monthly car allowance of $600. The
employment agreement could be terminated before the completion of two years in
the event of Mr. Ryan's sustained incapacity as defined in the agreement or by
us for cause as defined in the agreement. We also were entitled to terminate Mr.
Ryan for any other reason, however, in such event, Mr. Ryan would be entitled to
receive a severance payment equal to fifty percent of his base salary.
On November 17, 1997, Mr. Ryan also entered into a stock option plan and
agreement with us. Our stockholders approved Mr. Ryan's option agreement at a
special meeting held on January 22, 1998. We granted Mr. Ryan options to
purchase an aggregate of 600,000 shares of our common stock for the purpose of
encouraging and rewarding Mr. Ryan's contributions to our performance and to
align Mr. Ryan's interests with the interests of our stockholders. Mr. Ryan's
option agreement provided that the options granted to Mr. Ryan were exercisable,
at the following exercise prices:
- 50,000 shares of common stock at an exercise price of $3.50 per share;
- 75,000 shares of common stock at an exercise price of $4.50 per share;
- 125,000 shares of common stock at an exercise price of $5.00 per share;
- 175,000 shares of common stock at an exercise price of $8.00 per share;
and
- 175,000 shares of common stock at an exercise price of $10.00 per share.
We granted another 20,000 options to Mr. Ryan on November 3, 1999, at an
exercise price of $5.50, under our 1996 Stock Incentive Plan.
Of the 620,000 options granted to Mr. Ryan, 250,000 options became
exercisable. Now that Mr. Ryan has retired, pursuant to the terms of Mr. Ryan's
option agreement, the 350,000 options that had not become exercisable as of his
retirement date will continue to become exercisable until they terminate on the
first anniversary of that date. The 250,000 options that had become exercisable
as of his retirement date will terminate on the first anniversary of that date.
None of the 20,000 options granted under the 1996 Stock Incentive Plan are
exercisable and all will terminate 30 days after his retirement date. The
options are not transferable or assignable. Subject to the discretion of our
compensation committee, Mr. Ryan may pay the exercise price for his options with
cash or by delivery of shares of our common stock with a value equal to the
exercise price or through a combination of cash and shares.
Ann Wride: Effective as of April 28, 2000, Ann Wride resigned as our Senior
Vice President -- Strategic Planning. Ms. Wride had previously served as our
Chief Financial Officer until March 13, 2000. Prior to her resignation, Ms.
Wride's employment was governed by an employment agreement with us entered into
on April 8, 1998. The agreement provided for a base salary of $155,000 per annum
and an annual incentive bonus of up to 25% of her base salary based on our
performance and Ms. Wride's performance against objectives approved by our board
of directors. In connection with her separation from us, Ms. Wride received a
payment of $50,000. Ms. Wride also received options to purchase up to 50,000
shares of common stock at an exercise price of $5.8125, vesting over two years,
which options were unexercised and terminated 30 days after her resignation on
April 28, 2000. Ms. Wride received employee benefits consistent with our
policies for other senior executives.
25
<PAGE> 28
Dolf A. Berle: Effective as of February 1, 2000, Mr. Berle resigned as our
Vice President of Franchise Development. Prior to his resignation, Mr. Berle's
employment was governed by an employment agreement with us entered into on April
8, 1998. The agreement provided for a base salary of $155,000 per annum and an
annual incentive bonus of up to 25% of his base salary based on our performance
and Mr. Berle's performance against objectives approved by our board of
directors. Mr. Berle also received options to purchase up to 50,000 shares of
our common stock at an exercise price of $6.25 vesting over two years, which
options were unexercised and terminated 30 days after his resignation on
February 1, 2000. Mr. Berle also received employee benefits consistent with our
policies for other senior executives.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
ON EXECUTIVE COMPENSATION
The compensation committee is composed of Messrs. Churm, Goelman and
Heeschen, none of whom are currently our officers or employees. The compensation
committee administers our stock option plans and sets compensation levels for
our executive officers. Our executive compensation policies and programs are
designed to:
- provide competitive levels of overall compensation that will attract and
retain the best executive talent in the industry;
- motivate executive officers to perform at their highest level;
- align executive officer and stockholder interests to create stockholder
value; and
- reward executive officers for achievement of corporate and individual
objectives.
To achieve these goals, our compensation committee and board of directors
have established an executive compensation program consisting primarily of three
integrated components: base salary, annual bonus and stock options.
Base Salary. Base salaries for executive officers are set by our
compensation committee after considering factors such as competitive
environment, experience level, position, responsibility and overall contribution
of the executive. Base salaries for the executive officers were established in
their respective employment agreements.
Annual Bonus. All executive officers, including the Chief Executive
Officer, are eligible to receive an annual bonus. The employment agreements for
the executive officers provide for discretionary performance bonuses based upon
our performance and the respective executive officer's contribution to this
performance, except that Mr. Jenkins' employment agreement provides for a
guaranteed $100,000 bonus to be paid on the first anniversary of his employment
with us if he remains an employee through that date. The board of directors
awarded an annual bonus to Mr. Ryan, our Chief Executive Officer for the fiscal
year ended January 27, 1999, because of outstanding performance during the year.
This bonus was paid during the fiscal year ended June 28, 2000 but was related
to performance during the fiscal year ended January 27, 1999.
Stock Options. The third component of the compensation program for
executive officers is in the form of stock option awards. Our 1996 Stock
Incentive Plan and 2000 Equity Incentive Plan provide for long-term incentive
compensation for our employees, including executive officers. Stock option
awards align the interests of executive officers with those of stockholders by
providing them with an equity interest in Diedrich Coffee, thereby providing
incentive for the executive officers to maximize stockholder value. Option
awards directly tie executive compensation to the value of our stock. Our
compensation committee is responsible for determining, subject to the terms of
the 1996 Stock Incentive Plan and 2000 Equity Incentive Plan, the individuals to
whom grants are made, the timing of grants and the number of shares per grant.
The number of shares are determined based upon the individual's position in our
company, competitive company practices and the number of unvested shares already
held by the individual. Stock options are generally granted with an exercise
price equal to the fair market value of our common stock on the date of grant.
During the fiscal year ended June 28, 2000, our compensation committee granted
stock options to approximately 185 employees. This was a wider employee base
than in past years due to the addition of employees who joined us as part of the
Coffee
26
<PAGE> 29
People acquisition. The goal of the compensation committee was to ensure that
employees were focused on increasing stockholder value. The group included the
majority of corporate office employees at the level of manager and above, as
well as general managers at the coffeehouse level.
Chief Executive Officer. Mr. Ryan served as our Chief Executive Officer
until his retirement on September 26, 2000. The terms of Mr. Ryan's employment
agreement and stock option plan and agreement are described above under
"-- Employment Agreements and Compensatory Arrangements." In September 2000, we
hired Mr. Jenkins to replace Mr. Ryan. We entered into an employment agreement
as well as a stock option plan and agreement with Mr. Jenkins. Our stockholders
are being asked to approve the Stock Option Plan and Agreement at the annual
meeting that is the subject of this Proxy Statement. The terms of Jenkins'
employment agreement and stock option plan and agreement are described under
Proposal 2. The process of establishing the Chief Executive Officer's
compensation parallels the process and criteria used in establishing
compensation levels for other executive officers.
Policy with Respect to Internal Revenue Code Section 162(m). In 1993, the
Internal Revenue Code was amended to add Section 162(m). Section 162(m) and the
regulations thereunder place a limit of $1 million on the amount of compensation
that may be deducted by us in any year with respect to certain of our most
highly compensated officers. Section 162(m) does not, however, disallow a
deduction for qualified "performance-based compensation," the material terms of
which are disclosed to and approved by stockholders. At the present time, our
executive officer compensation levels, other than "performance-based
compensation," do not exceed $1 million. Our compensation committee and board of
directors plan to take such actions in the future to minimize the loss of tax
deductions related to compensation as they deem necessary and appropriate in
light of specific compensation objectives.
Respectfully submitted,
Peter Churm
Paul C. Heeschen
Lawrence Goelman
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended June 28, 2000, our compensation committee
consisted of Messrs. Churm, Goelman and Heeschen. No member of the compensation
committee was, at any time during the fiscal year ended June 28, 2000, during
the 22 week transition period ended June 30, 1999 or at any other time, an
officer or employee of our company. There are no compensation committee
interlocks between us and other entities involving our executive officers and
board members who serve as executive officers or board members of these other
entities.
27
<PAGE> 30
STOCK PERFORMANCE MEASUREMENT COMPARISON
The following graph shows a comparison of the cumulative total returns for
the period beginning on September 12, 1996, the date our common stock was first
publicly traded, and ending on June 28, 2000 for:
- our common stock;
- the Total Return Index for the Nasdaq Stock Market (U.S. companies); and
- the Total Return Index for Nasdaq Retail Trade Stocks.
Each of the above returns assumes an initial value of $100 and reinvestment
of dividends. Although the graph would normally cover a five-year period, our
common stock has been publicly traded only since September 12, 1996, so the
graph begins on that date. The comparisons in the graph are required by the
Securities and Exchange Commission and are not intended to forecast or be
indicative of possible future performance of our common stock.
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
INVESTMENT VALUE
------------------------------------------------------------------
09/12/1996 07/02/1997 07/01/1998 06/30/1999 06/28/2000
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Diedrich Coffee, Inc..... $100.0 $ 36.2 $ 95.0 $ 95.8 $ 39.4
Nasdaq Stock Market (U.S.
Companies)............. $100.0 $124.8 $164.5 $234.2 $343.5
Nasdaq Retail Trade
Stocks................. $100.0 $103.2 $139.2 $133.4 $ 86.8
</TABLE>
28
<PAGE> 31
CERTAIN TRANSACTIONS REGARDING DIEDRICH COFFEE
On April 6, 1999, we entered into a $1,000,000 loan agreement and security
agreement with Amre A. Youness, one of our former directors and the beneficial
owner of approximately 3.8% of the outstanding shares of our common stock. Under
the loan agreement, all outstanding principal and interest was due and payable
on April 6, 2000. The loan was secured by our assets with interest accruing and
paid monthly at the prime rate plus 3%. We repaid the loan on July 8, 1999. In
connection with the loan agreement, we issued warrants to Mr. Youness to
purchase 70,000 shares of our common stock at a price of $5.625 per share. Mr.
Youness' warrants will not expire until April 6, 2004.
In connection with the acquisition of Coffee People in July 1999, we and
certain of our affiliates entered into a voting agreement with Second Cup
pursuant to which all parties agreed to nominate and vote for a director nominee
identified by Second Cup in any subsequent stockholder meeting where directors
were to be elected. On October 6, 2000, Second Cup notified us that it was
irrevocably waiving its right to designate a director as provided in this voting
agreement.
29
<PAGE> 32
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of our common stock as of October 20, 2000, by:
- each person or group of affiliated persons who we know owns beneficially
5% or more of our common stock;
- each of our directors and nominees;
- each of our executive officers or former executive officers listed in the
summary compensation table; and
- all of our directors and executive officers as a group.
Percentage of ownership is calculated as required by Rule 13d-3(d)(1) under
the Securities Exchange Act of 1934. Except as indicated in the footnotes to
this table, the persons named in the table have sole voting and investment power
with respect to all shares of common stock shown as beneficially owned by them,
subject to community property laws. The table below includes the number of
shares underlying options that are exercisable within 60 days after October 20,
2000.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNERSHIP(2) OF CLASS(2)
--------------------------------------- ------------ -----------
<S> <C> <C>
D.C.H., L.P. ............................................... 1,430,760(3) 11.3%
450 Newport Center Drive
Suite 450
Newport Beach, CA 92660
The Second Cup, Ltd. ....................................... 1,044,495 8.3%
175 Bloor Street East, Suite 801
South Tower
Toronto, Ontario M4W 3R8 Canada
Paul C. Heeschen............................................ 1,833,346(4) 14.5%
John E. Martin.............................................. 1,258,533(5) 9.3%
Martin R. Diedrich.......................................... 662,107(6) 5.2%
Timothy J. Ryan............................................. 636,034(7) 4.8%
Lawrence Goelman............................................ 116,700(8) *
Peter Churm................................................. 50,000(9) *
Robert Rodriguez............................................ 7,000 *
Lisa Steere................................................. 6,667 *
Ann Wride................................................... 0 *
All directors and executive officers as a group (15
persons).................................................. 4,636,138(10) 36.7%
</TABLE>
---------------
* Less than 1%
(1) Unless otherwise indicated, the address of each person in this table is c/o
Diedrich Coffee, Inc., 2144 Michelson Drive, Irvine, California 92612.
(2) Calculated pursuant to Rule 13d-3(d) under the Securities Exchange Act of
1934. Shares not outstanding that are subject to options or warrants
exercisable by the holder thereof within 60 days of October 20, 2000 are
deemed outstanding for the purposes of calculating the number and
percentage owned by such stockholder, but not deemed outstanding for the
purpose of calculating the percentage owned by each other stockholder
listed. Unless otherwise noted, all shares listed as beneficially owned by
a stockholder are actually outstanding.
(3) Paul C. Heeschen, one of our directors, is the sole general partner of this
limited partnership with voting and investment power as to all shares
beneficially owned by the limited partnership.
30
<PAGE> 33
(4) Includes 1,430,760 shares beneficially owned by D.C.H., L.P., 246,317
shares beneficially owned by Redwood Enterprises VI, L.P. and 103,900
shares beneficially owned by Sequoia Enterprises L.P. Mr. Heeschen is the
sole general partner of each of these limited partnerships with voting and
investment power as to all of such shares. Also includes 7,369 shares owned
personally by Mr. Heeschen, 20,000 shares held personally by Mr. Heeschen
subject to options that are exercisable within 60 days and 25,000 shares
held by the Palm Trust, of which Mr. Heeschen is a co-trustee with shared
voting and investment power as to all of such shares.
(5) Includes 850,000 shares subject to options that are exercisable within 60
days.
(6) Includes 7,000 shares subject to options that are exercisable within 60
days.
(7) Includes 606,667 shares subject to options that are exercisable within 60
days.
(8) Includes 104,000 shares subject to options that are exercisable within 60
days. This number does not include the 85,000 shares subject to warrants
held by the Virginia R. Cirica Trust. Ms. Cirica is Mr. Goelman's wife. Mr.
Goelman disclaims any beneficial interest in the Virginia R. Cirica Trust,
except to the extent to which Mr. Goelman is a contingent beneficiary under
the terms of that trust.
(9) Includes 30,000 shares subject to options that are exercisable within 60
days.
(10) Excludes the 7,000 shares beneficially owned in the aggregate by Mr.
Rodriguez and Ms. Wride who were no longer executive officers of Diedrich
Coffee on October 20, 2000. Includes 1,648,001 shares subject to options
that are exercisable within 60 days.
OTHER INFORMATION
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our directors
and executive officers and persons who own more than ten percent of a registered
class of our equity securities, to file with the Securities and Exchange
Commission initial reports of ownership and reports of changes in ownership of
our common stock and other equity securities. These Section 16(a) reporting
persons are required by Securities and Exchange Commission regulations to
furnish us with copies of all Section 16(a) forms they file.
To our knowledge, based solely on a review of the copies of such reports
furnished to us and written representations from Section 16(a) reporting persons
that no other reports were required, we believe that during our fiscal year
ended June 28, 2000 and the 22 week transitional period from January 28, 1999
through June 30, 1999, all Section 16(a) reporting persons complied with all
applicable filing requirements except as follows:
We recently reevaluated our Section 16(a) reporting persons and determined
that Carl Mount, Matthew Kimble, Joseph E. Caruso, Edward A. Apffel and Lisa
Steere should file reports under Section 16(a). These officers have not
previously filed reports under Section 16(a) and may have engaged in
transactions involving our common stock or stock options that should have been
reported on Section 16(a) forms. Each such officer is in the process of
completing and filing a Form 3. If we had considered these officers to be
Section 16(a) reporting persons at an earlier time, there may have occurred
transactions for which Section 16(a) reports should have been filed.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
The firm of independent accounts recommended by the audit committee and
selected by our board of directors for the fiscal year ending June 27, 2001 is
KPMG LLP. The board of directors expects that the representatives of KPMG LLP
will be present at the meeting, will be given an opportunity to make a statement
at such meeting if they desire to do so and will be available to respond to
appropriate questions.
31
<PAGE> 34
INCORPORATION BY REFERENCE
In our filings with the Securities and Exchange Commission, information is
sometimes "incorporated by reference." This means that we are referring you to
information that has previously been filed with the Securities and Exchange
Commission, so that information should be considered as part of the filing that
you are reading. Our 2000 Annual Report is incorporated by reference. Based on
Securities and Exchange Commission regulations, the stock performance graph on
page 28 of this proxy statement and the Compensation Committee Report on page 26
specifically are not incorporated by reference into any other filings with the
Securities and Exchange Commission.
This proxy statement is sent to you as part of the proxy materials for the
2000 annual meeting of stockholders. You may not consider this proxy statement
as material for soliciting the purchase or sale of our common stock.
AVAILABILITY OF ADDITIONAL INFORMATION
Copies of our 2000 Annual Report (which includes the Annual Report (Form
10-K) filed with the Securities and Exchange Commission) have been distributed
to stockholders. Additional copies and additional information are available
without charge from Investor Relations, Diedrich Coffee, Inc., 2144 Michelson
Drive, Irvine, California 92612.
STOCKHOLDER PROPOSALS FOR 2001 ANNUAL STOCKHOLDERS' MEETING
Stockholders who wish to have proposals for action at our 2001 Annual
Meeting of Stockholders considered for inclusion in next year's proxy statement
and form of proxy must cause their proposals to be received in writing by us at
our address set forth on the first page of this proxy statement no later than
June 27, 2001 (120 days prior to the day we mailed this proxy statement). Such
proposals should be addressed to our Corporate Secretary, and may be included in
next year's proxy materials if they comply with the rules and regulations
promulgated by the Securities and Exchange Commission. No business shall be
conducted at any annual meeting except in accordance with the procedures set
forth in our bylaws.
OTHER MATTERS
Our board of directors knows of no other matters that will be presented for
consideration at the annual meeting. If any other matters are properly brought
before the annual meeting, it is the intention of the persons named in the
accompanying proxy to vote on such matters in accordance with their best
judgment. It is important that the proxies be returned promptly and that your
shares be represented. Stockholders are urged to mark, date, execute and
promptly return the accompanying proxy card in the enclosed envelope.
By order of the board of directors
/s/ John E. Martin
John E. Martin
Chairman of the Board
Irvine, California
October 26, 2000
32
<PAGE> 35
APPENDICES
<PAGE> 36
APPENDIX A
STOCK OPTION PLAN AND AGREEMENT WITH J. MICHAEL JENKINS
This Stock Option Plan and Agreement (this "AGREEMENT"), is made
effective as of September 22, 2000 (the "EFFECTIVE DATE"), by and between
Diedrich Coffee, Inc., a Delaware corporation (the "COMPANY") and J. Michael
Jenkins (the "GRANTEE").
RECITALS
A. The Company has agreed to employ Grantee under terms and conditions
set forth in that certain letter agreement dated September 22, 2000 (the
"EMPLOYMENT AGREEMENT"), by and between the Company and Grantee.
B. Under the Employment Agreement, the Company has agreed to grant to
Grantee options to purchase 500,000 shares of Company common stock, $0.01 par
value per share (the "COMMON STOCK"), as of the Effective Date, 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.
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. DEFINITIONS. The following terms, as used in this Agreement, have the
meanings ascribed to them in this Section 1.
(a) "BOARD" means the Board of Directors of the Company.
(b) "CHANGE OF CONTROL" means (i) any merger or consolidation in
which the Company is not the surviving entity (or survives only as a subsidiary
of another entity whose shareholders did not own all or substantially all of the
Company's Common Stock immediately prior to such transaction); (ii) the sale of
all or substantially all of the Company's assets to any other person or entity
(other than a wholly-owned subsidiary); (iii) the acquisition of beneficial
ownership or control of (including, without limitation, power to vote) more than
50% of the outstanding shares of Common Stock by any person or entity (including
a "group" as defined by or under Section 13(d)(3) of the Exchange Act); (iv) the
dissolution or liquidation of the Company; or (v) a contested election of
directors, as a result of which or in connection with which the persons who were
directors of the Company before such election or their nominees cease to
constitute a majority of the Board.
(c) "CLOSING PRICE" means the closing price on any given trading
day of the Common Stock on the Nasdaq National Market (or any subsequent
exchange or market system upon which the Company's Common Stock is principally
traded) as reported in the Transaction Index of the Wall Street Journal.
A-1
<PAGE> 37
(d) "COMPENSATION COMMITTEE" means the Compensation Committee of
the Board.
(e) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(f) "EXERCISE DATE" means any date on which Grantee exercises
Options.
(g) "EXERCISE DATE VALUE" means the product of: (i) the number of
shares of Common Stock delivered to the Company and (ii) the Closing Price of
the Common Stock on the Exercise Date.
(h) "EXERCISE SHARES" means those shares of Common Stock with
respect to which Options are being exercised.
(i) "OPTIONS" means non-qualified options to purchase shares of
Common Stock granted under this Agreement.
(j) "SECURITIES ACT" means the Securities Act of 1933, as
amended.
2. GRANT OF OPTIONS. The Company hereby grants to Grantee, effective as
of the September 22, 2000, Options to purchase up to 500,000 shares of Common
Stock on the terms and subject to the conditions set forth herein.
3. EXERCISABILITY AND EXERCISE PRICES. 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 Company's stockholders
at the Company's next annual meeting. 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 of $1.75 per share.
(c) Notwithstanding the foregoing, the Options will fully vest
and become immediately exercisable upon a Change of Control; 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 Change of
Control.
4. TERMINATION OF OPTIONS.
(a) Unless an earlier termination date occurs as specified in
Section 4(b), 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
A-2
<PAGE> 38
the Grantee for any reason 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) If Grantee's employment with the Company is terminated for
any reason other than as set forth in Section 4(b) hereof: (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 3;
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.
5. REGISTRATION OF OPTIONS. Promptly after execution of this Agreement,
the Company, at its expense, shall file a registration statement on Form S-8 to
register the issuance and exercise of the Options.
6. RESTRICTIONS ON EXERCISE. Notwithstanding anything to the contrary in
this Agreement, the Options may not be exercised, and no 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 6(a) so as to permit the Options to be exercised.
7. 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 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 to be
bound by this Agreement as if such beneficiary or the estate were Grantee.
8. 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 Exchange Act.
9. MANNER OF EXERCISE.
(a) To the extent that the Options have become and remain
exercisable as provided in Sections 3 and 4, and subject to such reasonable
administrative regulations as the
A-3
<PAGE> 39
Compensation Committee may adopt, the Options may be exercised, by written
notice to the Compensation Committee, specifying the number of Exercise Shares
and 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 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, applicable state securities laws or any
other law.
10. 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 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.
11. 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.
12. NOTICES. All notices and other communications required or permitted
to be given under this Agreement shall be in writing and shall be deemed to have
been given if delivered personally or sent by certified or express mail, return
receipt requested, postage prepaid, or by any recognized international
equivalent of such delivery, to the Company, or Grantee, as the case may be, at
the address of the Company's principal executive office. All such notices and
communications shall be deemed to have been received on the date of delivery or
on the third business day after the mailing thereof.
13. BINDING EFFECT; BENEFITS. This Agreement shall be binding upon and
inure to the benefit of the parties to this Agreement and their respective
successors and assigns. Nothing in this Agreement, express or implied, is
intended or shall be construed to give any person other than the parties to this
Agreement or their respective successors or assigns any legal or equitable
right, remedy or claim under or in respect of any agreement or any provision
contained herein.
A-4
<PAGE> 40
14. AMENDMENT. This Agreement may be amended, modified or supplemented
only by a written instrument executed by Grantee and the Company.
15. APPLICABLE LAW. This Agreement shall be governed by and construed in
accordance with the law of the State of Delaware, regardless of the law that
might be applied under principles of conflict of laws.
16. SECTION AND OTHER HEADINGS. The section and other headings contained
in this Agreement are for reference purposes only and shall not affect the
meaning or interpretation of this Agreement.
17. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Company and Grantee have executed this Agreement
as of the date first above written.
DIEDRICH COFFEE, INC.,
a Delaware corporation
/s/ Matthew C. McGuinness
-------------------------------------------------
MATTHEW C. MCGUINNESS
Senior Vice President and Chief Financial Officer
THE GRANTEE
/s/ J. Michael Jenkins
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J. MICHAEL JENKINS
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APPENDIX B
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 750,000, subject to adjustment as set forth in
Section 3.4.
3.2 SOURCE OF SHARES.
The Common Stock to be issued under this Plan will be made available, at
the discretion of the Administrator, either from authorized but unissued shares
of Common Stock or from previously issued shares of Common Stock reacquired by
the Company, including without limitation shares purchased on the open market.
3.3 AVAILABILITY OF UNUSED SHARES.
Shares of Common Stock subject to unexercised portions of any Award that
expire, terminate or are canceled, and shares of Common Stock issued pursuant to
an Award that are reacquired by the Company pursuant to this Plan or the terms
of the Award under which such
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shares were issued, will again become available for the grant of further Awards
under this Plan as part of the shares available under Section 3.1. However, if
the exercise price of, or withholding taxes incurred in connection with, an
Award is paid with shares of Common Stock, or if shares of Common Stock
otherwise issuable pursuant to Awards are withheld by the Company in
satisfaction of an exercise price or the withholding taxes incurred in
connection with any exercise or vesting of an Award, then the number of shares
of Common Stock available for issuance under the Plan will be reduced by the
gross number of shares for which the Award is exercised or for which it vests,
as applicable, and not by the net number of shares of Common Stock issued to the
holder of such Award.
3.4 ADJUSTMENT PROVISIONS.
(a) Adjustments. If the Company consummates any Reorganization in
which holders of shares of Common Stock are entitled to receive in respect of
such shares any additional shares or new or different shares or securities, cash
or other consideration (including, without limitation, a different number of
shares of Common Stock), or if the outstanding shares of Common Stock are
increased, decreased or exchanged for a different number or kind of shares or
other securities through merger, consolidation, sale or exchange of assets of
the Company, reorganization, recapitalization, reclassification, combination,
stock dividend, stock split, reverse stock split, spin-off, or similar
transaction then, subject to Section 8.1, an appropriate and proportionate
adjustment shall be made by the Administrator in its discretion in: (i) the
maximum number and kind of shares subject to this Plan as provided in Section
3.1; (ii) the number and kind of shares or other securities subject to then
outstanding Awards; (iii) the price for each share or other unit of any other
securities subject to, or measurement criteria applicable to, then outstanding
Awards; and/or (iv) the number and kind of shares or other securities to be
issued as Non-Employee Director Options.
(b) No Fractional Interests. No fractional interests will be
issued under the Plan resulting from any adjustments.
(c) Adjustments Related to Company Stock. To the extent any
adjustments relate to stock or securities of the Company, such adjustments will
be made by the Administrator, whose determination in that respect will be final,
binding and conclusive.
(d) Right to Make Adjustment. The grant of an Award will not
affect in any way the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure or to merge or to consolidate or to dissolve, liquidate or sell, or
transfer all or any part of its business or assets.
(e) Limitations. No adjustment to the terms of an Incentive Stock
Option may be made unless such adjustment either: (i) would not cause the Option
to lose its status as an Incentive Stock Option; or (ii) is agreed to in writing
by the Administrator and the Recipient.
3.5 RESERVATION OF SHARES.
The Company will at all times reserve and keep available shares of
Common Stock equaling at least the total number of shares of Common Stock
issuable pursuant to all outstanding Awards.
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ARTICLE IV
ADMINISTRATION OF PLAN
4.1 ADMINISTRATOR.
(a) Plan Administration. Subject to the provisions of Section
4.1(b), this Plan will be administered by the Board and may also be administered
by a Committee of the Board appointed pursuant to Section 4.1(b).
(b) Administration by Committee. The Board in its sole discretion
may from time to time appoint a Committee of not less than two (2) Board members
with authority to administer this Plan in whole or part and, subject to
applicable law, to exercise any or all of the powers, authority and discretion
of the Board under this Plan. As long as the Company has a class of equity
securities registered under Section 12 of the Exchange Act, this Plan will be
administered by a Committee of not less than two (2) Board members appointed by
the Board in its sole discretion from time to time, each of whom is (i) a
Non-Employee Director, and (ii) an "Outside Director" as defined in the
regulations adopted under Section 162(m) of the IRC. The Board may from time to
time increase or decrease (but not below two (2)) the number of members of the
Committee, remove from membership on the Committee all or any portion of its
members, and/or appoint such person or persons as it desires to fill any vacancy
existing on the Committee, whether caused by removal, resignation or otherwise.
Unless otherwise required by this Section 4.1(b), the Board may disband the
Committee at any time.
4.2 AUTHORITY OF ADMINISTRATOR.
(a) Authority to Interpret Plan. Subject to the express
provisions of this Plan, the Administrator will have the power to implement,
interpret and construe this Plan and any Awards and Award Documents or other
documents defining the rights and obligations of the Company and Recipients
hereunder and thereunder, to determine all questions arising hereunder and
thereunder, and to adopt and amend such rules and regulations for the
administration hereof and thereof as it may deem desirable. The interpretation
and construction by the Administrator of any provisions of this Plan or of any
Award or Award Document, and any action taken by, or inaction of, the
Administrator relating to this Plan or any Award or Award Document, will be
within the discretion of the Administrator and will be conclusive and binding
upon all persons. Subject only to compliance with the express provisions hereof,
the Administrator may act in its discretion in matters related to this Plan and
any and all Awards and Award Documents.
(b) Authority to Grant Awards. Subject to the express provisions
of this Plan, the Administrator may from time to time in its discretion select
the Eligible Persons to whom, and the time or times at which, Awards will be
granted or sold, the nature of each Award, the number of shares of Common Stock
or the number of rights that make up or underlie each Award, the exercise price
and period (if applicable) for the exercise of each Award, and such other terms
and conditions applicable to each individual Award as the Administrator may
determine. Any and all terms and conditions of Awards may be established by the
Administrator without regard to existing Awards or other grants and without
incurring any obligation of the Company in respect of subsequent Awards. The
Administrator may grant at any time new Awards to an Eligible Person who has
previously received Awards or other grants (including
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other stock options) regardless of the status of such other Awards or grants.
The Administrator may grant Awards singly or in combination or in tandem with
other Awards as it determines in its discretion.
(c) Procedures. Subject to the Company's charter or bylaws or any
Board resolution conferring authority on the Committee, any action of the
Administrator with respect to the administration of this Plan must be taken
pursuant to a majority vote of the authorized number of members of the
Administrator or by the unanimous written consent of its members; provided,
however, that (i) if the Administrator is the Committee and consists of two (2)
members, then actions of the Administrator must be unanimous, and (ii) actions
taken by the Board will be valid if approved in accordance with applicable law.
4.3 NO LIABILITY.
No member of the Board or the Committee or any designee thereof will be
liable for any action or inaction with respect to this Plan or any Award or any
transaction arising under this Plan or any Award except in circumstances
constituting bad faith of such member.
4.4 AMENDMENTS.
(a) Plan Amendments. The Administrator may at any time and from
time to time in its discretion, insofar as permitted by applicable law, rule or
regulation and subject to Section 4.4(c), suspend or discontinue this Plan or
revise or amend it in any respect whatsoever, and this Plan as so revised or
amended will govern all Awards, including those granted before such revision or
amendment. Without limiting the generality of the foregoing, the Administrator
is authorized to amend this Plan to comply with or take advantage of amendments
to applicable laws, rules or regulations, including the Securities Act, the
Exchange Act, the IRC, or the rules of any exchange or market system upon which
the Common Stock is listed or trades, or any rules or regulations promulgated
thereunder. No stockholder approval of any amendment or revision will be
required unless such approval is required by applicable law, rule or regulation.
(b) Award Amendments. The Administrator may at any time and from
time to time in its discretion, but subject to Section 4.4(c) and compliance
with applicable statutory or administrative requirements, accelerate or extend
the vesting or exercise period of any Award as a whole or in part, adjust or
reduce the purchase or exercise price of an Award either by cancellation of such
Award and the granting of a new Award at such modified purchase or exercise
price or by amending the terms of the Award to reflect such a modified purchase
or exercise price, and make such other modifications in the terms and conditions
of an Award as it deems advisable.
(c) Limitation. Except as otherwise provided in this Plan or in
the applicable Award Document, no amendment, revision, suspension or termination
of this Plan or an outstanding Award that would cause an Incentive Stock Option
to cease to qualify as such or that would alter, impair or diminish in any
material respect any rights or obligations under any Award theretofore granted
under this Plan may be effected without the written consent of the Recipient to
whom such Award was granted.
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4.5 OTHER COMPENSATION PLANS.
This Plan supersedes and replaces the Company's Amended and Restated
1996 Stock Incentive Plan and the Company's 1996 Non-Employee Directors Stock
Option Plan, but the adoption of this Plan will not affect any other stock
option, incentive or other compensation plans in effect from time to time for
the Company, and this Plan will not preclude the Company from establishing any
other forms of incentive or other compensation for employees, directors,
advisors or consultants of the Company, whether or not approved by stockholders.
Notwithstanding the fact that this Plan supersedes and replaces the Company's
Amended and Restated 1996 Stock Incentive Plan and the Company's 1996
Non-Employee Directors Stock Option Plan, this plan does not affect in any way,
any outstanding award grants made under such other plans prior to the Effective
Date.
4.6 PLAN BINDING ON SUCCESSORS.
This Plan will be binding upon the successors and assigns of the
Company.
4.7 REFERENCES TO SUCCESSOR STATUTES, REGULATIONS AND RULES.
Any reference in this Plan to a particular statute, regulation or rule
will also refer to any successor provision of such statute, regulation or rule.
4.8 INVALID PROVISIONS.
In the event that any provision of this Plan is found to be invalid or
otherwise unenforceable under any applicable law, such invalidity or
unenforceability is not to be construed as rendering any other provisions
contained herein invalid or unenforceable, and all such other provisions are to
be given full force and effect to the same extent as though the invalid and
unenforceable provision were not contained herein.
4.9 GOVERNING LAW.
This Plan will be governed by and interpreted in accordance with the
internal laws of the State of Delaware, without giving effect to the principles
of the conflicts of laws thereof.
4.10 INTERPRETATION.
Headings herein are for convenience of reference only, do not constitute
a part of this Plan, and will not affect the meaning or interpretation of this
Plan. References herein to Sections or Articles are references to the referenced
Section or Article hereof, unless otherwise specified.
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
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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
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
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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
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.
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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.
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
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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 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
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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 will an Award be
exercisable after the date such Award would expire in accordance with its terms
had the Recipient remained continuously employed.
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(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 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
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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.
(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
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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 expire in accordance with their terms
had the Recipient remained employed; and (2) 30 days after the date of
termination of employment or service.
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(B) death or Permanent Disability or Retirement,
the Recipient's unexercised Stock Options will, whether or not vested, expire
and become unexercisable as of the earlier of: (1) the date such Stock Options
would expire in accordance with their terms had the Recipient remained employed;
and (2) 180 days after the date of termination of employment or service.
(f) Special Provisions Regarding Incentive Stock Options.
Notwithstanding anything herein to the contrary,
(i) The exercise price and vesting period of any Stock
Option intended to be treated as an Incentive Stock Option must comply with the
provisions of Section 422 of the IRC and the regulations thereunder. As of the
Effective Date, such provisions require, among other matters, that: (A) the
exercise price must not be less than the Fair Market Value of the underlying
stock as of the date the Incentive Stock Option is granted, and not less than
110% of the Fair Market Value as of such date in the case of a grant to a
Significant Stockholder; and (B) that the Incentive Stock Option not be
exercisable after the expiration of ten (10) years from the date of grant or the
expiration of five (5) years from the date of grant in the case of an Incentive
Stock Option granted to a Significant Stockholder.
(ii) The aggregate Fair Market Value (determined as of the
respective date or dates of grant) of the Common Stock for which one or more
Stock Options granted to any Recipient under this Plan (or any other option plan
of the Company or any of its subsidiaries or affiliates) may for the first time
become exercisable as Incentive Stock Options under the federal tax laws during
any one calendar year may not exceed $100,000.
(iii) Any Stock Options granted as Incentive Stock Options
pursuant to this Plan that for any reason fail or cease to qualify as such will
be treated as Nonqualified Stock Options. If the limit described in Section
6.1(f)(ii) is exceeded, the earliest granted Stock Options will be treated as
Incentive Stock Options, up to such limit.
(g) Non-Employee Director Options. Article VII will govern
Non-Employee Director Options to the extent inconsistent with this Section 6.1.
6.2 PERFORMANCE AWARDS.
(a) Grant of Performance Award. The Administrator will determine
in its discretion the performance criteria (which need not be identical and may
be established on an individual or group basis) governing Performance Awards,
the terms thereof, and the form and time of payment of Performance Awards.
(b) Payment of Award. Upon satisfaction of the conditions
applicable to a Performance Award, payment will be made to the Recipient in
cash, in shares of Common Stock valued at Fair Market Value as of the date
payment is due, or in a combination of Common Stock and cash, as the
Administrator in its discretion may determine.
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6.3 RESTRICTED STOCK.
(a) Award of Restricted Stock. The Administrator will determine
the Purchase Price (if any), the terms of payment of the Purchase Price, the
restrictions upon the Restricted Stock, and when such restrictions will lapse.
(b) Requirements of Restricted Stock. All shares of Restricted
Stock granted or sold pursuant to this Plan will be subject to the following
conditions:
(i) No Transfer. The shares may not be sold, assigned,
transferred, pledged, hypothecated or otherwise disposed of, alienated or
encumbered until the restrictions are removed or expire;
(ii) Certificates. The Administrator may require that the
certificates representing Restricted Stock granted or sold to a Recipient remain
in the physical custody of an escrow holder or the Company until all
restrictions are removed or expire;
(iii) Restrictive Legends. Each certificate representing
Restricted Stock granted or sold to a Recipient pursuant to this Plan will bear
such legend or legends making reference to the restrictions imposed upon such
Restricted Stock as the Administrator in its discretion deems necessary or
appropriate to enforce such restrictions; and
(iv) Other Restrictions. The Administrator may impose such
other conditions on Restricted Stock as the Administrator may deem advisable,
including, without limitation, restrictions under the Securities Act, under the
Exchange Act, under the requirements of any stock exchange or interdealer
quotation system upon which such Restricted Stock or other securities of the
Company are then listed or traded and under any blue sky or other securities
laws applicable to such shares.
(c) Lapse of Restrictions. The restrictions imposed upon
Restricted Stock will lapse in accordance with such terms or other conditions as
are determined by the Administrator.
(d) Rights of Recipient. Subject to the provisions of Section
6.3(b) and any restrictions imposed upon the Restricted Stock, the Recipient
will have all rights of a stockholder with respect to the Restricted Stock
granted or sold to such Recipient under this Plan, including, without
limitation, the right to vote the shares and receive all dividends and other
distributions paid or made with respect thereto.
(e) Termination of Employment. Unless the Administrator in its
discretion determines otherwise, if a Recipient's employment or service with the
Company or any Affiliated Entity terminates for any reason, all of the
Recipient's Restricted Stock remaining subject to restrictions on the date of
such termination of employment or service will be repurchased by the Company at
the Purchase Price (if any) paid by the Recipient to the Company, without
interest or premium, and otherwise returned to the Company without
consideration.
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6.4 STOCK APPRECIATION RIGHTS.
(a) Granting of Stock Appreciation Rights. The Administrator may
at any time and from time to time approve the grant to Eligible Persons of Stock
Appreciation Rights, related or unrelated to Stock Options.
(b) SARs Related to Options.
(i) A Stock Appreciation Right related to a Stock Option
will entitle the holder of the related Stock Option, upon exercise of the Stock
Appreciation Right, to surrender such Stock Option, or any portion thereof to
the extent previously vested but unexercised, with respect to the number of
shares as to which such Stock Appreciation Right is exercised, and to receive
payment of an amount computed pursuant to Section 6.4(b)(iii). Such Stock Option
will, to the extent surrendered, then cease to be exercisable.
(ii) A Stock Appreciation Right related to a Stock Option
hereunder will be exercisable at such time or times, and only to the extent
that, the related Stock Option is exercisable, and will not be transferable
except to the extent that such related Stock Option may be transferable (and
under the same conditions), will expire no later than the expiration of the
related Stock Option, and may be exercised only when the market price of the
Common Stock subject to the related Stock Option exceeds the exercise price of
the Stock Option.
(iii) Upon the exercise of a Stock Appreciation Right
related to a Stock Option, the Recipient will be entitled to receive payment of
an amount determined by multiplying: (A) the difference obtained by subtracting
the exercise price of a share of Common Stock specified in the related Stock
Option from the Fair Market Value of a share of Common Stock on the date of
exercise of such Stock Appreciation Right (or as of such other date or as of the
occurrence of such event as may have been specified in the instrument evidencing
the grant of the Stock Appreciation Right), by (B) the number of shares as to
which such Stock Appreciation Right is exercised.
(c) SARs Unrelated to Options. The Administrator may grant Stock
Appreciation Rights unrelated to Stock Options. Section 6.4(b)(iii) will govern
the amount payable at exercise under such Stock Appreciation Right, except that
in lieu of an option exercise price the initial base amount specified in the
Award shall be used.
(d) Limits. Notwithstanding the foregoing, the Administrator, in
its discretion, may place a dollar limitation on the maximum amount that will be
payable upon the exercise of a Stock Appreciation Right.
(e) Payments. Payment of the amount determined under the
foregoing provisions may be made solely in whole shares of Common Stock valued
at their Fair Market Value on the date of exercise of the Stock Appreciation
Right or, alternatively, at the discretion of the Administrator, in cash or in a
combination of cash and shares of Common Stock as the Administrator deems
advisable. The Administrator has full discretion to determine the form in which
payment of a Stock Appreciation Right will be made and to consent to or
disapprove the election of a Recipient to receive cash in full or partial
settlement of a Stock Appreciation Right.
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If the Administrator decides to make full payment in shares of Common Stock, and
the amount payable results in a fractional share, payment for the fractional
share will be made in cash.
6.5 STOCK PAYMENTS.
The Administrator may approve Stock Payments to any Eligible Person on
such terms and conditions as the Administrator may determine. Stock Payments
will replace cash compensation at the Fair Market Value of the Common Stock on
the date payment is due.
6.6 DIVIDEND EQUIVALENTS.
The Administrator may grant Dividend Equivalents to any Recipient who
has received a Stock Option, SAR or other Award denominated in shares of Common
Stock. Dividend Equivalents may be paid in cash, Common Stock or other Awards;
the amount of Dividend Equivalents paid other than in cash will be determined by
the Administrator by application of such formula as the Administrator may deem
appropriate to translate the cash value of dividends paid to the alternative
form of payment of the Dividend Equivalent. Dividend Equivalents will be
computed as of each dividend record date and will be payable to recipients
thereof at such time as the Administrator may determine. However, if it is
intended that an Award qualify as Performance-Based Compensation, and the amount
of compensation the Eligible Person could receive under the Award is based
solely on an increase in value of the underlying stock after the date of the
grant or Award, then the payment of any Dividend Equivalents related to the
Award shall not be made contingent on the exercise of the Award.
6.7 STOCK BONUSES.
The Administrator may issue Stock Bonuses to Eligible Persons on such
terms and conditions as the Administrator may determine.
6.8 STOCK SALES.
The Administrator may sell to Eligible Persons shares of Common Stock on
such terms and conditions as the Administrator may determine.
6.9 PHANTOM STOCK.
The Administrator may grant Awards of Phantom Stock to Eligible Persons.
Phantom Stock is a cash payment measured by the Fair Market Value of a specified
number of shares of Common Stock on a specified date, or measured by the excess
of such Fair Market Value over a specified minimum, which may but need not
include a Dividend Equivalent.
6.10 OTHER STOCK-BASED BENEFITS.
The Administrator is authorized to grant Other Stock-Based Benefits.
Other Stock-Based Benefits are any arrangements granted under this Plan not
otherwise described above that: (a) by their terms might involve the issuance or
sale of Common Stock or other securities of the Company; or (b) involve a
benefit that is measured, as a whole or in part, by the value,
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appreciation, dividend yield or other features attributable to a specified
number of shares of Common Stock or other securities of the Company.
ARTICLE VII
NON-EMPLOYEE DIRECTOR OPTIONS
7.1 INITIAL GRANT OF STOCK OPTIONS
Each Non-Employee Director shall, upon first becoming a Non-Employee
Director, receive a one-time grant of an option to purchase up to 10,000 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 5,000 shares of the Company's Common Stock (an
"ADDITIONAL OPTION"). In addition to the Additional Options described above, an
individual who was previously a Non-Employee Director and received an initial
grant of stock options under this Plan or pursuant to a prior option plan for
the Company's directors, who then ceased to be a director for any reason, and
who then again becomes a Non-Employee Director, shall upon again becoming a
Non-Employee Director automatically receive an Additional Option. The exercise
price per share for all Additional Options shall be equal to the Fair Market
Value of the Company's Common Stock on the date of grant, subject to: (a)
vesting as set forth in Section 7.3, and (b) adjustment as set forth in this
Plan.
7.3 VESTING.
Initial Options shall vest and become exercisable (a) 50% upon the
earlier of (i) the first anniversary of the grant date or (ii) immediately prior
to the first annual meeting of stockholders of the Company following the grant
date, if the Recipient has remained a Non-Employee Director for the entire
period from the date of grant to such earlier date; and (b) 50% upon the earlier
of (i) the second anniversary of the grant date or (ii) immediately prior to the
second annual meeting of stockholders of the Company following the date of grant
to such earlier date. Additional Options shall vest and become exercisable with
respect to all underlying shares upon the earlier of (y) the first anniversary
of the grant date or (z) immediately prior to the annual meeting of stockholders
of the Company next following the grant date, if the Recipient has remained a
Non-Employee Director for the entire period from the date of grant to such
earlier date. Notwithstanding the foregoing, however, Initial Options and
Additional Options that have not vested and become exercisable at the time the
Recipient ceases to be a director shall terminate.
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7.4 EXERCISE.
Non-Employee Director Options will be exercisable, and the exercise
price therefor shall be paid, in the same manner as provided herein for other
Stock Options.
7.5 TERM OF OPTIONS AND EFFECT OF TERMINATION.
Notwithstanding any other provision of the Plan, no Non-Employee
Director Option granted under the Plan shall be exercisable after the expiration
of ten years from the effective date of its grant. In the event that the
recipient of any Non-Employee Director Options granted under the Plan shall
cease to be a director of the Company, (a) all Initial Options granted under
this plan to such recipient shall be exercisable, to the extent already
exercisable at the date such recipient ceases to be a director and regardless of
the reason the recipient ceases to be a director, for a period of 365 days after
that date (or, if sooner, until the expiration of the option according to its
terms), and shall then terminate; and (b) all Additional Options granted under
this Plan to such recipient shall be exercisable, to the extent already
exercisable at the date such recipient ceases to be a director, for a period of
365 days after that date (or, if sooner, until the expiration of the option
according to its terms) if he or she ceases to be a director because of death or
permanent disability, or for a period of 90 days after that date (or, if sooner,
until the expiration of the option according to its terms) if he or she ceases
to be a director for any other reason, and shall then terminate. In the event of
the death of a Recipient while such Recipient is a director of the Company or
within the period after termination of such status during which he or she is
permitted to exercise an option, such option may be exercised by any person or
persons designated by the Recipient on a beneficiary designation form adopted by
the Plan administrator for such purpose or, if there is no effective beneficiary
designation form on file with the Company, by the executors or administrators of
the Recipient's estate or by any person or persons who shall have acquired the
option directly from the Recipient by his or her will or the applicable laws of
descent and distribution.
7.6 AMENDMENT; SUSPENSION.
The Administrator may at any time and from time to time in its
discretion (a) change the number of shares or vesting periods associated with
the Non-Employee Director Options, and (b) suspend and reactivate this Article
VII.
ARTICLE VIII
CHANGE IN CONTROL
8.1 PROVISION FOR AWARDS UPON CHANGE IN CONTROL.
As of the effective time and date of any Change in Control, this Plan
and any then outstanding Awards (whether or not vested) will automatically
terminate unless: (a) provision is made in writing in connection with such
transaction for the continuance of this Plan and for the assumption of such
Awards, or for the substitution for such Awards of new awards covering the
securities of a successor entity or an affiliate thereof, with appropriate
adjustments as to the number and kind of securities and exercise prices or other
measurement criteria, in which event this Plan and such outstanding Awards will
continue or be replaced, as the case may be, in the manner and under the terms
so provided; or (b) the Board otherwise provides in writing for such
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adjustments as it deems appropriate in the terms and conditions of the
then-outstanding Awards (whether or not vested), including, without limitation,
(i) accelerating the vesting of outstanding Awards, and/or (ii) providing for
the cancellation of Awards and their automatic conversion into the right to
receive the securities, cash or other consideration that a holder of the shares
underlying such Awards would have been entitled to receive upon consummation of
such Change in Control had such shares been issued and outstanding immediately
prior to the effective date and time of the Change in Control (net of the
appropriate option exercise prices). If, pursuant to the foregoing provisions of
this Section 8.1, this Plan and the Awards terminate by reason of the occurrence
of a Change in Control without provision for any of the action(s) described in
clause (a) or (b) hereof, then subject to Sections 5.12 and 5.15, any Recipient
holding outstanding Awards will have the right, at such time prior to the
consummation of the Change in Control as the Board designates, to exercise or
receive the full benefit of the Recipient's Awards to the full extent not
theretofore exercised, including any installments which have not yet become
vested.
8.2 TERMINATION OF EMPLOYMENT IN CONNECTION WITH A CHANGE IN CONTROL.
(a) Acceleration of Awards. If a Change in Control occurs and
provision for Awards is made as described in part (a) or (b) of Section 8.1 such
that a Recipient continues to own Awards or replacement awards, but in
connection with such Change in Control the Recipient's employment with the
Company or an Affiliated Entity is terminated by the Company or an Affiliated
Entity as described in Section 8.2(b), then, subject to Sections 5.12 and 5.15
and the terms of any written employment agreement between the Company or any
Affiliated Entity and the Recipient and the specific terms of any Award, such
Recipient will have the right to exercise or receive the full benefit of the
Recipient's Awards during the applicable time period provided in Section 5.12,
without regard to any vesting or performance requirements or other milestones.
(b) Employment Termination. For purposes of this Section, and
subject to any separate written agreement binding upon the Company, a
Recipient's employment with the Company or any Affiliated Entity will be deemed
to have been terminated in connection with a Change in Control if: (i) the
Recipient is removed from the Recipient's employment by, or resigns the
Recipient's employment upon the request of, a Person exercising practical voting
control over the Company following the Change in Control or a person acting upon
authority or at the instruction of such Person; or (ii) the Recipient's position
is eliminated as a result of a reduction in force made to reduce over-capacity
or unnecessary duplication of personnel within 180 days after the consummation
of the Change in Control and the Recipient is not offered a replacement position
with compensation substantially similar to the compensation in effect
immediately before the Change in Control. Unless otherwise provided in a written
agreement with the Company or any Affiliated Entity, assignment of a Recipient
to different duties or reporting will not be deemed to constitute or justify
termination of Recipient's employment in connection with the Change in Control.
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ARTICLE IX
DEFINITIONS
Capitalized terms used in this Plan and not otherwise defined have the
meanings set forth below:
"ADDITIONAL OPTION" means a right to purchase stock of the Company
granted under Section 7.2 of the Plan.
"ADMINISTRATOR" means the Board as long as no Committee has been
appointed and is in effect and also means the Committee to the extent that the
Board has delegated authority thereto.
"AFFILIATED ENTITY" means any Parent Corporation of the Company or
Subsidiary Corporation of the Company or any other entity controlling,
controlled by, or under common control with the Company.
"APPLICABLE DIVIDEND PERIOD" means (i) the period between the date a
Dividend Equivalent is granted and the date the related Stock Option, SAR, or
other Award is exercised, terminates, or is converted to Common Stock, or (ii)
such other time as the Administrator may specify in the written instrument
evidencing the grant of the Dividend Equivalent.
"AWARD" means any Stock Option, Performance Award, Restricted Stock,
Stock Appreciation Right, Stock Payment, Stock Bonus, Stock Sale, Phantom Stock,
Dividend Equivalent, or Other Stock-Based Benefit granted or sold to an Eligible
Person under this Plan, or any similar award granted by the Company prior to the
Effective Date and outstanding as of the Effective Date that is governed by this
Plan.
"AWARD DOCUMENT" means the agreement or confirming memorandum setting
forth the terms and conditions of an Award.
"BOARD" means the Board of Directors of the Company.
"CHANGE IN CONTROL" means the following and shall be deemed to occur if
any of the following events occurs:
(i) Any Person becomes the beneficial owner (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of fifty percent (50%)
or more of either the then outstanding shares of Common Stock or the
combined voting power of the Company's then outstanding securities
entitled to vote generally in the election of directors; or
(ii) Individuals who, as of the effective date hereof, constitute
the Board (the "INCUMBENT BOARD") cease for any reason to constitute at
least a majority of the Board, provided, however, that any individual
who becomes a director after the effective date hereof whose election,
or nomination for election by the Company's stockholders, is approved by
a vote of at least a 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
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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.
"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.
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"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.
"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
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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 of a preestablished, objective
performance goal. For this purpose, a preestablished, 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
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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.
"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.
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"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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APPENDIX C
AUDIT COMMITTEE CHARTER
OF
DIEDRICH COFFEE, INC.
1. Members. The Board of Directors shall appoint an Audit Committee of
at least three members, consisting entirely of "independent" directors of the
Board, and shall designate one member as chairperson. For purposes hereof,
"independent" shall mean a director who meets the definition of "independence"
found under the NASD rules.
Each member of the Company's audit committee must be financially
literate and at least one member of the audit committee, at all times, shall
have accounting or related financial management expertise, both as provided in
the NASD rules.
Under exceptional circumstances and limited to only one director,
the Board can "override" the "independence" requirement for serving on the Audit
Committee if the non-independent director is neither a current employee of the
Company nor an immediate family member of such employee. The Board may exercise
this "override" if it determines that the non-independent director's membership
on the Audit Committee is required by the best interests of the Company and its
shareholders, and the Board discloses, in its next annual proxy statement
subsequent to such determination, the nature of such director's relationship and
the reasons for such determination.
2. Purposes, Duties, and Responsibilities. The Audit Committee shall
represent the Board of Directors in discharging its responsibilities relating to
the accounting, reporting, and financial practices of the Company and its
subsidiaries, and shall have general responsibility for surveillance of internal
controls and accounting and audit activities of the Company and its
subsidiaries. Specifically, the Audit Committee shall:
(i) Evaluate, help select and, when appropriate, replace the firm
of independent certified public accountants that serves as
auditor of the Company, which firm shall be ultimately
accountable to the Board of Directors through the Audit
Committee.
(ii) Review with the independent auditor its audit procedures,
including the scope, fees and timing of the audit and the results
of the annual audit examination and any accompanying management
letters, to ensure the independent auditor's objectivity and
independence.
(iii) Review and discuss with the independent auditor the written
statement from the auditor, required by Independence Standards
Board Standard No. 1, detailing any relationships between the
auditor (and its related entities) and the Company or any other
relationships that may adversely affect the independence of the
auditor and, based on such review, assess the independence of the
auditor.
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(iv) Review and discuss with management and the independent
auditor the Company's annual audited financial statements,
including a discussion of management's judgments and processes
used to arrive at accounting estimates and the auditor's judgment
as to the quality of the Company's accounting principles.
(v) Review with management and the independent auditor the
results of any significant matters identified as a result of the
independent auditor's interim review procedures prior to the
filing of each Form 10-Q or as soon thereafter as possible. The
Audit Committee Chair may perform this responsibility on behalf
of the Audit Committee.
(vi) Review the adequacy of the Company's internal controls.
(vii) Review significant changes in the accounting policies of
the Company and accounting and financial reporting rule changes
that may have a significant impact on the Company's financial
reports.
(viii) Review and discuss with the independent auditor any
difficulties or disagreements with management, during the course
of the audit, about matters that individually, or in the
aggregate, could be significant to the financial statements or
the auditor's report, whether or not these disagreements were
resolved satisfactorily.
(ix) Review material pending legal proceedings involving the
Company and other contingent liabilities.
(x) Review the adequacy of the Audit Committee Charter on an
annual basis, and recommend changes if the Committee determines
changes are appropriate.
3. Meetings. The Audit Committee shall meet as often as may be deemed
necessary or appropriate in its judgment, generally four times each year, either
in person or via telephone. The Audit Committee shall meet in executive session
with the independent auditors and the Company's internal auditor at least
annually. The Audit Committee shall report to the full Board of Directors with
respect to its meetings and shall make such reports to shareholders as are
required by applicable regulations or as are deemed advisable in the Committee's
judgment. The majority of the members of the Audit Committee shall constitute a
quorum.
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<PAGE> 69
DIEDRICH COFFEE, INC.
PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 29, 2000
Solicited on Behalf of the Board of Directors
The undersigned hereby appoints J. Michael Jenkins and Matthew C.
McGuinness, and each of them individually, as proxies, each with power of
substitution, to vote and otherwise represent all of the shares of common stock
of Diedrich Coffee, Inc., held of record by the undersigned, at the annual
meeting of stockholders of Diedrich Coffee to be held on Wednesday, November 29,
2000 at 10:00 a.m. local time, and any adjournment(s) thereof, as indicated on
the reverse side hereof.
The undersigned acknowledges receipt of the Notice of Annual Meeting and
Proxy Statement, dated in each case October 26, 2000. All other proxies
heretofore given by the undersigned to vote shares of Diedrich Coffee's common
stock are expressly revoked.
The shares represented by this proxy will be voted as described on the
reverse hereof by the stockholder. If not otherwise directed, this proxy will be
voted FOR the election as directors of all nominees nominated in Item 1 for
which the stockholder is entitled to vote and FOR the proposals in Items 2, 3, 4
and 5.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE FOLLOWING PROPOSALS:
<TABLE>
<S> <C> <C>
1. ELECTION OF FIVE (5) MEMBERS TO THE [ ] FOR all nominees listed [ ] WITHHOLD AUTHORITY to vote for
BOARD OF DIRECTORS OF DIEDRICH below for whom stockholder is all nominees listed below for
COFFEE: entitled to vote+ whom stockholder is entitled to
vote
</TABLE>
NOMINEES: John E. Martin Lawrence Goelman Martin R. Diedrich
Paul C. Heeschen Peter Churm
+ INSTRUCTIONS. To withhold authority to vote for any individual nominee, also
mark the "Exceptions" box and write that nominee's name in the space provided
below.
Exceptions
(Continued, and to be signed and dated on the reverse side.)
<PAGE> 70
2. APPROVAL OF STOCK OPTION PLAN AND AGREEMENT WITH J. MICHAEL JENKINS, GRANTING
MR. JENKINS OPTIONS TO PURCHASE UP TO 500,000 SHARES OF DIEDRICH COFFEE
COMMON STOCK:
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. APPROVAL OF 2000 EQUITY INCENTIVE PLAN AND RESERVATION OF 750,000 SHARES OF
DIEDRICH COFFEE COMMON STOCK FOR ISSUANCE UNDER THE PLAN:
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. RATIFICATION OF THE SELECTION OF KPMG LLP AS DIEDRICH COFFEE'S INDEPENDENT
AUDITORS FOR THE FISCAL YEAR ENDING JUNE 27, 2001:
FOR [ ] AGAINST [ ] ABSTAIN [ ]
5. AT THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO CONSIDER AND VOTE UPON
SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY
ADJOURNMENT THEREOF.
I plan to attend the
annual meeting [ ]
Change of address or
comments mark here [ ]
Please sign exactly as
your name appears hereon.
When signing in a
representative capacity,
please give full title.
Date: , 2000
Signature
Sign, Date and Return the Proxy Card Promptly Using the Enclosed Envelope. Votes
MUST be indicated (x) in BLACK or BLUE ink.
